-----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, VN2vW2xziINVRPn/Y24q+lm2XvgkU2w5VHFVocaSAU4Nd9Z6cfsGCJsKOzfPGubt 0iNYaxjxU3//+btEG99EpQ== 0001047469-99-012529.txt : 19990402 0001047469-99-012529.hdr.sgml : 19990402 ACCESSION NUMBER: 0001047469-99-012529 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 99579469 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, 1998 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the Transition Period from ______to______ Commission file number: 0-20758 HA-LO INDUSTRIES, INC. ---------------------- (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 $460,562,817 as of March 16, 1999 (based on the closing sale price on that date as reported by Midwest Edition of THE WALL STREET JOURNAL). For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant. At March 16, 1999, the registrant had issued and outstanding an aggregate of 48,477,748 shares of its common stock. DOCUMENTS INCORPORATED BY REFERENCE Those sections or portions of the registrant's 1998 Annual Report to Shareholders and of the proxy statement for the Annual Meeting of Shareholders to be held on May 11, 1999 described in Parts II, III and IV hereof are incorporated by reference in this report. PART I ITEM 1. BUSINESS GENERAL HA-LO is a full service, innovative brand marketing organization whose diverse marketing disciplines, or competency groups, are centered around its client's brand. Brand marketing builds the value of the brand by connecting it with target audiences to achieve strategic marketing objectives. The Company's competency groups are organized into three operating segments: promotional products, marketing services and telemarketing. The marketing services segment includes promotion marketing, brand strategy and identity, presence marketing and consumer event marketing. Each one of the segments has similar products and services, production processes, types of customers, distribution methods and regulatory environments. COMPETENCY GROUPS INCLUDE: PROMOTIONAL PRODUCTS, offered by HA-LO, physically connect the brand with identified target markets and individuals through repeated exposure to merchandise that builds brand awareness, enhances brand recognition and creates brand loyalty. PROMOTION MARKETING, offered by UPSHOT, connects the brand with the consumer at strategic points of contact through consumer and retail promotion, merchandising and sponsorship activation. BRAND STRATEGY AND IDENTITY, offered by LAGA, connects a company product, service or image with a target audience by creating, revitalizing, or leveraging a brand through brand identity, design, and integrated communication programs. PRESENCE MARKETING, offered by HA-LO Sports & Entertainment and Events By HA-LO, connects the brand with the target audience through sports and corporate sponsorships, licensing, corporate meetings, events and sales incentive programs. RELATIONSHIP MARKETING, offered by UPSHOT and Market USA, connects the brand with the target audience through consumer events - including a new product sampling and brand awareness programs - and through a range of telemarketing services. INDUSTRY PROMOTIONAL PRODUCTS. According to Promotional Products Association International, the United States market for promotional products, measured by distributors' sales, has grown from approximately $4.5 billion in 1989 to approximately $11.9 billion in 1997, a compound annual growth rate of 12.9%. The promotional products industry is highly fragmented and according to industry sources, is undergoing consolidation. There currently are more than 15,000 distributors of promotional products in the United States. Distributors tend to be closely-held entities with a local or regional focus ranging from one-person, one-product businesses who bring sample cases and suppliers' catalogs to their customers, to entities similar to the Company, which maintain showrooms to assist customers in selecting from an array of available products. Currently the Company has an industry market share of approximately 4%. Many of the larger distributors are also manufacturers (or affiliates of manufacturers) of products traditionally used in the promotional products industry. The Company believes that many companies increasingly are patronizing a limited number of promotional products suppliers and are focusing on sole-source, full-service distributors. The criteria for selecting a distributor include such factors as cost, quality and responsiveness, as well as whether a distributor has full-service capabilities, such as design and customization services and the ability to develop marketing programs. Many of the Company's customers are requiring their suppliers to reduce marketing costs and provide increasing support for upfront design and marketing program management services. Generally, distributors with sufficient size, capabilities and financial resources to meet such demands can best satisfy these requirements. These changes are providing an opportunity for full-service providers of promotional products, such as the Company, to grow by acquiring new customers previously served by smaller competitors. MARKETING SERVICES. The promotion marketing component focuses on developing strategies and implementing creative marketing plans to directly connect brands with people. Marketing solutions may include consumer and retail promotions, event sponsorships, direct marketing, merchandising and promotional products. The brand strategy and identity component focuses on the design of impactful, motivating product package design solutions. Package design includes new brand creation, revitalizing or repositioning existing brands, and the development of branding systems and the creation of corporate identity programs. TELEMARKETING. The telemarketing industry is highly fragmented and competitive, and includes both captive and independent companies. Although the industry is comprised of in-house operations, many large companies increasingly are focusing on their core competencies and outsourcing their non-core functions. The advantages of telemarketing, which include high response rates, low cost per transaction, direct interaction with customers and the ability to immediately respond to customer inquires, make it an attractive alternate to other forms of direct marketing. PRODUCTS AND SERVICES PROMOTIONAL PRODUCTS. Approximately 79% of the Company's revenue is generated from distribution of promotional products. Promotional products generally are articles of merchandise imprinted or otherwise customized with an advertiser's name, logo or message, which are used for marketing to, providing sales incentives and awards for and developing goodwill among a targeted audience. Promotional products include (i) apparel, such as jackets, sweaters, hats and golf shirts, (ii) business accessories, such as clocks, portfolios, briefcases, blotters and pen and pencil sets, (iii) recognition awards, such as trophies and plaques and (iv) other miscellaneous items, such as etched crystalware, calendars, golf accessories, key chains, watches and mugs. The Company has over 50 showrooms throughout the United States, Canada and Europe in which it displays more than 300,000 promotional products available from the Company's network of over 2,500 vendors. The Company's sales representatives work with each customer to develop a marketing program that utilizes promotional products designed to reach the specific audience targeted by the customer. The Company also provides corporate fulfillment services, which enable a customer to purchase a large quantity of promotional products that the Company then stores in its warehouses and ships from time-to-time in small quantities at the direction of the customer. Corporate fulfillment programs generally are implemented in conjunction with a customer catalog or brochure featuring the type of customized products available for shipment. The Company's corporate fulfillment programs afford large customers lower per unit costs and the ability to receive timely deliveries of small quantities as needed. The Company currently is providing corporate fulfillment services for a number of customers, including AlliedSignal, Ford Motor Company, General Electric, Guinness Import Company, IBM, Siemens, Security Link from Ameritech, Sports Illustrated, Swissotel and U.S. Cellular. MARKETING SERVICES. The Company's ability to operate as a brand marketing organization differentiates it from the more than 15,000 other companies in the promotional product industry. The Company's marketing services are composed of: PROMOTION MARKETING - UPSHOT is a promotion marketing agency specializing in connecting the brand with the consumer at strategic points of contact through brand marketing services such as new product launches, rejuvenating brands, promotional advertising, merchandising, and event marketing. For a major telecommunications company, UPSHOT developed a flexible new merchandising system for national retail accounts like Radio Shack to support the different company brands while simplifying the buying and selling of wireless service. For a leading beverage company, UPSHOT created an image based program including in-store merchandising, radio and print to celebrate African-American musicians who helped shape contemporary entertainment. BRAND STRATEGY AND IDENTITY - LAGA is a brand strategy and identity agency specializing in connecting a company product, service or image with a target audience. By creating a brand, revitalizing a brand or leveraging a brand through brand identity programs, package design, structural design, integrated communications, corporate identity, interactive communications, market research and nomenclature development. LAGA designed the packaging for a new cereal that became the manufacturer's most successful new product launch in history. PRESENCE MARKETING - Events by HA-LO is a corporate event production company specializing in orchestrating corporate meetings, seminar events and incentive programs. For example, Events by HA-LO developed a series of seminars to enable a large corporate client to present its capabilities to potential customers in markets through the country. Events by HA-LO developed the theme and the staging of the seminars, and then arranged venues in cities across the United States to host these "road show" presentations. HA-LO Sports helps customers achieve their business goals and objectives using sports and entertainment marketing opportunities. HA-LO Sports provides services such as development and negotiation of sponsorship arrangements and athlete and celebrity endorsements, event creation and operation and sponsorship sales. TELEMARKETING. Telemarketing is a component of relationship marketing. The Company creates, manages and conducts outbound and inbound telemarketing programs for large corporate clients, primarily in the insurance and financial service industries. Market USA provides script development, telephone-based direct sales, database analysis and management, consultation and program design, as well as customer lead acquisition services, to clients. GROWTH STRATEGY The Company's goal is to create a high quality brand marketing organization building upon its core strengths in promotional products by assembling a team of experts who are dedicated to building each client's brand and becoming its client's competitive edge. Specific elements of the Company's growth strategy include: INTERNAL GROWTH. The Company believes that there are significant opportunities available to expand the business through internal growth. EXPAND EXISTING CUSTOMER RELATIONSHIPS. The Company seeks to grow by further penetrating its existing clients through its ability to provide additional brand building services and its ability to service companies on a national and international basis. The Company has developed strong customer relationships with large organizations, many of which have significant marketing budgets. Such relationships enable the Company to identify new business opportunities and to quickly respond to customer needs in the early stages of a marketing program, thereby increasing its sales volume. The Company believes that it has many opportunities to further penetrate its existing customer base by continuously introducing new and creative products and programs and to introduce to its customers the Company's other brand building disciplines. In addition, as customers seek to outsource their marketing needs and centralize purchases, the Company believes it has a substantial opportunity to obtain a greater share of its customers' total marketing budget. GROWTH OF THE PROMOTIONAL PRODUCT DIVISION. The Company seeks to continue to grow its promotional product business by adding more sales representatives, opening additional showrooms and increasing the productivity of its current sales force. Industry sales representatives are attracted to HA-LO for many reasons, including HA-LO's purchasing power, managerial expertise, financing capabilities, exclusive product arrangements, national and international fulfillment capabilities, corporate visibility and the full range of marketing services offered to its clients. The Company has successfully increased the productivity of its sales representatives through performance-based compensation, general sales training, educating sales representatives regarding HA-LO's various services and providing financial incentives to sales representatives who successfully cross-sell such services, increased fulfillment capabilities, exclusive product lines, sophisticated systems and increased visibility in the market place. STRATEGIC ALLIANCES. The Company believes that it is uniquely positioned to enter into strategic alliances with major corporations whereby the Company becomes a strategic provider of marketing services and promotional products to the customer. ACQUISITION GROWTH. The Company believes that there are significant opportunities for growth through acquisition of promotional product and marketing service companies. Some of the key criteria evaluated in the acquisition process include the effectiveness of management, quality of clients, strategic locations and return on invested capital. PROMOTIONAL PRODUCTS. The Company believes that there are significant opportunities in the fragmented promotional products industry both in the United States and Europe to acquire high-quality companies, which provide the Company with additional sales representatives , established customers and may enable the Company to enter new geographic markets quickly. The Company has demonstrated its ability to successfully integrate newly acquired businesses into its existing operations and improve the performance and profitability of acquired businesses. MARKETING SERVICES. The Company has established itself as a leader in the brand marketing industry by acquiring marketing companies that are leaders in their individual industry segments. The Company believes that there are opportunities to acquire other marketing disciplined companies to either enhance existing services or to add additional services both in the United States and Europe. BUSINESS STRATEGIES PENETRATE CLIENT BASE THROUGH MULTI-DISCIPLINE APPROACH. By offering its customers a comprehensive array of promotional and marketing services, the Company has positioned itself to benefit from the corporate trends toward utilizing a limited number of preferred vendors and outsourcing marketing functions. In addition to its core promotional product offerings, the Company also offers brand marketing and telemarketing services. LEVERAGE EXPENSE STRUCTURE. The Company's organizational structure leverages fixed overhead costs across its operating divisions by centralizing primary corporate functions such as accounting, human resources and information systems. Additionally, the Company leverages costs in the promotional product business by: (i) centralizing warehousing and information systems, (ii) compensating its sales force almost exclusively on a commission basis, (iii) minimizing inventory carrying costs by handling a substantial majority of its sales via direct shipment from the vendor to the customer. The Company believes that the high proportion of its variable expenses relative to its fixed costs results in less fluctuation in its profitability. EXPAND PROMOTIONAL PRODUCT LINE AND LEVERAGE BUYING POWER. The Company seeks to offer its customers a wide range of high-quality promotional products. Currently, the Company has access to over 300,000 types of promotional products from more than 2,500 vendors located primarily throughout North America and the Far East, including premium name brand merchandise typically available only through leading department and specialty stores. The Company's broad product line provides its customers with comprehensive, one-stop shopping for most of their promotional products and advertising specialty needs. As the nation's largest distributor of promotional products, the Company has successfully negotiated preferred pricing and rebate programs from many of its vendors and has developed relationships with reliable overseas manufacturers that satisfy the Company's strict quality and delivery standards. The Company believes its sales volume and financial strength have earned it a reputation as a low-cost, high-service provider of promotional products. WORLDWIDE SERVICE/INTERNATIONAL EXPANSION The Company has successfully grown by offering a wide range of services and offering its services on a national and international basis. During 1998, the Company announced the acquisition of a promotional products distributor in Europe which was completed in early 1999. The Company will continue actively seeking international acquisitions to further establish a foundation for obtaining more international business. The Company currently has operations in Belgium, Canada, England, France, Holland, Hong Kong and Italy. PURCHASING In its promotional products business the Company purchases products directly from manufacturers and typically arranges to have the customer's name, logo or advertising message imprinted on the products by the manufacturer or another third party. A majority of all promotional products sold by the Company are shipped directly by the manufacturer or third party supplier to its customers. The remaining products are warehoused by the Company in conjunction with its corporate fulfillment programs. As the nation's largest distributor of promotional products, the Company has been able to successfully negotiate preferred pricing and rebate programs from many vendors. The Company has developed relationships with U.S. and overseas manufacturers that meet the Company's strict quality and delivery standards and enable the Company to be very competitive on pricing large orders. The Company generally is required to order products further in advance from foreign manufacturers than from its domestic suppliers. The Company is not dependent upon any single manufacturer. PERSONNEL The Company believes a key component of its success is the quality of its employees including sales representatives and it is continually refining its approach to hiring, training and motivating qualified employees and personnel. The Company believes that it will retain and attract high quality employees through a combination of its performance-based compensation structure, financing capabilities, corporate visibility and the ability to provide a full range of marketing services to its clients. The Company employs approximately 1,500 people in its promotional products business including approximately 750 core sales representatives. Additionally, the Company employs approximately 300 people in marketing services and 2,700 people in its telemarketing business. The Company is not a party to any collective bargaining agreements and has not experienced a strike or work stoppage. The Company believes that its relationship with its employees is excellent. CUSTOMERS The Company's promotional product customers include manufacturing, pharmaceutical financial service, broadcasting, consumer product and communications companies as well as professional sports teams. Selected customers of the Company include Abbott Laboratories, AlliedSignal, Ameritech Corporation, Ford Motor Company, General Electric, General Mills, J.E. Seagram & Sons and Sony. For the year ended December 31, 1998, no single customer accounted for more than 10% of the Company's net sales. BACKLOG With respect to its promotional products business, the Company usually has a modest backlog, which it defines as firm orders placed with suppliers but for which the promotional products have not yet been shipped to the customer. As of February 28, 1999, the Company had a backlog of firm orders of approximately $46,085,000 as compared to a backlog of $28,838,000 at February 27, 1998, substantially all of which the Company believes will be shipped by the second quarter of 1999. PATENTS AND TRADEMARKS The Company believes the "HA-LO" name is important to its business. The Company has registered the following trademarks: "HA-LO"-Registered Trademark- "HA-LO Advertising Specialties"-Registered Trademark-, "HA-LO Marketing and Promotions"-Registered Trademark-, "Events by HA-LO"-Registered Trademark- and "HA-LO Sports"-Registered Trademark-. COMPETITION The promotional products industry is highly fragmented and competitive and the cost of entry is low. The Company's existing competitors and new companies that may enter the market may have substantially greater financial and other resources than HA-LO. The Company also competes for advertising dollars with other media, such as television, radio, newspapers, magazines and billboards. The primary bases for competition are customer service, creativity, customer relationships, product innovation and pricing. The Company believes its national and international distribution capabilities, and its complementary, value-added marketing services, provide it with a competitive advantage; however, these capabilities also may result in higher administrative costs than those incurred by certain of HA-LO's smaller competitors. In addition, several of the Company's competitors are manufacturers as well as distributors and may enjoy an advantage over the Company with respect to the cost of the goods they manufacture. The marketing services disciplines that the Company operates in are highly fragmented and competitive, and some of the Company's competitors have substantially greater financial and other resources than the Company. These divisions also compete for advertising dollars with other media, such as television, radio, newspapers, magazines and billboards. The primary bases for competition are customer service, creativity, customer relationships, product innovation and pricing. The telephone-based direct marketing industry in which Market USA operates also is highly fragmented and competitive. Market USA believes that the principle competitive factors in the telemarketing industry are reputation for quality, sales and marketing results, price, technological expertise and the ability promptly to provide clients with customized solutions to their sales and marketing needs. Some of Market USA's competitors have greater financial and technical capabilities and resources than the Company. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
Name Age Position with the Company ---- --- -------------------------- Lou Weisbach 50 Chairman of the Board, President and Chief Executive Officer Linden D. Nelson 38 Director, Vice Chairman of the Board and Chief Executive Officer of Creative Concepts in Advertising, Inc. Richard A. Magid 40 Director, Treasurer, Chief Operating Officer and Assistant Secretary Gregory J. Kilrea 35 Chief Financial Officer David C. Robbins 46 Director, Executive Vice President Michael Linderman 50 Executive Vice President - Promotional Products Barbara G. Berman 54 Vice President - Retail Accounts and Secretary David Blumenthal 36 Vice President - Information Systems Peter Blythe 37 Vice President - Marketing Gene Eherenfeldt 63 Vice President - Sales Sabina Filipovic 38 Vice President - Administration and Assistant Secretary Bradford S. Kerr 44 Chief Information Officer Barry T. Margolin 32 Vice President - Finance and Planning, Corporate Controller and Assistant Secretary Michael P. Nemlich 47 Vice President - Corporate Development/ Financial Relations Jon Sloan 38 Vice President - National Accounts
Officers are elected annually and serve at the discretion of the Board of Directors. Mr. Okner, a member of the Board of Directors, is the father-in-law of Mr. Robbins. There are no other family relationships between any directors and executive officers of the Company. Mr. Weisbach has been the President and Chief Executive Officer of the Company since January 1, 1988. From 1972 through 1987, he operated the predecessor of the Company as a sole proprietorship. Mr. Nelson has served as the Vice Chairman of HA-LO and Chief Executive Officer of Creative Concepts in Advertising, Inc. since its acquisition by HA-LO in January, 1997. Mr. Nelson was the Chairman and Chief Executive Officer of Creative Concepts in Advertising since its inception in July, 1979 through December, 1996. Mr. Magid was appointed Chief Operating Officer in July of 1996. He has been the Treasurer since August, 1992 and was also appointed Assistant Secretary as of March 1996. Additionally, he was the Chief Financial Officer from August, 1992 until July of 1996 and Vice President - Finance from August, 1992 through March of 1996. Mr. Kilrea was appointed Chief Financial Officer in July of 1996. Additionally, he was the Vice President of Planning from April, 1996 through July, 1996. From 1985 until joining the Company in 1996, he was employed by the accounting firm of Arthur Andersen LLP, most recently as an audit and financial consulting manager Mr. Robbins has been Executive Vice President since November, 1992. From 1978 to November 1992, he was an independent sales representative marketing specialty and premium advertising products. Mr. Linderman was appointed Executive Vice President - Promotional Products in September 1998. From August 1997 through September 1998 he served as Executive Vice President of Norwood Promotional Products, Inc. From December 1990 through August 1997, he was President of Key Industries, Inc. a promotional products supplier which was acquired by Norwood in 1994. Ms. Berman was appointed Vice President - Retail Accounts in March of 1996 and has been Secretary of the Company since August, 1992. She was also the Vice President of Administration from August 1992 to March of 1996. Mr. Blumenthal was appointed Vice President - Information Systems in March of 1996. From March of 1995 through March of 1996, he was Director of Information Systems. He started with HA-LO in 1981 and has held various positions with the Company and its predecessor. Mr. Blythe was appointed as an officer in July of 1998. He has been serving as the Vice President - Marketing since April of 1997. From March 1993 through February 1997 he was Vice President and Account Executive for NatWest Markets, the corporate and investment banking arm of National Westminster Bank plc. where he was responsible for managing client relationships and developing new accounts. Mr. Eherenfeldt was appointed as an officer in July of 1998. He has been serving as Vice President - Sales since July 1996. Prior to joining HA-LO he was an independent manufacturers representative. Ms. Filipovic was appointed Vice President - Administration in March of 1996. She was the Director of Administration/Human Relations from March of 1994 to March of 1996. From July of 1984 through March of 1994, she held various positions throughout the Company and for the Company's predecessor. Mr. Kerr was appointed Chief Information Officer of the Company in February 1998. From June 1997 until joining the Company in 1998, he was the Vice President of Information Technology at Conesco. From August 1996 through June 1997 he was the Senior Vice President and Chief Information Officer at Pioneer Financial Services, Inc. Prior to this Mr. Kerr held management positions at CNA Insurance, Digital Equipment Corporation and Baxter International. Mr. Margolin was appointed Vice President - Finance and Planning and Assistant Secretary in March of 1996 and has been the Corporate Controller since January of 1993. Mr. Nemlich was appointed Vice President - Corporate Development/Financial Relations in April of 1996. From March of 1993 until joining the Company in 1996, he was a Vice President in Trust Investment Services at Northern Trust Bank Mr. Sloan was appointed Vice President - National Accounts in July of 1998. Prior to that he held several sales positions at the Company and at Creative Concepts in Advertising (CCA), which was acquired by the Company in January 1997. Prior to joining CCA in 1994, he was a Partner in 1045 Park, a New York based apparel company. ITEM 2. PROPERTIES The Company's principal executive offices are located in Niles, Illinois, a suburb of Chicago. The Company has made arrangements to occupy a new leased headquarters facility, currently under construction, in late 2000. The Company's other facilities include sales offices and showrooms, warehouses, administrative offices and call centers located throughout the United States, Canada, Europe and Hong Kong. The majority of these facilities are leased. Due to recent acquisitions, the Company leases more than one office in certain cities and is in the process of consolidating certain offices to achieve greater efficiencies. Management believes, with the addition of the new headquarters, its facilities are adequate for its current operations, however, additional facilities may be required to support continued growth. ITEM 3. LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders, through solicitation of proxies or otherwise, during the fourth quarter of 1998. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Reference is made to "Note 16. Market for the Registrant's Common Equity and Related Stockholder Matters" of the Company's financial statements included in the Company's Annual Report to Shareholders for 1998 ("Annual Report"), as well as to note (d) in the Selected Financial Data of the Annual Report, all of which are incorporated herein by reference. The Company has not paid a cash dividend on its common stock since its initial public offering in 1992. The Company does not intend to pay such dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the Selected Financial Data in the Annual Report which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Management's Discussion and Analysis of Financial Conditions and Results of Operations set forth in the Annual Report which is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks relating to fluctuations in currency exchange rates, interest rates and changes in the market value of certain marketable securities. As required by new Securities and Exchange Commission (SEC) rules, the Company has calculated the sensitivity of operating results to hypothetical changes in exchange rates, interest rates and security values as if these changes had actually occurred during 1998. The Company is subjected to a risk from currency translation fluctuations due to their operations in Europe and Canada. Had the US dollar been 10% less favorable compared to foreign currencies during 1998 the Company would have recognized a reduction in net income of approximately $300,000 or about 1.2% of total net income. Additionally, the hypothetical drop in the value of the US dollar to foreign currencies would have resulted in a $3.3 million reduction in net assets, about 1.4%, of the total reported at year end. The effect on cash flow in 1998 would have been immaterial. Management does not believe the risk of unfavorable currency fluctuations is significant, and have not entered into any foreign exchange contracts for the purpose of hedging against this risk. The Company is exposed, through short-term investments and borrowings, to the risk of unfavorable changes in interest rates. Had interest rates during 1998 been 10% less favorable, net income would have been negatively affected by approximately $100,000. The Company also owns certain marketable securities that are subject to fluctuations in value on the stock market. Had the value of the stocks declined by 10%, during 1998, the Company could have realized approximately $200,000 of net losses upon sale of the securities. Management does not believe that the risk of unfavorable fluctuations in interest rates or stock values is significant to the Company's operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Balance Sheets as of December 31, 1998 and 1997, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, and Consolidated Statements of Cash Flows for the three years ended December 31, 1998, 1997 and 1996 and Notes to Financial Statements set forth in the Annual Report, and the Report of Arthur Andersen LLP included in the Annual Report, are incorporated herein by reference. Selected Quarterly Operating Results (Unaudited) set forth in the Annual report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 regarding Executive Officers is included in the "Executive Officers of the Registrant" section of Item I. The information regarding Directors is incorporated by reference from the "Election of Directors", "Executive Compensation" and "Security Ownership of Management" and "Beneficial Ownership Reporting Compliance" sections of the Company's 1998 Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the "Executive Compensation" and "Certain Transactions" sections of the Company's 1998 Proxy Statement; provided, however, that neither the Report of the Compensation Committee on Executive Compensation nor the Performance Graph set forth therein shall be incorporated by reference herein, in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the "Security Ownership of Management" section of the Company's 1998 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the "Executive Compensation" and "Certain Transactions" sections of the Company's 1998 Proxy Statement; provided, however, that neither the Report of the Compensation Committee on Executive Compensation nor the Performance Graph set forth therein shall be incorporated by reference herein, in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or in any of the Company's future filings. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits 1. Financial Statements (incorporated herein by reference to the Company's Annual Report for the year ended December 31, 1998) (i) Report of Independent Public Accountants; (ii) Consolidated Balance Sheets at December 31, 1998 and 1997; (iii) Consolidated Statements of Income for each of the years ended December 31, 1998, 1997 and 1996; (iv) Consolidated Statements of Shareholders' Equity for each of the years ended December 31, 1998, 1997 and 1996; (v) Consolidated Statements of Cash Flows for each of the years ended December 31, 1998, 1997 and 1996; and (vi) Notes to Financial Statements. 2. Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because such schedules are not required or the information required has been presented in the aforementioned financial statements. 3. Exhibits The exhibits to this report are listed in the Exhibit Index included elsewhere herein. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the fourth quarter of 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 30, 1999 HA-LO INDUSTRIES, INC. Registrant By: /s/ GREGORY J. KILREA ----------------------- Gregory J. Kilrea Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 30, 1999: Signature Title --------- ----- /s/ LOU WEISBACH Director, Chairman of the Board, -------------------- President and Chief Lou Weisbach Executive Officer(Principal Executive Officer) /s/ LINDEN D. NELSON Director, Vice Chairman of -------------------- the Board and Chief Linden D. Nelson Executive Officer of Creative Concepts in Advertising, Inc. /s/ DAVID C. ROBBINS Director, Executive Vice President -------------------- David C. Robbins /s/ RICHARD A. MAGID Director, Treasurer, --------------------- Chief Operating Officer, and Assistant Richard A. Magid Secretary /s/ THOMAS HERSKOVITS Director --------------------- Thomas Herskovits /s/ JORDON R. KATZ Director --------------------- Jordon R. Katz /s/ MARSHALL J. KATZ Director --------------------- Marshall J. Katz /s/ SEYMOUR N. OKNER Director, Chairman of --------------------- the Board of Seymour N. Okner Market USA, Inc. and Marusa Marketing, Ltd. /s/ NEIL A. RAMO Director --------------------- Neil A. Ramo /s/ ROBERT SOSNICK Director --------------------- Robert Sosnick HA-LO INDUSTRIES, INC. EXHIBIT INDEX Exhibit No. Description of Exhibit - -------------------------------------------------------------------------------- 3.1 Restated Articles of Incorporation of the Company. (1) 3.2 Amended and Restated Bylaws of the Company. (8) 3.3 Articles of Amendment to the Articles of Incorporation of the Company, dated August 29, 1994. (4) 3.4 Articles of Amendment to the Articles of Incorporation of the Company, dated February 21, 1997. (8) 4.1 Specimen of Stock Certificate for Common Stock. (1) 4.2 * New specimen of Stock Certificate for Common Stock. 10.4 Employment Agreement, dated as of September 30, 1996, between the Company, Market USA, Inc. and Seymour N. Okner. (6,11) 10.5 * Employment Agreement, dated January 3, 1997, between the Company and Jon Sloan. (11) 10.6 * Real Property Put and Option Agreement, dated January 3, 1997, among Maple Lane Acquisition Limited Liability Company, Linden D. Nelson, and Creative Concepts in Advertising, Inc. 10.7 * First Amendment to Real Property Put and Option Agreement, dated December, 1998, among Maple Lane Acquisition Limited Liability Company, Linden D. Nelson, and Creative Concepts in Advertising, Inc. 10.8 HA-LO Industries, Inc. Key Employee Incentive Plan. (1,11) 10.9 Exclusive Premium Purchasing Agreement, dated January 11, 1995, between Montgomery Ward & Co., Incorporated and the Company. (4) 10.12 Form of Indemnity Agreement between the Company and each of its directors and officers. (1,11) 10.14 Agreement between David C. Robbins and the Company dated February 1, 1995. (4) 10.15 Building Lease, dated December 30, 1992, between the Company and LaSalle National Trust N.A. No. 115722. (2) 10.16 Agreement, dated as of March 17, 1997, between the Company and Marshall J. Katz.(8,11) 10.18 Amendment of October 1996 to Bonus Shares Agreement, dated February 1, 1995, between the Company and David C. Robbins. (8,11) 10.19 Employment Agreement, dated as of January 3, 1997, between the Company and Linden D. Nelson. (8,11) 10.20 Employment Agreement, dated as of April 15, 1996, between the Company and Gregory J. Kilrea. (8,11) 10.21 Employment Agreement, dated as of April 15, 1996, between the Company and Michael Nemlich. (8,11) 10.23 HA-LO Industries, Inc. Stock Plan (as amended and restated) (4,11) 10.24 Sales Representative Agreement, dated July 21, 1993, between the Company and Neil Ramo. (3,11) 10.25 Second Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted October 28, 1995. (5) 10.26 Third Amendment to the HA-LO Industries, Inc. Stock Plan (as amended and restated), adopted on February 26, 1996. (5) 10.27 First Amendment to Exclusive Premium Purchasing Agreement, dated December 27, 1995, between Montgomery Ward & Co., Inc. and the Company. (5) 10.33 Credit Agreement, dated as of January 31, 1997, among the Company, American National Bank and Trust Company of Chicago, individually as Agent, and the Lenders which are or become parties thereto. (8) 10.34 Guaranty Agreement, dated as of January 31, 1997, by Fletcher, Barnhardt & White, Inc., Market U.S.A., Inc., and Creative Concepts in Advertising, Inc. (8) 10.35 * First Amendment to Credit Agreement, dated August 8, 1997, among the Company, American National Bank and Trust Company of Chicago, individually as Agent, and the Lenders which are or become parties thereto. 10.36 * Second Amendment to Credit Agreement, dated January 20, 1999, among the Company, American National Bank and Trust Company of Chicago, individually as Agent, and the Lenders which are or become parties thereto. 10.37 * Third Amendment to Credit Agreement, dated March 1, 1999, among the Company, American National Bank and Trust Company of Chicago, individually as Agent, and the Lenders which are or become parties thereto. 10.38 * Guaranty Agreements dated March, 1999, by Promotional Marketing, L.L.C., Lipson Associates, Inc., Premier Promotions and Marketing, Inc., and Lee Wayne Corporation. 10.39 Amended and Restated HA-LO Industries, Inc. 1997 Stock Plan. (9,11) 10.40 1997 Employment Agreement between the Company and Lou Weisbach. (10,11) 10.41 Employment Agreement dated January 1, 1998 between the Company and Richard Magid. (10,11,12) 10.42 * Agreements by and between the Company and certain employees dated November, 1997, regarding change of control. (11) 10.43 Agreements by and between the Company and David Robbins dated November, 1997, regarding change of control. (10,11) 10.44 Agreements by and between the Company and Barbara Berman dated November, 1997, regarding change of control. (10,11) 10.45 1998 Restatement of the HA-LO 401(k) Savings Plan. (10,11) 10.46 HA-LO Industries, Inc. Executive Deferred Compensation Plan (as amended and restated) effective February 1, 1997.(10,11) 10.47 Executive Incentive Compensation Plan for Various Employees.(10,11) 10.48 * Agreement dated June 29, 1998 between the Company and Montgomery Ward & Co., Inc. 10.49 * Second Amendment to Exclusive Premium Purchasing Agreement dated June 29, 1998 between Montgomery Ward & Co., Inc. and the Company. 10.50 * Warrants, dated January 10, 1996, from the Company to Montgomery Ward & Co., Inc., ValueVision International Inc. and Merchant Development Corporation. 10.51 * First Amendment to Warrant dated June 29, 1998 between Montgomery Ward & Co., Inc. and the Company (relative to Exhibit 10.50) 10.52 * Warrants, dated January 10, 1996, from the Company to Montgomery Ward & Co., Inc., ValueVision International Inc. and Merchant Development Corporation 10.53 * First Amendment to Warrant dated June 29, 1998 between Montgomery Ward & Co., Inc. and the Company (relative to Exhibit 10.52). 10.54 * Agreement dated January 26, 1999 between the Company and Montgomery Ward & Co., Inc. 10.55 * First Amendment to the 1998 Restatement of the HA-LO 401(k) Savings Plan, effective January 1, 1999. (11) 10.56 * Second Amendment to the 1998 Restatement of the HA-LO 401(k) Savings Plan, effective January 1, 1999. (11) 13. * Annual Report to Shareholders for 1998 of registrant (for the information of the Securities and Exchange Commission and not to be deemed "filed" with the Commission, except for the portions expressly incorporated by reference in this report). 21 * List of subsidiaries of registrant 23.1 * Consent of independent public accountants. 23.1 * Consent of Independent Public Accountants 27.1 * Financial Data Schedule - 1998 27.2 * Financial Data Schedule - 1997 and 1996 - ---------- (1) Incorporated by reference to the correspondingly numbered exhibit to the Registration Statement (no. 33-51698) on Form S-1, as amended, filed by the Company under the Securities Act of 1933, as amended. (2) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (3) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (4) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (5) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (6) Incorporated by reference to the Registration Statement (no. 333-10481) on Form S-4, as amended, filed by the Company under the Securities Act of 1933, as amended. (7) Incorporated by reference to the Registration Statement (no.333-03928) on Form S-8 filed by the Company under the Securities Act of 1933, as amended. (8) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (9) Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement (No. 333-66849) on Form S-8, as amended, filed by the Company under the Securities Act of 1933, as amended. (10) Incorporated by reference to the correspondingly numbered exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (11) Management contract or compensatory plan or arrangement. (12) Erroneously listed as being dated January 1, 1997 in the Exhibit List to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. * Filed herewith. EX-4.2 2 EX-4.2 EXHIBIT 4.2 COMMON STOCK COMMON STOCK NUMBER SHARES INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR CERTAIN THE STATE OF ILLINOIS DEFINITIONS THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 404429 10 2 CHICAGO, ILLINOIS, OR NEW YORK, NEW YORK [HA-LO LOGO] HA - LO INDUSTRIES, INC. THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF HA - LO INDUSTRIES, INC. TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED AND REGISTERED BY THE TRANSFER AGENT AND REGISTRAR. WITNESS THE FACSIMILE SEAL AND THE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS. DATED [SIGNATURE] [SEAL] [SIGNATURE] SECRETARY PRESIDENT COUNTERSIGNED AND REGISTERED: HARRIS TRUST AND SAVINGS BANK TRANSFER AGENT (CHICAGO, ILLINOIS) AND REGISTRAR BY AUTHORIZED SIGNATURE HA-LO INDUSTRIES, INC. The record holder of this Certificate may obtain from the Secretary of the Corporation, upon request and without charge, a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued; the designations, relative rights, preferences and limitations of each series of preferred shares authorized to be issued so far as the same have been fixed; and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series. - ------------------------------------------------------------------------------ The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ____________________ Custodian ___________________ (Cust) (Minor) under Uniform Gifts to Minors Act __________________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO Please insert Social Security or Other Identifying Number of Assignee _____________________________________________________________________________ _____________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ ______________________________________________________________________SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________________ ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. DATED,______________________ X __________________________________________ X __________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEED: _______________________________________________ EX-10.5 3 EX-10.5 Exhibit 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is made and entered into as of this 3rd day of January, 1997, by and among CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation (the "Employer"), HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"), and JON SLOAN (hereafter "Executive"). WHEREAS, Employer is engaged in the business of the sale and distribution of advertising specialty and similar products and services; WHEREAS, the Employer provides services to a wide range of customers engaged in various business endeavors throughout the United States and Canada, and during the course of such services, Employer has established customer bases, customer lists and ongoing relationships with their customers; WHEREAS, as of the date hereof (the "Effective Date"), HA-LO has acquired, by and through a unitary transaction, all of the outstanding shares of capital stock of the Employer pursuant to and in accordance with the terms and conditions of that certain Agreement and Plan of Merger and Plan of Reorganization dated as of , 1996 (the "Plan of Merger"); WHEREAS, Executive's agreement to enter into this Employment Agreement was a material inducement to HA-LO to enter into the Plan of Merger and consummate the transactions thereunder; WHEREAS, Executive has had and will continue to be granted direct and substantial exposure to the customers and prospective customers of the Employer, and during the term of this Employment Agreement, Executive may have direct and substantial exposure to the customers and prospective customers of Employer, HA-LO, HA-LO's wholly and partially-owned subsidiaries and affiliates, and other entities owned or controlled, in whole or in part, by HA-LO (such entities are hereafter collectively "Related Entities"); NOW, THEREFORE, in consideration of the foregoing premises, HA-LO's consummation of the transactions under the Plan of Merger, and for other good and valuable consideration, the receipt and sufficiency of which is hereby mutually acknowledged, Executive, Employer and HA-LO, intending to be legally bound, hereby agree as follows: 1. RECITALS. Each of the above recitals is incorporated in this Employment Agreement and shall be binding upon the parties hereof. Reference is hereby made to the Plan of Merger. This Employment Agreement supersedes any and all previous agreements, understandings and commitments relating to Executive's employment with the Employer. Executive understands and agrees that each such agreement, understanding and commitment relating to his continued employment with the Employer is revoked and cancelled, with no further rights or obligations on the part of either party thereto. 2. EMPLOYMENT; DUTIES. The Employer hereby agrees to employ Executive, and Executive hereby accepts such employment, as the Vice-President of Sales of Employer, on the terms and subject to the conditions set forth herein. During the "Term" (as hereafter defined), Executive shall devote his full business time and best efforts to the performance of all duties pertaining to the Employer as shall be assigned to him from time-to-time, and shall not engage in any other business activity nor be gainfully employed other than pursuant to this Agreement. Such duties shall be of an executive nature and consistent in scope and responsibility with the title of Vice-President of Sales. The performance of Executive's duties hereunder shall be subject to the supervision, advice and direction of the President and Board of Directors of Employer. 3. COMPENSATION. As consideration for Executive's services hereunder, the Employer shall pay to Executive an aggregate annual base salary of not less than Seventy-Five Thousand Dollars ($75,000) (less applicable withholdings) ("Salary"), in equal semi-monthly installments. HA-LO agrees that, subject to satisfaction of performance criteria made applicable to him, the Employer shall cause HA-LO to offer Executive the right to participate in the HA-LO Industries, Inc. Stock Plan (the "Stock Plan", a true and correct copy of which has been furnished to the Executive and by this reference expressly incorporated herein and made a part hereof), for its management employees, as a group. 4. ADDITIONAL COMPENSATION. As additional consideration for Executive's services hereunder, the Employee shall pay Executive an amount equal to one percent (1%) of the "gross receipts of Employer" (as herein defined) with respect to sales programs which Executive directly oversees or administers on behalf of the Employer, including but not limited to the General Electric and Allied Signal programs. The term "gross receipts of Employer" shall mean the gross revenues by Employer applicable returns. The term "programs" shall mean all the gross revenues actually received by Employer or related entitles from its clients or customers, such as General Electric and Allied Signal. Additional compensation shall be payable by Employer to Executive within thirty days following the conclusion of each quarter (March 31, June 30, September 30 and December 31). 5. FRINGE BENEFITS. Subject to applicable law, and the rules and policies adopted by HA-LO's and Employer's Board from time-to-time, Employer shall provide Executive with such non-performance related fringe benefits (including, but not limited to, group health and dental coverage, group life and disability insurance, and the right to participate in qualified pension and welfare benefit plans), as are provided generally to the employees of Employer, as a group. - 2 - 6. EXPENSE REIMBURSEMENT. Subject to the rules, policies and regulations of the Employer in effect from time to time and applicable to its employees, Executive shall be entitled to reimbursement by the Employer for all reasonable and customary travel, business entertainment and other business-related expenses incurred by him in carrying out his duties under this Employment Agreement. 7. TERMINATION. (a) TERMINATION. The term of this Employment Agreement (the "Term") and Executive's employment hereunder shall commence as of the date hereof and terminate at the earlier of (i) the third (3rd) anniversary of the date hereof, or (ii) the first to occur of any of the following events: (1) the mutual agreement of the Employer and Executive to so terminate this Employment Agreement, (2) the death or "disability" (as hereafter defined) of Executive, or (3) HA-LO's written election to cause the Employer to terminate this Employment Agreement and Executive's employment hereunder "for Cause" (as hereafter defined). (b) DISABILITY DEFINED. As used in this Employment Agreement, the term "disability" shall mean any mental, physical or emotional disability or condition which is reasonably expected to last for a continuous period of one hundred twenty (120) days or more, and which may reasonably be expected to prevent Executive from fully performing his duties hereunder. A disability shall be determined by a physician selected by the Employer who shall be a specialist in internal medicine. (c) "FOR CAUSE" DEFINED. As used in this Employment Agreement, the term "for Cause" shall mean any one or more of the following: (1) Executive's theft, embezzlement, fraud or misappropriation of funds, or conspiracy with others to cause same, (2) any breach of fiduciary duty, abuse of trust or other material act of dishonesty by Executive, or Executive's violation of any other material law or ethical rule relating to his employment, (3) Executive's commission of or participation in a felony or other crime involving moral turpitude, (4) Executive's refusal to comply with the lawful directives rules or policies of HA-LO's or Employer's Board, (5) an indictment or information is issued against HA-LO or Employer alleging criminal liability due to actions taken or failed to be taken by Executive without the consent of HA-LO's or Employer's Board, which indictment or information is not dismissed with prejudice within one hundred twenty (120) days thereafter, or (6) upon Executive's breach of any material representation or material covenant set forth in this Employment Agreement and failure to substantially cure same within thirty (30) days following written notice by Employer or HA-LO. - 3 - (d) EFFECT UPON TERMINATION. In the event the Term of this Employment Agreement is terminated by reason of death, disability or termination for Cause, all rights, duties and obligations of the parties pursuant to this Employment Agreement shall terminate, except to the extent of Executive's Salary and Additional Compensation accrued through the date of termination, and Executive's accrued and vested benefits (after giving effect to the cause of such termination) under the Stock Plan. In the event Executive's employment shall terminate by reason of the expiration of the Term, Executive shall not be entitled to severance pay notwithstanding any contrary policies and practices of HA-LO or Employer. (e) SURVIVAL OF COVENANTS. Upon termination of the Term of this Employment Agreement for any reason (except termination by HA-LO or Employer other than for cause), the provisions of this Section 7, and the terms and conditions of Sections 8 through 12 of this Employment Agreement, shall remain in full force and effect, and shall be binding on and enforceable against Executive, Employer and HA-LO as though such termination had not occurred. Executive hereby acknowledges that his agreement to the survival of the terms and conditions of Sections 8 through 12 of this Employment Agreement constitute a material inducement to HA-LO to enter into this Employment Agreement. 8. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and warrants to and with Employer and HA-LO that Executive is not bound by or subject to, and that he has not entered into, any covenants, agreements or restrictions which would be breached or violated by Executive's execution of this Employment Agreement or by Executive's performance of his duties hereunder. Without limiting the generality of the foregoing, Executive is not subject or party to any continuing covenants, agreements or restrictions, whether or not limited in time or geographical scope, arising out of any prior work engagement involving Executive and another party. Executive further represents and warrants to and with Employer and HA-LO that, as of the date hereof, he has not breached or violated any representation, warranty, covenant or agreement set forth in this Employment Agreement, and as of the date hereof there does not exist any breach or violation of any representation, warranty, covenant or agreement set forth in this Employment Agreement. 9. CONFIDENTIALITY. Executive acknowledges that by virtue of the corporate offices he previously maintained with the Employer, the corporate offices he maintains pursuant to the terms of this Employment Agreement, he has been and will continue to be granted access to, and has learned and may continue to learn of, information regarding the Related Entities which is of a confidential, private or sensitive nature (e.g., business strategies and goals, financial projections and objectives, advertising campaigns and strategies, graphic designs and other - 4 - materials, use and utilization of tradenames, trademarks, patents, copyrights and other registrable properties, pricing systems, product and service costs, product and service designs, product and service margins, customer lists and records, customer information, purchaser lists and records, purchaser information, mark-ups and margins, marketing techniques, supplier and vendor information, product content, and, generally, such other confidential information, trade secrets and proprietary information) which give, or may give, the Related Entities an advantage in the marketplace against competitors (all of the foregoing, together with such other data and information intended by its holder to constitute an asset or property the rights in or to which are protectable as against third parties, are hereafter collectively referred to as "Proprietary Information"). Executive agrees that during the Term and thereafter, for any reason whatsoever, Executive shall hold and keep secret all Proprietary Information previously known to him or at any time hereafter disclosed to or learned by him, and Executive shall not directly or indirectly disclose such Proprietary Information to any person, firm, court, governmental agency or corporation, or in any manner use the same, except in connection with the business and affairs of the Employer and HA-LO. 10. NON-COMPETITION. Executive covenants that during the Term and for a period of two (2) years thereafter, Executive shall not, directly or indirectly, in the United States, for his own account or as an employee, consultant, agent, partner, joint venturer, owner or officer of any other person, firm, partnership, corporation or other entity, or any other capacity, in any way conduct or engage in any business directly competitive with the business of the Employer the nature of which business Executive shall have general oversight responsibility on behalf of Employer as of the date of the termination of the Term or for a period of six (6) months prior thereto, it being the understanding of the parties that the Executive shall generally be charged with the oversight of the sales operation of the Employer. 11. NON-SOLICITATION. Executive hereby covenants and agrees that during the Term and for a period of two (2) years thereafter, he shall not, directly or indirectly, for his own account, or as an employee, consultant, agent, partner, joint venturer, owner or officer of any other person, firm, partnership, corporation or other entity, or in any other capacity, in any way call upon or solicit, any person or entity which then is, or at any time prior thereto was, a customer or Prospective Customer of the Employer or HA-LO. For purposes of this Employment Agreement, the term "Prospective Customer" shall mean any person, firm, partnership, corporation or other entity to which the Employer or HA-LO has made a written presentation or proposal, or presented written materials at a meeting, within the six (6) month period immediately prior to the date upon which this Employment Agreement terminates. - 5 - 12. NON-DISTURBANCE. Executive hereby covenants and agrees that during the Term and for a period of two (2) years thereafter, he shall not, directly or indirectly, for his own account, or as an employee, consultant, agent, partner, joint venturer, owner or officer of any other person, firm, partnership, corporation or other entity, or in any other capacity solicit or otherwise interact with any employee or agent of the Employer or HA-LO which solicitation or contact may reasonably lead such employee or agent to terminate his employment with the Employer or HA-LO. 13. REMEDIES. Executive acknowledges that compliance with the restrictive covenants set forth in Sections 8 through 12 herein is necessary to protect the business, goodwill and Proprietary Information of the Related Entities, and that a breach of these restrictions may irreparably and continually damage such entity, for which monetary damages may not be adequate. Consequently, Executive agrees that, in the event that he violates or breaches any of these covenants, the Employer and/or HA-LO shall be entitled to both (1) a temporary, preliminary or permanent injunction in order to prevent the continuation of such harm, and (2) monetary damages insofar as they can be determined. Nothing in this Employment Agreement, however, shall be construed to prohibit an aggrieved entity from also pursuing any other remedy, the parties having agreed that all remedies are to be cumulative. The parties expressly agree that the Employer or HA-LO may, in their sole discretion, choose to enforce the restrictive covenants in Sections 8 through 12 hereof, in part, or to enforce any of said restrictive covenants to a lesser extent than that set forth herein. 14. REVISION. In the event that any of the provisions, covenants, warranties or agreements in Sections 7 through 10, inclusive, of this Employment Agreement are held to be in any respect an unreasonable restriction upon or are otherwise invalid, for whatsoever cause, then the court so holding shall reduce and is so authorized to reduce, the territory to which it pertains and/or the period of time in which it operates, or the scope of activity to which it pertains or effect any other change to the extent necessary to render any of the restrictions of this Employment Agreement enforceable. 15. GENERAL PROVISIONS. (a) SEVERABILITY. Each of the terms and provisions of this Employment Agreement is to be deemed severable in whole or in part and, if any term or provision of the application thereof in any circumstances should be invalid, illegal or unenforceable, the remaining terms and provisions or the application thereof to circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and shall remain in full force and effect. - 6 - (b) BINDING AGREEMENT. This Employment Agreement shall be binding upon the parties, their heirs, successors, personal representatives and assigns. The Employer or HA-LO may assign this Agreement to their successors in interest to the business, or part thereof, of the Employer or HA-LO, provided that the assignee assumes all of the liabilities of the assignor hereunder. Executive may not assign any of his obligations or duties hereunder. (c) CONTROLLING LAW AND JURISDICTION. This Employment Agreement shall be governed by and interpreted and construed according to the laws of the State of Michigan. Executive, Employer and HA-LO all hereby consent to the sole and exclusive jurisdiction of the state and/or federal courts in Michigan, in the event that any disputes arise under this Employment Agreement. (d) ENTIRE AGREEMENT. This instrument contains the entire agreement of the parties with regard to the subject matter hereof, and may not be changed orally, but only by an agreement in writing signed by the parties hereto. (e) FAILURE TO ENFORCE. The failure to enforce any of the provisions of this Employment Agreement shall not be construed as a waiver of such provisions. Further, any express waiver by any party with respect to any breach of any provision hereunder by any other party shall not constitute a waiver of such party's right to thereafter fully enforce each and every provision of the Employment Agreement. (f) HEADINGS. All numbers and Section headings are for reference only and are not intended to qualify, limit or otherwise affect the meaning or interpretation of any such Section. (a) NOTICES. All notices which are required, permitted or contemplated hereunder to be given or made shall be given or made in writing by certified mail (return receipt requested) to HA-LO at 5980 West Touhy Avenue, Niles, Illinois, 60174, Attention: Chief Executive Officer, to Employer at and to Executive at the last address shown in Executive's personnel file. (b) GENDER. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires. - 7 - 16. OPTIONS. Pursuant to the HA-LO Stock Plan, the Executive shall receive ( ) options to purchase HA-LO common stock under the Plan to be granted as of the date hereof which shall in all cases be subject to the terms and conditions of the Plan; the options granted shall, generally, vest 50% upon the first anniversary date hereof and 50% on the second anniversary date of the date hereof, shall terminate ten years from the date hereof and shall have an exercise price equal to the arithmetic mean between the bid price and the ask price for HA-LO shares of common stock as quoted by the NASDAQ as of the date hereof. 17. EXTENSION TO TERM. Employer and HA-LO shall have the option to continue the term of this Employment Agreement for additional three (3) year terms upon the same terms and conditions set forth herein. WHEREFORE, the parties have executed this Agreement on the date and year first above written. CREATIVE CONCEPTS HA-LO INDUSTRIES, INC. IN ADVERTISING, INC. By: By: ------------------------------------ -------------------------- Its: Its: -------------------------------- ------------------------- ----------------------------- Jon Sloan - 8 - EX-10.6 4 EX-10.6 Exhibit 10.6 REAL PROPERTY PUT AND OPTION AGREEMENT THIS REAL PROPERTY PUT AND OPTION AGREEMENT (this "Agreement") is made and entered into as of the 3rd day of January, 1997, among MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability company, whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025 ("Maple Lane LLC"), LINDEN D. NELSON, having an address at 31535 Southfield Road, Beverly Hills, Michigan 48025, and CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation, whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025 ("CCA"), based upon the following: A. On even date herewith, Maple Lane LLC has transferred and conveyed to CCA certain real property located in the City of Troy, Oakland County, Michigan, as is more particularly described on Exhibit A attached hereto and made a part hereof, together with the rights of way, roadways, easements and appurtenances associated therewith (the "Property"), pursuant to the terms of a Real Property Purchase Agreement between Maple Lane LLC and HA-LO Acquisition Corporation of Michigan, Inc. ("HA-LO Michigan"), dated of even date herewith (the "Purchase Agreement"). B. The Purchase Agreement was executed and delivered pursuant to the terms of a certain Agreement and Plan of Merger and Plan of Reorganization dated as of October 29, 1996 (the "Merger Agreement"), among HA-LO Industries, Inc., HA-LO Michigan, CCA, the shareholders of CCA and certain entities and individuals affiliated with CCA. C. Pursuant to the Purchase Agreement, Maple Lane LLC and HA-LO Michigan agreed that at the closing of the sale of the Property to CCA, Maple Lane LLC and CCA would enter into an agreement granting CCA the right to require that Maple Lane LLC repurchase the Property and granting Maple Lane LLC the right to repurchase the Property. 1 NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. THE PUT. CCA shall have the right, exercisable at any time after the date which is two (2) years and one (1) day following the date of this Agreement (the "Initial Date") and before that date which is one hundred twenty (120) days after the Initial Date (the "Put and Option Period"), to require that Maple Lane LLC repurchase the Property and all then existing improvements thereon or associated therewith (the "Improved Property") from CCA (the "Put"). The Put shall be exercised, if at all, by CCA delivering written notice of its exercise to Maple Lane LLC prior to the expiration of the Put and Option Period. 2. THE OPTION. Maple Lane LLC shall have the right (the "Option"), exercisable at any time during the Put and Option Period, to purchase the Improved Property. The Option shall be exercised, if at all, by Maple Lane LLC delivering written notice of its exercise to CCA prior to the expiration of the Put and Option Period. 3. REPURCHASE PRICE. The purchase price to be paid by Maple Lane LLC to CCA upon the purchase of the Improved Property (the "Repurchase Price") shall be equal to the sum of (i) One Million Dollars ($1,000,000), and (ii) all construction and development expenses approved by Maple Lane LLC (which approval shall not be unreasonably withheld or delayed) incurred to construct the office building and warehouse improvements to be constructed by CCA for use as its headquarters building (the "Improvements") on the Property in accordance with plans and specifications approved by Maple Lane LLC in the exercise of its reasonable discretion (the "Approved Plans"), together with interest on the amounts set forth in (i) and (ii) above, at the rate available to HA-LO Industries, Inc., under its primary credit facility, unless CCA obtains a specific credit facility for construction of the improvements, in which event the interest rate under that credit facility shall apply. For the 2 purposes of this Agreement, (a) so long as Linden D. Nelson remains a member of the Board of Directors of CCA, Maple Lane LLC shall be deemed to have approved all construction and development expenses incurred in connection with the construction of the Improvements unless Linden D. Nelson reasonably objects to and votes against such expenditures at a meeting of the Board of Directors of CCA, and (b) Maple Lane LLC shall be deemed to have approved all construction and development expenses contemplated under the Approved Plans. 4. CONDITION OF TITLE. Within ten (10) business days following CCA's exercise of the Put or Maple Lane LLC's exercise of the Option, CCA shall deliver to Maple Lane LLC a commitment for policy of title insurance in the form required under the Purchase Agreement, but identifying Maple Lane LLC as the purchaser. It shall be a condition to Maple Lane LLC's obligation to purchase the Property that such commitment for policy of title insurance not disclose any restrictions, liens or encumbrances other than those as are identified on the policy of title insurance issued to CCA upon the closing of the purchase of the Property by CCA or which shall be removed upon the conveyance of the Improved Property to Maple Lane LLC or are permitted under this Paragraph 4. CCA further covenants and agrees not to burden the Property with any easements, restrictions, or other encumbrances that will not be discharged upon the reconveyance of the Property to Maple Lane LLC, without Maple Lane LLC's prior written consent, which shall not be unreasonably withheld or delayed and shall be deemed granted with respect to easements that are necessary for the development of the Property in accordance with the Approved Plans. 5. CONDITION OF PROPERTY. Except for the construction of the Improvements in accordance with the Approved Plans, the Property shall be delivered to CCA in the condition existing as of the date of this Agreement. Maple Lane LLC acknowledges and agrees that at 3 Closing it shall acquire the Property in an "AS-IS, WHERE-IS" physical condition, with all faults and defects. NO REPRESENTATION OR WARRANTY, WRITTEN, ORAL, EXPRESS OR IMPLIED, AS TO THE PHYSICAL CONDITION OR STATE OF REPAIR OF THE PROPERTY OR ANY PART THEREOF, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, HAVE BEEN OR WILL BE MADE BY CCA. 6. THE CLOSING. The closing of the sale of the Property to Maple Lane LLC (the "Closing") shall occur on a date mutually selected by CCA and Maple Lane LLC (the "Closing Date"), but in no event more than ninety (90) days following the exercise of the Put or the Option, as applicable. 7. PAYMENT OF REPURCHASE PRICE; DOCUMENTS TO BE EXECUTED AND DELIVERED AT THE CLOSING. At the Closing: (a) Maple Lane LLC shall pay the Repurchase Price to CCA by means of certified or cashier's check or wire transfer; (b) CCA shall deliver to Maple Lane LLC a Warranty Deed executed on behalf of CCA in the form required under the Purchase Agreement (but with CCA as the Grantor) and a Real Property Transfer Valuation Affidavit on the statutory form; (c) CCA and Maple Lane LLC shall execute a closing statement setting forth the calculation of the Repurchase Price and all adjustments and prorations between Maple Lane LLC and CCA with respect to the Property; (d) CCA shall execute and deliver to Maple Lane LLC, a non-foreign affidavit or a qualifying statement sufficient in form and substance to relieve Maple Lane LLC of any and all obligations to deduct, withhold or pay any amount of tax pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), or a statement from CCA 4 authorizing Maple Lane LLC to deduct and withhold taxes as required by Section 1445 of the Code; (e) Maple Lane LLC and CCA shall enter into a Lease of the Improved Property containing the business terms attached to this Agreement as Exhibit C, and containing such other terms and, in such form, as the parties shall mutually agree, the parties agreeing that when such lease form is complete, the parties will amend this Agreement so as to attach such form of lease hereto as Exhibit C-1; (f) CCA shall deliver to Maple Lane LLC a certificate of CCA in which CCA represents and warrants to Maple Lane LLC the matters set forth in Paragraph 6 of the Purchase Agreement (modified to reflect the fact that CCA is a Michigan corporation rather than a Delaware limited liability company); and (g) CCA and Maple Lane LLC shall each execute and deliver such further documents and instruments as shall be reasonably required to carry out the intent of this Agreement. 8. CONSTRUCTION OF IMPROVEMENTS; INSURANCE: CCA shall maintain all-risk property insurance with an extended coverage endorsement, insuring the Improvements for their full replacement cost until the expiration of the Put Period and the Option Period. During construction of the Improvements, CCA shall also maintain such other insurance covering the Improvements, including Builder's Risk insurance, as Maple Lane LLC shall reasonably require. 9. REPORTING COMPLIANCE. Each party hereby agrees to provide to the person responsible for closing the transaction contemplated hereunder, prior to or at closing, all information required to be reported by such person under Section 6045 of the Code, if such reporting is required under the Treasury Regulations promulgated (or other governmental 5 determinations made) pursuant to such Section 6045. 10. POSSESSION. CCA shall deliver and Maple Lane LLC shall accept possession of the Improved Property upon the Closing Date. 11. TAXES, PRORATED ITEMS AND CLOSING COSTS. (a) All taxes and assessments, including all unpaid assessments and all assessments payable in installments, which have become a lien upon the Property and are due and payable as of the Closing Date shall be paid in full by CCA. Current taxes shall be prorated and adjusted as of the Closing Date in accordance with the due date basis of the municipality or taxing unit in which the Property is located. (b) The state and county transfer tax that will be payable upon the transfer of title from CCA to Maple Lane LLC shall be CCA's obligation. 12. CASUALTY AND CONDEMNATION. In the event the Put or the Option are exercised and there shall have been any casualty or condemnation affecting the Property prior to the Closing, then the Repurchase Price shall be reduced by any casualty or condemnation proceeds received by CCA and CCA shall assign to Maple Lane LLC all of CCA's rights, claims, and other interests associated with any such casualty or condemnation. CCA further agrees that Maple Lane LLC shall have the right to participate in and approve (which approval shall not be unreasonably withheld or delayed) any settlement of any insurance claims or condemnation proceedings arising prior to the expiration of the Put and Option Period (or the Closing of the Put or Option are exercised). 13. USE OF WORDS. The pronouns and relative words herein used shall be read interchangeably in masculine, feminine or neuter, singular or plural, as the respective case may be. 14. NOTICES. All notices, requests, demands, approvals, consents, waivers or 6 other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt or refusal to accept receipt if delivered or mailed by registered or certified mail, postage prepaid, or by nationally recognized overnight delivery service, addressed as follows: If to Maple Lane LLC: Maple Lane Acquisition Limited Liability Company 31535 Southfield Road Beverly Hills, Michigan 48025 Attention: Mr. Linden D. Nelson with a required Kenneth H. Gold, Esquire copy to: Miro Weiner & Kramer Suite 100, 500 North Woodward Avenue P.O. Box 908 Bloomfield Hills, Michigan 48303-0908 If to CCA: Creative Concepts in Advertising, Inc. c/o HA-LO Industries, Inc. 5980 West Touhy Avenue Niles, Illinois 60714 Attention: Mr. Gregory J. Kilrea, CFO with a required Marc S. Roth, Esquire copy to: Marc S. Roth & Associates, Ltd. 176 Ambrogio Drive Gurnee, Illinois 60031-9939 - and - Barry J. Shkolnik, Esquire Neal, Gerber & Eisenberg Two North LaSalle Street, Suite 2200 Chicago, Illinois 60602
15. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Michigan relating solely to contracts to be solely performed within the State of Michigan by residents thereof; I.E., without regarding to Michigan's choice of laws principles. 16. CONTENTS OF AGREEMENT. This Agreement sets forth the entire understanding 7 of the parties hereto with respect to the transaction contemplated hereby and may not be amended except by a written instrument executed by the parties hereto. Any previous agreements or understandings between the parties regarding the subject matter hereof are merged into and superseded by this Agreement. Each Exhibit attached to this Agreement is incorporated in this Agreement by reference. 17. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Delivery by facsimile of this Agreement or an executed counterpart hereof shall be deemed a good and valid execution and delivery hereof. 18. SUCCESSORS AND ASSIGNS. Prior to the expiration of the Put Period and the Option Period, (i) CCA shall not sell, transfer or convey any portion of the Property or assign its rights hereunder except to an entity owned or controlled by, or under common control with, or controlling, CCA and (ii) Maple Lane LLC shall not transfer or assign its rights hereunder except to an entity owned or controlled by Linden D. Nelson. Except as specifically set forth herein, all of the terms, conditions, and covenants to be observed and performed by the parties hereto shall be applicable to and binding upon their respective heirs, administrators, executors, successors, and permitted assigns. 19. COVENANTS RUNNING WITH THE LAND. The terms, covenants, conditions and other provisions contained in this Agreement shall run with the land and be binding upon the Property. 20. SEVERABILITY. Wherever possible, each term of this Agreement shall be interpreted in such manner as to be effective, valid and enforceable under applicable law. However, if any particular term is prohibited by, invalid or unenforceable under, applicable law, then such term shall be ineffective only to the extent of such prohibition, invalidity, or 8 unenforceability, and shall not invalidate the remainder of such term or any of the other terms in this Agreement. 21. NO PARTNERSHIP. Notwithstanding anything to the contrary contained in this Agreement, the relationship of the parties hereunder is solely that of seller and purchaser, and nothing contained in this Agreement is intended or shall be deemed to create a partnership or joint venture relationship between Maple Lane LLC and CCA. 22. CAPTIONS. All titles and captions contained in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. 23. MEMORANDUM OF AGREEMENT. Each party agrees that if requested by the other party, it shall consent to and execute any notice or memorandum of this Agreement to be recorded in the property records in the county in which the Property is located. 24. EXECUTION BY LINDEN D. NELSON. Linden D. Nelson is executing this Agreement solely for the purpose of guaranteeing the obligation of Maple Lane LLC to repurchase the Property following the exercise of the Put by CCA. 9 The parties hereto have executed this Real Property Put and Option Agreement as of the date first above written. MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability company By: ----------------------------------- Its: ------------------------------- -------------------------------------- LINDEN D. NELSON CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation By: ----------------------------------- Its: ------------------------------- 10 EX-10.7 5 EX-10.7 Exhibit 10.7 FIRST AMENDMENT TO REAL PROPERTY PUT AND OPTION AGREEMENT THIS FIRST AMENDMENT TO REAL PROPERTY PUT AND OPTION AGREEMENT (this "Amendment") is made and entered into as of the ___ day of December, 1998, among MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability company, whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025 ("Maple Lane LLC"), LINDEN D. NELSON, having an address at 31535 Southfield Road, Beverly Hills, Michigan 48025 ("Nelson"), and CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation, whose address is 31535 Southfield Road, Beverly Hills, Michigan 48025 ("CCA"). RECITALS: A. Maple Lane LLC, Nelson and CCA have heretofore entered into that certain Real Property Put and Option Agreement dated as of January 6, 1997 (the "Agreement"). B. Pursuant to the Agreement, at such time as the parties agree on the lease form contemplated therein, the parties have agreed to amend the Agreement to attach such lease form to the Agreement as Exhibit C-1. C. The parties have agreed on such lease form. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Attached hereto as Exhibit A is a form of lease that has been agreed upon by the parties. The parties hereto hereby agree that the Agreement is hereby amended to attach such lease form to the Agreement as Exhibit C-1. 2. As amended hereby, the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. MAPLE LANE ACQUISITION LIMITED LIABILITY COMPANY, a Delaware limited liability company By: ---------------------------- Its: ------------------------- ------------------------------- LINDEN D. NELSON CREATIVE CONCEPTS IN ADVERTISING, INC., a Michigan corporation By: ----------------------------- Its: ------------------------- -2- EXHIBIT A Lease (Exhibit C-1 to Real Property Put and Option Agreement) LEASE BETWEEN LANDLORD: MAPLE LANE ACQUISITION, L.L.C. AND TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC. DATED: LEASE THIS LEASE (this "Lease") is entered into as of the ______ day of __________________,199__, by and between MAPLE LANE ACQUISITION, L.L.C., a Michigan limited liability company ("Landlord"), and [CREATIVE CONCEPTS IN ADVERTISING, INC.], a ____________________ corporation ("Tenant") SECTION I BASIC LEASE PROVISIONS LANDLORD: NAME: MAPLE LANE ACQUISITION, L.L.C., a Michigan limited liability company ADDRESS: ------------------------------------------------------ TENANT: NAME: CREATIVE CONCEPTS IN ADVERTISING, INC., a ------------------------------- ADDRESS: ------------------------------------------------------- DEMISED PREMISES: The land as described in Exhibit A attached hereto (the "Site") and the improvements now or hereafter located thereon in Oakland County, Michigan, commonly known as 1499 Maple Lane, Troy, Michigan (said Site and improvements being hereinafter collectively referred to as the "Demised Premises"), subject, however, to (a) all liens, easements, covenants, restrictions and encumbrances affecting title as of the Commencement Date (as hereinafter defined) and (b) all present and future zoning and other governmental laws, regulations, rules, restrictions, and ordinances. ORIGINAL LEASE TERM: Five (5) years RENEWAL TERMS: Two (2) options to renew for terms of five (5) years each. COMMENCEMENT DATE: ORIGINAL EXPIRATION DATE: Five (5) years after the Commencement Date. ANNUAL BASE RENT: Fair Market Rent (as hereinafter defined). 2 USE OF DEMISED PREMISES: Executive and administrative offices, warehouse and production facilities, and, with Landlord's consent, which shall not be unreasonably withheld, any other lawful use. EXHIBITS ATTACHED: A - Legal Description of Demised Premises SECTION 2 GRANT AND TERM 2.1 DEMISED PREMISES Landlord, in consideration of the rents to be paid and the covenants, promises and agreements to be performed by Tenant, does hereby lease to Tenant and Tenant hereby rents from Landlord, the Demised Premises described in Section 1. 2.2 ORIGINAL TERM The original term of this Lease shall be for the Original Lease Term stated in Section 1, commencing on the Commencement Date stated in Section 1 and expiring on the Original Expiration Date stated in Section 1, unless delayed or sooner terminated as herein set forth. 2.3 RENEWAL TERMS A. Provided that both at the time of the exercise of the options hereinafter set forth and at the time of the commencement of the applicable Renewal Term (as hereinafter defined this Lease is in full force and effect and provided, further, that Tenant is not then in default hereunder beyond any applicable notice and grace periods, then Tenant is hereby granted the options to renew the Term for two (2) additional periods of five (5) years each (each, a "Renewal Term"). The first Renewal Term ("First Renewal Term") shall commence at the expiration of the Original Lease Term and the second Renewal Term ("Second Renewal Term") shall commence immediately after the expiration of the First Renewal Term and shall expire on the fifth (5th) anniversary of the expiration date of the First Renewal Term. Tenant shall exercise each option to renew, if at all, by delivering notice of such election (each such notice, a "Renewal Notice") to Landlord not less than twelve (12) months but not more than eighteen (18) months prior to the expiration of the immediately preceding Term. In the event that Landlord does not receive a Renewal Notice prior to the expiration of such time period (time being of the essence with respect thereto), then such option to renew the Term shall, upon the expiration of such time period, become null and void and be of no further force or effect and Tenant shall, at the request of Landlord, execute an instrument in form and substance acceptable to Landlord confirming such facts. If Tenant fails to execute such instrument within ten (10) days after receipt thereof from Landlord, then such failure shall be a default by Tenant hereunder. In the event Tenant fails 3 to timely exercise its option to renew the Term in respect of the First Renewal Term, Tenant shall have no option to renew the Term in respect of the Second Renewal Term. Each Renewal Term shall be upon the same terms and conditions of this Lease except that Tenant shall have no option to renew this Lease beyond the expiration of the Second Renewal Term. B. Upon the exercise by Tenant of its option in respect of a Renewal Term in accordance with this Section, (a) the term "Lease Term", as used in this Lease, shall mean the Original Lease Term as extended for the First Renewal Term and, if applicable, the Second Renewal Term, and (b) the term "Expiration Date" shall mean the date of expiration of the then applicable Renewal Term. C. Any termination, cancellation or surrender of this Lease shall terminate any right of renewal for the Renewal Term in respect of the portion of the leased premises as to which this Lease is terminated, cancelled or surrendered. SECTION 3 CONDITION OF DEMISED PREMISES Tenant represents that it has examined the Leased Premises and is fully aware of the condition thereof and Tenant acknowledges that it is leasing the Demised Premises in its "As Is" condition as of the Commencement Date. Tenant acknowledges that neither Landlord nor any person purporting to act for Landlord has made any representations concerning the physical condition of any buildings or structures, or any portions thereof constituting a part of the Demised Premises. Notwithstanding the foregoing, nothing contained herein shall be deemed a waiver of any of Tenant's rights under (a) any indemnity made by Landlord herein, (b) that certain Environmental Indemnity Agreement, dated January ___, 1997 (the "Indemnity Agreement"), made by Linden D. Nelson, or (c) that certain Real Property Purchase Agreement, dated January 2, 1997 (the "Purchase Agreement"), between Landlord and HA-LO Acquisition Corporation of Michigan, Inc. (to which Tenant is the successor-by-merger). SECTION 4 POSSESSION AND COMMENCEMENT OF TERM 4.1 POSSESSION AND COMMENCEMENT OF LEASE TERM Landlord shall deliver actual possession of the Demised Premises to Tenant on or before the Commencement Date. Tenant's obligation for the payment of Rent, as defined herein, and the term of this Lease shall commence on the Commencement Date. If permission is given to Tenant to occupy all or part of the Demised Premises prior to the Commencement Date, Tenant covenants and agrees that such occupancy shall be governed by all terms and conditions of this Lease, and the Commencement Date and the Expiration 4 Date shall not be changed. 4.2 LANDLORD NOT LIABLE FOR DELAYS Under no circumstances shall Landlord be liable for any delays in the delivery of possession of the Demised Premises to Tenant on the Commencement Date. Tenant's sole and exclusive remedy shall be the abatement of Rent until the Demised Premises are ready for occupancy and possession is delivered to Tenant. 4.3 MEMORANDUM Within thirty (30) days after the delivery of possession to Tenant, Tenant shall join with Landlord in the execution of a written memorandum confirming the Commencement Date and Expiration Date of the Lease Term. Tenant's failure to execute the Memorandum shall be a default by Tenant under this Lease. Landlord's default under this Lease shall not relieve Tenant of the obligation to execute the Memorandum within such thirty (30) day period. SECTION 5 RENT 5.1 BASE RENT (a) During the Original Lease Term and each Renewal Term, if applicable, Tenant shall pay to Landlord annual fixed rent (the "Annual Base Rent") in an amount equal to the Fair Market Rent (as hereinafter defined) as of the date (the "Rent Appraisal Date") which is not less than sixty (60) days prior to (i) the Commencement Date, with respect to the Original Lease Term, (ii) the commencement of the First Renewal Term, with respect to the First Renewal Term, and (iii) the commencement of the Second Renewal Term, with respect to the Second Renewal Term. The Annual Base Rent shall be payable in monthly installments, in advance, on the first day of each and every calendar month during the Lease Term and each Renewal Term, if applicable, without notice or demand and without any set-off, abatement or deduction whatsoever, at the office of Landlord stated in Section 1, or at such other place as Landlord may designate from time to time in writing. The first monthly installment of Annual Base Rent shall be due and payable at the time of the execution of this Lease. Such first monthly installment of Annual Base Rent shall be in the amount due for the first month of the Original Lease Term. The first monthly installment of Annual Base Rent shall be credited by Landlord against the first monthly installment of Annual Base Rent due during the Lease Term. If the Lease Term shall commence on a day other than the first day of a calendar month, or shall end on other than the last day of a calendar month, then the monthly installment of Annual Base Rent due for such partial month shall be pro-rated. (b) For the purposes of this Article, the term "Fair Market Rent" shall mean the then annual fair market rental rate that would be paid by a willing tenant, not compelled to 5 lease, and accepted by a willing landlord, not compelled to lease, for the Demised Premises as of the pertinent date, considering (a) that Additional Rent shall continue to be payable during each 5-year period of the Term without any changes in this Lease relating to Additional Rent, (b) the age and quality of the Building as of such date, (c) the length of the applicable Term, and (d) such other factors that Landlord and Tenant reasonably agree shall be relevant at the applicable date. Fair Market Rent shall be determined by mutual agreement between Landlord and Tenant (based upon the above factors) and shall be set forth in a writing to be executed by Landlord and Tenant; provided, however, that the failure of either party to execute such writing shall not affect the determination of Fair Market Rent. 5.2 RENT NET OF EXPENSES Landlord and Tenant intend that the Annual Base Rent due hereunder, together with any adjustments during the Lease Term, shall be absolutely net of all costs, expenses, taxes (real and personal) and charges of every kind and nature whatsoever relating to the ownership, occupancy or use of the Demised Premises (all of which shall be paid by Tenant) so that the Annual Base Rent, together with any adjustments, constitutes the minimum income received by Landlord from the Lease of the Demised Premises. Tenant shall indemnify and hold Landlord harmless from and against any such costs, expenses, taxes (real or personal, but excluding income taxes assessed against Landlord) and charges. 5.3 ADDITIONAL RENT All amounts due from Tenant and payable to Landlord other than Annual Base Rent, including, without limitation, if applicable, taxes and assessments pursuant to Section 8 hereof and insurance premiums pursuant to Section 13 hereof, shall be deemed to be Additional Rent. Upon Tenant's failure to pay any such Additional Rent, Landlord, in addition to any other remedies, shall have the same rights and remedies provided for Tenant's failure to pay the Annual Base Rent. (The Annual Base Rent and the Additional Rent, are herein collectively referred to as "Rent"). Tenant shall pay any and all sums of money or charges required to be paid by Tenant under this Lease promptly when the same are due, without any deduction, abatement or setoff whatsoever. 5.4 LEASE YEAR Lease year shall mean a period of twelve (12) consecutive calendar months. The first lease year shall begin on the Commencement Date. Each succeeding lease year shall commence on the anniversary of the Commencement Date. 5.5 DELINQUENCY CHARGE If Tenant shall fail to pay all or any portion of a monthly installment of Annual Base Rent, within ten (10) days after notice from Landlord that the same is due, Tenant shall pay a delinquency charge equal to five percent (5%) of the unpaid amount to reimburse Landlord for the costs incurred as the result of such late payment and not as a penalty. Such delinquency charge shall be due and payable upon Landlord's demand. 6 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. 7 5.8 NO ABATEMENT No abatement, diminution or reduction in Annual Base Rent or any other charges required to be paid by Tenant pursuant hereto shall be claimed by or allowed to Tenant for any inconvenience or interruption, cessation, or loss of business caused directly or indirectly, by any present or future laws, or by priorities, rationing or curtailment of labor or materials, or by war, civil commotion, strikes or riots, or any manner or thing resulting therefrom, or by any other cause or causes beyond the control of Landlord or Tenant, nor shall this Lease be affected by any such causes; and, except as expressly provided in Section 14.2 of this Lease, no diminution in the amount of the space used by Tenant caused by legally required changes in the construction, equipment, fixtures, operation or use of the Demised Premises shall entitle Tenant to any abatement, diminution or reduction of the Annual Base Rent or any other charges required to be paid by Tenant pursuant to the terms of this Lease. Notwithstanding any other provision of this Lease, in the event (i) there is an interruption of utility services which (x) is the result of Landlord's gross negligence or willful misconduct and is not caused by the acts or omission of Tenant or any employee, agent or contractor of Tenant, (y) continues for a period of (10) Business Days after Tenant has notified Landlord of the same, and (z) causes the Demised Premises to be uninhabitable for general, administrative or executive office use and Tenant does not in fact use any portion of the Demised Premises, then Tenant shall be entitled to abate the payment of all Annual Base Rent due under the provisions of this Lease for the period commencing on the eleventh (11th) Business Day of the existence of such condition and ending on the date that such condition no longer exists or the date on which Tenant occupies any portion of the Demised Premises, if earlier. 5.9 RENT RESTRICTIONS If any of the Rent payable under the terms of this Lease shall be or become uncollectible, reduced or required to be refunded because of any Laws (as hereinafter defined), Tenant shall enter into such agreement(s) and take such other steps as Landlord may request and as may be legally permissible to permit Landlord to collect the maximum rents which from time to time during the continuance of such legal rent restriction may be legally permissible (and not in excess of the amounts reserved therefor under this Lease). Upon the termination of such legal rent restriction, (a) the rents shall become and thereafter be payable in accordance with the amounts reserved herein for the periods following such termination and (b) Tenant shall pay to Landlord, to the maximum extent legally permissible, an amount equal to (i) the rents which would have been paid pursuant to this Lease but for such legal rent restriction less (ii) the rents and payments in lieu of rents paid by Tenant during the period such legal rent restriction was in effect. SECTION 6 UTILITIES Tenant agrees to pay all charges made against the Demised Premises for gas, heat, 8 water, air conditioning, electricity, sanitary and storm sewage disposition, telephone and all other utilities during the Lease Term as the same shall become due. Landlord shall not be liable to Tenant for the quality or quantity of any such utilities, or for any interruption in the supply of any such utilities, unless such interruption is the direct result of Landlord's gross negligence or willful misconduct, in which event Landlord's liability shall be limited as set forth in Section 5.8 hereof. SECTION 7 INTENTIONALLY OMITTED SECTION 8 TAXES AND ASSESSMENTS 8.1 OBLIGATION Tenant agrees to pay directly to the applicable taxing authority all Taxes, as defined in Section 8.2, on the Demised Premises during the Lease Term, as and when the same become due and payable. 8.2 DEFINITION OF TAXES "Taxes" shall be defined as: (a) all taxes (either real or personal), assessments (general or specific), all water and sewer rents, rates and charges, and all other municipal and governmental impositions and charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which may at any time during the Lease Term be assessed, levied, confirmed, imposed upon, or become due and payable out of, or with respect to, or which may become a lien upon the land, buildings or improvements comprising the Demised Premises or any part thereof or any appurtenance thereto; (b) a tax or surcharge of any kind or nature upon, against or with respect to the parking areas or the number of parking spaces on the Demised Premises; (c) any tax imposed on this Lease or based on a reassessment of the Demised Premises due to a change in ownership or a transfer of all or part of Landlord's interest in the Demised Premises; (d) any tax levied upon Landlord in full or partial substitution for, or as a supplement to, any taxes previously included within the definition of "Taxes"; (e) all costs and expenses incurred by Landlord during negotiations for or contests of the amount of such taxes and assessments, without regard to the result, including, without limitation, actual attorneys' fees, which shall not exceed any reductions obtained; and (f) the Michigan Single Business Tax. 8.3 PAYMENTS 9 The Taxes for the years in which this Lease commences and terminates shall be prorated on a due date basis. On the Commencement Date, Tenant shall reimburse Landlord for the Taxes paid by Landlord for the calendar year in which the Commencement Date occurs and allocated to the calendar months occurring after the Commencement Date. Upon conclusion of this Lease, Landlord shall reimburse Tenant for Taxes paid by Tenant for the calendar year in which the Lease terminates and allocated to the calendar months occurring after the Termination Date. In the event a refund of Taxes previously paid by Tenant is obtained, Landlord shall, credit the portion which relates to the Demised Premises to the next payment due under this Section. A copy of a tax bill or assessment bill submitted by Landlord to Tenant shall at all times be sufficient evidence of the amount of Taxes assessed or levied against the property to which such bill or return relates. Tenant shall furnish to Landlord promptly after payment of any Taxes, and at any time within five (5) days after Landlord's request, receipts for the payment of the same or other evidence satisfactory to Landlord that such payments have been made. In addition, Tenant shall furnish to Landlord, semi-annually throughout the Term, a certificate of Tenant (or an officer of Tenant, if Tenant is a corporation), stating that all Taxes have been paid to date. In addition, if Tenant shall fail to pay any Taxes, or any part thereof, Landlord shall have the right, but shall not be obligated, to pay the same, and all amounts so paid, including, but not limited to, costs, penalties and interest, shall constitute Additional Rent hereunder, and shall be repaid to Landlord by Tenant immediately on rendition of a bill therefor by Landlord, and in the event of nonpayment Landlord shall have, in addition to all other rights and remedies, all the rights and remedies provided for herein or by law in case of nonpayment of Annual Base Rent. 8.4 INTENTIONALLY OMITTED. 8.5 RIGHT TO CONTEST TAXES Tenant shall have the right to contest the amount of the Taxes at Tenant's sole cost and expense, by the appropriate proceedings diligently contested in good faith. Notwithstanding such proceedings, Tenant shall promptly pay and discharge such Taxes and any penalties or interest assessed thereon, unless such proceedings and the posting of a bond or other security shall (a) operate to prevent or stay the collection of the Taxes and secure any accruing penalties or interest and (b) prevent Landlord's default in the payment of Taxes required under any mortgage upon the Demised Premises. Landlord agrees to join Tenant in such proceedings, if necessary, provided Tenant pays all costs and expenses incurred by Landlord, including reasonable actual attorneys' fees. 8.6 TENANT'S TAXES Tenant shall pay all real and personal property taxes levied or assessed against Tenant's property and improvements upon or affixed to the Demised Premises, including taxes attributable to all alterations, additions, or improvements made by Tenant. SECTION 9 USE OF DEMISED PREMISES 10 9.1 USE OF DEMISED PREMISES Tenant shall use and occupy the Demised Premises during the Lease Term only for the purpose stated in Section 1, and attendant office use and for no other purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not use or permit any person to use the Demised Premises or any part thereof for any use or purpose other than the use stated in Section I or in violation of any law, statute, order, ordinance, code, rule or regulation of any federal, state or municipal body or other governmental agency or authority having jurisdiction thereof, including, without limitation, occupational safety and health requirements, community right to know requirements, requirements pertaining to the possession, generation, transportation, treatment and disposal of hazardous substances and hazardous wastes, or pollution standards or requirements ("Laws"), or any building and use restrictions ("Restrictions") affecting the Demised Premises, if any. Tenant shall comply with all such present and future Laws and Restrictions affecting the Demised Premises and the cleanliness, safety, occupation and use of the same, at Tenant's sole cost and expense. Tenant shall, at Tenant's expense, obtain such approvals, permits or certificates, including, without limitation, a certificate of occupancy, or other occupancy permit that may be required in order for Tenant to occupy and use the Demised Premises. Landlord and Tenant shall promptly notify each other of, and provide each other with copies of, all notices, requests, orders, complaints or other correspondence directed to Landlord or Tenant, as the case may be, from any federal, state or municipal body or governmental agency or authority pertaining to any actual or alleged violation of Laws or Restrictions. 9.2 CARE OF DEMISED PREMISES Tenant shall keep the Demised Premises orderly, neat, safe and clean and free from rubbish and dirt at all times. Tenant shall keep the driveways and walkways within the Demised Premises free from trash and garbage. Tenant shall not burn any trash or garbage at any time in or about the Demised Premises. At the expiration or sooner termination of the Lease Term, Tenant shall surrender the Demised Premises in as good a condition and repair as existed at the time Tenant took possession, reasonable wear and tear excepted. 9.3 HAZARDOUS SUBSTANCES Tenant shall not cause or permit the Demised Premises to be used to generate, manufacture, refine, transport, treat, dispose, produce or process hazardous substances as defined in Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. ss.9601(14), hazardous wastes as defined in Section 1004(5) of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss.6903(5) or extremely hazardous substances as defined in the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. ss.11001 eT Seq. or any other hazardous or toxic substances or uristes as defined in any other federal, state or local Environmental Laws (hereinafter collectively referred to as "Hazardous Substances"). Hazardous Substances shall also include any petroleum or asbestos containing materials. Environmental Laws mean any applicable federal, state, county or local statutes, laws, 11 regulations, rules, ordinances, or codes relating to environmental matters, including by way of illustration and not by way of limitation, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Resource, Conservation and Recovery Act of 1976, the Comprehensive Environmental, Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Federal Hazardous Materials Transportation Act, the Toxic Substance Control Act, and any amendments or extensions thereof, and any rules, regulations, orders, standards or guidelines issued pursuant to any of the aforesaid and all other applicable environmental standards or requirements. Notwithstanding the foregoing or anything to the contrary contained herein, Tenant shall have the right to store hazardous substances at the Demised Premises which are typically kept by tenants engaged in businesses similar to Tenant, provided that such storage is in compliance with all applicable laws relating to such hazardous substances. Landlord shall remain liable for any contamination existing at the Demised Premises on or prior to the Acquisition Date (as hereinafter defined). 9.4 AFFIDAVIT AND QUESTIONNAIRE Tenant shall submit to Landlord annually, or more often if reasonably requested by Landlord or Landlord's mortgagee, a sworn affidavit signed by the Chief Officer of Tenant, setting forth in detail, the identity, quantity and purpose of all Hazardous Substances and any similar substances used or present on the Demised Premises and the dates and period of time that such substances were brought onto or retained on the Demised Premises. 9.5 ENVIRONMENTAL REPORT Within sixty (60) days prior to the expiration of the Lease Term or any extension of the Lease Term, if any, Tenant shall have the Demised Premises thoroughly inspected by an environmental consultant reasonably acceptable to Landlord for purposes of determining whether the Demised Premises is free from all Hazardous Substances. Tenant shall deliver to Landlord a copy of the environmental consultant's report thirty (30) days prior to the expiration of the Lease Term. In the event the report discloses the existence of any Hazardous Substances, with respect to which there is required any clean-up or any other form of remediation or other response (collectively "Remediation") as a result of Hazardous Substances that are not identified in (i) the Phase I Environmental Site Assessment Report, prepared by AKT Environmental Consultants, Inc., dated December ____, 1996, or (ii) the Baseline Environmental Assessment, prepared by AKT Environmental Consultants, Inc., dated December ____, 1996, Tenant shall perform such immediately and deliver the Demised Premises with the conditions specified in the report "remediated", to the full satisfaction of Landlord. In the event the conditions specified in the report require Remediation which cannot be completed prior to the expiration of the Lease Term and Landlord cannot, prior to such completion, lease the Demised Premises to another party, Tenant shall be obligated to reimburse Landlord the greater of (1) the fair market rental value of the Demised Premises, or (2) the Annual Base Rent, as adjusted, for each day delivery of the Demised Premises to Landlord in the required condition is delayed beyond the expiration of the Lease Term. The Tenant shall also deliver to the Landlord a letter of credit in an amount equal to the costs of Remediation plus either the fair market rental value of the Demised Premises or the Annual Base Rent, as adjusted, at least ten (10) days prior to the expiration of the Lease Term. For 12 the purposes of the preceding sentence, the costs of Remediation shall be deemed to be that amount so determined by the environmental consultant. 9.6 OBLIGATION OF TENANT The obligations and liabilities of Tenant under Sections 9.1 through 9.5, shall hereby survive termination of this Lease. SECTION 10 INDEMNITY; NON-LIABILITY 10.1 INDEMNITY (a) Tenant covenants to indemnify Landlord (except for loss or damage resulting from the gross negligence or willful misconduct of Landlord, its agents or employees), each superior lessor and superior mortgagee, and any managing agent of Landlord, and their respective officers, directors, stockholders, beneficiaries, partners, representatives, agents and employees, and save them harmless from and against any and all claims, actions, damages, liability, cost and expense, including reasonable attorneys' fees, in connection with all losses, including loss of life, personal injury and/or damage to property, arising from or out of any occurrence in, upon or at the Demised Premises or the occupancy or use by Tenant of the Demised Premises or any part thereof, or arising from or out of Tenant's failure to comply with any provision of this Lease or occasioned wholly or in part by any act or omission of Tenant, its subtenants, agents, contractors, suppliers, employees, servants, invitees or licensees, in each case, only to the extent in excess of any insurance proceeds collectible by Landlord or such injured party with respect to such damage or injury (subject to the provisions of Section 13.4). The obligations of Tenant under this Section 10.1(a) shall survive the expiration or sooner termination of this Lease. (b) Landlord agrees to indemnify Tenant (except for loss or damage resulting from the gross negligence or willful misconduct of Tenant, its agents, or employees), its officers, directors, stockholders, beneficiaries, partners, representatives, agents and employees, and save them harmless from and against any and all claims, actions, damages, liability, cost and expense, including reasonable attorneys' fees, in connection with all losses, including loss of life, personal injury and/or damage to property, arising from or out of any occurrence in, upon or at areas of the Building not leased to or occupied by Tenant, in each case, only to the extent in excess of any insurance proceeds collectible by Tenant or such injured party with respect to such damage or injury (subject to the provisions of Section 13.4), but Landlord shall have no liability for consequential damages. The obligations of Landlord under this Section 10.1(b) shall survive the expiration or sooner termination of this Lease. (c) In case any party indemnified pursuant to the foregoing terms of Section 10.1(a) or 10.1(b), as the case may be, shall, without fault, be made a party to any litigation commenced by or against the indemnifying party, or if any such indemnified party shall, in its reasonable discretion, determine that it must intervene in such litigation to 13 protect its interest hereunder, including, without limitation, as to Landlord, the incurring of costs, expenses, and attorneys' fees in connection with relief of Tenant ordered pursuant to the Bankruptcy Code (11 USC ss. 101 et. Seq.), then the indemnifying party shall protect and hold such indemnified party harmless by attorneys reasonably satisfactory to such indemnified party and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by such party in connection with such litigation. The provisions of this Section 10.1(c) shall survive the expiration or sooner termination of this Lease. 10.2 NON-LIABILITY Neither Landlord nor Landlord's agents, officers, directors, shareholders, partners or principals (disclosed or undisclosed) shall be liable to Tenant or Tenant's agents, employees, contractors, invitees or licensees or any other occupant of the Demised Premises for, and Tenant shall save Landlord, the lessor under any underlying lease, any mortgagee of the Demised Premises and their respective agents, employees, contractors, officers, directors, shareholders, partners and principals (disclosed or undisclosed) harmless from any loss, cost, liability, claim, damage, expense (including reasonable attorneys' fees and disbursements), penalty or fine incurred in connection with or arising from any injury to Tenant or to any other person or for any damage to, or loss (by theft or otherwise) of, any of Tenant's property or of the property of any other person, irrespective of the cause of such injury, damage or loss (including the acts or negligence of any tenant or of any owners or occupants of adjacent or neighboring property or caused by operations in construction of any private, public or quasi-public work) or from any latent or patent defects in the Demised Premises, except to the extent due to the gross negligence or willful misconduct of Landlord or Landlord's agents, it being understood that no property, other than such as might normally be brought upon or kept in the Demised Premises as incidental to the reasonable use of the Demised Premises for the purposes herein permitted will be brought upon or be kept in the Demised Premises; provided, however, that even if due to any such gross negligence or willful misconduct of Landlord or Landlord's agents, Tenant waives, to the full extent permitted by law, any claim for consequential damages in connection therewith and Landlord and Landlord's agents shall not be liable, to the extent of Tenant's insurance coverage, for any loss or damage to any person or property even if due to the negligence of Landlord or Landlord's agents. 10.3 LIABILITY INSURANCE Tenant shall procure and keep in effect during the Lease Term, for the benefit of Landlord and any mortgagee of the Demised Premises, liability insurance affording the coverage and in the amount as is customarily carried by either Tenant or HA-LO Industries, Inc. with respect to properties similar to the Demised Premises owned or leased by it. Such insurance policies shall name Landlord and any mortgagee of the Demised Premises as additional insureds by specific endorsement. Tenant shall also maintain all other insurance and/or other amounts required by law or by Landlord's mortgagee. 10.4 TENANT'S CONTRACTOR'S INSURANCE 14 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. 15 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. 16 SECTION 12 TENANT'S ALTERATIONS 12.1 ALTERATIONS 17 Tenant shall not make any alterations, additions, modifications or improvements ("Alterations") to the Demised Premises which Alterations cost in excess of $100,000.00, in the aggregate, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. If such Alterations require consent by or notice to the holder of any mortgage on the Demised Premises, Tenant, notwithstanding anything to the contrary contained in this Article, shall not proceed with the Alterations until such consent has been received, or such notice has been given, as the case may be, and all applicable conditions and provisions of any such mortgage with respect to the proposed Alterations have been met or complied with at Tenant's expense; and Landlord, if it consents to the Alterations, will request such consent or give such notice, as the case may be. Landlord will not unreasonably withhold its consent with respect only to nonstructural Alterations which do not modify the exterior of the Building, do not adversely affect the architectural design or systems as described in Section 11.1, will not result in a violation of or require a change in any certificate of occupancy applicable to the Demised Premises, and do not involve any demolition work or which do not change the character of the Demised Premises. Tenant shall notify Landlord in writing and obtain prior written consent of Landlord for any Alterations which involve asbestos-based fire retardants, ceiling tiles, pipes or other asbestos-containing materials. All alterations made by Tenant to the Demised Premises, other than Tenant's trade fixtures, shall become the property of Landlord and shall remain upon and be surrendered with the Demised Premises at the termination of this Lease, without molestation or injury unless Landlord consents in writing to Tenant's removal of such alterations and Tenant repairs any damage or injury caused thereby in a good and workmanlike manner. Notwithstanding anything to the contrary herein, Landlord, at its option, may at the expiration of the Lease Term require Tenant, at Tenant's sole cost and expense, to remove any Alterations (other than Tenant's trade fixtures) made by Tenant during the Lease Term and to promptly repair any damage or injury caused thereby in a good and workmanlike manner. All alterations made by Tenant or the removal thereof shall be made free of all liens and encumbrances and in compliance with all Laws and Restrictions. Tenant, at its expense, shall (a) obtain all necessary governmental permits and certificates for the commencement and prosecution of the Alterations and for final approval thereof upon completion, (b) deliver copies thereof to Landlord, and (c) cause the Alterations to be performed in compliance therewith and in compliance with all insurance requirements and all applicable requirements of mortgagees, and in good and first class workmanlike manner, using materials and equipment at least equal in quality and class to the original installations of the Demised Premises. Notwithstanding anything to the contrary contained in this Lease, Tenant, at its expense, after reasonable prior notice to Landlord, may contest, by appropriate proceedings prosecuted diligently and in good faith, the validity or applicability of any lien filed against the Demised Premises, provided that: (i) Landlord shall not be subject to criminal penalty or to prosecution for a crime, nor shall the Demised Premises or any part thereof be subject to being condemned or vacated, nor shall the certificate(s) of occupancy for the Demised Premises be suspended or threatened to be suspended by reason of such contest; (ii) before the commencement of such contest, Tenant shall provide Landlord, each superior lessor and superior mortgagee, any managing agent of Landlord, and their respective officers, directors, shareholders, beneficiaries, partners, representatives, agents and employees with an indemnity reasonably satisfactory to such parties against the cost of liability resulting from or incurred in connection with such contest; (iii) such contest shall not constitute or result in any violation of the terms of any superior lease or superior mortgage, 18 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. 19 SECTION 13 PROPERTY INSURANCE, REBUILDING AND WAIVER OF SUBROGATION 13.1 PROPERTY INSURANCE 13.1.1 Tenant shall, during the Lease Term, carry at its expense insurance for the benefit of Landlord and any mortgagee of the Demised Premises, or a portion thereof, against fire, vandalism, malicious mischief and such other perils as are from time to time included in a standard extended coverage endorsement and, at the option of any superior mortgagee, special extended coverage endorsements, insuring the Demised Premises for not less than the full replacement and reconstruction cost, valued on a replacement cost basis of the Building and improvements which are a part of the Demised Premises. If Tenant fails to maintain such insurance coverage, Landlord may, at its option, procure such insurance for the account of Tenant and the cost thereof shall be paid by Tenant to Landlord upon delivery to Tenant of bills therefor. The insurer or insurers shall be such as are the issuers of the insurance policies currently in effect at Tenant's or HA-LO Industries, Inc.'s other owned or leased properties similar to the Demised Premises. The policies or certificates of all such insurance and all renewals thereof, together with receipts evidencing payment in full of the premiums thereon, shall be delivered promptly to Landlord and in no event less than thirty (30) days prior to the expiration of such insurance. The terms and conditions of all policies and endorsements thereto shall be in the form and content of the policies of insurance currently maintained by Tenant or HA-LO Industries, Inc. with respect to other owned or leased properties similar to the Demised Premises. All of the required policies of insurance shall contain provisions satisfactory to Landlord prohibiting cancellation, alterations, changes, amendments, modifications, deletions or reductions in coverage, either at the instance of the Tenant or of the insurance company issuing the policy, without at least thirty (30) days prior written notice having been given to Landlord at the address of Landlord stated above, and shall name Landlord as a loss payee and any mortgagee of the Demised Premises as a loss payee under the standard mortgage loss payable endorsement. Tenant shall not, without the prior written consent of Landlord, cancel, alter, change, amend, modify, delete or reduce the coverage of any required policy of insurance. In the event of loss or damage, the proceeds of the insurance shall be paid to Landlord and such mortgagee alone, to be used to rebuild in accordance with Section 13.2 hereof. Landlord is authorized to adjust and compromise such loss without the consent of Tenant, to correct, receive and receipt for such proceeds in the name of Landlord and Tenant and to endorse Tenant's name upon any check in payment thereof. The power granted hereby shall be deemed to be coupled with an interest and shall be irrevocable. 13.1.2 During the Lease Term, Landlord shall carry rental interruption insurance, in an amount equal to Tenant's Annual Base Rent for twelve (12) full months under this Lease plus the total of the estimated costs to Tenant of Taxes, utilities and insurance premiums for such twelve (12) month period. Tenant shall, from time to time, reimburse Landlord for the total cost of such insurance, such reimbursement to be made within fifteen (15) days after 20 receipt of a written statement from Landlord setting forth such cost. 13.1.3 Tenant shall, during the Lease Term, carry, at its expense, insurance against fire, vandalism, windstorm, explosion, smoke damage, malicious mischief, and such other perils as are from time to time included in a standard extended coverage endorsement, insuring Tenant's trade fixtures, furnishings, equipment and all other items of personal property of Tenant located on or within the Demised Premises, in an amount equal to the actual replacement cost thereof and furnish Landlord with a certificate evidencing such cover-age. If Tenant fails to maintain such insurance coverage, Landlord may, at its option, procure such insurance for the account of Tenant and the cost thereof shall be paid by Tenant to Landlord upon delivery to Tenant of bills therefor. 13.1.4 Tenant shall not carry any stock of goods or do anything in or about the Demised Premises which will in any way tend to increase the insurance rates on the Demised Premises. If Tenant installs any electrical equipment that overloads the electrical lines in the Demised Premises, Tenant shall, at its own expense, make whatever changes are necessary to comply with the requirements of the insurance underwriters or governmental authorities having jurisdiction. Tenant shall not violate or knowingly permit any occupant of the Demised Premises, or any part thereof, to violate any of the conditions or provisions of any such policy, and Tenant shall so perform and satisfy the requirements of the insurers writing such policies so that at all times insurers of good standing, satisfactory to Landlord, shall be willing to write or continue such insurance. 13.2 REBUILDING In the event, during the Lease Term, the improvements on the Demised Premises are damaged or destroyed in whole or in part by fire or other casualty insured under the insurance carried by Tenant pursuant to Section 13.1 and the insurance proceeds are not required to be paid to any mortgagee under any mortgage upon the Demised Premises, then Landlord shall, after the adjustment of the insurance loss and receipt of insurance proceeds, immediately commence and diligently pursue the restoration of such improvements to good and tenantable condition unless Landlord shall elect not to rebuild as hereinafter provided. If (a) the insurance proceeds are insufficient to pay the full cost of the repairs (unless Tenant deposits sufficient funds with Landlord pursuant to Section 13.3 to pay the full cost of the repairs), (b) more than thirty-five percent (35%) of the improvements on the Demised Premises shall be destroyed by fire or other casualty, or (c) during the last twelve (12) months of the Lease Term (unless Tenant has previously exercised its option to renew), more than twenty percent (20%) of the improvements on the Demised Premises shall be destroyed by fire or other casualty, then each of Landlord and Tenant may, at its option, terminate this Lease by notice in writing delivered to the other within one hundred twenty (120) days after the occurrence of such fire or other casualty. If Landlord is obligated or elects to perform such repairs, the improvements on the Demised Premises are partially or totally untenantable, the fire or other casualty occurred through no fault directly or indirectly or Tenant, its employees, agents, contractors, customers or invitees and provided that rental interruption insurance is available at the time in question for similar properties in the locality in which the Demised Premises are located, then the Rent shall be proportionately reduced 21 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. 22 13.3 TENANT'S DEPOSIT FOR REBUILDING If the insurance proceeds available for rebuilding are insufficient to cover the cost of repair or restoration of the Demised Premises as required hereunder, Tenant, so long as Tenant is not in default, may elect to deposit with Landlord, or to the title company holding the insurance proceeds in escrow, an amount which in combination with the insurance proceeds shall be sufficient for such repairs or restorations. In the event Tenant elects not to deposit such funds, then Landlord shall be relieved of any obligation to repair or restore the Demised Premises. Landlord shall have no obligation hereunder if the insurance proceeds are paid to any mortgagee under any mortgage upon the Demised Premises. 13.4 WAIVER OF SUBROGATION Any insurance policy carried by Landlord or Tenant or any policy covering both the interest of Landlord or Tenant under this Section 13 shall include a provision under which the insurance company waives all right of recovery by way of subrogation against Landlord or Tenant in connection with any loss or damage covered by any such policy. Landlord or Tenant hereby release and discharge each other from any liability whatsoever arising from any loss, damage or injury caused by fire or other casualty to the extent of the insurance covering such loss, damage or injury. SECTION 14 EMINENT DOMAIN 14.1 TOTAL CONDEMNATION If the whole of the Demised Premises shall be taken by any condemning authority under the power of eminent domain or conveyed in lieu of any such taking, then the term of this Lease shall cease as of the date actual physical possession of the Demised Premises is transferred to such condemning authority and the Rent shall be paid up to that day with a proportionate refund by Landlord of such Rent as may have been paid in advance for a period subsequent to the date of the transfer of actual physical possession. 14.2 PARTIAL CONDEMNATION If only a part of the Demised Premises shall be taken by any condemning authority under the power of eminent domain or conveyed in lieu of any such taking, then, except as otherwise provided in this Section, this Lease and the term shall continue in full force and effect and there shall be no reduction in the Rent. From and after the date actual physical possession of a portion of the building or parking area on the Demised Premises is transferred to such condemning authority, the Rent shall be reduced in the proportion which the floor area of the part of the building on the Demised Premises so acquired, if any, bears to the total floor area of the building on the Demised Premises immediately prior to the date 23 such actual physical possession is transferred. If (a) more than thirty-five percent (35%) of the floor area of all buildings on the Demised Premises or such other portion of the Demised Premises as shall materially interfere with Tenant's use of the Demised Premises as permitted hereunder shall be taken under eminent domain or conveyed in lieu of any such taking, or (b) more than thirty-five percent (35%) of the parking spaces on the Demised Premises shall be taken under eminent domain or conveyed in lieu of any such taking and Landlord is unable to provide parking spaces on land immediately contiguous to the Demised Premises equal to one-half of the number of parking spaces taken, Landlord and Tenant shall each have the right to terminate this Lease and declare the same null and void, by written notice of such intention to the other party within thirty (30) days after the date the order is entered in such eminent domain proceeding establishing the date upon which actual physical possession shall be transferred to the condemning authority. In the event neither party exercises said right of termination, the Lease Term shall cease only on the part of the Demised Premises so taken as of the date actual physical possession is transferred to the condemning authority and Tenant shall pay Annual Base Rent and Additional Rent up to that day, with appropriate refund by Landlord of such Rent as may have been paid in advance for a period subsequent to the date actual physical possession is transferred, and thereafter all the terms herein provided shall continue in effect, except that the Rent shall be reduced in the proportion stated above and Landlord shall, at its own cost and expense, make all the necessary repairs or alterations to the remaining Demised Premises so as to cause it to be a complete architectural unit. 14.3 LANDLORD'S AND TENANT'S DAMAGES All damages awarded for such taking under the power of eminent domain or any consideration paid for a conveyance in lieu thereof, whether for the whole or a part of the Demised Premises, shall belong to and be the property of Landlord whether such damages or other consideration shall be awarded as compensation for diminution in value to the leasehold or to the fee of the Demised Premises; provided, however, that Landlord shall not be entitled to the award made for depreciation to, and cost of removal of, Tenant's stock and fixtures. Tenant shall be entitled to seek a separate award for loss of Tenant's fixtures. SECTION 15 ACCESS TO PREMISES Landlord or Landlord's agents and designees shall have the right to enter the Demised Premises at all reasonable times upon five (5) days' prior notice (which may be telephonic), except that no notice shall be required in the event of an emergency, to inspect or examine the same, and to show them to prospective purchasers or mortgagees of the Demised Premises and to make such tests, repairs, alterations, improvements or additions as Landlord may reasonably deem necessary or desirable, and Landlord shall be allowed to take all material into and upon the Demised Premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part, and the Annual Base Rent and Additional Rent shall in no way abate (provided the Demised Premises are not rendered 24 entirely unusable thereby, and if a portion of the Demised Premises is rendered entirely unusable thereby and Tenant does not in fact use such portion of the Premises, then there shall be a proportionate abatement of Rent) while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of the business of Tenant, or otherwise. In the exercise of its rights under this Section, Landlord shall use all reasonable efforts, which shall not include the use of overtime labor, to minimize interference with Tenant's conduct of business in the Demised Premises during normal business hours. During the six (6) months prior to the expiration of the Lease Term, Landlord may exhibit the Demised Premises to prospective lessees and place upon the Demised Premises the usual "To Let" or "For Rent" notices. SECTION 16 FIXTURES AND EQUIPMENT All fixtures and equipment installed by Tenant (other than Tenant's trade fixtures) during the term of this Lease which are incorporated and affixed to the Building or improvements and cannot be removed without damage or injury to the Building or improvements shall not be removed without Landlord's consent (but shall be removed at Landlord's direction), and all fixtures and equipment not removed shall remain the property of Landlord at the termination of the Lease Term. In the event Landlord consents to such removal (or directs Tenant to perform any such removal), Tenant shall remove such fixtures in accordance with all applicable Laws and Restrictions and shall promptly repair any such damage or injury in a good and workmanlike manner. SECTION 17 BANKRUPTCY AND INSOLVENCY OF TENANT If the estate created hereby shall be taken in execution or by other process of law, or if Tenant shall be declared bankrupt or insolvent, according to law, or if any receiver be appointed for the business and property of Tenant or if any assignment shall be made of Tenant's property for the benefit of creditors (and as to such matters involuntarily taken against Tenant, Tenant, has not within ninety (90) days thereof obtained release or discharge therefrom), then this Lease may be cancelled at the option of Landlord. If, as a matter of law, Landlord has no right upon the bankruptcy of Tenant, to terminate this Lease, then the rights of Tenant, as debtor, or its trustee, shall be deemed abandoned or rejected unless Tenant, as debtor or its trustee, (a) within sixty (60) days after the date of the Order for Relief under Chapter 7 of the Bankruptcy Code or sixty (60) days after the date the Petition is filed under Chapter 11 of the Bankruptcy Code assumes in writing the obligations under this Lease, (b) cures or adequately assures the cure of all defaults existing under this Lease on Tenant's part within sixty (60) days and (c) furnishes adequate assurances of future performance of the obligations of Tenant under this Lease within such sixty (60) days. Adequate assurance of curing defaults means the posting with Landlord of a sum in cash sufficient to defray the costs of such cure. Adequate assurance of future performance 25 of the Tenant's obligations under this Lease means increasing any existing security deposit or creating a security deposit in an amount equal to three (3) Monthly Installments of Base Rent. Tenant shall not be permitted to assume and assign this Lease in connection with any bankruptcy or insolvency proceedings unless: (a) Landlord is provided with the following information regarding the party desiring to assume the Lease ("Assumptor") which Landlord in its sole and absolute discretion deems sufficient: (1) organizational information regarding the Assumptor, (2) audited financial statements for the three (3) most recent fiscal years, and (3) such other information as Landlord deems appropriate; (b) Landlord determines that the use of the Demised Premises by the Assumptor is compatible with the character of the Building; (c) all existing defaults under this Lease are cured at least ten (10) days prior to any hearings in connection with Tenant's request to assume and assign the Lease; (d) the Assumptor at any such hearing provides adequate assurance of its future performance of the Lease as determined by Landlord in its sole and absolute discretion, which adequately assurance shall include at least: (1) posting of a security deposit equal to three (3) Monthly Installments of Base Rent, if such was not already posted by Tenant, (2) paying in advance to Landlord the next six (6) Monthly Installments of Base Rent, or posting an irrevocable letter of credit for such amount, (3) establishing with Landlord an escrow in advance for the full cost of all Taxes and insurance charges as required under the Lease for the next twelve (12) months of the Lease and thereafter on an annual basis in advance; (4) providing Landlord with an unconditional continuing guarantee of the Lease executed by the owners or officers of the Assumptor; and (5) the Assumptor executes a written agreement assuming the Lease and such Lease amendments as are necessary, which agreements and amendments are satisfactory to Landlord in its sole and absolute discretion. SECTION 18 RIGHT TO MORTGAGE Landlord reserves the absolute right to subject and subordinate this Lease, at all times, to the lien of any mortgage or mortgages now or hereafter placed upon the Demised Premises. Although the foregoing subordination is self-operative, in the event Landlord exercises its right hereunder, Tenant shall execute and deliver, or join in the execution and delivery of an agreement which shall provide, among other things, (a) that this Lease is subordinate to the lien of any mortgage or mortgages upon the Demised Premises and (b) that the Tenant shall attorn to any foreclosing mortgagee or purchaser at the foreclosure sale. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant for purposes of executing and delivering in the name of Tenant such an agreement. Landlord agrees to request and use reasonable efforts to obtain from the holder of any superior mortgage or superior lease, as the case may be, executed after the date hereof a subordination, non-disturbance and attornment agreement from the mortgagee under such superior mortgage or the lessor under such superior lease, as the case may be, wherein such mortgagee or lessor, as the case may be, agrees to recognize the interest of Tenant under this Lease in the event of foreclosure or in the event of a termination of the superior lease, as the case may be, provided Tenant is not then in default under this Lease. Landlord shall have no liability to Tenant if such non-disturbance agreement is not executed or delivered or, 26 if executed and delivered, the parties thereto (other than Landlord) do not abide by the respective terms thereof. SECTION 19 ASSIGNMENT, SUBLETTING AND TRANSFERS BY TENANT (a) Tenant shall not sell, assign, sublet, hypothecate, encumber, mortgage or in any manner transfer this Lease or any estate or interest therein (including any transfer by operation of law or otherwise), the Demised Premises or any part thereof or permit the use of the Demised Premises by any third party (collectively "Transfer") without the prior written consent of the Landlord. In the event of any Transfer by Tenant without Landlord's prior written consent, Landlord, at its option, may either: (a) accelerate payment of all Rent and amounts due for Taxes and insurance (which will be paid by Landlord when due) payable during the balance of the unexpired Lease Term and receive immediate payment thereof or (b) terminate this Lease, re-enter and repossess the Demised Premises, and enforce all other remedies available under this Lease or permitted by law as a result of Tenant's default. Consent by Landlord to one or more Transfers shall not be deemed to be consent to a subsequent Transfer or to waive Landlord's rights in connection therewith. The acceptance of Rent or Additional Rent from an assignee, subtenant or occupant shall not constitute a release of Tenant from the obligations and covenants in this Lease. Tenant shall remain liable under this Lease unless and until Landlord executes and delivers a written release of such liability. Landlord's consent hereunder shall not be unreasonably withheld only in the event of a Transfer of all or any pail of the Demised Premises to any parent corporation of Tenant or wholly owned subsidiary of Tenant. In the event of a Transfer by Tenant, with or without Landlord's consent, then an amount equal to fifty percent (50%) of all rent, sums of money or other economic consideration owed to or received by Tenant as a result of such Transfer which exceed, in the aggregate, the total sums of Rent, Additional Rent or other economic consideration which Tenant is obligated to pay Landlord under this Lease, shall be immediately payable to Landlord upon receipt by Tenant as Additional Rent under this Lease without affecting or reducing any obligations of Tenant hereunder. (b) Tenant shall have the right to assign this Lease or sublet all or any portion of the Demised Premises without Landlord's consent to any "Related Entity" (for so long as such entity continues to be a Related Entity), provided that Tenant gives Landlord prior written notice as provided in clause (i) below, which notice shall include evidence reasonably satisfactory to Landlord that such entity is a Related Entity. For purposes hereof, "Related Entity" shall mean any corporation or other business entity which controls, is controlled by or is under common control with Tenant, and "control" shall mean ownership of fifty percent (50%) or more of the outstanding voting capital stock of a corporation or fifty percent (50%) or more of the beneficial interests of any other entity and, in either case, the ability effectively to control the business decisions of Tenant. Tenant shall also have the right to assign this Lease or sublet all or any portion of the Demised Premises without Landlord's consent to another entity into which Tenant is merged or consolidated or to 27 which all or substantially all of Tenant's stock or assets are sold or transferred, provided, however, that Tenant gives Landlord written notice as provided in clause (i) below, which notice shall include evidence reasonably satisfactory to Landlord that after completion of the contemplated transaction, in Landlord's reasonable judgment, the proposed assignee or subtenant will be of sound financial condition able to perform its obligations under the Lease or such sublease, as the cases may be. Further, the shareholders of Tenant shall have the right, without Landlord's consent, to engage in sales of Tenant's stock, provided that Tenant's use of the Demised Premises shall continue to be conducted in the same manner as provided herein. The following conditions shall apply to any assignment or sublease pursuant to this paragraph: (i) Tenant shall be required to provide Landlord with not less than thirty (30) days' prior written notice of such assignment or sublease setting forth the name of such assignee or subtenant; (ii) Tenant shall not at the time of such assignment or sublease be in default under any of the terms, covenants or conditions of this Lease; (iii) Tenant shall not be released or discharged from any of its obligations under this Lease in connection with or as a result of any such assignment or sublease; (iv) any such assignee or subtenant shall use the Demised Premises or such portion thereof as may be subleased only for the uses permitted pursuant to the terms of this Lease; (v) such assignment or sublease is made for a valid intracorporate business purpose and is not made to circumvent the provisions of this Section 19; and (vi) in the case of any assignment, such assignee shall agree in writing, in form and substance reasonably acceptable to Landlord, to perform all of the unperformed terms, covenants and conditions of this Lease, and, in the case of a sublease, the sublease shall specifically provide that the subtenant will be bound by all of the terms and conditions of this Lease and the sublease will be subject and subordinate to this Lease and to all matters to which this Lease is subject and subordinate. SECTION 20 SALE OR TRANSFER Landlord shall have the right to sell, transfer or assign the Demised Premises ("Conveyance"). In the event of a Conveyance, Tenant shall attorn to the purchaser, transferee or assignee ("Transferee") and recognize such Transferee as Landlord under this Lease and Landlord shall be relieved from all subsequent obligations and liabilities under this Lease, provided such obligations are assumed in writing by such Transferee and a copy thereof is provided to Tenant. SECTION 21 DEFAULT, RE-ENTRY AND DAMAGES 21.1 DEFAULT The following shall constitute a default under this Lease: (a) failure to pay any Annual Base Rent or Additional Rent due hereunder within ten (10) days after notice that the same 28 is (are) due; (b) failure to perform any of the other terms and conditions of this Lease (other than as set forth in clause (a) above or clauses (c) through (e) below), and such failure remains uncured for thirty (30) days following written notice, or if such default is of such a nature that it cannot be completely remedied within said period of thirty (30) days, if Tenant shall not (x) promptly upon the giving by Landlord of such notice, advise Landlord of Tenant's intention to institute all steps necessary to remedy such situation, (y) promptly institute and thereafter diligently prosecute to completion all steps necessary to remedy the same, and (z) complete such remedy within a reasonable time after the date of the giving of said notice by Landlord and in any event prior to such time as would either (i) subject Landlord, Landlord's agents, any superior lessor or superior mortgagee to prosecution for a crime or (ii) cause a default under any ground lease or any mortgage covering the Demised Premises; (c) any attempted Transfer (as defined in Section 19) of the Demised Premises or taking of any other action requiring Landlord's consent, without receiving such consent; (d) the commission by Tenant of any waste, which shall include the failure to pay taxes, hazard insurance premiums and persistent failure to maintain and repair the Demised Premises; or (e) abandonment or vacating of the Demised Premises for a consecutive period in excess of 120 days. 21.2 RE-ENTRY AND DAMAGES In the event of Tenant's default, Landlord, in addition to all of its other remedies under this Lease, at law or in equity, shall have the right to re-enter the Demised Premises, with or without process of law, using such force as may be necessary to remove all persons and property therefrom. Upon such default, Landlord, at its option, may either terminate this Lease, or without terminating this Lease, relet the Demised Premises or any part thereof on such terms and conditions as Landlord deems advisable in its reasonable discretion. Landlord agrees to use its best efforts to mitigate its damages upon a default by Tenant and, in connection therewith, to consider in good faith any prospective replacement tenant(s) procured by Tenant. The proceeds of such reletting shall be applied (a) First, to the payment of any indebtedness due from Tenant to Landlord other than Annual Base Rent or Additional Rent hereunder; (b) Second, to the payment of any reasonable costs of such reletting, including, without limitation, the cost of any reasonable alterations and repairs to the Demised Premises, brokerage fees and expenses, advertising expenses, inspection fees and attorney's fees; (c) Third, to the payment of Annual Base Rent and Additional Rent due and unpaid hereunder; (d) Fourth, to any other damages, costs and expenses incurred by Landlord as a result of Tenant's breach; and (e) the residue, if any, shall be held by Landlord and applied in payment of future Annual Base Rent and Additional Rent as the same may become due and payable hereunder. Should the proceeds of such reletting during any month be less than the monthly installment of Annual Base Rent or Additional Rent required hereunder, then Tenant shall during such month pay such deficiency to Landlord upon demand. No reentry or taking possession of the Demised Premises by Landlord shall be construed as an election on its part to terminate this Lease unless written notice of such intention is given to Tenant. In the event Landlord elects to terminate this Lease, then Landlord shall have the right to accelerate all of the Annual Base Rent and Additional Rent due hereunder for the balance of the term of this Lease and Tenant shall forthwith pay to Landlord upon demand, as liquidated damages, the deficiency between the amount of said accelerated rent and the proceeds of reletting, if any, for what would have otherwise 29 constituted the balance of the Lease Term or the reasonable rental value of the Demised Premises for such balance of the Lease Term if the Demised Premises are not relet by Landlord within thirty (30) days following Tenant's default. In computing such liquidated damages there shall be added to such deficiency any expenses incurred in connection with obtaining possession of the Demised Premises and reletting the Demised Premises, whether such reletting is successful or not, which expenses include, but are not limited to, attorneys' fees, brokerage fees and expenses, advertising expenses, reasonable alterations and repairs to the Demised Premises, and inspection fees. 21.3 WAIVER OF LANDLORD'S LIABILITY Landlord shall have no liability or responsibility in any way whatsoever for its failure to relet the Demised Premises or, in the event of reletting, for failure to collect the rent under such reletting. The failure of Landlord to relet the Demised Premises or any part thereof shall not release or affect Tenant's liability for Rent or damages. 21.4 LANDLORD'S RIGHTS CUMULATIVE All the rights and remedies of Landlord hereunder shall be cumulative and in addition to all other rights and remedies allowed by law or equity and may be exercised separately or jointly without constituting an election of remedies. 21.5 WAIVER OF JURY TRIAL AND COUNTERCLAIM In the event Landlord commences any proceedings against Tenant in connection with this Lease, Tenant shall not interpose any non-compulsory counterclaim in any such proceeding. This shall not, however, be construed as a waiver of Tenant's right to assert such a claim in any separate action brought by Tenant. Landlord and Tenant waive trial by jury in any action or proceeding brought by either party on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of lessor and lessee, Tenant's use or occupancy of the Demised Premises, or any claim of injury or damage. 21.6 NON-LIABILITY Landlord shall not be responsible or liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or for any loss or damage resulting to Tenant or its property from burst, stopped or leaking water, gas, sewer or steam pipes, or for any damage or loss of property within the Demised Premises from any other cause whatsoever (unless the same is due to the gross negligence or willful misconduct of Landlord), and no such occurrence shall be deemed to be an actual or constructive eviction from the Demised Premises or result in an abatement of rental. 30 SECTION 22 LANDLORD'S RIGHT TO CURE DEFAULTS If Tenant defaults in the performance of any provision of this Lease, Landlord shall have the right (but not the obligation) in addition to any and other rights and remedies in the event of default, to cure such default for the account of Tenant, without prior notice to Tenant, and Tenant shall upon receipt of notice thereof and demand for payment from Landlord pay any payment or expenditure made by Landlord with the next monthly installment of Annual Base Rent, together with interest at the "prime interest rate" as defined in Section 5.6 plus 4%. SECTION 23 SECURITY INTEREST INTENTIONALLY DELETED SECTION 24 QUIET ENJOYMENT Landlord covenants that so long as Tenant pays the Rent and is not in default of any of the terms and conditions of this Lease, Tenant may, subject to the terms hereof, peacefully and quietly hold and enjoy the Demised Premises for the Lease Term without interference by Landlord or any person claiming by, through or under Landlord. SECTION 25 HOLDING OVER In the event of Tenant holding over after the expiration of the Lease Term, then the tenancy shall continue from month to month in the absence of a written agreement to the contrary, subject to all the terms and provisions hereof, except the monthly installment of Annual Base Rent shall be equal to 125 percent (125%) of the monthly installments of Annual Base Rent due for the last full month of the Lease Term. 31 SECTION 26 CUMULATIVE REMEDIES AND WAIVER 26.1 CUMULATIVE REMEDIES Each and every right, remedy and benefit provided by this Lease to Landlord shall be cumulative and shall not be exclusive of any other right, remedy or benefit allowed by law. These remedies may be exercised jointly or severally without constituting an election of remedies. 26.2 WAIVER One or more waivers by either party hereto of any term and condition hereof or default by the other party hereunder shall not be construed as a waiver of such term and condition or default in the future or any subsequent default for the same cause. Any consent or approval given by Landlord requiring such consent or approval shall not constitute consent or approval to any subsequent similar act by Tenant. If either party shall bring an action against the other to enforce any of the provisions of this Lease or to protect its interest in any matter arising under this Lease or to recover damages for the breach of this Lease, the prevailing party in such action shall be entitled to recover its cost of suit and reasonable attorneys' fees expended or incurred in connection therewith. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Annual Base Rent shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of Rent be deemed an accord and satisfaction, and Landlord shall accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy in this Lease provided. SECTION 27 DEFINITION OF LANDLORD, LANDLORD'S LIABILITY The term "Landlord" as used in this Lease so far as covenants or obligations on the part of Landlord are concerned shall be limited to mean and include only the owner or owners at the time in question of the fee of the Demised Premises, and in the event of any transfer or transfers of the title to such fee, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability with respect to the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, provided that any funds in the hands of such Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be turned over to the grantee and any amount then due and payable to Tenant by Landlord or the then 32 grantor under any provision of this Lease, shall be paid to Tenant, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord shall, subject as aforesaid, be binding on Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership. If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord's part to be performed, and if as a consequence of such default Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Demised Premises, and Landlord shall not be liable for any deficiency. SECTION 28 WASTE Tenant shall not commit or suffer to be committed any waste upon the Demised Premises. SECTION 29 TENANT'S FINANCIAL INFORMATION Tenant agrees, upon request by Landlord in connection with any proposed financing of the Demised Premises, to provide to Landlord such financial reports or statements as may have been prepared (but Tenant shall have no obligation to prepare new financial statements or to have any unaudited statements audited). SECTION 30 SIGNS Tenant will not place or cause to be placed or maintained any sign or advertising matter of any kind anywhere on the exterior of the Demised Premises without Landlord's prior written approval. No illuminated signs located in the interior of the Demised Premises and which are visible from the outside shall advertise any product. Tenant further agrees to maintain in good condition and repair at all times any such sign or advertising matter of any kind which has been approved by Landlord for use by Tenant. 33 SECTION 31 SECURITY DEPOSIT INTENTIONALLY DELETED. SECTION 32 MISCELLANEOUS 32.1 LEASE CHANGES REQUIRED BY LENDER This Lease shall be subject to modification of non-economic terms contained herein at the request of any first mortgage lender furnishing financing to Landlord in connection with the Demised Premises. 32.2 ENTIRE AGREEMENT This Lease and exhibits attached hereto and forming a part hereof, set forth all of the covenants, agreements, stipulations, promises, conditions, understandings and representations, hereinafter collectively "Representations" between Landlord and Tenant concerning the Demised Premises and the buildings and improvements to be constructed thereon. Landlord and Tenant agree that there are no Representations other than set forth herein and agree to make no claims against each other based upon Representations not set forth herein. 32.3 MODIFICATION This Lease shall not be modified or amended unless by a writing signed by Landlord and Tenant. 32.4 JOINT VENTURE, MORTGAGE Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating relationship of mortgagor and mortgagee, principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that neither this method of computation of Rent, nor any other provision contained herein, nor any acts of the parties herein, shall be deemed to create any relationship between the parties hereto other than the relationship of lessor and lessee. 34 32.5 NOTICES Except as specifically provided otherwise in this Lease, any notices or demands required under this Lease shall be given in writing and either delivered personally or sent by certified mail, return receipt requested, postage prepaid and addressed to the address of Landlord or Tenant as set forth in Section I hereof or such other address as Landlord or Tenant shall designate from time to time by written notice to the other and shall be deemed received three (3) days after being deposited in the mail or upon personal hand-delivery. 32.6 INTENTIONALLY OMITTED. 32.7 ESTOPPEL CERTIFICATE Upon request by Landlord, Tenant shall, from time to time, execute, acknowledge and deliver to Landlord a written statement certifying that this Lease is in full force and effect and unmodified (or if modified specifying the nature of the modification), the dates to which Rent and other charges have been paid, that Landlord is not in default hereunder (or if in default, specifying the nature of any default) and such other matters pertaining to the Lease or Tenant's occupancy of the Demised Premises as Landlord may reasonably request. It is understood that such statement may be relied upon by Landlord, a prospective purchaser, mortgagee or assignee of any mortgagee of Landlord's interest in the Demised Premises or this Lease. Landlord shall, without charge, at any time and from time to time during the term of this Lease, but in no event more often than once in any twelve (12) month period, within thirty (30) days after receipt by Landlord of written request therefor from Tenant, deliver a duly executed and acknowledged certificate or statement to Tenant certifying: (a) that this Lease is unmodified and in full force and effect, or, if there has been any modification, that the same is in full force and effect as modified, and stating any such modification; (b) the date of commencement of the term of this Lease; (c) that Annual Base Rent is paid currently without any offset or defense thereto; (d) the dates to which the Annual Base Rent and other charges payable hereunder by Tenant have been paid, and the amount of Annual Base Rent paid in advance; and (e) any other matter relating to the status of this Lease as shall be reasonably requested by Tenant; provided, that, in fact, such facts are accurate and ascertainable by Landlord. 32.8 GENDER Whenever the singular is used herein, the same shall include the plural and the masculine, feminine and neuter genders. 32.9 CAPTIONS AND SECTION NUMBERS The captions, section numbers, article numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease. 35 32.10 BROKER'S COMMISSION Tenant represents and warrants to Landlord that Tenant has not dealt with any broker, finder or similar person acting in the capacity of a broker in connection with this Lease and Tenant agrees to indemnify Landlord and hold it harmless from all liabilities arising from any claim of any broker, finder or similar person resulting from or arising out of an alleged agreement or act by Tenant, including, without limitation, the cost of counsel fees in connection therewith. The provisions of this Section 32.10 shall survive the expiration or earlier termination of this Lease. Landlord represents and warrants to Tenant that Landlord has not dealt with any broker, finder or similar person acting in the capacity of a broker in connection with this Lease and Landlord agrees to indemnify Landlord and hold it harmless from all liabilities arising from any claim of any broker, finder or similar person resulting from or arising out of an alleged agreement or act by Landlord including, without limitation, the cost of counsel fees in connection therewith. The provisions of this Section 32.10 shall survive the expiration or earlier termination of this Lease. 32.11 RECORDING Landlord and Tenant agree to execute and record a memorandum of lease, in form and substance reasonably satisfactory to Landlord, Tenant and their respective counsel. 32.12 INTEREST ON PAST DUE AMOUNTS Any rent, late charges or other sums payable by Tenant to Landlord under this Lease which are not paid within ten (10) days after written notice from Landlord shall bear interest at a per annum rate equal to the Prime Rate (as hereinabove set forth), plus four percent (4%) per annum. Such interest will be due and payable as Additional Rent upon demand and will accrue from the date that such Rent, late charges or other sums are payable under the provisions of this Lease until actually paid by Tenant. 32.13 EXECUTION OF LEASE The submission of this Lease for examination does not constitute a reservation of, or option for, the Demised Premises, and this Lease shall become effective as a lease only upon execution and delivery thereof by Landlord and Tenant. 32.14 CONSTRUCTION This Lease shall be construed and enforced in accordance with the laws of the State of Michigan. If any provision of this Lease, or the application thereof to any person or circumstances, shall, to any extent be invalid or unenforceable, the remaining provisions of this Lease shall not be affected thereby and shall be valid and enforceable. 36 32.15 BINDING EFFECT This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, assigns and permitted transferees. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written. IN THE PRESENCE OF: LANDLORD: MAPLE LANE ACQUISITION, L.L.C., a Michigan limited liability company By: - ----------------------------------------- --------------------------------- Its: - ----------------------------------------- --------------------------------- TENANT: CREATIVE CONCEPTS IN ADVERTISING, INC. a corporation ---------------------- By: - ----------------------------------------- --------------------------------- Its: - ----------------------------------------- -------------------------------- 37 EX-10.35 6 EX-10.35 Exhibit 10.35 FIRST AMENDMENT TO CREDIT AGREEMENT To Each of the Lenders Signatory Hereto Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of January 31, 1997 (the "CREDIT AGREEMENT"), between the undersigned, HA-LO Industries, Inc., an Illinois corporation (the "COMPANY"), American National Bank and Trust Company of Chicago, as agent for the Lenders (the "AGENT"), and you (the "LENDERS"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The Company has requested that the Lenders amend Sections 1.1 (Revolving Credit), 7.11 (Indebtedness for Borrowed Money), 7.13 (Investment, Acquisitions, Loans, Advances and Guaranties) and 9.1 (Definitions) and Schedule 5.2 (Subsidiaries) and add an additional covenant, and the Lenders are willing to do so on the terms and conditions set forth in this First Amendment. 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be and hereby is amended as follows: (a) Section 1.1 of the Credit Agreement shall be amended by deleting the second sentence thereof and inserting in its place the following sentence: "The Revolving Credit, subject to all of the terms and conditions hereof, may be utilized by the Company in the form of Revolving Loans and Letters of Credit, all as more fully hereinafter set forth; PROVIDED, HOWEVER, that the aggregate principal amount of the Revolving Loans and L/C Obligations outstanding at any one time shall not at any time exceed the lesser of: (i) the Revolving Credit Commitments then in effect and (ii) the Available Amount as then determined and computed in accordance with Section 7.19 hereof." (b) Section 7.11 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of subsection (f) thereof and subsection (g) thereof and (ii) inserting in their places the following subsections (g) and (h): "(g) the Canadian Subsidiaries Indebtedness; and (h) other unsecured indebtedness of the Company and its Subsidiaries in an aggregate amount not to exceed $500,000 at any one time outstanding." (c) Section 7.13 of the Credit Agreement shall be amended by (i) deleting the word "and" at the end of subsection (h) thereof and subsection (i) thereof and (ii) inserting in their places the following subsections (i) and (j): "(i) the guaranty by the Company and its Subsidiaries of the Canadian Subsidiaries Indebtedness upon the terms and conditions satisfactory to the Agent; and (j) other investments, loans and advances in addition to these otherwise permitted by this Section in an aggregate amount not to exceed $2,000,000 at any one time outstanding." (d) The Credit Agreement shall be amended by inserting the following new Section 7.19 at the end of Section 7.18: "SECTION 7.19. CANADIAN SUBSIDIARIES INDEBTEDNESS RESERVE AGAINST COMMITMENT AVAILABILITY. As soon as available, and in any event within five (5) Business Days after the last day of each calendar quarter, the Company shall execute and deliver to the Agent a written certificate (in form and substance satisfactory to the Agent) showing (a) the aggregate maximum amount of credit (whether or not in use) available under the Canadian Subsidiaries Indebtedness (such amount to be stated in Canadian Dollars) as of the last day of the calendar quarter then ended and (b) the U.S. dollar equivalent of the amount described in subsection (a) above (for purposes of this determination, the Company shall show the U.S. dollar equivalent of such amount by reference to the spot market exchange rate for Canadian Dollars as of the close of business on such day or, if the last day of such calendar quarter is not a day on which U.S. commercial banks and foreign exchange markets settle such currency payments, on the next preceding business day). From and after the date of the Agent's receipt of such certificate, the amount available to the Company under the Revolving Credit shall be reduced by an amount equal to the U.S. dollar equivalent of the amount determined in accordance with subsection (b) above (as so reduced from time to time, the "AVAILABLE AMOUNT"), such that the sum of the aggregate principal amount of the Revolving Loans and of L/C Obligations at any time outstanding during such period plus the U.S. dollar equivalent of the amount determined in accordance with subsection (b) above shall not at any time exceed the Revolving Credit Commitments in effect at such time. In the event that the sum of the aggregate 2 principal amount of the Revolving Loans and of L/C Obligations at any time outstanding during such period plus the aggregate U.S. dollar equivalent of the amount determined in accordance with subsection (b) above shall ever exceed the Revolving Credit Commitments in effect at such time, the Company shall immediately without notice or demand pay over the amount of the excess to the Lenders as and for a mandatory prepayment of the Revolving Loans and, if necessary, as a prefunding of Letters of Credit. Unless the Company otherwise directs, prepayments of principal under this Section 7.19 shall be applied first to the Base Rate Portion until payment in full thereof with any balance applied to the LIBOR Portions in the order in which their Interest Periods expire. The reduction in the amount available to the Company under the Revolving Credit pursuant to this Section 7.19 shall be recomputed upon the Agent's receipt of each written certificate delivered pursuant to the first sentence hereof and such reduction shall continue in effect until the effectiveness of the next redetermination thereof. Any determination by the Agent of the reduction in the amount available to the Company under the Revolving Credit hereunder shall be conclusive and binding upon the Company and the Lenders provided that it has been made reasonably and in good faith." (e) Section 8.1 of the Credit Agreement shall be amended by deleting subsection (b) thereof and inserting in its place the following: "(b) default in the observance or performance of any covenant set forth in Sections 7.5, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 or 7.19 hereof;" (f) Section 9.1 of the Credit Agreement shall be amended by inserting the following definitions in a proper alphabetical order: ""AVAILABLE AMOUNT " is defined in Section 7.19." ""CANADIAN SUBSIDIARIES INDEBTEDNESS" means indebtedness of Creadis Group, Inc., a corporation organized and existing under the laws of the province of Ontario, Canada, and Marusa Marketing, Inc. a corporation organized and existing under the laws of the province of Ontario, Canada, under a line of credit up to the aggregate principal amount of Canadian $2,000,000 made available by First Chicago NBD Bank, Canada to such corporations." 3 (g) Schedule 5.2 of the Credit Agreement shall be amended to read as Exhibit A attached hereto. 2. CONDITIONS PRECEDENT. The effectiveness of this First Amendment is subject to the satisfaction of all of the following conditions precedent: (a) The Company, the Agent and the Required Lenders shall have executed and delivered this First Amendment. (b) Legal matters incident to the execution and delivery of this First Amendment shall be satisfactory to the Agent and its counsel. 3. REPRESENTATIONS. In order to induce the Lenders to execute and deliver this First Amendment, the Company hereby represents to the Lenders that as of the date hereof, and after giving effect to this First Amendment, the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.5 shall be deemed to refer to the most recent financial statements of the Company delivered to the Lenders) and the Company is in full compliance with all of the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this First Amendment. 4. MISCELLANEOUS. (a) Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific First Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. (b) The Company agrees to pay on demand all costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this First Amendment, including the fees and expenses of counsel for the Agent. (c) This First Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this First Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This First Amendment shall be governed by the internal laws of the State of Illinois. 4 Dated as of August 8, 1997. HA-LO INDUSTRIES, INC. By Its Accepted and agreed to as of the date and year last above written. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, individually and as0 Agent By Its HARRIS TRUST AND SAVINGS BANK By Its COMERICA BANK By Its 5 EXHIBIT A FIRST AMENDMENT TO CREDIT AGREEMENT SCHEDULE 5.2 SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION PERCENTAGE OWNERSHIP Fletcher, Barnhardt & White, Inc. Illinois 100% HA-LO Sports, Inc. Illinois 100% Market U.S.A., Inc. Illinois 100% Creative Concepts in Advertising, Inc. Michigan 100% Creadis Group, Inc. Onatrio 100% Marusa Marketing, Inc. Onatrio 100%
EX-10.36 7 EX-10.36 Exhibit 10.36 SECOND AMENDMENT TO CREDIT AGREEMENT To Each of the Lenders Signatory Hereto Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of January 31, 1997, as amended (the "CREDIT AGREEMENT"), between the undersigned, HA-LO Industries, Inc., an Illinois corporation (the "COMPANY"), American National Bank and Trust Company of Chicago, as agent for the Lenders (the "AGENT"), and you (the "LENDERS"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The Company has requested that the Lenders extend the Term Credit Termination Date and the Termination Date from January 31, 1999, to March 1, 1999, and the Lenders are willing to do so on the terms and conditions set forth in this agreement (herein, the "AMENDMENT"). 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the definitions of "Term Credit Termination Date" and "Termination Date" appearing in Section 9.1 of the Credit Agreement shall be amended and restated in their entirety to read as follows: "TERM CREDIT TERMINATION DATE" means March 1, 1999, or such earlier date on which the Term Loan Commitments are terminated in whole pursuant to Sections 3.6, 8.2 or 8.3 hereof. "TERMINATION DATE" means March 1, 1999, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Sections 3.6, 8.2 or 8.3 hereof, or such later date to which the Revolving Credit Commitments are extended pursuant to Section 11.11 hereof. 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: 2.1 The Company, the Agent and the Lenders shall have executed and delivered this Amendment. 2.2 Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Agent and its counsel. 3. REPRESENTATIONS. In order to induce the Lenders to execute and deliver this Amendment, the Company hereby represents to the Lenders that as of the date hereof the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.5 shall be deemed to refer to the most recent financial statements of the Company delivered to the Lenders) and the Company is in compliance with all of the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. 4. MISCELLANEOUS. 4.1 Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 4.2 The Company agrees to pay on demand all costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Amendment, including the fees and expenses of counsel for the Agent. 4.3 This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. Dated as of January 20, 1999. HA-LO INDUSTRIES, INC. By Name ---------------------------------- Title --------------------------------- 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 --------------------------- EX-10.37 8 EX-10.37 Exhibit 10.37 THIRD AMENDMENT TO CREDIT AGREEMENT To Each of the Lenders Signatory Hereto Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of January 31, 1997, as amended (the "CREDIT AGREEMENT"), between the undersigned, HA-LO Industries, Inc., an Illinois corporation (the "COMPANY"), American National Bank and Trust Company of Chicago, as agent for the Lenders (the "AGENT"), and you (the "LENDERS"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The Company has requested that the Lenders, among other things, increase the Revolving Credit Commitments and extend the Termination Date, and the Lenders are willing to do so on the terms and conditions set forth in this agreement (herein, the "AMENDMENT"). 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be amended as follows: (a) Section 1.3(b) of the Credit Agreement shall be amended by deleting the first sentence thereof and inserting in its place the following sentence: "At any time before the Termination Date, the Agent shall, at the request of the Company, issue one or more Letters of Credit to or for the account of the Company in a form satisfactory to the Agent, with expiration dates no later than the Termination Date then in effect, in an aggregate face amount as set forth above, upon the receipt of an application for the relevant Letter of Credit in the form then customarily prescribed by the Agent duly executed by the Company (each an "APPLICATION")." (b) Section 3.1 of the Credit Agreement shall be amended by deleting the first sentence thereof and inserting in its place the following sentences: "For the period from the date hereof to but not including the Termination Date, the Company shall pay to the Agent for the account of the Lenders in accordance with their Percentage a commitment fee for each day at the rate per annum equal to the Commitment Fee Rate in effect on such day on the daily unused amount of the Revolving Credit Commitments hereunder. Notwithstanding anything contained in this Agreement to the contrary, for the purposes of calculating the commitment fee hereunder, the undrawn face amount of any commercial Letter of Credit outstanding hereunder shall not be considered usage of the Revolving Credit Commitments. (c) Section 3.4 of the Credit Agreement shall be amended by deleting the date "January 31, 1997" appearing therein and inserting the date "February 18, 1999" in its place. (d) Section 5.5 of the Credit Agreement shall be amended by deleting the dates "December 31, 1995" and "September 30, 1996" appearing therein and inserting in their places the dates "December 31, 1997" and "September 30, 1998, respectively. (e) The Credit Agreement shall be amended by inserting the following new Section 5.15 at the end of Section 5.14: "SECTION 5.15. YEAR 2000. The Company has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "YEAR 2000 Program"). Based on such assessment and on the Year 2000 Program the Company does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. (f) Section 7.5(e) of the Credit Agreement shall be amended by deleting the "." at the end thereof and inserting in its place the following clause: "or of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues) which would reasonably be expected to have a Material Adverse Effect." (g) Sections 7.7, 7.8, 7.9 and 7.10 of the Credit Agreement shall be amended in their entirety to read as follows: "SECTION 7.7. [RESERVED]. SECTION 7.8. TANGIBLE NET WORTH. The Company shall, at all times, maintain Tangible Net Worth of not less than the sum of (a) $180,000,000 plus (b) 50% of Net Income for each fiscal year of the Company ending after February 26, 1999 (commencing with the fiscal year ending December 31, 1999) for which such Net Income is a positive amount (i.e., there shall be no reduction to the amount of Tangible Net Worth required to be maintained -2- hereunder for any fiscal year in which Net Income is less than zero). SECTION 7.9. FUNDED DEBT/EBITDA RATIO. As of the last day of each fiscal quarter of the Company, the Company shall maintain the Funded Debt/EBITDA Ratio for the four fiscal quarters of the Company then ended of not more than 3.25 to 1.0. SECTION 7.10. FIXED CHARGE COVERAGE RATIO. As of the last day of each fiscal quarter of the Company, the Company shall maintain a Fixed Charge Coverage Ratio of not less than 3.0 to 1.0." (h) The Credit Agreement shall be amended by inserting the following new Section 7.20 at the end of Section 7.19: "SECTION 7.20. YEAR 2000. The Company will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Agent or any Lender, the Company will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto." (i) Sections 8.1(a) of the Credit Agreement shall be amended in its entirety to read as follows: "(a) default in the payment when due of all or any part of the principal of any Note (whether at the stated maturity thereof or at any other time provided for in this Agreement) or of any Reimbursement Obligation or default for a period of 5 days in the payment when due of all or any part of the interest on any Note (whether at the stated maturity thereof or at any other time provided for in this Agreement) or any fee or other Obligation payable hereunder or under any other Loan Document;" (j) Section 9.1 of the Credit Agreement shall be amended by deleting the definitions of "APPLICABLE MARGIN", "FIXED CHARGES" and "TERMINATION DATE" appearing therein and inserting the following definitions in a proper alphabetical order: ""APPLICABLE MARGIN" means, with respect to LIBOR Portions, .50% per annum until the first Pricing Date, and thereafter from one Pricing Date to the next, the Applicable Margin with respect to LIBOR Portions shall mean a rate per annum determined in accordance with the following schedule: -3-
FUNDED DEBT/EBITDA RATIO APPLICABLE MARGIN FOR SUCH PRICING DATE SHALL BE Greater than 2.5 to 1.0 1.50% Equal to or less than 2.5 to 1.0, but 1.25% greater than 2.0 to 1.0 Equal to or less than 2.0 to 1.0, but 1.00% greater than 1.5 to 1.0 Equal to or less than 1.5 to 1.0 but greater .75% than 1.0 to 1.0 Equal to or less than 1.0 to 1.0 but greater .625% than 0.5 to 1.0 Equal to or less than 0.5 to 1.0 .50%
For purposes hereof, the term "PRICING DATE" means, for any fiscal quarter of the Company ended after the date hereof, 15 days after the date the Agent is in receipt of the Company's most recent financial statements for the fiscal quarter then ended, pursuant to Section 7.5(a) or (b) hereof. The Applicable Margin established on a Pricing Date shall remain in effect until the next Pricing Date. If the Company has not delivered its financial statements by the date such financial statements (and, in the case of the year-end financial statements, audit report) are required to be delivered under Section 7.5(a) and (b) hereof, until such financial statements and audit report are delivered, the Applicable Margin for LIBOR Portions shall be 1.50%. If the Company subsequently delivers such financial statements before the next Pricing Date, the Applicable Margin established by such late delivered financial statements shall take effect from the date of delivery until the next Pricing Date. In all other circumstances, the Applicable Margin established by such financial statements shall be in effect from the Pricing Date that occurs immediately after the end of the Company's fiscal quarter covered by such financial statements until the next Pricing Date. Each determination of the Applicable Margin made by the Agent in accordance with the foregoing shall be conclusive and binding on the Company and the Lenders if reasonably determined." ""COMMITMENT FEE RATE" means, for each day, .20% per annum until the first Pricing Date, and thereafter from one Pricing -4- Date to the next, the Commitment Fee Rate shall mean a rate per annum determined in accordance with the following schedule:
FUNDED DEBT/EBITDA RATIO COMMITMENT FEE RATE FOR SUCH PRICING DATE SHALL BE Greater than 2.5 to 1.0 .30% Equal to or less than 2.5 to 1.0, but .25% greater than 2.0 to 1.0 Equal to or less than 2.0 to 1.0, but .225% greater than 1.5 to 1.0 Equal to or less than 1.5 to 1.0 but greater .225% than 1.0 to 1.0 Equal to or less than 1.0 to 1.0 but greater .20% than 0.5 to 1.0 Equal to or less than 0.5 to 1.0 .20%
For purposes hereof, the term "PRICING DATE" means, for any fiscal quarter of the Company ended after the date hereof, 15 days after the date the Agent is in receipt of the Company's most recent financial statements for the fiscal quarter then ended, pursuant to Section 7.5(a) or (b) hereof. The Commitment Fee Rate established on a Pricing Date shall remain in effect until the next Pricing Date. If the Company has not delivered its financial statements by the date such financial statements (and, in the case of the year-end financial statements, audit report) are required to be delivered under Section 7.5(a) and (b) hereof, until such financial statements and audit report are delivered, the Commitment Fee Rate shall be .30%. If the Company subsequently delivers such financial statements before the next Pricing Date, the Commitment Fee Rate established by such late delivered financial statements shall take effect from the date of delivery until the next Pricing Date. In all other circumstances, the Commitment Fee Rate established by such financial statements shall be in effect from the Pricing Date that occurs immediately after the end of the Company's fiscal quarter covered by such financial statements until the next Pricing Date. Each determination of the Commitment Fee Rate made by the Agent in accordance with the foregoing shall be conclusive and binding on the Company and the Lenders if reasonably determined." -5- ""FIXED CHARGE COVERAGE RATIO" means, as of the last day of the most recently completed fiscal quarter of the Company for the four fiscal quarters of the Company then ended, the ratio of (x) the sum of (i) Net Income for such period plus (ii) Interest Expense for such period plus (iii) federal, state and local income taxes for such period plus (iv) operating lease expense for such period to (y) the sum of (i) Interest Expense for such period plus (ii) operating lease expense for such period." ""TERMINATION DATE" means February 25, 2000, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Sections 3.6, 8.2 or 8.3 hereof, or such later date to which the Revolving Credit Commitments are extended pursuant to Section 11.11 hereof." ""YEAR 2000 ISSUES" means anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of the Company and its Subsidiaries and of the Company's and its Subsidiaries material customers, suppliers and vendors." ""YEAR 2000 PROGRAM" is defined in Section 5.15 hereof." (k) Section 11.11 of the Credit Agreement shall be amended in its entirety to read as follows: "SECTION 11.11. EXTENSION OF THE REVOLVING CREDIT COMMITMENTS. The Company shall have the option to request extensions to the Termination Date pursuant to this Section 11.11. No earlier than 45 days prior to, but no later than 40 days prior to, the Termination Date then in effect, the Company may advise the Agent in writing of the Company's desire to extend the Termination Date for an additional 364 day period and the Agent shall promptly notify the Lenders of each such request. If the Company makes any such request, each Lender agrees to notify the Company and the Agent no earlier than 30 days prior to, but no later than 25 days prior to, the Termination Date then in effect stating whether such Lender is declining or consenting to any such request, or consenting to such request subject to specified terms and conditions. In the event that a Lender fails to so notify the Agent and the Company during such period, such Lender shall be deemed to have refused the requested extension. In the event that each Lender is agreeable to such extension (it being understood that the Lenders may accept or decline such a request in their sole -6- discretion and on such terms as they may elect), the Company and the Lenders shall enter into such documents as the Agent may reasonably deem necessary or appropriate to reflect such extension, and all actual out-of-pocket costs and expenses incurred by the Agent in connection therewith (including reasonable attorneys' fees) shall be paid by the Company." (l) The signature pages to the Credit Agreement shall be amended by (i) deleting the amount "$22,500,000" appearing under the caption "Revolving Credit Commitment" opposite American National Bank and Trust Company of Chicago's signature and inserting in its place the amount "$37,500,000", (ii) deleting the amount "$15,576,923" appearing under the caption "Revolving Credit Commitment" opposite Harris Trust and Savings Bank's signature and inserting in its place the amount "$25,000,000", (iii) deleting the amount "$6,923,077" appearing under the caption "Revolving Credit Commitment" opposite Comerica Bank's signature and inserting in its place the amount "$12,500,000" and (iv) deleting the amounts "$10,000,000", "$6,923,077" and "$3,076,923" appearing under the caption "Term Loan Commitment" opposite signatures of American National Bank and Trust Company of Chicago, Harris Trust and Savings Bank and Comerica Bank, respectively and inserting in their places the amount "$0". (m) Schedule 5.2 of the Credit Agreement shall be amended in its entirety to read as Exhibit B attached hereto. (n) Schedule I to Exhibit D of the Credit Agreement shall be amended in its entirety to read as Schedule I attached to this Amendment. 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: 2.1 The Company, the Agent and the Lenders shall have executed and delivered this Amendment. 2.2 The Company shall have executed and delivered to each of the Lenders a Revolving Credit Note in the form of Exhibit A to the Credit Agreement payable to the order of such Lender in the principal amount of its Revolving Credit Commitment in effect after giving effect to this Amendment. 2.3 Each Subsidiary of the Company party to the Guaranties shall have executed and delivered the Guarantor's Acknowledgment in the form attached hereto as Exhibit A and each of Promotional Marketing LLC, Lipson Associates, Inc., Premier Promotional Marketing, Inc. and Lee Wayne Corporation shall have executed and delivered the Assumption and Supplement to Guaranty Agreement. -7- 2.4 The Agent shall have received, in form and substance satisfactory to the Lenders (a) corporate resolutions of the Company and the Subsidiaries of the Company executing the Assumption and Supplement to Guaranty Agreement and (b) an opinion of counsel to the Company and such Subsidiaries. 2.5 The Company shall have paid in full to the Lenders through the Agent the Term Loans and interest thereon, together with, if any, all amounts required under Section 2.8 of the Credit Agreement. 2.6 The Agent and the Lenders shall have received information satisfactory to the Agent and the Lenders regarding the Company's Year 2000 Program. 3. REPRESENTATIONS. In order to induce the Lenders to execute and deliver this Amendment, the Company hereby represents to the Lenders that as of the date hereof the representations and warranties set forth in Section 5 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 5.5 shall be deemed to refer to the most recent financial statements of the Company delivered to the Lenders) and the Company is in compliance with all of the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. 4. EQUALIZATION. Anything contained in the Credit Agreement or in this Amendment to the contrary notwithstanding, upon satisfactory completion of the conditions precedent to the effectiveness of this Amendment as set forth above, there shall be such purchases and sales of interests in the Revolving Loans, if any then outstanding, as shall be necessary so that after giving effect thereto each Lender holds its ratable share of the total of the Revolving Loans then outstanding in accordance with its Percentage of the Revolving Credit Commitments. 5. MISCELLANEOUS. 5.1 Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Notes, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 5.2 The Company agrees to pay on demand all costs and expenses of or incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Amendment, including the fees and expenses of counsel for the Agent. -8- 5.3 This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. Dated as of March 1, 1999. HA-LO INDUSTRIES, INC. By Name ----------------------------- Title ---------------------------- -9- Accepted and agreed to as of the date and year last above written. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, individually and as Agent By Name ------------------------------------- Title ------------------------------------ HARRIS TRUST AND SAVINGS BANK By Name ------------------------------------- Title ------------------------------------ COMERICA BANK By Name ------------------------------------- Title ------------------------------------ -10- EXHIBIT A GUARANTOR'S ACKNOWLEDGMENT Each of the undersigned has heretofore executed in favor of American National Bank and Trust Company of Chicago, as Agent for American National Bank and Trust Company of Chicago, Harris Trust and Savings Bank and Comerica Bank (the "LENDERS") a Guaranty Agreement dated January 31, 1997 and hereby acknowledges and consents to the amendment of the Credit Agreement dated as of January 31, 1997 (the "CREDIT AGREEMENT") among Ha-Lo Industries, Inc. (the "COMPANY") and the Lenders pursuant to the Third Amendment to Credit Agreement dated as of March 1, 1999 (the "THIRD AMENDMENT") among the Company and the Lenders. Each of the undersigned confirms that the Guaranty Agreement and all of its obligations thereunder remain in full force and effect and, without limiting the foregoing, acknowledges and agrees that all of the Company's indebtedness, obligations and liabilities to the Lenders, under the Credit Agreement, as amended by the Third Amendment, constitutes "indebtedness hereby guaranteed" under the Guaranty Agreement. Each of the undersigned further agrees that its consent to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained, except to the extent, if any, required by the Guaranty Agreement referred to above. Dated as of March 1, 1999. FLETCHER, BARNHARDT & WHITE, INC. By Its ----------------------------------- HA-LO SPORTS, INC. By Its ----------------------------------- MARKET U.S.A., INC. By Its ----------------------------------- CREATIVE CONCEPTS IN ADVERTISING, INC. By Its ----------------------------------- -2- EXHIBIT B THIRD AMENDMENT TO CREDIT AGREEMENT SCHEDULE 5.2 SUBSIDIARIES
JURISDICTION OF INCORPORATION/ ORGANIZATION PERCENTAGE NAME OWNERSHIP Fletcher, Barnhardt & White, Inc. Illinois 100% HA-LO Sports, Inc. Illinois 100% Market U.S.A., Inc. Illinois 100% Creative Concepts in Advertising, Inc. Michigan 100% Creadis Group, Inc. Ontario 100% Marusa Marketing, Inc. Ontario 100% Promotional Marketing LLC (d.b.a. UPSHOT) Illinois 100% Lipson Associates, Inc. Ohio 100% Premier Promotional Marketing, Inc. California 100% Lee Wayne Corporation Illinois 100%
SCHEDULE I COMPLIANCE CALCULATIONS FOR JANUARY 31, 1997 CREDIT AGREEMENT CALCULATIONS AS OF _____________, ____ A. TANGIBLE NET WORTH (SECTION 7.8) 1. Stockholders Equity $___________ 2. Sum of: (i) intangible assets $___________ (ii) write-up of assets $___________ (iii) sample inventory $___________ 3. Line A1 minus A2 $___________ (Tangible Net Worth) 4. Line A3 must not be less than $___________ 5. The Company is in compliance (circle yes or no) yes/no B. FUNDED DEBT/EBITDA RATIO (SECTION 7.9) 1. Total Funded Debt $___________ 2. EBITDA $___________ 3. Ratio of Line B1 to Line B2 ___: 1.0 4. Line B3 Ratio must not be more than 3.25: 1.0 5. The Company is in compliance (circle yes or no) yes/no C. FIXED CHARGE COVERAGE RATIO (SECTION 7.10) 1. Net Income for past 4 quarters $________ 2. Interest Expense for past 4 quarters $________
3. Federal, state and local income tax expense for past 4 quarters $________ 4. Operating lease expense for past 4 quarters $________ 5. Sum of Lines C1, C2, C3 and C4 $________ 6. Sum of Lines C3 and C4 $________ 7. Ratio of Line C5 to Line C6 ______:1.0 8. Line C7 ratio must not to be less than 3.0:1.0 9. The Company is in compliance (circle yes or no) Yes/No
-2- EX-10.38 9 EX-10.38 EXHIBIT 10.38 ASSUMPTION AND SUPPLEMENT TO GUARANTY AGREEMENT This Assumption and Supplement to Guaranty Agreement (the "AGREEMENT") is dated as of this ___ day of March, 1999, made by (1) (the "NEW GUARANTOR"); WITNESSETH THAT: WHEREAS, certain parties have executed and delivered to the Guaranteed Creditors that certain Guaranty Agreement dated as of January 31, 1997, or supplements thereto (such Guaranty Agreement, as the same may from time to time be modified or amended, including supplements thereto which add or substitute parties as Guarantors thereunder, being hereinafter referred to as the "GUARANTY") pursuant to which such parties (the "EXISTING GUARANTORS") have guaranteed to the Guaranteed Creditors the full and prompt payment of, among other things, any and all indebtedness, obligations and liabilities of HA-LO Industries, Inc. (the "COMPANY") arising under or relating to the Credit Agreement and the other Credit Documents described therein; and WHEREAS, the Company provides the New Guarantor with substantial financial, managerial, administrative, technical and design support and the New Guarantor will benefit, directly and indirectly, from credit and other financial accommodations extended and to be extended by the Lenders to the Company; NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances made or to be made, or credit accommodations given or to be given, to the Company by the Lenders from time to time, the New Guarantor hereby agrees as follows: 1. The New Guarantor acknowledges and agrees that it shall become a "Guarantor" party to the Guaranty effective upon the date the New Guarantor's execution of this Agreement and the delivery of this Agreement to the Agent on behalf of the Guaranteed Creditors, and that upon such execution and delivery, all references in the Guaranty to the terms "Guarantor" or "Guarantors" shall be deemed to include the New Guarantor. 2. The New Guarantor hereby assumes and becomes liable (jointly and severally with all the other Guarantors) for the indebtedness hereby guaranteed (as defined in the Guaranty) and agrees to pay and otherwise perform all of the obligations of a Guarantor under the Guaranty according to, and otherwise on and subject to, the terms and conditions of the Guaranty to the same extent and with the same force and effect as if the New Guarantor had originally been one of the Existing Guarantors under the Guaranty and had originally executed the same as such an Existing Guarantor. 3. All capitalized terms used in this Agreement without definition shall have the same meaning herein as such terms have in the Guaranty, except that any reference to the term "Guarantor" or "Guarantors" and any provision of the Guaranty providing meaning to such term shall be deemed a reference to the Existing Guarantors and the New Guarantor. Except as specifically modified hereby, all of the terms and conditions of the Guaranty shall stand and remain unchanged and in full force and effect. 4. The New Guarantor agrees to execute and deliver such further instruments and documents and do such further acts and things as the Agent or the Guaranteed Creditors may deem necessary or proper to carry out more effectively the purposes of this Agreement. 5. No reference to this Agreement need be made in the Guaranty or in any other document or instrument making reference to the Guaranty, any reference to the Guaranty in any of such to be deemed a reference to the Guaranty as modified hereby. 6. This Agreement shall be governed by and construed in accordance with the State of Illinois (without regard to principles of conflicts of law) in which state it shall be performed by the New Guarantor. (1) By Its ----------------------------------- Address: ----------------------------------- ----------------------------------- ----------------------------------- Attention -------------------------- Telephone -------------------------- Telecopy --------------------------- Acknowledged and agreed to in Chicago, Illinois as of the date first above written. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Agent By Its ----------------------------------- SCHEDULE 1* There are four (4) documents omitted as Exhibits which contain the same material terms of the attached agreement, except that the parties defined therein as "New Guarantor" (marked as "1" in the first paragraph of such document) differ among the documents. Such parties are set forth below (listed as "New Guarantor"). New Guarantor - ------------- Premier Promotions and Marketing, Inc. Lee Wayne Corporation Lipton Associates, Inc. Promotional Marketing, L.L.C. EX-10.42 10 EX-10.42 Exhibit 10.42 AGREEMENT AGREEMENT by and between HA-LO Industries, Inc., an Illinois banking corporation (the "Company"), and 1~ (the "Executive"), dated as of the ____ day of _____________, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 2) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on December 31, 1999; provided, however, that commencing January 1, 1999, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege) to a Person whose holdings do not exceed 40% of the Outstanding Company Stock or the Outstanding Company Voting Securities prior to or after such transaction, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i) and (ii) of subsection (c) of this Section 2 are satisfied; (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case (with respect to such transactions effecting the Company), unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined -2- voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (ii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period commencing on the Effective Date and ending on the eighteen month anniversary of such date (the "Employment Period"). -3- 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office which is the headquarters of the Company and is less than 25 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid in equal installments on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. -4- During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) bonus paid or payable, including by reason of any deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs. Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs (including without limited to deferred compensation, incentive stock option and stock appreciation rights plans and agreements) applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the -5- Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and -6- other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician who is on the staff of a teaching hospital in Cook, Lake or DuPage Counties, Illinois selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Executive of the Executive's obligations under Section 4(a) (other than as a result of incapacity due to -7- physical or mental illness) which is demonstrably willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) GOOD REASON. The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive (or the elimination of) of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B); (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c), provided that such successor has received at least ten days prior written notice from the Company or the Executive of the requirements of Section 11(c). For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause or by the Executive for Good Reason, shall -8- be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason (or, with respect to Section 6(a)(ii) hereof, in all event upon a Change of Control): (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the highest Annual Bonus paid to the Executive for any of the three (3) full fiscal years prior to the Employment Period and (y) a fraction, the numerator of which is the number of days in the current -9- fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) 2- multiplied by (2) the sum of (x) the Executive's Annual Base Salary at the time the Notice of Termination was given and (y) the highest Annual Bonus paid to the Executive for any of the immediately preceding three (3) full fiscal years, provided, however, that the Severance Amount shall be lessened by the amount, if at all, of any other cash severance benefits received by the Executive or any other cash payments made by the Company to the Executive with regard to contractual rights of the Executive (other than those set forth in this Agreement) to receive salary, bonus or commission compensation from the Company for periods following the Date of Termination; and (ii) at all time during the Employment Period the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to the Executive or other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"); and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the -10- Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally thereafter with respect to other peer executives of the Company and its affiliated companies and their families (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Death Benefits (as defined below)) and (ii) payment to the Executive's estate or beneficiary, as applicable, of any cash amount to be received by the Executive or the Executive's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of life insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Death Benefits"). (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering the Executive to the extent paid for directly or on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the -11- benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii), 6(b) and 6(c), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. RESOLUTION OF DISPUTES. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii), such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the -12- Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. -13- (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the accounting firm of Arthur Anderson LLP, or its duly authorized successor (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any -14 payment of taxes with respect to such claim is due).If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses.Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's -15- control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. CONFIDENTIAL INFORMATION; NON-COMPETITION. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) In consideration of the promises of the Company herein, the Executive hereby agrees that while employed by the Company and for a period of one (1) year after the termination of Executive's employment with the Company, for any reason, the Executive shall not, directly or indirectly, in any capacity without the prior written consent of the Company, (i) in the United States and Canada, for his own account or as an employee, consultant, agent, partner, joint venturer, owner or officer of any other person, firm, partnership, corporation or other entity, conduct or engage in any business directly competitive with the business of the Company as of the date of -16- the termination of the Executive's employment, (ii) solicit or engage in the business conducted by the Company with a customer or prospective customer of the Company regarding which customer or prospective customer Executive had direct or indirect contact as an employee of the Company or with respect to whom the Executive learned information while so employed, or (iii) solicit any employee, agent or independent contractor of the Company, the product of which contract will or may yield a termination of the employment or agency relationship of such individual with the Company. 11. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -17- IF TO THE EXECUTIVE: 3~ IF TO THE COMPANY: HA-LO Industries, Inc. 5980 Touhy Avenue Niles, Illinois 60714 Attention: Lou Weisbach President or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, prior to the Effective Date, may be terminated by either the Executive or the Company at any time. Moreover, if prior to the Effective Date, the Executive's employment with the Company terminates, then the Executive shall have no further rights under this Agreement. -18- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ------------------------------------ 4- HA-LO INDUSTRIES, INC. By: --------------------------------- Its: --------------------------- -19- SCHEDULE 1* There are eight (8) documents omitted as Exhibits which contain the same material terms of the attached agreement, except that the parties defined therein as "Executive" (marked as "1~" in the first paragraph of such document) and the multiple marked as "2~" in Section 6(a)(i)(B) differ among the documents. Such parties are set forth below (listed as "Executive") with the corresponding multiple contained in Section 6(a)(i)(B) of their respective agreements.
Executive Section 6(a)(i)(B) Multiple - --------- --------------------------- Linden Nelson 2.99 Richard A. Magid 2.50 Greg Kilrea 2.50 Gene Ehrenfeldt 2.00 Sabina Filipovic 2.00 Michael Nemlich 2.00 Barry Margolin 2.00 David J. Blumenthal 2.00 Michael J. Linderman 2.00 Jon Sloan 2.00 Bradford S. Kerr 2.00 Peter A. Blythe 2.00
*Updated in March 1999. EX-10.48 11 EX-10.48 Exhibit 10.48 AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of June 29, 1998 between HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"), and MONTGOMERY WARD & CO. INCORPORATED, an Illinois corporation ("Montgomery Ward"). RECITALS A. Montgomery Ward and HA-LO are parties to that certain Exclusive Premium Purchasing Agreement, dated January 11, 1995, as amended by a First Amendment, dated December 27, 1995 (collectively, the "Purchasing Agreement"). B. Pursuant to two Warrants, each dated January 10, 1996 (collectively, the "Warrants"), HA-LO granted to Montgomery Ward the right to purchase an aggregate of 518,917 shares (preadjustment) of HA-LO's Common Stock, no par value (the "Warrant Shares"), on specified terms and conditions. C. On July 7, 1997, Montgomery Ward filed voluntary petitions for relief under Chapter 11 of Title XI of the United States Code (the "Bankruptcy Proceeding"). D. HA-LO has certain pre-petition claims in the Bankruptcy Proceeding (collectively, the "Pre-Petition Claim"). E. Montgomery Ward and HA-LO desire to amend the Purchasing Agreement and the Warrants in certain respects, to cause the Pre- Petition Claim to be satisfied and withdrawn and to memorialize certain other agreements between them, all as set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. SATISFACTION OF PRE-PETITION CLAIM. At the Closing (as such term is defined in Section 6), Montgomery Ward shall pay $2,500,000 (the "Satisfaction Amount") to HA-LO in satisfaction of the Pre-Petition Claim and in consideration of the other agreements and covenants of HA-LO contained herein. The Satisfaction Amount shall be payable by wire transfer of immediately available funds to an account designated in writing by HA-LO. Promptly upon receipt of the Satisfaction Amount, HA-LO shall file any and all documents that may be reasonably required in order to waive and/or withdraw the Pre-Petition Claim. 2. AMENDMENT TO PURCHASING AGREEMENT. At the Closing, Montgomery Ward and HA-LO shall each execute and deliver an amendment to the Purchasing Agreement in the form attached hereto as Exhibit A (the "Amendment to Purchasing Agreement"). 3. AMENDMENTS TO WARRANTS. At the Closing, HA-LO shall execute and deliver to Montgomery Ward amendments to the Warrants in the forms attached hereto as Exhibits B and C (the "Amendments to Warrants"). 4. REGISTRATION OF THE WARRANT SHARES. Promptly upon payment of the Satisfaction Amount, HA-LO shall use all reasonable efforts to effect the registration of the Warrant Shares under the Securities Act of 1933 (the "Securities Act") by performing the following: (a) The registration shall be effective through an S-3 Registration Statement (or such other applicable form) ("Registration Statement") covering the Warrant Shares and filed with the Securities and Exchange Commission ("Commission"). HA-LO shall cause each Registration Statement to become and remain effective for a period of five (5) years from the effectiveness thereof. (b) HA-LO shall identify and cause there to be provided at all times to the Holders (as such term is defined in the Warrants) a transfer agent for all of the Warrants Shares required to be registered under this Agreement. (c) HA-LO shall provide, or cause there to be provided, such certificates, instruments and any other documents required under the Securities Act requested by the Commission in connection with the sale by any Holder of Warrant Shares covered by a Registration Statement or otherwise necessary or reasonably required in connection with or to facilitate the sale of Warrant Shares in accordance with this Agreement. (d) HA-LO shall file with the appropriate stock exchange or trading system a notification form for the listing of additional shares with respect to the Warrant Shares at the time and in the manner required by such exchange. (e) HA-LO shall prepare and file with the Commission such required amendments and supplements to the Registration Statement as may be necessary to update and keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale of the Warrant Shares; provided, however, that nothing herein shall require HA-LO to disclose any confidential information concerning its business, results of operations or contemplated activities not otherwise required to be disclosed so long as the period of time during which updating is required in order to permit sale of Warrant Shares but not effected shall not exceed 90 days in any calendar year. (f) All expenses incurred by HA-LO and effecting the registration pursuant to this Agreement, including without - 2 - limitation all registration and filing fees with any governmental entity, printing expenses and fees and disbursements of counsel for HA-LO shall be paid by and be the sole obligation of HA-LO. All selling commissions applicable to sales of Warrant Shares and all fees and disbursements of counsel of a Holder in connection therewith or otherwise shall be paid by and be the sole obligation of the applicable Holder. (g) To the extent necessary, each Holder shall timely furnish such information as may be reasonably requested by HA-LO for inclusion and/or necessary to the preparation of a Registration Statement or other filing ancillary thereto. The information supplied by such Holder for inclusion in the Registration Statement shall not, at the time of such Registration Statement is declared effective, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (h) The information supplied by HA-LO for inclusion in the Registration Statement shall not, at the time such Registration Statement is declared effective, contain any untrue statement of material fact supplied by HA-LO or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (i) To the extent required by the Rule and Regulations of the Commission, the Holders hereby consent to the use of their respective names in any Registration Statement prepared by HA-LO. 5. MATTERS PERTAINING TO THE BANKRUPTCY PROCEEDING. (a) Prior to the execution of this Agreement, Montgomery Ward shall have obtained Bankruptcy Court Approval of the Agreement and the transactions contemplated hereby (the "Approval"), and take all actions reasonably necessary to expedite receipt thereof. (b) Montgomery Ward shall have made any and all filings with the Bankruptcy Court as may be reasonably required for Montgomery Ward to assume the Purchasing Agreement, it being agreed and understood that such assumption shall be a condition to Closing. 6. CLOSING. For purposes of this Agreement, the "Closing" of the transactions contemplated hereby shall occur within ten (10) business days following the Approval (which Approval shall be evidenced by an order of the Bankruptcy Court which is both final - 3 - and not subject to appeal) shall have been received. Montgomery Ward and HA-LO each agree and acknowledge, effective as of the Closing, that no breach by the other will be deemed to exist (and that no state of affairs will be deemed to exist which, with the passage of time, the giving of notice or both, would constitute a breach) under the Purchasing Agreement (as amended by the Amendment to Purchasing Agreement), all such breaches and potential breaches, if any, being deemed to have been either cured or waived without any additional action on the part of either of the parties. 7. ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto, set forth the entire understanding of the parties hereto and supersedes all prior oral or written agreements between them relative to the subject matter hereof, and merge all prior and contemporaneous discussion between them. 8. MODIFICATION. The parties to this Agreement may, by a written instrument executed by both of them, amend, modify or supplement this Agreement. 9. FURTHER ASSURANCES. Each of the parties hereto will, at any time and from time to time after the Closing, upon the request of the other party, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds instruments and documents as may be reasonably required for the consummation of the transactions contemplated hereby. 10. WAIVER OF PROVISIONS. The terms, covenants and conditions of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The failure by either party at any time to require performance of any provisions hereof shall, in no manner, affect the right at a later date to enforce the same. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12. LAW TO GOVERN. The validity, construction and enforceability of this Agreement shall be governed in all respects by the laws of the State of Illinois, without regard to its conflict of law rules. 13. JURISDICTION AND VENUE. The parties hereto agree that all actions or proceedings initiated by any party hereto and arising directly or indirectly out of this Agreement which are brought pursuant to judicial proceedings shall be litigated in the United States Bankruptcy Court for the District of Delaware, or in the event that the bankruptcy case for Montgomery Ward has been closed or such court cannot or will not exercise jurisdiction, then in the United States District Court for the Northern District of Illinois, or in the event that such court cannot or will not - 4 - exercise jurisdiction, then in the Circuit Court in and for the County of Cook, Illinois. The parties hereto expressly submit and consent in advance to such jurisdiction and agree that service of summons and complaint or other process or papers may be made by registered or certified mail addressed to the relevant party at the address to which notices are to be sent pursuant to Section 14 of this Agreement. The parties hereto waive any objection that any of the foregoing jurisdictions is an inconvenient forum or an improper forum based on lack of venue. 14. NOTICES AND OTHER COMMUNICATIONS. Every notice or other communication required, contemplated or permitted by this Agreement by any party shall be in writing and shall be delivered by personal delivery, confirmed telecopy, private courier service or postage pre-paid, returned receipt requested, certified mail, addressed to the party to whom intended at the following address: (a) If to HA-LO: HA-LO Industries, Inc. 5980 Touhy Avenue Niles, Illinois 60714 Attention: Richard A. Magid Telecopy: 847-647-4970 With a copy to: Neal, Gerber & Eisenberg 2 North LaSalle Street, Suite 2200 Chicago, Illinois 60602 Attention: Barry J. Shkolnik, Esq. Telecopy: 312-269-1747 (b) If to Montgomery Ward: Montgomery Ward & Co. Incorporated 535 West Chicago Chicago, Illinois 60671 Attention: Phil Delk Telecopy: 312-467-7898 With a copy to: Altheimer & Gray 10 South Wacker Suite 4000 Chicago, Illinois 60606 Attention: John Lowe Telecopy: 312-715-4800 or at such other address as the intended recipient previously shall have designated by written notice. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each counterpart shall constitute an - 5 - original instrument, but all such separate counterparts shall constitute one in the same agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the date set forth above. MONTGOMERY WARD & CO. INCORPORATED By: ------------------------------------ Its: --------------------------------- HA-LO INDUSTRIES, INC. By: ------------------------------------ Its: --------------------------------- - 6 - EXHIBIT INDEX A. Second Amendment to Exclusive Premium Purchasing Agreement. B. Amendment to Warrant covering 345,946 shares of Common Stock of HA-LO. C. Amendment to Warrant covering 172,971 shares of Common Stock of HA-LO. -7- EX-10.49 12 EX-10.49 Exhibit 10.49 SECOND AMENDMENT TO EXCLUSIVE PREMIUM PURCHASING AGREEMENT THIS SECOND AMENDMENT TO EXCLUSIVE PREMIUM PURCHASING AGREEMENT ("Amendment") is entered into as of June 29, 1998 between MONTGOMERY WARD & CO. INCORPORATED, an Illinois corporation ("Montgomery Ward") and HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"). RECITALS A. Montgomery Ward and HA-LO are parties to that certain Exclusive Premium Purchasing Agreement, dated January 11, 1995, as amended by a First Amendment, dated December 27, 1995 (collectively, the "Agreement"). B. The parties desire to amend the Agreement in certain respects as set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AMENDMENT. Effective as of the date hereof, the Agreement is hereby amended by deleting Section 3(C) of the Agreement in its entirety. 2. REFERENCES TO AND EFFECT ON AGREEMENT. (a) On and after the date hereof, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of similar import shall mean and shall be a reference to the Agreement as amended hereby. (b) Except as specifically set forth in this Amendment, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 3. HEADINGS. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 4. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 5. ENTIRE AGREEMENT. This Amendment, together with the Agreement and the Exhibits thereto and that certain Confidentiality Letter between the parties, constitute the entire agreement of the parties and supersedes all prior agreements and understandings, written or oral, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have accepted and executed this Amendment on and as of the date set forth above. MONTGOMERY WARD & CO. INCORPORATED By: --------------------------------------- Its: -------------------------------------- HA-LO INDUSTRIES, INC. By: --------------------------------------- Its: -------------------------------------- - 2 - EX-10.50 13 EX-10.50 EXHIBIT 10.50 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS. THIS WARRANT IS ISSUED PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT, DATED AS OF JANUARY 11, 1995, AS AMENDED, BETWEEN HA-LO INDUSTRIES, INC. AND MERCHANT PARTNERS, L.P. (THE "STOCK PURCHASE AGREEMENT"), A COPY OF WHICH IS MAINTAINED AT THE OFFICES OF HA-LO INDUSTRIES, INC. WARRANT To Subscribe for and Purchase (2) Shares of Common Stock of HA-LO Industries, Inc. THIS CERTIFIES THAT, for value received, (1) or registered assigns is entitled to subscribe for and purchase from HA-LO INDUSTRIES, INC. (the "Corporation"), a corporation organized and existing under the laws of the State of Illinois, at the price of $6.67 per share (subject to adjustment as noted below) (2) (subject to adjustment as noted below) fully paid and nonassessable shares of the Corporation's Common Stock, no par value (the "Common Stock") at the times and in the manner set forth below until 5:00 p.m., Chicago time, on January 11, 2005 (the "Expiration Date"). This Warrant is subject to the following provisions, terms and conditions: 1. EXERCISE; VESTING; ACCELERATION. 1.1 EXERCISE OF THIS WARRANT. Subject to the terms and conditions hereof, the holder of this Warrant shall have the right to purchase, in whole or in part, up to (2) shares of Common Stock, by the surrender of this Warrant (accompanied by a duly executed Election to Purchase) at the principal office of the Corporation in Niles, Illinois (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation), at any time or from time to time prior to the Expiration Date and upon payment to the Corporation of the purchase price for such shares by certified check or cashier's check or wire transfer. The Corporation agrees that the shares so purchased shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares of Common Stock so purchased shall be delivered to the holder hereof as promptly as practicable after the rights represented by this Warrant shall have been so exercised, and a new warrant (in the same form as this Warrant, subject to such changes as may be approved by the holder of this Warrant and the Corporation) representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the holder hereof as promptly as practicable. This Warrant shall expire and no longer be exercisable after the Expiration Date to the extent to which this Warrant shall not have been exercised on or prior to the Expiration Date. 1.2 VESTING. Notwithstanding Paragraph 1.1, and subject to the remainder of this Section 1.2, the right of the holder of this Warrant to purchase up to (2) shares of Common Stock shall vest in the following manner:
Number of Shares Vesting Date ---------------- ------------ one-sixth of (2) January 11, 1995 one-sixth of (2) December 27, 1995 one-sixth of (2) January 11, 1996 one-sixth of (2) January 11, 1997 one-sixth of (2) January 11, 1998 one-sixth of (2) January 11, 1999 ---------------- (2)
, and the holder of this Warrant may only exercise such right as to shares that have vested. Notwithstanding anything to the contrary contained herein: (a) This Warrant and all rights of the holder of this Warrant to exercise this Warrant shall immediately and automatically terminate, without the necessity of any action or notice whatsoever, upon the termination or expiration of that certain Exclusive Premium Purchasing Agreement dated January 11, 1995 between the Corporation and Montgomery Ward & Co., Incorporated (an affiliate of Merchant Partners, L.P.) (the "Purchasing Agreement"), unless (i) such termination is the result of the Corporation exercising its right to terminate the Purchasing Agreement early pursuant to Section 1.2(B)(2) thereof or is the result of Montgomery Ward & Co., Incorporated exercising its right to terminate the Purchasing Agreement early pursuant to Section 1.2(C) thereof, in either event the vesting of the right to purchase shares of -2- Common Stock pursuant to this Warrant shall accelerate, and this Warrant shall become fully exercisable for all shares of Common Stock not previously purchased by exercise; or (ii) such termination is the result of Montgomery Ward & Co., Incorporated exercising its right to terminate the Purchasing Agreement early pursuant to Section 1.2(B) thereof, in which event this Warrant shall vest with respect to the shares of Common Stock that would otherwise vest on the next succeeding vesting date and the holder of this Warrant will be entitled to exercise this Warrant as to the number of shares of Common Stock that it otherwise would have been entitled to exercise on such next succeeding vesting date but only if during the period commencing on January 1 of the year in which such termination occurs and ending on the date of such termination, purchases of Premium Products (as defined in the Purchasing Agreement) by the MW Buying Group (as defined in the Purchasing Agreement) under the Purchasing Agreement equal or exceed $15,000,000 (inclusive of Premium Products purchased by the MW Buying Group from other vendors in the manner contemplated by Sections 4.(B) and 6 of the Purchasing Agreement but exclusive of the amount of Premium Product purchases, if any, attributed to the immediately preceding calendar year as permitted pursuant to Section 1.2(b) below) calculated on the basis of the dates of invoices for such Premium Products; and (b) If during any calendar year beginning with 1995 purchases of Premium Products (as defined in the Purchasing Agreement) by the MW Buying Group (as defined in the Purchasing Agreement) under the Purchasing Agreement are less than $15,000,000 (inclusive of premium products purchased by the MW Buying Group from other vendors in the manner contemplated by Sections 4.(B) and 6 of the Purchasing Agreement) calculated on the basis of the dates of invoices for such Premium Products, then this Warrant shall not vest with respect to the shares of Common Stock that would otherwise vest on the next succeeding vesting date and the holder of this Warrant will not be entitled to exercise this Warrant as to the number of shares of Common Stock that it -3- otherwise would have been entitled to exercise on such next succeeding vesting date until January 11, 2004; provided, however, that solely for purposes of calendar year 1995, the MW Buying Group shall be deemed to have purchased at least $15,000,000 of Premium Products during such year if the MW Buying Group purchased at least $12,500,000 of Premium Products during the ten-month period from March 1, 1995 through December 31, 1995; and further provided that the holder of this Warrant may, at its option, attribute the Premium Products purchased by the MW Buying Group during the month of January of any calendar year to the Premium Product purchases for the immediately preceding calendar year for purposes of attaining said $15,000,000 (or $12,500,000) in Premium Product purchases, in which event the amount of Premium Product purchases so attributed to the immediately preceding calendar year may not be used again in connection with the calculation of Premium Product purchases for the then current calendar year. 1.3 ACCELERATION. The vesting of the right to purchase shares of Common Stock pursuant to this Warrant shall accelerate, and this Warrant shall become fully exercisable for all shares of Common Stock not previously purchased by exercise, upon the occurrence of any of the following events: (a) The termination of the Purchasing Agreement by Montgomery Ward & Co., Incorporated pursuant to Section 1.2(C) thereof; or (b) Lou Weisbach ceasing to be the chief executive officer of the Corporation (other than as a result of his death or disability); or (c) The dissolution or liquidation of the Corporation, except if such dissolution or liquidation is part of a reorganization, reclassification, consolidation, merger or sale covered by Paragraph 3.6. 2. STOCK ISSUED. 2.1 STOCK TO BE RESERVED. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issue upon exercise of this Warrant, such number of shares of Common Stock as shall be issuable upon exercise of this Warrant. The Corporation covenants that all -4- shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. 2.2 RESTRICTIONS ON TRANSFER. Subject to the continued accuracy of the representations made in Section 6 of the Stock Purchase Agreement as to the holder hereof, the Corporation will take all such action as may be reasonable to assure that all such shares of Common Stock issuable pursuant to this Warrant may be so issued without violation of any applicable law or regulation, or of any requirements of any securities exchange upon which the Common Stock of the Corporation may be listed. 3. WARRANT PRICE; PROTECTION AGAINST DILUTION. 3.1 INITIAL WARRANT PRICE. The initial purchase price of $6.67 per share (the "Warrant Price") and the number of shares of Common Stock issuable pursuant to this Warrant shall be subject to adjustment from time to time as hereinafter provided. 3.2 ADJUSTMENT OF THE WARRANT PRICE AND NUMBER OF SHARES. 3.2.1 Except as provided in Paragraph 3.5, if and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Warrant Price on the date of such issue or sale, then forthwith upon such issue or sale, the Warrant Price shall be reduced to the price (calculated to the nearest cent) determined by multiplying the Warrant Price in effect immediately prior to the time of such issuance or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Warrant Price immediately prior to such issue or sale, plus (B) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product of (C) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (D) the Warrant Price immediately prior to such issue or sale. 3.2.2 Except as provided in Paragraph 3.5, if and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Market Price on the date of such issue or sale, then forthwith upon such issue or sale, the Warrant Price shall be reduced to the price (calculated to the nearest cent) determined by multiplying the Warrant Price in effect immediately prior to the time of such issuance or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Market -5- Price immediately prior to such issue or sale, plus (B) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product of (C) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (D) the Market Price immediately prior to such issue or sale. For purposes hereof, the Market Price of a share of Common Stock shall mean the average of the closing prices of the Common Stock for sales on all securities exchanges on which the Common Stock may at the time be listed, or, if there shall have been no sales on any such exchange on any such date, the average of the closing bid and asked prices on such date, or, if the Common Stock shall not be so listed, the average of the closing bid and asked prices on such date in the over-the-counter market as furnished by the NASDAQ System, or any similar successor organization, in each case averaged over a period of 30 consecutive business days prior to the date as of which Market Price is being determined. If at any time the Common Stock is not listed on any securities exchange or quoted in the over-the-counter market, the Market Price shall be deemed to be the fair value thereof determined in good faith by the Board of Directors of the Corporation as of a date which is within 15 days of the date as of which the determination is to be made; provided, however, that if the holder of this Warrant disputes such determination of Market Value within 15 days of its receipt of notice of such determination, then the determination of Market Price shall be made by a nationally recognized appraiser or investment banking firm mutually agreeable to the Corporation and the holder of this Warrant, with the costs of such determination being shared equally by the Corporation and the holder of this Warrant. 3.2.3 No adjustment of the Warrant Price however shall be made in any amount less than one percent (1%) of the then applicable Warrant Price, but any such lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to one percent (1%) or more of the then applicable Warrant Price. 3.2.4 Upon each adjustment of the Warrant Price as provided in this Section 3, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment, the number of shares obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. 3.3 DETERMINATION OF WARRANT PRICE ADJUSTMENT. 3.3.1 ISSUANCE OF RIGHTS, OPTIONS OR WARRANTS. In case at any time the Corporation shall in any manner grant -6- (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options or warrants for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options or warrants being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Price or Market Price, determined as of the date of granting such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in Paragraph 3.3.3, no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 3.3.2 ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Price or Market Price, determined as of the date of such issue or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion -7- or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in Paragraph 3.3.3 below, no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Warrant Price have been or are to be made pursuant to other provisions of Paragraph 3.3, no further adjustment of the Warrant Price shall be made by reason of such issue or sale. 3.3.3 CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening of any of the following events, namely, if the purchase price provided for in or the number of shares covered by any Option referred to in Paragraph 3.3.1, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Paragraph 3.3.1 or 3.3.2, or the rate at which Convertible Securities referred to in Paragraph 3.3.1 or 3.3.2, are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution upon the occurrence of an event that also results in the adjustment of the Warrant Price hereunder), the Warrant Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, number of shares, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Warrant Price then in effect hereunder shall forthwith be increased to the Warrant Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been granted or issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. 3.3.4 STOCK DIVIDENDS. In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in shares of Common Stock, Options or Convertible Securities, any shares of Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 3.3.5 CONSIDERATION FOR STOCK, OPTIONS OR CONVERTIBLE SECURITIES. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, -8- the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as determined in good faith by the Board of Directors of the Corporation of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation; provided, however, that the Warrant Price shall not be increased as a result of the foregoing. 3.3.6 RECORD DATE. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 3.3.7 TREASURY SHARES. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of Paragraphs 3.2 and 3.3. -9- 3.3.8 DETERMINATION OF MARKET PRICE UNDER CERTAIN CIRCUMSTANCES. Anything herein to the contrary notwithstanding, in case the Corporation shall issue shares of Common Stock, Options or Convertible Securities in connection with the acquisition by the Corporation, or any subsidiary of the Corporation, of the stock or assets of any other corporation or the merger of any other corporation into the Corporation, or any subsidiary of the Corporation, the Market Price shall be determined as of the date the number of shares of Common Stock, Options or Convertible Securities (or in the case of Convertible Securities other than stock, the aggregate principal amount of Convertible Securities) was determined (as set forth in the binding agreement between the Corporation and the other party to the transaction) rather than on the date of issuance of such shares of Common Stock, Options or Convertible Securities. 3.3.9 PRIORITY OF ADJUSTMENT. In case an adjustment of the Warrant Price will be required pursuant to both Paragraphs 3.2.1 and 3.2.2, the adjustment to be made shall be made only pursuant to one of such Paragraphs, whichever would result in the lower Warrant Price. 3.4 SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased. 3.5 EXCEPTIONS TO ADJUSTMENT PROVISIONS. Notwithstanding anything to the contrary contained in this Warrant, there shall be no adjustment to the Warrant Price as a result of the occurrence of any of the following events: (a) The issue or sale of any shares of Common Stock pursuant to options or warrants which were outstanding on the date hereof; or (b) The issue or sale of any shares of Common Stock pursuant to the Corporation's employee stock option, stock purchase or similar plans now or hereafter in effect; provided, however, that any such issue or sale of shares of Common Stock to Lou Weisbach or to any of his parents, spouse, descendants, siblings or spouses of siblings shall only be covered by this Subparagraph (b) if the shares of Common Stock issued or sold to such person is on the same basis as is made available to other employees of the Corporation. -10- 3.6 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization or reclassification (other than a reclassification constituting a subdivision or combination of its outstanding shares of Common Stock) of the capital stock of the Corporation, or any consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the shares of Common Stock of the Corporation immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including without limitation provisions for adjustments of the Warrant Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof (including an immediate adjustment, by reason of such consolidation or merger, of the Warrant Price to the value for the Common Stock reflected by the terms of such consolidation or merger if the value so reflected is less than the Warrant Price or Market Price in effect immediately prior to such consolidation or merger). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Warrant Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to the registered holder hereof at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, -11- securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase. 3.7 ADJUSTMENT FOR CERTAIN SPECIAL DIVIDENDS. In the event the Corporation shall declare a dividend upon the Common Stock payable otherwise than out of earnings or profits or earned surplus determined in accordance with generally accepted accounting principles (except in Common Stock or Convertible Securities or Options to Purchase Common Stock or Convertible Securities), the Warrant Price in effect immediately prior to the declaration of such dividend shall be reduced (to the extent payable otherwise than out of earnings or profits or earned surplus) by an amount equal, in the case of a dividend in cash, to the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of the Corporation (in both cases assuming that this Warrant had been fully exercised with respect to the shares of Common Stock covered hereby). Such reduction shall take effect as of the date on which a record is taken for the purposes of such dividend or, if a record is not taken, the date as of which the holders of Common Stock of record entitled to such dividend are to be determined. 3.8 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment under the provisions of this Paragraph 3 in the number or kind of Common Stock (or such other security as may become issuable pursuant to the provisions hereof) or in the Warrant Price as then in effect, the Corporation shall compute such adjustment in accordance with the provisions set forth herein and the Chief Financial Officer of the Company shall prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the consideration received or to be received by the Corporation for any additional Common Stock, Options or Convertible Securities issued or sold or deemed to have been issued or sold and of the number of shares of Common Stock, Options and Convertible Securities outstanding or deemed to be outstanding. The Corporation will forthwith mail a copy of each such certificate to the holder of this Warrant. 3.9 OTHER NOTICES. In case at any time: (a) the Corporation shall pay any cash dividend on its Common Stock at a rate in excess of the rate of the last cash dividend theretofore paid; (b) the Corporation shall declare any dividend payable in stock upon its Common Stock or make any special dividend or other distribution other than regular cash dividends to the holders of its Common Stock; -12- (c) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (d) there shall be any capital reorganization, or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation; or (e) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give written notice, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Corporation, (a) at least seven days prior to the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 3.10 CERTAIN EVENTS. If any event occurs as to which in the opinion of the Board of Directors the other provisions of this Paragraph 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the holder of this Warrant in accordance with the essential intent and principles of such provisions, the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. 3.11 ISSUE TAX. The issuance of certificates for shares of Common Stock upon exercise of the Warrant shall be made without charge to the holder of this Warrant for any issuance tax in respect thereof, provided that the Corporation shall not be -13- required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of this Warrant. 3.12 NO FRACTIONAL SHARES. The Corporation shall not be required to issue fractional shares of Common Stock and shall have the right upon the exercise of this Warrant or any portion hereof to round off the number of shares of Common Stock issued to the nearest whole number of shares. 4. NO VOTING RIGHTS. Until the valid exercise of this Warrant, this Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation, but immediately upon exercise of this Warrant and upon payment of the Warrant Price, the holder shall be deemed a record holder of the Common Stock. 5. RIGHTS OFFERINGS. The holder of this Warrant shall have the right to participate in any rights offering made by the Corporation generally to its holders of outstanding Common Stock as if this Warrant had been exercised in its entirety as to vested shares as of the date and time of such rights offering. 6. RESTRICTION ON TRANSFER OF COMMON STOCK AND REGISTRATION. The terms and conditions relating to transferability, restrictive legends and registration of the Common Stock issued upon the exercise of this Warrant shall be the same as those set forth in and contemplated by the Stock Purchase Agreement, all of which are incorporated herein by this reference. 7. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Illinois. 8. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not transferrable, in whole or in part, by the holder hereof without the prior written consent of the Corporation, except that such consent of the Corporation shall not be required in order for any such transfer to be made by the holder hereof to any owner of an equity interest in the holder hereof, a spouse or child of the holder hereof or any such equity owner, an entity controlled by the holder hereof or any such equity owner or any trust all of the beneficiaries of which are any of the foregoing. Any such permitted transfer shall be effected at the office or agency of the Corporation referred to in Paragraph 1 hereof by the holder hereof in person or by its duly authorized attorney, upon surrender of this Warrant properly endorsed. The form of the warrants issued upon any such transfer shall be the same as this Warrant, subject to such changes as may be approved by the holder of this Warrant and the Corporation. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so -14- endorsed may be treated by the Corporation and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Corporation; but until such transfer on such books, the Corporation may treat the registered holder hereof as the owner for all purposes. 9. EXCHANGES OF WARRANTS. This Warrant is exchangeable, upon its surrender by the holder hereof at the office or agency of the Corporation referred to in Paragraph 1 hereof, for new Warrants or like tenor representing in the aggregate the right to subscribe for and purchase the same number of shares of Common Stock as the holder of this Warrant has the right to subscribe for and purchase pursuant to this Warrant. 10. LOST OR MUTILATED WARRANT. In the event that this Warrant is lost or mutilated, the Corporation shall issue a substitute Warrant to the holder hereof upon such holder delivering to the Corporation such indemnification as the Corporation may reasonably require and otherwise complying with such requirements as the Corporation may reasonably impose. 11. MEANING OF COMMON STOCK. "Common Stock" when used in this Warrant with reference to the Common Stock purchasable hereunder shall mean Common Stock of the class existing on the date of issuance of this Warrant and any stock into which such Common Stock may thereafter have been changed and, when otherwise used in this Warrant, shall include also stock of the Company of any other class, whether now or hereafter authorized, which ranks, or is entitled to a participation, as to assets or dividends, substantially on a parity with such existing Common Stock or other class of stock into which such Common Stock may have been changed. 12. HEADINGS. The section headings used in this Warrant are for convenience of reference only and shall not constitute a part of this Warrant or affect the construction of this Warrant. -15- IN WITNESS WHEREOF, the undersigned has caused this Warrant to be signed by one of its duly authorized officers under its corporate seal and attested as of the 10th day of January, 1996. HA-LO INDUSTRIES, INC., an Illinois corporation By: --------------------------------------- Title: ------------------------------------- (CORPORATE SEAL) Attest: - ----------------------------------- Secretary -16- ELECTION TO PURCHASE HA-LO INDUSTRIES, INC The undersigned, the holder of the foregoing Warrant, hereby elects to exercise purchase rights represented by said Warrant for, and to purchase thereunder, _____________________ shares of the Common Stock covered by said Warrant and herewith makes payment in full therefor of $_____________ , and requests that certificates for such shares be issued in the name of and delivered to __________________________ whose address is _____________________ _____________________________; and, if such shares shall not include all of the shares issuable as provided in said Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. Dated: _________________________, _____ _______________________________ -17- SCHEDULE 1 There are three (3) documents omitted as Exhibits which contain the same material terms of the attached warrant, except that the parties defined therein as the holder of the warrant (marked as "(1)" on the first page of such document) and the amount of shares marked as "(2)" in the title of the warrant, the first paragraph thereafter, Section 1.1 and Section 1.2 differ among the documents. Such parties are set forth below (listed as "Holder") with the corresponding share number of their respective warrants.
Holder Shares Subject to Warrant - ------ ------------------------- Montgomery Ward & Co. Incorporated 345,946 ValueVision International Inc. 51,892 Merchant Development Corporation 2,160
-18- EX-10.51 14 EX-10.51 EXHIBIT 10.51 FIRST AMENDMENT TO WARRANT THIS FIRST AMENDMENT TO WARRANT ("Amendment") is entered into as of June 29, 1998 between HA-LO INDUSTRIES, INC., an Illinois corporation (the "Corporation"), and Montgomery Ward & Co. Incorporated, an Illinois corporation (the "Holder"). RECITALS A. Pursuant to that certain Warrant, dated January 10, 1996 (the "Warrant"), the Corporation granted to the Holder the right to purchase 345,946 shares of the Corporation's Common Stock, no par value (the "Common Stock"), on specified terms and conditions. B. Pursuant to the adjustment provisions of the Warrant, but subject to the vesting provisions of the Warrant, the Warrant is currently exercisable for an aggregate of 648,162 shares of Common Stock at a Warrant Price (as such term is defined in the Warrant) of $3.56. C. The Corporation and the Holder desire to amend the Warrant in certain respects as set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AMENDMENTS. Effective as of the date hereof, the Warrant is hereby amended as follows: (a) Notwithstanding the terms of Section 1.2 of the Warrant, the right to purchase 57,658 shares of the Common Stock scheduled to vest on January 11, 1998 upon the satisfaction of certain performance standards set forth in the Warrant shall, notwithstanding the failure to satisfy such performance standards, be deemed fully vested. (b) All references to "$15,000,000" in Sections 1.2(a) and 1.2(b) of the Warrant are hereby deleted and "$8,000,000" is hereby substituted in lieu thereof. (c) Section 1.3(b) of the Warrant is hereby deleted in its entirety. 2. REFERENCES TO AND EFFECT ON WARRANT. (a) On and after the date hereof, each reference in the Warrant to "this Warrant", "hereunder", "hereof", "herein" or words of similar import shall mean and shall be a reference to the Warrant as amended hereby. (b) Except as specifically set forth in this Amendment, the Warrant shall remain in full force and effect and is hereby ratified and confirmed. 3. HEADINGS. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 4. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 5. ENTIRE AGREEMENT. This Amendment, together with the Warrant, constitute the entire agreement of the parties and supersedes all prior agreements and understandings, written or oral, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have accepted and executed this Amendment on and as of the date set forth above. HA-LO INDUSTRIES, INC. By: ------------------------------------- Its: ------------------------------------ MONTGOMERY WARD & CO. INCORPORATED By: ------------------------------------- Its: ------------------------------------ - 2 - EX-10.52 15 EX-10.52 Exhibit 10.52 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS. THIS WARRANT IS ISSUED PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT, DATED AS OF JANUARY 11, 1995, AS AMENDED, BETWEEN HA-LO INDUSTRIES, INC. AND MERCHANT PARTNERS, L.P., (THE "STOCK PURCHASE AGREEMENT"), A COPY OF WHICH IS MAINTAINED AT THE OFFICES OF HA-LO INDUSTRIES, INC. WARRANT To Subscribe for and Purchase (2) Shares of Common Stock of HA-LO Industries, Inc. THIS CERTIFIES THAT, for value received, (1) or registered assigns is entitled to subscribe for and purchase from HA-LO INDUSTRIES, INC. (the "Corporation"), a corporation organized and existing under the laws of the State of Illinois, at the price of $25.00 per share (subject to adjustment as noted below) (2) (subject to adjustment as noted below) fully paid and nonassessable shares of the Corporation's Common Stock, no par value (the "Common Stock") at the times and in the manner set forth below until 5:00 p.m., Chicago time, on January 11, 2010 (the "Expiration Date"). This Warrant is subject to the following provisions, terms and conditions: 1. EXERCISE; VESTING; ACCELERATION. 1.1 EXERCISE OF THIS WARRANT. Subject to the terms and conditions hereof, the holder of this Warrant shall have the right to purchase, in whole or in part, up to (2) shares of Common Stock, by the surrender of this Warrant (accompanied by a duly executed Election to Purchase) at the principal office of the Corporation in Niles, Illinois (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation), at any time or from time to time prior to the Expiration Date and upon payment to the Corporation of the purchase price for such shares by certified check or cashier's check or wire transfer. The Corporation agrees that the shares so purchased shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares of Common Stock so purchased shall be delivered to the holder hereof as promptly as practicable after the rights represented by this Warrant shall have been so exercised, and a new warrant (in the same form as this Warrant, subject to such changes as may be approved by the holder of this Warrant and the Corporation) representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the holder hereof as promptly as practicable. This Warrant shall expire and no longer be exercisable after the Expiration Date to the extent to which this Warrant shall not have been exercised on or prior to the Expiration Date. 1.2 VESTING. Notwithstanding Paragraph 1.1, and subject to the remainder of this Section 1.2, the right of the holder of this Warrant to purchase up to (2) shares of Common Stock shall vest in the following manner:
NUMBER OF SHARES VESTING DATE ---------------- ---------------- one-sixth of (2) January 11, 2000 one-sixth of (2) January 11, 2001 one-sixth of (2) January 11, 2002 one-sixth of (2) January 11, 2003 one-sixth of (2) January 11, 2004 one-sixth of (2) January 11, 2005 ---------------- (2)
, and the holder of this Warrant may only exercise such right as to shares that have vested. Notwithstanding anything to the contrary contained herein: (a) This Warrant and all rights of the holder of this Warrant to exercise this Warrant shall immediately and automatically terminate, without the necessity of any action or notice whatsoever, upon the termination or expiration of that certain Exclusive Premium Purchasing Agreement dated January 11, 1995 between the Corporation and Montgomery Ward & Co., Incorporated (an affiliate of Merchant Partners, L.P.) (the "Purchasing Agreement"), unless (i) such termination is the result of Montgomery Ward & Co., Incorporated exercising its right to terminate the Purchasing Agreement early pursuant to Section 1.2(C) thereof, in which event the vesting of the right to purchase shares of Common Stock pursuant to this Warrant shall accelerate, and this Warrant shall become fully exercisable -2- for all shares of Common Stock not previously purchased by exercise; or (ii) such termination is the result of Montgomery Ward & Co., Incorporated exercising on or after January 1, 1999 its right to terminate the Purchasing Agreement early pursuant to Section 1.2(B) thereof, in which event this Warrant shall vest with respect to the shares of Common Stock that would otherwise vest on the next succeeding vesting date and the holder of this Warrant will be entitled to exercise this Warrant as to the number of shares of Common Stock that it otherwise would have been entitled to exercise on such next succeeding vesting date but only if during the period commencing on January 1 of the year in which such termination occurs and ending on the date of such termination, purchases of Premium Products (as defined in the Purchasing Agreement) by the MW Buying Group (as defined in the Purchasing Agreement) under the Purchasing Agreement equal or exceed $15,000,000 (inclusive of Premium Products purchased by the MW Buying Group from other vendors in the manner contemplated by Sections 4.(B) and 6 of the Purchasing Agreement but exclusive of the amount of Premium Product purchases, if any, attributed to the immediately preceding calendar year as permitted pursuant to Section 1.2(b) below) calculated on the basis of the dates of invoices for such Premium Products; and (b) If during any calendar year beginning with 1999 purchases of Premium Products (as defined in the Purchasing Agreement) by the MW Buying Group (as defined in the Purchasing Agreement) under the Purchasing Agreement are less than $15,000,000 (inclusive of premium products purchased by the MW Buying Group from other vendors in the manner contemplated by Sections 4.(B) and 6 of the Purchasing Agreement) calculated on the basis of the dates of invoices for such Premium Products, then this Warrant shall not vest with respect to the shares of Common Stock that would otherwise vest on the next succeeding vesting date until December 27, 2004; provided, however, that the holder of this Warrant may, at its option, attribute the Premium Products purchased by the MW Buying Group during the month of January of any calendar year to the Premium -3- Product purchases for the immediately preceding calendar year for purposes of attaining said $15,000,000 in Premium Product purchases, in which event the amount of Premium Product purchases so attributed to the immediately preceding calendar year may not be used again in connection with the calculation of Premium Product purchases for the then current calendar year. 1.3 ACCELERATION. The vesting of the right to purchase shares of Common Stock pursuant to this Warrant shall accelerate, and this Warrant shall become fully exercisable for all shares of Common Stock not previously purchased by exercise, upon the occurrence of any of the following events: (a) The termination of the Purchasing Agreement by Montgomery Ward & Co., Incorporated pursuant to Section 1.2(C) thereof; or (b) The dissolution or liquidation of the Corporation, except if such dissolution or liquidation is part of a reorganization, reclassification, consolidation, merger or sale covered by Paragraph 3.6. 2. STOCK ISSUED. 2.1 STOCK TO BE RESERVED. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issue upon exercise of this Warrant, such number of shares of Common Stock as shall be issuable upon exercise of this Warrant. The Corporation covenants that all shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. 2.2 RESTRICTIONS ON TRANSFER. Subject to the continued accuracy of the representations made in Section 6 of the Stock Purchase Agreement as to the holder hereof, the Corporation will take all such action as may be reasonable to assure that all such shares of Common Stock issuable pursuant to this Warrant may be so issued without violation of any applicable law or regulation, or of any requirements of any securities exchange upon which the Common Stock of the Corporation may be listed. -4- 3. WARRANT PRICE; BASE PRICE; PROTECTION AGAINST DILUTION. 3.1 INITIAL WARRANT PRICE; INITIAL BASE PRICE . The initial purchase price of $25.00 per share (the "Warrant Price") and the number of shares of Common Stock issuable pursuant to this Warrant shall be subject to adjustment from time to time as hereinafter provided. For purposes of calculating the adjustment to the Warrant Price contemplated by this Paragraph 3, the initial Base Price shall be $21.583 per share (being the average of the "daily market price" for a share of the Corporation's Common Stock over a period of three business days immediately prior to the date of this Warrant, which business days were December 21, 1995, December 22, 1995 and December 26, 1995, with the "daily market price" for each such business day being the mean of the last reported closing bid and asked prices on such day in the over-the- counter market, as furnished by the NASDAQ System), subject to adjustment from time to time as hereinafter provided. 3.2 ADJUSTMENT OF THE WARRANT PRICE, BASE PRICE AND NUMBER OF SHARES. 3.2.1 Except as provided in Paragraph 3.5, if and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Base Price on the date of such issue or sale, then forthwith upon such issue or sale, (i) the Warrant Price shall be reduced to the price (calculated to the nearest cent) determined by multiplying the Warrant Price in effect immediately prior to the time of such issuance or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Base Price immediately prior to such issue or sale, plus (B) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product of (C) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (D) the Base Price immediately prior to such issue or sale; and (ii) the Base Price shall be reduced to the price (calculated to the nearest cent) determined by multiplying the Base Price in effect immediately prior to the time of such issuance or sale by the same fraction. 3.2.2 Except as provided in Paragraph 3.5, if and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Market Price on the date of such issue or sale, then forthwith upon such issue or sale, the Warrant Price shall be reduced to the price (calculated to the nearest cent) determined by multiplying the Warrant Price in effect immediately prior to the time of such issuance or sale by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Market -5- Price immediately prior to such issue or sale, plus (B) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product of (C) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (D) the Market Price immediately prior to such issue or sale. For purposes hereof, the Market Price of a share of Common Stock shall mean the average of the closing prices of the Common Stock for sales on all securities exchanges on which the Common Stock may at the time be listed, or, if there shall have been no sales on any such exchange on any such date, the average of the closing bid and asked prices on such date, or, if the Common Stock shall not be so listed, the average of the closing bid and asked prices on such date in the over-the-counter market as furnished by the NASDAQ System, or any similar successor organization, in each case averaged over a period of 30 consecutive business days prior to the date as of which Market Price is being determined. If at any time the Common Stock is not listed on any securities exchange or quoted in the over-the-counter market, the Market Price shall be deemed to be the fair value thereof determined in good faith by the Board of Directors of the Corporation as of a date which is within 15 days of the date as of which the determination is to be made; provided, however, that if the holder of this Warrant disputes such determination of Market Value within 15 days of its receipt of notice of such determination, then the determination of Market Price shall be made by a nationally recognized appraiser or investment banking firm mutually agreeable to the Corporation and the holder of this Warrant, with the costs of such determination being shared equally by the Corporation and the holder of this Warrant. 3.2.3 No adjustment of the Warrant Price or Base Price however shall be made in any amount less than one percent (1%) of the then applicable Warrant Price or Base Price, as applicable, but any such lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to one percent (1%) or more of the then applicable Warrant Price or Base Price. 3.2.4 Upon each adjustment of the Warrant Price as provided in this Section 3, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment, the number of shares obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. -6- 3.3 DETERMINATION OF WARRANT PRICE ADJUSTMENT. 3.3.1 ISSUANCE OF RIGHTS, OPTIONS OR WARRANTS. In case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options or warrants for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options or warrants being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Base Price or Market Price, determined as of the date of granting such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in Paragraph 3.3.3, no adjustment of the Warrant Price or Base Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 3.3.2 ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or -7- exchange of all such Convertible Securities) shall be less than the Base Price or Market Price, determined as of the date of such issue or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in Paragraph 3.3.3 below, no adjustment of the Warrant Price or Base Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Warrant Price have been or are to be made pursuant to other provisions of Paragraph 3.3, no further adjustment of the Warrant Price or Base Price shall be made by reason of such issue or sale. 3.3.3 CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening of any of the following events, namely, if the purchase price provided for in or the number of shares covered by any Option referred to in Paragraph 3.3.1, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Paragraph 3.3.1 or 3.3.2, or the rate at which Convertible Securities referred to in Paragraph 3.3.1 or 3.3.2, are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution upon the occurrence of an event that also results in the adjustment of the Warrant Price hereunder), the Warrant Price and Base Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price and Base Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, number of shares, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Warrant Price and Base Price then in effect hereunder shall forthwith be increased to the Warrant Price and Base Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been granted or issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. 3.3.4 STOCK DIVIDENDS. In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in shares of Common Stock, Options or Convertible Securities, any shares of Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of -8- such dividend or distribution shall be deemed to have been issued or sold without consideration. 3.3.5 CONSIDERATION FOR STOCK, OPTIONS OR CONVERTIBLE SECURITIES. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as determined in good faith by the Board of Directors of the Corporation of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation; provided, however, that the Warrant Price shall not be increased as a result of the foregoing. 3.3.6 RECORD DATE. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. -9- 3.3.7 TREASURY SHARES. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of Paragraphs 3.2 and 3.3. 3.3.8 DETERMINATION OF MARKET PRICE UNDER CERTAIN CIRCUMSTANCES. Anything herein to the contrary notwithstanding, in case the Corporation shall issue shares of Common Stock, Options or Convertible Securities in connection with the acquisition by the Corporation, or any subsidiary of the Corporation, of the stock or assets of any other corporation or the merger of any other corporation into the Corporation, or any subsidiary of the Corporation, the Market Price shall be determined as of the date the number of shares of Common Stock, Options or Convertible Securities (or in the case of Convertible Securities other than stock, the aggregate principal amount of Convertible Securities) was determined (as set forth in the binding agreement between the Corporation and the other party to the transaction) rather than on the date of issuance of such shares of Common Stock, Options or Convertible Securities. 3.3.9 PRIORITY OF ADJUSTMENT. In case an adjustment of the Warrant Price will be required pursuant to both Paragraphs 3.2.1 and 3.2.2, the adjustment to be made shall be made only pursuant to one of such Paragraphs, whichever would result in the lower Warrant Price. 3.4 SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Price and Base Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Warrant Price and Base Price in effect immediately prior to such combination shall be proportionately increased. 3.5 EXCEPTIONS TO ADJUSTMENT PROVISIONS. Notwithstanding anything to the contrary contained in this Warrant, there shall be no adjustment to the Warrant Price or Base Price as a result of the occurrence of any of the following events: (a) The issue or sale of any shares of Common Stock pursuant to options or warrants which were outstanding on the date hereof; or (b) The issue or sale of any shares of Common Stock pursuant to the Corporation's employee stock option, stock purchase or similar plans now or hereafter in effect; provided, however, that any such issue or sale of shares of -10- Common Stock to Lou Weisbach or to any of his parents, spouse, descendants, siblings or spouses of siblings shall only be covered by this Subparagraph (b) if the shares of Common Stock issued or sold to such person is on the same basis as is made available to other employees of the Corporation. 3.6 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any capital reorganization or reclassification (other than a reclassification constituting a subdivision or combination of its outstanding shares of Common Stock) of the capital stock of the Corporation, or any consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the shares of Common Stock of the Corporation immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including without limitation provisions for adjustments of the Warrant Price and Base Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof (including an immediate adjustment, by reason of such consolidation or merger, of the Warrant Price and Base Price to the value for the Common Stock reflected by the terms of such consolidation or merger if the value so reflected is less than the Warrant Price or Market Price in effect immediately prior to such consolidation or merger). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Warrant Price and Base Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the -11- Corporation. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to the registered holder hereof at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase. 3.7 ADJUSTMENT FOR CERTAIN SPECIAL DIVIDENDS. In the event the Corporation shall declare a dividend upon the Common Stock payable otherwise than out of earnings or profits or earned surplus determined in accordance with generally accepted accounting principles (except in Common Stock or Convertible Securities or Options to Purchase Common Stock or Convertible Securities), the Warrant Price and Base Price in effect immediately prior to the declaration of such dividend shall be reduced (to the extent payable otherwise than out of earnings or profits or earned surplus) by an amount equal, in the case of a dividend in cash, to the amount thereof payable per share of Common Stock or, in the case of any other dividend, to the fair value thereof per share of Common Stock as determined in good faith by the Board of Directors of the Corporation (in both cases assuming that this Warrant had been fully exercised with respect to the shares of Common Stock covered hereby). Such reduction shall take effect as of the date on which a record is taken for the purposes of such dividend or, if a record is not taken, the date as of which the holders of Common Stock of record entitled to such dividend are to be determined. 3.8 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment under the provisions of this Paragraph 3 in the number or kind of Common Stock (or such other security as may become issuable pursuant to the provisions hereof) or in the Warrant Price and Base Price as then in effect, the Corporation shall compute such adjustment in accordance with the provisions set forth herein and the Chief Financial Officer of the Company shall prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the consideration received or to be received by the Corporation for any additional Common Stock, Options or Convertible Securities issued or sold or deemed to have been issued or sold and of the number of shares of Common Stock, Options and Convertible Securities outstanding or deemed to be outstanding. The Corporation will forthwith mail a copy of each such certificate to the holder of this Warrant. 3.9 OTHER NOTICES. In case at any time: (a) the Corporation shall pay any cash dividend on its Common Stock at a rate in excess of the -12- rate of the last cash dividend theretofore paid; (b) the Corporation shall declare any dividend payable in stock upon its Common Stock or make any special dividend or other distribution other than regular cash dividends to the holders of its Common Stock; (c) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (d) there shall be any capital reorganization, or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation; or (e) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give written notice, by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Corporation, (a) at least seven days prior to the date on which a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 3.10 CERTAIN EVENTS. If any event occurs as to which in the opinion of the Board of Directors the other provisions of this Paragraph 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the holder of this Warrant in accordance with the essential intent and principles of -13- such provisions, the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. 3.11 ISSUE TAX. The issuance of certificates for shares of Common Stock upon exercise of the Warrant shall be made without charge to the holder of this Warrant for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of this Warrant. 3.12 NO FRACTIONAL SHARES. The Corporation shall not be required to issue fractional shares of Common Stock and shall have the right upon the exercise of this Warrant or any portion hereof to round off the number of shares of Common Stock issued to the nearest whole number of shares. 4. NO VOTING RIGHTS. Until the valid exercise of this Warrant, this Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation, but immediately upon exercise of this Warrant and upon payment of the Warrant Price, the holder shall be deemed a record holder of the Common Stock. 5. RIGHTS OFFERINGS. The holder of this Warrant shall have the right to participate in any rights offering made by the Corporation generally to its holders of outstanding Common Stock as if this Warrant had been exercised in its entirety as to vested shares as of the date and time of such rights offering. 6. RESTRICTION ON TRANSFER OF COMMON STOCK AND REGISTRATION. The terms and conditions relating to transferability, restrictive legends and registration of the Common Stock issued upon the exercise of this Warrant shall be the same as those set forth in and contemplated by the Stock Purchase Agreement, all of which are incorporated herein by this reference. 7. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Illinois. 8. TRANSFER OF WARRANT. This Warrant and all rights hereunder are not transferrable, in whole or in part, by the holder hereof without the prior written consent of the Corporation, except that such consent of the Corporation shall not be required in order for any such transfer to be made by the holder hereof to any owner of an equity interest in the holder hereof, a spouse or child of the holder hereof or any such equity owner, an entity controlled by the holder hereof or any such equity owner or any trust all of the beneficiaries of which are any of the foregoing. Any such permitted transfer shall be effected at the office or -14- agency of the Corporation referred to in Paragraph 1 hereof by the holder hereof in person or by its duly authorized attorney, upon surrender of this Warrant properly endorsed. The form of the warrants issued upon any such transfer shall be the same as this Warrant, subject to such changes as may be approved by the holder of this Warrant and the Corporation. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed may be treated by the Corporation and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Corporation; but until such transfer on such books, the Corporation may treat the registered holder hereof as the owner for all purposes. 9. EXCHANGES OF WARRANTS. This Warrant is exchangeable, upon its surrender by the holder hereof at the office or agency of the Corporation referred to in Paragraph 1 hereof, for new Warrants or like tenor representing in the aggregate the right to subscribe for and purchase the same number of shares of Common Stock as the holder of this Warrant has the right to subscribe for and purchase pursuant to this Warrant. 10. LOST OR MUTILATED WARRANT. In the event that this Warrant is lost or mutilated, the Corporation shall issue a substitute Warrant to the holder hereof upon such holder delivering to the Corporation such indemnification as the Corporation may reasonably require and otherwise complying with such requirements as the Corporation may reasonably impose. 11. MEANING OF COMMON STOCK. "Common Stock" when used in this Warrant with reference to the Common Stock purchasable hereunder shall mean Common Stock of the class existing on the date of issuance of this Warrant and any stock into which such Common Stock may thereafter have been changed and, when otherwise used in this Warrant, shall include also stock of the Company of any other class, whether now or hereafter authorized, which ranks, or is entitled to a participation, as to assets or dividends, substantially on a parity with such existing Common Stock or other class of stock into which such Common Stock may have been changed. 12. HEADINGS. The section headings used in this Warrant are for convenience of reference only and shall not constitute a part of this Warrant or affect the construction of this Warrant. -15- IN WITNESS WHEREOF, the undersigned has caused this Warrant to be signed by one of its duly authorized officers under its corporate seal and attested as of the 10th day of January, 1996. HA-LO INDUSTRIES, INC., an Illinois corporation By: -------------------------------- Title: ----------------------------- (CORPORATE SEAL) Attest: - -------------------------------------- Secretary -16- ELECTION TO PURCHASE HA-LO INDUSTRIES, INC The undersigned, the holder of the foregoing Warrant, hereby elects to exercise purchase rights represented by said Warrant for, and to purchase thereunder, ________________________ shares of the Common Stock covered by said Warrant and herewith makes payment in full therefor of $_________________, and requests that certificates for such shares be issued in the name of and delivered to ___________________________ _______________________ whose address is _______________________________________________; and, if such shares shall not include all of the shares issuable as provided in said Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. Dated: , ------------------------------- ------------ -------------------------------- -17- SCHEDULE 1 There are three (3) documents omitted as Exhibits which contain the same material terms of the attached warrant, except that the parties defined therein as the holder of the warrant (marked as "(1)" on the first page of such document) and the amount of shares marked as "(2)" in the title of the warrant, the first paragraph thereafter, Section 1.1 and Section 1.2 differ among the documents. Such parties are set forth below (listed as "Holder") with the corresponding share number of their respective warrants.
HOLDER SHARES SUBJECT TO WARRANT - ------ ------------------------- Montgomery Ward & Co. Incorporated 172,971 ValueVision International Inc. 25,946 Merchant Development Corporation 1,081
-18- EX-10.53 16 EX-10.53 EXHIBIT 10.53 FIRST AMENDMENT TO WARRANT THIS FIRST AMENDMENT TO WARRANT ("Amendment") is entered into as of June 29, 1998 between HA-LO INDUSTRIES, INC., an Illinois corporation (the "Corporation"), and Montgomery Ward & Co. Incorporated, an Illinois corporation (the "Holder"). RECITALS A. Pursuant to that certain Warrant, dated January 10, 1996 (the "Warrant"), the Corporation granted to the Holder the right to purchase 172,971 shares of the Corporation's Common Stock, no par value (the "Common Stock"), on specified terms and conditions. B. Pursuant to the adjustment provisions of the Warrant, but subject to the vesting provisions of the Warrant, the Warrant is currently exercisable for an aggregate of 324,157 shares of Common Stock at a Warrant Price (as such term is defined in the Warrant) of $13.34. C. The Corporation and the Holder desire to amend the Warrant in certain respects as set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AMENDMENT. Effective as of the date hereof, the Warrant is hereby amended by deleting all references to "$15,000,000" in Sections 1.2(a) and 1.2(b) of the Warrant and substituting "$8,000,000" in lieu thereof. 2. REFERENCES TO AND EFFECT ON WARRANT. (a) On and after the date hereof, each reference in the Warrant to "this Warrant", "hereunder", "hereof", "herein" or words of similar import shall mean and shall be a reference to the Warrant as amended hereby. (b) Except as specifically set forth in this Amendment, the Warrant shall remain in full force and effect and is hereby ratified and confirmed. 3. HEADINGS. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 4. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 5. ENTIRE AGREEMENT. This Amendment, together with the Warrant, constitute the entire agreement of the parties and supersedes all prior agreements and understandings, written or oral, relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have accepted and executed this Amendment on and as of the date set forth above. HA-LO INDUSTRIES, INC. By: ------------------------------------ Its: ----------------------------------- MONTGOMERY WARD & CO. INCORPORATED By: ------------------------------------ Its: ----------------------------------- - 2 - EX-10.54 17 EX-10.54 Exhibit 10.54 AGREEMENT This Agreement ("Agreement") is entered into as of January 26, 1999 by and between HA-LO INDUSTRIES, INC., an Illinois corporation ("HA-LO"), and MONTGOMERY WARD & CO. INCORPORATED, an Illinois corporation ("Montgomery Ward"). RECITALS A. Montgomery Ward and HA-LO are party to that certain Exclusive Premium Purchasing Agreement dated January 11, 1995 as amended by a First Amendment, dated December 27, 1995, and a Second Amendment, dated June 29, 1998 (collectively, the "Purchasing Agreement"). B. Pursuant to two Warrants, each dated January 10, 1996 and each amended as of June 29, 1998 (as amended, collectively, the "Warrants"), HA-LO granted to Montgomery Ward the right to purchase an aggregate of 518,917 shares (preadjustment) of HA-LO's Common Stock, no par value (the "Warrant Shares") on specified terms and conditions. C. The parties wish to make certain clarifying changes and amendments to the Purchasing Agreement, the Warrants and otherwise, all as is set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DESIGNATION OF PURCHASE ORDERS. Notwithstanding the provisions of Section 1.2(b) of the Warrants that the calculation of purchases of Premium Products by the MW Buying Group under the Purchasing Agreement are to be calculated "on the basis of the dates of invoices for such Premium Products," at the discretion of Montgomery Ward, purchase orders made by Montgomery Ward pursuant to the Purchasing Agreement during the calendar month of January, 1999 shall be included in the calculation of purchases of Premium Products under such Section 1.2(b) for January, 1999. All such purchase orders shall be paid in full by Montgomery Ward upon execution hereof. 2. PAYMENT TERMS. Notwithstanding the provisions of Section 5 of the Purchasing Agreement, for all purchase orders made by the MW Buying Group from and after the date hereof pursuant to the Purchasing Agreement (and with respect to the purchases described in paragraph 1 of this Agreement), payment shall be made in an amount equal to 100% of the HA-LO quotation amount with regard to each such purchase order upon delivery of such purchase orders to HA-LO, and the remainder of the payment obligation with respect to such purchase order, if at all, shall be due and owing net thirty (30) days from the later of (i) the date of shipment of Premium Products by HA-LO with respect thereto, or (ii) the date of receipt by Montgomery Ward of HA-LO's invoice for such Premium Products. 3. PAYMENT OF OUTSTANDING RECEIVABLES. On or before February 15, 1999, Montgomery Ward shall pay in full to HA-LO the outstanding balance of all sums owed by Montgomery Ward to HA-LO, whether or not such sums are now or would otherwise be due and owing pursuant to the Purchasing Agreement (prior to the adoption of this Agreement). 4. COUNTERPART. This Agreement may be executed in any number of counterparts, and each counterpart shall constitute an original instrument, but all separate counterparts shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the date set forth above. MONTGOMERY WARD & CO. INCORPORATED By: ------------------------------ Its: -------------------------- HA-LO INDUSTRIES, INC. By: ------------------------------ Its: -------------------------- 2 EX-10.55 18 EX-10.55 Exhibit 10.55 FIRST AMENDMENT TO THE 1998 RESTATEMENT OF THE HA-LO INDUSTRIES, INC. 401(k) SAVINGS PLAN WHEREAS, HA-LO Industries, Inc. (the "Company") established and maintains the HA-LO Industries, Inc. 401(k) Savings Plan (the "Plan") for the benefit of its eligible employees; and WHEREAS, amendment of the Plan is now considered desirable; WHEREAS, the power to amend the Plan is reserved to the Company under Section 11.1 of the Plan. NOW, THEREFORE, BE IT RESOLVED that the Plan is hereby amended, effective as provided herein, in the following particulars: 1. Effective January 1, 1999, by adding to the end of Section 3.1 of the Plan the following: Notwithstanding any provision in the Plan to the contrary, each Participant in the Plan immediately prior to January 1, 1999 shall continue to be a Participant in the Plan on and after January 1, 1999 subject to the limitations of the Plan. Effective January 1, 1999, each other Employee shall become an Active Participant on the first Entry Date on or following the date he attains age 21 and completes three months of service with a Related Entity, provided he is still an Employee on such date. For Plan eligibility purposes, service prior to January 1, 1999 shall be counted for each sales representative for a Related Entity who was an independent contractor or who was employed by a corporation and in such capacity provided sales services to a Related Entity, as determined by the Plan Administrator in a uniform and nondiscriminatory manner. EX-10.56 19 EX-10.56 Exhibit 10.56 SECOND AMENDMENT TO THE 1998 RESTATEMENT OF THE HA-LO INDUSTRIES, INC. 401(k) SAVINGS PLAN WHEREAS, HA-LO Industries, Inc. (the "Company") established and maintains the HA-LO Industries, Inc. 401(k) Savings Plan (the "Plan") for the benefit of its eligible employees; and WHEREAS, amendment of the Plan is now considered desirable; WHEREAS, the power to amend the Plan is reserved to the Company under Section 11.1 of the Plan. NOW, THEREFORE, BE IT RESOLVED that the Plan is hereby amended, effective as provided herein, in the following particulars: 1. Effective January 1, 1998, by substituting for Section 2.2 of the Plan the following: ACTUAL DEFERRAL PERCENTAGE means the percentage determined by dividing the 401(k) Contributions and Matching Contributions allocated to a Participant's 401(k) and Matching Account by the Participant's Testing Compensation. A Participant's Actual Deferral Percentage will be determined in accordance with Treasury Regulation ss. 1.401(k)-1. The term "Testing Compensation" means any and all items of compensation which the Company establishes and which satisfies the requirements for a definition of compensation under Code Section 414(s) and regulations thereunder. 2. Effective January 1, 1999, by substituting for Section 2.7 of the Plan the following: COMPENSATION means for any period the base salary and wages for regular hours worked paid by the Company or any Related Entity for services rendered as an employee, including commissions paid to sales representatives, and the amount of any Company contribution pursuant to a salary reduction agreement which is not includable in the gross income of the Participant under Code Section 125, 402(e)(3), 402(h) or 403(b). Compensation, however, shall not include the Participant's share in any Profit Sharing or Matching Contributions under the Plan or to any other employee benefit or insurance program, bonuses or overtime pay. For all purposes of the Plan, Compensation in excess of the applicable dollar limitation contained in Code Section 401(a)(17), as may be adjusted by the Secretary of the Treasury for cost-of-living increases, shall be disregarded for each Plan Year. The Compensation of a Participant who becomes eligible to participate at any time other than the first day of a Plan Year shall include only his Compensation paid to him while a Participant in the Plan. 3. Effective April 1, 1999, by adding to the end of Section 3.1 of the Plan the following: Notwithstanding any provision in the Plan to the contrary, for an Employee who is hired due to a corporate acquisition and who satisfies the requirements for participation in the Plan, the Plan Administrator may set a separate, special Entry Date, as shall be determined by the Plan Administrator in a uniform and nondiscriminatory manner. 4. Effective March 1, 1999, by substituting for the last sentence of Section 11.1 of the Plan the following: Notwithstanding any provision in the Plan to the contrary, the Company has further delegated to Richard A. Magid and Lou Weisbach the authority to amend the Plan with respect to amendments which would affect the cost of benefits provided under the Plan, to approve plan mergers and spinoffs and to appoint members to the committee appointed to administer the Plan. -2- EX-13 20 EX-13 Exhibit 13 [LOGO] 1998 HIGHLIGHTS 1998 HIGHLIGHTS - - Recurring pre-tax net income increased to $51.2 million, an increase of 79% over 1997. - - Sales increased 27% in 1998 and reached an all-time high of $589.7 million. - - Continued aggressive growth strategy in the core promotional products industry. - - Expanded marketing services business with the acquisitions of UPSHOT and LAGA, both leaders in their marketing disciplines. SELECTED FINANCIAL DATA
Year Ended December 31, --------------------------------------------------------- Restated (a)(b) --------------------------------------------- (In thousands, except per share amounts) 1998(b) 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- Statement of Income Data: Net Sales $589,669 $465,721 $375,736 $310,116 $218,834 Net Income $ 24,750 $ 15,458 $ 10,092 $ 7,309 $ 9,195 Pro forma Net Income (c) $ 24,520 $ 14,846 $ 9,879 $ 5,902 $ 6,346 Pro forma Net Income Per Share, Diluted (a), (c) $ 0.53 $ 0.36 $ 0.25 $ 0.17 $ 0.19 Weighted Average Shares Outstanding, Diluted (a) 46,447 41,112 40,266 34,586 32,588 Balance Sheet Data (End of Year): Working Capital $162,751 $ 78,741 $ 60,706 $ 42,286 $ 21,742 Total Assets $347,017 $238,053 $147,063 $124,331 $ 92,141 Long-term Debt $ - $ 44,930 $ 29,863 $ 13,263 $ 14,917 Shareholders' Equity (d) $235,491 $ 85,473 $ 62,032 $ 52,091 $ 24,414
(a) The number of common shares and per share data for all periods reflects the three-for-two split that became effective February 19, 1999. (b) All periods presented include the results of acquisitions accounted for using the pooling-of-interests method of accounting. (c) Certain companies acquired and accounted for using the pooling-of-interests accounting method had elected to be treated as S Corporations and were therefore not subject to Federal income taxes prior to their acquisition by the Company. Pro forma net income and pro forma net income per share amounts include an unaudited provision for Federal and state taxes at an effective rate of 40%. (d) Includes cash dividends of $11,518,000, $5,296,000, $6,887,000, $7,761,000 and $5,088,000 declared by acquired companies in 1998, 1997, 1996, 1995 and 1994, respectively, prior to their acquisition by the Company. [LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the years indicated the percent of net sales represented by each line item presented in the Company's Consolidated Statements of Income:
Percent of Net Sales - ------------------------------------------------------------------------------------------------------------ Year Ended December 31, - ------------------------------------------------------------------------------------------------------------ 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Net Sales 100.0% 100.0% 100.0% Cost of Sales 64.9% 67.4% 69.6% Gross Profit 35.1% 32.6% 30.4% Selling Expenses 13.0% 12.3% 11.9% General and Administrative Expenses 13.7% 13.7% 13.4% Non-Recurring Charges, Primarily Related to Acquisitions 1.8% .8% .4% - ------------------------------------------------------------------------------------------------------------ Operating Income 6.6% 5.8% 4.7% Interest Income (Expense), Net .3% (.5%) (.3%) - ------------------------------------------------------------------------------------------------------------ Income Before Income Taxes 6.9% 5.3% 4.4% Provision for Income Taxes 2.7% 2.0% 1.7% - ------------------------------------------------------------------------------------------------------------ Net Income 4.2% 3.3% 2.7% - ------------------------------------------------------------------------------------------------------------ Pro forma Net Income 4.2% 3.2% 2.6% - ------------------------------------------------------------------------------------------------------------
The following table summarizes the concentration of net sales by each of the Company's business segments:
Percent of Net Sales - ------------------------------------------------------------------------------------------------------------- Business Segment 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Promotional Products 79% 75% 79% Marketing Services 11% 11% 6% Telemarketing 10% 14% 15%
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997. Net sales for 1998 increased 26.6% to $589.7 million from $465.7 million for 1997. Of the $123.9 million increase, $96.6 million was due to internal growth and $27.3 million was from acquired companies. Promotional product net sales increased $113.8 million in 1998. Of this amount, $86.5 million was internal, resulting in an internal growth rate for the year of 24.7%. Internal growth in this segment was due to a combination of the addition of new sales representatives, further penetration of existing customers and development of new accounts. Net sales from the Company's marketing services, which include promotion marketing, brand strategy and identity, and presence marketing, increased 29.8% in 1998. All of the growth was internal and resulted primarily from increased penetration of existing customers. Telemarketing net sales decreased 7.8%, or $5.0 million in 1998. The decrease was primarily related to industry overcapacity which adversely affected average billing rates. The proportion of net sales from this segment is expected to continue to decrease in 1999. Gross profit as a percentage of net sales for 1998 was 35.1% ($207.2 million) compared to 32.6% ($152.0 million) for 1997. The increase in gross profit percentage was primarily due to a higher proportion of net sales from the promotional product and marketing services segments. Promotional product gross profit as a percentage of net sales increased in 1998 due to an increase in sales of exclusive products and more efficient purchasing of merchandise. Gross profit as a percentage of net sales in the telemarketing segment decreased 4.6% in 1998. This was due to the pricing pressures discussed above. Selling expenses as a percentage of net sales for 1998 were 13.0% ($76.6 million) compared to 12.3% ($57.4 million) for 1997. The .7% increase was primarily due to increased commissions resulting from a greater proportion of net sales from the promotional product segment. This segment has a higher proportion of selling expenses to net sales than either marketing services or telemarketing. To a lesser extent, the increase was attributable to continued investments to enhance the Company's brand, including proprietary product arrangements and corporate visibility programs. 21 General and administrative expenses as a percentage of net sales for 1998 were 13.7% ($81.0 million), unchanged from 1997 ($63.8 million). The $17.1 million increase was primarily due to increased infrastructure required to support the Company's growth. Increased payroll and benefits accounted for approximately $8.4 million of the increase while occupancy and information systems costs accounted for an additional $7.2 million. Operating results for 1998 and 1997 include pre-tax non-recurring charges of $10.3 million and $3.8 million, respectively. These expenses primarily related to completed acquisitions accounted for using the pooling-of-interests accounting method. Net interest income in 1998 was $1.6 million compared to net interest expense of $2.2 million in 1997. The change was due to the repayment of substantially all the Company's outstanding debt with the proceeds from a secondary stock offering completed in May 1998. Excess funds were subsequently invested in interest bearing investments. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996. Net sales increased 23.9% to $465.7 million from $375.7 million for 1996. Of the $90.0 million increase, $73.7 million was due to internal growth and $16.3 million was from acquired companies. Promotional product net sales increased $52.9 million in 1997. Of this amount, $36.6 million was due to internal growth and the balance from acquired companies. Net sales from the Company's marketing services segment more than doubled in 1997. All of this growth was internal and was due to further penetration of its customer base. Additionally, the Company's telemarketing net sales increased 15.8%, or $8.7 million. Gross profit as a percentage of net sales for 1997 was 32.6% ($152.0 million) compared to 30.4% ($114.4 million) for 1996. The increase in gross profit percentage was primarily attributable to the promotional product segment, which increased its gross profit as a percentage of net sales by 3.1%. This increase was due to a change in sales mix resulting in a reduction of lower margin premium sales in 1997 compared to 1996. Selling expenses as a percentage of net sales for 1997 were 12.3% ($57.4 million) compared to 11.9% ($44.8 million) for 1996. The .4% increase was primarily due to a reduction in lower margin premium sales which were not subject to the Company's standard commission program in 1997. General and administrative expenses as a percentage of net sales for 1997 were 13.7% ($63.8 million) compared to 13.4% in 1996 ($50.3 million). The $13.5 million increase was due to increased infrastructure required to support the Company's growth and related primarily to salary and related benefit costs. Operating results for 1997 and 1996 include pre-tax non-recurring charges of $3.8 million and $1.7 million, respectively, to complete acquisitions accounted for using the pooling-of-interests accounting method. Net interest expense in 1997 increased to $2.2 million from $1.1 million in 1996. The increase was due to working capital needs necessary to fund growth, an acceleration of payments to vendors of acquired companies to bring them in line with company standards and additional borrowings incurred to fund certain 1997 acquisitions. YEAR 2000 READINESS DISCLOSURE Date sensitive computer applications that currently record years in two-digit, rather than four-digit century format may be unable to properly categorize and process dates after December 31, 1999 (the "Year 2000 Issue"). Also, embedded computer chips that control devices such as building security systems, elevators and telephone equipment may fail, resulting in disruption of operations to the Company, its customers and suppliers. The Company's operating divisions and subsidiaries utilize various computer systems. The Company relies on its computer systems and applications for many business critical aspects, including financial systems, (including general ledger, inventory, order processing, accounts payable and accounts receivable), customer service, creative design, warehouse automation and voice and data telecommunications. At the direction of its Board of Directors, the Company formed a Year 2000 Committee in 1998 to assess its state of readiness and address Year 2000 issues that may affect its business. The Chief Information Officer of the Company has been appointed the Year 2000 Project Executive. The Company has completed the inventory and assessment of all key computer systems. In determining whether a system is Year 2000 compliant The Company has adopted The British Standards Institution "Definition of Year 2000 Conformity Requirements," contained in BSI Publication PD2000-1. Under this definition of Year 2000 conformity, neither performance nor functionality is affected by dates prior to, during and after the year 2000. 22 During the assessment phase, the Company identified several systems that were not Year 2000 ready. The Company has begun, and in certain cases, has completed plans to remediate or convert all non-compliant systems to other systems that are Year 2000 compliant. Beyond assessing the Year 2000 readiness of each system, the Company plans to develop and complete a formal Year 2000 compliance test for each system, with all testing and remediation completed by June 30, 1999. Based on the information gathered during the assessment phase, the Company does not believe that the costs of achieving Year 2000 compliance, including costs to remediate, convert and test systems will exceed $500,000. All costs relating to the Year 2000 Issue and will be funded out of general operating funds. The Company has also initiated formal communications with its significant suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their systems, business processes and supply chains. The Company believes, due to its large, diverse product supplier base, that the risk resulting from potential problems of any such supplier is minimal. However, the Company is dependent upon many key suppliers (including providers of electricity, telephone, water and gas services) and may incur disruptions of operations if any one fails to deliver product or services due to a Year 2000 problem. Upon analysis of responses of Year 2000 readiness surveys received from vendors and suppliers, the Company will prepare contingency plans to minimize the impact of operational or product supply chain disruptions resulting from the Year 2000 issue. Contingency plans will be prepared during the third and fourth quarters of 1999. In addition to key vendor and supply chain risks, the Company is aware that it may face Year 2000 issues as a result of any business or company acquired in 1999 that is not Year 2000 compliant. The Company believes these risks can be mitigated through conversion of non-compliant systems to Year 2000 compliant systems as part of overall acquisition integration plans. SEASONALITY Some of the Company's customers tend to utilize a greater portion of their advertising and promotional budgets in the latter half of the year, which historically has resulted and may continue to result in a disproportionately large share of the Company's net sales being recognized in the second half of the year. The Company incurs general and administrative expenses evenly throughout the year, which historically has resulted and may continue to result in a disproportionate share of its net income being reported in the second half of the year. LIQUIDITY AND CAPITAL RESOURCES The Company has a credit facility with three banks. This facility, which matures on March 1, 2000, provides for an unsecured revolving line of credit totaling $75 million. Outstanding borrowings bear interest at either prime less .25% or LIBOR plus between .5% and 1.5% based on a defined ratio. In May of 1998, the Company completed a secondary offering of 5.85 million shares of its common stock and recognized net proceeds of $117.4 million. Approximately $51 million of the proceeds were used to repay substantially all the outstanding debt of the Company. Additionally, during 1998, approximately 1.7 million shares of common stock were issued for exercises of stock options and warrants. The Company received approximately $9.3 million in proceeds on these exercises and recognized a $9.5 million tax benefit. The Company's operating cash flow for 1998 was approximately $29 million. Cash provided by financing activities includes cash dividends paid by acquired companies accounted for as pooling-of-interests. The Company does not anticipate paying any cash dividends on its common stock in the foreseeable future. As of December 31, 1998, the Company's working capital was $162.8 million, including $58.2 million in cash and equivalents and investments, compared to $78.7 million as of December 31, 1997. A majority of the $84.1 million increase was attributable to proceeds remaining from the secondary offering discussed above. The remainder was attributable to the overall sales growth of the Company and a continued focus on working capital management. Capital expenditures, excluding acquisitions, were approximately $23.3 million in 1998 compared to $10.1 million in 1997. The increase between years relates primarily to a new office and warehouse facility for one of the Company's subsidiaries. However, the Company exercised an option to sell this facility and expects to realize proceeds between $9 and $10 million in the first half of 1999. Excluding acquisitions, management expects capital expenditures to be approximately $12 million in 1999. The Company anticipates that cash and investments on hand at December 31, 1998, availability under its credit facility and future operating cash flows will be adequate to satisfy its cash needs for the foreseeable future. 23 [LOGO] CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income Year Ended December 31, - ----------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- (Restated) (Restated) NET SALES $589,669 $465,721 $375,736 COST OF SALES 382,503 313,756 261,362 - ----------------------------------------------------------------------------------------------------------- Gross Profit 207,166 151,965 114,374 SELLING EXPENSES 76,639 57,354 44,795 GENERAL AND ADMINISTRATIVE EXPENSES 80,950 63,819 50,320 NON-RECURRING CHARGES, PRIMARILY RELATED TO ACQUISITIONS 10,337 3,845 1,693 - ----------------------------------------------------------------------------------------------------------- Operating Income 39,240 26,947 17,566 - ----------------------------------------------------------------------------------------------------------- INTEREST INCOME 2,870 434 671 INTEREST EXPENSE (1,237) (2,633) (1,723) - ----------------------------------------------------------------------------------------------------------- Income Before Income Taxes 40,873 24,748 16,514 PROVISION FOR INCOME TAXES 16,123 9,290 6,422 - ----------------------------------------------------------------------------------------------------------- NET INCOME $ 24,750 $ 15,458 $ 10,092 - ----------------------------------------------------------------------------------------------------------- PRO FORMA INCOME DATA (unaudited): Pro forma adjustment for income tax provision 230 612 213 - ----------------------------------------------------------------------------------------------------------- PRO FORMA NET INCOME $ 24,520 $ 14,846 $ 9,879 - ----------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE (unaudited pro forma) Basic $ 0.55 $ 0.37 $ 0.26 Diluted $ 0.53 $ 0.36 $ 0.25 - ----------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 44,734,301 39,628,308 38,594,051 Diluted 46,446,535 41,112,379 40,265,663 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 24
Consolidated Balance Sheets December 31, - ----------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) 1998 1997 - ----------------------------------------------------------------------------------------------------------- ASSETS (Restated) - ----------------------------------------------------------------------------------------------------------- CURRENT ASSETS: Cash and equivalents $ 7,276 $ 4,808 Short-term investments 50,922 -- Receivables-- Trade 147,174 134,459 Unbilled 12,679 4,517 Other 8,953 9,308 Related party -- 663 Inventories 29,637 24,347 Prepaid expenses and deposits 15,139 6,912 - ----------------------------------------------------------------------------------------------------------- Total current assets 271,780 185,014 - ----------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, net 42,225 25,121 - ----------------------------------------------------------------------------------------------------------- OTHER ASSETS: Intangible assets, net 26,621 22,569 Other 6,391 5,349 - ----------------------------------------------------------------------------------------------------------- Total other assets 33,012 27,918 - ----------------------------------------------------------------------------------------------------------- $347,017 $238,053 - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Current maturities of long-term debt $ 3,423 $ 7,477 Book overdraft 287 9,920 Accounts payable 63,591 48,806 Accrued expenses-- Commissions and wages 11,355 10,187 Customer deposits 10,638 8,601 Other 19,535 21,090 Due to related parties 200 192 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 109,029 106,273 - ----------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, less maturities shown above -- 44,930 - ----------------------------------------------------------------------------------------------------------- DEFERRED LIABILITIES 2,497 1,377 - ----------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares authorized and none issued -- -- Common stock, no par value; 100,000,000 shares authorized and 47,780,742 and 40,171,844 issued and outstanding in 1998 and 1997, respectively 198,228 66,241 Other (2,508) (2,131) Retained earnings 39,771 21,363 - ----------------------------------------------------------------------------------------------------------- Total shareholders' equity 235,491 85,473 $347,017 $238,053
The accompanying notes are an integral part of these balance sheets. 25 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ---------------------- Total Shares Retained Shareholders' (in thousands, except share amounts) Issued Amount Other Earnings Equity - ----------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1995 (Restated) 38,492,160 $ 47,618 $(2,426) $ 6,899 $ 52,091 Transfer of S-Corporation retained earnings -- 3,540 -- (3,540) -- Dividends declared by pooled companies -- (2,201) -- (4,686) (6,887) Stock bonus in connection with acquisition of business 8,153 63 -- -- 63 Issuance of shares in connection with acquisitions 644 10 -- -- 10 Issuance of restricted stock 2,343 34 (34) -- -- Amortization of unearned compensation -- -- 240 -- 240 Recognition of tax benefits from options and restricted stock -- 5,244 -- -- 5,244 Exercise of stock options 921,458 2,000 -- -- 2,000 Repurchase of common stock (71,228) (862) -- -- (862) Translation Adjustment -- -- 40 -- 40 Net income for the year -- -- -- 10,092 10,092 - ----------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1996 (Restated) 39,353,530 55,446 (2,180) 8,765 62,031 Dividends declared by pooled companies -- (2,436) -- (2,860) (5,296) Issuance of shares in connection with acquisitions 494,423 10,273 -- -- 10,273 Stock bonus in connection with acquisition of business 1,865 31 -- -- 31 Amortization of unearned compensation -- -- 257 -- 257 Recognition of tax benefits from options and restricted stock -- 1,984 -- -- 1,984 Exercise of stock options 378,935 1,844 -- -- 1,844 Repurchase of common stock (56,909) (901) -- -- (901) Translation Adjustment -- -- (208) -- (208) Net income for the year -- -- -- 15,458 15,458 - ----------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1997 (Restated) 40,171,844 66,241 (2,131) 21,363 85,473 Dividends declared by pooled companies -- (5,176) -- (6,342) (11,518) Issuance of shares through public offering 5,853,000 117,362 -- -- 117,362 Issuance of shares in connection with acquisitions, net 51,986 1,426 -- -- 1,426 Amortization of unearned compensation -- -- 257 -- 257 Recognition of tax benefits from options, warrants and restricted stock -- 9,490 -- -- 9,490 Exercise of stock options and warrants 1,728,959 9,335 -- -- 9,335 Repurchase of common stock (25,047) (450) -- -- (450) Translation Adjustment -- -- (634) -- (634) Net income for the year -- -- -- 24,750 24,750 - ----------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1998 47,780,742 $198,228 $(2,508) $39,771 $235,491
The accompanying notes are an integral part of these statements. 26 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, - ----------------------------------------------------------------------------------------------------------- (in thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- (Restated) (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the year $ 24,750 $ 15,458 $ 10,092 Adjustments to reconcile net income to net cash provided by (used for) operating activities-- Depreciation and amortization 9,454 6,564 5,775 Deferred taxes (896) (50) (336) Increase in cash surrender value (433) (246) (112) Increase (decrease) in deferred liabilities--other 120 (399) 30 Loss (gain) on disposal of property and equipment 65 92 (17) Changes in assets and liabilities, net of effects of acquired companies--- Receivables (16,765) (42,493) (8,199) Inventories (1,031) (9,436) (1,424) Prepaid expenses and deposits (7,872) (2,246) (3,073) Accounts payable and accrued expenses 21,272 26,095 453 - ----------------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities 28,664 (6,661) 3,189 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (23,321) (10,056) (8,680) Proceeds on sale of property and equipment 788 24 58 Decrease (increase) in short-term investments (50,922) 2,908 641 Increase in other assets (1,513) (789) (680) Increase (decrease) in deferred liabilities 763 (307) (629) Cash paid for acquisitions (7,036) (7,200) (1,172) - ----------------------------------------------------------------------------------------------------------- Net cash used for investing activities (81,241) (15,420) (10,462) - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) on long-term debt (11,248) 9,355 2,701 Net borrowings (payments) under line of credit (38,832) 7,068 12,565 Repayments from related party 663 719 60 Decrease (increase) in book overdraft (9,633) 8,082 (895) Cash dividends paid by pooled companies (11,518) (5,296) (6,887) Net proceeds from issuance of common stock 126,697 1,845 2,038 Repurchase of common stock (450) (901) (862) - ----------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 55,679 20,872 8,720 - ----------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (634) (208) 40 - ----------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,468 (1,417) 1,487 CASH AND EQUIVALENTS, beginning of year 4,808 6,225 4,738 - ----------------------------------------------------------------------------------------------------------- CASH AND EQUIVALENTS, end of year $ 7,276 $ 4,808 $ 6,225 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements 27 [LOGO] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF THE BUSINESS: HA-LO Industries, Inc. and Subsidiaries (the "Company") is a brand marketing organization with diverse marketing disciplines centered around its clients' brands. The Company's core business is the distribution of promotional and premium products that physically connect brands to people through merchandise. These products are marketed by an international network of sales representatives to customers throughout the United States, Canada and Europe. Through its subsidiaries, the Company also provides promotion marketing, relationship marketing, brand strategy and identity and presence marketing services principally to large corporations throughout the United States. The Company also provides telemarketing and customer management services to large customers in the United States and Canada. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements. A. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements are prepared on the accrual basis of accounting and include the accounts of HA-LO Industries, Inc. and its majority owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. B. RECLASSIFICATION Certain 1997 and 1996 balances have been reclassified to conform with the 1998 presentation. C. STOCK SPLIT On January 26, 1999, the Company's Board of Directors declared a 3-for-2 stock split. The split was effective February 19, 1999 to shareholders of record on February 5, 1999. All share and per share data has been retroactively adjusted to give effect to the stock split. D. REVENUE RECOGNITION Revenues derived from the distribution of promotional and premium products are recognized when merchandise is shipped to customers. Revenues from the Company's other services are recognized as services are provided. E. CASH AND EQUIVALENTS Cash equivalents consist principally of short-term money market instruments with original maturities of three months or less. F. SHORT-TERM INVESTMENTS The Company classifies investments purchased with an original maturity of three to twelve months as short-term investments. Such investments, which are held-to-maturity, relate primarily to tax-exempt securities and are carried at cost plus accrued interest. Included in short-term investments are available-for-sale marketable securities held by the Company. At December 31, 1998, the value of these securities approximates cost. The Company did not hold any available-for-sale marketable securities at December 31, 1997. There were no realized gains or losses from the sales of marketable securities in 1998, 1997 or 1996. G. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated for financial reporting purposes over the estimated useful lives on a straight-line basis as follows:
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
28 Property and equipment at December 31 are composed of the following:
(in thousands) 1998 1997 - ------------------------------------------------------------------------------------------------------------ Land $ 1,768 $ 1,848 Buildings 12,922 3,220 Furniture, fixtures and equipment 21,518 15,194 Computer and telephone equipment 26,407 18,855 Vehicles 629 231 Leasehold improvements 4,928 4,696 - ------------------------------------------------------------------------------------------------------------ 68,172 44,044 Less--Accumulated depreciation 25,947 18,923 - ------------------------------------------------------------------------------------------------------------ Property and equipment, net $42,225 $25,121 - ------------------------------------------------------------------------------------------------------------
H. INTANGIBLES Intangible assets consist primarily of the cost of purchased businesses in excess of the fair value of net assets acquired and are amortized on a straight-line basis from seven to fifteen years. The Company regularly reviews the performance of acquired businesses to evaluate the realizability of the underlying goodwill. Amortization expense in 1998, 1997 and 1996 was approximately $2,732,000, $1,555,000 and $1,434,000, respectively. Accumulated amortization as of December 31, 1998 and 1997 was $7,611,000 and $4,750,000, respectively. I. INVENTORIES Inventories are valued at the lower of first-in, first-out (FIFO) cost or market. J. STATEMENTS OF CASH FLOWS The Company considers investments purchased with an original maturity of three months or less to be cash equivalents. Supplemental cash flow information includes the following:
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------- (in thousands) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during year for interest $ 1,259 $ 2,172 $ 1,654 Cash paid during year for income taxes $ 5,180 $ 4,073 $ 1,768 SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Recognition of common shares issued in connection with acquisitions $ 1,426 $10,273 $ 10 Recognition of tax benefits from exercise of stock options, warrants and restricted stock $ 9,490 $ 1,984 $ 5,244 Conversion of non-operating assets to note receivable $ -- $ 1,530 $ -- - ----------------------------------------------------------------------------------------------------------------
K. FOREIGN CURRENCY TRANSLATION Revenues and expenses from foreign operations are translated at average rates in effect at the time of the underlying transaction, with gains or losses included in income. Assets and liabilities of foreign entities are translated at year-end exchange rates with gains and losses resulting from such translations included in shareholders' equity. L. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. M. NEW ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130, Reporting Comprehensive Income. With the exception of net income, other comprehensive income is not material to the financial statements and no disclosures other than those presented herein are required. In 1998, the FASB issued Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The Company has adopted this statement and no disclosures other than those presented herein are required. In 1998, the FASB also issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company is required to adopt this standard for its fiscal year 2000. Management believes that adoption of the standard will not have a material effect in the financial statements. 29 NOTE 3. RECEIVABLES: The Company provides services to customers in diversified industries and grants unsecured trade credit to customers in the normal course of business. Receivables in the accompanying consolidated balance sheets are net of reserves for doubtful accounts of approximately $2,836,000 as of December 31, 1998 and $2,749,000 as of December 31, 1997. The Company also makes advances to its sales representatives, which are applied against commissions to be earned. No single customer accounted for more than 10% of sales in 1998 or in 1997, while sales to one major customer amounted to approximately 11% of total sales in 1996. NOTE 4. INCOME TAXES: The Company's provision for income taxes consists of the following amounts:
(in thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Current provision $16,354 $ 9,827 $ 6,964 Deferred benefit (231) (537) (542) - ------------------------------------------------------------------------------------------------------------ Total provision $16,123 $ 9,290 $ 6,422 - ------------------------------------------------------------------------------------------------------------
The Company's effective tax rate is reconciled to the Federal statutory rate as follows:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ Federal statutory rate 35.0% 35.0% 34.0% State income taxes (net of Federal benefit) 5.0 5.0 5.0 Valuation allowance 1.6 2.0 1.2 Effect of non-taxable S-Corporation (earnings)/losses (0.6) (2.5) 3.6 Other (1.6) (2.0) (4.9) - ------------------------------------------------------------------------------------------------------------ Effective tax rate 39.4% 37.5% 38.9% - ------------------------------------------------------------------------------------------------------------
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) 1998 1997 - ----------------------------------------------------------------------------------------------------------- DEFERRED TAXES--CURRENT: Credits due $ 1,267 $ 1,471 Advanced commissions 249 168 Non-deductible reserves (1,592) (461) Inventory valuation (242) (202) Other 57 117 - ----------------------------------------------------------------------------------------------------------- Total deferred taxes-current $ (261) $ 1,093 DEFERRED TAXES--NON-CURRENT: Samples $ 735 $ 589 Acquisition costs (2,923) (1,650) Depreciation 1,021 744 Amortization (916) (732) Deferred costs (433) (367) Basis difference in acquired companies 920 -- Other -- (2) - ------------------------------------------------------------------------------------------------------------------- Total deferred taxes-non-current (1,596) (1,418) - ------------------------------------------------------------------------------------------------------------------- Less: Valuation allowance 1,461 825 - ------------------------------------------------------------------------------------------------------------------- Total deferred taxes--non-current, net of valuation allowance (135) (593) - ------------------------------------------------------------------------------------------------------------------- Total deferred tax (asset) liability $ (396) $ 500 - -------------------------------------------------------------------------------------------------------------------
Current and non-current deferred tax assets are included in prepaid expenses and other assets, respectively, on the accompanying consolidated balance sheets. Current deferred tax liabilities are included in other accrued expenses. The tax benefit of costs incurred to complete certain acquisitions will be realized only in the event such companies are sold. As such, the Company has provided a valuation allowance against its long-term deferred tax asset to reflect the potential that the tax benefit of these costs may not be realized. 30 NOTE 5. PRO FORMA NET INCOME PER SHARE (UNAUDITED): The unaudited pro forma income data in the consolidated statements of income for 1998, 1997 and 1996 provides information as if S-Corporations acquired and accounted for using the pooling-of-interests accounting method had been C-Corporations for income tax purposes. NOTE 6. DEBT: Subsequent to year end, the Company refinanced its credit facility. The new facility, which matures March 1, 2000, provides for an unsecured revolving credit line of $75 million. Outstanding borrowings bear interest at either prime less .25% or the London Interbank Offered Rate (LIBOR) plus between .50% and 1.5% based on a defined ratio. The agreement contains certain financial covenants that the Company must meet, including minimum tangible net worth, maximum leverage, and fixed charge coverage ratio. At December 31, 1998, a subsidiary of the Company had a secured term loan in the amount of $1.6 million maturing on June 1, 1999 with interest accruing at a rate of .50 percentage points below the prime rate. The loan was secured by certain financial assets of the subsidiary. The loan has subsequently been paid in full. One of the Company's European subsidiaries has revolving credit facilities with several banks. These facilities provide for borrowings of up to $5 million at rates ranging from 8-13%. As of December 31, 1998, the prime rate was 7.75% and LIBOR was 6.0%. Long-term debt at December 31, was as follows:
(in thousands) 1998 1997 - ----------------------------------------------------------------------------------------------------------- Revolving credit line $ 816 $41,066 Secured term loan 1,604 -- Other debt 786 11,069 Capital leases 217 272 - ----------------------------------------------------------------------------------------------------------- 3,423 52,407 Less--current maturities 3,423 7,477 - ----------------------------------------------------------------------------------------------------------- Long term debt, net $ -- $44,930 - -----------------------------------------------------------------------------------------------------------
NOTE 7. RELATED-PARTY TRANSACTIONS: A member of the Board of Directors renders acquisition consulting services to the Company pursuant to an agreement. The director's compensation is strictly contingent upon the successful completion of an acquisition. During 1998, the director earned cash compensation of approximately $770,000 and was granted 264,400 options at fair market value at the date of grant. During 1997, the director earned cash compensation of approximately $1,564,000 and was granted 153,383 options at fair market value at the date of grant. During 1996, the director earned cash compensation of approximately $307,000 and was granted 85,926 options. During part of 1998, a wholly owned subsidiary of the Company leases its corporate headquarters from the Vice Chairman of the Board ("Vice Chairman") of the Company. Rental lease payments under this lease were $25,000 per month. In connection with an acquisition, the Vice Chairman converted certain non-operating assets of the acquired company to a $1,530,000 note receivable, bearing interest at 7%. The balance has been fully paid. In connection with the acquisition discussed above, the Company exercised an option to sell an office and warehouse facility to an entity controlled by the Vice Chairman. After the sale, to be completed by April 5, 1999, the Company will lease the facility. Proceeds from the sale are expected to be between $9 and $10 million. In 1998 and 1997, the Company paid approximately $1,067,000 and $545,000, respectively, to an entity in which the Vice Chairman indirectly owns a 49% interest. Payments were for embroidery and other services rendered. NOTE 8. COMMITMENTS AND CONTINGENCIES: The Company has operating lease commitments primarily relating to sales and support facilities in addition to certain office equipment. These leases expire at various dates through December, 2015. This includes a lease for a new facility, under construction, which the Company is expected to occupy in late 2000. The aggregate annual minimum lease payments under non-cancelable leases on December 31, 1998 are as follows: 31
Year ending December 31--(in thousands) - -------------------------------------------------------------------------------- 1999 $ 8,900 2000 11,628 2001 14,188 2002 13,655 2003 12,959 Thereafter 137,078 - -------------------------------------------------------------------------------- $198,408 - --------------------------------------------------------------------------------
Rent expense (exclusive of operating expenses) charged for the facilities totaled approximately $6,838,000, $5,560,000 and $3,787,000 for 1998, 1997 and 1996, respectively. At December 31, 1998, the Company had approximately $2,974,000 in outstanding letters of credit issued in the ordinary course of business. During 1998, a subsidiary of the company experienced a fire at one of its locations. The company carried both property and business interruption insurance to cover the risks associated with such an event. At the time of the fire, a new facility was under construction. The Company has since relocated to the new facility and operations have returned to normal. Various lawsuits have arisen in the ordinary course of the Company's business. The Company believes that its defenses are meritorious and that the eventual outcome of those lawsuits will not have a material effect on the Company's financial position or results of operations. NOTE 9. BUSINESS COMBINATIONS: During 1998, the Company acquired six companies. Three of the acquisitions were accounted for as pooling-of-interests. In June, 1998, the Company completed the acquisition of a promotion marketing agency, Promotional Marketing, L.L.C, (d/b/a/UPSHOT), for approximately 3.3 million shares of its common stock. In August, 1998, the Company completed the acquisition of a brand strategy and identity agency, Lipson Associates, Inc. d/b/a/ Lipson Alport Glass & Associates (LAGA), for approximately 2.6 million shares of its common stock. In November 1998, the Company acquired a premium promotional products company, Premier Promotions and Marketing, Inc. for approximately 2.7 million shares of its common stock. The consolidated financial statements for all periods presented have been restated to include the results of these acquired companies. The following table presents a reconciliation of net sales and net income reported prior to the 1998 acquisitions accounted for as pooling-of-interests to those presented in the accompanying consolidated financial statements:
(in thousands) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- Net sales-- Prior to acquisition $545,659 $413,791 $344,422 Acquired companies 44,010 51,930 31,314 - ---------------------------------------------------------------------------------------------------------- Net sales $589,669 $465,721 $375,736 - ---------------------------------------------------------------------------------------------------------- Pro forma net income-- Prior to acquisition $ 21,139 $ 13,882 $ 8,241 Acquired companies 3,381 964 1,638 - ---------------------------------------------------------------------------------------------------------- Pro forma net income $ 24,520 $ 14,846 $ 9,879 - ----------------------------------------------------------------------------------------------------------
The Company also acquired two distributors of promotional products and one promotion marketing agency during 1998 that were accounted for as purchases. These companies were acquired for an aggregate 87,000 shares of the Company's common stock and $3.7 million in cash. The common stock issued in these acquisitions had a fair market value of approximately $1.8 million. Goodwill resulting from these acquisitions is being amortized on a straight-line basis over 15 years. The consolidated financial statements include the results of these acquired companies since the date of acquisition. During 1997, the Company acquired eight companies. Four of the acquisitions were accounted for as pooling-of-interests. In January, 1997, the Company completed the acquisitions of two distributors of promotional products, Creative Concepts in Advertising, Inc. and Creadis Group, Inc. for an aggregate of approximately 4.3 million shares of its common stock. Two other promotional product distributors and one telemarketing company were also acquired for an aggregate of approximately 1.4 million shares of the Company's common stock. 32 The consolidated financial statements for all periods preceding these acquisitions have been restated to include their results. In addition to the acquisitions discussed above, the Company acquired two U.S. and two European based distributors of promotional products during 1997 that were accounted for as purchases. The U.S. based companies were acquired for approximately 330,000 shares of the Company's common stock. The common stock issued in these acquisitions had an aggregate fair market value of approximately $5.3 million. The European based companies were purchased for an aggregate of $6.0 million in cash and approximately 285,000 shares of the Company's common stock. The common stock issued in these acquisitions had an aggregate fair market value of approximately $5.2 million. The consolidated financial statements include the results of these acquired companies since the date of acquisition. During 1996, the Company acquired two companies. One of the companies was accounted for under the purchase method of accounting and acquired for approximately 600 shares of the Company's common stock and the assumption of certain liabilities. This acquisition was not material to the Company's consolidated financial statements. The second acquisition was completed on September 30, 1996 and was accounted for as a pooling-of-interests. The Company issued approximately 4.8 million shares of its common stock for all the outstanding shares of two telemarketing companies. NOTE 10. CAPITAL STOCK AND EARNINGS PER SHARE: In May, 1998, the Company sold, through a public offering, 5,853,000 shares of its common stock. The net proceeds realized from the offering were approximately $117.4 million. In connection with the termination of certain acquired companies' S-Corporation status, the Company was required to transfer undistributed retained earnings to common stock. Dividends paid by the predecessor companies are shown as a reduction of retained earnings to the extent of their net income, with the remainder reducing common stock. FASB Statement No. 128, Earnings Per Share, provides the guidelines for the calculation of earnings per share. Under this statement, basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted average number of shares assuming dilutive stock options and warrants outstanding were exercised during the period. The computation of net income per share was as follows:
(in thousands, except per share amounts) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Net income (pro forma) $24,520 $14,846 $ 9,879 Net income per share--Basic: Weighted average common shares 44,734 39,628 38,594 Net income per share--Basic $ .55 $ .37 $ .26 Net income per share--Diluted: Weighted average common shares 44,734 39,628 38,594 Effect of dilutive stock options and warrants 1,713 1,484 1,672 - ----------------------------------------------------------------------------------------------------------- Weighted average shares assuming dilution 46,447 41,112 40,266 - ----------------------------------------------------------------------------------------------------------- Net income per share--Diluted $ .53 $ .36 $ .25 - -----------------------------------------------------------------------------------------------------------
NOTE 11: UNAUDITED SUPPLEMENTAL EARNINGS PER SHARE: A portion of the net proceeds from the public offering described above were used to repay substantially all debt outstanding on the Company's credit facilities. Had the debt retirement taken place on January 1, 1997, the unaudited pro forma net income per basic and diluted share would not have been materially different from that reflected in the accompanying consolidated statements of income. NOTE 12. STOCK WARRANTS: In January, 1995, the Company signed a multi-year agreement to provide premium promotional products to a customer. The initial term of the agreement was five years, but was extended through 2004 in December, 1995. In connection with the initial term of the agreement, the Company granted warrants to purchase 1,124,452 shares of the Company's common stock at $2.37 per share. These warrants vest at the end of nine years but can be accelerated if minimum purchase levels are achieved. The Company also issued 562,420 warrants at $8.89 per share in connection with the extension of the agreement. These warrants expire 33 January 11, 2011 and were recorded at their fair market value as a deferred marketing cost in shareholders' equity. This cost will be charged against income over the five-year term of the extension, beginning in January, 2000. NOTE 13. STOCK OPTIONS: The Company has two stock plans which provide for reservation and issuance of options to purchase shares of the Company's common stock, restricted stock, stock appreciation rights and phantom stock awards. The number of option shares or rights to be issued and the terms thereof are at the discretion of the Compensation Committee of the Company's Board of Directors. Pursuant to the plans, an aggregate of 14,834,822 shares of the Company's common stock have been reserved. At December 31, 1998, there was an aggregate 3,598,671 available for future grant under the plans. The exercise price for incentive stock options and non-qualified stock options granted under the plans may not be less than 100% and 85%, respectively, of the fair market value of the common stock at the date of grant. As granted under the plans, the majority of the options vest annually over two or three years, commencing one year from the date of grant. All options granted under the plans expire ten years from the date of grant. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method prescribed by FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
(in thousands, except per share amounts) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- Net income (pro forma) As reported $24,520 $14,846 $9,879 Pro forma $17,222 $ 7,143 $7,537 Basic earnings per share As reported $ .55 $ .37 $ .26 Pro forma $ .38 $ .18 $ .20 Diluted earnings per share As reported $ .53 $ .36 $ .25 Pro forma $ .37 $ .17 $ .19 - ----------------------------------------------------------------------------------------------------------
Because the disclosure requirements of FASB Statement No. 123 have not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions; risk free interest rates between 4.6% and 5.6% in 1998, 6.4% and 6.8% in 1997 and 5.2% and 6.2% in 1996; zero dividend yield for all years; expected lives of 4 years for 1998 and 5 years for 1997 and 1996; and volatility of 40 percent for 1998 and 30 percent for 1997 and 1996. A summary of the status of the Company's fixed stock option plans and warrants issued as of December 31, 1998, 1997, and 1996, and changes during the years ending on those dates is presented below:
1998 1997 1996 ------------------ -------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ---------------------------------------------------------------------------------------------------------- BEGINNING OUTSTANDING 7,625,672 $11.76 5,252,310 $ 8.98 3,746,108 $ 3.65 GRANTED Price equal to fair value 3,294,210 $17.59 2,814,453 $16.06 1,728,696 $11.02 Price in excess of fair value -- -- -- -- 751,407 $22.38 EXERCISED (1,729,022) $ 5.40 (378,935) $ 4.87 (921,458) $ 2.17 CANCELLED (73,035) $15.38 (62,156) $13.13 (52,443) $ 7.01 - ---------------------------------------------------------------------------------------------------------- ENDING OUTSTANDING 9,117,825 $15.03 7,625,672 $11.76 5,252,310 $ 8.98 EXERCISABLE AS OF 12/31 3,831,682 3,474,830 1,761,594 Weighted average fair value of options granted: Price equal to fair value $6.73 $6.26 $4.08 Price in excess of fair value -- -- $5.25 - ----------------------------------------------------------------------------------------------------------
34 The following table summarizes information about fixed stock options and warrants outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ----------------------- Weighted Number Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price - ---------------------------------------------------------------------------------------------------------- $ 1.47--$ 2.37 530,039 5.61 $ 2.21 317,119 $ 2.11 $ 3.49--$ 5.60 199,772 6.66 $ 4.99 199,772 $ 4.99 $ 6.00--$ 9.11 1,090,977 9.05 $ 8.94 518,582 $ 8.99 $ 9.33--$12.67 544,989 7.73 $10.86 497,243 $10.88 $12.83--$19.71 5,159,862 8.68 $16.42 1,765,501 $16.39 $20.04--$23.29 1,592,186 8.85 $21.66 533,465 $22.33 - ---------------------------------------------------------------------------------------------------------- $ 1.47--$23.29 9,117,825 8.47 $15.03 3,831,682 $13.73 - ----------------------------------------------------------------------------------------------------------
NOTE 14. BUSINESS SEGMENT INFORMATION: The Company's reportable segments are strategic business units that offer different products and services. Summarized financial information by business segment follows:
December 31, - ----------------------------------------------------------------------------------------------------------- (in thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Net Sales: - ----------------------------------------------------------------------------------------------------------- Promotional products $464,826 $350,981 $298,084 Marketing services 65,801 50,711 22,362 Telemarketing 59,042 64,029 55,290 - ----------------------------------------------------------------------------------------------------------- Total consolidated $589,669 $465,721 $375,736 - ----------------------------------------------------------------------------------------------------------- Operating income: - ----------------------------------------------------------------------------------------------------------- Promotional products (1) $ 29,550 $ 16,910 $ 10,737 Marketing services 6,320 4,028 1,718 Telemarketing 3,370 6,009 5,111 - ----------------------------------------------------------------------------------------------------------- Total consolidated $ 39,240 $ 26,947 $ 17,566 - ----------------------------------------------------------------------------------------------------------- Depreciation and amortization: - ----------------------------------------------------------------------------------------------------------- Promotional products $ 7,064 $ 4,410 $ 3,853 Marketing services 708 690 566 Telemarketing 1,682 1,464 1,356 - ----------------------------------------------------------------------------------------------------------- Total consolidated $ 9,454 $ 6,564 $ 5,775 - ----------------------------------------------------------------------------------------------------------- Total assets: - -------------------------------------------------------------------------------------------- Promotional products $237,515 $194,708 Marketing services 35,004 18,459 Telemarketing 16,300 20,078 Corporate (2) 58,198 4,808 - -------------------------------------------------------------------------------------------- Total consolidated $347,017 $238,053 - -------------------------------------------------------------------------------------------- Capital expenditures: - -------------------------------------------------------------------------------------------- Promotional products $ 19,917 $ 5,719 Marketing services 2,428 1,918 Telemarketing 976 2,419 - -------------------------------------------------------------------------------------------- Total consolidated $ 23,321 $ 10,056 - --------------------------------------------------------------------------------------------
(1) Includes corporate overhead expenses for all periods presented. (2) Cash and short-term investments are considered corporate assets. (2) Cash and short-term investments are considered corporate assets. 35 Summarized financial information by geographic area follows:
December 31, - ----------------------------------------------------------------------------------------------------------- (in thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Revenues: - ----------------------------------------------------------------------------------------------------------- United States $541,490 $440,349 $352,917 Foreign 48,179 25,372 22,819 - ----------------------------------------------------------------------------------------------------------- Total consolidated $589,669 $465,721 $375,736 - ----------------------------------------------------------------------------------------------------------- Long-lived assets: - ----------------------------------------------------------------------------------------------------------- United States $ 63,178 $ 42,931 $ 31,231 Foreign 11,926 9,510 1,218 - ----------------------------------------------------------------------------------------------------------- Total consolidated $ 75,104 $ 52,441 $ 32,449 - -----------------------------------------------------------------------------------------------------------
NOTE 15. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS: The following table represents unaudited selected financial information for the eight quarters ended December 31, 1998. This information has been prepared by the Company on a basis consistent with the Company's audited financial statements and includes all adjustments which management considers necessary for a fair presentation of the results for such periods. The operating results for any quarter are not necessarily indicative of results for any future period. All periods presented have been adjusted to reflect the effects of pooled entities acquired during 1998 and accounted for using the pooling-of-interests method of accounting and a three-for-two stock split announced in 1999.
Quarter Ended - ----------------------------------------------------------------------------------------------------------- (in thousands, 1998 1997 except per ---------------------------------------- ----------------------------------------- share amounts) Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 - ----------------------------------------------------------------------------------------------------------- Net sales Previously reported $109,376 $127,888 $143,192 $ 83,593 $ 98,477 $111,185 $135,702 Effect of pooled companies 15,439 10,350 7,477 11,235 7,616 3,341 14,572 - ----------------------------------------------------------------------------------------------------------- Total $124,815 $138,238 $150,669 $175,948 $ 94,828 $106,093 $114,526 $150,274 - ----------------------------------------------------------------------------------------------------------- Gross profit Previously reported $ 35,956 $ 43,082 $ 50,746 $ 26,122 $ 30,056 $ 36,330 $ 46,257 Effect of pooled companies 6,185 5,864 3,534 4,321 3,442 308 5,129 - ----------------------------------------------------------------------------------------------------------- Total $ 42,141 $ 48,946 $ 54,280 $ 61,799 $ 30,443 $ 33,498 $ 36,638 $ 51,386 - ----------------------------------------------------------------------------------------------------------- Net income per share--diluted (pro forma) Previously reported $ .06 $ .10 $ .13 $ .02 $ .07 $ .11 $ .21 Effect of pooled companies -- .01 .01 .01 -- (.01) (.04) - ----------------------------------------------------------------------------------------------------------- Total $ .06 $ .11 $ .14 $ .20 $ .03 $ .07 $ .10 $ .17 - -----------------------------------------------------------------------------------------------------------
36 NOTE 16. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER Matters: The Company's Common Stock is publicly traded on the New York Stock Exchange under the symbol "HMK." As of March 2, 1999, there were 315 holders of record of the Company's Common Stock. The following table sets forth, for the periods indicated, the range of high and low sales prices, by quarter, for the Common Stock.
High Low - --------------------------------------------------------------------- 1998 First quarter $25 9/16 $16 5/16 Second quarter 23 13/16 19 1/16 Third quarter 23 9/16 14 7/8 Fourth quarter $25 3/16 $14 15/16 1997 First quarter $19 5/16 $ 8 5/16 Second quarter 16 13/16 9 11/16 Third quarter 19 9/16 15 Fourth quarter $19 9/16 $15 1/2 - ---------------------------------------------------------------------
NOTE 17. SUBSEQUENT EVENTS: In January, 1999, the Company completed the acquisition of a French based promotional products company for approximately 400,000 shares of HA-LO common stock, which had a fair market value of $9.0 million, and $27.5 million in cash. 37 [LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of HA-LO Industries, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of HA-LO Industries, Inc. (an Illinois corporation) and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years ended December 31, 1998, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HA-LO Industries, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years ended December 31, 1998, 1997 and 1996, in conformity with generally accepted accounting principles. /s/Arthur Anderson LLP - ---------------------- ARTHUR ANDERSEN LLP Chicago, Illinois, March 1, 1999 38 EX-21 21 EX-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 16, 1999. The state or other jurisdiction of incorporation or organization is indicated in parentheses following each subsidiary's name. The names of the divisions or other business units of each subsidiary are indented and listed below the relevant subsidiary's name. Creative Concepts in Advertising, Inc. (Michigan) Fletcher, Barnhardt & White (Illinois) Lee Wayne Corporation (Illinois) HA-LO Sports, Inc. (Illinois) Promotional Marketing LLC. d/b/a UPSHOT (Illinois) UPSHOT (New York), (New York) Lipson Associates, Inc. d/b/a LAGA (Ohio) Premier Promotions Marketing, Inc. (California) Market USA, Inc. (Illinois) Marusa Marketing, Ltd. (Canada) HA-LO Canada, Inc. (Canada) HMK International Holdings, Inc. (Netherlands) HA-LO Belgium, N.V. (Netherlands) Bavelco, B.V.B.A. (Netherlands) Joking, Spa. (Italy) Parsons International S.A.(France) EX-23.1 22 EX-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 and 333-72609 on Form S-3. ARTHUR ANDERSEN LLP Chicago, Illinois March 30, 1999 EX-27.1 23 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1998 CONSOLIDATED BALANCE SHEET, THE RESTATED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, JUNE 30 AND MARCH 31 OF 1998 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 9-MOS 6-MOS 3-MOS DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998 JAN-31-1998 JAN-31-1998 JAN-31-1998 JAN-31-1998 DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998 7,276 2,847 83,082 3,921 50,922 57,672 908 529 171,641 148,644 146,539 142,002 2,836 3,066 3,223 3,468 29,637 31,508 30,423 28,638 271,780 248,470 266,908 179,894 68,172 60,173 53,979 46,816 25,947 23,264 21,144 18,607 347,017 317,850 331,105 238,447 109,029 90,253 104,666 95,274 0 1,660 7,776 48,403 0 0 0 0 0 0 0 0 198,228 197,887 193,322 72,086 37,263 26,653 24,382 20,837 347,017 317,850 330,303 238,447 589,669 413,722 263,052 124,815 589,669 413,722 263,052 124,815 382,504 268,355 171,965 82,673 382,504 268,355 171,965 82,673 165,034 119,534 76,655 36,880 2,059 1,366 847 318 1,259 1,256 1,271 841 40,873 24,577 13,160 4,420 16,353 9,831 5,262 1,766 24,520 14,747 7,898 2,654 0 0 0 0 0 0 0 0 0 0 0 0 24,520 14,747 7,898 2,654 .55 .34 .19 .07 .53 .32 .18 .06 INCLUDES NON-RECURRING CHARGES PRIMARILY RELATED TO ACQUISITIONS CERTAIN COMPANIES ACQUIRED AND ACCOUNTED FOR USING THE POOLING-OF-INTERESTS ACCOUNTING METHOD HAD ELECTED TO BE TREATED AS S CORPORATIONS AND WERE THEREFORE NOT SUBJECT TO FEDERAL INCOME TAXES PRIOR TO THEIR ACQUISITION BY THE COMPANY. NET INCOME AND NET INCOME PER SHARE AMOUNTS INCLUDE AN UNAUDITED PROVISION FOR FEDERAL AND STATE TAXES AT AN EFFECTIVE RATE OF 40% FOR THESE COMPANIES.
EX-27.2 24 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996, MARCH 31, 1997, JUNE 30, 1997, SEPTEMBER 30, 1997 AND DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 9-MOS 6-MOS 3-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996 4,808 5,404 3,555 6,260 6,225 0 0 0 1,007 2,908 151,696 126,330 105,996 86,645 91,798 2,749 3,846 3,225 3,158 2,980 24,347 20,902 18,523 14,610 11,964 185,014 154,803 130,733 110,471 114,106 44,044 36,296 33,292 34,551 33,184 18,923 14,985 13,997 15,691 15,295 238,053 207,585 170,045 144,364 147,063 106,273 83,706 63,890 51,437 53,400 44,930 33,216 31,815 25,863 29,863 0 0 0 0 0 0 0 0 0 0 66,242 67,176 59,741 56,319 55,446 19,231 16,686 13,073 9,899 6,586 238,053 207,585 170,316 144,364 147,063 465,721 315,447 200,921 94,828 375,736 465,721 315,447 200,921 94,828 375,736 313,756 214,868 136,980 64,386 261,362 313,756 214,868 136,980 64,386 261,362 124,548 86,047 56,691 28,299 96,154 25 168 0 243 78 2,670 1,479 842 385 1,706 24,747 13,053 6,408 1,759 16,514 9,902 5,224 2,562 704 6,636 14,846 7,829 3,845 1,055 9,879 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 14,846 7,829 3,845 1,055 9,879 .37 .20 .10 .03 .26 .36 .19 .09 .03 .25 INCLUDES NON-RECURRING CHARGES PRIMARILY RELATED TO ACQUISITIONS. CERTAIN COMPANIES ACQUIRED AND ACCOUNTED FOR USING THE POOLING-OF-INTERESTS ACCOUNTING METHOD HAD ELECTED TO BE TREATED AS S-CORPORATIONS AND WERE THEREFORE NOT SUBJECT TO FEDERAL INCOME TAXES PRIOR TO THEIR ACQUISITION BY THE COMPANY. NET INCOME AND NET INCOME PER SHARE AMOUNTS INCLUDE AN UNAUDITED PROVISION FOR FEDERAL AND STATE TAXES AT AN EFFECTIVE RATE OF 40% FOR THESE COMPANIES.
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