UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No.1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File # 0-20758
HA-LO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
ILLINOIS 36-3573412
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
5980 TOUHY AVE., NILES, ILLINOIS 60714
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(Address of principal executive offices) (Zip Code)
(847) 647-2300
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(Registrant's telephone number, including area code)
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 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by stockholders who
were not affiliates of the registrant was approximately $421,878,000 - as of
March 21, 2000 (based on the closing sale price on that date as reported by
Midwest Edition of THE WALL STREET JOURNAL). For this computation, the
registrant has excluded the market value of all shares of its common stock
reported as beneficially owned by executive officers and directors of the
registrant and certain other stockholders; such exclusion shall not be deemed to
constitute an admission that any such person is an "affiliate" of the
registrant. At March 21, 2000, the registrant had issued and outstanding an
aggregate of 48,954,836 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
HA-LO Industries, Inc., an Illinois corporation (the "Company"), hereby
amends its Annual Report on Form 10-K originally filed with the Securities and
Exchange Commission on March 30, 2000, pursuant to Instruction G (3) to Form
10-K by completing Items 10 through 13 of Part III thereof.
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 Part I, except
that information regarding "Beneficial Ownership Reporting Compliance" is set
forth below.
BOARD OF DIRECTORS
There are presently seven members of the Board of Directors. Each
director will hold office until the next Annual Meeting of Shareholders of the
Company or until his respective successor is duly elected and qualified.
There are no family relationships between any directors and executive
officers of the Company.
INFORMATION CONCERNING DIRECTORS(1)
The following table sets forth certain information as of March 31, 2000
with respect to each Director:
Name Age Position with the Company
- ---- --- -------------------------
Lou Weisbach.............. 51 Chairman of the Board of Directors
Linden D. Nelson.......... 39 Vice Chairman of the Board of Directors
John R. Kelley, Jr........ 38 Director, President and Chief Executive Officer
Seymour N. Okner.......... 73 Director
Thomas Herskovits......... 53 Director
Marshall J. Katz.......... 51 Director
Brian M. Hermelin......... 35 Director
LOU WEISBACH has served as Chairman of the Board of the Company since
its incorporation in January 1988. He served as President and Chief Executive
Officer of the Company from January 1988 through November 1999. From 1972
through 1987, he operated the predecessor of the Company as a sole
proprietorship.
LINDEN D. NELSON has served as Vice Chairman of the Board of the
Company since the acquisition of Creative Concepts in Advertising, Inc. by the
Company in January 1997. Mr. Nelson was the Chairman and Chief Executive Officer
of Creative Concepts in Advertising, Inc.'s predecessor from its inception in
July 1979 through December 1996.
JOHN R. KELLEY, JR. was appointed President and Chief Executive Officer
of the Company in November 1999. He previously served as Chief Marketing Officer
of the Company and President of UPSHOT, which was acquired by the Company in
1998. Mr. Kelley co-founded UPSHOT in 1994.
SEYMOUR N. OKNER has served as a director of the Company and, until
January 2000, as Chairman of the Board of Market USA and Marusa Marketing, Ltd.,
a marketing company and an affiliate of Market
1
USA, since their acquisition by the Company in September 1996. Previously, Mr.
Okner was the President, Treasurer, Secretary and a director of Market USA's
predecessor since its inception in November 1988. He was also the President and
Secretary of Marusa Marketing, Ltd. from April 1992 through September 1996.
Prior to 1988, Mr. Okner served in various executive capacities, primarily in
the insurance industry, including President of Montgomery Ward Life Insurance
Company and Signature Life Insurance Company of America.
THOMAS HERSKOVITS has served as a director since 1992. Mr. Herskovits
has been the managing partner of Herskovits Enterprises, a venture capital
company, since 1996 and was the President and Chief Executive Officer of
Specialty Foods Corp. from 1993 to 1996. From 1989 through 1993, he was
President of the KGF Frozen Products Group, an operating unit of Kraft General
Foods. From 1984 to 1989, he was President of the Kraft Dairy Group of Kraft
General Foods.
MARSHALL J. KATZ has been a director and an independent financial
consultant to the Company and other parties since 1992. From 1988 through 1991,
Mr. Katz was the owner and president of Northbrook Management Co., a money
management firm trading in futures and options.
BRIAN M. HERMELIN has served as a director since January 2000. Since
1995, Mr. Hermelin has been a consultant to or officer of USA Jet Airlines, Inc.
and is currently its chief operating officer. Since 1997, Mr. Hermelin has
served as director of Bingham Financial Services, Inc., a regional financial
services firm providing commercial and residential mortgage products.
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(1) Only directorships of issuers with a class of securities registered
pursuant to Section 12 of the Exchange Act, or subject to the
requirements of Section 15(d) of the Exchange Act, and directorships of
issuers registered as investment companies under the Investment Company
Act of 1940, as amended, are required to be listed in the above table.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has designated an Audit Committee and a
Compensation Committee. The Board of Directors has not designated a Nominating
Committee; rather, the Board of Directors as a whole performs the functions that
would otherwise be delegated to such committee.
Current members of the Audit Committee are Thomas Herskovits and Brian
M. Hermelin. The functions of the Audit Committee include assessing the scope of
the Company's engagement of its independent public accountants, reviewing their
reports and recommending to the Board of Directors the engagement and discharge
of independent auditors. The Audit Committee also meets with the financial staff
of the Company to review accounting procedures and internal audit controls.
Current members of the Compensation Committee are Thomas Herskovits and
Brian M. Hermelin. The functions of the Compensation Committee include setting
executive officer salaries, determining annual bonuses and administering the
Company's incentive compensation plans, including the HA-LO Industries, Inc.
Stock Plan (the "Stock Plan"), the HA-LO Industries, Inc. 1997 Stock Plan
(Amended and Restated) (the "Restated Plan") and the Executive Incentive
Compensation Plan (the "Executive Incentive Compensation Plan"). See "Report of
the Compensation Committee on Executive Compensation," below.
During 1999, the Board of Directors held five meetings and took action
by written consent five times, the Audit Committee held two meetings
and the Compensation Committee took
2
action by meeting or written consent two times. Each director attended at
least 75% of the aggregate number of meetings held by the Board of Directors
and the committees, if any, on which he served during 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires each of the Company's executive officers and
directors and persons who beneficially own more than 10% of the Common Stock
to file initial reports of beneficial ownership and reports of changes in
beneficial ownership of the Company's equity securities. Based solely on a
review of the copies of such reports furnished to the Company, the Company
believes that during the fiscal year ended December 31, 1999, all of its
officers, directors and 10% beneficial owners timely filed all required
reports, except for Lou Weisbach and Jon Sloan, each of whom filed one late
report required to be filed on Form 4, Gregory J. Kilrea, who filed two
late reports required to be filed on Form 4, Marshall J. Katz, who filed
three late reports required to be filed on Form 4, and John R. Kelley, Jr.,
who filed one late report to be filed on Form 3.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information with respect
to all compensation earned by or paid to each of (i) the Company's Chief
Executive Officer appointed in November 1999, (ii) its Chief Executive Officer
from January 1999 to November 1999, (iii) its four other most highly compensated
executive officers who were serving as executive officers on December 31, 1999,
and (iv) a former executive officer who would have qualified as one of the four
most highly compensated executive officers if he had served as an executive
officer on December 31, 1999, and whose total salary plus bonus for 1999
exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
AWARDS
------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($) OPTIONS(#)(2)
- -------------------------------------------------------------------------------------------------------------
John R. Kelley, Jr.................. 1999 150,000 142,472 22,651 16,667
Director, President and Chief 1998(3) 75,000 -- 11,197 12,501
Executive Officer
Lou Weisbach........................ 1999 500,000 -- -- --
Chairman of the Board, Former 1998 500,000 -- -- --
Chief Executive Officer(4) 1997 500,000 -- -- 35,984
Linden D. Nelson.................... 1999 500,000 -- -- --
Vice Chairman of the 1998 500,000 -- -- 102,000
3
Board 1997 500,000 -- -- 429,734
Michael J. Linderman............... 1999 235,000 -- 54,217 40,000
President - Promotional 1998(5) 63,269 -- -- 55,500
Products Group
Gregory J. Kilrea................... 1999 220,192 -- -- 195,000
Chief Financial Officer 1998 174,231 -- -- 68,550
1997 137,692 29,063 -- 53,213
Jon Sloan........................... 1999 75,000 135,390 -- 15,000
Vice President - National 1998 75,000 164,920 -- 11,100
Accounts 1997 75,000 126,087 -- 12,450
Richard A. Magid.................... 1999 300,000 -- -- --
Former Chief Operating 1998 290,577 -- -- 6,300
Officer, Treasurer and 1997 207,804 38,438 -- 105,563
Assistant Secretary
- ------------------------
(1) Amounts for Mr. Kilrea and Mr. Magid were earned under the Executive
Incentive Compensation Plan. Amounts shown for Mr. Sloan consist of
commissions earned for sales of Company products.
(2) Mr. Weisbach and Mr. Nelson each earned 35,984 options in 1997 under the
Executive Incentive Compensation Plan, which options were granted in 1998.
Mr. Kilrea and Mr. Magid each earned 14,063 options in 1997 under the
Executive Incentive Compensation Plan, which options were granted in 1998.
(3) Amounts earned by Mr. Kelley in 1998 reflect amounts paid by the Company
after Mr. Kelley became an employee in connection with an acquisition by
the Company on June 30, 1998.
(4) Mr. Weisbach resigned from his position as Chief Executive Officer in
November 1999.
(5) Mr. Linderman's employment with the Company commenced in September 1998.
4
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock that were granted in 1999 to each
of the current and former executive officers named in the Summary Compensation
Table above. No stock appreciation rights ("SARs") were granted to any of the
persons listed on the table below during 1999.
INDIVIDUAL GRANTS
---------- ------ POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS/ SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------
NAME GRANTED (#)(2) FISCAL YEAR (3) ($/SH) DATE 5%($) 10%($)
John R. Kelley, Jr.... 16,667 * 11.50 04/19/09 120,541 305,473
Lou Weisbach.......... 0 -- -- -- -- --
Linden D. Nelson...... 0 -- -- -- -- --
Michael J. Linderman. 40,000 1.5% 5.94 08/23/09 149,425 378,673
Gregory J. Kilrea..... 7,500 * 14.42 02/01/09 50,667 144,740
35,000 1.3 12.13 05/26/09 266,997 676,623
2,500 * 12.06 05/28/09 18,961 48,051
50,000 1.9 4.75 11/08/09 149,362 378,514
100,000 3.8 7.00 11/08/09 73,725 532,028
Jon Sloan............. 15,000 * 5.94 08/23/09 56,035 142,002
Richard A. Magid...... 0 -- -- -- -- --
- ------------------------
* Less than 1%
(1) The amounts shown in these columns are the result of calculations at
assumed annual rates required by the SEC and are not intended to
forecast possible future appreciation, if any, of the price of the
Company's Common Stock. The Company did not use an alternative formula
for a grant date valuation, as the Company is not aware of any formula
that will determine with reasonable accuracy a present value based on
future unknown or volatile factors.
(2) All options were granted at an exercise price equal to the Fair Market
Value of the Company's Common Stock on the date of grant and vest over
a three-year period in increments of one-third each on the first,
second and third anniversaries of the date of grant.
(3) Percentage calculations in this column include the number of options
granted to employees of the Company and non-employee independent sales
representatives for sales of Company products, which sales
representatives have subsequently become employees of the Company.
5
The following table sets forth information with respect to the options
exercised by and the unexercised options held by each of the current and former
executive officers named in the Summary Compensation Table above, as of December
31, 1999.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FY-END (#) AT FY-END ($)(1)
SHARES ---------- ---------------
ACQUIRED ON VALUE
NAME EXERCISE REALIZED ($) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------
John R. Kelley, Jr........ 0 0 4,167/25,001 0/0
Lou Weisbach.............. 0 0 794,256/23,990 145,214/0
Linden D. Nelson.......... 0 0 439,744/91,990 0/0
Michael J. Linderman...... 0 0 20,500/75,000 0/62,400
Gregory J. Kilrea......... 0 0 105,562/258,076 0/187,500
Jon Sloan................. 0 0 15,750/22,800 0/23,400
Richard A. Magid.......... 0 0 395,912/14,076 410,044/0
- ------------------------
(1) On December 31, 1999, the closing price per share of the Company's Common
Stock was $7.50.
COMPENSATION OF DIRECTORS
Pursuant to the Restated Plan, in 1999 each non-employee director of
the Company was entitled to receive compensation in the form of a non-qualified
stock option ("NSO") to purchase 15,000 shares of Common Stock at an exercise
price per share equal to the Fair Market Value (as defined in the Restated Plan)
of the Common Stock on the date of the first regularly scheduled Board of
Directors meeting during such calendar year. During fiscal 1999, each
non-employee director received under the Restated Plan an NSO to purchase 15,000
shares of Common Stock at an exercise price per share of $10.00.
On March 27, 2000, each non-employee director received under the
Restated Plan an NSO to purchase 15,000 shares of Common Stock at an exercise
price of $9.94.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Mr. Kelley serves as the President and Chief Executive Officer of the
Company pursuant to a four and one-half year employment agreement which
commenced on June 30, 1998. Mr. Kelley's base salary is $200,000. He is eligible
to receive bonus payments and additional compensation based upon achievement of
certain profit objectives. Mr. Kelley is also eligible to receive additional
compensation pursuant to the Executive Incentive Compensation Plan. In the event
of a "Change of Control," Mr. Kelley may terminate the employment agreement. A
"Change of Control" is defined as any transaction pursuant to which 50% or more
of the outstanding shares of the Company are acquired. The agreement prohibits
Mr. Kelley from disclosing confidential information regarding the Company, and
during the period of his employment with the Company and for three years
thereafter, (i) engaging, directly or indirectly, in any business in the United
States or where the Company conducts its business that directly competes with
the business of UPSHOT, the marketing services division of the Company; (ii)
soliciting or engaging in business conducted by the Company with a customer or
prospective customer; or (iii) soliciting any employee or independent contractor
of the Company that results in the termination of the employment or agency
relationship of such individual. Commencing on January 1, 2000, Mr. Kelley has
voluntarily foregone receipt of his base compensation.
Mr. Weisbach serves as the Chairman of the Board of the Company
pursuant to a five year employment agreement which commenced on January 1, 1997.
Mr. Weisbach's base salary is $500,000, which amount may be increased from time
to time by the Board of Directors; he is eligible to receive bonus payments and
additional compensation based upon achievement of profit objectives to be
established from time to time solely by the Board of Directors. Mr. Weisbach is
also eligible to receive additional compensation pursuant to the Executive
Incentive Compensation Plan. The employment agreement provides that on each
anniversary of its effective date, the term of Mr. Weisbach's employment
automatically shall be extended for an additional one year period, such that the
term of the agreement is restored to five years on December 31 of each year;
however, either party may elect not to so extend the agreement by giving notice
of such election at least 60 days prior to December 31 of each year. In the
6
event Mr. Weisbach's employment is terminated following a "Change of Control,"
he shall receive, for twenty-four (24) months, benefits no less favorable than
those he received under the employment agreement prior to such termination. A
"Change of Control" is defined as, among other things, (i) any consolidation or
merger wherein the Company is not the continuing or surviving company or which
contemplates that all or substantially all of the assets and/or business is
controlled by another, (ii) any sale, lease, exchange or transfer of all or
substantially all of the assets of the Company, (iii) approval by the
shareholders of liquidation or dissolution, (iv) any "person" becoming the
beneficial owner of more than 50% of the combined voting power of the Company,
(v) any sale, exchange or transfer of 50% of the securities of the Company
representing the total fair market value of the Company or the combined voting
power of the Company or (vi) if during a period of two consecutive years from
the effective date, individuals who at the beginning of such period constituted
the directors of the Company cease for any reason to constitute a majority
thereof.
Mr. Nelson serves as the Vice Chairman of the Board of the Company
pursuant to a five year employment agreement which commenced on January 3, 1997.
Mr. Nelson's base salary is $500,000, which amount may be increased from time to
time by the Board of Directors; he is eligible to receive bonus payments and
additional compensation based upon achievement of profit objectives to be
established from time to time solely by the Board of Directors. Mr. Nelson is
also eligible to receive additional compensation pursuant to the Executive
Incentive Compensation Plan. During the period of Mr. Nelson's employment with
the Company and for two years thereafter, the agreement prohibits Mr. Nelson
from (i) engaging, directly or indirectly, in any business in the United States
or Canada that competes with the business of the Company; (ii) soliciting or
engaging in business conducted by the Company with a customer or prospective
customer; or (iii) soliciting any employee or independent contractor of the
Company that results in the termination of the employment or agency relationship
of such individual.
Mr. Kilrea serves as the Chief Financial Officer of the Company
pursuant to an approximately thirty-eight month employment agreement which
commenced on November 9, 1999. Mr. Kilrea's base salary is $300,000, which
amount may be increased from time to time by the Board of Directors. He is
entitled to receive discretionary bonus payments of up to 25% of his base
salary upon the attainment of mutually established objectives. Mr. Kilrea is
also eligible to receive additional compensation pursuant to the Executive
Incentive Compensation Plan. In connection with his employment agreement, Mr.
Kilrea received options to purchase 150,000 shares of Company common stock,
vesting over three years. Mr. Kilrea may terminate the agreement within
ninety days after Mr. Kelley ceases to be Chief Executive Officer. If the
Company elects not to renew the term of the agreement for an additional year,
Mr. Kilrea is entitled to receive a severance payment equal to one year's
base salary and bonus payment. The agreement prohibits Mr. Kilrea from
disclosing confidential information regarding the Company, and during the
period of his employment with the Company and for one year thereafter, (i)
engaging, directly or indirectly, in any business in the United States that
competes with the business of the Company; or (ii) soliciting any employee or
independent contractor of the Company that results in the termination of the
employment or agency relationship of such individual.
Mr. Magid served as Chief Operating Officer, Vice President and
Treasurer until November 1999 pursuant to an employment agreement extending
through December 31, 2000. In November 1999, the Company and Mr. Magid amended
his employment agreement in connection with his resignation as an officer and
director of the Company. Pursuant to the amended agreement, his term of
employment was extended to November 2003 and Mr. Magid now serves as a
consultant to the Chief Executive Officer. Mr. Magid's base salary is $300,000.
He is entitled to a one time bonus of $100,000 if he is employed by the Company
on May 8, 2000. If Mr. Magid is terminated by the Company for any reason after
May 8, 2000, he is also entitled to the remaining base salary due under the
remaining term of the amended agreement. If he is terminated for cause on or
prior to May 8, 2000 or he voluntarily ceases employment
7
with the Company after May 9, 2000, he is entitled to an additional eighteen
months of base salary. The amended agreement also provides that all stock
options previously granted to Mr. Magid became fully vested and exercisable
until the expiration of their respective terms. As part of the amended
agreement, the parties exchanged mutual releases. The agreement continues to
prohibit Mr. Magid from disclosing any confidential and proprietary information
of the Company and from directly or indirectly disclosing such information,
except in connection with conducting the business and affairs of the Company.
The agreement also provides that, during his employment and for one year
thereafter, Mr. Magid shall not, directly or indirectly, compete with the
Company.
The Company has executed materially similar agreements with Linden D.
Nelson, Richard A. Magid, Gregory J. Kilrea, Sabina D. Filipovic, Barry T.
Margolin and Barbara G. Berman (each, an "Executive") to ensure the continued
dedication of such Executives notwithstanding the possibility, threat or
occurrence of a "Change of Control." The agreements become effective upon a
Change of Control.
"Change of Control" is defined in these agreements, generally, as (1)
the acquisition by an individual, group or entity (each, a "Person") of 30% of
the outstanding stock of the Company or the combined voting power of the then
outstanding voting power of the Company (but expressly excluding (i)
acquisitions directly from the Company by a Person whose holdings do not exceed
40% of the outstanding stock or voting securities prior to or after such
acquisition, (ii) any acquisition by the Company, (iii) any acquisition by an
Employee Benefit Plan maintained and controlled by the Company, or (iv) certain
acquisitions by a corporation pursuant to a merger, consolidation or
reorganization); (2) members of the current Board of Directors cease to
constitute a majority of the Board of Directors unless such new Directors were
approved by a vote of at least a majority of the current Board of Directors; and
(3) certain reorganizations, mergers and consolidations of the Company or sales
of the assets of the Company unless, generally, 60% of the outstanding shares of
the surviving entity are held by Persons who were holders of the Company prior
to such transaction, or at least a majority of the members of the Board of
Directors of such surviving company were members of the Company's Board of
Directors prior to such transaction.
Each agreement provides that, in the event an Executive's employment is
terminated following a Change of Control, as a result of the death or disability
of the Executive, by the Company other than for cause (as defined in the
agreement), or by the Executive for good reason (as defined in the agreement),
the Company will be obligated to pay the Executive a lump sum payment equal to
the Executive's accrued but unpaid base and bonus compensation.
In addition, if an Executive is terminated by the Company without cause
after a Change of Control, the Company will pay such Executive an amount equal
to the product of a multiple, specified in the agreement, times the sum of the
Executive's base salary plus a formula based upon the bonus or commission paid
to the Executive during the previous three years. The specified multiples, which
range from 2.0 to 2.99, differ for each Executive. In addition, the Company is
obligated to continue to provide to the Executive and/or the Executive's family,
for 90 days following termination, benefits that are comparable to the benefits
received by the Executive immediately prior to termination. In the event of the
Executive's employment is terminated due to death, disability or for cause, the
agreement shall terminate without further obligation to the Executive and all
accrued obligations shall be paid to the Executive within 30 days of
termination. The agreements prohibit the Executive from disclosing confidential
information regarding the Company, and during the period of Executive's
employment with the Company and for one year thereafter, (i) engaging, directly
or indirectly, in any business in the United States or Canada that directly
competes with the business of the Company; (ii) soliciting or engaging in
business conducted by the Company with a customer or prospective customer; or
(iii) soliciting any employee or independent contractor of the Company that
results in the termination of the employment or agency relationship of such
8
individual.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Thomas Herskovits
and Brian M. Hermelin. None of the members of the Compensation Committee is
either a current or former officer or employee of the Company.
9
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
EXCHANGE ACT, THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS ANNUAL
REPORT ON FORM 10-K, IN WHOLE OR IN PART, THE REPORT PRESENTED BELOW AND THE
PERFORMANCE GRAPH FOLLOWING SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is currently comprised of Thomas Herskovits
and Brian M. Hermelin, neither of whom currently is or has been in the past an
officer or employee of the Company. The Compensation Committee is responsible
for setting executive officer salaries, determining annual bonuses and
administering the Company's incentive compensation plans, including the Stock
Plan, the Restated Plan and the Executive Incentive Compensation Plan.
POLICY AND OBJECTIVES
The Compensation Committee believes that executive compensation
should attract, retain and motivate the highly qualified individuals required
for the success of the Company and should also be commensurate with
performance. The Compensation Committee also strives to ensure that the
compensation of each executive officer of the Company is fair in relation to
his or her experience and overall responsibility at the Company. In general,
the Compensation Committee considers both corporate and individual
performance in determining executive compensation. Corporate performance is
evaluated by reviewing the extent to which strategic and business plan goals
are met. Individual performance is evaluated by reviewing organization and
management development against set objectives. In making these evaluations,
the Compensation Committee relies upon input from the Chief Executive Officer
regarding the financial performance of the Company and the performance of
specific employees.
Compensation for executive officers of the Company is divided into cash
and stock-based components as follows:
CASH-BASED COMPENSATION
The Company's cash-based compensation consists of salary, bonus and
payments pursuant to a non-qualified benefit plan maintained by the Company
(the "Non-Qualified Plan"). Annual base salary for each of the Company's
executive officers is paid either pursuant to an employment agreement between
the officer and the Company (see "Executive Compensation -- Employment
Agreements", above), or upon the approval of the Compensation Committee,
which annually reviews the base salary payable to each executive officer. The
Compensation Committee's determination of annual salary is based upon its
review of the officer's past performance, the responsibilities associated
with the officer's position and any changes with respect thereto, and the
recommendation of the Chief Executive Officer. While the Compensation
Committee acknowledges the subjective nature of these determinations, it
believes that the base salary paid to each of the Company's executive
officers fairly reflects that officer's prior performance, position and
overall contribution to the Company's success.
Under the Non-Qualified Plan, which was established by the Company in
1990, eligible employees may elect to defer a certain amount of compensation for
payment at a later date. Currently, the Non-Qualified Plan allows a
participating employee to defer up to 25% of his or her annual compensation (but
10
not less than $1,350) for a minimum of at least five years. Compensation that is
deferred under the Non-Qualified Plan is eligible for an "Employer Match" equal
to 50% of the deferred amount (up to a maximum of $2,000 per year), which vests
on an installment basis according to a formula set forth in the Non-Qualified
Plan. The Non-Qualified Plan provides for the payment of the deferred benefit,
which includes the deferred compensation, the matched amounts and interest, to
the employee on an installment basis after the employee attains at least 60
years of age. Under certain circumstances, including the death, disability or
financial hardship of the participating employee, the Non-Qualified Plan
provides for the payment of deferred benefits prior to the employee attaining 60
years of age.
In addition to an annual base salary, certain executive officers,
including the Executive Officers named in the Summary Compensation Table, are
eligible to receive bonuses payable in cash, options to purchase Common Stock,
or both, pursuant to the Executive Incentive Compensation Plan. The Executive
Incentive Compensation Plan became effective commencing with fiscal year 1997.
Under the Executive Incentive Compensation Plan, each Executive except Ms.
Berman is eligible to receive a cash bonus, expressed as a percent of his/her
base salary, and options to purchase Common Stock. Ms. Berman is eligible to
receive only options to purchase Common Stock. The awards are granted based upon
the Company's achievement of certain earnings per share ("EPS") targets set by
the Compensation Committee and approved by the Board of Directors of the
Company, which targets may be adjusted for capital changes (E.G., stock splits,
stock dividends, etc.) or due to circumstances materially affecting the EPS
(E.G., acquisitions). Awards of cash and options are made based upon the
Company's actual EPS as a percentage of the target EPS, which percentage will
determine the percent of the Executive's base salary that will be awarded as a
cash award and the number of options that will be awarded; provided, however,
that (i) no awards will be made unless actual EPS is greater than at least 90%
of the target EPS, and (ii) no additional awards will be granted for the amount
by which actual EPS exceeds 115% of the target EPS.
STOCK-BASED COMPENSATION
The Compensation Committee is also responsible for administering the
Stock Plan and the Restated Plan. Option grants pursuant to such plans are
intended to encourage performance that will result in appreciation of the market
value of the Company's Common Stock. Stock options are generally awarded from
time to time by the Compensation Committee based upon recommendations from the
Chief Executive Officer. In making its determinations of option awards, the
Compensation Committee considers the performance of the proposed optionee, the
Company's financial performance during the relevant period and the number of
options previously granted to the optionee.
Throughout 1999, the Compensation Committee also awarded stock options
under the Stock Plan to qualifying employees and independent sales
representatives of the Company based on commissions earned on sales of the
Company products during 1999. In doing so, the Compensation Committee rewarded
these individuals for their efforts on behalf of the Company and offered them
the opportunity to acquire an initial, or augment their existing, proprietary
interest in the Company.
COMPENSATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER
Since November 1999, John R. Kelley, Jr. has served as the Chief
Executive Officer of the Company pursuant to an employment agreement with the
Company. See "Executive Compensation -- Employment Agreements," above. During
fiscal 1999, Mr. Kelley's total annual compensation was $150,000. The
compensation paid to Mr. Kelley during 1999 was not based upon, and had no
specific relation to, the performance of the Company's Common Stock during 1999.
Until November 1999, Lou Weisbach served as the Chief Executive Officer of the
Company pursuant to an employment agreement with the Company. See "Executive
Compensation -- Employment Agreements," above. During fiscal
11
1999, Mr. Weisbach's total annual compensation was $500,000. The compensation
paid to Mr. Weisbach during 1999 was not based upon, and had no specific
relation to, the performance of the Company's Common Stock during 1999.
THE COMPENSATION COMMITTEE
Thomas Herskovits
Brian M. Hermelin
12
PERFORMANCE GRAPH
NOTE: THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW IS NOT NECESSARILY
INDICATIVE OF FUTURE PRICE PERFORMANCE.
COMPARISON OF $100 INVESTED IN THE COMPANY'S COMMON STOCK, NYSE
COMPOSITE INDEX AND THE COMPANY'S PUBLISHED LINE OF BUSINESS GROUP (1)
NYSE STOCK MARKET NYSE STOCKS--MISCELLANEOUS
HA-LO Industries, Inc. (US Companies) Nondurable Goods
12/30/94 100.0 100.0 100.0
12/29/95 473.1 135.6 108.6
12/31/96 793.3 164.4 127.4
12/31/97 750.0 218.4 184.0
12/31/98 1,085.3 262.0 155.4
12/31/99 324.5 287.2 138.8
- ----------------------------------------------
(1) The above graph compares the performance of the Company's Common Stock
with that of a broad equity market index, the New York Stock Exchange
(NYSE) Market Index, and a published line-of-business index, NYSE
stocks with SIC code 519 (miscellaneous nondurable goods). The
Company's line of business is within this SIC code.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000, certain
information concerning the beneficial ownership of Common Stock by (i) all
directors, (ii) each of the current or former executive officers named in the
Summary Compensation Table above and (iii) all directors and current
executive officers as a group. Unless otherwise indicated, each person has
sole investment and voting power (or shares such powers with his or her
spouse) with respect to the shares shown as beneficially owned by that person.
NUMBER OF SHARES
BENEFICIALLY OWNED APPROXIMATE
NAME AND ADDRESS(1) ON MARCH 31, 2000 PERCENT OF CLASS
- ------------------- ----------------- ----------------
John R. Kelley, Jr................. 827,492(2) 1.7%
Lou Weisbach....................... 3,420,203(3) 6.9%
13
NUMBER OF SHARES
BENEFICIALLY OWNED APPROXIMATE
NAME AND ADDRESS(1) ON MARCH 31, 2000 PERCENT OF CLASS
- ------------------- ----------------- ----------------
Linden D. Nelson................... 3,121,926(4) 6.3%
Seymour N. Okner................... 686,954(5) 1.4%
Marshall J. Katz................... 457,272(6) *
Thomas Herskovits.................. 126,346(7) *
Brian M. Hermelin.................. 132,512(8) *
Michael J. Linderman............... 28,655(9) *
Gregory J. Kilrea.................. 133,251(10) *
Jon Sloan.......................... 20,130(11) *
Richard A. Magid................... 441,736(12) *
All Directors and Executive
Officers, as a group
(14 persons)............... 9,097,649 17.8%
Merrill Lynch & Co., Inc........... 3,369,650(13) 6.9%
- --------------
* Less than one percent.
(1) The address of each executive officer and director of the Company is in
care of the Company, 5980 West Touhy Avenue, Niles, Illinois 60714.
(2) Includes 20,834 shares subject to options held by Mr. Kelley that are
exercisable on March 31, 2000 or within 60 days thereafter (the
"Measurement Period").
(3) Includes 806,251 shares subject to options held by Mr. Weisbach that are
exercisable during the Measurement Period, and 2,196,602 shares owned by
the Lou Weisbach Revocable Trust. Excludes 127,500 shares held in trust for
the benefit of Mr. Weisbach's wife and 76,780 shares held in trusts for the
benefit of Mr. Weisbach's children, over which Mr. Weisbach has no sole or
shared powers to vote or dispose.
(4) Includes 43,372 shares owned by Maple Lane Acquisition Limited Liability
Company ("Maple Lane"), of which Mr. Nelson is the managing member; 131,250
shares owned by Mr. Nelson's wife; 78,300 shares held by a charitable
foundation of which Mr. Nelson is President; and 485,739 shares subject to
options exercisable during the Measurement Period. Excludes 262,500 shares
held in trusts for the benefit of Mr. Nelson's children, over which Mr.
Nelson has no voting or dispositive powers.
(5) Includes 47,500 shares subject to options held by Mr. Okner that are
exercisable during the Measurement Period, 529,241 shares owned by the
Seymour N. Okner Revocable Trust, 99,667 shares held by a charitable
foundation of which Mr. Okner is the President, and 46 shares held by Mr.
Okner's spouse. Excludes shares held in trusts for the benefit of two of
Mr. Okner's children, over which Mr. Okner has no sole or shared powers to
vote or dispose and in which Mr. Okner's
14
spouse is a trustee.
(6) Includes 453,672 shares subject to options held by Mr. Katz that are
exercisable during the Measurement Period.
(7) Includes 32,718 shares held jointly with Mr. Herskovits' wife; 11,250
shares owned by Mr. Herskovits' minor son; and 73,753 shares subject to
options held by Mr. Herskovits that are exercisable during the Measurement
Period.
(8) Includes 115,000 shares held by David and Doreen Hermelin, over which Brian
Hermelin shares voting power; and 2,500 shares subject to options held by
Mr. Hermelin that are exercisable during the Measurement Period.
(9) Includes 20,500 shares subject to options held by Mr. Linderman that are
exercisable during the Measurement Period.
(10) Includes 133,251 shares subject to options held by Mr. Kilrea that are
exercisable during the Measurement Period.
(11) Includes 19,850 shares subject to options held by Mr. Sloan that are
exercisable during the Measurement Period.
(12) Includes 409,988 shares subject to options held by Mr. Magid that are
exercisable during the Measurement Period.
(13) The following information is derived from the Schedule 13G filed with the
SEC on February 4, 2000 by Merrill Lynch & Co., Inc. ("ML&Co.") (on behalf
of Merrill Lynch Asset Management Group ("AMG")). ML&Co. is a parent
holding company. AMG is an operating division of ML&Co. consisting of
ML&Co.'s indirectly owned asset management subsidiaries. Certain of those
subsidiaries hold shares of the Company's common stock, which subsidiaries
are Merrill Lynch Asset Management, L.P. and Fund Asset Management, L.P.
ML&Co.'s address is World Financial Center, North Tower, 250 Vesey Street,
New York, New York 10381.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, pursuant to two lease arrangements, Creative Concepts in
Advertising, Inc. and related entities ("CCA") leased office space near Detroit,
Michigan from 2100 E. Maple LLC ("E. Maple LLC"), a company controlled by Mr.
Nelson and his spouse. Under these two leases with E. Maple LLC, CCA paid
approximately $601,389 for rent and related expenses. The Company believes that
the lease terms of the leases with Mr. Nelson and his affiliates, including the
rental payments, were no less favorable to the Company than the terms the
Company otherwise could obtain from unaffiliated third parties.
During fiscal 1999, the Company paid approximately $1,306,388 to Motor
City Creative LLC ("Motor City") for embroidery and other services rendered to
the Company. Mr. Nelson indirectly owns a 49% interest in Motor City. The
Company expects to pay at least such amount to Motor City for embroidery and
other services to be rendered to the Company during fiscal 2000.
15
As part of the Company's acquisition of CCA, in January 1997, CCA, Mr.
Nelson and Maple Lane (an entity affiliated with Mr. Nelson) entered into (i)
a real estate purchase agreement whereby CCA purchased from Maple Lane a
parcel of undeveloped real property in Troy, Michigan (the "Troy Real
Estate") and (ii) a Real Property Put and Option Agreement whereby CCA would
have the right to require Maple Lane to (1) repurchase the Troy Real Estate
and (2) lease back the Troy Real Estate on agreed terms (the "Lease"). Mr.
Nelson has guaranteed Maple Lane's obligation under these agreements. On
January 5, 1999, CCA delivered a put notice to Maple Lane, thereby requiring
Maple Lane to purchase the Troy Real Estate for an amount equal to
approximately $9,600,000; the closing of the transaction occurred on June 30,
1999. The terms of the Lease provide for a triple net, five year term with
two five year extensions at CCA's option, with lease payments equal to
approximately $1,033,331 per year. Subsequent to the sale, the Company made
lease payments of approximately $520,000 for the use of this property in 1999.
Pursuant to a Consulting Agreement dated March 17, 1999, Marshall J.
Katz, a director of the Company, provides advisory and consulting services to
the Company, on a non-exclusive basis, with respect to acquisitions and business
combinations. Mr. Katz's compensation for such services is contingent upon the
successful completion of acquisitions for which he has rendered advice to the
Company. During 1999, Mr. Katz received approximately $910,000 and was granted
options to acquire 49,191 shares of Common Stock at the fair market value on
date of grant in consideration for consulting services he rendered.
During 1999, the Company billed Natural Golf and other entities
associated with Thomas Herskovits, a director of the Company, a total of
approximately $88,430 for promotional products sold. Mr. Herskovits serves as
Chairman of the Board of and owns a 26% equity interest in Natural Golf.
JR Katz Assoc., Inc., was retained by the Company as a broker
representative for group insurance and as an advisor for retirement plans.
Jordon R. Katz, a director of the Company until November 1999, serves as the
President of JR Katz Assoc., Inc. During fiscal 1999, JR Katz Assoc., Inc.
earned insurance commissions of $196,438 with respect to its work for the
Company.
The Company has entered into employment agreements with some of its
executive officers. See "Executive Compensation - Employment and Change of
Control Agreements."
16
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: APRIL 28, 2000
HA-LO INDUSTRIES, INC.
Registrant
By: /s/ GREGORY J. KILREA
------------------------------------
Gregory J. Kilrea
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 28, 2000:
Signature Title
--------- -----
/s/ JOHN R. KELLEY JR. Director, President and Chief
------------------------------ Executive Officer
John R. Kelley Jr.
/s/ LOU WEISBACH Chairman of the Board of Directors
------------------------------
Lou Weisbach
/s/ LINDEN D. NELSON Vice Chairman of the Board of
------------------------------ Directors
Linden D. Nelson
/s/ THOMAS HERSKOVITS Director
----------------------------------
Thomas Herskovits
/s/ MARSHALL J. KATZ Director
-------------------------------
Marshall J. Katz
/s/ SEYMOUR N. OKNER Director
--------------------------------
Seymour N. Okner
/s/ BRIAN HERMELIN Director
--------------------------------
Brian Hermelin