<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1999 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3573412
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5980 TOUHY AVE., NILES, ILLINOIS 60714
--------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code:
(847)647-2300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes/X/ No/ /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of voting stock held by stockholders who were not
affiliates of the registrant was approximately $421,878,000 - as of March 21,
2000 (based on the closing sale price on that date as reported by Midwest
Edition of THE WALL STREET JOURNAL). For this computation, the registrant has
excluded the market value of all shares of its common stock reported as
beneficially owned by executive officers and directors of the registrant and
certain other stockholders; such exclusion shall not be deemed to constitute
an admission that any such person is an "affiliate" of the registrant. At
March 21, 2000, the registrant had issued and outstanding an aggregate of
48,954,836 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Those sections or portions of the proxy statement for the Annual Meeting of
Shareholders to be held in June, 2000 described in Part III hereof are
incorporated by reference in this report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
HA-LO is a full service, innovative brand marketing organization
whose diverse marketing disciplines are centered around its client's brand.
Brand marketing builds the value of the brand by connecting it with target
audiences to achieve strategic marketing objectives. The Company is organized
into two segments: promotional products and marketing services.
HA-LO's promotional products group is the leading player in the
fragmented promotional products industry with over 3% of market share.
Promotional products allow a company to 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.
HA-LO's marketing services segment provides full-service brand
marketing capabilities focusing on connecting the brand with the consumer at
strategic points of contact. HA-LO offers complete brand marketing services
such as brand strategy and identity, advertising, promotion, merchandising,
direct marketing, retail planning, event marketing, field marketing, sports
marketing and teleservices.
INDUSTRY
PROMOTIONAL PRODUCTS. According to Promotional Products Association
International, the United States market for promotional products, measured by
distributors' sales, has grown from approximately $5.2 billion in 1992 to
approximately $13.2 billion in 1998, a compound annual growth rate of over
14%. The promotional products industry is highly fragmented and according to
industry sources, is undergoing consolidation. There currently are more than
19,000 distributors of promotional products in the United States.
Distributors tend to be closely-held entities with a local or regional focus
ranging from one-person, one-product businesses who bring sample cases and
suppliers' catalogs to their customers, to entities similar to HA-LO, which
maintain showrooms to assist customers in selecting from an array of
available products.
The largest 440 distributors control a market share of about 46%.
These distributors experienced a growth rate of 18.7% in 1998, while
distributors with sales of less than $2.5 million grew at rates under 6%.
Currently, the Company has greater than a 3% share of the promotional
products market. Many of the larger distributors are also manufacturers (or
affiliates of manufacturers) of products traditionally used in the
promotional products industry.
The Company believes that many companies increasingly are
patronizing a limited number of promotional products suppliers and are
focusing on sole-source, full-service distributors. The criteria for
selecting a distributor include such factors as cost, quality and
responsiveness, as well as whether a distributor has full-service
capabilities, such as design and customization services and the ability to
develop marketing programs. Many of the Company's customers are requiring
their suppliers to reduce marketing costs and provide increasing support for
upfront design and marketing program management services. Generally,
distributors with sufficient size, capabilities and financial resources to
meet such demands can best satisfy these requirements. These changes are
providing an opportunity for full-service providers of promotional products,
such as the Company, to grow by acquiring new customers previously served by
smaller competitors. Additionally, the rapid growth of the internet is
providing companies an opportunity to generate additional sales through
various on-line marketing approaches and also to streamline the ordering
process and better serve the customer.
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MARKETING SERVICES. The promotion marketing component focuses on
developing strategies and implementing creative marketing plans to directly
connect brands with people. Marketing solutions may include consumer and
retail promotions, event sponsorships, direct marketing, merchandising and
promotional products.
The brand strategy and identity component focuses on the design of
impactful, motivating product package design solutions. Package design
includes new brand creation, revitalizing or repositioning existing brands,
and the development of branding systems and the creation of corporate
identity programs.
The direct and database marketing component focuses on developing
one-to-one relationships between brands for consumers in both the online and
offline environment by utilizing advanced technologies to provide data mining
and modeling services, as well as unique one-to-one direct marketing
capabilities with a focus on emerging web techniques.
The teleservices industry is highly fragmented and competitive, and
includes both captive and independent companies. Although the industry is
comprised of in-house operations, many large companies increasingly are
focusing on their core competencies and outsourcing their non-core functions.
The advantages of teleservices, which include effective brand awareness, high
response rates, low cost per transaction, direct interaction with customers
and the ability to immediately respond to customer inquires, make it an
attractive alternate to other forms of direct marketing.
PRODUCTS AND SERVICES
PROMOTIONAL PRODUCTS. Approximately 76% of the Company's revenue is
generated from distribution of promotional products. Promotional products
generally are articles of merchandise imprinted or otherwise customized with
an advertiser's name, logo or message, which are used for marketing to,
providing sales incentives and awards for and developing goodwill among a
targeted audience. Promotional products include (i) apparel, such as jackets,
sweaters, hats and golf shirts, (ii) business accessories, such as clocks,
portfolios, briefcases, blotters and pen and pencil sets, (iii) recognition
awards, such as trophies and plaques and (iv) other miscellaneous items, such
as etched crystalware, calendars, golf accessories, key chains, watches and
mugs. The Company has a network of showrooms throughout the United States,
Canada and Europe in which it displays more than 300,000 promotional products
available from the Company's network of over 2,500 vendors. The Company's
sales representatives work with each customer to develop a marketing program
that utilizes promotional products designed to reach the specific audience
targeted by the customer. The Company also provides corporate fulfillment
services, which enable a customer to purchase a large quantity of promotional
products that the Company then stores in its warehouses and ships from
time-to-time in small quantities at the direction of the customer. Corporate
fulfillment programs generally are implemented in conjunction with a customer
catalog or brochure featuring the type of customized products available for
shipment. The Company's corporate fulfillment programs afford large customers
lower per unit costs and the ability to receive timely deliveries of small
quantities as needed. The Company currently is providing corporate
fulfillment services for a number of customers, including AlliedSignal, Ford
Motor Company, General Electric, Guinness Import Company, IBM, Siemens,
Security Link from Ameritech, Sports Illustrated, Swissotel and U.S. Cellular.
MARKETING SERVICES. The Company's ability to operate as a brand
marketing organization differentiates it from the more than 19,000 other
companies in the promotional product industry. The Company's marketing
services are composed of:
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UPSHOT, a marketing agency: UPSHOT connects the brand with the consumer
at strategic points of contact through brand marketing services that
include strategic brand planning, advertising, merchandising, promotion,
retail planning, event planning, field marketing and creative planning.
UPSHOT Direct, a direct marketing agency: UPSHOT Direct is a direct
and database marketing agency that utilizes advanced technologies to
provide data mining and modeling services, as well as unique one-to-one
relationships among companies, brands and consumers with a focus on
emerging web techniques. UPSHOT Direct is a charter member of
Hewlett-Packard's e-Intelligence Partnership Program which will enhance
UPSHOT Direct's ability to provide marketing solutions that merge
offline and online marketing efforts, quickly analyze enormous sums of
consumer data, develop return on investment tracking for all
expenditures, send automated e-mails and build highly personalized web
sites.
LAGA, a brand strategy and identity agency: LAGA connects a brand with
a target audience, by creating, revitalizing, or leveraging a brand
through brand identity programs, package design, structural design,
integrated communications, corporate identity, interactive
communications, market research and nomenclature development.
HA-LO Sports, a presence marketing agency: HA-LO Sports connects the
brand with the target audience through sports sponsorships and
licensing.
Events by HA-LO, a presence marketing agency: Events by HA-LO connects
the brand with the target audience by planning and coordinating
corporate meetings, events and sales incentive programs.
Market USA, a teleservices company: Market USA connects the brand with
the target audience by creating, managing and conducting outbound and
inbound telemarketing programs for large corporate clients, primarily
in the insurance and financial service industries. Market USA provides
script development, telephone-based direct sales, database analysis
and management, consultation and program design, as well as customer
lead acquisition services, to its clients.
BUSINESS STRATEGIES
PENETRATE CLIENT BASE THROUGH MULTI-DISCIPLINE APPROACH. By offering
its customers a comprehensive array of promotional products and marketing
services, the Company has positioned itself to benefit from the corporate
trends toward utilizing a limited number of preferred vendors and outsourcing
marketing functions. In addition to its core promotional product offerings,
the Company also offers brand marketing services.
LEVERAGE EXPENSE STRUCTURE. The Company's organizational structure
leverages fixed overhead costs across its operating divisions by centralizing
primary corporate functions such as accounting, human resources and
information systems. Additionally, the Company leverages costs in the
promotional product business by: (i) centralizing warehousing and information
systems, (ii) compensating its sales force almost exclusively on a commission
basis and (iii) minimizing inventory carrying costs by handling a substantial
majority of its sales via direct shipment from the vendor to the customer.
The Company believes that the high proportion of its variable expenses
relative to its fixed costs results in less fluctuation in its profitability.
E-COMMERCE SOLUTIONS. The Company is developing strategies to take
advantage of recent trends for businesses and consumers to conduct business
through the Internet. On-line solutions are a natural extension of the
promotional product and brand marketing services, enabling powerful
one-to-one relationships among companies, brands and consumers. In addition
to expanding service offerings to meet
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client demand for speed, convenience and innovation, Internet solutions have
the potential to provide significant cost advantages by streamlining the
chain of supply.
EXPAND PROMOTIONAL PRODUCT LINE AND LEVERAGE BUYING POWER. The
Company seeks to offer its customers a wide range of high-quality promotional
products. Currently, the Company has access to over 300,000 types of
promotional products from more than 2,500 vendors located primarily
throughout North America and the Far East, including premium name brand
merchandise typically available only through leading department and specialty
stores. The Company's broad product line provides its customers with
comprehensive, one-stop shopping for most of their promotional products and
advertising specialty needs. As the nation's largest distributor of
promotional products, the Company has successfully negotiated preferred
pricing and rebate programs from many of its vendors and has developed
relationships with reliable overseas manufacturers that satisfy the Company's
strict quality and delivery standards. The Company believes its sales volume
and financial strength have earned it a reputation as a low-cost,
high-service provider of promotional products.
PURCHASING
In its promotional products business the Company purchases products
directly from manufacturers and typically arranges to have the customer's
name, logo or advertising message imprinted on the products by the
manufacturer or another third party. A majority of all promotional products
sold by the Company are shipped directly by the manufacturer or third party
supplier to its customers. The remaining products are warehoused by the
Company in conjunction with its corporate fulfillment programs.
As the nation's largest distributor of promotional products, the
Company has been able to successfully negotiate preferred pricing and rebate
programs from many vendors. The Company has developed relationships with U.S.
and overseas manufacturers that meet the Company's strict quality and
delivery standards and enable the Company to be very competitive on pricing
large orders. The Company generally is required to order products further in
advance from foreign manufacturers than from its domestic suppliers. The
Company is not dependent upon any single manufacturer.
PERSONNEL
The Company believes a key component of its success is the quality
of its employees including sales representatives and it is continually
refining its approach to hiring, training and motivating qualified employees
and personnel. The Company believes that it will retain and attract high
quality employees through a combination of its performance-based compensation
structure, financing capabilities, corporate visibility and the ability to
provide a full range of marketing services to its clients.
The Company employs approximately 1,600 people in its promotional
products business and approximately 3,300 people in marketing services of
which 2,900 are employed in teleservices. The Company is not a party to any
collective bargaining agreements and has not experienced a strike or work
stoppage. The Company believes that its relationship with its employees is
excellent.
CUSTOMERS
The Company's extensive client roster includes manufacturing,
pharmaceutical, financial service, broadcasting, consumer product and
communications companies as well as professional sports teams. Selected
customers of the Company include Abbott Laboratories, The Coca-Cola
Company, Discover Financial Services, Ford Motor Company, General
Electric, Glaxo Wellcome, Mirage
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Resorts, Procter & Gamble, J.E. Seagram & Sons and SBC Communications. For
the year ended December 31, 1999, no single customer accounted for more than
10% of the Company's net sales.
BACKLOG
With respect to its promotional products business, the Company
usually has a modest backlog, which it defines as firm orders placed with
suppliers but for which the promotional products have not yet been shipped to
the customer. As of February 29, 2000, the Company had a backlog of firm
orders of approximately $52,685,000 as compared to a backlog of $46,085,000
at February 28, 1999, substantially all of which the Company believes will be
shipped by the second quarter of 1999.
PATENTS AND TRADEMARKS
The Company believes the "HA-LO" name is important to its business.
The Company has registered the following trademarks: "HA-LO"-Registration
Mark- "HA-LO Advertising Specialties"-Registration Mark-, "HA-LO Marketing
and Promotions"-Registration Mark-, "Events by HA-LO"-Registration Mark- and
"HA-LO Sports"-Registration Mark-.
COMPETITION
The promotional products industry is highly fragmented and
competitive and the cost of entry is low. The Company's existing competitors
and new companies that may enter the market may have substantially greater
financial and other resources than HA-LO. The Company also competes for
advertising dollars with other media, such as television, radio, newspapers,
magazines and billboards. The primary bases for competition are customer
service, creativity, customer relationships, product innovation and pricing.
The Company believes its national and international distribution
capabilities, and its complementary, value-added marketing services, provide
it with a competitive advantage; however, these capabilities also may result
in higher administrative costs than those incurred by certain of HA-LO's
smaller competitors. In addition, several of the Company's competitors are
manufacturers as well as distributors and may enjoy an advantage over the
Company with respect to the cost of the goods they manufacture.
The marketing services disciplines that the Company operates in are
highly fragmented and competitive, and some of the Company's competitors have
substantially greater financial and other resources than the Company. These
divisions also compete for advertising dollars with other media, such as
television, radio, newspapers, magazines and billboards. The primary bases
for competition are customer service, creativity, customer relationships,
product innovation, technological expertise and pricing.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
John R. Kelley, Jr. 38 Director, President and Chief Executive Officer
Lou Weisbach 51 Chairman of the Board of Directors
Linden D. Nelson 39 Vice Chairman of the Board of Directors
Gregory J. Kilrea 36 Chief Financial Officer
Michael Linderman 51 President - Promotional Products Group
Barbara G. Berman 55 Vice President - Retail Accounts and Secretary
Peter Blythe 38 Vice President - Marketing
Sabina Filipovic 39 Vice President - Administration and
Assistant Secretary
Barry T. Margolin 33 Vice President - Finance and Planning,
Corporate Controller and Assistant Secretary
Jon Sloan 39 Vice President - National Accounts
</TABLE>
Officers are elected annually and serve at the discretion of the
Board of Directors.
Mr. Kelley was appointed President and Chief Executive Officer of
the Company in November, 1999. He previously served as Chief Marketing
Officer of HA-LO and President of UPSHOT, which was acquired by HA-LO in
1998. Mr. Kelley co-founded UPSHOT in 1994.
Mr. Weisbach has served as Chairman of the Board of the Company
since its incorporation in January, 1988. He has served as President and
Chief Executive Officer of the Company from January 1988 through November,
1999. From 1972 through 1987, he operated the predecessor Company as
a sole proprietorship.
Mr. Nelson has served as the Vice Chairman of HA-LO since the
acquisition of CCA by HA-LO in January, 1997. Mr. Nelson was the
Chairman and Chief Executive Officer of Creative Concepts in
Advertising from its inception in July, 1979 through December, 1996.
Mr. Kilrea was appointed Chief Financial Officer in July of 1996.
Additionally, he was the Vice President of Planning from April, 1996 through
July, 1996. From 1985 until joining the Company in 1996, he was employed by
the accounting firm of Arthur Andersen LLP, most recently as an audit and
financial consulting manager.
Mr. Linderman was appointed President - Promotional Products Group
in August 1999. He served as the Executive Vice President - Promotional
Products from September 1998 through August 1999. From August 1997 through
September 1998 he served as Executive Vice President of Norwood Promotional
Products, Inc. From December 1990 through August 1997, he was President of
Key Industries, Inc. a promotional products supplier which was acquired by
Norwood in 1994.
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Ms. Berman was appointed Vice President - Retail Accounts in
March of 1996 and has been Secretary of the Company since August, 1992. She
was also the Vice President of Administration from August 1992 to March of
1996.
Mr. Blythe was appointed as an officer in July of 1998. He has been
serving as the Vice President - Marketing since April of 1997. From March
1993 through February 1997 he was Vice President and Account Executive for
NatWest Markets, the corporate and investment banking arm of National
Westminster Bank plc. where he was responsible for managing client
relationships and developing new accounts.
Ms. Filipovic was appointed Vice President - Administration in March
of 1996. She was the Director of Administration/Human Relations from March of
1994 to March of 1996. From July of 1984 through March of 1994, she held
various positions throughout the Company and for the Company's predecessor.
Mr. Margolin was appointed Vice President - Finance and Planning
and Assistant Secretary in March of 1996 and has been the Corporate
Controller since January of 1993.
Mr. Sloan was appointed Vice President - National Accounts in July
of 1998. Prior to that he held several sales positions at the Company and at
Creative Concepts in Advertising (CCA), which was acquired by the Company in
January 1997. Prior to joining CCA in 1994, he was a Partner in 1045 Park, a
New York based apparel company.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Niles,
Illinois, a suburb of Chicago. The Company's other facilities include sales
offices and showrooms, warehouses, administrative offices and call centers
located throughout the United States, Canada, Europe and Hong Kong. The
majority of these facilities are leased.
Due to recent acquisitions, the Company leases more than one office
in certain cities and is in the process of consolidating certain offices to
achieve greater efficiencies. Management believes, its facilities are
adequate for its current operations, however, additional facilities may be
required to support continued growth.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders, through solicitation of proxies or otherwise, during the fourth
quarter of 1999.
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PART II
ITEM 5. 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 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>
The Company has not paid a cash dividend on its common stock since
its initial public offering in 1992. The Company does not intend to pay such
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $ 650,412 $ 589,669 $ 465,721 $ 375,736 $ 310,116
Operating Income before restructuring and
acquisition expenses (a) $ 7,082 $ 49,577 $ 30,792 $ 19,259 $ 13,873
Net Income(Loss) $ (13,538) $ 24,750 $ 15,458 $ 10,092 $ 7,309
Pro forma Net Income (b) $ N/A $ 24,520 $ 14,846 $ 9,879 $ 5,902
Net Income(Loss) Per Share, Diluted
(Proforma for 1998 and prior years)(b) $ (0.28) $ 0.53 $ 0.36 $ 0.25 $ 0.17
Weighted Average Shares
Outstanding, Diluted 48,598 46,447 41,112 40,266 34,586
BALANCE SHEET DATA (END OF YEAR):
Working Capital $ 139,367 $ 162,751 $ 78,741 $ 60,706 $ 42,286
Total Assets $ 380,303 $ 347,017 $ 238,053 $ 147,063 $ 124,331
Long-term Debt $ 21,230 $ -- $ 44,930 $ 29,863 $ 13,263
Shareholders' Equity (c) $ 236,546 $ 235,491 $ 85,473 $ 62,032 $ 52,091
</TABLE>
(a) Excludes $30,000,000 of restructuring charges in 1999 and other
expenses primarily related to business acquisitions of
$10,337,000, $3,845,000, $1,693,000 and $1,800,000 in 1998,
1997, 1996 and 1995 respectively.
(b) Certain companies acquired and accounted for using the
pooling-of-interests accounting method had elected to be treated as S
Corporations and were therefore not subject to Federal income taxes
prior to their acquisition by the Company. Pro forma net income and
pro forma net income per share amounts include an unaudited provision
for Federal and state taxes at an effective rate of 40%.
(c) Includes cash dividends of $11,518,000, $5,296,000, $6,887,000 and
$7,761,000 declared by acquired companies in 1998, 1997, 1996 and
1995, respectively, prior to their acquisition by the Company.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the years indicated the percent
of net sales represented by each line item presented in the Company's
Consolidated Statements of Income:
<TABLE>
<CAPTION>
Percent of Net Sales
---------------------------------------
Year Ended December 31,
---------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 65.6% 64.9% 67.4%
Gross Profit 34.4% 35.1% 32.6%
Selling Expenses 14.5% 13.0% 12.3%
General and Administrative Expenses 19.2% 13.7% 13.7%
Other Expenses 4.2% 1.8% .8%
- -------------------------------------------------------------------------------------------------------
Operating Income(Loss) (3.5)% 6.6% 5.8%
Interest Income (Expense), Net -% .3% (.5)%
- -------------------------------------------------------------------------------------------------------
Income(Loss) Before Income Taxes (3.5)% 6.9% 5.3%
Provision(Benefit) for Income Taxes (1.4)% 2.7% 2.0%
- -------------------------------------------------------------------------------------------------------
Net Income(Loss) (2.1)% 4.2% 3.3%
=======================================================================================================
Pro forma Net Income(Loss) 4.2% 3.2%
=======================================================================================================
</TABLE>
The following table summarizes the concentration of net sales by business
segment:
<TABLE>
<CAPTION>
Percent of Net Sales
------------------------------------
Business Segment 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Promotional Products 76% 79% 75%
Marketing Services 24% 21% 25%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Net sales for 1999 increased 10.3% to $650.4 million from $589.7
million for 1998. Net sales from acquired companies were $92.1 million while
internal sales declined by $31.4 million. Promotional product net sales
increased 6.1%, or $28.4 million in 1999. In the promotional product segment
acquisitions contributed $66.4 million in sales while internal sales declined
$38.0 million or 8.2%. The decline in internal sales was primarily due to a
decrease in the consumer premium business.
Net sales from the Company's marketing services, which include
promotion marketing, direct and database marketing as well as brand strategy
and identity, increased 25.9% or $32.4 million in 1999. Acquisitions
contributed $25.7 million in sales while internal sales growth contributed
$6.7 million or 5.4%.
Gross profit as a percentage of net sales for 1999 was 34.4% ($223.7
million) compared to 35.1% ($207.2 million) for 1998. Excluding restructuring
charges of $2.7 million, the 1999 gross profit percentage was 34.8%. The
decrease was primarily due to a decrease in higher margin consumer premium
business recognized in the promotional products segment which was partially
offset by a change in sales mix toward the higher margin marketing services
business segment.
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Selling expenses as a percentage of net sales for 1999 increased to
14.5% ($94.3 million) compared to 13.0% ($76.6 million) for 1998. The
increase was primarily due to fixed cost investments, primarily people, to
support projected promotional product sales volume which did not materialize.
General and administrative expenses as a percentage of net sales for
1999 were 19.2% ($125.0 million), compared to 13.7% ($81.0 million) in 1998.
The increase as a percentage of net sales was due to a combination of two
factors. First, there was a change in business mix toward the marketing
services segment, which has a higher overhead to net sales ratio than the
promotional products segment. Secondly, the maintenance of infrastructure
required to support the Company's expected growth. Of the $44.0 million
increase, acquired companies contributed $18.4 million in additional expense
while internal growth accounted for $25.6 million. The major components of
the $44.0 million increase included payroll and benefits, occupancy and
information system costs and depreciation and amortization which accounted
for an additional $19.5 million, $8.6 million and $4.4 million respectively.
Operating results for 1999 and 1998 include other expenses of $30.0
million and $10.3 million, respectively. The 1999 expenses related to the
Company's restructuring and other charge to consolidate operations while the
1998 expenses primarily related to completed acquisitions accounted for using
the pooling-of-interests accounting method.
Net interest income in 1999 was $0.4 million compared to net
interest income of $1.6 in 1998. The change was due to a reduction in the
average balance in short-term investments. The short-term investments were
used to fund the acquisition of additional promotional product companies.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Net sales for 1998 increased 26.6% to $589.7 million from $465.7
million for 1997. Of the $123.9 million increase, $96.6 million was due to
internal growth and $27.3 million was from acquired companies. Promotional
product net sales increased $113.8 million in 1998. Of this amount, $86.5
million was internal, resulting in an internal growth rate for the year of
24.7%. Internal growth in this segment was due to a combination of the
addition of new sales representatives, further penetration of existing
customers and development of new accounts.
Net sales from the Company's marketing services, which include
promotion marketing, direct marketing, brand strategy and identity, and
telemarketing, increased 8.8% in 1998. All of the growth was internal and
resulted primarily from increased penetration of existing customers.
Gross profit as a percentage of net sales for 1998 was 35.1% ($207.2
million) compared to 32.6% ($152.0 million) for 1997. Promotional product
gross profit as a percentage of net sales increased in 1998 due to an
increase in sales of exclusive products and more efficient purchasing of
merchandise. Marketing services gross profit percentage increased due to a
shift from lower margin telemarketing sales to the higher margin brand
marketing sales.
Selling expenses as a percentage of net sales for 1998 were 13.0%
($76.6 million) compared to 12.3% ($57.4 million) for 1997. The increase in
the percentage was primarily due to increased commissions resulting from a
greater proportion of net sales from the promotional product segment. This
segment has a higher proportion of selling expenses to net sales than
marketing services. To a lesser extent, the increase was attributable to
continued investments to enhance the Company's brand, including proprietary
product arrangements and corporate visibility programs.
General and administrative expenses as a percentage of net sales for
1998 were 13.7% ($81.0 million), unchanged from 1997 ($63.8 million). The
$17.1 million increase was primarily due to increased infrastructure required
to support the Company's growth. Increased payroll and benefits accounted for
12
<PAGE>
approximately $8.4 million of the increase while occupancy and information
systems costs accounted for an additional $7.2 million.
Operating results for 1998 and 1997 include other expenses of $10.3
million and $3.8 million, respectively. These expenses primarily related to
completed acquisitions accounted for using the pooling-of-interests
accounting method.
Net interest income in 1998 was $1.6 million compared to net
interest expense of $2.2 in 1997. The change was due to the repayment of
substantially all the Company's outstanding debt with the proceeds from a
secondary stock offering completed in May 1998. Excess funds were
subsequently invested in interest bearing investments.
RESTRUCTURING PLAN
In July 1999 the Company's Board of Directors approved a
restructuring plan ("the Plan") aimed primarily at improving the efficiency
and profitability of the promotional products business segment. The major
initiatives of the Plan include consolidation of distribution facilities,
elimination of non-profitable sales offices, centralization of certain
administrative functions and streamlining of the sales force. The Plan is
expected to be completed by September 30, 2000 and will result in a net
personnel reduction of approximately 200, or 10% of the promotional products
business segment workforce.
As discussed in Note 11 to the consolidated financial statements,
the Company recorded a restructuring charge of $30 million in the third
quarter of 1999. Approximately $16.8 million of the charge will be a cash
expense. Approximately $1.6 million of this was paid in 1999 with the balance
to be paid through June 2001. The cash components relate primarily to lease
buy-outs and severance payments. The non-cash components of the charge relate
to the write down of assets, primarily information systems and leasehold
improvements, that will have no utility to the Company once the Plan is
implemented.
Once implemented, management believes that the Company's
infrastructure will be more efficient, flexible and scaleable. Management
expects to realize the full value of this charge over a four year period
beginning in the third quarter of 2000. The first full year effect of the
Plan is expected to be realized in 2001.
SEASONALITY
Some of the Company's customers tend to utilize a greater portion of
their advertising and promotional budgets in the latter half of the year,
which historically has resulted and may continue to result in a
disproportionately large share of the Company's net sales being recognized in
the second half of the year. The Company incurs general and administrative
expenses evenly throughout the year, which historically has resulted and may
continue to result in a disproportionate share of its net income being
reported in the second half of the year.
YEAR 2000 READINESS
The Company completed all significant Year 2000 projects, which had
been previously identified, prior to December 31, 1999. The Company did not
experience any significant disruptions to its business related to Year 2000
issues or as a result of Year 2000 issues which may have impacted its
vendors, suppliers or customers. Management believes that there are no
significant risks resulting from Year 2000 issues, which would affect the
Company's operations in the future.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had borrowings of $21.8 million under its credit
facility at December 31, 1999. As mentioned in Note 6 to the Consolidated
Financial Statements, 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 Interbank Offered Rate (LIBOR) plus
between 1.25% and 2.35%. Proceeds from the new facility will be used to fund
the acquisition of Starbelly.com (see Note 19 to the Consolidated Financial
Statements), finance working capital, and general corporate purposes,
including capital expenditures.
The Company's cash used in operations for 1999 was approximately
$16.7 compared with cash generated from operations of $28.7 million in 1998.
Cash used in operations during 1997 was $6.7 million. The 1999 operating cash
usage was primarily caused by lower than anticipated revenues from the
promotional products business segment and cash used in the partial execution
of the Company's restructuring plan (see Note 11 to the Consolidated
Financial Statements). The operating cash flow in 1998 was primarily due to
strong performance in the consumer premium side of the promotional products
business segment.
Cash provided by financing activities was $22.9 million, $55.7
million and $20.9 million in 1999, 1998 and 1997 respectively. The cash
provided in 1997 and 1999 was principally drawn from the Company's credit
facility while the 1998 financing cash flow resulted from the completion of a
secondary offering for 5.85 million shares of the Company's common stock that
resulted in net proceeds of $117.4 million. Approximately $51 million of
those proceeds were used to repay substantially all outstanding debt. The
Company does not anticipate paying cash dividends on its common stock in the
foreseeable future.
As of December 31, 1999, the Company's working capital was $139.4
million, compared to $162.8 million as of December 31, 1998. Working capital
at December 31,1998 includes approximately $51 million of short-term
investments, reflective of proceeds remaining from the Company's secondary
stock offering. Factors contributing to the decrease in working capital
during 1999 include the cash paid for business acquisitions, operating losses
generated by a decline in the promotional products business and cash utilized
to restructure and streamline operations.
Capital expenditures, excluding acquisitions, were approximately
$18.1 million in 1999 compared to $23.3 million in 1998 and 10.1 million in
1997. The capital expenditures in 1998 were higher primarily due to funds
used to construct a new office and warehouse facility. The Company exercised
an option to sell this facility in 1999 and received approximately $9.6
million in cash. Excluding acquisitions, management expects capital
expenditures to be approximately $15 million in 2000.
Subsequent to year-end, the Company entered into a binding agreement
to acquire an internet based promotional products company, Starbelly.com.
Upon completion of this transaction, assuming the Company receives the
necessary approval of its shareholders, the Company expects to experience a
period of operating losses and cash outlays required to further develop the
Starbelly.com's technology platform. The Company expects to earnings before
interest, taxes, depreciation and amortization to be positive in 2000 and
anticipates that cash on hand at December 31, 1999 and availability under the
proposed credit facility discussed above will be adequate to satisfy its cash
needs for the foreseeable future.
14
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks relating to fluctuations in
currency exchange rates and interest rates. As required by Securities and
Exchange Commission (SEC) rules, the Company has calculated the sensitivity
of operating results to hypothetical changes in exchange rates and interest
rates as if these changes had actually occurred during 1999.
The Company is subjected to a risk from currency translation
fluctuations due to their operations in Europe and Canada. Had the US dollar
been 10% less favorable compared to foreign currencies during 1999 the
Company would have recognized a $3.6 million reduction in net assets, about
1.5%, of the total reported at year end. The effect on operations and cash
flow in 1999 would have been immaterial. Management does not believe the risk
of unfavorable currency fluctuations is significant, and have not entered
into any foreign exchange contracts for the purpose of hedging against this
risk.
The Company is exposed, through short-term investments and
borrowings, to the risk of unfavorable changes in interest rates. Had
interest rates during 1999 been 10% less favorable, net income would have
been negatively affected by approximately $200,000. Management does not
believe that the risk of unfavorable fluctuations in interest rates is
significant to the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by item 8 is included elsewhere
in this report (see Part IV, Item 14)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding Executive Officers is
included in the "Executive Officers of the Registrant" section of Item I,
except that information regarding "Beneficial Ownership Reporting Compliance"
is incorporated by reference from such section of the Company's 1999 Proxy
Statement.
The information regarding Directors is incorporated by reference
from the "Election of Directors", "Executive Compensation" and "Security
Ownership of Management" and "Beneficial Ownership Reporting Compliance"
sections of the Company's 1999 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference
from the "Executive Compensation" and "Certain Transactions" sections of the
Company's 1999 Proxy Statement; provided, however, that neither the Report of
the Compensation Committee on Executive Compensation nor the Performance
Graph set forth therein shall be incorporated by reference herein, in any of
the Company's previous filings under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or in any of the
Company's future filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference
from the "Security Ownership of Management" section of the Company's 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference
from the "Executive Compensation" and "Certain Transactions" sections of the
Company's 1999 Proxy Statement; provided, however, that neither the Report of
the Compensation Committee on Executive Compensation nor the Performance
Graph set forth therein shall be incorporated by reference herein, in any of
the Company's previous filings under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or in any of the
Company's future filings.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements PAGE
----
<S> <C> <C>
(i) Report of Independent Public Accountants; F-2
(ii) Consolidated Balance Sheets at December 31, 1999 and F-3
1998;
(iii) Consolidated Statements of Operations for each of the years
ended December 31, 1999, 1998 and 1997; F-4
(iv) Consolidated Statements of Shareholders' Equity for each
of the years ended December 31, 1999, 1998 and 1997; F-5
(v) Consolidated Statements of Cash Flows for each of the
years ended December 31, 1999, 1998 and 1997; and F-6
(vi) Notes to Financial Statements. F-7
2. Schedules
Schedule II Valuation and Qualifying Accounts:
For each of the three years in the period ended December, 31 1999 F-24
3. Exhibits
</TABLE>
The exhibits to this report are listed in the Exhibit Index
included elsewhere herein.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth
quarter of 1999.
17
<PAGE>
HA-LO INDUSTRIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (8)
3.3 Articles of Amendment to the Articles of Incorporation of the Company,
dated August 29, 1994. (4)
3.4 Articles of Amendment to the Articles of Incorporation of the Company,
dated February 21, 1997.(8)
3.5 * Amendment to the Amended and Restated Bylaws of the Company
4.1 Specimen of Stock Certificate for Common Stock. (1)
4.2 New specimen of Stock Certificate for Common Stock. (13)
10.3 * Lease, dated June 30, 1999, between Maple Lane Acquisition
Limited Liability Company and Creative Concepts in
Advertising, Inc.
10.4 Employment Agreement, dated as of September 30, 1996, between
the Company, Market USA, Inc. and Seymour N. Okner (6,11)
10.5 Employment Agreement, dated January 3, 1997, between the Company and Jon Sloan. (11)
10.6 Real Property Put and Option Agreement, dated January 3, 1997, among Maple Lane
Acquisition Limited Liability Company, Linden D. Nelson, and Creative Concepts in
Advertising, Inc. (13)
10.7 First Amendment to Real Property Put and Option Agreement, dated December, 1998,
among Maple Lane Acquisition Limited Liability Company, Linden D. Nelson, and
Creative Concepts in Advertising, Inc. (13)
10.8 HA-LO Industries, Inc. Key Employee Incentive Plan. (1,11)
10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995, between Montgomery
Ward & Co., Incorporated and the Company. (4)
10.12 Form of Indemnity Agreement between the Company and each of its directors and officers. (1,11)
10.14 Agreement between David C. Robbins and the Company dated February 1, 1995. (4)
10.15 Building Lease, dated December 30, 1992, between the Company and LaSalle National Trust N.A. No. 115722. (2)
10.16 * Agreement, dated as of March 17, 1999, between the Company and Marshall J. Katz. (11)
10.18 Amendment of October 1996 to Bonus Shares Agreement, dated February 1, 1995, between the
Company and David C. Robbins. (8,11)
10.19 Employment Agreement, dated as of January 3, 1997, between the Company and Linden D. Nelson. (8,11)
10.20 * Employment Agreement, dated as of November 9, 1999, between the Company and Gregory J. Kilrea. (11)
10.21 * Employment Agreement, dated as of June 30, 1998, between Promotional Marketing, L.L.C.
and John R. Kelley, Jr. (11)
10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated) (4,11)
10.24 * Amendment No.1 to Employment Agreement, between the Company and Richard A. Magid. (11)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as amended
and restated), adopted October 28, 1995. (5)
10.26 Third Amendment to the HA-LO Industries, Inc. Stock Plan (as amended
and restated), adopted on February 26, 1996. (5)
10.27 First Amendment to Exclusive Premium Purchasing Agreement, dated
December 27, 1995, between Montgomery Ward & Co., Inc. and the Company. (5)
10.33 Credit Agreement, dated as of January 31, 1997, among the Company,
American National Bank and Trust Company of Chicago, individually as
Agent, and the Lenders which are or become parties thereto. (8)
10.34 Guaranty Agreement, dated as of January 31, 1997, by Fletcher, Barnhardt
& White, Inc., Market U.S.A., Inc., and Creative Concepts in Advertising, Inc. (8)
10.35 First Amendment to Credit Agreement, dated August 8, 1997, among the
Company, American National Bank and Trust Company of Chicago, individually as Agent,
and the Lenders which are or become parties thereto. (13)
10.36 Second Amendment to Credit Agreement, dated January 20, 1999, among the Company,
American National Bank and Trust Company of Chicago, individually as Agent, and
the Lenders which are or become parties thereto. (13)
10.37 Third Amendment to Credit Agreement, dated March 1, 1999, among the Company,
American National Bank and Trust Company of Chicago, individually as Agent,
and the Lenders which are or become parties thereto. (13)
10.38 Guaranty Agreements dated March, 1999, by Promotional Marketing, L.L.C.,
Lipson Associates, Inc., Premier Promotions and Marketing, Inc., and
Lee Wayne Corporation. (13)
10.39 Amended and Restated HA-LO Industries, Inc. 1997 Stock Plan. (9,11)
10.40 1997 Employment Agreement between the Company and Lou Weisbach. (10,11)
10.41 Employment Agreement dated January 1, 1998 between the Company and Richard Magid. (10,11,12)
10.42 Agreements by and between the Company and certain employees dated
November, 1997, regarding change of control. (11,13)
10.43 Agreements by and between the Company and David Robbins dated
November, 1997, regarding change of control. (10,11)
10.44 Agreements by and between the Company and Barbara Berman dated November, 1997,
regarding change of control. (10,11)
10.45 1998 Restatement of the HA-LO 401(k) Savings Plan. (10,11)
10.46 HA-LO Industries, Inc. Executive Deferred Compensation Plan (as amended and restated)
effective February 1, 1997.(10,11)
10.47 Executive Incentive Compensation Plan for Various Employees.(10,11)
10.48 Agreement dated June 29, 1998 between the Company and Montgomery Ward & Co., Inc. (13)
10.49 Second Amendment to Exclusive Premium Purchasing Agreement dated June 29, 1998 between
Montgomery Ward & Co., Inc. and the Company. (13)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.50 Warrants, dated January 10, 1996, from the Company to Montgomery Ward & Co., Inc.,
ValueVision International Inc. and Merchant Development Corporation. (13)
10.51 First Amendment to Warrant dated June 29, 1998 between Montgomery Ward & Co., Inc.
and the Company (relative to Exhibit 10.50) (13)
10.52 Warrants, dated January 10, 1996, from the Company to Montgomery Ward & Co., Inc.,
ValueVision International Inc. and Merchant Development Corporation (13)
10.53 First Amendment to Warrant dated June 29, 1998 between Montgomery Ward & Co., Inc.
and the Company (relative to Exhibit 10.52). (13)
10.54 Agreement dated January 26, 1999 between the Company and Montgomery Ward & Co., Inc. (13)
10.55 First Amendment to the 1998 Restatement of the HA-LO 401(k) Savings Plan, effective
January 1, 1999. (11,13)
10.56 Second Amendment to the 1998 Restatement of the HA-LO 401(k) Savings Plan, effective
January 1, 1999. (11,13)
10.57 * Amendment to Industrial Space Lease, dated May 1, 1995, between Centerpoint Properties
Corporation and the Company.
10.58 * Second Amendment to Industrial Space Lease, dated April 1996, between Centerpoint Properties
Corporation and the Company.
10.59 * Third Amendment to Industrial Space Lease, dated November 1996, between Centerpoint Properties
Corporation and the Company.
10.60 * Fourth Amendment to Industrial Space Lease, dated April 1997, between Centerpoint Properties
Corporation and the Company.
10.61 * Office and Industrial Building Lease, dated November 30, 1998, between Centerpoint Realty Services
Corporation and the Company.
10.62 * Guaranty, dated June 30, 1999, made by the Company to Maple Lane Acquisition Limited Liability Company.
10.63 * Agreement and Plan of Merger and Plan of Reorganization, dated January 17, 2000, among the Company,
Starbelly.com, Inc. and HA-LO Industries, Inc. (a subsidiary of the Company).
10.64 * Promissory Note, dated January 6, 2000, made by Starbelly.com, Inc. to the Company
in the amount of $5,000,000.
10.65 * Promissory Note, dated January 17, 2000, made by Starbelly.com, Inc. to the Company
in the amount of $5,000,000.
10.66 * Promissory Note, dated March 1, 2000, made by Starbelly.com, Inc. to the Company
in the amount of $5,000,000.
10.67 * Credit Agreement, dated February 25, 2000, amount the Company, American National Bank and Trust Company
of Chicago and the Lenders which are or become parties thereto.
10.68 * First Amendment to Credit Agreement, dated March 2000, among the Company, American National Bank of
Trust Company of Chicago, Harris Trust and Savings Bank and Comerica Bank.
10.69 * Assumptions and Supplements to Guaranty Agreement, dated March 2000, by UPSHOT (New York), Inc.,
Market USA, Inc., UPSHOT Direct, Inc., Lipson Associates, Inc., HA-LO Sports, Inc., CF
Napa Design, Inc., and Premier Promotions and Marketing, Inc.
10.70 * Guaranty Agreement, dated March 1, 2000 by Lee Wayne Corporation, Creative Concepts in Advertising, Inc.
and Promotional Marketing, L.L.C.
10.71 * Letter Loan Agreement, dated March 1, 2000, between the Company, HA-LO Canada, Inc. and Bank One Canada.
10.72 * Agreement and release, dated on or about September 30, 1999 between the Company and Gene Eherenfeldt.(11)
10.73 * Agreement and release, dated on or about September 30, 1999 between the Company and Michael Nemlich.(11)
10.74 * Agreement and release, dated on or about September 30, 1999 between the Company and Bradford S. Kerr.(11)
20
<PAGE>
21. * List of subsidiaries of registrant
23.1 * Consent of independent public accountants.
27.1 * Financial Data Schedule - 1999
- ----------
</TABLE>
<TABLE>
<S> <C>
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Registration Statement (no. 33-51698) on Form S-1, as amended, filed by
the Company under the Securities Act of 1933, as amended.
(2) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to the Registration Statement (no. 333-10481) on
Form S-4, as amended, filed by the Company under the Securities Act of 1933,
as amended.
(7) Incorporated by reference to the Registration Statement (no.333-03928) on
Form S-8 filed by the Company under the Securities Act of 1933, as amended.
(8) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(9) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement (No. 333-66849) on Form S-8, as amended, filed by the Company
under the Securities Act of 1933, as amended.
(10) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(11) Management contract or compensatory plan or arrangement.
(12) Erroneously listed as being dated January 1, 1997 in the Exhibit List to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(13) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* Filed herewith.
</TABLE>
21
<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
</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 2.35%. 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 and Shareholders:
of HA-LO Industries Inc. and Subsidiaries:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of HA-LO Industries, Inc. and
Subsidiaries and issued our unqualified opinion thereon dated March 22, 2000.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic consolidated
financial statements. This schedule has been subject to the auditing
procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 22, 2000
F-23
<PAGE>
Schedule II
(in thousands)
<TABLE>
<CAPTION>
Additions
Beginning Charged to (A) Deductions Ending
Description Balance Expense Other Write-offs Balance
----------- ------- ------- ----- ---------- -------
<S> <C> <C> <C> <C> <C>
1999
Bad debt reserve 2,836 2,470 1,269 3,519 3,056
Inventory valuation reserve 1,492 1,020 361 67 2,084
1998
Bad debt reserve 2,749 2,059 0 1,972 2,836
Inventory valuation reserve 1,078 942 0 528 1,492
1997
Bad debt reserve 2,980 25 400 256 3,149
Inventory valuation reserve 0 1,078 0 0 1,078
</TABLE>
(a) Other additions primarily relate to reserves acquired through business
combinations
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2000
HA-LO INDUSTRIES, INC.
Registrant
By: /s/ GREGORY J. KILREA
-----------------------
Gregory J. Kilrea
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 2000:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ JOHN R. KELLEY, JR. Director, President and Chief Executive Officer
--------------------
John R. Kelley, Jr.
/s/ LOU WEISBACH Chairman of the Board of Directors
--------------------
Lou Weisbach
/s/ LINDEN D. NELSON Vice Chairman of the Board
-------------------- of Directors
Linden D. Nelson
/s/ THOMAS HERSKOVITS Director
---------------------
Thomas Herskovits
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ MARSHALL J. KATZ Director
---------------------
Marshall J. Katz
/s/ SEYMOUR N. OKNER Director
---------------------
Seymour N. Okner
/s/ BRIAN HERMELIN Director
---------------------
Brian Hermelin
</TABLE>
23
<PAGE>
THE COMPANY HAS AMENDED AND RESTATED THE LAST SENTENCE OF SECTION 1 OF
ARTICLE VI OF ITS BYLAWS TO READ AS FOLLOWS:
"All certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the
appropriate officers of the Corporation may prescribe."
<PAGE>
LEASE
BETWEEN
LANDLORD: MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY
AND
TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC.
DATED: JUNE 30, 1999
<PAGE>
LEASE
THIS LEASE (this "Lease") is entered into as of the 30TH day of
June,1999, by and between MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a
Delaware limited liability company ("Landlord"), and CREATIVE CONCEPTS IN
ADVERTISING, INC., a Michigan corporation ("Tenant")
SECTION I
BASIC LEASE PROVISIONS
<TABLE>
<S> <C> <C>
LANDLORD: NAME: MAPLE LANE ACQUISITION LIMITED LIABILITY
COMPANY, a Delaware limited liability company
ADDRESS: 1501 Halo Drive
Troy, Michigan 48084
TENANT: NAME: CREATIVE CONCEPTS IN ADVERTISING, INC.,
a Michigan corporation
ADDRESS: 5980 W. Touhy Avenue
Niles, Illinois 60714
DEMISED
PREMISES: The land as described in Exhibit A attached hereto (the
"Site") and the improvements now or hereafter located thereon
in Oakland County, Michigan, commonly known as 1501 Halo
Drive, Troy, Michigan (said Site and improvements being
hereinafter collectively referred to as the "Demised
Premises"), subject, however, to (a) all liens, easements,
covenants, restrictions and encumbrances affecting title as of
the Commencement Date (as hereinafter defined) and (b) all
present and future zoning and other governmental laws,
regulations, rules, restrictions, and ordinances.
ORIGINAL LEASE
TERM: Ten (10) years.
RENEWAL TERM: One (1) option to renew for a term of five (5) years.
COMMENCEMENT
DATE: June ____, 1999
ORIGINAL
EXPIRATION
DATE: Ten (10) years after the Commencement Date.
ANNUAL BASE
RENT: Fair Market Rent (as hereinafter defined).
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
USE OF DEMISED
PREMISES: Executive and administrative offices, warehouse and production
facilities, and, with Landlord's consent, which shall not be
unreasonably withheld, any other lawful use.
EXHIBITS
ATTACHED: A - Legal Description of Demised Premises
</TABLE>
SECTION 2
GRANT AND TERM
2.1 DEMISED PREMISES
Landlord, in consideration of the rents to be paid and the covenants,
promises and agreements to be performed by Tenant, does hereby lease to Tenant
and Tenant hereby rents from Landlord, the Demised Premises described in Section
1.
2.2 ORIGINAL TERM
A. The original term of this Lease shall be for the Original Lease Term
stated in Section 1, commencing on the Commencement Date stated in Section 1 and
expiring on the Original Expiration Date stated in Section 1, unless delayed or
sooner terminated as herein set forth. Tenant shall have the right to terminate
the entire Lease at the end of the sixth (6th) Lease Year (the "Early
Termination Date"). Tenant may exercise this right of early termination by
delivering notice of such election (the "Termination Notice") to Landlord not
more than thirteen (13) months but not less than twelve (12) months prior to the
Early Termination Date. In the event that Landlord does not receive a
Termination Notice prior to the expiration of such time period (time being of
the essence with respect thereto), then such right to terminate the Lease shall
become null and void and be of no further force or effect and Tenant shall, at
the request of Landlord, execute an instrument in form and substance acceptable
to Landlord confirming such facts. If Tenant fails to execute such instrument
within ten (10) days after receipt thereof from Landlord, then such failure
shall be a default by Tenant hereunder.
B. Upon the exercise by Tenant of its right to terminate the Lease in
accordance with Section 2.2.A., (a) the term "Original Lease Term", as used in
this Lease, shall mean six (6) years, and (b) the term "Expiration Date" shall
mean six (6) years after the Commencement Date.
2.3 RENEWAL TERM
A. Provided that both at the time of the exercise of the option
hereinafter set forth and at the time of the commencement of the Renewal Term
(as hereinafter defined) this Lease is in full force and effect and provided,
further, that Tenant is not then in default hereunder beyond any applicable
notice and grace periods, then Tenant is hereby granted the option to renew the
Term for one (1) additional period of five (5) years (the "Renewal Term"). The
Renewal Term shall commence at the expiration of the Original Lease Term and
shall expire on the fifth (5th) anniversary of the expiration date of the
Original Lease Term.
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Tenant shall exercise the option to renew, if at all, by delivering notice of
such election (the "Renewal Notice") to Landlord not less than twelve (12)
months but not more than eighteen (18) months prior to the expiration of the
Original Lease Term. In the event that Landlord does not receive the Renewal
Notice prior to the expiration of such time period (time being of the essence
with respect thereto), then such option to renew the Term shall, upon the
expiration of such time period, become null and void and be of no further
force or effect and Tenant shall, at the request of Landlord, execute an
instrument in form and substance acceptable to Landlord confirming such
facts. If Tenant fails to execute such instrument within ten (10) days after
receipt thereof from Landlord, then such failure shall be a default by Tenant
hereunder. The Renewal Term shall be upon the same terms and conditions of
this Lease except that Tenant shall have no option to renew this Lease beyond
the expiration of the Renewal Term.
B. Upon the exercise by Tenant of its option in respect of the Renewal
Term in accordance with this Section, (a) the term "Lease Term", as used in this
Lease, shall mean the Original Lease Term as extended for the Renewal Term, and
(b) the term "Expiration Date" shall mean the date of expiration of the Renewal
Term.
C. Any termination, cancellation or surrender of this Lease (including,
but not limited to, Tenant's early termination of the Lease in accordance with
Section 2.2.A. of this Lease) shall terminate any right of renewal for the
Renewal Term in respect of the portion of the leased premises as to which this
Lease is terminated, cancelled or surrendered.
SECTION 3
CONDITION OF DEMISED PREMISES
Tenant represents that it has examined the Leased Premises and is fully
aware of the condition thereof and Tenant acknowledges that it is leasing the
Demised Premises in its "As Is" condition as of the Commencement Date. Tenant
acknowledges that neither Landlord nor any person purporting to act for Landlord
has made any representations concerning the physical condition of any buildings
or structures, or any portions thereof constituting a part of the Demised
Premises. Notwithstanding the foregoing, nothing contained herein shall be
deemed a waiver of any of Tenant's rights under (a) any indemnity made by
Landlord herein, (b) that certain Environmental Indemnity Agreement, dated
January 6, 1997 (the "Indemnity Agreement"), made by Linden D. Nelson, or (c)
that certain Real Property Purchase Agreement, dated January 2, 1997 (the
"Purchase Agreement"), between Landlord and HA-LO Acquisition Corporation of
Michigan, Inc. (to which Tenant is the successor-by-merger).
SECTION 4
POSSESSION AND COMMENCEMENT OF TERM
4.1 POSSESSION AND COMMENCEMENT OF LEASE TERM
Landlord shall deliver actual possession of the Demised Premises to
Tenant on or before the Commencement Date. Tenant's obligation for the payment
of Rent, as defined herein, and the term of this Lease shall commence on the
Commencement Date. If permission is given to Tenant to occupy all or part of the
Demised Premises prior to the
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Commencement Date, Tenant covenants and agrees that such occupancy shall be
governed by all terms and conditions of this Lease, and the Commencement Date
and the Expiration Date shall not be changed.
4.2 LANDLORD NOT LIABLE FOR DELAYS
Under no circumstances shall Landlord be liable for any delays in the
delivery of possession of the Demised Premises to Tenant on the Commencement
Date. Tenant's sole and exclusive remedy shall be the abatement of Rent until
the Demised Premises are ready for occupancy and possession is delivered to
Tenant.
4.3 MEMORANDUM
Within thirty (30) days after the delivery of possession to Tenant,
Tenant shall join with Landlord in the execution of a written memorandum
confirming the Commencement Date and Expiration Date of the Lease Term. Tenant's
failure to execute the Memorandum shall be a default by Tenant under this Lease.
Landlord's default under this Lease shall not relieve Tenant of the obligation
to execute the Memorandum within such thirty (30) day period.
SECTION 5
RENT
5.1 BASE RENT
(a) During the Original Lease Term and the Renewal Term, if applicable,
Tenant shall pay to Landlord annual fixed rent (the "Annual Base Rent") in an
amount equal to the Fair Market Rent (as hereinafter defined) as of the date
(the "Rent Appraisal Date") which is not less than sixty (60) days prior to (i)
the Commencement Date, with respect to the first five (5) years of the Original
Lease Term or the entire six (6) years of the Original Lease Term if Tenant
exercises its early Lease termination right in accordance with Section 2.2.A. of
this Lease, (ii) the commencement of the sixth (6th) Lease Year, with respect to
the remainder of the Original Lease Term if Tenant does not exercise its early
Lease termination right in accordance with Section 2.2.A. of this Lease, and
(iii) the commencement of the Renewal Term, with respect to the Renewal Term.
The Annual Base Rent shall be payable in monthly installments, in advance, on
the first day of each and every calendar month during the Lease Term and the
Renewal Term, if applicable, without notice or demand and without any set-off,
abatement or deduction whatsoever, at the office of Landlord stated in Section
1, or at such other place as Landlord may designate from time to time in
writing. The first monthly installment of Annual Base Rent shall be due and
payable at the time of the execution of this Lease. Such first monthly
installment of Annual Base Rent shall be in the amount due for the first month
of the Original Lease Term. The first monthly installment of Annual Base Rent
shall be credited by Landlord against the first monthly installment of Annual
Base Rent due during the Lease Term. If the Lease Term shall commence on a day
other than the first day of a calendar month, or shall end on other than the
last day of a calendar month, then the monthly installment of Annual Base Rent
due for such partial month shall be pro-rated.
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(b) For the purposes of this Article, the term "Fair Market Rent" shall
mean the then annual fair market rental rate that would be paid by a willing
tenant, not compelled to lease, and accepted by a willing landlord, not
compelled to lease, for the Demised Premises as of the pertinent date,
considering (a) that Additional Rent shall continue to be payable during the
10-year period of the Original Lease Term or the 5-year period of the Renewal
Term, as applicable, without any changes in this Lease relating to Additional
Rent, (b) the age and quality of the Building as of such date, (c) the length of
the applicable Term, and (d) such other factors that Landlord and Tenant
reasonably agree shall be relevant at the applicable date. Fair Market Rent
shall be determined by mutual agreement between Landlord and Tenant (based upon
the above factors) and shall be set forth in a writing to be executed by
Landlord and Tenant; provided, however, that the failure of either party to
execute such writing shall not affect the determination of Fair Market Rent.
(c) Landlord and Tenant hereby mutually agree that the Fair Market Rent
with respect to the first five (5) years of the Original Lease Term shall be an
amount equal to $10.13 per square foot for the 102,007 square feet of the
improvements existing on the Demised Premises as of the Commencement Date, such
that the Annual Base Rent for the first five (5) years of the Original Lease
Term shall be an amount equal to $1,033,330.91.
5.2 RENT NET OF EXPENSES
Landlord and Tenant intend that the Annual Base Rent due hereunder,
together with any adjustments during the Lease Term, shall be absolutely net of
all costs, expenses, taxes (real and personal) and charges of every kind and
nature whatsoever relating to the ownership, occupancy or use of the Demised
Premises (all of which shall be paid by Tenant) so that the Annual Base Rent,
together with any adjustments, constitutes the minimum income received by
Landlord from the Lease of the Demised Premises. Tenant shall indemnify and hold
Landlord harmless from and against any such costs, expenses, taxes (real or
personal, but excluding income taxes assessed against Landlord) and charges.
5.3 ADDITIONAL RENT
All amounts due from Tenant and payable to Landlord other than Annual
Base Rent, including, without limitation, if applicable, taxes and assessments
pursuant to Section 8 hereof and insurance premiums pursuant to Section 13
hereof, shall be deemed to be Additional Rent. Upon Tenant's failure to pay any
such Additional Rent, Landlord, in addition to any other remedies, shall have
the same rights and remedies provided for Tenant's failure to pay the Annual
Base Rent. (The Annual Base Rent and the Additional Rent, are herein
collectively referred to as "Rent"). Tenant shall pay any and all sums of money
or charges required to be paid by Tenant under this Lease promptly when the same
are due, without any deduction, abatement or setoff whatsoever.
5.4 LEASE YEAR
Lease year shall mean a period of twelve (12) consecutive calendar
months. The first lease year shall begin on the Commencement Date. Each
succeeding lease year shall commence on the anniversary of the Commencement
Date.
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5.5 DELINQUENCY CHARGE
If Tenant shall fail to pay all or any portion of a monthly installment
of Annual Base Rent, within ten (10) days after notice from Landlord that the
same is due, Tenant shall pay a delinquency charge equal to five percent (5%) of
the unpaid amount to reimburse Landlord for the costs incurred as the result of
such late payment and not as a penalty. Such delinquency charge shall be due and
payable upon Landlord's demand.
5.6 DEFAULT CHARGE
If Tenant shall default in any payment or expenditure other than Annual
Base Rent required to be paid or expended by Tenant under the terms hereof, then
Landlord may, at its option, make such payment or expenditure in accordance with
Section 22. In such event, the amount thereof shall be due and payable as
Additional Rent to Landlord by Tenant, together with the next monthly
installment of Annual Base Rent, together with interest thereon at a rate equal
to the sum of the then prevailing "prime interest rate" (as hereinafter deemed)
plus four percent (4%) (but in no event in excess of the highest legal rate)
from the date of such payment or expenditure by Landlord until the date of the
payment by Tenant, to cover Landlord's loss of the use of the funds and
administrative costs resulting from Tenant's failure. No such payment or
expenditure by Landlord shall be deemed a waiver of Tenant's default nor shall
it affect any other remedy of Landlord by reason of such default. Upon Tenant's
failure to pay said Additional Rent together with interest, such interest shall
continue for each month or portion thereof outstanding until the date of
payment. The "prime interest rate" for purposes of this Lease shall mean the
rate of interest announced by the majority of commercial banks doing business in
Detroit, Michigan as the "prime interest rate". The "prime interest rate" shall
be determined as of the date of Landlord's payment or expenditure.
5.7 DISPUTE OF FAIR MARKET RENT
In the event Landlord and Tenant shall be unable to agree on the Fair
Market Rent, then the determination of Fair Market Rent shall be determined by a
duly qualified real estate appraiser who shall not be affiliated with either
Landlord or Tenant and who shall be an MAI appraiser with at least ten (10)
years' experience in the determination of fair market rentals in comparable
buildings in Troy, Michigan. If Landlord and Tenant are unable to agree upon an
appraiser, then Landlord and Tenant shall each appoint an appraiser having the
qualifications set forth above and such two (2) appraisers shall select a third
appraiser. The Fair Market Rent shall then be the average of the determinations
made by the three (3) appraisers; provided, however, that if one (1) of such
determinations differs from the other two (2) by more than fifteen percent
(15%), then such determination shall not be used in the determination of Fair
Market Rent and Fair Market Rent shall be the average of the other two (2)
determinations. The fees of the appraisers shall be borne equally by Landlord
and Tenant.
5.8 NO ABATEMENT
No abatement, diminution or reduction in Annual Base Rent or any other
charges required to be paid by Tenant pursuant hereto shall be claimed by or
allowed to Tenant for any inconvenience or interruption, cessation, or loss of
business caused directly or indirectly,
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by any present or future laws, or by priorities, rationing or curtailment of
labor or materials, or by war, civil commotion, strikes or riots, or any
manner or thing resulting therefrom, or by any other cause or causes beyond
the control of Landlord or Tenant, nor shall this Lease be affected by any
such causes; and, except as expressly provided in Section 14.2 of this Lease,
no diminution in the amount of the space used by Tenant caused by legally
required changes in the construction, equipment, fixtures, operation or use
of the Demised Premises shall entitle Tenant to any abatement, diminution or
reduction of the Annual Base Rent or any other charges required to be paid by
Tenant pursuant to the terms of this Lease. Notwithstanding any other
provision of this Lease, in the event (i) there is an interruption of utility
services which (x) is the result of Landlord's gross negligence or willful
misconduct and is not caused by the acts or omission of Tenant or any
employee, agent or contractor of Tenant, (y) continues for a period of (10)
Business Days after Tenant has notified Landlord of the same, and (z) causes
the Demised Premises to be uninhabitable for general, administrative or
executive office use and Tenant does not in fact use any portion of the
Demised Premises, then Tenant shall be entitled to abate the payment of all
Annual Base Rent due under the provisions of this Lease for the period
commencing on the eleventh (11th) Business Day of the existence of such
condition and ending on the date that such condition no longer exists or the
date on which Tenant occupies any portion of the Demised Premises, if earlier.
5.9 RENT RESTRICTIONS
If any of the Rent payable under the terms of this Lease shall be or
become uncollectible, reduced or required to be refunded because of any Laws (as
hereinafter defined), Tenant shall enter into such agreement(s) and take such
other steps as Landlord may request and as may be legally permissible to permit
Landlord to collect the maximum rents which from time to time during the
continuance of such legal rent restriction may be legally permissible (and not
in excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restriction, (a) the rents shall become and
thereafter be payable in accordance with the amounts reserved herein for the
periods following such termination and (b) Tenant shall pay to Landlord, to the
maximum extent legally permissible, an amount equal to (i) the rents which would
have been paid pursuant to this Lease but for such legal rent restriction less
(ii) the rents and payments in lieu of rents paid by Tenant during the period
such legal rent restriction was in effect.
SECTION 6
UTILITIES
Tenant agrees to pay all charges made against the Demised Premises for
gas, heat, water, air conditioning, electricity, sanitary and storm sewage
disposition, telephone and all other utilities during the Lease Term as the same
shall become due. Landlord shall not be liable to Tenant for the quality or
quantity of any such utilities, or for any interruption in the supply of any
such utilities, unless such interruption is the direct result of Landlord's
gross negligence or willful misconduct, in which event Landlord's liability
shall be limited as set forth in Section 5.8 hereof.
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SECTION 7
INTENTIONALLY OMITTED
SECTION 8
TAXES AND ASSESSMENTS
8.1 OBLIGATION
Tenant agrees to pay directly to the applicable taxing authority all
Taxes, as defined in Section 8.2, on the Demised Premises during the Lease Term,
as and when the same become due and payable.
8.2 DEFINITION OF TAXES
"Taxes" shall be defined as: (a) all taxes (either real or personal),
assessments (general or specific), all water and sewer rents, rates and charges,
and all other municipal and governmental impositions and charges, general and
special, ordinary and extraordinary, foreseen and unforeseen, of any kind and
nature whatsoever, which may at any time during the Lease Term be assessed,
levied, confirmed, imposed upon, or become due and payable out of, or with
respect to, or which may become a lien upon the land, buildings or improvements
comprising the Demised Premises or any part thereof or any appurtenance thereto;
(b) a tax or surcharge of any kind or nature upon, against or with respect to
the parking areas or the number of parking spaces on the Demised Premises; (c)
any tax imposed on this Lease or based on a reassessment of the Demised Premises
due to a change in ownership or a transfer of all or part of Landlord's interest
in the Demised Premises; (d) any tax levied upon Landlord in full or partial
substitution for, or as a supplement to, any taxes previously included within
the definition of "Taxes"; (e) all costs and expenses incurred by Landlord
during negotiations for or contests of the amount of such taxes and assessments,
without regard to the result, including, without limitation, actual attorneys'
fees, which shall not exceed any reductions obtained; and (f) the Michigan
Single Business Tax.
8.3 PAYMENTS
The Taxes for the years in which this Lease commences and terminates
shall be prorated on a due date basis. On the Commencement Date, Tenant shall
reimburse Landlord for the Taxes paid by Landlord for the calendar year in which
the Commencement Date occurs and allocated to the calendar months occurring
after the Commencement Date. Upon conclusion of this Lease, Landlord shall
reimburse Tenant for Taxes paid by Tenant for the calendar year in which the
Lease terminates and allocated to the calendar months occurring after the
Termination Date. In the event a refund of Taxes previously paid by Tenant is
obtained, Landlord shall, credit the portion which relates to the Demised
Premises to the next payment due under this Section. A copy of a tax bill or
assessment bill submitted by Landlord to Tenant shall at all times be sufficient
evidence of the amount of Taxes assessed or levied against the property to which
such bill or return relates. Tenant shall furnish to Landlord promptly after
payment of any Taxes, and at any time within five (5) days after
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Landlord's request, receipts for the payment of the same or other evidence
satisfactory to Landlord that such payments have been made. In addition,
Tenant shall furnish to Landlord, semi-annually throughout the Term, a
certificate of Tenant (or an officer of Tenant, if Tenant is a corporation),
stating that all Taxes have been paid to date. In addition, if Tenant shall
fail to pay any Taxes, or any part thereof, Landlord shall have the right,
but shall not be obligated, to pay the same, and all amounts so paid,
including, but not limited to, costs, penalties and interest, shall
constitute Additional Rent hereunder, and shall be repaid to Landlord by
Tenant immediately on rendition of a bill therefor by Landlord, and in the
event of nonpayment Landlord shall have, in addition to all other rights and
remedies, all the rights and remedies provided for herein or by law in case
of nonpayment of Annual Base Rent.
8.4 INTENTIONALLY OMITTED.
8.5 RIGHT TO CONTEST TAXES
Tenant shall have the right to contest the amount of the Taxes at
Tenant's sole cost and expense, by the appropriate proceedings diligently
contested in good faith. Notwithstanding such proceedings, Tenant shall promptly
pay and discharge such Taxes and any penalties or interest assessed thereon,
unless such proceedings and the posting of a bond or other security shall (a)
operate to prevent or stay the collection of the Taxes and secure any accruing
penalties or interest and (b) prevent Landlord's default in the payment of Taxes
required under any mortgage upon the Demised Premises. Landlord agrees to join
Tenant in such proceedings, if necessary, provided Tenant pays all costs and
expenses incurred by Landlord, including reasonable actual attorneys' fees.
8.6 TENANT'S TAXES
Tenant shall pay all real and personal property taxes levied or
assessed against Tenant's property and improvements upon or affixed to the
Demised Premises, including taxes attributable to all alterations, additions, or
improvements made by Tenant.
SECTION 9
USE OF DEMISED PREMISES
9.1 USE OF DEMISED PREMISES
Tenant shall use and occupy the Demised Premises during the Lease Term
only for the purpose stated in Section 1, and attendant office use and for no
other purpose without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. Tenant shall not use or permit any person to use
the Demised Premises or any part thereof for any use or purpose other than the
use stated in Section I or in violation of any law, statute, order, ordinance,
code, rule or regulation of any federal, state or municipal body or other
governmental agency or authority having jurisdiction thereof, including, without
limitation, occupational safety and health requirements, community right to know
requirements, requirements pertaining to the possession, generation,
transportation, treatment and disposal of hazardous substances and hazardous
wastes, or pollution standards or requirements ("Laws"), or any building and use
restrictions ("Restrictions") affecting the Demised Premises, if any. Tenant
shall comply with all such present and future Laws
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and Restrictions affecting the Demised Premises and the cleanliness, safety,
occupation and use of the same, at Tenant's sole cost and expense. Tenant
shall, at Tenant's expense, obtain such approvals, permits or certificates,
including, without limitation, a certificate of occupancy, or other occupancy
permit that may be required in order for Tenant to occupy and use the Demised
Premises. Landlord and Tenant shall promptly notify each other of, and
provide each other with copies of, all notices, requests, orders, complaints
or other correspondence directed to Landlord or Tenant, as the case may be,
from any federal, state or municipal body or governmental agency or authority
pertaining to any actual or alleged violation of Laws or Restrictions.
9.2 CARE OF DEMISED PREMISES
Tenant shall keep the Demised Premises orderly, neat, safe and clean
and free from rubbish and dirt at all times. Tenant shall keep the driveways and
walkways within the Demised Premises free from trash and garbage. Tenant shall
not burn any trash or garbage at any time in or about the Demised Premises. At
the expiration or sooner termination of the Lease Term, Tenant shall surrender
the Demised Premises in as good a condition and repair as existed at the time
Tenant took possession, reasonable wear and tear excepted.
9.3 HAZARDOUS SUBSTANCES
Tenant shall not cause or permit the Demised Premises to be used to
generate, manufacture, refine, transport, treat, dispose, produce or process
hazardous substances as defined in Section 101(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
ss.9601(14), hazardous wastes as defined in Section 1004(5) of the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss.6903(5) or extremely
hazardous substances as defined in the Emergency Planning and Community
Right-To-Know Act of 1986, 42 U.S.C. ss.11001 ET SEQ. or any other hazardous or
toxic substances or uristes as defined in any other federal, state or local
Environmental Laws (hereinafter collectively referred to as "Hazardous
Substances"). Hazardous Substances shall also include any petroleum or asbestos
containing materials. Environmental Laws mean any applicable federal, state,
county or local statutes, laws, regulations, rules, ordinances, or codes
relating to environmental matters, including by way of illustration and not by
way of limitation, the Clean Air Act, the Federal Water Pollution Control Act of
1972, the Resource, Conservation and Recovery Act of 1976, the Comprehensive
Environmental, Response, Compensation and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Federal Hazardous Materials
Transportation Act, the Toxic Substance Control Act, and any amendments or
extensions thereof, and any rules, regulations, orders, standards or guidelines
issued pursuant to any of the aforesaid and all other applicable environmental
standards or requirements. Notwithstanding the foregoing or anything to the
contrary contained herein, Tenant shall have the right to store hazardous
substances at the Demised Premises which are typically kept by tenants engaged
in businesses similar to Tenant, provided that such storage is in compliance
with all applicable laws relating to such hazardous substances. Landlord shall
remain liable for any contamination existing at the Demised Premises on or prior
to the Acquisition Date (as hereinafter defined).
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9.4 AFFIDAVIT AND QUESTIONNAIRE
Tenant shall submit to Landlord annually, or more often if reasonably
requested by Landlord or Landlord's mortgagee, a sworn affidavit signed by the
Chief Officer of Tenant, setting forth in detail, the identity, quantity and
purpose of all Hazardous Substances and any similar substances used or present
on the Demised Premises and the dates and period of time that such substances
were brought onto or retained on the Demised Premises.
9.5 ENVIRONMENTAL REPORT
Within sixty (60) days prior to the expiration of the Lease Term or any
extension of the Lease Term, if any, Tenant shall have the Demised Premises
thoroughly inspected by an environmental consultant reasonably acceptable to
Landlord for purposes of determining whether the Demised Premises is free from
all Hazardous Substances. Tenant shall deliver to Landlord a copy of the
environmental consultant's report thirty (30) days prior to the expiration of
the Lease Term. In the event the report discloses the existence of any Hazardous
Substances, with respect to which there is required any clean-up or any other
form of remediation or other response (collectively "Remediation") as a result
of Hazardous Substances that are not identified in (i) the Phase I Environmental
Site Assessment Report, prepared by AKT Environmental Consultants, Inc., dated
December ____, 1996, or (ii) the Baseline Environmental Assessment, prepared by
AKT Environmental Consultants, Inc., dated December ____, 1996, Tenant shall
perform such immediately and deliver the Demised Premises with the conditions
specified in the report "remediated", to the full satisfaction of Landlord. In
the event the conditions specified in the report require Remediation which
cannot be completed prior to the expiration of the Lease Term and Landlord
cannot, prior to such completion, lease the Demised Premises to another party,
Tenant shall be obligated to reimburse Landlord the greater of (1) the fair
market rental value of the Demised Premises, or (2) the Annual Base Rent, as
adjusted, for each day delivery of the Demised Premises to Landlord in the
required condition is delayed beyond the expiration of the Lease Term. The
Tenant shall also deliver to the Landlord a letter of credit in an amount equal
to the costs of Remediation plus either the fair market rental value of the
Demised Premises or the Annual Base Rent, as adjusted, at least ten (10) days
prior to the expiration of the Lease Term. For the purposes of the preceding
sentence, the costs of Remediation shall be deemed to be that amount so
determined by the environmental consultant.
9.6 OBLIGATION OF TENANT
The obligations and liabilities of Tenant under Sections 9.1 through
9.5, shall hereby survive termination of this Lease.
SECTION 10
INDEMNITY; NON-LIABILITY
10.1 INDEMNITY
(a) Tenant covenants to indemnify Landlord (except for loss or damage
resulting from the gross negligence or willful misconduct of Landlord, its
agents or employees), each superior lessor and superior mortgagee, and any
managing agent of Landlord, and their
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respective officers, directors, stockholders, beneficiaries, partners,
representatives, agents and employees, and save them harmless from and
against any and all claims, actions, damages, liability, cost and expense,
including reasonable attorneys' fees, in connection with all losses,
including loss of life, personal injury and/or damage to property, arising
from or out of any occurrence in, upon or at the Demised Premises or the
occupancy or use by Tenant of the Demised Premises or any part thereof, or
arising from or out of Tenant's failure to comply with any provision of this
Lease or occasioned wholly or in part by any act or omission of Tenant, its
subtenants, agents, contractors, suppliers, employees, servants, invitees or
licensees, in each case, only to the extent in excess of any insurance
proceeds collectible by Landlord or such injured party with respect to such
damage or injury (subject to the provisions of Section 13.4). The obligations
of Tenant under this Section 10.1(a) shall survive the expiration or sooner
termination of this Lease.
(b) Landlord agrees to indemnify Tenant (except for loss or
damage resulting from the gross negligence or willful misconduct of Tenant, its
agents, or employees), its officers, directors, stockholders, beneficiaries,
partners, representatives, agents and employees, and save them harmless from and
against any and all claims, actions, damages, liability, cost and expense,
including reasonable attorneys' fees, in connection with all losses, including
loss of life, personal injury and/or damage to property, arising from or out of
any occurrence in, upon or at areas of the Building not leased to or occupied by
Tenant, in each case, only to the extent in excess of any insurance proceeds
collectible by Tenant or such injured party with respect to such damage or
injury (subject to the provisions of Section 13.4), but Landlord shall have no
liability for consequential damages. The obligations of Landlord under this
Section 10.1(b) shall survive the expiration or sooner termination of this
Lease.
(c) In case any party indemnified pursuant to the foregoing
terms of Section 10.1(a) or 10.1(b), as the case may be, shall, without fault,
be made a party to any litigation commenced by or against the indemnifying
party, or if any such indemnified party shall, in its reasonable discretion,
determine that it must intervene in such litigation to protect its interest
hereunder, including, without limitation, as to Landlord, the incurring of
costs, expenses, and attorneys' fees in connection with relief of Tenant ordered
pursuant to the Bankruptcy Code (11 USC ss. 101 ET. SEQ.), then the indemnifying
party shall protect and hold such indemnified party harmless by attorneys
reasonably satisfactory to such indemnified party and shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by such party in
connection with such litigation. The provisions of this Section 10.1(c) shall
survive the expiration or sooner termination of this Lease.
10.2 NON-LIABILITY
Neither Landlord nor Landlord's agents, officers, directors,
shareholders, partners or principals (disclosed or undisclosed) shall be liable
to Tenant or Tenant's agents, employees, contractors, invitees or licensees or
any other occupant of the Demised Premises for, and Tenant shall save Landlord,
the lessor under any underlying lease, any mortgagee of the Demised Premises and
their respective agents, employees, contractors, officers, directors,
shareholders, partners and principals (disclosed or undisclosed) harmless from
any loss, cost, liability, claim, damage, expense (including reasonable
attorneys' fees and disbursements), penalty or fine incurred in connection with
or arising from any injury to Tenant or to any other person or for any damage
to, or loss (by theft or otherwise) of, any of Tenant's
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property or of the property of any other person, irrespective of the cause of
such injury, damage or loss (including the acts or negligence of any tenant
or of any owners or occupants of adjacent or neighboring property or caused
by operations in construction of any private, public or quasi-public work) or
from any latent or patent defects in the Demised Premises, except to the
extent due to the gross negligence or willful misconduct of Landlord or
Landlord's agents, it being understood that no property, other than such as
might normally be brought upon or kept in the Demised Premises as incidental
to the reasonable use of the Demised Premises for the purposes herein
permitted will be brought upon or be kept in the Demised Premises; provided,
however, that even if due to any such gross negligence or willful misconduct
of Landlord or Landlord's agents, Tenant waives, to the full extent permitted
by law, any claim for consequential damages in connection therewith and
Landlord and Landlord's agents shall not be liable, to the extent of Tenant's
insurance coverage, for any loss or damage to any person or property even if
due to the negligence of Landlord or Landlord's agents.
10.3 LIABILITY INSURANCE
Tenant shall procure and keep in effect during the Lease Term, for the
benefit of Landlord and any mortgagee of the Demised Premises, liability
insurance affording the coverage and in the amount as is customarily carried by
either Tenant or HA-LO Industries, Inc. with respect to properties similar to
the Demised Premises owned or leased by it. Such insurance policies shall name
Landlord and any mortgagee of the Demised Premises as additional insureds by
specific endorsement. Tenant shall also maintain all other insurance and/or
other amounts required by law or by Landlord's mortgagee.
10.4 TENANT'S CONTRACTOR'S INSURANCE
Tenant shall require any contractor performing work on the Demised
Premises to take out and keep in force, at no expense to Landlord, (a)
comprehensive general liability insurance, including contractor's liability
coverage, contractual liability coverage, completed operations coverage, broad
form property damage endorsement and contractor's protective liability coverage,
to afford protection to the limit, for each occurrence, of not less than Three
Million Dollars ($3,000,000.00) with respect to personal injury or death and
Five Hundred Thousand Dollars ($500,000.00) with respect to property damage; and
(b) worker's compensation or similar insurance in form and amounts required by
law. The liability insurance shall name Landlord and any mortgagee of the
Demised Premises, or any portion thereof, as additional insureds by specific
endorsement.
10.5 DELIVERY OF POLICY AND SPECIAL ENDORSEMENT
The insurance policies required by this Section 10 shall contain
provisions or special endorsements satisfactory to Landlord and Landlord's
mortgagee, if any, prohibiting cancellation, alterations, changes, amendments,
modifications, deletions or reductions in coverage either at the instance of
Tenant or the insurance company issuing the policy, without at least thirty (30)
days prior written notice having been given to Landlord at the address stated
above. Original insurance certificates and copies of insurance policies and all
renewals thereof, together with receipts evidencing payment in full of the
premiums thereon, shall be delivered promptly to Landlord and in no event less
than thirty (30) days prior to expiration of such insurance.
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SECTION 11
MAINTENANCE AND REPAIRS
11.1 MAINTENANCE AND REPAIRS
Tenant shall, at its sole cost and expense, at all times during the
Lease Term, maintain and repair and keep neat and in good appearance, repair and
condition the Demised Premises and all parts thereof, including, but not limited
to, the roof, foundations, exterior, interior, ceiling, electrical system,
plumbing system, HVAC system, storm sewers, sanitary sewers, water main, the
driveways, walkways, parking area, lighting facilities, landscaping and land,
which are part of the Demised Premises. The plumbing system, including the
sewage facility, serving the Demised Premises shall not be used for any purpose
other than for which it was constructed and Tenant shall not introduce any
matter therein which results in blocking such system. Tenant shall, at its sole
risk, cost and expense, promptly make all needed repairs, replacements and
restorations, interior and exterior, ordinary and extraordinary, structural and
non-structural, foreseen and unforeseen, in and to the Demised Premises
(including, but not limited to, the roof and foundations) and equipment and
personal property now or hereafter erected upon or installed in or forming a
part of the Demised Premises, including, without limitation, vaults, sidewalks,
curbs, water, sewer and gas connections, meters, pipes and mains, and all other
fixtures and equipment now or hereafter belonging to, adjoining or connected
with the Demised Premises or used in its operation. All such repairs,
restorations and replacements shall be of good quality sufficient for the proper
maintenance and operation of the Demised Premises and shall be constructed and
installed in compliance with all Laws and insurance requirements. To the extent
possible, repairs, restorations and replacements shall be at least equivalent in
quality to the original work or the property replaced, as the case may be.
Tenant shall, at its sole cost and expense, contract with contractors approved
by Landlord, which approval shall not be unreasonably withheld or delayed, for
the performance of all maintenance and repairs required of Tenant under this
Lease. Tenant shall perform such maintenance and repair so as to maintain the
Demised Premises in a first-class condition. Such maintenance and repair
obligations shall include items deemed to be capital improvements for tax
purposes. The maintenance and repair obligations of Tenant hereunder shall
survive termination of this Lease.
11.2 COMPLIANCE WITH LAWS
During the Lease Term, Tenant, at its sole cost and expense, shall make
any repairs, additions, modifications or alterations to the Demised Premises,
regardless of the nature thereof, which are required by any Laws or Restrictions
(as defined in Section 9.1) or required by the insurance carrier to maintain the
insurance required under this Lease.
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SECTION 12
TENANT'S ALTERATIONS
12.1 ALTERATIONS
Tenant shall not make any alterations, additions, modifications or
improvements ("Alterations") to the Demised Premises which Alterations cost in
excess of $100,000.00, in the aggregate, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. If such
Alterations require consent by or notice to the holder of any mortgage on the
Demised Premises, Tenant, notwithstanding anything to the contrary contained in
this Article, shall not proceed with the Alterations until such consent has been
received, or such notice has been given, as the case may be, and all applicable
conditions and provisions of any such mortgage with respect to the proposed
Alterations have been met or complied with at Tenant's expense; and Landlord, if
it consents to the Alterations, will request such consent or give such notice,
as the case may be. Landlord will not unreasonably withhold its consent with
respect only to nonstructural Alterations which do not modify the exterior of
the Building, do not adversely affect the architectural design or systems as
described in Section 11.1, will not result in a violation of or require a change
in any certificate of occupancy applicable to the Demised Premises, and do not
involve any demolition work or which do not change the character of the Demised
Premises. Tenant shall notify Landlord in writing and obtain prior written
consent of Landlord for any Alterations which involve asbestos-based fire
retardants, ceiling tiles, pipes or other asbestos-containing materials. All
alterations made by Tenant to the Demised Premises, other than Tenant's trade
fixtures, shall become the property of Landlord and shall remain upon and be
surrendered with the Demised Premises at the termination of this Lease, without
molestation or injury unless Landlord consents in writing to Tenant's removal of
such alterations and Tenant repairs any damage or injury caused thereby in a
good and workmanlike manner. Notwithstanding anything to the contrary herein,
Landlord, at its option, may at the expiration of the Lease Term require Tenant,
at Tenant's sole cost and expense, to remove any Alterations (other than
Tenant's trade fixtures) made by Tenant during the Lease Term and to promptly
repair any damage or injury caused thereby in a good and workmanlike manner. All
alterations made by Tenant or the removal thereof shall be made free of all
liens and encumbrances and in compliance with all Laws and Restrictions. Tenant,
at its expense, shall (a) obtain all necessary governmental permits and
certificates for the commencement and prosecution of the Alterations and for
final approval thereof upon completion, (b) deliver copies thereof to Landlord,
and (c) cause the Alterations to be performed in compliance therewith and in
compliance with all insurance requirements and all applicable requirements of
mortgagees, and in good and first class workmanlike manner, using materials and
equipment at least equal in quality and class to the original installations of
the Demised Premises. Notwithstanding anything to the contrary contained in this
Lease, Tenant, at its expense, after reasonable prior notice to Landlord, may
contest, by appropriate proceedings prosecuted diligently and in good faith, the
validity or applicability of any lien filed against the Demised Premises,
provided that: (i) Landlord shall not be subject to criminal penalty or to
prosecution for a crime, nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, nor shall the certificate(s) of occupancy
for the Demised Premises be suspended or threatened to be suspended by reason of
such contest; (ii) before the commencement of such contest, Tenant shall provide
Landlord, each superior lessor and superior mortgagee, any managing agent of
Landlord, and their respective
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officers, directors, shareholders, beneficiaries, partners, representatives,
agents and employees with an indemnity reasonably satisfactory to such
parties against the cost of liability resulting from or incurred in
connection with such contest; (iii) such contest shall not constitute or
result in any violation of the terms of any superior lease or superior
mortgage, or if any such superior lease and/or superior mortgage shall
condition such contest upon the taking of action or furnishing of security by
Landlord, such action shall be taken and such security shall be furnished at
the expense of Tenant; and (iv) Tenant shall keep Landlord regularly advised
as to the status of such proceedings. Without limiting the application of the
above, Landlord shall be deemed subject to prosecution for a crime if
Landlord, superior lessor, superior mortgagee or any of their officers,
directors, partners, shareholders, agents or employees may be charged with a
crime of any kind whatever. Pending the resolution of such contest, Tenant
shall be required to post a bond in the amount required to discharge such
lien. Tenant shall indemnify, defend and hold Landlord harmless from and
against any such liens, encumbrances and violations of Laws and Restrictions
or claims relating thereto. The existence of any lien or encumbrance or
without the posting of a bond insuring against collection of the same from
Demised Premises, violation of Laws or Restrictions, shall constitute a
default hereunder. The repair obligations of Tenant hereunder shall survive
the termination of this Lease.
12.2 CONSTRUCTION LIENS
Notice is hereby given that Landlord shall not be liable for any labor
or materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversionary or other estate or interest of Landlord in and to the
Demised Premises. If Tenant shall suffer or permit any construction liens to be
filed against the Demised Premises or any part thereof by reason of work, labor,
services or materials supplied or claimed to have been supplied to Tenant or
anyone holding the Demised Premises or any part thereof through or under Tenant,
Tenant shall cause the same to be discharged of record within twenty (20) days
after the date of filing the same. If Tenant shall fail to discharge such
construction lien within such period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to, discharge the
same either by paying the amount claimed to be due or by procuring the discharge
of such lien by deposit in court or by giving security or in such other manner
as is, or may be, prescribed by law. Any amount paid by Landlord for any of the
aforesaid purposes, and all actual legal and other expenses of Landlord,
including actual counsel fees, incurred in connection with the discharge of any
such lien, together with all necessary disbursements in connection therewith,
and together with interest thereon at a rate per annum equal to the Prime Rate
publicly announced by Comerica Bank from time to time, plus four percent (4%),
but in no event higher than the legal limit, from the date of payment, shall be
repaid by Tenant to Landlord on demand, and if unpaid may be treated as
Additional Rent. Nothing herein contained shall imply any consent or agreement
on the part of Landlord to subject Landlord's estate to liability under any
construction lien law.
SECTION 13
PROPERTY INSURANCE, REBUILDING
AND WAIVER OF SUBROGATION
13.1 PROPERTY INSURANCE
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13.1.1 Tenant shall, during the Lease Term, carry at its expense
insurance for the benefit of Landlord and any mortgagee of the Demised Premises,
or a portion thereof, against fire, vandalism, malicious mischief and such other
perils as are from time to time included in a standard extended coverage
endorsement and, at the option of any superior mortgagee, special extended
coverage endorsements, insuring the Demised Premises for not less than the full
replacement and reconstruction cost, valued on a replacement cost basis of the
Building and improvements which are a part of the Demised Premises. If Tenant
fails to maintain such insurance coverage, Landlord may, at its option, procure
such insurance for the account of Tenant and the cost thereof shall be paid by
Tenant to Landlord upon delivery to Tenant of bills therefor. The insurer or
insurers shall be such as are the issuers of the insurance policies currently in
effect at Tenant's or HA-LO Industries, Inc.'s other owned or leased properties
similar to the Demised Premises. The policies or certificates of all such
insurance and all renewals thereof, together with receipts evidencing payment in
full of the premiums thereon, shall be delivered promptly to Landlord and in no
event less than thirty (30) days prior to the expiration of such insurance. The
terms and conditions of all policies and endorsements thereto shall be in the
form and content of the policies of insurance currently maintained by Tenant or
HA-LO Industries, Inc. with respect to other owned or leased properties similar
to the Demised Premises. All of the required policies of insurance shall contain
provisions satisfactory to Landlord prohibiting cancellation, alterations,
changes, amendments, modifications, deletions or reductions in coverage, either
at the instance of the Tenant or of the insurance company issuing the policy,
without at least thirty (30) days prior written notice having been given to
Landlord at the address of Landlord stated above, and shall name Landlord as a
loss payee and any mortgagee of the Demised Premises as a loss payee under the
standard mortgage loss payable endorsement. Tenant shall not, without the prior
written consent of Landlord, cancel, alter, change, amend, modify, delete or
reduce the coverage of any required policy of insurance. In the event of loss or
damage, the proceeds of the insurance shall be paid to Landlord and such
mortgagee alone, to be used to rebuild in accordance with Section 13.2 hereof.
Landlord is authorized to adjust and compromise such loss without the consent of
Tenant, to correct, receive and receipt for such proceeds in the name of
Landlord and Tenant and to endorse Tenant's name upon any check in payment
thereof. The power granted hereby shall be deemed to be coupled with an interest
and shall be irrevocable.
13.1.2 During the Lease Term, Landlord shall carry rental interruption
insurance, in an amount equal to Tenant's Annual Base Rent for twelve (12) full
months under this Lease plus the total of the estimated costs to Tenant of
Taxes, utilities and insurance premiums for such twelve (12) month period.
Tenant shall, from time to time, reimburse Landlord for the total cost of such
insurance, such reimbursement to be made within fifteen (15) days after receipt
of a written statement from Landlord setting forth such cost.
13.1.3 Tenant shall, during the Lease Term, carry, at its expense,
insurance against fire, vandalism, windstorm, explosion, smoke damage, malicious
mischief, and such other perils as are from time to time included in a standard
extended coverage endorsement, insuring Tenant's trade fixtures, furnishings,
equipment and all other items of personal property of Tenant located on or
within the Demised Premises, in an amount equal to the actual replacement cost
thereof and furnish Landlord with a certificate evidencing such cover-age. If
Tenant fails to maintain such insurance coverage, Landlord may, at its option,
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procure such insurance for the account of Tenant and the cost thereof shall be
paid by Tenant to Landlord upon delivery to Tenant of bills therefor.
13.1.4 Tenant shall not carry any stock of goods or do anything in or
about the Demised Premises which will in any way tend to increase the insurance
rates on the Demised Premises. If Tenant installs any electrical equipment that
overloads the electrical lines in the Demised Premises, Tenant shall, at its own
expense, make whatever changes are necessary to comply with the requirements of
the insurance underwriters or governmental authorities having jurisdiction.
Tenant shall not violate or knowingly permit any occupant of the Demised
Premises, or any part thereof, to violate any of the conditions or provisions of
any such policy, and Tenant shall so perform and satisfy the requirements of the
insurers writing such policies so that at all times insurers of good standing,
satisfactory to Landlord, shall be willing to write or continue such insurance.
13.2 REBUILDING
In the event, during the Lease Term, the improvements on the Demised
Premises are damaged or destroyed in whole or in part by fire or other casualty
insured under the insurance carried by Tenant pursuant to Section 13.1 and the
insurance proceeds are not required to be paid to any mortgagee under any
mortgage upon the Demised Premises, then Landlord shall, after the adjustment of
the insurance loss and receipt of insurance proceeds, immediately commence and
diligently pursue the restoration of such improvements to good and tenantable
condition unless Landlord shall elect not to rebuild as hereinafter provided. If
(a) the insurance proceeds are insufficient to pay the full cost of the repairs
(unless Tenant deposits sufficient funds with Landlord pursuant to Section 13.3
to pay the full cost of the repairs), (b) more than thirty-five percent (35%) of
the improvements on the Demised Premises shall be destroyed by fire or other
casualty, or (c) during the last twelve (12) months of the Lease Term (unless
Tenant has previously exercised its option to renew), more than twenty percent
(20%) of the improvements on the Demised Premises shall be destroyed by fire or
other casualty, then each of Landlord and Tenant may, at its option, terminate
this Lease by notice in writing delivered to the other within one hundred twenty
(120) days after the occurrence of such fire or other casualty. If Landlord is
obligated or elects to perform such repairs, the improvements on the Demised
Premises are partially or totally untenantable, the fire or other casualty
occurred through no fault directly or indirectly or Tenant, its employees,
agents, contractors, customers or invitees and provided that rental interruption
insurance is available at the time in question for similar properties in the
locality in which the Demised Premises are located, then the Rent shall be
proportionately reduced during the period of rebuilding, based upon the
untenantable portion of the improvements on the Demised Premises, provided that
Tenant does not in fact occupy such untenantable portion of the Demised
Premises.
13.3 TENANT'S DEPOSIT FOR REBUILDING
If the insurance proceeds available for rebuilding are insufficient to
cover the cost of repair or restoration of the Demised Premises as required
hereunder, Tenant, so long as Tenant is not in default, may elect to deposit
with Landlord, or to the title company holding the insurance proceeds in escrow,
an amount which in combination with the insurance proceeds shall be sufficient
for such repairs or restorations. In the event Tenant elects not to deposit such
funds, then Landlord shall be relieved of any obligation to repair or restore
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the Demised Premises. Landlord shall have no obligation hereunder if the
insurance proceeds are paid to any mortgagee under any mortgage upon the Demised
Premises.
13.4 WAIVER OF SUBROGATION
Any insurance policy carried by Landlord or Tenant or any policy
covering both the interest of Landlord or Tenant under this Section 13 shall
include a provision under which the insurance company waives all right of
recovery by way of subrogation against Landlord or Tenant in connection with any
loss or damage covered by any such policy. Landlord or Tenant hereby release and
discharge each other from any liability whatsoever arising from any loss, damage
or injury caused by fire or other casualty to the extent of the insurance
covering such loss, damage or injury.
SECTION 14
EMINENT DOMAIN
14.1 TOTAL CONDEMNATION
If the whole of the Demised Premises shall be taken by any condemning
authority under the power of eminent domain or conveyed in lieu of any such
taking, then the term of this Lease shall cease as of the date actual physical
possession of the Demised Premises is transferred to such condemning authority
and the Rent shall be paid up to that day with a proportionate refund by
Landlord of such Rent as may have been paid in advance for a period subsequent
to the date of the transfer of actual physical possession.
14.2 PARTIAL CONDEMNATION
If only a part of the Demised Premises shall be taken by any condemning
authority under the power of eminent domain or conveyed in lieu of any such
taking, then, except as otherwise provided in this Section, this Lease and the
term shall continue in full force and effect and there shall be no reduction in
the Rent. From and after the date actual physical possession of a portion of the
building or parking area on the Demised Premises is transferred to such
condemning authority, the Rent shall be reduced in the proportion which the
floor area of the part of the building on the Demised Premises so acquired, if
any, bears to the total floor area of the building on the Demised Premises
immediately prior to the date such actual physical possession is transferred. If
(a) more than thirty-five percent (35%) of the floor area of all buildings on
the Demised Premises or such other portion of the Demised Premises as shall
materially interfere with Tenant's use of the Demised Premises as permitted
hereunder shall be taken under eminent domain or conveyed in lieu of any such
taking, or (b) more than thirty-five percent (35%) of the parking spaces on the
Demised Premises shall be taken under eminent domain or conveyed in lieu of any
such taking and Landlord is unable to provide parking spaces on land immediately
contiguous to the Demised Premises equal to one-half of the number of parking
spaces taken, Landlord and Tenant shall each have the right to terminate this
Lease and declare the same null and void, by written notice of such intention to
the other party within thirty (30) days after the date the order is entered in
such eminent domain proceeding establishing the date upon which actual physical
possession shall be transferred to the condemning authority. In the event
neither party exercises said right of termination, the Lease Term shall cease
only on the part of the
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Demised Premises so taken as of the date actual physical possession is
transferred to the condemning authority and Tenant shall pay Annual Base Rent
and Additional Rent up to that day, with appropriate refund by Landlord of
such Rent as may have been paid in advance for a period subsequent to the
date actual physical possession is transferred, and thereafter all the terms
herein provided shall continue in effect, except that the Rent shall be
reduced in the proportion stated above and Landlord shall, at its own cost
and expense, make all the necessary repairs or alterations to the remaining
Demised Premises so as to cause it to be a complete architectural unit.
14.3 LANDLORD'S AND TENANT'S DAMAGES
All damages awarded for such taking under the power of eminent domain
or any consideration paid for a conveyance in lieu thereof, whether for the
whole or a part of the Demised Premises, shall belong to and be the property of
Landlord whether such damages or other consideration shall be awarded as
compensation for diminution in value to the leasehold or to the fee of the
Demised Premises; provided, however, that Landlord shall not be entitled to the
award made for depreciation to, and cost of removal of, Tenant's stock and
fixtures. Tenant shall be entitled to seek a separate award for loss of Tenant's
fixtures.
SECTION 15
ACCESS TO PREMISES
Landlord or Landlord's agents and designees shall have the right to
enter the Demised Premises at all reasonable times upon five (5) days' prior
notice (which may be telephonic), except that no notice shall be required in the
event of an emergency, to inspect or examine the same, and to show them to
prospective purchasers or mortgagees of the Demised Premises and to make such
tests, repairs, alterations, improvements or additions as Landlord may
reasonably deem necessary or desirable, and Landlord shall be allowed to take
all material into and upon the Demised Premises that may be required therefor
without the same constituting an eviction of Tenant in whole or in part, and the
Annual Base Rent and Additional Rent shall in no way abate (provided the Demised
Premises are not rendered entirely unusable thereby, and if a portion of the
Demised Premises is rendered entirely unusable thereby and Tenant does not in
fact use such portion of the Premises, then there shall be a proportionate
abatement of Rent) while said repairs, alterations, improvements, or additions
are being made, by reason of loss or interruption of the business of Tenant, or
otherwise. In the exercise of its rights under this Section, Landlord shall use
all reasonable efforts, which shall not include the use of overtime labor, to
minimize interference with Tenant's conduct of business in the Demised Premises
during normal business hours. During the six (6) months prior to the expiration
of the Lease Term, Landlord may exhibit the Demised Premises to prospective
lessees and place upon the Demised Premises the usual "To Let" or "For Rent"
notices.
SECTION 16
FIXTURES AND EQUIPMENT
All fixtures and equipment installed by Tenant (other than Tenant's
trade fixtures) during the term of this Lease which are incorporated and affixed
to the Building or
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improvements and cannot be removed without damage or injury to the Building
or improvements shall not be removed without Landlord's consent (but shall be
removed at Landlord's direction), and all fixtures and equipment not removed
shall remain the property of Landlord at the termination of the Lease Term.
In the event Landlord consents to such removal (or directs Tenant to perform
any such removal), Tenant shall remove such fixtures in accordance with all
applicable Laws and Restrictions and shall promptly repair any such damage or
injury in a good and workmanlike manner.
SECTION 17
BANKRUPTCY AND INSOLVENCY OF TENANT
If the estate created hereby shall be taken in execution or by other
process of law, or if Tenant shall be declared bankrupt or insolvent, according
to law, or if any receiver be appointed for the business and property of Tenant
or if any assignment shall be made of Tenant's property for the benefit of
creditors (and as to such matters involuntarily taken against Tenant, Tenant,
has not within ninety (90) days thereof obtained release or discharge
therefrom), then this Lease may be cancelled at the option of Landlord. If, as a
matter of law, Landlord has no right upon the bankruptcy of Tenant, to terminate
this Lease, then the rights of Tenant, as debtor, or its trustee, shall be
deemed abandoned or rejected unless Tenant, as debtor or its trustee, (a) within
sixty (60) days after the date of the Order for Relief under Chapter 7 of the
Bankruptcy Code or sixty (60) days after the date the Petition is filed under
Chapter 11 of the Bankruptcy Code assumes in writing the obligations under this
Lease, (b) cures or adequately assures the cure of all defaults existing under
this Lease on Tenant's part within sixty (60) days and (c) furnishes adequate
assurances of future performance of the obligations of Tenant under this Lease
within such sixty (60) days. Adequate assurance of curing defaults means the
posting with Landlord of a sum in cash sufficient to defray the costs of such
cure. Adequate assurance of future performance of the Tenant's obligations under
this Lease means increasing any existing security deposit or creating a security
deposit in an amount equal to three (3) Monthly Installments of Base Rent.
Tenant shall not be permitted to assume and assign this Lease in connection with
any bankruptcy or insolvency proceedings unless: (a) Landlord is provided with
the following information regarding the party desiring to assume the Lease
("Assumptor") which Landlord in its sole and absolute discretion deems
sufficient: (1) organizational information regarding the Assumptor, (2) audited
financial statements for the three (3) most recent fiscal years, and (3) such
other information as Landlord deems appropriate; (b) Landlord determines that
the use of the Demised Premises by the Assumptor is compatible with the
character of the Building; (c) all existing defaults under this Lease are cured
at least ten (10) days prior to any hearings in connection with Tenant's request
to assume and assign the Lease; (d) the Assumptor at any such hearing provides
adequate assurance of its future performance of the Lease as determined by
Landlord in its sole and absolute discretion, which adequately assurance shall
include at least: (1) posting of a security deposit equal to three (3) Monthly
Installments of Base Rent, if such was not already posted by Tenant, (2) paying
in advance to Landlord the next six (6) Monthly Installments of Base Rent, or
posting an irrevocable letter of credit for such amount, (3) establishing with
Landlord an escrow in advance for the full cost of all Taxes and insurance
charges as required under the Lease for the next twelve (12) months of the Lease
and thereafter on an annual basis in advance; (4) providing Landlord with an
unconditional continuing guarantee of the Lease executed by the owners or
officers of the Assumptor; and (5) the Assumptor executes a written agreement
assuming
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the Lease and such Lease amendments as are necessary, which agreements and
amendments are satisfactory to Landlord in its sole and absolute discretion.
SECTION 18
RIGHT TO MORTGAGE
Landlord reserves the absolute right to subject and subordinate this
Lease, at all times, to the lien of any mortgage or mortgages now or hereafter
placed upon the Demised Premises. Although the foregoing subordination is
self-operative, in the event Landlord exercises its right hereunder, Tenant
shall execute and deliver, or join in the execution and delivery of an agreement
which shall provide, among other things, (a) that this Lease is subordinate to
the lien of any mortgage or mortgages upon the Demised Premises and (b) that the
Tenant shall attorn to any foreclosing mortgagee or purchaser at the foreclosure
sale. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant
for purposes of executing and delivering in the name of Tenant such an
agreement. Landlord agrees to request and use reasonable efforts to obtain from
the holder of any superior mortgage or superior lease, as the case may be,
executed after the date hereof a subordination, non-disturbance and attornment
agreement from the mortgagee under such superior mortgage or the lessor under
such superior lease, as the case may be, wherein such mortgagee or lessor, as
the case may be, agrees to recognize the interest of Tenant under this Lease in
the event of foreclosure or in the event of a termination of the superior lease,
as the case may be, provided Tenant is not then in default under this Lease.
Landlord shall have no liability to Tenant if such non-disturbance agreement is
not executed or delivered or, if executed and delivered, the parties thereto
(other than Landlord) do not abide by the respective terms thereof.
SECTION 19
ASSIGNMENT, SUBLETTING AND TRANSFERS BY TENANT
(a) Tenant shall not sell, assign, sublet, hypothecate, encumber,
mortgage or in any manner transfer this Lease or any estate or interest therein
(including any transfer by operation of law or otherwise), the Demised Premises
or any part thereof or permit the use of the Demised Premises by any third party
(collectively "Transfer") without the prior written consent of the Landlord. In
the event of any Transfer by Tenant without Landlord's prior written consent,
Landlord, at its option, may either: (a) accelerate payment of all Rent and
amounts due for Taxes and insurance (which will be paid by Landlord when due)
payable during the balance of the unexpired Lease Term and receive immediate
payment thereof or (b) terminate this Lease, re-enter and repossess the Demised
Premises, and enforce all other remedies available under this Lease or permitted
by law as a result of Tenant's default. Consent by Landlord to one or more
Transfers shall not be deemed to be consent to a subsequent Transfer or to waive
Landlord's rights in connection therewith. The acceptance of Rent or Additional
Rent from an assignee, subtenant or occupant shall not constitute a release of
Tenant from the obligations and covenants in this Lease. Tenant shall remain
liable under this Lease unless and until Landlord executes and delivers a
written release of such liability. Landlord's consent hereunder shall not be
unreasonably withheld only in the event of a Transfer of all or any pail of the
Demised Premises to any parent corporation of Tenant or wholly owned subsidiary
of Tenant. In the event of a Transfer by Tenant, with or
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without Landlord's consent, then an amount equal to fifty percent (50%) of
all rent, sums of money or other economic consideration owed to or received
by Tenant as a result of such Transfer which exceed, in the aggregate, the
total sums of Rent, Additional Rent or other economic consideration which
Tenant is obligated to pay Landlord under this Lease, shall be immediately
payable to Landlord upon receipt by Tenant as Additional Rent under this
Lease without affecting or reducing any obligations of Tenant hereunder.
(b) Tenant shall have the right to assign this Lease or sublet all or
any portion of the Demised Premises without Landlord's consent to any "Related
Entity" (for so long as such entity continues to be a Related Entity), provided
that Tenant gives Landlord prior written notice as provided in clause (i) below,
which notice shall include evidence reasonably satisfactory to Landlord that
such entity is a Related Entity. For purposes hereof, "Related Entity" shall
mean any corporation or other business entity which controls, is controlled by
or is under common control with Tenant, and "control" shall mean ownership of
fifty percent (50%) or more of the outstanding voting capital stock of a
corporation or fifty percent (50%) or more of the beneficial interests of any
other entity and, in either case, the ability effectively to control the
business decisions of Tenant. Tenant shall also have the right to assign this
Lease or sublet all or any portion of the Demised Premises without Landlord's
consent to another entity into which Tenant is merged or consolidated or to
which all or substantially all of Tenant's stock or assets are sold or
transferred, provided, however, that Tenant gives Landlord written notice as
provided in clause (i) below, which notice shall include evidence reasonably
satisfactory to Landlord that after completion of the contemplated transaction,
in Landlord's reasonable judgment, the proposed assignee or subtenant will be of
sound financial condition able to perform its obligations under the Lease or
such sublease, as the cases may be. Further, the shareholders of Tenant shall
have the right, without Landlord's consent, to engage in sales of Tenant's
stock, provided that Tenant's use of the Demised Premises shall continue to be
conducted in the same manner as provided herein. The following conditions shall
apply to any assignment or sublease pursuant to this paragraph: (i) Tenant shall
be required to provide Landlord with not less than thirty (30) days' prior
written notice of such assignment or sublease setting forth the name of such
assignee or subtenant; (ii) Tenant shall not at the time of such assignment or
sublease be in default under any of the terms, covenants or conditions of this
Lease; (iii) Tenant shall not be released or discharged from any of its
obligations under this Lease in connection with or as a result of any such
assignment or sublease; (iv) any such assignee or subtenant shall use the
Demised Premises or such portion thereof as may be subleased only for the uses
permitted pursuant to the terms of this Lease; (v) such assignment or sublease
is made for a valid intracorporate business purpose and is not made to
circumvent the provisions of this Section 19; and (vi) in the case of any
assignment, such assignee shall agree in writing, in form and substance
reasonably acceptable to Landlord, to perform all of the unperformed terms,
covenants and conditions of this Lease, and, in the case of a sublease, the
sublease shall specifically provide that the subtenant will be bound by all of
the terms and conditions of this Lease and the sublease will be subject and
subordinate to this Lease and to all matters to which this Lease is subject and
subordinate.
SECTION 20
SALE OR TRANSFER
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Landlord shall have the right to sell, transfer or assign the Demised
Premises ("Conveyance"). In the event of a Conveyance, Tenant shall attorn to
the purchaser, transferee or assignee ("Transferee") and recognize such
Transferee as Landlord under this Lease and Landlord shall be relieved from all
subsequent obligations and liabilities under this Lease, provided such
obligations are assumed in writing by such Transferee and a copy thereof is
provided to Tenant.
SECTION 21
DEFAULT, RE-ENTRY AND DAMAGES
21.1 DEFAULT
The following shall constitute a default under this Lease: (a) failure
to pay any Annual Base Rent or Additional Rent due hereunder within ten (10)
days after notice that the same is (are) due; (b) failure to perform any of the
other terms and conditions of this Lease (other than as set forth in clause (a)
above or clauses (c) through (e) below), and such failure remains uncured for
thirty (30) days following written notice, or if such default is of such a
nature that it cannot be completely remedied within said period of thirty (30)
days, if Tenant shall not (x) promptly upon the giving by Landlord of such
notice, advise Landlord of Tenant's intention to institute all steps necessary
to remedy such situation, (y) promptly institute and thereafter diligently
prosecute to completion all steps necessary to remedy the same, and (z) complete
such remedy within a reasonable time after the date of the giving of said notice
by Landlord and in any event prior to such time as would either (i) subject
Landlord, Landlord's agents, any superior lessor or superior mortgagee to
prosecution for a crime or (ii) cause a default under any ground lease or any
mortgage covering the Demised Premises; (c) any attempted Transfer (as defined
in Section 19) of the Demised Premises or taking of any other action requiring
Landlord's consent, without receiving such consent; (d) the commission by Tenant
of any waste, which shall include the failure to pay taxes, hazard insurance
premiums and persistent failure to maintain and repair the Demised Premises; or
(e) abandonment or vacating of the Demised Premises for a consecutive period in
excess of 120 days.
21.2 RE-ENTRY AND DAMAGES
In the event of Tenant's default, Landlord, in addition to all of its
other remedies under this Lease, at law or in equity, shall have the right to
re-enter the Demised Premises, with or without process of law, using such force
as may be necessary to remove all persons and property therefrom. Upon such
default, Landlord, at its option, may either terminate this Lease, or without
terminating this Lease, relet the Demised Premises or any part thereof on such
terms and conditions as Landlord deems advisable in its reasonable discretion.
Landlord agrees to use its best efforts to mitigate its damages upon a default
by Tenant and, in connection therewith, to consider in good faith any
prospective replacement tenant(s) procured by Tenant. The proceeds of such
reletting shall be applied (a) First, to the payment of any indebtedness due
from Tenant to Landlord other than Annual Base Rent or Additional Rent
hereunder; (b) Second, to the payment of any reasonable costs of such reletting,
including, without limitation, the cost of any reasonable alterations and
repairs to the Demised Premises, brokerage fees and expenses, advertising
expenses, inspection fees and attorney's fees; (c) Third, to the payment of
Annual Base Rent and Additional Rent due and
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unpaid hereunder; (d) Fourth, to any other damages, costs and expenses
incurred by Landlord as a result of Tenant's breach; and (e) the residue, if
any, shall be held by Landlord and applied in payment of future Annual Base
Rent and Additional Rent as the same may become due and payable hereunder.
Should the proceeds of such reletting during any month be less than the
monthly installment of Annual Base Rent or Additional Rent required
hereunder, then Tenant shall during such month pay such deficiency to
Landlord upon demand. No reentry or taking possession of the Demised Premises
by Landlord shall be construed as an election on its part to terminate this
Lease unless written notice of such intention is given to Tenant. In the
event Landlord elects to terminate this Lease, then Landlord shall have the
right to accelerate all of the Annual Base Rent and Additional Rent due
hereunder for the balance of the term of this Lease and Tenant shall
forthwith pay to Landlord upon demand, as liquidated damages, the deficiency
between the amount of said accelerated rent and the proceeds of reletting, if
any, for what would have otherwise constituted the balance of the Lease Term
or the reasonable rental value of the Demised Premises for such balance of
the Lease Term if the Demised Premises are not relet by Landlord within
thirty (30) days following Tenant's default. In computing such liquidated
damages there shall be added to such deficiency any expenses incurred in
connection with obtaining possession of the Demised Premises and reletting
the Demised Premises, whether such reletting is successful or not, which
expenses include, but are not limited to, attorneys' fees, brokerage fees and
expenses, advertising expenses, reasonable alterations and repairs to the
Demised Premises, and inspection fees.
21.3 WAIVER OF LANDLORD'S LIABILITY
Landlord shall have no liability or responsibility in any way
whatsoever for its failure to relet the Demised Premises or, in the event of
reletting, for failure to collect the rent under such reletting. The failure of
Landlord to relet the Demised Premises or any part thereof shall not release or
affect Tenant's liability for Rent or damages.
21.4 LANDLORD'S RIGHTS CUMULATIVE
All the rights and remedies of Landlord hereunder shall be cumulative
and in addition to all other rights and remedies allowed by law or equity and
may be exercised separately or jointly without constituting an election of
remedies.
21.5 WAIVER OF JURY TRIAL AND COUNTERCLAIM
In the event Landlord commences any proceedings against Tenant in
connection with this Lease, Tenant shall not interpose any non-compulsory
counterclaim in any such proceeding. This shall not, however, be construed as a
waiver of Tenant's right to assert such a claim in any separate action brought
by Tenant. Landlord and Tenant waive trial by jury in any action or proceeding
brought by either party on any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of lessor and lessee, Tenant's use
or occupancy of the Demised Premises, or any claim of injury or damage.
21.6 NON-LIABILITY
Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises
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or for any loss or damage resulting to Tenant or its property from burst,
stopped or leaking water, gas, sewer or steam pipes, or for any damage or
loss of property within the Demised Premises from any other cause whatsoever
(unless the same is due to the gross negligence or willful misconduct of
Landlord), and no such occurrence shall be deemed to be an actual or
constructive eviction from the Demised Premises or result in an abatement of
rental.
SECTION 22
LANDLORD'S RIGHT TO CURE DEFAULTS
If Tenant defaults in the performance of any provision of this Lease,
Landlord shall have the right (but not the obligation) in addition to any and
other rights and remedies in the event of default, to cure such default for the
account of Tenant, without prior notice to Tenant, and Tenant shall upon receipt
of notice thereof and demand for payment from Landlord pay any payment or
expenditure made by Landlord with the next monthly installment of Annual Base
Rent, together with interest at the "prime interest rate" as defined in Section
5.6 plus 4%.
SECTION 23
SECURITY INTEREST
INTENTIONALLY DELETED
SECTION 24
QUIET ENJOYMENT
Landlord covenants that so long as Tenant pays the Rent and is not in
default of any of the terms and conditions of this Lease, Tenant may, subject to
the terms hereof, peacefully and quietly hold and enjoy the Demised Premises for
the Lease Term without interference by Landlord or any person claiming by,
through or under Landlord.
SECTION 25
HOLDING OVER
In the event of Tenant holding over after the expiration of the Lease
Term, then the tenancy shall continue from month to month in the absence of a
written agreement to the contrary, subject to all the terms and provisions
hereof, except the monthly installment of Annual Base Rent shall be equal to 125
percent (125%) of the monthly installments of Annual Base Rent due for the last
full month of the Lease Term.
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SECTION 26
CUMULATIVE REMEDIES AND WAIVER
26.1 CUMULATIVE REMEDIES
Each and every right, remedy and benefit provided by this Lease to
Landlord shall be cumulative and shall not be exclusive of any other right,
remedy or benefit allowed by law. These remedies may be exercised jointly or
severally without constituting an election of remedies.
26.2 WAIVER
One or more waivers by either party hereto of any term and condition
hereof or default by the other party hereunder shall not be construed as a
waiver of such term and condition or default in the future or any subsequent
default for the same cause. Any consent or approval given by Landlord requiring
such consent or approval shall not constitute consent or approval to any
subsequent similar act by Tenant. If either party shall bring an action against
the other to enforce any of the provisions of this Lease or to protect its
interest in any matter arising under this Lease or to recover damages for the
breach of this Lease, the prevailing party in such action shall be entitled to
recover its cost of suit and reasonable attorneys' fees expended or incurred in
connection therewith.
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installment of Annual Base Rent shall be deemed to be other than on
account of the earliest stipulated Rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment of Rent be deemed
an accord and satisfaction, and Landlord shall accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or
pursue any other remedy in this Lease provided.
SECTION 27
DEFINITION OF
LANDLORD, LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease so far as covenants or
obligations on the part of Landlord are concerned shall be limited to mean and
include only the owner or owners at the time in question of the fee of the
Demised Premises, and in the event of any transfer or transfers of the title to
such fee, Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and relieved from
and after the date of such transfer or conveyance of all liability with respect
to the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed, provided that any funds in
the hands of such Landlord or the then grantor at the time of such transfer in
which Tenant has an interest shall be turned over to the grantee and any amount
then due and payable to Tenant by Landlord or the then grantor under any
provision of this Lease, shall be paid to Tenant, it being intended hereby that
the covenants and obligations contained in this Lease on the part of Landlord
shall, subject as aforesaid, be binding on Landlord, its successors and assigns,
only during and in respect of their respective successive periods of ownership.
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If Landlord shall fail to perform any covenant, term or condition of
this Lease upon Landlord's part to be performed, and if as a consequence of such
default Tenant shall recover a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Demised Premises, and Landlord shall not be liable for any
deficiency.
SECTION 28
WASTE
Tenant shall not commit or suffer to be committed any waste upon the
Demised Premises.
SECTION 29
TENANT'S FINANCIAL INFORMATION
Tenant agrees, upon request by Landlord in connection with any proposed
financing of the Demised Premises, to provide to Landlord such financial reports
or statements as may have been prepared (but Tenant shall have no obligation to
prepare new financial statements or to have any unaudited statements audited).
SECTION 30
SIGNS
Tenant will not place or cause to be placed or maintained any sign or
advertising matter of any kind anywhere on the exterior of the Demised Premises
without Landlord's prior written approval. No illuminated signs located in the
interior of the Demised Premises and which are visible from the outside shall
advertise any product. Tenant further agrees to maintain in good condition and
repair at all times any such sign or advertising matter of any kind which has
been approved by Landlord for use by Tenant.
SECTION 31
SECURITY DEPOSIT
INTENTIONALLY DELETED.
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SECTION 32
MISCELLANEOUS
32.1 LEASE CHANGES REQUIRED BY LENDER
This Lease shall be subject to modification of non-economic terms
contained herein at the request of any first mortgage lender furnishing
financing to Landlord in connection with the Demised Premises.
32.2 ENTIRE AGREEMENT
This Lease and exhibits attached hereto and forming a part hereof, set
forth all of the covenants, agreements, stipulations, promises, conditions,
understandings and representations, hereinafter collectively "Representations"
between Landlord and Tenant concerning the Demised Premises and the buildings
and improvements to be constructed thereon. Landlord and Tenant agree that there
are no Representations other than set forth herein and agree to make no claims
against each other based upon Representations not set forth herein.
32.3 MODIFICATION
This Lease shall not be modified or amended unless by a writing signed
by Landlord and Tenant.
32.4 JOINT VENTURE, MORTGAGE
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating relationship of mortgagor and
mortgagee, principal and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither this method of
computation of Rent, nor any other provision contained herein, nor any acts of
the parties herein, shall be deemed to create any relationship between the
parties hereto other than the relationship of lessor and lessee.
32.5 NOTICES
Except as specifically provided otherwise in this Lease, any notices or
demands required under this Lease shall be given in writing and either delivered
personally or sent by certified mail, return receipt requested, postage prepaid
and addressed to the address of Landlord or Tenant as set forth in Section I
hereof or such other address as Landlord or Tenant shall designate from time to
time by written notice to the other and shall be deemed received three (3) days
after being deposited in the mail or upon personal hand-delivery.
32.6 INTENTIONALLY OMITTED.
32.7 ESTOPPEL CERTIFICATE
Upon request by Landlord, Tenant shall, from time to time, execute,
acknowledge and deliver to Landlord a written statement certifying that this
Lease is in full force and
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effect and unmodified (or if modified specifying the nature of the
modification), the dates to which Rent and other charges have been paid, that
Landlord is not in default hereunder (or if in default, specifying the nature
of any default) and such other matters pertaining to the Lease or Tenant's
occupancy of the Demised Premises as Landlord may reasonably request. It is
understood that such statement may be relied upon by Landlord, a prospective
purchaser, mortgagee or assignee of any mortgagee of Landlord's interest in
the Demised Premises or this Lease.
Landlord shall, without charge, at any time and from time to time
during the term of this Lease, but in no event more often than once in any
twelve (12) month period, within thirty (30) days after receipt by Landlord of
written request therefor from Tenant, deliver a duly executed and acknowledged
certificate or statement to Tenant certifying: (a) that this Lease is unmodified
and in full force and effect, or, if there has been any modification, that the
same is in full force and effect as modified, and stating any such modification;
(b) the date of commencement of the term of this Lease; (c) that Annual Base
Rent is paid currently without any offset or defense thereto; (d) the dates to
which the Annual Base Rent and other charges payable hereunder by Tenant have
been paid, and the amount of Annual Base Rent paid in advance; and (e) any other
matter relating to the status of this Lease as shall be reasonably requested by
Tenant; provided, that, in fact, such facts are accurate and ascertainable by
Landlord.
32.8 GENDER
Whenever the singular is used herein, the same shall include the plural
and the masculine, feminine and neuter genders.
32.9 CAPTIONS AND SECTION NUMBERS
The captions, section numbers, article numbers, and index appearing in
this Lease are inserted only as a matter of convenience and in no way define,
limit, construe, or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease.
32.10 BROKER'S COMMISSION
Tenant represents and warrants to Landlord that Tenant has not dealt
with any broker, finder or similar person acting in the capacity of a broker in
connection with this Lease and Tenant agrees to indemnify Landlord and hold it
harmless from all liabilities arising from any claim of any broker, finder or
similar person resulting from or arising out of an alleged agreement or act by
Tenant, including, without limitation, the cost of counsel fees in connection
therewith. The provisions of this Section 32.10 shall survive the expiration or
earlier termination of this Lease.
Landlord represents and warrants to Tenant that Landlord has not dealt
with any broker, finder or similar person acting in the capacity of a broker in
connection with this Lease and Landlord agrees to indemnify Landlord and hold it
harmless from all liabilities arising from any claim of any broker, finder or
similar person resulting from or arising out of an alleged agreement or act by
Landlord including, without limitation, the cost of counsel
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fees in connection therewith. The provisions of this Section 32.10 shall
survive the expiration or earlier termination of this Lease. 32.11 RECORDING
Landlord and Tenant agree to execute and record a memorandum of lease,
in form and substance reasonably satisfactory to Landlord, Tenant and their
respective counsel.
32.12 INTEREST ON PAST DUE AMOUNTS
Any rent, late charges or other sums payable by Tenant to Landlord
under this Lease which are not paid within ten (10) days after written notice
from Landlord shall bear interest at a per annum rate equal to the Prime Rate
(as hereinabove set forth), plus four percent (4%) per annum. Such interest will
be due and payable as Additional Rent upon demand and will accrue from the date
that such Rent, late charges or other sums are payable under the provisions of
this Lease until actually paid by Tenant.
32.13 EXECUTION OF LEASE
The submission of this Lease for examination does not constitute a
reservation of, or option for, the Demised Premises, and this Lease shall become
effective as a lease only upon execution and delivery thereof by Landlord and
Tenant.
32.14 CONSTRUCTION
This Lease shall be construed and enforced in accordance with the laws
of the State of Michigan. If any provision of this Lease, or the application
thereof to any person or circumstances, shall, to any extent be invalid or
unenforceable, the remaining provisions of this Lease shall not be affected
thereby and shall be valid and enforceable.
32.15 BINDING EFFECT
This Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors,
assigns and permitted transferees.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day and year first above written.
IN THE PRESENCE OF: LANDLORD:
MAPLE LANE ACQUISITION LIMITED
LIABILITY COMPANY, a Delaware
limited liability company
By :
- ---------------------------------- ----------------------------------
Its:
- ---------------------------------- ----------------------------------
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TENANT:
CREATIVE CONCEPTS IN ADVERTISING,
INC., a Michigan corporation
By :
- ---------------------------------- ----------------------------------
Its:
- ---------------------------------- ----------------------------------
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March 17, 1999
Mr. Marshall J. Katz
3625 Indian Wells Road
Northbrook, Illinois 60062
RE: FINDER'S COMPENSATION PLAN
Dear Marshall:
The purpose of this letter is to confirm your engagement by HA-LO
Industries, Inc., an Illinois corporation (together, with its subsidiaries,
"HA-LO") for the purpose of your identification of businesses for potential
acquisition by HA-LO, your participation in all phases of review and evaluation
of such businesses, and your assistance to HA-LO in negotiations for the
purchase of the stock or assets of such businesses.
1. SERVICES TO BE RENDERED. You agree that you will perform on a best
efforts basis, solely for the account and benefit of HA-LO, the following
services (the "Services"):
(a) Soliciting the interest of, and identifying in writing to
the executive officers of HA-LO, businesses and sales representatives
for potential transactions in which HA-LO would acquire the stock or
assets of such businesses ("Prospects"); provided that such Prospects
shall be engaged in the operations which are similar to the operations
currently conducted by HA-LO or contemplated to be conducted by HA-LO
pursuant to its long-term business plans;
(b) Making formal and informal introductions to the executive
officers of HA-LO, and HA-LO's outside agents and representatives, of
the owners and key employees of the Prospects;
(c) Reviewing and evaluating the relevant business(es) of the
Prospects, including their operations and financial position, for
compliance with HA-LO's internal requirements as disclosed to you from
time to time, it being understood by HA-LO that you may rely upon
information supplied by the Prospects without independent verification;
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 2
(d) Assisting HA-LO in its purchase negotiations with
the Prospects; and
(e) Performing such other and ancillary services with respect
to the Prospects, and HA-LO's acquisition thereof, as are reasonably
requested by HA-LO and not inconsistent with the provisions of this
Section 1.
For purposes of this Agreement, the term "acquisition" shall mean, in
one or a series of transactions, directly or indirectly, the acquisition by
HA-LO of a majority interest in the voting securities of a Prospect, a merger,
consolidation or similar business combination in which HA-LO acquires a
Prospect, the transfer of assets of a Prospect to HA-LO, the election of, or the
ability by HA-LO to elect nominees to a majority of the Board of Directors of a
Prospect, or any similar purchase, investment or arrangement, however
structured, by which HA-LO acquires an ownership interest in a Prospect or in
such Prospects' operating assets and all or substantially all of the sales
representatives of the Prospects become HA-LO sales representatives.
Given the limited scope of the Services, the contingent nature of your
compensation for the Services and in recognition of your outside business
endeavors, HA-LO acknowledges and agrees that you shall not be required to
devote your full-time to the performance of the Services provided that any
contacts which you establish with Prospects shall be for the exclusive benefit
of HA-LO; and provided, further, that your outside business endeavors shall not
materially interfere with your performance of the Services.
2. COMPENSATION - SUCCESS FEE FOR ACQUISITIONS. As compensation for the
Services with respect to acquisitions, HA-LO agrees to pay you a fee (the
"Success Fee") following completion of each acquisition of a Prospect (whether
or not you have identified such Prospect or HA-LO has requested your services in
connection with such acquisition) during the term of this Agreement. The Success
Fee shall be equal to the sum of the following:
(a) With respect to any Prospect the majority of whose
Pre-Closing Gross Profits (as herein defined) is derived from the sale
of goods, rather than the sale of services - ("Goods Company"), an
amount equal to four percent (4%) (the "Applicable Percentage") of the
"gross profits" (as hereinafter defined) of each Prospect during the
full twelve (12) calendar month period immediately preceding the
completion of the acquisition of such Prospect by HA-LO (the
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 3
"Pre-Closing Gross Profits") up to a maximum fee of Two
Hundred Thousand Dollars ($200,000) per transaction ("Fee
Cap");
(aa) With respect to any Prospect the majority of whose Pre-Closing
Gross Profits is derived from the sale of services rather than the sale
of goods ("Services Company") - (i) an amount equal to two and one-half
percent (2 1/2%) of the "Gross Revenue" (as herein defined) of each
Prospect during the full twelve (12) calendar month period immediately
preceding the completion of the acquisition of such Prospect by HA-LO
(the "Pre-Closing Gross Revenues") up to a maximum fee of Two Hundred
Thousand Dollars ($200,000) per transaction ("Fee Cap");
(aaa) Notwithstanding the provisions of Sections 2(a) and (aa)
hereof, to the extent a Prospect derives Pre-Closing Gross Profits from
both the sale of services and the sale of goods, and a general division
between goods and services of Pre-Closing Gross Profits is determinable
by the parties, the parties shall cooperate in determining a Success
Fee which (i) reflects the contribution to the Pre-Closing Gross
Profits of the Prospect's goods and services sectors, and (ii) in the
aggregate is subject to the Fee Cap.
(b) Ten (10) years options (the "Options") to acquire shares
of the common capital stock of HA-LO in an amount equal to three
hundred seventy-five (375) shares for every Ten Thousand Dollars
($10,000) of Success Fee earned hereunder. The exercise price of the
Options shall be equal to the closing price for HA-LO shares as quoted
by the New York Stock Exchange (or similar securities exchange on which
HA-LO shares shall be trading) as of the close of business on the day
before the date of the execution of a definitive purchase agreement
with respect to the acquisition of such Prospect by HA-LO (or if a
Saturday or a Sunday, on the first business day preceding such date of
execution (the "Grant Date")). All Options issued with respect to a
Prospect shall be deemed issued as of the Grant Date, vest fifty
percent (50%) on issuance and fifty percent (50%) twelve (12) months
following the Grant Date, and in all other respects shall be subject to
the rules, regulations, terms, conditions and provisions of the HA-LO
1997 Stock Plan (Amended and Restated) (as it may be amended or a
successor plan thereof (the "Plan"). As a precondition to your
receiving such Options, you shall be
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 4
required to enter into and deliver to HA-LO an appropriate
stock option agreement;
(c) To the extent that the Success Fee is limited due to the
Fee Cap, additional options ("Excess Options") shall be granted at a
rate of fifteen thousand (15,000) shares for every One Hundred Thousand
Dollars ($100,000) of Success Fee otherwise payable but not paid due to
the Fee Cap; and
(d) As examples of the above, (i) should an acquisition of a
Goods Company be closed with Pre-Closing Gross Profits of $10,000,000,
and the HA-LO stock price was $20 per share on the day prior to
signing, the Success Fee would be $200,000, the options issued pursuant
to paragraph (b) would be 7,500 at $20 per share and the Excess Options
would be 30,000 at $20.00 per share, and (ii) should an acquisition of
a Services Company be closed with Pre-Closing Revenues of $10,000,000,
and the HA-LO stock price was $20 per share on the day prior to
signing, the Success Fee would be $200,000, the options issued pursuant
to paragraph (b) would be 7,500 at $20 per share and the Excess Options
would be 7,500 at $20.00 per share.
For purposes of calculating Success Fees under this Section 2, the term
"gross profits" shall mean the gross profits (revenues less returns and
allowances and less cost of goods sold) attributable to the operations or
businesses conducted or previously conducted, or the assets owned or previously
owned, by a Prospect, exclusive of those gross profits attributable to
operations or business(es) that are discontinued or are otherwise known to be
non-recurring following acquisition by HA-LO; gross profits are to be calculated
in accordance with the generally accepted accounting principles, methods,
policies, practices and procedures employed by HA-LO in the calculation of its
own gross profits, on a consistent basis throughout the periods; and the term
"gross revenues" shall mean the gross revenues attributable to the operations or
businesses conducted or previously conducted or the assets owned or previously
owned by a Prospect, exclusive of those gross revenues attributable to
operations or businesses that are discontinued or otherwise known to be
non-recurring following acquisition by HA-LO; gross revenues are to be
calculated in accordance with the generally accepted accounting principals,
methods, policies, practices and procedures employed by HA-LO in the calculation
of its own gross revenues, on a consistent basis throughout the periods.
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 5
Notwithstanding any provision in this letter agreement to the contrary,
in the event that HA-LO utilizes the Services of an independent third party to
render services similar to any or all of the Services, the Success Fee (i.e.,
cash payable and options issuable) otherwise payable to you hereunder shall be
reduced by fifty percent (50%).
Notwithstanding any provision in this letter agreement to the contrary,
(i) your retention by HA-LO with respect thereto, and (ii) the Success Fee
otherwise payable hereunder with respect to an acquisition in which more than
fifty percent (50%) of the voting securities of HA-LO are distributed to one or
more persons shall be determined by HA-LO and You from time to time.
The Success Fee described above, shall be calculated and paid within
ten (10) days following the date of the completion of the acquisition of each
Prospect by HA-LO.
You shall also be entitled to compensation from HA-LO with respect to
acquisitions of those Prospects with which you have devoted attention and that
are closed within six (6) months after the term of this agreement expires;
provided that HA-LO shall have provided a draft of an acquisition contract to
the Prospect within 30 days of the termination of this agreement. Generally, we
contemplate the term "devoted attention" to mean a meeting or telephone call
with the Prospect in which a meaningful discussion has occurred regarding
acquisition of such Prospect or its business coupled with the receipt by HA-LO
of financial statements of the Prospect. HA-LO will not unreasonably delay the
acquisition process to avoid paying a Success Fee. Your engagement hereunder
shall commence on the date of this Agreement and expire on the second (2nd)
anniversary of the date of this Agreement. The provisions of this paragraph
shall survive any termination of your engagement.
If, in the course of the negotiation with a Prospect, no acquisition is
consummated, but as a result of such negotiation one or more qualified sales
representative of the Prospect (each a "qualified sales representative") enter
into a sales representative agreement with HA-LO within sixty (60) days of the
consummation of such negotiation with the Prospect, then HA-LO shall pay you the
following: an amount equal to four percent (4%) of the gross profits generated
by the qualified sales representatives (as determined by HA-LO) during the
twelve (12) month period prior to the execution of a written sales
representative agreement with HA-LO.
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 6
3. OTHER AGREEMENTS.
(a) In addition to any Success Fees payable to you hereunder,
and regardless whether an acquisition of a Prospect is proposed or
consummated, HA-LO hereby agrees, from time to time to promptly upon
your written request, to reimburse you for all reasonable travel and
lodging expenses, and meals with Prospects, authorized by HA-LO and
incurred by you in connection with, or arising out of, the Services.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to the
conflicts of laws provisions thereof.
(c) HA-LO recognizes and confirms that, with respect to
Prospects, (i) you are not obligated to independently verify the
accuracy or completeness of information provided to you by a Prospect,
and (ii) you do not assume responsibility for the accuracy or
completeness thereof. HA-LO further recognizes and agrees that all
analyses, evaluations and advice provided by you in connection with
Prospects (whether written or oral, formal or informal) are intended
solely for the benefit and use of HA-LO in pursuing acquisitions, and
that no such analyses, evaluations or advice shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose. You recognize and agree that
all such analyses, evaluations and advice, together with all
information provided to you by Prospects, is confidential and that no
such analyses, evaluations, advice or information shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose. HA-LO hereby agrees to
indemnify and hold you harmless from and against all losses, claims,
damages, liabilities and expenses incurred by you (including fees and
disbursements of counsel) which are related to or arise out of the
Services, unless the same are finally judicially determined to have
resulted from your bad faith or recklessness.
(d) You and HA-LO mutually agree to file all tax returns, and
take reasonable, consistent positions therewith, with any taxing
authorities, in a manner which is consistent with the characterization
of any item by this Agreement. You agree that, with respect to the
Services, you are an independent contractor and not an employee of
HA-LO.
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 7
(e) This Agreement may be executed in two or more
counterparts, all of which together shall be considered a single
instrument. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, supersedes
all prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof, including but
not limited to the March 17, 1993, March 17, 1994 and March 17, 1997
letter agreements between us, and cannot be amended or otherwise
modified except in writing executed by the parties hereto. The
provisions of this agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto;
provided, however, that you may not assign your obligations or duties
under this Agreement without HA- LO's prior written consent, which
consent may be withheld in HA-LO's sole discretion.
(f) In the event of a "change of control" of HA-LO (as such
term is defined on Exhibit A hereto), all options issuable to you
hereunder or otherwise shall be immediately and one hundred percent
(100%) vested.
(g) Notwithstanding the provisions of the Plan, upon the
termination of your engagement with HA-LO pursuant to this Agreement
(other than as a result of your breach of this Agreement), unexercised
options held by you shall be exercisable for a period of one (1) year
from and after the date of such termination.
We are delighted to offer you this engagement and look forward
to working with you on this assignment. Please confirm that the
<PAGE>
Mr. Marshall J. Katz
March 17, 1999
Page 8
foregoing is in accordance with your understanding by signing and returning to
us the enclosed duplicate copy of this letter.
Sincerely,
HA-LO INDUSTRIES, INC.
By: ____________________________________
Richard A. Magid
Chief Operating Officer
ACCEPTED AND AGREED TO:
_________________________________
Marshall J. Katz
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made and entered into
effective as of the 9th day of November, 1999 (the "Effective Date"), by and
between HA-LO INDUSTRIES, INC., an Illinois corporation with offices located at
5980 West Touhy Avenue, Niles, Illinois 60714 ("Employer"), and GREGORY J.
KILREA, residing at ___________, ____________ Illinois ("Employee").
WHEREAS, Employee currently serves as the Chief Financial Officer, Vice
President and Assistant Secretary of Employer pursuant to that certain
Employment Agreement between the parties dated as of July 1, 1999 (the "Existing
Agreement"); and
WHEREAS, in consideration of the continued employment of Employee with
Employer and other good and valuable consideration, the receipt and sufficiency
of which is hereby mutually acknowledged, Employee and Employer agree to execute
and be bound by this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and covenants of the parties contained herein, the parties, intending
to be legally bound, hereby agree as follows:
1. ALL PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the
entire agreement between the parties concerning the employment of Employee by
Employer, and supersedes all prior and contemporaneous agreements between
Employer and Employee relating to the subject matter hereof, including, without
limitation the Existing Agreement.
2. EMPLOYMENT. On the terms and subject to the conditions set forth
herein, Employer hereby employs Employee, and Employee hereby accepts employment
from Employer, as the Chief Financial Officer, Vice President and Assistant
Secretary of Employer. If, during the term of this Agreement, Employee is
removed from any titled office maintained with Employer (whether by action of
Employer's Board of Directors or otherwise) then, unless Employer simultaneously
terminates this Agreement, Employee and Employer shall continue to be bound by
the terms and conditions hereof, and such removal shall not constitute grounds
for a breach under, or termination (including constructive termination) of, this
Agreement.
3. TERM. Subject to the provisions for termination hereinafter
provided, the initial term of this Agreement shall be for a term commencing as
of the Effective Date and ending December 31, 2002 (such period, including any
extensions thereof, being the "Term"); provided, however, that as of December
31, 2002 and each December 31 thereafter, the Term shall be automatically
extended for successive one (1) calendar year periods, unless either party
elects not to so extend the Term and gives written notice to the
<PAGE>
other party at least ninety (90) days prior to such scheduled termination date
of their election not to so extend.
4. DUTIES OF EMPLOYEE. Employee shall perform, on a full-time and best
efforts basis, such duties commensurate with his position and experience as
shall be assigned to him from time to time by the Chief Executive Officer or
Board of Directors of Employer, and Employee shall report directly to the Chief
Executive Officer. As part of his duties hereunder, Employee agrees to serve as
an officer of Employer and as an officer and director of such subsidiaries and
affiliates of Employer to which Employee is elected.
5. COMPENSATION AND BENEFITS.
(a) BASE PAY. During the Term, Employer shall pay to Employee
a salary at the annual rate of Three Hundred Thousand Dollars
($300,000), in equal installments on the last day of each month or at
such other frequency as the parties hereto shall agree ("Base Pay").
The Base Pay may also be increased from time to time by the
Compensation Committee of the Board of Directors of Employer, in its
sole discretion. The Employee shall be reviewed annually by the Chief
Executive Officer of Employer, who shall thereafter make
recommendations with respect to Base Pay to the Compensation Committee
of the Board of Directors.
(b) BONUS COMPENSATION. Provided that Employee is still in the
employ of Employer on May 9, 2000, Employee (i) shall be entitled to
receive bonus compensation of up to twenty-five percent (25%) of his
Base Pay annually upon the attainment of mutually established
qualitative concepts, goals and objectives, as established by the Chief
Executive Officer and Employee and (ii) shall have the opportunity to
earn as additional bonus compensation during each calendar year of the
Term (commencing with calendar year 2000) up to seventy-five percent
(75%) of his Base Pay pursuant to the HA-LO Executive Bonus Plan
(collectively, "Bonus Compensation").
(c) OPTIONS. Concurrently with the execution of this
Agreement, Employer shall execute and deliver to Employee Option
Agreements, in substantially the forms attached to this Agreement as
Exhibits A and B, pursuant to which Employee shall be granted, as of
the Effective Date, the following options to purchase shares of common
stock of Employer:
(i) 50,000 options, vesting one-third (1/3) on
each of the first, second and third
anniversaries of the Effective Date, at an
exercise price per share equal to the
closing price of a share of common stock on
the New York Stock Exchange on the Effective
Date; and
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<PAGE>
(ii) 100,000 options, vesting one-third (1/3) on
each of the first, second and third
anniversaries of the Effective Date, at an
exercise price per share of $7.00.
(d) FRINGE BENEFITS. Employer shall provide to Employee such
other employee fringe benefits as are generally provided for the
executive employees of Employer, including all fringe benefits made
available to Employee by Employer on or prior to the Effective Date
(inclusive, without limitation, of an automobile allowance and full
medical coverage). Employee shall be entitled to annual vacation during
such period(s) and in such time increments as are consistent with
Employee's prior practices as an executive employee of Employer.
(e) INDEMNITY. Employer shall, during and after the Term,
indemnify Employee in the manner provided in the By-Laws of Employer
(as set forth as of the date hereof) to the fullest extent provided by
law.
6. EXPENSE REIMBURSEMENT. Employee shall be entitled to reimbursement
by Employer for all reasonable and customary travel and other business expenses
incurred by Employee in carrying out his duties under this Agreement, including
but not limited to, telephone, computer, fax machine and transportation
expenses.
7. TERMINATION. This Agreement shall be terminated on the earliest to
occur of (i) the expiration of the Term; (ii) the mutual agreement of Employer
and Employee; (iii) the death of the Employee; (iv) the permanent disability of
the Employee, or (v) the dismissal of Employee for "cause" (as hereinafter
defined). This Agreement may also be terminated upon written notice given by
Employee to Employer within ninety (90) days after John Kelley ceases to be the
Chief Executive Officer of Employer. Upon any termination of the Term of this
Agreement, Employee shall promptly deliver to Employer (i) without retaining any
copies thereof, all the forms, brochures, business records, project materials,
sales materials, manuals, letterhead, business cards or any other written or
printed materials relating to the business of Employer, and (ii) any computers,
telephones, fax machines, automobiles or other personal property owned by
Employer and in the possession of Employee.
Employee shall be deemed to be "permanently disabled" hereunder if it
is determined by a physician selected by Employer, with the reasonable approval
of Employee, which physician is on the staff of a hospital associated with a
medical school and located in Cook, Lake or DuPage County, Illinois, that
Employee is suffering from a mental, physical or emotional disability or
condition which is reasonably expected to last for two hundred seventy (270)
days or more, and which prevents Employee from performing substantially all of
his duties hereunder.
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<PAGE>
Employer shall be deemed to have "cause" to dismiss Employee from
employment upon the occurrence of any of the following: (i) Employee's
conviction of a felony; (ii) Employee's engagement in illegal conduct tending to
place Employee or Employer in disrepute; or (iii) upon thirty (30) days prior
written notice to Employee by Employer, upon Employee's breach of, and failure
to cure, any other material provision of this Agreement.
If, for any reason, other than termination for "cause", death,
permanent disability, the expiration of the Term or a voluntary termination by
Employee (inclusive, for these purposes, of a mutually agreed upon termination
or termination in the manner contemplated by the second sentence of the first
paragraph of this Section 7), Employee ceases to be employed by Employee, then
(i) Employee shall be entitled to continue to receive the remainder of his Base
Pay for the remainder of the Term, which amounts shall be payable (subject to
normal withholdings) in accordance with Employer's customary compensation
practices, (ii) Employee shall be entitled to continue to receive Bonus
Compensation for the remainder of the Term, calculated in the manner set forth
in the last paragraph of this Section 7 and payable (subject to normal
withholdings) in accordance with Employer's customary compensation practices,
and (iii) all options to purchase shares of common stock of Employer currently
or in the future held by Employee shall, concurrently with such cessation, be
fully vested (and not subject to forfeiture) and shall be exercisable until the
expiration of their respective terms notwithstanding Employee's earlier
termination as an employee of Employer or otherwise.
If the Term of this Agreement is not extended for one additional year
beyond December 31, 2002 or any December 31 thereafter because of action taken
by Employer pursuant to Section 3 above, then (i) Employee shall be entitled to
continue to receive one (1) year's Base Pay, which amounts shall be payable
(subject to normal withholdings) in accordance with Employer's customary
compensation practices, (ii) Employee shall be entitled to continue to receive
one (1) year's Bonus Compensation, calculated in the manner set forth in the
last paragraph of this Section 7 and payable (subject to normal withholdings) in
accordance with Employer's customary compensation practices, and (iii) all
options to purchase shares of common stock of Employer currently or in the
future held by Employee shall, concurrently with cessation of employment, be
fully vested (and not subject to forfeiture) and shall be exercisable until the
expiration of their respective terms notwithstanding Employee's earlier
termination as an employee of Employer or otherwise.
For purposes of the two (2) preceding paragraphs of this Section 7,
Bonus Compensation payable post-termination shall be determined based upon the
average of Bonus Compensation actually earned by Employee during the Term prior
to termination; provided, however, that if termination occurs prior to December
31, 2000,
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<PAGE>
Bonus Compensation payable post-termination shall be determined based upon the
percentage achievement (as reasonably determined by the Board of Directors of
Employer) of the qualitative concepts, goals and objectives referred to in
Section 5(b)(i) during calendar year 2000.
8. EMPLOYEE'S COVENANTS NOT TO COMPETE OR SOLICIT. Employee covenants
that during the term of this Agreement and for a period of one (1) year
thereafter, he shall not, except as an employee of Employer, directly or
indirectly, on his own account, or as an employee, consultant, agent, partner,
joint venturer, owner or officer of any other person, firm, partnership,
corporation or entity, or in any other capacity, (i) conduct, engage in, or aid
or assist anyone in the conduct of a business which is competitive to that of
Employer (or any subsidiary thereof), or in which advertising specialty and
premium merchandise is sold to customers anywhere in the United States or (ii)
solicit or recruit any employees of Employer (or any subsidiary thereof) for
purposes of employment; provided, however, that the foregoing covenants shall be
of no force or effect in the event Employer (A) violates the terms of this
Agreement, (B) terminates Employee as an employee other than for cause or upon
the expiration of the Term, or (C) reduces the compensation paid to Employee.
9. CONFIDENTIALITY. Employee acknowledges that by virtue of his
employment with Employer, he has been and/or will be exposed to or has had or
will have access to confidential information regarding Employer's business,
including but not limited to, trade secrets and proprietary information, all of
which are proprietary to Employer. Employee further acknowledges that it would
be possible for an employee, upon termination of his association with Employer,
to use the knowledge or information obtained while working for or with Employer
to benefit other individuals or entities. Employee acknowledges that Employer
has expended considerable time and resources in the development and/or purchase
of certain confidential information used in connection with Employer's business,
including, without limitation, Employer's computer programs and computer
software, accounting methodologies, pricing systems, cost of goods sold,
manufacturing and assembly processes, designs, product margins, customer lists
or records, customer information, customer mark-ups, information regarding
suppliers and vendors, use and utilization of patents, trademarks, trade names,
copyrights, confidential information and trade secrets of Employer or third
parties, marketing techniques, systems and networks of distribution, supplier
information, product content, product mix, inventions and, generally, the
confidential information of Employer which gives, or may give, Employer an
advantage in the marketplace against its competitors (all of the foregoing being
herein referred to collectively as "Proprietary Information"), and which have
been disclosed to or learned by Employee solely for the purpose of Employee's
employment with Employer. Employee acknowledges that Employer's Proprietary
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<PAGE>
Information constitutes a proprietary and exclusive interest of Employer, and,
therefore, Employee agrees that during the term of his employment and for a
period of sixty (60) months after the termination of Employee's employment with
Employer, for any reason whatsoever, Employee shall hold and keep secret the
Proprietary Information as described herein, as to which Employee is now or any
time during his employment shall become informed, and Employee shall not
directly or indirectly disclose any such information to any person, firm, court,
governmental agency or corporation or use the same except in connection with the
business and affairs of Employer.
10. REMEDIES. Employee acknowledges that compliance with the
restrictive covenants set forth in Paragraphs 8 and 9 hereof is necessary to
protect the business, goodwill and Proprietary Information of Employer and that
a breach of these restrictions will irreparably and continually damage Employer
for which money damages may not be adequate. Consequently, Employee agrees that,
in the event that he breaches or threatens to breach any of these covenants,
Employer shall be entitled to both (1) a temporary, preliminary or permanent
injunction in order to prevent the continuation of such harm and (2) money
damages insofar as they can be determined. Nothing in this Agreement, however,
shall be construed to prohibit Employer from also pursuing any other remedy, the
parties having agreed that all remedies are to be cumulative. The parties
expressly agree that Employer may, in its sole discretion, choose to enforce the
restrictive covenants in Paragraphs 8 and 9 hereof, in part, or to enforce any
of said restrictive covenants to a lesser extent than that set forth herein. As
money damages for the period of time during which Employee violates these
covenants, Employer shall be entitled to recover, in addition to any other
amounts the amount of fees, compensation or other remuneration earned by
Employee as a result of any such breach.
11. SEVERABILITY. Each of the terms and provisions of this Agreement is
to be deemed severable in whole or in part and, if any term or provision or the
application thereof in any circumstances should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable shall not be affected thereby and shall remain in full force and
effect.
12. BINDING AGREEMENT. This Agreement shall be binding upon the
parties, their heirs, successors, personal representatives and assigns. Employer
may assign this Agreement to any successor in interest to the business, or part
thereof, of Employer. Employee may not assign any of his obligations or duties
hereunder.
-6-
<PAGE>
13. CONTROLLING LAW AND JURISDICTION. This Agreement shall be governed
by and interpreted and construed according to the laws of the State of Illinois.
Employee hereby consents to the jurisdiction of the state and federal courts in
Illinois in the event that any disputes arise under this Agreement.
14. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with regard to the subject matter hereof, and may not be changed
orally, but only by an agreement in writing signed by the parties hereto.
15. FAILURE TO ENFORCE. The failure to enforce any of the provisions of
this Agreement shall not be construed as a waiver of such provisions. Further,
any express waiver by any party with respect to any breach of any provision
hereunder by any other party shall not constitute a waiver of such party's right
to thereafter fully enforce each and every provision of the Agreement.
16. SURVIVAL. The obligations contained in this Agreement shall survive
the termination, for any reason whatsoever, for cause or otherwise, of
Employee's employment with the Employer.
17. HEADINGS. All numbers and heading of paragraphs are for reference
only and are not intended to qualify, limit or otherwise affect the meaning or
interpretation of any paragraph.
18. NOTICES. All notices which are required, permitted or contemplated
hereunder to be given or made shall be given or made in writing by certified
mail (return receipt requested) to Employer and Employee, respectively, at the
addresses shown in the Preamble, or to such other address as either party may
inform the other in writing.
19. GENDER. The masculine, feminine or neuter pronouns used herein
shall be interpreted without regard to gender, and the use of the singular or
plural shall be deemed to include the other whenever the context so requires.
-7-
<PAGE>
WHEREFORE, the parties have executed this Agreement on the date and
year first above written.
EMPLOYER: EMPLOYEE:
HA-LO INDUSTRIES, INC.
By:________________________________ ___________________________________
Its:____________________________ Gregory J. Kilrea
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of this 30th day of June, 1998, by
and between PROMOTIONAL MARKETING, L.L.C., an Illinois limited liability company
(hereinafter, the "Company"), and JOHN R. KELLEY, JR., a resident of Illinois
(hereinafter, "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Executive desire to enter into this Agreement
whereby the Company will receive the services, skills and expertise of Executive
for the period and on the terms and conditions hereinafter set forth;
WHEREAS, prior to the date hereof, Executive was a manager and a member
of the Company, engaged in the advertising and promotional business;
WHEREAS, contemporaneously with the execution hereof, the Company
merged with Upshot Acquiring Corp. ("Acquiror Sub") pursuant to that certain
Agreement and Plan of Merger and Plan of Reorganization dated as of June 30,
1998 among the Company, Acquiror Sub, HA-LO Industries, Inc. ("Acquiror"), the
Executive and the other members of the Company (the "Merger Agreement"); and
WHEREAS, in the course of Executive's involvement with the Company,
Executive has (i) had access to and learned the confidential information and
trade secrets of the Company, and (ii) established relationships with the
Company's customers and personnel, all of the foregoing being a part of the
goodwill of the Company.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants contained in this Agreement, and as a material inducement to the
Company's execution, delivery and performance of the Merger Agreement, the
Company and Executive hereby agree as follows:
1. ENGAGEMENT. Subject to all the terms and conditions of this
Agreement, the Company hereby employs Executive as one of the Managers of the
Company and Executive hereby accepts such employment.
2. TERM. The engagement of Executive hereunder shall, except upon
earlier termination, be for a term (the "Term") commencing on the date of this
Agreement (the "Effective Date"), and ending on December 31, 2002. The Term
shall be extended beyond such date only upon the express written consent of the
parties.
<PAGE>
3. EMPLOYMENT SERVICES. During the Term of his employment pursuant to
this Agreement, Executive shall render his services to the Company, or otherwise
as Executive and Company shall mutually agree. In the performance of his duties
hereunder, Executive shall report to the Managers of the Company (other than
Executive) or to such other executive officer of the Company or its affiliates
as the Majority of the Managers of the Company directs. Executive shall devote
all of his working time, efforts and his energy and skill to promote the
interests of the Company (which shall include all subsidiaries and affiliates of
the Company and Acquiror), and agrees that during the Term he will not engage in
any other business activity or have business pursuits or interests except
activities or interests which the Majority of the Managers reasonably determines
do not conflict or interfere with the performance of the Executive's duties and
obligations hereunder.
4. SALARY.
(a) BASE SALARY. In consideration of the services to be
rendered by Executive to the Company pursuant to this Agreement, the
Company agrees to pay to Executive during the Term, and Executive
agrees to accept a base salary ("Base Salary") of one-hundred fifty
thousand dollars ($150,000) per annum during calendar year 1998
(prorated to reflect that Executive will only be employed for a portion
of 1998) and, thereafter at the rate of two-hundred thousand dollars
($200,000) per annum (subject to applicable withholdings) payable in
accordance with the Company's normal payroll practices). If and to the
extent the Executive receives payments under any disability plans or
policies maintained by the Company, the Base Salary shall be reduced
dollar for dollar by the amount of payments so made to the Executive or
for his benefit.
(b) Intentionally Omitted.
(c) BONUS. For the period commencing the date hereof and
ending December 31, 1998, Executive may receive a bonus as the Majority
of the Managers of the Company shall determine in its sole discretion.
With respect to each remaining calendar year of the Term (each, a
"Measurement Period"), Executive shall be entitled to receive a bonus
(hereinafter, the "Bonus") determined as follows:
(i) For each Measurement Period, the Company shall
determine its pre-tax income (each, a "Measurement Period Pre-Tax Income"). In
the event the Measurement Period Pre-Tax Income for any Measurement Period is
equal to or greater than the Measurement Period Pre-Tax Income for the
immediately preceding Measurement Period (or, in the case of the first
Measurement Period, is equal to or greater than the pre-tax income for the
Company's fiscal year ended December 31, 1998
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(the "1998 Pre-Tax Income")), the Company shall pay Executive a Bonus in an
amount determined as follows:
(A) If the ratio of the Measurement Period Pre-Tax Income for
any Measurement Period to the Measurement Period Pre-Tax Income for the
immediately preceding Measurement Period (or, in the case of the first
Measurement Period, the 1998 Pre-Tax Income) (the "Pre-Tax Income
Growth Ratio") is equal to or greater than 1.30 but less than 1.40, the
Bonus for such Measurement Period shall equal twenty-five thousand
dollars ($25,000) plus the product of (a) the ratio of (y) the Pre-Tax
Income Growth Ratio less 1.30 to (z) one-tenth (.10) and (b) fifty
thousand dollars ($50,000);
(B) If the Pre-Tax Income Growth Ratio is equal to or greater
than 1.40 but less than 1.50, the Bonus for such Measurement Period
shall equal seventy-five thousand dollars ($75,000) plus the product of
(a) the ratio of (y) the Pre-Tax Income Growth Ratio less 1.40 to (z)
one-tenth (.10) and (b) seventy-five-thousand dollars ($75,000); and
(C) If the Pre-Tax Income Growth Ratio is equal to or greater
than 1.50, the Bonus for such Measurement Period shall equal
one-hundred and fifty thousand dollars ($150,000).
(ii) For purposes hereof, pre-tax income shall be (a)
determined in accordance with United States generally accepted accounting
principles and standards ("GAAP"), applied on a basis consistent with those of
prior periods and (b) incorporate the accounting methods, policies, practices
and procedures, and classification, judgments and estimation methodology used by
the Company in determining the 1998 Pre-Tax Income to the extent consistent with
GAAP.
(iii) In the event the Company, directly or
indirectly acquires one or more entities which requires Executive to devote
substantial time as an employee, then the pre-tax income of such other entities
shall be included in the calculation of Measurement Period Pre-Tax Income
provided, however, that as a condition of such inclusion the Company and
Executive shall mutually agree to revise the Pre-Tax Income Growth Ratio
calculations set forth in paragraphs (i)(A), (B) and (C) hereof to reflect such
acquisition or acquisitions.
(iv) The Bonus shall be paid to Executive by the
Company as soon as practicable following the close of each calendar year of the
Term (commencing with the end of the first Measurement Period) and the Company's
determination of the Measurement Period Pre-Tax Income for the Measurement
Period then ended.
5. EMPLOYEE BENEFITS; EXPENSE REIMBURSEMENT.
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(a) During the Term of this Agreement, Executive shall be
entitled to participate in any tax-qualified profit sharing, pension,
retirement or insurance (including life and medical insurance) plan
maintained by the Company and made generally available to employees of
the Company.
(b) Subject to the rules, policies and regulations of the
Company in effect from time to time and applicable to its employees,
Executive shall be entitled to reimbursement by the Company for
reasonable and customary travel, business, entertainment and other
business related expenses incurred by him in carrying out his duties
under this Agreement in a manner consistent with past practices.
6. OTHER ACKNOWLEDGMENTS; ACCEPTANCE OF ORDERS. Except to the extent
expressly inconsistent with the provisions of this Agreement, Executive shall
strictly adhere to all policies and procedures established by the Company from
time to time in its sole and exclusive discretion, generally applicable to all
executive's of the Company and disclosed to Executive.
7. TERMINATION.
(a) GENERALLY. Except as otherwise provided herein, the Term
of this Agreement and Executive's employment hereunder shall terminate
upon the first to occur of the following events: (1) stated expiration
in accordance with Section 2 hereof, (2) the mutual agreement of the
Company and Executive to so terminate this Agreement, (3) the Company's
election to terminate this Agreement or Executive's employment
hereunder "For Cause" (as hereinafter defined) or (4) the death or
Disability of Executive. The term "Disability" shall mean any mental,
physical or emotional disability or condition which lasts for one
hundred eighty (180) days or more within any nine (9) month period, and
which prevents Executive from fully performing his duties hereunder.
Disability shall be determined by a Chicago-area physician mutually
selected by the Company and Executive.
(b) FOR CAUSE. The term "For Cause" shall mean any one of the
following: (1) notice by the Company of the commission by Executive of
a breach of any material covenant, provision, term or condition set
forth in this Agreement and the failure to cure such breach (or
persuade the Company that no such breach occurred) within thirty (30)
days following notice thereof from the Company; (2) the conviction by
Executive of, or plea of NOLO CONTENDERE to, a felony or crime
involving moral turpitude; (3) the conviction by Executive of, or plea
of NOLO CONTENDERE an act of personal dishonesty or fraud involving
personal profit, including, without limitation, theft, embezzlement,
fraud or other misappropriation of property; (4) the commission by
Executive of an act which a majority of the Company's Managers has
reasonably found to have involved willful misconduct or gross
negligence on the part of Executive, and which has or may reasonably
have a
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material adverse affect on the revenues, profits or reputation of the
Company; or (5) after notice and seven (7) days to cure, Executive's
continued exhibition of habitual absenteeism (without explanation
satisfactory to the majority of the Managers of the Company), or
Executive's continued inability or repeated failure to perform any
lawful and reasonable directives or rules required in connection with
Executive's employment and position with the Company.
(c) CHANGE OF CONTROL. Executive shall be entitled to
terminate this Agreement, without liability or obligation to the
Company in respect of such early termination, at any time during the
twelve month period following any Change of Control (as hereinafter
defined) provided Executive provides the Company with at least six
months advance notice of Executive's exercise of such right of
termination pursuant to this Section7(c). As used herein, a "Change of
Control" shall mean any transaction or series of related transactions
pursuant to any single person, entity or group of related entities
acquires fifty percent (50%) or more of the issued and outstanding
shares of common stock of Acquiror.
(d) EFFECT UPON TERMINATION.
(i) In the event the Term of this Employment
Agreement is terminated pursuant to Section 7(a), (b) or (c) hereof,
except as otherwise provided herein, all rights, duties and obligations
of the parties pursuant to this Employment Agreement shall terminate,
except to the extent that Executive's compensation earned through the
date of termination.
(ii) In the event Executive's employment shall
terminate pursuant to the terms of this Agreement, Executive shall not
be entitled to severance pay notwithstanding any contrary policies and
practices of the Company.
(e) SURVIVAL OF COVENANTS. Notwithstanding anything herein to
the contrary, upon termination of the Term of this Employment Agreement
for any reason, the provisions of this Section 7 and the terms and
conditions of Sections 8 through 13 of this Employment Agreement shall
remain in full force and effect and shall be binding on and enforceable
against Executive and the Company as though such termination had not
occurred. Executive hereby acknowledges that his agreement to the
survival to the terms and conditions of Sections 8 through 13 of this
Employment Agreement constitute a material inducement to the Company to
enter into this Agreement.
8. EXECUTIVE'S REPRESENTATION. Executive hereby represents and warrants
to and with the Company that he is not subject to any covenants, agreements or
restrictions, including without limitation any covenants, agreement or
restrictions arising out of Executive's prior employment or independent
contractor relationships, which would be
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breached or violated by Executive's execution of this Agreement or by
Executive's performance of his duties hereunder.
9. CONFIDENTIALITY. Executive acknowledges that by virtue of his
employment with the Company he will be or has been exposed to or has access to
confidential information regarding the Company's and Acquiror's business of the
most sensitive nature, including but not limited to, trade secrets and
proprietary information, all of which are proprietary to the Company or
Acquiror, as the case may be. Executive further acknowledges that it would be
possible for an employee, upon termination of his association with the Company,
to use the knowledge or information obtained while working for or with the
Company or Acquiror to benefit other individuals or entities. Executive
acknowledges that the Company and Acquiror has expended, and in reliance on this
Agreement is willing to consummate the transactions contemplated by the Merger
Agreement and to continue to expend considerable time and resources in the
development of certain confidential information used in connection with their
business and in the acquisition of analogous information of Acquiror pursuant to
the Merger Agreement, including without limitation business strategies and
goals, accounting methodology, pricing systems, advertising brochures and
materials, graphic and other designs, marketing programs and techniques,
copyrighted and non-copyrighted software source codes or object codes,
technology applications and advances, customer, client, and customer and client
prospect lists or records, customer information, customer mark-ups, information
regarding independent contractors and vendors, confidential information and
trade secrets of third parties, supplier information, and, generally, the
confidential information of the Company or Acquiror which gives, or may give,
the Company or Acquiror an advantage in the marketplace against their respective
competitors (all of the foregoing [including, expressly such similar information
of Acquiror] being herein referred to collectively as "Proprietary
Information"), and which will be (or had been) disclosed to or learned by
Executive solely for the purpose of Executive's employment with the Company or
Acquiror; PROVIDED, HOWEVER, the term "Proprietary Information" shall not
include information which (a) has been publicly disclosed by the Company or
Acquiror, (b) is independently developed by a party other than the Company,
Acquiror or Executive other than on the Company's or Acquiror's behalf, (c) is
generally known without breach of an agreement with the Company or Acquiror
within the industry or lines of business engaged in by the Company or Acquiror,
or (d) constitutes Executive's general business knowledge. Executive
acknowledges that the Proprietary Information constitutes a proprietary and
exclusive interest of the Company and Acquiror and, therefore, agrees that
during the Term and thereafter, for any reason whatsoever, he shall hold and
keep secret the Proprietary Information as described herein and the confidential
information of the customers or clients of the Company or of Acquiror which
Executive learns or had learned in his capacity as an employee of the Company or
Acquiror (the "Customer Information"), as to which Executive at any time during
his employment shall become informed, and Executive shall not directly or
indirectly disclose any Proprietary Information or Customer Information to any
person, firm or corporation or use the same except in connection with the
business and affairs of the Company.
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10. NON-DISTURBANCE; NON-DISPARAGEMENT. Executive covenants that for a
period equal to (the "Restricted Period") the greater of (a) five (5) years from
the date hereof and (b) the Term and for a period to three (3) years thereafter,
Executive shall not, directly or indirectly, as an employee, agent, salesman or
member of any person, corporation, firm or otherwise (a) solicit any employee,
agent or independent contractor, account executive, sales representative of the
Company or Acquiror or make such other contact with the employees, agents or
independent contractors, account executives or sales representatives of the
Company or Acquiror, the product of which contact will or may yield a
termination of the employment, agency or independent contractor, account
executive or sales representative relationship of such employees, agents or
independent contractor sales representative from the Company or Acquiror, or (b)
make, whether in writing or orally, disparaging statements or inferences with
respect to the Company or Acquiror, their respective businesses, officers or
shareholders (other than statements required in connection with matters asserted
by the Executive in the enforcement of his rights hereunder).
11. NON-COMPETITIVE COVENANTS. Executive covenants that during the
Restricted Period, Executive shall not, directly or indirectly, in the
continental United States, and in any province or other political jurisdiction
of any other foreign jurisdiction within which the Company engages in business
and derives revenues (collectively, the "Subject Jurisdictions"), for his own
account, or as an employee, consultant, agent, partner, joint venturer,
beneficiary of a trust or trustee of a trust, owner or officer of any other
person, firm, partnership, corporation, trust or other entity, or in any other
capacity, in any way conduct or engage in a business (a) which directly competes
with the business as engaged in by the Company as of the date hereof and as of
the date of termination of Executive's employment (collectively, the "Business")
for any reason or (b) in which Executive, directly or indirectly, uses or
discloses Proprietary Information; provided, however, that Executive's ownership
of less than five percent (5%) of the issued and outstanding securities of any
corporation or other entity whose securities are listed and traded on a
nationally registered securities exchange or market (a "Public Company") for
whom the Executive is not actively involved in any capacity shall not constitute
a violation of this Section 11.
12. NON-SOLICITATION. Executive hereby covenants and agrees that,
during the Restricted Period, for any reason whatsoever, he shall not, directly
or indirectly, as an employee, consultant, agent, partner, beneficiary of a
trust or trustee of a trust, joint venturer, owner or officer of any other
person, firm, partnership, trust, corporation or other entity, or in any other
capacity, in any way call upon or solicit, any person or entity which was or is,
a Customer or Client or Prospective Customer or Client of the Company or
Acquiror to sell products or render services which compete with the Business as
now or hereafter conducted; provided, however, that Executive's ownership of
less than five percent (5%) of the issued and outstanding securities of any
Public Company for whom the Executive is not actively involved in any capacity
shall not constitute a violation of this
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Section 12. For purposes of this Agreement, (i) the term "Customer or Client"
shall mean any person, firm, partnership, corporation, trust or other entity to
whom the Company or Acquiror has sold goods or services within the twelve (12)
month period prior to the date of Executive's termination of employment with the
Company and (ii) the term "Prospective Customer or Client" shall mean any
person, firm, partnership, trust, corporation or other entity to whom the
Company, has made a written presentation or proposal, or presented written
materials at a meeting, within the twelve (12) month period prior to the date of
Executive's termination of employment with the Company.
13. RETURN OF MATERIALS. Executive will, at any time upon the request
of the Company, and in any event upon the termination of his employment, for
whatever reason, immediately return and surrender to the Company originals and
all copies of all records, notes, memoranda, electronic files, personal
computers, computer discs, computer equipment, software, telephones, price
lists, customer and customer prospect lists, business plans, recordings and
other documents and other property belonging to the Company, created or obtained
by Executive as a result of or in the course of or in connection with
Executive's employment with the Company or Acquiror; provided, however, if the
Company shall request that such records and other documents be returned prior to
the termination of this Agreement, the Company will afford the Employee access
to such records and other documents as are reasonably required in the
performance of the Employee's duties hereunder. Executive acknowledges that all
such materials are, and will always remain, the exclusive property of the
Company.
14. REMEDIES.
(a) Executive further acknowledges that in the event his
employment with the Company terminates for any reason, he will be able
to earn such a livelihood without violating the foregoing restrictions
and that his ability to earn a livelihood without violating such
restrictions is a material condition to his continued employment with
the Company.
(b) Executive acknowledges that compliance with the
restrictive covenants set forth in Sections 10 through 13 herein is
necessary to protect the business, goodwill and Proprietary Information
of the Company and that a breach of these restrictions will irreparably
and continually damage the Company for which money damages may not be
adequate. Consequently, Executive agrees that, in the event that he
breaches or threatens to breach any of these covenants, the Company
shall be entitled to both (1) a temporary, preliminary or permanent
injunction in order to prevent the continuation of such harm, and (2)
money damages insofar as they can be determined. Nothing in this
Agreement, however, shall be construed to prohibit the Company from
also pursuing any other remedy, the parties having agreed that all
remedies are to be cumulative. The parties expressly agree that the
Company may choose to enforce the restrictive covenants
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in Sections 10 through 13 hereof, in part, or to enforce any of said
restrictive covenants to a lesser extent than that set forth herein.
(c) REVISION. In the event that any of the provisions,
covenants, warranties or agreements in this Agreement are held to be in
any respect an unreasonable restriction upon or are otherwise invalid,
for whatsoever cause, then the court so holding shall reduce and is so
authorized to reduce, the territory to which it pertains and/or the
period of time in which it operates, or the scope of activity to which
it pertains or effect any other change to the extent necessary to
render any of the restrictions of this Agreement enforceable.
15. GENERAL PROVISIONS.
(a) SEVERABILITY. Each of the terms and provisions of this
Agreement is to be deemed severable in whole or in part and, if any
term or provision of the application thereof in any circumstances
should be invalid, illegal or unenforceable, the remaining terms and
provisions or the application thereof to circumstances other than those
as to which it is held invalid, illegal or unenforceable, shall not be
affected thereby and shall remain in full force and effect.
(b) BINDING AGREEMENT. This Agreement shall be binding upon
the parties, their heirs, successors, personal representatives and
assigns. The Company may assign this Agreement to any successor in
interest to the business, or part thereof, of the Company including,
but not limited to, Acquiror or any of its subsidiaries or affiliates.
Executive may not assign any of his obligations or duties hereunder.
(c) CONTROLLING LAW AND JURISDICTION. This Agreement shall be
governed by and interpreted and construed according to the laws of the
State of Illinois. Executive hereby consents to the jurisdiction of the
state and federal courts in Illinois in the event that any disputes
arise under this Agreement.
(d) ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties with regard to the subject matter hereof, and
may not be changed orally, but only by an agreement in writing signed
by the parties hereto.
(e) FAILURE TO ENFORCE. The failure to enforce any of the
provisions of this Agreement shall not be construed as a waiver of such
provisions. Further, any express waiver by any party with respect to
any breach of any provision hereunder by any other party shall not
constitute a waiver of such party's right to thereafter fully enforce
each and every provision of the Agreement.
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(f) SURVIVAL. The obligations contained in this Agreement
shall survive the termination, for any reason whatsoever, for cause or
otherwise, of Executive's employment with the Company.
(g) HEADINGS. All numbers and heading of sections are for
reference only and are not intended to qualify, limit or otherwise
affect the meaning or interpretation of any Section.
(h) NOTICES. All notices which are required, permitted or
contemplated hereunder to be given or made shall be given or made in
writing by certified mail (return receipt requested) to Executive at
3134 North Orchard, #3, Chicago, Illinois 60657 and to the Company at
5980 West Touhy Avenue, Niles, Illinois, 60714, Attention: Mr. Lou
Weisbach.
(i) GENDER. The masculine, feminine or neuter pronouns used
herein shall be interpreted without regard to gender, and the use of
the singular or plural shall be deemed to include the other whenever
the context so requires.
(j) LEGAL FEES. In the case of any legal action taken by any
party hereto against any one or more of the other parties hereto, the
prevailing party or parties to such action shall be entitled to
reimbursement of all reasonable costs and expenses (including but not
limited to reasonable attorneys fees and expenses) incurred by the
prevailing party in connection with such action.
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WHEREFORE, the parties have executed this Agreement on the date and
year first above written.
PROMOTIONAL MARKETING, L.L.C. EXECUTIVE:
By:_________________________________ ____________________________________
Its:______________________________ John R. Kelley, Jr.
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AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (the "Amendment") is made
and entered into as of the 9th day of November, 1999, by and between HA-LO
INDUSTRIES, INC., an Illinois corporation ("Employer'), and RICHARD A. MAGID
("Employee").
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement, dated as of January 1, 1998 (the "Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend the Employment Agreement
in the manner set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby mutually acknowledged, Employer and Employee
hereby agree as follows:
1. DEFINED TERMS. All terms defined in the Employment Agreement shall
have the same meanings when used herein.
2. RESIGNATION. Concurrently with the execution of this Amendment,
Employee is delivering to Employer his resignation, in the form of Exhibit A
attached hereto, as an officer and director of Employer and each of its direct
and indirect subsidiaries, which resignation shall be effective immediately.
3. TERM. Notwithstanding anything to the contrary contained in the
Employment Agreement, and in particular Section 3 thereof, effective as of the
date of this Amendment the term of the Employment Agreement shall be extended
through November 8, 2003. The four-year period from November 9, 1999 through
November 8, 2003 is hereinafter referred to as the "Remaining Term." The
Remaining Term shall not be subject to automatic extension.
4. EMPLOYMENT; DUTIES OF EMPLOYEE. Notwithstanding anything to the
contrary contained in the Employment Agreement, and in particular Section 2
thereof, during the Remaining Term (i) Employee's position with Employer shall
be Consultant to the Chief Executive Officer, which position shall be a
non-officer position, and (ii) Employee's duties in such position shall be to
provide key insights to the Chief Executive Officer relative to both new and
existing initiatives and to perform such other duties as are commensurate with
his experience, skills and abilities. Employee's services shall be rendered on
an "as needed" basis to the best of Employee's abilities. Employee's services
shall be performed in the Chicago metropolitan area and elsewhere, consistent
with past performance of services by Employee. In addition to the foregoing,
Section 4 of the Employment Agreement is hereby deleted in its entirety.
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5. COMPENSATION AND BENEFITS. Notwithstanding anything to the contrary
contained in the Employment Agreement, and in particular Section 5 thereof,
during the Remaining Term:
(a) Employee's Base Pay shall be at the annual rate of Three
Hundred Thousand Dollars ($300,000), payable in accordance with the
normal payroll practices of Employer. Payment of all Base Pay for the
remainder of the Remaining Term shall accelerate and become immediately
due and payable upon the filing by or on behalf of Employer of a
bankruptcy petition pursuant to Chapter 7 of the United States
Bankruptcy Code or a conversion of any bankruptcy proceeding to a
Chapter 7 proceeding.
(b) In lieu of any other bonus compensation contemplated by
Section 5(b) of the Employment Agreement, Employee shall be paid a
bonus in the amount of One Hundred Thousand Dollars ($100,000) if he is
employed by Employer on May 8, 2000, payable in full within two (2)
days after such date.
(c) Employee's existing fringe benefits (including, without
limitation, current and future plans for non-officers of Employer for
which Employee is eligible to participate, automobile lease, car phone
and medical) shall continue in full force and effect.
6. TERMINATION. Notwithstanding anything to the contrary contained in
the Employment Agreement, and in particular Section 7 thereof, during the
Remaining Term:
(a) If, for any reason other than termination for Cause on or
prior to May 8, 2000 or a voluntary termination by Employee, Employee
ceases to be employed by Employer, then Employee shall be entitled to
continue to receive the remainder of his Base Pay for the entire
Remaining Term, which amounts shall be payable (subject to normal
withholdings within seven (7) days after Employee ceases to be employed
by Employer.
(b) If Employee voluntarily ceases to be employed by Employer
on or after May 9, 2000 or is terminated for Cause on or prior to May
8, 2000, then Employee shall be entitled to continue to receive the
Base Pay to which he would have otherwise been entitled to receive for
a period of eighteen (18) months from the date of ceasation of
employment (subject to normal withholdings and in accordance with the
normal payroll practices of Employer), payable in equal installments
over the nine (9)-month period immediately following such ceasation of
employment.
(c) Upon Employee ceasing to be employed by Employer pursuant
to Section 6(a) or 6(b), Employee shall be entitled to continue to
receive the fringe benefits referred to in Section 5(c) during the
remainder of the Remaining Term (in the case of Section 6(a)) or the
eighteen (18)-month period immediately following such ceasation of
employment (in the case of Section 6(b)), as applicable.
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7. OPTIONS. Notwithstanding anything to the contrary contained in any
option or other agreements between Employer and Employee, all options to
purchase shares of common stock of Employer currently held by Employee shall,
concurrently with the execution of this Amendment, be fully vested (and not
subject to forfeiture) and shall be exercisable until the expiration of their
respective terms notwithstanding Employee's earlier termination as an employee
of Employer or otherwise.
8. COVENANT NOT TO COMPETE; CONFIDENTIALITY. Employee hereby
acknowledges the continuing effectiveness of Sections 8 and 9 of the Employment
Agreement. Notwithstanding anything to the contrary contained in said Section 8,
the restrictions set forth therein shall survive the termination of Employee's
employment with Employer, for any reason, for a period of one (1) year.
9. INDEMNITY; DIRECTORS AND OFFICERS INSURANCE. Employer shall, during
and after the Remaining Term, indemnify Employee in the manner provided in the
By-Laws of Employer (as set forth as of the date hereof) to the fullest extent
provided by law. Employer shall purchase and maintain tail coverage relative to
its existing directors and officers insurance policy covering Employee during
the Remaining Term and for two (2) years thereafter, so long as such coverage
continues to be available to Employer during each insurance year at a premium
not in excess of 150% of the immediately prior insurance year's premium for such
coverage.
10. MUTUAL RELEASE. Employer, on behalf of itself and its officers,
directors, employees, shareholders, representatives, agents, affiliates,
successors and assigns, and Employee, on behalf of himself and his legal
representatives, beneficiaries, heirs, legatees, executors, administrators,
successors and assigns, each remise, release and forever discharge the other of
and from any and all manner of actions, proceedings, causes of action, suits,
debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, controversies, contracts, leases, agreements, promises, variances,
trespasses, damages, judgments, executions, claims and demands, of any nature
whatsoever, and of every kind or description, choate or inchoate, known or
unknown, at law or in equity (collectively, the "Claims"), which the releasing
parties, or any of them, now have or ever had, or hereafter can, shall or may
have, for, upon or by reason of any matter, cause or thing whatsoever, against
the released parties, and each of them, from the beginning of time through the
date hereof, including, but not limited to, any claims related to, arising out
of or in connection with that certain Agreement, dated November 30, 1997,
between Employer and Employee regarding a "change of control" of Employer, which
Agreement is hereby terminated in its entirety and of no further force or
effect; provided, however, that nothing herein shall be construed as a release
of any rights of Employer or Employee arising after the date hereof under the
Employment Agreement, as amended hereby.
11. LEGAL FEES. Employer shall promptly reimburse Employee for all
reasonable attorney's fees and related expenses incurred by Employee in
connection with the negotiation and execution of this Amendment.
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12. CONTINUED EFFECTIVENESS. Except as contemplated by this Amendment,
the Employment Agreement shall continue in full force and effect in accordance
with its terms.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date and year first above written.
EMPLOYER: EMPLOYER:
HA-LO INDUSTRIES, INC.
By:_____________________________________ ___________________________________
Its:_________________________________ Richard A. Magid
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AMENDMENT TO INDUSTRIAL SPACE LEASE
THIS AMENDMENT TO INDUSTRIAL SPACE LEASE is made and entered into as of
this 1st day of May, 1995 ("Amendment") by and between CENTERPOINT PROPERTIES
CORPORATION, a Maryland corporation ("Landlord") and HALO INDUSTRIES, INC., an
Illinois corporation doing business as HALO ADVERTISING SPECIALTIES ("Tenant").
W I T N E S S E T H:
WHEREAS, LaSalle National Trust, N.A., not personally but solely as
Trustee under a certain Trust Agreement dated August 14, 1990 and known as Trust
No. 115722 ("Original Landlord") and Tenant entered into that certain Industrial
Space Lease dated as of December 30, 1992 ("Lease"), pertaining to certain
premises located in the building commonly known as 5990 West Touhy Avenue,
Niles, Illinois ("Building"); and
WHEREAS, Landlord has succeeded to all of Original Landlord's right,
title and interest in, to and under the Lease; and
WHEREAS, Landlord and Tenant desire to amend the Lease as more fully
set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Landlord and Tenant hereby agree to amend the Lease as
follows:
1. DEFINITIONS. Any defined terms used herein without definition shall
have the meanings ascribed to such terms in the Lease.
2. LEASE OF ADDITIONAL PREMISES. Effective on June 15, 1995 ("Effective
Date"), Landlord shall lease to Tenant and Tenant shall accept certain premises
in the Building, containing 4800 rentable square feet ("Additional Premises"),
for the Term as depicted on EXHIBIT "A" attached hereto and made a part hereof.
For all purposes of the Lease, the "premises" or "demised premises", as defined
and utilized in the Lease, shall be deemed to mean and include the collective
reference to the original premises demised to Tenant under the Lease, together
with the Additional Premises. Exhibit A attached to the Lease is hereby deleted
and EXHIBIT "B" attached hereto and made a part hereof, depicting the premises,
shall be substituted in lieu thereof.
3. DEFINITIONS. Commencing on the Effective Date, Section 1 of the
Lease shall be amended as follows:
(i) Section 1.F. of the Lease shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
<TABLE>
<S> <C>
"F." Monthly Base Rental:
October 1, 1993 - September 30, 1994: $27,949.00
October 1, 1994 - June 30, 1995: $30,794.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
July 1, 1995 - September 30, 1995: $32,794.00
October 1, 1995 - September 30, 1996: $35,567.00
October 1, 1996 - September 30, 1997: $38,483.00
October 1, 1997 - September 30, 1998: $40,261.00
October 1, 1998 - September 30, 1999: $42,872.00
October 1, 1999 - September 30, 2000: $43,817.00
October 1, 2000 - September 30, 2001: $46,092.00
October 1, 2001 - September 30, 2002: $47,515.00
October 1, 2002 - September 30, 2003: $48,937.00"
</TABLE>
(ii) Section 1.H. of the Lease shall be deleted in its entirety and the
following shall be inserted In lieu thereof:
"H. Tenant's Proportion:
45.59% for HVAC Maintenance
29.04% for Snow-Plowing
29.57% for all other Expenses and Taxes"
(iii) Section 1.I. of the Lease shall be deleted in its entirety and the
following shall be inserted in lieu thereof: "J. Termination Date:
September 30, 2003"; and
(iv) Section 1.K. of the Lease shall be deleted in its entirety and the
following shall be inserted in lieu thereof: "K. Total Base Rent:
$4,791,012.00".
4. LANDLORD CONTRIBUTION. Landlord hereby approves the alterations and
additions to the premises contemplated by Tenant pursuant to the plans and
specifications attached hereto (collectively, the "Additional Premises Work"),
including, without limitation, the construction of an additional washroom by
Tenant's contractor pursuant to the proposal /contract attached hereto and made
a part hereof. Landlord hereby waives any and all rights to charge fees for
supervision and coordination of such work to which Landlord might otherwise be
entitled pursuant to Section 9 of the Lease. In conjunction with such Additional
Premises Work, Landlord shall pay to Tenant $13,000 to partially defray the cost
of the same; which payment shall be made upon substantial completion of the
Additional Premises Work.
5. AS-IS. Tenant agrees the Additional Premises shall be tendered to
Tenant on the Effective Date in its then "as-is", "where-is" condition.
6. REAL ESTATE BROKERS. The parties hereto each represent to the other
that they have not dealt with any broker in connection with this Amendment and
each party agrees to indemnify and hold the other harmless from all damages,
liability and expenses (including reasonable attorney's fees and court costs)
arising from any breach of the foregoing representation by the indemnitor.
7. AMENDMENT. Any and all references in the Lease to the "Lease" shall
mean and include this Amendment. Except as amended hereby, the Lease remains in
full force and effect.
2
<PAGE>
8. EXCULPATION CLAUSE. Section 27 of the Lease is deleted in its
entirety and the following is inserted in lieu thereof: "LANDLORD'S LIABILITY.
Notwithstanding anything to the contrary herein contained, there shall be
absolutely no personal liability asserted or enforceable against Landlord or on
any persons, firms or entities who constitute Landlord with respect to any of
the terms, covenants, conditions and provisions of this Lease, and Tenant shall,
subject to the rights of any mortgagee, look solely to the interest of Landlord,
its successors and assigns in the Building and the rents, avails, profits and
other proceeds derived therefrom, for the satisfaction of each and every remedy
of Tenant in the event of default by Landlord hereunder; such exculpation of
personal liability is absolute and without any exception whatsoever. If the
entity constituting Landlord is a partnership or limited liability company,
Tenant agrees that the deficit capital account of any such partner or member, as
applicable, shall not be deemed an asset or property of said partnership or
limited liability company."
9. CONTINGENCY. Tenant hereby acknowledges the Additional Premises
currently constitutes a portion of the space at the Building leased by Portland
Food Products Company ("Portland") and that Landlord is in the process of
entering into an amendment to Landlord's lease at the Building with Portland
whereby Portland shall vacate the Additional Premises and tender the same to
Landlord. Tenant hereby acknowledges and agrees if Landlord is unable to deliver
possession of the Additional Premises to Tenant on July 1, 1995 for any reason,
Landlord shall not be subject to any liability for failure to give possession
thereof. Under such circumstances, the Effective Date for all purposes,
including without limitation the commencement of the Monthly Base Rental
schedule as contemplated by this Amendment, shall be the date Landlord tenders
possession of the Additional Premises to Tenant and such modification of the
Effective Date shall not extend the Termination Date. However, in the event such
possession is not tendered on or before July 31, 1995, then Tenant, in its sole
discretion, may revoke this Amendment (without otherwise affecting the validity
of the Lease) whereupon Landlord, within thirty (30) days after written demand,
shall reimburse Tenant for any and all out-of-pocket expenses incurred by Tenant
in connection with the Additional Premises Work.
10. LANDLORD. For all purposes of the Lease, "Landlord" shall mean
CenterPoint Properties Corporation, a Maryland corporation, which address is 401
North Michigan Avenue, 30th Floor, Chicago, Illinois 60611, Attention: Robert L.
Stovall.
3
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
LANDLORD: TENANT:
CENTERPOINT PROPERTIES HALO INDUSTRIES, INC., an
CORPORATION, a Maryland Illinois corporation
corporation
By By:
----------------------- -----------------------------
Its: Its:
------------------ -------------------------
By:
----------------------
Its:
------------------
4
<PAGE>
SECOND AMENDMENT TO
INDUSTRIAL SPACE LEASE
THIS SECOND AMENDMENT TO INDUSTRIAL SPACE LEASE is dated as of the ___
day of April, 1996 (the "Effective Date") by and between CENTERPOINT PROPERTIES
CORPORATION, a Maryland corporation (the "Landlord") and HALO INDUSTRIES, INC.,
an Illinois corporation doing business as HALO ADVERTISING SPECIALTIES (the
"Tenant").
RECITALS
A. LaSalle National Trust, N.A., not personally but solely as Trustee
under a certain Trust Agreement dated August 14,1990 and known as Trust No.
115722 ("Original Landlord") and Tenant entered into that certain Industrial
Space Lease dated as of December 30, 1992 as modified by that certain Amendment
to Industrial Space Lease dated May 1, 1995 (said Lease and Amendment are herein
collectively referred to as the "Lease") with respect to certain premises
located in the building commonly known as 5990 West Touhy Avenue, Niles,
Illinois as more particularly described in the Lease. All terms used herein,
unless otherwise specified, shall have the meaning ascribed to them in the
Lease.
B. Landlord is the successor in interest to Original Landlord's
interest in the Lease.
C. Landlord and Tenant desire to expand the "demised premises" in order
to include the space consisting of 12,150 square feet as depicted in EXHIBIT A
attached hereto and by this reference made a part hereof (the "Expansion
Premises"), all on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. RECITALS. The Recitals are incorporated into this Amendment as if
fully set forth in this Section 1.
2. EXPANSION PREMISES. As of the Effective Date, the terms "premises"
and "demised premises" as used in the Lease shall be deemed to include the
Expansion Premises. Tenant hereby acknowledges and agrees the Expansion Premises
shall be tendered to and accepted by Tenant in its "as-is" condition.
3. MONTHLY BASE RENTAL. All terms and conditions of the Lease all be
deemed to apply to the Expansion Premises except that Monthly Base Rental shall
be payable as follows:
<TABLE>
<CAPTION>
MONTHLY BASE RENTAL MONTHLY BASE RENTAL
PERIOD EXPANSION PREMISES ENTIRE PREMISES
------ ------------------ ---------------
<S> <C> <C>
Effective Date-September 30, 1996 $3,999.38 $39,566.38
October 1, 1996-September 30, 1997 $4,119.36 $42,602.36
October 1, 1997-September 30, 1998 $4,242.94 $44,503.94
October 1, 1998-September 30, 1999 $4,370.23 $47,242.23
October 1, 1999-September 30, 2000 $4,371.26 $48,188.26
October 1, 2000-September 30, 2001 $4,502.40 $50,594.40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
October 1, 2001-September 30, 2002 $4,637.47 $52,152.47
October 1, 2002-September 30, 2003 $4,776.59 $53,713.59
</TABLE>
In the event the Effective Date is other than the first day of a month,
then the Monthly Base Rental with respect to the Expansion Premises shall be
prorated based on the number of days remaining in the month in which the
Effective Date occurs.
Total Base Rent shall be the sum of all Monthly Base Rental payable by
Tenant under the terms of the Lease and this Amendment,
4. TENANT'S PROPORTION. As of the Effective Date, Tenant's Proportion
shall be as follows:
51.74% for HVAC maintenance
29.04% for snow plowing
33.56% for Taxes and all remaining Expenses
As of the Effective Date, the estimated monthly payments of Tenant's
Proportion of Taxes and Expenses for the "premises" (including the Expansion
Premises) are as follows:
$4,311.67 for HVAC maintenance
$411.40 for snow plowing
$12,377.93 for Taxes and all remaining Expenses
Landlord shall have the right to change the aforedescribed estimated
monthly payments at any time and from time to time.
5. NO OTHER MODIFICATION. The Lease is only modified as set forth
herein and in all other respects remains in full force and effect.
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
7. MODIFICATION. This Amendment may not be modified or amended except
by written agreement executed by the parties hereto.
8. GOVERNING LAW. The validity, meaning and effect of this Amendment
shall be determined in accordance with the laws of the State of Illinois.
9. COUNTERPARTS. This Amendment may be executed in two counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. SEVERABILITY. Landlord and Tenant intend and believe that each
provision in this Amendment comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision in this Amendment
is found by a court of law to be in violation of any applicable ordinance,
statute, law, administrative or judicial decision, or public policy, and if such
court should declare such provision to be illegal, void or unenforceable as
written, then
2
<PAGE>
such provision shall be given force to the fullest possible extent that the same
is legal, valid and enforceable and the remainder of this Amendment shall be
construed as if such provision was not contained therein.
In witness whereof, the parties hereto have executed this Amendment as
of the date first above written.
CENTERPOINT PROPERTIES HALO INDUSTRIES, INC., an
CORPORATION, a Maryland Illinois corporation
corporation
By By:
----------------------- ------------------------------
Its: Its:
------------------- --------------------------
By:
----------------------
Its:
------------------
3
<PAGE>
THIRD AMENDMENT TO
INDUSTRIAL SPACE LEASE
THIS THIRD AMENDMENT TO INDUSTRIAL SPACE LEASE is dated as of the ___
day of November, 1996 by and between CENTERPOINT PROPERTIES CORPORATION, a
Maryland corporation (the "Landlord") and HALO INDUSTRIES, INC., an Illinois
corporation doing business as HALO ADVERTISING SPECIALTIES (the "Tenant").
RECITALS
A. LaSalle National Trust, N.A., not personally but solely as Trustee
under a certain Trust Agreement dated August 14,1990 and known as Trust No.
115722 ("Original Landlord") and Tenant entered into that certain Industrial
Space Lease dated as of December 30, 1992 as modified by that certain Amendment
to Industrial Space Lease dated May 1, 1995 and Second Amendment to Industrial
Space Lease dated April ___, 1996 (said Lease and Amendments are herein
collectively referred to as the "Lease") with respect to certain premises
located in the building commonly known as 5990 West Touhy Avenue, Niles,
Illinois as more particularly described in the Lease (the "Project"). All terms
used herein, unless otherwise specified, shall have the meaning ascribed to them
in the Lease. In the event of a conflict between the terms and conditions of the
Lease and the terms and conditions of this Amendment, the terms and conditions
of this Amendment shall prevail.
B. Landlord is the successor in interest to Original Landlord's
interest in the Lease.
C. Tenant has requested and Landlord has agreed to expand the "demised
premises" in order to include the space consisting of 48,125 square feet as
depicted in EXHIBIT A attached hereto and by this reference made a part hereof
(the "Expansion Premises"), all on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. RECITALS. The Recitals are incorporated into this Amendment as if
fully set forth in this Section 1.
2. EXPANSION PREMISES. As of December 1, 1996 ("Effective Date"),
Landlord shall lease to Tenant and tenant shall accept the Expansion Premises as
part of the premises for the balance of the Term. After the Effective Date, the
terms "premises" and "demised premises" as used in the Lease shall be deemed to
include the Expansion Premises, provided, however, that the square foot area of
the Expansion Premises shall not be included in the calculation of Rent
Adjustments under the Lease. Rent Adjustments with respect to the Expansion
Premises shall be determined in the manner set forth in Paragraph 4 below.
Tenant hereby acknowledges and agrees the Expansion Premises shall be tendered
to and accepted by Tenant in its "as-is" and "where is" condition.
3. BASE RENT. All terms and conditions of the Lease shall be deemed to
apply to the Expansion Premises except that Monthly Base Rental for the
Expansion Premises shall be as follows:
<PAGE>
<TABLE>
<CAPTION>
MONTHLY MONTHLY
BASE RENTAL BASE RENTAL
PERIOD EXPANSION PREMISES ENTIRE PREMISES
------ ------------------ ---------------
<S> <C> <C>
December 1, 1996-September 30, 1997 $12,632.81 $55,235.17
October 1, 1997-September 30, 1998 $13,434.90 $57,939.84
October 1, 1998-September 30, 1999 $14,036.46 $61,278.69
October 1, 1999-September 30, 2000 $14,638.02 $62,826.28
October 1, 2000-September 30, 2001 $15,079.17 $65,673.57
October 1, 2001-September 30, 2002 $15,560.42 $67,712.89
October 1, 2002-September 30, 2003 $16,041.67 $69,755.26
</TABLE>
Total Base Rent shall be the sum of all Monthly Base Rental payable by
Tenant under the terms of the Lease and this Amendment.
4. ADDITIONAL RENT Commencing on the Effective Date and on the first
day of each month thereafter until the earlier of (1) the Termination Date of
the Lease; or (ii) the Expansion Termination Date as set forth in Paragraph 5
below, Tenant shall pay Landlord as an additional Rent Adjustment with respect
to the Expansion Premises, without offset or deduction and in addition to the
Base Rent set forth hereinabove, the amounts set forth below:
(a) The sum of $802.08 per month for the payment of Tenant's
Proportion of Expenses with respect to the Expansion Premises;
(b) An amount equal to the sum of (i) $5,855.21 plus (ii) the
amount by which Taxes for the Project exceed $1.46 per square foot area
of the Project, multiplied by the square foot area of the Expansion
Premises divided by twelve, which sum shall be deemed to be Tenant's
Proportion of Taxes with respect to the Expansion Premises. By way of
example only, in the event Taxes paid during calendar year 1998 for
1997 Taxes equal $1.50 per square foot area of the Project, Tenant
shall pay to Landlord the sum of
$5,855.21 + {[($1.50 - $1.46) x 48,125]/12} =
$5,855.21 + {[$.04 x 48,125]/12} =
$5,855.21 + {$1,925/12} =
$5,855.21 + $160.42 = $6,015.63 per month
Such amounts shall be payable by Tenant to Landlord in addition to any
sums payable to Landlord as Rent Adjustments in the Lease for the balance of the
premises.
5. TERMINATION OPTION. Tenant shall have the option ("Termination
Option") to terminate the Lease with respect to the Expansion Premises only upon
the following terms and provisions:
(a) Tenant gives Landlord prior written notice ("Termination
Notice") of Tenant's exercise of the Termination Option specifying an
effective date for such termination ("Expansion Termination Date") as a
date not less than nine (9) months subsequent to Landlord's receipt of
the Termination Notice. The Termination Notice shall not be effective
unless accompanied by a termination fee ("Termination Fee") in
certified funds in the amount set forth below:
2
<PAGE>
<TABLE>
<CAPTION>
EXPANSION TERMINATION DATE TERMINATION FEE
-------------------------- ---------------
<S> <C>
December 1, 1996-September 30, 1997 None
October 1, 1997-September 30, 1998 $222,091.00
October 1, 1998-September 30, 1999 $202,735.00
October 1, 1999-September 30, 2000 $178,033.00
October 1, 2000-September 30, 2001 $151,240.00
October 1. 2001-September 30, 2002 $122,063.00
October 1, 2002-September 30, 2003 $90,070.00
</TABLE>
The Termination Fee shall be earned by Landlord upon receipt and shall
not be refundable under any circumstances.
(b) Tenant is not in default under the Lease either on the
date Tenant delivers the Termination Notice of at any time prior to the
Expansion Termination Date.
(c) The Termination Option herein granted shall automatically
terminate upon the earliest to occur of (i) the expiration or
termination of the Lease, (ii) the termination of Tenant's right to
possession of the premises or the Expansion Premises, (iii) any
assignment or subletting by Tenant, or (iv) the failure of Tenant to
timely or properly exercise the Termination Option.
(d) Tenant shall remain obligated to perform each and every
term, covenant, condition and agreement to be performed by Tenant under
the Lease, including, without limitation, the obligation of the Tenant
to pay all Rent and other payments which are the obligation of the
Tenant under the Lease with respect to the Expansion Premises through
and including the Expansion Termination Date. Tenant's exercise of the
Termination Option shall in no manner affect Tenant's obligations under
the Lease with respect to the remaining premises.
6. NO OTHER MODIFICATION. The Lease is only modified as set forth
herein and in all other respects remains in full force and effect.
7. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
8. MODIFICATION. This Amendment may not be modified or amended except
by written agreement executed by the parties hereto.
9. GOVERNING LAW. The validity, meaning and effect of this Amendment
shall be determined in accordance with the laws of the State of Illinois.
10. COUNTERPARTS. This Amendment may be executed in two counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3
<PAGE>
11. SEVERABILITY. Landlord and Tenant intend and believe that each
provision in this Amendment comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision in this Amendment
is found by a court of law to be in violation of any applicable ordinance,
statute, law, administrative or judicial decision, or public policy, and if such
court should declare such provision to be illegal, void or unenforceable as
written, then such provision shall be given force to the fullest possible extent
that the same is legal, valid and enforceable and the remainder of this
Amendment shall be construed as if such provision was not contained therein.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
CENTERPOINT PROPERTIES HALO INDUSTRIES, INC., an
CORPORATION, a Maryland Illinois corporation
corporation
By By:
-------------------------------- -------------------------------
Its: Its:
---------------------------- ---------------------------
By By:
-------------------------------- -------------------------------
Its: Its:
---------------------------- ---------------------------
4
<PAGE>
FOURTH AMENDMENT TO
INDUSTRIAL SPACE LEASE
THIS FOURTH AMENDMENT TO INDUSTRIAL SPACE LEASE (hereinafter referred
to as this "Amendment") is dated as of the ___ day of April, 1997 by and between
CENTERPOINT PROPERTIES CORPORATION, a Maryland corporation (the "Landlord") and
HALO INDUSTRIES, INC., an Illinois corporation doing business as HALO
ADVERTISING SPECIALTIES (the "Tenant").
RECITALS
A. LaSalle National Trust, N.A., not personally but solely as Trustee
under a certain Trust Agreement dated August 14, 1990 and known as Trust No.
115722 ("Original Landlord") and Tenant entered into that certain Industrial
Space Lease dated as of December 30, 1992 as modified by that certain Amendment
to Industrial Space Lease dated May 1, 1995, Second Amendment to Industrial
Space Lease dated April ___, 1996, and Third Amendment to Industrial Space Lease
dated November ___, 1996 (the "Third Amendment") (said Lease and Amendments are
herein collectively referred to as the "Lease") with respect to certain premises
located in the building commonly known as 5990 West Touhy Avenue, Niles,
Illinois as more particularly described in the Lease (the "Project").
B. Landlord is the successor in interest to Original Landlord's
interest in the Lease.
C. Pursuant to the Third Amendment, Tenant leased the Expansion
Premises (as defined in the Third Amendment) from Landlord, and Landlord leased
the Expansion Premises to Tenant.
D. Tenant desires to alter a portion of the Expansion Premises
comprising 11,760 square feet of space as depicted in EXHIBIT A attached hereto
and by this reference made a part hereof (the "Office Space") for use as office
space, and Landlord has agreed to pay a tenant improvement allowance to Tenant
in connection with the tenant improvement work to be performed in the Office
Space.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as
follows:
1. INCORPORATION OF RECITALS AND DEFINITIONS. The foregoing Recitals
are incorporated into this Amendment as if fully set forth herein. All
capitalized terms used in this Amendment, unless otherwise defined, shall have
the meanings ascribed to them in the Lease. In the event of a conflict between
the terms and conditions of the Lease and the terms and conditions of this
Amendment, the terms and conditions of this Amendment shall prevail.
2. ADDITIONAL BASE RENTAL FOR OFFICE SPACE. From and after June 1, 1997
(the "Effective Date"), Tenant shall pay additional Base Rental ("Additional
Office Space Base Rental") to Landlord with respect only to the Office Space,
which Additional Office Space Base Rental shall be in addition to and not in
lieu of the Base Rental provided for in the Third Amendment, as follows:
<PAGE>
<TABLE>
<CAPTION>
ANNUAL ADDITIONAL
PERIOD OFFICE SPACE BASE RENTAL
------ ------------------------
<S> <C>
June 1, 1997-September 30, 1998 $ 89,622.80
October 1, 1998-September 30, 1999 $ 92,311.48
October 1, 1999-September 30, 2000 $ 95,080.82
October 1, 2000-September 30, 2001 $ 97,933.25
October 1, 2001-September 30, 2002 $100,871.25
October 1, 2002-September 30, 2003 $103,897.38
</TABLE>
3. TERMINATION OPTION. If Tenant exercises the Termination Option
pursuant to Section 5 of the Third Amendment, then Tenant shall pay to Landlord,
in addition to and not in lieu of the Termination Fee set forth in the Third
Amendment, an additional Termination Fee ("Additional Termination Fee") with
respect to the Office Space as follows:
<TABLE>
<CAPTION>
EXPANSION PREMISES ADDITIONAL
TERMINATION DATE TERMINATION FEE
---------------- ---------------
<S> <C>
June 1, 1997-September 30, 1998 $372,320.62
October 1, 1998-September 30, 1999 $314,688.96
October 1, 1999-September 30, 2000 $251,963.19
October 1, 2000-September 30, 2001 $183,693.02
October 1, 2001 -September 30, 2002 $109,388.40
October 1, 2002-September 30, 2003 $ 28,515.92
</TABLE>
The Additional Termination Fee shall be payable at the same time and in
the same manner as the Termination Fee and shall not be refundable under any
circumstances.
4. TENANT IMPROVEMENTS AND TENANT IMPROVEMENT ALLOWANCE.
(a) Tenant shall, at Tenant's sole cost and expense, cause to
be prepared and submitted to Landlord for Landlord's prior approval,
plans and specifications (the "Plans"), including, but not limited to,
all space plans, working drawings, mechanical and engineering drawings,
disclosing all construction to be performed by Tenant in the Office
Space (collectively, the "Work"). Landlord's approval of the Plans
shall not be unreasonably withheld or denied. In the event the Plans
are disapproved, Tenant shall revise and resubmit the Plans and
Landlord shall review the same and notify Tenant of its approval or
disapproval in the same manner as required for the initial submittal.
(b) Tenant shall enter into a contract with Executive
Construction ("Tenant's Contractor") to perform the Work. Prior to
commencing the Work, Tenant shall submit all written contracts with
Tenant's Contractor for Landlord's approval. All installations,
alterations and additions which comprise the Work shall be constructed
in a good and workmanlike manner and only new and good grades of
material shall be used. The Work performed by Tenant's Contractor shall
comply with all applicable insurance requirements, all laws, statutes,
ordinances and regulations of the Village of Niles, the State of
Illinois and the United States of America. Tenant shall permit Landlord
to observe all construction operations within the Office Space
performed by Tenant's Contractor. No silence or statement by Landlord's
supervisor shall be deemed or
2
<PAGE>
construed as an assumption by said supervisor or Landlord of any
responsibility for or in relation to the construction of the Office
Space or any guarantee that the Work complies with laws, complies with
the Plans, or is suitable or acceptable to Tenant for Tenant's intended
business purposes.
(c) Tenant, at its sole cost and expense, shall file all
necessary plans with the appropriate governmental authorities having
jurisdiction over the Work. Tenant shall be responsible for obtaining
all permits, authorizations and approvals necessary to perform and
complete the Work. Tenant shall not commence the Work until the
required permits authorizations and approvals for such work are
obtained and delivered to Landlord.
(d) Tenant shall at all times keep the Office Space and the
balance of the Premises and adjacent areas free from accumulations of
waste materials or rubbish caused by its suppliers, contractors or
workmen. Landlord reserves the right to do clean-up at the expense of
Tenant if Tenant fails to comply with Landlord's reasonable cleanup
requirements. At the completion of the Work, Tenant's Contractor shall
forthwith remove all rubbish and all tools, equipment and surplus
materials from and about the Office Space and Building. Any damage
caused by Tenant's Contractor to any portion of the Building or to any
property of Landlord shall be repaired forthwith by Tenant at its
expense to its condition prior to such damage.
(e) Tenant and Tenant's Contractor shall assume responsibility
for the prevention of accidents and shall take all reasonable safety
precautions with respect to the Work and shall comply with all
reasonable safety measures initiated by Landlord and with all
applicable laws, ordinances, rules, regulations and orders applicable
to the Work including those of any public authority for the safety of
persons or property. Tenant shall advise Tenant's Contractor to report
to Landlord any injury to any of its agents or employees and shall
furnish Landlord a copy of the accident report filed with its insurance
carrier within three (3) days of its occurrence.
(f) Provided no default exists under this Lease, Landlord
shall pay, as Landlord's contribution to the costs of construction of
the Work, a sum equal to THREE HUNDRED NINETY THOUSAND AND NO/100
($390,000.00) DOLLARS ("Tenant Improvement Allowance"). Tenant shall
pay for the entire cost of the Work including, but not limited to, all
labor, material, permits, architectural and engineering fees, and
permit fees, in excess of the Tenant Improvement Allowance. The Tenant
Improvement Allowance shall be paid to Tenant's Contractor in
installments by the Landlord as the Work progresses within ten (10)
days of presentation by Tenant and Tenant's Contractor of reasonable
documentation evidencing (i) the amounts due, in relation to the Work,
to the Tenant's Contractor and any subcontractors and materialmen,
including, but not limited to, general contractor's statement and
partial and final lien waivers, as the case may be, covering all Work
for which the Tenant's Contractor is requesting payment; (ii) the
percentage of the Work completed; (iii) a sworn statement from Tenant
setting forth in detail all contractors and material suppliers with
whom Tenant has contracted, their addresses, work or materials to be
furnished, amounts of contracts, amounts paid to date, amounts of
current payments and balances due; and (iv) a report by the architect
that prepared the Plans certifying that the Work has been completed and
materials are in place
3
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as indicated by the request for payment of Tenant's Contractor. Tenant
shall be responsible for obtaining and submitting to Landlord all
documentation reasonably required by the Landlord in relation to draw
requests. Payments of the Tenant Improvement Allowance shall never
exceed, in the aggregate, the lesser of (i) the remaining unpaid amount
of the Tenant Improvement Allowance, or (ii) that amount equal to
ninety percent (90%) of the cost of all Work completed in accordance
with the Plans, as evidenced by the documentation furnished with such
request (including lien waivers). The ten percent (10%) of the cost of
the Work not disbursed (the "Holdback") shall be disbursed to Tenant's
Contractor with the final payment for the Work. The disbursement of the
Tenant Improvement Allowance and any additional funds due from Tenant
shall be made through a construction escrow ("Construction Escrow")
established with Chicago Title Insurance Company ("Escrowee"), or such
other title company selected by Landlord. The parties shall execute a
standard form of construction escrow agreement utilized by the Escrowee
with such revisions thereto as may be necessary to conform to the
provisions hereof. The parties and any contractor employed by Tenant
and all subcontractors thereof shall furnish to the Escrowee such other
documents, information and undertakings as may be reasonably requested
by the Escrowee to enable it to advise Landlord and Tenant, with
respect to the periodic disbursement made through the construction
escrow and lien waivers are in proper form for the purpose of releasing
and waiving any and all rights to file mechanics lien claims against
the Office Space and the Premises or any portion thereof and that there
are no liens of public record. Landlord shall fund the Tenant
Improvement Allowance into the Construction Escrow periodically by the
transfer of funds upon approval of documents submitted in connection
with each construction draw and upon the Escrowee's determination, with
respect to the periodic disbursements made through the construction
escrow, that it is prepared to advise Landlord that all statements and
lien waivers are in proper form for the purpose of releasing and
waiving any and all rights to file mechanics lien claims against the
Office Space or any portion thereof and that there are no liens of
public record through the date of disbursement of funds.
Notwithstanding the foregoing, if at any time during the course of
performance of the Work the total unpaid cost of completing the Work as
indicated by any of the sworn statements provided hereunder exceeds the
balance of the Tenant Improvement Allowance, Landlord need not make
further disbursements of Tenant Improvement Allowance until Tenant has
deposited in the Construction Escrow the sum necessary, along with the
balance of the Tenant Improvement Allowance, to make all available
funds equal to the unpaid cost of construction or has paid such excess
costs directly. The final payment for the Work (inclusive of the entire
Holdback) shall not be made until the architect who prepared the Plans
shall have certified to Landlord and Tenant that the Work is
substantially complete in accordance with the Plans, any applicable
certificate of occupancy or other governmental license or permit has
been issued, all final waivers of lien have been deposited with the
Escrowee and the Escrowee is prepared to advise Landlord that there are
no liens of public record resulting from the Tenant's Work and is
prepared to issue a date-down endorsement
4
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to Landlord's then existing Title Insurance Policy issued by Chicago
Title Insurance Company free of any exceptions relating to Work. The
payment for expenses incurred in connection with the Construction
Escrow and issuance of the Title Insurance Policy date-down endorsement
shall be paid from the Tenant Improvement Allowance as an element of
the cost of the Work.
5. BROKERS. Landlord and Tenant hereby represent and warrant to one
another that it has not dealt with any broker, salesperson, finder or other
party who is or might be entitled to a commission, fee or other compensation in
connection with the transaction contemplated by this Amendment except for Grubb
& Ellis and P.M. Realty Group/Ecker (collectively, the "Brokers"). Landlord and
Tenant each hereby agree to indemnify, defend and hold the other harmless from
and against all loss, cost and expense (including, without limitation, attorneys
fees) arising out of the breach by the other party of the foregoing
representation and warranty.
6. NO OTHER MODIFICATION. The Lease is only modified as set forth
herein and in all other respects remains in full force and effect.
7. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
8. MODIFICATION. This Amendment may not be modified or amended except
by written agreement executed by the parties hereto.
9. GOVERNING LAW. The validity, meaning and effect of this Amendment
shall be determined in accordance with the laws of the State of Illinois.
10. COUNTERPARTS. This Amendment may be executed in two counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. SEVERABILITY. Landlord and Tenant intend and believe that each
provision in this Amendment comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision in this Amendment
is found by a court of law to be in violation of any applicable ordinance,
statute, law, administrative or judicial decision, or public policy, and if such
court should declare such provision to be illegal, void or unenforceable as
written, then such provision shall be given force to the fullest possible extent
that the same is legal, valid and enforceable and the remainder of this
Amendment shall be construed as if such provision was not contained therein.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
LANDLORD: TENANT:
CENTERPOINT PROPERTIES HALO INDUSTRIES, INC., an
CORPORATION, a Maryland Illinois corporation
corporation
By By:
------------------------- ----------------------------
Its: Its:
--------------------- ------------------------
By
-------------------------
Its:
6
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OFFICE AND INDUSTRIAL BUILDING LEASE
LANDLORD:
CENTERPOINT REALTY SERVICES CORPORATION,
AN ILLINOIS CORPORATION
TENANT:
HA-LO INDUSTRIES, INC., AN
ILLINOIS CORPORATION
F-1
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Lease Terms...................................................................... 1
Section 1.1. Definitions...................................................................... 1
Section 1.2. Significance of Definitions...................................................... 4
Section 1.3. Enumeration of Exhibits.......................................................... 4
ARTICLE II Premises......................................................................... 4
Section 2.1. Lease............................................................................ 4
ARTICLE III Term............................................................................. 4
Section 3.1. Term............................................................................. 4
Section 3.2. Memorandum of Lease Term......................................................... 5
ARTICLE IV Construction of Improvements..................................................... 5
Section 4.1. Landlord's Construction Obligation............................................... 5
Section 4.2. Plans Approval................................................................... 5
Section 4.3. Completion....................................................................... 5
Section 4.4. Tenant's Inspection Rights....................................................... 6
Section 4.5. Changes.......................................................................... 6
Section 4.6. Punchlist........................................................................ 7
Section 4.7. Representatives.................................................................. 7
Section 4.8. Warranty......................................................................... 7
Section 4.9. Delay in Construction............................................................ 7
ARTICLE V Rent............................................................................. 8
Section 5.1. Base Rent........................................................................ 8
Section 5.2. Interest and Late Charges on Late Payments....................................... 8
ARTICLE VI Additional Rent.................................................................. 9
Section 6.1. Base Rent Adjustment............................................................. 9
Section 6.2. Utilities........................................................................ 10
Section 6.3. Contest of Taxes................................................................. 11
ARTICLE VII Use.............................................................................. 11
Section 7.1. Use.............................................................................. 11
Section 7.2. Prohibited Uses.................................................................. 11
Section 7.3. No Implied Permission............................................................ 11
Section 7.4. Rules and Regulations............................................................ 11
ARTICLE VIII Maintenance, Repairs and Replacements of Premises................................ 12
Section 8.1. A. Tenant's Obligations........................................................ 12
Section 8.2. Governmental Requirements........................................................ 12
Section 8.3. Maintenance Contract............................................................. 12
ARTICLE IX Insurance........................................................................ 13
Section 9.1. Coverage Required................................................................ 13
Section 9.2. Policies......................................................................... 14
Section 9.3. Subrogation...................................................................... 14
Section 9.4. Miscellaneous Insurance Provisions............................................... 15
Section 9.5. Building Insurance............................................................... 16
Section 9.6. Insurance Appraisals............................................................. 16
Section 9.7. Tenant Payments.................................................................. 16
ARTICLE X Damage or Destruction............................................................ 16
</TABLE>
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<TABLE>
<S> <C> <C>
Section 10.1 Total Demise..................................................................... 16
Section 10.2. Partial Demise................................................................... 17
Section 10.3. Termination...................................................................... 17
Section 10.4. Insurance Deductible............................................................. 17
ARTICLE XI Liens............................................................................ 17
Section 11.1. Lien Claims...................................................................... 17
Section 11.2. Landlord's Right to Cure......................................................... 18
ARTICLE XII Tenant Alterations............................................................... 18
Section 12.1. Alterations...................................................................... 18
Section 12.2. Ownership of Alterations......................................................... 19
Section 12.3. Signs............................................................................ 19
Section 12.4. Environmental Impact............................................................. 19
ARTICLE XIII Condemnation..................................................................... 19
Section 13.1. Taking: Lease to Terminate...................................................... 19
Section 13.2. Taking: Lease to Continue....................................................... 19
Section 13.3. Tenant's Claim................................................................... 19
ARTICLE XIV Assignment - Subletting by Tenant................................................ 20
Section 14.1. No Assignment, Subletting or Other Transfer...................................... 20
Section 14.2. Operation of Law................................................................. 20
Section 14.3. Excess Rental.................................................................... 20
Section 14.4. Merger or Consolidation.......................................................... 20
Section 14.5. Unpermitted Transaction.......................................................... 21
Section 14.6. Permitted Transfers.............................................................. 21
ARTICLE XV Financial Statements............................................................. 21
Section 15.1. Financial Statements............................................................. 21
ARTICLE XVI Indemnity for Litigation......................................................... 21
Section 16.1. Indemnity for Litigation......................................................... 21
ARTICLE XVII Estoppel Certificates............................................................ 22
Section 17.1. Estoppel Certificate............................................................. 22
ARTICLE XVIII Inspection of Premises........................................................... 22
Section 18.1. Inspections...................................................................... 22
Section 18.2. Signs............................................................................ 22
ARTICLE XIX Fixtures......................................................................... 22
Section 19.1. Building Fixtures................................................................ 22
Section 19.2. Tenant's Equipment............................................................... 22
Section 19.3. Removal of Tenant's Equipment.................................................... 22
ARTICLE XX Default.......................................................................... 23
Section 20.1. Events of Default................................................................ 23
Section 20.2. Bankruptcy....................................................................... 25
Section 20.3. Re-entry......................................................................... 26
Section 20.4. No Waiver........................................................................ 26
Section 20.5. Landlord's Default............................................................... 26
ARTICLE XXI Landlord's Performance of Tenant's Covenants..................................... 27
Section 21.1. Landlord's Right to Perform Tenant's Obligations................................. 27
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE XXII Exercise of Remedies............................................................. 27
Section 22.1. cumulative Remedies.............................................................. 27
Section 22.2. No Waiver........................................................................ 27
Section 22.3. Equitable Relief................................................................. 28
ARTICLE XXIII Subordination to Mortgages....................................................... 28
Section 23.1. Subordination.................................................................... 28
Section 23.2. Mortgage Protection.............................................................. 28
ARTICLE XXIV Indemnity and Waiver............................................................. 28
Section 24.1. Indemnity........................................................................ 28
Section 24.2. Waiver of Claims................................................................. 29
Section 24.3. Landlord's Indemnity............................................................. 30
ARTICLE XXV Surrender........................................................................ 30
Section 25.1. Condition........................................................................ 30
Section 25.2. Removal of Tenant's Equipment.................................................... 30
Section 25.3. Holdover......................................................................... 30
ARTICLE XXVI Covenant of Quiet Enjoyment...................................................... 30
Section 26.1. Covenant of Quiet Enjoyment...................................................... 30
ARTICLE XXVII No Recording..................................................................... 31
Section 27.1. No Recording..................................................................... 31
ARTICLE XXVIII Notices.......................................................................... 31
Section 28.1. Notices.......................................................................... 31
ARTICLE XXIX Covenants Run with Land.......................................................... 31
Section 29.1. Covenants........................................................................ 31
Section 29.2. Release of Landlord.............................................................. 31
ARTICLE XXX Environmental Matters............................................................ 32
Section 30.1. Defined Terms.................................................................... 32
Section 30.2. Tenant's Covenants with Respect to Environmental Matters......................... 33
Section 30.3. Conduct of Tenant................................................................ 34
Section 30.4. Exacerbation..................................................................... 34
Section 30.5 Rights of Inspection............................................................. 34
Section 30.6. Copies of Notices................................................................ 35
Section 30.7. Tests and Reports................................................................ 35
Section 30.8. Indemnification.................................................................. 36
Section 30.9 Landlord Representation with Respect to Environmental Matters.................... 37
Section 30.10. Liability of Landlord............................................................ 37
ARTICLE XXXI Right of First Refusal to Purchase............................................... 37
Section 31.1 Right of First Refusal to Purchase............................................... 37
ARTICLE XXXII Miscellaneous.................................................................... 38
Section 32.1. Captions......................................................................... 38
Section 32.2. Severability..................................................................... 38
Section 32.3. Applicable Law................................................................... 38
Section 32.4. Amendments in Writing............................................................ 38
Section 32.5. Relationship of Parties.......................................................... 38
Section 32.6. Brokerage........................................................................ 38
Section 32.7. No Accord and Satisfaction....................................................... 38
</TABLE>
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<TABLE>
<S> <C> <C>
Section 32.8. Joint Effort..................................................................... 39
Section 32.9. Waiver of Jury Trial............................................................. 39
Section 32.10. Time............................................................................. 39
Section 32.11. Landlord's Consent............................................................... 39
Section 32.12. No Partnership................................................................... 39
Section 32.13 Landlord's Liability............................................................. 39
Section 32.14. Rent Absolute.................................................................... 39
Section 32.15. Tenant Authority................................................................. 39
Section 32.16. Entire Agreement................................................................. 40
Section 32.17. 5980 Lease....................................................................... 41
</TABLE>
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<PAGE>
OFFICE AND INDUSTRIAL BUILDING LEASE
THIS LEASE, made as of this 30th day of November, 1998 between
CENTERPOINT REALTY SERVICES CORPORATION, an Illinois corporation (hereinafter
referred to as "LANDLORD"), and HA-LO INDUSTRIES, INC., an Illinois corporation
(hereinafter referred to as "TENANT").
ARTICLE I
LEASE TERMS
SECTION I.1. DEFINITIONS. In addition to the other terms,
which are elsewhere defined in this Lease, the following terms and phrases,
whenever used in this Lease shall have the meanings set forth in this
Subsection, and only such meanings, unless such meanings are expressly
contradicted, limited or expanded elsewhere herein.
A. AREA OF THE BUILDINGS: Approximately 465,344 square
feet of space in the Office Building and the
Warehouse Building unless Tenant exercises the
Warehouse Termination Option in which event the Area
of the Buildings shall be approximately 267,344
square feet of space in the Office Building.
B. BASE RENT SCHEDULE:
<TABLE>
<CAPTION>
PERIOD ANNUAL BASE RENT
<S> <C>
Commencement Date - last day of Lease Year 1 Area of the Buildings
multiplied by the Initial
Base Rent Rate
</TABLE>
Annual Base Rent shall increase by three percent
(31/o) on the first day of each Lease Year during the
Term.
C. ESTIMATED COMMENCEMENT DATE: June 30, 2000
D. ESTIMATED TERMINATION DATE: December 31, 2015
E. FORCE MAJEURE: Any event or circumstance which is
beyond the control of Landlord including, without
limitation, any delay in securing a building permit
or in obtaining all required approvals from any
Governmental Authority, strikes, lockouts, picketing
(legal or illegal), acts of God or the public enemy,
governmental restrictions or actions, fire or other
casualty, accidents, unavailability of fuel, power,
supplies or materials, unusual adverse weather
conditions, acts or omissions of any labor or
material contractor or the passage or application of
any Legal Requirements or moratorium of any
Governmental Authority which is not now in effect
which has the effect of preventing or delaying
progress on the Initial Improvements or Tenant Delay.
F. FORCE MAJEURE DELAY: Any interruption or delay in the
progress of the Initial Improvements which is the
result of Force Majeure. Any delay which is the
result of Force Majeure shall be deemed to be a Force
Majeure Delay.
G. GOVERNMENTAL AUTHORITY: Any federal, regional, state,
county or municipal government (including, without
limitation, any agency, authority, subdivision,
department or bureau thereof.
<PAGE>
H. INITIAL BASE RENT RATE: $15.00 unless (i) Tenant
exercises the Warehouse Termination Option in which
event the correct amount shall be $24.90 or (ii)
Tenant exercises the Warehouse Office Option in which
event the correct amount shall be $15.176.
I. INITIAL IMPROVEMENTS: Collectively, the improvements
contemplated in the Plans, consisting of the
Warehouse Building, the Office Building, building
systems and components, parking lot and related
improvements to be constructed on the Land
approximately as depicted in the preliminary plans
and specifications described on EXHIBIT "A" attached
hereto and by this reference incorporated herein.
J. Initial Monthly Rent Adjustment Deposit: $169,900.00
(i) Initial Tax Deposit: $74,250.00
(ii) Initial Expense Deposit: $95,650.00
K. INITIAL TERM: The period commencing as of the
Commencement Date and ending on the last day of the
fifteenth (15th) Lease Year thereafter.
L. LANDLORD'S BROKER: None
M. LANDLORD'S MAILING ADDRESS:
c/o 1808 Swift Road
Oak Brook, Illinois 60523-1501
Attn: Mr. Michael M. Mullen
Chief Operating Officer
N. LEGAL REQUIREMENTS: (i) any and all laws, codes,
ordinances, requirements, standards, plats, plans,
criteria, orders, directives, rules and regulations
of any Governmental Authority affecting the
improvement, alteration, use, maintenance,.
operation, occupancy, security, health, safety and
environmental condition of the Premises or any part
thereof (or any occupants therein, as the context
requires) including, without limitation any
Environmental Laws (as hereinafter defined), and (ii)
any and all covenants, restrictions, conditions,
easements and other agreements of record affecting
the Premises and the Reciprocal Easement Agreement,
as amended from time to time, and any documents,
rules, regulations, standards or criteria set forth
or referenced therein or promulgated by the Landlord
or any governing body or entity exercising
jurisdiction over the Premises, in any case, whether
in force at the Commencement Date or passed, enacted
or imposed at some time in the future, and shall
include all permits, licenses, certificates,
authorizations and approvals required in connection
with any of the foregoing.
0. OFFICE BUILDING: The seven (7)-story office building
(plus a basement) containing approximately 267,344
square feet of space to be constructed on the Land as
a part of the Initial Improvements.
P. PLANS: The plans and specifications to be prepared by
the Project Architect for the construction of the
Initial Improvements in accordance with Section 4.2
hereof, which Plans shall be substantially in
accordance with the preliminary plans and
specifications described on EXHIBIT "A".
Q. PROJECT ARCHITECT: Murphy/Jahn, Inc.
R. RECIPROCAL EASEMENT AGREEMENT: Such easements, if
any, over, upon and across the Premises and other
property as are reasonably required to provide for
ingress, egress, drainage, detention, access to
utilities and services, maintenance of common
elements
2
<PAGE>
and services and the sharing of expenses thereof, and
similar rights customary among several parcels
comprising a single commercial development.
S. SUBSTANTIAL COMPLETION OR SUBSTANTIAL COMPLETION
DATE: The earlier to occur of (i) the date on which
Landlord receives a permanent temporary or
conditional certificate of occupancy from the Village
for the Initial Improvements which does not prohibit
the Tenant from occupying the Premises for the
purpose of conducting its business; provided,
however, if such certificate is not issued due to the
failure to complete any work not a part of the Plans,
such certificate shall, be deemed to have issued, or
(ii) the date the Project Architect states in writing
that the Initial Improvements are substantially
completed in accordance with the Plans (as such Plans
may be revised from time to time in accordance with
the terms of this Lease) which enables Tenant to move
in and use the Premises to conduct its business.
T. TENANT DELAY: Any interruption or delay in the
progress of the Initial Improvements which is the
result of: (i) the failure of Tenant to approve the
Plans or any portion thereof; (ii) changes in
construction requested by Tenant or any member of the
Tenant Group which results in actual delay; (iii) the
performance or non-performance of any work at, or
services' with respect to, the Premises by Tenant or
any member of the Tenant Group which results in
actual delay, or (iv) any other act or omission of
Tenant, any member of the Tenant Group or any person,
firm or entity claiming by, through or under any of
them.
U. TENANT GROUP: Any or all of Tenant's agents,
employees, representatives, contractors, workmen,
mechanics, suppliers, customers, guests, licensees,
invitees, sublessees, assignees and all of their
respective successors and assigns or any party
claiming by, through or under any of them.
V. TENANT'S BROKER: Jupiter Brokerage Services, L.L.C.
W. TENANT'S MAILING ADDRESS:
PRIOR TO THE COMMENCEMENT DATE:
5980 Touhy Avenue
Niles, Illinois
Attn: Mr. Lou Weisbach
AFTER THE COMMENCEMENT DATE:
5700 Touhy Avenue
Niles, Illinois
Attn: Mr. Lou Weisbach
X TERM: The Initial Term as same may be extended or
sooner terminated.
Y. TOTAL PROJECT COSTS: All hard and soft costs incurred
by Landlord relating to the Initial Improvements
including, but not limited to, the cost of all
materials, supplies, equipment and labor,
architectural and engineering fees, interior design
costs, sitework, landscaping, land costs, carry
costs, loan fees, legal, taxes, commission and
management fees.
Z. USE: Office, storage and distribution of general
merchandise and light manufacturing in the Warehouse
Building and office in the Office Building and,
subject to the terms and conditions of this Lease,
any other use permitted by all Legal Requirements.
AA. VILLAGE: The Village of Niles, Illinois.
3
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AB. WAREHOUSE BUILDING: The warehouse building containing
approximately 198,000 square feet of space to be
constructed on the Land as a part of the Initial
Improvements.
AC. WAREHOUSE OFFICE OPTION: The option of Tenant to
require Landlord to build out certain office space in
the Warehouse Building as described in Section 4.5
below.
AD. WAREHOUSE TERMINATION OPTION: The option of Tenant to
exclude the Warehouse Building as apart of the
Initial Improvements as described in Section 4.10
below.
SECTION I.2. SIGNIFICANCE OF DEFINITIONS. Each reference in this Lease
to any of the Definitions contained in Section 1. 1 of this Article shall be
deemed and construed to incorporate all of the terms provided under each such
Definitions.
SECTION I.3. ENUMERATION OF EXHIBITS. The exhibits in this Section and
attached to this Lease are incorporated in this Lease by this reference and are
to be construed as a part of this Lease.
EXHIBIT "A" - Preliminary Plans and Specifications
EXHIBIT "B" - Legal Description of Land on Survey
EXHIBIT "C" - Landlord Services
EXHIBIT "D" - Form of Estoppel Certificate
EXHIBIT "E" - Environmental Reports
EXHIBIT "F" - Shell and Core Office Improvements
ARTICLE II
PREMISES
SECTION II.1. LEASE. Landlord, the owner of fee simple tide to the
Premises, for and in consideration of the rents herein reserved and of the
covenants and agreements herein contained on the part of Tenant to be kept,
observed and performed, does by these presents, lease to Tenant, and Tenant
hereby leases from Landlord, the Office Building and the Warehouse Building
(hereinafter collectively referred to as the "BUILDINGS") and the other Initial
Improvements being depicted in the preliminary plans and specifications
described on EXHIBIT "A" to be constructed by Landlord on the real estate
located on Touhy Avenue in Niles, Cook County, Illinois legally described on the
survey found on EXHIBIT "B" attached hereto and by this reference incorporated
herein (all of said real estate is hereinafter referred to as the "LAND"). The
Land, Initial Improvements and other improvements now or hereafter constructed
on the Land are hereinafter collectively referred to as the "Premises". The
demise of the Premises is subject to the Legal Requirements.
ARTICLE III
TERM
SECTION III.1. TERM. The Initial Term of this Lease shall commence on
the date (hereinafter referred to as the "COMMENCEMENT DATE") which is the
Substantial Completion Date, which date is estimated to be the Estimated
Commencement Date, and shall end on the last day of the fifteenth (15th) Lease
Year thereafter unless sooner terminated as herein set forth. The term "LEASE
YEAR" when used in this Lease shall mean a twelve (12) month period commencing
(i) as to the first Lease Year, on the date (hereinafter referred to as the
"FIRST LEASE YEAR COMMENCEMENT DATE") which is the Commencement Date if same is
the first (1st) day of a calendar month or the first (1st) day of the next full
calendar month after the Commencement Date if same does not occur on the first
(1st) day of a calendar month, and (ii) as to subsequent Lease Years, on the
annual anniversary date of the First Lease Year Commencement Date. Concurrent
with the actual Commencement Date of this Lease, Tenant shall deliver to
Landlord an estoppel certificate in accordance with Article XVII hereof. Tenant
may not occupy either
4
<PAGE>
the Office Building or the Warehouse Building for the purpose of conducting
business prior to the Commencement Date.
SECTION III.2. MEMORANDUM OF LEASE TERM. Landlord and Tenant shall
execute an instrument fixing the actual Commencement Date and termination of the
Initial Term of this Lease at the request of either Landlord or Tenant.
ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS
SECTION IV.1. LANDLORD'S CONSTRUCTION OBLIGATION. Subject to the term
and conditions of this Article IV, Landlord shall, at its sole cost and expense,
construct or cause to be constructed the Initial Improvements on the Land in
accordance with the Plans. Notwithstanding the foregoing, the Total Project
Costs (including the changes referenced in the last grammatical paragraph of
Section 4.5 hereof) shall not exceed the sum of $70,601,000.00 (hereinafter
referred to as "Maximum Costs"). In the event that Tenant elects the Warehouse
Termination Option, the Maximum Costs shall be reduced by the Total Project
Costs relating to the Warehouse Building and Warehouse Improvements and a
proportionate share of the charges referred to in the last grammatical paragraph
of Section 4.5 hereof. Tenant shall pay to Landlord the portion of the Total
Project Costs in excess of the Maximum Costs on die Commencement Date, limited
to the extent such excess is due directly to Tenant's request for materials or
Labor in addition to that which is required by the preliminary plans and
specifications described on EXHIBIT "A" ("Tenant Changes"). Landlord shall pay
all costs in excess of the Maximum Costs to the extent the same are not a result
of Tenant Changes and the existence of such excess costs shall not relieve
Landlord of its responsibility hereunder to construct all Initial Improvements
as provided in this Lease.
Landlord agrees that all services and work performed in connection with
the Initial Improvements shall be done in a good and workmanlike manner using
only new material, and shall be performed substantially in accordance with
applicable Legal Requirements, including, but not limited to, the Americans with
Disabilities Act. Notwithstanding the foregoing, Landlord shall not be obligated
to construct any improvements shown in the Plans or the preliminary plans and
specifications described on EXHIBIT "A" to the extent any portion of the
preliminary plans and specifications expressly exclude said improvements. In the
event of any such inconsistency, the portion of the Plans or preliminary plans
and specifications providing for an exclusion shall control.
SECTION IV.2. PLANS APPROVAL. Landlord shall cause the Project
Architect to prepare Plans acceptable to Landlord. The Plans are subject to
Tenants approval (which shall not be unreasonably withheld or delayed). If
Tenant does not approve the Plans (or any component thereof submitted to
Tenant), Tenant shall advise Landlord in reasonable detail of the reasons for
such disapproval. Tenant shall comment on the Plans (or any component thereof
submitted to Tenant) and each revision thereof within five (5) days after
receipt from Landlord. In the event that Tenant does not disapprove of the Plans
(or any component thereof submitted to Tenant) within said five (5)-day period,
the Plans (or applicable component thereof) shall be deemed approved. Tenant may
not object to any changes as may be incorporated in the Plans necessary to
obtain the approval of the Village ("VILLAGE CHANGES"), unless such changes
result in a material and substantial change in the scope of the Plans in which
event Tenant's approval (which approval shall not be unreasonably withheld or
delayed) shall be required- All Village Changes shall be deemed to be changes
requested by Tenant and shall be subject to Section 4.5 below; provided,
however, if the performance of the Village Changes reduces Total Project Costs,
Tenant shall be entitled to a credit in the amount of said reduction against
either Rent due hereunder or its obligations under Section 4.5.
SECTION IV.3. COMPLETION. Landlord shall diligently proceed with the
construction of the initial Improvements upon approval of the Plans by Landlord,
Tenant and the Village. Landlord shall use its best efforts to substantially
complete the Initial Improvements and deliver possession thereof to Tenant on or
before the Estimated Commencement Date; provided, however, if construction is
delayed because of any Force Majeure Delays, then the time of completion of such
construction shall be extended for the additional time caused by such Force
Majeure Delays without liability on the part of Landlord, provided notice of
such delays are provided by Landlord to Tenant Notice of all such Force Majeure
Delays shall be provided once per calendar month and shall
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detail all Force Majeure Delays occurring within the preceding calendar month.
Each notice shall explain the Force Majeure Delays and indicate the number of
days the Estimated Commencement Date was or will be actually delayed.
SECTION IV.4. TENANT'S INSPECTION RIGHTS. Landlord shall exercise
reasonable efforts to keep Tenant advised with respect to the progress of the
construction of the Initial Improvements and the estimated date of Substantial
Completion, and Landlord shall notify Tenant in writing as soon as Substantial
Completion occurs as provided herein. During the construction of the Initial
Improvements and subject to Landlord's reasonable scheduling requirements,
Tenant shall have the right to inspect the Premises to monitor the progress of
construction of the Initial Improvements; provided, however, that such right may
not be exercised unless Tenant has: (i) given Landlord at least three (3)
business days' prior written notice of the date and time Tenant intends to
exercise such inspection right; and (ii) Tenant and/or Tenant's architect are
accompanied at all times during the course of said inspection by Landlord and
Landlord's representative or the Project Architect, or (iii) unless otherwise
agreed to by Landlord and Tenant without notice and by mutual consent.
SECTION IV.5. CHANGES. In the event that any materials specified in the
Plans are unavailable, Landlord reserves the right to substitute materials of
higher or equal quality. Tenant may propose one or more changes to the Plans to
Landlord any time before the Substantial Completion Date, subject to the
approval of Landlord and the Village. As promptly as reasonably practicable
after the receipt and approval thereof, Landlord shall provide Tenant with a
written estimate of the Force Majeure Delay in the Substantial Completion Date
and the amount of the additional cost to complete the Initial Improvements which
will result from such change (whether hard costs or soft costs), which costs
shall be: (i) the cost of all materials, supplies, equipment and labor used or
supplied in making the proposed change, including general conditions and any
contractor's fees (which general conditions and contractor's fees shall be
fifteen percent (15%) of such costs); (ii) any architect and engineer fees;
(iii) soft costs; and (iv) fees and expenses of architects, engineers and other
third party consultants in connection with review or approval of changes in
Plans. If Tenant fails to approve of the revised Plans and associated estimate
within five (5) business days after delivery of the same, Tenant shall be deemed
to have abandoned its request for such change, and the Initial Improvements
shall be constructed in accordance with the then existing Plans. If Tenant
approves the revised Plans and associated estimate within said five (5) business
day period by signing and returning a copy of Landlord's estimate, Landlord
shall cause the Initial Improvements to be constructed in accordance with the
Plans as so revised. Tenant shall pay Landlord the amount of such additional
costs within five (5) business days after Landlord submits to Tenant a bill for
such additional costs as are then due and payable from time to time. Subject to
the last paragraph of this Section 4.5, Landlord shall not have any obligation
to commence any work relating to such changes until Landlord has been paid the
cost of the estimate in full and in the event that the additional costs are not
paid within said five (5) business day period, Tenant shall be deemed to have
abandoned its request for such changes and the Initial Improvements shall be
constructed in accordance with the then existing Plans. Unless requested in
writing by Tenant to the contrary, Landlord shall continue with construction of
the Initial Improvements according to the then existing Plans during the
pendency of any proposed change in the Plans until such change and cost estimate
are approved by Landlord and Tenant as provided above. Any halt in construction
requested in writing by Tenant shall constitute a Tenant Delay hereunder. If
Tenant requests a change to the Plans pursuant to this Section 4.5, and Tenant
does not ultimately approve of the resulting revised Plans or cost estimates,
Tenant shall promptly reimburse Landlord, as Additional Rent, for any reasonable
costs and expenses resulting from such requested changes incurred by Landlord.
Landlord may make changes to the Plans without Tenant's consent, provided that:
(i) such changes (a) will not create any additional monetary obligation for
Tenant under this Lease, (b) are in material conformity with the Plans (as may
have been previously revised by permissible Tenant and/or Landlord changes
thereto), and (c) will not decrease the quality of any component of the Initial
Improvements; or (ii) such changes are required by any applicable Legal
Requirements.
Notwithstanding the foregoing, Tenant shall have the option ("WAREHOUSE
OFFICE OPTION") to have Landlord install 20,000 square feet of office space in
the Warehouse Building. If Tenant exercises the Warehouse Office Option,
Landlord will install said improvements as part of the Initial Improvements at a
cost not to exceed $800,000.00. Tenant must exercise the Warehouse Office Option
by delivery of notice of the exercise of the Warehouse Office Option to Landlord
on or before April 1, 1999. In the event that Landlord does not receive such a
notice from Tenant on or before said date, Tenant shall be deemed to have waived
its right to require Landlord to install said office space in the Warehouse
Building.
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Notwithstanding the foregoing, Tenant may, at Tenant's option, to be
exercised by Tenant by written notice to Landlord within five (5) business days
after receipt of Landlord's estimate of the cost of any changes, request that
Landlord increase Base Rent as a result of changes; provided, however, once the
cost of all changes requested by Tenant exceeds THREE MILLION AND NO/100
($3,000,000.00) DOLLARS in the aggregate Tenant must pay the excess amount to
Landlord as provided above. In the event that Tenant exercises this option,
Annual Base Rent for the period commencing on the Commencement Date and ending
on the last day of Lease Year 1, shall increase by the amount of the cost of
such changes multiplied by 0.1075. Thereafter Annual Base Rent as increased
pursuant to this paragraph shall further increase annually by three percent (3%)
as provided in Section 1.1B. In the event Tenant fails to exercise said option
in a timely fashion, the option shall be deemed terminated and Tenant shall pay
all costs to Landlord as provided above.
SECTION IV.6. PUNCHLIST. Before Tenant takes occupancy of the Premises
but no later than five (5) business days after the Substantial Completion Date,
Landlord, the Project Architect and Tenant shall conduct an inspection of the
Premises, and work in good faith to jointly prepare a list of the portion of the
Initial Improvements which remain incomplete (hereinafter referred to as the
"PRE-OCCUPANCY PUNCHLIST"). Within ten (10) days following the date Tenant first
occupies all or any portion of the Premises, Landlord, the Project Architect and
Tenant shall conduct an additional inspection of the Premises, and work in good
faith to jointly prepare a supplement to the Pre-Occupancy Punchlist containing
such items as may be difficult to discover or ascertain prior to Tenants
occupancy, but excluding: (i) any items theretofore corrected by Landlord; and
(ii) any damage caused by any act or omission of Tenant or any member of the
Tenant Group or any party claiming by, through or under any of them (the
Pre-Occupancy Punchlist, as so supplemented is collectively referred to as the
"FINAL PUNCHLIST"). Except as otherwise expressly provided in this Lease, any
item not on the Final Punchlist which are patently obvious or readily
determinable by Tenant shall be deemed accepted by Tenant. Tenant shall provide
reasonable access to Landlord, its employees, agents and contractors for
purposes of the repair and correction of any punchlist items. Landlord shall
complete all Final Punchlist items as soon as is reasonably practicable after
such Final Punchlist items are finally determined subject to extension due to
any Force Majeure Delays.
SECTION IV.7. REPRESENTATIVES. Landlord designates Michael M. Mullen or
Fred Reynolds or their designee as its representative for all purposes of this
Article IV. Tenant designates Louis Weisbach or Richard Magid or their designee
as its representative for all purposes of this Article IV. Wherever the terms of
this Article IV require any notice to be given to or by a party, or any
determination or action to be made or taken by a party, the representative of
each party shall act for and on behalf of such party, and the other party shall
be entitled to rely thereon. Either party may designate one or more substitute
representatives for all or a specified portion of the provisions of this Article
IV, subject to notice to the other party of the identity of such substitute
representative.
SECTION IV.8. WARRANTY. Landlord represents that it shall obtain (i) a
warranty (hereinafter referred to as the "CONTRACTOR WARRANTY") against
defective materials and workmanship with respect to the Initial Improvements
from the general contractor retained by Landlord to construct the Initial
Improvements, for a period of three (3) years from Substantial Completion of the
Initial Improvements; and (ii) a warranty against defects in the roof for a
period of ten (10) years from Substantial Completion thereof from the roof
manufacturer. Tenant shall notify Landlord in writing of any defective condition
occurring with respect to the Initial Improvements promptly following Tenant's
discovery thereof and Landlord shall promptly request that the party issuing the
warranty perform any remedial work required to be performed under such warranty.
If the general contractor does not comply (or cause its subcontractors or
material suppliers, as applicable, to promptly comply) with its obligations
under the Contractor Warranty, Landlord shall, promptly after written notice
from Tenant of a defective condition that has not been remedied by the general
contractor, so long as the initial notice to Landlord is given to Landlord
within the three (3) year period of time after Substantial Completion, cure the
defective condition covered by the Contractor Warranty at Landlord's cost.
SECTION IV.9. DELAY IN CONSTRUCTION. In the event that the Commencement
Date does not occur on or before December 31, 2000 (hereinafter referred to as
the "OUTSIDE DATE"), then Tenant may, by written notice delivered to Landlord
not more than ten (10) days after the Outside Date, terminate this Lease and
neither party shall have any further obligation to the other. Notwithstanding
the foregoing, the Outside Date shall be extended due to any Force Majeure
Delays, on a day for day basis.
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SECTION IV.10. WAREHOUSE TERMINATION. Tenant shall have the option
("WAREHOUSE TERMINATION OPTION") to request that the Initial Improvements
exclude the Warehouse Building and related building systems, components, parking
lot and improvements (collectively, the "WAREHOUSE IMPROVEMENTS"). The Warehouse
Termination Option shall terminate and Tenant shall be deemed to have elected to
waive its right to exercise the Warehouse Termination Option unless Tenant
delivers written notice of its exercise of said option to Landlord on or before
April 1, 1999. In the event Tenant properly exercises the Warehouse Termination
Option on or before April 1, 1999, notwithstanding any other term or condition
contained herein, Landlord shall not have any obligation to construct the
Warehouse Improvements, the term "Initial Improvements" shall not include the
Warehouse Improvements and the terms "Buildings" and "Premises" shall not
include the Warehouse Building or Warehouse Improvements.
SECTION IV.11. OFFICE BUILDING OFFICE SPACE. The preliminary plans and
specifications described on EXHIBIT "A" includes the office improvements in the
Office Building described on EXHIBIT "F" attached hereto and by this reference
made a part hereof ("Office Improvements"), the cost of which is estimated to be
$24.48 per square foot area of the office space in the Office Building
("Original Office Costs"). In addition thereto, Tenant may request or perform
further improvements to the office space in the Office Building costing up to an
additional $20.00 per square foot of office space in the Office Building
provided the aggregate costs of all improvements to the Office Building shall
not exceed $44.48 per square foot area of office space in the Office Building.
All of the improvements described in this Section 4.11 shall be incorporated
into the Initial Improvements at Landlord's cost and expense. In the event the
actual cost of the Office Improvements ("Actual Cost") is less than the Original
Office Costs as a result of changes or substitutions requested by Tenant, then,
provided the aggregate cost thereof does not exceed the difference between the
Original Office Cost and the Actual Cost, Tenant may request that Landlord
perform additional improvements to the Office Building or Tenant may perform
additional improvements to the Office Building at Landlord's cost up to the
amount of said difference. Any payments of Landlord hereunder as reimbursement
for work performed by Tenant shall be disbursed directly to Tenant's contractors
upon receipt of documentation and in a manner reasonably satisfactory to
Landlord.
ARTICLE V
RENT
SECTION V.1. BASE RENT. In consideration of the leasing aforesaid,
Tenant agrees to pay Landlord, without offset or deduction, base rent for the
Initial Term ("BASE RENT") in the amount of the Annual Base Rent set forth in
the Base Rent Schedule. Annual Base Rent shall increase by three percent (3%) on
the first day of each Lease Year during the Term. The Annual Base Rent shall be
paid in advance, in twelve (12) equal monthly installments, commencing on the
Commencement Date (prorated for any partial month) and continuing on the first
(1st) day of each month thereafter for the balance of the Term of this Lease,
and in addition thereto, shall pay such charges as are herein described as
"ADDITIONAL RENT". The term "RENT" when used in this Lease shall include an Base
Rent payable under this Section 5.1, as well as the charges herein described as
Additional Rent, and all other sums due from Tenant to Landlord hereunder. All
Rent payable hereunder shall be payable to Landlord at Landlord's Mailing
Address, or as Landlord may otherwise from time to time designate in writing.
SECTION V.2. INTEREST AND LATE CHARGES ON LATE PAYMENTS. Tenant
acknowledges that its late payment of any Rent will cause Landlord to incur
certain costs and expenses not contemplated under this Lease, the exact amount
of which is extremely difficult or impracticable to fix. Such costs and expenses
will include, without limitation, loss of use of money, administrative and
collection costs and processing and accounting expenses. Therefore, if any
installment of monthly Base Rent is not received by Landlord within ten (10)
days of the date when due or any other sum due hereunder is not paid within ten
(10) days of the date when due, Tenant shall immediately pay to Landlord a late
charge equal to three percent (3%) of the unpaid amount. Landlord and Tenant
agree that this late charge represents a reasonable estimate of costs and
expenses incurred by Landlord from, and is fair compensation to Landlord for,
its loss suffered, by such non-payment by Tenant. Acceptance of the late charge
shall not constitute a waiver of Tenants default with respect to such
non-payment by Tenant or prevent Landlord from exercising any other rights and
remedies available to Landlord under this Lease. Rent not paid within thirty
(30) days of the date when due shall bear interest from the date when the same
is payable under the
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terms of this Lease until the same shall be paid at an annual rate of interest
equal to the rate of interest announced from time to time by LaSalle National
Bank as its Prime Rate, plus three percent (3%), unless a lesser rate shall then
be the maximum rate permissible by law, in which event said lesser rate shall be
charged ("LEASE INTEREST RATE"). The term "PRIME RATE" means that rate of
interest announced by LaSalle National Bank ("LASALLE") from time to time as its
"Prime Rate" of interest, changing automatically and simultaneously with each
change in the Prime Rate made by LaSalle from time to time. Any publication
issued or published by LaSalle from time to time or a certificate signed by an
officer of LaSalle stating its Prime Rate as of a date shall be conclusive
evidence of the Prime Rate on that date. Failure to pay the late charge and
interest shall constitute a default under this Lease.
ARTICLE VI
ADDITIONAL RENT
SECTION VI.1. BASE RENT ADJUSTMENT. In addition to the Base
Rent payable by Tenant hereunder, Tenant shall pay to Landlord, as Additional
Rent the Rent Adjustment described in this Section 6.1 without set off or
deduction. Until such time as Tenant receives the first Adjustment Statement
provided for in clause (C) of this Section 6.1, Tenant shall, commencing on
the Commencement Date and on the first (1st) day of each and every month
thereafter, make the Initial Monthly Rent Adjustment Deposit specified in
Article I hereof.
A. For the purposes of this Lease:
(1) The term "Calendar Year" shall mean each calendar year or
a portion thereof during the Term.
(2) The term "Expenses" shall mean and include all expenses
paid or incurred by Landlord or its beneficiaries for managing, owning,
maintaining, operating, insuring, replacing and repairing the Project,
the Land, appurtenances and personal property used in conjunction
therewith. Expenses shall not include (i) depreciation charges, (ii)
interest and principal payments on mortgages, (iii) real estate
brokerage and leasing commissions, (iv) legal fees for the negotiation
or enforcement of leases, (v) cost of repair from a casualty or taking,
(vi) repairs under the Contractor Warranty and (vii) repairs or
replacements paid by insurance proceeds.
(3) The term "Rent Adjustments" shall mean all amounts owed by
Tenant as Additional Rent on account of Expenses or Taxes, or both.
(4) The term "Rent Adjustment Deposit" shall mean an amount
equal to Landlord's estimate of Rent Adjustments due for any Calendar
Year made from time to time during the Term.
(5) The term "Taxes" shall mean real estate taxes,
assessments, sewer rents, rates and charges, transit taxes, taxes based
upon the receipt of rent, and any other federal, state or local
governmental charge, general, special, ordinary or extraordinary, winch
accrue during the Term and are levied or assessed or become a lien
against the Project or any portion thereof in any Calendar Year during
the Term and any tax in substitution of any of the foregoing; provided,
however, in determining the income of Landlord with respect to any such
substituted tax, only the income derived from the Building shall be
included. Taxes shall also include any personal property taxes
(attributable to the year in which paid) imposed upon the furniture,
fixtures, machinery, equipment, apparatus, systems and appurtenances of
Landlord used in connection with the operation of the Building.
B. Tenant shall pay to the Landlord as Additional Rent all
Expenses and Taxes attributable to each Calendar Year of the Term. The
amount of Taxes attributable to a Calendar Year shall be the amount
assessed for any such Calendar Year, even though the assessment for
such Taxes may be payable in a different Calendar Year.
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C. As security for the obligations contained in Section 6.1.,
Tenant shall deposit monthly with Landlord, or such other entity as
Landlord may designate, on the first (1st) day of each and every month
of the Term, a sum equal to one twelfth (1/12) of Landlord's estimate
of the current amount of Taxes levied with respect to the Premises and
Expenses. All monthly deposits shall be kept separate and apart by
Landlord and shall be held by Landlord in such segregated account or
accounts as may be authorized by the then current state or federal
banking laws, rules or regulations. The monthly deposits shall be used
as a fund to be applied, to the extent thereof, to the payment of
Taxes and Expenses, as the same become due and payable. The existence
of said fund shall not limit or alter Tenant's obligation to pay the
Taxes and Expenses for which the fund was created. Tenant shall not be
entitled to interest on said fund. Tenant shall pay Landlord as its
monthly deposit for the period commencing on the Commencement Date and
terminating on the December 31st immediately thereafter the Initial
Monthly Rent Adjustment Deposit. On or prior to each December 31st
occurring within the Term, Landlord shall advise Tenant as to
Landlord's estimate of the Monthly Rent Adjustment Deposits that will
be required for the next Calendar Year (as hereinafter defined).
D. As soon as reasonably feasible after the expiration of each
Calendar Year contained within the Term, Landlord will furnish Tenant
a statement (hereinafter referred to as the "ADJUSTMENT STATEMENT")
showing the following:
(1) Actual Taxes and Expenses for the Calendar Year last ended
and the amount of Taxes and Expenses payable by Tenant for such
Calendar Year,
(2) The amount of Additional Rent due Landlord for the
Calendar Year last ended, less credits for monthly deposits paid, if
any; and
(3) The monthly deposits due in the current Calendar Year.
E. Within thirty (30) days after Tenant's receipt of each
Adjustment Statement, Tenant shall pay to Landlord:
(1) The amount of Additional Rent shown on said Adjustment
Statement to be due Landlord for the Calendar Year last ended; plus
(2) The amount, which when added to the monthly deposits
theretofore paid in the current Calendar Year would provide that
Landlord has then received such portion of the monthly deposits as
would have theretofore been paid to Landlord had Tenant paid one
twelfth (1/12) of the monthly deposits, for the current Calendar Year,
to Landlord monthly on the first day of each month of such Calendar
Year.
During the last Calendar Year, Landlord may include in the monthly
deposits its estimate of the Additional Rent which may not be finally
determined until after the expiration of the Term. Tenant's obligation
to pay such Additional Rent shall survive the Term.
F. Tenant's payment of the monthly deposits for each Calendar
Year shall be credited against the Additional Rent for such Calendar
Year. If the monthly deposits paid by Tenant for any Calendar Year
exceed the Additional Rent due for such Calendar Year, then Landlord
shall give a credit to Tenant in an amount equal to such excess
against the Additional Rent due for the next succeeding Calendar Year,
except that if any such excess relates to the last Calendar Year of
the Term, then, provided that no default of Tenant exists hereunder,
Landlord shall refund such excess to Tenant
SECTION VI.2. UTILITIES. Tenant shall pay, directly to the
appropriate supplier, all costs of natural gas, electricity, heat, light,
power, sewer service, telephone, water, refuse disposal and other utilities
and services supplied to the Premises. Landlord shall not in any way be
liable or responsible to Tenant for any cost or damage or expense which
Tenant may sustain or incur if either the quality or character of such
service is changed or is no longer available or suitable for Tenants
requirements.
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SECTION VI.3. CONTEST OF TAXES. Tenant shall, at its sole
cost and expense, contest the imposition of any Taxes against the Land and
Improvements in accordance with applicable law with counsel reasonably
acceptable to Landlord. In the event that Tenant fails to contest Taxes,
Tenant shall forfeit its right to contest Taxes for the remainder of the
Term. In such event (i) Landlord shall, in its discretion, have the right to
contest the imposition of Taxes, (ii) Taxes shall include all of Landlord's
reasonable costs and expenses, including legal fees and court costs, in
pursuing any such contest whether or not Landlord is successful in such
contest, and (iii) there shall be deducted from Taxes the amount of any Taxes
refunded in any Calendar Year, provided said refund relates to an assessment
year included within the Term of the Lease.
ARTICLE VII
USE
SECTION VII.1. USE. The Premises shall be used for the Use
only, and for no other purpose.
SECTION VII.2. PROHIBITED USES. Tenant shall not permit the
Premises, to be used in such manner which impairs Landlord's right, title or
interest in the Premises or any portion thereof, or in such manner which
gives rise to a claim or claims of adverse possession or of a dedication of
the Premises or any portion thereof for public use. Tenant shall not use or
occupy the Premises, in whole or in part, to be used or occupied, or do or
permit anything to be done in or on the Premises, in whole or in part, in a
manner which would in any way violate any certificate of occupancy affecting
the Premises, or make void or voidable any insurance then in force with
respect thereto, or which may make it impossible to obtain fire or other
insurance thereon or which would render the insurance risk more hazardous, or
which will cause or be apt to cause the structural injury to the Premises or
any part thereof, or which would cause the value or usefulness of the
Premises or any part thereof to diminish (other than normal wear and tear),
and shall not use or occupy or permit the Premises to be used or occupied, in
whole or in part, in a manner which may violate and shall comply with any
present or future, ordinary or extraordinary, foreseen or unforeseen, Legal
Requirements. Where Landlord is liable for compliance with Legal Requirements
regarding construction of the Initial Improvements, then Tenant's use of the
Premises will not be construed as a prohibited use. Tenant will not do or
permit or suffer any public or private waste, damage, impairment or injury to
or upon the Premises or any part thereof.
SECTION VII.3. NO IMPLIED PERMISSION. Except as otherwise
expressly provided herein, nothing in this Lease contained shall authorize
Tenant to do or permit or suffer any act which shall in any way encumber the
fee title of Landlord in and to the Premises or any interest therein. The
title, interest or estate of Landlord in the Premises shall not be in any way
subject to any claim by way of lien or encumbrance, whether arising by
operation of law or by virtue of an express or implied contract by Tenant.
Any claim to a lien or encumbrance upon the Premises arising from any act of
omission of Tenant shall accrue only against the Tenant's leasehold estate
and shall in all respects be subject and subordinate to the paramount title
and right of Landlord in and to the Premises. Every person furnishing,
manufacturing or preparing any material, fixtures, apparatus or machinery
for, or on account of, the Premises or any other improvements now or
hereafter erected, or the appurtenances or furnishings therein, or performing
any labor or services in, upon or about the Premises, or the improvements or
appurtenances, or dealing in any way with Tenant or anyone claiming by,
through or under Tenant shall take and be held charged with notice of this
condition, and shall have and acquire no lien upon Landlord's estate or
interest through the furnishing of such material, fixtures, apparatus,
machinery, labor or services.
SECTION VII.4. RULES AND REGULATIONS. In amplification and
not in limitation of the foregoing provisions of Article VII, Tenant shall
not permit any portion of the Premises to be used by any person or persons or
by the public, as such, at any time or times during the Term in such manner
as might reasonably tend to impair title to the Premises or any portion
thereof, or in such manner as might reasonably make possible a claim or
claims of adverse use, adverse possession, prescription, dedication or other
similar claims of, in, to or with respect to the Premises or any part thereof
or estate therein.
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ARTICLE VIII
MAINTENANCE, REPAIRS AND REPLACEMENTS OF PREMISES
SECTION VIII.1. A. TENANT'S OBLIGATIONS. Subject to the Landlord's
obligations set forth in Sections 4.8 above and 8.1B below, Tenant agrees, at
Tenant's sole cost and expense, to take good care of the Premises and keep and
maintain same and all parts thereof, including, but not limited to, the Initial
Improvements, the entire interior and exterior thereto, all floors, floor
coverings, roof, structure, windows, glass, plate glass, ceilings, skylights,
interior and exterior and demising walls, doors, electrical systems, lighting
fixtures and equipment, plumbing systems and fixtures, sprinkler systems,
heating, ventilating and air conditioning systems, loading docks, areas and
doors, rail space areas, fences and signs, and all other pipes, mains, water,
sewer and gas connections and all other fixtures, machinery, apparatus,
equipment and appurtenances now or hereafter belonging to, connected with or
used in conjunction with the Premises together with any and all alterations and
additions thereto, in good order, condition and repair, suffering no waste or
injury. Subject to the Landlord's obligations set forth in Sections 4.8 above
and 8.1B below, Tenant shall, at its sole cost and expense, promptly make all
necessary repairs and replacements, ordinary as well as extraordinary, foreseen
as well as unforeseen, in and to the Premises, including but not limited to the
entire interior and exterior of the Initial Improvements, any equipment now or
hereafter located in or on the Premises, all floors, floor coverings, roof,
structure, windows, glass, plate glass, ceilings, skylights, interior and
demising walls, doors, electrical systems, lighting fixtures and equipment,
plumbing systems and fixture, sprinkler systems, heating, ventilating and air
conditioning systems, loading docks, areas and doors, rail space areas, fences
and signs, connections, pipes, mains, water, sewer and connections, and all
other fixtures, machinery, apparatus, equipment and appurtenances now or
hereafter belonging to, connected with or used in conjunction with the Premises.
All such maintenance, repairs and replacements shall be of first class quality
and sufficient for the proper maintenance and operation of the Premises. Tenant
shall keep and maintain the Premises safe, secure and clean, specifically
including, but not by way of limitation, removal of waste and refuse matter.
Tenant shall not permit anything to be done upon the Premises (and shall perform
all maintenance and repairs thereto so as not) to invalidate, in whole or in
part, or prevent the procurement of any insurance policies which may, at any
time, be required under the provisions of this Lease. Tenant shall not obstruct
or permit the obstruction of any parking area, adjoining street or sidewalk
absent the consent of Landlord, which consent shall not be unreasonably
withheld.
B. LANDLORD'S OBLIGATIONS. Landlord shall provide to Tenant
the services ("SERVICES") set forth on EXHIBIT "C" attached hereto
and by this reference made a part hereof. All costs incurred by
Landlord in providing said services shall be deemed Expenses.
Tenant shall, from time to time, have the right to have any of the
Services provided by a third party upon thirty (30) days advance
written notice to Landlord. In such event, Landlord shall not have
any obligation to provide the applicable Services to Tenant and the
Rent Adjustment Deposit shall be reduced accordingly by Landlord.
SECTION VIII.2. GOVERNMENTAL REQUIREMENTS. Except with
respect to Landlord's obligations under Section 4.1 hereof, Tenant at its own
cost and expense also shall promptly comply with any and all requirements of
any Governmental Authority to or affecting the Premises or any part thereof,
irrespective of the nature of the work required to be done, extraordinary as
well as ordinary, whether or not the same involve or require any structural
changes or additions in or to the Buildings and irrespective of whether or
not such changes or additions be required on account of any particular use to
which the Premises or any part thereof are being put.
SECTION VIII.3. MAINTENANCE CONTRACTS. Landlord shall enter
into maintenance contracts, in form and substance and with a firm reasonably
satisfactory to Landlord, for the maintenance of various portions of the
Premises and the cost thereof shall be deemed to be an Expense.
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ARTICLE IX
INSURANCE
SECTION IX.1. COVERAGE REQUIRED. Tenant shall procure and
maintain, or cause to be maintained, at all times during the Term of this
Lease, at Tenants sole cost and expense, and until each and every obligation
of Tenant contained in the Lease has been fully performed, the types of
insurance specified below, with insurance companies authorized to do business
in the State of Illinois covering all operations under this Lease, whether
performed by Tenant or by Contractors. For purposes of this Article IX,
"Contractors" shall mean Tenant and contractors and subcontractors and
materialmen or any tier providing services, material, labor, operation or
maintenance on, about or adjacent to the Premises, whether or not in privity
with Tenant.
A. IN GENERAL. Upon execution of the Lease, Tenant shall procure
and maintain the following kinds and amounts of insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL
DISEASE INSURANCE. Worker's Compensation and Occupational
Disease Insurance, in statutory amounts, covering all
employees who provide a service under this Lease. Employees
liability coverage with limits of not less than $100,000 each
accident or illness shall be included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY
AND UMBRELLA). Commercial Liability Insurance or equivalent
with limits of not less than $5,000,000 per occurrence,
combined single limit, for bodily injury, personal injury, and
property damage liability. Products/completed operation,
independent contractors, broad form property damage and
contractual liability (with no limitation) coverages are to be
included. Landlord is to be named as additional insureds, on a
primary, non-contributory basis for any liability, arising
directly or indirectly from this Lease.
(iii) AUTOMOBILE LIABILITY INSURANCE. When
any motor vehicles are used in connection with this Lease,
Tenant shall provide Automobile Liability Insurance with
limits of not less than $2,000,000 per occurrence combined
single limit, for bodily and property damage. Landlord is to
be named as additional insureds on a primary non-contributory
basis.
(iv) CONTENTS INSURANCE. Insurance against
fire, sprinkler leakage, vandalism, and the extended coverage
perils for the full insurable value of all contents of Tenant
within the Premises, and of all office furniture, trade
fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises and business interruption
insurance.
B. CONSTRUCTION. During and with respect to any construction
performed by or on behalf of Tenant (other than with respect to the
construction of the Initial Improvements by Landlord), Tenant shall
procure and maintain, or cause to be maintained, the following
kinds and amounts of insurance:
(i) WORKER'S COMPENSATION AND OCCUPATIONAL
DISEASE INSURANCE. Worker's Compensation and Occupational
Disease Insurance, in statutory amounts, covering all
employees who are to provide a service under this
construction. Employer's liability coverage with limits of not
less than $500,000 for each accident or illness shall be
included.
(ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY
AND UMBRELLA). Commercial Liability Insurance or equivalent
with limits of not less than $10,000,000 per occurrence,
combined single limit, for bodily injury, personal injury, and
property liability. Products/completed operations, explosion,
collapse, underground, independent contractors, broad form
property damage and contractual liability coverages are to be
included. Landlord is to be named as additional insureds on a
primary non-contributory basis for any liability arising
directly or indirectly from the Lease.
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(iii) AUTOMOBILE LIABILITY INSURANCE
(PRIMARY AND UMBRELLA). When any motor vehicles are used in
connection with work to be performed, Tenant or contractor
shall provide Automobile Liability Insurance with limits of
not less than $5,000,000 per occurrence combined single limit,
for bodily injury and property damage. Landlord is to be named
as an additional insured on a primary non-contributory basis.
(iv) ALL RISK BUILDERS RISK INSURANCE.
Tenant or Contractor shall provide All Risk Blanket Builder's
Risk Insurance to cover the materials, supplies, equipment,
machinery and fixtures that are or will be part of the
Premises. Coverage extensions shall include the following:
right to partial occupancy, material stored off-site and
in-transit, boiler and machinery, earthquake, flood (including
surface water backup), collapse, water damage, debris removal,
faulty workmanship or materials, testing,
mechanical-electrical breakdown and failure, deletion of
freezing and temperature exclusions, business interruption,
extra expense, loss of revenue, loss of rents and loss of use
of property, as applicable, Landlord shall be named as loss
payee.
(v) PROFESSIONAL LIABILITY. When any
architects, engineers, or consulting firms perform work in
connection with this Lease, Professional Liability Insurance
shall be maintained with limits of $1,000,000. The policy
shall have an extended reporting period of two (2) years. When
policies are renewed or replaced, the policy retroactive date
must coincide with, or precede, start of work.
Notwithstanding the foregoing, Tenant is not obligated to provide or
pay for insurance for Landlord's construction of the Initial
Improvements. Tenant shall deliver to Landlord, at least fifteen (15)
days prior to the earlier of (1) the Commencement Date of this Lease or
(2) the date Tenant takes possession of the Premises, duplicate copies
of policies (or certificates evidencing such policies) of the insurance
required by Section 9.1A. Such policies of insurance shall be renewed
and duplicate copies of the new policies (or new certificates) shall be
deposited with Landlord at least forty-five (45) days prior to the
expiration of the old policies.
SECTION IX.2. POLICIES. All insurance policies shall be
written with insurance companies and shall be in form satisfactory to
Landlord. All insurance policies shall name Landlord as an additional insured
and loss payee as their respective interests may appear and shall provide
that they may not be terminated or modified without thirty (30) days' advance
written notice to Landlord. All policies shall also contain an endorsement
that Landlord, although named as additional insured, shall nevertheless be
entitled to recover for damages caused by the negligence of Tenant. The
minimum limits of insurance specified in this Section shall in no way limit
or diminish Tenant's liability under this Lease. Tenant shall furnish to
Landlord, not less than fifteen (15) days prior to the date such insurance is
first required to be carried by Tenant, and thereafter at least fifteen (15)
days prior to the expiration of each such policy, true and correct
photocopies of all insurance policies required under this Section, together
with any amendments and endorsements to such policies, certificates of
insurance, and such other evidence of coverages as Landlord may reasonably
request, and evidence of payment of all premiums and other expenses owed in
connection therewith. Upon Tenant's default in obtaining or delivering the
policy for any such insurance or Tenant's failure to pay the charges
therefor, Landlord may, at its option, on or after the tenth (10th) day after
written notice thereof is given to Tenant, procure or pay the charges for any
such policy or policies and the total cost and expense (including attorneys'
fees) thereof shall be immediately paid by Tenant to Landlord as Additional
Rent upon receipt of a bill therefor. Within thirty (30) days after demand by
Landlord that the minimum amount of any coverage be so increased, Tenant
shall furnish Landlord with evidence of Tenant's compliance with such demand.
SECTION IX.3. SUBROGATION. Landlord and Tenant agree to have
all fire and extended coverage and material damage insurance which may be
carried by either of them endorsed with a clause providing that any release
from liability of or waiver of claim for recovery from the other party or any
of the parties named in Section 9.2 above entered into in writing by the
insured thereunder prior to any loss or damage shall not affect the validity
of said policy or the right of the insured to recover thereunder, and
providing further that the insurer waives all rights of subrogation which
such insurer might have against the other party or any of the parties named
in Section 9.2 above. Without limiting any release or waiver of liability or
recovery contained in any other Section of this Lease but rather in
confirmation and furtherance thereof, Landlord and any beneficiaries of
Landlord waive all claims for recovery from Tenant, and Tenant waives all
claims for recovery from Landlord, any beneficiaries of
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Landlord and the managing agent for the Premises and their respective agents,
partners and employees, for any loss or damage to any of its property insured
under valid and collectible insurance policies to the extent of any recovery
collectable under such insurance policies. Notwithstanding the foregoing or
anything contained in this Lease to the contrary, any release or any waiver
of claims shall not be operative, nor shall the foregoing endorsements be
required, in any case where the effect of such release or waiver is to
invalidate insurance coverage or invalidate the right of the insured to
recover thereunder or increase the cost thereof (provided that in the case of
increased cost the other party shall have the right, within ten (10) days
following written notice, to pay such increased cost, thereby keeping such
release or waiver in full force and effect).
SECTION IX.4. MISCELLANEOUS INSURANCE PROVISIONS. Landlord and
Tenant further agree as follows:
A. Tenant and Contractors expressly understand and agree that
any insurance coverages and limits furnished by the Tenant and
Contractors shall in no way limit the Tenant's and Contractor's
liabilities and responsibilities specified under the Lease, or
contracts executed relating to the Premises, or by law.
B. The failure of Landlord to obtain such evidence from Tenant
or Contractors before permitting Tenant or Contractors to commence work
shall not be deemed to be a waiver by Landlord, and Tenant or
contractors shall remain under continuing obligation to maintain the
insurance coverage.
C. Any and all deductibles on all insurance referenced in this
Article IX shall be borne by Tenant.
D. Tenant expressly understands and agrees that any insurance
maintained by Landlord shall apply in excess of and not contribute with
insurance provided by the Tenant or Contractor under the Lease.
E. If Tenant or any Contractors desire additional coverage,
higher limits of liability, or other modifications for their own
protection, Tenant and such Contractors shall be responsible for the
acquisition and cost of such additional protection.
F. Tenant agrees, and shall cause each Contractor in
connection with the Premises to agree, that all insurers shall waive
their rights of subrogation against Landlord.
G. Tenant and Contractors shall not violate or permit to be
violated any of the conditions or provisions of any of the insurance
policies, and Tenant and Contractors shall so perform and satisfy or
cause to be performed and satisfied the requirements of the companies
writing such policies so that at all times companies of good standing,
satisfactory to Landlord shall be willing to write and continue such
insurance.
H. Landlord shall not be limited in the proof of any damages
which Landlord may claim against Tenant and Contractors arising out of
or by reason of Tenant's and Contractor's failure to provide and keep
in force insurance, as aforesaid, to the amount of the insurance
premium or premiums not paid or incurred by Tenant and Contractors and
which would have been payable under such insurance, but Landlord shall
also be entitled to recover as damages for such breach the uninsured
amount of any loss, to the extent of any deficiency in the insurance
required by the provisions of this Lease, and damages, costs and
expenses of suit suffered or incurred by reason of damage to, or
destruction of, the Premises occurring during any period when Tenant or
Contractors shall have failed or neglected to provide insurance as
aforesaid.
I. The insurance required by this Lease, at the option of
Tenant or Contractors, may be effected by blanket or umbrella policies
issued to Tenant or Contractors covering the Premises and other
properties owned or leased by Tenant or Contractors, provided that the
policies otherwise comply with the provisions of this Lease and
allocate to the Premises the specified coverage, without possibility of
reduction or coinsurance by reason of, or damage to, any other premises
covered therein.
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J. All insurance companies shall have a Best rating of not
less than A/VII, or an equivalent rating in the event Best ceases to
exist or provide a rating.
K. Tenant and Contractors shall provide and keep in force such
other insurance in such amounts as may from time to time be reasonably
required by Landlord or a holder of a Mortgage (defined in Section 23.1
hereof) against such other insurable hazards as at the time are
commonly insured against in the case of prudent owners of properties
similar to the Premises, and in that connection Landlord may require
changes in the forms, types and amounts of insurance required pursuant
to this Section or add to, modify or delete other requirements; and in
any event, if under applicable law, rule, regulation or ordinance of
any governmental authority, state or federal, having jurisdiction in
the Premises, liability may be imposed upon Landlord on account of the
use or operation of the Premises or other improvements, insurance
within limits reasonably satisfactory to Landlord shall be maintained
by Tenant and Contractors against any such liability.
L. The required insurance to be carried shall not be limited
by any limitations expressed in the indemnification language herein or
any limitation placed on the indemnity therein given as a matter of
law.
SECTION IX.5. BUILDING INSURANCE. Landlord shall at all times
during the Term of this Lease keep in effect insurance on all improvements
now or hereafter a part of the Premises against loss by fire and lightning,
the risks covered by what is commonly known as extended coverage, malicious
mischief and vandalism, and all other risks of direct physical loss (other
than the insurance provided by Tenant hereunder) in an amount equal to the
full replacement value on the replacement form basis, of such improvements.
Tenant further agrees that if and when obtainable, Landlord will procure and
maintain so-called war risk and war damage insurance, earthquake and flood
insurance on said improvements for not less than one hundred percent (100%)
of the full insurance value above foundation. Landlord shall also obtain
liability in such amounts required by Landlord, boiler and machinery
insurance in an amount equal to the full replacement value of the
improvements, insurance against loss of Rents in the amount of all Base Rent
payments, taxes, assessments and insurance premiums required hereunder for a
twelve (12)-month period, and shall obtain insurance against breakage of all
plate glass used in the improvements. Landlord shall also maintain such other
insurance required by Landlord under the terms customarily carried by
Landlord for other buildings owned by Landlord. The policy or policies
evidencing such insurance shall be written by a company or companies
satisfactory to Landlord, shall name Landlord as insured thereunder, and
shall provide that losses shall be paid to Landlord.
SECTION IX.6. INSURANCE APPRAISALS. From time to time during
the Term hereof upon the request of Landlord, or Landlord's mortgagee, if
any, Landlord shall obtain insurance appraisals reasonably satisfactory to
Landlord, as such are regularly and ordinarily made by or for the benefit of
insurance companies, in order to determine the then replacement value of the
improvements. Such insurance appraisals shall not be required more frequently
than once in each Lease Year during the Term hereof. The cost of such
insurance shall be deemed to be a part of the Insurance Premium (defined
below).
SECTION IX.7. TENANT PAYMENTS. All such insurance described
in Section 9.5 shall be kept in full force throughout the Term of this Lease,
and any amounts incurred therefor by Landlord shall be deemed Expenses and
shall be payable by Tenant to Landlord, as Additional Rent, in accordance
with this Lease.
ARTICLE X
DAMAGE OR DESTRUCTION
SECTION X.1. TOTAL DEMISE. In the event that both of the
Buildings are made materially untenantable by fire or other casualty and
Landlord shall decide not to restore or repair same, then, in any of such
events, Landlord shall have the right to terminate this Lease by notice to
Tenant given within sixty (60) days after the date of such fire or other
casualty and the Rent shall be apportioned on a per diem basis and paid to
the date of such fire or other casualty. In the event both of the Buildings
are made materially untenantable by fire or other
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casualty and Landlord does not so notify Tenant within sixty (60) days after the
date of such fire or other casualty, then (i) Landlord shall commence to rebuild
and restore the same within ninety (90) days after the date of such casualty,
and Landlord shall complete such repair and restore the Premises to the extent
of any insurance proceeds within eighteen (18) months after the date of such
casualty with respect to the Office Building and nine (9) months after the date
of such casualty with respect to the Warehouse Budding, subject, however, to
extensions of such time periods due to Force Majeure Delays, and (ii) this Lease
shall not terminate. In the event that this Lease is not terminated as provided
above, Rent shall abate in proportion to the non-useability of the Premises
while repairs are in progress.
SECTION X.2. PARTIAL DEMISE. In the event that both of the
Buildings are not made materially untenantable by fire or other casualty,
then Landlord shall, except as provided in Section 10.3 below, proceed within
ninety (90) days of the date of such casualty with all due diligence to
repair and restore the Premises, subject, however, to extension for Force
Majeure Delays. In such event, Rent shall abate in proportion to the
non-useability of the Premises during the period while repairs are in
progress unless such partial damages are due to the fault or neglect of
Tenant. If the partial damage is the result of the fault or neglect of
Tenant, Rent shall not abate during said period.
SECTION X.3. TERMINATION. If the Office Building is made
materially untenantable due to fire or other casualty during the last
thirty-six (36) months of the Term hereof or the Warehouse Building is made
materially untenantable due to fire or other casualty during the last
eighteen (18) months of the Term hereof, then, in either event, Landlord and
Tenant shall have the right to terminate this Lease with respect to the
applicable Building as of the date of fire or other casualty upon thirty (30)
days' prior notice to the other party, in which event, Rent shall be
apportioned on a per diem basis and paid to the date of such fire or other
casualty with respect to the applicable Building that was damaged by fire or
other casualty.
SECTION X.4. INSURANCE DEDUCTIBLE. In the event of either a
total or partial demise of the Premises, Tenant shall pay to Landlord the
amount of the deductible under Landlord's property insurance for the Premises.
ARTICLE XI
LIENS
SECTION XI.1. LIEN CLAIMS. Tenant shall not do any act which
shall in any way encumber the interest or estate of Landlord in and to the
Premises or any portion thereof, nor shall any interest or estate of Landlord
in the Premises or any portion thereof be in any way subject to any claim by
way of lien or encumbrance, whether by operation of law or by virtue of any
express or implied contract by Tenant, and any claim to or lien upon the
Premises or any portion thereof arising from any act or omission of Tenant
shall accrue only against the leasehold estate of Tenant and shall in all
respects be subject and subordinate to the paramount title and rights of
Landlord in and to the Premises or any portion thereof. Tenant will not
permit the Premises or any portion thereof to become subject to any
mechanics', laborers' or materialmen's lien on account of labor or material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with work of any character performed or claimed to have been performed on the
Premises by or at the direction of sufferance of Tenant; provided, however
that Tenant shall have the right to contest in good faith and with reasonable
diligence, the validity of any such lien or claimed lien if Tenant shall
first give to Landlord an amount equal to one hundred twenty percent (120%)
of the amount of the lien or claimed lien which, together with interest
earned thereon, shall be held by Landlord as security to insure payment
thereof and to prevent any sale, foreclosure or forfeiture of the Premises by
reason of non-payment thereof. The amount so deposited with Landlord shall be
held by Landlord in an account established at a federally insured banking
institution until satisfactory removal of said lien or claim of lien. On any
final determination of the lien or claim for lien, Tenant will immediately
pay any judgment rendered, with all proper costs and charges, and will, at
its own expense, have the lien released and any judgment satisfied. Should
Tenant fail to diligently contest and pursue such lien contest, Landlord may,
at its option, use the sums so deposited to discharge any such lien upon the
renewal of such lien or encumbrance Landlord shall pay all such sums
remaining on deposit to Tenant.
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SECTION XI.2. LANDLORD'S RIGHT TO CURE. If Tenant shall fail
to contest the validity of any lien or claimed lien or fail to give security
to Landlord to insure payment thereof, or shall fail to prosecute such
contest with diligence, or shall fail to have the same released and satisfy
any judgment rendered thereon, then Landlord may, at its election (but shall
not be so required) remove or discharge such lien or claim for lien (with the
right, in its discretion, to settle or compromise the same), and any amounts
advanced by Landlord, including reasonable attorneys' fees, for such purposes
shall be so much additional rent due from Tenant to Landlord at the next rent
date after any such payment, with interest thereon at the Lease Interest Rate
from the date so advanced.
ARTICLE XII
TENANT ALTERATIONS
SECTION XII.1. ALTERATIONS. Tenant shall not make any
addition to the Premises, alterations to the structural components of the
Premises, alterations which affect the mechanical, electrical, plumbing, life
safety or other systems in the Premises or alterations which cost in excess
of $150,000.00 either individually or in the aggregate over a twelve (12)
month period of time ("MAJOR ALTERATIONS") without the advance written
consent of Landlord, which consent may be granted or denied at Landlords sole
discretion. Tenant may make alterations to the Premises which are not Major
Alterations ("MINOR ALTERATIONS") without the prior written consent of
Landlord. (Major Alterations and Minor Alterations are hereinafter
collectively referred to as "ALTERATIONS".) No Alterations to the Premises
for which Landlord's consent is required shall be commenced by Tenant until
Tenant has furnished Landlord with a satisfactory certificate or certificates
from an insurance company acceptable to Landlord, evidencing insurance
coverage required under Section 9.2 hereof. Any Alterations by Tenant
hereunder shall be done in a good and workmanlike manner in compliance with
any Legal Requirements. Upon completion of any Major Alterations by Tenant
hereunder, Tenant shall furnish Landlord with a copy of the "as built" plans
covering such construction. Tenant, at its sole cost and expense, will make
all Alterations on the Premises which may be necessary by the act or neglect
of any other person or corporation (public or private), except Landlord, its
agents, employees or contractors. Before commencing any Major Alterations:
(a) plans and specifications therefor, prepared by a licensed architect,
shall be submitted to and approved by Landlord (such approval shall not be
unreasonably withheld or delayed); (b) Tenant shall furnish to Landlord an
estimate of the cost of the proposed work, certified by the architect who
prepared such plans and specifications; (c) all contracts for any proposed
work shall be submitted to and approved by Landlord; (d) Tenant shall either
furnish to Landlord a payment and performance bond from the Contractor in
form and substance satisfactory to Landlord, or shall deposit an amount equal
to 100% of the cost of completing the Alterations in an escrow reasonably
satisfactory to Landlord to insure payment for the completion of all work
free and clear of liens; (e) evidence of insurance as required by Article IX
hereof; and (f) such other requirements as Landlord may reasonably require to
be satisfied. Before commencing any Major Alterations, Tenant shall provide
Landlord with a written certification that the Major Alterations do not have
any materially adverse environmental impact on the Premises. Prior to the
commencement of any construction activity for which Landlord's consent shall
be required, certificates of such insurance coverages shall be provided to
Landlord and renewal certificates shall be delivered to Landlord prior to the
expiration date of the respective policies.
Notwithstanding the foregoing, no Alterations of any kind
shall be made which would (i) change the general design, use, character or
structure of the Premises or any part thereof; (ii) decrease the size of the
Premises or any part thereof; (iii) reduce or impair, to any material extent,
the value, rentability or usefulness of the Premises or constitute waste; or
(iv) give to any owner, lessee or occupant of any other property or to any
other person or corporation any easement, right-of-way or any other right
over the Premises.
Any Alterations shall be made with reasonable dispatch and in a
good and workmanlike manner and in compliance with all applicable permits and
authorizations and buildings and zoning laws and with all other Legal
Requirements. If any work does not comply with the provisions of this Lease,
Landlord may, by notice to Tenant, require that Tenant stop the work and take
steps necessary to cause corrections to be made, or Landlord may, itself,
perform the work, at Tenant's cost.
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SECTION XII.2. OWNERSHIP OF ALTERATIONS. All Alterations (except
Tenant's Equipment as defined in Section 19.2 hereof) put in at the expense of
Tenant shall become the property of Landlord and shall, unless the Landlord
requests their removal, remain upon and be surrendered with the Premises as a
part thereof at the termination of this Lease, without compensation or allowance
to Tenant. Landlord may, at its sole option, request that Tenant, at Tenant's
sole cost, remove any such Alterations and if Tenant shall fail to do so,
Landlord may remove the same and Tenant shall pay the cost of such removal to
Landlord upon demand. Notwithstanding the foregoing, upon Tenant's request prior
to such time as Tenant intends to make any Alternations, Landlord shall indicate
to Tenant in writing whether or not such Alterations must be removed upon
surrender of the Premises.
SECTION XII.3. SIGNS. Except as provided below in this Section 12.3,
Tenant shall not place any signs on any part of the Buildings or Land without
the prior written consent of Landlord. Landlord and Tenant approve all signs
shown in the Plans. Upon notice to and with the consent of Landlord, which
consent shall not be unreasonably withheld, Tenant may place exterior signs with
or without the name of the Buildings on the Premises and its company logo and/or
name on the roof of the Premises, provided that (i) the installation and
dimensions of said signs, name and logo are in strict accordance with Legal
Requirements; (ii) Tenant continually maintains said signs, name and logo in a
first-class manner and (iii) Tenant, at Tenant's sole cost and expense, pays the
costs associated with the installation and maintenance of the signs, name and
logo and removes said signs, name and logo at the expiration of the Term and
restores the area in which said signs, name and logo are placed to its condition
prior to the installation of said signs, except to the extent the name is etched
in the glass walls of the Buildings. Tenant shall have the right to name the
Buildings with the consent of Landlord, which consent shall not be unreasonably
withheld.
SECTION XII.4. ENVIRONMENTAL IMPACT. Notwithstanding any other term,
covenant or condition contained in this Lease, in the event that any Alteration
has any materially adverse environmental impact on the Premises, Landlord may
deny the Tenant the right to proceed in Landlord's sole and absolute discretion.
ARTICLE XIII
CONDEMNATION
SECTION XIII.1. TAKING: LEASE TO TERMINATE. If a portion of the
Premises shall be lawfully taken or condemned for any public or quasi-public use
or purpose, or conveyed under threat of such condemnation and as a result
thereof the Premises cannot be used for the same purpose and with the same
utility as before such taking or conveyance, the Term of this Lease shall end
upon, and not before, the date of the taking of possession by the condemning
authority, and without apportionment of the award. Tenant hereby assigns to
Landlord, Tenant's interest in such award, if any. Current Rent shall be
apportioned as of the date of such termination. If any part of the Premises
shall be so taken or condemned, or if the grade of any street or alley adjacent
to the Premises is changed by any competent authority and such taking or change
of grade makes it necessary or desirable to demolish, substantially remodel, or
restore the Buildings, the Landlord shall have the right to cancel this Lease
upon not less than ninety (90) days' prior notice to the date of cancellation
designed in the notice.
SECTION XIII.2. TAKING: LEASE TO CONTINUE. Except as provided in
Section 13.1, in the event only a part of the Premises shall be taken as a
result of the exercise of the power of eminent domain or condemned for a public
or quasi-public use or purpose by any competent authority or sold to the
condemning authority under threat of condemnation, and as a result thereof the
balance of the Premises can be used for the same purpose as before such taking,
sale or condemnation, this Lease shall not terminate and Landlord shall promptly
repair and restore the Premises, subject to Force Majeure Delays; provided that
in no event shall Landlord be obligated to spend in excess of the amount of the
Award in restoring the Premises. Any award paid as a consequence of such taking,
sale or condemnation, shall be paid to Landlord. Any sums not so disbursed shall
be retained by Landlord.
SECTION XIII.3. TENANT'S CLAIM. To the extent permitted by law, Tenant
shall be allowed to pursue a claim against the condemning authority (hereinafter
referred to as the "TENANT'S CLAIM") that shall be independent of and wholly
separate from any action, suit or proceeding relating to any award to Landlord
for
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reimbursement of relocation expenses or for Tenant's Equipment and personal
property, provided: (i) Tenant's Claim shall in no way limit, affect, alter or
diminish in any kind or way whatsoever Landlord's award as a result of such
taking, sale or condemnation; (ii) Tenant's Claim shall in no event include any
claim for any interest in real property, it being expressly understood and
agreed that all sums paid with respect to the real property interests taken,
sold or condemned shall be the sole property of Landlord; and (iii) Tenant's
Claim shall in no event be joined with Landlord's Proceeding or argued or heard
concurrently therewith.
ARTICLE XIV
ASSIGNMENT - SUBLETTING BY TENANT
SECTION XIV.1. NO ASSIGNMENT, SUBLETTING OR OTHER TRANSFER. Tenant
shall not assign this Lease or any interest hereunder except as permitted by
Section 14.6 below, nor shall Tenant sublet or permit the use or occupancy of
the Premises or any part thereof by anyone other than Tenant, without the
express prior written consent of Landlord which consent shall not be
unreasonably withheld. Notwithstanding any other provision contained in this
Lease, no assignment or subletting shall relieve Tenant of its obligations
hereunder, and Tenant shall continue to be liable as a principal and not as a
guarantor or surety, to the same extent as though no assignment or sublease had
been made, unless specifically provided to the contrary in Landlord's consent.
Consent by Landlord pursuant to this Article shall not be deemed, construed or
held to be consent to any additional assignment or subletting, but each
successive act shall require similar consent of Landlord. Landlord shall be
reimbursed by Tenant for any costs or expenses incurred pursuant to any request
by Tenant for consent to any such assignment or subletting. In the consideration
of the granting or denying of consent, Landlord may, at its option, take into
consideration: (i) the business reputation and credit worthiness of the proposed
subtenant or assignee; (ii) any required alteration of the Premises; (iii) the
intended use of the Premises by the proposed subtenant or assignee; and (iv) any
other factors which Landlord shall deem reasonably relevant.
SECTION XIV.2. OPERATION OF LAW. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge or encumber this Lease or any interest hereunder.
SECTION XIV.3. EXCESS RENTAL. If Tenant shall, with Landlord's prior
consent as herein required, sublet the Premises, an amount equal to fifty
percent (50%) of the rental in excess of the Base Rent and any additional rent
herein provided to be paid shall be for benefit of Landlord and shall be paid to
Landlord promptly when due under any such subletting as additional rent due
hereunder.
SECTION XIV.4. MERGER OR CONSOLIDATION. If Tenant is a corporation
whose stock is not publicly traded, any transaction or series of transactions
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
any capital stock of Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, shall be deemed to be a voluntary assignment of
this Lease by Tenant subject to the provisions of this Article XIV. If Tenant is
a partnership or limited liability company, any transaction or series of
transactions (including without limitation any withdrawal or admittance of a
partner or member or a change in any partner's or member's interest in Tenant,
whether voluntary, involuntary or by operation of law, or any combination of any
of the foregoing transactions) resulting in the transfer of control of Tenant,
shall be deemed to be a voluntary assignment of this Lease by Tenant subject to
the provisions of this assignment of this Lease by Tenant subject to the
provisions of this Article XIV. If Tenant is a non-publicly traded corporation,
a change or series of changes in ownership of stock which would result in direct
or indirect change in ownership by the stockholders or an affiliated group of
stockholders of less than twenty-five percent (25%) of the outstanding stock as
of the date of the execution and delivery of this Lease shall not be considered
a change of control. Notwithstanding the immediately foregoing, Tenant may, upon
notice to, but without Landlord's consent, assign this Lease to any corporation
resulting from a merger or consolidation of Tenant, provided that the total
assets and the total net worth of such assignee after such consolidation or
merger shall be in excess of the greater of (i) the net worth of Tenant
immediately prior to such consolidation or merger, or (ii) the net worth of
Tenant as of the date hereof, determined by generally accepted accounting
principles and provided that Tenant is not at such time in
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default hereunder, and provided further that such successor shall execute an
instrument in writing, acceptable to Landlord in its reasonable discretion,
fully assuming all of the obligations and liabilities imposed upon Tenant
hereunder and deliver the same to Landlord. Tenant shall provide in its notice
to Landlord such information as may be reasonably required by Landlord to
determine that the requirements of this Section 14.4 have been satisfied. As
used in this Section 14.4, the term "control" means possession of the power to
vote not less than a majority interest of any class of voting securities and
partnership or limited liability company interests or to direct or cause the
direction of the management or policies of a corporation, or partnership or
limited liability company through the ownership of voting securities,
partnership interests or limited liability company interests, respectively.
SECTION XIV.5. UNPERMITTED TRANSACTION. Except as provided in Section
14.6 below, any assignment, subletting, use, occupancy, transfer or encumbrance
of this Lease or the Premises without Landlord's prior written consent shall be
of no effect and shall, at the option of Landlord, constitute a default under
this Lease.
SECTION XIV.6. PERMITTED TRANSFERS. Landlord's consent shall not be
required for an assignment or sublet to a Tenant Successor or Tenant Affiliate
(as such terms are hereinafter defined), and Landlord shall not terminate this
Lease with respect to the Premises or any portion of the Premises as a result of
such assignment or sublease to a Tenant Successor or Tenant Affiliate, as long
as (i) Tenant gives reasonable prior notice to Landlord of the proposed
assignment or sublease, (ii) if an assignment, such assignee assumes the
obligations of Tenant under this Lease, and (iii) in the reasonable judgment of
Landlord, such assignee or subtenant has a net worth (computed in accordance
with generally accepted accounting principles) equal to or greater than the
greater of the (y) net worth of the original named Tenant at the time of such
assignment or (z) the net worth of the original named Tenant at the date of
execution of this Lease. As used herein, the term "Tenant Successor" shall mean
any entity (i) which results from a merger or consolidation with the original
Tenant under this Lease or (ii) which acquires all or substantially all of the
assets of the original Tenant under this lease for a legitimate business
purpose; and the term "Tenant Affiliate" shall mean any entity which is
controlled by, controls, or is under common control with (A) the original Tenant
named in this lease, or (B) a Tenant Successor. For purposes of the foregoing,
the term "control" means the power to direct the management and policies of the
subject entity, either directly or indirectly, whether through the ownership of
voting securities or other beneficial interests or otherwise.
ARTICLE XV
FINANCIAL STATEMENTS
SECTION XV.1. FINANCIAL STATEMENTS. Tenant agrees to furnish Landlord
annually, upon written request of Landlord, within ninety (90) days of the end
of such fiscal year with a copy of its annual audited statements, together with
applicable footnotes and any other financial information reasonably requested by
Landlord (hereinafter collectively referred to as the "FINANCIAL INFORMATION")
and agrees that Landlord may deliver such Financial Information to any
mortgagee, prospective mortgagee, prospective purchaser, auditor or security
analyst on a confidential basis.
ARTICLE XVI
INDEMNITY FOR LITIGATION
SECTION XVI.1. INDEMNITY FOR LITIGATION. Tenant agrees to pay, and to
indemnify and defend Landlord against, all costs and expenses (including
reasonable attorneys' fees) incurred by or imposed upon Landlord by or in
connection with any litigation to which Landlord becomes or is made a party
without fault on its part, whether commenced by or against Tenant, or any other
person or entity or that may be incurred by Landlord in enforcing any of the
covenants and agreements of this Lease with or without the institution of any
action or proceeding relating to the Premises or this Lease, or in obtaining
possession of the Premises after an Event of Default hereunder or upon
expiration or earlier termination of this Lease. The foregoing notwithstanding,
Tenant's responsibility under this Section 16.1 to pay Landlord's costs and
expenses (including reasonable attorneys' fees)
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shall not extend to such costs and expenses incurred in defending an action
brought by Tenant to enforce the terms of this Lease in which there is a court
determination that Landlord failed to perform its obligations under this Lease.
The provisions of this Section 16.1 shall survive the expiration or earlier
termination of this Lease.
ARTICLE XVII
ESTOPPEL CERTIFICATES
SECTION XVII.1. ESTOPPEL CERTIFICATE. Tenant agrees that on the
Commencement Date and at any time and from time to time thereafter, upon not
less than ten (10) days' prior written request by Landlord, it will execute,
acknowledge and deliver to Landlord, or Landlord's mortgagee to the extent
factually accurate, a statement in writing in the form of EXHIBIT "D" attached
hereto and by this reference incorporated herein; provided, however, Tenant
agrees to certify to any prospective purchaser or mortgagee any other reasonable
information specifically requested by such prospective purchaser or mortgagee.
ARTICLE XVIII
INSPECTION OF PREMISES
SECTION XVIII.1. INSPECTIONS. Tenant agrees to permit Landlord and any
authorized representatives of Landlord, to enter the Premises at all reasonable
times on reasonable advance notice, except in the case of emergency, for the
purpose of inspecting the same. Any such inspections shall be solely for
Landlord's purposes and may not be relied upon by Tenant or any other person.
SECTION XVIII.2. SIGNS. Tenant agrees to permit Landlord and any
authorized representative of Landlord to enter the Premises at all reasonable
times during business hours on reasonable advance notice to exhibit the same for
the purpose of sale, mortgage or lease. Landlord may display on the Premises
customary "For Sale" signs and during the final year of the Term hereof or any
extension thereof, Landlord may display on the Premises customary "For Rent"
signs.
ARTICLE XIX
FIXTURES
SECTION XIX.1. BUILDING FIXTURES. All improvements and all plumbing,
heating, lighting, electrical and air-conditioning fixtures and equipment, and
other articles of personal property used in the operation of the Premises (as
distinguished from operations incident to the business of Tenant), whether or
not attached or affixed to the Premises (hereinafter referred to as "BUILDING
FIXTURES"), shall be and remain a part of the Premises and shall constitute the
property of Landlord.
SECTION XIX.2. TENANT'S EQUIPMENT. All of Tenant's trade fixtures and
all personal property, fixtures, apparatus, machinery and equipment now or
hereafter located upon the Premises, other than Building Fixtures, as shall be
and remain the personal property of Tenant, and the same are herein referred to
as "TENANT'S EQUIPMENT."
SECTION XIX.3. REMOVAL OF TENANT'S EQUIPMENT. Tenant's Equipment may be
removed from time to time by Tenant; provided, however, that if such removal
shall injure or damage the Premises, Tenant shall repair the damage and place
the Premises in the same condition as it would have been if such Tenant's
Equipment had not been installed.
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ARTICLE XX
DEFAULT
SECTION XX.1. EVENTS OF DEFAULT. Tenant agrees that any one or more of
the following events shall be considered "EVENTS OF DEFAULT" as said term is
used herein:
A. If an order, judgment or decree shall be entered by any
court adjudicating Tenant a bankrupt or insolvent, or approving a
petition seeking reorganization of Tenant or appointing a receiver,
trustee or liquidator of Tenant, or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and
in effect for any period of sixty (60) days; or
B. Tenant shall file an answer admitting the material
allegations of a petition filed against Tenant in any bankruptcy,
reorganization or insolvency proceeding or under any laws relating to
the relief of debtors, readjustment or indebtedness, reorganization,
arrangements, composition or extension; or
C. Tenant shall make any assignment for the benefit of
creditors or shall apply for or consent to the appointment of a
receiver, trustee or liquidator of Tenant, or any of the assets of
Tenant; or
D. Tenant shall file a voluntary petition in bankruptcy, or
shall admit in writing its inability to pay its debts as they come due,
or shall file a petition or an answer seeking reorganization or
arrangement with creditors or take advantage of any insolvency law; or
E. A decree or order appointing a receiver of the property of
Tenant shall be made and such decree or order shall not have been
vacated within sixty (60) days from the date of entry or granting
thereof; or
F. Tenant shall default in making any payment of Rent or other
payment required to be made by Tenant hereunder and such default shall
continue for a period of ten (10) days after written notice from
Landlord to Tenant; or
G. If Tenant shall suffer or permit any lien or encumbrance
(subject to Tenant's right to contest liens as provided in Section 11.1
hereof) to attach to the Premises, and Tenant shall not discharge said
lien or encumbrance within thirty (30) days or within ten (10) days
prior to any sale or disposition or forfeiture pursuant to such
execution, whichever date shall first occur; or
H. If Tenant shall fail to carry all required insurance under
this Lease; or
I. If Tenant shall fail to comply with an order of a court of
competent jurisdiction or proper order of a Governmental Authority
within the required time period;
J. Tenant shall repeatedly default in the timely payment of
Rent or any other charges required to be paid under this Lease, whether
or not Tenant shall timely cure any such payment. For the purposes of
the foregoing, the occurrence of similar defaults two times in any
twelve month period shall constitute a repeated default; or
K. If Tenant shall default in the performance of any covenant,
promise or agreement on the part of Tenant contained in this Lease not
otherwise specified in this Section 20.1 and such default shall
continue for thirty (30) days after notice thereof in writing by
Landlord to Tenant, or if such default or condition which gives rise
thereto cannot with due diligence and good faith be cured within such
twenty-(30) day period, if Tenant shall not in good faith and within
the period of thirty (30) days commence the curing of such default and
pursue the curing of such default continuously and diligently and in
good faith to the end that such default shall be cured within such
minimum period in excess of thirty (30) days as may be reasonably
necessary to cure such default through pursuing such cure promptly,
diligently, continuously and in good faith; provided, however, that
such additional period beyond thirty (30) days shall not apply to
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a default that creates a clear and present danger to persons or
property or materially adversely affects the Premises, or if the
failure or default by Tenant is one for which Landlord (or any officer
or other agent or beneficial or other owner thereof) may be subject to
fine or imprisonment.
Upon the occurrence of any one or more of such Events of
Default, Landlord may at its election have any one or more of the following
described remedies in addition to all other rights and remedies provided at law
or in equity or elsewhere herein:
(i) Landlord may terminate this Lease by
giving to Tenant written notice of Landlord's election to do
so, in which event the Term and all right, title and interest
of Tenant hereunder shall end on the date stated in such
notice;
(ii) Landlord may terminate the right of
Tenant to possession of the Premises without terminating this
Lease, by giving written notice to Tenant that Tenant's right
of possession shall end on the date stated in such notice,
whereupon the right of Tenant to possession of the Premises or
any part thereof shall cease on the date stated in such
notice; and
(iii) Landlord may enforce the provisions of
this Lease and may enforce and protect the rights of Landlord
by a suit or suits in equity or at law for the performance of
any covenant or agreement herein, and for the enforcement of
any other appropriate legal or equitable remedy, including
without limitation (aa) injunctive relief, (bb) recovery of
all moneys due or to become due from Tenant under any of the
provisions of this Lease, and (cc) any other damages incurred
by Landlord by reason of Tenant's default under this Lease.
If Landlord exercises any of the remedies provided for above,
Tenant shall surrender possession of and vacate the Premises and immediately
deliver possession thereof to Landlord, and Landlord may re-enter and take
complete and peaceful possession of the Premises.
If Landlord terminates the right of Tenant to possession of
the Premises without terminating this Lease, such termination of possession
shall not release Tenant, in whole or in part, from Tenant's obligation to pay
the Rent hereunder for the fall Term. Landlord shall have the right from time to
time, to recover from Tenant, and Tenant shall remain liable for, all Rent not
theretofore paid, and any other sums whether then due and payable or thereafter
accruing as they become due under this Lease. In any such case, Landlord may
(but shall be under no obligation to, except as may be required by law) relet
the Premises or any part thereof for the account of Tenant for such rent, for
such time (which may be for a term extending beyond the Term of this Lease) and
upon such terms as Landlord in Landlord's sole discretion shall determine, and
Landlord shall not be required to accept any tenant offered by Tenant or to
observe any instructions given by Tenant relative to such reletting. Also, in
any such case, Landlord may change the locks or other entry devices of the
Premises and make repairs, alterations and additions in or to the Premises and
redecorate the same to the extent deemed by Landlord necessary or desirable, and
Tenant shall upon written demand pay the cost thereof together with Landlord's
expenses of reletting, including, without limitation, brokerage commissions
payable by Landlord. Landlord may collect the rents from any such reletting and
apply the same first to the payment of the expenses of reentry, redecoration,
repair and alterations and the expenses of reletting and second to the payment
of Rent and other sums herein provided to be paid by Tenant, and any excess or
residue shall operate only as an offsetting credit against the amount of Rent
and other sums due and owing as the same thereafter becomes due and payable
hereunder, but the use of such offsetting credit to reduce the amount of Rent
and other sums due Landlord, if any, shall not be deemed to give Tenant any
right, title or interest in or to such excess or residue and any such excess or
residue shall belong to Landlord solely; provided that in no event shall Tenant
be entitled to a credit on its indebtedness to Landlord in excess of either the
aggregate sum (including Rent) due and owing or which would have been paid by
Tenant for the period for which the credit to Tenant is being determined, had no
default occurred, as applicable. No such reentry, repossession, repairs,
alterations, additions or reletting shall be construed as an eviction or ouster
of Tenant or as an election on Landlord's part to terminate this Lease, unless a
written notice of such intention is given to Tenant, or shall operate to release
Tenant in whole or in part from any of Tenant's obligations hereunder, and
Landlord may, at any time and from time to time, sue and recover judgment for
any deficiencies from time to time remaining after the application from time to
time of the proceeds of any such reletting.
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In the event of the termination of this Lease by Landlord as provided
for above, Landlord shall be entitled to recover from Tenant all damages and
other sums which Landlord is entitled to recover under any provision of this
Lease or at law or equity, including, but not limited to, all Rent accrued and
unpaid for the period up to and including such termination date, as well as all
other additional sums payable by Tenant, or for which Tenant is liable or in
respect of which Tenant has agreed to indemnify Landlord under any of the
provisions of this Lease, which may be then owing and unpaid, and all costs and
expenses, including, without limitation, court costs and reasonable attorneys'
fees incurred by Landlord in the enforcement of its rights and remedies
hereunder and, in addition, any damages provable by Landlord as a matter of law
including, without limitation, an amount equal to the excess of the Rent
provided to be paid for the remainder of the Term over the fair market rental
value of the Premises (determined at the date of termination of this Lease)
after deduction of all anticipated expenses of reletting and taking into
consideration the time necessary to relet the Premises. In the alternative,
Landlord shall have the right, from time to time, to recover from Tenant, and
Tenant shall remain liable for, all Rent and other amounts due and owing under
this Lease not paid pursuant to the provisions of this Lease plus (x) damages
equal to all other sums which would have accrued under this Lease after the date
of termination had it not been terminated, such damages to be due and payable as
such sums would have become due, less (y) such amounts as Landlord may receive
from reletting after first paying all costs of such reletting, including,
without limitation, brokerage commissions and the costs of repairs, alterations,
additions and redecorations, and the expenses of re-entry, and the net amounts
of rent collected remaining after such expenses shall operate only as an
off-setting credit against the amount due hereunder with any excess or residue
belonging to Landlord solely. Should the fair market rental value of the
Premises after and taking into consideration the time necessary to relet the
Premises deduction of all anticipated expenses of reletting exceed the Rent
provided to be paid by Tenant for the remainder of the Term, Landlord shall not
be obligated to pay to Tenant any part of such excess or to credit any part of
such excess against any other sums or damages for which Tenant may be liable to
Landlord.
SECTION XX.2. BANKRUPTCY. If Landlord shall not be permitted to
terminate this Lease, as provided in this Article XX because of the provisions
of the United States Code relating to Bankruptcy, as amended (hereinafter
referred to as the "BANKRUPTCY CODE"), then Tenant as a debtor-in-possession or
any trustee for Tenant agrees promptly, within no more than sixty (60) days
after the filing of the bankruptcy petition, to assume or reject this Lease. In
such event, Tenant or any trustee for Tenant may only assume this Lease if; (a)
it cures or provides adequate assurances that the trustee will promptly cure any
default hereunder; (b) compensates or provides adequate assurance that Tenant
will promptly compensate Landlord of any actual pecuniary loss to Landlord
resulting from Tenants default; and (c) provides adequate assurance of
performance during the fully stated term hereof of all of the terms, covenants,
and provisions of this Lease to be performed by Tenant. In no event after the
assumption of this Lease shall any then-existing default remain uncured for a
period in excess of the earlier of ten (10) days or the time period set forth
herein. Adequate assurance of performance of this Lease, as set forth
hereinabove, shall include, without limitation, adequate assurance: (i) of the
source of rent reserved hereunder, and (ii) that the assumption of this Lease
will not breach any provision hereunder.
If Tenant assumes this Lease and proposes to assign the same pursuant
to the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth: (i) the name
and address of such person; (ii) all of the terms and conditions of such offer,
and (iii) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including, without limitation, the assurance
referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to
Landlord by the Tenant no later than twenty (20) days after receipt by the
Tenant but in any event no later than ten (10) days prior to the date that the
Tenant shall make application to a court of competent jurisdiction for authority
and approval to enter into such assignment and assumption, and Landlord shall
thereupon have the prior right and option, to be exercised by notice to the
Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which may be payable out of the
consideration to be paid by such person for the assignment of this Lease.
If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code any and all monies or other considerations
payable or otherwise to be delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or of
the estate of the Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting the Landlord's property
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under the preceding sentence not paid or delivered to the Landlord shall be held
in trust for the benefit of Landlord and shall be promptly paid to the Landlord.
Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be conclusively deemed without further
act or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption. Any
such assignee shall be permitted to use the Leased Premises only for the Use.
Nothing contained in this Section shall, in any way, constitute a
waiver of the provisions of Article XIV of this Lease relating to alienation.
Tenant shall not, by virtue of this Section, have any further rights relating to
assignment other than those granted in the Bankruptcy Code. Notwithstanding
anything in this Lease to the contrary, all amounts payable by Tenant to or on
behalf of Landlord under this Lease, whether or not expressly denominated as
rent, shall constitute rent for the purpose of Section 501(b)(6) or any
successive section of the Bankruptcy Code.
SECTION XX.3. RE-ENTRY. Tenant agrees, upon receipt of notice of
termination, to at once surrender possession of the Premises, and related
improvements to Landlord. Tenant agrees that the occurrence of any Event of
Default shall of itself, upon service of the notice above provided for,
constitute a forcible detainer by Tenant of the premises within the meaning of
the statutes of the State of Illinois. No receipt of money by Landlord from
Tenant after any termination, howsoever occurring, of this Lease shall
reinstate, continue or extend the Term of this Lease.
SECTION XX.4. NO WAIVER. The specified remedies to which Landlord may
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may be
lawfully entitled in case of any breach or threatened breach by Tenant of any
provision of this Lease. The failure of Landlord to insist in any one or more
cases upon the strict performance of any of the covenants of this Lease or to
exercise any option herein contained or right to approval or consent shall not
be construed as a waiver or a relinquishment for the future application and
enforcement of such covenant or option or right to approve or consent. A receipt
by Landlord of Rent or any other charges payable by Tenant hereunder with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. In
addition to the other remedies in this Lease provided, Landlord shall be
entitled to the restraint by injunction of the violation, or attempted or
threatened violation, of any of the covenants, conditions or provisions of this
Lease or to a decree compelling performance of any of the covenants, conditions
or provisions of this Lease.
SECTION XX.5. LANDLORD'S DEFAULT. If (i) Landlord shall be in default
in the performance of or compliance with any of the agreements, terms, covenants
or conditions in this Lease for a period of thirty (30) days after notice from
Tenant to Landlord specifying the items in default, or in the case of a default
which cannot, with due diligence, be cured within said thirty (30)-day period,
Landlord fails to proceed within said thirty (30)-day period to cure the same
and thereafter to prosecute the curing of such default with due diligence (it
being intended in connection with a default not susceptible of being cured with
due diligence within said thirty (30)-day period that the time of Landlord
within which to cure the same shall be extended for such period as may be
necessary to complete the same with all due diligence), or (ii) an Emergency
Situation, as defined below, shall exist and Landlord does not cure the default
within a reasonable period of time under the circumstances after notice from
Tenant to Landlord, then Tenant may, at its option (but shall not be required
to) cure the default or cause the default to be cured and the reasonable amounts
paid by Tenant in connection therewith shall be due and payable by Landlord to
Tenant within thirty (30) days after demand therefor from Tenant
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ARTICLE XXI
LANDLORD'S PERFORMANCE OF TENANT'S COVENANTS
SECTION XXI.1. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. In the
event Tenant shall fail to maintain any insurance required to be paid by it
under the terms hereof, or in an Emergency Situation or upon occurrence of an
Event of Default, Landlord may (but shall not be obligated so to do), and
without waiving or releasing Tenant from any obligation of Tenant hereunder,
make any payment or perform any other act which Tenant is obligated to make or
perform under this Lease in such manner and to such extent as Landlord may deem
desirable; and in so doing Landlord shall also have the right to enter upon the
Premises for any purpose reasonably necessary in connection therewith and to pay
or incur any other necessary and incidental costs and expenses, including
reasonable attorneys' fees. All sums so paid and all liabilities so incurred by
Landlord, together with interest thereon at the rate per annum which is the
lesser of (i) the Lease Interest Rate or (ii) the highest rate permitted by law
shall be deemed Additional Rent hereunder and shall be payable to Landlord upon
demand as Additional Rent. Landlord shall use reasonable efforts to give prior
notice (which may be oral) of its performance, if reasonably feasible under the
circumstances. The performance of any such obligation by Landlord shall not
constitute a waiver of Tenant's default in failing to perform the same. Inaction
of Landlord shall never be considered as a waiver of any right accruing to it
pursuant to this Lease. Landlord, in making any payment hereby authorized: (a)
relating to Taxes, may do so according to any bill, statement or estimate,
without inquiry into the validity of any tax, assessment, sale, forfeiture, tax
lien or title or claim thereof; (b) for the discharge, compromise or settlement
of any lien, may do so without inquiry as to the validity or amount of any claim
for lien which may be asserted; or (c) in connection with the completion of
construction of improvements to the Premises or the repair, maintenance or the
payment of operating costs thereof, may do so in such amounts and to such
persons as Landlord reasonably may deem appropriate. Nothing contained herein
shall be construed to require Landlord to advance monies for any purpose.
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant or any other occupant of
the Premises or any part thereof, by reason of making repairs or the performance
of any work on the Premises or on account of bringing materials, supplies and
equipment into or through the Premises during the course thereof and the
obligations of Tenant under this Lease shall not thereby be affected in any
manner. In doing so, however, Landlord shall use reasonable efforts not to
interfere with the normal operation of the Premises. The term "EMERGENCY
SITUATION" shall mean a situation which has caused or is likely to cause bodily
injury to persons, contamination of or physical damage to the Premises or
adjoining property or economic liability or criminal jeopardy to Landlord.
ARTICLE XXII
EXERCISE OF REMEDIES
SECTION XXII.1. CUMULATIVE REMEDIES. No remedy contained herein or
otherwise conferred upon or reserved to Landlord, shall be considered exclusive
of any other remedy, but the same shall be cumulative and shall be in addition
to every other remedy given herein, now or hereafter existing at law or in
equity or by statute, and every power and remedy given by this Lease to Landlord
may be exercised from time to time and as often as occasion may arise or as may
be deemed expedient. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or shall be
construed to be a waiver of any such default or an acquiescence therein.
SECTION XXII.2. NO WAIVER. No waiver of any breach of any of the
covenants of this Lease shall be construed, taken or held to be a waiver of any
other breach, or a waiver, acquiescence in or consent to any further or
succeeding breach of the same covenant. The acceptance by Landlord of any
payment of Rent or other sums payable hereunder after the termination by
Landlord of this Lease or of Tenant's right to possession hereunder shall not,
in the absence of agreement in writing to the contrary by Landlord, be deemed to
restore this Lease or Tenant's right to possession hereunder, as the case may
be, but shall be construed as a payment on account and not in satisfaction of
damages due from Tenant to Landlord. Receipt of Rent by Landlord, with knowledge
of any
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breach of this Lease by Tenant or of any default by Tenant in the observance or
performance of any of the conditions or covenants of this Lease, shall not be
deemed to be a waiver of any provision of this Lease.
SECTION XXII.3. EQUITABLE RELIEF. In the event of any breach or
threatened breach by Tenant of any of the agreements, terms, covenants or
conditions contained in this Lease, Landlord shall be entitled to enjoin such
breach or threatened breach and shall have the right to invoke any right and
remedy allowed at law or in equity or by statute or otherwise as though
re-entry, summary proceedings, and other remedies were not provided for in this
Lease.
ARTICLE XXIII
SUBORDINATION TO MORTGAGES
SECTION XXIII.1. SUBORDINATION. Landlord may execute and deliver a
mortgage or trust deed in the nature of a mortgage ("MORTGAGE") against its
interest in the Premises or any portion thereof. This Lease and all of the
rights of Tenant hereunder, shall automatically, and without the requirement of
the execution of any further documents, be and are hereby made expressly subject
and subordinate at all times to the lien of any Mortgage and to all advances
made or hereafter to be made upon the security thereof; provided the holder of
said Mortgage agrees in writing not to disturb the rights of Tenant under this
Lease so long as Tenant is not in default hereunder. Notwithstanding the
foregoing, Tenant agrees to execute and deliver such instruments subordinating
this Lease to the lien of any such Mortgage as may be requested in writing by
Landlord from time to time, provided that such document contains the agreement
of the holder of the Mortgage not to disturb the rights of Tenant under this
Lease so long as Tenant is not in default hereunder. Notwithstanding anything to
the contrary contained herein, any mortgagee under a Mortgage may, by notice in
writing to the Tenant, subordinate its Mortgage to this Lease.
SECTION XXIII.2. MORTGAGE PROTECTION. Tenant agrees to give the holder
of any Mortgage, by registered or certified mail, a copy of any notice of
default served upon the Landlord by Tenant, provided that prior to such notice
Tenant has received notice (by way of service on Tenant of a copy of an
assignment of rents and leases, or otherwise) of the address of such mortgagee
and containing a request therefor. Tenant further agrees that, except in the
event of an Emergency Situation, if Landlord shall have failed to cure such
default within the time provided for in this Lease, then said mortgagee shall
have an additional thirty (30) days after receipt of notice thereof within which
to cure such default or, if such default cannot be cured within that time, then
such additional tune as may be necessary, if, within such thirty (30) days, any
mortgagee has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement foreclosure
proceedings, if necessary to effect such cure). Such period of time shall be
extended by any period within which such mortgagee is prevented from commencing
or pursuing such foreclosure proceedings by reason of Landlord's bankruptcy.
Until the time allowed as aforesaid for said mortgagee to cure such defaults has
expired without cure, Tenant shall have no right to, and shall not, terminate
this Lease on account of default. This Lease may not be modified or amended so
as to reduce the Rent or shorten the Term, or so as to adversely affect in any
other respect to any material extent the rights of the Landlord, nor shall this
Lease be cancelled or surrendered, without the prior written consent, in each
instance, of the mortgagee.
ARTICLE XXIV
INDEMNITY AND WAIVER
SECTION XXIV.1. INDEMNITY. Tenant shall not do or permit any act or
thing to be done or omit to do any act or thing upon the Premises which may
subject Landlord to any liability or responsibility for injury, damage to
persons or property, or to any liability by reason of any violation of Legal
Requirements and shall exercise such control over the Premises so as to fully
protect Landlord against any such liability. Tenant shall defend, indemnify and
save Landlord, and any official, agent, beneficiary, contractor, director,
employee, lessor, mortgagee, officer, parent, partner, shareholder and trustee
of Landlord (each an "INDEMNIFIED PARTY")
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representatives, successors and assigns harmless from and against any and all
liabilities, suits, judgments, settlements, obligations, fines, damages,
penalties, claims, costs, charges and expenses, including, without limitation,
engineers', architects' and attorneys' fees, court costs and disbursements,
which may be imposed upon or incurred by or asserted against any Indemnified
Party by reason of any of the following occurring during or after (but
attributable to a period of time falling within) the Term:
A. any demolition or razing or construction of any
improvements or any other work or thing done in, on or about the
Premises or any part thereof by Tenant or any member of the Tenant
Group, including any claim that such work constitutes "public works";
B. any use, nonuse, possession, occupation, alteration,
repair, condition, operation, maintenance or management of the Premises
or any part thereof or of any tunnel, creek, ditch, detention area,
sidewalk, curb or vault adjacent thereto by Tenant or any member of the
Tenant Group;
C. any act or failure to act on the part of Tenant or any
member of the Tenant Group;
D. any accident, injury (including death) or damage to any
person or property occurring in, on or about the Premises or any part
thereof or in, on or about any tunnel, creek, ditch, detention area,
sidewalk, curb or vault adjacent thereto as a result of the act or
neglect of Tenant or any member of the Tenant Group;
E. any failure to perform or comply with any of the covenants,
agreements, terms or conditions in this Lease on Tenant's part to be
performed or complied with (other than the payment of money);
F. any lien or claim which may be alleged to have arisen
against or on the Premises, or any lien or claim which may be alleged
to have arisen out of this Lease and created or permitted to be created
by Tenant or any member of the Tenant Group against any assets of
Landlord, or any liability which may be asserted against Landlord with
respect thereto;
G. any failure on the part of Tenant to keep, observe and
perform any of the terms, covenants, agreements, provisions, conditions
or limitations contained in the contracts and agreements affecting the
Premises on Tenant's part to be kept, observed or performed; and
H. any contest permitted pursuant to the provisions of this
Lease.
No agreement or covenant of Tenant in this Section 24.1 shall
be deemed to exempt Landlord from, and Tenant's obligations under this Section
24.1 shall not include liability or damages for injury to persons or damage to
property caused by or resulting from the negligence or failure to act of
Landlord, its agents or employees, in the operation or maintenance of the
Premises.
The obligations of Tenant under this Section 24.1 shall not be
affected in any way by the absence in any case of covering insurance or by the
failure or refusal of any insurance carrier to perform any obligation on its
part under insurance policies affecting the Premises or any part thereof.
SECTION XXIV.2. WAIVER OF CLAIMS. Except as set forth in
Section 24.3 below, Tenant waives all claims it may have against Landlord and
Landlord's agents for damage or injury to person or property sustained by Tenant
or any member of the Tenant Group or by any occupant of the Premises, or by any
other person, resulting from any part of the Premises becoming out of repair, or
resulting from any accident on or about the Premises or resulting directly or
indirectly from any act or neglect of any person (excluding Landlord). This
Section 24.2 shall include, but not by way of limitation, damage caused by
water, snow, frost, steam, excessive heat or cold, sewage, gas, odors, or noise,
or caused by bursting or leaking pipes or plumbing fixtures, and shall apply
equally whether any such damage results from the act or neglect of Tenant or of
any other person (excluding Landlord), and whether such damage be caused or
result from anything or circumstance above mentioned or referred to, or to any
other thing or circumstance whether of a like nature or of a wholly different
nature. All Tenant's Equipment and other personal
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property belonging to Tenant or any occupant of the Premises that is in or on
any part of the Premises shall be there at the risk of Tenant or of such other
person only, and Landlord shall not be liable for any damage thereto or for the
theft or misappropriation thereof.
SECTION XXIV.3. LANDLORD'S INDEMNITY. Landlord will protect, indemnify,
defend and save Tenant, its partners, shareholders, employees, officers,
directors, agents and their respective successors and assigns harmless from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including without limitation, reasonable attorneys'
fees and expenses) imposed upon, incurred by or asserted against Tenant by
reason of any accident, injury to or death of persons or loss of or damage to
property occurring on or about the Premises or any part thereof resulting from
the negligent act or omission of Landlord, its agents or independent contractors
or anyone claiming by, through or under Landlord.
ARTICLE XXV
SURRENDER
SECTION XXV.1. CONDITION. Upon the termination of this Lease whether by
forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises to Landlord, broom clean, in good order, condition and repair,
reasonable wear and tear excepted. "Broom clean" means free from all debris,
dirt, rubbish, personal property of Tenant, oil, grease, tire tracks or other
substances, inside and outside of the Improvements and on the grounds comprising
the Premises. Any damage caused by removal of Tenant from the Premises,
including any damages caused by removal of Tenant's Equipment, as herein
defined, shall be repaired and paid for by Tenant prior to the expiration of the
Term.
SECTION XXV.2. REMOVAL OF TENANT'S EQUIPMENT. Upon the termination of
this Lease by lapse of time, or otherwise, Tenant may remove Tenant's Equipment
provided, however, that Tenant shall repair any injury or damage to the Premises
which may result from such removal. If Tenant does not remove Tenant's Equipment
from the Premises prior to the end of the Term, however ended, Landlord may, at
its option, remove the same and deliver the same to any other place of business
of Tenant or warehouse the same, and Tenant shall pay the cost of such removal
(including the repair of any injury or damage to the Premises resulting from
such removal), delivery and warehousing to Landlord on demand, or Landlord may
treat tenant's equipment as having been conveyed to Landlord with this Lease as
a Bill of Sale, without further payment or credit by Landlord to Tenant.
SECTION XXV.3. HOLDOVER. If Tenant retains possession of the Premises
or any part thereof after the termination of the Term, by lapse of time and
otherwise, then Tenant shall pay to Landlord monthly rent, at 150% the rate
payable for the month immediately preceding said holding over (including
increases for additional rent which Landlord may reasonably estimate), computed
on a per-month basis, for each month or part thereof (without reduction for any
such partial month) that Tenant thus remains in possession, and in addition
thereto, Tenant shall pay Landlord all damages, consequential as well as direct,
sustained by reason of Tenant's retention of possession. Alternatively, at the
election of Landlord expressed in a written notice to Tenant and not otherwise,
if such retention of possession continues for more than thirty (30) days, such
retention of possession shall constitute a renewal of this Lease for one (1)
year, at a rental equal to one hundred twenty Percent (120%) of the Rent during
the previous year. The provisions of this paragraph do not exclude the
Landlord's rights under this Lease, at law or in equity. Any such extension or
renewal shall be subject to all other terms and conditions herein contained.
ARTICLE XXVI
COVENANT OF QUIET ENJOYMENT
SECTION XXVI.1. COVENANT OF QUIET ENJOYMENT. Landlord covenants that
Tenant, on paying the Rent and all other charges payable by Tenant hereunder,
and on keeping, observing and performing all the other
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terms, covenants, conditions, provisions and agreements herein contained on the
part of Tenant to be kept, observed and performed, all of which obligations of
Tenant are independent of Landlord's obligations hereunder, shall, during the
Term, peaceably and quietly have, hold and enjoy the Premises subject to the
terms, covenants, conditions, provisions and agreement hereof free from
hindrance by Landlord or any person claiming by, through or under Landlord.
ARTICLE XXVII
NO RECORDING
SECTION XXVII.1. NO RECORDING. Neither this Lease nor any memorandum or
other short form hereof shall be recorded.
ARTICLE XXVIII
NOTICES
SECTION XXVIII.1. NOTICES. All notices, consents, approvals to or
demands upon or by Landlord or Tenant desired or required to be given under the
provisions hereof, shall be in writing. Any notices or demands from Landlord to
Tenant shall be deemed to have been duly and sufficiently given if a copy
thereof has been personally served, forwarded by expedited messenger or
recognized overnight courier service with evidence of delivery or mailed by
United States registered or certified mail in an envelope properly stamped and
addressed to Tenant at Tenant's Mailing Address set forth in Section 1.1V
hereof, with a copy to David B. Pogrund, Stone Pogrund & Korey, 221 North
LaSalle Street, Chicago, Illinois 60601, or at such other address as Tenant may
theretofore have furnished by written notice to Landlord. Any notices or demands
from Tenant to Landlord shall be deemed to have been duly and sufficiently given
if forwarded by expedited messenger or recognized overnight courier service with
evidence of delivery or mailed by United States registered or certified mail in
an envelope properly stamped and addressed to Landlord at Landlord's Mailing
Address set forth in Section 1.1L hereof, with a copy to Mark S. Richmond, Katz
Randall & Weinberg, 333 West Wacker Drive, Suite 1800, Chicago, Illinois 60606,
or at such other address as Landlord may theretofore have furnished by written
notice to Tenant. The effective date of any such notice shall be the date of
actual delivery, except that if delivery is refused, the effective date of
notice shall be the date delivery is refused.
ARTICLE XXIX
COVENANTS RUN WITH LAND
SECTION XXIX.1. COVENANTS. All of the covenants, agreements, conditions
and undertakings in this Lease contained shall extend and inure to and be
binding upon the heirs, executors, administrators, successors and assigns of the
respective parties hereto, the same as if they were in every case specifically
named, and shall be construed as covenants running with the Land, and wherever
in this Lease reference is made to either of the parties hereto, it shall be
held to include and apply to, wherever applicable, the heirs, executors,
administrators, successors and assigns of such party. Nothing herein contained
shall be construed to grant or confer upon any person or persons, firm,
corporation or governmental authority, other than the parties hereto, their
heirs, executors, administrators, successors and assigns, any right, claim or
privilege by virtue of any covenant, agreement, condition or undertaking in this
Lease contained.
SECTION XXIX.2. RELEASE OF LANDLORD. The term "Landlord" as used in
this Lease, so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at the
time in question of fee title to the Premises, and in the event of any transfer
or transfers of the title, Landlord herein named (and in the case of any
subsequent transfers or conveyances, the then grantor) shall be
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automatically freed and relieved, from and after the date of such transfer or
conveyance, of all personal liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed; provided that any funds in the hands of such
Landlord or the then grantor at the time of such transfer, in which Tenant has
an interest, shall be turned over to the grantee.
ARTICLE XXX
ENVIRONMENTAL MATTERS
SECTION XXX.1. DEFINED TERMS.
A. "HAZARDOUS MATERIALS", when used herein, shall include, but shall
not be limited to, any substances, materials or wastes that are regulated by any
local governmental authority, the state where the Premises or the Premises is
located, or the United States of America because of toxic, flammable, explosive,
corrosive, reactive, radioactive or other properties that may be hazardous to
human health or the environment, including without limitation, above or
underground storage tanks, flammables, explosives, radioactive materials, radon,
petroleum and petroleum products, petroleum products (other than petroleum
products that are normally contained in motor vehicles to the extent such
products are not released), urea formaldehyde foam insulation, methane,
lead-based paint, polychlorinated biphenyl compounds, hydrocarbons or like
substances and their additives or constituents, pesticides and any other
special, toxic or hazardous materials, wastes, substances or materials of any
kind, including without limitation, those now or hereafter defined, determined
or identified as "hazardous substances," "hazardous materials," "toxic
substances" or "hazardous wastes" in any Environmental Law.
B. "ENVIRONMENTAL LAW" shall mean any Federal, state or local law,
statute, ordinance, code, rule, regulation, policy, common law, license,
authorization, decision, order, injunction, which pertains to health, safety,
any Hazardous Material, or the environment (including but not limited to ground
or air or water or noise pollution or contamination, and underground or
above-ground tanks) and shall include, without limitation, the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 ET SEQ., as amended by
the Hazardous and Solid Waste Amendments of 1984; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
ss.9601 ET SEQ. ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"); the Hazardous Materials Transportation
Act, 49 U.S.C. ss.1801 ET SEQ.; the Federal Water Pollution Control Act, 33
U.S.C. ss.1251 ET SEQ.; the Clean Air Act, 42 U.S.C. ss.7401 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss.2601 ET SEQ., the Safe Drinking Water Act,
42 U.S.C. ss.300F ET SEQ.; the Illinois Environmental Protective Act, 415 ILCS
4/1 ET SEQ.; the Clean Air Act (42 U.S.C. ss.7401 ET SEQ., "CAA"); the Rivers
and Harbors Act, (33 U.S.C. ss.401 ET SEQ., "RHA"); the Emergency Planning and
Community Right-to-Know Act of 1986 (41 U.S.C. 11001 ET SEQ., "EPCRA"), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 to 136y); the
Oil Pollution Act of 1990 (33 U.S.C. 2701 ET SEQ., "OPA"); and the Occupational
Safety and Health Act (29 U.S.C. 651 ET SEQ., "OSHA"); and any other local,
state or federal environmental statutes, and all rules, regulations, orders and
decrees now or hereafter promulgated under any of the foregoing, as any of the
foregoing now exist or may be changed or amended or come into effect in the
future.
C. "ENVIRONMENTAL CLAIM" shall mean and include any demand, notice of
violation, inquiry, cause of action, proceeding or suit for damages (including
reasonable attorneys' and experts' fees), losses, injuries to person or
property, damages to natural resources, fines, penalties, interest, cost
recovery, compensation, or contribution resulting from or in any way arising in
connection with any Hazardous Material or any Environmental Law.
D. "PRE-EXISTING CONDITION" shall mean the presence of any Hazardous
Material on the Premises, to the extent such Hazardous Material was not
introduced onto the Premises after the Commencement Date by Tenant or any member
of the Tenant Group.
E. "ENVIRONMENTAL CONDITION" shall mean the existence of any Hazardous
Material on the Premises other than a Pre-Existing Condition, (i) in violation
of, or requiring cleanup under, any Environmental Law
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or the provisions of this Article XXX; or (ii) which subjects Landlord to
liability for any Environmental Claim or which must be remediated to prevent
Landlord from incurring liability as a result of such Environmental Claim.
F. "ENVIRONMENTAL REMEDIATION" shall mean any investigative, cleanup,
removal, containment, remedial or other action relating to an Environmental
Condition (i) required pursuant to any Environmental Law, or (ii) necessary to
prevent Landlord from incurring, or relieve Landlord from, liability as a result
of an Environmental Claim.
G. "REMEDIATING PARTY" shall mean that party which has elected (or is
deemed to have elected) to perform any Environmental Remediation.
SECTION XXX.2. TENANT'S COVENANTS WITH RESPECT TO ENVIRONMENTAL
MATTERS. During the Term, Tenant, at its sole cost and expense, shall:
A. comply with all Environmental Laws relating to the use and
operation of the Premises;
B. keep the Premises free of Hazardous Materials;
C. not exacerbate a Pre-Existing Condition of which Tenant is
aware;
D. in the case of an Environmental Condition:
(1) promptly, but not later than three (3) business
days after the discovery of an Environmental Condition, notify
Landlord of the Environmental Condition;
(2) escrow of funds in a manner reasonably acceptable
to Landlord or other security reasonably acceptable to
Landlord to secure performance of Environmental Remediation
and to assure Landlord that all necessary funds are readily
available to Landlord to pay the costs and expenses of
Environmental Remediation;
(3) submit to Landlord for review and approval prior
to commencement of any Environmental Remediation, a proposed
scope of work and timetable therefor, and provide Landlord
with a cost estimate for same;
(4) diligently perform Environmental Remediation, as
approved by Landlord;
(5) submit to Landlord in a timely manner for review
and comment the documentation and information required by
Sections 30.6 and 30.7 relating to each phase of the
Environmental Remediation, including proof satisfactory to
Landlord at the conclusion of the work of proper
implementation, and pay all costs of Landlord described in
Section 30.12(C); and
(6) comply with applicable release reporting
requirements and provide Landlord with any information
necessary to comply;
E. not install or operate any above or below ground tank,
sump, pit, pond, lagoon or other storage or treatment vessel or device
on the Premises without first obtaining Landlord's prior written
consent;
F. not handle, use, generate, treat, dispose of or permit the
use, handling, generation, treatment, storage or disposal of any
Hazardous Materials in, on, under, around or above the Premises at any
time during the Term;
G. not store any above ground tank (including barrels and
drums), of any size within or without the Premises, except (i) in
compliance with all Environmental Laws, and (ii) if secondary
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containment approved by Landlord is provided. Empty tanks, barrels and
drums shall be presumed to have one (1) inch of product remaining when
declared empty.
SECTION XXX.3. CONDUCT OF TENANT. If Tenant, with the prior written
authorization of Landlord, which authorization may be granted or denied by
Landlord in its sole and absolute discretion generates, uses, transports,
stores, treats or disposes of any Hazardous Materials:
A. Tenant shall, at its own cost and expense, comply with all
Environmental Laws relating to Hazardous Materials;
B. Tenant shall (i) not dispose of any Hazardous Materials in
dumpsters or trash containers or at any other location at the Premises;
(ii) not discharge any Hazardous Materials into drains or sewers; (iii)
not cause or allow the release, discharge, emission or run-off of any
Hazardous Materials to air, to surface waters, to the land, to ground
water, whether directly or indirectly; (iv) at Tenant's own cost and
expense, arrange for the lawful transportation and off-site disposal of
all Hazardous Materials generated by Tenant; (v) provide secondary
containment around all Hazardous Materials storage containers, storage
facilities and above ground storage tanks; (vi) conduct all necessary
environmental inspections, if any, prior to any renovation or
demolition and provide copies of all such reports to the Landlord;
(vii) comply with all reporting requirements under any local, state or
federal ordinance, statute or regulation, such as, but not limited to,
toxics inventory reporting under the Emergency Planning and Community
Right-to-Know Act, the provisions under 40 CFR Part 61, or various
regulations controlling the emissions into the atmosphere of volatile
organic compounds and provide copies of all such reports and
notifications to Landlord; and (viii) use only highly skilled people to
address all environmental issues associated with the leasehold, that
such people and all employees of the Tenant shall receive all required
training or certification under any local, state or federal law
specifically mentioned or alluded to in Section 30.1 of this Lease;
C. Tenant shall promptly provide Landlord with copies of all
communications, permits or agreements with any governmental authority
or agency (federal, state or local) or any private entity relating in
any way to the violation or alleged violation of any Environmental Laws
or to any violation of Tenant's obligations under subparagraph (B)
above; and
D. Landlord and Landlord's agents and employees shall have the
right to enter the Premises and/or conduct appropriate tests for the
purpose of ascertaining that Tenant complies with all applicable laws,
rules or permits relating in any way to the presence of Hazardous
Materials on the Premises.
If the presence, release, threat of release, placement on or
in the Premises occurs or is caused in whole or in part by Tenant or any member
of the Tenant Group during the Term of this Lease, or the generation,
transportation, storage, treatment, or disposal at the Premises occurs or is
caused in whole or in part during the Term of this Lease by Tenant or any member
of the Tenant Group of any Hazardous Materials gives rise to liability
(including, but not limited to, a response action, remedial action, or removal
action) under any Environmental Laws or common law theory, including, but not
limited to nuisance, strict liability, negligence and trespass, Tenant shall
promptly take any and all remedial and removal action necessary to clean up the
Premises containing such Hazardous Materials and mitigate exposure to liability
arising from the Hazardous Materials, whether or not required by law.
SECTION XXX.4. EXACERBATION. If Tenant exacerbates a
Pre-Existing Condition of which it is aware (including as a result of Tenant's
investigative or remediation activities) during the Lease term, that the
provisions of this Article XXX shall apply to such exacerbation of the
Pre-Existing Condition, and Tenant shall perform Environmental Remediation as to
such exacerbation. Tenant shall be responsible for all fines and penalties
caused by Tenant or to the extent exacerbated by Tenant (including Tenants
environmental investigation or remediation activities) at any time during the
Lease Term.
SECTION XXX.5. RIGHTS OF INSPECTION. Landlord and their
respective agents and representatives shall have a right of entry and access to
the Premises at any time in Landlord's discretion for the purposes of (i)
inspection of the documentation relating to Hazardous Materials or environmental
matters maintained by Tenant or occupant of the Premises; (ii) ascertaining the
nature of the activities being conducted on
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the Premises and investigating whether Tenant is in compliance with its
obligations under Article XXX of this Lease; and (iii) determining the type,
land and quantity of all products, materials and substances brought onto the
Premises, or made or produced thereon. Landlord and its agents and
representatives shall have the right to take samples in quantities sufficient
for analysis of all products, materials and substances present on the Premises
including, but not limited to, samples, products, materials or substances
brought onto or made or produced on the Premises by Tenant or occupant of the
Premises or their respective agents, employees, contractors or invitees and
shall also have the right to conduct other tests and studies as may be
reasonably determined by Landlord to be appropriate in order to investigate
whether Tenant is in compliance with its obligations under Article XXX. Landlord
agrees that, in exercising its rights as described above, it will not
unreasonably interfere with the activities of Tenant in the Premises.
SECTION XXX.6. COPIES OF NOTICES. During the term of this
Lease, Tenant and Landlord shall each provide the other promptly with copies of
all summons, citations, directives, information inquiries or requests, notices
of potential responsibility, notices of violation or deficiency, orders or
decrees, Environmental Claims, complaints, investigations, judgments, letters,
notices of environmental liens or response actions in progress, and other
communications, written or oral, actual or threatened, received in the case of
Tenant, by Tenant or occupant of the Premises, or in the case of Landlord, by
Landlord, from the United States Environmental Protection Agency, Occupational
Safety and Health Administration, Illinois Environmental Protection Agency, or
other federal, state or local agency or authority, or any other entity or
individual (including both governmental and non-governmental entities and
individuals), concerning (a) any actual or alleged release of a Hazardous
Material on, to or from the Premises; (b) the imposition of any lien on the
Premises relating to any Hazardous Material; (c) any actual or alleged violation
of or responsibility under Environmental Laws; or (d) any actual or alleged
liability under any theory of common law tort or toxic tort, including without
limitation, negligence, trespass, nuisance, strict liability or ultrahazardous
activity.
SECTION XXX.7. TESTS AND REPORTS.
A. Upon written request by Landlord, Tenant shall provide
Landlord, at Tenant's expense, with (i) copies of all environmental reports and
tests prepared or obtained by or for Tenant or occupant of the Premises; (ii)
copies of transportation and disposal contracts (and related manifests,
schedules, reports and other information) entered into or obtained by Tenant
with respect to any Hazardous Materials; (iii) copies of any permits issued to
Tenant under Environmental Laws with respect to the Premises; (iv) prior to
filing, copies of any and all reports, notifications and other filings to be
made by Tenant or occupant of the Premises to any federal, state or local
environmental authorities or agencies and after filing, copies of such filings;
and (v) any other applicable documents and information with respect to
environmental matters relating to the Premises. Tenant shall be obligated to
provide such documentation only to the extent within Tenant's possession or
control.
B. In addition, if Landlord shall ever reasonably believe that
there exists any breach by Tenant of the terms of this Article XXX, or if any
Environmental Claim is made or threatened, or if a default shall have occurred
under the Lease, or at Landlord's discretion, one (1) time per Lease Year,
Landlord shall have the right, but not the duty, to enter upon the Premises and
conduct an environmental assessment of the Premises, including but not limited
to a visual site inspection, review of records pertaining to the site and
interviews of Tenant's representatives or others concerning the site use and
history and other matters. In exercising its rights as described above, Landlord
shall not unreasonably interfere with the activities of Tenant on the Premises.
The investigation may also include reasonable subsurface or other invasive
investigation of the Premises including but not limited to soil borings and
sampling of site soil and ground or surface water for laboratory analysis, as
may be recommended by the consultant as part of its inspection of the Premises
or based upon such other reasonable evidence of Environmental Conditions
warranting such subsurface or other invasive investigation. Landlord shall have
the right but not the duty, to retain any independent professional consultant to
conduct any such environmental, assessment; provided, however, that Landlord
agrees to limit in the absence of an Environmental Claim or default under this
Article XXX the number of such environmental assessments to one (1) per Lease
Year for the Lease Term. Tenant will cooperate with the Landlord's consultant
and will supply to the consultant, promptly upon request any information
reasonably requested by Landlord to facilitate the completion of the
environmental assessment. Landlord and its designees are hereby granted access
to the Premises at any time or times, upon reasonable notice (which may be
written or oral) to perform such environmental assessment. In exercising its
right, Landlord shall use its reasonable efforts to minimize disruption of
operations at the Premises. Any costs associated
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with performance of the environmental assessment, including but not limited to
the consultant fees and restoration of any property damaged by such
environmental assessment, shall be paid by Landlord, unless such investigation
discloses an Environmental Condition which is not a Pre-Existing Condition
(unless same is exacerbated by Tenant), in which case Tenant shall pay such
costs.
SECTION XXX.8. INDEMNIFICATION. Tenant shall reimburse,
defend, indemnify and hold Landlord and any other Indemnified Party free and
harmless from and against any and all Environmental Claims resulting from an
Environmental Condition, response costs, losses, liabilities, damages, costs and
expenses, including, without limitation, loss of rental income, loss due to
business interruption, and reasonable attorneys' fees and costs, arising out of
or in any way connected with any or all of the following:
A. any Hazardous Materials (other than a Pre-Existing
Condition) which, at any time during the Term, are or were actually or
allegedly generated, stored, treated, released, disposed of or
otherwise located on or at the Premises as a result of the act or
omission of Tenant or any member of the Tenant Group (regardless of the
location at which such Hazardous Materials are now or may in the future
be located or disposed of), including, but not limited to any and all
(i) liabilities under any common law theory of tort, nuisance, strict
liability, ultrahazardous activity, negligence or otherwise based upon,
resulting from or in connection with any Hazardous Material; (ii)
obligations to take response, cleanup or corrective action pursuant to
any Environmental Laws; and (iii) the costs and expenses of
investigation or remediation in connection with the decontamination,
removal, transportation, incineration or disposal of any of the
foregoing; and
B. any actual or alleged illness, disability, injury or death
of any person, in any manner arising out of or allegedly arising out of
exposure to Hazardous Materials or other substances or conditions
present at the Premises as a result of the act or omission of Tenant or
any member of the Tenant Group (including, but not limited to,
ownership, operation and disposal of any equipment which generates,
creates or uses electromagnetic files, x-rays, other forms of radiation
and radioactive materials), regardless of when any such illness,
disability, injury or death shall have occurred or been incurred or
manifested itself; and
C. any actual or alleged failure of Tenant or any member of
the Tenant Group at any time and from time to time to comply with all
applicable Environmental Laws;
D. any failure by Tenant to comply with its obligations under
this Article XXX relating to an Environmental Condition for which
Tenant is Remediating Party;
E. Tenant's failure to provide all information, make all
submissions, and take all steps required by all applicable governmental
authorities;
F. the imposition of any lien for damages caused by, or the
recovery of any costs for, the remediation cleanup of Hazardous
Material as a result of events that took place during the Term of this
Lease as a result of the act or omission of Tenant or any member of the
Tenant Group;
G. costs of removal of any and all Hazardous Material from all
or any portion of the Premises, which Hazardous Material were placed on
the Premises during the Term of this Lease as a result of the act or
omission of Tenant or any member of the Tenant Group;
H. costs incurred to comply, in connection with all or any
portion of the Premises, with all governmental regulations with respect
to Hazardous Materials on, in, under or affecting the Premises, which
Hazardous Materials were placed on the Premises during the Term of this
Lease as a result of the act or omission of Tenant or any member of the
Tenant Group;
I. any spills, discharges, leaks, escapes, releases, dumping,
transportation, storage, treatment or disposal of any Hazardous
Materials which occur during the Term of this Lease, but only to the
extent that such Hazardous Materials originated from or were or are
located on the Premises and result from the act or omission of Tenant
or any member of the Tenant Group.
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In the event Environmental Claims or other assertion of
liability shall be made against any Indemnified Party for which the Indemnified
Party is entitled to indemnity hereunder, the procedure set forth in Section
24.1 shall apply. The obligations of Tenant under this Section 30.8 shall
survive any termination or expiration of this Lease.
SECTION XXX.9. LANDLORD REPRESENTATION WITH RESPECT TO
ENVIRONMENTAL MATTERS. Landlord represents to Tenant that, to the actual
knowledge of Michael M. Mullen, Chief Operating Officer of Landlord, as of the
date of this Lease, the Land is free from Hazardous Substances other than as
disclosed by the reports described on EXHIBIT "E" attached hereto and by this
reference made a part hereof. The phrase "actual knowledge" as used above shall
mean the current actual knowledge of Michael M. Mullen and shall not be
construed, by imputation or otherwise, to refer to the knowledge of any other
person or entity or to impose upon Michael M. Mullen the duty to investigate the
matter as to which such actual knowledge or absence thereof pertains.
SECTION XXX.10. LIABILITY OF LANDLORD. Landlord hereby
acknowledges that there may be a Pre-Existing Condition (including, but not
limited to the conditions described in the reports referenced on EXHIBIT "E"
attached hereto and by this reference made a part hereof) on the Premises.
Landlord hereby covenants to remediate, at Landlord's sole cost and expense,
without reimbursement from Tenant, any Hazardous Substances on the Premises due
to the act of Landlord or due to any Pre-Existing Conditions to the extent
required by applicable Environmental Laws. Landlord shall provide Tenant with a
copy of its application to submit the Land and existing building to the Illinois
site remediation program. Upon completion of the remediation of any currently
known Pre-Existing Condition which Landlord is in the process of remediating,
Landlord shall use reasonable efforts to obtain a so-called "no further action
letter" or other acknowledgement from the Illinois Environmental Protection
Agency that the applicable conditions have been remediated, subject to the right
of Landlord to permit institutional controls, including, but not limited to,
deed restrictions and engineered barriers. Landlord shall provide Tenant with a
copy of the no further action letter or such other evidence received by
Landlord.
At such time as the concrete slab located on the west end of
the Land has been removed as part of the process of constructing the Initial
Improvements, Landlord shall arrange for two soil samples to be collected from
the ground below the slab and tested for arsenic. In the event that the samples
indicate levels of arsenic above Illinois Environmental Protection Agency
("IEPA") levels, Landlord shall excavate soil from the area where the applicable
sample was taken and take additional soil samples. Landlord shall continue that
process until such time as confirmation samples indicate that the remaining soil
in the area where the initial two samples were taken meets IEPA remediation
objectives. Landlord shall indemnify, defend and hold Tenant harmless from and
against all reasonable attorneys' fees and court and related litigation costs
incurred by Tenant in connection with any action arising out of the existence of
any Pre-Existing Condition to which Tenant is made a party by another person or
entity. Landlord may, at its sole cost, with counsel of its choosing, defend
Tenant in any such action.
Landlord shall not have liability to Tenant or any member of
the Tenant Group for Hazardous Materials on the Premises except as set forth
above in Sections 30.09 and 30. 10 hereof.
ARTICLE XXXI
RIGHT OF FIRST REFUSAL TO PURCHASE
SECTION XXXI.1. RIGHT OF FIRST REFUSAL TO PURCHASE. Landlord
agrees that if, during the Term of this Lease, Landlord receives an offer to
purchase the Premises, Tenant shall have the first right of first refusal to
purchase the Premises on the following terms and conditions:
A. The right granted to Tenant hereunder shall not be
effective if (i) Landlord determines to sell or transfer the Premises to a
Landlord Successor or Landlord Affiliate (as such terms are hereinafter
defined), (ii) Landlord obtains a bona fide first mortgage from an institutional
lender not related to or affiliated with Landlord which mortgage is a so-called
"Participating Mortgage" under which the lender has a right to participate in
the profits or cash flow or both of the Premises, (iii) the Premises is sold in
a transaction involving the simultaneous leaseback of the Premises by Landlord,
or (iv) the Premises is being sold along with other property. As used herein,
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the term "Landlord Successor" shall mean any entity (i) which results from a
merger or consolidation with the original Landlord under this Lease or (ii)
which acquires all or substantially all of the assets of the original Landlord
under this lease for a legitimate business purpose; and the term "Landlord
Affiliate" shall mean (i) CenterPoint Properties Trust or (ii) any entity which
is controlled by, controls, or is under common control with (A) the original
Landlord named in this lease, or (B) a Landlord Successor. For purposes of the
foregoing, the term "control" means the power to direct the management and
policies of the subject entity, either directly or indirectly, whether through
the ownership of voting securities or other beneficial interests or otherwise.
B. If Landlord obtains a bona fide offer to purchase the
Premises from any third party (except as set forth in subparagraph 31.1A above),
Landlord shall submit such offer to Tenant and Tenant shall have the right,
within five business (5) days after receipt of the offer, to purchase the
Premises on the same terms and conditions as set forth in the offer. If Tenant
does not given Landlord notice in writing within said 5-day period that Tenant
intends to exercise its rights hereunder, then Landlord shall be free to sell
the Premises on the terms and conditions set forth in the offer submitted to
Tenant and Tenant shall not have any further rights under this Article XXXI.
Notwithstanding the terms of any third party offer, Tenant shall not be entitled
to the benefit of any "due diligence period', "inspection period" or any other
right to terminate the offer to purchase granted to the third party purchaser.
ARTICLE XXXII
MISCELLANEOUS
SECTION XXXII.1. CAPTIONS. The captions of this Lease are for
convenience only and are not to be construed as part of this Lease and shall not
be construed as defining or limiting in any way the scope or intent of the
provisions hereof.
SECTION XXXII.2. SEVERABILITY. If any covenant, agreement or
condition of this Lease or the application thereof to any person, firm or
corporation or to any circumstances, shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such covenant,
agreement or condition to persons, firms or corporations or to circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby. Each covenant, agreement or condition of this Lease shall be
valid and enforceable to the fullest extent permitted by law.
SECTION XXXII.3. APPLICABLE LAW. This Lease shall be construed
and enforced in accordance with the laws of the state where the Premises are
located.
SECTION XXXII.4. AMENDMENTS IN WRITING. None of the covenants,
terms or conditions of this Lease, to be kept and performed by either party,
shall in any manner be altered, waived, modified, changed or abandoned, except
by a written instrument, duly signed, acknowledged and delivered by the other
party.
SECTION XXXII.5. RELATIONSHIP OF PARTIES. Nothing contained
herein shall be deemed or construed by the parties hereto, nor by any third
party, as creating the relationship of principal and agent or of partnership, or
of joint venture by the parties hereto, it being understood and agreed that no
provision contained in this Lease nor any acts of the parties hereto shall be
deemed to create any relationship other than the relationship of Landlord and
Tenant.
SECTION XXXII.6. BROKERAGE. Tenant warrants that it has no
dealings with any real estate broker or agent in connection with this lease
other than Landlord's Broker and Tenant's Broker, and Tenant covenants to pay,
hold harmless and indemnify Landlord from and against any and all cost, expense
or liability for any compensation, commissions and charges claimed by any other
broker or other agent with respect to this Lease or the negotiation thereof
arising out of any acts of Tenant.
SECTION XXXII.7. NO ACCORD AND SATISFACTION. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated and additional rent shall be deemed to be other than on
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account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in this Lease provided.
SECTION XXXII.8. JOINT EFFORT. The preparation of this Lease
has been a joint effort of the parties hereto and the resulting documents shall
not, solely as a matter of judicial construction, be construed more severely
against one of the parties than the other.
SECTION XXXII.9. WAIVER OF JURY TRIAL. Tenant hereby waives a
jury trial in action brought by Landlord hereunder.
SECTION XXXII.10. TIME. Time is of the essence of this Lease,
and all provisions herein relating thereto shall be strictly construed.
SECTION XXXII.11. LANDLORD'S CONSENT. Landlord's granting of
any consent under this Lease, or Landlord's failure to object to any action
taken by Tenant without Landlord's consent required under this Lease, shall not
be deemed a waiver by Landlord of its rights to require such consent for any
further similar act by Tenant. No waiver by Landlord of any other breach of the
covenants of this Lease shall be construed, taken or held to be a waiver of any
other breach or to be a waiver, acquiescence in or consent to any further or
succeeding breach of the same covenant. None of the Tenant's covenants under
this Lease, and no breach thereof, shall be waived, altered or modified except
by a written instrument executed by Landlord.
SECTION XXXII.12. NO PARTNERSHIP. Landlord is not, and shall
not be deemed to be, in any way or for any purpose, the partner, employer,
principal, master or agent of or with Tenant.
SECTION XXXII.13. LANDLORD'S LIABILITY. Notwithstanding
anything to the contrary herein contained, after the Commencement Date there
shall be absolutely no personal liability asserted or enforceable against
Landlord or on any persons, firms or entities who constitute Landlord with
respect to any of the terms, covenants, conditions and provisions of this Lease,
and Tenant shall, subject to the rights of any mortgagee, look solely to the
interest of Landlord, its successors and assigns in the Premises for the
satisfaction of each and every remedy of Tenant in the event of default by
Landlord hereunder; such exculpation of personal liability is absolute and
without any exception whatsoever. If the entity constituting Landlord is a
partnership, Tenant agrees that the deficit capital account of any such partner
shall not be deemed an asset or property of said partnership.
SECTION XXXII.14. RENT ABSOLUTE. This Lease shall be deemed
and construed to be a "net lease" and Tenant agrees to pay all costs and
expenses of every kind and nature whatsoever, ordinary and extraordinary,
arising out of or in connection with the ownership, maintenance, repair,
replacement, use and occupancy of the Premises during the Term of this Lease,
which, except for the execution and delivery hereof, would otherwise have been
payable by Landlord.
SECTION XXXII.15. TENANT AUTHORITY. Simultaneously with the
execution and delivery of this Lease by Tenant, Tenant shall deliver to Landlord
and Landlord shall deliver to Tenant:
A. Certified resolutions of its board of directors of Tenant
executing this Lease on behalf of Tenant authorizing the execution and
delivery of this Lease.
B. A certificate of incumbency executed by the secretary of
any corporate partner of Tenant and Landlord executing this Lease
identifying by name, office and facsimile signature the officers of
Tenant.
C. A current certificate of good standing issued by the
Secretary of State of the state of incorporation of Tenant and the
State of Illinois.
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SECTION XXXII.16. ENTIRE AGREEMENT. It is understood and
agreed that all understandings and agreements heretofore had between the parties
hereto are merged in this Lease, the exhibits annexed hereto and the instruments
and documents referred to herein, which alone fully and completely express their
agreements, and that no party hereto is relying upon any statement or
representation, not embodied in this Lease, made by the other. Each party
expressly acknowledges that, except as expressly provided in this Lease, the
other party and the agents and representatives of the other party have not made,
and the other party is not liable for or bound in any manner by, any express or
implied warranties, guaranties, promises, statements, inducements,
representations or information pertaining to the transactions contemplated
hereby.
SECTION XXXII.17. 5980 LEASE. LASALLE NATIONAL TRUST, N.A.,
not personally or individually but as Trustee under Trust Agreement dated August
14, 1990 and known as Trust No. 115722 (hereinafter referred to as "LaSalle")
and Tenant entered into an Industrial Space Lease dated December 30, 1992
relating to space at 5980 Touhy Avenue, Niles, Illinois (hereinafter referred to
as the "5980 Lease"). The interest of LaSalle in the 5980 Lease has previously
been assigned to Landlord. Landlord and Tenant hereby agree that (i) the
Termination Date set forth in the 5980 Lease shall be changed from September 31,
2003 to the date which is the thirtieth (30th) day after the Commencement Date
of this Lease, (ii) Tenant shall not be obligated to pay Rent under the 5980
Lease from the date of the Commencement Date of this Lease, through and
including the date of the Termination Date under the 5980 Lease as set forth in
(i) above, (iii) the Security Deposit under the 5980 Lease shall be paid to
Tenant as provided in the 5980 Lease, and (iv) except as set forth in this
Section 32.17, all the terms, conditions, provisions and agreements of the 5980
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Lease as of
the date set forth above.
LANDLORD: CENTERPOINT REALTY SERVICES CORPORATION, an
Illinois corporation
By:_____________________________________
Its:
Attest:
By:_____________________________________
Its:
TENANT: HA-LO INDUSTRIES, INC., an Illinois corporation
By:_____________________________________
Its:
Attest:
By:_____________________________________
Its:
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GUARANTY
Annexed to and forming a part of Lease dated June 30, 1999, by and between MAPLE
LANE ACQUISITION LIMITED LIABILITY COMPANY, Landlord, and CREATIVE CONCEPTS IN
IDVERTISING, INC., Tenant.
The undersigned, HA-LO INDUSTRIES, INC., an Illinois corporation
(hereinafter sometimes referred to as the "Guarantor"), whose address is 5980 W.
Touhy Avenue, Niles, Illinois 60714, in consideration of the leasing of the
leased premises described in the annexed Lease ("Lease") to the above named
Tenant ("Tenant"), does hereby covenant and agree as follows:
A. The undersigned does hereby absolutely, unconditionally and irrevocably
guarantee the full, faithful and timely payment and performance by Tenant
of all of the payments, covenants and other obligations of Tenant under or
pursuant to the Lease. If Tenant shall default at any time in the payment
of any rent or any other sums, costs or charges whatsoever, or in the
performance of any of the other covenants and obligations of Tenant, under
or pursuant to the Lease, beyond any applicable notice and cure period,
then the undersigned, at its expense, shall on demand of said Landlord
("Landlord") fully and promptly, and well and truly, pay all rent, sums,
costs and charges to be paid by Tenant, and perform all the other covenants
and obligations to be performed by Tenant, under or pursuant to the Lease,
and in addition shall on Landlord's demand pay to Landlord any and all sums
due to Landlord, including (without limitation) all interest on past due
obligations of Tenant, costs advanced by Landlord, and damages and all
expenses (including actual attorneys' fees and litigation costs), that may
arise in consequence of Tenant's default. The undersigned hereby waives all
requirements of notice of the acceptance of this Guaranty and all
requirements of notice of breach or non-performance by Tenant.
B. The obligations of the undersigned hereunder are independent of, and may
exceed, the obligations of Tenant. A separate action or actions may, at
Landlord's option, be brought and prosecuted against the undersigned,
whether or not any action is first or subsequently brought against Tenant,
or whether or not Tenant is joined in any such action, and the undersigned
may be joined in any action or proceeding commenced by Landlord against
Tenant arising out of, in connection with or based upon the Lease. The
undersigned waives any right to require Landlord to proceed against Tenant
or pursue any other remedy in Landlord's power whatsoever, any right to
complain of delay in the enforcement of Landlord's rights under the Lease,
and any demand by Landlord and/or prior action by Landlord of any nature
whatsoever against Tenant, or otherwise.
C. This Guaranty shall remain and continue in full force and effect and shall
not be discharged in whole or in part notwithstanding (whether prior or
subsequent to the execution hereof) any alteration, renewal, extension,
modification, amendment or assignment of, or subletting, concession,
franchising, licensing or permitting under, the Lease, except for
modifications to this Guaranty consented to in writing by Landlord and any
mortgagee of the leased premises (or its successors or assigns with respect
to the loan secured by the mortgage, or any part thereof or any interest
therein). Without limiting the foregoing, this Guaranty shall be applicable
to
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any obligations of Tenant arising in connection with a termination of the
Lease, whether voluntary or otherwise. The undersigned hereby waives
notices of any of the foregoing, and agrees that the liability of the
undersigned hereunder shall be based upon the obligations of Tenant set
forth in the Lease as the same may be altered, renewed, extended, modified,
amended or assigned. For the purpose of this Guaranty and the obligations
and liabilities of the undersigned hereunder, "Tenant" shall be deemed to
include any and all concessionaires, licensees, franchisees, department
operators, assignees, subtenants, permittees or others directly or
indirectly operating or conducting a business in or from the leased
premises, as fully as if any of the same were the named Tenant under the
Lease.
D. The undersigned's obligations hereunder shall remain fully binding although
Landlord may have waived one or more defaults by Tenant, extended the time
of performance by Tenant, released, returned or misapplied other collateral
at any time given as security for Tenant's obligations (including other
guaranties) and/or released Tenant from the performance of its obligations
under the Lease or terminated the Lease.
E. This Guaranty shall remain in full force and effect notwithstanding the
institution by or against Tenant, of bankruptcy, reorganization,
readjustment, receivership or insolvency proceedings of any nature, or the
disaffirmance of the Lease in any such proceedings or otherwise.
F. This Guaranty shall be applicable to and binding upon the heirs, executors,
administrators, representatives, successors and assigns of Landlord, Tenant
and the undersigned. Landlord may, without notice, assign this Guaranty in
whole or in part to any purchaser or mortgagee of the leased premises (or
its successors or assigns with respect to the loan secured by the mortgage,
or any part thereof or any interest therein).
G. In the event that Landlord should institute any suit against the
undersigned for violation of or to enforce any of the covenants or
conditions of this Guaranty or to enforce any right of Landlord hereunder,
or should the undersigned institute any suit against Landlord arising out
of or in connection with this Guaranty, or should either party institute a
suit against the other for a declaration of rights hereunder, or should
either party intervene in any suit in which the other is a party to enforce
or protect the intervening party's interest or rights hereunder, the
prevailing party shall receive from the other party all costs and expenses
paid or incurred by the prevailing party in connection therewith,
including, without limitation, the actual fees of its attorney(s), to be
determined by the court and taxed as a part of the costs therein.
H. The undersigned hereby waives trial by jury in any action, proceeding or
counterclaim brought by any person or entity with respect to any matter
whatsoever arising out of or in any way connected with: this Guaranty; the
Lease; any liability or obligation of Tenant in any manner related to the
leased premises; any claim of injury or damage in any way related to the
Lease or the leased premises; any act or omission of Tenant, its agents,
employees, contractors, suppliers, servants, customers or licensees; or any
aspect of the use or occupancy of, or the conduct of business in, on or
from the leased premises. The undersigned
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shall not impose any counterclaim or counterclaims or claims for set-off,
recoupment or deduction of rent in any action brought by Landlord against
the undersigned under this Guaranty, but shall retain the right to pursue a
separate action. The undersigned shall not be entitled to make, and hereby
waives, any and all defenses against any claim asserted by Landlord or in
any suit or action instituted by Landlord to enforce this Guaranty or the
Lease. In addition, the undersigned hereby waives, both with respect to the
Lease and with respect to this Guaranty, any and all rights which are
waived by Tenant under the Lease, in the same manner as if all such waivers
were fully restated herein. The liability of the undersigned under this
Guaranty is primary and unconditional.
I. The undersigned shall not be subrogated, and hereby waives any and all
rights of subrogation (if any), to any of the rights of Landlord under the
Lease or otherwise, or to or in the leased premises thereunder, which may
arise by reason of any of the provisions of this Guaranty or by reason of
the performance by the undersigned of any of its obligations hereunder. The
undersigned shall look solely to Tenant for any recoupment of any payments
made or costs or expenses incurred by the undersigned pursuant to this
Guaranty.
J. Any default or failure by the undersigned to perform any of its obligations
under this Guaranty shall be deemed to be an immediate default by Tenant
under the Lease.
K. The execution of this Guaranty prior to execution of the Lease shall not
invalidate this Guaranty or lessen the obligations of Guarantor hereunder.
L. This Guaranty shall be construed and enforced in accordance with the laws
of the State of Michigan. If any provision of this Guaranty, or the
application thereof to any person or circumstances, shall, to any extent be
invalid or unenforceable, the remaining provisions of this Guaranty shall
not be affected thereby and shall be valid and enforceable.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this day
of June, 1999.
WITNESSES:
HA-LO INDUSTRIES, INC.,
a Illinois corporation
By:
- ------------------------------ ------------------------------
Its:
- ------------------------------ ------------------------------
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EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AND PLAN OF REORGANIZATION
BY AND AMONG
HA-LO INDUSTRIES, INC.,
STARBELLY.COM, INC.,
AND
HA-LO INDUSTRIES, INC.
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THIS AGREEMENT AND PLAN OF MERGER AND PLAN OF REORGANIZATION dated as
of January 17, 2000 (this "AGREEMENT") is by and among HA-LO Industries, Inc.,
an Illinois corporation ("Acquiror"), HA-LO Industries, Inc., a Delaware
corporation ("ACQUIROR SUB"), and Starbelly.com, Inc., a Delaware corporation
f/k/a TheZebra.com, Inc. (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Company has been formed for the purpose of and is in the
start-up phase of preparing to engage in the business of the development, sale,
marketing and distribution of advertising specialty, premium and promotional
products and other products and services primarily through the Internet;
WHEREAS, the stockholders set forth on Section 3.03(a) of the Company
Disclosure Schedules are all of the stockholders of the Company (each, a
"STOCKHOLDER" and collectively the "STOCKHOLDERS");
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law of the State of
Delaware (the "DGCL" or "DELAWARE LAW") the Company will merge with and into
Acquiror Sub, a wholly-owned subsidiary of Acquiror (the "MERGER");
WHEREAS, the Board of Directors and Stockholders of the Company have
determined that the Merger is in the best interest of the Company and its
stockholders, and have approved and adopted this Agreement and consented to the
transactions contemplated hereby;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger and the transactions contemplated hereby are in the best interests of
Acquiror and its shareholders and has determined to submit and recommend the
Merger and the issuance of Acquiror Common Stock and Acquiror Series A
Convertible Preferred Stock in connection therewith (the "SHARE ISSUANCE") to
its shareholders for their approval to the extent such approval is required by
law or the rules of The New York Stock Exchange ("NYSE");
WHEREAS, the Board of Directors and sole stockholder of Acquiror Sub
have determined that the Merger is in the best interests of Acquiror Sub and its
stockholder, and have approved and adopted this Agreement and consented to the
transactions contemplated hereby; and
WHEREAS, the parties hereto intend for the Merger to qualify, for
federal income tax purposes, as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
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ARTICLE I
THE MERGER TRANSACTION
SECTION 1.01 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law and this
Agreement, at the "Effective Time" (as hereafter defined), the Company shall
be merged with Acquiror Sub. As a result of the Merger, the separate
corporate existence of the Company shall cease and Acquiror Sub shall
continue as the surviving corporation of the Merger (hereafter, the
"SURVIVING CORPORATION").
SECTION 1.02 EFFECTIVE TIME. At the Closing , the parties shall cause
the Merger to be consummated by filing of a certificate of merger (the
"CERTIFICATE OF MERGER") with the Delaware Secretary of State in such form as
required by, and executed in accordance with, the relevant provisions of
Delaware Law (the date and time of such filing is the "EFFECTIVE TIME").
SECTION 1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law
and this Agreement. Without limiting the generality of those laws, and
subject to their provisions, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Acquiror Sub and the Company
shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Acquiror Sub and the Company shall become the debts, liabilities
and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective
Time, the Certificate of Incorporation and Bylaws of Acquiror Sub shall be
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
Subject to the limitations in this Agreement, Acquiror reserves the right,
exercisable in its sole discretion on and after the Effective Time, to amend,
or cause to be amended, the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
SECTION 1.05 DIRECTORS AND OFFICERS. At the Effective Time, the officers
and directors of the Surviving Corporation shall be the officers and
directors of the Company immediately prior to the Effective Time, and until
their respective successors are duly elected or appointed and qualified.
SECTION 1.06 TAKING NECESSARY ACTION; FURTHER ACTION. The parties shall
each use reasonable efforts to take all actions as may be necessary or
appropriate to effectuate the Merger as soon as possible consistent with the
terms and conditions of this Agreement. If, at any time following the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession to all properties, rights, privileges,
immunities, powers and franchises of its constituent corporations, the
directors and officers of the Surviving Corporation are fully authorized, in
the name of each constituent corporation, to take, and shall take, all such
lawful and necessary action, to carry out the purposes of this Agreement.
SECTION 1.07 THE CLOSING. The closing of the transactions contemplated
by this Agreement will take place at the offices of Neal, Gerber & Eisenberg,
Chicago, Illinois, and will be effective at the Effective Time. On the terms
and subject to the conditions of this Agreement and provided that this
Agreement has not been terminated pursuant to Article VIII, the closing of
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the Merger (the "CLOSING") will take place at 10:00 a.m., local time in
Chicago, Illinois, on the date which is the third business day to occur on or
after the satisfaction of the conditions set forth in Section 7.1, provided
that if all conditions set forth in Article VII are not fulfilled or waived
on such third business day, then the Closing shall be automatically extended
from time to time until the first subsequent business day on which all such
conditions are so satisfied or waived, subject to Section 8.01(e), unless
another date or place is agreed to in writing by the parties. The date on
which the Closing occurs is referred to herein as the "CLOSING DATE." At the
Closing, (a) Acquiror shall deliver, and each Stockholder will be entitled to
receive, upon surrender to Acquiror of certificates representing shares of
Company Common Stock or shares of Company Preferred Stock, as the case may
be, for cancellation, certificates representing the number of shares of
Acquiror Common Stock and/or Acquiror Series A Preferred Stock that such
Stockholder is entitled to receive pursuant to Section 2.01 hereof, , and (b)
the parties shall execute and deliver or make the deliveries set forth in
Sections 7.01 and 7.02 hereof. In the event any certificate representing
shares of Company Common Stock or shares of Company Preferred Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming such certificate to be lost, stolen or destroyed
and, if reasonably required by Acquiror, the posting by such Person of a bond
in such amount as Acquiror may determine is reasonably necessary as indemnity
against any claim that may be made against it with respect to such
certificate, Acquiror will issue in exchange for such lost, stolen or
destroyed certificate the shares of Acquiror Common Stock and/or Acquiror
Series A Preferred Stock and any cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
ARTICLE II
EXCHANGE OF CERTIFICATES
SECTION 2.01 MERGER CONSIDERATION.
(a) (i) At the Effective Time, by virtue of the Merger,
Acquiror shall pay to the Stockholders Two Hundred and Forty Million
Dollars ($240,000,000) (the "MERGER CONSIDERATION"), payable by the
assumption of the Company Options pursuant to Section 6.13 and as
follows:
(A) Nineteen Million Dollars ($19,000,000) in cash MINUS
Expenses of the Stockholders and the Company in
excess of $500,000 pursuant to section 8.03(a) hereof
(the "CASH CONSIDERATION");
(B) Shares of Acquiror's Series A Convertible Preferred
Stock, without par value ("ACQUIROR SERIES A
PREFERRED STOCK"), valued at its liquidation value,
with an aggregate liquidation value of Fifty-One
Million Dollars ($51,000,000) (the "PREFERRED STOCK
CONSIDERATION"); and
(C) Shares of Acquiror's common stock, without par value
("ACQUIROR COMMON STOCK"), valued at the Acquiror
Share Price, with an aggregate value of the Merger
Consideration, MINUS Seventy Million Dollars
($70,000,000).
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Provided, however, that, at the Effective Time, Merger
Consideration valued at $25,000,000 (the "CAP"), shall be withheld from
the Escrowed Stockholders and held pursuant to the Escrow Agreements
referred to in Section 2.04 hereof;
(ii) "ACQUIROR SHARE PRICE" or "SHARE VALUE" shall
mean the lesser of (A) $10.00, or (B) the average closing
price of the Acquiror Common Stock as reported on the NYSE for
all trading days during the twenty-five (25) day period which
consists of the fifteen (15) calendar days prior to the date
hereof and the ten (10) calendar days following the date
hereof; provided, however, that if such average closing price
of the Acquiror Common Stock is less than $6.00, then Acquiror
Share Price shall mean $6.00;
(iii) "SERIES B PORTION" shall mean the Merger
Consideration multiplied by a fraction, the numerator of which
equals the number of shares of the Company's Series B
Preferred Stock, $.001 par value per share ("COMPANY SERIES B
PREFERRED STOCK") outstanding immediately prior to the
Effective Time multiplied by the number of shares of Company
Common Stock into which each share of Company Series B
Preferred is then convertible and the denominator of which
equals the total number of shares of the Company's Common
Stock (whether Company Class A Common Stock or Company Class B
Common Stock) (collectively, the "COMPANY COMMON STOCK"),
outstanding immediately prior to the Effective Time assuming
the exercise and/or conversion of the Silicon Warrant and all
Company Options (whether or not then exercisable) then
outstanding and the conversion of all Company Preferred Stock
(including, without limitation, the Company Series A Preferred
Stock and Series B Preferred Stock) into Company Common Stock
prior to the Effective Time (such denominator, the "COMPANY
FULLY DILUTED SHARES");
(iv) "SERIES A PORTION" shall mean the Merger
Consideration multiplied by a fraction, the numerator of which
is equal to the number of shares of the Company's Series A
Preferred Stock, $.001 par value per share ("COMPANY SERIES A
PREFERRED STOCK") outstanding immediately prior to the
Effective Time multiplied by the number of shares of Company
Common Stock into which each share of Company Series A
Preferred Stock is then convertible, and the denominator of
which equals the Company Fully Diluted Shares;
(v) "COMMON STOCK PORTION" shall mean the Merger
Consideration multiplied by a fraction, the numerator of which
equal the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time and the denominator of
which equals the Company Fully Diluted Shares.
(b) EFFECT ON COMPANY STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of any holder
of shares of the Company Common Stock, the Company's Preferred Stock,
$.001 par value per share ("COMPANY PREFERRED STOCK"), Acquiror Common
Stock or Acquiror Sub Stock:
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(i) CANCELLATION OF TREASURY STOCK AND COMPANY-OWNED
STOCK. Each share of Company Common Stock or Company Preferred
Stock that is owned by the Company shall automatically be
cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
provided, however, that any shares of Company Common Stock or
Company Preferred Stock (A) held by the Company for the
account of another individual or entity ("PERSON"), (B) as to
which the Company is or may be required to act as a fiduciary
or in a similar capacity or (C) the cancellation of which
would violate any legal duties or obligations of the Company,
in each case shall not be cancelled but, instead, shall be
treated as set forth in Section 2.01(b)(ii).
(ii) CONVERSION OF COMPANY SERIES B PREFERRED STOCK.
The issued and outstanding shares of the Company Series B
Preferred Stock (other than shares to be cancelled in
accordance with Section 2.01(a)(i)) shall be converted into
the right to receive, in the aggregate, the Series B Portion,
payable as follows: (A) cash in an amount equal to the Cash
Consideration multiplied by a fraction, the numerator of which
is sixteen (16) and the denominator of which is nineteen (19)
(the "SERIES B CASH AMOUNT") plus (B) shares of Acquiror
Series A Preferred Stock with an aggregate liquidation value
of an amount (the "SERIES B PREFERRED STOCK AMOUNT") equal to
the Series B Portion MINUS the Series B Cash Amount. Each
issued and outstanding share of Company Series B Preferred
Stock shall be entitled to its pro rata share of the Series B
Portion, based upon the total shares of Company Series B
Preferred Stock outstanding at the Effective Time.
(iii) CONVERSION OF COMPANY SERIES A PREFERRED STOCK.
The issued and outstanding shares of Company Series A
Preferred Stock (other than shares to be cancelled in
accordance with Section 2.01(a)(i)) shall be converted into
the right to receive, in the aggregate, an amount equal to the
Series A Portion, payable as follows: (A) cash in an amount
equal to the Cash Consideration multiplied by a fraction, the
numerator of which is three (3) and the denominator of which
is nineteen (19) (the "SERIES A CASH AMOUNT"), (B) shares of
Acquiror Series A Preferred Stock with an aggregate
liquidation value as described in the next sentence (the
"SERIES A PREFERRED STOCK AMOUNT"), and (C) Shares of Acquiror
Common Stock with an aggregate value, valued at the Acquiror
Share Price, of the Series A Portion MINUS the Series A Cash
Amount MINUS the Series A Preferred Stock Amount. The Series A
Preferred Stock Amount shall equal the product of (x) the
Preferred Stock Consideration MINUS the Series B Preferred
Stock Amount multiplied by (y) a fraction, the numerator of
which is the Series A Portion MINUS the Series A Cash Amount
and the denominator of which is which is the Merger
Consideration MINUS the Series B Portion MINUS the Series A
Cash Amount. Each issued and outstanding share of Company
Series A Preferred Stock shall be entitled to its pro rata
share of the Series A Portion based upon the total number of
shares of Company Series A Preferred Stock outstanding at the
Effective Time.
(iv) CONVERSION OF COMPANY COMMON STOCK. The issued
and outstanding shares of Company Common Stock (other than
shares to be canceled
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in accordance with Section 2.01(a)(i)) shall be converted
into the right to receive, in the aggregate an amount equal
to the Common Stock Portion, payable as follows: (A) shares
of Acquiror Series A Preferred Stock with an aggregate
liquidation value as described in the next sentence (the
"COMMON PREFERRED STOCK AMOUNT"), and (B) shares of
Acquiror Common Stock, with an aggregate value, valued at
the Acquiror Share Price, of the Common Stock Portion MINUS
the Common Preferred Stock Amount. The Common Preferred Stock
Amount equals the product of (x) the Preferred Stock
Consideration MINUS the Series B Preferred Stock Amount MINUS
the Series A Preferred Stock Amount multiplied by (y) a
fraction, the numerator of which is the number of shares of
Common Stock outstanding and the denominator of which is the
difference between Company Fully Diluted Shares and the number
of shares of Common Stock issuable upon the conversion of the
Preferred Shares outstanding as of the Effective Time. Each
issued and outstanding share of Company Common Stock shall be
entitled to its pro rata share of the Common Stock Portion,
based upon the total number of shares of Company Common Stock
outstanding at the Effective Time.
(v) CERTIFICATES. Certificates, if any, previously
representing Company Common Stock or Company Preferred Stock
shall, together with such duly executed documents and other
instruments of transfer as may reasonably be required by
Acquiror, upon presentment be immediately exchanged for
certificates representing whole shares of Acquiror Common
Stock and/or Acquiror Series A Preferred Stock, as applicable,
issued in consideration therefor, without interest. All shares
of Acquiror Common Stock and/or Acquiror Series A Preferred
Stock, as applicable, issued upon conversion of shares of
Company Common Stock and Company Preferred Stock in accordance
with the terms of this Agreement shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock and Company Preferred Stock and
to have been issued and outstanding as of the Effective Time.
(c) ACQUIROR SUB STOCK. Each issued and outstanding share of
common stock, no par value, of Acquiror Sub ("ACQUIROR SUB STOCK")
shall be converted into one share of the common stock, no par value, of
the Surviving Corporation ("SURVIVOR STOCK"). Certificates, if any,
previously representing Acquiror Sub Stock shall, together with such
duly executed documents and other instruments of transfer as may
reasonably be required by Acquiror, upon presentment be immediately
exchanged for certificates representing whole shares of Survivor Stock
issued in consideration therefor, without interest.
(d) ACKNOWLEDGEMENT. The parties hereto agree and acknowledge
that, notwithstanding anything to the contrary contained in this
Section 2.01, each of (i) the Series B Portion, the Series A Portion
and the Common Stock Portion, and (ii) the aggregate of the cash paid
and the value of the shares of Acquiror's Series A Preferred Stock and
Common Stock issued pursuant to Sections 2.01(b)(ii), (iii) and (iv),
as such value is determined pursuant to such Sections, must equal the
Merger Consisderation MINUS the sum of (A) the Expenses of the
Stockholders and the Company in excess of $500,000 pursuant to Section
8.03(a) hereof and (B) the aggregate value of Acquiror Common Stock and
Acquiror Series A Preferred Stock which would be issued on
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exercise of all Adjusted Options outstanding at the Effective Time,
valued in accordance with this Section 2.01, less the aggregate
exercise price of such Adjusted Options.
SECTION 2.02 STOCK TRANSFER BOOKS. On and as of the Effective
Time, the transfer books of the Company shall be closed and thereafter, and
except as provided in Sections 2.03 and 7.02(j), there shall be no further
registration of transfers of interests in the Company on the records of the
Company.
SECTION 2.03 OTHER COMPANY SECURITIES AND OPTIONS. As of the
Effective Time, each outstanding share of common, preferred or convertible
capital stock other than the shares of Company Common Stock and Company
Preferred Stock ("OTHER COMPANY SECURITIES"), together with all options and
warrants (other than the Company Options and the Silicon Warrant) or other
rights, agreements, arrangements or commitments (collectively, the "OTHER
COMPANY OPTIONS") to sell or purchase shares of Company Common Stock, Company
Preferred Stock or Other Company Securities, whether written, oral,
authorized, outstanding, issued, unissued, vested or unvested, shall be
cancelled and terminated, and of no further force or effect. Prior to the
Effective Time, except as provided in Section 2.03 of the Company Disclosure
Schedules, the Company shall use all reasonable efforts to take all corporate
and/or other action necessary to effectuate the cancellation and termination
of all Other Company Securities and Other Company Options.
SECTION 2.04 ESCROW AGREEMENTS. Twenty-Five Million Dollars
($25,000,000) of the Merger Consideration, in the form of Acquiror Common
Stock and Acquiror Series A Preferred Stock and valued in accordance with
Section 2.01, rounded up to the nearest whole share (the "ESCROW SHARES")
will be deposited and held in escrow in accordance with separate Escrow
Agreements in the form of EXHIBIT A attached hereto (the "ESCROW AGREEMENTS")
with the Stockholders listed on Section 2.04 of the Company Disclosure
Schedules (the "ESCROWED STOCKHOLDERS") as the sole source of indemnification
payments that may become due to Acquiror under Article IX. The Escrow Shares
will be deposited pursuant to the Escrow Agreements from the Escrowed
Stockholders in the percentages set forth on Section 2.04 of the Company
Disclosure Schedules.
SECTION 2.05 EMPLOYMENT ESCROW AGREEMENTS. Twenty percent (20%) of
the Merger Consideration in value (determined in accordance with Section
2.01, received by each of the Stockholders listed on Section 2.05 of the
Company Disclosures Schedules, will be deposited and held in escrow in
accordance with separate Employment Escrow Agreements in the form of EXHIBIT
A-1 attached hereto. Such deposits will be in the form of Acquiror Common
Stock, rounded up to the nearest whole share.
SECTION 2.06 DISSENTING SHARES. Any holder of shares of Company
Common Stock or Company Preferred Stock that are outstanding on the record
date for the determination of which holders will be entitled to vote for or
against the Merger who did not vote such shares in favor of the Merger
("DISSENTING SHARES") will be entitled to exercise dissenters' rights
pursuant to Section 262 of the DGCL with respect to such Dissenting Shares,
provided that such holder meets all requirements of the DGCL with respect to
such Dissenting Shares, and will not be entitled to receive any Merger
Consideration, unless otherwise provided by the DGCL or agreed in writing by
Acquiror. The Company, the Surviving Corporation and Acquiror, as
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applicable, will, after consultation with one another, give such notices with
respect to dissenters' rights as may be required by the DGCL and other
applicable law as soon as practicable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The term "COMPANY ADVERSE EFFECT," as used in this Agreement, shall
mean any change or event that, individually or when taken together with all
other such changes or events, would reasonably be considered to be materially
adverse to the financial condition, business, business prospects or results of
operations of the Company, taken as a whole; provided, however, the occurrence
of any change or event (i) described in any Section of the Company Disclosure
Schedules attached to this Agreement (the "COMPANY DISCLOSURE SCHEDULES"), (ii)
resulting from the entry into this Agreement or the transactions contemplated
hereby or the public announcement thereof (in accordance with Section 6.09
hereof), or (iii) resulting from or arising in connection with (A) any
occurrence or condition affecting any of the online, e-commerce, promotional or
decorated products industries generally, (B) any changes in economic, market,
regulatory, banking, monetary, political or other similar conditions or (C) any
occurrence or condition affecting the Internet (or any particular portion
thereof) generally, shall not, individually or in the aggregate, constitute a
Company Adverse Effect.
The term "SUBSIDIARY" (or its plural) as used in this Agreement with
respect to the Company, Stockholders, Acquiror, Acquiror Sub or any other
entity, shall mean any corporation, partnership, limited liability company,
limited liability partnership, joint venture or other entity of which the
Company, Stockholders, Acquiror, Acquiror Sub or other entity, as the case may
be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, a majority of the stock or other equity interests
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other entity.
For purposes of this Article III, and as generally applied to the
Company, the term "KNOWLEDGE" means the actual knowledge, upon due inquiry of
Brad Keywell ("BRAD"), Eric Lefkofsky ("ERIC") (each, a "PRINCIPAL EXECUTIVE"
and together, the "PRINCIPAL EXECUTIVES") and each of Rick Surkamer, Jennifer
MacLean, Steven Scheyer, Simeon Schnapper and Jim Johnson (collectively, the
"KEY EMPLOYEES").
The Company represents and warrants, as of the date of this Agreement,
to Acquiror and Acquiror Sub that, except as specifically described in the
Company Disclosure Schedules, the statements contained in this Article III are
true and correct with respect to the Company and its business. Any disclosure
set forth on any particular Section of the Company Disclosure Schedules shall be
deemed disclosed in reference to all Sections of the Company Disclosure
Schedules to which such disclosure may be reasonably applicable.
SECTION 3.01 ORGANIZATION AND QUALIFICATION; EQUITY INVESTMENTS.
The Company is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware. Except as set forth on
Section 3.01 of the Company Disclosure Schedules, the Company does not own,
directly or indirectly, five percent (5%) or more of the voting stock or
other equity interests in another Person. The Company possesses all requisite
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corporate power and corporate authority to own, lease and operate its
properties and/or to carry on its business as it is now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted by the Company or the ownership or
leasing of its properties makes such qualification necessary, other than
where the failure to do so would not have a Company Adverse Effect. The
Company was duly incorporated on March 22, 1999; no predecessor Person
conducted the business of the Company.
SECTION 3.02 CERTIFICATE OF INCORPORATION; BYLAWS. The Company has
furnished to Acquiror complete and correct copies of its Certificate of
Incorporation and Bylaws, as amended or restated. The Company is not in
violation of any provision of its Certificate of Incorporation or Bylaws.
SECTION 3.03 CAPITALIZATION OF THE COMPANY.
(a) As of January 16, 2000, the authorized capital stock of
the Company consists solely of:
(i) 40,000,000 duly authorized shares of Company
Common Stock, consisting of 36,895,000 shares of Class B
(voting) Common Stock ("COMPANY CLASS B COMMON STOCK") and
3,105,000 shares of Class A (non-voting) Common Stock
("COMPANY CLASS A COMMON STOCK"), of which:
(A) 16,500,000 shares of Company Class B
Common Stock are issued and outstanding, all of which
are held of record and beneficially by the Persons
and in the amounts set forth on Section 3.03(a) of
the Company Disclosure Schedules;
(B) 3,105,000 shares of Company Class A
Common Stock have been duly and validly reserved for
issuance under the 1999 Stock Option Plan of the
Company (the "PLAN"), of which 395,000 shares are
outstanding pursuant to the exercise of such options,
______ shares are subject to outstanding options and
_______ shares are not subject to any outstanding
options; such options are held of record by the
Persons and in the amounts set forth on Section
3.03(a) of the Company Disclosure Schedules (the
"COMPANY OPTIONS"); and
(C) 8,682,080 shares of Class B Common Stock
are duly and validly reserved for issuance upon the
conversion of the Company Series A Preferred Stock
and the Company Series B Preferred Stock and for
issuance upon exercise of the Silicon Warrant.
(ii) 7,153,711 duly authorized shares of Company
Preferred Stock of which:
(A) 1,500,000 shares are designated as
Company Series A Preferred Stock, all of which are
issued and outstanding, and all of which are held of
record and beneficially by the Persons and in the
amounts set forth on Section 3.03(a) of the Company
Disclosure Schedules; and
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(B) 5,653,711 shares are designated as
Company Series B Preferred Stock, of which 5,653,711
are issued and outstanding, and which are held of
record by the Persons and in the amounts set forth on
Section 3.03(a) of the Company Disclosure Schedules.
(b) No Other Company Securities are issued and outstanding.
Section 3.03(b) of the Company Disclosure Schedules contains a list of
all outstanding warrants, options, agreements, convertible securities
(other than Company Preferred Stock and the Silicon Warrant) and other
commitments pursuant to which the Company is or may become obligated to
issue, sell or otherwise transfer any Company Common Stock or Company
Preferred Stock, which list names all Persons entitled to receive such
Company Common Stock or Company Preferred Stock and sets forth the
shares of Company Common Stock or Company Preferred Stock required to
be issued thereunder. Except as described in Section 3.03(b) of the
Company Disclosure Schedules, no shares of Company Common Stock or
Company Preferred Stock are held in treasury or are reserved for any
other purpose.
(c) All outstanding shares of Company Common Stock and Company
Preferred Stock are, and as of the Effective Time will be, duly
authorized, validly issued, fully paid and non-assessable, and not
subject to preemptive rights created by statute, the Company's
Certificate of Incorporation or Bylaws, or, except as set forth in
Section 3.03(c) of the Company Disclosure Schedules, any agreement as
to which the Company is party or by which it is bound.
(d) Except as disclosed in Section 3.03(b) of the Company
Disclosure Schedules, there are no Other Company Options obligating the
Company to register for sale any capital stock or other equity
interests in the Company. Except as disclosed in Section 3.03(d) of the
Company Disclosure Schedules, as of the date of this Agreement there
are no obligations, contingent or otherwise, of the Company to (x)
repurchase, redeem or otherwise acquire any Company Common Stock or
Company Preferred Stock, or (y) provide funds to, or make any material
investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations
of, any Person.
(e) The Stockholders hold of record all of the outstanding
shares of Company Common Stock and Company Preferred Stock. To the
knowledge of the Company, all shares of the Company Common Stock and
the Company Preferred Stock are free and clear of all liabilities,
liens, charges, security interests, adverse claims, pledges,
restrictions, encumbrances and demands whatsoever. To the knowledge of
the Company, no other Person has any right, title or interest in or to
such shares of Company Common Stock or Company Preferred Stock, whether
by reason of any purchase agreement, Law, option, assignment, contract
(written or oral) or otherwise. Neither the Company nor, to the
knowledge of the Company, any Stockholder has entered into, issued or
given, or agreed to enter into, issue or give, any person other than
Acquiror or Acquiror Sub an option, warrant, right, put, or call
relating to, or any security convertible into, any shares of Company
Common Stock or Company Preferred Stock or any such convertible
security. For the purposes of this Agreement, the terms "LAW" or "LAWS"
shall mean any
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foreign, U.S. federal, state, provincial, local or municipal law,
statute, rule, ordinance, regulation, order, writ, injunction, judgment
or decree.
(f) All issued Company Common Stock and Company Preferred
Stock has been issued in transactions exempt from registration under
the the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "SECURITIES ACT"), and the
rules and regulations promulgated thereunder, and all applicable state
securities or blue sky laws and the rules and regulations thereunder
("BLUE SKY LAWS"), and the Company has not violated the Securities Act
or any Blue Sky Laws in connection with the issuance of any such stock.
SECTION 3.04 AUTHORITY. The Company possesses the requisite
corporate power and corporate authority to execute and deliver this
Agreement, including the Exhibits attached hereto, to perform its obligations
under this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action,
including the approval by the Company's Stockholders and directors, and no
other proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement.
This Agreement has been duly executed and delivered by the Company, and
assuming the due authorization, execution and delivery by Acquiror and
Acquiror Sub, constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms and conditions.
SECTION 3.05 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company
will not: (i) conflict with or violate the Company's Certificate of
Incorporation or Bylaws, (ii) subject to (x) obtaining the consents,
authorizations, approvals and permits of, and making filings with or
notifications to, any governmental or regulatory authority, domestic or
foreign (collectively, "GOVERNMENTAL ENTITIES"), pursuant to the
applicable requirements of Laws, including but not limited to the
Securities Act, the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "EXCHANGE ACT"),
Blue Sky Laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR
ACT") (including, without limitation, with respect to the acquisition
by any Stockholder of shares of Acquiror Common Stock or Acquiror
Series A Preferred Stock in the Merger), the Code, and the filing and
recordation of appropriate merger documents as required by Delaware Law
and (y) obtaining the consents, approvals, authorizations or permits
described in Section 3.05(b) of the Company Disclosure Schedules,
conflict with or violate any laws applicable to the Company or by which
any of its properties is bound or affected; or (iii) except as set
forth in Section 3.05(b) of the Company Disclosure Schedules, result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company pursuant to, any note, bond,
mortgage, indenture, contract,
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agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or
any of its properties is bound or affected.
(b) The execution and delivery of this Agreement by
the Company does not require, and neither the performance nor
compliance with the terms hereof by the Company requires, any consent,
approval, authorization or permit of, or filing with or notification
to, any Governmental Entities or other Persons, except for (i)
applicable requirements, if any, of the Securities Act, the Exchange
Act, Blue Sky Laws, the HSR Act (including, without limitation, with
respect to the acquisition by any Stockholder of shares of Acquiror
Common Stock or Acquiror Series A Preferred Stock in the Merger), the
NYSE and the Code, (ii) the consents, approvals, authorizations or
permits described in Section 3.05(b) of the Company Disclosure
Schedules, (iii) any consent or approval required for an assignment of
a contract or agreement by operation of law pursuant to the Merger (and
not required expressly under such contract or agreement upon a change
of control or merger) and (iv) the filing and recordation of
appropriate merger documents as required by Delaware Law.
SECTION 3.06 PERMITS; COMPLIANCE. The Company is in possession of
all material franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary for the Company to own, lease and operate its properties or
to carry on its business as it is now being conducted (each, a "COMPANY
PERMIT") and no suspension, revocation or cancellation of any such Company
Permit is pending or, to the knowledge of the Company, threatened. The
Company is not operating in material conflict with, or in material default or
violation of (i) any Law applicable to the Company or by which its properties
are bound or affected, or (ii) any Company Permit. Each Company Permit
material to the operations of the Company is listed in Section 3.06 to the
Company Disclosure Schedules.
SECTION 3.07 FINANCIAL STATEMENTS.
(a) Except as disclosed in Section 3.07(a) of the Company
Disclosure Schedules, the unaudited Balance Sheets, Income Statements,
Statements of Cash Flow and Statements of Equity of the Company as at
and for the calendar eleven (11) month period ended November 30, 1999
(collectively, the "COMPANY FINANCIAL STATEMENTS") delivered to
Acquiror prior to the date of this Agreement (i) have been prepared
from, and are in agreement with, the books, records and accounts of the
Company, (ii) fairly present in all material respects the financial
position of the Company as of the dates thereof, and (iii) fairly
present, in all material respects, the results of operations of the
Company for the periods indicated; PROVIDED, HOWEVER, the Company
Financial Statements are subject to normal or recurring adjustments at
the Company's fiscal year-end, have not necessarily been prepared in
accordance with United States generally accepted accounting principles
and standards ("GAAP") and do not contain footnotes and other
presentation items that would be required by GAAP.
(b) The Company has no liabilities or indebtedness of any
nature whatsoever, except for (i) liabilities and indebtedness set
forth in the Balance Sheets included in the Company Financial
Statements dated November 30, 1999 (the "MOST RECENT
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STATEMENTS"), (ii) liabilities and indebtedness which have arisen
after the date of the Most Recent Statements in the ordinary course
of business of the Company, (iii) liabilities and indebtedness set
forth in Section 3.07(b) of the Company Disclosure Schedules,
(iv) liabilities and indebtedness incurred in connection with the
transaction contemplated herein, and (v) except as otherwise set forth
in this Section 3.07(b), any such liability or indebtedness in each
case less than $100,000, and less than $1,000,000 in aggregate
liabilities or indebtedness.
SECTION 3.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in Section 3.08 of the Company Disclosure Schedules, since the
incorporation of the Company, (i) there has not been, and the Company has no
knowledge of any facts that are not reflected in the Most Recent Statements
and are reasonably likely to result in, any event or events causing a Company
Adverse Effect, and (ii) to the date of this Agreement, there has not been
any material change by the Company in its accounting methods, principles or
practices except any such change after the date of this Agreement mandated by
a change in GAAP.
SECTION 3.09 ABSENCE OF LITIGATION.
(a) There are no claims, actions, suits, litigation,
proceedings, arbitrations or investigations of any kind affecting the
Company, at law or in equity (including actions or proceedings seeking
injunctive relief), which are pending or, to the knowledge of the
Company, threatened. There is no action pending or, to the knowledge of
the Company, threatened seeking to enjoin or restrain the Merger or any
of the transactions contemplated by this Agreement.
(b) Except as set forth in Section 3.09(b) of the Company
Disclosure Schedules, the Company is not subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist orders.
SECTION 3.10 CONTRACTS; NO DEFAULT.
(a) Section 3.10(a) of the Company Disclosure Schedules lists
the following written undischarged contracts of the Company:
(i) any written arrangement (or group of related
written arrangements) for the lease of tangible personal
property or real property from or to third parties with annual
payments exceeding $50,000 or with a term exceeding one year;
(ii) any written arrangement concerning a
partnership, limited liability company, distributorship,
agency, marketing agreement or joint venture;
(iii) contracts under which the Company has
created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness for borrowed money
in excess of $50,000;
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(iv) contracts which relate to inventory
purchases or capital expenditures involving an expenditure (or
series thereof) in excess of Fifty Thousand Dollars ($50,000),
performance of which by both parties has not been completed;
(v) contracts which relate to bonus and
incentive plans or similar plans providing for the payment of
bonuses, commissions, incentive compensation or similar
result-based remuneration to service providers to the Company
other than employees;
(vi) contracts with any labor union or contract
for the employment of any officer, individual employee or
other Person on a full-time, part-time or consulting basis,
and any written material contract for the engagement of any
consultants or independent contractors;
(vii) contracts which by their terms limit the
right of any employee of the Company to engage in, or to
compete with the Company in, any business conducted by the
Company prior to the Effective Time; and contracts which by
their terms limit the right of the Company or, to the
knowledge of the Company, any employee of the Company to
engage in, or to compete with any Person (other than the
Company) in, any business conducted by the Company prior to
the Effective Time;
(viii) other than purchase orders entered into
in the ordinary course of the Company's business, all
contracts of more than $50,000 under which the work by the
Company is not yet complete or under which the Company
otherwise has on-going obligations in excess of $50,000;
(ix) contracts with any Stockholder or any of
their respective Affiliates with respect to which the
consequences of a default or termination would reasonably be
expected to have a Company Adverse Effect;
(x) contracts which constitute a guaranty of any
obligation for borrowed money or other financial obligation,
other than endorsements made for collection in the Company's
ordinary course of business, or any agreement with respect to
the lending or investing of funds to or in other Persons;
(xi) other than contracts for the sale and
purchase of inventory entered into in the Company's ordinary
course of business, any contract or group of related contracts
with the same party (or group of related parties) for or
relating to the purchase or sale of products or services under
which the undelivered balance of products and services has a
selling price in excess of $250,000;
(xii) any other contract or group of related
contracts with the same party requiring payments after the
date hereof to or by the Company of more than $250,000;
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(xiii) any agreement with any employee, the
benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction of the
nature contemplated by this Agreement involving the Company;
(xiv) any agreement or plan the benefits of which
will be increased or accelerated by the occurrence of the
transactions contemplated by this Agreement;
(xv) any other written arrangement or group of
related written arrangements not entered into in the Company's
ordinary course of business the breach, default or termination
of which would have a Company Adverse Effect;
(xvi) any written arrangement or contract to
which the Company is a party which is capable of being
terminated by the other party expressly upon the occurrence
of a transaction of the nature contemplated by this Agreement;
(xvii) any contract which cannot readily be
fulfilled or performed by the Company on time without express
penalty or without extraordinary expenditure of money, which
penalty or expenditure would reasonably be expected to have a
Company Adverse Effect;
(xviii) concern a lease or agreement relating in
any manner to real estate; or
(ixx) relate to royalty or licensing contracts,
or contracts requiring similar payments (including software
license agreements) involving, or which may reasonably in the
future involve, an amount in excess of Fifty Thousand Dollars
($50,000) annually.
(b) The Company has made available to Acquiror a correct and
complete copy of each agreement (including all amendments thereto)
listed in Section 3.10(a) of the Company Disclosure Schedules. With
respect to each agreement so listed (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement
(excluding agreements requiring consent or approval for an assignment
by operation of law pursuant to the Merger (and not expressly requiring
consent or approval upon a change of control or merger)) will continue
to be legal, valid, binding, and enforceable and in full force and
effect on identical terms immediately after the Effective Time at the
terms in effect immediately prior to the Effective Time; (C) neither
the Company nor, to the knowledge of the Company, any other party to
the arrangement, is in material breach or default (including, with
respect to any express or implied warranty), and no event has occurred
which with notice or lapse of time or both would constitute a material
breach or default or permit termination, modification, or acceleration
thereunder, except in each case for any breaches, defaults,
terminations, modifications or accelerations which have been cured or
waived or breaches, defaults, terminations, modifications or
accelerations which are not reasonably likely to result in a Company
Adverse Effect; and (D) to the Company's knowledge, no party has
repudiated any
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provision of any such arrangement. Except as set forth on
Section 3.10(b) of the Company Disclosure Schedules, the Company is
not a party to any legally binding verbal contract which, if reduced to
written form, would be required to be listed in the Company Disclosure
Schedules under the terms of this Section 3.10.
(c) For the purpose of this Agreement, (i) the term
"AFFILIATE," means (x) any Person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person, and (y) with respect
to a Principal Executive, also such Principal Executive's spouse,
children and descendants, and the respective spouses of each, or a
trust for the benefit of any such Person, (ii) the term "CONTROL"
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise,
and (iii) the term "CONTRACTS" means the contracts and agreements
required to be listed in Sections 3.10(a) and 3.10(b) of the Company
Disclosure Schedules.
SECTION 3.11 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 3.11(a) of the Company Disclosure Schedules sets
forth all pension, retirement, savings, disability, medical, dental,
health, life (including any individual life insurance policy as to
which the Company is owner, beneficiary or both of such policy), death
benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus, incentive, vacation pay, severance pay, "cafeteria" or
"flexible benefit" plans, or other employee benefit plans, trusts,
arrangements, contracts, agreements, policies or commitments (including
without limitation, any employee pension benefit plan as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any employee welfare benefit plan as defined in
Section 3(1) of ERISA), under which current or former employees of the
Company or its "Plan Affiliates" are entitled to participate by reason
of their employment with the Company or its Plan Affiliates, whether or
not any of the foregoing is funded, and whether insured or self-funded,
to which the Company is a party or a sponsor or a fiduciary thereof or
by which the Company (or any of its rights, properties or assets) is
bound, or (ii) with respect to which the Company could reasonably
expect to have any liability (whether or not such plan, trust,
arrangement, contract, agreement, policy or commitment is still in
effect or frozen as to benefits or assets) (collectively, the "EMPLOYEE
BENEFIT PLANS").
(b) For purposes of this Agreement, the term "PLAN AFFILIATE"
shall mean any trade or business (whether or not incorporated) that is
part of the same controlled group, or under common control with, or
part of an affiliated service group that includes, the Company or
Acquiror, as applicable, within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
(c) As used in this Agreement, "PENSION PLAN" means any
Employee Benefit Plan which is an employee pension benefit plan as
defined in ERISA, or is otherwise a
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pension, savings or retirement plan or a plan of deferred compensation,
and the term "WELFARE PLAN" means any Employee Benefit Plan which is
not a Pension Plan.
(d) With respect to the Employee Benefit Plans:
(i) there are no Employee Benefit Plans which
are multiemployer plans as defined in Section 3(37) of ERISA,
and the Company has not (A) incurred nor reasonably expects to
incur, any direct or indirect liability under or by operation
of Title IV of ERISA, or (B) failed to make any contribution
when due as required by Section 412 of the Code;
(ii) there are no Employee Benefit Plans which
promise or provide health or life benefits to retirees or
former employees of the Company other than as required by Part
6 of Subtitle B of Title I of ERISA or Section 4980 of the
Code or other applicable state continuation coverage law, or
otherwise as identified in Section 3.11(d) of the Company
Disclosure Schedules;
(iii) except as disclosed in Section 3.11(d) of
the Company Disclosure Schedules, each Employee Benefit Plan
has at all times been operated and administered in material
compliance with the applicable requirements of ERISA, the Code
and any other applicable law (including regulations and
rulings thereunder), and its terms;
(iv)each Pension Plan identified in Section
3.11(a) of the Company Disclosure Schedules has received a
favorable determination letter from the Internal Revenue
Service ("IRS") stating that such Plan is qualified under
Section 401(a) of the Code, meets all the requirements of the
Code and that any trust or trusts associated with the plan are
tax exempt under Section 501(a) of the Code. Any trust or
trusts associated with such Pension Plans are tax exempt under
Section 501(a) of the Code. To the knowledge of the Company,
there is no reason why the tax-qualified or registered status
of any such Pension Plan should be revoked, whether
retroactively or prospectively, by any Governmental Entity
pursuant to applicable Laws. All amendments to the Pension
Plans which were required to be made through the date hereof
and the Effective Time under Section 401(a) of the Code
subsequent to the issuance of each such Plan's determination
letter have been made, including all amendments required to be
made by each respective date by the Tax Reform Act of 1986,
and any other Laws or legislation affecting such Employee
Benefit Plans;
(v) to the knowledge of the Company, no actual
or threatened disputes, lawsuits, claims (other than routine
claims for benefits), investigations, audits or complaints to,
or by, any person or Governmental Entity have been filed or
are pending with respect to any Employee Benefit Plan or its
sponsor, or such sponsor's subsidiaries or Plan Affiliates, in
connection with any Employee Benefit Plan, or the fiduciaries
responsible for such Employee Benefit Plan, and to the
knowledge of the Company, no state of facts or conditions
exist which reasonably could be expected to subject such
Company to any material liability
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(other than routine claims for benefits) in accordance with
the terms of such Employee Pension Plan or pursuant to
applicable Laws;
(vi)except as disclosed in Section 3.11(d) of
the Company Disclosure Schedules, the following clauses are
true with respect to each Employee Benefit Plan:
(A) all material filings required by ERISA,
the Code or any other applicable Laws, have been
timely filed and all material notices and disclosures
to Plan participants required by same have been
timely provided;
(B) the Company has not made, nor has it
committed to make, whether in writing or orally, any
representation, payment, contribution or award to or
under any Employee Benefit Plan (other than as
required by its terms, the Code or ERISA;
(C) all contributions and payments made or
accrued with respect to each Employee Benefit Plan
required to be disclosed in Section 3.11(a) of the
Company Disclosure Schedules are deductible in full
under the Code. All contributions, premiums or
payments required to be made with respect to each
such Employee Benefit Plan have been or will
hereafter be made on or before their due date(s):
(D) except as disclosed in Section 3.11(d)
of the Company Disclosure Schedules, with respect to
each Employee Benefit Plan maintained with respect to
employees of the Company, the Company has delivered
to Acquiror true and complete copies of the following
documents:
(1) plan documents, subsequent plan
amendments, and any and all other documents
that establish or describe the existence of
the plan, trust, arrangement, contract,
policy or commitment;
(2) summary plan descriptions and
summaries of material amendments and
modifications;
(3) the most recent tax-qualified
determination letters received from, or
applications pending with, the IRS with
respect to Pension Plans;
(4) the three most recent annual
information returns (if applicable),
including related schedules and audited
financial statements and opinions of
independent certified public accountants,
for each Employee Benefit Plan filed on IRS
Form 5500 for Employee Benefit Plans adopted
by the Company; and
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(5) all related trust agreements,
insurance contracts or other funding
agreements that implement each such Employee
Benefit Plan.
(vii) at no time has the Company adopted any
Pension Plan which is or could become subject to Title IV of
ERISA or the funding standards of Section 412 of the Code. The
Company has not incurred any liability to, or adopted any
Employee Benefit Plan or other arrangement which may expose it
to liability of any nature whatsoever, to (i) the Pension
Benefit Guarantee Corporation under Title IV or Section 502 of
ERISA, or (ii) the IRS under Chapter 43 of the Code;
(viii) with respect to each Employee Benefit Plan,
there has not occurred, and no person or entity is
contractually bound to enter into, any nonexempt "prohibited
transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA, or any other transaction contrary to the
terms of such Employee Benefit Plan which could result in
material liability to the Company.
(e) The Company has complied in all material respects with the
provisions of ERISA and the Code with respect to each Pension Plan and
Welfare Plan heretofore adopted or currently in effect for the benefit
of its employees. Each Employee Benefit Plan described in Section
3.11(a) of the Company Disclosure Schedules may, by its express terms,
be amended or terminated, in whole or in part.
(f) Except as disclosed in Section 3.11(f) of the Company
Disclosure Schedules, no payment that is owed or may become due
(pursuant to any agreement with the Company existing prior to the
Effective Time) to any director, officer, employee or agent of the
Company shall result in the imposition of, tax under Section 280G or
4999 of the Code, nor is the Company obligated, orally or in writing,
to "gross up" or otherwise compensate any such person due to the
imposition of an excise or similar tax on payments made to such person
by the Company.
(g) Except as disclosed in Section 3.11(g) of the Company
Disclosure Schedules or as expressly provided by the terms of this
Agreement, the consummation of the transactions contemplated by this
Agreement will not accelerate or terminate, nor does there exist any
basis for the acceleration or termination of, (i) benefits payable to
employees of or other compensated personnel at the Company under any
Employee Benefit Plan, Welfare Plan, or other plan, arrangement,
contract or agreement, written or oral, (ii) a participant's vesting
credits or years of service under any Pension Plan or Welfare Plan, or
(iii) accruals with respect to any other benefits or amounts reserved
under any such plan or arrangement.
(h) Section 3.11(h) of the Company Disclosure Schedules lists,
as of the date of this Agreement, all collective bargaining or other
labor union contracts to which the Company is a party and which is
applicable to persons employed by the Company. There is no pending or,
to the knowledge of the Company, threatened, labor dispute, strike or
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work stoppage against the Company which may materially interfere with
the business activities of the Company, its revenues, profits, cash
flows, or other results of operations. The Company has no knowledge of
the commission of any unfair labor practices in connection with the
operation of the Company business, and there is not now pending or, to
the knowledge of the Company, threatened, any charge, complaint or
other proceeding against the Company by the National Labor Relations
Board, or comparable Governmental Entities.
(i) At no time has any Plan Affiliate adopted any Pension Plan
which is or could become subject to Title IV of ERISA or the funding
standards of Section 412 of the Code or contributed or been obligated
to contribute to any multiemployer plans as defined in Section 3(37) of
ERISA.
SECTION 3.12 TAXES.
(a) (i) Except as disclosed in Section 3.12(a) of the
Company Disclosure Schedules, all material Returns in
respect of Taxes required to be filed prior to the date hereof
with respect to the Company have been or will be timely filed
(including extensions).
(ii) Except as disclosed in Section 3.12(a) of
the Company Disclosure Schedules, all Taxes of the Company due
prior to the date hereof, whether or not shown on the Returns,
have been or will be timely paid by the party to whom
chargeable and all payments of estimated Taxes required to be
made with respect to the Company under the Code or any
comparable provision of foreign, federal, state, provincial or
local Law have been made on the basis of the applicable
party's good faith estimate of the required installments.
(iii) Except as disclosed in Section 3.12(a) of
the Company Disclosure Schedules, all Returns filed by the
Company (or, in cases where amended Returns have been filed,
such Returns (as amended) are true, correct and complete in
all material respects.
(iv) All Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, Stockholder or other third
party by the Company have been withheld and, to the extent
required, paid to the relevant taxing authority.
(v) No material adjustment relating to any
Return has been proposed in writing by any Tax authority,
except proposed adjustments that have been resolved prior to
the date hereof.
(vi) There are no outstanding subpoenas or
requests for information to which the Company has received
notice with respect to any Return of the Company, or the Taxes
reflected on such Returns.
(vii) There are no Tax liens on any assets of
the Company other than liens for Taxes not yet due or payable
or being contested in good faith.
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(viii) Except as disclosed on Section 3.12(a) to
the Company Disclosure Schedules, the Company has not been at
any time a member or shareholder of any partnership, limited
liability company, corporation or joint venture or the holder
of a beneficial interest in any trust for any period for which
the statute of limitations for any Tax potentially applicable
as a result of such membership or holding has not expired.
(ix) Except as disclosed on Section 3.12(a) to the
Company Disclosure Schedules and as expressly set forth by the
terms of this Agreement, neither the Company nor any of its
subsidiaries were a party to any agreement, contract, or
arrangement that would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code by reason of the Merger.
(x) All material Taxes required to be withheld,
collected or deposited by the Company during any taxable
period for which the statute of limitations on an assessment
remains open have been timely withheld, collected or deposited
and to the extent required, have been paid to the relevant Tax
authority.
(b) (i) Except as expressly provided in this
subdivision (i), the Company does not have any material income
reportable for a period ending after the Effective Time but
attributable to an installment sale occurring in or a change
in accounting method made for a period ending at or prior to
the Effective Time which resulted in a deferred reporting of
income from such transaction or from such change in accounting
method (other than a deferred intercompany transaction).
(ii) No written Tax sharing or allocation agreement
exists involving the Company.
(iii) Except as disclosed on Section 3.12(b) of
the Company Disclosure Schedules, the Company does not have
any unused net operating loss, unused net capital loss, unused
credit, unused foreign tax credit, or excess charitable
contribution for federal income tax purposes as of the
Effective Time.
(c) For purposes of this Agreement, "TAX" or "TAXES" shall
mean any and all taxes, payable to any foreign, federal, state,
provincial, local or foreign governmental entity or taxing authority or
agency, including, without limitation,
(i) income, franchise, net worth, profits,
gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, goods and services, real or
personal property, capital stock, license, payroll,
withholding, FICA, FUTA, disability, employment, social
security, Medicare, workers compensation, unemployment
compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains
taxes;
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(ii) customs duties, imposts, charges, levies or
other similar assessments of any kind; and
(iii) interest, penalties and additions to tax
imposed with respect thereto.
As used herein, the term "RETURNS" shall mean any and all returns,
reports, information returns and information statements with respect to
Taxes required to be filed with the IRS or any U.S. state or any other
governmental entity or tax authority or agency, whether domestic or
foreign, including, without limitation, consolidated and combined
Returns. For the purpose of this Section 3.12, references to the
Company and its subsidiaries shall include former subsidiaries of the
Company for periods during which such entities were owned, directly or
indirectly, by the Company.
SECTION 3.13 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in
Section 3.13 of the Company Disclosure Schedules or in the last sentence of
this Section 3.13, the Company owns or possesses the right or license to use
all patents, trademarks, service marks, trade names, domain names, slogans,
trade secrets and other tangible or intangible proprietary confidential
information (including scientific and technical information, design
processes, operating processes, schematics, procedures, formulae, data
processing techniques, software, the specialized information and technology
embodied in communications program materials, software documentation and
other program and system designs), which it has used or currently uses (the
"INTELLECTUAL PROPERTY") without any known conflict or alleged conflict with,
or infringement of, the rights of others, and the Company's public use of any
of such Intellectual Property which the Company is currently using internally
and which it currently intends to commence using publicly shall not conflict
with, or infringe upon, the rights of others. All Intellectual Property owned
by the Company is referred to herein as the "OWNED INTELLECTUAL PROPERTY."
All Intellectual Property currently licensed to the Company is referred to
herein as the "LICENSED INTELLECTUAL PROPERTY." Section 3.13 of the Company
Disclosure Schedules identifies (i) all Owned Intellectual Property
consisting of issued domestic and foreign patents and patent applications
pending, patent applications in process, domain name registrations, common
law trademarks which are material to the Company's business as currently
operated or as planned to be operated with such trademarks which the Company
is currently using internally and currently intends to commence using
publicly, domestic and foreign trademark registrations and trademark
registration applications, copyright registrations, copyright registration
applications, common law service marks which are material to the Company's
business as currently operated or as planned to be operated with such
trademarks which the Company is currently using internally and currently
intends to commence using publicly, service mark registrations, service mark
registration applications and written know-how agreements, and rights
acquired through litigation, and (ii) all of the material Licensed
Intellectual Property (other than computer software which is generally
commercially available). Except as set forth in Section 3.13 of the Company
Disclosure Schedules, the agreements for Licensed Intellectual Property
(including computer software) are in full force and effect; the rights of the
Company thereunder are free and clear of all adverse claims, options, liens,
charges, security interests and encumbrances; and no defaults exist
thereunder. The Company has not been served with any notice or summons
regarding any interference, opposition or cancellation proceedings or
infringement suits, nor to the knowledge of the Company or any of Nancy
Dugan, Paul Ivsin,
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Nick Antista and Hugo Toledo (the "Additional IT Personnel") has the Company
received any threat of such action, with respect to any Intellectual
Property. To the knowledge of the Company and the Additional IT Personnel,
the Company has not been charged with infringing any patent, copyright,
trademark right or other intellectual property right of any person, and
neither the Company nor any of the Additional IT Personnel has any knowledge
of any third party's use of any Intellectual Property in a manner that
infringes upon the rights of the Company or any third party. The Intellectual
Property comprises all of the intellectual property rights and licenses
pertaining thereto necessary for the Company to conduct its business as
formerly operated, and as currently planned to be operated, except for such
licenses and intellectual property rights set forth in Section 3.13 of the
Company Disclosure Schedules. The Company has not taken or allowed there to
be taken any action to cause any of the material Intellectual Property to be
abandoned, or failed to take such action necessary to prevent such material
Intellectual Property from being abandoned. Section 3.13 of the Company
Disclosure Schedules identifies all parties (other than the Company's
employees) who have created any portion of the Owned Intellectual Property,
and the Company has obtained from each of such persons a valid and
enforceable written assignment of any and all rights which they would
otherwise have in the Owned Intellectual Property. The Company has obtained
written agreements or other adequate assurances from all of its current and
former employees and from each third party with whom it has shared any of its
confidential proprietary information, pursuant to which such employees and
other third parties have acknowledged that such information is confidential
proprietary information of the Company and have undertaken to maintain such
information as confidential in accordance with the terms thereof.
Notwithstanding any other provision of this Section 3.13 to the contrary, the
Company shall not be deemed to be in breach of any of its representations or
warranties set forth in this Section 3.13 as a result of any use which may be
made of the trademark STARBELLY at any time following the Effective Time, and
the terms of this Section 3.13 shall be applicable to the trademark STARBELLY
solely with respect to the use thereof prior to the Effective Time.
SECTION 3.14 CERTAIN BUSINESS PRACTICES AND REGULATIONS. Neither
the Company nor any of its executive officers or directors has, to the
knowledge of the Company, (i) made or agreed to make any contribution,
payment or gift to any customer, client, supplier, governmental official,
employee or agent where either the contribution, payment or gift or the
purpose thereof was illegal under any applicable law, (ii) fraudulently
established or maintained any unrecorded fund or asset for any purpose or
knowingly made any false entries on its books and records for any reason, or
(iii) made or agreed to make any contribution, or reimbursed any political
gift or contribution made by any other person, to any candidate for foreign,
federal, state, provincial or local public office in violation under any
applicable law.
SECTION 3.15 REAL PROPERTY. The Company owns no real property.
Section 3.15(1) to the Company Disclosure Schedules sets forth a complete
description of all real property leased by the Company as of the date of this
Agreement ("REAL PROPERTY"). The Company has furnished Acquiror or its
counsel true and complete copies of (i) the most recent lease with respect to
each parcel of Real Property, and (ii) a written description of each oral
contract, arrangement or understanding relating to Real Property. Except as
set forth in Section 3.15(2) to the Company Disclosure Schedules:
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(a) There is no condemnation proceeding or eminent domain
proceeding pending or, to the knowledge of the Company, threatened,
against any Real Property.
(b) The Company does not have any interest in, or any right or
obligation to acquire any interest in, any real property other than
Real Property.
(c) The rental set forth in each lease for Real Property is
the actual rental being paid, and there are no separate agreements or
understandings with respect to the same not set forth in Section
3.15(2) to the Company Disclosure Schedules.
(d) The Company and any Affiliate which is lessee under a
lease for Real Property has, as of the date hereof, and shall have at
the Effective Time, the full right to exercise any and all renewal
options contained therein.
(e) There are no written or oral contracts between the Company
or any Affiliate and any third party relating to any claim by such
third party of any right to all or any part of the interest of the
Company or Affiliate in any Real Property.
(f) All security deposits required under leases for Real
Property have been made and no forfeiture with respect thereto has been
claimed by any of the lessors.
(g) Each Real Property is subject to a binding written lease
which is in full force and effect and neither the Company nor, to the
Company's knowledge, any other party to such lease is in breach of any
term thereunder.
(h) The premises with respect to each lease referenced in
subparagraph (f) above is in a state of good repair and as of the date
hereof and at the Effective Time, there will be no accrued obligation
of the tenant thereunder for maintenance or repair of the premises
which had not yet been performed.
SECTION 3.16 ENVIRONMENTAL REPRESENTATIONS. The Company is in
material compliance with, and does not have any material liability applicable
under any Environmental Law, and to the knowledge of the Company, the Real
Property has not been used by any other person in violation of, any
Environmental Laws. For purposes of this Agreement, the term "ENVIRONMENTAL
LAWS" shall mean all foreign, federal, state, and local laws specifically
relating to protection of the environment, or to protection of the public
health from releases into the environment of hazardous substances, pollutants
or contaminants, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
the Resource Conservation and Recovery Act of 1976, as amended, and U.S.
state tort laws and common laws.
SECTION 3.17 BROKERS. Except for matters disclosed in Section 3.17
of the Company Disclosure Schedules, no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
SECTION 3.18 TITLE TO ASSETS. Except for matters disclosed in
Section 3.18 of the Company Disclosure Schedules, the Company is the owner of
and has good and valid title to, or
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in the case of leased property has a valid leasehold interest in, all of its
properties and assets, including those assets and properties reflected in the
Company Financial Statements, free and clear of all liens, claims or
encumbrances.
SECTION 3.19 RELATED PARTY TRANSACTIONS. To the knowledge of the
Company and except for any interests disclosed on Section 3.19 of the Company
Disclosure Schedules, neither the Company nor either Principal Executive has
any material direct interest in any material supplier, customer or client of
the Company or in any person from whom or to whom the Company leases any
material property, or in any other person, firm or entity with whom the
Company transacts material business of any nature. Section 3.19 to the
Company Disclosure Schedules identifies and describes all material contracts
to which the Company is a party and to which any Principal Executive is
directly also a party.
SECTION 3.20 OFFICERS AND DIRECTORS. Section 3.20 to the Company
Disclosure Schedules sets forth a list of the names and addresses of all
executive officers and directors of the Company as of the date hereof.
SECTION 3.21 POWERS OF ATTORNEY. Except as set forth in Section
3.21 of the Company Disclosure Schedules, the Company has not given a power
of attorney (irrevocable or otherwise) to any person or entity for any
purpose whatsoever, which is currently valid and in effect.
SECTION 3.22 INFORMATION SUPPLIED. None of the information
supplied or to be supplied by the Company specifically for inclusion in the
Proxy Statement will, on the date such Proxy Statement is first mailed to
Acquiror's shareholders or at the time of the Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be state therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
SECTION 3.23 OWNERSHIP OF ACQUIROR COMMON STOCK. Except as set
forth on Section 3.23 of the Company Disclosure Schedules, as of the date
hereof, neither the Company nor, to the knowledge of the Company, any
Principal Executive or his Affiliates (i) beneficially owns (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, or (ii) is party
to any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of Acquiror Common
Stock.
SECTION 3.24 THE COMPANY'S WEBSITE. The Company's Internet website
(the "WEBSITE") is a reasonably stable, secure and redundant website with
regard to both bandwidth and server needs, taking into account all facts and
circumstances. The current capacity of the Website is sufficient to permit
reasonable access by at least 500 simultaneous users, and the Website has
been designed and developed such that its capacity may readily be expanded to
address currently projected increases in the Website's average daily number
of users. At all times following the date on which the Website is complete,
operational and accessible from the Internet (the "Website Launch Date") the
Website will be capable of being operational and accessible from the Internet
as described above no less than ninety-eight percent (98%) of the time,
measured with respect to semiannual periods commencing at the Effective Time,
and determined without regard to periods when the Website is not operational
and accessible from
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the Internet due to (i) the Company's development efforts and upgrades, or
(ii) viruses transmitted over the Internet, failures of systems controlled by
third parties such as Ameritech Corp. or Level 3, Inc., or other causes
beyond the reasonable control of the Company (it being understood and agreed
that the Website is intended to be operational and accessible from the
Internet 24 hours per day, and not merely during business hours). The Company
has prepared and implemented a reasonable disaster recovery contingency plan
pursuant to which the Company or its designee will be able to restore the
Website and recover the database of information collected by the Company with
respect to users of the Website within a reasonably prompt period following
any fire or other disaster which may occur at the Company's facilities.
SECTION 3.25 THE YEAR 2000 PROBLEM. Except as set forth in
Section 3.25 of the Company Disclosure Schedules:
(a) None of the computer systems owned or operated by the
Company or by any third party on behalf of the Company, and no
machinery, equipment, fixtures, inventory or other system which is
owned, leased or operated by the Company or by any third party on
behalf of the Company and controlled by one or more computer processors
(collectively, the "COMPUTER SYSTEMS") will result in a material
failure or disruption of any of the Company's business, operations,
financial reporting, tax reporting, inventory management, accounts
receivable systems, accounts payable systems, invoicing, delivery,
personnel management or records, benefits records or administration, or
any other records or systems as a result of being incapable of
recognizing and correctly calculating dates on or after January 1,
2000, or unable to perform any of its intended functions in a proper
and efficient manner as a result of its use with data containing any
date on or after January 1, 2000 (the "YEAR 2000 PROBLEM")
(b) Section 3.25 of the Company Disclosure Schedules contains
a true, correct and complete list of all written studies, audits,
surveys, reports and investigations conducted by or on behalf of the
Company with respect to the Year 2000 Problem.
SECTION 3.26 TECHNOLOGY SYSTEMS. The Company's integrated
fulfillment systems used for inventory and production management and control,
its StoreBuilder software systems, its product information databases, its
online product configurator, its online catalog/ordering system, its computer
hardware and network systems and its security systems (collectively, the
"Technology Systems") are reasonably stable, secure and redundant with regard
to processing power, bandwidth and data storage capacity, taking into account
all facts and circumstances. The Technology Systems are adequate to perform
their intended functions for the Company assuming (i) 500 simultaneous users
of the Website, and (ii) order processing and fulfillment at the volumes
currently projected by the Company for calendar year 2000 as reflected on
Section 3.13 of the Company Disclosure Schedules, and are scalable to support
substantial growth in the numbers of such visitors, order submissions and
order fulfillments. Without limiting the generality of the foregoing, the
Technology Systems have the following characteristics and are currently
capable of performing the following functions:
(a) receiving and processing customer orders from the
Website and affiliate websites;
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(b) providing feedback to customer on order receipt;
(c) providing order status information to the customer;
(d) establishing an order database that can be used to
drive operations;
(e) internally tracking order status from submission through
steps of operations to product delivery;
(f) evaluating the orders received so that they can be
fulfilled;
(g) providing information to generate purchase orders and
production orders in accordance with blank garment needs and
artist/production assignments and schedules;
(h) establishing and maintaining a master image database;
(i) receiving images uploaded from customers for review,
enabling improvement for production purposes, and updating a master
image database;
(j) supplying quality digital images from a master image
database that can ultimately and efficiently be used in production;
(k) processing credit card transactions for payment
receipt/transfer of funds to the Company;
(l) processing purchase orders to be billed as accounts
receivable;
(m) establishing and maintaining a customer database that
supports customer service and marketing efforts; and
(n) preserving and protecting the security of the
Technology Systems, including without limitation the Website and
affiliate websites which are hosted on the Company's servers, and
preserving and protecting the confidentiality of all transactions
processed using the Technology Systems, using passwords, firewalls and
other methods which are reasonable taking into account all facts and
circumstances.
SECTION 3.27 LIMITATION ON WARRANTIES. Notwithstanding anything to
the contrary contained in this Agreement, the Company makes no implied
warranty of any kind whatsoever, and makes no representation with respect to
(i) any matter not expressly set forth in this Article III, or (ii) the
future profitability, future earnings or other future performance of the
Company. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB
The term "ACQUIROR ADVERSE EFFECT" as used in this Agreement shall mean
any change or event that, individually or when taken together with all other
such changes or events, would reasonably be considered to be materially adverse
to the financial condition, business, business prospects or results of
operations of Acquiror or any of its subsidiaries, taken as a whole; provided,
however, that a decline in the market value of Acquiror Common Stock in and of
itself shall not constitute an Acquiror Adverse Effect, and the occurrence of
any change or event (i) described in any Section of the Acquiror Disclosure
Schedules attached to this Agreement (the "ACQUIROR DISCLOSURE SCHEDULES"), (ii)
resulting from the entry into this Agreement or the transactions contemplated
hereby or the public announcement thereof (in accordance with Section 6.09
hereof), or (iii) resulting from or arising in connection with (A) any
occurrence or condition affecting any of the online, e-commerce, promotional or
decorated products industries generally, (B) any changes in economic, market,
regulatory, banking, monetary, political or other similar conditions or (C) any
occurrence or condition affecting the Internet (or any particular portion
thereof) generally, shall not, individually or in the aggregate, constitute an
Acquiror Adverse Effect.
Acquiror and Acquiror Sub, jointly and severally, represent and
warrant, as of the date of this Agreement, to the Company that, except as set
forth on the Acquiror Disclosure Schedules (and making reference to the
particular section of this Agreement to which exception is being taken), the
statements contained in this Article IV are true and correct with respect to
Acquiror and Acquiror Sub, and their respective businesses. Any disclosure set
forth on any particular Section of the Acquiror Disclosure Schedules shall be
deemed disclosed in reference to all Sections of the Acquiror Disclosure
Schedules to which such disclosure may be reasonably applicable.
SECTION 4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Acquiror and Acquiror Sub is a corporation, duly incorporated, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted and each of Acquiror and Acquiror Sub is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to do so would not
have an Acquiror Adverse Effect.
SECTION 4.02 ARTICLES OF INCORPORATION; BYLAWS. Acquiror has
furnished to the Company a complete and correct copy of its Articles of
Incorporation and Bylaws, as amended or restated, and a complete and correct
copy of the Certificate of Incorporation and Bylaws, as amended or restated,
of Acquiror Sub. Neither Acquiror nor Acquiror Sub is in violation of any of
the provisions of its Articles of Incorporation or Certificate of
Incorporation, as applicable, or its Bylaws.
SECTION 4.03 CAPITALIZATION OF ACQUIROR AND ACQUIROR SUB.
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(a) The authorized capital stock of Acquiror consists of
100,000,000 shares of Acquiror Common Stock, of which 48,724,790 were
issued and outstanding as of January 14, 2000, and 10,000,000 shares of
Preferred Stock, no par value ("ACQUIROR PREFERRED STOCK"), none of
which are issued and outstanding. The authorized capital stock of
Acquiror Sub consists of 1,000 shares of Common Stock, no par value per
share ("ACQUIROR SUB COMMON STOCK"), of which, as of the date of this
Agreement, 1,000 shares are issued and outstanding. On the date of this
Agreement, all issued and outstanding shares of Acquiror Common Stock
and Acquiror Sub Common Stock are, and at the Effective Time all issued
and outstanding shares of Acquiror Common Stock, Acquiror Series A
Preferred Stock and Acquiror Sub Common Stock will be, duly authorized,
validly issued, fully paid and non-assessable. Acquiror is the record
holder of all issued and outstanding shares of Acquiror Sub Common
Stock, and such shares are owned by Acquiror free and clear of any and
all security interests, liens, claims, pledges, agreements, limitations
on Acquiror's voting rights, charges or other encumbrances of any
nature whatsoever.
(b) 9,000,000 shares of Acquiror Common Stock have been duly
and validly reserved for issuance under the HA-LO Industries, Inc. 1997
Stock Plan (Amended and Restated) of Acquiror (the "1997 ACQUIROR
PLAN"), of which, as of December 31, 1999, shares are outstanding
pursuant to the exercise of such options, 7,491,056 shares are subject
to outstanding options and 1,242,469 shares are not subject to any
outstanding options; 5,834,822 shares of Acquiror Common Stock have
been duly and validly reserved for issuance under the HA-LO Industries,
Inc. Stock Plan of Acquiror (together with the 1997 Acquiror Plan, the
"ACQUIROR PLANS"), of which, as of December 31, 1999, shares are
outstanding pursuant to the exercise of such options, 2,807,765 shares
are subject to outstanding options, 832,727 shares are not subject to
any outstanding options, 269,056 shares are subject to outstanding
options issued outside of the Acquiror Plans, and 486,417 shares are
subject to outstanding warrants held by Montgomery Ward & Co.,
Incorporated (all such options are the "ACQUIROR OPTIONS"); and
(c) Except as set forth on Section 4.03(c) of the Acquiror
Disclosure Schedules, no shares of common, preferred or convertible
capital stock (other than the shares of Acquiror Common Stock, Acquiror
Sub Common Stock and Acquiror Preferred Stock), options (other than the
Acquiror Options), warrants or other rights, agreements, arrangements
or commitments to sell or purchase shares of Acquiror Common Stock,
Acquiror Sub Common Stock or Acquiror Preferred Stock from Acquiror or
Acquiror Sub are issued or outstanding. Section 4.03(c) of the Acquiror
Disclosure Schedules contains a list of all outstanding warrants,
options (other than Acquiror Options), agreements, convertible
securities and other commitments pursuant to which Acquiror or Acquiror
Sub is or may become obligated to issue, sell or otherwise transfer any
Acquiror Common Stock, Acquiror Sub Common Stock or Acquiror Preferred
Stock, which list names all Persons entitled to receive such Acquiror
Common Stock, Acquiror Sub Common Stock or Acquiror Preferred Stock
and sets forth the shares of Acquiror Common Stock, Acquiror Sub Common
Stock or Acquiror Preferred Stock required to be issued thereunder.
Except for Acquiror Options and as described in Section 4.03(c) of the
Acquiror Disclosure Schedules, no shares of Acquiror Common Stock,
Acquiror Sub
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Common Stock or Acquiror Preferred Stock are held in treasury or are
reserved for any other purpose.
(d) All outstanding shares of Acquiror Common Stock and
Acquiror Sub Common Stock are, and as of the Effective Time will be,
duly authorized, validly issued, fully paid and non-assessable, and not
subject to preemptive rights created by statute, Acquiror's Articles of
Incorporation or Bylaws, or Acquiror Sub's Certificate of Incorporation
or Bylaws or, except as set forth in Section 4.03(d) of the Acquiror
Disclosure Schedules, any agreement as to which Acquiror or Acquiror
Sub is party or by which it is bound.
(e) Except as disclosed in Section 4.03(e) of the Acquiror
Disclosure Schedules, other than Acquiror Options, there are no options
outstanding obligating Acquiror or Acquiror Sub to register for sale
any capital stock or other equity interests in Acquiror or Acquiror
Sub. Except as disclosed in Section 4.03(e) of the Acquiror Disclosure
Schedules, as of the date of this Agreement there are no obligations,
contingent or otherwise, of Acquiror or Acquiror Sub to (x) repurchase,
redeem or otherwise acquire any Acquiror Common Stock, Acquiror Sub
Common Stock or Acquiror Preferred Stock, or (y) provide funds to, or
make any material investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to
the obligations of, any Person (other than subsidiaries of Acquiror).
SECTION 4.04 AUTHORITY.
(a) Each of Acquiror and Acquiror Sub has the requisite
corporate power and corporate authority to enter into this Agreement
and, subject to the approval of the Share Issuance by affirmative vote
of the holders of a majority of the shares of Acquiror Common Stock
present and entitled to vote at the Shareholders Meeting, to consummate
the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Acquiror and Acquiror Sub, and the
consummation by Acquiror and Acquiror Sub of the transactions
contemplated by this Agreement, have been duly authorized by all
necessary corporate action (other than the Shareholder Approval) and no
other proceedings on the part of Acquiror or Acquiror Sub (other than
the Shareholders Meeting) are necessary to authorize this Agreement or
to consummate the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by Acquiror and Acquiror
Sub and, assuming the due authorization, execution and delivery by the
Company, constitutes the legal, valid and binding obligations of
Acquiror and Acquiror Sub enforceable in accordance with its terms and
conditions.
(b) The Board of Directors of Acquiror (a) has declared as
advisable and fair to and in the best interests of Acquiror and its
shareholders and resolved to recommend to its shareholders (i) the
Merger and (ii) the Share Issuance, and (b) has approved this Agreement
and all agreements and transactions contemplated hereby and thereby.
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SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS; OTHER
MATTERS.
(a) The execution and delivery of this Agreement by Acquiror
and Acquiror Sub do not, and the performance of this Agreement by
Acquiror and Acquiror Sub, will not (i) conflict with or violate the
Articles, By-Laws or equivalent organizational documents of Acquiror or
Acquiror Sub, (ii) subject to (x) obtaining the consents, approvals,
authorizations and permits of, and making filings or notifications to,
any Governmental Entities pursuant to the applicable requirements, if
any, of Laws, including but not limited to the Securities Act, the
Exchange Act, Blue Sky Laws, the HSR Act (including, without
limitation, with respect to the acquisition by any Stockholder of
shares of Acquiror Common Stock or Acquiror Series A Preferred Stock in
the Merger), the NYSE, the Code and the filing and recordation of
appropriate merger documents as required by Delaware Law, and (y)
obtaining the consents, approvals, authorizations or permits described
in Section 4.05(b) of the Acquiror Disclosure Schedules, conflict with
or violate any Laws applicable to Acquiror or Acquiror Sub or by which
any of their respective properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on
any of the properties or assets of Acquiror or Acquiror Sub pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Acquiror or Acquiror Sub is a party or by which Acquiror or Acquiror
Sub or any of their respective properties is bound or affected, except
for any such conflicts or violations described in clause (ii), or
breaches or defaults described in clause (iii) that would not have an
Acquiror Adverse Effect.
(b) The execution and delivery of this Agreement by Acquiror
and Acquiror Sub do not, and neither the performance nor compliance
with the terms hereof, by Acquiror and Acquiror Sub requires any
consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entities or other persons, except for
(i) applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, the HSR Act (including, without
limitation, with respect to the acquisition by any Stockholder of
shares of Acquiror Common Stock or Acquiror Series A Preferred Stock in
the Merger), the NYSE and the Code, (ii) the consents, approvals,
authorizations or permits described in Section 4.05(b) of the Acquiror
Disclosure Schedules, and (iii) the filing and recordation of
appropriate merger documents as required by Delaware Law.
SECTION 4.06 SECURITIES REPORTS; FINANCIAL STATEMENTS.
(a) Since December 31, 1997, Acquiror and its subsidiaries
have timely filed (x) all forms, reports, statements, registration
statements and other documents required to be filed (or filed by
reference) with (i) the Securities and Exchange Commission (the
"COMMISSION"), including without limitation, (A) all Annual Reports on
Form 10-K, (B) all Quarterly Reports on Form 10-Q, (C) all Proxy
Statements relating to meetings of shareholders, (D) all required
current reports on Form 8-K, (E) all other reports and registration
statements, and (F) all amendments and supplements to all such reports
and registration statements, and (ii) any applicable state securities
authorities, and (y) all
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forms, reports, statements and other documents required to be filed
with any other applicable federal or state regulatory authorities,
except where failure to file any such forms, reports, statements and
other documents under this clause (y) would not have an Acquiror
Adverse Effect (all such forms, reports, statements, registration
statements and other documents referred to in this Subsection (a)
are, collectively, "ACQUIROR REPORTS").
(b) The Acquiror Reports complied as of their respective dates
in all material respects with the then applicable requirements of the
Securities Act and the Exchange. As of their respective dates, the
Acquiror Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except as disclosed in
Section 4.06(b) of the Acquiror Disclosure Schedules, each of
Acquiror's consolidated financial statements (including any notes to
such financial statements) included within the Acquiror Reports (i) has
been prepared in all material respects in accordance with the published
rules and regulations of GAAP and the Commission applied on a
consistent basis throughout the periods involved, and (ii) fairly
present in all material respects, the consolidated financial position
of Acquiror as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated;
provided, however, the interim financial statements of Acquiror may (x)
be subject to normal or recurring adjustments at Acquiror's fiscal
year-end, (y) not necessarily be indicative of results for a
full-fiscal year, and (z) contain pro-forma financial information which
is not necessarily indicative of Acquiror's consolidated financial
position.
(c) Acquiror has no liabilities or indebtedness of any nature
whatsoever, except for (i) liabilities and indebtedness set forth in
Acquiror Reports filed prior to January 1, 2000, (ii) liabilities and
indebtedness which have arisen after September 30, 1999 in the ordinary
course of business of Acquiror, (iii) liabilities and indebtedness set
forth in Section 4.06(c) of the Acquiror Disclosure Schedules, (iv)
liabilities and indebtedness incurred in connection with the
transaction contemplated herein, and (v) except as otherwise set forth
in this Section 4.06(c), any such liability in each case less than
$1,000,000 or less than $10,000,000 in aggregate liabilities.
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Acquiror Disclosure Schedules, since September 30, 1999, (i)
there has not been, and Acquiror has no knowledge of any facts that are
reasonably likely to result in, any event or events causing an Acquiror
Adverse Effect, and (ii) to the date of this Agreement, there has not been
any material change by Acquiror in its accounting methods, principles or
practices except any such change after the date of this Agreement mandated by
a change in GAAP.
SECTION 4.08 ABSENCE OF LITIGATION.
(a) Except as set forth in an Acquiror Report filed with the
Commission prior to the date hereof, there is no claim, action, suit,
litigation, proceeding, arbitration, or, to the knowledge of Acquiror,
investigation of any kind affecting Acquiror or any of its
subsidiaries, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of Acquiror,
threatened, except for claims, actions,
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suits, litigations, proceedings, arbitrations or investigations which
cannot reasonably be expected to have an Acquiror Adverse Effect. There
is no action pending or, to the best knowledge of the Acquiror or
Acquiror Sub, threatened seeking to enjoin or restrain the Merger or
any transaction contemplated by the Merger.
(b) Except as set forth in an Acquiror Report filed with the
Commission prior to the date hereof, neither Acquiror nor any of its
subsidiaries is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to
the knowledge of Acquiror, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree
or award of any Governmental Entity or arbitrator, including, without
limitation, cease-and-desist or other orders, except for such matters
which cannot reasonably be expected to have an Acquiror Adverse Effect.
SECTION 4.09 OWNERSHIP OF ACQUIROR SUB. All of the outstanding
capital stock of Acquiror Sub is owned directly by Acquiror.
SECTION 4.10 BROKERS. Except as disclosed in Section 4.10 of the
Acquiror Disclosure Schedules, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Acquiror.
SECTION 4.11 INFORMATION SUPPLIED. The Proxy Statement will not,
on the date such Proxy Statement is first mailed to Acquiror's shareholders
and at the time of the Shareholders Meeting contain any untrue statement of a
material fact or omit to state any material fact required to be state therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 4.12 OPINION OF FINANCIAL ADVISOR. The Board of Directors
of Acquiror has received the opinion of Credit Suisse First Boston
Corporation, dated the date hereof, to the effect that, as of such date, the
Merger Consideration is fair to Acquiror from a financial point of view.
SECTION 4.13 VOTING REQUIREMENTS. The affirmative vote of the
holders of a majority of the shares of Acquiror Common Stock present and
entitled to vote at the Shareholders Meeting is the only vote of the holders
of any class or series of Acquiror's capital stock necessary to approve the
Merger, the Share Issuance and the transactions contemplated hereby.
SECTION 4.14 NO PRIOR ACTIVITIES. Acquiror Sub has not incurred,
directly or indirectly, any liabilities or obligations, except those incurred
in connection with its incorporation or with the negotiation of this
Agreement and consummation of the transactions contemplated hereby. Acquiror
Sub has not engaged, directly or indirectly, in any business or activity of
any type or kind, or entered into any agreement or arrangement with any
person or entity, or become subject to or bound by any obligation or
undertaking, that is not contemplated by or in connection with this Agreement
and the transactions contemplated hereby.
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SECTION 4.15 ERISA COMPLIANCE.
(a) Except as disclosed in the Acquiror Reports, with respect
to any collective bargaining agreement or any material bonus, profit
sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding providing benefits
to any current or former employee, officer or director of Acquiror or
any of its wholly-owned subsidiaries (collectively, the "ACQUIROR
BENEFIT PLANS"), no event has occurred and, to the knowledge of
Acquiror, there exists no condition or set of circumstances, in
connection with which Acquiror or any of its subsidiaries could be
subject to any liability that individually or in the aggregate would
have an Acquiror Adverse Effect under ERISA, the Code or any other
applicable Law.
(b) Except as disclosed in the Acquiror Reports, each Acquiror
Benefit Plan has been administered in accordance with its terms, except
for any failures so to administer any Acquiror Benefit Plan that
individually or in the aggregate would not reasonably be expected to
have an Acquiror Adverse Effect. Acquiror, its subsidiaries and all of
the Acquiror Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and the
terms of all applicable collective bargaining agreements, except for
any failures to be in such compliance that individually or in the
aggregate would not reasonably be expected to have an Acquiror Adverse
Effect. Each Acquiror Benefit Plan that is intended to be qualified
under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and each
trust established in connection with any Acquiror Benefit Plan that is
intended to be exempt from federal income taxation under Section 501(a)
of the Code has received a determination letter from the IRS that such
trust is so exempt. To the knowledge of Acquiror, no fact or event has
occurred since that date of any determination letter from the IRS which
is reasonably likely to affect adversely the qualified status of any
such Acquiror Benefit Plan or the exempt status of any such trust,
except for any occurrence that individually or in the aggregate would
not reasonably be expected to have an Acquiror Adverse Effect.
(c) Except as any of the following either individually or in
the aggregate would not reasonably be expected to have an Acquiror
Adverse Effect or as disclosed in the Acquiror Reports, (x) neither
Acquiror nor any Plan Affiliate of Acquiror has incurred any liability
under Title IV of ERISA and no condition exists that presents a risk to
Acquiror or any Plan Affiliate of Acquiror of incurring any such
liability (other than liability for benefits or premiums to the Pension
Benefit Guaranty Corporation arising in the ordinary course), (y) no
Acquiror Benefit Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code)
whether or not waived and (z) to the knowledge of Acquiror, there are
not any facts or circumstances that would materially change the funded
status of any Acquiror Benefit Plan that is a "defined benefit" plan
(as defined in Section 3(35) of ERISA) since the date of the most
recent actuarial report for such plan. No Acquiror Benefit Plan is a
"multi employer plan" within the meaning of Section 3(37) of ERISA.
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(d) Neither Acquiror nor any of its subsidiaries is a party to
any collective bargaining or other labor union contract applicable to
persons employed by Acquiror or any of its subsidiaries and no
collective bargaining agreement is being negotiated by Acquiror or any
of its subsidiaries, in each case that is material to Acquiror and its
subsidiaries taken as a whole. As of the date of this Agreement, there
is no labor dispute, strike or work stoppage against Acquiror or any of
its subsidiaries pending or, to the knowledge of Acquiror, threatened
which may interfere with the respective business activities of Acquiror
or any of its subsidiaries, except where such dispute, strike or work
stoppage individually or in the aggregate would not reasonably be
expected to have an Acquiror Adverse Effect. As of the date of this
Agreement, to the knowledge of Acquiror, none of Acquiror, any of its
subsidiaries or any of their respective representatives or employees
has committed any unfair labor practice in connection with the
operation of the respective businesses of Acquiror or any of its
subsidiaries, and there is no charge or complaint against Acquiror or
any of its subsidiaries by the National Labor Relations Board or any
comparable governmental agency pending or threatened in writing, except
for any occurrence that individually or in the aggregate would not
reasonably be expected to have an Acquiror Adverse Effect.
(e) No Acquiror Benefit Plan provides medical benefits
(whether or not insured) with respect to current or former employees
after retirement or other termination of service the cost of which is
material to Acquiror and its subsidiaries taken as a whole.
(f) No amounts payable under the Acquiror Benefit Plans solely
as a result of the consummation of the transactions contemplated by
this Agreement will fail to be deductible for federal income tax
purposes by virtue of Section 280G of the Code. The consummation of the
transactions contemplated by this Agreement will not, either alone or
in combination with another event, (A) entitle any current or former
employee, officer or director of Acquiror or any Plan Affiliate of
Acquiror to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (B) accelerate
the time of payment or vesting, or increase the amount of compensation
due any such employee, officer or director or (C) constitute a "change
of control" under any Acquiror Benefit Plan, and Acquiror and its board
of directors have taken all required actions to effect the foregoing.
SECTION 4.16 TAXES.
(a) Except as disclosed in the Acquiror Reports, each of
Acquiror and its subsidiaries has filed all material Returns and
reports required to be filed by it and all such Returns and reports are
complete and correct in all material respects, or requests for
extensions to file such Returns or reports have been timely filed,
granted and have not expired, except to the extent that such failures
to file, to be complete or correct or to have extensions granted that
remain in effect individually or in the aggregate would not have an
Acquiror Adverse Effect. Acquiror and each of its subsidiaries has paid
(or Acquiror has paid on its behalf) all Taxes shown as due on such
Returns, and the most recent financial statements contained in the
Acquiror Reports reflect an adequate reserve for all taxes payable by
Acquiror and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
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(b) Except as disclosed in the Acquiror Reports, no
deficiencies for any taxes have been proposed, asserted or assessed
against Acquiror or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the
aggregate would not have an Acquiror Adverse Effect.
(c) Neither Acquiror nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.17 STATE TAKEOVER STATUTE; SHAREHOLDERS' RIGHTS PLANS.
The Board of Directors of Acquiror has approved the terms of this Agreement
and the consummation of the Merger and the other transactions contemplated
hereby and, assuming the accuracy of the Company's representation and
warranty contained in Section 3.23, such approval constitutes approval of the
Merger and the other transactions contemplated by this Agreement by the
Acquiror Board of Directors under Section 5/7.85 of the Illinois Business
Corporation Act of 1983, as amended, and represents all the actions necessary
to ensure that the super majority voting requirement of Section 5/7.85 of the
Illinois Business Corporation Act of 1983, as amended, does not apply to the
Company or the Stockholders in connection with the Merger and the other
transactions contemplated by this Agreement. To the knowledge of Acquiror, no
other state takeover statute is applicable to the Merger or the other
transactions contemplated by this Agreement. Acquiror has not adopted and
does not have in effect any shareholders rights plan, and Acquiror's board of
directors has not approved any such plan and has not authorized submission of
any such plan for shareholder approval.
SECTION 4.18 INTELLECTUAL PROPERTY.
(a) Except as disclosed in the Acquiror Reports, Acquiror and
its subsidiaries own or have a valid license to use all trademarks,
service marks and trade names (including any registrations or
applications for registration of any of the foregoing) (collectively,
the "Acquiror Intellectual Property") necessary to carry on its
business substantially as currently conducted, except for such Acquiror
Intellectual property the failure of which to own or validly license
individually or in the aggregate would not reasonably be expected to
have an Acquiror Adverse Effect. Neither Acquiror nor any such
subsidiary has received any notice of infringement of or conflict with,
and, to Acquiror's knowledge, there are no infringements of or
conflicts with, the rights of others with respect to the use of any
Acquiror Intellectual property that individually or in the aggregate,
in either such case, would reasonably be expected to have an Acquiror
Adverse Effect.
(b) The consummation of the Merger and the other transactions
contemplated by this Agreement will not result in the loss by Acquiror
of any rights to use computer and telecommunication software including
source and object code and documentation and any other media
(including, without limitation, manuals, journals and reference books)
necessary to carry on its business substantially as currently conducted
and the loss of which would have an Acquiror Adverse Effect.
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SECTION 4.19 CERTAIN CONTRACTS. Except as set forth in Section
4.19 of the Acquiror Disclosure Schedule, the Acquiror Reports or as
permitted pursuant to Sections 5.03 and 5.04, neither Acquiror nor any of its
subsidiaries is a party to or bound by (i) any "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the Commission) or
any written undisclosed material contracts of Acquiror or Acquiror Sub to
lease real property (except for any such contracts copies of which have been
made available to the Company) or (ii) any non-competition agreement or any
other agreement or obligation which purports to limit in any material respect
the manner in which, or the localities in which, all or any substantial
portion of the business of Acquiror and its subsidiaries, taken as a whole,
is or would be conducted. Section 4.19 of the Acquiror Disclosure Schedules
sets forth all ongoing written agreements between Acquiror (or any of its
subsidiaries) and each of John R. Kelley, Jr., Lou Weisbach and Linden D.
Nelson.
SECTION 4.20 ENVIRONMENTAL MATTERS. Except as would not,
individually or in the aggregate, have an Acquiror Adverse Effect or as
disclosed in the Acquiror Reports filed and publicly available prior to the
date of this Agreement, Acquiror and its subsidiaries are in material
compliance with, and do not have any material liability applicable under any
Environmental Law, and to the knowledge of Acquiror and Acquiror Sub, the
real property owned or leased by Acquiror or its subsidiaries has not been
used by any other person in violation of, any Environmental Laws.
SECTION 4.21 RELATED PARTY TRANSACTIONS. To the knowledge of
Acquiror and except for any interests disclosed on Section 4.21 of the
Acquiror Disclosure Schedules or as disclosed in the Acquiror Reports,
neither Acquiror nor any of its directors or executive officers, have any
material direct interest in any material supplier, customer or client of
Acquiror or in any person from whom or to whom Acquiror leases any material
property, or in any other person, firm or entity with whom Acquiror transacts
material business of any nature. Section 4.21 to the Acquiror Disclosure
Schedules or the Acquiror Reports identify and describe all material
contracts to which Acquiror is a party and to which any director or executive
officer is directly also a party.
SECTION 4.22 CERTAIN BUSINESS PRACTICES AND REGULATIONS. Neither
Acquiror nor any of its executive officers or directors has, to the knowledge
of Acquiror, (i) made or agreed to make any contribution, payment or gift to
any customer, client, supplier, governmental official, employee or agent
where either the contribution, payment or gift or the purpose thereof was
illegal under any applicable law, (ii) fraudulently established or maintained
any unrecorded fund or asset for any purpose or knowingly made any false
entries on its books and records for any reason, or (iii) made or agreed to
make any contribution, or reimbursed any political gift or contribution made
by any other person, to any candidate for foreign, federal, state, provincial
or local public office in violation under any applicable law.
SECTION 4.23 LIMITATION ON WARRANTIES. Notwithstanding anything to
the contrary contained in this Agreement, Acquiror and Acquiror Sub make no
implied warranty of any kind whatsoever, and make no representation with
respect to (i) any matter not expressly set forth in this Article IV, or (ii)
the future profitability, future earnings or other future performance of
Acquiror or Acquiror Sub. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
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ARTICLE V
COVENANTS RELATING TO THE CONDUCT OF THE COMPANY BUSINESS
SECTION 5.01 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company
hereby covenants and agrees with Acquiror and Acquiror Sub that, prior to the
Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to, in writing, by Acquiror, which consent shall not be
unreasonably withheld, the Company shall, subject to the limitations
contained in this Agreement:
(a) Operate its business in the usual and ordinary course,
consistent with its reasonable past practice and that certain
Confidential Private Placement Memorandum of the Company, dated
November 1999 (the "OFFERING MEMO");
(b) Subject to the limitations contained in this Agreement,
use reasonable best efforts to preserve intact its business
organization and assets, maintain its material rights and franchises,
retain the services of its officers, key employees and managers, and
maintain existing good relationships with its material customers,
clients, vendors and suppliers, all consistent with the Offering Memo;
(c) Use reasonable efforts to keep in full force and effect
all liability insurance and bonds comparable in amount and scope of
coverage to that currently maintained.
(d) Subject to applicable law, confer with Acquiror from
time-to-time at Acquiror's reasonable request to report on all
reasonable operational matters.
(e) File its federal and state income tax Returns, and all
required state and local income and franchise tax Returns for the
fiscal tax year coinciding with or ending in 1999 (if applicable), on
or before the due date for filing such Returns (including extensions).
SECTION 5.02 NEGATIVE COVENANTS OF THE COMPANY. Except as
expressly contemplated by this Agreement, as set forth on Section 5.02 to the
Company Disclosure Schedules or as otherwise consented to in writing by
Acquiror, which consent shall not be unreasonably withheld, from the date of
this Agreement until the Effective Time, the Company shall not do any of the
following:
(a) Except as consistent with the past practice of the Company
or as contemplated by the Offering Memo or that is reasonably
appropriate to consummate the Merger, (i) increase the compensation or
any commission payable or to become payable to any director, officer,
employee or independent contractor, except for increases in salary,
bonuses or wages payable or to become payable to employees or
independent contractors who are not directors or officers, (ii) grant
any severance or termination pay or enter into any severance agreement
with, any director, officer or employee, (iii) enter into any
employment agreement of any nature whatsoever with any director,
officer or employee that would extend beyond the Effective Time, except
on an at-will basis, or (iv) establish, adopt, enter into or amend any
employee benefit plan, except as may be
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required to comply with applicable Law (provided that the actions under
clauses (i), (ii) and (iii) shall only require notice to, and not
consent by, Acquiror);
(b) Except as contemplated by the Offering Memo or as
contemplated by the Merger, make any material change in the overall
nature of its business;
(c) Make (or commit to make) capital expenditures in an amount
which exceeds One Million Dollars ($1,000,000) or to the extent that
such expenditures do not relate to the conduct of the Company's
business consistent with the Offering Memo and the Company's past
practice;
(d) Declare or pay, or agree to declare or pay, any dividend
on, or make any other distribution in respect of, outstanding Company
Common Stock, Company Preferred Stock, Other Company Securities,
Company Options or Other Company Options;
(e) (i) Redeem, purchase or otherwise acquire any of its
capital stock or any securities or obligations convertible into or
exchangeable for any of its capital stock, or any options, warrants or
conversion or other rights to acquire any of its capital stock or any
such securities or obligations, (ii) effect any reorganization or
recapitalization, or (iii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in lieu of or in substitution for shares of its capital
stock;
(f) Except pursuant to the Plan, issue, deliver, award, grant
or sell, or authorize the issuance, delivery, award, grant or sale of
(including the grant of any security interests, liens, claims, pledges,
limitations in voting rights, charges or other encumbrances), any
shares of any class of its capital stock (including shares held in
treasury), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire any such shares, or amend or otherwise modify the terms of any
such rights, warrants or options, the effect of which shall be to make
such terms more favorable to the holders thereof (including without
limitation the acceleration of the vesting of any options other than as
contemplated by this Agreement);
(g) Acquire or agree to acquire, by merging or consolidating
with, by purchasing a controlling equity interest in or all or
substantially all of the assets of, or by any other manner, any
material business;
(h) Sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, its material assets to the
extent not consistent with its past practice;
(i) Adopt any amendments to its Certificate of Incorporation
or Bylaws;
(j) Incur any liability or any obligation for borrowed money
or purchase money indebtedness, whether or not evidenced by a contract,
note, bond, debenture or similar instrument, other than liabilities and
obligations up to One Million Dollars
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($1,000,000) which relate to the conduct of the Company's business
consistent with the Offering Memo and the Company's past practice;
(k) Agree in writing or otherwise to do any of the foregoing
unless the terms of such agreement are terminable upon closing of the
Merger contemplated in this Agreement;
(l) (i) perform any act which, if performed, would prevent or
excuse the performance of this Agreement by the Company, or (ii) fail
to perform any act which, if omitted to be performed, would prevent or
excuse the performance of this Agreement by the Company; or
(m) Initiate, solicit, continue or encourage (including by way
of furnishing any information or assistance in connection with) any
inquiries or the making of any offer that constitutes, or may
reasonably be expected to lead to, any "Competing Transaction" (as such
term is defined below), or enter into discussions or negotiations with
any person or entity in furtherance of such inquiries or to obtain a
Competing Transaction or enter into any agreement with respect to a
Competing Transaction. The Company shall promptly notify Acquiror if
any such inquiries or proposals are received by the Company or by any
of its officers, directors, financial advisors, attorneys, accountants
or other representatives. For purposes of this Agreement, the term
"COMPETING TRANSACTION" shall mean any of the following involving the
Company (other than the Merger): (i) any merger, consolidation,
exchange, material business combination, or other similar material
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or substantially all of the assets of the
Company in a single transaction or series of related transactions;
(iii) any sale of or exchange for any outstanding capital stock or
equity of the Company; or (iv) any agreement to, or announcement by the
Company of a proposal, plan or intention, to do any of the foregoing.
SECTION 5.03 AFFIRMATIVE COVENANTS OF ACQUIROR. Acquiror hereby
covenants and agrees with the Company that, prior to the Effective Time,
unless otherwise expressly contemplated by this Agreement or consented to, in
writing, by the Company, which consent shall not be unreasonably withheld,
Acquiror shall, subject to the limitations contained in this Agreement:
(a) Operate its business in the usual and ordinary course,
consistent with its reasonable past practice and its 2000 budget, a
copy of which has been provided to the Company (the "BUDGET");
(b) Subject to the limitations contained in this Agreement,
use reasonable best efforts to preserve intact its business
organization and assets, maintain its material rights and franchises,
retain the services of its officers, key employees and managers, and
maintain existing good relationships with its material customers,
clients, vendors and suppliers, all consistent with the Budget;
(c) Use reasonable efforts to keep in full force and effect
all liability insurance and bonds comparable in amount and scope of
coverage to that currently maintained.
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(d) Subject to applicable law, confer with the Company from
time-to-time at the Company's reasonable request to report on all
reasonable operational matters.
(e) File its federal and state income tax Returns, and all
required state and local income and franchise tax Returns for the
fiscal tax year coinciding with or ending in 1999 (if applicable), on
or before the due date for filing such Returns (including extensions).
SECTION 5.04 NEGATIVE COVENANTS OF ACQUIROR AND ACQUIROR SUB.
Except as expressly contemplated by this Agreement or disclosed in the
Acquiror Disclosure Schedules or otherwise consented to in writing by the
Company, which consent shall not be unreasonably withheld, from the date of
this Agreement to the Effective Time, Acquiror shall not (and shall not
permit the Acquiror Sub to) and Acquiror Sub shall not:
(a) Except as consistent with the past practice of Acquiror or
as contemplated by the Budget or that is reasonably appropriate to
consummate the Merger, (i) increase the compensation or any commission
payable or to become payable to any director, officer, employee or
independent contractor, except for increases in salary, bonuses or
wages payable or to become payable to employees or independent
contractors who are not directors or officers, (ii) grant any severance
or termination pay or enter into any severance agreement with, any
director, officer or employee, (iii) enter into any employment
agreement of any nature whatsoever with any director, officer or
employee that would extend beyond the Effective Time, except on an
at-will basis, or (iv) establish, adopt, enter into or amend any
employee benefit plan, except as may be required to comply with
applicable Law (provided that the actions under clauses (i), (ii) and
(iii) shall only require notice to, and not consent by, the Company),.
(b) Except as contemplated by the Budget or as contemplated by
the Merger, make any material change in the overall nature of its
business.
(c) Declare or pay, or agree to declare or pay, any dividend
on, or make any other distribution in respect of, outstanding Acquiror
Common Stock, Acquiror Sub Common Stock or Acquiror Options;
(d) Make (or commit to make) capital expenditures in an amount
which exceeds Ten Million Dollars ($10,000,000) or to the extent that
such expenditures do not relate to the conduct of Acquiror's business
consistent with its past practice;
(e) (i) Redeem, purchase or otherwise acquire any of its
capital stock or any securities or obligations convertible into or
exchangeable for any of its capital stock, or any options, warrants or
conversion or other rights to acquire any of its capital stock or any
such securities or obligations, (ii) effect any reorganization or
recapitalization, or (iii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in lieu of or in substitution for shares of its capital
stock;
(f) Except pursuant to the Acquiror Plans or as permitted by
Section 5.04(g) hereof, issue, deliver, award, grant or sell, or
authorize the issuance, delivery, award, grant or sale of (including
the grant of any security interests, liens, claims, pledges,
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limitations in voting rights, charges or other encumbrances), any
shares of any class of its capital stock (including shares held in
treasury), any securities convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to
acquire any such shares, or amend or otherwise modify the terms of any
such rights, warrants or options, the effect of which shall be to make
such terms more favorable to the holders thereof;
(g) Acquire or agree to acquire, by merging or consolidating
with, by purchasing a controlling equity interest in or all or
substantially all of the assets of, or by any other manner, any
material business, except for such acquisitions made in the ordinary
course of business consistent with past practice with the consideration
equal to less than Five Million Dollars ($5,000,000) for any such
transaction;
(h) Sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, its material assets, other
than in the ordinary course of business consistent with past practice;
(i) Other than as contemplated by this Agreement, adopt any
amendments to its Articles or Certificate of Incorporation, as
applicable, or Bylaws;
(j) Other than in connection with the financing of the
transactions contemplated by this Agreement and the effect thereof on
Acquiror's budget, incur any liability or any obligation for borrowed
money or purchase money indebtedness, whether or not evidenced by a
contract, note, bond, debenture or similar instrument other than
liabilities and obligations up to Twenty Five Million Dollars
($25,000,000) to the extent that they relate to the conduct of
Acquiror's business in the ordinary course of business and consistent
with past practice;
(k) Agree in writing or otherwise to do any of the foregoing
unless the terms of such agreement are terminable upon closing of the
Merger contemplated in this Agreement;
(l) (i) perform any act which, if performed, would prevent or
excuse the performance of this Agreement by Acquiror or Acquiror Sub,
or (ii) fail to perform any act which, if omitted to be performed,
would prevent or excuse the performance of this Agreement by Acquiror
or Acquiror Sub; or
(m) Initiate, solicit, continue or encourage (including by way
of furnishing any information or assistance in connection with) any
inquiries or the making of any offer that constitutes, or may
reasonably be expected to lead to, any "Acquiror Competing Transaction"
(as such term is defined below), or enter into discussions or
negotiations with any person or entity in furtherance of such inquiries
or to obtain an Acquiror Competing Transaction or enter into any
agreement with respect to an Acquiror Competing Transaction. Acquiror
shall promptly notify the Company if any such inquiries or proposals
are received by Acquiror, by any material subsidiary of Acquiror or by
any of its or their officers, directors, financial advisors, attorneys,
accountants or other representatives. For purposes of this Agreement,
the term "ACQUIROR COMPETING
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TRANSACTION") shall mean any of the following involving Acquiror or any
material subsidiary of Acquiror (other than the Merger): (i) except as
required by Acquiror's Board of Directors' fiduciary duties, as advised
in writing by counsel to Acquiror, any merger, consolidation, exchange,
material business combination, or other similar material transaction
(except with respect to transactions permitted pursuant to
Section 5.04(g)); (ii) except as required by Acquiror's Board of
Directors' fiduciary duties, as advised in writing by counsel to
Acquiror, any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of all or substantially all of the assets of Acquiror
in a single transaction or series of related transactions; (iii) except
as required by Acquiror's Board of Directors' fiduciary duties, as
advised in writing by counsel to Acquiror, any sale of or exchange for
(including, without limitation, by merger or tender offer) all of the
outstanding capital stock or equity of Acquiror; or (iv) any agreement
to, or announcement by Acquiror of a proposal, plan or intention, to do
any of the foregoing. If Acquiror shall exercise its rights with
respect to fiduciary duties, a copy of such opinion shall be furnished
to the Company three (3) business days prior to taking any action
required by such fiduciary duties.
SECTION 5.05 ACCESS AND INFORMATION.
(a) Upon reasonable prior notice from Acquiror, the Company
shall afford to Acquiror and its officers, employees, accountants,
consultants, legal counsel and other representatives, reasonable access
during business hours to (i) the properties and locations at which the
Company is conducting business activities, (ii) the managers, officers
and management personnel of the Company at all such locations, and
(iii) all information (including, if available, original documents and
Returns) concerning the business, properties, contracts, records and
personnel of the Company. The Company shall permit Acquiror to make
copies of such books, records and other documents as Acquiror
reasonably considers necessary or appropriate for the purpose of
familiarizing itself with the business, properties, contracts, records
and personnel of the Company, and/or for obtaining any approvals,
consents, licenses or permits for the transactions contemplated by this
Agreement.
(b) Upon reasonable prior notice from the Company, Acquiror
shall afford to the Company and its officers, employees, accountants,
consultants, legal counsel and other representatives, reasonable access
during business hours to (i) the properties and locations at which
Acquiror is conducting substantially all of its business activities,
(ii) the managers, officers and management personnel of Acquiror at all
such locations, and (iii) all information (including, if available,
original documents and Returns) concerning the business, properties,
contracts, records and personnel of Acquiror. Acquiror shall permit the
Company to make copies of such books, records and other documents as
the Company reasonably considers necessary or appropriate for the
purpose of familiarizing itself with the business, properties,
contracts, records and personnel of Acquiror, and/or for obtaining any
approvals, consents, licenses or permits for the transactions
contemplated by this Agreement.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 TAX TREATMENT. All parties shall use reasonable
efforts to cause the Merger to qualify, and shall not knowingly take any
actions which could prevent the merger from qualifying as a reorganization
and from having each of the parties to this Agreement from being parties to
such reorganization within the meaning of Section 368 of the Code. Following
the Effective Time, neither the Surviving Corporation, Acquiror nor any of
their Affiliates shall take any action, cause any action to be taken, fail to
take any action or cause any action to fail to be taken, which action or
failure to act could cause the Merger to fail to qualify as a reorganization
under Section 368(a) of the Code.
SECTION 6.02 STOCKHOLDER AGREEMENTS. Shares of Acquiror Common
Stock and Acquiror Series A Preferred Stock are being issued by Acquiror to
the Stockholders under the Merger in reliance upon the representations,
warranties and agreements of the Stockholders set forth in a Stockholder
Agreement in the form of EXHIBIT B attached hereto (each, a "STOCKHOLDER
AGREEMENT").
SECTION 6.03 STEP REGISTRATION OF ACQUIROR COMMON STOCK. Within
ten (10) days following the Effective Time, Acquiror shall effect the
registration for resale of twenty-five percent (25%) of the Acquiror Common
Stock issued to the Stockholders in the Merger or underlying shares of
Acquiror Series A Preferred Stock issued to the Stockholders in the Merger.
Acquiror further agrees that (i) it shall effect the registration for resale
of an additional fifteen percent (15%) of the original total number of shares
of Acquiror Common Stock issued in the Merger or underlying shares of
Acquiror Series A Preferred Stock issued to the Stockholders in the Merger on
or prior to the last day of the three (3) month period beginning at the
Effective Time, (ii) it shall effect the registration for resale of an
additional thirty-three and one-third percent (33 1/3%) of the original total
number of shares of Acquiror Common Stock issued in the Merger or underlying
shares of Acquiror Series A Preferred Stock issued in the Merger on or prior
to the last day of the nine (9) month period beginning at the Effective Time,
and (iv) it shall effect the registration for resale of the balance of such
shares of Acquiror Common Stock or Acquiror Common Stock underlying shares of
Acquiror Series A Preferred Stock issued hereunder which have not been
registered for resale under the Securities Act ("UNREGISTERED SHARES")
(including the Escrow Shares, which shares shall be the last shares of
Acquiror Common Stock registered under this Section 6.03) on or prior to the
second anniversary of the Effective Time, to the extent such shares are then
owned by the Stockholders; Acquiror shall use all reasonable efforts to
effect the registration of the shares for resale under the Securities Act, by
performing the obligations set forth in those Registration Rights Agreements,
to be entered into prior to the Effective Time between Acquiror and various
Stockholders listed on Schedule 6.03, the form of which is attached hereto as
EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENTS"). No Stockholder shall
receive the registration rights provided in this Section 6.03 until such
Stockholder has executed and delivered to Acquiror a Registration Rights
Agreement. Registration of the Escrow Shares shall not affect the terms of
the Escrow Agreements or otherwise constitute a release of such shares from
escrow. Each such shareholder listed on Schedule 6.03 shall be entitled to
enter into its own registration rights agreement with Acquiror.
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Any stockholders not listed on Schedule 6.03 shall be entitled to enter into
a registration rights agreement in form and substance substantially similar
to the Registration Rights Agreement.
SECTION 6.04 PREPARATION OF ACQUIROR'S PROXY STATEMENT;
SHAREHOLDERS MEETING.
(a) As soon as practicable following the date of this
Agreement, Acquiror shall prepare and file with the Commission and
cause to be cleared a proxy statement (the "PROXY STATEMENT") in
connection with the submission of the Share Issuance and the Merger to
Acquiror's shareholders for their approval (the "SHAREHOLDER
APPROVAL"). Acquiror shall cause the Proxy Statement to be mailed to
Acquiror's shareholders as soon as practicable after its review, if
any, by the Commission. Acquiror will advise the Company, promptly
after it receives notice thereof, of the time when the Proxy Statement
or any amendment thereto has been filed, of any request by the
Commission or its staff for amendment of the Proxy Statement, if any,
or comments thereon and responses thereto or requests by the Commission
or its staff for additional information. Drafts of the Proxy Statement
and any amendments shall be provided to the Company and its counsel not
less than three business days prior to filing and all filings shall be
subject to the reasonable approval of the Company and its counsel. Each
of the Company and Acquiror agrees that the information provided by it
for inclusion in the Proxy Statement, and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the meeting
of shareholders of Acquiror, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any
time prior to the Effective Time, any information relating to Acquiror
or the Company, or any of their respective Affiliates, officers or
directors, should be discovered by Acquiror or the Company which should
be set forth in an amendment to the Proxy Statement, so that such
document would not include any misstatement of a material fact or omit
to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
the party which discovers such information shall promptly notify the
other party hereto and an appropriate amendment describing such
information shall be promptly filed with the Commission and, to the
extent required by Law, disseminated to Acquiror's shareholders.
(b) Acquiror shall, as soon as possible following the date of
this Agreement, duly call, give notice of, convene and hold a meeting
of its shareholders (the "SHAREHOLDERS MEETING") for the purpose of
obtaining the Shareholder Approval and shall, through its board of
directors (if not in breach of their fiduciary duties), recommend to
its shareholders the approval and adoption of this Agreement, the
Merger, the Share Issuance and the other agreements and transactions
contemplated hereby.
(c) Acquiror will use its best efforts to hold the
Shareholders Meeting as soon as possible after the date hereof.
(d) Acquiror will use its best efforts to obtain the
Shareholder Approval and to list the Acquiror Common Stock to be issued
in the Merger or issuable upon the conversion of Acquiror Series A
Preferred Stock with the NYSE.
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SECTION 6.05 RATIFICATION OF COMPANY APPROVAL. On the date hereof,
the Company shall have provided Acquiror with documents, in such form and
substance as reasonably requested by Acquiror, executed by the Stockholders
listed on Section 6.05 of the Company Disclosure Schedules (the "PRINCIPAL
STOCKHOLDERS") and directors of the Company, affirming and ratifying their
approval of and consent to the Merger and the other transactions contemplated
hereunder.
SECTION 6.06 APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Company and Acquiror shall use all reasonable efforts
to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under
applicable Laws or otherwise to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable,
(ii) obtain from any Governmental Entities any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be
obtained or made by the Company or Acquiror or any of their respective
subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein, including, without limitation, the Merger, and
(iii) make all necessary filings, and thereafter make any other
required submissions, with respect to this Agreement and the Merger
required under (A) the Securities Act and the Exchange Act, and any
other applicable securities Laws, (B) the HSR Act (including, without
limitation, with respect to the acquisition by any Stockholder of
shares of Acquiror Common Stock or Acquiror Series A Preferred Stock in
the Merger), and (C) any other applicable Law; provided, however, that
the Company and Acquiror shall cooperate with each other in connection
with the making of all such filings, including providing copies of all
such documents to the non-filing party and its advisors prior to filing
and, if requested, to accept all reasonable additions, deletions or
changes suggested in connection therewith, and the Company, Acquiror
and Acquiror Sub shall not respond to any regulatory authority without
the consent of the other parties hereto. The Company and Acquiror shall
(and the Company shall cause the Principal Executives to) furnish to
each other all information required for any application or other filing
to be made pursuant to the rules and regulations of any applicable Law
(including, if so requested by Acquiror, all information required to be
included in the Resale Prospectus or a proxy statement) in connection
with the transactions contemplated by this Agreement.
(b) The Company and Acquiror shall give (or shall cause their
respective subsidiaries or Affiliates to give) (and the Company shall
cause the Principal Executives to give) any notices to third parties,
and use, and cause their respective subsidiaries to use, all reasonable
efforts to obtain any third party consents required to prevent a
Company Adverse Effect from occurring prior to or after the Effective
Time or an Acquiror Adverse Effect from occurring prior to or after the
Effective Time (collectively, "MATERIAL CONSENTS").
(c) From the date of this Agreement until the Effective Time,
the Company shall promptly notify Acquiror in writing of any pending
or, to the knowledge of the Company, threatened action, proceeding or
investigation by any Governmental Entity or any other person (i)
challenging or seeking damages in connection with the Merger and
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conversion of the Company Common Stock and/or Company Preferred Stock
into Acquiror Common Stock and/or Acquiror Series A Preferred Stock
pursuant to the Merger, or (ii) seeking to restrain or prohibit the
consummation of the Merger, the other transactions contemplated under
this Agreement, or otherwise limit the right of Acquiror or its
subsidiaries to own or operate all or any portion of the businesses or
assets of the Company or the Surviving Corporation, which in either
case is reasonably likely to have a Company Adverse Effect prior to or
after the Effective Time, or an Acquiror Adverse Effect after the
Effective Time.
(d) From the date of this Agreement until the Effective Time,
Acquiror shall promptly notify the Company in writing of any pending
or, to the knowledge of Acquiror, threatened action, proceeding or
investigation by any Governmental Entity or any other person (i)
challenging or seeking damages in connection with the Merger or the
conversion of the Company Common Stock and/or Company Preferred Stock
into Acquiror Common Stock and/or Acquiror Series A Preferred Stock
pursuant to the Merger, or (ii) seeking to restrain or prohibit the
consummation of the Merger or the other transactions contemplated under
this Agreement, or in either case reasonably likely to have an Acquiror
Adverse Effect prior to the Effective Time.
(e) Each of Acquiror and the Company shall cooperate with each
other in obtaining the Tax Opinion. In connection therewith, each of
Acquiror and the Company shall deliver to Altheimer & Gray (or other
nationally recognized counsel selected by the Company) customary
representation letters in form and substance reasonably satisfactory to
such counsel and the Company and Acquiror shall use reasonable efforts
to obtain any representation letters from appropriate stockholders and
shall deliver any such letters obtained to Altheimer & Gray.
SECTION 6.07 UPDATE DISCLOSURE; BREACHES. From and after the date
of this Agreement until the Effective Time, the Company, on the one hand, and
Acquiror and Acquiror Sub, on the other hand, shall promptly notify the other
by written update to its Disclosure Schedules of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would
be likely to cause any condition to the obligations of any party to effect
the Merger and the other transactions contemplated by this Agreement not to
be satisfied, or (ii) the failure of the Company or Acquiror or Acquiror Sub,
as the case may be, to comply with or satisfy any covenant or agreement to be
complied with or satisfied by it pursuant to this Agreement which would be
likely to result in any condition to the obligations of any party to effect
the Merger and the other transactions contemplated by this Agreement not to
be satisfied; provided, however, that, except as otherwise provided in this
Agreement, the delivery of any notice pursuant to this Section 6.07 shall not
be deemed to cure any breach of any representation or warranty requiring
disclosure of such matter prior to the date of this Agreement, or otherwise
limit or affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.08 PUBLIC ANNOUNCEMENTS. Subject to applicable Law, each
of Acquiror and the Company shall obtain the other party's prior approval
(which shall not be unreasonably withheld) of the contents of all public
announcements (including press releases) with respect to the Merger or this
Agreement. The Company and Acquiror acknowledge and
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agrees that any such press release or other public announcement respecting
the Merger or this Agreement shall be disseminated only in coordination
between the Company and Acquiror.
SECTION 6.09 OBLIGATIONS OF ACQUIROR SUB. Acquiror shall, for the
benefit of the Company and its Stockholders, take all reasonable action
necessary to cause Acquiror Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth
in this Agreement.
SECTION 6.10 CERTIFICATES. Each certificate representing
Unregistered Shares owned by a Stockholder shall bear legends substantially
as follows:
(a) All certificates representing Acquiror Common Stock and
Acquiror Series A Preferred Stock shall bear a legend reading
substantially as follows:
"The securities represented by this certificate were issued in
a private placement, without registration under the Securities
Act of 1933 and in reliance on the holder's representation
that such securities were being acquired for investment and
not for resale. No transfer of such securities may be made on
the books of the issuer unless accompanied by an opinion of
counsel reasonably satisfactory to the issuer, that such
transfer may properly be made without registration under the
Securities Act of 1933 or that such securities have been so
registered under a registration statement which is in effect
at the date of such transfer."
(b) Certificates delivered under the Escrow Agreements shall
also bear the following endorsement:
"The securities represented by this certificate are also
subject to restrictions on transfer and to the rights of
issuer and issuer's affiliate, to cancel such securities, on
the terms and conditions set forth in an Agreement and Plan of
Merger and Plan of Reorganization dated as of January __, 2000
and an Escrow Agreement, dated as of ___________, 2000, a copy
of each of which may be obtained from the issuer or from the
holder of this certificate. No transfer of such securities
will be made on the books of issuer unless accompanied by
evidence of compliance with the terms of such agreements."
These legends shall be the only ones appearing on the
certificates. The legend in (a) shall be removed by Acquiror upon
request made on or after the second anniversary of the Effective Time
and shall also be removed in connection with the resale of shares of
Acquiror Common Stock pursuant to the Registration Rights Agreements.
Upon release of any such certificates from the Escrow Agreements, the
legend set forth in Section 6.10(b) shall be removed.
SECTION 6.11 ACQUIROR BOARD REPRESENTATION. At the Effective Time,
the Board of Directors of Acquiror shall be reconstituted so that it is no
more than eleven (11) members and so that it contains as members such number
of directors as designated by the Principal Executives (the "BOARD
DESIGNEES"), rounded up to the next whole number, as shall cause such Board
Designees to represent that portion of the Board of Directors of Acquiror
equal to the
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product of the total number of directors on such Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage
that the aggregate number of shares of Acquiror Common Stock to be issued
pursuant to this Agreement (or issuable upon conversion of Acquiror Series A
Preferred Stock to be issued pursuant to this Agreement) and to be
beneficially owned by the Stockholders bears to the total number of shares of
Acquiror Common Stock to be outstanding at the Effective Time or then
issuable upon conversion of Acquiror Series A Preferred Stock to be then
outstanding. In order to satisfy its obligations hereunder, Acquiror further
agrees prior to the Effective Time to amend its Bylaws and to take such other
action as reasonably requested by the Company.
SECTION 6.12 STANDSTILL AGREEMENTS; CONFIDENTIALITY AGREEMENTS.
During the period from the date hereof through the Effective Time, the
Company may not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it is a party (other than
the Letter of Confidentiality pursuant to its terms or by written agreement
of the parties thereto). During such period, the Company shall enforce, to
the fullest extent permitted under applicable Law, the provisions of any such
agreement, including by reasonable efforts to obtain injunctions to prevent
any breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court of the United States of America or of any
state having jurisdiction.
SECTION 6.13 COMPANY OPTIONS UNDER THE PLAN.
(a) As of the Effective Time, (i) each outstanding Company
Option shall be assumed by Acquiror and become and represent an option
(an "ADJUSTED OPTION") to purchase (A) the number of shares of Acquiror
Common Stock decreased to the nearest whole share, determined by
multiplying (I) the number of shares of Acquiror Common Stock to be
issued upon conversion of one share of Company Common Stock pursuant to
Section 2.01(b)(iv) of this Agreement by (II) a fraction (the "Option
Number") the numerator of which is one and the denominator is the
number of shares of Acquiror Common Stock to be issued upon conversion
of one share of Company Common Stock pursuant to Section 2.01(b)(iv) of
this Agreement, and (B) the number of shares of Series Preferred Stock
to be issued upon conversion on one share of Company Common Stock
pursuant to Section 2.01(b)(iv) of this Agreement by the Option Number,
at an exercise price per Adjusted Option equal to the exercise price
for each such Company Stock Option, divided by the Option Number
(rounded down to the nearest whole cent), and all references in each
such option to the Company shall be deemed to refer to Acquiror, where
appropriate; provided, however, that the adjustments provided in this
clause (i) with respect to any options which are "incentive stock
options" (as defined in Section 422 of the Code) or which are described
in Section 423 of the Code, shall be effected in a manner consistent
with the requirements of Section 424(a) of the Code, and (ii) Acquiror
shall assume the obligations of the Company under the Plan. The other
terms of each Adjusted Option, and the plans or agreements under which
they were issued, shall continue to apply in accordance with their
terms. The date of grant of each Adjusted Option shall be the date on
which the corresponding Company Option was granted.
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(b) The Company and Acquiror agree that the Plan shall be
amended, to the extent necessary, to reflect the transactions
contemplated by this Agreement, including, but not limited to the
conversion of shares of Company Class A Common Stock held or to be
awarded or paid pursuant to the Plan, into shares of Acquiror Common
Stock on a basis consistent with the transactions contemplated by this
Agreement. The Company and Acquiror agree to submit the amendments to
the Plan to their respective stockholders, if such submission is
determined to be necessary by counsel to the Company or Acquiror after
consultation with one another; provided, however that such approval
shall not be a condition to the consummation of the Merger.
(c) Acquiror shall (i) reserve for issuance the number of
shares of Acquiror Common Stock that will become subject to the Plan
and (ii) issue or cause to be issued the appropriate number of shares
of Acquiror Common Stock pursuant to the Plan, upon the exercise or
maturation of rights existing thereunder on the Effective Time or
thereafter granted or awarded. No later than the Effective Time,
Acquiror shall prepare and file with the Commission a registration
statement on Form S-8 (or other appropriate form) registering a number
of shares of Acquiror Common Stock necessary to fulfill Acquiror's
obligations under this Section 6.13(c). Such registration statement
shall be kept effective and the current status of the prospectus
required thereby shall be maintained for at least as long as Adjusted
Options remain outstanding.
(d) As soon as practicable after the Effective Time, Acquiror
shall deliver to the holders of Company Options appropriate notices
setting forth such holders' rights pursuant to the Plan and the
agreements evidencing the grants of such Company Options and that such
Company Options and the related agreements shall be assumed by Acquiror
and shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section after giving effect to the
Merger); provided that Acquiror shall make good faith efforts to so
deliver such notices on the same day as the Effective Time.
(e) Prior to the Effective Time, the Company may cause (i)
fifty percent (50%) of all Company Options held by each Key Employee to
become fully vested at the Effective Time (and the remainder of such
employee's Company Options shall vest on the date they would have
otherwise vested absent such accelerated vesting), and (ii)
thirty-three and one-third percent (33 1/3%) of all Company Options
held by each employee of the Company (other than the Principal
Executives or Key Employees) to become fully vested at the Effective
Time (and the remainder of such employee's Company Options shall vest
on the date they would have otherwise vested absent such accelerated
vesting).
(f) Between the date hereof and the Effective Time, the
Company will prohibit (in accordance with the terms of the Plan)
exercises of Company Options to the extent that the issuance hereunder
of the Merger Consideration would not be excempt from the Securities
Act.
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SECTION 6.14 CONDITIONAL FUNDING.
(a) If the Effective Time shall not occur on or prior to March
1, 2000 (and Acquiror possesses no right to terminate this Agreement
under Article VIII), Acquiror shall on such date make an unsecured loan
to the Company in immediately available funds in the amount of
$5,000,000, with the Company's repayment obligation solely evidenced by
a subordinated note substantially in the form of EXHIBIT D attached
hereto.
(b) If the Effective Time shall not occur on or prior to April
1, 2000 (and Acquiror possesses no right to terminate this Agreement
under Article VIII), Acquiror shall on such date make an unsecured loan
to the Company in immediately available funds in the amount of
$5,000,000, with the Company's repayment obligation solely evidenced by
a subordinated note substantially in the form of EXHIBIT D attached
hereto.
(c) Any funding under Section 6.14(b) shall be in addition to
any funding pursuant to Section 6.14(a). The Company shall not be
required to issue any note to Acquiror in respect of a loan under
Sections 6.14(a) or (b) until Acquiror has initiated the funding of
such loans in immediately available funds. For the purposes of this
Agreement, "FUNDING NOTES" shall mean the notes referenced in this
Section 6.14.
SECTION 6.15 EMPLOYEE AND RELATED MATTERS.
(a) For a period of one year following the Effective Time,
Acquiror shall provide the Company's employees with retirement, health,
welfare and other employee benefits that are substantially equivalent
to, and no less favorable than, those provided to Acquiror's employees
who are similarly situated. To the extent that service is relevant for
eligibility and vesting (and, solely for purposes of calculating
entitlement to vacation and sick days, benefit accruals) under any
retirement plan, employee benefit plan, program or arrangement
established or maintained by Acquiror or any of its subsidiaries for
the benefit of employees located in the United States of Acquiror and
any of its subsidiaries; such plan, program or arrangement shall (i)
credit Company employees for service on or prior to the Effective Time
with the Company, (ii) credit any pre-existing conditions, to the same
extent eligible for coverage under a Company Benefit Plan and (iii)
recognize, for purposes of annual deductible and out-of-pocket limits
under its medical and dental plans, deductible and out-of-pocket
expenses paid by the Company's employees in the calendar year in which
the Effective Time occurs.
(b) For a period of three years following the Effective Time,
other than as approved by the Principal Executives, Acquiror shall not
relocate the Key Employees or the technology department to a location
other than the Company's present location or a location connected to
the UPSHOT division of Acquiror.
SECTION 6.16 INDEMNIFICATION.
(a) From and after the Effective Time, the Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation
to, provide exculpation and indemnification for each Person who is now
or has been at any time prior to the date hereof or who becomes prior
to the Effective Time, an officer, agent, employee or
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director of the Company (the "COMPANY INDEMNIFIED PARTIES") which is
the same as the exculpation and indemnification provided to the
Company Indemnified Parties by the Company immediately prior to the
Effective Time in its Certificate of Incorporation and Bylaws, as in
effect on the date hereof; provided, that such exculpation and
indemnification covers actions on or prior to the Effective Time,
including, without limitation, all transactions contemplated by this
Agreement (or that limitation of the indemnification obligations of
the Escrowed Stockholders under Article IX hereof and excluding
actions (other than with respect to appraisal rights pursuant to
applicable Delaware Law) brought by Stockholders who did not vote
for, or submit their written consent to approve, the Merger).
(b) In the event that the Acquiror or Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any
Person, then, and in each such case, the successors and assigns of such
entity shall assume the obligations set forth in this Section 6.16,
which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer
covered hereby.
(c) Acquiror guarantees, unconditionally and absolutely, the
performance of Surviving Corporation's and Acquiror Sub's obligations
under this Section 6.16.
(d) Acquiror shall cause to be maintained (to the extent
commercially available) in effect for not less than six years from the
Effective Time policies of directors' and officers' liability
insurance, for the benefit of directors and officers of the Company
prior to the Effective Time, with respect to matters occurring prior to
the Effective Time in amounts and on a basis not less favorable than
Acquiror provides for its officers and directors.
(e) Each of the Company Indemnified Parties shall be entitled
to enforce the covenants contained in this Section 6.16 and Acquiror
and Acquiror Sub acknowledge and agree that each Company Indemnified
Party would suffer irreparable harm and that no adequate remedy at law
exists for a breach of such covenants and such Company Indemnified
Party shall be entitled to injunctive relief and specific performance
in the event of any breach of any provision in this Section 6.16. This
Section 6.16 is intended for the irrevocable benefit of, and to grant
third party rights to, the Company Indemnified Parties and their
successors, assigns and heirs and shall be binding on all successors
and assigns of Acquiror and Acquiror Sub, including without limitation
the Surviving Corporation.
SECTION 6.17 COMMITMENT LOANS; FACILITY.
(a) Simultaneously herewith or on the next busineess day
hereafter, Acquiror shall make an unsecured loan to the Company in
immediately available funds in the amount of $5,000,000, with the
Company's repayment obligation solely evidenced by a subordinated note
substantially in the form of EXHIBIT D attached hereto (such note,
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together with that certain unsecured loan in the amount of $5,000,000
made by Acquiror to the Company pursuant to that certain Promissory
Note, dated January 6, 2000, are referenced hereinafter as the
"COMMITMENT NOTES"). Acquiror and Acquiror Sub agree and acknowledge
that such loan shall in no way reduce, modify or offset all or any
portion of the Merger Consideration or the rights or remedies of the
Company or the Stockholders whether under or at law or in equity.
(b) On or prior to February 28, 2000, Acquiror shall provide
evidence reasonably satisfactory to the Company that Acquiror has a
working capital facility with substantially the same terms as its
current facility (the "FACILITY").
SECTION 6.18 LISTING. Acquiror agrees to authorize for listing on
the NYSE the shares of Acquiror Common Stock comprising the Merger
Consideration (including shares of Acquiror Common Stock issuable upon
conversion of Acquiror Series A Preferred Stock), and those required to be
reserved for issuance upon exercise of Adjusted Options assumed in connection
with the Merger, by filing with the NYSE a Supplemental Listing Application
(or such other form as may be required by the NYSE) in a timely manner prior
to the Closing or otherwise in accordance with the rules and regulations of
the NYSE.
SECTION 6.19 STRUCTURE OF MERGER. The parties hereto acknowledge
that, at the written request of the Company, the parties shall amend this
Agreement for the purpose of restructuring the Merger so that the Company is
the "Surviving Corporation" hereunder. Any such amendment shall contain
appropriate modifications to the provisions of this Agreement as if such
restructured Merger were originally the form of Merger contemplated by this
Agreement. Any such request shall be made at least ten (10) business days
prior to the Effective Time and only if this Agreement has not been
terminated pursuant to Article VIII hereof.
SECTION 6.20 CERTAIN RESOLUTIONS. Prior to the consummation of the
Merger, and as a condition to the Company's obligations to close the Merger,
Acquiror agrees to take all actions reasonably necessary to secure an
exemption from Section 16(b) of the Securities Exchange Act of 1934, pursuant
to Rule 16b-3 under that Act, for all acquisitions, dispositions and
reacquisitions of equity securities of Acquiror to occur directly or
indirectly as a result of the Merger, pursuant to the Merger Agreement, the
related Escrow Agreements or otherwise, by each of the following persons (or
any entities in which they hold interest) who will become directors or
officers of Acquiror at the time the Merger is consummated; (provided,
however, that the foregoing agreement shall not limit Acquiror's rights or
remedies under the Merger Agreement, the related Escrow Agreements or other
agreements contemplated thereby): Bradley Keywell, Eric Lefkofsky, Stephen
Murray, and Richard Heise.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Merger and
the other transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Effective
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Time of the following conditions, any or all of which may be waived, in whole
or in part, to the extent permitted by applicable Law:
(a) NO ACTION OR PROCEEDING. No order of a court or an
administrative agency shall be in effect which enjoins, restrains,
conditions or prohibits the consummation of the transactions
contemplated by this Agreement, and no Governmental Entity shall have
commenced litigation to enjoin, restrain, or prevent consummation of
the transactions contemplated by this Agreement.
(b) CONSENTS. All material approvals and Material Consents
shall have been obtained from any and all Governmental Entities whose
approval or consent is necessary to the authorization of this Agreement
or the consummation of the Merger and where the failure to obtain such
approval or consent would have an Acquiror Significant Adverse Effect
or a Company Significant Adverse Effect. The applicable waiting
periods, if any, together with any extensions thereof, under the HSR
Act shall have expired or been terminated (including, without
limitation, with respect to the acquisition of Acquiror Common Stock or
Acquiror Series A Preferred Stock by any Stockholder of the Company).
(c) NYSE LISTING. The shares of Acquiror Common Stock issuable
to the Stockholders as contemplated by this Agreement (including shares
of Acquiror Common Stock issuable upon conversion of Acquiror Series A
Preferred Stock issuable to the Stockholders as contemplated by this
Agreement), shall have been approved for listing on the NYSE, subject
to official notice of issuance.
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND
ACQUIROR SUB. The obligations of Acquiror and Acquiror Sub to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects, except
where the failure to be so true and correct would not have a Company
Significant Adverse Effect, in each case as though made on and as of
the Effective Time, and Acquiror shall have received a certificate of
the Chief Executive Officer (acting in such capacity) of the Company to
that effect (which certificate shall be included in EXHIBIT E hereto).
(b) AGREEMENTS AND COVENANTS; OTHER MATTERS. The Company shall
have performed or complied in all material respects with all material
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and Acquiror
shall have received a certificate of the Chief Executive Officer
(acting in such capacity) of the Company to that effect (which
certificate shall be included in EXHIBIT E hereto).
(c) EMPLOYMENT AND OTHER AGREEMENTS. Acquiror, on behalf of
the Surviving Corporation, shall have received from (i) Brad, an
executed Employment Agreement in the form of EXHIBIT F hereto (the
"BRAD EMPLOYMENT AGREEMENT"), and (ii) Eric, an
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executed Employment Agreement in the form of EXHIBIT G hereto (the
"ERIC EMPLOYMENT AGREEMENT"), and all such Employment Agreements
shall be in full force or become effective at and as of the
Effective Time (the Company hereby acknowledges and agrees that the
execution of the Employment Agreements by each Principal Executive
and their respective promises to perform their obligations therein
are a material inducement to the execution and performance by
Acquiror and Acquiror Sub of their respective obligations herein).
In addition, Acquiror shall have received from each Principal
Executive an executed Agreement and Covenant Against Unfair
Competition, in the form of EXHIBIT H hereto.
(d) STOCKHOLDER AND DIRECTOR RESOLUTIONS; CERTIFICATE OF
INCORPORATION AND BYLAWS. Acquiror shall have received (i) resolutions
of the Company's Stockholders and directors, dated on or prior to the
date hereof, and certified by the Company's Chief Executive Officer,
acting in such capacity, approving, ratifying and confirming the
consummation of the Merger and other transactions contemplated by this
Agreement, and (ii) copies of the Certificate of Incorporation and
Bylaws of the Company certified by the Company's Chief Executive
Officer, acting in such capacity, as being the true Certificate of
Incorporation and Bylaws of the Company as of the Effective Date.
(e) OTHER DOCUMENTS AND INSTRUMENTS. Acquiror shall have
received such other certificates, instruments and other documents
reasonably required to effectuate the transactions contemplated hereby,
or to confirm to Acquiror the effectiveness thereof.
(f) SATISFACTION OF DEBTS. The Principal Stockholders and all
other officers and directors of the Company, together with their
spouses, blood relations and affiliates, shall have taken reasonable
efforts to pay in full, with interest if applicable, all of their
outstanding indebtedness to the Company, whether or not then due.
(g) CERTIFICATES OF GOOD STANDING. Acquiror shall have
received Certificates of Good Standing from the Secretary of State of
Delaware and Illinois with respect to the Company dated within four (4)
days of the Effective Time.
(h) SHAREHOLDER APPROVAL. The Shareholder Approval shall have
been obtained.
(i) ESCROW AGREEMENTS. Acquiror shall have received from the
Escrowed Stockholders executed Escrow Agreements.
(j) EXERCISE OF WARRANT. Acquiror shall have received evidence
reasonably satisfactory to Acquiror demonstrating that Silicon Valley
Bank ("SVB") has either (A) exercised that certain Warrant to Purchase
Stock, issued to Silicon Valley Bank by the Company on September 16,
1999 (the "SILICON WARRANT"), for shares of Company Series B Preferred
Stock in accordance with its terms and converted such Company Series B
Preferred Stock into Company Class B Common Stock or (B) consented to
treat such Warrant as if so exercised and converted immediately prior
to the Merger such that in the Merger SVB receives the Merger
Consideration to be received by holders of Company Common Stock as
provided in Section 2.01(a) hereof.
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(k) SIDE LETTER. Acquiror shall have received from each
Principal Executive a side letter in the form of EXHIBIT I attached
hereto, whereby such Principal Executive agrees to indemnify Acquiror
and the Surviving Corporation for liabilities incurred as a result of
the conduct of Persons (other than the Company, Acquiror, Acquiror Sub
and interest therein) owned, directly or indirectly, by such Principal
Executive.
SECTION 7.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Acquiror and Acquiror Sub contained
in this Agreement shall be true and correct in all material respects,
except where the failure to be so true and correct would not have an
Acquiror Significant Adverse Effect, in each case as though made on and
as of the Effective Time, and the Company shall have received a
certificate of the Chief Financial Officer of Acquiror and Acquiror Sub
to that effect (which certificate shall be included in EXHIBIT E
hereto).
(b) AGREEMENTS AND COVENANTS. Acquiror and its subsidiaries
shall have performed or complied in all material respects with all
material agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Effective Time,
and the Company shall have received a certificate of the Chief
Financial Officer of Acquiror and Acquiror Sub to that effect (which
certificate shall be included in EXHIBIT E hereto).
(c) EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Each Principal
Executive entering into an Employment Agreement and an Agreement and
Covenant Against Unfair Competition with Acquiror and/or the Surviving
Corporation shall have received an executed counterpart thereof from
Acquiror and/or the Surviving Corporation.
(d) ESCROW AGREEMENTS. The Escrowed Stockholders shall have
received from Acquiror and Acquiror Sub executed Escrow Agreements.
(e) CERTIFICATES OF GOOD STANDING. The Company shall have
received Certificates of Good Standing from the Secretary of State of
Delaware and Illinois with respect to Acquiror and Acquiror Sub dated
within four (4) days of the Effective Time.
(f) TAX OPINION. The Company shall have received an opinion
dated the Closing Date from Altheimer & Gray (or other nationally
recognized counsel selected by the Company ) (the "TAX OPINION"), which
may be based upon such certificates and letters dated the Closing Date
as are acceptable to such counsel, to the effect that, the merger will
qualify as a reorganization within the meaning of Code ss. 368(a) and
each of the parties to this Agreement shall be a party to such
reorganization and therefore, for federal income tax purposes, the
Stockholders shall recognize no income, gain or loss upon the Merger
except to the extent of any cash consideration actually received or
deemed received.
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(g) ACQUIROR RELEASES. Each of the Principal Executives shall
have received from Acquiror a Release of Claims in the form of EXHIBIT
J attached hereto.
(h) ACQUIROR SERIES A PREFERRED STOCK. Acquiror shall have
filed with the Secretary of State of the State of Illinois a Statement
of Resolution Establishing Series (or an Amendment to its Articles of
Incorporation), which shall designate the Acquiror Series A Convertible
Preferred Stock in accordance with the terms set forth on EXHIBIT K
attached hereto.
(i) OTHER DOCUMENTS AND INSTRUMENTS. The Company shall have
received such other certificates, instruments and other documents
reasonably required to effectuate the transactions contemplated hereby,
or to confirm the effectiveness thereof.
(j) REGISTRATION RIGHTS AGREEMENT. Each Stockholder executing
a Registration Rights Agreement pursuant to Section 6.03 hereof shall
have received an executed counterpart Registration Rights Agreement
from Acquiror.
(k) The Shareholder Approval shall have been received.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 TERMINATION. Subject to Section 8.02 and 8.03 hereof,
this Agreement and the Merger may be terminated at any time prior to the
Effective Time in the following manner:
(a) by mutual consent of Acquiror and the Company;
(b) by Acquiror, if (i) (A)there has been a material breach by
the Company of any material covenant or agreement on its part to be
performed under this Agreement, and such breach is not cured within
thirty (30) days (or such earlier time one day before this Agreement
may be terminated pursuant to paragraph (e) below) following receipt by
the Company of written notice thereof from Acquiror (or is not capable
of cure), or (B) any one or more of the representations and warranties
of the Company contained in Article III of this Agreement is in
material breach and such breach is not cured within thirty (30) days
(or such earlier time one day before this Agreement may be terminated
pursuant to paragraph (e) below) following receipt by the Company of
written notice thereof from Acquiror (or is not capable of cure), and
(ii) the aggregate potential Damages which would reasonably be likely
to be sustained, directly or indirectly, by Acquiror as a result of
such breach exceed Fourteen Million Dollars ($14,000,000) (a "COMPANY
SIGNIFICANT ADVERSE EFFECT");
(c) by the Company, if (i) (A) there has been a material
breach by Acquiror or Acquiror Sub of any material covenant or
agreement on either of their part to be performed under this Agreement,
and such breach is not cured within thirty (30) days (or such earlier
time one day before this Agreement may be terminated pursuant to
paragraph (e) below) following receipt by Acquiror of written notice
thereof from the
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Company (or is not capable of cure), or (B) any one or more of the
representations and warranties of Acquiror or Acquiror Sub contained
in Article IV of this Agreement is in material breach and such
breach is not cured within thirty (30) days (or such earlier time
one day before this Agreement may be terminated pursuant to
paragraph (e) below) following receipt by Acquiror of written notice
thereof from the Company (or is not capable of cure), and (ii)
(other than with respect to payment of the Merger Consideration in
which case this clause (ii) shall not apply) the aggregate potential
Damages which would reasonably be likely to be sustained, directly
or indirectly, by the Company as a result of such breach exceed
Forty Million Dollars ($40,000,000) (an "ACQUIROR SIGNIFICANT
ADVERSE EFFECT");
(d) by Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting
consummation of the Merger shall have become final and nonappealable;
or
(e) by Acquiror or the Company if (i) the Shareholder Approval
shall not have been obtained at the Shareholders Meeting duly convened
therefor or at any adjournment or postponement thereof, or (ii) the
Merger shall not have been consummated on or prior to April 15, 2000
(the "OUTSIDE DATE"); PROVIDED, HOWEVER, that, at the request of any
party, the Outside Date shall be automatically extended until April 29,
2000.
(f) by the Company (i) if, by February 28, 2000, Acquiror has
not renewed the Facility, or (ii) if Acquiror takes action pursuant to
its fiduarciary duties as contemplated by Section 5.04(m) in connection
with an Acquiror Competing Transaction.
SECTION 8.02 EFFECT OF TERMINATION. Except as provided in Section
8.03, upon the proper termination of this Agreement in accordance with the
provisions of Section 8.01 hereof, this Agreement shall be null and void, and
all other rights and obligations of Acquiror, Acquiror Sub, the Company, and
the Stockholders under this Agreement shall forthwith cease and have no
further force or effect; provided that the provisions of Sections 6.14 and
6.17 shall remain in full force and effect and the payments made pursuant
thereto shall continue to be governed by the terms thereof and, to the extent
applicable, any notes delivered pursuant thereto. In the event of the
termination of this Agreement as provided in Section 8.01, each party, if so
requested by the other party, will return promptly every document furnished
to it by or on behalf of the other party in connection with the transaction
contemplated hereby, whether so obtained before or after the execution of
this Agreement, and any copies thereof (except for copies of documents
publicly available) which may have been made, and will cause its
representatives and any representatives of financial institutions and
investors and others to whom such documents were furnished promptly to return
such documents and any copies thereof any of them may have made. The
obligation of that certain Letter of Confidentiality, dated November 24, 1999
(the "LETTER OF CONFIDENTIALITY"), by and between the Company and Acquiror,
shall terminate upon any termination of this Agreement. This Section 8.02
shall survive any termination of this Agreement.
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SECTION 8.03 FEES AND EXPENSES; OTHER MATTERS.
(a) Except as specifically provided in subsections (c) and
(d), below, all "Expenses" (as hereafter defined) incurred by the
parties hereto shall be borne solely and entirely by the party which
has incurred the same in the event this Agreement is terminated;
provided, however, that if the Merger becomes effective, up to $500,000
of the accounting and legal Expenses of the Stockholders and the
Company shall be paid by the Company or, at the Company's option, by
Acquiror in cash, and any Expenses above such amount shall reduce the
payment of the Cash Consideration in accordance with Section 2.01
hereto. Notwithstanding anything herein to the contrary, Expenses may
be paid by a party at any time prior to the Effective Time, and if so
paid prior to the Effective Time shall nonethless be taken into account
in calculating such $500,000 of Expenses.
(b) As used in this Agreement, the term "EXPENSES" shall
include all out-of-pocket expenses and disbursements (including,
without limitation, all fees and expenses of counsel, accountants,
experts and consultants to a party hereto and its affiliates) incurred
by a party or on its behalf or on behalf of its stockholders or
Affiliates in connection with or related to the authorization,
preparation, negotiation and execution of this Agreement, the
preparation of the Proxy Statement and all other matters related to the
closing of the transactions contemplated herein.
(c) (i) The Company agrees that if Acquiror shall terminate
this Agreement pursuant to Section 8.01(b) and without fault of its
own, the Company shall, on the Payment Date , jointly and severally pay
to Acquiror an amount equal to the sum of Acquiror's and Acquiror Sub's
Expenses incurred in connection with this Agreement up to a maximum of
$500,000.
(ii) Acquiror agrees that if the Company shall
terminate this Agreement pursuant to Section 8.01(c) and without fault
of its own, Acquiror shall, on the Payment Date, pay to the Company an
amount equal to the sum of the Company's Expenses incurred in
connection with this Agreement up to a maximum of $500,000.
(iii) Acquiror agrees that if either Acquiror or the
Company shall terminate this Agreement pursuant to Sections 8.01(e)(i)
or the Company shall terminate this Agreement pursuant to 8.01(f),
Acquiror shall, on the Payment Date, pay to the Company the sum of the
Company's Expenses incurred in connection with this Agreement up to a
maximum of $500,000 and aggregate actual Damages sustained, directly or
indirectly, by the Company as a result of such termination, not to
exceed Ten Million Dollars ($10,000,000) (payment of which Damages
shall, to the extent of outstanding indebtedness of the Company under
the Commitment Notes, be satisfied by set-off against such outstanding
indebtedness under the Commitment Notes).
(d) The parties hereto agree that, in the event of a
termination of this Agreement pursuant to Section 8.01, the only relief
and remedy available to either party therefor and the maximum monetary
liability of either party therefor shall be as provided in this Section
8.03.
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(e) Any demand for the payment of Expenses shall itemize in
reasonable detail all qualifying disbursements and accruals, and
notwithstanding one party's payment of another party's Expenses, the
party incurring such items may update and/or supplement its demand at
any time and from time to time, until the expiration of sixty (60) days
from the date of the initial demand. All Expenses owing in accordance
with this Section 8.03 shall be made by wire transfer of immediately
available funds to an account designated by the party so entitled to
receive payment therefor and shall be made not later than two (2)
business days after delivery by one party to the other of demand and
proper itemization thereof ("PAYMENT DATE").
(f) (i) The Company agrees that (A) it shall promptly pay to
Acquiror the aggregate actual Damages sustained, directly or
indirectly, by Acquiror, not to exceed Ten Million Dollars
($10,000,000) and (B) all outstanding Funding Notes and Commitment
Notes shall become due and immediately payable, if Acquiror shall
terminate this Agreement pursuant to Section 8.01(b) under
circumstances in which the Company's breach of this Agreement giving
rise to such right of termination by Acquiror was a bad faith,
intentional and willful and material breach of this Agreement, made
with knowledge and understanding that the action or inaction, as the
case made be, giving rise to such breach would in fact constitute such
an intentional and willful and material breach.
(ii) The Company agrees that all outstanding Funding
Notes and Commitment Notes shall become due and payable (at the 11%
default interest rate set forth therein) within six (6) months after
Acquiror's termination of this Agreement pursuant to Section 8.01(b)
under circumstances in which the Company's breach of this Agreement
giving rise to such right of termination by Acquiror was not in bad
faith or willful (to the degree set forth in subsection (i) above.
(g) (i) Acquiror agrees that it shall promptly pay to the
Company the aggregate actual Damages sustained, directly or indirectly,
by the Company, not to exceed Ten Million Dollars ($10,000,000), (which
payment shall, to the extent of the outstanding indebtedness under the
Commitment Notes, be satisfied by Acquiror's set-off against the
outstanding indebtedness owed by the Company under the Commitment
Notes) if the Company shall terminate this Agreement pursuant to
Section 8.01(c) under circumstances in which Acquiror's breach of this
Agreement giving rise to such right of termination by the Company was a
bad faith, intentional and willful and material breach of this
Agreement, made with knowledge and understanding that the action or
inaction, as the case made be, giving rise to such breach would in fact
constitute such an intentional and willful and material breach.
(ii) Acquiror agrees that the respective maturity
dates of the outstanding Commitment Notes and Funding Notes shall be
extended by one (1) year if the Company's termination of this Agreement
pursuant to Section 8.01(c) occurs under circumstances in which
Acquiror's breach of this Agreement giving rise to such right of
termination by the Company was not in bad faith or willful (to the
degree set forth in subsection (i) above); provided that mandatory
prepayment provisions under the terms of such notes shall remain in
effect.
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(h) The parties hereto also agree that, in the event of a
termination of this Agreement pursuant to Section 8.01(e)(ii), which
termination results from delays caused by the Commission's review of
the Proxy Statement or by review under the HSR Act, the respective
maturity dates of the Commitment Notes and Funding Notes shall be
extended by one (1) year. Unless already extended pursuant to the
previous sentence or accelerated pursuant to this Article VIII, the
respective maturity dates of the Commitment Notes and Funding Notes
shall be extended by one year if (i) this Agreement has been properly
terminated pursuant to Section 8.01, (ii) the Company is not a
breaching party of this Agreement and (iii) the Company is not able to
repay its indebtedness reflected in any such note in the ordinary
course of its business; provided that mandatory prepayment provisions
under the terms of such notes shall remain in effect.
ARTICLE IX
INDEMNIFICATION MATTERS
SECTION 9.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding the closing of the Merger, the representations
and warranties of the Company, Acquiror and Acquiror Sub contained in this
Agreement and in any certificate delivered hereunder shall survive the
Effective Time (the "SURVIVAL PERIOD") until the expiration of one (1) year
following the Effective Time. The covenants and agreements contained herein
to be performed or complied with on or prior to the Effective Time shall
expire at the Effective Time. The covenants and agreements contained herein
to be performed or complied with after the Effective Time and the parties'
liabilities in respect of a breach thereof (other than the covenant to
indemnify against breaches of the representations and warranties of the
parties), shall survive the Effective Time until such covenants and
agreements have been performed or complied with, or until they shall have
expired in accordance with their respective terms.
SECTION 9.02 INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF
ACQUIROR. From and after the Effective Time, Acquiror and the Surviving
Corporation shall be indemnified and saved harmless from and against any and
all costs, expenses, losses, damages and liabilities (including reasonable
legal and other professional fees and costs of investigation) (collectively,
"DAMAGES") incurred or suffered directly or indirectly by Acquiror or the
Surviving Corporation and proximately resulting from the breach of any one or
more of the representations or warranties contained in this Agreement and in
any certificate delivered hereunder or covenants or agreements of the Company
made in this Agreement and in any certificate delivered hereunder; payment
thereof shall be made only by the delivery to Acquiror of shares of Acquiror
Common Stock or shares of Acquiror Series A Preferred Stock pursuant to the
Escrow Agreements. Except as provided in Section 9.03 hereof, such
indemnification and all Damages due to Acquiror or Acquiror Sub under this
Agreement shall be subject to the following limitations:
(a) in valuing the Acquiror Common Stock (including shares of
Acquiror Common Stock issuable upon conversion of Acquiror Series A
Preferred Stock), for purposes of payment of any indemnification
obligation under this Section 9.02(a), such shares of Acquiror Common
Stock shall in all events be valued at the Share Value; in valuing the
Acquiror Series A Preferred Stock for payment of any indemnification
obligation under this Section 9.02(a), such Shares of Acquiror Series A
Preferred Stock
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<PAGE>
shall in all events be valued at Liquidation Value (as such terms
defined is the Certificate of Designation set forth on Exhibit K
hereto). Any such set-off against the Acquiror Common Stock or
Acquiror Series A Preferred Stock shall be treated as a reduction of
the Merger Consideration received by the Stockholders in the Merger,
and any and all Returns filed in connection with the Merger after
such set-off shall so reflect; and
(b) Acquiror shall not be entitled to any recovery under this
Section 9.02 unless a claim for indemnification is made within the one
(1) year period immediately following the Effective Time.
(c) Acquiror shall not be entitled to recover under this
Section 9.02 until the total amount which Acquiror would recover under
Section 9.02, but for this paragraph, exceeds Five Million Dollars
($5,000,000), and then such Indemnitee shall be entitled to recover
only for the excess over Five Million Dollars ($5,000,000);
(d) Acquiror shall not be entitled to recover:
(i) with respect to consequential damages of any
kind, damages consisting of business interruption or lost profits
(regardless of the characterization thereof), damages computed on a
multiple of revenues or earnings or projected revenue or earnings or
any similar basis, or with respect to punitive damages;
(ii) to the extent the aggregate claims under this
Section 9.02 exceed the Cap; or
(iii) to the extent the subject matter of the claim
is covered by insurance (including title insurance) held by the
Company, the Surviving Corporation or Acquiror.
SECTION 9.03 OTHER PROVISIONS. Anything in this Agreement to the
contrary notwithstanding, following the Effective Time, any and all claims
for indemnification by Acquiror pursuant to Section 9.02 hereof shall be
enforceable solely to the extent of the Escrow Shares in the escrow accounts
to be established under and governed in accordance with the Escrow Agreements
referenced in Section 2.04. The shares of Acquiror Common Stock and Acquiror
Series A Preferred Stock held in such Escrow Agreements referenced in Section
2.04 shall be deemed to secure Acquiror and Acquiror Sub's rights to
indemnification hereunder and shall be Acquiror's and Acquiror Sub's sole
recourse for any claims for indemnification under Section 9.02 hereof.
SECTION 9.04 ACQUIROR'S INDEMNIFICATION. From and after the
Effective Time, Acquiror covenants and agrees to indemnify and save harmless
all Stockholders from and against any and all Damages incurred or suffered
directly or indirectly by them and proximately resulting from or attributable
to the breach of any one or more of the representations or warranties or
covenants or agreements of Acquiror or Acquiror Sub made in this Agreement.
Such indemnification by Acquiror and all Damages due to Stockholders or the
Company under this Agreement shall be subject to the following limitations:
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(a) the Stockholders shall not be entitled to any recovery
under this Section 9.04 unless a claim for indemnification is made
within the one (1) year period immediately following the Effective
Time.
(b) the Stockholders shall not be entitled to recover under
this Section 9.04 until the total amount which all Stockholders would
recover under Section 9.04, but for this paragraph, exceeds Fifteen
Million Dollars ($15,000,000), and then such Indemnitees shall be
entitled to recover only for the excess over Fifteen Million Dollars
($15,000,000);
(c) the Stockholders shall not be entitled to recover:
(i) with respect to consequential damages of any
kind, damages consisting of business interruption or lost profits
(regardless of the characterization thereof), damages computed on a
multiple of revenues or earnings or projected revenue or earnings or
any similar basis, or with respect to punitive damages; or
(ii) to the extent the aggregate claims under this
Section 9.04 exceed Twenty Nine Million Dollars ($29,000,000).
SECTION 9.05 INDEMNIFICATION PROCEDURES.
(a) In the event that any party hereto (which, for the
purposes of this Section 9.05, includes all Stockholders) shall sustain
or incur any Damages in respect of which indemnification may be sought
by such party pursuant to this Agreement, the party to be indemnified
hereunder (the "Indemnitee") shall assert a claim for indemnification,
prior to the expiration of the applicable indemnification period by
serving written notice on the party providing indemnification (the
"Indemnitor"), stating the nature and basis of such claim.
(b) In case any party has received actual notice of any claim
asserted by a third party or any action or administrative or other
proceeding in respect of which claim, action or proceeding such party
believes, in good faith, indemnity properly may be sought against the
other party pursuant to this Agreement, the Indemnitee shall, within
twenty (20) days of receiving such notice, give notice thereof in
writing to the Indemnitor, but failure to give such notice within such
time period shall relieve the Indemnitor of its indemnification
obligation only to the extent of actual prejudice resulting therefrom.
Within fifteen (15) days after receipt of notice of such claim, action
or proceeding, the Indemnitor may give the Indemnitee written notice of
its election to conduct the defense of such claim, action or
proceeding; provided, however, that the Indemnitee shall have the right
to participate in the defense thereof, but such participation shall be
solely at the expense of the Indemnitee, without a right of further
reimbursement. Until the Indemnitee has received notice of the
Indemnitor's election whether to defend any claim, action or
proceeding, the Indemnitee shall take reasonable steps to defend (but
may not settle) such claim, action or proceeding. If the Indemnitor has
not so notified the Indemnitee in writing within the time hereinabove
provided of its election to conduct the defense of such claim, action
or proceeding, the Indemnitee shall conduct the defense of
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<PAGE>
any such claim, action or proceeding; provided that the Indemnitee
shall not at any time settle, compromise or satisfy any such claim,
action or proceeding without the written consent of the Indemnitor.
Any such settlement, compromise or satisfaction made by the
Indemnitee with the Indemnitor's consent of, or any such final
judgment or decree entered in, any claim, action or proceeding
defended only by the Indemnitee shall be binding upon the
Indemnitor. The Indemnitor with respect to such Damages shall be
subrogated to the right of action, if at all, of the Indemnitee
against any other person arising from the matter from which the
claim for Damages has arisen.
SECTION 9.06 INDEMNIFICATION EXCLUSIVE REMEDY. Indemnification
pursuant to the provisions of this Article IX shall be the exclusive remedy
of the parties for any misrepresentation or breach of any warranty or
covenant contained herein or in any closing certificate required hereunder or
for any state of facts which could be deemed to constitute such a breach if
properly asserted. Without limiting the generality of the preceding sentence,
no legal action sounding in tort or strict liability may be maintained by any
party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NOTICES. All notices and other communications given
or made pursuant to this Agreement shall be in writing and shall be deemed to
have been duly given or made, and shall be effective upon receipt, if
delivered personally, or the next business day if sent by reputable overnight
courier to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission to the telecopier number specified below (with a copy
sent by overnight courier or delivered as provided hereinabove):
If to Acquiror or Acquiror Sub:
HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention: Gregory J. Kilrea, CFO
Facsimile number: 847.647.4970
with a copy to:
Barry J. Shkolnik
Neal, Gerber & Eisenberg
Two N. LaSalle Street
Suite 2100
Chicago, Illinois 60602
Facsimile number: 312.269.1747
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<PAGE>
If to the Company:
Starbelly.com, Inc.
1225 W. Morse Avenue
Chicago, Illinois 60626
Attention: Eric Lefkofsky
Facsimile number: 773.262.6694
with a copy to:
Peter H. Lieberman
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Facsimile number: 312.715.4800
SECTION 10.02 AMENDMENT. This Agreement may only be amended by the
parties hereto by an instrument in writing signed by all of such parties.
SECTION 10.03 WAIVER. Any party may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive in writing any inaccuracies in the representations and warranties of
the other party contained in this Agreement or in any document delivered
pursuant to this Agreement, and (iii) waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any
such extension or waiver shall only be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 10.04 HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. As used herein, "including" means
"including, without limitation."
SECTION 10.05 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by a court of
competent jurisdiction, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as possible in
an acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible. In the event the parties are unable to
agree upon any such modification, this Agreement shall remain in full force
and effect without the deleted provision.
SECTION 10.06 ENTIRE AGREEMENT. This Agreement (together with the
Exhibits, and the Company Disclosure Schedules and Acquiror Disclosure
Schedules and the other documents delivered pursuant hereto), constitutes the
entire agreement of the parties and supersede all prior agreements and
undertakings, both written and oral, between the parties, or any of them,
with respect to the subject matter hereof, except for the Letter of
Confidentiality (which shall remain in full force and effect in accordance
with the terms and conditions
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<PAGE>
contained therein, notwithstanding anything contained in this Agreement which
can be construed to the contrary; such Letter of Confidentiality shall be
deemed void at the Effective Time) and, except as otherwise expressly
provided herein, is not intended to confer upon any other Person any rights
or remedies hereunder. The inclusion of any item in the Company Disclosure
Schedules or the Acquiror Disclosure Schedules shall not be deemed evidence
of the materiality of such item for purposes of this Agreement. The parties
make no representations or warranties to each other, except as contained in
this Agreement, and any and all prior representations and warranties made by
any party or its representatives, whether orally or in writing, shall be
deemed to have been merged into this Agreement, it being intended that no
such prior representations or warranties shall survive the execution and
delivery of this Agreement. Acquiror and Acquiror Sub acknowledge that they
have conducted an independent investigation of the financial condition,
assets (including, without limitation, the Company's Intellectual Property
and the Company's website), liabilities, properties, results of operations
and prospects of the Company in making its determination as to the propriety
of the transactions contemplated by this Agreement and the agreements
ancillary hereto, and in entering into this Agreement, have relied solely on
the results of said investigation and on the representations and warranties
of the Company expressly contained in this Agreement. The Company
acknowledges that it has conducted an independent investigation of the
financial condition, assets, liabilities, properties, results of operations
and prospects of Acquiror in making its determination as to the propriety of
the transactions contemplated by this Agreement and the agreements ancillary
hereto, and in entering into this Agreement, have relied solely on the
results of said investigation and on the representations and warranties of
Acquiror expressly contained in this Agreement.
SECTION 10.07 SPECIFIC PERFORMANCE. Notwithstanding any termination
right granted in Article VIII, in the event of the nonfulfillment of any
condition to a party's closing obligations, in the alternative, such party
may elect to do one of the following: (i) proceed to close despite the
nonfulfillment of any closing condition, it being understood that
consummation of the Closing shall not be deemed a waiver of a breach of any
representation, warranty or covenant and of such party's rights and remedies
with respect thereto to the extent that such party shall have knowledge of
such breach and the Closing shall nonetheless occur; (ii) decline to close,
terminate this Agreement as provided in Article VIII, and thereafter seek
damages to the extent, but only to the extent, permitted in Article VIII; or
(iii) seek specific performance of the obligations of the other party. Each
party hereby agrees that in the event of any breach by such party of this
Agreement, the remedies available to the other party at law would be
inadequate and that such party's obligations under this Agreement may be
specifically enforced. The parties hereto recognize and agree that in the
event that, in breach of this Agreement, a party refuses to consummate the
Merger, money damages would be inadequate and the other party would have no
adequate remedy at law. Accordingly, the parties hereto agree that such a
party shall have the right, in addition to any other rights and remedies
existing in its favor, to enforce its rights and the other parties'
obligations under this Agreement by an action or actions for specific
performance, injunctive and/or equitable relief, without proof of actual
damages and without posting a bond or other security, in order to enforce or
prevent any violations (whether anticipatory, continuing or future) of this
Agreement. The rights granted under this Section 10.07 shall be in addition
to any other remedies available pursuant to this Agreement.
SECTION 10.08 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the written consent of all parties
hereto.
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<PAGE>
SECTION 10.09 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party, and nothing in this
Agreement, express or implied, other than the right to receive the
consideration payable in the Merger pursuant to Article II and the rights
under Sections 6.01, 6.03 and 6.16, is intended to or shall confer upon any
other Person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
SECTION 10.10 GOVERNING LAW. Except to the extent that Delaware Law
governs the Merger, this Agreement shall be governed by and construed in
accordance with the Laws of the State of Illinois, regardless of the Laws
that might otherwise govern under applicable principles of conflicts of law.
SECTION 10.11 COUNTERPARTS. This Agreement may be executed in or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS THEREOF, Acquiror, Acquiror Sub and the Company have caused
this Agreement to be executed as of the date first written above, in the case of
each corporate entity, by their respective officers duly authorized.
HA-LO INDUSTRIES, INC., an Illinois
corporation
By:
----------------------------------
Its:
----------------------------------
HA-LO INDUSTRIES, INC., a Delaware
corporation
By:
----------------------------------
Its:
----------------------------------
STARBELLY.COM, INC., a Delaware corporation
By:
----------------------------------
Its:
----------------------------------
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<PAGE>
Exhibit 10.64
PROMISSORY NOTE
$5,000,000.00 JANUARY 6, 2000
FOR VALUE RECEIVED, the undersigned, STARBELLY.COM, INC., a Delaware
Corporation ("Company"), hereby promises to pay to the order of HA-LO
INDUSTRIES, INC., an Illinois Corporation, the principal sum of FIVE MILLION AND
NO/100THS DOLLARS ($5,000,000.00) (the "Principal Balance"), plus interest
thereon as set forth below, in accordance with the following:
I. INTEREST RATE. The Principal Balance shall bear interest at 6% per
annum. Interest shall be computed on the basis of a year consisting of 365 days
and charged for the actual number of days during the period for which the
Principal Balance is outstanding. If the Principal Balance is not paid when due
under Article II and III hereof, then the Principal Balance shall bear interest
at the rate of 11% per annum from the date of default.
II. PAYMENT. The Principal Balance, together with all accrued and
unpaid interest on the Principal Balance, shall be payable on December 31, 2000
(the "Maturity Date"). Payment shall be made in lawful money of the United
States of America by payment to HA-LO Industries, Inc. either by wire transfer
or by certified check at the following address:
5980 West Touhy,
Niles, Illinois 60714
III. PREPAYMENTS. This Promissory Note may be prepaid in whole or in
part at any time, without penalty or premium. Prepayment of the Principal
Balance and accrued and unpaid interest on the Principal Balance shall be made
if the Company obtains additional equity financing(s) in the amount of at least
FIVE MILLION DOLLARS AND NO/100THS DOLLARS ($5,000,000) or upon the occurrence
of an initial public offering (either being a "Capital Investment"). In the
event such prepayment shall be required, it shall be made to the extent of the
proceeds of the Capital Investment (up to the amount due) on or prior to the
expiration of five (5) business days from the date the Company receives such
proceeds from the Capital Investment.
IV. GOVERNING LAW. This Promissory Note shall be construed in
accordance with and governed by the laws and decisions of the State of Illinois.
Any disputes arising under the terms of this Promissory Note shall be resolved
by and within Illinois courts.
V. FEES. The non-prevailing party of any such dispute shall pay the
attorney's fees of the prevailing party.
<PAGE>
VI. BANKRUPTCY. In the event of a bankruptcy, assignment for the
benefit of creditors or any such similar event involving the company, then the
Principal Balance plus all accrued and unpaid interest shall be immediately due
and payable.
IN WITNESS WHEREOF, this Promissory Note has been executed and
delivered by the undersigned by its duly authorized officer on the date first
set forth above.
STARBELLY.COM, INC., a Delaware
Corporation
By:
-------------------------------
Name: Eric Lefkofsky
Title: Chairman
2
<PAGE>
Exhibit 10.65
PROMISSORY NOTE
$5,000,000.00 JANUARY 17, 2000
FOR VALUE RECEIVED, the undersigned, STARBELLY.COM, INC., a Delaware
Corporation ("Company"), hereby promises to pay to the order of HA-LO
INDUSTRIES, INC., an Illinois Corporation, the principal sum of FIVE MILLION AND
NO/100THS DOLLARS ($5,000,000.00) (the "Principal Balance"), plus interest
thereon as set forth below, in accordance with the following:
I. INTEREST RATE. The Principal Balance shall bear interest at 6% per
annum. Interest shall be computed on the basis of a year consisting of 365 days
and charged for the actual number of days during the period for which the
Principal Balance is outstanding. If the Principal Balance is not paid when due
under Article II and III hereof, then the Principal Balance shall bear interest
at the rate of 11% per annum from the date of default.
II. PAYMENT. The Principal Balance, together with all accrued and
unpaid interest on the Principal Balance, shall be payable on January 17, 2001
(the "Maturity Date"). Payment shall be made in lawful money of the United
States of America by payment to HA-LO Industries, Inc. either by wire transfer
or by certified check at the following address:
5980 West Touhy,
Niles, Illinois 60714
III. PREPAYMENTS. This Promissory Note may be prepaid in whole or in
part at any time, without penalty or premium. Prepayment of the Principal
Balance and accrued and unpaid interest on the Principal Balance shall be made
if the Company obtains additional equity financing(s) in the amount of at least
FIVE MILLION DOLLARS AND NO/100THS DOLLARS ($5,000,000) or upon the occurrence
of an initial public offering (either being a "Capital Investment"). In the
event such prepayment shall be required, it shall be made to the extent of the
proceeds of the Capital Investment (up to the amount due) on or prior to the
expiration of five (5) business days from the date the Company receives such
proceeds from the Capital Investment.
IV. GOVERNING LAW. This Promissory Note shall be construed in
accordance with and governed by the laws and decisions of the State of Illinois.
Any disputes arising under the terms of this Promissory Note shall be resolved
by and within Illinois courts.
V. FEES. The non-prevailing party of any such dispute shall pay the
attorney's fees of the prevailing party.
<PAGE>
VI. BANKRUPTCY. In the event of a bankruptcy, assignment for the
benefit of creditors or any such similar event involving the company, then the
Principal Balance plus all accrued and unpaid interest shall be immediately due
and payable.
IN WITNESS WHEREOF, this Promissory Note has been executed and
delivered by the undersigned by its duly authorized officer on the date first
set forth above.
STARBELLY.COM, INC., a Delaware
Corporation
By:
-------------------------------------
Name: Eric Lefkofsky
Title: Chairman
2
<PAGE>
Exhibit 10.66
PROMISSORY NOTE
$5,000,000.00 MARCH 1, 2000
FOR VALUE RECEIVED, the undersigned, STARBELLY.COM, INC., a Delaware
Corporation ("Company"), hereby promises to pay to the order of HA-LO
INDUSTRIES, INC., an Illinois Corporation, the principal sum of FIVE MILLION AND
NO/100THS ($5,000,000.00) (the "Principal Balance"), plus interest thereon as
set forth below, in accordance with the following:
I. INTEREST RATE. The Principal Balance shall bear interest at 6% per
annum. Interest shall be computed on the basis of a year consisting of 365 days
and charged for the actual number of days during the period for which the
Principal Balance is outstanding. If the Principal Balance is not paid when due
under Article II and III hereof, then the Principal Balance shall bear interest
at the rate of 11% per annum from the date of default
II. PAYMENT. The Principal Balance, together with all accrued and
unpaid interest on the Principal Balance, shall be payable on March 1, 2001 (the
"Maturity Date"). Payment shall be made in lawful money of the United States of
America by payment to HA-LO Industries, Inc. either by wire transfer or by
certified check at to the following address:
5980 West Touhy,
Niles, Illinois 60714
III. PREPAYMENTS. This Promissory Note may be prepaid in whole or in
part at any time, without penalty or premium. Prepayment of the Principal
Balance and accrued and unpaid interest of the Principal Balance shall be made
if the Company obtains additional equity financing(s) in the amount of a least
FIVE MILLION DOLLARS AND NO/100THS DOLLARS ($5,000,000.00) or upon the
occurrence of an initial public offering (either being a "Capital Investment").
In the event such prepayment shall be required, it shall be made to the extent
of the proceeds of the Capital Investment (up to the amount due) on or prior to
the expiration of five (5) business days from the date the Company receives such
proceeds from the Capital Investment.
IV. GOVERNING LAW. This Promissory Note shall be construed in
accordance with and governed by the laws and decisions of the State of Illinois.
Any disputes arising under the terms of this Promissory Note shall be resolved
by and within Illinois courts.
V. FEES. The non-prevailing party of any such dispute shall pay the
attorney's fees of the prevailing party.
<PAGE>
VI. BANKRUPTCY. In the event of a bankruptcy, assignment for the
benefit of creditors or any such similar event involving the company, then the
Principal Balance plus all accrued and unpaid interest shall be immediately due
and payable.
IN WITNESS WHEREOF, this Promissory Note has been executed and
delivered by the undersigned by its duly authorized officer on the date first
set forth above.
STARBELLY.COM, INC.,
a Delaware Corporation
By:
-----------------------------------
Name: Eric Lefkofsky
Title: Chairman
<PAGE>
Credit Agreement
Dated as of February 25, 2000
among
HA-LO Industries, Inc.,
American National Bank and Trust Company of Chicago,
individually and as Agent
and
the Lenders
which are or become parties hereto
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. The Credits.....................................................................1
Section 1.1 Revolving Credit................................................................1
Section 1.2 Revolving Loans.................................................................2
Section 1.3 Letters of Credit...............................................................2
(a) General Terms...................................................................2
(b) Applications....................................................................2
(c) The Reimbursement Obligation....................................................3
(d) The Participating Interests.....................................................3
(e) Indemnification.................................................................4
Section 1.4 Borrowing Base..................................................................4
Section 1.5 Manner of Borrowing Loans.......................................................5
(a) Generally.......................................................................6
(b) Reimbursement Obligation........................................................6
(c) Agent Reliance on Bank Funding..................................................6
(d) Reliance........................................................................6
Section 1.6 Eligibility Requirements; Matters Regarding Account.............................7
SECTION 2. Interest........................................................................8
Section 2.1 Rate of Interest................................................................8
Section 2.2 Capital Adequacy................................................................8
SECTION 3. Fees, Payments, Reductions, Applications and Notations..........................9
Section 3.1 Commitment Fee..................................................................9
Section 3.2 Letter of Credit Fees...........................................................9
Section 3.3 Computation of Interest and Fees................................................9
Section 3.4 Agent's Fees....................................................................9
Section 3.5 Voluntary Prepayments...........................................................9
Section 3.6 Commitment Terminations........................................................10
Section 3.7 Place and Application..........................................................10
Section 3.8 Notations and Requests.........................................................11
SECTION 4. The Guaranties.................................................................11
Section 4.1 Guaranties.....................................................................11
Section 4.2 Further Assurances.............................................................12
SECTION 5. Representations and Warranties.................................................12
Section 5.1 Organization and Qualification.................................................12
Section 5.2 Subsidiaries...................................................................12
Section 5.3 Corporate Authority and Validity of Obligations................................13
Section 5.4 Use of Proceeds; Margin Stock..................................................13
Section 5.5 Financial Reports..............................................................13
Section 5.6 No Material Adverse Change.....................................................14
Section 5.7 Litigation and Other Controversies.............................................14
Section 5.8 Taxes..........................................................................14
i
<PAGE>
Section 5.9 Approvals......................................................................14
Section 5.10 Investment Company; Public Utility Holding Company.............................14
Section 5.11 ERISA..........................................................................14
Section 5.12 Compliance with Laws...........................................................14
Section 5.13 Other Agreements...............................................................15
Section 5.14 No Default.....................................................................15
Section 5.15 Year 2000......................................................................15
SECTION 6. Conditions Precedent...........................................................15
Section 6.1 All Advances...................................................................15
Section 6.2 Initial Advance................................................................16
SECTION 7. Covenants......................................................................17
Section 7.1 Maintenance of Business........................................................17
Section 7.2 Maintenance of Properties......................................................17
Section 7.3 Taxes and Assessments..........................................................17
Section 7.4 Insurance......................................................................17
Section 7.5 Financial Reports..............................................................18
Section 7.6 Inspection.....................................................................18
Section 7.7 [Intentionally Omitted]........................................................19
Section 7.8 Tangible Net Worth.............................................................19
Section 7.9 [Reserved].....................................................................19
Section 7.10 [Reserved].....................................................................19
Section 7.11 Indebtedness for Borrowed Money................................................19
Section 7.12 Liens..........................................................................19
Section 7.13 Investments, Acquisitions, Loans, Advances and Guaranties......................20
Section 7.14 Mergers, Consolidations and Sales..............................................21
Section 7.15 Dividends and Certain Other Restricted Payments................................22
Section 7.16 ERISA..........................................................................22
Section 7.17 Compliance with Laws...........................................................22
Section 7.18 Change in the Nature of Business...............................................22
Section 7.19 Year 2000. ....................................................................22
SECTION 8. Events of Default and Remedies.................................................23
Section 8.1 Events of Default..............................................................23
Section 8.2 Non-Bankruptcy Remedies........................................................25
Section 8.3 Bankruptcy Remedies............................................................25
Section 8.4 Collateral for Undrawn Letters of Credit.......................................25
SECTION 9. Definitions; Interpretations...................................................26
Section 9.1 Definitions....................................................................26
Section 9.2 Interpretation.................................................................32
SECTION 10. The Agent......................................................................33
Section 10.1 Appointment and Authorization..................................................33
Section 10.2 Rights as a Lender.............................................................33
Section 10.3 Standard of Care...............................................................33
ii
<PAGE>
Section 10.4 Costs and Expenses.............................................................34
Section 10.5 Indemnity......................................................................34
Section 10.6 Execution of Security Documents................................................34
Section 10.7 Collateral Releases............................................................34
SECTION 11. Miscellaneous..................................................................35
Section 11.1 Withholding Taxes..............................................................35
Section 11.2 Non-Business Days..............................................................36
Section 11.3 No Waiver, Cumulative Remedies.................................................36
Section 11.4 Waivers, Modifications and Amendments..........................................36
Section 11.5 Costs and Expenses.............................................................36
Section 11.6 Documentary Taxes..............................................................37
Section 11.7 Survival of Representations....................................................37
Section 11.8 Notices........................................................................37
Section 11.9 Participations.................................................................37
Section 11.10 Assignment Agreements..........................................................38
Section 11.11 [Reserved].....................................................................38
Section 11.12 Lender's Obligations Several...................................................39
Section 11.13 Headings.......................................................................39
Section 11.14 Severability of Provisions.....................................................39
Section 11.15 Counterparts...................................................................39
Section 11.16 Binding Nature and Governing Law...............................................39
Section 11.17 Entire Understanding...........................................................39
Section 11.18 Submission to Jurisdiction; Waiver of Jury Trial...............................39
</TABLE>
EXHIBIT A--Form of Revolving Credit Note
EXHIBIT B--Notice of Payment Request
EXHIBIT C--Form of Borrowing Base Certificate
EXHIBIT D--Compliance Certificate
EXHIBIT E--Opinion of Counsel
EXHIBIT F--Assignment and Acceptance
SCHEDULE 5.2-- Subsidiaries
iii
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CREDIT AGREEMENT
American National Bank
and Trust Company of Chicago
Chicago, Illinois
Harris Trust and Savings Bank
Chicago, Illinois
Comerica Bank
Detroit, Michigan
and the other Lenders from time to time party hereto
Ladies and Gentlemen:
The undersigned, HA-LO Industries, Inc., an Illinois corporation (the
"COMPANY"), applies to you for your several commitments, subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to make credit available to the Company, all as more
fully hereinafter set forth.
SECTION 1. THE CREDITS.
Section 1.1 Revolving Credit. Subject to the terms and conditions hereof, each
Lender, by its acceptance hereof, severally agrees to extend a revolving credit
(the "REVOLVING CREDIT") to the Company in the aggregate amount of such Lender's
commitment to extend the Revolving Credit as set forth on the applicable
signature page hereof or pursuant to Section 11.10 hereof (its "REVOLVING CREDIT
COMMITMENT" and cumulatively for all the Lenders, the "REVOLVING CREDIT
COMMITMENTS") (subject to any reductions thereof pursuant to the terms hereof)
prior to the Termination Date. The Revolving Credit, subject to all of the terms
and conditions hereof, may be utilized by the Company in the form of Revolving
Loans and Letters of Credit, all as more fully hereinafter set forth; PROVIDED,
HOWEVER, that the aggregate principal amount of the Revolving Loans and L/C
Obligations outstanding at any one time shall not at any time exceed the lesser
of (i) the Revolving Credit Commitments then in effect, LESS the Canadian
Indebtedness Reserve and (ii) the Borrowing Base LESS the Canadian Indebtedness
Reserve. During the period from and including the Closing Date to but not
including the Termination Date, the Company may use the Revolving Credit
Commitments by borrowing, repaying and reborrowing Revolving Loans in whole or
in part and/or by having the Agent issue Letters of Credit, having such Letters
of Credit expire or otherwise terminate without having been drawn upon or, if
drawn upon, reimbursing the Agent for each such drawing, and having the Agent
issue new Letters of Credit, all in accordance with the terms and conditions of
this Agreement. For all purposes of this Agreement, where a determination of the
unused or available amount of the Revolving Credit Commitments is necessary, the
Revolving Loans and L/C Obligations shall all be deemed to utilize the Revolving
Credit Commitments. The obligations of the Lenders hereunder are several and not
joint, and no Lender shall under any circumstances be obligated to extend credit
hereunder in excess of its
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Revolving Credit Commitment. The Loans and all other Obligations shall
automatically be due and payable in full on the Termination Date.
Section 1.2 REVOLVING LOANS. Subject to the terms and conditions hereof,
the Revolving Credit may be availed of in the form of loans (individually a
"REVOLVING LOAN" and collectively the "REVOLVING LOANS"). Each Borrowing of
Revolving Loans shall be made ratably by the Lenders in accordance with their
Percentages. Each Borrowing of Revolving Loans shall be in an amount of $100,000
or such greater amount which is an integral multiple of $50,000; PROVIDED,
HOWEVER, that a Borrowing made to repay a Reimbursement Obligation may be made
in the amount thereof. All Revolving Loans made by a Lender shall be evidenced
by a single Revolving Credit Note of the Company (individually a "REVOLVING
CREDIT NOTE" and collectively the "REVOLVING CREDIT NOTES", which shall include
the Revolving Credit Notes issued pursuant to Section 11.10 hereof) payable to
the order of such Lender in the amount of its Revolving Credit Commitment, each
Revolving Credit Note to be in the form (with appropriate insertions) attached
hereto as Exhibit A. Each Revolving Credit Note shall be dated the Closing Date,
be expressed to bear interest as set forth in Section 2 hereof, and be expressed
to mature on the Termination Date. Without regard to the principal amount of
each Revolving Credit Note stated on its face, the actual principal amount at
any time outstanding and owing by the Company on account thereof shall be the
sum of all Revolving Loans then or theretofore made thereon less all payments of
principal actually received thereon.
Section 1.3 LETTERS OF CREDIT.
(a) GENERAL TERMS. Subject to the terms and conditions hereof, as part
of the Revolving Credit, the Agent shall issue standby and commercial letters of
credit (including for purposes hereof bankers' acceptances held by the Agent)
(each a "LETTER OF CREDIT") for the account of the Company in U.S. Dollars in an
aggregate undrawn face amount up to the amount of the L/C Commitment; provided
that the aggregate undrawn face amount of standby Letters of Credit shall at no
time exceed $5,000,000. Each Letter of Credit shall be issued by the Agent, but
each Lender shall be obligated to reimburse the Agent for such Lender's
Percentage of the amount of each draft drawn under a Letter of Credit and,
accordingly, each Letter of Credit shall be deemed to utilize the Revolving
Credit Commitment of each Lender pro rata in accordance with its Percentage
thereof. All standby and commercial letters of credit issued by the Agent for
the account of the Company prior to the Closing Date and which are outstanding
on the Closing Date shall constitute Letters of Credit hereunder.
(b) APPLICATIONS. At any time before the Termination Date, the Agent
shall, at the request of the Company, issue one or more Letters of Credit to or
for the account of the Company in a form satisfactory to the Agent, with
expiration dates no later than 6 months after the Termination Date then in
effect, in an aggregate face amount as set forth above, upon the receipt of an
application for the relevant Letter of Credit in the form then customarily
prescribed by the Agent duly executed by the Company (each an "APPLICATION"). On
the Termination Date, the Company shall pay to the Agent an amount equal to the
aggregate amounts undrawn on all Letters of Credit which are outstanding on that
date plus the amount of documentary and processing charges payable by the
Company pursuant to Section 3.2 in connection with draws on such Letters of
Credit (as reasonably estimated by the Agent) to be held as cash collateral for
the Obligations of the Company with respect to such Letters of Credit and the
Applications therefor.
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Notwithstanding anything contained in any Application to the contrary, (i) the
obligation of the Company to pay fees in connection with each Letter of Credit
shall be as set forth in Section 3.2 hereof and (ii) prior to the Termination
Date, the Agent will not call for the funding by the Company of any amount under
a Letter of Credit, or any cash collateral as security for the Obligations of
the Company in connection with such Letter of Credit, before being presented
with a drawing thereunder. The Agent will promptly notify the Lenders of each
issuance by the Agent of a Letter of Credit. If the Agent issues any Letter of
Credit with an expiration date that is automatically extended unless the Agent
gives notice that the expiration date will not so extend beyond its then
scheduled expiration date, the Agent will give such notice of non-renewal before
the time necessary to prevent such automatic extension if before such required
notice date (i) the expiration date of such Letter of Credit if so extended
would be more than 6 months after the Termination Date, (ii) the Revolving
Credit Commitments have been terminated or (iii) a Default or an Event of
Default exists and the Required Lenders have given the Agent instructions not to
so permit the extension of the expiration date of such Letter of Credit. The
Agent shall provide the Company with a copy of such notice of non-renewal
promptly after issuance thereof. The Agent agrees to issue amendments to the
Letter(s) of Credit increasing the amount, or extending the expiration date,
thereof at the request of the Company subject to the conditions of Section 6 and
the other terms of this Section 1.3. Without limiting the generality of the
foregoing, the Agent will not issue, amend or extend the expiration date of any
Letter of Credit if any Lender notifies the Agent of any failure to satisfy or
otherwise comply with the conditions and terms of Section 6 or of this Section
1.3 and directs the Agent not to take such action.
(c) THE REIMBURSEMENT OBLIGATION. Subject to Section 1.3(b) hereof, the
obligation of the Company to reimburse the Agent for all drawings under a Letter
of Credit (a "REIMBURSEMENT OBLIGATION") shall be governed by the Application
related to such Letter of Credit, except that (i) reimbursement of each drawing
shall be made in immediately available funds at the Agent's principal office in
Chicago, Illinois by no later than 2:00 p.m. Chicago time on the date when such
drawing is paid if the Company has been informed of such drawing by the Agent on
or before 11:30 a.m. Chicago time on the date when such drawing is paid or, if
notice of such drawing is given to the Company after 11:30 a.m. Chicago time on
the date when such drawing is paid, by 2:00 p.m. Chicago time on the next
Business Day and (ii) the Company's Reimbursement Obligation shall bear interest
(which the Company hereby promises to pay), whether before or after judgment,
until payment in full thereof at the rate per annum equal to the Base Rate as in
effect from time to time. If the Company does not make any such reimbursement
payment on the date due and the Participating Lenders fund their participations
therein in the manner set forth in Section 1.3(d) below, then all payments
thereafter received by the Agent in discharge of any of the relevant
Reimbursement Obligations shall be distributed in accordance with Section 1.3(d)
below.
(d) THE PARTICIPATING INTERESTS. Each Lender (other than the Lender
then acting as Agent in issuing Letters of Credit), by its acceptance hereof,
severally agrees to purchase from the Agent, and the Agent hereby agrees to sell
to each such Lender (a "PARTICIPATING LENDER"), an undivided percentage
participating interest (a "PARTICIPATING INTEREST"), to the extent of its
Percentage, in each Letter of Credit issued by, and each Reimbursement
Obligation owed to, the Agent. Upon any failure by the Company to pay any
Reimbursement Obligation in respect of a Letter of Credit at the time required
on the date the related drawing is paid, as set forth in Section 1.3(c) above,
or if the Agent is required at any time
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to return to the Company or to a trustee, receiver, liquidation, custodian or
other Person any portion of any payment of any Reimbursement Obligation, each
Participating Lender shall, not later than the Business Day it receives a
certificate in the form of Exhibit B hereto from the Agent to such effect, if
such certificate is received before 2:00 p.m. Chicago time, or not later than
the following Business Day, if such certificate is received after such time, pay
to the Agent an amount equal to such Lender's Percentage of such unpaid or
recaptured Reimbursement Obligation together with interest on such amount
accrued from the date the related payment was made by the Agent to the date of
such payment by such Participating Lender at a rate per annum equal to (i) from
the date the related payment was made by the Agent to the date 2 Business Days
after payment by such Participating Lender is due hereunder, the Federal Funds
Rate for each such day and (ii) from the date 2 Business Days after the date
such payment is due from such Participating Lender to the date such payment is
made by such Participating Lender, the Base Rate in effect for each such day.
Each such Participating Lender shall thereafter be entitled to receive its
Percentage of each payment received in respect of the relevant Reimbursement
Obligation and of interest paid thereon, with the Agent retaining its Percentage
as a Lender hereunder.
The several obligations of the Participating Lenders to the Agent under
this Section 1.3 shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever and shall not be subject to any set-off,
counterclaim or defense to payment which any Participating Lender may have or
have had against the Company, the Agent, any other Lender or any other Person
whatsoever. Without limiting the generality of the foregoing, such obligations
shall not be affected by any Default or Event of Default or by any reduction or
termination of any Revolving Credit Commitment of any Lender, and each payment
by a Participating Lender under this Section 1.3 shall be made without any
offset, abatement, withholding or reduction whatsoever. The Agent shall be
entitled to offset amounts received for the account of a Lender under this
Agreement against unpaid amounts due from such Lender to the Agent hereunder
(whether as fundings of participations, indemnities or otherwise), but shall not
be entitled to offset against amounts owed to the Agent by any Lender arising
outside this Agreement.
(e) INDEMNIFICATION. The Participating Lenders shall, to the extent of
their respective Percentages, indemnify the Agent (to the extent not reimbursed
by the Company) against any cost, expense (including reasonable counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from the Agent's gross negligence or willful misconduct) that the Agent may
suffer or incur in connection with any Letter of Credit. The obligations of the
Participating Lenders under this Section 1.3(e) and all other parts of this
Section 1.3 shall survive termination of this Agreement, the Applications, and
all drafts and any other documents presented in connection with a drawing under
any Letter of Credit.
Section 1.4 BORROWING BASE.
(a) LIMITATION ON CREDIT EXTENSIONS. Notwithstanding anything to the
contrary contained in this Agreement or in any other Loan Document, the
aggregate principal amount of the Revolving Loans and L/C Obligations
outstanding shall at no time exceed the lesser of (i) the Borrowing Base LESS
the Canadian Indebtedness Reserve and (ii) the Revolving Credit Commitments then
in effect LESS the Canadian Indebtedness Reserve. The Company agrees that if at
any time any such excess shall arise, it shall, without presentment, demand,
protest or notice of any kind from the Agent or any Lender, all of which it
hereby expressly waives, immediately repay
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Revolving Loans or, if any such excess remains after all Revolving Loans have
been repaid, deposit cash collateral with the Agent in the amount in the amount
of such excess which remains.
(b) DETERMINATION AND REDETERMINATION; CHANGE IN ADVANCE PERCENTAGES.
The Borrowing Base will be determined by the Agent on the Closing Date and will
be redetermined by the Agent on March 8, 2000 and on March 20, 2000, in each
case upon receipt of the Borrowing Base Certificates described in SECTION 1.4(c)
below. In addition, the Agent may redetermine the Borrowing Base at other times
in its discretion as necessary to reduce the Borrowing Base as a result of its
reasonable determination that Accounts included therein are no longer Eligible
Accounts. The Agent may in the exercise of its reasonable discretion in
determining the Borrowing Base, at any time and from time to time, (with the
consent of all of the Lenders) increase the advance percentage to be applied to
Eligible Accounts which are set forth in the definition of "Borrowing Base".
(c) BORROWING BASE CERTIFICATES. (i) Each of the Company and each
Eligible Subsidiary Guarantor shall keep accurate and complete records of its
Accounts and (i) on the Closing Date and thereafter as frequently as the Agent
shall require, but not less frequently than on March 20, 2000, the Company shall
deliver to the Agent a Borrowing Base Certificate covering all the Company's and
the Eligible Subsidiary Guarantors' Accounts as of January 31, 2000, in the case
of the Borrowing Base Certificate delivered on the Closing Date, and as of
February 29, 2000, in the case of the Borrowing Base Certificate to be delivered
on March 20, 2000; PROVIDED, that unless a Default or an Event of Default shall
have occurred and be continuing, the amount of ineligible Accounts shall be
deemed to be: $21,097,000 for purposes of calculating the Borrowing Base under
the Borrowing Base Certificate delivered on the Closing Date; $30,079,000 for
purposes of calculating the Borrowing Base under the Borrowing Base Certificate
delivered on March 20, 2000; and the amount determined pursuant to CLAUSE (ii)
below for purposes of calculating the Borrowing Base under each Borrowing Base
Certificate delivered pursuant to CLAUSE (ii) below. The Company shall make
available to the Agent for its inspection, upon demand, the original copy of all
documents (and will deliver any such original copy to the Agent if required by
the Agent to enforce its rights and remedies hereunder), including, without
limitation, invoices, Accounts agings, repayment histories, present status
reports and shipment reports, relating to the Accounts included in any Borrowing
Base Certificate and such other matters and information relating to the status
of then existing Accounts as the Agent shall reasonably request.
(ii) Notwithstanding the terms of CLAUSE (i) above, the Company shall
submit one or more new Borrowing Base Certificates on or prior to March 8, 2000,
to the extent that any Conditional Subsidiary Guarantors have become Eligible
Subsidiary Guarantors prior to such date, in order to cover the Accounts of such
Eligible Subsidiary Guarantors (which Borrowing Base Certificates shall be
modified from the Borrowing Base Certificate delivered on the Closing Date to
cover Accounts of those additional Eligible Subsidiary Guarantors and to
increase the amount of ineligible Accounts by the amount of ineligible Accounts
set forth with respect to such additional Eligible Subsidiary Guarantors in the
field report of Arthur Anderson dated January 27, 2000).
Section 1.5 MANNER OF BORROWING LOANS.
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(a) GENERALLY. The Company shall give the Agent notice (which may be
written or oral, but if oral, promptly confirmed in writing) by 10:00 a.m.
Chicago time on any Business Day of each request for a Borrowing of Loans, in
each case specifying the amount of each such Borrowing and the date such
Borrowing is to be made (which shall be a Business Day). The Agent shall notify
each Lender of its receipt of each such notice by 12:00 noon Chicago time on the
Business Day any Borrowing of Loans is to be made. Not later than 2:00 p.m.
Chicago time on the date specified for any Borrowing of Loans to be made
hereunder, each Lender shall make the proceeds of its Loan comprising part of
such Borrowing available in immediately available funds to the Agent in Chicago,
Illinois. Subject to all of the terms and conditions hereof, the proceeds of
each Lender's Loan shall be made available to the Company in accordance with the
instruction of the Company at the office of the Agent in Chicago, Illinois and
in funds there current.
(b) REIMBURSEMENT OBLIGATION. In the event the Company fails to give
notice pursuant to Section 1.5(a) above of a Borrowing equal to the amount of a
Reimbursement Obligation and has not notified the Agent by 11:30 a.m. Chicago
time on the day such Reimbursement Obligation becomes due that the Company
intends to repay such Reimbursement Obligation through funds not borrowed under
this Agreement, the Company shall be deemed to have requested a Borrowing of
Revolving Loans on such day in the amount of the Reimbursement Obligation then
due, subject to Section 6 hereof, which Borrowing shall be applied to pay the
Reimbursement Obligation then due.
(c) AGENT RELIANCE ON BANK FUNDING. Unless the Agent shall have been
notified by a Lender before the date on which such Lender is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be effective
upon receipt) that such Lender does not intend to make such payment, the Agent
may assume that such Lender has made such payment when due and the Agent may in
reliance upon such assumption (but shall not be required to) make available to
the Company the proceeds of the Loan to be made by such Lender and, if any
Lender has not in fact made such payment to the Agent, such Lender shall, on
demand, pay to the Agent the amount made available to the Company attributable
to such Lender together with interest thereon in respect of each day during the
period commencing on the date such amount was made available to the Company and
ending on (but excluding) the date such Lender pays such amount to the Agent at
a rate per annum equal to (i) from the date the related amount was made
available to the Company by the Agent to the date 2 Business Days after such
amount is due from the Lender hereunder, the Federal Funds Rate for each such
day and (ii) from the date 2 Business Days after such amount is due from the
Lender hereunder to the date such amount is paid to the Agent by such Lender,
the Base Rate in effect for each such day. If such amount is not received from
such Lender by the Agent immediately upon demand, the Company will, on demand,
repay to the Agent the proceeds of the Loan attributable to such Lender with
interest thereon at a rate per annum equal to the interest rate applicable to
the relevant Loan.
(d) RELIANCE. All requests for Borrowings may be written or oral,
including by telephone or telecopy. The Company agrees that the Agent may rely
on any such notice given by any person the Agent in good faith believes is an
Authorized Representative without the necessity of independent investigation
(the Company hereby indemnifying the Agent and the Lenders from any liability or
loss ensuing from such reliance), and in the event any such telephonic or other
oral
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notice conflicts with any written confirmation, such oral or telephonic
notice shall govern if the Agent has acted in reliance thereon.
Section 1.6 MATTERS REGARDING ACCOUNTS.
(a) ACCOUNT WARRANTIES. The Company warrants and represents that the
Agent may rely, in determining which Accounts listed on any Borrowing Base
Certificate are Eligible Accounts, without independent investigation on all
statements or representations made by the Company on or with respect to any such
Borrowing Base Certificate and, unless otherwise indicated in writing by the
Company (in which case such Account shall not be considered an Eligible
Account), that:
(i) such Accounts are genuine, are in all material respects what
they purport to be, are not evidenced by a judgment and, if
evidenced by any instrument or chattel paper (as such terms
are defined in the UCC), are evidenced by only one executed
original thereof, which has been endorsed and delivered to
the Agent;
(ii) such Accounts represent undisputed, bona fide transactions
completed in accordance with the terms and provisions
contained in any documents related thereto;
(iii) the amounts shown on the Borrowing Base Certificate, and
all invoices and statements delivered to the Agent with
respect to any Account, if any, are actually and absolutely
owing to the Company or an Eligible Subsidiary Guarantor
and, to the best of the Company's knowledge, are not
contingent for any reason;
(iv) to the best of the Company's knowledge, except as may be
disclosed on such Borrowing Base Certificate, there are no
set-offs, counterclaims or disputes existing or asserted
with respect to any Accounts included on a Borrowing Base
Certificate, and neither the Company nor any Eligible
Subsidiary Guarantor has made any agreement with any Account
Debtor for any deduction from such Account, except for
discounts or allowances allowed by the Company or an
Eligible Subsidiary Guarantor in the ordinary course of its
business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the invoice
related to such Account;
(v) to the best of the Company's knowledge, there are no facts,
events, or occurrences which in any way impair the validity
or enforceability of any of the Accounts or tend to reduce
the amount payable thereunder from the amount of the invoice
shown on any Borrowing Base Certificate, and on all
contracts, invoices and statements delivered to the Agent
with respect thereto, if any;
(vi) to the best of the Company's knowledge, all Account Debtors
are solvent and had the capacity to contract at the time any
contract or other document giving rise to the Account was
executed;
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(vii) the goods, the sale of which gave rise to the Accounts, are
not, and were not at the time of the sale thereof, subject
to any lien, claim, security interest or other encumbrance,
except those of the Agent;
(viii)the Company has no knowledge of any fact or circumstance
which would impair the validity or collectability of any of
the Accounts;
(ix) to the best of the Company's knowledge, there are no
proceedings or actions which are threatened or pending
against any Account Debtor which might reasonably be
expected to result in any material adverse change in its
financial or other condition; and
(x) the Accounts have not been pledged to any other Person.
(b) VERIFICATION OF ACCOUNTS. The Agent shall have the right, at any
time or times hereafter during which an Event of Default shall exist, in
the Agent's name or in the name of a nominee of the Agent, to verify the
validity, amount or any other matter relating to any Accounts, by mail,
telephone, telegraph or otherwise.
(c) DISPUTED ACCOUNTS. The Company or any Eligible Subsidiary
Guarantor shall give the Agent prompt written notice of any Account in
excess of $200,000 which is in dispute between any Account Debtor and the
Company or any Eligible Subsidiary Guarantor.
SECTION 2. INTEREST.
Section 2.1 RATE OF INTEREST. Subject to all of the terms and conditions of
this Section 2, the indebtedness evidenced by the Notes shall bear interest
(which the Company hereby promises to pay at the times herein provided) at the
rate per annum equal to the Base Rate as in effect from time to time, provided
that if any such indebtedness is not paid when due (whether by lapse of time,
acceleration or otherwise) then, automatically upon an Event of Default under
Section 8.1(i) or (j) and otherwise at the election of the Required Lenders,
notice of which election is given to the Company, such indebtedness shall bear
interest (which the Company hereby promises to pay at the times hereinafter
provided), whether before or after judgment, and until payment in full thereof,
at the rate per annum determined by adding 2% to the Base Rate as in effect from
time to time.
Section 2.2 CAPITAL ADEQUACY. If any Lender shall determine that any
applicable law, rule or regulation regarding capital adequacy instituted after
the Closing Date, or any change in the interpretation or administration of any
applicable law, rule or regulation regarding capital adequacy by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by such Lender (or its
lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital as a consequence of its obligations hereunder or credit
extended by it hereunder to a level below that which such Lender could have
achieved but for such law, rule, regulation, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from
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time to time, within 15 days after demand by such Lender, the Company shall pay
to the Agent for the account of such Lender such additional amount or amounts as
will compensate such Lender for such reduction. Any Lender claiming compensation
under this Section shall accompany its demand for compensation with a
certificate (with a copy to the Agent) setting forth the additional amount or
amounts to be paid to it hereunder in reasonable detail, which certificate shall
be conclusive if reasonably determined. In determining such amount, such Lender
may use any reasonable averaging and attribution methods.
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS.
Section 3.1 COMMITMENT FEE. For the period from the Closing Date to but not
including the Termination Date, the Company shall pay to the Agent for the
account of the Lenders in accordance with their Percentages a commitment fee at
the rate per annum equal to 0.50% per annum on the average daily unused amount
of the Revolving Credit Commitments hereunder. Notwithstanding anything
contained in this Agreement to the contrary, for the purposes of calculating the
commitment fee hereunder, the undrawn face amount of any commercial Letter of
Credit outstanding hereunder shall not be considered usage of the Revolving
Credit Commitments. Such fee shall be payable in arrears on the Termination
Date.
Section 3.2 LETTER OF CREDIT FEES. The Company shall pay to the Agent, for
the account of the Lenders in accordance with their Percentages, (i) with
respect to all stand-by Letters of Credit, a letter of credit fee at a rate of
3.00% per annum (which letter of credit fee shall be increased to a rate of
5.00% per annum upon the occurrence and during the continuance of an Event of
Default) on the average daily undrawn stated amount under all such stand-by
Letters of Credits, such fee to be payable in arrears on the Termination Date,
and (ii) with respect to each commercial Letter of Credit, a one-time letter of
credit fee in an amount equal to 0.50% of the initial stated amount (or, with
respect to a modification of any such commercial Letter of Credit which
increases the stated amount thereof, such increase in the stated amount)
thereof, such fee to be payable on the date of such issuance or increase. The
Company shall also pay to the Agent for its own account (i) at the time of
issuance of each Letter of Credit, a fronting fee in an amount of 0.125% of the
initial stated amount of such Letter of Credit and (ii) all documentary and
processing charges in connection with the issuance or modification of and draws
under Letters of Credit in accordance with the Agent's standard schedule for
such charges as in effect from time to time.
Section 3.3 COMPUTATION OF INTEREST AND FEES. All interest on the Notes,
and all fees, charges and commissions due hereunder, shall be computed on the
basis of a year of 360 days for the actual number of days elapsed.
Section 3.4 CLOSING FEE. The Company shall pay to the Agent, for the
account of the Lenders in accordance with their Percentages, a closing fee in
the amount of $50,000, payable on the Closing Date.
Section 3.5 VOLUNTARY PREPAYMENTS; MANDATORY PREPAYMENTS FROM EXCESS
CASH.(a)
(a) VOLUNTARY PREPAYMENTS. The Company shall have the privilege of
prepaying the Revolving Credit Notes in whole or in part (but if in part, then
in a minimum amount of $100,000 or such greater amount which is an integral
multiple of $50,000) at any time
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upon 1 Business Day prior notice to the Agent (such notice if received
subsequent to 2:00 p.m. Chicago time on a given day to be treated as though
received at the opening of business on the next Business Day), which shall
promptly so notify the Lenders, by paying to the Agent for the account of the
Lenders the principal amount to be prepaid and, if such a prepayment prepays the
Revolving Credit Notes in full and is accompanied by the termination in whole of
the Revolving Credit Commitments, accrued interest thereon to the date of
prepayment plus any commitment fee which has accrued and is unpaid.
(b) MANDATORY PREPAYMENTS FROM EXCESS CASH. On the first Business Day
of each week the Company shall deliver to the Agent a report setting forth the
aggregate amount of cash and "cash equivalents" (defined to include investments
of the type referred to in clauses (a), (b) and (c) of Section 7.13 hereof) held
by the Company and the Subsidiary Guarantors as of the last Business Day of the
preceding week, and the Company shall contemporaneously prepay the Revolving
Notes by an amount equal to the amount by which the aggregate sum of such cash
and cash equivalents exceeds $1,000,000.
Section 3.6 COMMITMENT TERMINATIONS. (a) VOLUNTARY TERMINATIONS. The
Company shall have the privilege upon 3 Business Days' prior notice to the Agent
(which shall promptly notify the Lenders) to ratably terminate the Revolving
Credit Commitments in whole or in part (but if in part then in the amount of
$1,000,000 or such greater amount which is an integral multiple of $1,000,000).
No partial terminations of the Revolving Credit Commitments may be made below
the L/C Commitment then in effect, unless the L/C Commitment is concurrently
reduced by a like amount. Not later than the termination date stated in such
notice, there shall be made such payments to the Agent as may be necessary to
reduce the sum of the aggregate outstanding principal amount of the relevant
Loans to the amount to which the relevant Commitments have been reduced,
together with, in the case of a termination in whole, all interest, fees and
other amounts due on the Obligations. The foregoing to the contrary
notwithstanding, (i) no termination of the Revolving Credit Commitment may be
effected hereunder if as a result thereof the outstanding aggregate amount of
L/C Obligations would exceed the L/C Commitment as reduced by such termination
and (ii) the Revolving Credit Commitments may not be terminated below
$10,000,000 except concurrently with their termination in whole. No termination
of the Commitments may be reinstated.
(b) CHANGE IN CONTROL. After the occurrence of a Change in Control, the
Required Lenders may at any time, but in no event later than 30 days after the
date the Company notifies the Lenders of such Change in Control, terminate the
Commitments effective on the Business Day after the day the Company receives
notice of such termination. Any Loans outstanding on the date the Commitments
are so terminated, together with all other Obligations owing hereunder, shall be
due and payable on such date.
Section 3.7 PLACE AND APPLICATION. All payments of principal, interest,
fees and any other Obligations shall be made to the Agent at its office at 33
North LaSalle Street, Chicago, Illinois (or at such other place as the Agent may
specify) in immediately available and freely transferable funds at the place of
payment. All such payments shall be made without set-off or counterclaim and
without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or political subdivision
or taxing authority thereof. Payments
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received by the Agent after 2:00 p.m. Chicago time shall be deemed received as
of the opening of business on the next Business Day. Except as herein provided,
all payments shall be received by the Agent for the ratable account of the
Lenders and shall be promptly distributed by the Agent to the Lenders in
accordance with their Percentages. Any amount prepaid on the Revolving Credit
Notes may, subject to all of the terms and conditions hereof, be borrowed,
repaid and borrowed again.
Anything contained herein to the contrary notwithstanding, all payments
and collections received in respect of the Obligations and all proceeds of
Collateral or payments on guarantees received, in each instance, by the Agent or
any of the Lenders after the occurrence of an Event of Default shall be remitted
to the Agent and distributed as follows:
(a) first, to the payment of any outstanding actual costs and expenses
incurred by the Agent in protecting, preserving or enforcing rights under
the Loan Documents, and in any event all costs and expenses of a character
which the Company has agreed to pay under Section 11.5 hereof (such funds
to be retained by the Agent for its own account unless the Agent has
previously been reimbursed for such costs and expenses by the Lenders, in
which event such amounts shall be remitted to the Lenders to reimburse them
for payments theretofore made to the Agent);
(b) second, to the payment of any outstanding interest or other fees
or amounts due under the Notes and the other Loan Documents, in each case
other than for principal or in reimbursement or collateralization of L/C
Obligations, ratably as among the Agent and the Lenders in accord with the
amount of such interest and other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes and any unpaid
Reimbursement Obligations and, from and after the Termination Date, to the
Agent to be held as collateral security for any other L/C Obligations
(until the Agent is holding an amount of cash equal to the then outstanding
amount of all such L/C Obligations), the aggregate amount paid to or held
as collateral security for the Lenders to be allocated pro rata as among
the Lenders in accordance with the then respective aggregate unpaid
principal balances of their Loans and interests in the Letters of Credit;
and
(d) fourth, to the Company or whoever else may be lawfully entitled
thereto.
Section 3.8 NOTATIONS AND REQUESTS. All Borrowings made against the Notes
shall be recorded by the Lenders on their books or, at their option in any
instance, endorsed on the reverse side of the Notes and the unpaid principal
balances so recorded or endorsed by the Lenders shall be prima facie evidence in
any court or other proceeding brought to enforce the Notes of the principal
amount remaining unpaid thereon.
SECTION 4. THE GUARANTIES.
Section 4.1 GUARANTIES. The payment and performance of the Obligations
shall at all times be guaranteed by each Subsidiary, whether now existing or
hereafter formed or acquired, pursuant to a guaranty agreement executed by such
Subsidiary in form and substance satisfactory to the Agent (individually a
"GUARANTY" and collectively the "GUARANTIES"), which Guaranties
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shall be secured by Liens in favor of the Agent, for the benefit of itself and
the Lenders, in the Property of such Subsidiaries; PROVIDED, HOWEVER, that,
unless an Event of Default exists and thereafter until requested by the Agent or
the Required Lenders, no Subsidiary organized outside of the United States of
America needs to execute and deliver any such Guaranty or to grant to the Agent
a Lien upon any of its Property or otherwise become bound as a guarantor of the
Obligations hereunder.
Section 4.2 FURTHER ASSURANCES. In the event the Company or any Subsidiary
forms or acquires any Subsidiary after the Closing Date, the Company shall cause
such newly formed or acquired Subsidiary to execute a Guaranty in accordance
with Section 4.1 above, and to cause such Guaranty to be secured by Liens in
favor of the Agent, for the benefit of itself and the Lenders, in the Property
of such Subsidiary, and the Company shall also deliver, or cause such Subsidiary
to deliver, at the Company's cost and expense, such other instruments,
documents, certificates, and opinions reasonably required by the Agent in
connection therewith.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Lenders as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. The Company is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Illinois, has full and adequate corporate power to own its Property and
conduct its business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of the business conducted
by it or the nature of the Property owned or leased by it requires such
licensing or qualifying, except where the failure to do so would not have a
Material Adverse Effect.
Section 5.2 SUBSIDIARIES. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying, except where the failure to do so would
not have a Material Adverse Effect. Schedule 5.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Company and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding. All of the outstanding shares of capital
stock and other equity interests of each Subsidiary owned by the Company or any
Subsidiary are validly issued and outstanding and fully paid and nonassessable
and all such shares and other equity interests indicated on Schedule 5.2 as
owned by the Company or a Subsidiary are owned, beneficially and of record, by
the Company or such Subsidiary free and clear of all Liens (except for Liens
granted in favor of the Agent for the benefit of the Lenders to secure the
Obligations). There are no outstanding commitments or other obligations of any
Subsidiary to issue, and no options, warrants or other rights of any Person to
acquire, any shares of any class of capital stock or other equity interests of
any Subsidiary.
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Section 5.3 CORPORATE AUTHORITY AND VALIDITY OF OBLIGATIONS. The Company
has full right and authority to enter into this Agreement and the other Loan
Documents executed by it, to make the borrowings herein provided for, to issue
its Notes in evidence thereof, and to perform all of its Obligations hereunder
and under the other Loan Documents executed by it. Each Subsidiary has full
right and authority to enter into the Loan Documents executed by it, to
guarantee the Obligations, and to perform all of its obligations under the Loan
Documents executed by it. The Loan Documents delivered by the Company and by
each of its Subsidiaries have been duly authorized, executed and delivered by
such Person and constitute valid and binding obligations of such Person
enforceable in accordance with their terms except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law); and this Agreement and the other Loan Documents
do not, nor does the performance or observance by the Company or any Subsidiary
of any of the matters and things herein or therein provided for, contravene or
constitute a default under any provision of law or any judgment, injunction,
order or decree binding upon the Company or any Subsidiary or any provision of
the charter, articles of incorporation or by-laws of the Company or any
Subsidiary or any covenant, indenture or agreement of or affecting the Company
or any Subsidiary or any of its Property, or, except for Liens in favor of the
Agent for the benefit of the Lenders to secure the Obligations, result in the
creation or imposition of any Lien on any Property of the Company or any
Subsidiary.
Section 5.4 USE OF PROCEEDS; MARGIN STOCK. The Company shall use the
proceeds of the Loans and other extensions of credit made available hereunder to
refinance the Prior Indebtedness, for its general working capital purposes and
for such other legal and proper purposes as are consistent with all applicable
laws. Neither the Company nor any Subsidiary is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan or any other extension of
credit made hereunder will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock. Margin stock constitutes less than 25% of those assets of the
Company and its Subsidiaries which are subject to any limitation on sale, pledge
or other restriction hereunder.
Section 5.5 FINANCIAL REPORTS. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1998, and the related
consolidated statements of income, shareholders equity and cash flows of the
Company and its Subsidiaries for the fiscal year then ended, and accompanying
notes thereto, which financial statements are accompanied by the audit report of
Arthur Andersen, L.L.P., independent public accountants, and the unaudited
interim consolidated balance sheet of the Company and its Subsidiaries as at
September 30, 1999, and the related consolidated statements of income,
shareholders equity and cash flows of the Company and its Subsidiaries for the 9
months then ended, heretofore furnished to the Lenders, fairly present the
financial condition of the Company and its Subsidiaries as at said dates and the
results of their operations and cash flows for the periods then ended in
conformity with GAAP applied on a consistent basis. Neither the Company nor any
Subsidiary has contingent liabilities which are material to it other than as
indicated on such financial statements or, with respect to future periods, on
the financial statements furnished pursuant to Section 7.5 hereof.
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Section 5.6 NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, there has
been no change in the condition (financial or otherwise) or business prospects
of the Company or any Subsidiary, except those occurring in the ordinary course
of business, none of which individually or in the aggregate constitute a
Material Adverse Effect.
Section 5.7 LITIGATION AND OTHER CONTROVERSIES. There is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened, against the Company or any Subsidiary which, if
adversely determined, is reasonably likely to result in a Material Adverse
Effect except as disclosed prior to the Closing Date in filings by the Company
with the Securities and Exchange Commission.
Section 5.8 TAXES. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have, in fact, been filed or appropriate
extensions therefor have been obtained, and all taxes, assessments, fees and
other governmental charges upon the Company or any Subsidiary or upon any of
their respective Properties, income or franchises, which are shown to be due and
payable in such returns, have been paid as and when due. The Company does not
know of any proposed additional tax assessment against the Company or any of its
Subsidiaries for which adequate provisions in accordance with GAAP have not been
made on their accounts. Adequate provisions in accordance with GAAP for taxes on
the books of the Company and each Subsidiary have been made for all open years,
and for its current fiscal period.
Section 5.9 APPROVALS. No authorization, consent, license, or exemption
from, or filing or registration (except for recordings and filings required to
perfect the Liens granted to the Agent under the Security Documents) with, any
court or governmental department, agency or instrumentality, nor any approval or
consent of the stockholders of the Company or any other Person, is or will be
necessary to the valid execution, delivery or performance by the Company of this
Agreement or by the Company or any Subsidiary of any other Loan Document, except
for such approvals of the Board of Directors of the Company and its Subsidiaries
which have been obtained and remain in full force and effect.
Section 5.10 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 5.11 ERISA. The Company and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any material liability to the PBGC or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Company nor any Subsidiary has any
contingent liabilities with respect to any post-retirement benefits under a
Welfare Plan, other than liability for continuation coverage described in
article 6 of Title I of ERISA.
Section 5.12 COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries
are in compliance with the requirements of all federal, state and local laws,
rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, the Americans with Disabilities Act of 1990,
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laws and regulations relating to the providing of health care services, and laws
and regulations establishing quality criteria and standards for air, water, land
and toxic or hazardous wastes and substances), non-compliance with which is
reasonably likely to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary has received notice to the effect that its operations are not
in compliance with any of the requirements of applicable federal, state or local
environmental, health and safety statutes and regulations or are the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action is reasonably likely to
result in a Material Adverse Effect.
Section 5.13 OTHER AGREEMENTS. Neither the Company nor any Subsidiary is in
default under the terms of any covenant, indenture or agreement of or affecting
the Company or any Subsidiary, or any of its Property, which default, if
uncured, is reasonably likely to result in a Material Adverse Effect.
Section 5.14 NO DEFAULT. No Default or Event of Default has occurred and is
continuing.
Section 5.15 YEAR 2000. The Company has made a full and complete assessment
of the Year 2000 Issues and has a realistic and achievable program for
remediating the Year 2000 Issues on a timely basis (the "YEAR 2000 PROGRAM").
Based on such assessment and on the Year 2000 Program the Company does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect.
SECTION 6. CONDITIONS PRECEDENT.
Section 6.1 ALL ADVANCES. The obligation of the Lenders to make any Loan or
other financial accommodation to the Company hereunder (including the first such
accommodation) shall be subject to the conditions precedent that as of the time
of the making of each such accommodation:
(a) each of the representations and warranties set forth herein and in
the other Loan Documents shall be and remain true and correct as of said
time, except to the extent the same expressly relate to an earlier date;
(b) no Default or Event of Default shall have occurred and be
continuing;
(c) after giving effect to such extension of credit, the aggregate
principal amount of all Revolving Loans and L/C Obligations outstanding
under this Agreement shall not exceed the lesser of (i) the Revolving
Credit Commitments then in effect LESS the Canadian Indebtedness Reserve
and (ii) the Borrowing Base LESS the Canadian Indebtedness Reserve;
(d) in the case of the issuance of any Letter of Credit, the Agent
shall have received a properly completed Application therefor and, in the
case of an extension or increase in the amount of a Letter of Credit, the
Agent shall have received a written request therefor, in a form reasonably
acceptable to the Agent; and
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(e) such extension of credit shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to the Agent or any Lender (including, without
limitation, Regulation U of the Board of Governors of the Federal Reserve
System) as then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts specified in subsections (a) through (e), both
inclusive, above.
Section 6.2 INITIAL ADVANCE. At or prior to the time of the initial Loans
or other financial accommodation hereunder on the Closing Date, the following
conditions precedent shall also have been satisfied:
(a) the Agent shall have received the following for the account of the
Lenders (each to be properly executed and completed) and the same shall
have been approved as to form and substance by the Agent:
(i) the Revolving Credit Notes;
(ii) the Guaranties;
(iii) the Security Documents;
(iv) the Canadian Indebtedness Documents;
(v) copies (executed or certified as may be appropriate) of
resolutions of the Board of Directors of the Company and each
Subsidiary Guarantor authorizing the execution, delivery and
performance of the Loan Documents to which it is a party and all other
documents relating thereto;
(vi) an incumbency certificate containing the name, title and
genuine signature of the Company's Authorized Representatives and each
authorized signatory of each Subsidiary Guarantor; and
(vii) evidence satisfactory to the Lenders that the Prior
Indebtedness has been repaid in full with the proceeds of the initial
Loans hereunder and that the Prior Canadian Subsidiary Indebtedness
has been repaid in full with the proceeds of the Canadian Subsidiary
Indebtedness.
(b) all legal matters incident to the transactions contemplated hereby
shall be acceptable to the Lenders and their counsel, and the Agent shall
have received for the account of the Lenders the favorable written opinion
of counsel to the Company and its Subsidiaries, in the form of Exhibit E
hereto or in such other form as is reasonably acceptable to the Agent and
its counsel;
(c) the Agent shall have received for itself and for the Lenders the
initial fees, if any, called for hereby;
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(d) the Agent and the Lenders shall have received a completed
Borrowing Base Certificate covering all of the Company's and the Eligible
Subsidiary Guarantors' Accounts as of January 31, 2000; and
(e) the Agent shall have received for the account of the Lenders such
other agreements, instruments, documents, certificates and opinions as the
Agent may reasonably request.
SECTION 7. COVENANTS.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Required Lenders:
Section 7.1 MAINTENANCE OF BUSINESS. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence, except as otherwise
provided in Section 7.14(c) hereof. The Company shall, and shall cause each
Subsidiary to, preserve and keep in force and effect all licenses, permits,
franchises, approvals, patents, trademarks, trade names, trade styles,
copyrights, and other proprietary rights reasonably necessary to the proper
conduct of its business.
Section 7.2 MAINTENANCE OF PROPERTIES. The Company shall, and shall cause
each Subsidiary to, maintain, preserve and keep its property, plant and
equipment in good repair, working order and condition (ordinary wear and tear
excepted).
Section 7.3 TAXES AND ASSESSMENTs. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 7.4 INSURANCE. The Company shall insure and keep insured, and shall
cause each Subsidiary to insure and keep insured, with good and responsible
insurance companies, all insurable Property owned by it which is of a character
usually insured by Persons similarly situated and operating like Properties
against loss or damage from such hazards and risks, and in such amounts, as are
insured by Persons similarly situated and operating like Properties; and the
Company shall insure, and shall cause each Subsidiary to insure, such other
hazards and risks (including employers' and public liability risks) with good
and responsible insurance companies as and to the extent usually insured by
Persons similarly situated and conducting similar businesses. Within five
Business Days following any request by the Agent after the occurrence and during
the continuance of an Event of Default, all property damage and casualty
insurance shall name the Agent as loss payee, and all liability insurance shall
name the Agent and Lenders as additional insureds. The Company shall upon
request furnish to the Agent and the Lenders a certificate setting forth in
summary form the nature and extent of the insurance maintained pursuant to this
Section.
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Section 7.5 FINANCIAL REPORTS. The Company shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to the Agent, each Lender and each of their duly authorized
representatives such information respecting the business and financial condition
of the Company and its Subsidiaries as the Agent or such Lender may reasonably
request; and without any request, shall furnish to the Agent and the Lenders:
(a) [Reserved];
(b) as soon as available, and in any event within 90 days after the
close of the 1999 fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the last day of the
period then ended and the consolidated statements of income, shareholders
equity and cash flows of the Company and its Subsidiaries for the period
then ended, and accompanying notes thereto, each in reasonable detail
showing in comparative form the figures for the previous fiscal year,
accompanied by an unqualified opinion thereon of Arthur Andersen, L.L.P. or
another firm of independent public accountants of recognized national
standing selected by the Company and reasonably satisfactory to the
Required Lenders, to the effect that the consolidated financial statements
have been prepared in accordance with GAAP and present fairly in accordance
with GAAP the consolidated financial condition of the Company and its
Subsidiaries as of the close of such fiscal year and the results of their
operations and cash flows for the fiscal year then ended and that an
examination of such accounts in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, such examination included such tests of the accounting records
and such other auditing procedures as were considered necessary in the
circumstances;
(c) promptly after the sending or filing thereof, copies of each
financial statement, report, notice or proxy statement sent by the Company
or any Subsidiary to its stockholders, and copies of each regular, periodic
or special report, registration statement or prospectus filed by the
Company or any of its Subsidiaries with any securities exchange or the
Securities Exchange Commission or any successor agency;
(d) [Intentionally Omitted];
(e) promptly after knowledge thereof shall have come to the attention
of any responsible officer of the Company, written notice of any threatened
or pending litigation or governmental proceeding or labor controversy
against the Company or against any Subsidiary which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect or
of the occurrence of any Default or Event of Default hereunder or of any
other development, financial or otherwise (including developments with
request to Year 2000 Issues) which is reasonably expected to have a
Material Adverse Effect.
Section 7.6 INSPECTION. The Company shall, and shall cause each of its
Subsidiaries to, permit the Agent, each Lender and each of their duly authorized
representatives and agents to visit and inspect any of its Properties, corporate
books and financial records, to examine and make copies of its books of accounts
and other financial records, and to discuss its affairs, finances and accounts
with, and to be advised as to the same by its officers at such reasonable times
and
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intervals as the Agent or any such Lender may designate provided, however, that
in each case the Company receives not less than 24 hours prior notice and that
such inspections only occur during normal business hours.
Section 7.7 [Reserved].
Section 7.8 TANGIBLE NET WORTH. The Company shall, at all times from and
after December 31, 1999, maintain Tangible Net Worth of not less than
$150,000,000.
Section 7.9 [RESERVED].
Section 7.10 [RESERVED].
Section 7.11 INDEBTEDNESS FOR BORROWED MONEY. The Company shall not, nor
shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; PROVIDED, HOWEVER, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations of the Company owing to the Agent and the Lenders
hereunder;
(b) purchase money indebtedness and Capitalized Lease Obligations
incurred in the ordinary course of business in an aggregate amount not to
exceed $2,000,000 at any one time outstanding;
(c) obligations of the Company arising out of interest rate hedging
agreements entered into with financial institutions in the ordinary course
of business;
(d) guaranties expressly permitted by Section 7.13 hereof;
(e) indebtedness from time to time owing by any Subsidiary to the
Company or to any other Subsidiary arising in the ordinary course of
business;
(f) the Canadian Subsidiary Indebtedness; and
(g) other unsecured indebtedness of the Company and its Subsidiaries
in an aggregate amount not to exceed $500,000 at any one time outstanding.
Section 7.12 LIENS. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; PROVIDED, HOWEVER, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's compensation,
unemployment insurance, old age benefits, social security obligations,
taxes, assessments, statutory obligations or other similar charges, good
faith cash deposits in connection with tenders, contracts or leases to
which the Company or any Subsidiary is a party or other cash deposits
required to be made in the ordinary course of business, provided in each
case that the obligation is not for borrowed money and that the obligation
secured is not overdue or, if overdue, is being contested in good faith by
appropriate proceedings which
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prevent enforcement of the matter under contest and adequate reserves have
been established therefor;
(b) mechanics', workmen's, materialmen's, landlords', carriers', or
other similar Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good faith
by appropriate proceedings which prevent enforcement of the matter under
contest;
(c) the pledge of assets for the purpose of securing an appeal, stay
or discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest
and penalties thereon, if any, shall not be in excess of $1,000,000 at any
one time outstanding;
(d) Liens on property of the Company or of any Subsidiary created
solely for the purpose of securing indebtedness permitted by Section
7.11(b) hereof, representing or incurred to finance, refinance or refund
the purchase price of Property, provided that no such Lien shall extend to
or cover other Property of the Company or such Subsidiary other than the
respective Property so acquired, and the principal amount of indebtedness
secured by any such Lien shall at no time exceed the original purchase
price of such Property;
(e) Liens securing the Canadian Subsidiary Indebtedness and securing
the guaranty by the Company and the Subsidiary Guarantors of such
indebtedness, upon terms and conditions satisfactory to the Agent; and
(f) Liens in favor of the Agent for the benefit of the Lenders to
secure the Obligations.
Section 7.13 INVESTMENTS, ACQUISITIONS, LOANS, ADVANCES AND GUARANTIES. The
Company shall not, nor shall it permit any Subsidiary to, directly or
indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances and other similar cash advances made to employees in
the ordinary course of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person or division
thereof, or be or become liable as endorser, guarantor, surety or otherwise for
any debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of another, or subordinate any claim or demand it may have to the
claim or demand of any other Person; PROVIDED, HOWEVER, that the foregoing shall
not apply to nor operate to prevent:
(a) investments in direct obligations of the United States of America
or of any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America, provided
that any such obligations shall mature within one year of the date of
issuance thereof;
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(b) investments in commercial paper rated at least P-1 by Moody's
Investors Services, Inc. and at least A-1 by Standard & Poor's Ratings
Group, a division of The McGraw-Hills Companies, Inc. maturing within 270
days of the date of issuance thereof;
(c) investments in certificates of deposit issued by any United States
commercial bank having capital and surplus of not less than $100,000,000
which have a maturity of one year or less;
(d) endorsement of items for deposit or collection of commercial paper
received in the ordinary course of business;
(e) the Company's investments from time to time in its Subsidiaries;
(f) intercompany advances made from time to time between the Company
and one or more Subsidiaries or between Subsidiaries in the ordinary course
of business;
(g) the Company's loans and advances in the aggregate amount of
$10,000,000 to Starbelly.com ("Starbelly") outstanding on the date hereof
and additional loans and advances by the Company to Starbelly on the
Closing Date in an aggregate amount not to exceed $5,000,000;
(h) Guaranties executed by one or more Subsidiaries in favor of the
Agent for the benefit of the Lenders;
(i) the guaranty by the Company and the Subsidiary Guarantors of the
Canadian Subsidiary Indebtedness; and
(j) other investments, loans and advances in addition to these
otherwise permitted by this Section in an aggregate amount not to exceed
$2,000,000 at any one time outstanding.
In determining the amount of investments, acquisitions, loans, advances and
guaranties permitted under this Section, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guaranties shall be taken at
the amount of the obligations guaranteed thereby.
Section 7.14 MERGERS, CONSOLIDATIONS AND SALES. The Company shall not, nor
shall it permit any of its Subsidiaries to, be a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of all or any
substantial part of its Property, including any disposition of Property as part
of a sale and leaseback transaction, or in any event sell or discount (with or
without recourse) any of its notes or accounts receivable; PROVIDED, HOWEVER,
that this Section shall not apply to nor operate to prevent:
(a) the sale or lease of inventory in the ordinary course of business;
(b) the sale, transfer, lease, or other disposition of Property of the
Company or any Subsidiary to one another in the ordinary course of its
business; and
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(c) a merger of any Subsidiary with and into the Company or any
Wholly-Owned Subsidiary which is a Subsidiary Guarantor; provided that the
Company or such Wholly-Owned Subsidiary which is a Subsidiary Guarantor
survives such merger and, in the case of any merger involving the Company,
the Company is the corporation surviving the merger.
The term "SUBSTANTIAL" as used herein shall mean the sale, transfer, lease or
other disposition of Property of the Company or of any Subsidiary aggregating,
for the Company and its Subsidiaries during any fiscal year, 15% or more of the
consolidated total assets of the Company and its Subsidiaries. In the event of
any merger permitted by Section 7.14(c) above, the Company shall give the Agent
and the Lenders prior written notice of any such event and, immediately after
giving effect to any such merger, Schedule 5.2 of this Agreement shall be deemed
amended excluding reference to any such Subsidiary merged out of existence.
Section 7.15 DIVIDENDS AND CERTAIN OTHER RESTRICTED PAYMENTS. The Company
shall not during any fiscal year (i) declare or pay any dividends on or make any
other distributions in respect of any class or series of its capital stock
(other than dividends payable solely in its capital stock) or (ii) directly or
indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock, except that the Company may declare and pay dividends on, and purchase,
redeem, or otherwise acquire or retire, its capital stock so long as no Default
or Event of Default exists prior to or would result after giving effect to any
such action.
Section 7.16 ERISA. The Company shall, and shall cause each Subsidiary to,
promptly pay and discharge all obligations and liabilities arising under ERISA
of a character which if unpaid or unperformed might result in the imposition of
a Lien against any of its Properties. The Company shall, and shall cause each
Subsidiary to, promptly notify the Agent of (i) the occurrence of any reportable
event (as defined in ERISA) with respect to a Plan, (ii) receipt of any notice
from the PBGC of its intention to seek termination of any Plan or appointment of
a trustee therefor, (iii) its intention to terminate or withdraw from any Plan,
and (iv) the occurrence of any event with respect to any Plan which would result
in the incurrence by the Company or any Subsidiary of any material liability,
fine or penalty, or any material increase in the contingent liability of the
Company or any Subsidiary with respect to any post-retirement Welfare Plan
benefit.
Section 7.17 COMPLIANCE WITH LAWS. The Company shall, and shall cause each
Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to its Properties or business operations, non-compliance with which
is reasonably likely to result in a Material Adverse Effect.
Section 7.18 CHANGE IN THE NATURE OF BUSINESS. The Company shall not, nor
shall it permit any Subsidiary to, engage in any business or activity if as a
result the general nature of the business of the Company or any Subsidiary would
be changed in any material respect from the general nature of the business
engaged in by it as of the Closing Date or as of the date such Person becomes a
Subsidiary hereunder.
Section 7.19 YEAR 2000. The Company will take and will cause each of its
Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the
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request of the Agent or any Lender, the Company will provide a description of
the Year 2000 Program, together with any updates or progress reports with
respect thereto.
Section 7.20 SUBSIDIARY CORPORATE AUTHORITY. Without limiting the
generality of the provisions of Section 4 hereof, on or before March 7, 2000,
the Company will cause each of the Conditional Subsidiary Guarantors to (i)
become a "Guarantor" under the Subsidiary Guaranty by executing and delivering
to the Agent an "Assumption and Supplement to Guaranty Agreement" in accordance
with the Subsidiary Guaranty, (ii) become a "Debtor" under the Subsidiary
Security Agreement by executing and delivering to the Agent a "Joinder to
Agreement" in accordance therewith and to execute and deliver to Agent all other
Security Documents required thereunder, (iii) deliver to the Agent copies
(executed or certified as may be appropriate) of resolutions of the Board of
Directors (or managers, as applicable) of each Conditional Subsidiary Guarantor
authorizing the execution, delivery and performance of the Loan Documents to
which it is a party and all other documents to which it is a party relating
thereto.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1 EVENTS OF DEFAULT. Any one or more of the following shall
constitute an "EVENT OF DEFAULT" hereunder:
(a) default in the payment when due of all or any part of the
principal of or interest on any Note (whether at the stated maturity
thereof or at any other time provided for in this Agreement) or of any
Reimbursement Obligation or default for a period of 5 days in the payment
when due of all or any part of any fee or other Obligation payable
hereunder or under any other Loan Document;
(b) default in the observance or performance of any covenant set forth
in Sections 7.5, 7.8, 7.11, 7.12, 7.13, 7.14, 7.15 or 7.20 hereof;
(c) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within 30 days
after written notice thereof is given to the Company by the Agent (provided
that the Company shall have an additional 30 days to cure any such default
before the same becomes an "EVENT OF DEFAULT" hereunder if such default is
reasonably susceptible to cure within the additional 30-day period but only
so long as the Company diligently and in good faith works to cure such
default during such additional 30-day period);
(d) any material representation or warranty made herein or in any
other Loan Document or in any certificate furnished to the Agent or the
Lenders pursuant hereto or thereto or in connection with any transaction
contemplated hereby or thereby proves untrue in any material respect as of
the date of the issuance or making thereof;
(e) any event occurs or condition exists (other than those described
in subsections (a) through (d) above) which is specified as an event of
default under any of the other Loan Documents and any applicable notice and
cure period has expired, or any of the Loan Documents shall for any reason
not be or shall cease to be in full force and effect, or any of the Loan
Documents is declared to be null and void, or any Subsidiary
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takes any action for the purpose of terminating, repudiating or
rescinding any Loan Document executed by it or any of its obligations
thereunder;
(f) default shall occur under any Indebtedness for Borrowed Money
issued, assumed or guaranteed by the Company or any Subsidiary aggregating,
for the Company and its Subsidiaries, in excess of $1,000,000, or under any
indenture, agreement or other instrument under which the same may be
issued, and such default shall continue for a period of time sufficient to
permit the acceleration of the maturity of any such Indebtedness for
Borrowed Money (whether or not such maturity is in fact accelerated), or
any such Indebtedness for Borrowed Money shall not be paid when due
(whether by demand, lapse of time, acceleration or otherwise);
(g) any judgment or judgments, writ or writs or warrant or warrants of
attachment, or any similar process or processes shall be entered or filed
against the Company or any Subsidiary, or against any of its Property,
aggregating, for the Company and its Subsidiaries, in excess of $1,000,000,
and which remains undischarged, unvacated, unbonded or unstayed for a
period of 60 days;
(h) the Company or any member of its Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess $1,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $1,000,000 (collectively, a
"MATERIAL PLAN") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator of a
Material Plan or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan or a proceeding
shall be instituted by a fiduciary of any Material Plan against the Company
or any member of its Controlled Group to enforce Section 515 or 4219(c)(5)
of ERISA and such proceeding shall not have been dismissed within 60 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated;
(i) the Company or any Subsidiary shall (i) have entered involuntarily
against it an order for relief under the United States Bankruptcy Code, as
amended, (ii) not pay, or admit in writing its inability to pay, its debts
generally as they become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any substantial part of its Property, (v)
institute any proceeding seeking to have entered against it an order for
relief under the United States Bankruptcy Code, as amended, to adjudicate
it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi) take any
corporate action in furtherance of any matter described in parts (i)
through (v) above, or (vii) fail to contest in good faith any appointment
or proceeding described in Section 8.1(j) hereof; or
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(j) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any Subsidiary or any
substantial part of any of its Property, or a proceeding described in
Section 8.1(i)(v) shall be instituted against the Company or any
Subsidiary, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 days; or
(k) Any Security Document shall for any reason fail to create a valid
security interest in any collateral purported to be covered thereby, except
as permitted by the terms of any Security Document, or any Security
Document shall fail to remain in full force or effect or any action shall
be taken to discontinue or to assert the invalidity or unenforceability of
any Security Document, or the Company or any Subsidiary Guarantor shall
fail to comply with any of the terms or provisions of any Security Document
(subject to applicable notice and cure periods, if any, set forth therein).
Section 8.2 NON-BANKRUPTCY REMEDIES. When any Event of Default described in
subsections 8.1(a) to 8.1(h), both inclusive, or 8.1(k) has occurred and is
continuing, the Agent shall, upon request of the Required Lenders, by notice to
the Company, take any or all of the following actions:
(a) terminate the obligations of the Lenders to extend any further
credit hereunder on the date (which may be the date thereof) stated in such
notice;
(b) declare the principal of and the accrued interest on the Notes to
be forthwith due and payable and thereupon the Notes, including both
principal and interest, and all fees, charges and other Obligations payable
hereunder and under the other Loan Documents, shall be and become
immediately due and payable without further demand, presentment, protest or
notice of any kind; and
(c) enforce any and all rights and remedies available to it under the
Loan Documents or applicable law.
Section 8.3 BANKRUPTCY REMEDIES. When any Event of Default described in
subsection 8.1(i) or 8.1(j) has occurred and is continuing, then the Notes,
including both principal and interest, and all fees, charges and other
Obligations payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligations of the Lenders to extend further credit
pursuant to any of the terms hereof shall immediately terminate. In addition,
the Agent may exercise any and all remedies available to it under the Loan
Documents or applicable law.
Section 8.4 COLLATERAL FOR UNDRAWN LETTERS OF CREDIT. If any Letter of
Credit is outstanding on the Termination Date, the Company shall, without notice
or demand from the Agent, immediately pay to the Agent the full amount of each
Letter of Credit then outstanding plus the amount of documentary and processing
charges payable by the Company pursuant to Section 3.2 in connection with draws
on each such Letter of Credit (as reasonably estimated by the Agent). Nothing
herein shall affect Agent's obligations under Section 4.12 of the Company
Security Agreement.
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SECTION 9. DEFINITIONS; INTERPRETATIONS.
Section 9.1 DEFINITIONS. The following terms when used herein have the
following meanings:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated to
the Company or any Eligible Subsidiary Guarantor under, with respect to or on
account of an Account.
"ACCOUNTS" means, as at any date of determination, all "accounts" (as
such term is defined in the UCC) of the Company or any Eligible Subsidiary
Guarantor, including, without limitation, the unpaid portion of the obligation
of a customer of the Company or any Eligible Subsidiary Guarantor in respect of
goods purchased by and shipped to such customer and/or the rendition of services
by the Company or any Eligible Subsidiary Guarantor, as stated on the respective
invoice of the Company or any Eligible Subsidiary Guarantor, net of any
discounts, credits, rebates or offsets owed to such customer.
"AFFILIATE" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise.
"AGENT" means American National Bank and Trust Company of Chicago, and
any successor thereto appointed pursuant to Section 10.1 hereof.
"AGREEMENT" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"APPLICATION" is defined in Section 1.3 hereof.
"AUTHORIZED REPRESENTATIVE" means those persons shown on the list of
individuals provided by the Company pursuant to Section 6.2 hereof or on any
update of any such list provided by the Company to the Agent, or any further or
different individuals so named by an Authorized Representative of the Company in
a written notice to the Agent.
"BASE RATE" means a fluctuating interest rate per annum equal at all
times to the greater of (i) the Prime Rate for such day and (ii) the sum of the
Federal Funds Rate for such day plus 1/2% per annum.
"BORROWING" means the total of Loans made to the Company by all the
Lenders on a single date. Borrowings of Loans are made and maintained ratably
from each of the Lenders according to their Percentages of the relevant
Commitment.
"BORROWING BASE" means, on any date of determination, an amount equal
to 80% (as such percentage may be redetermined pursuant to Section 1.4(b)
hereof) of the net amount (after deduction of such reserves as the Agent deems
proper and necessary in its commercially
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reasonable discretion) of Eligible Accounts, as evidenced by the most recent
Borrowing Base Certificate.
"Borrowing Base Certificate" means a certificate in the form of EXHIBIT
"C" delivered by the Borrower to the Agent pursuant to the terms hereof.
"BUSINESS DAY" shall mean any day (other than a Saturday or Sunday) on
which banks are not authorized or required to close in Chicago, Illinois.
"CANADIAN INDEBTEDNESS RESERVE" means, as of any date of determination,
an amount equal to the U.S. dollar equivalent of the greater of (i) Canadian
$4,000,000 or (ii) the aggregate outstanding amount of Canadian Subsidiary
Indebtedness as at such date (stated in Canadian Dollars). The U.S. dollar
equivalent, as of any date of determination, shall be determined by reference to
the spot market exchange rate for Canadian Dollars as of the close of business
on such day. The Canadian Indebtedness Reserve as of the Closing Date shall be
deemed to be US$2,760,000.
"CANADIAN SUBSIDIARY INDEBTEDNESS" means indebtedness of HA-LO Canada,
Inc., a corporation organized and existing under the laws of the province of
Ontario, Canada, under a line of credit up to the aggregate principal amount of
Canadian $4,000,000 made available by Bank One Canada to such corporation.
"CAPITAL LEASE" means any lease of Property (whether real or personal)
which in accordance with GAAP is required to be capitalized on the balance sheet
of the lessee.
"CAPITALIZED LEASE OBLIGATION" means the amount of the liability shown
on the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
"CHANGE OF CONTROL" means any one of the following events: (i) any
Person or two or more Persons acting in concert shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934), directly or indirectly,
of securities of the Company (or other securities convertible into such
securities) representing 49% or more of the combined voting power of all
securities of the Company entitled to vote in the election of directors, other
than securities having such power only be reason of the happening of a
contingency; or (ii) during any period of up to 24 consecutive months,
commencing before or after the Closing Date, individuals who at the beginning of
such 24-month period were directors of the Company shall cease for any reason to
constitute a majority of the board of directors of the Company.
"CLOSING DATE" means March 1, 2000.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"COLLATERAL" means (i) all Property and interests in Property pledged
to the Agent or any Lender pursuant to any of the Security Documents and (ii)
all other Property and interests in Property which shall, from time to time,
secure the Obligations.
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"COMMITMENTS" means and includes the Revolving Credit Commitments and
the L/C Commitment.
"COMPANY" is defined in the introductory paragraph of this Agreement.
"COMPANY SECURITY AGREEMENT" means that certain Security Agreement
dated as of March 1, 2000 by and between the Company and the Agent.
"CONDITIONAL SUBSIDIARY GUARANTOR" means each of the following
Subsidiaries: Market U.S.A. Inc., Premier Promotions and Marketing, Inc., Lipson
Associates, Inc., Upshot Direct, Inc., Upshot (New York), Inc., HA-LO Sports,
Inc. and CF Napa Design, Inc.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company or any Subsidiary, are treated
as a single employer under Section 414 of the Code.
"DEFAULT" means any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"ELIGIBLE ACCOUNT" shall mean an Account of the Company or an Eligible
Subsidiary Guarantor included in a Borrowing Base Certificate other than an
Account (i) as to which any of the ineligibility criteria set forth in the field
report of Arthur Andersen dated January 27, 2000 (a copy of which has previously
been provided to the Company) applies, or (ii) which violates any of the
negative covenants or other provisions of this Agreement or fails to satisfy the
affirmative covenants and other provisions of this Agreement. In no event will
interest or service charges be considered part of an Eligible Account.
"ELIGIBLE SUBSIDIARY GUARANTOR" means each of the following Subsidiary
Guarantors: Lee Wayne Corporation, Creative Concepts in Advertising, Inc.,
Promotional Marketing, L.L.C. and, subject to the Company's performance of all
of its covenants in Section 7.20, each of the following Conditional Subsidiary
Guarantors: Market U.S.A., Inc., Upshot (New York), Inc., Premier Promotions and
Marketing, Inc. and Lipson Associates, Inc.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"EVENT OF DEFAULT" means any event or condition specified as such in
Section 8.1 hereof.
"FEDERAL FUNDS RATE" means, for any day, an interest rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
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"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Subsidiaries on a basis consistent
with the preparation of the Company's most recent financial statements furnished
to the Lenders pursuant to Section 5.5 hereof.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean for the Company and its
Subsidiaries the sum (without duplication) of (i) all indebtedness of the
Company and each of its Subsidiaries for borrowed money, whether current or
funded, or secured or unsecured, (ii) all indebtedness for the deferred purchase
price of Property or services, (iii) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to Property
acquired by the Company or any of its Subsidiaries (even though the rights and
remedies of the seller or lender under such agreement in the event of a default
are limited to repossession or sale of such Property), (iv) all indebtedness
secured by a purchase money mortgage or other Lien to secure all or part of the
purchase price of Property subject to such mortgage or Lien, (v) all obligations
under leases which shall have been or must be, in accordance with GAAP, recorded
as Capital Leases in respect of which the Company or any of its Subsidiaries is
liable as lessee, (vi) any liability in respect of banker's acceptances or
letters of credit, (vii) any indebtedness, whether or not assumed, secured by
Liens on Property acquired by the Company or any of its Subsidiaries at the time
of acquisition thereof and (viii) all indebtedness referred to in clause (i),
(ii), (iii), (iv), (v), (vi) or (vii) above which is directly or indirectly
guaranteed by the Company or any of its Subsidiaries or which any of the
foregoing have agreed (contingently or otherwise) to purchase or otherwise
acquire or in respect of which any of them have otherwise assured a creditor
against loss, it being understood that the term "Indebtedness for Borrowed
Money" shall not include trade payables arising in the ordinary course of
business.
"L/C COMMITMENT" means $10,000,000, as reduced pursuant to Section 3.6
hereof.
"L/C OBLIGATIONS" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.
"LENDERS" means American National Bank and Trust Company of Chicago,
Harris Trust and Savings Bank, Comerica Bank and all other lenders becoming
parties hereto pursuant to Section 11.10 hereof.
"LETTER OF CREDIT" is defined in Section 1.3 hereof.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind or nature in respect of any Property, including the
interest of a vendor or lessor under any conditional sale, Capital Lease or
other title retention arrangement.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Applications, the
Guaranties, the Security Documents and each other instrument or document to be
delivered hereunder or thereunder or otherwise in connection therewith.
"LOANS" means and includes Revolving Loans.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations or
prospects of the Company and its
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Subsidiaries taken as a whole, (ii) the ability of the Company or any Subsidiary
to perform its obligations under the Loan Documents, or (iii) the validity or
enforceability of any of the Loan Documents or the rights or remedies of the
Agent or the Lenders thereunder.
"NOTES" means and includes the Revolving Credit Notes.
"OBLIGATIONS" means all obligations of the Company to pay principal and
interest on the Loans, all Reimbursement Obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company or any Subsidiary arising under or in relation to any
Loan Document, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"PERCENTAGE" means, for each Lender, the percentage of the applicable
Commitments represented by such Lender's Commitment or, if the Commitments have
been terminated, the percentage held by such Lender (including through
participation interests in L/C Obligations) of the aggregate principal amount of
all outstanding Obligations.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization or any other
entity or organization, including a government or agency or political
subdivision thereof.
"PLAN" means any employee pension benefit plan covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
that either (i) is maintained by a member of the Controlled Group for employees
of a member of the Controlled Group, or (ii) is maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"PRIME RATE" means a rate per annum equal to the prime rate of interest
announced from time to time by Bank One, NA or its parent (which is not
necessarily the lowest rate charged to any customer), changing when and as said
prime rate changes.
"PRIOR CANADIAN SUBSIDIARY INDEBTEDNESS" means all Indebtedness for
Borrowed Money and other obligations outstanding under the Demand Note Agreement
dated November 2, 1999 by HA-LO Canada, Inc. in favor of Banc One Canada.
"PRIOR INDEBTEDNESS" means all Indebtedness for Borrowed Money and
other obligations outstanding under that certain Credit Agreement dated as of
January 31, 1997 (as amended and modified), among American National Bank and
Trust Company of Chicago, as agent thereunder, and the financial institutions
party thereto as lenders.
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"PROPERTY" means, as to any Person, all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent balance sheet of such Person and its subsidiaries
under GAAP.
"REIMBURSEMENT OBLIGATION" is defined in Section 1.3 hereof.
"REQUIRED LENDERS" means, at any time, (a) Lenders whose Commitments
aggregate 51% or more of the total Commitments or, if at the time no Commitments
are outstanding, Lenders holding 51% or more of the aggregate outstanding
principal balance of the Notes and the credit risk with respect to the Letters
of Credit and (b) at least two Lenders if at such time there are more than two
Lenders.
"REVOLVING CREDIT COMMITMENTS" is defined in Section 1.1 hereof.
"REVOLVING CREDIT NOTES" is defined in Section 1.2 hereof.
"REVOLVING LOANS" is defined in Section 1.2 hereof.
"SECURITY DOCUMENTS" shall mean all agreements, instruments, documents,
financing statements, warehouse receipts, bills of lading, notices of assignment
of accounts, schedules of accounts assigned, mortgages and other written matter
necessary or reasonably requested by the Agent to perfect and maintain perfected
the Agent's security interest (on behalf of the Lenders) in the Collateral
including, without limitation, the Company Security Agreement and the Subsidiary
Security Agreement.
"SUBSIDIARY" means, as to any particular parent corporation or
organization, any other corporation or organization more than 50% of the
outstanding Voting Stock of which is at the time directly or indirectly owned by
such parent corporation or organization or by any one or more other entities
which are themselves subsidiaries of such parent corporation or organization.
The term "SUBSIDIARY" shall mean, when used with reference to the Company, a
subsidiary of, respectively, the Company or any of its direct or indirect
Subsidiaries.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Company which on
the Closing Date or hereafter becomes a "Guarantor" under the Subsidiary
Guaranty or who otherwise executes a Guaranty in accordance with Section 4.1
hereof.
"SUBSIDIARY GUARANTY" means that certain Guaranty Agreement dated as of
March 1, 2000 by the Subsidiary Guarantors in favor of the Agent and the
Lenders.
"SUBSIDIARY SECURITY AGREEMENT" means that certain Security Agreement
dated as of March 1, 2000 by and among the Subsidiary Guarantors and the Agent.
"TANGIBLE NET WORTH" means, at any time the same is to be determined,
total shareholder's equity (including capital stock, additional paid-in capital
and retained earnings after deducting treasury stock, but excluding minority
interests in Subsidiaries) which would appear on a consolidated balance sheet of
the Company and its Subsidiaries prepared on a consolidated basis in accordance
with GAAP, minus the sum of (i) all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill, patents,
trademarks, trade names,
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copyrights, franchises and deferred charges (including, without limitation,
unamortized debt discount and expense, organization costs and deferred research
and development expense) and similar assets, (ii) the write-up of assets above
cost, and (iii) the aggregate book value of all sample inventory.
"TERMINATION DATE" means March 31, 2000, or such earlier date on which
the Revolving Credit Commitments are terminated in whole pursuant to Sections
3.6, 8.2 or 8.3 hereof.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Illinois.
"UNFUNDED VESTED LIABILITIES" means, for any Plan at any time, the
amount (if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"U.S. DOLLARS" AND "$" each means the lawful currency of the United
States of America.
"VOTING STOCK" of any Person means capital stock or other equity
interests of any class or classes (however designated) having ordinary power for
the election of directors or other similar governing body of such Person, other
than stock or other equity interests having such power only by reason of the
happening of a contingency.
"WELFARE PLAN" means a "welfare plan" as defined in Section 3(1) of
ERISA.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of which all of the issued
and outstanding shares of capital stock (other than directors' qualifying shares
as required by law) or other equity interests are owned by the Company and/or
one or more wholly-owned subsidiaries of the Company within the meaning of this
definition.
"YEAR 2000 ISSUES" means anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of the Company and its
Subsidiaries and of the Company's and its Subsidiaries material customers,
suppliers and vendors.
Section 9.2 INTERPRETATION. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"HEREOF", "HEREIN", and "HEREUNDER" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
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SECTION 10. THE AGENT.
Section 10.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers hereunder and under the other Loan Documents as are
designated to the Agent by the terms hereof and thereof together with such
powers as are reasonably incidental thereto. The Lenders expressly agree that
the Agent is not acting as a fiduciary of the Lenders in respect of the Loan
Documents, the Company or otherwise, and nothing herein or in any of the other
Loan Documents shall result in any duties or obligations on the Agent or any of
the Lenders except as expressly set forth herein. The Agent may resign at any
time by sending 20 days prior written notice to the Company and the Lenders. In
the event of any such resignation, the Required Lenders may appoint a new agent
after consultation with the Company which shall succeed to all the rights,
powers and duties of the Agent hereunder and under the other Loan Documents. Any
resigning Agent shall be entitled to the benefit of all the protective
provisions hereof with respect to its acts as an agent hereunder, but no
successor Agent shall in any event be liable or responsible for any actions of
its predecessor. If the Agent resigns and no successor is appointed, the rights
and obligations of such Agent shall be automatically assumed by the Required
Lenders and the Company shall be directed to make all payments due each Lender
hereunder directly to such Lender.
Section 10.2 RIGHTS AS A LENDER. The Agent has and reserves all of the
rights, powers and duties hereunder and under the other Loan Documents as any
Lender may have and may exercise the same as though it was not the Agent. The
terms "LENDER" and "LENDERS" as used herein and in all other Loan Documents
shall, unless the context otherwise expressly indicates, include the Agent in
its individual capacity as Lender.
Section 10.3 STANDARD OF CARE. The Lenders acknowledge that they have
received and approved copies of the Loan Documents and such other information
and documents concerning the transactions contemplated and financed hereby as
they have requested to receive and/or review. The Agent makes no representations
or warranties of any kind or character to the Lenders with respect to the
validity, enforceability, genuineness, perfection, value, worth or
collectibility hereof or of the Notes or any of the other Obligations or of the
Loan Documents or of any other documents called for hereby or thereby or of the
value, sufficiency, creation, perfection, or priority of any interest in any
collateral security. Neither the Agent nor any director, officer, employee,
agent or representative thereof (including any security trustee therefor) shall
in any event be liable for any clerical errors or errors in judgment,
inadvertence or oversight, or for action taken or omitted to be taken by it or
them hereunder or under the Loan Documents or in connection herewith or
therewith except for its or their own gross negligence or willful misconduct.
The Agent shall not incur any liability to the Lenders under or in respect of
this Agreement or any other Loan Documents by acting upon any notice,
certificate, warranty, instruction or statement (oral or written) of anyone
(including anyone in good faith believed by it to be authorized to act on behalf
of the Company), unless it has actual knowledge of the untruthfulness of same.
The Agent may execute any of its duties hereunder by or through representatives,
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders for the default or misconduct of any such representatives, employees,
agents or attorneys-in-fact selected with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder, and shall
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incur no liability to the Lenders and be fully protected in acting upon the
advice of such counsel. The Agent shall be entitled to assume that no Default or
Event of Default exists unless notified to the contrary by a Lender. The Agent
shall in all events be fully protected in acting or failing to act in accord
with the instructions of the Required Lenders. The Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by the Agent by reason of taking or continuing to
take any such action. The Agent may treat the owner of any Note as the holder
thereof until written notice of transfer shall have been filed with the Agent
signed by such owner in form satisfactory to the Agent. Each Lender acknowledges
that it has independently and without reliance on the Agent or any other Lender
and based upon such information, investigations and inquiries as it deems
appropriate made its own credit analysis and decision to extend credit to the
Company. It shall be the responsibility of each Lender to keep itself informed
as to the creditworthiness of the Company and the Agent shall have no liability
to any Lender with respect thereto.
Section 10.4 COSTS AND EXPENSES. Each Lender agrees to reimburse the
Agent for all costs and expenses (including, without limitation, reasonable
attorneys' fees) suffered or incurred by the Agent or any security trustee in
performing its duties hereunder and under the other Loan Documents, or in the
exercise of any right or power imposed or conferred upon the Agent hereby or
thereby, to the extent that the Agent is not promptly reimbursed for same by the
Company after making request of the Company for payment thereof, all such costs
and expenses to be borne by the Lenders ratably in accordance with their
Percentages. If any Lender fails to reimburse the Agent for its share of any
such costs and expenses, such costs and expenses shall be paid pro rata by the
remaining Lenders, but without in any manner releasing the defaulting Lender
from its liability hereunder.
Section 10.5 INDEMNITY. The Lenders shall ratably indemnify and hold
the Agent, and its directors, officers, employees, agents, representatives or
attorneys-in-fact (including as such any security trustee therefor), harmless
from and against any liabilities, losses, costs or expenses suffered or incurred
by it hereunder or under the other Loan Documents or in connection with the
transactions contemplated hereby or thereby, regardless of when asserted or
arising, except to the extent it is promptly reimbursed for the same by the
Company and except to the extent that any event giving rise to a claim was
caused by the gross negligence or willful misconduct of the party seeking to be
indemnified. If any Lender defaults in its obligations hereunder, its share of
the obligations shall be paid pro rata by the remaining Lenders, but without in
any manner releasing the defaulting Lender from its liability hereunder.
Section 10.6 EXECUTION OF SECURITY DOCUMENTS. The Lenders hereby
empower and authorize the Agent to execute and deliver to the Company and the
Subsidiary Guarantors on the Lenders' behalf the Security Documents and all
related financing statements and intercreditor agreements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Security Documents.
Section 10.7 COLLATERAL RELEASES. The Lenders hereby empower and
authorize the Agent to execute and deliver to the Company and the Subsidiary
Guarantors on the Lenders' behalf any agreements, documents or instruments as
shall be necessary or appropriate to effect any releases of Collateral which
shall be permitted by the terms hereof or of any other Loan
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Document or which shall otherwise have been approved by the Required Lenders
(or, if required by the terms of Section 11.4 hereof, all of the Lenders) in
writing.
SECTION 11. MISCELLANEOUS.
Section 11.1 WITHHOLDING TAXES. (a) PAYMENTS FREE OF WITHHOLDING.
Except as otherwise required by law and subject to Section 11.1(b) hereof, each
payment by the Company under this Agreement or the other Loan Documents shall be
made without withholding for or on account of any present or future taxes (other
than overall net income taxes on the recipient) imposed by or within the
jurisdiction in which the Company is domiciled, any jurisdiction from which the
Company makes any payment, or (in each case) any political subdivision or taxing
authority thereof or therein. If any such withholding is so required, the
Company shall make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest accrues
thereon and forthwith pay such additional amount as may be necessary to ensure
that the net amount actually received by each Lender and the Agent free and
clear of such taxes (including such taxes on such additional amount) is equal to
the amount which that Lender or the Agent (as the case may be) would have
received had such withholding not been made. If the Agent or any Lender pays any
amount in respect of any such taxes, penalties or interest, the Company shall
reimburse the Agent or that Lender for that payment on demand in the currency in
which such payment was made. If the Company pays any such taxes, penalties or
interest, it shall deliver official tax receipts evidencing that payment or
certified copies thereof to the Lender or Agent on whose account such
withholding was made (with a copy to the Agent if not the recipient of the
original) on or before the thirtieth day after payment.
(b) U.S. WITHHOLDING TAX EXEMPTIONS. Each Lender that is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) shall submit to the Company and the Agent on or before the earlier of the
date the initial Borrowing is made hereunder and 30 days after the Closing Date,
two duly completed and signed copies of either Form 1001 (relating to such
Lender and entitling it to a complete exemption from withholding under the Code
on all amounts to be received by such Lender, including fees, pursuant to the
Loan Documents and the Obligations) or Form 4224 (relating to all amounts to be
received by such Lender, including fees, pursuant to the Loan Documents and the
Obligations) of the United States Internal Revenue Service. Thereafter and from
time to time, each Lender shall submit to the Company and the Agent such
additional duly completed and signed copies of one or the other of such Forms
(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may be (i) requested by the Company in a
written notice, directly or through the Agent, to such Lender and (ii) required
under then-current United States law or regulations to avoid or reduce United
States withholding taxes on payments in respect of all amounts to be received by
such Lender, including fees, pursuant to the Loan Documents or the Obligations.
(c) INABILITY OF LENDER TO SUBMIT FORMS. If any Lender determines,
as a result of any change in applicable law, regulation or treaty, or in any
official application or interpretation thereof, that it is unable to submit to
the Company or the Agent any form or certificate that such Lender is obligated
to submit pursuant to subsection (b) of this Section 11.1 or that such Lender is
required to withdraw or cancel any such form or certificate previously submitted
or any such form or certificate otherwise becomes ineffective or inaccurate,
such Lender shall promptly notify the Company and the Agent of such fact and the
Lender shall to that extent not be obligated to
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provide any such form or certificate and will be entitled to withdraw or cancel
any affected form or certificate, as applicable.
Section 11.2 NON-BUSINESS DAYS. If any payment hereunder becomes due
and payable on a day which is not a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day on which date such payment
shall be due and payable. In the case of any payment of principal falling due on
a day which is not a Business Day, interest on such principal amount shall
continue to accrue during such extension at the rate per annum then in effect,
which accrued amount shall be due and payable on the next scheduled date for the
payment of interest.
Section 11.3 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the
part of the Agent or any Lender in the exercise of any power or right shall
operate as a waiver thereof or as an acquiescence in any default, nor shall any
single or partial exercise of any right preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies
hereunder of the Agent and the Lenders are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 11.4 WAIVERS, MODIFICATIONS AND AMENDMENTS. Any provision
hereof or of the other Loan Documents may be amended, modified, waived or
released and any Default or Event of Default and its consequences may be
rescinded and annulled upon the written consent of the Company and the Required
Lenders; PROVIDED, HOWEVER, that without the written consent of each Lender no
such amendment, modification or waiver shall increase the aggregate amount of
the Commitments to an amount in excess of $50,000,000 or increase the amount or
extend the terms of such Lender's Commitments or reduce the amount of any
principal of or interest rate applicable to, or extend the maturity of, any
Obligation owed to it or reduce the amount of fees or other amounts to which it
is entitled hereunder or release any guaranty of any Obligations or (except as
provided in the Security Documents) release all or substantially all of the
Collateral or change this Section 11.4 or change the definition of "REQUIRED
LENDERS" or change the number of Lenders required to take any action hereunder
or under the other Loan Documents. No amendment, modification or waiver of the
Agent's protective provisions shall be effective without the prior written
consent of the Agent.
Section 11.5 COSTS AND EXPENSES. The Company agrees to pay on demand
all actual and reasonable costs and expenses of the Agent in connection with the
negotiation, preparation, execution, delivery and administration of the Loan
Documents and in connection with any consents hereunder or thereunder and any
waivers or amendments hereto or thereto (including (i) the reasonable fees and
expenses of counsel for the Agent with respect to all of the foregoing and (ii)
an audit fee in an amount equal to $750 per day for each person employed to
perform a field examination for the Agent which person may be an employee of the
Agent or its Affiliates or an independent contractor, plus all reasonable
out-of-pocket expenses incurring by such person in the performance of such audit
or analysis), and all costs and expenses (including reasonable attorneys' fees)
incurred by the Agent, the Lenders or any other holders of the Obligations in
connection with a Default or Event of Default or the enforcement of the Loan
Documents, and all costs, fees and taxes of the types enumerated above incurred
in supplementing (and recording or filing supplements to) the Loan Documents in
connection with assignments contemplated by Section 11.10 hereof if counsel to
the Agent reasonably believes such supplements to be
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appropriate or desirable. The Company agrees to indemnify and save the Lenders,
the Agent and any security trustee for the Agent or the Lenders harmless from
any and all liabilities, losses, costs and expenses incurred by the Lenders or
the Agent in connection with any action, suit or proceeding brought against the
Agent, any security trustee or any Lender by any Person which arises out of the
transactions contemplated or financed by any of the Loan Documents or out of any
action or inaction by the Agent, any security trustee or any Lender thereunder,
including without limitation those caused by the negligence of any party but
except for such thereof as is caused by the gross negligence or willful
misconduct of the party indemnified. The provisions of this Section 11.5 and the
protective provisions of Section 2 hereof shall survive payment of the
Obligations.
Section 11.6 DOCUMENTARY TAXES. The Company agrees that it will pay any
documentary, stamp or similar taxes payable in respect to any Loan Document,
including interest and penalties, in the event any such taxes are assessed,
irrespective of when such assessment is made and whether or not any credit to it
is then in use or available.
Section 11.7 SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein and in the other Loan Documents and in certificates given
pursuant hereto or thereto shall survive the execution and delivery of this
Agreement and the other Loan Documents, and shall continue in full force and
effect with respect to the date as of which they were made as long as any credit
is in use or available hereunder.
Section 11.8 NOTICES. Except as otherwise specified herein, all notices
hereunder shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below, in the case of the Company, or on the appropriate
signature page hereof, in the case of the Lenders and the Agent, or such other
address or telecopier number as such party may hereafter specify by notice to
the Agent and the Company given by United States certified or registered mail,
by telecopy or by other telecommunication device capable of creating a written
record of such notice and its receipt. Notices hereunder to the Company shall be
addressed to:
HA-LO Industries, Inc.
5980 West Touhy Avenue
Niles, Illinois 60714
Attention Mr. Greg Kilrea
Telephone (847) 647-4785
Telecopy: (847) 647-4970
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the respective address specified in this Section; PROVIDED that any notice given
pursuant to Section 1 or Section 2 hereof shall be effective only upon receipt.
Section 11.9 PARTICIPATIONS. Any Lender may grant participations in its
extensions of credit hereunder to any other bank or lending institution (a
"PARTICIPANT"), provided that (i) no
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Participant shall thereby acquire any direct rights under this Agreement, (ii)
no Lender shall agree with a Participant not to exercise any of its rights
hereunder without the consent of such Participant except for rights which under
the terms hereof may only be exercised by all Lenders, and (iii) no sale of a
participation in extensions of credit shall in any manner relieve the selling
Lender of its obligations hereunder.
Section 11.10 ASSIGNMENT AGREEMENTS. Each Lender may, from time to time
upon at least 5 Business Days' notice to the Agent, assign to other banks or
lending institutions all or part of its rights and obligations under this
Agreement (including, without limitation, the indebtedness evidenced by the
Notes then owned by such assigning Lender, together with an equivalent
proportion of its obligation to make loans and advances and participate in
Letters of Credit hereunder) pursuant to an Assignment Agreement in the form
attached hereto as Exhibit F (the "ASSIGNMENT AGREEMENTS"); PROVIDED, HOWEVER,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of the assigning Lender's rights and obligations under this Agreement
and the assignment shall cover the same percentage of such Lender's Commitments,
Loans, Notes and interests in Letters of Credit; (ii) unless the Agent otherwise
consents, the aggregate amount of the Commitments, Loans, Notes and interests in
the Letters of Credit of the assigning Lender being assigned pursuant to each
such assignment (determined as of the effective date of the relevant Assignment
Agreement) shall in no event be less than $5,000,000 and shall be an integral
multiple of $1,000,000 and, unless the assigning Lender shall have assigned all
of its Commitments, Loans, Notes and interests in Letters of Credit, the
aggregate amount of Commitments, Loans, Notes, and interests in Letters of
Credit retained by the assigning Lender shall in no event be less than
$5,000,000; (iii) the Agent and, except during the existence of an Event of
Default, the Company must each consent, which consent shall not be unreasonably
withheld and shall be evidenced by execution of a counterpart of the relevant
Assignment Agreement in the space provided thereon for such acceptance, to each
such assignment to a party which was not an original signatory of this Agreement
or an Affiliate of such a signatory and (iv) the assigning Lender must pay to
the Agent a processing and recordation fee of $3,500 and any reasonable
out-of-pocket attorney's fees incurred by the Agent in connection with such
Assignment Agreement. Upon the execution of each Assignment Agreement by the
assigning Lender thereunder, the assignee lender thereunder, the Agent and, so
long as no Event of Default exists, the Company and payment to such assigning
Lender by such assignee lender of the purchase price for the portion of the
indebtedness of the Company being acquired by it, (i) such assignee lender shall
thereupon become a "LENDER" for all purposes of this Agreement with Commitments
in the amount set forth in such Assignment Agreement and with all the rights,
powers and obligations afforded a Lender hereunder, (ii) such assigning Lender
shall have no further liability for funding the portion of its Commitments
assumed by such other Lender and (iii) the address for notices to such assignee
Lender shall be as specified in the Assignment Agreement executed by it.
Concurrently with the execution and delivery of such Assignment Agreement, the
Company shall execute and deliver Notes to the assignee Lender in the respective
amounts of its Commitments and new Notes to the assigning Lender in the
respective amounts of its Commitments after giving effect to the reduction
occasioned by such assignment, all such Notes to constitute "NOTES" for all
purposes of this Agreement and the other Loan Documents. Upon the delivery of
such new Notes, the assigning Lender agrees to return to the Company such
Lender's prior Notes marked "CANCELLED" or words of like import.
Section 11.11 [RESERVED].
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Section 11.12 LENDER'S OBLIGATIONS SEVERAL. The obligations of the
Lenders hereunder are several and not joint. Nothing contained in this Agreement
and no action taken by the Lenders pursuant hereto shall be deemed to constitute
the Lenders a partnership, association, joint venture or other entity.
Section 11.13 HEADINGS. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
Section 11.14 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is unenforceable or prohibited in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such unenforceability or
prohibition without invalidating the remaining provisions hereof or affecting
the validity or enforceability of such provision in any other jurisdiction. All
rights, remedies and powers provided in this Agreement and the other Loan
Documents may be exercised only to the extent that the exercise thereof does not
violate any applicable mandatory provisions of law, and all the provisions of
this Agreement and other Loan Documents are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Agreement or
the other Loan Documents invalid or unenforceable.
Section 11.15 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 11.16 BINDING NATURE AND GOVERNING LAW. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Agent and the Lenders and the benefit of their successors and
assigns, including any subsequent holder of an interest of the Obligations. This
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with, and shall be governed by, the internal laws of
the State of Illinois without regard to principles of conflicts of law. The
Company may not assign its rights hereunder without the written consent of the
Agent and the Lenders.
Section 11.17 ENTIRE UNDERSTANDING. This Agreement, together with the
other Loan Documents, constitute the entire understanding of the parties with
respect to the subject matter hereof and any prior agreements, whether written
or oral, with respect thereto are superseded hereby.
Section 11.18 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. The
Company hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. THE COMPANY, THE AGENT, AND EACH LENDER HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
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[Signature Pages to Follow]
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Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of this 25th day of February, 2000.
HA-LO INDUSTRIES, INC.
By
Name
----------------------------
Title
----------------------------
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Accepted and Agreed to as of the day and year last above written.
Each of the Lenders hereby agrees with each other Lender that if it
should receive or obtain any payment (whether by voluntary payment, by the
exercise of rights of set-off or banker's lien, by counterclaim or cross action,
or by the enforcement of any rights under the Agreement or the other Loan
Documents or otherwise) in respect of the Obligations, in a greater amount than
such Lender would have received had such payment been made to the Agent and been
distributed among the Lenders as contemplated by Section 3.7 hereof, then in
that event the Lender receiving such disproportionate payment shall purchase for
cash without recourse from the other Lenders an interest in the Obligations owed
to such Lenders in such amount as shall result in a distribution of such payment
as contemplated by Section 3.7 hereof. In the event any payment made to a Lender
and shared with the other Lenders pursuant to the provisions hereof is ever
recovered from such Lender, the Lenders receiving a portion of such payment
hereunder shall restore the same to the payor Lender, but without interest. In
the event any amount paid to the Agent under the Applications shall ever be
recovered from the Agent, each Lender shall reimburse the Agent for its pro rata
share of the amount so recovered.
Amount and Percentage of Commitments:
Revolving Credit AMERICAN NATIONAL BANK AND TRUST
Commitment: COMPANY OF CHICAGO, individually and
$22,500,000 as agent
Percentage: 50.000%
By
Name
--------------------------------
Title
--------------------------------
Address:
120 South LaSalle Street
Chicago, Illinois 60603
Attention: David Weislogel
Telephone: (312) 661- 5677
Telecopy: (312) 661- 6929
42
<PAGE>
Revolving Credit Harris Trust and Savings Bank
Commitment:
$15,000,000
Percentage: 33.333%
By
Name
--------------------------------
Title
--------------------------------
Address:
111 West Monroe Street, 2E
P.O. Box 755
Chicago, Illinois 60690
Attention: Mr. Ray Whitacre
Telephone: (312) 461-3436
Telecopy: (312) 765-8348
Revolving Comerica Bank
Commitment:
$7,500,000
Percentage: 16.667%
By
Name
--------------------------------
Title
--------------------------------
Address:
500 Woodward Drive
Mail Code 3289
Detroit, Michigan 48226
Attention: Harve Light
Telephone: (313) 222-6198
Telecopy: (313) 222-9434
Aggregate Revolving Credit
Commitments:
$45,000,000
43
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
To Each of the Lenders Signatory Hereto
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
February 25, 2000 (as amended, restated, supplemented and otherwise modified
from time to time, the "Credit Agreement"), between the undersigned, HA-LO
Industries, Inc., an Illinois corporation (the "Company"), American National
Bank and Trust Company of Chicago, as agent for the Lenders (the "Agent"), and
you (the "Lenders"). All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
The Company has requested that the Lenders increase the Revolving
Credit Commitments and the Lenders are willing to do so on the terms and
conditions set forth in this agreement (the "Amendment").
1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 2 below, the Credit Agreement shall be amended as follows:
(l) The signature pages to the Credit Agreement shall be
amended by (i) (a) deleting the amount "$22,500,000" appearing under
the caption "Revolving Credit Commitment" and (b) deleting the
percentage "50%" appearing under the caption "Percentage", opposite
American National Bank and Trust Company of Chicago's signature and
inserting in its place the amount "$26,666,667" and the percentage
"53.3333334%", (ii) deleting the percentage "33.333%" appearing under
the caption "Percentage", opposite Harris Trust and Savings Bank's
signature and inserting in its place the percentage "30.00%", (iii) (a)
deleting the amount "$7,500,000" appearing under the caption "Revolving
Credit Commitment" and (b) deleting the percentage "16.667%" appearing
under the caption "Percentage", opposite Comerica Bank's signature and
inserting in its place the amount "$8,333,333" and the percentage
"16.6666667%", and (iv) deleting the amount "$45,000,000" appearing
under the caption "Aggregate Revolving Credit Commitments" after the
signatures of the Lenders and inserting in its place the amount
"50,000,000".
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
2.1 The Company, the Agent and the Lenders shall have executed
and delivered this Amendment.
<PAGE>
2.2 The Company shall have executed and delivered to each of
American National Bank and Trust Company of Chicago and Comerica Bank a
Revolving Credit Note in the form of Exhibit A hereto payable to the
order of such Lender in the principal amount of its Revolving Credit
Commitment in effect after giving effect to this Amendment.
2.3 Each Subsidiary of the Company party to the Guaranty shall
have executed and delivered the Guarantor's Acknowledgment in the form
attached hereto as Exhibit B.
3. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment,
the Company hereby represents to the Lenders that as of the date hereof the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct and the Company is in compliance
with all of the terms and conditions of the Credit Agreement and no Default or
Event of Default has occurred and is continuing under the Credit Agreement or
shall result after giving effect to this Amendment.
4. EQUALIZATION.
Anything contained in the Credit Agreement or in this Amendment to the
contrary notwithstanding, upon satisfactory completion of the conditions
precedent to the effectiveness of this Amendment as set forth above, there shall
be such purchases and sales of interests in the Revolving Loans, if any then
outstanding, as shall be necessary so that after giving effect thereto each
Lender holds its ratable share of the total of the Revolving Loans then
outstanding in accordance with its Percentage of the Revolving Credit
Commitments.
5. MISCELLANEOUS.
5.1 Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
2
<PAGE>
5.2 This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of March __, 2000
HA-LO INDUSTRIES, INC.
By:____________________________
Name:__________________________
Title:___________________________
3
<PAGE>
Accepted and agreed to as of the date and year last above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually and as
Agent
By:______________________________________
Name:____________________________________
Title:___________________________________
HARRIS TRUST AND SAVINGS BANK
By:______________________________________
Name:____________________________________
Title:___________________________________
COMERICA BANK
By:______________________________________
Name:____________________________________
Title:___________________________________
4
<PAGE>
ASSUMPTION AND SUPPLEMENT TO GUARANTY AGREEMENT
This Assumption and Supplement to Guaranty Agreement (the "AGREEMENT")
is dated as of this _____ day of March, 2000, made by [1], a ___________
corporation (the "NEW GUARANTOR");
WITNESSETH THAT:
WHEREAS, certain parties have executed and delivered to the Guaranteed
Creditors that certain Guaranty Agreement dated as of March 1, 2000, or
supplements thereto (such Guaranty Agreement, as the same may from time to time
be modified or amended, including supplements thereto which add or substitute
parties as Guarantors thereunder, being hereinafter referred to as the
"GUARANTY") pursuant to which such parties (the "EXISTING GUARANTORS") have
guaranteed to the Guaranteed Creditors the full and prompt payment of, among
other things, any and all indebtedness, obligations and liabilities of HA-LO
Industries, Inc. (the "COMPANY") arising under or relating to the Credit
Agreement and the other Credit Documents described therein; and
WHEREAS, the Company provides the New Guarantor with substantial
financial, managerial, administrative, technical and design support and the New
Guarantor will benefit, directly and indirectly, from credit and other financial
accommodations extended and to be extended by the Lenders to the Company;
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances
made or to be made, or credit accommodations given or to be given, to the
Company by the Lenders from time to time, the New Guarantor hereby agrees as
follows:
1. The New Guarantor acknowledges and agrees that it shall become a
"Guarantor" party to the Guaranty effective upon the date of the New Guarantor's
execution of this Agreement and the delivery of this Agreement to the Agent on
behalf of the Guaranteed Creditors, and that upon such execution and delivery,
all references in the Guaranty to the terms "Guarantor" or "Guarantors" shall be
deemed to include the New Guarantor.
2. The New Guarantor hereby assumes and becomes liable (jointly and
severally with all the other Guarantors) for the indebtedness hereby guaranteed
(as defined in the Guaranty) and agrees to pay and otherwise perform all of the
obligations of a Guarantor under the Guaranty according to, and otherwise on and
subject to, the terms and conditions of the Guaranty to the same extent and with
the same force and effect as if the New Guarantor had originally been one of the
Existing Guarantors under the Guaranty and had originally executed the same as
such an Existing Guarantor.
3. All capitalized terms used in this Agreement without definition
shall have the same meanings herein as such terms have in the Guaranty, except
that any reference to the term "Guarantor" or "Guarantors" and any provision of
the Guaranty providing meaning to such term shall be deemed a reference to the
Existing Guarantors and the New Guarantor. Except as specifically modified
hereby, all of the terms and conditions of the Guaranty shall stand and remain
unchanged and in full force and effect.
<PAGE>
4. The New Guarantor agrees to execute and deliver such further
instruments and documents and do such further acts and things as the Agent or
the Guaranteed Creditors reasonably may deem necessary or proper to carry out
more effectively the purposes of this Agreement.
5. No reference to this Agreement need be made in the Guaranty or in
any other document or instrument making reference to the Guaranty, any reference
to the Guaranty in any of such to be deemed a reference to the Guaranty as
modified hereby.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois (without regard to principles of conflicts of
law) in which state it shall be performed by the New Guarantor.
[1]
By
Its
---------------------------
Address:
---------------------------
---------------------------
Attention
Telephone
Telecopy
Acknowledged and agreed to in Chicago, Illinois as of the date first
above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Agent
By
Its
---------------------------
<PAGE>
SCHEDULE 1
There are seven (7) documents omitted as Exhibits which contain the
same material terms of the attached agreement, except that the parties defined
therein as "New Guarantor" (marked as "[1]" in the first paragraph and signature
page of such document) differ among the documents. Such parties are set forth
below (listed as "New Guarantor").
NEW GUARANTOR
Upshot (New York), Inc.
Market U.S.A. Inc.
Upshot Direct, Inc.
Lipson Associates, Inc.
HA-LO Sports, Inc.
CF Napa Design, Inc.
Premier Promotions and Marketing, Inc.
<PAGE>
GUARANTY AGREEMENT
This Guaranty Agreement (the "GUARANTY") dated as of this 1st day of
March, 2000, by the parties who have executed this Guaranty (such parties, along
with any other parties who execute and deliver to the Agent hereinafter
identified and defined an agreement in the form attached hereto as Exhibit A,
being herein referred to collectively as the "GUARANTORS" and individually as a
"GUARANTOR").
WITNESSETH:
WHEREAS, the Guarantors are subsidiaries of Ha-Lo Industries, Inc., an
Illinois corporation (the "COMPANY"); and
WHEREAS, the Company, American National Bank and Trust Company of
Chicago ("ANB"), individually and as agent (ANB acting as such agent and any
successor or successors to ANB in such capacity being hereinafter referred to as
the "AGENT"), Harris Trust and Savings Bank ("HTSB") and Comerica Bank
("Comerica") have entered into a Credit Agreement dated as of February 25, 2000
(such Credit Agreement as the same may hereafter be amended or modified from
time to time, including amendments and restatements thereof in its entirety,
being hereinafter referred to as the "CREDIT AGREEMENT") pursuant to which ANB,
HTSB, Comerica and such other lenders from time to time parties thereto (ANB,
HTSB, Comerica and such other lenders being hereinafter referred to collectively
as the "LENDERS" and individually as a "LENDER") have extended various credit
facilities to the Company (the Agent and the Lenders being hereinafter referred
to collectively as the "GUARANTEED CREDITORS" and individually as a "GUARANTEED
CREDITOR"); and
WHEREAS, the Company provides each of the Guarantors with substantial
financial, management, administrative, and technical support; and
WHEREAS, as a condition to extending the credit facilities to the
Company under the Credit Agreement, the Lenders have required, among other
things, that the Guarantors execute and deliver this Guaranty; and
WHEREAS, each Guarantor will benefit, directly and indirectly, from
credit and other financial accommodations extended and to be extended by the
Lenders to the Company; and
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances
made or to be made, or credit accommodations given or to be given, to the
Company by the Lenders from time to time, each Guarantor hereby makes the
following representations and warranties to, and hereby covenants and agrees
with, the Guaranteed Creditors as follows:
SECTION 1. All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
SECTION 2. Each Guarantor hereby jointly and severally guarantees to
the Guaranteed Creditors the due and punctual payment when due of (i) any and
all indebtedness, obligations and liabilities owing to the Guaranteed Creditors,
and any of them individually, by the Company
<PAGE>
under or in connection with or evidenced by (x) the Credit Agreement or (y) all
notes issued by the Company under the Credit Agreement and any and all notes
issued in extension or renewal thereof or in substitution or replacement
therefor (collectively, the "NOTES"), in each case whether now existing or
hereafter arising (and whether arising before or after the filing of a petition
in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, (ii) the obligations of
the Company to reimburse the Guaranteed Creditors, and any of them individually,
for the amount of all drawings on all letters of credit (the "LETTERS OF
CREDIT") issued for the account of the Company pursuant to the Credit Agreement,
and all other obligations, whether now existing or hereafter arising (and
whether arising before or after the filing of a petition in bankruptcy), of the
Company under any and all applications for such Letters of Credit (each an
"APPLICATION"; the Notes, the Letters of Credit, the Credit Agreement, the
Applications, and any guaranty or other instrument or agreement executed by
another subsidiary or affiliate of the Company in connection therewith being
hereinafter collectively referred to as the "CREDIT DOCUMENTS"), and (iii) any
and all expenses and charges, legal or otherwise, suffered or incurred by the
Guaranteed Creditors, and any of them individually, in collecting or enforcing
any of such indebtedness, obligations and liabilities or in realizing on or
protecting or preserving any security therefor. The indebtedness, obligations
and liabilities described in the immediately preceding clauses (i), (ii), and
(iii) are hereinafter referred to as the "INDEBTEDNESS HEREBY GUARANTEED". In
case of failure by the Company punctually to pay any indebtedness hereby
guaranteed, each Guarantor hereby jointly and severally agrees to make such
payment or to cause such payment to be made punctually as and when the same
shall become due and payable, whether at stated maturity, by acceleration or
otherwise, and as if such payment were made by the Company. Notwithstanding
anything contained in this Guaranty to the contrary, the right of recovery
against any Guarantor under this Guaranty shall not exceed $1 less than the
amount which would render such Guarantor's obligations under this Guaranty void
or voidable under applicable law, including, without limitation, fraudulent
conveyance law.
SECTION 3. Each Guarantor further jointly and severally agrees to pay
all actual out-of-pocket expenses, legal and/or otherwise (including court costs
and reasonable attorneys' fees), paid or incurred by any Guaranteed Creditor in
enforcing or endeavoring to collect or enforce the indebtedness hereby
guaranteed or the Guarantors' obligations hereunder, or any part thereof, and in
protecting, defending or enforcing this Guaranty and the Guarantors' obligations
hereunder in any litigation, bankruptcy or insolvency proceedings or otherwise.
SECTION 4. Each Guarantor agrees that upon demand, such Guarantor will
then pay to the Agent for the benefit of the Guaranteed Creditors the full
amount of the indebtedness hereby guaranteed then due whether or not any one or
more of the other Guarantors shall then or thereafter pay any amount whatsoever
in respect to their obligations hereunder.
SECTION 5. Each of the Guarantors agrees that such Guarantor will not
exercise or enforce any right of exoneration, contribution, reimbursement,
recourse or subrogation available to such Guarantor against any person liable
for payment of the indebtedness hereby guaranteed, or as to any security
therefor, unless and until the full amount owing to the Guaranteed Creditors of
the indebtedness hereby guaranteed has been fully paid and satisfied and each of
the Commitments by the Guaranteed Creditors to extend any indebtedness hereby
guaranteed shall have expired or otherwise terminated. The payment by any
Guarantor of any amount or amounts
2
<PAGE>
to the Guaranteed Creditors pursuant hereto shall not in any way entitle any
such Guarantor, either at law, in equity or otherwise, to any right, title or
interest (whether by way of subrogation or otherwise) in and to the indebtedness
hereby guaranteed or any part thereof or any collateral security therefor or any
other rights or remedies in any way relating thereto or in and to any amounts
theretofor, then or thereafter paid or applicable to the payment thereof
howsoever such payment may be made and from whatsoever source such payment may
be derived unless and until all of the indebtedness hereby guaranteed and all
costs and expenses suffered or incurred by the Guaranteed Creditors in enforcing
this Guaranty have been paid and satisfied in full and each of the Commitments
by the Guaranteed Creditors to extend any indebtedness hereby guaranteed shall
have expired or otherwise terminated; and, unless and until such payment in full
and termination, any payments made by any Guarantor hereunder and any other
payments from whatsoever source derived on account of or applicable to the
indebtedness hereby guaranteed or any part thereof shall be held and taken to be
merely payments in gross to the Guaranteed Creditors reducing pro tanto the
indebtedness hereby guaranteed.
SECTION 6. To the extent permitted by the Credit Agreement, each
Guaranteed Creditor may, without any notice whatsoever to any of the Guarantors,
sell, assign, or transfer all of the indebtedness hereby guaranteed, or any part
thereof, or grant participations therein, and in that event each and every
immediate and successive assignee, transferee, or holder of all or any part of
the indebtedness hereby guaranteed shall have the right through the Agent
pursuant to Section 18 hereof to enforce this Guaranty, by suit or otherwise,
for the benefit of such assignee, transferee, or holder as fully as if such
assignee, transferee, or holder were herein by name specifically given such
rights, powers and benefits; but each Guaranteed Creditor through the Agent
pursuant to Section 18 hereof shall have an unimpaired right to enforce this
Guaranty for its own benefit, as to so much of the indebtedness hereby
guaranteed that it has not sold, assigned or transferred.
SECTION 7. This Guaranty is a continuing, absolute and unconditional
Guaranty, and shall remain in full force and effect until written notice of its
discontinuance executed by the Company and all the Guarantors shall be actually
received by the Guaranteed Creditors, and also until any and all of the
indebtedness hereby guaranteed which was created or existing before receipt of
such notice shall be fully paid and satisfied and each of the Commitments by the
Guaranteed Creditors to extend any indebtedness hereby guaranteed shall have
expired or otherwise terminated. The dissolution of any Guarantor shall not
terminate this Guaranty as to such Guarantor until notice of such dissolution
shall have been actually received by the Guaranteed Creditors, nor until all of
the indebtedness hereby guaranteed, created or existing or committed to be
extended in each case before receipt of such notice shall be fully paid and
satisfied. The Guaranteed Creditors may at any time or from time to time release
any Guarantor from its obligations hereunder or effect any compromise with any
Guarantor and no such release or compromise shall in any manner impair or
otherwise affect the obligations hereunder of the other Guarantors. No release,
compromise, or discharge of any one or more of the Guarantors shall release,
compromise or discharge the obligations of the other Guarantors hereunder.
SECTION 8. In case of the dissolution, liquidation or insolvency
(howsoever evidenced) of, or the institution of bankruptcy or receivership
proceedings against the Company or any Guarantor, all of the indebtedness hereby
guaranteed which is then existing shall, at the option of the Lenders in
accordance with the terms of the Credit Agreement, immediately
3
<PAGE>
become due or accrued and payable from the Guarantors. All payments received
from the Company or on account of the indebtedness hereby guaranteed from
whatsoever source, shall be taken and applied as payment in gross, and this
Guaranty shall apply to and secure any ultimate balance of the indebtedness
hereby guaranteed that shall remain owing to the Guaranteed Creditors.
SECTION 9. The liability hereunder shall in no way be affected or
impaired by (and the Guaranteed Creditors are hereby expressly authorized to
make from time to time, without notice to any of the Guarantors), any sale,
pledge, surrender, compromise, settlement, release, renewal, extension,
indulgence, alteration, substitution, exchange, change in, modification or other
disposition of any of the indebtedness hereby guaranteed, either express or
implied, or of any Credit Document or any other contract or contracts evidencing
any thereof, or of any security or collateral therefor (except to the extent the
same shall be applied in satisfaction of the indebtedness hereby guaranteed) or
any guaranty thereof. The liability hereunder shall in no way be affected or
impaired by any acceptance by the Guaranteed Creditors of any security for or
other guarantors upon any of the indebtedness hereby guaranteed, or by any
failure, neglect or omission on the part of the Guaranteed Creditors to realize
upon or protect any of the indebtedness hereby guaranteed, or any collateral or
security therefor, or to exercise any lien upon or right of appropriation of any
moneys, credits or property of the Company or any Guarantor, possessed by any of
the Guaranteed Creditors, toward the liquidation of the indebtedness hereby
guaranteed, or by any application of payments or credits thereon. The Guaranteed
Creditors shall have the exclusive right to determine how, when and what
application of payments and credits, if any, shall be made on said indebtedness
hereby guaranteed, or any part of same. In order to hold any Guarantor liable
hereunder, there shall be no obligation on the part of the Guaranteed Creditors,
at any time, to resort for payment to the Company or to any other Guarantor, or
to any other person, its property or estate, or resort to any collateral,
security, property, liens or other rights or remedies whatsoever, and the
Guaranteed Creditors shall have the right to enforce this Guaranty against any
Guarantor irrespective of whether or not other proceedings or steps are pending
seeking resort to or realization upon or from any of the foregoing.
SECTION 10. In the event the Guaranteed Creditors shall at any time in
their discretion permit a substitution of Guarantors hereunder or a party shall
wish to become Guarantor hereunder, such substituted or additional Guarantor
shall, upon executing an agreement in the form attached hereto as Exhibit A,
become a party hereto and be bound by all the terms and conditions hereof to the
same extent as though such Guarantor had originally executed this Guaranty and
in the case of a substitution, in lieu of the Guarantor being replaced. No such
substitution shall be effective absent the written consent of the Guaranteed
Creditors nor shall it in any manner affect the obligations of the other
Guarantors hereunder.
SECTION 11. All diligence in collection or protection, and all
presentment, demand, protest and/or notice, as to any and everyone, whether or
not the Company or the Guarantors or others, of dishonor and of default and of
non-payment and of the creation and existence of any and all of said
indebtedness hereby guaranteed, and of any security and collateral therefor, and
of the acceptance of this Guaranty, and of any and all extensions of credit and
indulgence hereunder, are expressly waived.
4
<PAGE>
SECTION 12. No act of commission or omission of any kind, or at any
time, upon the part of the Guaranteed Creditors in respect to any matter
whatsoever, shall in any way affect or impair this Guaranty.
SECTION 13. The Guarantors waive, to the extent permitted by applicable
law, any and all defenses, claims and discharges of the Company, or any other
obligor, pertaining to the indebtedness hereby guaranteed, except the defense of
discharge by payment in full. Without limiting the generality of the foregoing,
to the extent permitted by applicable law, the Guarantors will not assert, plead
or enforce against the Guaranteed Creditors any defense of waiver, release,
discharge in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Company or any other person
liable in respect of any of the indebtedness hereby guaranteed, or any set-off
available against the Guaranteed Creditors to the Company or any such other
person, whether or not on account of a related transaction. The Guarantors agree
that the Guarantors shall be and remain jointly and severally liable for any
deficiency remaining after foreclosure or other realization on any lien or
security interest securing the indebtedness hereby guaranteed, whether or not
the liability of the Company or any other obligor for such deficiency is
discharged pursuant to statute or judicial decision.
SECTION 14. If any payment applied by the Guaranteed Creditors to the
indebtedness hereby guaranteed is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of the Company or any other obligor),
the indebtedness hereby guaranteed to which such payment was applied shall for
the purposes of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such of the indebtedness hereby guaranteed as fully as if such application had
never been made.
SECTION 15. The liability of the Guarantors under this Guaranty is in
addition to and shall be cumulative with all other liabilities of the Guarantors
to the Guaranteed Creditors as a guarantor of the indebtedness hereby
guaranteed, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
SECTION 16. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
applications hereof, and to this end the provisions of this Guaranty are
declared to be severable. Without limiting the generality of the foregoing, any
invalidity or unenforceability against any Guarantor of any provision or
application of the Guaranty shall not affect the validity or enforceability of
the provisions or application of this Guaranty as against the other Guarantors.
SECTION 17. Any demand for payment on this Guaranty or any other notice
required or desired to be given hereunder to any Guarantor shall be in writing
(including, without limitation, notice by telecopy) and shall be given to the
relevant party at its address or telecopier number set forth on the appropriate
signature page hereof, or such other address or telecopier number as such party
may hereafter specify by notice to the Agent given by United States certified or
registered mail, by telecopy or by other telecommunication device capable of
creating a written record of such notice and its receipt. Each such notice,
request or other communication shall be
5
<PAGE>
effective (i) if given by telecopier, when such telecopy is transmitted to the
telecopier number specified in this Section and a confirmation of such telecopy
has been received by the sender, (ii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid or (iii) if given by any other means,
when delivered at the addresses specified in this Section.
SECTION 18. No Lender shall have the right to institute any suit,
action or proceeding in equity or at law in connection with this Guaranty for
the enforcement of any remedy under or upon this Guaranty; it being understood
and intended that no one or more of the Lenders shall have any right in any
manner whatsoever to enforce any right hereunder, and that all proceedings at
law or in equity shall be instituted, had and maintained by the Agent in the
manner herein provided and for the benefit of the Lenders.
SECTION 19. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING
TO THE LAWS OF THE STATE OF ILLINOIS (without regard to principles of conflicts
of laws) in which state it shall be performed by the Guarantors and may not be
waived, amended, released or otherwise changed except by a writing signed by the
Agent and the Guarantors. This Guaranty and every part thereof shall be
effective upon delivery to the Agent, without further act, condition or
acceptance by the Guaranteed Creditors, shall be binding upon the Guarantors and
upon the legal representatives, successors and assigns of the Guarantors, and
shall inure to the benefit of the Guaranteed Creditors, their successors, legal
representatives and assigns. The Guarantors waive notice of the Guaranteed
Creditors' acceptance hereof. This Guaranty may be executed in counterparts, and
by different parties hereto on separate counterpart signature pages, each of
which shall be an original, but all together to be one and the same instrument.
SECTION 20. Each Guarantor hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Northern District of
Illinois and of any Illinois State court sitting in the City of Chicago for
purposes of all legal proceedings arising out of or relating to this Guaranty,
the other Credit Documents or the transactions contemplated hereby or thereby.
Each Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such court has been brought in an inconvenient forum. EACH GUARANTOR
AND EACH GUARANTEED CREDITOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY OR ANY OTHER CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
[Signature Pages to follow]
6
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be
executed and delivered as of the date first above written.
"Guarantors"
LEE WAYNE CORPORATION
By:
----------------------------------
Its:
------------------------------
Address:
1980 Industrial Drive
Sterling, Illinois 61081
Attention
------------------
Telephone
------------------
Telecopy
------------------
CREATIVE CONCEPTS IN ADVERTISING,
INC.
By:
----------------------------------
Its:
------------------------------
Address:
1501 Ha-lo Drive
Troy, Michigan 48084
Attention
------------------
Telephone
------------------
Telecopy
------------------
7
<PAGE>
PROMOTIONAL MARKETING, L.L.C.
By:
----------------------------------
Its:
------------------------------
Address:
303 E. Wacker Drive, 23rd Floor
Chicago, Illinois 60601
Attention
------------------
Telephone
------------------
Telecopy
------------------
Accepted and agreed to in Chicago, Illinois as of the date first above
written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Agent
By:
----------------------------------
Its:
------------------------------
Address:
120 South LaSalle Street
Chicago, Illinois 60603
Attention
------------------
Telephone (312) 661-
-------
Telecopy (312) 661-
-------
<PAGE>
March 1, 2000
HA-LO Industries, Inc.
5980 Touhy Avenue
Niles, Illinois 60714
Attention: Mr. Barry Margolin
Controller
Dear Mr. Margolin:
We are pleased to advise that Bank One Canada (the "Bank") has approved a new
demand credit authorization for HA-LO Canada, Inc. (the "Borrower") subject to
the Bank's continuing satisfaction with the Borrower's managerial and financial
status. This facility replaces the credit facility detailed in our November 2,
1999 letter. Disbursements under the authorization are solely at the Bank's
discretion. Any disbursement on one or more occasion shall not commit the Bank
to make any subsequent disbursement.
BORROWER: HA-LO CANADA, INC.
LENDER: Bank One Canada
AMOUNT: CAD $4,000,000 (or USD equivalent) demand operating line.
OPERATION Loans will be advanced automatically in increments of
OF ACCOUNT: CAD $10,000 or USD $10,000 to cover overdrafts on a
backdated basis. Surplus cash in the operating account will
automatically be applied to operating loans in increments of
CAD $10,000 or USD $10,000.
PURPOSE: For working capital purposes.
EXPIRY: March 31, 2000
REPAYMENT: On demand
SECURITY: Guarantee of HA-LO Industries, Inc. supported by a security
interest in the assets of the Guarantor ranking pari pasu
with the senior debt of the
Guarantor.
SUPPORTING 1. Guarantee of HA-LO Industries, Inc. ("the Guarantor")
DOCUMEMTS: with supporting resolution and supporting security
agreement in a form satisfactory to the Lender.
<PAGE>
2. Account opening documents.
3. Promissory Note (enclosed).
4. Acknowledged Letter Loan Agreement (sign and return one
copy of this letter).
5. Articles of Incorporation for Creadis Group Inc.
6. Articles of Amendment/Continuation as HA-LO Canada Inc.
SERVICING 1. Annual financial statements of the Borrower within 120
REQUIREMENTS: days of each fiscal year end.
2. Annual audited financial statements of the Guarantor
within 120 days of each fiscal year-end.
3. Quarterly unaudited financial statements of the
Guarantor within 45 days of each fiscal quarter-end.
4. Notification by the Borrower and Guarantor in the event
of default under any credit arrangement.
CROSS
DEFAULT: This credit facility shall be deemed to be in default if a
default takes place under any debt obligations of the
Borrower or the Guarantor.
CONDITIONS
PRECEDENT: Documentation in a form satisfactory to the Bank.
RATES: The Bank's Canadian Prime Rate - Floating plus 1/2%.
FEES: Facility fee of five basis points (CAD $2,000) payable upon
acceptance of this facility on each renewal of the facility.
PAYMENT
OF INTEREST Interest is payable monthly in arrears by way of debit to
the Borrower's account.
If these terms and conditions are acceptable to you as they are to the Bank,
kindly acknowledge your acceptance by signing and returning the enclosed
duplicate of this letter along with the enclosed documentation. If you have any
questions, please do not hesitate to call.
Sincerely,
BANK ONE CANADA
- --------------------------
- --------------------------
<PAGE>
ACKNOWLEDGED AND ACCEPTED this 1st day of March, 2000.
HA-LO CANADA, INC. HA-LO INDUSTRIES, INC. (as Guarantor)
By By
------------------------- --------------------------------
Its Its
------------------------- --------------------------------
<PAGE>
Exhibit 10.72
AGREEMENT AND RELEASE
Gene Eherenfeldt, "Eherenfeldt", was informed by HA-LO INDUSTRIES, INC.
("HA-LO") on or about September 30, 1999 that his employment was being
terminated effective September 30, 1999. "Eherenfeldt" wishes to receive a
severance payment to which he would not otherwise be entitled on the occasion of
his separation of employment from HA-LO:
In consideration of the foregoing, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged:
1. "Eherenfeldt" agrees that by executing this Release he does hereby, for
himself, his heirs, executors, administrators, representatives, successors
and assigns, releases and forever discharges HA-LO and each of its
employees, representatives, and all persons acting for, by, through, under
or in concert with any of them (collectively "HA-LO"), of and from any and
all claims, demands, causes of action, suits, debts, accounts, claims for
attorney's fees, interest, expenses and costs, damages, judgments, and
executions of any nature whatsoever, which "Eherenfeldt", his heirs,
executors, administrators, representatives, successors, or assigns, had, or
now has, from the beginning of time to the date hereof, against HA-LO and
the Released Parties, whether based on the Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities
Act, the Age Discrimination in Employment Act, as amended, including the
Older Workers Benefit Protection Act of 1990, or any other federal or state
statute, common law, rule or regulation, whether known or unknown, against
HA-LO or any of the Released Parties.
2. "Eherenfeldt" covenants and agrees that for a period of 2 years, commencing
on the Agreement's effective date, he will not, directly or indirectly, (a)
solicit HA-LO's then-existing accounts or (b) solicit any HA-LO employee or
Independent Contractor Sales Representative for purposes of terminating
their relationship with HA-LO.
3. "Eherenfeldt" covenants and agrees that for a period of 1 year, commencing
on the Agreement's effective date, he will not be employed by or a
consultant to, be engaged in any manner whatsoever by, have an ownership
interest (direct or indirect) in, or be a lender to, any business or person
which competes with HA-LO, in distributing advertising specialties,
promotions and incentive programs to third parties (the "Business"), in any
geographic area in the United States, where HA-LO is currently engaged in
the Business, except for "Eherenfeldt's" passive investment of less than
five percent (5%) of the outstanding shares of capital stock of any
publicly traded corporation engaged in the Business.
4. "Eherenfeldt" acknowledges and agrees that HA-LO has disclosed propriety,
trade secret and confidential information to "Eherenfeldt" which is not in
the public domain regarding the Business (the "Protected Information").
Such Protected Information consists of, among other things: (i) business
and product plans and development; (ii) creative ideas and developments;
(iii) customers; (iv) business partners, vendors and suppliers; (v)
biographical and financial data of HA-LO and its employees; and (vi)
derivatives of all thereof, as is related to the creation, development,
marketing, selling, products, operations, personnel and financial plans of
the Business. "Eherenfeldt" shall not utilize any such Protected
Information for any purpose in competition with or which will be harmful to
the Business or its personnel.
<PAGE>
5. In consideration of such release and other covenants, and provided he does
not revoke this Agreement after execution as provided herein, "Eherenfeldt"
acknowledges the receipt and sufficiency of the following:
a. 9 months' wages, less applicable payroll taxes, to be paid at
"Eherenfeldt's" current wage rate and on the same schedule on
which he is currently paid by HA-LO;
b. 9 months continuation of "Eherenfeldt's" insurance benefits,
if any, to be maintained at "Eherenfeldt's" current wage rate
and on the same schedule on which he is currently paid by
HA-LO;
c. This will have no effect on the Employee's right to exercise
their existing Stock Options. These options will remain as if
"Eherenfeldt" had not been terminated;
d. Continued use of a HA-LO office, including phone number,
voicemail, facsimile, computer, e-mail address, mailing and
secretarial services, until December 31, 1999.
e. "Eherenfeldt" further acknowledges and understands that the
above items are not otherwise owed to him under any HA-LO
policy.
6. This Release shall be governed by and interpreted in accordance with the
laws of the State of Illinois.
7. "Eherenfeldt" acknowledges that he has entered into this Release freely and
voluntarily.
8. By this document, HA-LO has advised "Eherenfeldt" to consult with an
attorney concerning this Agreement and to discuss its terms with an
attorney.
9. It is expressly understood and agreed by "Eherenfeldt" that the terms of
this Agreement shall be confidential and that he shall not make any
statements, oral or written, pertaining to or in any way connected with his
employment with HA-LO of his separation of employment therefrom, or to any
element of this Agreement, or any other terms of the Agreement, other than
to state that the matter has been settled, if asked.
10. It is expressly understood and agreed by "Eherenfeldt" that all of his
attorney's fees and costs, if any, incurred by him are to be satisfied out
of the payment set forth in paragraph 5 and that HA-LO shall have no
liability for attorney's fees and costs of any other matter.
11. This Agreement and its exhibits, if any constitute and contain the entire
agreement between "Eherenfeldt" and HA-LO with respect to the subject
matter hereof. This Agreement supersedes any and all prior negotiations,
agreements, understandings, correspondence, communications, covenants,
arrangements, representations and warranties, whether oral or written
(together the "Prior Communications") and no one may rely or shall be
deemed to have relied upon such Prior Communications.
12. This Agreement may only be modified, amended or supplemented by a writing
executed by the parties affected by such modification, amendment or
supplement.
13. If any provision of this Agreement shall for any reason be held invalid or
unenforceable, such inability or uneforceability shall not be construed as
though such invalid or unenforceable provision had never been contained
herein. If a provision is severed under this paragraph, the parties agree
to negotiate in good faith to replace such provision with a provision that
closely approximates the intent of the severed provision.
<PAGE>
14. HA-LO provided this document to "Eherenfeldt" on or about September 30,
1999. "Eherenfeldt" has a period of 21 calendar days to consider signing
this document. If "Eherenfeldt" chooses to sign this document, he may
revoke his assent at any time within a period of seven (7) calendar days
following the execution by him by providing written notice of same to David
McGee, HA-LO's Human Resources Director, 5980 West Touhy Avenue, Niles,
Illinois, 60714-4610, fax number (847) 588-8813.
I HAVE READ AND UNDERSTAND AND AGREE TO BE BOUND BY THE ABOVE RELEASE. I HAVE
BEEN ADVISED TO SEEK THE ADVICE OF AN ATTORNEY OF MY OWN CHOOSING. I HAVE SIGNED
THIS RELEASE FREELY AND VOLUNTARILY.
HA-LO INDUSTIRES, INC.,
_____________________________ By: _______________________________
It's authorized agent
- ------------------
<PAGE>
Exhibit 10.73
AGREEMENT AND RELEASE
Michael Nemlich, "Nemlich", was informed by HA-LO INDUSTRIES, INC. ("HA-LO") on
or about September 30, 1999 that his Employment Agreement dated April 15, 1996
was being terminated effective September 30, 1999 for financial reasons.
"Nemlich" wishes to receive a severance payment to which he would not otherwise
be entitled on the occasion of his separation of employment from HA-LO:
In consideration of the foregoing, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged:
1. "Nemlich" agrees that by executing this Release he does hereby, for
himself, his heirs, executors, administrators, representatives, successors
and assigns, releases and forever discharges HA-LO and each of its
employees, representatives, and all persons acting for, by, through, under
or in concert with any of them (collectively "HA-LO"), of and from any and
all claims, demands, causes of action, suits, debts, accounts, claims for
attorney's fees, interest, expenses and costs, damages, judgments, and
executions of any nature whatsoever, which "Nemlich", his heirs, executors,
administrators, representatives, successors, or assigns, had, or now has,
from the beginning of time to the date hereof, against HA-LO, whether based
on the April 15, 1996 Employment Agreement, the Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Americans with
Disabilities Act, the Age Discrimination in Employment Act, as amended,
including the Older Workers Benefit Protection Act of 1990, or any other
federal or state statute, common law, rule or regulation, whether known or
unknown, against HA-LO.
2. "Nemlich" covenants and agrees that for a period of 2 years, commencing on
the Agreement's effective date, he will not, directly or indirectly, (a)
solicit HA-LO's then-existing accounts or (b) solicit any HA-LO employee or
Independent Contractor Sales Representative for purposes of terminating
their relationship with HA-LO.
3. "Nemlich" covenants and agrees that for a period of 1 year, commencing on
the Agreement's effective date, he will not be employed by or a consultant
to, be engaged in any manner whatsoever by, have an ownership interest
(direct or indirect) in, or be a lender to, any business or person which
competes with HA-LO, in distributing advertising specialties, promotions
and incentive programs to third parties (the "Business"), in any geographic
area in the United States, where HA-LO is currently engaged in the
Business, except for "Nemlich's" passive investment of less than five
percent (5%) of the outstanding shares of capital stock of any publicly
traded corporation engaged in the Business.
4. "Nemlich" acknowledges and agrees that HA-LO has disclosed propriety, trade
secret and confidential information to "Nemlich" which is not in the public
domain regarding the Business (the "Protected Information"). Such Protected
Information consists of, among other things: (i) business and product plans
and development; (ii) creative ideas and developments; (iii) customers;
(iv) business partners, vendors and suppliers; (v) biographical and
financial data of HA-LO and its employees; and (vi) derivatives of all
thereof, as is related to the creation, development, marketing, selling,
products, operations, personnel and financial plans of the Business.
"Nemlich" shall not utilize any such Protected Information for any purpose
in competition with or which will be harmful to the Business or its
personnel.
<PAGE>
5. In consideration of such release and other covenants, and provided he does
not revoke this Agreement after execution as provided herein, "Nemlich"
acknowledges the receipt and sufficiency of the following:
a. 15 months' wages, less applicable payroll taxes, through
December 31, 2000, to be paid at "Nemlich's" current wage rate
and on the same schedule on which he is currently paid by
HA-LO;
b. 15 months continuation of "Nemlich's" insurance benefits
through December 31, 2000, if any, to be maintained at
"Nemlich's" current wage rate and on the same schedule on
which he is currently paid by HA-LO;
c. This will have no effect on the Employee's right to exercise
his existing Stock Options. These options will remain as if
"Nemlich" had not been terminated;
d. HA-LO will provide outplacement service for "Nemlich", until
December 31, 1999 or make a cash payment of $6,000 less taxes.
e. "Nemlich" further acknowledges and understands that the above
items are not otherwise owed to him under any HA-LO policy.
f. HA-LO will supply "Nemlich" a laptop computer to be used until
December 31, 1999 at no cost. The laptop shall be returned to
HA-LO's Director of Human Resources, David McGee, in the
condition it was supplied, on or before the close of business
on December 31, 1999.
6. Should any HA-LO client, or any officer, director, shareholder,
representative or agent of any of HA-LO's clients make any demand, claim,
threat or file any suit, action, cause of action or proceeding of any kind
or nature against "Nemlich" and/or HA-LO related to or arising out any
actions or omissions made by "Nemlich" in his capacity as a HA-LO officer
(an "Event"), HA-LO shall defend and respond to such Event on "Hemlich's"
behalf and pay all of his reasonable litigation expenses and costs
(including reasonable attorneys fees, court costs and other reasonable
litigation expenses) on an ongoing basis until such Event is fully and
finally terminated. "Nemlich" agrees to cooperate in the defense of any
Event and in supplying thorough and accurate information to HA-LO in
defending against any Event.
7. "Nemlich" agrees that any payments to be made hereunder are contingent upon
his immediate return and surrender of all HA-LO's property, including but
not limited to HA-LO's Protected Information and any and all originals and
copies of all records notes, memoranda, electronic files, computer disks,
cellular phones, credit cards, pagers, created or obtained by "Nemlich" as
a result of or in the course or connection of his employment.
8. HA-LO shall pay any and all unused vacation time "Nemlich" has remaining
with his final paycheck. "Nemlich" agrees that he has thirteen (13) accrued
and unused vacation days remaining in 1999.
9. This Release shall be governed by and interpreted in accordance with the
laws of the State of Illinois.
10. "Nemlich" acknowledges that he has entered into this Release freely and
voluntarily.
11. By this document, HA-LO has advised "Nemlich" to consult with an attorney
concerning this Agreement and to discuss its terms with an attorney.
<PAGE>
12. It is expressly understood and agreed by "Nemlich" that the terms of this
Agreement shall be confidential and that he shall not make any statements,
oral or written, pertaining to or in any way connected with his employment
with HA-LO of his separation of employment therefrom, or to any element of
this Agreement, or any other terms of the Agreement, other than to state
that the matter has been settled, if asked.
13. It is expressly understood and agreed by "Nemlich" that all of his
attorney's fees and costs, if any, incurred by him are to be satisfied out
of the payment set forth in paragraph 5 and that HA-LO shall have no
liability for attorney's fees and costs of any other matter.
14. This Agreement and its exhibits, if any constitute and contain the entire
agreement between "Nemlich" and HA-LO with respect to the subject matter
hereof. This Agreement supersedes any and all prior negotiations,
agreements (including but not limited to the April 15, 1996 Employment
Agreement between HA-LO and "Nemlich"), understandings, correspondence,
communications, covenants, arrangements, representations and warranties,
whether oral or written (together the "Prior Communications") and no one
may rely or shall be deemed to have relied upon such Prior Communications.
15. This Agreement may only be modified, amended or supplemented by a writing
executed by the parties affected by such modification, amendment or
supplement.
16. If any provision of this Agreement shall for any reason be held invalid or
unenforceable, such inability or uneforceability shall not be construed as
though such invalid or unenforceable provision had never been contained
herein. If a provision is severed under this paragraph, the parties agree
to negotiate in good faith to replace such provision with a provision that
closely approximates the intent of the severed provision.
17. HA-LO provided this document to "Nemlich" on or about September 30, 1999.
"Nemlich" has a period of 21 calendar days to consider signing this
document. If "Nemlich" chooses to sign this document, he may revoke his
assent at any time within a period of seven (7) calendar days following the
execution by him by providing written notice of same to David McGee,
HA-LO's Human Resources Director, 5980 West Touhy Avenue, Niles, Illinois,
60714-4610, fax number (847) 588-8813.
I HAVE READ AND UNDERSTAND AND AGREE TO BE BOUND BY THE ABOVE RELEASE. I HAVE
BEEN ADVISED TO SEEK THE ADVICE OF AN ATTORNEY OF MY OWN CHOOSING. I HAVE SIGNED
THIS RELEASE FREELY AND VOLUNTARILY.
HA-LO INDUSTIRES, INC.,
_____________________________ By: _______________________________
Michael Nemlich It's authorized agent
Dated:__________________
<PAGE>
Exhibit 10.74
AGREEMENT AND RELEASE
Bradford S. Kerr, "Kerr", was informed by HA-LO INDUSTRIES, INC. ("HA-LO") on or
about September 30, 1999 that his employment was being terminated effective
October 8, 1999. "Kerr" wishes to receive a severance payment to which he would
not otherwise be entitled on the occasion of his separation of employment from
HA-LO:
In consideration of the foregoing, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged:
1. "Kerr" agrees that by executing this Release he does hereby, for himself,
his heirs, executors, administrators, representatives, successors and
assigns, releases and forever discharges HA-LO and each of its employees,
representatives, and all persons acting for, by, through, under or in
concert with any of them (collectively "HA-LO"), of and from any and all
claims, demands, causes of action, suits, debts, accounts, claims for
attorney's fees, interest, expenses and costs, damages, judgments, and
executions of any nature whatsoever, which "Kerr", his heirs, executors,
administrators, representatives, successors, or assigns, had, or now has,
from the beginning of time to the date hereof, against HA-LO and the
Released Parties, whether based on the Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Americans with Disabilities Act,
the Age Discrimination in Employment Act, as amended, including the Older
Workers Benefit Protection Act of 1990, or any other federal or state
statute, common law, rule or regulation, whether known or unknown, against
HA-LO or any of the Released Parties.
2. "Kerr" covenants and agrees that for a period of 2 years, commencing on the
Agreement's effective date, he will not, directly or indirectly, (a)
solicit HA-LO's then-existing accounts for the purpose of selling or
marketing advertising specialties, promotions and incentive programs or (b)
solicit any HA-LO employee or Independent Contractor Sales Representative
for purposes of terminating their relationship with HA-LO.
3. "Kerr" covenants and agrees that for a period of 1 year, commencing on the
Agreement's effective date, he will not be employed by or a consultant to,
be engaged in any manner whatsoever by, have an ownership interest (direct
or indirect) in, or be a lender to, any business or person which competes
with HA-LO, in distributing advertising specialties, promotions and
incentive programs to third parties (the "Business"), in any geographic
area in the United States, where HA-LO is currently engaged in the
Business, except for "Kerr's" passive investment of less than five percent
(5%) of the outstanding shares of capital stock of any publicly traded
corporation engaged in the Business.
4. "Kerr" acknowledges and agrees that HA-LO has disclosed propriety, trade
secret and confidential information to "Kerr" which is not in the public
domain regarding the Business (the "Protected Information"). Such Protected
Information consists of, among other things: (i) business and product plans
and development; (ii) creative ideas and developments; (iii) customers;
(iv) business partners, vendors and suppliers; (v) biographical and
financial data of HA-LO and its employees; and (vi) derivatives of all
thereof, as is related to the creation, development, marketing, selling,
products, operations, personnel and financial plans of the Business. "Kerr"
shall not utilize any such Protected Information for any purpose in
competition with or which will be harmful to the Business or its personnel.
<PAGE>
5. In consideration of such release and other covenants, and provided he does
not revoke this Agreement after execution as provided herein, "Kerr"
acknowledges the receipt and sufficiency of the following:
a. 16 weeks' wages, less applicable payroll taxes, to be paid at
"Kerr's" current wage rate and on the same schedule on which
he is currently paid by HA-LO;
b. 16 weeks continuation of "Kerr's" insurance benefits, if any,
to be maintained at "Kerr's" current wage rate and on the same
schedule on which he is currently paid by HA-LO;
c. This will have no effect on the Employee's right to exercise
their existing Stock Options. These options will remain as if
"Kerr" had not been terminated;
d. HA-LO will provide outplacement service for "Kerr", until
December 31, 1999.
e. "Kerr" further acknowledges and understands that the above
items are not otherwise owed to him under any HA-LO policy.
f. Should any HA-LO client, or any officer, director,
shareholder, representative or agent of any of HA-LO's clients
make any demand, claim, threat or file any suit, action, cause
of action or proceeding of any kind or nature against "Kerr"
and/or HA-LO related to or arising out any actions or
omissions made by "Kerr" in his capacity as a HA-LO officer
(an "Event"), HA-LO shall defend and respond to such Event on
"Kerr's" behalf and pay all of his reasonable litigation
expenses and costs (including reasonable attorneys fees, court
costs and other reasonable litigation expenses) on an ongoing
basis until such Event is fully and finally terminated. HA-LO
further agrees to pay "Kerr" his lost wages or salary,
including lost vacation, sick or personal time, for his time
spent investigating, preparing or testifying in regards to any
Event. HA-LO's counsel shall be made aware of this Agreement
and shall bill HA-LO directly for defending or responding to
any such Event on "Kerr's" behalf. "Kerr" agrees to cooperate
in supplying thorough and accurate information to HA-LO in
defending against any Event.
g. HA-LO will supply "Kerr" a laptop computer to be used until
December 31, 1999 at no cost. The laptop shall be returned to
HA-LO's Director of Human Resources, David McGee, in the
condition it was supplied.
6. This Release shall be governed by and interpreted in accordance with the
laws of the State of Illinois.
7. "Kerr" acknowledges that he has entered into this Release freely and
voluntarily.
8. By this document, HA-LO has advised "Kerr" to consult with an attorney
concerning this Agreement and to discuss its terms with an attorney.
9. It is expressly understood and agreed by "Kerr" that the terms of this
Agreement shall be confidential and that he shall not make any statements,
oral or written, pertaining to or in any way connected with his employment
with HA-LO of his separation of employment therefrom, or to any element of
this Agreement, or any other terms of the Agreement, other than to state
that the matter has been settled, if asked.
10. It is expressly understood and agreed by "Kerr" that all of his attorney's
fees and costs, if any, incurred by him are to be satisfied out of the
payment set forth in paragraph 5 and that HA-LO shall have no liability for
attorney's fees and costs other than those arising under paragraph 5f.
<PAGE>
11. This Agreement and its exhibits, if any constitute and contain the entire
agreement between "Kerr" and HA-LO with respect to the subject matter
hereof. This Agreement supersedes any and all prior negotiations,
agreements, understandings, correspondence, communications, covenants,
arrangements, representations and warranties, whether oral or written
(together the "Prior Communications") and no one may rely or shall be
deemed to have relied upon such Prior Communications.
12. This Agreement may only be modified, amended or supplemented by a writing
executed by the parties affected by such modification, amendment or
supplement.
13. If any provision of this Agreement shall for any reason be held invalid or
unenforceable, such inability or uneforceability shall not be construed as
though such invalid or unenforceable provision had never been contained
herein. If a provision is severed under this paragraph, the parties agree
to negotiate in good faith to replace such provision with a provision that
closely approximates the intent of the severed provision.
14. HA-LO provided this document to "Kerr" on or about September 30, 1999.
"Kerr" has a period of 21 calendar days to consider signing this document.
If "Kerr" chooses to sign this document, he may revoke his assent at any
time within a period of seven (7) calendar days following the execution by
him by providing written notice of same to David McGee, HA-LO's Human
Resources Director, 5980 West Touhy Avenue, Niles, Illinois, 60714-4610,
fax number (847) 588-8813.
I HAVE READ AND UNDERSTAND AND AGREE TO BE BOUND BY THE ABOVE RELEASE. I HAVE
BEEN ADVISED TO SEEK THE ADVICE OF AN ATTORNEY OF MY OWN CHOOSING. I HAVE SIGNED
THIS RELEASE FREELY AND VOLUNTARILY.
HA-LO INDUSTIRES, INC.,
_____________________________ By: _______________________________
It's authorized agent
- ------------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF HA-LO INDUSTRIES, INC.
The following is a list of all direct and indirect subsidiaries of the
registrant as of March 15, 2000. The state or other jurisdiction of
incorporation or organization is indicated in parentheses following each
subsidiary's name. The names of the divisions or other business units of each
subsidiary are indented and listed below the relevant subsidiary's name.
Creative Concepts in Advertising, Inc. (Michigan)
Lee Wayne Corporation (Illinois)
HA-LO Sports, Inc. (Illinois)
Promotional Marketing LLC. d/b/a UPSHOT (Illinois)
UPSHOT (New York), Inc. (New York)
Lipson Associates, Inc. d/b/a LAGA (Ohio)
Premier Promotions and Marketing, Inc. (California)
UPSHOT Direct Inc. (Virginia)
CF Napa Design Inc. d/b/a Collonna Farrell (California)
Market USA, Inc. (Illinois)
Marusa Marketing, Ltd. (Canada)
HA-LO Canada, Inc. (Canada)
HMK International Holdings, Inc. (Netherlands)
Formula Marketing Limited (United Kingdom)
HA-LO Belgium, N.V. (Netherlands)
HA-LO Europe (Belgium)
Hogberg International AS (Norway)
Joking, Spa. (Italy)
Parsons International S.A.(France)
Parsons International Hong Kong Ltd. (Hong Kong)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-64878, 33-89820, 33-99946, 333-03928,
333-66849, 333-28361, 333-48961 and 333-66849 on Form S8 and 333-00358,
333-49667, 333-19301, 333-43611, 333-36703, 333-32571, 333-28647, 333-27763,
333-26381, 333-49667, 333-58929, 333-65891, 333-69825, 333-72609, 333-75143,
333-85937, 333-91893 and 333-94319 on Form S-3.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,729
<SECURITIES> 0
<RECEIVABLES> 181,768
<ALLOWANCES> 3,056
<INVENTORY> 37,746
<CURRENT-ASSETS> 244,593
<PP&E> 69,177
<DEPRECIATION> 32,174
<TOTAL-ASSETS> 380,303
<CURRENT-LIABILITIES> 105,226
<BONDS> 21,230
0
0
<COMMON> 214,060
<OTHER-SE> 22,486
<TOTAL-LIABILITY-AND-EQUITY> 380,303
<SALES> 650,412
<TOTAL-REVENUES> 650,412
<CGS> 426,693
<TOTAL-COSTS> 426,693
<OTHER-EXPENSES> 244,410
<LOSS-PROVISION> 2,470
<INTEREST-EXPENSE> 1,872
<INCOME-PRETAX> (22,563)
<INCOME-TAX> (9,025)
<INCOME-CONTINUING> (13,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,538)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
