March 17, 1999
Mr. Marshall J. Katz
3625 Indian Wells Road
Northbrook, Illinois 60062
RE: FINDER'S COMPENSATION PLAN
Dear Marshall:
The purpose of this letter is to confirm your engagement by HA-LO
Industries, Inc., an Illinois corporation (together, with its subsidiaries,
"HA-LO") for the purpose of your identification of businesses for potential
acquisition by HA-LO, your participation in all phases of review and evaluation
of such businesses, and your assistance to HA-LO in negotiations for the
purchase of the stock or assets of such businesses.
1. SERVICES TO BE RENDERED. You agree that you will perform on a best
efforts basis, solely for the account and benefit of HA-LO, the following
services (the "Services"):
(a) Soliciting the interest of, and identifying in writing to
the executive officers of HA-LO, businesses and sales representatives
for potential transactions in which HA-LO would acquire the stock or
assets of such businesses ("Prospects"); provided that such Prospects
shall be engaged in the operations which are similar to the operations
currently conducted by HA-LO or contemplated to be conducted by HA-LO
pursuant to its long-term business plans;
(b) Making formal and informal introductions to the executive
officers of HA-LO, and HA-LO's outside agents and representatives, of
the owners and key employees of the Prospects;
(c) Reviewing and evaluating the relevant business(es) of the
Prospects, including their operations and financial position, for
compliance with HA-LO's internal requirements as disclosed to you from
time to time, it being understood by HA-LO that you may rely upon
information supplied by the Prospects without independent verification;
Mr. Marshall J. Katz
March 17, 1999
Page 2
(d) Assisting HA-LO in its purchase negotiations with
the Prospects; and
(e) Performing such other and ancillary services with respect
to the Prospects, and HA-LO's acquisition thereof, as are reasonably
requested by HA-LO and not inconsistent with the provisions of this
Section 1.
For purposes of this Agreement, the term "acquisition" shall mean, in
one or a series of transactions, directly or indirectly, the acquisition by
HA-LO of a majority interest in the voting securities of a Prospect, a merger,
consolidation or similar business combination in which HA-LO acquires a
Prospect, the transfer of assets of a Prospect to HA-LO, the election of, or the
ability by HA-LO to elect nominees to a majority of the Board of Directors of a
Prospect, or any similar purchase, investment or arrangement, however
structured, by which HA-LO acquires an ownership interest in a Prospect or in
such Prospects' operating assets and all or substantially all of the sales
representatives of the Prospects become HA-LO sales representatives.
Given the limited scope of the Services, the contingent nature of your
compensation for the Services and in recognition of your outside business
endeavors, HA-LO acknowledges and agrees that you shall not be required to
devote your full-time to the performance of the Services provided that any
contacts which you establish with Prospects shall be for the exclusive benefit
of HA-LO; and provided, further, that your outside business endeavors shall not
materially interfere with your performance of the Services.
2. COMPENSATION - SUCCESS FEE FOR ACQUISITIONS. As compensation for the
Services with respect to acquisitions, HA-LO agrees to pay you a fee (the
"Success Fee") following completion of each acquisition of a Prospect (whether
or not you have identified such Prospect or HA-LO has requested your services in
connection with such acquisition) during the term of this Agreement. The Success
Fee shall be equal to the sum of the following:
(a) With respect to any Prospect the majority of whose
Pre-Closing Gross Profits (as herein defined) is derived from the sale
of goods, rather than the sale of services - ("Goods Company"), an
amount equal to four percent (4%) (the "Applicable Percentage") of the
"gross profits" (as hereinafter defined) of each Prospect during the
full twelve (12) calendar month period immediately preceding the
completion of the acquisition of such Prospect by HA-LO (the
Mr. Marshall J. Katz
March 17, 1999
Page 3
"Pre-Closing Gross Profits") up to a maximum fee of Two
Hundred Thousand Dollars ($200,000) per transaction ("Fee
Cap");
(aa) With respect to any Prospect the majority of whose Pre-Closing
Gross Profits is derived from the sale of services rather than the sale
of goods ("Services Company") - (i) an amount equal to two and one-half
percent (2 1/2%) of the "Gross Revenue" (as herein defined) of each
Prospect during the full twelve (12) calendar month period immediately
preceding the completion of the acquisition of such Prospect by HA-LO
(the "Pre-Closing Gross Revenues") up to a maximum fee of Two Hundred
Thousand Dollars ($200,000) per transaction ("Fee Cap");
(aaa) Notwithstanding the provisions of Sections 2(a) and (aa)
hereof, to the extent a Prospect derives Pre-Closing Gross Profits from
both the sale of services and the sale of goods, and a general division
between goods and services of Pre-Closing Gross Profits is determinable
by the parties, the parties shall cooperate in determining a Success
Fee which (i) reflects the contribution to the Pre-Closing Gross
Profits of the Prospect's goods and services sectors, and (ii) in the
aggregate is subject to the Fee Cap.
(b) Ten (10) years options (the "Options") to acquire shares
of the common capital stock of HA-LO in an amount equal to three
hundred seventy-five (375) shares for every Ten Thousand Dollars
($10,000) of Success Fee earned hereunder. The exercise price of the
Options shall be equal to the closing price for HA-LO shares as quoted
by the New York Stock Exchange (or similar securities exchange on which
HA-LO shares shall be trading) as of the close of business on the day
before the date of the execution of a definitive purchase agreement
with respect to the acquisition of such Prospect by HA-LO (or if a
Saturday or a Sunday, on the first business day preceding such date of
execution (the "Grant Date")). All Options issued with respect to a
Prospect shall be deemed issued as of the Grant Date, vest fifty
percent (50%) on issuance and fifty percent (50%) twelve (12) months
following the Grant Date, and in all other respects shall be subject to
the rules, regulations, terms, conditions and provisions of the HA-LO
1997 Stock Plan (Amended and Restated) (as it may be amended or a
successor plan thereof (the "Plan"). As a precondition to your
receiving such Options, you shall be
Mr. Marshall J. Katz
March 17, 1999
Page 4
required to enter into and deliver to HA-LO an appropriate
stock option agreement;
(c) To the extent that the Success Fee is limited due to the
Fee Cap, additional options ("Excess Options") shall be granted at a
rate of fifteen thousand (15,000) shares for every One Hundred Thousand
Dollars ($100,000) of Success Fee otherwise payable but not paid due to
the Fee Cap; and
(d) As examples of the above, (i) should an acquisition of a
Goods Company be closed with Pre-Closing Gross Profits of $10,000,000,
and the HA-LO stock price was $20 per share on the day prior to
signing, the Success Fee would be $200,000, the options issued pursuant
to paragraph (b) would be 7,500 at $20 per share and the Excess Options
would be 30,000 at $20.00 per share, and (ii) should an acquisition of
a Services Company be closed with Pre-Closing Revenues of $10,000,000,
and the HA-LO stock price was $20 per share on the day prior to
signing, the Success Fee would be $200,000, the options issued pursuant
to paragraph (b) would be 7,500 at $20 per share and the Excess Options
would be 7,500 at $20.00 per share.
For purposes of calculating Success Fees under this Section 2, the term
"gross profits" shall mean the gross profits (revenues less returns and
allowances and less cost of goods sold) attributable to the operations or
businesses conducted or previously conducted, or the assets owned or previously
owned, by a Prospect, exclusive of those gross profits attributable to
operations or business(es) that are discontinued or are otherwise known to be
non-recurring following acquisition by HA-LO; gross profits are to be calculated
in accordance with the generally accepted accounting principles, methods,
policies, practices and procedures employed by HA-LO in the calculation of its
own gross profits, on a consistent basis throughout the periods; and the term
"gross revenues" shall mean the gross revenues attributable to the operations or
businesses conducted or previously conducted or the assets owned or previously
owned by a Prospect, exclusive of those gross revenues attributable to
operations or businesses that are discontinued or otherwise known to be
non-recurring following acquisition by HA-LO; gross revenues are to be
calculated in accordance with the generally accepted accounting principals,
methods, policies, practices and procedures employed by HA-LO in the calculation
of its own gross revenues, on a consistent basis throughout the periods.
Mr. Marshall J. Katz
March 17, 1999
Page 5
Notwithstanding any provision in this letter agreement to the contrary,
in the event that HA-LO utilizes the Services of an independent third party to
render services similar to any or all of the Services, the Success Fee (i.e.,
cash payable and options issuable) otherwise payable to you hereunder shall be
reduced by fifty percent (50%).
Notwithstanding any provision in this letter agreement to the contrary,
(i) your retention by HA-LO with respect thereto, and (ii) the Success Fee
otherwise payable hereunder with respect to an acquisition in which more than
fifty percent (50%) of the voting securities of HA-LO are distributed to one or
more persons shall be determined by HA-LO and You from time to time.
The Success Fee described above, shall be calculated and paid within
ten (10) days following the date of the completion of the acquisition of each
Prospect by HA-LO.
You shall also be entitled to compensation from HA-LO with respect to
acquisitions of those Prospects with which you have devoted attention and that
are closed within six (6) months after the term of this agreement expires;
provided that HA-LO shall have provided a draft of an acquisition contract to
the Prospect within 30 days of the termination of this agreement. Generally, we
contemplate the term "devoted attention" to mean a meeting or telephone call
with the Prospect in which a meaningful discussion has occurred regarding
acquisition of such Prospect or its business coupled with the receipt by HA-LO
of financial statements of the Prospect. HA-LO will not unreasonably delay the
acquisition process to avoid paying a Success Fee. Your engagement hereunder
shall commence on the date of this Agreement and expire on the second (2nd)
anniversary of the date of this Agreement. The provisions of this paragraph
shall survive any termination of your engagement.
If, in the course of the negotiation with a Prospect, no acquisition is
consummated, but as a result of such negotiation one or more qualified sales
representative of the Prospect (each a "qualified sales representative") enter
into a sales representative agreement with HA-LO within sixty (60) days of the
consummation of such negotiation with the Prospect, then HA-LO shall pay you the
following: an amount equal to four percent (4%) of the gross profits generated
by the qualified sales representatives (as determined by HA-LO) during the
twelve (12) month period prior to the execution of a written sales
representative agreement with HA-LO.
Mr. Marshall J. Katz
March 17, 1999
Page 6
3. OTHER AGREEMENTS.
(a) In addition to any Success Fees payable to you hereunder,
and regardless whether an acquisition of a Prospect is proposed or
consummated, HA-LO hereby agrees, from time to time to promptly upon
your written request, to reimburse you for all reasonable travel and
lodging expenses, and meals with Prospects, authorized by HA-LO and
incurred by you in connection with, or arising out of, the Services.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to the
conflicts of laws provisions thereof.
(c) HA-LO recognizes and confirms that, with respect to
Prospects, (i) you are not obligated to independently verify the
accuracy or completeness of information provided to you by a Prospect,
and (ii) you do not assume responsibility for the accuracy or
completeness thereof. HA-LO further recognizes and agrees that all
analyses, evaluations and advice provided by you in connection with
Prospects (whether written or oral, formal or informal) are intended
solely for the benefit and use of HA-LO in pursuing acquisitions, and
that no such analyses, evaluations or advice shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose. You recognize and agree that
all such analyses, evaluations and advice, together with all
information provided to you by Prospects, is confidential and that no
such analyses, evaluations, advice or information shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose. HA-LO hereby agrees to
indemnify and hold you harmless from and against all losses, claims,
damages, liabilities and expenses incurred by you (including fees and
disbursements of counsel) which are related to or arise out of the
Services, unless the same are finally judicially determined to have
resulted from your bad faith or recklessness.
(d) You and HA-LO mutually agree to file all tax returns, and
take reasonable, consistent positions therewith, with any taxing
authorities, in a manner which is consistent with the characterization
of any item by this Agreement. You agree that, with respect to the
Services, you are an independent contractor and not an employee of
HA-LO.
Mr. Marshall J. Katz
March 17, 1999
Page 7
(e) This Agreement may be executed in two or more
counterparts, all of which together shall be considered a single
instrument. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof, supersedes
all prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof, including but
not limited to the March 17, 1993, March 17, 1994 and March 17, 1997
letter agreements between us, and cannot be amended or otherwise
modified except in writing executed by the parties hereto. The
provisions of this agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto;
provided, however, that you may not assign your obligations or duties
under this Agreement without HA- LO's prior written consent, which
consent may be withheld in HA-LO's sole discretion.
(f) In the event of a "change of control" of HA-LO (as such
term is defined on Exhibit A hereto), all options issuable to you
hereunder or otherwise shall be immediately and one hundred percent
(100%) vested.
(g) Notwithstanding the provisions of the Plan, upon the
termination of your engagement with HA-LO pursuant to this Agreement
(other than as a result of your breach of this Agreement), unexercised
options held by you shall be exercisable for a period of one (1) year
from and after the date of such termination.
We are delighted to offer you this engagement and look forward
to working with you on this assignment. Please confirm that the
Mr. Marshall J. Katz
March 17, 1999
Page 8
foregoing is in accordance with your understanding by signing and returning to
us the enclosed duplicate copy of this letter.
Sincerely,
HA-LO INDUSTRIES, INC.
By: ____________________________________
Richard A. Magid
Chief Operating Officer
ACCEPTED AND AGREED TO:
_________________________________
Marshall J. Katz