-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RlDFlCOeLnsaGrZNP87E5xTsRQG2fRD87Y5IbY8AMyGum+Y0ua/IpyuIxQu5644l 1p5Vt62fXuyFE6Z9+h8BsA== 0000912057-00-015024.txt : 20000331 0000912057-00-015024.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-015024 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 28 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HA LO INDUSTRIES INC CENTRAL INDEX KEY: 0000891285 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 363573412 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13525 FILM NUMBER: 587498 BUSINESS ADDRESS: STREET 1: 5980 W TOUHY AVE CITY: NILES STATE: IL ZIP: 60714 BUSINESS PHONE: 7086472300 MAIL ADDRESS: STREET 1: 5980 TOUCHY AVE CITY: NILES STATE: IL ZIP: 60714 10-K 1 10-K 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. 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. 2 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: 3 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 4 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 5 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. 6 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
Name Age Position with the Company ---- --- ------------------------- 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
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. 7 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. 8 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.
High Low ----------------------------------------------------------------- 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 -----------------------------------------------------------------
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. 9 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, ---------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ 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
(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. 10 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:
Percent of Net Sales --------------------------------------- Year Ended December 31, --------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- 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% =======================================================================================================
The following table summarizes the concentration of net sales by business segment:
Percent of Net Sales ------------------------------------ Business Segment 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Promotional Products 76% 79% 75% Marketing Services 24% 21% 25%
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. 11 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 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 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 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 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 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits 1. Financial Statements PAGE ---- (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
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 HA-LO INDUSTRIES, INC. EXHIBIT INDEX
Exhibit No. Description of Exhibit - ----------------------------------------------------------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of the Company. (1) 3.2 Amended and Restated Bylaws of the Company. (8) 3.3 Articles of Amendment to the Articles of Incorporation of the Company, dated August 29, 1994. (4) 3.4 Articles of Amendment to the Articles of Incorporation of the Company, dated February 21, 1997.(8) 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)
18
Exhibit No. Description of Exhibit - ----------------------------------------------------------------------------------------------------------------------------------- 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)
19
Exhibit No. Description of Exhibit - ----------------------------------------------------------------------------------------------------------------------------------- 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 21. * List of subsidiaries of registrant 23.1 * Consent of independent public accountants. 27.1 * Financial Data Schedule - 1999 - ----------
(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.
21 INDEX TO FINANCIAL STATEMENTS
Page 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
F-1 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 HA-LO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these balance sheets. F-3 HA-LO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these statements. F-4 HA-LO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK --------------------- ACCUMULATED OTHER TOTAL SHARES COMPREHENSIVE RETAINED SHAREHOLDERS' COMPREHENSIVE ISSUED AMOUNT OTHER INCOME (LOSS) EARNINGS EQUITY INCOME (LOSS) ---------- -------- -------- -------------- -------- ------------- -------------- 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) ========== ======== ======= ======= ======== ======== ========
The accompanying notes are an integral part of these statements F-5 HA-LO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- 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 ======== ======= =======
The accompanying notes are an integral part of these statements F-6 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 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: 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
Property and equipment at December 31, are composed of the following:
(IN THOUSANDS) 1999 1998 - -------------- -------- -------- 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 ======= =======
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 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.
YEAR ENDED DECEMBER 31, ------------------- (IN THOUSANDS) 1999 1998 - -------------- -------- -------- Raw Materials............................................. $ 7,113 $ 6,203 Finished goods............................................ 30,633 23,434 ------- ------- Inventories............................................. $37,746 $29,637 ======= =======
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:
YEAR ENDED DECEMBER 31, ------------------------------ (IN THOUSANDS) 1999 1998 1997 - -------------- -------- -------- -------- 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
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 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:
(IN THOUSANDS) 1999 1998 1997 - -------------- -------- -------- -------- Current provision(benefit)........................ $ (663) $16,354 $9,827 Deferred benefit.................................. (8,362) (231) (537) ------- ------- ------ Total provision(benefit).......................... $(9,025) $16,123 $9,290 ======= ======= ======
The Company's effective tax rate is reconciled to the Federal statutory rate as follows:
1999 1998 1997 -------- -------- -------- 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% ==== ==== ====
F-10 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:
(ASSET)/LIABILITY ------------------- (IN THOUSANDS) 1999 1998 - -------------- -------- -------- 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) ======= ======
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 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:
(IN THOUSANDS) 1999 1998 - -------------- -------- -------- 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 $ -- ======= =====
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 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:
YEAR ENDING DECEMBER 31- (IN THOUSANDS) - --------------------------------------- 2000........................................................ $ 13,875 2001........................................................ 16,916 2002........................................................ 16,009 2003........................................................ 14,354 2004........................................................ 13,953 Thereafter.................................................. 105,595 -------- $180,702 ========
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 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 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.
DECEMBER 31, 1999 EXPENSED REALIZED ACCRUAL -------- -------- -------- (IN THOUSANDS) 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 ======= ======= =======
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 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:
1999 1998 1997 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 -------- ------- -------
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 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:
1999 1998 1997 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 -------- ------- -------
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 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:
1999 1998 1997 --------------------------- --------------------------- -------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- -------------- ---------- -------------- --------- -------------- 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 -- -- ---------- ------ ---------- ------ --------- ------
The following table summarizes information about fixed stock options and warrants outstanding at December 31, 1999:
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 - --------------------- ----------- ---------------- -------------- ----------- -------------- $ 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 ========== ==== ====== ========= ======
F-18 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:
DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) 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 ======== ======== ========
- ------------------------ (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 HA-LO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Summarized financial information by geographic area follows:
DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) 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 ======== ======== ========
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.
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) 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
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 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.
HIGH LOW ------------- ------------- 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
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 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 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 Schedule II (in thousands)
Additions Beginning Charged to (A) Deductions Ending Description Balance Expense Other Write-offs Balance ----------- ------- ------- ----- ---------- ------- 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
(a) Other additions primarily relate to reserves acquired through business combinations F-24 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:
Signature Title --------- ----- /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
22
Signature Title --------- ----- /s/ MARSHALL J. KATZ Director --------------------- Marshall J. Katz /s/ SEYMOUR N. OKNER Director --------------------- Seymour N. Okner /s/ BRIAN HERMELIN Director --------------------- Brian Hermelin
23 EX-3.5 2 EXHIBIT 3.5 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." EX-10.3 3 EXHIBIT 10.3 LEASE BETWEEN LANDLORD: MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY AND TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC. DATED: JUNE 30, 1999 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 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).
1 USE OF DEMISED PREMISES: Executive and administrative offices, warehouse and production facilities, and, with Landlord's consent, which shall not be unreasonably withheld, any other lawful use. EXHIBITS ATTACHED: A - Legal Description of Demised Premises
SECTION 2 GRANT AND TERM 2.1 DEMISED PREMISES Landlord, in consideration of the rents to be paid and the covenants, promises and agreements to be performed by Tenant, does hereby lease to Tenant and Tenant hereby rents from Landlord, the Demised Premises described in Section 1. 2.2 ORIGINAL TERM 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. 2 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 3 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. 4 (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. 5 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, 6 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. 7 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 8 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 9 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). 10 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 11 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 12 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. 13 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. 14 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 15 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 16 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, 17 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 18 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 19 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 20 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 21 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 22 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 23 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 24 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 25 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. 26 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. 27 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. 28 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 29 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 30 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: - ---------------------------------- ---------------------------------- 31 TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation By : - ---------------------------------- ---------------------------------- Its: - ---------------------------------- ---------------------------------- 32 EX-10.16 4 EXHIBIT 10.16 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; 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 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 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. 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. 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. 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 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 EX-10.20 5 EXHIBIT 10.20 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 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 -2- (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. -3- 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, -4- 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 -5- 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- 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- 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 -8- EX-10.21 6 EXHIBIT 10.21 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. 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 2 (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. 3 (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 4 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 5 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. 6 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 7 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 8 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. 9 (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. 10 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. 11 EX-10.24 7 EXHIBIT 10.24 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. 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. -2- 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. -3- 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 -4- EX-10.57 8 EXHIBIT 10.57 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: "F." Monthly Base Rental: October 1, 1993 - September 30, 1994: $27,949.00 October 1, 1994 - June 30, 1995: $30,794.00
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"
(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 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 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 EX-10.58 9 EXHIBIT 10.58 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:
MONTHLY BASE RENTAL MONTHLY BASE RENTAL PERIOD EXPANSION PREMISES ENTIRE PREMISES ------ ------------------ --------------- 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
October 1, 2001-September 30, 2002 $4,637.47 $52,152.47 October 1, 2002-September 30, 2003 $4,776.59 $53,713.59
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 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 EX-10.59 10 EXHIBIT 10.59 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:
MONTHLY MONTHLY BASE RENTAL BASE RENTAL PERIOD EXPANSION PREMISES ENTIRE PREMISES ------ ------------------ --------------- 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
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
EXPANSION TERMINATION DATE TERMINATION FEE -------------------------- --------------- 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
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 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 EX-10.60 11 EXHIBIT 10.60 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:
ANNUAL ADDITIONAL PERIOD OFFICE SPACE BASE RENTAL ------ ------------------------ 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
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:
EXPANSION PREMISES ADDITIONAL TERMINATION DATE TERMINATION FEE ---------------- --------------- 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
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 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 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 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 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 EX-10.61 12 EXHIBIT 10.61 OFFICE AND INDUSTRIAL BUILDING LEASE LANDLORD: CENTERPOINT REALTY SERVICES CORPORATION, AN ILLINOIS CORPORATION TENANT: HA-LO INDUSTRIES, INC., AN ILLINOIS CORPORATION F-1 TABLE OF CONTENTS 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
i 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
ii 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
iii 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
iv 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:
PERIOD ANNUAL BASE RENT Commencement Date - last day of Lease Year 1 Area of the Buildings multiplied by the Initial Base Rent Rate
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. 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 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 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 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 5 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. 6 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. 7 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 8 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. 9 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. 10 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. 11 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. 12 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. 13 (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 14 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. 15 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 16 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. 17 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. 18 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 19 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 20 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) 21 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. 22 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 23 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. 24 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 25 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 26 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 27 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") 28 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 29 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 30 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 31 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 32 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 33 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 34 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 35 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. 36 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, 37 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 38 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. 39 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: 40 EX-10.62 13 EXHIBIT 10.62 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 1 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 2 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: - ------------------------------ ------------------------------ 3 EX-10.63 14 EXHIBIT 10.63 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. 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: 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 -2- 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). -3- 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: -4- (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 -5- 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 -6- 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 -7- 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 -8- 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 -9- (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 -10- 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, -11- 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 -12- 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; -13- (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; -14- (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 -15- 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 -16- 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 -17- (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 -18- (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 -19- 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. -20- (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; -21- (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, -22- 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: -23- (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 -24- 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 -25- 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; -26- (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. -27- 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. -28- (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 -29- 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. -30- 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 -31- 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, -32- 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. -33- 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. -34- (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. -35- (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. -36- 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. -37- 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 -38- 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 -39- ($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. -40- (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, -41- 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 -42- 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. -43- 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. -44- 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. -45- 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 -46- 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 -47- 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 -48- 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. -49- (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. -50- 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 -51- 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, -52- 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 -53- 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 -54- 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. -55- (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. -56- (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 -57- 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. -58- 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. -59- (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. -60- (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 -61- 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: -62- (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 -63- 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 -64- 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 -65- 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. -66- 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. -67- 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: ---------------------------------- -68- EX-10.64 15 EXHIBIT 10.64 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. 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 EX-10.65 16 EXHIBIT 10.65 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. 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 EX-10.66 17 EXHIBIT 10.66 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. 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 EX-10.67 18 EXHIBIT 10.67 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 TABLE OF CONTENTS 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 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 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
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 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 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. 2 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 3 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 4 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. 5 (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 6 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; 7 (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 8 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 9 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 10 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 11 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. 12 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. 13 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, 14 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 15 (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; 16 (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. 17 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 18 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 19 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; 20 (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 21 (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 22 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 23 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 24 (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. 25 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 26 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. 27 "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. 28 "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 29 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. 30 "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, 31 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. 32 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 33 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 34 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 35 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 36 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 37 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]. 38 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. 39 [Signature Pages to Follow] 40 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 ---------------------------- 41 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 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 EX-10.68 19 EXHIBIT 10.68 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. 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 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 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 EX-10.69 20 EXHIBIT 10.69 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. 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 --------------------------- 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. EX-10.70 21 EXHIBIT 10.70 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 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 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 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 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 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 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 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- ------- EX-10.71 22 EXHIBIT 10.71 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. 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 - -------------------------- - -------------------------- ACKNOWLEDGED AND ACCEPTED this 1st day of March, 2000. HA-LO CANADA, INC. HA-LO INDUSTRIES, INC. (as Guarantor) By By ------------------------- -------------------------------- Its Its ------------------------- -------------------------------- EX-10.72 23 EXHIBIT 10.72 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. 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. 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 - ------------------ EX-10.73 24 EXHIBIT 10.73 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. 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. 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:__________________ EX-10.74 25 EXHIBIT 10.74 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. 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. 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 - ------------------ EX-21 26 EXHIBIT 21 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) EX-23.1 27 EXHIBIT 23.1 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 EX-27.1 28 EXHIBIT 27.1
5 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. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 10,729 0 181,768 3,056 37,746 244,593 69,177 32,174 380,303 105,226 21,230 0 0 214,060 22,486 380,303 650,412 650,412 426,693 426,693 244,410 2,470 1,872 (22,563) (9,025) (13,538) 0 0 0 (13,538) (.28) (.28)
-----END PRIVACY-ENHANCED MESSAGE-----