<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ERGOBILT, INC.
(Exact Name of Registrant as Specified in Its Charter)
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TEXAS 2590 75-2600529
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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5000 QUORUM DRIVE GERARD SMITH
SUITE 147 5000 QUORUM DRIVE, SUITE 147
DALLAS, TEXAS 75240 DALLAS, TEXAS 75240
(972) 233-8504 (972) 233-8504
(Address, Including Zip Code, and Telephone (Name and Address, Including Zip Code,
Number, Including Area Code, of and Telephone Number, Including Area
Registrant's Principal Executive Offices) Code, of Agent for Service)
</TABLE>
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Copies to:
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NORMAN R. MILLER, ESQ. KATHERINE M. SEABORN, ESQ.
WOLIN, FULLER, RIDLEY & MILLER LLP GARDERE & WYNNE, L.L.P.
3100 BANK ONE CENTER 3000 THANKSGIVING TOWER
1717 MAIN STREET 1601 ELM STREET
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
TELEPHONE (214) 939-4906 TELEPHONE (214) 999-4924
FAX (214) 939-4949 FAX (214) 999-4162
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
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Common Stock, $.01 par value......... 2,300,000 $10.00 $23,000,000 $6,970
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(1) Includes 300,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
(BETWEEN ITEMS OF S-1 AND THE PROSPECTUS)
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<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
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1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................. Forepart of Registration Statement and
Outside Front Cover
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................... Inside Front Cover and Outside Back Cover
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges..... Prospectus Summary and Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Underwriting
6. Dilution................................. Dilution
7. Selling Security Holders................. Inapplicable
8. Plan of Distribution..................... Underwriting
9. Description of Securities to be
Registered............................. Description of Capital Stock
10. Interests of Named Experts and Counsel... Inapplicable
11. Information with Respect to the
Registrant............................. The Company, Dividend Policy,
Capitalization, Selected Financial Data,
Selected Pro Forma Financial Data,
Management's Discussion and Analysis of
Financial Condition and Results of
Operations, Business, Management,
Certain Transactions, Principal
Shareholders and Shares Eligible for
Future Sale
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Inapplicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
2,000,000 SHARES
LOGO
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
ErgoBilt, Inc. (the "Company"). Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $8.00 and $10.00 per share. For information
relating to the factors to be considered in determining the initial public
offering price, see "Underwriting." The Company intends to apply for inclusion
of the Common Stock on the Nasdaq National Market under the symbol "ERGB."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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==============================================================================================
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share............................... $ $ $
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Total(3)................................ $ $ $
==============================================================================================
</TABLE>
(1) Does not reflect additional compensation to the Underwriters in the form of
warrants granted to the Representatives to purchase 100,000 shares of
Common Stock at a price of 120% of the price to public exercisable over a
period of four years commencing one year from the date of this prospectus
("Representatives' Warrants"). In addition, the Company has agreed to pay
to the Representatives a nonaccountable expense allowance for due diligence
and other out-of-pocket expenses and has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters exercise
this option in full, then the total price to public, underwriting discount
and proceeds to Company will be $ , $ and $ ,
respectively.
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them, and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares will be ready for delivery at the offices of Rauscher
Pierce Refsnes, Inc., Dallas, Texas, on or about , 1996.
RAUSCHER PIERCE REFSNES, INC. WHEAT FIRST BUTCHER SINGER
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THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. Except as otherwise specified, the information in
this prospectus (i) gives effect to a 2,040-for-1 split of Common Stock paid as
a dividend on September 1, 1996; (ii) gives effect to the merger of ErgoBilt,
Inc. ("ErgoBilt") with BodyBilt Seating, Inc. ("BodyBilt"), which will occur
simultaneously with the closing of this offering (the "Merger"); (iii) gives
effect to a change in the par value of the Common Stock from $.0001 to $.01 per
share; and (iv) assumes the Underwriters' over-allotment option is not
exercised. All references in this prospectus to the "Company" include ErgoBilt
and BodyBilt, unless otherwise indicated. See "The Reorganization."
THE COMPANY
The Company is a rapidly growing developer, manufacturer and marketer of
customized, high-end ergonomic office furniture that re-engineers the workplace
and the home office by scientifically minimizing the physical stress imposed
upon the human body. To broaden its current product line of four series of
premium-priced, ergonomic office chairs, the Company plans to develop or acquire
other ergonomic products, or enter into joint ventures or establish strategic
alliances to market other ergonomic products. These products may include
workstations, computer work surfaces, executive office side chairs and a second
line of ergonomic chairs priced to appeal to a broader market segment. The
Company's objective is to become "the primary source" for ergonomic products for
the workplace and the home office.
MARKET TRENDS. The Company has identified certain trends in the work
environment that it believes have expanded the market opportunity for ergonomic
office furniture. First, the increased reliance on the personal computer has
resulted in more workers spending a greater portion of the work day in a
constantly seated position. The result, among other things, has been a
significant increase in the number of work-related employee injury claims and
lost employee time from (i) back pain, the cause of approximately 40% of all
recorded employee work absences, and (ii) repetitive stress injuries (including
carpal tunnel syndrome), which affects 22% of seated workers. Second, government
agencies, such as the Occupational Safety and Health Administration ("OSHA"),
have required employers to provide safe work environments. As a result, the
Company believes that employers are seeking ways to alleviate injuries related
to body stress on the job site. Third, corporate down-sizing and the emergence
of the corporate "telecommuter" have produced significant growth in the number
of home offices, now estimated at 41.1 million in the United States alone. This
growth in home offices shifts a portion of the decision-making power for office
furniture purchases from traditional facilities and corporate purchasing agents
directly to end users, who often make purchasing decisions based on personal
comfort and productivity. These trends suggest an opportunity for the Company to
grow by increasing its market penetration of the corporate community and by
expanding its marketing, sales and distribution directly to end users.
BODYBILT. Simultaneously with the closing of this offering, the Company
will complete its Merger with BodyBilt, a manufacturer of premium-priced,
ergonomic office chairs since 1988. BodyBilt is the foundation from which the
Company intends to pursue its objective of becoming "the primary source" for
ergonomic products for the workplace and the home office. The BodyBilt(R) chair
design is based on research by the National Aeronautics and Space Commission
(now known as NASA) conducted during its SkyLab missions that identified the
least stressful body position for astronauts during extended missions in space.
BodyBilt chairs have a 10-Point Posture Control(TM) system that allows each
individual user to assume a posture similar to the stress-free posture of
astronauts in space. BodyBilt(R) chairs have received national publicity in
newspapers, magazines and television, including People magazine, Entertainment
Tonight, The CBS Morning Show and The Tonight Show. As a result, the Company
believes that BodyBilt(R) chairs enjoy a relatively high degree of brand
recognition and consumer awareness.
3
<PAGE> 6
COMPETITIVE STRENGTHS. The Company believes that it is well-positioned to
capitalize profitably on the expanding ergonomic office furniture market
segment. The Company's competitive strengths include: (i) the modular design and
interchangeable components of BodyBilt(R) chairs permit customization to each
individual's specifications, and the chairs' mechanisms allow adjustment to fit
changing individual needs; (ii) the Company's manufacturing, marketing, sales,
distribution and customer service operations are equipped to handle small
orders, the traditional mainstay of the ergonomic business; (iii) orders are
generally processed, manufactured and delivered in four weeks, approximately
half the time normally required by large companies; (iv) the use of
interchangeable components allows on-site service and repair; and (v) by
targeting its marketing efforts to corporate ergonomists and health, human
services and safety managers, rather than traditional facilities or purchasing
managers, the Company has been able to establish a market niche in which it
believes it is difficult for large office furniture producers to compete
effectively.
HISTORICAL GROWTH. The Company's sales have increased from $2.5 million in
1991 to $13.7 million in 1995, for a compound annual growth rate of 53.2%.
During this same period, the Company's income before income taxes increased from
$190,000 to $1.9 million, for a compound annual growth rate of 77.3%. The
Company's units sold increased from 5,262 units in 1991 to 25,759 units in 1995,
for a compound annual growth rate of 48.7%. The Company believes its growth has
been driven by (i) the growing importance and market acceptance of ergonomics;
(ii) its superior products and service; and (iii) the success of the sales force
in educating consumers on the benefits of ergonomics and the solutions provided
by the Company's products.
GROWTH STRATEGY
The Company has developed a strategy to continue to grow and to achieve its
objective of becoming "the primary source" for ergonomic products for the
workplace and the home office. The key elements of this strategy include the
following:
- INCREASING MARKET PENETRATION
The Company intends to increase its market penetration by expanding
its direct sales force and concentrating on geographic markets
exhibiting economic growth and industry segments with growth potential.
The Company believes that its direct sales force, which sells
BodyBilt(R) chairs exclusively, is more productive and cost-efficient
than independent sales representatives, who sell other manufacturers'
office furniture lines.
- BROADENING PRODUCT LINE
The Company intends to broaden its product line by developing or
acquiring other ergonomic products, or entering into joint ventures or
establishing strategic alliances to market other ergonomic products. By
providing additional ergonomic products to complement its existing
product line, the Company believes it will be able to leverage its
marketing, sales and distribution systems and improve the efficiency of
its direct sales force.
- DEVELOPING NEW DISTRIBUTION CHANNELS
The Company intends to expand its retail distribution and explore
new distribution channels, including catalog sales, telemarketing and
the use of the Internet. The Company also plans to explore the
feasibility, risks and potential benefits of expanding into
international markets.
- BUILDING CONSUMER RECOGNITION
The Company intends to establish an Ergonomic Advisory Council
which will likely be comprised of experts in the fields of ergonomics,
orthopedics and neurology. This Council is expected, among other things,
to advise management on ergonomic developments and assist the Company in
promoting the benefits of ergonomics in the workplace and home office. A
Company-sponsored worldwide web site is planned to disseminate ergonomic
information to the public.
4
<PAGE> 7
RECENT DEVELOPMENTS
The Company is currently negotiating an option to purchase a company which
owns the North American rights to certain patents, including those relating to
an ergonomic work center. The Company contemplates that the option exercise
price would be approximately $2.5 million, payable in cash. This option, if
purchased, would be subject to the completion of satisfactory due diligence and
other conditions. There can be no assurance that this option will be granted or
exercised. The Company has not entered into any agreements or understandings for
any acquisitions, joint ventures or strategic marketing alliances to date.
THE OFFERING
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Common Stock offered by the Company.............. 2,000,000 shares
Common Stock to be outstanding after the 5,023,334 shares(1)
offering.......................................
Use of proceeds.................................. To pay the cash portion of the Merger
Consideration, to repay indebtedness and
for working capital, capital expenditures,
possible future acquisitions and other
general corporate purposes.
Nasdaq National Market symbol.................... ERGB
</TABLE>
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(1) Includes 466,667 shares of Series A Preferred Stock which are convertible
into Common Stock. See "Description of Capital Stock -- Series A Preferred
Stock." Excludes 400,000 shares of Common Stock reserved for issuance under
the Company's stock option plan, 100,000 shares of Common Stock subject to
the Representatives' Warrants and up to 69,000 shares of Common Stock
subject to a lender's warrant (the "Lender's Warrant"). See
"Management -- Stock Option Plan," "Shares Eligible for Future Sale,"
"Underwriting" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Current Debt Obligations."
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Incorporated under Texas law in 1995, the Company's principal executive
offices are located at 5000 Quorum Drive, Dallas, Texas 75240, and its telephone
number is (972) 233-8504.
5
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The summarized financial information presented below is derived from the
financial statements of BodyBilt, which is considered the predecessor to the
Company.
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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1991 1992 1993 1994 1995 1995 1996
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INCOME STATEMENT DATA:
Sales...................... $2,484 $4,448 $6,535 $ 9,189 $13,672 $ 5,614 $ 7,432
Cost of sales.............. 1,380 2,053 3,237 4,789 7,218 3,105 3,921
------ ------ ------- ------- ------- ------- -------
Gross profit............... 1,104 2,395 3,298 4,400 6,454 2,509 3,511
Selling, general and
administrative
expenses................ 914 1,353 2,164 3,266 4,555 1,880 2,746
------ ------ ------- ------- ------- ------- -------
Operating income........... 190 1,042 1,134 1,134 1,899 629 765
Other expense, net......... -- 14 24 24 20 38 65
------ ------ ------- ------- ------- ------- -------
Income before income
taxes................... 190 1,028 1,110 1,110 1,879 591 700
Income tax expense......... -- 46 50 50 85 24 39
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Net income................. $ 190 $ 982 $1,060 $ 1,060 $ 1,794 $ 567 $ 661
====== ====== ======= ======= ======= ======= =======
PRO FORMA DATA:
Pro forma net income(1)........................................... $ 929 $ 215 $ 290
Pro forma earnings per share...................................... $ .22 $ .05 $ .07
Pro forma shares outstanding(2)................................... 4,303 4,303 4,303
OPERATING DATA:
Units sold................. 5,262 8,882 13,549 18,946 25,759 12,637 16,215
</TABLE>
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<CAPTION>
JUNE 30, 1996
-------------------------------
PRO FORMA(3) AS ADJUSTED(4)
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BALANCE SHEET DATA:
Working capital................................................ $ (5,860) $ 8,696
Total assets................................................... 20,008 25,686
Long-term debt, including current portion...................... 1,712 --
Shareholders' equity........................................... 8,674 24,814
</TABLE>
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(1) The unaudited pro forma adjustments reflect the adjustments necessary to
(i) combine the results of operations and financial position of ErgoBilt
with BodyBilt; (ii) recognize goodwill associated with the acquisition of
BodyBilt's shares; (iii) recognize tax expense related to BodyBilt as if
its S corporation status had terminated at the beginning of the period
presented; and (iv) reduce interest expense as a result of the repayment
of debt. See "Selected Pro Forma Financial Data."
(2) The computation of pro forma shares outstanding is based on 3,023,334
weighted average shares of Common Stock outstanding and 1,280,000 shares
assumed to be issued at an initial public offering price of $9.00 per
share (after deducting the estimated underwriting discount) to (i) fund
payments of $8.75 million to BodyBilt Shareholders (as defined herein) and
(ii) repay approximately $2.0 million of bank and other indebtedness of
BodyBilt including $250,000 of the convertible note of the Company (the
"Convertible Note"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Current Debt Obligations." The computation of pro forma
shares outstanding excludes an additional 720,000 shares to be sold in the
offering, the proceeds of which are planned to fund working capital,
capital expenditures, possible future acquisitions and other general
corporate purposes. See "Use of Proceeds."
(3) Assumes that the Merger was completed on June 30, 1996, and that the cash
consideration to be paid (including an S corporation distribution of $2.8
million) is reflected as a reduction of working capital. Approximately
$14.2 million of goodwill is recorded as a result of the Merger.
(4) As adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
6
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RISK FACTORS
In addition to the other information contained in this prospectus,
prospective investors should consider the following factors in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. This prospectus contains forward looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
those discussed in the forward looking statements.
NEW MARKET SEGMENT. The application of ergonomic principles to the design
of office furniture and other products is a relatively new concept, and public
awareness of the science and application of ergonomics is in its infancy. As
with any new industry, there is limited data or industry guidelines to validate
the potential market demand or product acceptance. The Company's objective to
become "the primary source" for ergonomic office products in a developing market
segment, could, therefore, pose significant risks to the Company. There can be
no assurance that this market segment will develop or that the Company will be
successful in manufacturing or marketing ergonomic office furniture.
COMPETITION. The Company faces significant competition in the office
furniture market. Existing and future competitors within the office furniture
industry offer or will offer ergonomic products. Many of these competitors have
greater financial and other resources, and offer a broader product line, than
the Company. There is also competition from numerous small ergonomic furniture
companies. BodyBilt(R) chairs compete on the basis of quality, health benefits,
comfort, service, price, design and durability. Competitive pressures could
result in increased price competition or in the introduction of new ergonomic
office furniture by the Company's competitors, which could have a material
adverse effect on the Company's results of operations.
MANAGEMENT OF EXPANDING OPERATIONS. The Company's operations have expanded
significantly in recent years. This expansion has placed, and is expected to
continue to place, significant demands on the Company's administrative,
operational and financial personnel and systems. There can be no assurance that
the Company will be able to manage its growth effectively, including the
improvement and implementation of the Company's financial and management
information systems and the recruitment and retention of key employees. The
Company's failure to do so could have a material adverse effect on the Company's
results of operations, including its ability to expand its operations
successfully or to maintain its present level of profitability.
PRODUCT CONCENTRATION. At the present time, the Company's products are
limited to four series of BodyBilt(R) chairs. Until additional products are
developed or acquired, or the Company has entered into joint ventures or
established strategic alliances to market other ergonomic products, the Company
is subject to the risk that demand for its existing product line may be
diminished by changing market conditions, consumer preferences or competition,
which could have a material adverse effect on the Company's results of
operations. There can be no assurance that the Company will be able to develop
or acquire additional ergonomic products or enter into joint ventures or
establish strategic alliances to market ergonomic products compatible with its
existing products. In addition, the expansion of the Company's product line to
include a second line of ergonomic chairs, if achieved, could diminish the
demand for the Company's present line of BodyBilt(R) chairs.
MARKET EXPANSION AND NEW DISTRIBUTION CHANNELS. The Company's products are
currently sold in several specific geographic markets in the United States.
Although the Company expects to expand into new markets, the Company's expansion
may meet market resistance or require substantial consumer education for market
acceptance. The Company also intends to expand its direct sales force, further
penetrate the retail sector and open new channels of distribution, such as
telemarketing, catalog sales and Internet marketing, for which the Company may
incur substantial costs. There can be no assurance that the Company can attract,
train and manage a geographically-diverse, direct sales force, penetrate new
markets or develop new channels of distribution or that these strategies will
result in increased revenues or profitability.
POSSIBLE FUTURE BUSINESS COMBINATIONS. The Company's growth strategy
includes possible future acquisitions, joint ventures or strategic marketing
alliances to broaden its product line. There can be no assurance that the
Company will be able to identify, acquire and integrate, or enter into joint
ventures or strategic marketing alliances with, complementary businesses on a
profitable basis. Furthermore, the Company's ability to make acquisitions or
enter into joint ventures or strategic alliances may depend upon its
7
<PAGE> 10
ability to obtain financing on acceptable terms. There also may be significant
competition from large furniture companies to acquire smaller ergonomic office
furniture companies, and there can be no assurance that such acquisitions will
be available to the Company on acceptable terms.
LIMITED OPERATING HISTORY. BodyBilt has manufactured and marketed ergonomic
office furniture since 1988. ErgoBilt has only conducted operations since June
1995, consisting primarily of providing advertising and marketing services to
BodyBilt. Although Gerald McMillan, Chairman of the Board of Directors of the
Company, was an affiliate of BodyBilt from 1991 to 1996, and there is continuity
of key personnel of BodyBilt, certain members of the Company's senior management
have only recently become associated with the Company. There can be no assurance
that this management will be able to implement the Company's growth strategy
effectively. See "The Reorganization," "Business -- Growth Strategy" and
"Management."
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend on
the continued efforts of Gerald McMillan, Chairman of the Board of Directors of
the Company, Gerard Smith, President and Chief Executive Officer, Drew
Congleton, Executive Vice President and National Sales Manager of BodyBilt, Bob
Schubert, Vice President, Controller and Director of Human Resources and Safety
of BodyBilt, and Matt Prochaska, Vice President and Director of Plant Operations
of BodyBilt. Messrs. McMillan, Smith and Congleton have three-year employment
agreements with the Company. In addition, the Company has agreed to enter into a
two-year consulting agreement with Mark McMillan, former president of BodyBilt
and a principal shareholder of the Company. The Company does not have key
employee life insurance on any of its senior management. The loss of the
services of one or more key personnel could have a material adverse effect on
the Company's results of operations. The Company's success also depends on its
ability to retain its key management, marketing and sales personnel and to
attract and retain qualified personnel at a reasonable cost. There can be no
assurance that the Company will be successful in attracting and retaining such
personnel. See "Management."
DEPENDENCE ON SUPPLIERS. While the Company's strategy is to maintain
multiple sources of supply, the Company's largest supplier, Leggett & Platt,
Inc., is currently the only source of a key component for BodyBilt(R) chairs.
While the Company has not had any adverse experience with this supplier, until
alternative supply sources are identified, the Company could be subject to
pricing risks, delivery delays and quality control problems, which could have a
material adverse effect on the Company's results of operations.
DEPENDENCE ON KEY INDEPENDENT SALES REPRESENTATIVES. Sales through
independent sales representatives accounted for 43.9% and 31.5% of the Company's
sales for the year ended December 31, 1995, and the six months ended June 30,
1996, respectively. Although the Company has contracts with independent sales
representatives, these contracts are generally terminable by the representatives
upon 30 days' notice. Although the Company intends to continue expanding its
direct sales force and reducing its dependence on independent sales
representatives, the loss of certain key independent sales representatives could
have a material adverse effect on the Company's results of operations.
DEPENDENCE ON SOLE MANUFACTURING FACILITY. The Company manufactures
BodyBilt(R) chairs at one facility in Navasota, Texas. Although the Company
maintains $2.0 million of business interruption insurance on this facility, a
lengthy interruption of its manufacturing operations would have a material
adverse effect on the Company's results of operations.
PRODUCT LIABILITY. The Company may be subject to product liability claims
as a result of alleged product design or manufacturing defects or failure to
provide appropriate literature warnings or directions with its products. The
Company also could be liable for product liability claims for defective products
as a result of its participation in the distribution of products, even if the
Company did not actually design, manufacture or assemble the products or
components. Although the Company has not experienced any material loss due to
product liability claims to date and currently maintains product liability
insurance coverage that it considers appropriate, there can be no assurance that
the amount or scope of the coverage maintained by the Company will be adequate
to protect it in the event a significant product liability claim is asserted
successfully.
WARRANTY LIABILITY. Various components of BodyBilt(R) chairs are warranted
against defects in materials or work quality for up to seven years. The Company
has not experienced any material losses from warranty
8
<PAGE> 11
claims to date and does not maintain a reserve for such claims. There can be no
assurance that material warranty claims will not be asserted in the future.
VARIABLE RESULTS OF OPERATIONS. The Company's revenues and results of
operations fluctuate substantially from period to period depending on such
factors as the timing of significant customer orders, the timing of revenue and
cost recognition, changes in customer buying patterns and trends in the economy
of the geographic markets in which the Company operates. Any unfavorable changes
in these or other factors could have a material adverse effect on the Company's
quarterly or annual results of operations. The Company's new customers typically
take three months or more from initial inquiry to order, during which time they
may experience competing capital budget considerations, making the timing of
customer orders subject to fluctuation and difficult to predict. There can be no
assurance that the Company will be able to sustain its profitability on either a
quarterly or annual basis.
CONTROL BY INSIDERS. Following completion of this offering, the Company's
directors, executive officers, consultant and their affiliates will beneficially
own approximately 59.3% of the outstanding Common Stock of the Company and will
be in a position to elect the Company's directors and officers, to control the
policies and operations of the Company and to determine the outcome of corporate
transactions or other matters submitted for shareholder approval. These matters
may include mergers, consolidations, the sale of the Company's assets or a
change in control of the Company. In addition, the Company and the principal
shareholders have entered into a voting agreement pursuant to which the parties
thereto have agreed to re-elect the existing members of the Board of Directors
of the Company for three one-year terms. See "Management," "Principal
Shareholders" and "Description of Capital Stock."
BENEFITS OF OFFERING TO CERTAIN SHAREHOLDERS. Of the net proceeds of this
offering, $8.75 million will be used to pay the cash portion of the Merger
Consideration (as defined herein). All of this amount, representing 54.2% of the
net proceeds, will be paid to the BodyBilt Shareholders, who also will become
principal shareholders of the Company. The Company intends to use approximately
$1.6 million of the proceeds of this offering to repay bank indebtedness of
BodyBilt that one BodyBilt Shareholder guaranteed and to repay a $75,000 loan
from another BodyBilt Shareholder. In addition, the Company intends to use a
portion of the proceeds to repay one-half of the principal (approximately
$250,000), plus all accrued interest on the Convertible Note, for which the
Chairman of the Board of Directors of the Company has pledged certain collateral
as security. Upon the closing of this offering, the Convertible Note will be
repaid in full and the pledged collateral will be released. The Chairman of the
Board of Directors of the Company has also personally guaranteed certain payment
obligations of the Company to its President and Chief Executive Officer and
pledged certain additional assets as collateral. Approximately $225,000 of the
net proceeds of this Offering will be used to fund the purchase by the Company
of shares of Common Stock from a principal shareholder of the Company to enable
the Company to deliver shares upon conversion of one-half of the principal
balance of the Convertible Note. Upon completion of the offering, this payment
obligation of ErgoBilt will be fully satisfied and the pledged collateral
released. Accordingly, approximately $10.9 million, or 67.8%, of the net
proceeds from this offering will directly or indirectly benefit such persons.
See "Use of Proceeds," "Certain Transactions" and "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering and the
Merger, the Company will have outstanding 466,667 shares of Series A Preferred
Stock and 4,556,667 shares of Common Stock, assuming an initial public offering
price of $9.00 per share. The 2,000,000 shares sold in this offering may be
publicly offered and sold without restriction unless they are purchased by
affiliates of the Company. Shares of Common Stock outstanding prior to
completion of this offering and all shares of Series A Preferred Stock and
Common Stock to be issued upon completion of the Merger will be "restricted
securities" under the Securities Act of 1933, as amended (the "Securities Act").
These "restricted securities" may be sold only if they are registered under the
Securities Act or pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 thereunder. The Company,
its executive officers, directors and principal shareholders have agreed that
they will not, directly or indirectly, sell or otherwise dispose of any of such
shares for a period of 180 days after the date of this prospectus, without the
prior written consent of Rauscher Pierce Refsnes, Inc., on behalf of itself and
Wheat, First Securities, Inc., as representatives of the Underwriters (the
"Representatives"). These shareholders have certain demand, "piggyback" and
shelf
9
<PAGE> 12
registration rights. There are also (i) 400,000 shares of Common Stock reserved
for issuance under the Company's stock option plan, (ii) 100,000 shares of
Common Stock subject to the Representatives' Warrants, and (iii) up to 69,000
shares of Common Stock subject to the Lender's Warrant. The Company intends to
file a registration statement on Form S-8 covering sales of shares issued upon
exercise of any securities issued under its stock option plan.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock. The sale of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock. See "Shares Eligible for Future
Sale."
DILUTION. This offering will result in immediate and substantial dilution
in net tangible book value of $6.89 per share to new investors, which amount
represents the difference between the pro forma net tangible book value per
share after this offering and an assumed initial public offering price of $9.00
per share. See "Dilution."
ANTI-TAKEOVER PROVISIONS. The Company's Restated Articles of Incorporation
and Amended and Restated Bylaws contain, among other things, provisions
prohibiting shareholder action by written consent, limiting the removal of
directors except for cause, providing specified notice for shareholders meetings
and limiting the right of shareholders to call special meetings. Additionally,
the Company's Amended and Restated Bylaws require the affirmative vote of
two-thirds of the outstanding voting stock or the Board of Directors to
consummate a business combination with a "related person." The Company's
Restated Articles of Incorporation also authorize shares of undesignated, series
preferred stock with respect to which the Board of Directors has the power to
fix the rights and preferences without any further vote or action by the
shareholders. The Company intends to issue Series A Preferred Stock in
connection with the Merger. Such provisions could have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. In addition, the Company and the principal
shareholders have entered into a voting agreement pursuant to which the parties
thereto have agreed to maintain the existing composition of the Board of
Directors of the Company for a three-year term. See "Management," "Principal
Shareholders," "Description of Capital Stock -- Preferred Stock" and "-- Certain
Anti-Takeover Provisions."
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE.
Prior to this offering, there has been no public market for the Common Stock.
Although the Company intends to apply for inclusion of the Common Stock on the
Nasdaq National Market, there can be no assurance that an active market will
develop or be sustained following this offering. The initial public offering
price for the shares of Common Stock sold in this offering was determined
through negotiations between the Company and the Representatives and may not
necessarily reflect the market price for the Common Stock following this
offering. Market prices for the Common Stock following this offering will be
influenced by a number of factors, including the Company's operating results and
other factors affecting the Company specifically and the furniture industry and
financial markets generally, as well as the depth and liquidity of the market
for the Common Stock. In recent years, stock market volatility has had a
significant effect on the market prices of securities issued by some companies
for reasons unrelated to their operating performance. See "Underwriting."
ACTUAL RESULTS MAY DIFFER FROM FORWARD LOOKING STATEMENTS. Statements in
this prospectus that reflect projections or expectations of future financial or
economic performance of the Company, and statements of the Company's plans and
objectives for future operations, including those relating to the Company's
products and services, are "forward looking" statements. No assurance can be
given that actual results or events will not differ materially from those
projected, estimated, assumed or anticipated in any such forward looking
statements. Important factors that could result in such differences, in addition
to the risk factors identified above, include: general economic conditions in
the Company's markets, including inflation, recession, interest rates and other
economic factors; casualty to or other disruption of the Company's production
facility and equipment; delays and disruptions in the shipment of the Company's
products and raw materials; disruption of operations and other factors that
generally affect businesses.
10
<PAGE> 13
THE REORGANIZATION
The Company (formerly known as The Chafferton Company, Inc.) has entered
into a merger agreement (the "Merger Agreement") with BodyBilt and its three
shareholders, Mark McMillan, Drew Congleton and Dr. Richard Troutman
(collectively, the "BodyBilt Shareholders"). The Merger Agreement provides for
the merger of BodyBilt into a wholly owned subsidiary of the Company, to be
completed simultaneously with the closing of this offering. As consideration for
the Merger, the BodyBilt Shareholders will receive $17.6 million payable in a
combination of cash (not to exceed $8.75 million), 516,667 shares of Common
Stock valued at $4.65 million, and 466,667 shares of Series A Preferred Stock
valued at $4.2 million, assuming an initial public offering price of $9.00 per
share (collectively, the "Merger Consideration"). The rights and preferences of
the Series A Preferred Stock are described under "Description of Capital
Stock -- Series A Preferred Stock." The cash portion of the Merger Consideration
will be reduced by the S corporation distribution of $2.8 million to be made to
the BodyBilt Shareholders prior to the Merger. The Merger Agreement prohibits
the BodyBilt Shareholders and their affiliates from competing with the Company
for three years after the Merger. ErgoBilt previously provided advertising and
marketing services to BodyBilt.
The Merger Agreement requires that Messrs. Troutman and Congleton be
elected to the Company's Board of Directors and that Gerald McMillan and Gerard
Smith deliver written agreements not to remove Messrs. Troutman and Congleton as
directors except for cause. The Merger Agreement grants Dr. Troutman the right
to nominate his successor in the event of his resignation, requires that Gerald
McMillan remain a director and requires that all other nominees to the board be
approved by either Mark McMillan or Drew Congleton as directors and such
approval may not be unreasonably withheld. The Company and the Principal
Shareholders have entered into a voting agreement to affirm and clarify these
obligations. See "Principal Shareholders."
The BodyBilt Shareholders' stock certificates, stock transfer powers and
the Articles of Merger have been deposited into escrow and will be delivered to
the Company simultaneously with the closing of this offering when the Merger
Consideration is delivered to the escrow agent.
The Merger will be accounted for as a purchase and is intended to qualify
as a tax-free reorganization under sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"). If, for any reason, the
Merger is disallowed as a tax-free reorganization, the BodyBilt Shareholders or
the Company could be subject to additional taxation. Such taxation could have a
material adverse effect on the Company's results of operations.
Historically, BodyBilt has been treated as an S corporation under the Code.
As a result, BodyBilt's earnings have been subject to taxation at the
shareholder level, rather than at the corporate level for federal income tax
purposes. As noted above, BodyBilt will make an S corporation distribution to
BodyBilt Shareholders of $2.8 million prior to the Merger, and its S corporation
status will be terminated. The Company will be responsible for the payment of
federal income taxes on earnings of BodyBilt subsequent to the Merger. The S
corporation distribution will be funded by borrowings from BodyBilt Shareholders
in connection with the Merger. No S corporation distributions will be made to
BodyBilt Shareholders in connection with BodyBilt's earnings for any period
beginning after June 30, 1996.
RECENT DEVELOPMENTS
The Company is currently negotiating an option to purchase a company which
owns the North American rights to certain patents, including those relating to
an ergonomic work center. The Company contemplates that the option exercise
price would be approximately $2.5 million payable in cash. The option, if
purchased, would be subject to the completion of satisfactory due diligence and
other conditions. There can be no assurance that this option will be granted or
exercised.
11
<PAGE> 14
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $16.1 million (approximately $18.7
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $9.00 per share and after deducting
the underwriting discount and other estimated offering expenses.
The Company intends to pay $8.75 million of the net proceeds to the
BodyBilt Shareholders, representing the cash portion of the Merger Consideration
and payment of borrowings from BodyBilt Shareholders incurred in conjunction
with S corporation distribution made in connection with the Merger. The Company
also intends to repay a total of approximately $2.0 million of indebtedness from
the net proceeds, including (i) approximately $1.6 million of bank debt incurred
by BodyBilt to purchase and improve the Company's manufacturing facility and for
working capital, most of which bears interest at the prime rate or prime plus
.75% and matures in May or June 2000, a portion of which bears interest at 6.75%
to 10.0% and matures between March 1997 and January 2001, and all of which has
been guaranteed by Mark McMillan, the former President of BodyBilt and a
principal shareholder of the Company; (ii) a $75,000 non-interest bearing demand
loan to BodyBilt for working capital by Dr. Richard Troutman, a BodyBilt
Shareholder and a principal shareholder of the Company; and (iii) approximately
$250,000, plus interest, of the Convertible Note issued by ErgoBilt to fund
Merger and offering expenses and which bears interest at 8% per annum and
matures on September 3, 1997. The Convertible Note is secured by a pledge of
certain assets by Gerald McMillan. The Company has entered into a letter
agreement with Mark McMillan, pursuant to which the Company will purchase from
Mr. McMillan that number of shares sufficient to satisfy shares to be issued to
the holder of the Convertible Note upon conversion. Approximately $225,000 of
the net proceeds of this offering will be used to fund the purchase price of the
shares acquired from Mr. McMillan, assuming a price to public of $9.00 per
share. See "Certain Transactions" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company expects to use the balance of the net proceeds to fund capital
expenditures (approximately $750,000), for possible future acquisitions, joint
ventures or strategic marketing alliances of complementary businesses and
products, to increase working capital and for other general corporate purposes.
The Company has not entered into any agreements or understandings for any
acquisitions, joint ventures or strategic marketing alliances to date. Pending
such uses, the Company intends to invest such funds in short-term,
interest-bearing obligations.
DIVIDEND POLICY
The Company intends to retain all earnings to provide funds for its
operations and expansion, and therefore does not anticipate paying cash
dividends or making any other distributions on its shares of Common Stock in the
foreseeable future. The Company's future dividend policy will be determined by
its Board of Directors based on various factors, including the Company's results
of operations, financial condition, business opportunities, capital
requirements, credit restrictions and such other factors as the Board of
Directors may deem relevant. See "The Reorganization" for information concerning
S corporation distributions to BodyBilt Shareholders prior to this offering.
12
<PAGE> 15
DILUTION
At June 30, 1996, the Company had a pro forma net tangible book value of
approximately $(5.5) million or approximately $(1.83) per share of Common Stock
and Series A Preferred Stock (assuming the Merger with BodyBilt). Pro forma net
tangible book value per share of Common Stock and Series A Preferred Stock
equals the tangible assets of the Company, less all liabilities, divided by the
total number of shares of Common Stock and Series A Preferred Stock outstanding,
without giving effect to the possible exercise of outstanding stock options and
warrants. After giving effect to the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share and the
application of the net proceeds therefrom, the as adjusted net tangible book
value of the Company at June 30, 1996, would have been approximately $10.6
million, or $2.11 per share. This represents an immediate increase of $3.94 per
share to existing shareholders, and an immediate dilution of $6.89 per share to
new investors purchasing shares at the initial public offering price. The
following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $9.00
Pro forma net tangible book value per share as of June 30, 1996... $(1.83)
Increase per share attributable to new investors.................. 3.94
------
As adjusted net tangible book value per share after offering........ 2.11
-----
Dilution per share to new investors................................. $6.89
=====
</TABLE>
The following table sets forth the number of shares of Common Stock and
Series A Preferred Stock purchased from the Company, the total consideration
paid to the Company and the average price paid per share by existing
shareholders and new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 2,040,000 40.6% $ 1,000 0.0% $0.00
BodyBilt Shareholders.......... 983,334 19.6 (8,749,000) NA NA
New investors.................. 2,000,000 39.8 18,000,000 195.0 $9.00
--------- ----- ----------- -----
Total................ 5,023,334 100.0% $ 9,252,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares of Common Stock held by existing shareholders will be reduced to
38.3% of the total number of shares of Common Stock to be outstanding after
this offering, and the number of shares of Common Stock held by new
investors will be increased to 2,300,000 shares, or 43.2% of the total
number of shares of Common Stock to be outstanding after this offering. The
table gives effect to 466,667 shares of Series A Preferred Stock and does
not give effect to the 400,000 shares of Common Stock reserved for issuance
under the Company's stock option plan, 100,000 shares of Common Stock
subject to the Representatives' Warrants, up to 69,000 shares of Common
Stock subject to the Lender's Warrant and the purchase by the Company of
27,778 shares of Common Stock from a BodyBilt Shareholder to enable the
Company to deliver shares upon conversion of one-half of the principal
balance of the Convertible Note. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Current Debt Obligations," "Principal Shareholders,"
"Management -- Stock Option Plan," "Certain Transactions" and
"Underwriting."
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at June 30, 1996 (i) on a pro forma basis to give effect to the
Merger and (ii) on a pro forma basis to give effect to the Merger, as adjusted
to reflect the sale of the shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom. See "Use of Proceeds." This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto. See "Selected Pro Forma Financial Data."
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1).................................................... $ 8,750 --
Current portion of long-term debt..................................... 128 --
------- -------
$ 8,878 --
======= =======
Long-term debt, less current portion.................................. 1,584 --
Shareholders' equity:
Preferred stock, $.10 par value, 10,000,000 shares authorized, of
which 2,000,000 shares are designated Series A Preferred Stock;
466,667 shares of Series A Preferred Stock pro forma and as
adjusted......................................................... 47 47
Common stock, $.01 par value, 20,000,000 shares authorized;
2,556,667 shares pro forma; 4,556,667 shares as adjusted(2)...... -- 46
Paid-in capital..................................................... 8,594 24,688
Retained earnings(3)................................................ 33 33
------- -------
Total shareholders' equity.................................. 8,674 24,814
------- -------
Total capitalization........................................ $19,136 $24,814
======= =======
</TABLE>
- ---------------
(1) Excludes the Convertible Note issued by the Company to fund Merger and
Offering expenses. See "Certain Transactions."
(2) Excludes 400,000 shares of Common Stock reserved for issuance under the
Company's stock option plan, 100,000 shares of Common Stock subject to the
Representatives' Warrants and up to 69,000 shares of Common Stock subject to
the Lender's Warrant. Prior to the offering, the par value of the Common
Stock was $.0001 per share. See "Management -- Stock Option Plan" and
"Underwriting."
(3) Represents the Company's retained earnings since inception in June, 1995.
14
<PAGE> 17
SELECTED FINANCIAL DATA
The selected financial data presented below for the year ended December 31,
1995 have been derived from the financial statements of BodyBilt, audited by
KPMG Peat Marwick LLP, independent certified public accountants. The selected
financial data presented below for the years ended December 31, 1992, 1993 and
1994, have been derived from the financial statements of BodyBilt, audited by
Thompson, Derrig & Slovacek PC, independent certified public accountants. The
financial data for the six months ended June 30, 1996 and 1995, and the year
ended December 31, 1991, are derived from unaudited financial statements of
BodyBilt which, in the opinion of management, reflect all accruals necessary for
a fair presentation of the financial position and results of operations of
BodyBilt as of and for these periods. The pro forma data is unaudited and
presents financial information of the Company. The selected financial data set
forth below should be read in conjunction with and are qualified by reference to
BodyBilt's financial statements and the notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................. $2,484 $4,448 $6,535 $9,189 $13,672 $5,614 $7,432
Cost of sales..................... 1,380 2,053 3,237 4,789 7,218 3,105 3,921
------ ------ ------ ------ ------- ------ ------
Gross profit...................... 1,104 2,395 3,298 4,400 6,454 2,509 3,511
Selling, general and
administrative expenses........ 914 1,353 2,164 3,266 4,555 1,880 2,746
------ ------ ------ ------ ------- ------ ------
Operating income.................. 190 1,042 1,134 1,134 1,899 629 765
Other expense, net................ -- 14 24 24 20 38 65
------ ------ ------ ------ ------- ------ ------
Income before income taxes........ 190 1,028 1,110 1,110 1,879 591 700
Income tax expense................ -- 46 50 50 85 24 39
------ ------ ------ ------ ------- ------ ------
Net income........................ $ 190 $ 982 $1,060 $1,060 $ 1,794 $ 567 $ 661
====== ====== ====== ====== ======= ====== ======
PRO FORMA DATA:
Pro forma net income(1)........... $ 929 $ 215 $ 290
Pro forma earnings per share...... $ .22 $ .05 $ .07
Pro forma shares outstanding(2)... 4,303 4,303 4,303
BALANCE SHEET DATA:
Working capital................... $ 471 $ 891 $1,742 $2,137 $ 2,905 $1,866 $2,898
Total assets...................... 704 1,319 2,687 3,606 5,812 4,065 5,633
Long-term debt, including current
portion........................ 325 75 633 877 1,385 1,164 1,712
Shareholders' equity.............. 203 1,004 1,481 2,208 3,402 2,175 3,380
</TABLE>
- ---------------
(1) The unaudited pro forma adjustments reflect the adjustments necessary to (i)
combine the results of operations and financial position of ErgoBilt with
BodyBilt; (ii) recognize goodwill associated with the acquisition of
BodyBilt's shares; (iii) recognize tax expense related to BodyBilt as if its
S corporation status had terminated at the beginning of the period
presented; and (iv) reduce interest expense as a result of the repayment of
debt. See "Selected Pro Forma Financial Data."
(2) The computation of pro forma shares outstanding is based on 3,023,334
weighted average shares of Common Stock outstanding and 1,280,000 shares
assumed to be issued at an initial public offering price of $9.00 per share
(after deducting the estimated underwriting discount) to (i) fund payments
of $8.75 million to BodyBilt Shareholders and (ii) repay approximately $2.0
million of bank and other indebtedness including $250,000 of the Convertible
Note. The computation of pro forma shares outstanding excludes an additional
720,000 shares to be sold in the offering, the proceeds of which the Company
intends to fund working capital, capital expenditures, possible future
acquisitions and other general corporate purposes. See "Use of Proceeds."
15
<PAGE> 18
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma income statement data for the year ended
December 31, 1995, the six months ended June 30, 1995, and the six months ended
June 30, 1996, adjust the historical results of the BodyBilt (considered the
predecessor to the Company) for each period to give effect to (i) the Merger as
if it had been consummated at January 1, 1995, and January 1, 1996,
respectively; (ii) the amortization of goodwill (approximately $14.2 million)
that will be created as a result of the Merger; (iii) the income tax effect
resulting from the conversion of BodyBilt from an S corporation to a C
corporation; and (iv) the reduction in BodyBilt interest expense as a result of
a repayment of debt from the proceeds of the offering. The unaudited pro forma
financial data should be read in conjunction with the historical financial
statements of the Company and BodyBilt and the notes thereto included elsewhere
in this prospectus, and are not necessarily indicative of the results of
operations that might have occurred if the Merger had not taken place on the
dates indicated or of the Company's results of operations for any future period.
PRO FORMA INCOME STATEMENT DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED ---------------------
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------ -------- --------
<S> <C> <C> <C>
BodyBilt net income.................................. $1,794 $ 567 $ 661
ErgoBilt net income.................................. 45 -- (12)
Goodwill amortization (40-year amortization
period)............................................ (356) (178) (178)
Income tax expense adjustments....................... (611) (200) (227)
Reduction in interest expense from the repayment of
bank and other indebtedness........................ 57 26 46
------ ----- -----
Pro forma net income................................. $ 929 $ 215 $ 290
====== ===== =====
</TABLE>
The following unaudited pro forma combined balance sheet as of June 30,
1996, gives effect to the Merger as if it had been consummated at June 30, 1996.
The unaudited pro forma adjustments reflect goodwill associated with the
acquisition of BodyBilt shares; cash consideration to be paid to BodyBilt
Shareholders (including an S corporation distribution of $2.8 million); deferred
taxes related to temporary differences between tax bases and amounts recorded;
and the issuance of 516,667 shares of Common Stock and 466,667 shares of Series
A Preferred Stock. This unaudited pro forma combined balance sheet does not give
effect to the sale of the Common Stock offered hereby.
PRO FORMA COMBINED BALANCE SHEET AT JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BODYBILT ERGOBILT ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 116 $ 7 -- $ 123
Accounts receivable.......................... 1,683 18 -- 1,701
Inventory.................................... 1,499 -- -- 1,499
Prepaid expenses............................. 269 86 -- 355
------ ---- ------- -------
Total current assets....................... 3,567 111 -- 3,678
Fixed assets, net............................ 2,066 43 -- 2,109
Other assets................................. -- -- 14,221 14,221
------ ---- ------- -------
Total assets................................. $5,633 $154 $14,221 $20,008
====== ==== ======= =======
Current portion of long-term debt............ 128 -- -- 128
Short-term debt.............................. -- -- 8,750 8,750
Accounts payable and accrued expenses........ 541 119 -- 660
------ ---- ------- -------
Total current liabilities.................. 669 119 8,750 9,538
Long-term debt, less current portion......... 1,584 -- -- 1,584
Deferred income taxes........................ 1 211 212
Preferred stock.............................. -- -- 47 47
Common stock................................. 1 -- (1) --
Paid-in capital.............................. -- 1 8,593 8,594
Retained earnings............................ 3,379 33 (3,379) 33
------ ---- ------- -------
Total shareholders' equity................... 3,380 34 5,260 8,674
------ ---- ------- -------
Total liabilities and shareholders'
equity.................................. $5,633 $154 $14,221 $20,008
====== ==== ======= =======
</TABLE>
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis relates to the operations of BodyBilt
and does not take into consideration the activities of ErgoBilt (primarily
related party transactions with BodyBilt that are reflected as expenses in
BodyBilt's financial statements). The following discussion and analysis should
be read in conjunction with the information set forth under "Selected Historical
and Pro Forma Financial and Operating Data," "Selected Financial Data,"
"Selected Pro Forma Financial Data" and the financial statements of BodyBilt and
the accompanying notes thereto included elsewhere in this prospectus.
GENERAL. The Company generates revenue through sales of its products to
corporate customers and retailers. The majority of the Company's sales are
generated by either the Company's direct sales force or by independent sales
representatives, who are paid a commission for each unit sold. Typically, the
Company's sales are directed through a network of over 550 dealers who acquire
the products at a discount from retail and then resell the products to the
ultimate customer. In certain instances, the Company drop-ships products
directly to the ultimate customer.
The Company's sales increased at a compound annual growth rate of 53.2%
from 1991 through 1995 and increased 32.4% for the first six months of 1996 as
compared to the six months ended June 30, 1995. The Company believes that its
growth has resulted from its ability to further penetrate the office furniture
market by (i) expanding its direct sales force and increasing the number of
independent sales representatives and (ii) educating consumers about the
benefits of ergonomics in general and about the Company's products specifically.
From 1991 to June 30, 1996, the Company expanded its sales force from 4 direct
sales representatives and 22 independent sales representatives to 17 and 21
direct and independent sales representatives, respectively.
Simultaneously with the closing of this offering, the Company will complete
the Merger. The historical results of operations through June 30, 1996, do not
include the impact of the Merger. The total consideration paid in connection
with the Merger is $17.6 million, consisting of cash, Common Stock and Series A
Preferred Stock. The transaction will be treated as a purchase for accounting
purposes and will result in approximately $14.2 million in goodwill which will
be amortized over a 40-year period. The amortization of goodwill associated with
the Merger will total approximately $356,000 annually and will not be deductible
for income tax purposes.
RESULTS OF OPERATIONS. The following table sets forth, for the periods
indicated, certain historical financial data as a percentage of sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
------------------------- JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 49.5 52.2 52.8 55.3 52.8
---- ---- ---- ---- ----
Gross profit............................. 50.5 47.8 47.2 44.7 47.2
Selling, general and administrative
expenses............................... 33.1 35.5 33.3 33.5 37.0
---- ---- ---- ---- ----
Operating income......................... 17.4% 12.3% 13.9% 11.2% 10.2%
</TABLE>
Comparison of Six Months Ended June 30, 1995 and 1996. Sales increased $1.8
million, or 32.4%, from $5.6 million for the six months ended June 30, 1995, to
$7.4 million for the six months ended June 30, 1996. Units sold increased by
3,578, or 28.3%, from 12,637 for the six months ended June 30, 1995, to 16,215
for the six months ended June 30, 1996. This increase was primarily attributable
to the addition of new direct sales personnel, increased advertising and
marketing expenditures and increased acceptance of the Company's products.
Gross profit margin increased from 44.7% for the six months ended June 30,
1995, to 47.2% for the six months ended June 30, 1996. The increase in gross
profit margin was attributable to increased sales of higher
17
<PAGE> 20
margin BodyBilt(R) chairs, improved manufacturing efficiencies and economies
resulting from higher production volumes.
Selling, general and administrative expenses increased by $866,000, or
46.1%, from $1.9 million for the six months ended June 30, 1995, to $2.7 million
for the six months ended June 30, 1996. As a percentage of sales, selling,
general and administrative expenses increased from 33.5% for the six months
ended June 30, 1995, to 37.0% in the six months ended June 30, 1996. The
increase was attributable to increases in compensation and commissions,
primarily due to the addition of six direct sales personnel since July 1, 1995,
and an increase in the number of independent sales representatives and dealers
that market the Company's products. Advertising and promotional expenses also
increased due to the expanded use of trade publication advertisements and the
placement of demonstration BodyBilt(R) chairs in dealer showrooms and in the
offices of prospective large volume purchasers.
Operating income increased by $136,000, or 21.6%, from $629,000 for the six
months ended June 30, 1995, to $765,000 for the six months ended June 30, 1996,
due to the aforementioned factors.
Comparison of Years Ended December 31, 1994, and 1995. Sales increased $4.5
million, or 48.8%, from $9.2 million for the year ended December 31, 1994, to
$13.7 million for the year ended December 31, 1995. Units sold increased by
6,813, or 36.0%, from 18,946 for the year ended December 31, 1994, to 25,759 for
the year ended December 31, 1995. This increase was primarily the result of an
increase in the number of direct sales personnel and independent sales
representatives, a resulting increase in the number of customer accounts and the
growing acceptance of the Company's products.
Gross profit margin decreased from 47.8% for the year ended December 31,
1994, to 47.2% for the year ended December 31, 1995. The decrease in gross
profit margin, was attributable to a slight increase in the cost of raw
materials and labor required to manufacture BodyBilt(R) chairs.
Selling, general and administrative expenses increased by $1.3 million, or
39.5%, from $3.3 million for the year ended December 31, 1994, to $4.6 million
for the year ended December 31, 1995. As a percentage of sales, selling, general
and administrative expenses decreased from 35.5% in the year ended December 31,
1994, to 33.3% in the year ended December 31, 1995. This dollar increase was
attributable to increases in compensation and commissions as a result of the
addition of sales and sales support personnel, increased expenses in
advertising, literature and other promotional materials and additional
conventions and trade shows attended by the Company.
Operating income increased by $765,000, or 67.4%, from $1.1 million for the
year ended December 31, 1994, to $1.9 million for the year ended December 31,
1995, due to the aforementioned factors.
Comparison of Years Ended December 31, 1993, and 1994. Sales increased $2.7
million or 40.6% from $6.5 million for the year ended December 31, 1993, to $9.2
million for the year ended December 31, 1994. Units sold increased by 5,397, or
39.8%, from 13,549 for the year ended December 31, 1993, to 18,946 for the year
ended December 31, 1994. This increase was primarily attributable to the
addition of new direct sales personnel, increased expenditures in advertising
and marketing expenses and increased acceptance of the Company's products.
Gross profit margin decreased from 50.5% for the year ended December 31,
1993, to 47.8% for the year ended December 31, 1994. The decrease in gross
profit margin was attributable to start-up costs and increased operating
expenses associated with the Company's manufacturing facility in Navasota,
Texas.
Selling, general and administrative expenses increased by $1.1 million, or
50.9%, from $2.2 million for the year ended December 31, 1993, to $3.3 million
for the year ended December 31, 1994. As a percentage of sales, selling, general
and administrative expenses increased from 33.1% in the year ended December 31,
1993, to 35.5% in the year ended December 31, 1994. This increase was primarily
due to increases in compensation and commission expenses, an increase in the
number of direct sales personnel and independent sales representatives marketing
the Company's products and increases in advertising and promotional materials
used by the Company.
18
<PAGE> 21
Operating income remained constant at $1.1 million for the year ended
December 31, 1993 and the year ended December 31, 1994.
QUARTERLY RESULTS OF OPERATIONS. The following table sets forth certain
unaudited quarterly financial information for the periods indicated and, in the
opinion of management, includes all adjustments (consisting of only normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the information set forth therein. The Company's quarterly
results of operations may vary significantly depending on factors such as the
timing of large customer orders, timing of new product introductions, adequacy
of component parts supply, variations in the Company's product costs, variations
in the Company's product mix, promotions by the Company and competitive pricing
pressures. The results of any particular quarter may not be indicative of
results for the full year or any future period. For the past several years, the
Company has experienced larger revenues in the fourth quarters of the fiscal
years as a result of customers' spending their remaining capital expenditure
funds.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales.............................. $ 2,460 $3,154 $ 3,637 $4,421 $ 3,582 $3,850
Cost of sales...................... 1,422 1,683 1,975 2,138 2,036 1,885
------- ------ ------- ------ ------- ------
Gross profit....................... 1,038 1,471 1,662 2,283 1,546 1,965
Selling, general and administrative
expenses......................... 829 1,057 1,221 1,448 1,452 1,294
------- ------ ------- ------ ------- ------
Operating income................... 209 414 441 835 94 671
Other expense, net................. 16 16 18 (30) 23 42
------- ------ ------- ------ ------- ------
Income before income taxes......... 193 398 423 865 71 629
Income tax expense................. -- 24 18 43 2 37
------- ------ ------- ------ ------- ------
Net income......................... $ 193 $ 374 $ 405 $ 822 $ 69 $ 592
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 57.8 53.4 54.3 48.4 56.8 49.0
----- ----- ----- ----- ----- -----
Gross profit....................... 42.2 46.6 45.7 51.6 43.2 51.0
Selling, general and administrative
expenses......................... 33.7 33.5 33.6 32.7 40.6 33.6
----- ----- ----- ----- ----- -----
Operating income................... 8.5 13.1 12.1 18.9 2.6 17.4
Other expense, net................. 0.7 0.5 0.5 (0.7) 0.6 1.1
----- ----- ----- ----- ----- -----
Income before income taxes......... 7.8 12.6 11.6 19.6 2.0 16.3
Income tax expense................. -- 0.8 0.5 1.0 0.1 0.9
----- ----- ----- ----- ----- -----
Net income......................... 7.8% 11.8% 11.1% 18.6% 1.9% 15.4%
===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES.
Cash Flow. Historically, the Company has satisfied its cash requirements
through profitable operations and borrowings under a line of credit facility.
Operating activities provided net cash totaling $253,000, $734,000 and $1.1
million for 1993, 1994 and 1995, respectively, and $934,000 for the six months
ended June 30, 1996. The primary use of cash in operating activities has been to
fund increases in accounts receivable and inventories resulting from the
Company's rapid growth.
Investing activities used cash totaling $224,000, $629,000 and $918,000,
respectively, during 1993, 1994 and 1995, and $499,000 for the six months ended
June 30, 1996. Substantially all of the cash used for investing
19
<PAGE> 22
activities during these periods related to capital expenditures. The Company
anticipates continuing to make capital expenditures in connection with plant,
equipment, software and computer equipment improvements.
Financing activities used cash totaling $26,000, $89,000 and $80,000,
respectively, during 1993, 1994 and 1995, and $406,000 for the six months ended
June 30, 1996. The primary uses of cash for financing activities were
distributions to the BodyBilt Shareholders of $583,000, $333,000 and $600,000 in
1993, 1994 and 1995, and $683,000 for the six months ended June 30, 1996. Such
distributions in 1993, 1994 and 1995 were made primarily to provide the BodyBilt
Shareholders with cash to pay individual tax liabilities related to the net
income of BodyBilt attributed to them as shareholders of an S corporation and in
1996 were made based on projected earnings of BodyBilt for the nine month ended
September 30, 1996. The primary source of cash for the financing activities
during each period were borrowings on BodyBilt's line of credit.
Asset Management. The Company typically sells its products and services on
short credit terms and seeks to minimize its credit risk by performing credit
checks and conducting its own collection efforts. The Company had trade accounts
receivable of $1.7 million and $2.5 million at December 31, 1994, and 1995,
respectively, and $1.7 million at June 30, 1996. The number of days' sales
outstanding in trade accounts receivable was 66 days, 66 days and 40 days for
the same periods. Bad debt expense as a percentage of total revenue for the same
periods was negligible. BodyBilt maintains no allowance for doubtful accounts.
The Company generally keeps its inventory low to minimize the risk of
inventory obsolescence and decreases in market value. The Company attempts to
maintain a level of inventory required to meet its near term delivery
requirements by relying on the ready availability of products from its principal
suppliers. Inventory turnover for 1994, 1995 and the first six months of 1996
was 4.9 times, 6.0 times and 5.3 times, respectively, on an annualized basis.
Current Debt Obligations. BodyBilt maintains a revolving line of credit
facility with The First National Bank of Bryan (the "Line of Credit"). The total
credit available under the Line of Credit is currently $2.0 million, subject to
borrowing base limitations which are generally computed as a percentage of
various classes of eligible accounts receivable and qualifying inventory.
Borrowings under the Line of Credit are utilized primarily for working capital
to finance inventory and receivables and distributions to the BodyBilt
Shareholders. Borrowings under the Line of Credit bear interest at the
fluctuating prime rate plus 0.75% per annum. The Line of Credit is secured by a
first lien on the accounts receivable and inventory of BodyBilt and the proceeds
of a life insurance policy insuring the life of Mark McMillan. The Line of
Credit is personally guaranteed by Mark McMillan. At June 30, 1996, the interest
rate on the Line of Credit was 9.25% and total borrowings under the Line of
Credit were $944,000. The remaining available credit under the Line of Credit,
based on BodyBilt's borrowing base, was $527,000 at June 30, 1996. The Line of
Credit will terminate upon the closing of this offering and the Company intends
to apply a portion of the net proceeds of this offering to repay all outstanding
borrowings under the Line of Credit. The Company is presently in negotiations to
establish a new line of credit facility. There can be no assurance that a new
line of credit facility will be obtainable by the Company on acceptable terms.
In May 1994, the Company purchased a building and land in Navasota, Texas
that was formerly a large retail facility. During the summer of 1994, BodyBilt
moved its manufacturing and administration operations from leased facilities to
the Navasota facility. Since June 1994, this facility has been subject to
significant renovations, improvements and equipment additions. The acquisition
and improvement of this facility was financed through a bank loan from The First
National Bank of Bryan in the principal amount of $571,000, currently bearing
interest at the prime rate plus 0.75% per annum and maturing in the year 2000.
At June 30, 1996, the interest rate on this loan was 9.5% and the outstanding
principal balance was $455,000. The loan is secured by a lien on the facility
and by a life insurance policy insuring the life of Mark McMillan. This loan is
personally guaranteed by Mark McMillan.
At June 30, 1996, the Company also had aggregate obligations of
approximately $313,000, the proceeds of which were used to fund working capital
and equipment and vehicle purchases.
On September 6, 1996, the Company obtained a $500,000 loan from Summit
Partners Management Co. ("Summit") to fund Merger and offering expenses. The
convertible note evidencing this loan (the
20
<PAGE> 23
"Convertible Note") will be repaid in part from the proceeds of this offering
and by conversion into shares of Common Stock at the initial offering price per
share (one-half of the principal balance of the loan). This loan bears interest
at 8.0% per annum and matures on September 6, 1997. In connection with the
creation of the Convertible Note, Gerald McMillan sold and transferred 34,000
shares of Common Stock to Summit and the Company issued to Summit a warrant to
acquire up to 69,000 shares of Common Stock (the "Lender's Warrant"). The terms
and conditions of the Lender's Warrant are identical to those of the
Representatives' Warrants. The shares of Common Stock sold to Summit and the
Common Stock issuable upon exercise of the Lender's Warrant are subject to
certain registration rights. See "Certain Transactions," "Shares Eligible for
Future Sale" and "Underwriting."
The Company believes that the net proceeds of this offering, net cash
provided by operating activities and borrowings made available to the Company
will be sufficient to meet the Company's cash requirements for the foreseeable
future.
INFLATION. During the six months ended June 30, 1996 and the years ended
December 31, 1995 and 1994, the cost of materials, salaries and wages increased
modestly. The increases have not had a significant effect on the Company's
results of operations because of substantially increasing sales volumes and
relatively stable sales prices.
NEW ACCOUNTING PRONOUNCEMENTS. Effective January 1, 1996, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts
and circumstances indicate that property and equipment, and intangible or other
assets, may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future cash flows associated with the
asset is compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value was necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value-based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. As permitted by SFAS no. 123, the Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future annual consolidated financial statements.
21
<PAGE> 24
BUSINESS
The Company is a rapidly growing developer, manufacturer and marketer of
customized, high-end ergonomic office furniture that re-engineers the workplace
and the home office by scientifically minimizing the physical stress imposed
upon the human body. To broaden its current product line of four series of
premium-priced ergonomic office chairs, the Company plans to develop or acquire
other ergonomic products, or enter into joint ventures or establish strategic
alliances to market other ergonomic products. These products may include
workstations, computer work surfaces, executive office side chairs and a second
line of ergonomic chairs priced to appeal to a broader market segment. The
Company's objective is to become "the primary source" for ergonomic products for
the workplace and the home office.
INDUSTRY OVERVIEW. According to Business Trend Analysts, Inc., the office
furniture market had estimated sales of $9.4 billion in 1995, representing an
increase of 7.8% over the prior year. This is an improvement over the 1994 and
1993 growth rates of 7.1% and 6.5%, respectively. The growth in the office
furniture market can be attributed to, among other factors, the expanding home
office market, growth in the number of small businesses, and a growing market
for exports. During these same periods, the Company believes that growth in the
ergonomic portion of the office furniture market accelerated at a faster rate
than the overall office furniture market as a result of an increasing awareness
of the importance of ergonomics. Ergonomics addresses the interaction of people
and their environment, using the integration of engineering, biomechanics, and
other disciplines to improve worker safety, productivity and product quality.
The Company competes in the seating segment of the office furniture market. This
segment represents approximately 25.1% of industry sales or $2.3 billion in 1995
and is the second largest industry segment. The Company's share of the seating
market segment was less than 1% on a dollar basis in 1995.
MARKET TRENDS. The Company has identified certain trends in the work
environment that it believes have expanded the market opportunity for ergonomic
office furniture. First, the increased reliance on the personal computer has
resulted in more workers spending a greater portion of the work day in a
constantly seated position. The result, among other things, has been a
significant increase in the number of work-related employee injury claims and
lost employee time from (i) back pain, the cause of approximately 40% of all
recorded employee work absences, and (ii) repetitive stress injuries (including
carpal tunnel syndrome), which affects 22% of seated workers, according to the
Bureau of Labor and Statistics. Second, government agencies, such as OSHA, have
required employers to provide safe work environments. As a result, the Company
believes that employers are seeking ways to alleviate injuries related to body
stress on the job site. Third, corporate down-sizing and the emergence of the
corporate "telecommuter" have produced significant growth in the number of home
offices, now estimated at 41.1 million in the United States alone. This growth
in home offices shifts a portion of the decision-making power for office
furniture purchases from traditional facilities and corporate purchasing agents
directly to end users, who often make purchasing decisions based on personal
comfort and productivity.
BODYBILT. Simultaneously with the closing of this offering, the Company
will complete its Merger with BodyBilt, a manufacturer of premium-priced
ergonomic office chairs since 1988. See "The Reorganization." BodyBilt is the
foundation from which the Company intends to pursue its objective of becoming
"the primary source" for ergonomic products for the workplace and the home
office.
GROWTH STRATEGY. As the importance and acceptance of ergonomics has
penetrated the workplace and the home office, the Company has experienced
significant growth. The Company has developed a strategy to continue to grow and
achieve its objective of becoming "the primary source" for ergonomic products
for the workplace and the home office. The key elements of this strategy include
the following:
- INCREASING MARKET PENETRATION
The Company intends to increase its market penetration by expanding its
direct sales force and concentrating on geographic markets exhibiting
economic growth and industry segments with growth potential. The Company's
products are marketed by its direct sales force of 17 persons and 21
independent sales representatives. The Company believes that its direct
sales force, which sells BodyBilt(R) chairs exclusively, is more
productive and cost-efficient than independent sales representa-
22
<PAGE> 25
tives, who sell other manufacturers' office furniture lines. Despite a
higher number of independent sales representatives, for the six months
ended June 30, 1996, the Company's direct sales force accounted for 68.5%
of revenues. The Company believes that additional direct sales personnel
will permit it to better establish long-term relationships with a broader
base of corporate customers to strengthen the Company's marketing, sales
and distribution. The Company also intends to expand its geographical
coverage to additional markets that offer growth potential, such as New
York, Chicago and Washington, DC. In addition, the Company plans to focus
on other geographical markets, such as Boston and Austin, Texas, where
there exists a concentration of high-tech companies who have tended to be
more receptive to the Company's ergonomic products.
- BROADENING PRODUCT LINE
The Company intends to broaden its product line by developing or
acquiring other ergonomic products, or entering into joint ventures or
establishing strategic alliances to market other ergonomic products. These
products may include workstations, computer work surfaces, executive
office side chairs and a second line of ergonomic chairs priced to appeal
to a broader market segment. Given the fragmented nature of the ergonomic
industry, attractive acquisition targets most likely will be small,
developing companies with innovative ergonomic products that offer growth
and profit potential. These companies may be constrained by the lack of
capital, distribution channels, manufacturing capability and/or management
expertise needed to bring their products to market. By providing
additional ergonomic products to complement its existing product line, the
Company believes it will be able to leverage its marketing, sales and
distribution systems and improve the efficiency of its direct sales force.
The Company intends to acquire or develop a second line of ergonomic
chairs marketed under a different brand name that will be priced to appeal
to a broader market segment. The second line of chairs, if successfully
acquired or developed, may enable the Company to compete more effectively
for larger price-sensitive orders and position itself to capitalize on the
growing acceptance of ergonomic products by corporate facilities managers
who have not been the Company's primary target customers to date.
The Company currently is developing a side chair to complement its
executive chairs. This product, if successfully developed, would enable
the Company to market a suite of ergonomically-designed chairs for the
executive office. The Company is also negotiating an option to purchase a
company which owns the North American rights to certain patents, including
patents relating to an ergonomic work center with a tilting, adjustable
work surface. See "Recent Developments."
- DEVELOPING NEW DISTRIBUTION CHANNELS
The Company intends to expand its retail distribution and explore new
distribution channels, including catalog sales, telemarketing and the use
of the Internet. The Company believes that the growth of the personal
computer market and the increase in the number of home offices create an
opportunity for the Company to market its ergonomic products directly to
the end user.
During 1997, the Company plans to explore the feasibility, risks and
potential benefits of expanding into international markets. The Company
believes that exports to foreign markets have become a significant factor
in the office furniture industry. However, to date, substantially all of
the Company's sales have been made within the United States. The Company
will exhibit its products internationally for the first time at
ORGATEC -- International Trade Fair for Office Furnishings in Cologne,
Germany, October 15-20, 1996.
- BUILDING CONSUMER RECOGNITION
The Company intends to become a source of ergonomic information and
data for the workplace and home office. Currently, two initiatives are in
the formative stages of development. The Company
23
<PAGE> 26
intends to form an Ergonomic Advisory Council (the "Advisory Council"),
which will likely be comprised of six to eight experts in the fields of
ergonomics, orthopedics and neurology. In addition to advising the
management of the Company on the latest ergonomic developments, the
Company intends for the Advisory Council to assist it in preparing
educational literature, reviewing new product developments and conducting
Company-sponsored research in areas such as repetitive stress injuries,
back problems, and the relationship between ergonomics and productivity in
the workplace. The Company also plans to create an ergonomic web site to
provide ergonomic information to consumers worldwide, offering access to
research, product descriptions, purchasing information and practical tips
on how to avoid repetitive stress injuries and back problems in the
workplace.
PRODUCTS. In the mid-1970s, NASA collected detailed anthropometric data
during successive SkyLab missions, including in-depth studies on posture.
According to data published in NASA's Anthropomorphic Source Book, NASA
discovered that when the body is placed in the weightless, or zero-gravity,
environment of space, it assumes a specific posture that is substantially
different from a traditional upright or seated posture. The body assumes a
trunk-to-thigh angle of 128 degrees, placing the musculoskeletal system in its
most relaxed state. This discovery led to the design of the BodyBilt(R) chair
with the 10-Point Posture Control(TM) system. This system allows each individual
user to emulate a similar relaxed, stress-free posture while at work, providing
a high degree of personal comfort and helping to alleviate problems associated
with back and repetitive stress injuries. Electromyographic (EMG) studies and
corporate comparative tests based on comfort have documented the effectiveness
of the BodyBilt(R) chair in alleviating worker discomfort and increasing
productivity. In a 1991 study, the Safety Department of Lockheed Austin Division
(LAD) concluded that the use of ergonomic equipment (chairs and workstations)
resulted in a 12% increase in productivity and improved employee morale. The LAD
study noted that the highest ranked piece of equipment for improving comfort and
job performance was the ergonomic chair. This study confirmed the findings of an
earlier study conducted by the Internal Revenue Service that demonstrated an 8%
increase in productivity from using an ergonomic chair alone. The ergonomic
chairs used in both studies were BodyBilt(R) chairs.
BodyBilt(R) chairs' contoured seats are made with multi-densities of foam
strategically placed to distribute the user's body weight over a larger surface
area, reducing overall seated pressure by up to 50%. Additionally, the angle
between the back rest and the seat structure can be adjusted to approximate the
posture that the body assumes naturally in the gravity-free environment of
space. Five different seat designs provide additional comfort for customers of
various sizes and shapes. The back rests also contain multi-densities of
strategically placed foam and are shaped to provide maximum support in the
lumbar area. The personal Air Lumbar(TM) pump inflates the lumbar area, allowing
the back rest to conform even more closely to the unique curvature of each
person's back. The 12 different arms available with all BodyBilt(R) chairs are
designed for different workplace tasks and offer customers more choices to
reduce neck and shoulder strain. Available armrests include the exclusive Linear
Tracking Arm(TM) and Pivot Arm(TM) for specialized applications, including
medical, micro-surgical and desk-top needs. The 3-Way Arm mechanism allows for
proper arm support which can help the user avoid repetitive stress injuries. The
Company manufactures BodyBilt(R) chairs designed for non-managerial task workers
(J Task Series), managerial task workers (J-Manager Series), managers and
executives (K Series) and "Big & Tall" workers (S Series). The S Series chairs
feature a reinforced seat 22% larger than the average seat and are capable of
supporting persons weighing up to 350 pounds. The Company's collection of
BodyBilt(R) chairs meet, and often exceed, the current ergonomic standards in
seating design, from ANSI-HFS 100-88 to those proposed by OSHA.
As a result of the modular design of the BodyBilt(R) chairs, each customer
can design a custom chair, selecting from more than 1,500 possible combinations
of arms, back rests, head rests, seats and bases, in addition to style and
fabric choices. The Company has been able to provide this myriad of choices to
the customer without maintaining excessive inventory levels, as a result of its
use of interchangeable parts. The Company generally can deliver a customized
BodyBilt(R) chair to the customer in less than four weeks, about one-half the
time required by large manufacturers. The chairs require minimal assembly by the
customer and are delivered with a computer diskette that provides each customer
with a visual explanation of how to adjust the chair for maximum comfort.
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BodyBilt chairs are warranted against defects in materials or work quality
as follows: 7 years on the base, steel structure of the mechanism and the
backrest post; 5 years on the casters, clutch plates, torsion springs, handles,
seat and backrest plastic structure, backrest height adjuster, foam,
polyurethane arm pads, pneumatic height cylinder, armrest structure and all
welds; and 2 years on the Air Lumbar(TM) pillow.
MARKETING, SALES AND DISTRIBUTION. The Company markets and sells its chairs
to corporate ergonomists and health, human services and safety managers,
primarily for "special use" applications where employees have requested a
non-standard chair to reduce or alleviate existing back problems or repetitive
stress injuries. While historically successful, this approach is nevertheless a
time-consuming process that involves a detailed technical explanation of how the
chairs function and documentation of the chairs' effectiveness in alleviating
and/or preventing back problems and repetitive stress injuries. The selling
process may involve a comparative test of several ergonomic chairs conducted by
the customer where employees complaining of work-related discomfort are asked to
evaluate the chairs on a wide range of factors. Termed "sit-offs" by the trade,
these tests provide a practical and useful means of measuring the chair's
effectiveness in relieving individual discomfort. Because BodyBilt(R) chairs are
purchased for "special-use" purposes, the average order is fewer than three
chairs. The Company believes that it has a competitive advantage over larger
competitors whose culture and structure are not adapted to accommodate the
unique approach required to sell "special-use" ergonomic chairs effectively.
Historically, the vast majority of the Company's sales have been to corporate
customers, but a growing percentage of the Company's sales have been made
through retail distribution directly to end users.
The Company had a diversified customer base of 1,551 accounts during 1995,
of which no single customer accounted for more than 10% of the Company's sales
for the 12-month period ended December 31, 1995. The Company's customers include
Hewlett Packard Company, Boeing Commercial Aircraft Company and Texas
Instruments, Inc. whose individual sales for the 12-month period ended December
31, 1995, represented 6.3%, 4.5% and 2.0%, respectively, of the Company's total
sales.
In an effort to further differentiate its products through creative
promotional activities, the Company believes it has achieved a high level of
brand identity and consumer awareness not typically found in the office
furniture industry. BodyBilt chairs have received national publicity in
newspapers, magazines and television, including People magazine, Entertainment
Tonight, The CBS Morning Show and The Tonight Show. The Company also exhibits
its products at numerous ergonomic, computer and office furniture industry trade
shows. In 1995, the Company spent approximately $1.0 million on advertising,
promotional materials and trade shows.
The majority of the Company's sales are generated by its direct sales force
and independent sales representatives and directed through a network of over 550
dealers. Dealers typically purchase the product at a discount from retail and
resell the product at a higher price. The Company's direct sales force is
compensated on a salary plus commission basis. Independent sales representatives
are compensated solely on a commission basis. See "Risk Factors -- Dependence on
Key Independent Sales Representatives." The Company also has 17 other employees
to support marketing and distribution personnel and a computer graphics
department, consisting of three employees, that creates sales promotional
literature, training films and specialized instructional videos for customers
upon request.
The Company seeks to minimize product returns by offering prompt on-site
customer service and repair. BodyBilt(R) chairs' interchangeable components
permit easy replacement of worn or defective components. Currently, the Company
utilizes its direct sales force, independent sales representatives and dealers
to perform on-site service and warranty repairs.
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The map set forth below indicates the location of the Company's showrooms
and sales offices. In addition, the map illustrates the geographic location of
the Company's sales for the year ended December 31, 1995.
[MAP]
MANUFACTURING AND ASSEMBLY. The Company currently operates one shift on
average, five days per week, at its manufacturing and assembly facility located
in Navasota, Texas. A second shift is added to meet demand in peak periods,
generally in the fourth quarter when customers spend the remainder of their
annual capital budgets. Approximately 29,000 chairs have been manufactured and
assembled for the 12-month period ended June 30, 1996, representing an increase
of 33.8% over the previous 12-month period. The Company believes that the
maximum capacity of this facility is approximately 100,000 chairs per year and
that its future production requirements can therefore be satisfied without
substantial additional capital investment.
At its Navasota facility, the Company vacuum-forms seats and backs and cuts
and punches holes in various steel supports for the back rests, front wings,
arms-capable brackets and vertical/horizontal braces. The Company then assembles
the chairs and applies coverings. The Company manufactures BodyBilt(R) chairs
primarily to meet specific customer orders. A significant portion of finished
chairs are shipped within 24 hours after the manufacturing process is complete.
The Company's manufacturing goals are to: (i) strive to improve quality;
(ii) seek the best values in purchasing; (iii) uphold stringent zero defect
quality controls; and (iv) deliver orders promptly. The Company believes its
production standards are exceptional, with approximately 95% production
acceptance for the year ended December 31, 1995. Customer request dates have
been met consistently at the 99% level during these periods. The number of work
hours required to produce each chair has been reduced to 3.6 work hours per
chair in June 1996, down from 5.8 work hours per chair in June 1995. To further
enhance its performance and maintain a high standard of customer service, the
Company plans to purchase a fully-integrated PC network-based management
information and control system designed specifically for mid-sized custom
manufacturers. This system should enhance the Company's ability to track orders,
costs, scheduling and inventories coupled with financial/accounting requirements
on a real-time basis. The software package, including new hardware and upgrades,
is expected to cost approximately $200,000.
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SUPPLIERS. The Company utilizes a variety of materials in its operations.
These include plastic, foam, steel and various coverings. Certain components for
BodyBilt(R) chairs, principally the base mechanism, are supplied by other
manufacturers to the Company's specifications. The Company is dependent upon its
suppliers for timely delivery and product quality. While the Company's strategy
is to maintain multiple sources of supply, the Company's largest supplier,
Leggett & Platt, Inc., is currently the only source of a key component for
BodyBilt(R) chairs. While the Company has not had any adverse experience with
this supplier, until alternative supply sources are identified, the Company
could be subject to pricing risks, delivery delays and quality control problems,
which could have a material adverse effect on the Company's results of
operations.
PATENTS AND TRADEMARKS. The Company has applied to register the "ErgoBilt"
trademark, and has registered "BodyBilt" in the United States. The Company
believes that protection of this trademark is important because of customer
association of the trademark with BodyBilt(R) chairs. The Company also has a
patent pending which relates to its current arm design. The Company's success
and ability to compete is dependent in part upon its proprietary technology.
While the Company relies on patent, trademark, trade secret and copyright law to
protect its technology, the Company believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are more essential to establishing and maintaining a technology leadership
position. There can be no assurance that others will not develop technologies
that are similar or superior to the Company's technology.
The seat design used in certain BodyBilt(R) chairs is patented by Dr.
Jerome Congleton (the "Congleton Patent"). The sale of BodyBilt(R) chairs
utilizing this seat design represented less than 10% of the Company's sales for
the 12-month period ended June 30, 1996. Dr. Congleton granted a license to
manufacture seats using the Congleton Patent to both BodyBilt and to Ergonomic
Chairs, Inc., predecessor in interest to Neutral Posture Ergonomics, Inc.
("NPE"). NPE is owned and controlled in part by Drew Congleton's mother and
sister. Dr. Congleton is the father of Drew Congleton, who is a director of the
Company and an officer of BodyBilt. Dr. Congleton is a consultant to NPE and has
no association with the Company. Under the terms of this license agreement and
related agreements, if more than 50% of the outstanding capital stock of
BodyBilt is transferred, its license to manufacture chairs under the Congleton
Patent will terminate. Accordingly, upon consummation of the Merger, the Company
will no longer hold a license of the Congleton Patent; however, the Company
believes that under other existing agreements with Dr. Congleton and NPE,
BodyBilt has the right to manufacture, market, distribute and sell commercial,
industrial and laboratory chairs based on the Congleton Patent, although
BodyBilt's successor may not advertise the Congleton Patent. See "Business --
Legal Proceedings."
PROPERTIES. The Company's manufacturing and assembly operations are
conducted in its 65,000 square-foot Navasota facility. The Company leases
approximately 2,000 square feet in Dallas for its principal executive offices.
The Company also leases a showroom in Denver, a showroom in the Chicago
Merchandise Mart and a small sales office in Dallas.
COMPETITION. The Company faces significant competition in the office
furniture market. BodyBilt(R) chairs compete on the basis of quality, health
benefits, comfort, service, price, design and durability. Existing and future
competitors within the office furniture industry, including Herman Miller, Inc.,
Steelcase Design Partnership and Haworth Group, Inc., offer or will offer
ergonomic products. Many of these competitors have much greater financial and
other resources, and offer a broader product line, than the Company. By
targeting its marketing efforts to corporate ergonomists and health, human
services and safety managers, rather than traditional facilities or purchasing
managers, the Company has been able to establish a market niche in which the
Company believes it is difficult for large office furniture producers to compete
effectively. There is also competition from numerous smaller ergonomic furniture
companies. The Company believes, however, that smaller competitors are often
constrained by a lack of capital, access to distribution channels, manufacturing
capabilities and/or management expertise.
The Company believes that the following aspects of its marketing, sales,
distribution and customer service are its competitive strengths: (i) the modular
design and interchangeable components of BodyBilt(R) chairs permit customization
to each individual's specifications, and the chairs' mechanisms allow adjustment
to fit
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<PAGE> 30
changing individual needs; (ii) manufacturing, sales and customer service are
equipped to handle small orders, the traditional mainstay of the ergonomic
business; (iii) orders are processed, manufactured and delivered in four weeks,
approximately half the time normally required by large companies; and (iv) the
use of interchangeable components allows on-site service and repair.
EMPLOYEES. As of August 31, 1996, the Company employed 136 full-time
employees, of whom 25 were in management and administrative positions, 28 were
in marketing, sales and distribution, and 83 were in manufacturing and assembly.
None of the Company's employees is subject to any collective bargaining
agreements, and management considers its relations with its employees to be
good.
GOVERNMENT REGULATION. The Company's operations must meet federal, state
and local regulatory standards in the areas of safety, health and environmental
pollution controls. Historically, those standards have not had any material
adverse effect on the Company's sales or operations. The Company believes that
its Navasota facility is in compliance in all material respects with applicable
federal, state and local laws and regulations relating to safety, health and the
environment. The Company cannot at this time estimate the impact of any new
standards which may be applicable to the Company's operations or the costs of
compliance with such standards.
LEGAL PROCEEDINGS. On January 5, 1996, BodyBilt filed suit in the United
States District Court for the Southern District of Texas, Houston Division,
against NPE, a manufacturer and marketer of ergonomic seating, and a related
party. Among other claims, BodyBilt alleges that NPE has engaged in unfair trade
practices by making several false and misleading statements in its promotional
and advertising materials and has disparaged and slandered BodyBilt and
BodyBilt(R) chairs in violation of a settlement agreement entered into in 1991
by BodyBilt and NPE. BodyBilt has been counter-sued by NPE for various claims,
including unfair trade practices and tortious interference with business
relationships. NPE alleges actual damages of at least $200,000 and is seeking
punitive monetary damages. The parties have entered into negotiations in an
attempt to settle all claims. These negotiations may result in the relicensing
of the patented seat design to BodyBilt. The Company believes that the failure
of the parties to reach agreement will not prevent the continued use of this
seat design by BodyBilt. If the parties fail to reach agreement, the Company
intends to pursue the BodyBilt action against NPE and to defend BodyBilt against
the claims of NPE. See "Business -- Patents and Trademarks."
The Company is involved from time to time in various other legal
proceedings and claims incident to the normal conduct of its business. The
Company believes that such legal proceedings and claims, individually and in the
aggregate, are not likely to have a material adverse effect on the Company's
results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The Company's directors and executive
officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Gerald McMillan, PhD................... 45 Chairman of the Board and Director
Gerard Smith........................... 54 President and Chief Executive Officer
of the Company and BodyBilt and
Director
P. Michael Sullivan.................... 43 Senior Vice President and Chief
Financial Officer
Drew Congleton(1)...................... 34 Executive Vice President and National
Sales Director of BodyBilt and Director
Robert E. Faust(1)(2).................. 57 Director
William Weed(1)(2)..................... 66 Director
W. Barton Munro(1)..................... 54 Director
William B. Glenn Jr.(1)................ 43 Director
</TABLE>
- ---------------
(1) To be appointed immediately after the completion of this offering
(2) Member of the Audit Committee
Gerald McMillan, PhD, has been Chairman of the Board of Directors of
ErgoBilt since its inception on June 12, 1995, and was President from inception
to August 15, 1996. He was employed as BodyBilt's Director of Marketing from
January 1, 1993, to July 31, 1994, and served as a consultant to BodyBilt from
August 1, 1994, until the creation of ErgoBilt. He also served as a consultant,
directly and indirectly, to BodyBilt during 1991 and 1992. Dr. McMillan taught
economics at the University of Dallas Graduate School of Management. He holds a
PhD, MS and a BS in economics from Texas A&M University.
Gerard Smith became President and Chief Executive Officer of the Company
and BodyBilt and a director of ErgoBilt on August 15, 1996. In August 1994, Mr.
Smith formed Smith & Associates, a marketing consulting firm, where he served as
President from 1994 to 1996. He also served as Chief Executive Officer of WTA
TOUR Players Association, the organization responsible for managing the
worldwide women's professional tennis tour, from 1989 to 1994. Mr. Smith
previously served as Publisher and Vice Chairman of Newsweek from 1984 to 1989.
Mr. Smith was Managing Director at the Los Angeles office of Ogilvy & Mather
Advertising from 1978 to 1984. He holds a BA in psychology from Seton Hall
University.
P. Michael Sullivan joined ErgoBilt as a consultant in September 1996. He
will become Senior Vice President and Chief Financial Officer of ErgoBilt upon
the completion of this offering. Mr. Sullivan was Vice President, Chief
Financial Officer, Secretary and Treasurer for USDATA Corporation from 1978
until he joined the Company. Mr. Sullivan is a certified public accountant and a
member of the Texas Society of Certified Public Accountants. He holds a BS in
Finance and Accounting from the University of Texas.
Drew Congleton will become Executive Vice President and National Sales
Director of BodyBilt and has consented to become a director of the Company upon
the completion of this offering. He has served as BodyBilt's Vice President
since 1994, National Sales Manager and Director of Research and Development
since 1988. He is a member of the Human Factors and Ergonomic Society and
represents BodyBilt on the National Science Foundation Industry/University
Cooperative Research Center for Ergonomics at Texas A&M University. Mr.
Congleton holds a BS in Organizational Communication from the University of
Texas.
Robert E. Faust has consented to become a director of the Company
immediately after the closing of the offering. From 1965 to 1996, Mr. Faust
served Westinghouse Electric Corporation in various executive and management
capacities, including Executive Vice President of Westinghouse Communications,
Vice President and Controller of Westinghouse Electric, and Vice President and
Controller of Westinghouse Broadcasting. Mr. Faust has served as a director of
Duquesne University, Mercy Hospital Foundation, Civic Light Opera of Pittsburgh,
and Pittsburgh Hearing, Speech and Deaf Services, Inc., and as Chairman of
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<PAGE> 32
Information Systems Management Council Manufacturers' Alliance for Productivity
and Innovation. He holds a BS and an MBA in Finance from Duquesne University. He
is a graduate of Harvard University's Advanced Management Program.
William Weed has consented to become a director of the Company immediately
after the closing of this offering. Mr. Weed has been managing partner of Paul
Ray Berndtson, a New York executive search firm, since 1987. Prior to that, he
was a Director of The Ogilvy Group, Director of Worldwide Accounts and member of
the Personnel Committee for Ogilvy & Mather Worldwide, and Chairman of Ogilvy &
Mather/Europe, all engaged in advertising and marketing. Mr. Weed also serves
the American Red Cross of Greater New York as Vice Chairman of the Board and is
a member of the Board's executive and nominating committees. He is a trustee
emeritus and a former member of the executive committee of the American Academy
in Rome, Italy. He holds a BS from Carleton College and an MBA from Harvard
University.
W. Barton Munro has consented to become a director of the Company
immediately after the closing of this offering. He has served as a management
consultant to BodyBilt for the past two years and has provided tax, legal and
financial consulting services to various other clients. Mr. Munro has been Vice
President, Smith Dairy Queen, Bryan, Texas, since 1991. Mr. Munro served as a
tax partner in the Houston office of Peat, Marwick, Mitchell & Co. from 1972 to
1980 and was a Tax Manager in the Dallas office of Price Waterhouse & Co. from
1963 to 1972. Mr. Munro is a certified public accountant and is a member of the
Texas Society of Certified Public Accountants. He holds a BBA and a JD from
Southern Methodist University.
William B. Glenn Jr. has consented to become a director of the Company
immediately after the closing of this offering. Mr. Glenn has been a partner in
a California leveraged buyout firm and an advisor to a West Coast investment
partnership since 1994. Prior to that, Mr. Glenn was a Senior Vice President of
Eastbridge Capital Inc./Eastbridge Asset Management from 1988 to 1994.
Eastbridge is a primary dealer to the Federal Reserve and also provides hedge
fund management, proprietary trading and investment banking services. Mr. Glenn
also has held capital markets and corporate finance positions with Merrill Lynch
and Smith Barney Harris Upham Co. He holds a BA in Business Administration from
the University of North Carolina.
TERMS OF OFFICE. Members of the Company's Board of Directors will be
elected at each annual meeting of shareholders, to serve one-year terms or until
their successors are elected and qualified or their earlier resignation or
removal. The Company and the principal shareholders of the Company have entered
into a voting agreement pursuant to which the parties thereto have agreed to
vote to re-elect the existing members of the Company's Board of Directors for
three consecutive one-year terms (the "Voting Agreement"). See "Principal
Shareholders." Vacancies in unexpired terms and any additional positions created
are filled by action of the Board of Directors. The executive officers of the
Company are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors until their successors are elected and
qualified or their earlier resignation or removal.
AUDIT COMMITTEE. The Company's Board of Directors has established an Audit
Committee comprised entirely of independent directors. The functions of the
Audit Committee are to make recommendations to the Board of Directors regarding
the engagement of the Company's independent accountants and to review with
management and the independent accountants the Company's financial statements,
basic accounting and financial policies and practices, audit scope and
competency of accounting personnel. Members of the Audit Committee are appointed
annually by the Board of Directors and serve at the discretion of the Board of
Directors until their successors are appointed or their earlier resignation or
removal.
COMPENSATION OF DIRECTORS. Directors who are not also employees of the
Company receive $500 per board meeting attended and $200 per board committee
meeting attended and are reimbursed for out-of-pocket expenses incurred for
attendance at meetings. Under the Company's Stock Option Plan, they will also
receive annual grants of options to purchase 2,000 shares of Common Stock. See
"Management -- Stock Option Plan."
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<PAGE> 33
KEY EMPLOYEES AND CONSULTANT. In addition to its executive officers, the
Company believes that the following persons are key employees or consultants:
Mark McMillan, 42, has served as President of BodyBilt since 1988. Mr.
McMillan will serve as a consultant to the Company for a two-year period
commencing upon the completion of this Offering. Mr. McMillan, who will be a
principal shareholder of the Company after the Merger, will also attend meetings
of the Board of Directors. See "Management -- Employment and Consulting
Agreements."
Bob Schubert, 42, has served as Vice President, Controller and Director of
Human Resources and Safety of BodyBilt since 1993. Pursuant to an arrangement
with Agrivest, Inc. described in "Certain Transactions," he joined BodyBilt as
General Manager in 1990. He holds a BA from Texas A&M University.
Matthew L. Prochaska, 32, is BodyBilt's Vice President and Director of
Plant Operations. Mr. Prochaska joined BodyBilt as Special Projects Manager in
January 1993 and served as Assistant Plant Manager, Plant Manager or
International Sales Manager from July 1993 to September 1996. From 1986 to 1993,
he worked for Campus Crusade for Christ, International in film production and
distribution and in translating and publishing related playbills. Mr. Prochaska
spent 1991 to 1993 as a campus director in Capetown, South Africa. He holds a BA
from Texas A&M University.
STOCK OPTION PLAN.
Scope. The Board of Directors and shareholders of the Company have approved
the ErgoBilt, Inc. 1996 Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan authorizes the Company to award incentive stock options and
nonqualified stock options to purchase Common Stock to officers, employees,
consultants and directors of the Company. The purpose of the Stock Option Plan
is to attract, retain and motivate such persons.
The Stock Option Plan authorizes the award of 400,000 shares of Common
Stock to be used for incentive stock options, nonqualified stock options or
restricted stock grants, of which no options have been granted as of the date of
this prospectus. If an award made under the Stock Option Plan expires, is
canceled or is otherwise terminated, those shares will be available for future
awards under the Stock Option Plan. The Stock Option Plan will terminate
December 31, 2006.
Administration. The Stock Option Plan will be administered by the Board of
Directors. Subject to the provisions of the Stock Option Plan, the Board of
Directors will have authority to select those officers, directors, employees and
consultants of the Company to receive awards, to determine the time or times of
receipt, to determine the types of awards and the number of shares awarded and
to establish the terms, conditions and provisions of such awards. In making such
award determinations, the Board of Directors may take into account the nature of
services rendered by the recipient, his or her present and potential
contribution to the Company's growth and success and such other factors as the
Board of Directors deems relevant. The Board of Directors is authorized to
interpret the Stock Option Plan, to establish, amend and revoke any rules and
regulations relating to the Stock Option Plan, to determine the terms and
provisions of any agreements made pursuant to the Stock Option Plan and to make
all other determinations that may be necessary or advisable for the
administration of the Stock Option Plan.
Stock Options. Both incentive stock options and nonqualified stock options
(collectively referred to as "Stock Options") may be granted pursuant to the
Stock Option Plan. All Stock Options granted under the Stock Option Plan will
have an exercise price per share to be determined by the Board of Directors,
provided that the exercise price per share under each Stock Option shall not be
less than the fair market value of a share of Common Stock at the time the Stock
Option is granted (110% of such fair market value in the case of incentive stock
options granted to a shareholder who owns 10% or more of the Company's
outstanding Common Stock). The maximum term for all Stock Options granted under
the Stock Option Plan is ten years (five years in the case of an incentive stock
option granted to a shareholder who owns 10% or more of the Company's
outstanding Common Stock). Moreover, no Stock Options may be granted under the
Stock Option Plan more than ten years after the date of its adoption. All Stock
Options are nontransferable other than by will or the laws of descent and
distribution or a qualified domestic relations order, and during an
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<PAGE> 34
optionee's lifetime may be exercised only by the optionee or the optionee's
guardian or legal representative. Stock Options are exercisable at such time and
in such installments as the Board of Directors may provide at the time the Stock
Option is granted. The Board of Directors may accelerate the exercisability of
any Stock Option at any time. The purchase price for shares acquired pursuant to
the exercise of a Stock Option must be paid in the manner determined by the
Board of Directors. The terms and conditions of Stock Options relating to their
treatment upon termination of the optionee's employment or association with the
Company will be determined at the time the Stock Options are granted. The Stock
Options vest over a period of four years with the initial 20% becoming
exercisable on the six-month anniversary of the grant date and an additional 20%
becoming exercisable on each of the first four anniversaries of the grant date.
In the event of a change in control of the Company, as defined, awards under the
Stock Option Plan become exercisable within 60 days.
EXECUTIVE COMPENSATION. Gerald McMillan received $72,377 for services
rendered to ErgoBilt for the year ended December 31, 1995. Mark McMillan, in his
capacity as President and Chief Executive Officer of BodyBilt, received no
compensation from BodyBilt in the form of salary or bonus for the year ended
December 31, 1995. However, certain entities for which Mr. McMillan is the sole
shareholder received aggregate cash consideration of $408,488 for services
rendered to and products acquired by BodyBilt during the year ended December 31,
1995. See "Certain Transactions." Drew Congleton, who has served as BodyBilt's
Vice President and National Sales Manager and Director of Research and
Development, received $122,392 in the form of salary and bonus for services
rendered to BodyBilt for the year ended December 31, 1995. No other executive
officer of ErgoBilt or BodyBilt received more than $100,000 for services
rendered to the respective companies for the year ended December 31, 1995.
EMPLOYMENT AND CONSULTING AGREEMENTS
Gerald McMillan. The Company has entered into an executive employment
agreement with Gerald McMillan to serve as Chairman of the Board of Directors of
the Company for a three-year term, commencing as of the closing of the offering.
Mr. McMillan will receive an annual base salary of $1, be eligible to
participate in all Company bonus/incentive programs and stock option plans and
receive benefits under all other Company employee benefit plans.
Gerard Smith. The Company has entered into an amended and restated
executive employment agreement with Gerard Smith to serve as a director and
President and Chief Executive Officer of the Company and BodyBilt, for a
three-year term commencing as of the closing of this offering (the "Smith
Agreement"). Mr. Smith currently renders services to the Company under this
agreement and a Consulting Services Agreement. See "Certain Transactions." Mr.
Smith will receive an annual base salary of $125,000, be eligible to participate
in all Company bonus/incentive programs and stock option plans and receive
benefits under all other Company employee benefit plans. The Smith Agreement
also sets forth certain terms under which Mr. Smith is granted registration
rights for shares of Common Stock owned by him. Mr. Smith has agreed to sell all
or a portion of such shares of Common Stock to Gerald McMillan or the Company
upon the termination of his employment with the Company. See "Principal
Shareholders" and "Shares Eligible for Future Sale."
P. Michael Sullivan. The Company has entered into an executive employment
agreement with P. Michael Sullivan, its Senior Vice President and Chief
Financial Officer, for a three-year term, commencing as of the closing of this
offering. Mr. Sullivan will receive an annual base salary of $85,000, be
eligible to participate in all Company bonus/incentive programs and stock option
plans, and receive benefits under all other Company employee benefit plans.
Drew Congleton. Upon the closing of this offering and the Merger, BodyBilt
will enter into an executive employment agreement with Drew Congleton, a
director and principal shareholder of the Company, pursuant to which Mr.
Congleton will serve as Executive Vice President and National Sales Director of
BodyBilt for a three-year term. Mr. Congleton will receive an annual base salary
of $80,000, be eligible to participate in all Company bonus/incentive programs
and stock option plans, and receive benefits under all other Company employee
benefit plans.
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Mark McMillan. The Company and Mark McMillan, a principal shareholder of
the Company, have agreed to enter into a two-year agreement pursuant to which
Mr. McMillan will serve as a consultant to the Company with respect to the
Company's operations, particularly during the transition period. Mr. McMillan
will serve up to 5 hours per business day and be compensated at the rate of $150
per hour. Mr. McMillan will be eligible to participate in all Company
bonus/incentive programs and stock option plans, and receive benefits under all
other Company employee benefit plans.
All compensation decisions concerning executive officers have been made by
the Board of Directors, which consisted solely of Gerald McMillan. See "Certain
Transactions."
CERTAIN TRANSACTIONS
All of BodyBilt's loans from The First National Bank of Bryan were
guaranteed by Mark McMillan, the former President of BodyBilt, a BodyBilt
Shareholder and a consultant and principal shareholder of the Company. The total
amount of these loans was approximately $1.6 million at June 30, 1996. The
Company intends to use a portion of the proceeds of this offering to repay these
loans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Use of Proceeds" and Note 3 to BodyBilt's financial
statements.
In each of 1993, 1994 and 1995, BodyBilt paid Agrivest, Inc., a corporation
owned by Mark McMillan, $36,000 for accounting, payroll and other administrative
services. During 1993, 1994 and 1995, BodyBilt also paid Agrivest $12,000,
$109,275 and $192,900, respectively, for management services, and $6,000, $6,000
and $2,000, respectively, for equipment rental. During 1995, BodyBilt purchased
$172,588 of furniture and fixtures and building and leasehold improvements from
Genemco, Inc., another company owned by Mark McMillan.
The Company has entered into a letter agreement with Mark McMillan,
pursuant to which the Company will purchase from Mr. McMillan, at a purchase
price equal to 90% of the price to public of the shares offered in this
offering, that number of shares required to be delivered to the holder of the
Convertible Note upon conversion. Approximately $225,000 of the net proceeds of
this offering will be used to fund the purchase price of the shares acquired
from Mr. McMillan, assuming a price to public of $9.00 per share. Mr. McMillan
may assign a portion of his obligation to Dr. Troutman. See "Use of Proceeds."
BodyBilt paid the Company and its predecessor a total of $75,320 and
$353,868 in 1994 and 1995, respectively, for services related to promotional
literature and marketing development. During 1993 and 1994, BodyBilt paid
MultiMarket Media, Inc. $47,054 and $43,716, respectively, for marketing
development. (No fees were paid to MultiMarket Media, Inc. in 1995.) The
Company's Chairman, Gerald McMillan, was the sole shareholder of both of these
corporations when these payments were made. Dr. McMillan also received a $15,000
consulting fee from BodyBilt in 1993.
In July 1996, the Company entered into a Consulting Services Agreement with
Gerard Smith pursuant to which Mr. Smith would provide certain management
services to the Company during the period commencing on the execution of the
agreement and terminating on the later of the closing of this offering or March
20, 1997. Mr. Smith is to be compensated in the minimum amount of $77,500,
substantially all of which compensation has been paid by the Company. The
Company's payment obligation to Mr. Smith is guaranteed by Gerald McMillan and
is secured by the pledge of unrelated securities by Mr. McMillan. Under
circumstances set forth in the Consulting Services Agreement, the Company may
recover all of the payments made by the Company to Mr. Smith, and recover
additional amounts from Mr. Smith.
In connection with the execution and delivery of Mr. Smith's Consulting
Services Agreement, Gerald McMillan, Chairman of the Board of Directors of the
Company, sold and transferred 489,600 shares of Common Stock to Mr. Smith in
exchange for $38,500 in the form of a promissory note bearing interest at 7.5%.
Principal and interest accrued are payable on June 27, 1999. Mr. Smith's payment
obligation is secured by a lien on the transferred shares. The Smith Agreement
sets forth certain terms under which Mr. Smith is obligated to retransfer all or
a portion of such shares to Mr. McMillan or the Company upon the termination of
his employment with the Company. See "Management -- Employment and Consulting
Agreements" and "Principal Shareholders."
33
<PAGE> 36
In September 1996, the Company entered into a Consulting Services Agreement
with Michael Sullivan pursuant to which Mr. Sullivan would provide certain
financial management services related to this offering during the period
commencing on the execution of the agreement and terminating on the later of the
closing of this offering or March 20, 1997. Mr. Sullivan is to be compensated in
the minimum amount of $7,000 per month.
In 1989, BodyBilt borrowed $75,000 for working capital from Dr. Richard
Troutman, a BodyBilt shareholder and a principal shareholder of the Company. The
Company intends to use a portion of the proceeds of this offering to repay the
loan from Dr. Troutman. See "Use of Proceeds."
The foregoing transactions were among affiliated parties and necessarily
involved conflicts of interest. The Company believes that these transactions
were on no less favorable terms than were reasonably available from unaffiliated
third parties. Except as described above, all agreements pursuant to which the
transactions described above in "Certain Transactions" were conducted will
terminate no later than the effective date of the Merger.
Although the Company has no present intention to do so, it may in the
future enter into other transactions incident to its business with its
directors, officers, prior shareholders and other affiliates. The Company's
policy is that any transaction in the future with an affiliated entity,
executive officer or director will be subject to review and approval by a
majority of the Company's directors who have no interest in the transaction and
will be on no less favorable terms than the Company could obtain from
unaffiliated parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of September 30, 1996, and as adjusted to
reflect the issuance of Common Stock and Series A Preferred Stock in the Merger
and the sale of the shares of Common Stock offered hereby, certain information
with respect to the beneficial ownership of Common Stock and Series A Preferred
Stock by (i) each person who is the beneficial owner of more than 5% of the
outstanding Common Stock or Series A Preferred Stock, (ii) each of the Company's
directors and executive officers, and (iii) all directors and executive officers
of the Company as a group. Unless otherwise indicated, each person listed in the
table has sole voting and investment power over the Common Stock or Series A
Preferred Stock that the person beneficially owns. All of the persons included
in the table have agreed not to dispose of their shares for 180 days after the
date of this prospectus. See "Shares Eligible For Future Sale."
<TABLE>
<CAPTION>
AS ADJUSTED(2)
-----------------------------------------------
SHARES OF SERIES A
SHARES OF COMMON STOCK SHARES OF COMMON STOCK PREFERRED STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------------- ---------------------- --------------------
NAME AND ADDRESS OF PERCENT PERCENT PERCENT
BENEFICIAL OWNER(1) NUMBER OF CLASS NUMBER OF CLASS NUMBER OF CLASS
- ------------------------------ --------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald McMillan(3)(5)......... 1,504,160 73.7% 1,504,160 29.9% -- 0.0%
Gerard Smith(4)(5)............ 489,600 24.0% 489,600 9.7% -- 0.0%
Drew Congleton................ -- 0.0% 245,834(7) 4.9% 116,667 25.0%
Dr. Richard Troutman.......... -- 0.0% 368,750(7) 7.3% 175,000 37.5%
Mark McMillan(6).............. -- 0.0% 368,750(7) 7.3% 175,000 37.5%
All directors and executive
officers as a group (2
persons; 7 persons after
this offering).............. 1,993,760 97.7% 2,239,594(7) 44.6% 116,667 25.0%
</TABLE>
34
<PAGE> 37
- ---------------
(1) The address for Gerald McMillan and Gerard Smith is 5000 Quorum Drive, Suite
147, Dallas, Texas 75240. The address for Drew Congleton is 2815 Manzano
Court, College Station, Texas 77845. The address for Mark McMillan is 2506
River Forest, Bryan, Texas 77802. The address for Dr. Richard Troutman is
10225 Collins Avenue, Bal Harbour, Florida 33157.
(2) Applicable percentage of ownership assumes 2,040,000 shares of Common Stock
outstanding on September 30, 1996, and 4,556,667 shares of Common Stock and
466,667 shares of Series A Preferred Stock outstanding after the completion
of this offering. Assumes completion of this offering and the Merger and an
initial offering price of $9.00 per share. See "The Reorganization."
(3) Includes 214,200 shares held by a trust for the benefit of Mr. McMillan's
three minor children, as to which Mr. McMillan disclaims beneficial
ownership
(4) Includes 18,360 shares held by the Ashleigh Lynch Smith 1996 Irrevocable
Trust for which Mr. Smith is trustee and 18,360 shares held by the Alyssa
Kay Smith 1996 Irrevocable Trust for which Mr. Smith is trustee. Mr. Smith
disclaims beneficial ownership of all shares held by such trusts.
(5) The Smith Agreement sets forth certain terms under which Mr. Smith is
obligated to retransfer all or a portion of the shares of Common Stock
beneficially owned by him to Gerald McMillan or the Company upon the
termination of his employment with the Company.
(6) Does not give effect to the Company's purchase of 27,778 shares of Common
Stock from Mr. McMillan to enable the Company to deliver shares upon
conversion of one-half of the principal balance of the Convertible Note.
(7) Includes shares of Common Stock that the person or group has the right to
acquire at any time upon conversion of the Series A Preferred Stock included
in the table. See "Description of Capital Stock -- Series A Preferred
Stock."
VOTING AGREEMENT. The Company and the principal shareholders have entered
into the Voting Agreement pursuant to which the parties have agreed to re-elect
the existing members of the Board of Directors for three consecutive one-year
terms commencing with the closing of this offering. The Voting Agreement also
sets forth the authorization and approval by Mark McMillan and Drew Congleton of
all of the existing members of the Board of Directors. Under the terms of the
Voting Agreement, Dr. Troutman retains the right to nominate a successor to fill
the seat vacated by William B. Glenn, Jr. in the event Mr. Glenn fails to
complete three one-year terms. See "Management."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20.0 million shares
of Common Stock, $.01 par value, of which 2,040,000 shares were issued and
outstanding as of September 30, 1996, and 10.0 million shares of preferred
stock, $.10 par value (the "Preferred Stock"), of which 2.0 million shares have
been designated Series A Preferred Stock and none of which are issued and
outstanding. Upon completion of the Merger simultaneously with the closing of
this offering, the Company expects to issue 466,667 shares of Series A Preferred
Stock and 516,667 shares of Common Stock to BodyBilt Shareholders, assuming an
initial public offering price of $9.00 per share. See "The Reorganization."
COMMON STOCK. Holders of Common Stock are entitled to one vote for each
share held in the election of directors and on all other matters submitted to a
vote of shareholders. Cumulative voting of shares of Common Stock is prohibited.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election.
Subject to the prior rights of the holders of any outstanding Preferred
Stock, holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the assets
of the Company remaining after payment of all liabilities and payment to holders
of any outstanding Preferred Stock having an involuntary liquidation preference.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
validly issued, fully paid and nonassessable.
PREFERRED STOCK. Pursuant to the Company's Restated Articles of
Incorporation, the Board of Directors is authorized, without any further notice
or action of the shareholders, to issue 10 million shares of Preferred Stock in
one or more series and to determine the relative rights, preferences and
privileges of the shares of any
35
<PAGE> 38
such series. Except with respect to the Series A Preferred Stock, there are no
shares of Preferred Stock outstanding, and the Company has no present plans to
issue any shares of Preferred Stock.
SERIES A PREFERRED STOCK. No dividends are payable upon shares of Series A
Preferred Stock. Series A Preferred Stock is entitled to an involuntary
liquidation preference of $3.00 per share in the event of any involuntary
liquidation, dissolution or winding up of the affairs of the Company, before any
distribution or payment is made to holders of Common Stock. Series A Preferred
Stock holders are entitled to one vote per share and, except as otherwise
provided by applicable law, vote together with the holders of shares of Common
Stock as a single class upon all matters upon which shareholders are entitled to
vote.
At any time within four years immediately following the Merger, each share
of Series A Preferred Stock may be converted into that number of shares of
Common Stock equal to the greater of either: (i) the quotient of (1) the initial
public offering price, divided by (2) the average closing price of the Common
Stock as quoted on a national securities exchange or on the Nasdaq National
Market for the 30 days immediately preceding the date on which notice of
conversion is delivered by a holder of Series A Preferred Stock to the Company;
or (ii) one. No fractional shares of Common Stock will be issued upon conversion
of shares of Series A Preferred Stock and no cash payment will be made in place
of any fraction of a share which would otherwise be issuable.
Any Series A Preferred Stock not converted by the conclusion of the
four-year period following the Merger shall be converted automatically into that
number of shares of Common Stock equal to the greater of either: (i) the
quotient of (1) the initial public offering price, divided by (2) the average
closing price of the Common Stock as quoted on a national securities exchange or
on the Nasdaq National Market for the 30 trading days immediately preceding the
date which is four years and one day after closing; or (ii) one (1).
CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's
Restated Articles of Incorporation and Amended and Restated Bylaws, including
the provisions for the elimination of the right of shareholders to call special
meetings and to take action without a meeting, and the advance notice provision,
could make more difficult the acquisition of the Company by means of a tender or
exchange offer, a proxy contest or otherwise. The provisions are summarized
below. The Company and the principal shareholders have also entered into the
Voting Agreement to re-elect the existing members of the Board of Directors of
the Company for three successive one-year terms. See "Management" and "Principal
Shareholders."
Size of Board of Directors. The Company's Restated Articles of
Incorporation provide that the Board of Directors will consist of not less than
five nor more than nine members, with the exact number to be determined from
time to time by the affirmative vote of a majority of directors then in office.
The exact number of board members is presently set at seven. The Board of
Directors, and not the shareholders, has the authority to determine the number
of directors and could prevent any shareholder from obtaining majority
representation on the Company's Board of Directors by enlarging the Board of
Directors and by filling the new directorships with the shareholder's own
nominees.
Preferred Stock. The Restated Articles of Incorporation authorize the Board
of Directors to establish and issue one or more series of Preferred Stock
without any action by the shareholders of the Company. Pursuant to this
authority, the Company will issue the Series A Preferred Stock to the BodyBilt
Shareholders in connection with the Merger. Although the Board has no intention
at the present time of doing so, it could issue a series of Preferred Stock that
could, depending on the terms of such series, provide for a liquidation
preference over the Common Stock or impede the completion of a merger, tender
offer or other takeover attempt. The Board of Directors, in so acting, could
issue Preferred Stock having terms that discourage an acquisition attempt
through which an acquiror may be otherwise able to change the composition of the
Board of Directors, including a tender or exchange offer or other transaction
that some, or a majority, of the Company's shareholders might believe to be in
their best interest.
No Shareholder Action By Written Consent; Special Meetings. The Company's
Restated Articles of Incorporation provide that any action required to be taken
or which may be taken by holders of Common Stock must be effected at a duly
called annual or special meeting of such holders and may not be taken by any
written consent of such shareholders. The Company's Restated Articles of
Incorporation provide that special meetings of shareholders of the Company may
be called only by the Chairman of the Board, the President, any two directors or
such other person or persons as may be authorized in the Amended and Restated
Bylaws.
36
<PAGE> 39
Special meetings may also be called by the holders of at least 50% of all the
shares of the Company entitled to vote at a proposed special meeting. These
provisions may have the effect of delaying consideration of a shareholder
proposal until the next annual meeting unless a special meeting is called. The
provisions of the Restated Articles of Incorporation prohibiting shareholder
action by written consent would prevent the holders of a majority of the voting
power of the Company from taking action by written consent without giving all
the shareholders of the Company entitled to vote on a proposed action the
opportunity to participate in determining such proposed action.
Removal of Directors. The Company's Restated Articles of Incorporation
provide that directors may be removed from office, but only for cause, and that
any action taken by shareholders to remove one or more directors for cause may
only be taken by the affirmative vote of a majority vote of the directors then
in office (exclusive of the director whose removal is sought) or the holders of
at least a majority of the total outstanding shares entitled to vote at a
special meeting called for such purpose. The Company's Amended and Restated
Bylaws may be adopted, amended or repealed by a two-thirds vote of (i) the
shareholders, or (ii) the directors then in office.
Approval of Certain Transactions. The Company's Amended and Restated Bylaws
require, in addition to any vote required by law or agreement, the affirmative
vote by at least two-thirds of either (i) the outstanding shares of "voting
stock," or (ii) the Board of Directors, to approve, authorize, adopt or
consummate by the Company and any of its subsidiaries any "business combination"
with a "related person." A "business combination" includes (i) any merger or
consolidation of the Company with or into a "related person," (ii) any merger or
consolidation of a "related person" with or into the Company, (iii) any transfer
of a substantial part (20% or more) of the assets of the Company to a "related
person," (iv) any transfer of a substantial part (20% or more) of the assets of
a "related person" to the Company, (v) the issuance of any securities of the
Company to a "related person," (vi) certain reclassifications and
recapitalizations, (vii) any partial or complete liquidation, spin-off,
split-off, or split-up or similar transaction of the Company involving a
"related person," and (viii) any transaction, event, agreement, contract,
commitment or other arrangement that provides for, is intended to or is likely
to have an effect similar to the above. A "related person" includes, but is not
limited to, any person that owns or is the beneficial owner of five percent or
more of the outstanding shares of the Company's voting stock. "Voting stock"
constitutes shares which are entitled to vote for the election of the Company's
directors. A related person's voting stock is excluded from the calculation of
shareholder votes relating to a "business combination."
Advance Notice Provisions for Certain Shareholder Actions. The Company's
Amended and Restated Bylaws provide that shareholders seeking to bring business
before an annual or special meeting of shareholders must provide timely notice
thereof in writing. To be timely, this notice must be received at the Company's
principal executive offices not less than 30 days nor more than 60 days prior to
the meeting. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, and, in the event that such
business includes a proposal to amend either the Restated Articles of
Incorporation or the Amended and Restated Bylaws, the language of the proposed
amendment; (ii) the name and record address of the shareholder proposing such
business; (iii) the class and number of shares of the Company which are
beneficially owned by such shareholder; and (iv) any material interest of such
shareholder in such business. The provisions requiring timely notice of
shareholder business ensures both orderly meetings and an adequate opportunity
for the Board of Directors to review business to be decided at such meetings.
This provision, however, will also preclude some shareholders from bringing
matters before the shareholders and directors at an annual or special meeting.
LIMITATION ON LIABILITY. The Company's Restated Articles of Incorporation
and Amended and Restated Bylaws provide for indemnification of the officers and
directors of the Company to the fullest extent permitted by the Texas Business
Corporation Act. Under existing law, directors of the Company are not liable to
the Company or its shareholders for monetary damages for an act or omission
occurring in their capacity as a director. However, directors are liable (i) for
any breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith that constitute a breach of duty of
the director of the Company or that involve intentional misconduct or a knowing
violation of law, (iii) for transactions from which the director received an
improper benefit, whether or not the benefit resulted from action taken within
37
<PAGE> 40
the scope of the director's office, or (iv) for acts or omissions for which the
liability of a director is expressly provided by law.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Common Stock is Chase Mellon Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the Merger, the Company will have
outstanding 466,667 shares of Series A Preferred Stock and 4,556,667 shares of
Common Stock, including shares issued to the BodyBilt Shareholders, assuming an
initial public offering price of $9.00 per share. Of these shares of Common
Stock, the 2,000,000 shares sold in this offering may be publicly offered and
sold without restriction, unless they are purchased by affiliates of the
Company. Shares of Common Stock outstanding prior to completion of this offering
(and all of the shares of Series A Preferred Stock and Common Stock to be issued
upon completion of the Merger) will be "restricted securities" under the
Securities Act (the "Restricted Shares"). The Restricted Shares may be sold only
if they are registered under the Securities Act or pursuant to an applicable
exemption from the registration requirements of the Securities Act, including
Rule 144 thereunder. The Company, its executive officers, directors and
principal shareholders have agreed that they will not, directly or indirectly,
offer, sell, contract to sell, grant any option to sell, or otherwise dispose of
shares of Common Stock or other securities which are substantially similar to
the Common Stock, or securities convertible into or exercisable or exchangeable
for or any rights to purchase or acquire Common Stock or securities which are
substantially similar to the Common Stock. See "Underwriting."
In general, under Rule 144 as currently in effect, an affiliate of the
Company or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years but less than three
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of the Common
Stock (approximately 46,000 shares immediately after the offering and the
completion of the Merger and using an initial public offering price of $9.00 per
share) or the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. No sales are permitted under Rule
144 until the Company has been subject to reporting with the Securities and
Exchange Commission for at least 90 days. Any person (or persons whose shares
are aggregated) who is not deemed to have been an "affiliate" of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, would be entitled to sell such
shares under Rule 144 without regard to the volume or manner of sale limitations
referred to above.
There are also (i) 400,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan, (ii) 100,000 shares of Common Stock
subject to the Representatives' Warrants, and (iii) up to 69,000 shares of
Common Stock subject to the Lender's Warrant. The Company intends to file a
registration statement on Form S-8 covering sale of shares issued upon exercise
of any securities issued under the Stock Option Plan. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Underwriting."
BodyBilt Shareholders have the following rights with respect to their
shares of Common Stock issued in connection with the Merger, and their shares of
Common Stock issuable upon the conversion of shares of Series A Preferred Stock
received by them in connection with the Merger. Two years after the closing of
this offering, the Company will undertake on not more than two (2) occasions to
register the BodyBilt Shareholders' shares and to cause each registration to
remain effective for a period of at least 120 days. The BodyBilt Shareholders
also have unlimited "piggy-back" registration rights if the Company files a
registration statement (other than on Form S-4 or S-8) if the BodyBilt
Shareholders accept the terms of the proposed underwriting. The managing
underwriter may limit or exclude any such shares, if it determines that it would
be appropriate to limit or exclude such shares due to market factors. The
Company is required to file a "shelf" registration statement four years after
the closing of this offering and to keep the shelf registration effective for
two years. The Merger Agreement specifies in detail other terms and conditions
affecting the BodyBilt
38
<PAGE> 41
Shareholders' registration rights. See "The Reorganization" and "Principal
Shareholders." The Company has granted identical "piggy-back" registration
rights to a lender with respect to 34,000 shares of Common Stock and up to
approximately 28,000 additional shares which the lender is entitled to receive
upon conversion of up to $250,000 of the principal balance due under the
Convertible Note. The Company has also granted "piggy-back" registration rights
to Gerard Smith with respect to the 489,600 shares of Common Stock beneficially
owned by him, which are exercisable only after the termination of his employment
with the Company. Additionally, the Representatives will receive registration
rights in connection with the Representatives' Warrants, and the lender will
receive identical registration rights in connection with the Lender's Warrant to
purchase up to 69,000 shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Underwriting."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock. The sale of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock.
UNDERWRITING
The Underwriters named below, for whom Rauscher Pierce Refsnes, Inc. and
Wheat, First Securities, Inc. are acting as the representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the number of shares
of Common Stock set forth opposite their respective names below. The nature of
the obligations of the Underwriters is such that if any of such shares are
purchased, all must be purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Rauscher Pierce Refsnes, Inc..............................................
Wheat, First Securities, Inc..............................................
---------
Total........................................................... 2,000,000
=========
</TABLE>
The Underwriters initially propose to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $ per share, and the Underwriters may allow, and such
dealers may reallow, to members of the NASD a concession not in excess of
$ per share. After the public offering, the price to public, the
concession and the reallowance may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this prospectus, to purchase up to an additional
300,000 shares of Common Stock at the initial price to public, less the
underwriting discount, set forth on the cover page of this prospectus. The
Underwriters may exercise the option only for the purpose of covering
over-allotments. To the extent that the Underwriters exercise such option, each
Underwriter will be committed, subject to certain conditions, to purchase from
the Company that number of additional shares of Common Stock which is
proportionate to such Underwriter's initial commitment.
The Company has also agreed to sell to the Representatives warrants to
purchase up to 100,000 shares of Common Stock at a price of $.01 per warrant.
The Representatives' Warrants will be exercisable for a period of four years,
commencing one year after the date of this prospectus, at an initial per share
exercise price equal to 120% of the price to public set forth on the cover page
of this prospectus. The Representatives' Warrants are
39
<PAGE> 42
not redeemable by the Company under any circumstances. Neither the
Representatives' Warrants nor the shares of Common Stock issuable upon exercise
thereof may be transferred, assigned or hypothecated until one year from the
date of this prospectus, except that they may be assigned, in whole or in part,
to any successor, officer, director, member or partner of the Representatives.
The holders of the Representatives' Warrants will have no voting, dividend
or other rights as shareholders of the Company unless and until the exercise of
the Representatives' Warrants. The number of securities deliverable upon any
exercise of the Representatives' Warrants or its underlying securities and the
exercise price of the Representatives' Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
The Company has agreed with the Representatives that if, during the
five-year period commencing one year following the date of this prospectus, the
Company registers any of its Common Stock for sale pursuant to a registration
statement (with the exception of Form S-4, Form S-8 or other inappropriate
form), it will use its best efforts, upon request of any of the holders of the
Representatives' Warrants and/or the underlying securities, to include such
securities as a part of the registration statement.
The Company, its executive officers, directors and principal shareholders
have agreed that for a period of 180 days after the date of this prospectus they
will not, directly or indirectly, offer, sell, contract to sell, grant any
option to sell, or otherwise dispose of shares of Common Stock or other
securities which are substantially similar to the Common Stock or securities
convertible into or exercisable or exchangeable for or any rights to purchase or
acquire Common Stock or securities which are substantially similar to the Common
Stock without the prior written consent of Rauscher Pierce Refsnes, Inc., on
behalf of the Representatives.
Prior to this offering, there has been no market for the Common Stock and
there can be no assurance that a regular trading market will develop upon the
completion of this offering. The initial public offering price was determined by
negotiations between the Company and the Representatives. The primary factors
considered in determining such offering price included the history of and
prospects for the industry in which the Company competes, market valuation of
comparable companies, market conditions for public offerings, the history of and
prospects for the Company's business, the Company's past and present operations
and earnings and the trend of such earnings, the prospects for future earnings
of the Company, the Company's current financial position, an assessment of the
Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments which the Underwriters may be required to make in respect thereof. The
Company has also agreed to pay to the Representatives a non-accountable expense
allowance of $100,000 for due diligence and other out-of-pocket expenses.
The Representatives have advised the Company that they do not expect any
sales by the Underwriters to accounts over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for
the Company by Wolin, Fuller, Ridley & Miller LLP, Dallas, Texas. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Gardere & Wynne, L.L.P., Dallas, Texas.
40
<PAGE> 43
EXPERTS
The balance sheet of the Company as of December 31, 1995 and the related
statements of operations, shareholders' equity and cash flows for the period
from June 12, 1995 to December 31, 1995 and the balance sheet of BodyBilt as of
December 31, 1995 and the related statements of income, shareholders' equity and
cash flows for the year then ended included herein and elsewhere in the
Registration Statement have been included in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of that firm as experts in accounting and
auditing.
The balance sheet of BodyBilt as of December 31, 1994 and the related
statements of income, cash flow and shareholders' equity for the years ended
December 31, 1994 and 1993 included herein and elsewhere in the Registration
Statement have been included in reliance upon the report of Thompson, Derrig &
Slovacek PC, independent certified public accountants, appearing elsewhere
herein, and upon the authority of that firm as experts in accounting and
auditing. The report on the financial statements by Thompson, Derrig & Slovacek
PC did not contain any adverse opinion or disclaimer of opinion and was not
qualified as to uncertainty, audit scope or accounting principles. In connection
with their audits, Thompson, Derrig & Slovacek PC did not identify any
reportable conditions. There were no disagreements between BodyBilt and
Thompson, Derrig & Slovacek PC in connection with its audits on any matter of
accounting principles or practices, financial statement disclosure or audit
scope or procedure, which, if not resolved to the satisfaction of Thompson,
Derrig & Slovacek PC, would have caused such firm to make a reference in
connection with its report to the subject matter of any such disagreement.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (as amended and together with
all exhibits thereto, the "Registration Statement") under the Securities Act,
with respect to the shares of Common Stock offered hereby. This prospectus
constitutes a part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted from this prospectus as permitted by the rules and regulations of the
Commission. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and, where such agreement or other document is an exhibit to the
Registration Statement, each such statement is qualified in all respects by the
provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement and to the schedules and exhibits thereto.
The Registration Statement and the exhibits may be inspected, without
charge, and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549, or on the Internet at http://www.sec.gov.
Copies of the Registration Statement and the exhibits may also be inspected,
without charge, at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of the Registration Statement and
the exhibits may be obtained by mail, at prescribed rates, from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, DC
20549.
As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and regional offices referred to above. The Company intends
to furnish its shareholders with annual reports containing consolidated
financial statements certified by its independent auditors and with quarterly
reports for each of the first three quarters of each fiscal year containing
unaudited consolidated financial information.
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements certified by independent
public accountants for each fiscal year and quarterly reports containing
unaudited consolidated financial statements for the first three quarters of each
fiscal year.
41
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ERGOBILT, INC.
Report of Independent Auditors........................................................ F-2
Balance Sheet, December 31, 1995...................................................... F-3
Statements of Income for the Period Ended December 31, 1995........................... F-4
Statements of Shareholder's Equity for the Period Ended December 31, 1995............. F-5
Statements of Cash Flows for the Period Ended December 31, 1995....................... F-6
Notes to Financial Statements......................................................... F-7
Balance Sheet, June 30, 1996 (unaudited).............................................. F-10
Statements of Income for the Six-Month Period Ended June 30, 1996 (unaudited)......... F-11
Statements of Shareholders' Equity for the Six-Month Period Ended June 30, 1996
(unaudited)......................................................................... F-12
Statements of Cash Flows for the Six-Month Period Ended June 30, 1996 (unaudited)..... F-13
Notes to Financial Statements......................................................... F-14
BODYBILT SEATING, INC.
Reports of Independent Auditors....................................................... F-15
Balance Sheets, December 31, 1994 and 1995............................................ F-17
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995............. F-19
Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and
1995................................................................................ F-20
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995......... F-21
Notes to Financial Statements......................................................... F-22
Balance Sheet, June 30, 1996 (unaudited).............................................. F-26
Statements of Income for the Six-Month Periods Ended June 30, 1995 and 1996
(unaudited)......................................................................... F-27
Statements of Shareholders' Equity for the Six-Month Periods Ended June 30, 1995 and
1996 (unaudited).................................................................... F-28
Statements of Cash Flows for the Six-Month Periods Ended June 30, 1995 and 1996
(unaudited)......................................................................... F-29
Notes to Financial Statements......................................................... F-30
</TABLE>
F-1
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
ErgoBilt, Inc.:
We have audited the accompanying balance sheet of ErgoBilt, Inc., as of
December 31, 1995, and the related statements of operations, shareholder's
equity, and cash flows for the period from June 12, 1995 to December 31, 1995.
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 audit.
We conducted our audit 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 audit provides 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 ErgoBilt, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
period from June 12, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
September 9, 1996
F-2
<PAGE> 46
ERGOBILT, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash............................................................................ $ 14,150
Accounts receivable............................................................. 32,617
Notes receivable -- related party, current portion.............................. 5,317
--------
Total current assets.................................................... 52,084
--------
Property and equipment:
Equipment....................................................................... 9,205
Furniture and fixtures.......................................................... 2,050
Computer equipment.............................................................. 17,677
Accumulated depreciation and amortization.................................... (2,380)
--------
Property and equipment, net............................................. 26,552
--------
Other assets:
Notes receivable -- related party, less current portion......................... 33,996
Organizational cost, net........................................................ 274
--------
Total other assets...................................................... 34,270
--------
Total assets............................................................ $112,906
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable, trade......................................................... $ 4,217
Accrued liabilities............................................................. 51,604
Income taxes.................................................................... 9,894
--------
Total current liabilities............................................... 65,715
--------
Deferred income taxes............................................................. 948
Shareholder's equity:
Common stock; $.0001 par value 20,000,000 shares authorized; 2,040,000 shares
issued and outstanding....................................................... 204
Paid-in capital................................................................. 796
Retained earnings............................................................... 45,243
Commitments and contingencies.....................................................
--------
Total liabilities and shareholder's equity.............................. $112,906
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 47
ERGOBILT, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 12, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Sales............................................................................. $403,917
Cost of sales:
Subcontractors and direct labor costs........................................... 90,321
Advertising and media costs..................................................... 16,688
--------
Total cost of revenues.................................................. 107,009
--------
Gross profit............................................................ 296,908
Operating expenses
Wages -- staff and officers..................................................... 174,549
Other........................................................................... 64,953
--------
Total operating expenses................................................ 239,502
--------
Income from operations.................................................. 57,406
--------
Interest expense.................................................................. 1,321
Income tax expense................................................................ 10,842
--------
Net income.............................................................. $ 45,243
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 48
ERGOBILT, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE PERIOD JUNE 12, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at June 12, 1995 (inception)....... 2,040,000 $204 796 -- 1,000
Net income................................. -- -- -- 45,243 45,243
--------- ---- --- ------ ------
Balance at December 31, 1995............... 2,040,000 $204 796 45,243 46,243
========= ==== === ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 49
ERGOBILT, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JUNE 12, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 45,243
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................. 2,380
Amortization................................................................. 36
Deferred income tax.......................................................... 948
Change in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable.................................................. (32,617)
Other noncurrent assets.................................................... (310)
Trade accounts payable..................................................... 4,217
Accrued liabilities........................................................ 56,190
Income taxes............................................................... 5,308
--------
Net cash provided by operating activities............................... 81,395
--------
Cash flows from investing activities:
Purchases of property and equipment............................................. (28,932)
Loans to shareholder............................................................ (39,313)
--------
Net cash used by investing activities................................... (68,245)
--------
Cash flows from financing activities -- issuance of common stock.................. 1,000
--------
Net cash provided by financing activities............................... 1,000
--------
Net increase in cash.............................................................. 14,150
Cash at beginning of period....................................................... --
--------
Cash at end of period............................................................. $ 14,150
========
Supplemental disclosure -- interest paid.......................................... $ 1,321
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 50
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) GENERAL AND SUMMARY SIGNIFICANT ACCOUNTING PRINCIPLES
Business Activity
ErgoBilt, Inc. (the "Company"), a Texas corporation, was incorporated on
June 12, 1995 pursuant to the laws of the State of Texas as The Chafferton
Company, Inc. The Company is engaged in consulting services regarding design and
advertising trade issues.
Accounts Receivable
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related equipment
ranging from 5 to 7 years. Maintenance and repairs are charged to operations
when incurred. Replacements and betterments are capitalized.
Organizational Costs
Organizational costs are amortized over five years.
Income Taxes
Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are determined based on
differences between financial accounting and tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense or
benefit is the payable or refund for the period plus or minus the change during
the period in deferred tax assets and liabilities.
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents include time
deposits and all highly liquid debt instruments with original maturities of
three months or less when purchased.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Fair Market Value of Financial Instruments
The carrying amount for cash and notes receivable is not materially
different than fair market value because of the share maturities of the
instruments and/or their respective interest rates.
New Accounting Pronouncements
Effective January 1, 1996, the Company will adopt SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. Accordingly, in the event that facts and circumstances indicate that
property and equipment and intangible or other assets, may be impaired, an
F-7
<PAGE> 51
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future cash flows associated with the asset is compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is necessary. Adoption of this standard is not
expected to have a material effect on the financial position or results of
operations of the Company.
As of January 1, 1996, SFAS No. 123, Accounting for Stock-Based
Compensation, will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value-based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. As permitted by SFAS No. 123, the Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
(2) RELATED PARTY TRANSACTIONS
The Company made loans to an employee in the amount of $500 and to the sole
shareholder in the amount of $38,813. The sole shareholder of the Company is
also the shareholder of another corporation which provided services to the
Company as a subcontractor consultant. In 1995, the total expenses related to
these services amounted to $49,034.
(3) INCOME TAXES
Deferred tax assets and liabilities as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Non-current deferred tax asset..................................... $ 6,728
Non-current deferred tax liability................................. (7,676)
-------
Net non-current deferred tax liability............................. $ (948)
=======
</TABLE>
The non-current deferred tax liability results from the use of statutory
accelerated tax depreciation methods and from the use of cash basis reporting
for federal income tax reporting purposes.
The components of income tax expense for the year ended December 31, 1995
are as follows:
<TABLE>
<S> <C>
Federal:
Current........................................................ $ 7,622
Deferred....................................................... 729
State:
Current........................................................ 2,272
Deferred....................................................... 219
-------
$10,842
=======
</TABLE>
(4) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company's business activities are primarily with customers located
within the state of Texas. Financial instruments which potentially expose the
Company to credit loss include trade accounts receivable and cash. During 1995,
one customer accounted for 100% of revenues. At December 31, 1995, one customer
comprised 100% of trade accounts receivable. All of this receivable was
collected subsequent to February 28, 1996. Management evaluates accounts
receivable balances on an on-going basis and provides allowances as necessary
for amounts estimated to eventually become uncollectible.
F-8
<PAGE> 52
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) SUBSEQUENT EVENTS
In August 1996, the Company formed a subsidiary (EB Subsidiary, Inc.) and
jointly entered into an agreement with BodyBilt Seating, Inc. (BodyBilt), the
terms of which provide for the merger of BodyBilt with and into EB Subsidiary,
Inc.
The Company affected a 2,040-for-1 stock split in September 1996. The
effects of the stock split have been retroactively applied to the financial
statements.
F-9
<PAGE> 53
ERGOBILT, INC.
BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current assets
Cash............................................................................ $ 7,116
Accounts receivable............................................................. 17,859
Other current assets............................................................ 86,403
--------
Total current assets.................................................... 111,378
--------
Property and equipment
Equipment....................................................................... 9,455
Furniture and fixtures.......................................................... 4,344
Computer equipment.............................................................. 35,411
Accumulated depreciation and amortization.................................... (6,592)
--------
Property and equipment, net..................................................... 42,618
--------
Total assets............................................................ $153,996
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable, trade......................................................... $ 6,163
Accrued liabilities............................................................. 103,240
Income taxes.................................................................... 9,894
--------
Total current liabilities............................................... 119,297
--------
Deferred income taxes............................................................. 948
Shareholder's equity
Common stock; $.0001 par value; 20,000,000 shares authorized; 2,040,000 shares
issued and outstanding....................................................... 204
Paid-in capital................................................................. 796
Retained earnings............................................................... 32,751
--------
Commitments and contingencies
Total liabilities and shareholders' equity.............................. $153,996
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 54
ERGOBILT, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Sales............................................................................. $187,771
Cost of sales
Subcontractors and direct labor costs........................................... 80,996
Advertising and media costs..................................................... 15,577
Total cost of revenues.................................................. 96,573
--------
Gross profit................................................................. 91,198
Operating expenses
Wages -- staff and officers..................................................... 72,314
Other........................................................................... 41,503
--------
Total operating expenses................................................ 113,817
--------
Income (loss) from operations................................................ (22,619)
--------
Forgiveness of debt............................................................. 10,125
--------
Net income (loss)............................................................ $(12,494)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 55
ERGOBILT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................... 2,040,000 $204 $796 $ 45,245 $ 46,245
Net income (loss).............................. -- -- -- (12,494) (12,494)
--------- ---- ---- -------- --------
BALANCE AT JUNE 30, 1996....................... 2,040,000 $204 $796 $ 32,751 $ 33,751
========= ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 56
ERGOBILT, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $(12,494)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 4,213
Amortization................................................................. 31
Change in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable.................................................... 14,759
Other non-current assets..................................................... (38,485)
Trade accounts payable....................................................... 1,946
Deferred income tax.......................................................... 0
Other current liabilities.................................................... 51,637
Income taxes................................................................. 0
--------
Net cash used by operating activities................................... 21,607
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (20,279)
Loans to shareholder............................................................ (8,362)
--------
Net cash used by investing activities................................... (28,641)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities............................... 0
--------
Net increase in cash.............................................................. (7,034)
Cash at beginning of period....................................................... 14,150
--------
Cash at end of period............................................................. $ 7,116
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 57
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
Ergobilt, Inc. (the "Company"), a Texas corporation was incorporated on
June 12, 1995 pursuant to the laws of the State of Texas as Ergobilt, Inc. The
Company is engaged in consulting services regarding design and advertising trade
issues.
The interim financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information present not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes for the year ended December 31, 1995.
In the opinion of management, the unaudited interim financial information
of the Company contains all adjustments, consisting only of those of a normal
recurring nature, necessary to present fairly the Company's financial position
and the results of it operations and cash flows for the periods presented. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for a full year.
(2) SUBSEQUENT EVENTS
The Company has entered into a merger agreement (the "Merger Agreement")
with BodyBilt Seating, Inc. ("BodyBilt") for the merger (the "Merger") of
BodyBilt into a wholly-owned subsidiary of the Company to be completed
simultaneously with the closing of an offering of shares of common stock by the
Company. As consideration for the Merger, the shareholders of the BodyBilt will
receive $17.6 million payable in a combination of cash (not to exceed $8.75
million), 516,667 shares of common stock of the Company valued at $4.65 million,
and 466,667 shares of Series A Preferred common stock of the Company valued at
$4.2 million, assuming an initial public offering price of $9.00 per share. The
cash portion of the Merger Consideration will be reduced by the anticipated
distribution of approximately $2.8 million related to S corporation earnings to
be made to the shareholders of BodyBilt prior to the Merger.
The Company affected a 2,040-for-1 stock split in September 1996. The
effects of the stock split have been retroactively applied to the financial
statements.
In September 1996, the Company obtained a $500,000 loan at an interest rate
of 8% per annum which is due to mature on September 30, 1997. In connection with
the establishment of this borrowing, the Company's chairman sold and transferred
34,000 shares of Common Stock to the lender for an aggregate consideration of
$34,000 and the Company issued a warrant to the lender to acquire up to 69,000
shares of Common Stock at an initial per share exercise price equal to 120% of
the price to public in the initial public offering of the Company. The warrant
is exercisable for a period of four years, commencing one year after the initial
public offering of the Company. This note is secured by a personal guarantee of
the Company's chairman. The Company intends to repay the note from the proceeds
of this offering and also by shares of common stock at the initial offering
price per share.
F-14
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
BodyBilt Seating, Inc.:
We have audited the accompanying balance sheet of BodyBilt Seating, Inc. as
of December 31, 1995, and the related statements of income, shareholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the financial position of BodyBilt Seating,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Houston, Texas
April 26, 1996
F-15
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
BodyBilt Seating, Inc.:
We have audited the accompanying balance sheet of BodyBilt Seating, Inc. as
of December 31, 1994, and the related statements of income, shareholders'
equity, and cash flows for each of the years in the two-year period then ended.
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 audit.
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 statements 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 BodyBilt Seating, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for each
of the years in the two-year period then ended, in conformity with generally
accepted accounting principles.
Thompson, Derrig & Slovacek PC
Bryan, Texas
June 22, 1995
F-16
<PAGE> 60
BODYBILT SEATING, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 30,073 $ 86,541
Accounts receivable................................................ 1,663,426 2,470,488
Inventory.......................................................... 961,059 1,456,248
Prepaid expenses................................................... 39,569 124,694
Employee receivable................................................ 9,769 17,787
Deposits........................................................... 4,800 --
Shareholder receivable............................................. 3,800 --
---------- ----------
Total current assets....................................... 2,712,496 4,155,758
---------- ----------
PROPERTY, PLANT & EQUIPMENT
Land............................................................... 7,450 7,450
Building and improvements.......................................... 445,224 945,611
Furniture & fixtures............................................... 30,654 65,377
Equipment.......................................................... 223,399 383,916
Vehicles........................................................... 213,710 288,146
Computer equipment................................................. 97,076 217,517
---------- ----------
1,017,513 1,908,017
Less: Accumulated depreciation..................................... 129,541 254,804
---------- ----------
887,972 1,653,213
---------- ----------
OTHER ASSETS
Deposits........................................................... 1,915 2,573
Employee receivables............................................... 1,595 --
Loans receivable................................................... 2,000 --
---------- ----------
5,510 2,573
---------- ----------
$3,605,978 $5,811,544
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 61
BODYBILT SEATING, INC.
BALANCE SHEETS -- CONTINUED
DECEMBER 31, 1994 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt.................................. $ 54,241 $ 225,935
Accounts payable:
Trade........................................................... 280,757 641,109
Other........................................................... -- 27,181
Taxes payable...................................................... 65,669 114,771
Commissions payable................................................ 33,981 139,150
Accrued salaries................................................... 89,712 102,487
Deferred revenue................................................... 51,031 --
---------- ----------
Total current liabilities.................................. 575,391 1,250,633
---------- ----------
LONG-TERM DEBT
Notes payable, less current portion................................ 747,811 1,083,944
Note payable -- shareholder........................................ 75,000 75,000
---------- ----------
Total long-term liabilities................................ 822,811 1,158,944
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, no par value; Authorized 500 shares; issued and
outstanding -- 200 shares....................................... 1,000 1,000
Retained earnings.................................................. 2,206,776 3,400,967
---------- ----------
Total shareholders' equity................................. 2,207,776 3,401,967
---------- ----------
COMMITMENTS AND CONTINGENCIES
Total liabilities and shareholders' equity................. $3,605,978 $5,811,544
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 62
BODYBILT SEATING, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Sales.................................................. $6,534,963 $9,188,830 $13,672,349
---------- ---------- -----------
Cost of sales.......................................... 3,237,210 4,789,293 7,218,561
---------- ---------- -----------
Gross profit......................................... 3,297,753 4,399,537 6,453,788
Selling, general and administrative expenses
Compensation......................................... 645,385 1,240,846 1,418,005
Commissions.......................................... 330,122 518,199 895,471
Advertising.......................................... 153,122 316,402 751,732
Promotional costs.................................... 179,389 217,912 320,109
Other................................................ 855,232 971,951 1,169,481
---------- ---------- -----------
Total selling, general and administrative
expenses................................... 2,163,250 3,265,310 4,554,798
Operating income.................................. 1,134,503 1,134,227 1,898,990
Interest expense..................................... (24,194) (30,155) (56,910)
Other income......................................... 69 6,385 37,111
---------- ---------- -----------
Income before income taxes........................... 1,110,378 1,110,457 1,879,191
Income tax expense..................................... 50,000 50,000 85,000
---------- ---------- -----------
Net income................................... $1,060,378 $1,060,457 $ 1,794,191
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 63
BODYBILT SEATING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
$.00 PAR VALUE
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1992.......................... 200 $1,000 $1,002,607 $1,003,607
Distributions to shareholders.......................... -- -- (583,333) (583,333)
Net income............................................. -- -- 1,060,378 1,060,378
--- ------ ---------- ----------
Balances at December 31, 1993.......................... 200 1,000 1,479,652 1,480,652
Distributions to shareholders.......................... -- -- (333,333) (333,333)
Net income............................................. -- -- 1,060,457 1,060,457
--- ------ ---------- ----------
Balances at December 31, 1994.......................... 200 1,000 2,206,776 2,207,776
Distributions to shareholders.......................... -- -- (600,000) (600,000)
Net income............................................. -- -- 1,794,191 1,794,191
--- ------ ---------- ----------
Balances at December 31, 1995.......................... 200 $1,000 $3,400,967 $3,401,967
=== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 64
BODYBILT SEATING, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $1,060,378 $1,060,457 $ 1,794,191
---------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 36,485 75,926 134,098
Bad debts......................................... 5,451 3,619 10,658
Loss (gain) on sale of assets..................... -- (656) 6,178
(Increase) in accounts receivable................. (648,087) (455,052) (817,720)
(Increase) decrease in inventories................ (499,128) 50,580 (495,189)
(Increase) in prepaids............................ (2,754) (11,760) (85,125)
Decrease (increase) in deposits and loans......... (26,337) 29,561 6,142
Decrease (increase) in related party
receivables..................................... (7,391) 34,173 (2,623)
(Decrease) increase in accounts payable........... 325,842 (124,371) 387,533
Increase in accrued salaries...................... 26,734 27,586 12,775
Increase in taxes payable......................... 6,584 13,354 49,102
(Decrease) increase in commissions payable........ 5,926 (417) 105,169
Decrease in customer deposits..................... (31,197) (19,574) --
(Decrease) increase in deferred revenue........... -- 51,031 (51,031)
---------- ---------- -----------
Net cash provided by operations.............. 252,506 734,457 1,054,158
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............ (223,719) (632,358) (917,577)
Proceeds from sale of property, plant and
equipment......................................... -- 3,397 --
---------- ---------- -----------
Net cash used in investment activities....... (223,719) (628,961) (917,577)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................. 565,162 1,164,309 2,660,309
Repayment of borrowings.............................. (7,472) (920,447) (2,140,422)
Distributions to shareholders........................ (583,333) (333,333) (600,000)
---------- ---------- -----------
Net cash used in financing activities........ (25,643) (89,471) (80,113)
---------- ---------- -----------
Net increase in cash......................... 3,144 16,025 56,468
Cash and cash equivalents at beginning of year......... 10,904 14,048 30,073
---------- ---------- -----------
Cash and cash equivalents at end of year............... $ 14,048 $ 30,073 $ 86,541
========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Sale of equipment in settlement of note payable...... $ -- $ -- $ 12,060
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................. $ 24,194 $ 30,155 $ 94,738
Federal income taxes................................. $ -- $ -- $ --
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 65
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations
BodyBilt Seating, Inc. (the "Company") (formerly The Chair Works, Inc.,
Congleton Chair Works, Inc., and Lubbock Molasses, Inc.) was incorporated on
November 22, 1982 pursuant to the laws of the State of Texas and elected to be
treated as an S corporation. The Company is engaged in the manufacture and
assembly of custom built ergonomic chairs for commercial, industrial and
residential use.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents.
Accounts Receivable
Accounts receivable are stated net of all known uncollectible accounts. The
Company uses historical experience to determine an allowance for doubtful
accounts. At December 31, 1995 and 1994, it was determined that no allowance was
necessary.
Income Taxes
No provision or benefit for federal income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reported by, the shareholders, individually.
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Raw materials................................................. $299,361 $ 371,703
Component parts............................................... 435,698 757,795
Finished goods................................................ 226,000 326,750
-------- ----------
$961,059 $1,456,248
======== ==========
</TABLE>
Inventory is stated at average cost for purchased parts and average cost
plus allocated labor and overhead for parts manufactured by the Company. All
inventory is stated at the lower of cost or market value.
Property, Plant & Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight line method of depreciation. The assets are depreciated over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements............................................... 39
Furniture and fixtures.................................................. 10
Equipment............................................................... 10
Vehicles................................................................ 5
Computer equipment...................................................... 5
</TABLE>
F-22
<PAGE> 66
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, employee
receivable and accounts payable approximate fair value because of the short
maturity of those instruments. The estimated fair value of notes payable is
equivalent to its carrying value due to the floating interest rate.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
New Accounting Pronouncements
Effective January 1, 1996, the Company will be required to adopt SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment, and intangible or other
assets, may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future cash flows associated with the
asset is compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value was necessary. Adoption of this
standard is not expected to have a material effect on the financial position or
results of operations of the Company.
As of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will be effective for the Company. SFAS No. 123 permits, but does
not require, a fair value-based method of accounting for employee stock option
plans which results in compensation expense recognition when stock options are
granted. As permitted by SFAS No. 123, the Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
NOTE 2 -- RELATED PARTY TRANSACTIONS:
The Company paid Agrivest, Inc. ("Agrivest"), a corporation wholly-owned by
the Company president and director, a management fee of $36,000 in 1993, 1994
and 1995 for accounting, payroll and other administrative services provided. The
Company paid consulting fees to Agrivest for additional management services of
$12,000, $109,275, and $192,900 during 1993, 1994 and 1995, respectively.
Agrivest supplied the Company with certain managers and employees during 1993.
The Company reimbursed those salaries and related employee benefits which
totaled $165,828 in 1993.
The Company leased vehicles from Agrivest and paid rentals of $6,000 during
1993 and 1994 and $2,000 during 1995. The Company leased vehicles from a
shareholder and paid rentals of $7,394 and $4,508, during 1993 and 1994,
respectively.
The brother of the Company's president and director assisted in the
development of the Company's promotional literature during 1993, 1994 and 1995.
During 1993, consulting fees of $15,000 were paid to this individual. During
part of 1993 and 1994, the Company employed this individual. Payments of
$47,054, $119,036, and $353,868 were made during 1993, 1994 and 1995,
respectively, to companies owned by the individual for promotional literature
and marketing development.
During 1994, the Company purchased $100,851 of furniture and fixtures,
computer equipment and building improvements from a company owned by the
Company's secretary/treasurer. During 1995, the Company purchased $172,588 of
furniture and fixtures and building and leasehold improvements from a company
owned by the Company's president and director.
F-23
<PAGE> 67
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
Accounts payable to related parties were $60,834 and $49,420 at December
31, 1995 and 1994, respectively.
NOTE 3 -- NOTES PAYABLE:
<TABLE>
<CAPTION>
BALANCE BALANCE
INTEREST AT AT
PAYEE RATE MATURITY 12-31-94 12-31-95 COLLATERAL
- ------------------------ -------------- -------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
The First National Bank Prime + .75%
of Bryan.............. (9.75% at
12/31/95) 1999(1) $200,000 $ 610,000 Accounts receivable,
inventory, and life
insurance policy(2)
The First National Bank
of Bryan..............
Prime + .75% 2000 490,000 473,667 Building and contents
and life insurance
policy(2)
The First National Bank
of Bryan.............. Prime + .75% 2000 -- 76,850 Equipment(2)
The First National Bank
of Bryan.............. 7.5% to 9.5% 1997 99,461 149,362 Vehicles(2)
to 1999
Richard Troutman,
Shareholder........... 0% 2000(3) 75,000 75,000 Company stock
Other................... 12,591 --
-------- ----------
877,052 1,384,879
Less amount due within
one year.............. 54,241 225,935
-------- ----------
$822,811 $1,158,944
======== ==========
</TABLE>
- ---------------
(1) Repayment on the line of credit requires monthly interest payments until
April 30, 1996 when monthly principal installments and interest are required
until April 30, 1999 when the note matures. Maximum credit amount available
under the line of credit is $1,000,000.
(2) Personally guaranteed by Mark McMillan, president and shareholder of the
Company.
(3) As the personal guarantees by Mark McMillan are reduced below $75,000,
repayment in amounts equal to the reduction in personal guarantees will
begin.
The principal portion of long-term debt outstanding at December 31, 1995
and during the five years succeeding 1995 are as follows:
<TABLE>
<S> <C>
1996...................................................... $ 225,935
1997...................................................... 296,221
1998...................................................... 295,354
1999...................................................... 136,120
Thereafter................................................ 431,249
----------
$1,384,879
==========
</TABLE>
F-24
<PAGE> 68
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
NOTE 4 -- OBLIGATIONS UNDER OPERATING LEASES:
The Company has operating leases for office space and vehicles. Minimum
annual rental commitments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31:
------------------------------------------------------------
<S> <C>
1996........................................................ $53,442
1997........................................................ 41,174
1998........................................................ 4,400
-------
$99,016
=======
</TABLE>
Most of the operating leases contain one of the following options: (a) the
Company can, after the initial lease term, purchase the property at the then
fair market value of the property, or in several cases an amount specified in
the lease, or (b) the Company can renew its lease at the then fair rental value.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
NOTE 6 -- SUBSEQUENT EVENT (UNAUDITED)
In August 1996, the Company agreed to merge with ErgoBilt, Inc. The
completion of the merger will not take place unless there is a successful public
offering of ErgoBilt, Inc's shares.
F-25
<PAGE> 69
BODYBILT SEATING, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents...................................................... $ 115,556
Accounts receivable............................................................ 1,682,744
Inventory...................................................................... 1,498,952
Prepaid expenses............................................................... 224,290
Employee receivable............................................................ 42,547
Deposits....................................................................... 2,702
----------
Total current assets................................................... 3,566,791
----------
Property, plant and equipment:
Land........................................................................... 7,450
Building and improvements...................................................... 1,123,887
Furniture and fixtures......................................................... 124,840
Equipment...................................................................... 493,333
Vehicles....................................................................... 354,456
Computer equipment............................................................. 352,757
----------
2,456,723
Less accumulated depreciation.................................................. (390,492)
----------
Property, plant and equipment, net..................................... 2,066,231
----------
Total assets........................................................... $5,633,022
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 127,700
Accounts payable:
Trade....................................................................... 402,776
Other....................................................................... 1,826
Taxes payable.................................................................. 87,761
Commissions payable............................................................ 49,374
----------
Total current liabilities.............................................. 669,437
----------
Long-term debt:
Notes payable, less current portion............................................ 1,509,082
Note payable -- shareholder.................................................... 75,000
----------
Total long-term debt................................................... 1,584,082
----------
Shareholders' equity:
Common stock; no par value, 500 shares authorized; 200 shares issued and
outstanding................................................................. 1,000
Retained earnings.............................................................. 3,378,503
----------
Total shareholders' equity............................................. 3,379,503
Commitments and contingencies
----------
Total liabilities and shareholders' equity............................. $5,633,022
==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-26
<PAGE> 70
BODYBILT SEATING, INC.
STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Sales............................................................... $5,613,667 $7,431,996
Cost of sales....................................................... 3,104,656 3,920,912
---------- ----------
Gross profit.............................................. 2,509,011 3,511,084
Selling, general and administrative expenses........................ 1,880,163 2,746,343
---------- ----------
Operating income.......................................... 628,848 764,741
Interest expense.................................................... (25,875) (45,884)
Other income (expense).............................................. (11,583) (18,988)
---------- ----------
Income before income taxes.......................................... 591,390 699,869
Income tax expense.................................................. 24,000 39,000
---------- ----------
Net income................................................ $ 567,390 $ 660,869
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-27
<PAGE> 71
BODYBILT SEATING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTH PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995..................... 200 $1,000 $2,206,776 $2,207,776
Distributions to shareholders.................. -- -- (600,000) (600,000)
Net income..................................... -- -- 567,390 567,390
--- ------ ---------- ----------
Balance at June 30, 1995....................... 200 1,000 2,174,166 2,175,166
=== ====== ========== ==========
Balance at January 1, 1996..................... 200 1,000 3,400,967 3,401,967
Distributions to shareholders.................. -- -- (683,333) (683,333)
Net income..................................... -- -- 660,869 660,869
--- ------ ---------- ----------
Balance at June 30, 1996....................... 200 $1,000 $3,378,503 $3,379,503
=== ====== ========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-28
<PAGE> 72
BODYBILT SEATING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $567,390 $660,869
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 67,050 135,688
Bad debts....................................................... 4,438 13,046
Loss (gain) on sale of assets................................... 6,178 --
Increase in accounts receivable................................. (97,667) 774,698
(Increase) decrease in inventories.............................. (68,176) (42,704)
Increase in prepaids............................................ (33,894) (99,596)
Decrease (increase) in deposits and loans....................... 6,800 (129)
Decrease (increase) in related party receivables................ 2,698 (24,760)
(Decrease) increase in accounts payable......................... 260,538 (263,688)
Increase in accrued salaries.................................... (89,712) (102,487)
Increase in taxes payable....................................... (20,737) (27,010)
(Decrease) increase in commissions payable...................... 5,240 (89,776)
(Decrease) increase in deferred revenue......................... (51,031) --
-------- --------
Net cash provided by operations............................ 559,115 934,151
-------- --------
Cash flows from investing activities -- purchase of property, plant
and equipment...................................................... (253,014) (498,781)
Cash flows from financing activities:
Net borrowings under revolving line of credit...................... 287,500 334,444
Repayment of notes payable......................................... (18,053) (57,466)
Distributions to shareholders...................................... (600,000) (683,333)
-------- --------
Net cash used in financing activities...................... (330,553) (406,355)
Net increase (decrease) in cash...................................... (24,452) 29,015
Cash and cash equivalents at beginning of the period................. 30,073 86,541
-------- --------
Cash and cash equivalents at end of the period....................... $ 5,621 $115,556
======== ========
Supplemental disclosure of noncash investing and financing
activities:
Sale of equipment in settlement of note payable.................... $ 12,060 $ --
Purchases of equipment in exchange for notes payable............... 29,550 49,925
======== ========
Supplemental disclosure of cash flow information:
Interest paid during the period.................................... $ 43,074 $ 76,382
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
F-29
<PAGE> 73
BODYBILT SEATING, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1996
The accompanying unaudited financial statements of BodyBilt Seating, Inc.
(the "Company") for the six month period ended June 30, 1996 and 1995 have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
In the opinion of management, all adjustments considered necessary for a
fair presentation of the results of the interim period have been included.
Operating results for any interim period are not necessarily indicative of the
results that may be expected for the entire fiscal year. These statements should
be read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1995.
The Company has entered into a merger agreement (the "Merger Agreement")
with ErgoBilt, Inc. ("ErgoBilt") for the merger (the "Merger") of the Company
into a wholly-owned subsidiary of ErgoBilt to be completed simultaneously with
the closing of an offering of shares of common stock by ErgoBilt. As
consideration for the Merger, the shareholders of the Company will receive $17.6
million payable in a combination of cash (not to exceed $8.75 million), 516,667
shares of common stock of ErgoBilt valued at $4.65 million, and 466,667 shares
of Series A Preferred common stock of ErgoBilt valued at $4.2 million, assuming
an initial public offering price of $9.00 per share. The cash portion of the
Merger Consideration will be reduced by the anticipated distribution of
approximately $2.8 million related to S corporation earnings to be made to the
shareholders of the Company prior to the Merger.
F-30
<PAGE> 74
===============================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES TO WHICH IT RELATES IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
The Reorganization..................... 11
Recent Developments.................... 11
Use of Proceeds........................ 12
Dividend Policy........................ 12
Dilution............................... 13
Capitalization......................... 14
Selected Financial Data................ 15
Selected Pro Forma Financial Data...... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 22
Management............................. 29
Certain Transactions................... 33
Principal Shareholders................. 34
Description of Capital Stock........... 35
Shares Eligible for Future Sale........ 38
Underwriting........................... 39
Legal Matters.......................... 40
Experts................................ 41
Additional Information................. 41
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,000,000 SHARES
[ERGOBILT LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
RAUSCHER PIERCE REFSNES, INC.
WHEAT FIRST BUTCHER SINGER
, 1996
===============================================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will pay the following estimated expenses in connection with
the issuance and distribution of Common Stock pursuant to this registration
statement, in addition to underwriting discounts:
<TABLE>
<S> <C>
SEC Filing Fee.................................................... $ 6,970
NASD Filing Fee................................................... 2,800
NASDAQ National Market System Application Fee..................... --
Accounting Fees and Expenses...................................... *
Legal Fees and Expenses........................................... *
Printing and Engraving............................................ *
Transfer Agent and Registrar Fees and Expenses.................... *
Blue Sky Fees and Expenses (including fees of counsel)............ 10,000
Underwriter's Nonaccountable Expense Allowance.................... 100,000
Miscellaneous..................................................... *
--------
Total................................................... $ *
========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant's Restated Articles of Incorporation contain provisions that
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty, other than liability for a breach of the
duty of loyalty, acts or omissions not in good faith that constitute a breach of
the director's duty to the registrant, acts that involve intentional misconduct
or a knowing violation of the law, transactions in which the director receives
an improper benefit and acts or omissions for which liability is expressly
provided by applicable law. The registrant's bylaws contain provisions requiring
the registrant to indemnify its directors, officers, employees, consultants and
persons serving in such capacities of another company at the registrant's
request, to the fullest extent permitted in the Texas Business Corporation Act.
The registrant has an insurance policy providing for indemnification of
officers and directors and certain other persons against liabilities and
expenses that they incur in certain stated proceedings and under certain stated
conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant was incorporated on June 12, 1995. On that date, the
registrant issued 1,000 shares of its common stock to Gerald R. McMillan for
$1,000. On September 1, 1996, the registrant effected a 2040:1 stock dividend.
These transactions were exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) because they did not involve any
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The information set forth on the "Index to Exhibits" beginning on page II-4
of this registration statement is incorporated here by reference. No financial
statement schedules are filed as part of this registration statement.
II-1
<PAGE> 76
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy, as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the Common
Stock being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
(3) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of the registration statement as of the time it was
declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on October 15, 1996.
ERGOBILT, INC.
By: /s/ GERARD SMITH
-----------------------------
Gerard Smith,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GERALD McMILLAN Chairman of the Board and October 15, 1996
--------------------------------- Director
Gerald McMillan
/s/ GERARD SMITH President, Chief Executive October 15, 1996
--------------------------------- Officer and Director
Gerard Smith (Principal Executive
Officer and Acting
Principal Financial and
Accounting Officer)
</TABLE>
II-3
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
*1 -- Underwriting Agreement
2 -- Agreement and Plan of Merger by and among ErgoBilt, Inc., EB
Subsidiary, Inc., BodyBilt Seating, Inc., Mark A. McMillan, Dr.
Richard Troutman and Drew Congleton dated August 19, 1996 (without
schedules or exhibits)
*3(i) -- Restated Articles of Incorporation
*3(ii) -- Amended and Restated Bylaws
*4(a) -- Text and Description of Graphics and Images Appearing on Certificate
for Common Stock
*4(b) -- Certificate of Designation of Series A Preferred Stock of ErgoBilt,
Inc.
*4(c) -- Text and Description of Graphics and Images Appearing on Certificate
for Series A Preferred Stock
*5 -- Opinion of Wolin, Fuller, Ridley & Miller LLP
*9 -- Shareholders Voting Agreement
10(a)(1) -- Loan Agreement between The First National Bank of Bryan and BodyBilt
Seating, Inc. dated June 30, 1996, and schedule of substantially
similar agreements
10(a)(2) -- Security Agreement between The First National Bank of Bryan and
BodyBilt Seating, Inc. dated June 30, 1996, and schedule of
substantially similar agreements
10(a)(3) -- Third Party Pledge Agreement between The First National Bank of Bryan
and Mark A. McMillan dated June 30, 1996, and schedule of
substantially similar agreements
10(a)(4) -- Guaranty in favor of The First National Bank of Bryan by Mark A.
McMillan dated June 30, 1996, and schedule of substantially similar
agreements
10(a)(5) -- Promissory Note in the original principal amount of $2,000,000
executed by BodyBilt Seating, Inc. in favor of The First National
Bank of Bryan dated June 30, 1996, and schedule of substantially
similar agreements
10(b)(1) -- Agreement Among The First National Bank of Bryan, BodyBilt Seating,
Inc. and Mark A. McMillan dated June 15, 1995
10(c)(1) -- Loan Agreement Among The First National Bank of Bryan, BodyBilt
Seating, Inc. and Mark A. McMillan dated May 26, 1994
10(c)(2) -- Promissory Note in the original principal amount of $571,500 executed
by BodyBilt Seating, Inc. in favor of The First National Bank of
Bryan dated May 26, 1994
10(c)(3) -- Specific Guaranty in favor of The First National Bank of Bryan by
Mark A. McMillan dated May 26, 1994
10(c)(4) -- General Security Agreement Among The First National Bank of Bryan,
BodyBilt Seating, Inc. and Mark A. McMillan dated May 26, 1994
10(c)(5) -- Modification and/or Extension Agreement Among The First National Bank
of Bryan, BodyBilt Seating, Inc. and Mark A. McMillan dated May 31,
1995
10(c)(6) -- Third Party Pledge Agreement between The First National Bank of Bryan
and Mark A. McMillan dated May 31, 1995
10(d)(1) -- Common Stock and Warrant Purchase Agreement among ErgoBilt, Inc.,
Gerald McMillan, and Summit Partners Management Co. dated September
6, 1996
10(d)(2) -- Registration Rights Agreement between ErgoBilt, Inc. and Summit
Partners Management Co. dated September 6, 1996
</TABLE>
II-4
<PAGE> 79
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
10(d)(3) -- Convertible Promissory Note in the original principal amount of
$500,000 executed by ErgoBilt, Inc. in favor of Summit Partners
Management Co. dated September 6, 1996
10(d)(4) -- Investment and Security Agreement among Gerald McMillan, ErgoBilt,
Inc. and Summit Partners Management Co. dated September 6, 1996
10(e)(1) -- Universal Note Among The First National Bank of Bryan, BodyBilt
Seating, Inc. and Mark A. McMillan dated May 27, 1993, and schedule
of substantially similar agreements
10(e)(2) -- Security Agreement Among The First National Bank of Bryan, BodyBilt
Seating, Inc. and Mark A. McMillan dated May 27, 1993, and schedule
of substantially similar agreements
10(e)(3) -- Guaranty Among The First National Bank of Bryan, BodyBilt Seating,
Inc. and Mark A. McMillan dated May 27, 1993, and schedule of
substantially similar agreements
10(f) -- Non-Recourse Promissory Note in the original principal amount of
$75,000 executed by Lubbock Molasses, Inc. in favor of Dr. Richard
Troutman dated May 1, 1989
10(g) -- Patent License Agreement Between Jerome J. Congleton and The Chair
Works dated May 15, 1991
10(h)(1) -- Award/Contract #GS-29F-0119C Between BodyBilt Seating, Inc. and
General Services Administration (GSA)
10(h)(2) -- Amendment of Solicitation/Modification of Contract #GS-29F-0119C
Between BodyBilt Seating, Inc. and General Services Administration
(GSA)
10(i) -- Settlement Agreement Among BodyBilt Seating, Inc., Mark A. McMillan,
Drew Congleton, Michael Jack, and Galen Green, and Neutral Posture
Ergonomics, Inc., Jerome J. Congleton, Jay Congleton and Rebecca
Congleton Boenigk, Entered Into January 1995
*10(j) -- Executive Employment Agreement between Drew Congleton and a
corporation to be known as BodyBilt Seating, Inc. dated ,
1996
10(k) -- Consulting Agreement between Mark A. McMillan and ErgoBilt, Inc.
dated October 15, 1996
10(l) -- Consulting Services Agreement among ErgoBilt, Inc., Gerald McMillan
and Gerard Smith dated July 2, 1996
10(m) -- Amended and Restated Executive Employment Agreement between ErgoBilt,
Inc. and Gerard Smith dated as of October 15, 1996
10(n) -- IPO Consulting Services Agreement between ErgoBilt, Inc. and P.
Michael Sullivan dated September 16, 1996
10(o) -- Executive Employment Agreement between ErgoBilt, Inc. and P. Michael
Sullivan dated September 16, 1996
10(p) -- Business Management Contract Between BodyBilt Seating, Inc. and
Agrivest, Inc., dated January 1, 1996
10(q) -- Consulting Agreement Between The Chafferton Company and BodyBilt
Seating, Inc. dated August 1, 1994
10(r) -- Conditional Release of Commission Between Gerald McMillan and
BodyBilt Seating, Inc. dated May 23, 1996
</TABLE>
II-5
<PAGE> 80
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
10(s) -- Memorandum of Understanding Regarding 1984 Pace Arrow Motor Home
between Mark A. McMillan and Drew Congleton dated December 1992
*10(t) -- Stock Option Plan
21 -- Subsidiaries
23(a) -- Consent of KPMG Peat Marwick LLP
23(b) -- Consent of Thompson, Derrig & Slovacek PC
23(c) -- Consent of Wolin, Fuller, Ridley & Miller LLP (included in Exhibit 5
to this registration statement)
27 -- Financial Data Schedule
99(a) -- Consent of Person About to Become Director (William H. Weed)
99(b) -- Consent of Person About to Become Director (William B. Glenn, Jr.)
99(c) -- Consent of Person About to Become Director (W. Barton Munro)
99(d) -- Consent of Person About to Become Director (Drew Congleton)
99(e) -- Consent of Person About to Become Director (Robert E. Faust)
</TABLE>
- ---------------
* To be filed by amendment.
II-6
<PAGE> 1
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ERGOBILT, INC.
EB SUBSIDIARY, INC.
BODYBILT SEATING, INC.
MARK MCMILLAN
DR. RICHARD TROUTMAN
AND
DREW CONGLETON
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consideration for Merger . . . . . . . . . . . . . . . . . . 1
1.3 Escrow Pending Closing . . . . . . . . . . . . . . . . . . . 3
1.4 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Actions at the Closing . . . . . . . . . . . . . . . . . . . 4
1.6 Fractional Shares . . . . . . . . . . . . . . . . . . . . . 4
1.7 No Further Rights . . . . . . . . . . . . . . . . . . . . . 4
1.8 Closing of Transfer Books . . . . . . . . . . . . . . . . . 4
1.9 Buyer Preferred Stock . . . . . . . . . . . . . . . . . . . 4
1.10 Registration . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Additional Action . . . . . . . . . . . . . . . . . . . . . 9
1.12 Termination of Company Agreements . . . . . . . . . . . . . 9
1.13 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . 9
II. Representations of the Shareholders . . . . . . . . . . . . . . . . 9
2.1 Representations Regarding Shares of Company . . . . . . . . 9
2.2 Investment Representations . . . . . . . . . . . . . . . . . 10
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . 11
2.5 Confidentiality/Non-Disclosure Letter Agreement . . . . . . 12
III. Representations and Warranties of Company . . . . . . . . . . . . . 12
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Capitalization of Company . . . . . . . . . . . . . . . . . 12
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Material Claims/Permitted Encumbrances . . . . . . . . . . . 13
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . 13
3.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . 14
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . 14
3.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Change in Financial Condition and Assets . . . . . . . . . . 15
3.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 15
3.14 Accounts Receivable . . . . . . . . . . . . . . . . . . . . 16
3.15 Books and Records . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.16 Contracts and Commitments . . . . . . . . . . . . . . . . . 16
3.17 Compliance with Agreements and Laws . . . . . . . . . . . . 18
3.18 Employee Relations . . . . . . . . . . . . . . . . . . . . . 19
3.19 Absence of Certain Changes or Events . . . . . . . . . . . . 20
3.20 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.21 Trade Names and Other Intellectual Property . . . . . . . . 21
3.22 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 21
3.23 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 22
3.24 Indebtedness To and From Officers, Directors
and Shareholders . . . . . . . . . . . . . . . . . . 22
3.25 Powers of Attorney and Suretyships . . . . . . . . . . . . . 22
3.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 23
IV. Representations of Buyer and Surviving Subsidiary . . . . . . . . . 23
4.1 Organization and Authority . . . . . . . . . . . . . . . . . 23
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 23
4.4 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . 23
4.5 Surviving Subsidiary as New Corporation . . . . . . . . . . 24
4.6 Buyer as Recently Operating Corporation . . . . . . . . . . 24
4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.8 Indebtedness To and From Officers, Directors
and Shareholders . . . . . . . . . . . . . . . . . . 24
4.9 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 24
V. Access to Information; Public Announcements . . . . . . . . . . . . 25
5.1 Access to Management, Properties and Records . . . . . . . . 25
5.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Public Announcements . . . . . . . . . . . . . . . . . . . . 26
VI. Pre-Closing Covenants of Company . . . . . . . . . . . . . . . . . 26
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . 26
6.2 Absence of Material Changes . . . . . . . . . . . . . . . . 26
6.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Delivery of Interim Financial Statements . . . . . . . . . . 28
6.5 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 28
6.6 Continued Truth of Representations and Warranties of the
Shareholders and Company . . . . . . . . . . . . . . 28
6.7 Continuing Obligation to Inform . . . . . . . . . . . . . . 28
6.8 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . . 29
6.9 No Publicity . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Revised Schedules . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
VII. Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . 30
7.1 Continued Truth of Representations and Warranties of Company;
Compliance with Covenants and Obligations . . . . . . 30
7.2 Corporate Proceedings . . . . . . . . . . . . . . . . . . . 30
7.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . 30
7.4 Consents of Lenders, Lessors and Other Third Parties . . . . 30
7.5 Adverse Proceedings . . . . . . . . . . . . . . . . . . . . 31
7.6 Review of Company Financial Statements . . . . . . . . . . . 31
7.7 Adaptability of Company's Financial Statements . . . . . . . 31
7.8 Review of Company's Compliance . . . . . . . . . . . . . . . 31
7.9 Update . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.10 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . 31
VIII. Conditions to Obligations of Company and the Shareholders . . . . . 32
8.1 Continued Truth of Representations and Warranties of Buyer;
Compliance with Covenants and Obligations . . . . . . 32
8.2 Corporate Proceedings . . . . . . . . . . . . . . . . . . . 32
8.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . 32
8.4 Consents of Third Parties . . . . . . . . . . . . . . . . . 32
8.5 Adverse Proceedings . . . . . . . . . . . . . . . . . . . . 33
8.6 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . 33
8.7 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Release of Personal Guaranties . . . . . . . . . . . . . . . 33
8.9 Election of Directors . . . . . . . . . . . . . . . . . . . 34
8.10 Delivery of Registration Statements to the Shareholders . . 34
IX. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 By Buyer, Surviving Subsidiary, Company,
Congleton and McMillan . . . . . . . . . . . . . . . 34
9.2 Claims for Indemnification . . . . . . . . . . . . . . . . . 35
9.3 Defense by Indemnifying Party . . . . . . . . . . . . . . . 35
9.4 Payment of Indemnification Obligation . . . . . . . . . . . 36
9.5 Survival of Representations, Claims for Indemnification . . 36
X. Post-Closing Agreements . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Proprietary Information . . . . . . . . . . . . . . . . . . 36
10.2 No Solicitation or Hiring of Former Employees . . . . . . . 36
10.3 Non-Competition Agreement . . . . . . . . . . . . . . . . . 37
10.4 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Cooperation in Litigation . . . . . . . . . . . . . . . . . 37
10.6 Payment of Obligations to Shareholders and Company . . . . . 38
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
XI. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Termination by Agreement of the Parties . . . . . . . . . . 38
11.2 Termination by Reason of Breach . . . . . . . . . . . . . . 38
11.3 Termination Upon Failure of IPO Funding . . . . . . . . . . 38
XII. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.1 For Company and the Shareholders . . . . . . . . . . . . . . 38
12.2 For Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 38
XIII. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
XIV. Arbitration, Venue, and Binding Effect . . . . . . . . . . . . . . 40
14.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 40
14.2 Venue/Binding Effect . . . . . . . . . . . . . . . . . . . . 40
XV. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 40
XVI. Entire Agreement; Amendments; Attachments . . . . . . . . . . . . . 40
XVII. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XVIII. Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XIX. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
XX. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . 41
XXI. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
XXII. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
(iv)
<PAGE> 6
SCHEDULES AND EXHIBITS
Schedules
Schedule 1.2(a) - Allocation of Merger Consideration
Schedule 1.12 - Agreements Between Company and Shareholders
Schedule 1.13 - Claims
Schedule 2.1 - Shareholders of BodyBilt Seating, Inc. Common Stock
Schedule 3.4 - Permitted Encumbrances
Schedule 3.6 - Company's Liabilities and Obligations
Schedule 3.7 - Company Litigation
Schedule 3.11 - Leases
Schedule 3.13 - Tax Liens
Schedule 3.16 - Contracts
Schedule 3.17 - Permits
Schedule 3.18 - Employee Contracts
Schedule 3.19 - Material Changes in Company's Business Since June 30,
1996
Schedule 3.20 - Ten Largest Suppliers
Schedule 3.21 - Intellectual Property
Schedule 3.22 - Employee Benefit Plans
Schedule 3.23 - Regulatory Approvals
Schedule 3.24 - Indebtedness From or To Officers, Directors and
Shareholders
Schedule 4.6 - Outstanding Stock of Buyer
Schedule 4.8 - Indebtedness To and From Officers, Directors and
Shareholders of ErgoBilt, Inc.
Schedule 8.4 - Third-Party Consents
Schedule 8.8 - Personal Guaranties
Schedule 8.11 - Shareholders' Guaranties
Exhibits
Exhibit 2.3 - Spousal Consents
Exhibit 1.9 - Certificate of Designation
Exhibit 8.6(e) - Congleton Employment Agreement/McMillan Consulting
Agreement
(v)
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into as of
August 19, 1996, by and among ERGOBILT, INC., a Texas corporation ("Buyer"), EB
SUBSIDIARY, INC., a Texas corporation and wholly-owned subsidiary of Buyer
("Surviving Subsidiary"), BODYBILT SEATING, INC., a Texas corporation
("Company"), MARK MCMILLAN ("McMillan"), DR. RICHARD TROUTMAN ("Troutman") and
DREW CONGLETON ("Congleton"), all individuals and shareholders of Company
(individually, "Shareholder" and collectively, "Shareholders"). Buyer,
Surviving Subsidiary, Company and the Shareholders are referred to individually
as a "Party" and collectively as the "Parties."
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
I.
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, Company shall merge with and into Surviving Subsidiary (the
"Merger") at the "Effective Time" (as defined below). From and after the
Effective Time, the separate corporate existence of Company shall cease, and
Surviving Subsidiary shall continue as the surviving corporation in the Merger
under the name "BodyBilt Seating, Inc." The "Effective Time" shall occur upon
the delivery to the Shareholders of the Merger Consideration, as defined in
Section 1.2 below, and shall be the time at which Company and Surviving
Subsidiary file Articles of Merger executed in accordance with the relevant
provisions of the Texas Business Corporation Act (the "Articles of Merger")
with the Secretary of State of the State of Texas and upon the issuance of a
certificate of merger by said Secretary of State, as provided by law. For
federal income tax purposes, it is intended that the Merger will qualify as a
reorganization within the meaning of the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "IRC").
1.2 Consideration for Merger. The total consideration payable to the
Shareholders in respect of the Merger (the "Merger Consideration") shall be
equal to Seventeen Million Six Hundred Thousand Dollars ($17,600,000.00) less
the amount of any cash dividend (the "Cash Dividend") paid by Company to the
Shareholders prior to the Merger in accordance with Section 6.2(b), and shall
be paid or delivered to the Shareholders at the Closing (as defined below) as
follows:
(a) Buyer shall issue and deliver to the Shareholders
certificates, registered in such names as the Shareholders may request,
representing the number of shares of Buyer Common Stock, $0.01 par value
("Buyer Common Stock"), equal to the amount set forth opposite such
Shareholder's name on Schedule 1.2(a), divided by the "IPOP"(as defined
below (the "Common Stock Portion"), subject to possible adjustment as
provided below. The total value of the Common Stock Portion shall equal
initially an aggregate total of Four Million Six Hundred Fifty Thousand
Dollars ($4,650,000.00);
<PAGE> 8
(b) Buyer shall issue and deliver to the Shareholders
certificates, registered in such names as the Shareholders may request,
representing the number of shares of Buyer's convertible preferred
stock, $0.01 par value ("Buyer Preferred Stock"), equal to the amount
set forth opposite such Shareholder's name on Schedule 1.2(a), divided
by the IPOP (the "Preferred Stock Portion"), subject to possible
adjustment as provided below. The total value of the Preferred Stock
Portion shall equal initially an aggregate total of Four Million Two
Hundred Thousand Dollars ($4,200,000.00); and
(c) Buyer shall deliver to the Shareholders by wire transfer
to one or more accounts designated in writing by the Shareholders to
Buyer prior to the Closing cash in an amount equal to Eight Million
Seven Hundred Fifty Thousand Dollars ($8,750,000.00) (the "Maximum
Amount"), less the Cash Dividend paid to the Shareholders under Section
6.2(b) (the "Cash Portion"), subject to possible adjustment as provided
below. The Cash Portion shall be allocated among the Shareholders as
specified in Schedule 1.2(a). The Cash Portion shall be paid from the
proceeds of an underwritten initial public offering on a firm commitment
basis (the "IPO," as defined more fully below) of Buyer Common Stock.
If the gross proceeds to Buyer at IPO Funding (the "Gross
Proceeds") are less than Fifteen Million Dollars ($15,000,000.00), then
the Maximum Amount shall, except as provided below, be reduced by an
amount equal to fifty percent (50%) of the difference between Fifteen
Million Dollars ($15,000,000.00) and the Gross Proceeds. By way of
example, if the Gross Proceeds equal Twelve Million Dollars
($12,000,000.00), then the Maximum Amount would be reduced by One
Million Five Hundred Thousand Dollars ($1,500,000.00) for a total of
Seven Million Two Hundred Fifty Thousand Dollars ($7,250,000.00)
calculated by taking Fifteen Million Dollars ($15,000,000.00) less the
Gross Proceeds of Twelve Million Dollars ($12,000,000.00), which
difference equals Three Million Dollars ($3,000,000.00), then taking
Three Million Dollars ($3,000,000.00) and dividing such sum by two (2),
which equals One Million Five Hundred Thousand Dollars ($1,500,000.00).
In no event shall the Cash Portion be less than Six Million Dollars
($6,000,000.00) less the Cash Dividend. Any reduction in the Cash
Portion shall be allocated amongst the Shareholders pro rata based on
the amounts set forth in Schedule 1.2(a). In the event that the Cash
Portion is reduced as provided herein, Buyer shall proportionately
increase the number of shares of Buyer Common Stock and Buyer Preferred
Stock issued to the Shareholders pursuant to Sections 1.2(a) and (b)
above, based on the amount of any such reduction divided by the IPOP.
(d) The term "IPO" shall mean the consummation of an
underwritten initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"1933 Act"), covering the sale of Buyer Common Stock. The term "IPOP"
shall mean the price to public of one share of Buyer Common Stock as set
forth on the cover page of the final prospectus of the IPO. The term
"IPO Funding" shall mean the date on which the IPO is closed.
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<PAGE> 9
(e) In the event the delivery of the Merger Consideration to
the Shareholders has not occurred by 5:00 p.m., Dallas time, on March
20, 1997, this Agreement shall terminate immediately.
(f) Each share of Company's Common Stock held in Company's
treasury immediately prior to the Effective Time shall be canceled and
retired without payment of any consideration therefor.
(g) Schedule 1.2(a) may be amended unilaterally by the
Shareholders any time prior to the Closing so as to change the
allocation of the total Merger Consideration among the Shareholders.
Such amended Schedule must be signed by all Shareholders to be effective
and shall be delivered to Buyer and to the Escrow Agent (as defined
below) no less than two (2) business days before the Closing.
1.3 Escrow Pending Closing. Within seven (7) days of the date
hereof, Company and the Shareholders shall deliver to Bank One-Texas, N.A.,
Dallas, Texas ("Escrow Agent") the following documents and instruments
("Escrowed Documents") to hold in escrow (the "Escrow") pending the Closing:
(a) Each Shareholder's certificate evidencing his ownership of
shares of Company's Common Stock, par value $0.01 per share ("Company
Common Stock"), accompanied by stock transfer powers, duly executed in
blank, with signatures guaranteed by a national bank or member firm of
the New York Stock Exchange; and
(b) Articles of Merger executed by Company; and
(c) Spousal Consents.
Contemporaneous with the execution of this Agreement, the Parties have
entered into that certain Escrow Agreement also dated August 19, 1996,
providing for the deposit of the Escrowed Documents with the Escrow Agent and
the delivery of the Escrowed Documents to Buyer upon the Shareholders' receipt
of the Merger Consideration and certain other documents deliveryof which are a
condition to Closing and the return of the Escrowed Documents to the
Shareholders in the event of the termination of this Agreement in accordance
with Section 1.2(e) above. All costs and expenses of Escrow, including Escrow
Agent's attorneys' fees, if any, shall be paid one-half ( 1/2) by the
Shareholders and one-half ( 1/2) by Buyer. The terms and conditions of the
Escrow Agreement are incorporated by reference herein as though fully set
forth.
Buyer shall give Escrow Agent and the Shareholders written notice of the
Closing Date and shall deliver to Escrow Agent all portions of the Merger
Consideration. At the Closing, Escrow Agent shall deliver to Buyer the
Escrowed Documents and shall deliver the Merger Consideration to the
Shareholders. In the event that the Merger Consideration is not received by
the Shareholders by 5:00 p.m., Dallas time, on March 20, 1997, this Agreement
shall terminate and Escrow Agent shall automatically deliver to the
Shareholders all Escrowed Documents.
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<PAGE> 10
Notwithstanding anything to the contrary contained herein, pending the
Closing, legal and beneficial title to the Shareholders' shares of Company
Common Stock shall remain in the Shareholders and shall not be transferred or
otherwise affected by this Agreement or the Escrow Agreement until the delivery
of the Merger Consideration to the Shareholders
1.4 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Wolin,
Fuller, Ridley & Miller LLP, 3100 Bank One Center, 1717 Main Street, Dallas,
Texas 75201, contemporaneous with the closing of the IPO or on such other date
and at such other location as may be acceptable to all Parties. For the
purposes of this Agreement, the term "Closing Date" shall mean the date on
which all of the terms and conditions to the Closing have been satisfied or
waived in accordance with the terms of this Agreement.
1.5 Actions at the Closing. At the Closing: (a) Company shall
deliver to Buyer and Surviving Subsidiary the various certificates, instruments
and documents referred to in Article VII; (b) Buyer and Surviving Subsidiary
shall deliver to Company and the Shareholders the various certificates,
instruments and documents referred to in Article VIII; (c) Escrow Agent shall
deliver the Escrow Documents to Buyer and the Merger Consideration to the
Shareholders; and (d) Buyer and Surviving Subsidiary shall have filed the
Articles of Merger with the Secretary of State of the State of Texas.
1.6 Fractional Shares. No fractional shares shall be issued by
Company and no payment therefor shall be made.
1.7 No Further Rights. From and after the Effective Time, no shares
of Company Common Stock shall be deemed to be outstanding, and holders of
certificates thereof shall cease to have any rights with respect thereto,
except as provided herein or by law.
1.8 Closing of Transfer Books. At the Effective Time, the stock
transfer books of Company shall be closed and no transfer of shares of Company
Common Stock shall thereafter be made.
1.9 Buyer Preferred Stock.
(a) Buyer Preferred Stock shall be convertible into shares of
Buyer Common Stock during the four (4) year period beginning on the
Closing Date as specified in the Certificate of Designation attached
hereto as Exhibit 1.9 (the "Certificate of Designation").
(b) The Buyer Common Stock received by the Shareholders upon
conversion will be subject to applicable provisions of the 1933 Act and
the rules and regulations thereunder, and will have the registration
rights described in Section 1.10 below.
(c) If the Shareholders exercise their rights to convert, any
such conversion must cover at least thirty-three percent (33%) of Buyer
Preferred Stock held by such Shareholder.
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<PAGE> 11
(d) Any shares of Buyer Preferred Stock not converted by the
fourth anniversary of the Closing Date shall automatically convert into
shares of Buyer Common Stock in accordance with the Certificate of
Designation.
(e) Each shareholder of Buyer Preferred Stock shall be
entitled to one (1) vote for each share of Buyer Preferred Stock held by
such shareholder on all matters submitted to a vote of the shareholders
of the Company and such other voting rights as may be required by
applicable law.
1.10 Registration. Shareholders shall have the following registration
rights with respect to the shares of Buyer Common Stock issued pursuant to
Section 1.2(a) and the shares of Buyer Common Stock issuable upon the
conversion of shares of Buyer Preferred Stock issued pursuant to Section 1.2(b)
(the "Registrable Shares"):
(a) Piggy-Back Rights. Subject to any restrictions imposed by
"lock-up agreements" and other arrangements, subsequent to the IPO,
whenever Buyer proposes to file a Registration Statement (other than on
Form S-4 or S-8), it will, prior to such filing, give written notice to
all Shareholders of its intention to do so and, upon the written request
of a Shareholder or Shareholders given within twenty (20) days after
Buyer provides such notice (which request shall state the intended
method of disposition of such shares), Buyer shall use its best efforts
to cause all shares which Buyer has been requested by such Shareholder
or Shareholders to register to be registered under the 1933 Act to the
extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of
such Shareholder or Shareholders; provided that Company shall have the
right to postpone or withdraw any registration effected pursuant to this
Article without obligation to any Shareholder or Shareholders.
(b) Demand Registration. Subject to the limitations set forth
herein, Buyer agrees that it shall, at any time after the second
anniversary of the IPO, upon the written request of any two of the
Shareholders holding Registrable Shares undertake to register said
shares and to cause such registration statement to remain effective for
a period of not less than one hundred twenty (120) days, unless all of
the shares covered thereby are sold prior thereto. Buyer shall have no
obligation to undertake more than two (2) demand registrations for the
benefit of all Shareholders. Upon receipt of any demand to register
shares pursuant to this Section, Buyer shall give notice by registered
or certified mail to the other Shareholder(s), who shall have a period
of ten (10) business days from the receipt of such notice to deliver
written notice to Buyer of such Shareholder's desire to have all or any
portion of his shares of Registrable Shares included in any such
registration statement and the number of shares thereof to be so
included. Buyer shall use its best efforts to cause any shares covered
by a registration statement filed pursuant to this Section to be
qualified for offer and sale under the Texas Securities Act, as amended,
or other applicable state securities law, during the time such
registration statements are effective.
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<PAGE> 12
(c) Shelf Registration. Buyer shall use its best efforts to
have a "shelf" registration statement on an appropriate form under the
1933 Act (the "Shelf Registration") covering all of the Registrable
Shares declared effective on or as soon as possible after the fourth
(4th) anniversary of the IPO Funding and to keep the Shelf Registration
continuously effective for a period of two (2) years following the date
on which the Shelf Registration is declared effective; provided,
however, that if for any reason the effectiveness of the Shelf
Registration is suspended, such period shall be extended by the
aggregate number of days of each such suspension period; and provided,
further, that the effectiveness of the Shelf Registration may be
terminated earlier if and to the extent that all of the Registrable
Shares registered therein cease to be Registrable Shares. The
securities shall cease to be Registrable Shares when (a) the Shelf
Registration shall have become effective under the 1933 Act and such
securities shall have been disposed of pursuant to the Shelf
Registration, (b) such securities shall have been sold as permitted by
Rule 144 under the 1933 Act, or (c) such securities shall have ceased to
be outstanding. Buyer agrees, if necessary, to supplement or amend the
Shelf Registration, as required by the registration form utilized by
Buyer or by the instructions applicable to such registration form or by
the 1933 Act, and Buyer agrees to furnish to the holders of the
Registrable Shares copies of any such supplement or amendment prior to
its being used. The Shareholders agree to execute such lock-up
agreements containing substantially the same terms and conditions
applicable to the executive officers and principal shareholders of
Company as the managing underwriters may require in connection with any
underwritten public offering during the time in which the Shelf
Registration is effective, and the duration of the Shelf Registration
shall be extended for the same period.
(d) Acceptance of Terms. In connection with any registration
under paragraph (a) of this Section, the Company shall not be required
to include a Shareholder's Registrable Shares in such registration,
unless the Shareholder accepts the terms of the underwriting as agreed
upon between Buyer and the underwriters selected by Buyer. If, in the
opinion of the managing underwriter, it is appropriate because of
marketing factors to limit or exclude the number of Registrable Shares
to be included in the offering, then Buyer shall be required to include
in the registration only that number of Registrable Shares which the
managing underwriter believes should be included therein. If the number
of Registrable Shares to be included in the offering in accordance with
the foregoing is less than the total number of Registrable Shares which
the Shareholders have requested to be included, then the Shareholders
who have requested registration shall participate in the registration
pro rata based upon the total number of Registrable Shares for which
registration was requested. If any Shareholders would thus be entitled
to include more Registrable Shares than such holder requested to be
registered, the excess shall be allocated among other requesting holders
pro rata in the manner described in the preceding sentence.
(e) Registration Procedures. In connection with Buyer's
obligation to effect the registration of Registrable Shares, Buyer will
(i) furnish to each Shareholder such number of copies of a prospectus as
such Shareholder may reasonably request in order to facilitate the
public sale or other disposition of the shares owned by such
Shareholder, (ii) use its best
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<PAGE> 13
efforts to cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by Buyer are then
listed or quoted and on any inter-dealer quotation system on which
similar securities issued by Buyer are then quoted, and (iii) cooperate
in any filings to be made with the National Association of Securities
Dealers, Inc.
(f) Expenses of Registration. All expenses incurred in
effecting any registration pursuant to this Agreement, including,
without limitation, registration and filing fees, printing expenses,
expenses of compliance with blue sky laws, fees and disbursements of
counsel for Buyer and expenses of any audits incidental to or required
by any such registration, shall be borne by Buyer, except that all SEC,
NASD and state securities registration or filing fees shall be split by
Buyer and the Shareholders and all underwriting discounts and
commissions attributable to Registrable Shares being sold by the
Shareholders shall be borne by those Shareholders, pro rata, according
to the number of Registrable Shares so registered. Buyer shall pay the
reasonable fees of not more than one legal counsel for all Shareholders
for such registration.
(g) Indemnification by Buyer. To the extent permitted by law,
Buyer will indemnify each Shareholder requesting or joining in a
registration and each underwriter and selling broker of the securities
so registered (collectively, "Indemnitees") against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or
in any related registration statement, notification or the like) or any
omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, or any
violation by Buyer of any rule or regulation promulgated under the 1933
Act and/or the Securities Exchange Act of 1934, as amended (the "1934
Act"), applicable to Buyer and relating to action or inaction required
of Buyer in connection with any such registration, qualification or
compliance. Buyer will reimburse each such Indemnitee for any legal and
any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action;
provided, however, that Buyer will not be liable in any such case to the
extent that any such claim, loss, damage or liability is caused by any
untrue statement (or alleged untrue statement) or omission (or alleged
omission) so made in conformity with written information furnished to
Buyer by an instrument duly executed by such Indemnitees and stated to
be specifically for use in such prospectus, offering circular or other
document, and except that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the SEC at the time the
registration statement becomes effective or in the amended prospectus
filed with the SEC at the time the registration statement becomes
effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) (the "Final Prospectus"). Such indemnity agreement shall
not inure to the benefit of any underwriter, or any Indemnitee if there
is no underwriter, if a copy of the Final Prospectus was not furnished
to the person or entity asserting the loss, liability,
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<PAGE> 14
claim or damage at or prior to the time such furnishing is required by
the 1933 Act. The obligation of Buyer under this paragraph shall
survive the completion of any offering of Registrable Stock in a
registration statement under this Agreement, or otherwise.
(h) Indemnification by Seller. To the extent permitted by
law, each Shareholder shall, severally and jointly, indemnify and hold
Buyer and Surviving Subsidiary, and their respective directors and
officers, who participated in preparation of the Final Prospectus, and
each Underwriter and selling broker so registered (collectively, "Buyer
Indemnitees") against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related
registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, or any violation by
Buyer of any rule or regulation promulgated under the 1933 Act and the
1934 Act, applicable to Buyer resulting from any information, written or
oral, provided to Buyer by Company and/or the Shareholders in connection
with the Merger and the transactions contemplated by this Agreement.
Shareholders will reimburse each such Buyer Indemnitee in the same
manner that Buyer is required to indemnify Shareholders under subsection
(f) above.
(i) Indemnification Proceedings. In any proceedings
(including any governmental investigation) instituted against any person
in respect of which indemnity may be brought pursuant to subsections (g)
and (h) above, such person (the "Indemnified Party") shall promptly
notify the person or entity against whom such indemnity may be sought
(the "Indemnifying Party") in writing. No indemnification provided for
in subsections (g) or (h) shall be available to any Indemnified Party
who fails to give notice if the Indemnifying Party was not aware of the
proceedings to which such notice would have related and was materially
prejudiced by the failure to receive notice. Such failure to give
notice shall not relieve the Indemnifying Party from any liability which
such party may have for contribution or otherwise than on account of the
provisions of subsections (g) or (h). If such proceedings are brought
against any Indemnified Party who has notified the Indemnifying Party of
the commencement hereof, the Indemnifying Party shall be entitled to
participate in such proceedings and, in its discretion, jointly with any
other Indemnifying Party similarly notified, to assume the defense
thereof, with legal counsel satisfactory to the Indemnified Party. The
Indemnifying Party shall pay as incurred the fees and disbursements of
such counsel. In any such proceedings, an Indemnified Party shall have
the right to retain its own counsel at its own expense. Notwithstanding
the foregoing, the Indemnifying Party shall pay as incurred, or within
thirty (30) days of presentation, the fees and expenses of legal counsel
retained by Indemnifying Party in the event (i) the Indemnified Parties
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceedings (including any impleaded parties)
include both the Indemnifying and Indemnified Parties and representation
of both parties by the same counsel would be inappropriate due to actual
or potential differing interests among them. It is agreed that the
Indemnifying Party shall not,
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<PAGE> 15
in connection with any proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for
all Indemnified Parties. Such firm shall be designated in writing by
the Indemnified Parties. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent,
but if settled with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified
Party from and against any loss or liability by reason of such
settlement or judgment. In addition, the Indemnifying Party will not,
without the prior written consent of the Indemnified Party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding for which indemnification may be
sought hereunder (whether or not any Indemnified Party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of
each Indemnified Party from all liability arising out of such claim,
action or proceeding.
1.11 Additional Action. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either Company or Surviving
Subsidiary, to consummate the transactions contemplated by this Agreement.
1.12 Termination of Company Agreements. As of the Effective Time, and
except as set forth on Schedule 1.12 hereto or as otherwise provided herein,
any and all agreements between Company and Shareholders shall terminate
automatically and shall be of no further force and effect.
1.13 Releases. As of the Effective Time, and except as set forth on
Schedule 1.13 hereto, Company and Surviving Subsidiary shall be released and
discharged from any and all Shareholders' claims, liabilities, demands, causes
of action, costs, attorneys' fees, expenses and damages, of any kind or nature,
known or unknown, suspected or unsuspected, claimed or unclaimed, fixed or
contingent, or apparent or concealed (collectively, "Claims"), that exist at
the time of the Closing. Nothing herein shall constitute a release of any
Claims which may arise out of or are connected with the Merger, this Agreement
or any other document, instrument, or transaction connected with the Merger.
II.
REPRESENTATIONS OF THE SHAREHOLDERS
Each Shareholder severally represents and warrants to Buyer as follows:
2.1 Representations Regarding Shares of Company.
(a) Such Shareholder is the record and beneficial owner of and
has good title to the shares of Company Common Stock set forth opposite
his name on Schedule 2.1 attached hereto, free and clear of any and all
restrictions, voting trusts or agreements, liens, charges, encumbrances,
options and adverse claims or rights whatsoever. Schedule 2.1 attached
hereto sets forth the number of all shares of capital stock of Company
owned by each of the
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<PAGE> 16
Shareholders, and all such shares collectively represent all the issued
and outstanding shares of Company.
(b) Such Shareholder has the full right, power and authority
to enter into this Agreement.
(c) Such Shareholder is not a party to, subject to or bound by
any agreement or any judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would prevent the
execution or delivery of this Agreement by such Shareholder.
(d) No broker or finder has acted for such Shareholder in
connection with this agreement or the transactions contemplated hereby,
and no broker or finder is entitled to any brokerage or finder's fee or
other commissions in respect of such transactions based upon agreements,
arrangements or understandings made by or on behalf of such Shareholder.
2.2 Investment Representations. All Shareholders hereby individually
represent and warrant to Buyer as follows:
(a) Such Shareholder is acquiring Buyer Common Stock and Buyer
Preferred Stock in the Merger for his own account for investment and not
with a view to, or for sale in connection with, any distribution
thereof, nor with any present intent of distributing or selling his
shares.
(b) Such Shareholder has reviewed the representations
concerning Buyer contained in this Agreement and has made or has had the
opportunity to make inquiry concerning Buyer. Shareholder has
sufficient knowledge and experience so as to be able to evaluate the
risks and merits of his investment in Buyer, and he is able financially
to bear the risks thereof. Shareholder is entering into the
transactions contemplated herein based on his own assessments of the
merits and risks, upon his own experience as an officer, director and/or
shareholder of Company and is not relying on any business plan,
projections, valuations or other financial information provided to
Shareholder by Buyer. Shareholder further acknowledges and agrees that
Buyer and Surviving Subsidiary have made no assurances of any nature
whatsoever regarding the future operations of Buyer and Surviving
Subsidiary and have made no guarantees as to the profitability of an
investment therein. Shareholder further acknowledges that he is an
accredited investor as defined in Rule 501(a) of Regulation D of the
1933 Act.
(c) Such Shareholder acknowledges that Surviving Subsidiary is
a newly-formed entity with no history of operations.
(d) Such Shareholder understands that the certificates of
Buyer Common Stock and Buyer Preferred Stock to be issued to him
pursuant to this Agreement will bear a restrictive legend in
substantially the following form:
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<PAGE> 17
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act or an opinion of counsel
satisfactory to Company is obtained to the effect that
such registration is not required."
The foregoing legend shall be removed from the certificates, at
the request of the holder thereof, at such time as they become
registered for resale or eligible for resale pursuant to Rule 144(k)
under the 1933 Act.
2.3 Authorization. The execution and delivery of this Agreement by
each of the Shareholders and the agreements provided for herein, and the
consummation by each of the Shareholders of all transactions contemplated
hereby, have been duly authorized by all requisite shareholder action. This
Agreement and all such other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which
each of the Shareholders is a party constitute the valid and legally binding
obligations of such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except as enforceability may be limited
or affected by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws of general application relating to or affecting creditors' rights
generally. Each Shareholder's spouse has consented to the terms of this
Agreement in all respects and has agreed to execute and deliver to Buyer the
form of Spousal Consent attached hereto as Exhibit 2.3 on or before August 30,
1996.
The execution, delivery and performance by each of the Shareholders of
this Agreement and the agreements provided for herein, and the consummation by
each of the Shareholders of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to each of
the Shareholders; (b) violate any judgment, decree, order or award of any
court, governmental body or arbitrator; or (c) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the properties or assets of such Shareholder
pursuant to, any indenture, mortgage, deed of trust or other instrument or
agreement to which such Shareholder is a party or by which such Shareholder or
any of his properties is or, to the knowledge of such Shareholder, may be
bound, except for violations or conflicts which individually or in the
aggregate would not have a material adverse effect on Company's financial
condition or results of operation.
For the purposes of this Section 2.3 only, the representations made by
each Shareholder herein shall be deemed to have been made for his own account
and not with respect to any of the other Shareholders.
2.4 Investment Intent. The total value of all of the Common Stock
Portion and Preferred Stock Portion paid to the Shareholders collectively
represents not less than fifty percent (50%) of the total Merger Consideration.
Shareholders further represent and warrant that they have no
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preconceived plan or intention to dispose of an aggregate number of shares of
Buyer Common Stock and Buyer Preferred Stock having a value, as of the
Effective Time, of more than fifty percent (50%) of the value of all the issued
and outstanding capital stock of Company immediately prior to the Effective
Time.
2.5 Confidentiality/Non-Disclosure Letter Agreement. Buyer has
delivered to each Shareholder disclosure regarding Buyer's business plan,
financial projections, ownership upon completion of the IPO and other matters
concerning the IPO and each Shareholder has executed and delivered to Buyer a
confidentiality/non-disclosure letter agreement maintining the
confidentialityof such disclosure.
III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Buyer as follows:
3.1 Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite power and authority (corporate and other) to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. Company owns no interests in any
corporations, partnerships, joint ventures and other entities. Company is duly
qualified to do business and is in good standing in all jurisdictions in which
its ownership of property or the character of its business requires such
qualification except for those jurisdictions where the failure to qualify would
not have a material adverse effect on Company. Copies of the charter and
bylaws and all amendments thereto, the organizational minutes, and the minute
book of Company, as amended to date, which have been previously delivered or
made available to Buyer, are complete and correct, and no amendments have been
made thereto or have been authorized since the date thereof.
3.2 Capitalization of Company. Company's authorized capital stock
consists of Five Hundred (500) shares of Company Common Stock, of which Two
Hundred (200) shares are issued and outstanding. All of the issued and
outstanding shares of Company Common Stock are held of record and beneficially
by the Shareholders, as set forth on Schedule 2.1 attached hereto. All of such
shares have been duly and validly issued and are fully paid and nonassessable.
There are no outstanding or authorized options, warrants, agreements, or
commitments to which Company is a party or which are binding upon Company,
providing for the issuance, disposition or acquisition of any shares of its
capital stock. All of the issued and outstanding capital stock of Company as
set forth on Schedule 2.1 was issued in compliance with applicable federal and
state securities laws. The Company does not own any capital stock or equity
interest in any other corporation, partnership or other entity.
3.3 Authorization. The execution and delivery of this Agreement by
Company and the agreements provided for herein, and the consummation by Company
of all transactions contemplated hereby, have been duly authorized by all
requisite corporate and shareholder action. This Agreement
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and all such other agreements and obligations entered into and undertaken in
connection with the transactions contemplated hereby to which Company is a
party constitute the valid and legally binding obligations of Company,
enforceable against Company in accordance with their respective terms, except
as enforceability may be limited or affected by applicable bankruptcy,
insolvency, moratorium, reorganization or other laws of general application
relating to or affecting creditors' rights generally.
The execution, delivery and performance by Company of this Agreement and
the agreements provided for herein, and the consummation by Company of the
transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to Company; (b) violate the provisions
of the Articles of Incorporation or Bylaws of Company; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (d) conflict with or result in the breach or termination of any term or
provision of, or constitute a default under, or cause any acceleration under,
or cause the creation of any lien, charge or encumbrance upon the properties or
assets of Company pursuant to, any indenture, mortgage, deed of trust or other
instrument or agreement to which Company is a party or by which Company or any
of its properties is or, to the knowledge of Company, may be bound, except for
violations or conflicts which individually or in the aggregate would not have a
material adverse effect on Company's financial condition or results of
operation.
3.4 Material Claims/Permitted Encumbrances. Company is, and at the
Closing will be, the true and lawful owner of its assets, and at the Closing
will have, good and valid, clear and record title to its assets, free and clear
of all material claims, liens, pledges, and encumbrances of any kind, except
as set forth on Schedule 3.4 attached hereto (the "Permitted Encumbrances").
For purposes of this Section 3.4, "material" shall mean any claims, liens,
pledges, and encumbrances in excess of Twenty-Five Thousand Dollars
($25,000.00) or any such claims, liens, pledges and encumbrances, regardless of
individual amount, which total One Hundred Thousand Dollars ($100,000.00) in
the aggregate.
3.5 Financial Statements.
(a) Company has previously delivered to Buyer its audited
balance sheets as of December 31, 1993, 1994 and 1995 (the "Audited
Balance Sheets") and the related statements of income, shareholders'
equity, retained earnings and changes in financial condition of Company
for the fiscal years then ended (collectively, including the Audited
Balance Sheets, the "Audited Financial Statements"). Company has also
previously delivered to Buyer its unaudited balance sheet of Company as
of June 30, 1996 (the "Current Balance Sheet") and the related
statements of income and schedule of operating expenses, for the
three-month period then ended (collectively, the "Current Financial
Statements"). The Audited Financial Statements, the Current Financial
Statements and the interim financial statements (the "Interim Financial
Statements") to be delivered pursuant to Article VI hereof
(collectively, the "Financial Statements") have been (or will be)
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles, applied
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consistently with past practice, and have been (or will be) certified by
Company's chief financial officer.
(b) The Financial Statements fairly present, as of their
respective dates, the financial condition and assets and liabilities of
Company and the results of operations of Company's business for the
periods indicated in accordance with the presentation method.
3.6 Absence of Undisclosed Liabilities. Except as and to the extent
(i) set forth in Schedule 3.6, (ii) reflected, reserved against or otherwise
disclosed in the Financial Statements, or (iii) incurred in the ordinary course
of business after June 30, 1996, and not material in amount, either
individually or in the aggregate, Company does not have any material liability
or obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise. For purposes of this Section 3.6, "material" means
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00).
3.7 Litigation. Except as set forth on Schedule 3.7 attached hereto,
Company is not a party to, or threatened with, any litigation, suit, action,
investigation, proceeding or controversy before any court, administrative
agency or other governmental authority relating to or affecting Company or the
business or condition (financial or otherwise) of Company. Company is not in
violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule of any court, administrative agency or governmental
authority or any regulation of any administrative agency or governmental
authority.
3.8 Insurance. True, correct and complete copies of all fire, theft,
casualty, general liability, workers compensation, business interruption,
environmental impairment, product liability, automobile and other insurance
policies insuring the business of Company and of all life insurance policies
maintained for any of its employees, specifying the type of coverage, the
amount of coverage, the premium, the insurer and the expiration date of each
such policy (collectively, the "Insurance Policies") and all claims made under
such Insurance Policies since January 1, 1991, have been delivered or made
available to Buyer. The Insurance Policies are in full force and effect. All
premiums due on the Insurance Policies or renewals thereof have been paid and
there is no default by Company under any of the Insurance Policies.
3.9 Inventory. True, correct and complete general list of inventory
as of June 30, 1996, including a description and Company's cost thereof, has
been delivered or was made available to Buyer. Such inventory consists of
items of a quality and quantity which are usable or saleable without discount
in the ordinary course of the business conducted by Company. The value of all
items of obsolete materials and of materials of below-standard quality has been
written down to realizable market value, and the values at which such inventory
is carried reflect the normal inventory valuation policy of Company of stating
the inventory at the lower of cost or market value in accordance with generally
accepted accounting principles.
3.10 Fixed Assets. The Current Financial Statements reflect the fixed
assets as of June 30, 1996. Company has heretofore delivered or made available
to Buyer true, correct and complete lists
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of all fixed assets as of June 30, 1996, including a description and the book
value thereof. All of the fixed assets are in good operating condition and
repair, normal wear and tear excepted, are currently used by Company in the
ordinary course of business and normal maintenance has been consistently
performed with respect to such fixed assets.
3.11 Leases. A true, correct and complete list of all leases of real
property, identifying separately each ground lease, to which Company is a party
(the "Leases"), has been delivered or was made available to Buyer. True,
correct and complete copies of the Leases, and all amendments, modifications
and supplemental agreements thereto, have previously been delivered by Company
to Buyer. The Leases are in full force and effect, are binding and enforceable
against Company, and to the best knowledge of Company, against each of the
parties thereto in accordance with their respective terms and, except as set
forth on Schedule 3.11, have not been modified or amended since the date of
delivery to Buyer. No party to any Lease has sent written notice to the other
claiming that such party is in default thereunder, which remains uncured.
Except as set forth on Schedule 3.11, there has not occurred, with respect to
Company, and to the knowledge of Company with respect to the other parties
thereto, any event which would constitute a breach of or default in the
performance of any material covenant, agreement or condition contained in any
Lease, nor to the knowledge of Company has there occurred any event which with
the passage of time or the giving of notice or both would constitute such a
breach or material default. Company is not obligated to pay any leasing or
brokerage commission relating to any Lease and, except as set forth on Schedule
3.11, will not have any enforceable obligation to pay any leasing or brokerage
commission upon the renewal of any Lease. No material construction, alteration
or other leasehold improvement work with respect to any of the Leases remains
to be paid for or to be performed by Company. Schedule 3.11 contains a
description of the amount required, if any, to provide for the restoration of
the properties subject to the Leases at the end of the respective Lease terms,
to the extent required by the Leases.
3.12 Change in Financial Condition and Assets. Since June 30, 1996,
there has been no change which materially and adversely affects the business,
properties, assets, condition (financial or otherwise) or prospects of Company
as reflected in the Current Financial Statements.
3.13 Tax Matters.
(a) For purposes of this Agreement: "Return" means any
return, declaration, report, statement or other document required to be
filed in respect of any Tax. "Tax" or "Taxes" means any federal, state,
local, foreign and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits,
customs duty or other tax, fee, assessment or charge of any kind
whatever, together with interest and any penalty, addition to tax or
additional amount with respect thereto. "Taxing Authority" means any
governmental authority responsible for the imposition of Taxes.
"Knowledge" means the knowledge of the Shareholders in their capacity as
officers, directors, and shareholders of Company.
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(b) Except as set forth on Schedule 3.13, to Company's
knowledge:
(i) Within the times and in the manner prescribed by
law (including any extensions duly granted by the appropriate
Taxing Authority), Company has, since January 1, 1991, filed all
Returns which are required to be filed;
(ii) With respect to all amounts in respect of Taxes
imposed upon Company for which it is liable to Taxing Authorities
or to other persons or entities (as, for example, under Tax
allocation agreements) with respect to all taxable periods or
portions of taxable periods ending on or before the Closing Date,
all applicable Tax laws and agreements have been fully complied
with, and all such amounts required to be paid by Company to
Taxing Authorities or others on or before the date hereof have
been paid;
(iii) No examination of the Returns of Company is
currently in progress nor threatened and no unresolved
deficiencies have been asserted or assessed against Company as a
result of any audit by any Taxing Authority and no such
deficiency has been proposed or threatened;
(iv) There are no liens for Taxes (other than statutory
liens for Taxes not yet delinquent) upon the assets of Company;
and
(v) Company is not a person other than a United States
person within the meaning of the IRC.
3.14 Accounts Receivable. Company has delivered or made available to
Buyer a true, correct and complete list of all accounts receivable, including
an aging thereof as of June 30, 1996. All accounts receivable arose out of the
sales of inventory or services in the ordinary course of business and are
collectible in the face value thereof within ninety (90) days of the date of
invoice, using normal collection procedures, net of the reserve for doubtful
accounts as set forth thereon, which reserve is adequate and was calculated in
accordance with generally accepted accounting principles consistently applied.
3.15 Books and Records. The general ledgers and books of account of
Company, all federal, state and local income, franchise, property and other tax
returns filed by Company, with respect to the assets, and all other books and
records of Company are in all material respects complete and correct and have
been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations.
3.16 Contracts and Commitments.
(a) Schedule 3.16 contains a true, complete and correct list
and description of the following contracts and agreements, whether
written or oral (collectively, the "Contracts"):
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(i) all loan agreements, indentures, mortgages and
guaranties to which Company is a party or by which Company or any
of its property is bound involving a commitment or obligation of
more than Ten Thousand Dollars ($10,000.00);
(ii) all pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, personal
property leases and lease purchase agreements relating to any of
the assets to which Company is a party or by which Company or any
of its property is bound which involve payment or receipts or a
commitment of more than Ten Thousand Dollars ($10,000.00);
(iii) all contracts, agreements, commitments purchase
orders or other understandings or arrangements to which Company
is a party or by which Company or any of its property is bound
which (A) involve payments or receipts by Company of more than
Ten Thousand Dollars ($10,000.00) during any twelve (12) month
period in the case of any single contract, agreement, commitment,
understanding or arrangement under which full performance
(including payment) has not been rendered by all parties thereto
or (B) which may materially adversely affect the condition
(financial or otherwise) or the properties, assets, business or
prospects of Company;
(iv) all collective bargaining agreements, employment
and consulting agreements, executive compensation plans, bonus
plans, deferred compensation agreements, pension plans,
retirement plans, employee stock option or stock purchase plans
and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which
Company is a party or by which Company or any of its property is
bound, if any;
(v) all agency, distributor, sales representative and
similar agreements to which Company is a party, if any;
(vi) all material contracts, agreements or other
understandings or arrangements among Company, any of its
shareholders or any affiliate of Company;
(vii) all material leases, whether operating, capital or
otherwise, under which Company is lessor or lessee; and
(viii) any other material agreement or contract entered
into by Company.
Except as otherwise expressly stated to the contrary, for the
purposes of this Section 3.16, the term "material" shall mean
obligations in excess of Twenty-Five Thousand Dollars ($25,000.00).
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(b) Except as set forth on Schedule 3.16:
(i) each Contract is a valid and binding agreement of
Company, enforceable against Company in accordance with its
terms, and Company does not have any knowledge that any Contract
is not a valid and binding agreement of the other parties
thereto, except as may be limited or affected by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws
of general application relating to or affecting creditors' rights
generally;
(ii) Company has fulfilled all material obligations
required pursuant to the Contracts to have been performed by
Company on its part prior to the date hereof, and Company has no
reason to believe that Company will not be able to fulfill, when
due, all of its obligations under the Contracts which remain to
be performed after the date hereof;
(iii) Company is not in breach of or in default under any
Contract, and no event has occurred which with the passage of
time or giving of notice or both would constitute such a default,
result in a loss of rights or result in the creation of any lien,
charge or encumbrance, thereunder or pursuant thereto;
(iv) there is no existing breach or default by any other
party to any Contract, and no event has occurred which with the
passage of time or giving of notice or both would constitute a
default by such other party, result in a loss of rights or result
in the creation of any lien, charge or encumbrance thereunder or
pursuant thereto;
(v) Company is not restricted by any Contract from
carrying on its business anywhere in the world; and
(vi) Company has no written or oral Contracts to sell
products or perform services which are expected to be performed
at, or to result in, a loss.
(c) Except as set forth on Schedule 3.16, the continuation,
validity and effectiveness of each Contract will not be affected by the
transactions contemplated by this Agreement and all such Contracts are
assignable to Buyer without a consent, or with consent which shall be
obtained prior to the Closing Date.
(d) True, correct and complete copies of all Contracts have
previously been delivered or made available by Company to Buyer.
3.17 Compliance with Agreements and Laws. Company has all requisite
licenses, permits and certificates, including environmental, health and safety
permits, from federal, state and local authorities necessary to conduct its
business and own and operate its assets (collectively, the "Permits"), except
where the failure to have such licenses, permits and certificates would not
have
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a material adverse effect on the business or financial condition of Company.
Except as set forth on Schedule 3.17, Company is not in violation of any law,
regulation or ordinance (including, without limitation, laws, regulations or
ordinances relating to building, zoning, environmental, disposal of hazardous
substances, land use or similar matters) relating to its properties, the
violation of which would have a material adverse effect on Company or its
properties; and the business of Company does not violate, in any material
respect, any federal, state, local or foreign laws, regulations or orders
(including, but not limited to, any of the foregoing relating to employment
discrimination, occupational safety, environmental protection, hazardous waste
(as defined in the Resource Conservation and Recovery Act, as amended, and the
regulations adopted pursuant thereto), conservation, or corrupt practices), the
enforcement of which would have a material and adverse effect on the results of
the operations, condition (financial or otherwise), assets, properties,
business or prospects of Company. Except as set forth on Schedule 3.17,
Company has not received any notice or communication from any federal, state or
local governmental or regulatory authority or otherwise of any such violation
or noncompliance.
3.18 Employee Relations.
(a) Company is in compliance with all federal, state and
municipal laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours, and is not engaged in any
unfair labor practice, and there are no arrears in the payment of wages
or social security taxes;
(b) none of the employees of Company is represented by any
labor union;
(c) there is no unfair labor practice complaint against
Company pending before the National Labor Relations Board or any state
or local agency;
(d) there is no pending labor strike or other material labor
trouble affecting Company (including, without limitation, any
organizational drive);
(e) there is no material labor grievance pending against
Company;
(f) there is no pending representation question respecting the
employees of Company before any local, state or federal agency; and
(g) there are no pending arbitration proceedings arising out
of or under any collective bargaining agreement to which Company is a
party, or to the best knowledge of Company, any basis for which a claim
may be made under any collective bargaining agreement to which Company
is a party.
(h) Schedule 3.18 sets forth a true, correct and complete
description of all contracts or agreements between Company and its
employees, including the job descriptions and salary or wage rates of
each of its employees, showing separately for each such person who
received an annual salary in excess of Twenty Thousand Dollars
($20,000.00) the
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amounts paid or payable as salary and bonus payments for the twelve (12)
month period ended June 30, 1996.
(i) For purposes of this Section 3.18, the term "employee"
shall be construed to include sales agents and other independent
contractors who spend a majority of their working time on Company's
business and who earn at least Twenty Thousand Dollars ($20,000.00)
annually.
3.19 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.19, since June 30, 1996, Company has not entered into any
transaction which is not in the usual and ordinary course of business, and,
without limiting the generality of the foregoing, Company has not:
(a) Incurred any material obligation or liability for borrowed
money;
(b) Discharged or satisfied any lien or encumbrance or paid
any obligation or liability, other than in the ordinary course of
business consistent with Company's prior business practice, other than
current liabilities reflected in the Current Balance Sheet;
(c) Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the assets other than in the ordinary course of
business consistent with Company's prior business practice;
(d) Sold or purchased, assigned or transferred any of its
tangible assets or canceled any debts or claims, except for inventory
sold and assets purchased in the ordinary course of business;
(e) Made any material amendment to or termination of any
Contract or done any act or omitted to do any act which would cause the
breach of any Contract;
(f) Suffered any losses, whether insured or uninsured, and
whether or not in the control of Company, in excess of Five Thousand
Dollars ($5,000.00) in the aggregate, or waived any rights of any value;
(g) Made any changes in compensation of its officers,
directors or employees inconsistent with past practice;
(h) Received notice of any litigation, warranty claim or
products liability claims; or
(i) Made any material change in the terms, status or funding
condition of any "employee plan," as defined in Section 3.22 hereof.
3.20 Suppliers. To Company's best knowledge, Schedule 3.20 sets forth
a true, correct and complete list of the names and addresses of the ten
suppliers of Company which accounted for the
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largest dollar volume of purchases by Company for the fiscal year ending
December 31, 1995, and for the subsequent period ended June 30, 1996. None of
such suppliers has notified Company that it intends to discontinue its
relationship with Company.
3.21 Trade Names and Other Intellectual Property.
(a) To the best knowledge of Company, Schedule 3.21 sets forth
a true, correct and complete list and, where appropriate, a description
of, all patents, patent applications, trade names, trademarks, trademark
applications for registration and registrations, copyright registrations
("Intellectual Property") used in the operation of the business of
Company. To the best knowledge of Company, true, correct and complete
copies of all such Intellectual Property have been previously delivered
or made available by Company to Buyer.
(b) Except as disclosed in Schedule 3.21, to the best
knowledge of Company, Company is the sole and exclusive owner of all
Intellectual Property and all designs, permits, labels and packages used
on or in connection therewith. Except as disclosed in Schedule 3.21,
Company has received no notice of, and Company has no knowledge of any
basis for, a claim against it that any of its operations, activities,
products or publications infringes on any patent, trademark, trade name,
copyright or other property right of a third party, or that, to the
Shareholders' knowledge, it is illegally or otherwise using the trade
secrets, formulae or any property rights of others. Except as disclosed
in Schedule 3.21, Company has no disputes with or claims against any
third party for infringement by such third party of any trade name or
other Intellectual Property of Company.
3.22 Employee Benefit Plans. Except as set forth on Schedule 3.22,
Company is not a party to, does not contribute to or maintain, and does not
have any current or future obligation or liability with respect to, any
pension, profit sharing, or other "employee pension benefit plan" (within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); any life, health, accident, disability, severance or other
"employee welfare benefit plan" (within the meaning of ERISA); or any other
"employee benefit plan" which is subject to ERISA (hereinafter collectively
referred to as "Benefit Plans"). With respect to those Benefit Plans set forth
on Schedule 3.22:
(a) Each such Benefit Plan (and each related trust, insurance
contract or fund) is in compliance in form and in operation with all
applicable requirements of ERISA, the IRC, and any applicable state law
or regulation; each such Benefit Plan has been administered in
accordance with its governing documents and all applicable laws and
regulations; and there has been no breach of fiduciary duty, prohibited
transaction, or other event with respect to any such Benefit Plan which
could result in an excise tax or other claim or liability against
Company, any Benefit Plan or any fiduciary of such Benefit Plan. The
requirements of IRC Section 4980B and Part 6 of Subtitle B of Title I of
ERISA relating to continuation of health coverage have been satisfied
with respect to each such Benefit Plan that is subject to such
requirements.
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(b) Each such Benefit Plan which is intended to be a
"qualified plan" for purposes of IRC Section 401(a) has received a
favorable determination letter from the Internal Revenue Service, and
each related trust which is intended to be exempt from taxation under
IRC Section 501(a) has been determined by the Internal Revenue Service
to be so exempt.
(c) Each such Benefit Plan is in compliance with the
applicable requirements for reporting and disclosure to participants
under ERISA with respect to that Benefit Plan, and all required annual
returns and other reports for each such Benefit Plan have been filed on
a timely basis with the Internal Revenue Service and the U.S. Department
of Labor.
(d) At no time during the five (5) calendar years preceding
the calendar year in which the Closing Date occurs has Company, or any
entity which is or was required to be aggregated with Company under IRC
Section 414, maintained or made any contributions to any defined benefit
pension plan or any multi-employer pension plan which is subject to
Title IV of ERISA.
(e) Upon request, Company will furnish to Buyer, with respect
to each such Benefit Plan, correct and complete copies of all plan
documents, all amendments, any related trust agreements, insurance
contracts or other funding arrangements, all current summary plan
descriptions and summaries of material modifications, the most recent
annual report (Form 5500 series), and the most recent Internal Revenue
Service determination letter, where applicable.
3.23 Regulatory Approvals. Except as set forth on Schedule 3.23, all
consents, approvals, authorizations and other requirements prescribed by any
law, rule or regulation which must be obtained or satisfied by Company and
which are necessary for the execution and delivery by Company of this Agreement
and the documents to be executed and delivered by Company in connection
herewith have been, or will be prior to the Closing Date, obtained and
satisfied.
3.24 Indebtedness To and From Officers, Directors and Shareholders.
Except as set forth on Schedule 3.24, Company is not indebted, directly or
indirectly, to any person who is an officer, director or shareholder of Company
or any affiliate of any such person in any amount whatsoever other than for
salaries for services rendered or reimbursable business expenses, and no such
officer, director, shareholder or affiliate is indebted to Company, except for
advances made to employees of Company in the ordinary course of business to
meet reimbursable business expenses anticipated to be incurred by such obligor.
Any amounts owed to a Shareholder by Company shall be paid to such Shareholder
by Company prior to the Closing. Any amounts owed by a Shareholder to Company
shall be paid by such Shareholder prior to the Closing.
3.25 Powers of Attorney and Suretyships. Company has no general or
special powers of attorney outstanding (whether as grantor or grantee thereof)
and has no obligation or liability (whether actual, accrued, accruing,
contingent or otherwise) as guarantor, surety, co-signor, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any person,
corporation,
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partnership, joint venture, association, organization or other entity, except
as endorser or maker of checks or letters of credit, respectively, endorsed or
made in the ordinary course of business.
3.26 Disclosure. To the best knowledge of Company, no representation
or warranty by Company or any Shareholder in this Agreement or in any Schedule
or Exhibit hereto, or in any list, statement, document or information set forth
in or attached to any Schedule delivered or to be delivered pursuant to this
Agreement, contains or will contain any untrue statement of a material fact.
IV.
REPRESENTATIONS OF BUYER AND SURVIVING SUBSIDIARY
Each of Buyer and Surviving Subsidiary represents and warrants to
Company and the Shareholders as follows:
4.1 Organization and Authority. Each of Buyer and Surviving
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has requisite power and
authority (corporate and other) to own its properties and to carry on its
business as now being conducted. Each of Buyer and Surviving Subsidiary has
full power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby. Certified copies of the Articles
of Incorporation, the Bylaws of each of Buyer and Surviving Subsidiary as
amended to date, and the Certificate of Designation with respect to shares of
Buyer Preferred Stock have been previously or will be prior to the Closing
delivered to Company, are complete and correct, and no amendments have been
made thereto or have been authorized since the date thereof.
4.2 Authorization. The execution and delivery of this Agreement by
each of Buyer and Surviving Subsidiary, and the agreements provided for herein,
and the consummation by each of Buyer and Surviving Subsidiary of all
transactions contemplated hereby, have been duly authorized by all requisite
corporate action. This Agreement and all such other agreements and written
obligations entered into and undertaken in connection with the transactions
contemplated hereby constitute the valid and legally binding obligations of
each of Buyer and Surviving Subsidiary, enforceable against each of Buyer and
Surviving Subsidiary in accordance with their respective terms.
4.3 Regulatory Approvals. All consents, approvals, authorizations
and other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by Buyer or Surviving Subsidiary and which are necessary
for the consummation of the transactions contemplated by this Agreement have
been, or will be prior to the Closing Date, obtained and satisfied.
4.4 Issuance of Shares. The issuance and delivery of the shares of
Buyer Common Stock and Buyer Preferred Stock by Buyer in accordance with this
Agreement have been, or prior to the Closing, will be, duly authorized by all
necessary corporate action on the part of Buyer, and all the
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shares of Buyer Common Stock and Buyer Preferred Stock have been duly reserved
for issuance. The shares of Buyer Common Stock and Buyer Preferred Stock, when
issued and delivered in accordance with the provisions of this Agreement will
be duly and validly issued, fully paid and nonassessable.
4.5 Surviving Subsidiary as New Corporation. Surviving Subsidiary is
a newly-formed corporation with no history of operations. Surviving
Subsidiary's authorized capital stock consists of One Thousand (1,000) shares
of common stock, $.01 par value, of which no shares are issued and outstanding.
There are no outstanding options to purchase any of said stock.
4.6 Buyer as Recently Operating Corporation. As of the date of this
Agreement, Buyer has had limited operations. Its authorized capital consists
of Twenty Million (20,000,000) shares of Buyer Common Stock and Ten Million
(10,000,000) shares of preferred stock, of which Two Million (2,000,000) shares
shall be designated as Series A Convertible Preferred Stock (i.e., Buyer
Preferred Stock) pursuant to the Certificate of Designation attached hereto as
Exhibit 1.9. Except as set forth in Schedule 4.6 hereto, there are no shares
of Buyer Common Stock or Preferred Stock issued and outstanding and no
outstanding options to purchase any stock of Buyer.
4.7 Litigation. Neither Buyer nor Surviving Subsidiary is the
subject of any claims, actions, proceedings, pending or threatened against
either of them, which if decided adversely, would materially and adversely
affect their respective businesses, assets or operations. As of the date
hereof, neither Buyer nor Surviving Subsidiary is subject to any order,
judgment, injunction or decree which will materially and adversely affects
their respective businesses, assets or operations.
4.8 Indebtedness To and From Officers, Directors and Shareholders.
Except as set forth on Schedule 4.8, Buyer and Surviving Subsidiary are not
indebted, directly or indirectly, to any person who is an officer, director or
shareholder of Buyer and/or Surviving Subsidiary or any affiliate of any such
entity in any amount whatsoever other than for salaries, and no such officer,
director, shareholder or affiliate is indebted to Buyer and/or Surviving
Subsidiary.
4.9 Disclosure. To the best knowledge of Buyer, no representation or
warranty by Buyer and Surviving Subsidiary in this Agreement or in any Schedule
or Exhibit hereto, or in any list, statement, document or information set forth
in or attached to any Schedule delivered or to be delivered pursuant to this
Agreement, contains or will contain any untrue statement of a material fact.
This representation and warranty shall not apply to any financial valuation,
financial projection or other financial information concerning Buyer and
Surviving Subsidiary provided to the Shareholders or Company pursuant to
Section 2.5 hereof.
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V.
ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS
5.1 Access to Management, Properties and Records.
(a) From the date of this Agreement until the Closing Date,
Company shall afford the officers, attorneys, accountants and other
authorized representatives of Buyer access upon reasonable notice and
during normal business hours to all management personnel, offices,
properties, books and records of Company, so that Buyer may have a
reasonable opportunity to make such investigation as it shall desire to
make of the management, business, properties and affairs of Company, and
Buyer shall be permitted to make abstracts from, or copies of, all such
books and records. Company shall furnish to Buyer such financial and
operating data and other information as to the business of Company as
Buyer shall reasonably request.
(b) If Buyer, at its option and expense, prior to the Closing
Date, elects to have a report or reports prepared by an engineer or
other professional selected by Buyer, certifying that the real property
associated with the business of Company (i) complies with all applicable
federal, state and local environmental and wetlands laws, rules and
regulations and that there is not now, and never has been, manufacture,
storage, or disposal of hazardous wastes at the real estate in violation
of said laws, rules and regulations, and (ii) complies with all
applicable building, health and fire codes, and subdivision control
laws, rules and regulations, Company shall cooperate with such engineer
or professional to the extent necessary to prepare such reports,
including, without limitation, providing such engineer or professional
access to such real property and necessary records, and arranging
interviews with employees of Company.
(c) Company shall authorize the release to Buyer of all files
pertaining to Company, or the business or operations of Company held by
any federal, state, county or local authorities, agencies or
instrumentalities.
(d) After the Closing Date, Buyer shall afford the
Shareholders and their attorneys, accountants and other authorized
representatives access, on reasonable notice during regular business
hours, to all books and records of Company, and Buyer shall permit the
making of abstracts from or copies of all such books and records.
5.2 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the respective businesses of
Company or Buyer which shall have been furnished by Buyer or Company to the
other party in connection with the transactions contemplated hereby or as
provided pursuant to this Article V shall not be disclosed to any person other
than their respective employees, directors, attorneys, accountants or financial
advisors, other than as contemplated herein or other than as required by
applicable law. In the event that the transactions contemplated by this
Agreement shall not be consummated, all such information which shall be in
writing shall be returned to the party furnishing the same, including, to the
extent reasonably practicable, all copies or reproductions thereof which may
have been prepared, and neither party
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shall at any time thereafter disclose to third parties, or use, directly or
indirectly, for its own benefit, any such information, written or oral, about
the business of the other party hereto. Notwithstanding the above, Buyer shall
include in its registration statement for the IPO and in the prospectus
included therewith information regarding Company, the business of Company, the
financial condition of Company and the terms of this Agreement. The duties of
confidentiality imposed under this Section 5.2 shall be in effect for a period
of three (3) years from the date of this Agreement.
5.3 Public Announcements. The Parties agree that prior to the
Closing Date, except as otherwise required by law, any and all public
announcements or other public communications concerning this Agreement and the
Merger shall be subject to the approval of all Parties.
VI.
PRE-CLOSING COVENANTS OF COMPANY
From and after the date hereof and until the Closing Date and completion
of the Merger, Company consents and agrees as follows:
6.1 Conduct of Business. Company shall carry on its business
diligently and substantially in the same manner as heretofore and shall not
make or institute any unusual or new methods of purchase, sale, shipment or
delivery, lease, management, accounting or operation, except as agreed to in
writing by Buyer which agreement shall not be unreasonably withheld. All of
the property of Company shall be used, operated, repaired and maintained in a
normal business manner consistent with past practice. McMillan shall continue
to serve as President and Congleton shall continue in his present capacity with
Company pending the Closing.
6.2 Absence of Material Changes. Without the prior written consent
of Buyer, which consent shall not be unreasonably withheld, Company shall not:
(a) (i) Take any action to amend its Articles of
Incorporation or Bylaws;
(ii) Issue any stock, bonds or other corporate
securities or grant any option or issue any warrant to purchase or
subscribe to any of such securities or issue any securities convertible
into such securities;
(iii) Incur any obligation or liability (absolute or
contingent), except current liabilities incurred and obligations under
contracts entered into in the ordinary course of business;
(iv) Declare or make any payment or distribution to its
shareholders with respect to their stock or purchase or redeem any
shares of its capital stock without first notifying Buyer in writing and
providing Buyer information regarding the nature and amount of such
payment or distribution;
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(v) Mortgage, pledge, or subject to any lien, charge or
any other encumbrance any of its assets except in the ordinary course of
business consistent with Company's prior business practices;
(vi) Sell, assign, or transfer any of its assets, except
for inventory sold in the ordinary course of business, at a normal
profit margin;
(vii) Cancel any debts or claims, except in the ordinary
course of business;
(viii) Merge or consolidate with or into any corporation
or other entity;
(ix) Make, accrue or become liable for any bonus, profit
sharing or incentive payment, except for accruals under existing plans,
if any, or increase the rate of compensation payable or to become
payable by it to any of its officers, directors or employees, other than
increases in the ordinary course of business consistent with past
practice;
(x) Make any election or give any consent under the IRC
or the tax statutes of any state or other jurisdiction or make any
termination, revocation or cancellation of any such election or any
consent or compromise or settle any claim for past or present tax due;
(xi) Modify, amend, alter or terminate any of its
executory contracts of a material value or which are material in amount;
(xii) Take or permit any act or constituting a breach or
default under any contract, indenture or agreement by which it or its
properties are bound;
(xiii) Fail to (A) preserve the possession and control of
its assets and business, (B) keep in faithful service its present
officers and key employees, (C) preserve the goodwill of its customers,
suppliers, agents, brokers and others having business relations with it,
and (D) keep and preserve its business existing on the date hereof until
after the Closing Date;
(xiv) Fail to operate its business and maintain its
books, accounts and records in the customary manner and in the ordinary
or regular course of business and maintain in good repair its business
premises, fixtures, inventory, furniture and equipment;
(xv) Enter into any leases, contracts, agreements or
understandings other than those entered into in the ordinary course of
business calling for payments which in the aggregate do not exceed Ten
Thousand Dollars ($10,000.00) for each such lease, contract, agreement
or understanding;
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(xvi) Create any new employment positions with a salary
in excess of Twenty Thousand Dollars ($20,000.00) per annum or replace
any existing employee with a salary not substantially similar to the
salary existing for such employee's position as of the date hereof,
provided that Buyer will not unreasonably withhold or delay its approval
of the creation of any such position or the hiring of any such person;
(xvii) Adopt any employee plan;
(xviii) Make any loans to any person or entity; or
(xix) Commit or agree to do any of the foregoing in the
future.
(b) Notwithstanding anything set forth above to the contrary,
Company shall have the right to distribute to the Shareholders as a
dividend prior to the Merger an amount in cash not to exceed Two Million
Eight Hundred Thousand Dollars ($2,800,000.00); provided, however, that
all of the operating assets of the Company shall be transferred to
Buyer.
6.3 Taxes. Company will, on a timely basis, file all tax returns for
and pay any and all taxes which shall become due on account of the operation of
the business of Company or the ownership of its assets on or prior to the
Closing Date except for those taxes which are being contested by Company in
good faith and of which Buyer has been notified in writing.
6.4 Delivery of Interim Financial Statements. As promptly as
possible following the last day of each month after the date hereof and prior
to the Closing Date, and in any event within fifteen (15) days after the end of
each such month, Company shall deliver to Buyer its balance sheet and related
statements of income, shareholders equity, retained earnings and changes in
financial condition for the one month period then ended, all certified by the
chief financial officer (collectively, the "Interim Financial Statements").
6.5 Compliance with Laws. Company will comply with all laws and
regulations which are applicable to it, its ownership of the assets or to the
conduct of its business and will perform and comply with all contracts,
commitments and obligations by which it is bound, except where the failure to
so comply would not have a material adverse effect on the assets, operations,
business or financial condition of Company.
6.6 Continued Truth of Representations and Warranties of the
Shareholders and Company. Neither the Shareholders nor Company will take any
actions which would result in any of the representations or warranties set
forth in Articles II or III, respectively, hereof being untrue in any material
respect (other than those representations or warranties which are qualified as
to materiality, as to which neither the Shareholders nor Company will take any
actions which would result in any of such representations or warranties being
untrue in any respect).
6.7 Continuing Obligation to Inform. From time to time prior to the
Closing, Company will deliver or cause to be delivered to Buyer supplemental
information concerning events
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subsequent to the date hereof which would render any statement, representation,
schedule or warranty in this Agreement or any information contained in any
Schedule inaccurate or incomplete in any material respect at any time after the
date hereof until the Closing Date.
6.8 Exclusive Dealing. As long as this Agreement is in effect,
Company and the Shareholders will not, directly or indirectly, through any
officer, director, agent or otherwise, (a) solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition
or purchase of all or a material portion of its assets, or any equity interest
in, Company or any equity investment, merger, consolidation or business
combination with Company, or (b) participate in any substantive discussions or
negotiations regarding, or furnish to any other person, any nonpublic
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. Company or the Shareholders shall
promptly notify Buyer if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made.
6.9 No Publicity. Company and the Shareholders shall make no public
announcement with respect to this Agreement or the transactions contemplated
hereby without the express prior consent of Buyer pursuant to Article V hereto.
Company and the Shareholders shall hold in confidence, and use their best
efforts to have all of their respective officers, directors and personnel hold
in confidence, the terms of this Agreement and the transactions contemplated
hereby.
6.10 Revised Schedules.
(a) Company's Schedules.
(i) No later than 5:00 p.m., Dallas time, on August 24,
1996, Company shall deliver to Buyer revised "redlined" versions, if
any, of the Schedules made a part of this Agreement. Buyer shall have
until 5:00 p.m., Dallas time, on August 28, 1996 to review and approve
such Schedules. Failure of Buyer to respond by 5:00 p.m., Dallas time,
on August 28, 1996, shall constitute approval thereof. In the Buyer
objects to any material change in the revised Schedule(s), Buyer shall
have the right to terminate this Agreement upon written notice to
Company and the Shareholders delivered by 5:00 p.m. on August 28, 1996.
In the event Buyer notifies Company and the Shareholders of its desire
to terminate this Agreement as provided herein, Company shall have until
5:00 p.m. on August 31, 1996 to remove the revised Schedules(s) or
otherwise delete the objectional materials and to close without such
Schedule(s) or materials being included therein. If the Company does
not remove the objectionable Schedules(s) or materials prior to 5:00
p.m. on August 31, 1996, then Buyer shall in writing either elect to
proceed to close this transaction without change in the objectionable
Schedule(s) or materials or to terminate this Agreement.
(ii) Consistent with its obligations under Section 6.7,
Company shall deliver to Buyer, no later than five (5) days prior to the
date of Buyer's preliminary prospectus for the IPO, any supplemental
information concerning events subsequent to the date of this Agreement.
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(iii) At any time prior to ten (10) business days before
the Closing, the Company shall have the right to deliver to Buyer
revised "redlined" Schedules. Buyer shall have the right to notify the
Company within five (5) business days of its receipt of the revised
Schedules of Buyer's objection to any material change in such Schedules
and of its election to terminate this Agreement. Failure of Buyer to
notify the Company of its election to terminate this Agreement within
five (5) business days of receipt of the revised Schedules shall
constitute approval thereof.
(b) Buyer's Schedules. No later than 5:00 p.m., Dallas time,
on August 24, 1996, Buyer shall deliver to Company any revised
"redlined" versions, if any, of the Schedules made a part of this
Agreement.
VII.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of Buyer:
7.1 Continued Truth of Representations and Warranties of Company;
Compliance with Covenants and Obligations. The representations and warranties
of Company and the Shareholders shall be true on and as of the Closing Date in
all material respects (other than those representations or warranties which are
qualified as to materiality, which representations and warranties shall be true
in all respects) as though such representations and warranties were made on and
as of such date, except for any changes permitted by the terms hereof or
consented to in writing by Buyer. Company and the Shareholders shall have
performed and complied in all material respects with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it or them prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of Company or the Shareholders to authorize or
carry out this Agreement shall have been taken. The Shareholders shall have
unanimously approved the Merger and the transactions contemplated hereby.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by Company and the Shareholders of the transactions
contemplated by this Agreement and the operation of Company's business by Buyer
shall have consented to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. Company
and the Shareholders shall have received all requisite consents and approvals
of all lenders, lessors and other third parties whose consent or approval is
required for Company to consummate the transactions contemplated by this
Agreement.
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7.5 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by
any governmental body or person whatsoever which shall seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
7.6 Review of Company Financial Statements. Buyer shall have
received satisfactory review from its designated representatives of Company's
financial statements for the period ended June 30, 1996, that discloses no
material adverse change in the financial condition of Company and the results
of operations of Company.
7.7 Adaptability of Company's Financial Statements. The Interim
Financial Statements of Company must, in the opinion of Buyer's independent
public accountant, be suitable or readily adaptable for inclusion in the
registration statements, prospectuses and annual reports to be filed by Buyer
with the SEC.
7.8 Review of Company's Compliance. Buyer shall have received a
satisfactory review from its designated representatives of Company's regulatory
practices and procedures, including, but not limited to, compliance with
federal, state and local laws and regulations governing Company's operations,
which discloses no material actual or probable violations, compliance problems
required capital expenditures or other substantive problem.
7.9 Update. Company shall have provided Buyer with a true, correct
and complete list of any material changes, as of the Closing Date, to the
inventory, the fixed assets, and the accounts receivable, including an aging
thereof.
7.10 Payables. On the Closing Date, Company will not have any
outstanding liabilities or unsatisfied obligations other than the leases,
utilities, employee wages (not more than seven (7) days in arrears), benefits
and other operating expenses incurred in the ordinary course of business.
7.11 Closing Deliveries. Buyer shall have received at or prior to the
Closing each of the following documents:
(a) From Escrow Agent the certificates evidencing Company
shares owned by the Shareholders for cancellation in connection with the
Merger, Company's stock record books and stock transfer books and the
Articles of Merger executed by Company;
(b) such contracts, files and other data and documents
pertaining to Company's business as Buyer may reasonably request;
(c) copies of the general ledgers and books of account of
Company, and all federal, state and local income, franchise, property
and other tax returns filed by Company since January 1, 1991;
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(d) such certificates of Company's officers and such other
documents evidencing satisfaction of the conditions specified in Article
VIII as Buyer shall reasonably request;
(e) a certificate of the Secretary of State of the State of
Texas as to the legal existence and good standing (including tax) of
Company in Texas;
(f) certificates of the Secretary of Company attesting to the
incumbency of Company's officers, respectively, the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement,
and the authenticity and continuing validity of the charter documents
delivered pursuant to Section 3.1;
(g) the forms of Spousal Consents in the form attached hereto
as Exhibit 2.3, executed by each Shareholder's respective spouse; and
(h) such other documents, instruments or certificates as Buyer
may reasonably request.
VIII.
CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SHAREHOLDERS
The obligations of Company and the Shareholders under this Agreement are
subject to the fulfillment, at the Closing Date, of the following conditions
precedent, each of which may be waived in writing at the sole discretion of
Company and the Shareholders:
8.1 Continued Truth of Representations and Warranties of Buyer;
Compliance with Covenants and Obligations. The representations and warranties
of Buyer in this Agreement shall be true on and as of the Closing Date in all
material respects (other than those representations or warranties which are
qualified as to materiality, which representations and warranties shall be true
in all respects) as though such representations and warranties were made on and
as of such date, except for any changes consented to in writing by Company.
Buyer shall have performed and complied in all material respects with all
terms, conditions, obligations, agreements and restrictions required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
8.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of Buyer to authorize or carry out this
Agreement shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.4 Consents of Third Parties. Buyer shall have received all
requisite consents and approvals of all third parties whose consent or approval
is required in order for Buyer to consummate
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the transactions contemplated by this Agreement, including, without limitation,
those set forth on Schedule 8.4 attached hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any
court or other governmental body shall have been instituted or threatened by
any governmental body or person whatsoever which shall seek to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
8.6 Closing Deliveries. Company and the Shareholders shall have
received at or prior to the Closing each of the following:
(a) the Merger Consideration;
(b) such certificates of Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this
Article VIII as Company shall reasonably request;
(c) a certificate of the Secretary of State of the State of
Texas as to the legal existence and good standing (including tax) of
Buyer in Texas;
(d) a certificate of the Secretary of Buyer attesting to the
incumbency of Buyer's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered
pursuant to Section 4.1;
(e) Buyer shall have executed a three-year employment contract
with Congleton and a one-year consulting agreement with McMillan in the
forms attached hereto collectively as Exhibit 8.6(e); and
(f) such other documents, instruments or certificates as
Company may reasonably request.
8.7 Tax Opinion. Company and the Shareholders shall have received
the opinion of Wolin, Fuller, Ridley & Miller LLP, dated as of the Closing
Date, to the effect that (i) the Merger shall constitute a reorganization under
Section 368(a) of the IRC; (ii) Buyer, Company and Surviving Subsidiary will
each be a party to that reorganization; (iii) no gain or loss shall be
recognized by the Shareholders upon the receipt of the Buyer Common Stock and
the Buyer Preferred Stock pursuant to the Merger; and (iv) gain or loss shall
be recognized by the Shareholders who receive the Cash Portion, if the Company
shares were held by such Shareholders as a capital asset at the time of the
consummation of the Merger.
8.8 Release of Personal Guaranties. Buyer shall cause the
Shareholders to be released within one hundred twenty (120) days after the IPO
Funding from any personal guaranties made by
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the Shareholders of any indebtedness of Company, which guaranties are set forth
on Schedule 8.8 hereto.
8.9 Election of Directors. As of the Effective Time of the Merger,
Troutman and Congleton shall each have been elected to the Board of Directors
of Buyer to serve a three (3) year term. Messrs. McMillan and Smith shall
deliver letters at Closing agreeing not to vote to remove without cause Messrs.
Troutman and Congleton from the Board of Directors during such three-year term.
Gerard Smith shall be elected a director for a three (3) year term. Any other
nominees to the Board of Directors shall be approved by either McMillan or
Congleton, which approval shall not be unreasonably withheld. Gerald McMillan
shall continue to serve as a director of Buyer. In the event that Troutman
resigns from the Board, he shall have the right to nominate his successor to
serve the remainder of his term.
8.10 Delivery of Registration Statements to the Shareholders. Buyer
shall furnish to the Shareholders true and complete copies of all registration
statements and prospectuses filed by Buyer with the Securities and Exchange
Commission (the "SEC") relating to the IPO, all amendments and supplements
thereto and all documents and correspondence delivered to the SEC in connection
with the IPO.
IX.
INDEMNIFICATION
9.1 By Buyer, Surviving Subsidiary, Company, Congleton and McMillan.
Buyer and Surviving Subsidiary on the one hand and Company, Congleton and
McMillan on the other hand each hereby agree to indemnify and hold harmless the
other against all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or threatened
actions) (collectively "Damages") reasonably incurred by Buyer or Surviving
Subsidiary or Company, Congleton and McMillan in connection with each and all
of the matters set forth below. The obligations of Congleton and McMillan to
indemnify shall be several and shall be expressly limited as set forth below:
(a) Any breach by the indemnifying party of any representation
or warranty made by such Indemnifying Party (as defined below) in this
Agreement;
(b) Any breach of any covenant, agreement or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument or document contemplated by this Agreement; and
(c) Any misrepresentation contained in any statement,
certificate or schedule furnished by the indemnifying party pursuant to
this Agreement or in connection with the transactions contemplated by
this Agreement.
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McMillan and Congleton agree to indemnify Buyer for any breaches of any
representation or warranty, covenant, agreement or obligation of the Company
made or contained, respectively, in this Agreement or any other agreement,
instrument or document contemplated by this Agreement, or any misrepresentation
by Company, as described in (a) through (c) above; provided, however, that
McMillan and Congleton shall have no obligation to indemnify Buyer hereunder
unless such Shareholder, as applicable, had actual knowledge of the subject
matter of such representation, warranty, covenant, agreement or obligation.
McMillan shall be deemed to have knowledge of Tax matters.
9.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") of the claim and, when known, the facts constituting
the basis for such claim. No claim or claims for indemnification shall be
asserted against Congleton or McMillan unless the total amount of the
Indemnified Party's claim or claims for damages, excluding costs, fees,
attorneys' fees, and exemplary/punitive damages, equals individually or in the
aggregate at least One Hundred Fifty Thousand Dollars ($150,000.00). In the
event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice to
the Indemnifying Party shall specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control
of such suit after notification thereof as provided in Section 9.3 of this
Agreement in which case the Indemnified Party may settle or compromise such
claim without the prior consent of the Indemnifying Party. If the Indemnified
Party fails to give prompt notice of any claim and such failure prejudices the
Indemnifying Party's position or its ability to defend the claim, the
Indemnifying Party's liability to the Indemnified Party shall be reduced by the
amount, if any, demonstrated to be directly attributable to the failure to give
such notice in a timely manner.
9.3 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out of any claim
or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to
indemnify the Indemnified Party with respect to all elements of such claim.
The Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within thirty (30) days after the date such claim is made,
(a) the Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the Indemnifying Party,
on such terms as the Indemnified Party may deem appropriate, and (b) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the
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manner in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such third party claim in a reasonably prudent manner.
9.4 Payment of Indemnification Obligation. All indemnification by
Buyer, Company or a Shareholder hereunder shall be effected by payment by wire
transfer or delivery of a cashier's or certified check in the amount of the
indemnification liability. In no event shall any Shareholder be required to
pay to Buyer in accordance with this Article IX an aggregate amount greater
than the amount of the cash received by such Shareholder hereunder from Buyer
on the Closing Date.
9.5 Survival of Representations, Claims for Indemnification. All
representations and warranties made by the Parties herein or in any instrument
or document furnished in connection herewith shall survive the Closing and any
investigation at any time made by or on behalf of the Parties. All such
representations and warranties shall expire on the date which is twelve (12)
months after the Closing Date. Notwithstanding the above, claims resulting
from any breach of any representation or warranty concerning Tax or Employee
Benefit Plan matters shall expire one hundred twenty (120) days after the
expiration of any applicable statute of limitations.
X.
POST-CLOSING AGREEMENTS
The Parties agree that from and after the Closing Date as specifically
provided below:
10.1 Proprietary Information.
(a) The Shareholders shall hold in confidence, and use their
best efforts to have all of their agents, accountants and attorneys and
Affiliates hold in confidence, all knowledge and information of a secret
or confidential nature with respect to the business of Company and shall
not disclose, publish or make use of the same without the consent of
Buyer, except to the extent that such information shall have become
public knowledge other than by breach of this Agreement by the
Shareholders.
(b) The Shareholders agree that the remedy at law for any
breach of this Section 10.1 would be inadequate and that Buyer shall be
entitled to injunctive relief in addition to any other remedy it may
have upon breach of any provision of this Section 10.1.
10.2 No Solicitation or Hiring of Former Employees. Except as
provided by law, for a period of three (3) years after the Closing Date, no
Affiliate of Company (including the Shareholders) shall solicit any person who
was an employee of Company on the Closing Date to terminate his employment with
Company or Buyer or to become an employee of such Affiliate or an entity
controlled by such Affiliate or hire any person who was such an employee on the
date hereof or on the Closing Date.
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10.3 Non-Competition Agreement.
(a) For a period of three (3) years after the Closing Date,
the Shareholders or any entity owned or controlled by a Shareholder
shall not (i) market, rent or sell any product which has the same or
substantially the same form, function and primary application as any
existing or proposed product marketed, rented or sold by Company or
Buyer on or prior to the Closing Date or (ii) engage in any business
competitive with the business of Company or Buyer as conducted on the
date hereof or on the Closing Date, in the metropolitan areas where
Company conducted its business, provided that nothing herein shall
prohibit any Shareholder from owning not more than two percent (2%) of
the total outstanding stock of a publicly-held company which engages in
any business competitive with the business of Company as conducted on
the date hereof or on the Closing Date.
(b) The Parties agree that the duration and geographic scope
of the non-competition provision set forth in this Section 10.3 are
reasonable. In the event that any court determines that the duration or
the geographic scope, or both, are unreasonable and that such provision
is to that extent unenforceable, the Parties agree that the provision
shall remain in full force and effect for the greatest time period and
in the greatest area that would not render it unenforceable. The
Parties intend that this non-competition provision shall be deemed to be
a series of separate covenants, one for each and every county of each
and every state of the United States of America and each and every
political subdivision of each and every country outside the United
States of America where this provision is intended to be effective. The
Shareholders agree that damages are an inadequate remedy for any breach
of this provision and that Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the
form of preliminary and permanent injunctions without bond or other
security upon any actual or threatened breach of this non-competition
provision.
10.4 Use of Name. Each of the Shareholders agrees not to use the name
"BodyBilt" or any derivation thereof after the Closing Date in connection with
any business related to, competitive with, or an outgrowth of, the business
conducted by Company on the date hereof.
10.5 Cooperation in Litigation. Each Party will fully cooperate with
the other in the defense or prosecution of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such Party
relating to or arising out of the conduct of the business of Company prior to
or after the Closing Date (other than litigation arising out the transactions
contemplated by this Agreement). The Party requesting such cooperation shall
pay the out-of-pocket expenses (including legal fees and disbursements) of the
Party providing such cooperation and of its officers, directors, employees and
agents reasonably incurred in connection with providing such cooperation, but
shall not be responsible to reimburse the Party providing such cooperation for
such Party's time spent in such cooperation or the salaries or costs of fringe
benefits or similar expenses paid by the Party providing such cooperation to
its officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
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<PAGE> 44
10.6 Payment of Obligations to Shareholders and Company. Within one
hundred twenty (120) days of the Closing Date, all amount unpaid to Troutman
with respect to the Seventy-Five Thousand Dollar ($75,000.00) loan reflected on
Schedule 3.24 shall be paid to Troutman by Surviving Subsidiary in full.
Within one hundred twenty (120) days of the Closing Date, all amounts owed by
Congleton to Company with respect to the Thirty-Five Thousand Dollars loan
reflected on Schedule 3.24 shall be repaid by Congleton to Surviving Subsidiary
in full.
XI.
TERMINATION
11.1 Termination by Agreement of the Parties. This Agreement may be
terminated at any time by the mutual written agreement of the Parties. In the
event of such termination by agreement, Buyer shall have no further obligation
or liability to Company or the Shareholders under this Agreement, and Company
and the Shareholders shall have no further obligation or liability to Buyer
under this Agreement.
11.2 Termination by Reason of Breach. This Agreement may be
terminated by Company if, at any time prior to the Closing, there shall occur a
breach of any of the representations, warranties or covenants of Buyer or the
failure by Buyer to perform any condition or obligation hereunder, and may be
terminated by Buyer if at any time prior to the Closing there shall occur a
breach of any of the representations, warranties or covenants of Company and/or
the Shareholders or the failure of Company and/or the Shareholders to perform,
when due to be performed, any condition or obligation hereunder. In the event
of such termination by agreement, Buyer shall have no further obligation or
liability to Company under this Agreement, and Company and the Shareholders
shall have no further obligation or liability to Buyer under this Agreement.
11.3 Termination Upon Failure of IPO Funding. This Agreement shall
automatically terminate in the event the Shareholders have not received the
Merger Consideration as of 5:00 p.m., Dallas time, on March 20, 1997.
XII.
BROKERS
12.1 For Company and the Shareholders. Company and the Shareholders
represent and warrant that they have not engaged any broker or finder or
incurred any liability for brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement. The
Shareholders agree to indemnify and hold harmless Buyer against any claims or
liabilities asserted against it by any person acting or claiming to act as a
broker or finder on behalf of Company and/or the Shareholders.
12.2 For Buyer. Buyer represents and warrants that it has not engaged
any broker or finder or incurred any liability for brokerage fees, commissions
or finder's fees in connection with the transactions contemplated by this
Agreement. Buyer agrees to indemnify and hold harmless
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<PAGE> 45
Company and the Shareholders against any claims or liabilities asserted against
it by any person acting or claiming to act as a broker or finder on behalf of
Buyer.
XIII.
NOTICES
Any notices or other communications required or permitted hereunder
shall be in writing and shall be sufficiently given if delivered personally or
sent by telex, federal express, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may have
given notice:
To Company: BodyBilt Seating, Inc.
One BodyBilt Place
600 S. Highway 6
Navasota, Texas 77868-4108
Attention: Mark McMillan
With a copy to: Winstead, Sechrest & Minick, P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75201
Attention: Thomas W. Hughes, Esq.
To Buyer or the ErgoBilt, Inc.
Surviving Subsidiary: EB Subsidiary, Inc.
5000 Quorum Drive, Suite 147
Dallas, Texas 75240
Attention: Gerard Smith
With a copy to: Wolin, Fuller, Ridley & Miller LLP
3100 Bank One Center
1717 Main Street
Dallas, TX 75201-4681
Attention: Norman R. Miller, Esq.
To a Shareholder: Mark McMillan
2506 River Forest
Bryan, Texas 77802
Dr. Richard Troutman
10225 Collins Avenue
Bal Harbour, Florida 33154
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<PAGE> 46
Drew Congleton
2815 Monzano Circle
College Station, Texas 77845
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally; or
(b) three (3) business days after being sent, if sent by registered or
certified mail.
XIV.
ARBITRATION, VENUE, AND BINDING EFFECT
14.1 Arbitration. Any dispute, controversy or claim between or among
the Parties arising out of or relating to this Agreement, a breach hereof or
the transactions contemplated hereby, shall be settled by arbitration in
accordance with the provisions of this Article XV. Any arbitration pursuant to
this Article XV shall be conducted by a single arbitrator appointed by the
Houston, Texas, office of the American Arbitration Association upon the request
of a Party. The arbitrator shall have a minimum of five (5) years of
experience in the area of business relevant to the particular dispute. Each
Party shall be permitted to submit only one proposal to the arbitrator, and the
arbitrator shall be required to choose one of such two proposals as the
resolution of the dispute. The arbitrator may proceed to a resolution
notwithstanding the failure of a Party to participate in the proceedings. Each
Party shall pay such Party's own costs and expenses in connection with any such
arbitration, and the Parties shall share equally in the fees and expenses of
the arbitrator.
14.2 Venue/Binding Effect. The Parties agree that any such
arbitration will occur in College Station, Texas, any such arbitration award
shall be final and binding upon the Parties, may be entered in any court having
jurisdiction and shall not be appealable by either Party in any court.
XV.
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and assigns, except that Buyer and
Company may not assign their respective obligations hereunder without the prior
written consent of the others; provided, however, that Buyer may assign this
Agreement, and its rights and obligations hereunder, to a subsidiary or
affiliate provided that such subsidiary or affiliate is the entity which
conducts or is anticipated to conduct the IPO. Any assignment in contravention
of this provision shall be void. No assignment shall release Buyer from any
obligation or liability under this Agreement.
XVI.
ENTIRE AGREEMENT; AMENDMENTS; ATTACHMENTS
This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the Parties pursuant hereto represent the
entire understanding and agreement among the Parties with respect to the
subject matter hereof and supersede all prior oral and written and all
40
<PAGE> 47
contemporaneous oral negotiations, commitments and understandings among such
Parties, including that certain letter agreement among the Parties dated May
20, 1996. Buyer, Company and the Shareholders may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by all Parties.
If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
XVII.
EXPENSES
Except as otherwise expressly provided herein, Buyer on behalf of Buyer
and Surviving Subsidiary, and Company, on behalf of Company and the
Shareholders, shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby. Buyer shall pay the costs
and expenses of any audit conducted by, or at the request of, Buyer, and
Company shall pay the costs and expenses of any accounting services provided to
Company and/or the Shareholders conducted by or at the request of Company
and/or the Shareholders in connection with the transactions contemplated hereby
(other than costs and expenses for accounting services provided to the
Shareholders after the Closing which shall be borne by the Shareholders).
XVIII.
LEGAL FEES
In the event legal proceedings are commenced by Buyer against Company
and/or the Shareholders, or by Company and/or the Shareholders against Buyer,
in connection with this Agreement or the transactions contemplated hereby, the
Party or Parties which do not prevail in such proceedings shall pay the
reasonable attorneys' fees and other costs and expenses, including
investigation costs, incurred by the prevailing Party or Parties in such
proceedings.
XIX.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
XX.
SECTION HEADINGS
The section headings are for the convenience of the Parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
Parties.
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XXI.
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
XXII.
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of
and on the date first above written.
BODYBILT SEATING, INC., A Texas Corporation
By: /s/ MARK McMILLAN
-----------------------------------
Printed Name: Mark McMillan
Title: President
SHAREHOLDERS:
/s/ MARK McMILLAN
--------------------------------------
Mark McMillan
--------------------------------------
Dr. Richard Troutman
/s/ DREW CONGLETON
--------------------------------------
Drew Congleton
ERGOBILT, INC., A Texas Corporation
By: /s/ GERARD SMITH
-----------------------------------
Printed Name: Gerard Smith
Title: President
EB Subsidiary, Inc., A Texas Corporation
By: /s/ GERARD SMITH
-----------------------------------
Printed Name: Gerard Smith
Title: President
43
<PAGE> 1
EXHIBIT 10(a)(1)
LOAN AGREEMENT
June 30, 1996
BETWEEN
- --------------------------------------------------------------------------------
BORROWER and LENDER
BodyBilt Seating, Inc. The First National Bank
One BodyBilt Place of Bryan
Navasota, Texas 77868 2807 Texas Ave.
Bryan, Texas 77802
- --------------------------------------------------------------------------------
This Loan Agreement (Agreement) is made on the above date by and between
Borrower and Lender.
1. THE LOAN. Lender agrees to lend and Borrower agrees to borrow an
amount not to exceed the sum of Two Million and No/100 --- Dollars
($2,000,000.00) (the Loan) on the terms and conditions set forth
herein. This loan will be evidenced by Borrower's Note or Notes in the
form attached hereto as Exhibit A, or any renewal thereof with
interest and principal payable as stated therein (the Note).
2. SECURITY. When Collateral is pledged as security for the Loan,
Borrower will grant to Lender a first lien in the Collateral (unless
otherwise represented) and agrees to do all things necessary to
perfect the lien of Lender in such Collateral.
3. GUARANTEES. This loan will be unconditionally guaranteed as evidenced
by guarantees executed by Mark A. McMillan.
4. REPRESENTATIONS.
A. GOOD STANDING. Borrower is a corporation, duly organized and
in good standing, under the laws of The State of Texas and has
the power to own its property and to carry on its business in
each jurisdiction in which Borrower operates.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to enter into this Agreement, to make the borrowing
hereunder, to execute and deliver the Note and to incur the
obligations provided for herein, all of which has been duly
authorized by all proper and necessary corporate action. No
consent or approval of stockholders or of any public authority
is required as a condition to the validity of this Agreement
or the Note, and Borrower is in compliance with all laws and
regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement constitutes, and the Note
when issued and delivered pursuant hereto for value received
will constitute, valid and legally binding obligations of
Borrower in accordance with their terms.
D. LITIGATION. There are no proceedings pending or, to the
knowledge of Borrower, threatened before any court or
administrative agency which will or may have a material
adverse effect on the financial condition or operations of
1
<PAGE> 2
Borrower or any subsidiary, except as disclosed to Lender in
writing prior to the date of this agreement.
E. NO CONFLICTING AGREEMENTS. There are no charter, bylaw or
stock provisions of Borrower and no provisions of any existing
agreement, mortgage, indenture or contract binding on Borrower
or affecting its property, which would conflict with or in any
way prevent the execution, delivery or carrying out of the
terms of this Agreement and the Note,
F. OWNERSHIP OF ASSETS. Borrower has good title to any Collateral
pledged and the Collateral is owned free and clear of liens.
Borrower will at all times maintain its tangible property,
real and personal, in good order and repair taking into
consideration reasonable wear and tear.
G. TAXES. All income taxes and other taxes due and payable
through the date of this Agreement have been paid prior to
becoming delinquent.
H. FINANCIAL STATEMENTS. The books and records of Borrower
properly reflect the Borrower's financial condition, and there
has been no material change in Borrower's financial condition
as represented in statements dated March 31, 1996.
I. PLACE OF BUSINESS. Borrower's principal place of business is
in Navasota, Texas.
J. LEASES. Borrower is not the lessee of any real or personal
property except as has been disclosed in writing to Lender.
5. AFFIRMATIVE COVENANTS. So long as Borrower may borrow hereunder and
until payment in full of the Note and performance of all other
obligations of Borrower hereunder, Borrower will
A. WORKING CAPITAL AND TANGIBLE NET WORTH. In accordance with
generally accepted accounting principles:
1. Maintain working capital of not less than
$500,000.00.
2. Maintain a ratio of current assets to current
liabilities of not less than 1.50 to 1.
3. Maintain tangible net worth of not less than
$1,750,000.00.
4. Not permit the ratio of tangible net worth to total
liabilities to be less than 1 to 1.
B. FINANCIAL STATEMENTS. Maintain a system of accounting
satisfactory to Lender and in accordance with generally
accepted accounting principles consistently applied, and will
permit Lender's officers or authorized representatives to
visit and inspect Borrower's books of account and other
records at such reasonable times and as often as Lender may
desire, and will pay the reasonable fees and disbursements of
any accountants or other agents of Lender selected by Lender
for the foregoing purposes. Unless written notice of another
location is given to Lender, Borrower's books and records will
be located at: One BodyBilt Place, Navasota, Texas and 4445
Carter Creek Parkway, Bryan, Texas.
2
<PAGE> 3
1. Furnish to Lender year end CPA audited financial
statements with a nonqualified opinion to include
balance sheet, operating statement and surplus
reconciliation, together with an officer's
certificate of compliance with this Agreement
including computations of all quantitative covenants,
within 120 days after the end of each annual
accounting period.
2. Furnish to Lender quarterly financial statements, to
include balance sheet and profit and loss statement,
within 30 days of the end of each such accounting
period.
3. Promptly provide Lender with such additional
information, reports or statements respecting its
business operations and financial condition as Lender
may reasonable request from time to time. This
includes a quarterly aging of accounts receivable and
a list of inventory.
C. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar
businesses operating in the same vicinity, specifically to
include a policy of fire and extended coverage insurance
covering all assets, business interruption insurance and
liability insurance, all to be with such companies and in such
amounts satisfactory to Lender and to contain a mortgage
clause naming Lender as its interest may appear. Evidence of
such insurance will be supplied to Lender.
D. CORPORATE EXISTENCE AND COMPLIANCE. Maintain its corporate
existence in good standing and comply with all laws,
regulations and governmental requirements applicable to it or
to any of its property, business operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Lender in
writing of any condition, event or act which comes to its
attention that would or might materially affect Borrower's
financial condition, Lender's rights in or to the Collateral
under this Agreement or the loan documents, and of any
litigation filed against Borrower.
F. TAXES. Pay all taxes as the same become due and payable.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, privileges,
franchises, certificates and the like necessary for the
operation of its business.
H. REPORTING. Borrower shall submit to Lender within thirty (30)
days of the end of each quarter a Certificate in form or
substance as is acceptable to Lender executed by an officer of
the Corporation certifying that none of the Affirmative or
Negative Covenants within this Agreement have been violated
during the previous quarterly period and that Borrower has not
committed any violation of such Covenants without the prior
written consent of Lender.
6. NEGATIVE COVENANTS. So long as Borrower may borrow hereunder and until
payment in full of the note and performance of all other obligations
of Borrower
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<PAGE> 4
hereunder, Borrower will not, without the prior written consent of
Lender, which will not be unreasonably withheld,
A. CAPITAL EXPENDITURES. Make capital expenditures (including
capitalized leases) in excess of $ 900,000.00 during any 12
month period beginning January 1, 1996.
B. COMPENSATION. Pay by way of salary, bonus, loan or otherwise,
aggregate annual compensation in excess of $700,000.00 to Mark
McMillan and/or Richard Troutman and/or Drew Congleton and/or
any entity affiliated with same.
C. TRANSFER OF ASSETS. Enter into any merger or consolidation, or
sell, lease, assign or otherwise dispose of or transfer any
assets except in the normal course of its business.
D. LIENS. Fail to promptly pay all lawful claims, whether for
labor, materials or otherwise.
E. LOANS. Make any loans, advances (other than minor employee
advances) or investments to or in any partnership, joint
venture, corporation or other entity or person(s), except for
the purchase of obligations of Lender or U.S. Government
obligations.
F. BORROWINGS. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety
or guarantor for the debt of another, or otherwise) other than
to Lender, except for normal trade debts incurred in the
ordinary course of Borrower's business, and the existing
indebtedness listed in Exhibit B.
G. DIVIDENDS. Declare any dividends (other than dividends payable
in capital stock of Borrower) on any shares of any class of its
capital stock, or apply any of its property or assets to the
purchase, redemption or other retirement of any shares of any
class of capital stock of Borrower or in any way amend its
capital structure.
H. EXECUTIVE PERSONNEL. Substantially change its present executive
or management personnel including the employment of Mark A.
McMillan, contractual or otherwise.
I. CHARACTER OF BUSINESS. Change the general character of business
as conducted at the date hereof, or engage in any type of
business not reasonably related to its business as presently
and normally conducted.
J. VIOLATE OTHER COVENANTS. Violate or fail to comply with any
covenants or agreements regarding other debt which will or
would with the passage of time or upon demand cause the
maturity of any other debt to be accelerated.
K. INVESTMENTS. Invest in any partnership, joint venture,
corporation, or any other asset outside of the Borrower's
normal business.
7. EVENTS OF DEFAULT. If one or more of the following events of default
shall occur, all outstanding principal plus unpaid interest of the
Loan and any other
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<PAGE> 5
indebtedness of Borrower to Lender shall be due and payable
immediately and Lender shall have no further obligation to fund under
this Agreement:
A. Default shall be made in the payment of any installment of
principal or interest upon the Note or any other obligation of
Borrower to Lender when due and payable, whether at maturity
or otherwise; or
B. Default shall be made in the performance of any term, covenant
or agreement contained herein or in any security agreement,
deed of trust, mortgage, assignment or other contract securing
payment of any indebtedness of Borrower to Lender; or
C. Any representation or warranty herein contained or in any
financial statement, certificate, report or opinion submitted
to Lender in connection with the Loan or pursuant to the
requirements of this Agreement shall prove to have been
incorrect or misleading in any material respect when made; or
D. Any judgment against Borrower or any attachment or other levy
against the property of Borrower with respect to a claim
remains unpaid, unstayed on appeal, undischarged, not bonded
or not dismissed for a period of 30 days; or
E. A guarantor shall die or be adjudicated as bankrupt, or there
is a substantial change in ownership or control of Borrower;
or
F. Borrower makes an assignment for the benefit of creditors,
admits in writing its inability to pay its debts generally as
they become due, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any
tribunal for any receiver or any trustee of Borrower or any
substantial part of its property, commences any action
relating to Borrower under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in
effect, or if there is commenced against Borrower any such
action, or Borrower by any act indicates its consent to or
approval of any trustee for Borrower or any substantial part
of its property, or suffers any such receivership or trustee
to continue undischarged;
8. MISCELLANEOUS.
A. EXPENSES. Borrower agrees to pay all out-of-pocket expenses of
Lender in connection with this Agreement and the collection of
the Note. Borrower also agrees to pay all reasonable
attorney's fees and all expenses incurred in recording the
documents securing the Loan. To the extent not prohibited by
applicable law, Borrower will pay all costs and expenses and
reimburse Lender for any and all expenditures of every
character incurred or expanded from time to time, regardless
of whether or not a default shall have occurred, in connection
with Lender's evaluating, monitoring, administering and
protecting the Collateral, and creating, perfecting and
realizing upon Lender's security interest in and liens on the
Collateral, and all costs and expenses relating to Lender's
exercising any of its rights and remedies hereunder or at law,
including, without limitation, all appraisal fees, consulting
fees, filing fees,
5
<PAGE> 6
taxes, brokerage fees and commissions, fees incident to
security interest, lien and other title searches and reports,
escrow fees, attorney's fees, legal expenses, court costs,
auctioneer fees and expenses, other fees and expenses incurred
in connection with liquidation or sale of Collateral and all
other professional fees. Any amount to be paid hereunder by
Borrower to Lender shall be a demand obligation owing by
Borrower to Lender and, to the extent not prohibited by
applicable law, shall bear interest from the date of
expenditure until paid at the maximum nonusurious rate of
interest from time to time permitted by applicable law.
B. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Lender hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or
equity shall be cumulative of and may be exercised in addition
to any and all other rights of Lender, and no delay in
exercising any right shall operate as a waiver thereof, nor
shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise
of any other right. Any of the foregoing covenants and
agreements may be waived by Lender but only in writing signed
by a a Vice President or higher level officer of Lender.
Borrower expressly waives any presentment, demand, protest or
other notice of any kind.
No notice to or demand on Borrower in any case shall, of
itself, entitle Borrower to any other or further notice or
demand in similar or other circumstances. No delay or omission
by Lender in exercising any power or right hereunder shall
impair any such right or power to be construed as a waiver
thereof or any acquiescence therein, nor shall any single or
partial exercise of any such power preclude other or further
exercise thereof, or the exercise of any other right or power
hereunder.
C. APPLICABLE LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted
in accordance with the laws of the State of Texas and
applicable federal law. The parties hereto intend to conform
strictly to the applicable usury laws. In no event shall the
amount paid or agreed to be paid to Lender exceed the maximum
amount permissible under applicable law.
D. AMENDMENT. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure
by Borrower therefrom, shall be effective unless the same
shall be in writing and signed by a Vice President or higher
level officer of Lender, and then shall be effective only in
the specific instance and for the purpose for which given.
This Agreement is binding upon Borrower, its successors and
assigns, and inures to be benefit of Lender, its successors
and assigns.
9. ADDITIONAL PROVISIONS (which shall be controlling in the event of any
conflict with the preceding provisions).
6
<PAGE> 7
A. Borrower shall permit Lender to enter upon its operating
premises maintained by it and any other location where the
Collateral is stored, for the purpose of inspection of the
Collateral at reasonable times as the Lender may request from
time to time.
B. An aging of accounts receivable and a list of inventory is
required quarterly delivered to Lender within 30 days of the
end of each calendar quarter.
C. Advances under the line of credit will be limited to a
borrowing base of 75% of eligible trade accounts receivable 90
days old or less, and 25% of inventory.
Borrower and Guarantor hereby acknowledge and agree that this Agreement is on a
parity with the Note of even date herewith in the original principal sum of
$2,000,000.00 executed by BODYBILT SEATING, INC., a Texas Corporation, payable
to FIRST NATIONAL BANK OF BRYAN, and the undersigned agrees that default on the
$2,000,000.00 note or in the payment of the amount due hereunder shall, at the
option of First National Bank of Bryan, ipso facto constitute default in the
other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date above first written.
BodyBilt Seating, Inc. The First National Bank of Bryan
- --------------------------------- ---------------------------------
(Borrower) (Lender)
By: By:
------------------------------ ------------------------------
Its Its
------------------------------ ------------------------------
7
<PAGE> 8
EXHIBIT 10(a)(1) - SCHEDULE OF SIMILAR LOAN AGREEMENTS
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
Date: . . . . . . . . . . . May 1, 1995
Loan Type: . . . . . . . . . Revolving Line of Credit (#033-118-60)
Amount: . . . . . . . . . . $1 million
Expiration: . . . . . . . . April 30, 1996
Minimum Advance/
Repayment: . . . . . . . . . $25,000 until April 30, 1996
Repayment: . . . . . . . . . Monthly installments of principal due plus
interest from May 31, 1996 to April 30, 1999
<PAGE> 1
EXHIBIT 10(a)(2)
- --------------------------------------------------------------------------------
BODYBILT SEATING, INC. THE FIRST NATIONAL BANK OF BRYAN
- -------------------------------------------
4455 CARTER CREEK 2807 TEXAS AVE., P.O. BOX 833
- -------------------------------------------
BRYAN, TX 77802 BRYAN, TX 77805
- -------------------------------------------
- -------------------------------------------
TAXPAYER I.D. NUMBER : -
- -------------------------------------------
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ADDRESS
("I" means each Debtor who signs.) ("You" means the Secured Party,
Its successors and assigns.)
- --------------------------------------------------------------------------------
I am entering into this security agreement with you on JUNE 30, 1996 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment
and performance of the debts, liabilities or obligations described below that
(Check one) [XX] I (name)
------------------------------------------------
----------------------------------------- owe(s) to you now or in the future:
(Check one below):
[xx] SPECIFIC DEBT(S). The debt(s), liability or obligations evidenced by
(describe): PROMISSORY NOTE NUMBER 033118-76 DATED JUNE 30, 1996 and
all extensions, renewals, refinancings, modifications and replacements
of the debt, liability or obligation.
[ ] ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation of
every type and description (whether such debt, liability or obligation
now exists or is incurred or created in the future and whether it is or
may be direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or joint, several or
joint and several).
SECURITY INTEREST. To secure the payment and performance of the above
described Secured Debts, liabilities and obligations, I give you a
security interest in all of the property described below that I now own and
that I may own in the future (including, but not limited to, all parts,
accessories, repairs, improvements, and accessions to the property), wherever
the property is or may be located, and all proceeds and products from the
property.
[xx] INVENTORY: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or
which are raw materials, work in process, or materials used or
consumed in my business.
[xx] EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping equipment, and
parts and tools. All equipment described in a list or schedule which I
give to you will also be included in the secured property, but such a
list is not necessary for a valid security interest in my equipment.
[ ] FARM PRODUCTS: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their products,
produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
[xx] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to the
payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for services
rendered, whether or not I have earned such payment by performance;
and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable.
The above include any rights and interests (including all liens and
security interests) which I may have by law or agreement against any
account debtor or obligor of mine.
[ ] GENERAL INTANGIBLES: All general intangibles including, but not limited
to, tax refunds, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer lists,
permits and franchises, and the right to use my name.
[ ] GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments
in kind, deficiency payments, letters of entitlement, warehouse receipts,
storage payments, emergency assistance payments, diversion payments, and
conservation reserve payments) in which I now have and in the future may
have any rights or interest and which arise under or as a result of any
preexisting, current or future Federal or state governmental program
(including, but not limited to, all programs administered by the
Commodity Credit Corporation and the ASCS).
[XX] THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE FOLLOWING:
ASSIGNMENT OF $1,000,000.00 JACKSON NATIONAL LIFE INSURANCE COMPANY
POLICY #0008636700 IN THE NAME OF MARK ALLEN MCMILLAN
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
- --------------------------------------------------------------------------------
I am a(n) [ ] Individual [ ] partnership [xx] corporation
[ ]
-----------------------------------------------
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me):
--------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------.
The property will be used for [ ] personal [xx] business
[ ] agricultural [ ] reasons
---------------
THE FIRST NATIONAL BANK OF BRYAN
- ---------------------------------------------------------------
(Secured Party's Name)
By:
------------------------------------------------------------
Title:
---------------------------------------------------------
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS
AGREEMENT. I have received a copy of this document on today's
date.
BODYBILT SEATING, INC.
- ---------------------------------------------------------------
(Debtor's Name)
By:
------------------------------------------------------------
MARK A MCMILLAN
Title:
---------------------------------------------------------
By:
------------------------------------------------------------
Title:
---------------------------------------------------------
(C) 1986. 1990 BANKERS SYSTEMS, INC., ST. CLOUD, MN (1-800-397-2341)
SECURITY AGREEMENT FORM SA 8/5/91 (page 1 of 2)
<PAGE> 2
EXHIBIT 10(a)(2) - SCHEDULE OF SIMILAR SECURITY AGREEMENTS
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
Date: . . . . . . . . . . . May 1, 1995
Loan Type: . . . . . . . . . Revolving Line of Credit (#033-118-60)
Amount: . . . . . . . . . . $1 million
Expiration: . . . . . . . . April 30, 1996
Security: . . . . . . . . . Inventory, accounts, instruments,
documents, chattel paper and other rights
to payment, assignment of $1,000,000
Jackson National Life Insurance Company
Policy #0008636700 on M. McMillan
<PAGE> 1
EXHIBIT 10(a)(3)
THIRD PARTY PLEDGE AGREEMENT
Date June 30, 1996
---------------------------
- --------------------------------------------------------------------------------
PLEDGOR MARK ALLEN MCMILLAN SECURED THE FIRST NATIONAL BANK OF BRYAN
PARTY
- --------------------------------------------------------------------------------
BUSINESS
OR 2506 RIVER FOREST ADDRESS 2807 TEXAS AVE., P.O. BOX 833
RESIDENCE
ADDRESS
- --------------------------------------------------------------------------------
CITY BRYAN, TX 77802 CITY BRYAN, TX 77805
STATE & STATE &
ZIP CODE ZIP CODE
- --------------------------------------------------------------------------------
1. SECURITY INTEREST AND COLLATERAL. To secure (check one):
[ ] the payment and performance of each and every debt, liability and
obligation of every type and description which _____________________________
("Debtor") may now or at any time hereafter owe to Secured Party (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several; all such debts,
liabilities and obligations being herein collectively referred to as the
"Obligations").
[xx] the debt, liability or obligation of BODYBILT SEATING INC. ("Debtor")
to Secured Party evidenced by or arising under the following: PROMISSORY
NOTE NUMBER 033-118-76 DATED 6-30-96 19 , and any extensions, renewals or
replacements thereof (herein referred to as the "Obligations"),
Pledgor hereby grants Secured Party a security interest (herein called the
"Security Interest") in (check one):
[ ] all property of any kind now or at any time hereafter owned by Pledgor,
or in which Pledgor may now or hereafter have an interest, which may now be
or may at any time hereafter come into the possession or control of Secured
Party or into the possession or control of Secured Party's agents or
correspondents, whether such possession or control is given for collateral
purposes or for safekeeping, together with all proceeds of and other rights
in connection with such property (herein called the "Collateral").
[xx] the property owned by Pledgor and held by Secured Party that is
described as follows: JACKSON NATIONAL LIFE INS. CO. POLICY #0008636700,
together with all rights in connection with that property (herein called the
"Collateral").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor represents, warrants and
covenants that:
(a) Pledgor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a separate
document of assignment or transfer, if required by Secured Party.
(b) Pledgor is the owner of the Collateral free and clear of all liens,
encumbrances, security interests and restrictions, except the Security Interest
and any restrictive legend appearing on any instrument constituting Collateral.
(c) Pledgor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) Pledgor will pay, when due, all taxes and other governmental charges
levied or assessed upon or against any Collateral.
(e) At any time, upon request by Secured Party, Pledgor will deliver to
Secured Party all notices, financial statements, reports or other
communications received by Pledgor as an owner or holder of the Collateral.
(f) Pledgor will upon receipt deliver to Secured Party in pledge as
additional Collateral all securities distributed on account of the Collateral
such as stock dividends and securities resulting from stock splits,
reorganizations and recapitalizations.
3. RIGHTS OF SECURED PARTY. Pledgor agrees that Secured Party may at any time,
whether before or after the occurrence of an Event of Default and without
notice or demand of any kind, (i) notify the obligor on or issuer of any
Collateral to make payment to Secured Party of any amounts due or distributable
thereon, (ii) in Pledgor's name or Secured Party's name enforce collection of
any Collateral by suit or otherwise, or surrender, release or exchange all or
any part of it, or compromise, extend or renew for any period any obligation
evidenced by the Collateral, (iii) receive all proceeds of the Collateral, and
(iv) hold any increase or profits received from the Collateral as additional
security for the Obligations, except that any money received from the
Collateral shall, at Secured Party's option, be applied in reduction of the
Obligations, in such order of application as Secured Party may determine, or be
remitted to Debtor.
THIS AGREEMENT CONTAINS ADDITIONAL PROVISIONS SET FORTH ON PAGE 2 HEREOF,
ALL OF WHICH ARE MADE A PART HEREOF.
MARK ALLEN MCMILLAN
---------------------------------------
Pledgor's Name
By
-------------------------------------
MARK ALLEN MCMILLAN
Title:
---------------------------------
By
-------------------------------------
Title:
---------------------------------
BANKERS SYSTEMS, INC., ST. CLOUD, MN 58302 (1-800-397-2341) FORM M-150 6/20/91
(page 1 of 2)
<PAGE> 2
EXHIBIT 10(a)(3) - SCHEDULE OF SIMILAR THIRD PARTY PLEDGE AGREEMENTS
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
Date: . . . . . . . . . . . May 1, 1995
Loan Type: . . . . . . . . . Revolving Line of Credit (#033-118-60)
Amount: . . . . . . . . . . $1 million
Expiration: . . . . . . . . April 30, 1996
Pledgor: . . . . . . . . . . Mark McMillan
2506 River Forest
Bryan, Texas 77082
Security: . . . . . . . . . Jackson National Life Insurance Company
Policy #008636700
<PAGE> 1
EXHIBIT 10(a)(4)
GUARANTY
BRYAN , TX
---------------------------------------
(City) (State)
JUNE 30, 1996
---------------------------------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce THE FIRST NATIONAL BANK OF BRYAN, 2807 TEXAS
AVE., P.O. BOX 833, BRYAN, TX 77805 (herein, with its participants, successors
and assigns, called "Lender"), at its option, at any time or from time to time
to make loans or extend other accommodations to or for the account of BODYBILT
SEATING INC. (herein called "Borrower") or to engage in any other transactions
with Borrower, the Undersigned hereby absolutely and unconditionally guarantees
to Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:
A. If this [ ] is checked, the Undersigned guarantees to Lender the payment
and performance of the debt, liability or obligation of Borrower to
Lender evidenced by or arising out of the
following:________________________________ and any extensions, renewals
or replacements thereof (hereinafter referred to as the "Indebtedness").
B. If this [xx] is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or at
any time hereafter owe to Lender (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether
it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several, or joint and several; all such debts, liabilities and
obligations being hereinafter collectively referred to as the
"Indebtedness"). Without limitation, this guaranty includes the
following described debt(s): PROMISSORY NOTE NUMBER 033-118-76 DATED
6-30-96.
The term "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations) for
which Borrower meets the Lender's standard of creditworthiness based on
Borrower's own assets and income without the addition of a guaranty, or for
which a guaranty is required but Borrower chooses someone other than the
joint Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the Undersigned
hereunder, and no act or thing, except full payment and discharge of all
Indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of payment of
the Indebtedness and shall continue to be in force and be binding upon the
Undersigned, whether or not all Indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Lender, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall have
the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The liability of the Undersigned hereunder shall be limited to a principal
amount of $ UNLIMITED (If unlimited or if no amount is stated, the Undersigned
shall be liable for all Indebtedness, without any limitation as to amount),
plus accrued interest thereon and all attorneys' fees, collection costs and
enforcement expenses referable thereto. Indebtedness may be created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect
or impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to
reduce or discharge such liability only if accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse Lender for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender in
connection with the protection, defense or enforcement of this guaranty in any
litigation or bankruptcy or insolvency proceedings.
THIS GUARANTY INCLUDES THE ADDITIONAL PROVISIONS ON PAGE 2, ALL OF WHICH ARE
MADE A PART HEREOF.
This guaranty is [xx] unsecured; [ ] secured by a mortgage or security
agreement dated ___________; [ ] secured by ____________________________.
IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned
the day and year first above written.
X
-----------------------------------------
MARK A. MCMILLAN
-----------------------------------------
-----------------------------------------
-----------------------------------------
"Undersigned" shall refer to all persons
who sign this guaranty, severally and
jointly.
BANKERS SYSTEMS, INC., ST. CLOUD, MN 56301 (1-800-397-2341) FORM M-240 5/20/91
(For Corporate Guarantor use M-250) (page 1 of 2)
<PAGE> 2
EXHIBIT 10(a)(4) - SCHEDULE OF SIMILAR GUARANTY AGREEMENTS
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
Date: . . . . . . . . . . . May 1, 1995
Loan Type: . . . . . . . . . Revolving Line of Credit (#033-118-60)
Amount: . . . . . . . . . . $1 million
Expiration: . . . . . . . . April 30, 1996
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
<PAGE> 1
EXHIBIT 10(a)(5)
EXHIBIT A
PROMISSORY NOTE
$2,000,000.00 June 30, 1996
Bryan, Texas
FOR VALUE RECEIVED, I, WE, or either of us, jointly and severally if more
than one, (herein referred to as "Maker") hereby promises to pay to the order
of FIRST NATIONAL BANK OF BRYAN, Bryan, Brazos County, Texas (herein together
with all subsequent holders hereof referred to as "Holder" or "Payee") at 2807
Texas Avenue South, Bryan, Brazos County, Texas in lawful money of the United
States of America, the principal sum of TWO MILLION AND NO/100 DOLLARS
($2,000,000.00) or so much thereof as may be advanced, together with interest
on the principal balance hereof at the rate hereinafter provided.
Interest on the principal balance hereof from time to time remaining
unpaid prior to maturity shall accrue at a varying rate of interest per annum,
equal to the lesser of (a) the Maximum Lawful Rate, or (b) the Prime Rate of
Texas Commerce Bank, Houston, Harris County, Texas in effect from day to day
calculated on the basis of three hundred sixty (360) days per year, except as
otherwise provided herein. PROVIDED HOWEVER, in no event shall the interest
rate charged on the unpaid principal balance of this Note exceed eighteen
percent (18%) per annum. As used herein, the term "Maximum Lawful Rate" means
the greatest of the non-usurious rates of interest from time to time permitted
under applicable federal and Texas law. To the extent of the applicability of
Chapter One of Title 79, Texas Revised Civil Statute as amended (the "Texas
Credit Code"), the Maximum Lawful Rate shall be the highest permitted rate
based upon the Indicated Rate Ceiling (as defined in Chapter One), but to the
extent now or hereafter permitted by Texas law, Holder may from time to time
implement, withdraw, and reinstate any ceiling as an alternative to the
Indicated Rate Ceiling, including the right to reinstate the Indicated Rate
Ceiling. The Maximum Lawful Rate shall be applied by taking into account all
amounts characterized by applicable law as interest on the debt evidenced by
this Note, so that the aggregate of all interest does not exceed the maximum
non-usurious amount permitted by applicable law. If the Maximum Lawful Rate is
increased or removed by statute or other governmental action subsequent to the
date of this Note, then the new Maximum Lawful Rate, if any, will be applicable
to this Note from the effective date of the new Maximum Lawful Rate unless such
application is precluded by the statute or governmental action or by the
general law of the jurisdiction governing this Note. If at any time, the rate
of interest provided in (b) above shall exceed the Maximum Lawful Rate, then
any subsequent reduction in the Prime Rate will not
1
<PAGE> 2
reduce the rate of interest hereunder below the Maximum Lawful Rate until the
total amount of interest accrued hereunder equals the amount of interest which
would have accrued if there had been no limitation to the Maximum Lawful Rate.
The term "Prime Rate" means the interest rate established and quoted from time
to time by Texas Commerce Bank, Houston, Harris County, Texas, as its prime
commercial loan rate, whether or not such rate is charged in each instance. Any
change in the interest rate resulting from a change in Prime Rate or in the
Maximum Rate, as the case may be, shall be effective, without notice to Maker,
on the same date as such change. If a published annual prime interest rate
ceases to be made available by the Texas Commerce Bank, Houston or by any
successor thereto, the Note Holder will set the Note interest rate by using a
comparable index.
This is a revolving line of credit promissory note ("Note") and the Maker
hereof shall have the right, so long as Maker is not in default hereunder, or
under the terms and conditions of any security agreement, loan agreement and/or
other loan documents and/or other instruments securing this note and subject to
the further terms and conditions of this Note and the Loan Agreement, to draw
upon and/or be advanced all or a part of the principal amount of this note,
subject to the limitations hereinafter set out, at any time or from time to
time from date hereof through June 30, 1997 (the "Advancement Period").
Thereafter, no further advances shall be made under this Note. Provided
further, any advances requested by Maker and/or made by Holder from time to
time and as to each time, shall be in an amount no less than TWENTY-FIVE
THOUSAND AND NO/100 DOLLARS ($25,000.00) unless Maker's unused amount for
advancement is less than $25,000.00, in which event, Maker can draw that unused
amount. All repayments and/or prepayments from time to time made by Maker on
the principal balance of this Note through June 30, 1997, shall in no event, be
less than TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($25,000.00), unless the
principal balance of the Note is less than $25,000.00, in which event, Maker
shall have the right to pay that principal amount. Except as otherwise provided
in this Note or in the Loan Agreement and/or Security Agreements and other loan
documents executed relative to this loan, there is no limitation as to the
number of advances that can be made, so long as at the time of advancement the
total unpaid principal balance hereof does not exceed the sum of TWO MILLION
AND NO/100 DOLLARS ($2,000,000.00). As a condition to Holder making
advancements from time to time hereunder, Maker shall pay and promises to pay to
Holder, quarterly, a sum equal to one-half of one percent (1/2 of 1%) per annum
of the quarterly average unadvanced and unused line of credit balance of
principal during the Advancement Period beginning June 30, 1996, and ending
June 30, 1997, with such sum being due and payable beginning on the 30th day of
September, 1996, and continuing regularly and quarter-annually thereafter on
the 30th
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<PAGE> 3
day of December, March, June and September of each calendar year during the
Advancement Period. Maker's credit for advancement hereunder, shall always be
the difference between the original principal amount of this note, which is
$2,000,000.00, and the unpaid principal and interest balance on this note, from
time to time and at such time or times as an advancement is made. The unpaid
principal balance of this note and accrued interest thereon shall be due and
payable as follows:
(a) The unpaid principal balance of this Note shall be paid by Maker
hereof in no more than thirty-six (36) equal monthly installments,
using the unpaid principal balance on June 30, 1997, as the basis for
calculation, with the first installment of principal being due and
payable on or before the 30th day of July, 1997, and such
installments continuing to be paid regularly on the 30th day of each
calendar month thereafter until the 30th day of June, 2000, when all
unpaid principal and unpaid accrued interest on this Note shall
be payable in full.
(b) Interest only that accrues from the date of this Note until the 30th
day of June, 1997, the Advancement Period, shall be due and payable
in monthly installments as it accrues on the unpaid principal
balance hereof from time to time outstanding with the first monthly
installment of interest being due and payable on or before the 30th
day of July, 1996, and continuing on the 30th day of each calendar
month thereafter until the 30th day of June, 1997.
Thereafter, the unpaid accrued interest shall be due and payable on
the 30th day of each calendar month in addition to the monthly
installments of principal, beginning on the 30th day of July, 1997,
and continuing on the 30th day of each month thereafter until June 30,
2000, when all unpaid accrued interest and unpaid principal shall be
due and payable in full.
(c) Any payments made, shall be first credited to the discharge of the
accrued unpaid interest and then to the reduction of unpaid
principal balance.
Prepayments of principal on this Note made prior to June 30, 1997, shall
be credited to the advancements made under this Note and Maker's credit for
future advancements hereunder shall always be the difference between the
original principal amount of $2,000,000.00 and the unpaid principal and
interest balance of this Note from time to time and at such time or times as an
advancement is made. NO ADVANCEMENTS WILL BE MADE AFTER JUNE 30, 1997.
3
<PAGE> 4
Prepayments of principal on this Note made after June 30, 1997, shall be
credited to the last maturing installments of principal.
This Note is secured by, among other things, a Security Agreement and
UCC-1 Financing Statements dated May 1, 1995, renewed and extended by a
Security Agreement or even date hereof, executed by BODYBILT SEATING, INC.
(formerly THE CHAIR WORKS, INC.), a Texas Corporation, acting by and through
its duly authorized President, Mark A. McMillan, as Debtor, and FIRST NATIONAL
BANK OF BRYAN, as Secured Party, covering the rights and properties more fully
described therein including the following property:
All accounts receivable, contract rights, accounts, checks, drafts,
instruments, general intangibles and right to payment of every kind, and
all inventory, goods, equipment, furniture, fixtures, leasehold
improvements, and any replacements or substitutes thereof now owned or
hereafter acquired by the Debtor, BODYBILT SEATING, INC. (formerly THE
CHAIR WORKS, INC.), a Texas Corporation, used in or being a part of the
business of the Debtor, arising out of or being a part of the business of
Debtor known as "BodyBilt Seating, Inc. formerly The Chair Works" located
at 3900 Texas Avenue South, Suite 107 in College Station.
This Note is additionally secured by, among other things, a Security
Agreement of even date herewith executed by BODYBILT SEATING, INC. (formerly
THE CHAIR WORKS, INC.), a Texas Corporation, acting by and through its duly
authorized President, Mark A. McMillan, as Debtor, and FIRST NATIONAL BANK OF
BRYAN, as Secured Party, covering the rights and properties more fully
described therein including the following property:
Life Insurance Policy No. 0008636700 issued by Jackson National Life
Insurance Company, dated December 20, 1990, insuring the life of
MARK ALLEN McMILLAN and all cash value, dividends and proceeds therefrom.
All past due payments of principal and, if permitted by applicable law, of
interest, shall bear interest from maturity until paid at an interest rate per
annum, which from day to day, shall be equal to the lesser of either (i) the
Maximum Lawful Rate as defined above or (ii) the Past Due Rate. During the
existence of any default hereunder or under any instruments securing or
evidencing the loan evidenced hereby, the entire unpaid balance of
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<PAGE> 5
principal shall also bear interest at the rate above provided on the principal
balance hereof from time to time remaining unpaid prior to maturity. Interest
on past due installments and default interest provided for in this paragraph
shall be calculated at a daily rate equal to 1/360th of the applicable annual
percentage rate.
The term "Past Due Rate" as used in this Note means on any day, a rate per
annum equal to eighteen percent (18%) computed using the annual basis described
below.
Any provision contained herein, to the contrary notwithstanding,
computations of interest on the unpaid principal amount of this Note, from time
to time outstanding, at rates provided in this Note, shall be made on the basis
of actual number of days elapsed but, (i) to the extent permitted by applicable
law such interest shall be computed as if each year consisted of three hundred
sixty (360) days or (ii) to the extent computation of interest as specified in
(i) is not permitted by applicable law, interest shall be computed on the basis
of a three hundred sixty-five (365) day year or three hundred sixty-six (366)
day year, as the case may be.
This Note shall be governed by and construed in accordance with Texas law
and applicable federal law. The parties hereto intend to conform strictly
to the applicable usury laws. In no event, whether by reason of acceleration of
the maturity hereof or otherwise, shall the amount paid or agreed to be paid to
Holder for the use, forbearance or detention of money hereunder or otherwise
exceed the maximum amount permissible under applicable law. If fulfillment of
any provision hereof or of any mortgage, loan agreement or other document now
or hereafter evidencing, securing or pertaining to the indebtedness evidenced
hereby, at the time performance of such provision shall be due, would involve
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced automatically to the limit of such validity. If
Holder shall ever receive anything of value deemed interest under applicable law
which would exceed interest at the highest lawful rate, an amount equal to any
amount which would have been excessive interest shall be applied to the
reduction of the principal amount owing hereunder in the inverse order of its
maturity and not to the payment of interest, or if such amount which would have
been excessive interest exceeds the unpaid balance of principal hereof, such
excess shall be refunded to Borrower. All sums paid or agreed to be paid to
Holder for the use, forbearance or detention of the indebtedness of Maker to
Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full stated term of such
indebtedness so that the amount of interest on account of such indebtedness
does not exceed the maximum permitted
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<PAGE> 6
by applicable law. The provisions of this paragraph shall control all existing
and future agreements between Maker and Holder.
If default is made in the payment of any installment or payment hereof,
either principal or interest, or in the payment of any other sum due hereunder,
promptly when the same shall be due and payable hereunder, or if there is any
default under the Deed of Trust or any instrument which secures the payment of
this Note or which is executed in connection with the loan evidenced by this
Note, THEN HOLDER MAY ACCELERATE THE MATURITY OF THIS NOTE AND DECLARE THE
ENTIRE UNPAID PRINCIPAL BALANCE AND ACCRUED INTEREST AT ONCE DUE AND PAYABLE.
EACH MAKER, SURETY, ENDORSER AND ALL OTHER PARTIES LIABLE FOR THIS NOTE,
WAIVE DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NON-PAYMENT, PROTEST, NOTICE OF PROTEST, GRACE, NOTICE OF DISHONOR, NOTICE OF
INTENT TO ACCELERATE MATURITY, NOTICE OF ACCELERATION OF MATURITY, AND
DILIGENCE IN COLLECTION.
If this Note is not paid at its maturity, regardless of how such maturity
may be brought about, the Holder may foreclose the liens and security interests
securing payment hereof or exercise any of its other rights hereunder or under
any instrument which secures the payment of this Note, or at law or in equity.
Failure to exercise any of such rights upon default shall not constitute a
waiver of the right to exercise any of them at any time. Maker may be required
to pay this note in full without the assistance of any other party, or any
collateral or security for this note. Holder shall not be required to mitigate
damages, file suit, or take any action to foreclose, proceed against, or
exhaust any collateral or security in order to enforce payment of this note.
Maker acknowledges that Holder has no duty of good faith to Maker, and
acknowledges that no fiduciary, trust or other special relationship exists
between Holder and Maker.
If Holder requires the services of an attorney to enforce the payment of
this Note or the performance of the deed of trust or any other security
instruments and documents securing this Note, or other loan documents, or if
this Note is collected through any lawsuit, probate, bankruptcy, or other
judicial proceeding, Maker agrees to pay Holder all court costs, reasonable
attorney's fees and expenses and other collection costs incurred by Holder.
Maker may prepay this Note in full at any time or in part from time to
time, without premium or penalty but such prepayment must be made as provided
herein.
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<PAGE> 7
The term Maker, Holder and Payee and other nouns and pronouns include
the plural if more than one. The term Maker, Holder or Payee also include
their respective heirs, personal representatives, and assigns.
Words of any gender used in this Note shall be held and construed to
include any other gender and words in the singular number shall be held to
include the plural and vice versa, unless the contexts require otherwise. When
the note is executed by a corporation or other entity, then the pronouns such as
"I", "my" or "me" shall be held and construed to mean the corporation or other
entity.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America, except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Chp. 15, as
amended (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not apply hereto.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America, except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Chp. 15, as
amended (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not apply hereto.
The Note hereby secured is given:
in RENEWAL AND EXTENSION of the sum of $944,444.46 left owing and
unpaid by Maker herein upon that one certain Line of Credit Note in
the original principal sum of $1,000,000.00 dated May 1, 1995,
executed by BODYBILT SEATING, INC. formerly THE CHAIR WORKS, INC.
and payable to the order of FIRST NATIONAL BANK OF BRYAN, more fully
described in and secured by a Security Agreement and UCC-1 Financing
Statements dated March 1, 1993, which security interests are hereby
expressly acknowledged by Maker as valid and subsisting security
interests against the property herein described;
and
the balance available to Maker for advancement under this Line of
Credit Promissory Note as of the date hereof is $1,055,555.54.
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<PAGE> 8
Advancements to be funded under this Note, from time to time, are subject
to the requirements and the terms, conditions, provisions and covenants of that
certain Loan Agreement of even date herewith executed by Maker herein.
Furthermore, a violation of or non-compliance of any such terms, conditions,
provisions, and/or covenants shall constitute a default under the terms and
conditions of this Promissory Note and the Holder hereof shall have full right
and authority to refuse to make any advancement or advancements hereunder or
cease to make any further or future advancements hereunder at the sole option
of the Holder hereof.
BODYBILT SEATING, INC. formerly THE
CHAIR WORKS, INC.
By:
---------------------------------------
Mark A. McMillan,
President
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<PAGE> 9
EXHIBIT 10(a)(5) - SCHEDULE OF SIMILAR PROMISSORY NOTES
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
Date: . . . . . . . . . . . May 1, 1995
Loan Type: . . . . . . . . . Revolving Line of Credit (#033-118-60)
Amount: . . . . . . . . . . $1 million
Expiration: . . . . . . . . April 30, 1996
Interest Rate: . . . . . . . Variable = to lesser of maximum lawful rate
or 0.75% plus prime rate of First National
Bank of Bryan calculated on 360-day year
Renews and Extends: . . . . $437,500 owing on $450,000 Line of Credit
Note dated April 15, 1994
<PAGE> 1
EXHIBIT 10(b)(1)
AGREEMENT
This agreement made and entered into by and between FIRST NATIONAL
BANK OF BRYAN, Bryan, Texas (hereinafter referred to as "Lender") and BODYBILT
SEATING, INC., a Texas Corporation (hereinafter referred to as "Borrower") and
MARK A. McMILLAN of Bryan, Brazos County, Texas (hereinafter referred to as
"Guarantor") relative to a loan ("Loan") in the original principal amount of
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) from Lender to Borrower.
WHEREAS, Borrower has in existence with Lender at this time, on a line of
credit loan, which is in the original principal amount of FOUR HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($450,000.00) which is evidenced by a promissory
note dated April 15, 1994, executed by the Borrower (formerly known as Chair
Works, Inc.) and payable to Lender, in the original principal amount of
$450,000.00, which note is more fully described and secured by a Security
Agreement and UCC-1 Financing Statements dated on or about March 1, 1993; and
WHEREAS, Borrower desires to renew and extend the unpaid balance on said
Loan which is $437,500.00, at this date, and to increase the line of credit
loan limit to a total of $1,000,000.00; and
WHEREAS, as part of the consideration for Lender's renewal and extension
of said credit limit and for the increase in said line
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<PAGE> 2
of credit to $1,000,000.00, Borrower has agreed that it shall pay to Lender
quarterly, a fee equal to the sum of one-half of one percent (1/2 of 1.00%)
per annum times the average of the unused portion of the principal balance of
the $1,000,000 line of credit note, which Borrower does not request an advance
and draw thereon, based upon and calculated over each quarter of each calendar
year during the term of this Loan, to be paid by Borrower to Lender, at the end
of each quarter;
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, for and in consideration
of the premises, the sum of TEN AND NO/100 DOLLARS ($10.00) cash and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by Borrower, Borrower agrees to the following:
I.
Borrower hereby agrees and shall pay to Lender a sum equal to one-half of
one percent (1/2 of 1%) per annum as herein provided, on the average unused and
un-advanced portion of the principal balance of the $1,000,000 line of credit
Loan, such average to be calculated over each quarter of each calendar year,
during the term of this Loan, beginning with the 15 day of June, 1995, and
continuing regularly and quarter-annually thereafter on the 30 day of June
1995, the 30 day of September 1995, the 31 day of December 1995, and the 31 day
of March 1996, of each calendar year. Said sum shall be due and payable at the
end of each quarter on demand of Lender, and Borrower hereby authorizes Lender
to
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deduct from and said sum shall be deducted and withdrawn from Borrower's
designated checking account with Lender at the end of each quarter during each
calendar year of the term of this Loan, the first such payment being due on or
before the 30 day of June, 1995.
II.
The Borrower, and any surety, endorser, guarantor and all other parties
liable hereunder, waive demand, notice of intent to demand, presentment for
payment, notice of non-payment, protest, notice of protest, grace, notice of
dishonor, notice of intent to accelerate maturity, notice of acceleration of
maturity, and diligence in collection.
III.
All past due payments hereunder, if permitted by applicable law, shall
bear interest from maturity until paid at a rate of interest per annum, which
from day to day shall be equal to the lesser of (i) the Maximum Lawful Rate as
is defined in the $1,000,000.00 Promissory Note of even date herewith, executed
by Borrower to Lender; or (ii) an interest rate of eighteen percent (18%) per
annum.
IV.
This agreement shall be governed by and construed in accordance with the
Texas law and applicable federal law. The parties hereto intend to conform
strictly to the applicable usury laws. In no event, shall the amount paid or
agreed to be paid to Lender exceed the maximum amount permissible under
applicable law,
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<PAGE> 4
taking into consideration the interest payable under that certain Promissory
Note in the original principal amount of $1,000,000 hereinabove referenced to,
executed by Borrower and made payable to Lender of even date herewith. If
fulfillment of any provision hereof or of any mortgage, loan agreement or other
document now or hereafter executed or entered into in connection herewith
and/or securing or pertaining to the indebtedness evidenced hereby, or in said
promissory note in the original principal amount of $1,000,000 at the time
performance of such provision shall be due, would involve transcending the
limit of validity prescribed by law, then the obligation to be fulfilled
herein, shall be reduced automatically to the limit of such validity. If
Lender shall ever receive anything of value deemed interest under applicable
law, which would exceed interest at the highest lawful rate, in an amount equal
to an amount which would have been excessive interest, shall be refunded to
Borrower. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness of Borrower to Lender, shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full stated term of such indebtedness so that the amount
of interest on account of such indebtedness does not exceed the maximum
permitted by applicable law. The provisions of this paragraph shall control all
existing and future agreements between Borrower and Lender.
V.
Borrower and Guarantor hereby acknowledge and agree that the
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agreement is on a parity with a certain Note of even date herewith in the
original principal sum of $1,000,000.00 executed by BODYBILT SEATING, INC., a
Texas Corporation, payable to FIRST NATIONAL BANK OF BRYAN, and the undersigned
agrees that default in the $1,000,000.00 note or in the payment of the amount
due under this agreement shall, at the option of First National Bank of Bryan,
ipso facto constitute default in the other.
VI.
This agreement shall be binding upon and inure to the benefit of the
parties hereto, their heirs, successors and assigns.
EXECUTED this the 15 day of June, 1995.
BORROWER:
BODYBILT SEATING, INC. formerly THE
CHAIR WORKS, INC.
By: /s/ MARK A. McMILLAN
------------------------------------
Mark A. McMillan,
President
GUARANTOR:
/s/ MARK A. McMILLAN
----------------------------------------
Mark A. McMillan, individually
LENDER:
ATTEST:
FIRST NATIONAL BANK OF BRYAN
/s/ TIM BRYAN By: /s/ D'LAYNE RHYNSBURGER
- ----------------------------------- -------------------------------------
Name: Tim Bryan Name: D'Layne Rhynsburger
Title: Vice Chairman Title: Sr. V.P.
5
<PAGE> 1
EXHIBIT 10(c)(1)
LOAN AGREEMENT
This Loan Agreement dated the 26th day of May, 1994, is made by and
between FIRST NATIONAL BANK OF BRYAN, Bryan, Texas ("Lender") whose address is
2807 Texas Avenue South, Bryan, Brazos County, Texas, and BODYBILT SEATING,
INC., a Texas Corporation whose address is 4455 Carter Creek Parkway, Bryan,
Brazos County, Texas 77802, (herein collectively referred to as "Borrower"),
AND MARK A. McMILLAN, whose address is 4455 Carter Creek Parkway, Bryan, Brazos
County, Texas (herein collectively referred to as "Guarantor") relative to a
loan ("Loan" or "loan") in the principal sum of FIVE HUNDRED SEVENTY-ONE
THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($571,500.00) from Lender to Borrower.
I. TERMS OF THE LOAN
1.1 Commitment of Lender. Subject to and upon the terms, covenants and
conditions hereof, Lender hereby agrees to lend to Borrower up to an aggregate
sum not to exceed FIVE HUNDRED SEVENTY-ONE THOUSAND FIVE HUNDRED AND NO/100
DOLLARS ($571,500.00) in accordance with this Loan Agreement, which loan shall
be evidenced by a Promissory Note ("Note") of such form and substance as Lender
shall require and secured by such collateral as hereinafter provided. Such
loan shall be advanced for the following purposes:
(1) The sum of FOUR HUNDRED FIFTEEN THOUSAND AND NO/100 DOLLARS
($415,000.00) shall be advanced for the purchase price of that
certain real property and improvements located in Grimes County,
Texas, and being more particularly described on Exhibit "A"
("Property") attached hereto and made a part hereof, which
purchase shall be made pursuant to that certain Contract of Sale
and Purchase dated the 5th day of April, 1994, entered into by
and between PFL LIFE INSURANCE COMPANY, as Seller, and Borrower,
as Buyer; and
(2) The sum of ONE HUNDRED FIFTY-SIX THOUSAND FIVE HUNDRED AND
NO/100 DOLLARS ($156,500.00) or so much as may be advanced by
Lender to Borrower herein from time to time during the term of
the Loan for the purpose of paying for the costs of labor
performed and materials furnished to Borrower for the
construction, repair, remodelling, and generally improving the
buildings, structures and other improvements located on the
Property described on Exhibit "A" attached hereto, such
advancements to be made by Lender to Borrower at such times, and
subject to the provisions of this Agreement, including
specifically paragraphs 2.2, 2.3, 2.4, 2.5 and 2.6 of article II
herein.
1.2 Interest on the Loan. Interest on the loan shall be at the
rate of prime plus one and one-fourth percent (1.25%) as specified in the Note,
shall be computed on the unpaid principal balance which exists from time to
time and shall be computed on the basis of Texas Commerce Bank, Houston, Harris
County, Texas, prime rate, floating from day to day, based upon and calculated
on three hundred sixty (360) day accrual rate.
1.3 Origination Fee. On the closing date of this loan, Borrower
shall pay to Lender an origination fee in the amount of TWO THOUSAND EIGHT
HUNDRED FIFTY-SEVEN AND 50/100 DOLLARS ($2,857.50), being one-half percent
(1/2%) of the original principal amount of the Note. In the event, only a part
or portion of the $571,500.00 is advanced during the term of the Loan, then
Lender shall refund to Borrower the appropriate amount of the fee based upon the
total amount of the loan funded.
1.4 Payments of Note. Interest only shall be due and payable
monthly as it accrues on the unpaid balance of the Note each month, with the
first installment of interest being due and payable thirty (30) days from date
of the first advance by Lender to Borrower of sums under the Promissory Note,
and on
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<PAGE> 2
the same day of each calendar month thereafter, until the 26th day of May,
1995, when all unpaid accrued interest shall be due and payable in full. The
principal amount of said Note shall be due and payable in full on or before May
31, 1995.
II. CONDITIONS TO ADVANCEMENT OF THE FUNDS UNDER THE LOAN
As conditions precedent to the advancement of funds by Lender to
Borrower or for the benefit of the Borrower, Borrower must satisfy the
following terms and conditions:
2.1 For Funding $415,000.00. Lender shall fund to Borrower and/or
for the benefit of Borrower, the sum of FOUR HUNDRED FIFTEEN THOUSAND AND
NO/100 DOLLARS ($415,000.00) for the purchase of the Property described on
Exhibit "A" ("Property") from the Seller, PFL Life Insurance Company, an Iowa
Corporation. Upon Lender being in receipt of the following, all in the form
and substance satisfactory and approved by Lender and Lender's attorney:
(1) Promissory Note in the original principal sum of $571,500.00,
executed by Borrower (the "Note") evidencing the Loan, made
payable to Lender and a Guaranty Agreement executed by Guarantor
guaranteeing the Note in such form and substance and approved by
Lender;
(2) Deed of Trust/Security Agreement - Financing Statement (the
"Deed of Trust") executed by Borrower covering the property
described on Exhibit "A" and all improvements, whether now or
existing or hereafter constructed thereon securing the Note;
(3) Assignment of Rents, Leases and Other Benefits executed by
Borrower relative to the tenant leases as to any part or
portion of the Property described on Exhibit "A" now existing or
hereafter existing, including the Lease dated May 24, 1979,
executed by and between Brookshire Brothers, Inc., as Lessee,
and all amendments and addendums thereto;
(4) The original Lease instrument by and between Brookshire
Brothers, Inc., as Lessee and Quinten McLemore, as Lessor,
dated May 24, 1979, with all amendments and addendums thereto,
the original Assignment of the same from PFL Life Insurance
Company to Borrower and a letter from Borrower to Brookshire
Brothers, Inc. directing that all rental payments and all other
charges required to be paid under the Lease, be paid directly to
Lender.
(5) Subordination of Leases to the Deed of Trust of Lender executed
by Brookshire Brothers, Inc. as to the Lease described in
paragraph (4) as well as an Estoppel Certificate of such form
and substance as approved by Lender.
(6) Survey and a plat, certified by a duly licensed surveyor,
acceptable to Lender, surveyed on the ground, with flood plain
designations, easements, boundary lines and overlapping or
encroachments of improvements on the Property, building setback
lines, and any other conditions affecting the Property with a
certificate and seal of the surveyor acceptable to Lender and
the Title Company;
(7) Security Agreement and UCC-1 Financing Statements ("Security
Agreements") executed by Borrower covering equipment, personal
property and other items requested by Lender, which are on the
Property or in the building or improvements located on the
Property or which may relate to the Property and/or the personal
property used or to be used in or in connection with the
Property and/or the
2
<PAGE> 3
Loan Agreement (Bodybilt)
operation of the Property and UCC-1 Financing Statements
relative thereto, to be properly recorded in the Secretary of
State's Office and the UCC (Personal Property) Records of Grimes
County, Texas;
(8) Such other documents executed by Borrower and matters as Lender
may require in connection with this Loan.
(9) Insurance policies for or other evidence acceptable to Lender
of public liability insurance, and fire and extended coverage
insurance relative to the improvements on the Property in such
amounts and insured by such companies as are acceptable to
Lender;
(10) Mortgagee's Title Policy issued by Alamo Title Insurance of
Texas for $571,500.00 under Title Commitment GF#313181, with
paragraphs 1 and 2 under Schedule B being deleted, and naming
Lender as the insured issued through American Title Company,
Dallas, Texas ("Title Company").
Items in paragraphs (1) through (10) are hereinafter collectively referred to
as "Loan Documents".
2.2 For Funding the Remainder sum of $156,500.00. Conditions
precedent to the advancement of the funds by Lender to Borrower relative to the
$156,500.00 for purposes of paying for the costs of labor performed and
materials furnished on the Property, the Buildings and Improvements located
thereon, for the repair, construction, remodelling, alteration and modification
thereof, Lender shall be in receipt of the following from Borrower:
(1) The items required under paragraph 2.1;
(2) Copies of all licenses, permits, approvals and other
authorizations, if any, which may be required by the laws,
statues, rules or regulations of any governmental authority or
private authority, if any, having jurisdiction over the
Property described on Exhibit "A", and over the construction,
remodelling, repairs and improvements thereon (collectively
"Permits").
(3) The plans, specifications and cost projections for the repair,
construction, remodelling, modification, of the buildings and
improvements located on the Property, which plans and cost
projections are in form and content satisfactory to Lender and
the same are approved by Lender in writing.
(4) Builder's risk hazard insurance providing all risk coverage
(including all perils of collapse) on the building and
improvements including the materials stored on the Property or
elsewhere, and public liability insurance and workmen's
compensation insurance for the Borrower and any contractors or
subcontractors in such amounts and from such insurance carriers
as are approved by Lender.
(5) The sum of $63,500.00 cash on deposit with Lender to be funded
to pay for the cost of labor and materials prior to any part of
the $156,500.00 is funded by Lender.
2.3 Deposits of Borrower. Upon approval of the plans,
specifications and costs projects submitted by Borrower, Lender agrees to
advance to Borrower for such costs up to $156,500.00 subject to Borrower
depositing with Lender a sum of cash, as Lender may request, not to exceed a
total of $63,500.00. The deposit requested shall be based upon such approved
costs and the specified amount of the $156,500.00 Borrower requests Lender to
fund. Provided however,
3
<PAGE> 4
Loan Agreement (Bodybilt)
Lender shall not fund any portion of the Loan until such time as Borrower's
deposit has been made with Lender, and the deposit has been advanced to pay for
the costs of labor and materials. The advancement of such deposits for payment
of costs shall be made by Lender and such advancements shall be subject to the
same terms and conditions specified in this agreement for advancement of any
portion of the $156,500.00.
2.4 Advances for Payment of Labor Performed and Materials
Purchased. Lender agrees to advance up to ONE HUNDRED FIFTY-SIX THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($156,500.00) to Borrower in monthly draws, upon the
receipt of a fully completed and executed request for advance in the form and
substance as may be required by Lender, together with a fully completed and
executed draw package, containing such items and documents which Lender may
request, which may include the following:
(1) Originally signed Request for Advance for Draw, requesting the
advance and setting forth the amount thereof;
(2) An overall budget schedule, including invoices for all costs
and expenses for labor and material furnished and/or purchased
for which the advance is being requested;
(3) Approval by Lender of the work completed and inspected by
Lender, or Lender's agents and representatives;
(4) And such other forms and documents which the Lender may
reasonably require relating to the costs and expenses incurred
by Borrower relative to the purchase of materials and the
payment of labor performed.
Prior to advancement, the Borrower must provide to Lender satisfactory
evidence that all previous bills for labor and materials have been paid, and
that there are no mechanic's and/or materialmen's liens and/or affidavits or
claims filed against the Property by the contractor and/or subcontractors.
The proceeds of the loan shall be advanced on the dates requested and
approved by the Lender, and shall only be made for work completed preceding the
date of the request, less any retainage required by Lender and/or provided in
Borrower's construction contract, shall be submitted to the Lender, a
reasonable time before the date upon which the advance is desired, and shall be
accompanied by certificates signed by the Borrower and the contractor or
subcontractors (if required by Lender), stating and satisfactorily evidencing
that the Borrower and the contractor have paid all bills incurred for labor
done, materials furnished and equipment used in connection with the work
performed to that date. The amount of each advance of the Loan shall be the
amount of the payment of the contract price and/or invoice which is payable to
the contractor and/or subcontractors as approved by the Lender, and such
amounts shall be advanced under the Loan on behalf of the Borrower. All
advances shall be evidenced by check issued jointly to the Borrower and the
contractor and subcontractors unless otherwise approved by Lender, and all
advances shall be preceded with an inspection of the Property by the Lender or
Lender's agents prior to funding.
The final advance shall be payable upon the expiration of thirty (30)
days from the date of final completion of the repairs and improvements, and
acceptance by Lender. Provided however, the same shall not be considered
complete unless and until all of the work requiring inspection by Lender and
any municipal or other governmental authorities having jurisdiction has been
duly inspected and approved by such entities and authorities, and by the
inspecting architect, if any, and all requisite certificates of occupancy and
other approvals have been duly issued. Provided further, that Lender may
withhold approval of final
4
<PAGE> 5
Loan Agreement (Bodybilt)
payment until after evidence satisfactory to Lender shall have been presented
to Lender showing payment in full of all obligations incurred in connection
with the construction and completion of the repairs and improvements and
Borrower and all contractors and subcontractors of Borrower have furnished to
Lender an affidavit of all bills paid in the form acceptable to Lender, that
they are waiving and releasing any lien claims against the Property, together
with an affidavit of completion executed by contractor and/or subcontractors
and by Borrower.
Upon demand by Lender, Borrower shall deposit with Lender such sums as
Lender may deem necessary and in addition to the Loan and deposits required
under 2.3 for the completion and payment of all costs in connection with the
construction of the Improvements and for the performance of the obligations of
Borrower to Lender in the event, Lender deems its position and the payments of
all obligations to be insecure.
2.5 Work Completion. Lender has no liability, obligation or
responsibility whatsoever with respect to the work related to the construction
of the Improvements except to advance proceeds of the Loan as herein agreed.
Lender is not obligated to inspect the Improvements or the construction
thereof, nor is Lender liable for the performance or default of any contractor
or subcontractor or for any failure to construct, complete, protect or insure
the improvements or for the payment of any cost or expense incurred in
connection therewith, or for the performance or non-performance of any
obligation of Borrower to such parties; and nothing, including without
limitation, any disbursement hereunder or the deposit or acceptance of any
document or instrument shall be construed as a representation or warranty,
express or implied, on Lender's part.
The obligations arising out of any contract, between a contractor
and/or subcontractors and Borrower, are separate and independent of any
obligations arising hereunder. Any claim, defense or right of offset which
Borrower may have against a contractor or subcontractors, or any dispute or
legal proceeding between Borrower and a contractor and/or subcontractor, shall,
in no event, be asserted by Borrower against Lender in connection with the
Loan, this Agreement, or in any action or proceeding to enforce or collect
under this Agreement, the Note or the Security Agreement.
If the repairs and the improvements fail, for any reason, to be
completed pursuant to the plans, specifications, costs estimates and/or
contracts submitted by Borrower to Lender, then Lender shall have the right,
but no obligation, to complete the repairs and improvements and any lien and
security interests granted under contracts and/or the law, shall inure to the
benefit of the Lender. Any contractor and/or subcontractor shall remain
obligated to Borrower to perform its obligations under any contract, until
completed. Provided however, Lender shall not be responsible to any contractor
or subcontractor for the payment or performance of any obligations of Borrower
under any contracts or the contractor's documents.
2.6 Inspection by Lender. Lender's representatives shall have the
right to inspect the repairs and improvements upon the Property at any time,
determine whether the work is being performed satisfactorily and constructed in
a good, workmanlike manner, in accordance with the Plans, Specifications and
any contracts. Borrower shall pay for any costs and expenses incurred by
Lender in hiring and retaining an inspector to inspect the Property. If
Lender's inspections reveal that the work has not been satisfactorily
constructed in a good, workmanlike manner in accordance with the plans and the
contract, or that the estimated costs and completion of the work yet to be
performed is under-estimated, then Lender may (i) notify Borrower in
writing of the deficiencies in the work and the requirements to remedy said
deficiencies so that the work
5
<PAGE> 6
Loan Agreement (Bodybilt)
will comply with the plans and the contract; (ii) cease to make further
advances of the Loan until such time as Borrower satisfactorily remedies the
deficiencies in the work to the satisfaction of the Lender. Lender shall not
be responsible in any way with regard to the quality of the construction, the
materials used or the workmanship incorporated into the Improvements.
III. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants, which representations and
warranties shall survive the closing, as follows:
a. That as of the date hereof, no work of any kind has been or
will be commenced or performed upon the Property; no material or
equipment has been or will be delivered upon the Property, and
no construction contract other than the mechanic's and
materialmen's contract has been executed and recorded in
connection with any of the Improvements contemplated to be
constructed on the Property;
b. No hazardous materials are located on the Property or have been
released into the environment or deposited, discharged, placed,
or disposed of at, on, under or near the Property;
c. No portion of the Property is being used, or to the knowledge
of Borrower, has been used at any previous time for disposal,
storage, treatment, processing or other handling of hazardous
materials, nor has the Property been effected by any hazardous
material contaminates; no investigation, administrative order,
consent or agreement, litigation or settlement with respect to
hazardous materials or hazardous material contaminates is
proposed, threatened, anticipated, or in existence with respect
to the Property, nor does the Borrower have any knowledge that
the same has ever existed with respect to the Property;
d. There are no actions, suits or proceedings pending or to the
knowledge of Borrower, threatened in any court or before or by
any governmental authority, against or affecting Borrower or the
Property;
e. Borrower holds or will hold full, legal and fee simple title to
the Property, subject only to those title exceptions set forth
in the title insurance binder issued by American Title Company
prior to the date thereof;
f. Borrower is a Texas corporation, validly existing and in good
standing under the laws of the State of Texas, and has full
power, authority and legal right to enter into the loan and
grant liens and security interests in the collateral and
properties required by Lender to secure the Loan. The Borrower
and its President, Mark A. McMillan, are duly authorized and
empowered to execute the Note, and other loan documents
specified herein and requested by Lender. All action on the
part of the Borrower, as a requisite to the creation, issuance,
execution and delivery of the Note and the loan documents has
been duly and effectively taken.
g. That Financial Statements Borrower has submitted to Lender are
true, correct and complete as of the date specified therein,
and fully and accurately present the financial condition of
Borrower, as of the date specified. No material adverse change
has occurred in the financial condition of Borrower since the
date of the financial
6
<PAGE> 7
Loan Agreement (Bodybilt)
statement.
h. That consummation of the transaction contemplated hereby and
the performance of any of the terms and conditions hereof, and
of other loan instruments, will not result in the breach of, or
constitute a default in, any mortgage, deed of trust, lease,
promissory note, loan agreement, credit agreement, bylaws,
partnership agreement, or other agreement to which Borrower or
Guarantor is a party, or by which Borrower or Guarantor may be
bound or affected. Neither Borrower nor the Guarantor is in
default of any order of any court or any requirement of any
governmental authority or any advance rule or policy of any
governmental entity or any ordinance, rule or policy of any
governmental entity.
i. There is no fact that Borrower has not disclosed to Lender in
writing that could materially adversely affect Borrower or any
of the property which will secure the Note herein described, or
the properties, business or financial condition of Borrower, or
the Guarantor hereunder.
j. The loan documents executed by Borrower constitute legal, valid
and binding obligations of the Borrower. Each of the loan
documents is enforceable against the obligor thereunder in
accordance with its terms.
k. There exists no default by Borrower, or any one of them, with
respect to any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department,
commission, bureau, board, agency or municipality, relative to
the Property and/or Collateral securing Borrower's Note.
IV. EVENTS OF DEFAULT
The following shall be considered an event of default under this
Agreement:
a. Failure of Borrower to make timely payments of any instalment
of principal and/or interest under the Note, or any other
obligation of Borrower to Lender, evidenced by the Loan
documents when due and payable, whether at maturity or
otherwise;
b. Failure of Borrower to perform any of the terms, covenants or
agreements contained herein or any security agreement, deed of
trust, promissory note, assignment of rents and leases, or other
instrument securing payment of this Loan of Borrower to Lender;
c. If any representation or warranty herein contained or in any
financial statement, report, or document submitted by Borrower
and/or Guarantor to Lender in connection with this Loan shall
prove to be untrue, incorrect or misleading in any material
respect when made; or
d. If any judgment, attachment, levy, mechanic's or materialmen's
lien affidavits, or claim of any kind is made against the
Borrower and/or the Property and such judgment, levy,
attachment, claim or mechanic's or materialmen's lien affidavit
remains there and is not removed for a period of thirty (30)
days; or
e. If Borrower and/or Guarantor makes an assignment for the
benefit of creditors, admits in writing its inability to pay
its debts generally
7
<PAGE> 8
Loan Agreement (Bodybilt)
as they become due, files a petition in bankruptcy, is
adjudicated insolvent or bankrupt, petitions or applies to any
tribunal for a receiver or a trustee for Borrower and/or
Guarantor or for any substantial part of Borrower's and/or
Guarantor's assets and/or Property, or Borrower commences any
action or someone commences an action against Borrower under an
reorganization, arrangement, readjustment of debt, dissolution
or liquidation under law or statute in any jurisdiction, whether
now or hereafter in effect, or if there is commenced against
Borrower and/or Guarantor, any such action, or Borrower and/or
Guarantor, by any act, indicates its consent to or approval of
any such action against Borrower and/or Guarantor or any
substantial part of Borrower's and/or Guarantor's assets and/or
Property.
Should a default occur Lender may, in addition to any other remedies
granted in the Note, Deed of Trust/Security Agreement-Financing Statement,
Assignment of Rents and Leases, Security Agreement, UCC-1 Financing Statements,
or any other security instruments and documents which have been executed by
Borrower and delivered to Lender with respect to this Loan, or which Lender may
be entitled to at law or in equity, Lender may, at its election, do any one or
more of the following:
a. Declare the Note and any part thereof, immediately due and
payable, whereupon it shall be due and payable, without notice
of any kind, including but not limited to, notice of intention
to accelerate, notice of acceleration, demand for payment, which
are all hereby waived by Borrower;
b. Terminate Lender's commitment to lend and any obligation to
disburse and advance any further funds to Borrower under the
Loan;
c. Demand payment in full from Guarantor of the unpaid balance on
the Note owed by Borrower;
d. Reduce any indebtedness owed by Borrower and/or Guarantor to
judgment;
e. Exercise any and all rights afforded by the Loan, the Note,
Deed of Trust, Security Agreement, Assignment of Rents and
Leases, and any and all other security instruments or
documentation relative to this Loan;
f. Purchase and charge to Borrower and/or Guarantor any amount for
a bond or bonds necessary to remove any claims or liens from
the Property which have been filed, by any contractor,
subcontractor, or materialmen or any other person or entity,
against the Property, prior to and/or during the term of this
Loan and during the construction of the Improvements on the
Property.
V. FINANCIAL CONDITION
During the term of this loan, Borrower and Guarantor hereby agree to
provide Lender with such information as Lender may reasonably request from time
to time regarding the financial condition of Borrower and any guarantor.
Borrower and Guarantor hereby authorize Lender to obtain such financial
information from others. In the event such information or an independent
investigation by Lender discloses a material adverse change in the financial
condition of Borrower and/or Guarantor or any one of them, or in the status of
8
<PAGE> 9
any of the Collateral, and/or the Property, or the operation of Borrower's
business, then, at Lender's option, should Lender in Lender's sole judgment
feel insecure, such may be considered a default under the terms and conditions
of this Loan Agreement, the Note, Deed of Trust, and all Security Instruments,
and Lender shall have the right to accelerate the maturity of the Promissory
Note herein and demand payment in full thereof.
VI. NO LIABILITY OF LENDER
Lender shall have no liability, obligation or responsibility whatsoever
with respect to the Loan.
Nothing, including without limitation any advance or acceptance of any
document or instrument, shall be construed as a representation or warranty,
express or implied, to any party by Lender. Further, Lender shall not have,
has not assumed and by its execution and acceptance of this Agreement hereby
expressly disclaims any liability or responsibility for the payment or
performance of any indebtedness or obligation of Borrower and no term or
condition hereof, or of any of the documents securing the loan, shall be
construed otherwise. Borrower hereby expressly acknowledges that no term or
condition hereof, or of any of the documents securing the Loan, shall be
construed so as to deem the relationship between Borrower, Guarantor and Lender
to be other than that of Borrower, Guarantor and Lender, and Borrower shall at
all times represent that the relationship between Borrower, Guarantor and
Lender is solely that of Borrower, Guarantor and Lender. Borrower hereby
indemnifies and agrees to hold Lender harmless from any against any loss, cost,
expense or liability incurred or suffered by Lender as a result of any
assertion or claim of any liability or responsibility of Lender for the payment
or performance of any indebtedness or obligation of Borrower.
VII. INDEMNIFICATION OF LENDER
Borrower hereby expressly acknowledges and recognizes its
responsibility for and agrees to indemnify and hold Lender and Lender's
successors and assigns, absolutely harmless from and against all costs,
expenses, liabilities, loss, damage, or obligations incurred by or imposed upon
or alleged to be due of Lender or Lender's successors and assigns in connection
with the assertion of (a) any claim for brokerage, agency or finder's fees or
commissions in connection with the Loan or the Property; or (b) any claim for
attorney, appraisal, title insurance, inspection or other fees, costs and
expenses incurred in connection with the negotiation, closing, administration,
collection or refinancing of the Loan, which arise by, through or on behalf of
the Borrower or any agent or representative of any of them; or (c) any claim
arising out of or occurring because of or related to any Event of Default
thereunder. Without intending to limit the remedies available to Lender with
respect to the enforcement of its indemnification rights as stated herein or as
stated in any of the documents securing the Loan, in the event any claim or
demand is made or any other fact comes to the attention of Lender in connection
with, relating or pertaining to, or arising out of the transactions
contemplated by this Loan Agreement, which Lender reasonably believes might
involve or lead to some liability of Lender, Borrower shall, immediately upon
receipt of written notification of any such claim or demand, assume in full the
personal responsibility for and the defense of any such claim or demand and pay
in connection therewith any loss, damage, deficiency, liability or obligation,
including without limitation, attorney's fees and court costs incurred in
connection therewith. In the event of court action in connection with any such
claim or demand the Borrower shall assume in full the responsibility for the
defense of any such action and shall immediately satisfy and discharge any
final decree or judgment rendered therein. The Lender may, in Lender's sole
and uncontrolled discretion, make any payments sustained or incurred by reason
of any of the foregoing, and the Borrower shall immediately
9
<PAGE> 10
repay to Lender in cash the amount of such payment, with interest thereon at
the rate specified in the Note to be applicable after default thereunder. The
Lender shall have the right to join the Borrower as a party defendant in any
legal action brought against Lender, and the Borrower hereby consents to the
entry of an order making Borrower a party defendant to any such action.
VIII. DOCUMENTATION
Borrower and Guarantor shall execute and deliver to Lender from time to
time as requested by Lender such documents and instruments which may be
reasonably necessary to provide the rights and remedies to Lender that are
provided for in this agreement.
IX. GENERAL PROVISIONS
No provision of this Agreement may be modified, waived, or terminated
except by instrument in writing, executed by the party against whom the
modification, waiver, or termination is sought to be enforced.
If any one or more of the provisions of this Agreement, or the
applicability of any such provision to a specific situation, shall be held
invalid or unenforceable, such provision shall be modified, to the minimum
extent necessary to make it or its application valid and enforceable, and the
validity and enforceability of all other provisions of this Agreement and all
other applications of any such provision shall not be affected thereby.
This Agreement and the loan documents and instruments shall be governed
and construed in accordance with the laws of the State of Texas, and the laws
of the United States applicable to the transaction within such State, and
shall be enforceable in Brazos County, Texas.
Lender shall have all of the rights granted under the Promissory Note,
Deed of Trust, Security Agreements, and all other loan documents and security
instruments executed by Borrower and delivered to Lender, and all of those
available at law or in equity, and these same rights shall be cumulative and
shall be pursued separately, successively or concurrently against Borrower, or
any property covered under the Deeds of Trust or Security Agreements securing
this Loan, at the sole discretion of the Lender. Exercise or failure to
exercise any of the same shall not constitute a waiver or release thereof, or
of any other right, and the same shall be non-exclusive.
This Agreement shall inure to the benefit of the Lender herein,
Lender's successors and assigns, be binding upon the Borrower, Borrower's
successors and assigns.
All notices, requests and communications hereunder shall be given in
writing and shall be delivered or mailed by first class, registered or
certified mail, postage pre-paid, return receipt requested, to the individuals
and addresses indicated below:
IF TO BORROWER:
BOBYBILT SEATING, INC.
4455 Carter Creek Parkway
Bryan, Texas 77802
10
<PAGE> 11
IF TO LENDER:
FIRST NATIONAL BANK OF BRYAN
ATTENTION: Tim Bryan, C.E.O.
P.O. Box 833
Bryan, Texas 77805
IF TO GUARANTOR:
MARK A. McMILLAN
4455 Carter Creek Parkway
Bryan, Texas 77802
Any notice provided for herein shall become effective only upon and at
such time of receipt by the party to whom it is given, unless such notice is
mailed by registered or certified mail, in which case it shall be deemed to be
received on the earlier of the second business day of Lender following the
mailing thereof, or the date of its receipt if such day is a business day of
Lender; or if not a business day, the first business day thereafter. The party
may, by proper written notice hereunder, to the other parties, change the
individual address to which notices shall thereafter be sent.
EXECUTED this the 26th day of May, 1994.
BORROWER:
BODYBILT SEATING, INC.
By: /s/ MARK McMILLAN
------------------------------------
Name:
Title:
GUARANTOR:
/s/ MARK A. McMILLAN
---------------------------------------
MARK A. McMILLAN
LENDER:
ATTEST: FIRST NATIONAL BANK OF BRYAN
/s/ STEVE M. HUTTON By: /s/ TIM BRYAN
- ---------------------- ------------------------------------
Name: Name:
Title: Title:
11
<PAGE> 12
EXHIBIT A
Page 1 of 2 Pages
FIELD NOTES
All that certain tract or parcel of land lying and being situated in Grimes
County, Texas and being a part of the D. TYLER SURVEY, Abstract No. 55, also
being out of a called 15.00 acre tract described in a Deed from William D.
Bonham, Trustee, to Quinten McLemore dated May 8, 1979, of record in Vol. 378,
Page 460, Real Property Records of Grimes County, Texas and more fully
described as follows.
BEGINNING at a found 3/8 inch iron rod for the NE corner of called 15.00 acre
tract mentioned above in the West R.O.W. line of the State Highway #6 Bypass
Loop and the SE corner of a called 12.656 acre tract described in a Deed from
John Haynie Stoneham, et al, to Quinten McLemore dated May 13, 1981, of record
in Vol. 420, Page 639, Real Property Records of Grimes County, Texas.
THENCE S 8 deg. 57 min. 21 sec. E, 582.02 ft., along the West R.O.W. line of
the State Highway #6 Bypass Loop and East line of called 15.00 acre tract to a
found 3/8 inch iron rod for the SE corner of the tract of land herein
described.
THENCE S 81 deg. 35 min. 08 sec. W, 650.52 ft., along the South line of the
tract of land herein described to a set 1/2 inch iron rod for its SW corner.
THENCE N 8 deg. 57 min. 36 sec. W, 444.50 ft., along the West line of called
15.00 acre tract and West line of the tract of land herein described to a set
1/2 inch iron rod for its NW corner in the South line of called 12.656 acre
tract.
THENCE N 69 deg. 37 min. 37 sec. E, 663.66 ft., along the North line of called
15.00 acre tract and South line of called 12.656 acre tract to THE PLACE OF
BEGINNING CONTAINING 7.665 acres of land.
DATED this the 9 day of May, 1994
SIGNED: /s/ ROBERT LEE BOSSE, JR.
------------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927
<PAGE> 13
EXHIBIT A
Page 2 of 2 Pages
SURVEY MAP
The undersigned does hereby certify that this survey was this day made on the
ground of the property located in Grimes County, Texas and being a part of the
D. TYLER SURVEY, Abstract No. 55, also being out of a called 15.00 acre tract
described in a Deed from William D. Bonham, Trustee, to Quinten McLemore,
dated May 8, 1979, of record in Vol. 378, Page 460, Real Property Records of
Grimes County, Texas, that there are no overlappings of improvements,
encroachments, easements, except as shown hereon and that the property shown
above as 7.665 acres is located within a Special Flood Hazard Area according to
the Flood Hazard Boundary Map, Community Panel No. 480265 0005A, dated February
4, 1988 for the City of Navasota, Texas. However, according to said Flood
Hazard Boundary Map the property shown above is located in an Area known as
Zone A and by the Legend on said Map there were no elevations run by The
Federal Emergency Management Agency to determine the base Flood Elevations of
the property shown above or any other Areas shown as Zone A.
DATED this the 9th day of May, 1994
SIGNED: /s/ ROBERT LEE BOSSE, JR.
--------------------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927 [SEAL]
<PAGE> 1
EXHIBIT 10(c)(2)
PROMISSORY NOTE
$571,500.00 May 26, 1994
Bryan, Texas
FOR VALUE RECEIVED, I, WE, or either of us, jointly and severally if
more than one, (herein referred to as "Maker") hereby promises to pay to the
order of FIRST NATIONAL BANK OF BRYAN, Bryan, Brazos County, Texas (herein
together with all subsequent holders hereof referred to as "Holder" or "Payee")
at 2807 Texas Avenue South, Bryan, Brazos County, Texas in lawful money of the
United States of America, the principal sum of FIVE HUNDRED SEVENTY-ONE
THOUSAND FIVE HUNDRED AND NO/100 DOLLARS) ($571,500.00) or so much thereof as
may be advanced, together with interest on the principal balance hereof at the
rate hereinafter provided.
Interest on the principal balance hereof from time to time remaining
unpaid prior to maturity shall accrue at a varying rate of interest per annum,
equal to the lesser of (a) the Maximum Lawful Rate, or (b) ONE AND ONE-FOURTH
percent (1.25%) plus the Prime Rate of TEXAS COMMERCE BANK, Houston, Harris
County, Texas in effect from day to day calculated, unless otherwise provided
herein, on the basis of three hundred sixty (360) days per year. PROVIDED
HOWEVER, in no event shall the interest rate charged on the unpaid principal
balance of this Note exceed eighteen percent (18%) per annum. As used herein,
the term "Maximum Lawful Rate" means the greatest of the non-usurious rates of
interest from time to time permitted under applicable United States Federal law
and Texas law. To the extent of the applicability of Chapter One ("Chapter
One") of Title 79, Texas Revised Civil Statutes 1925 as amended (the "Texas
Credit Code"), the Maximum Lawful Rate shall be the highest permitted rate
based upon the indicated rate ceiling (as defined in Chapter One). The
Maximum Lawful Rate shall be applied by taking into account all amounts
characterized by applicable law or interest on the debt evidenced by the Note,
so that the aggregate of all interest does not exceed the maximum non-usurious
amount permitted by applicable law. If the Maximum Lawful Rate is increased or
removed by statute or other governmental actions subsequent to the date of this
Note, then the new Maximum Lawful Rate, if any, will be applicable to this Note
from the effective date of the new Maximum Lawful Rate unless such application
is precluded by statute or governmental action or by the general law of the
jurisdiction governing this Note. The term "Prime Rate" means the interest
rate established and quoted from time to time by Texas Commerce Bank, Houston,
Harris County, Texas, as its prime commercial loan rate, whether or not such
rate is charged in each instance. Any change in the interest rate resulting
from a change in Prime Rate or in the Maximum Lawful Rate, as the case may be,
shall be effective, without notice to Maker, on the same date as such change.
If a published annual prime interest rate ceases to be made available by the
Texas
1
<PAGE> 2
Commerce Bank, Houston, Harris County, Texas or by any successor thereto, the
Note Holder will set the Note interest rate by using a comparable index.
Interest only shall be due and payable monthly as it accrues,
beginning on the 30th day of June, 1994, and continuing regularly and monthly
thereafter on the 30th day of each and every calendar month, until the 31st day
of May, 1995, when the entire amount hereof, principal and accrued interest
then remaining unpaid, shall be then due and payable in full. Interest shall be
calculated on the unpaid principal to date of each installment paid and the
payment made credited first to the discharge of the interest accrued and the
balance to the reduction of the principal.
This Note is secured by, among other things, a Deed of Trust/Security
Agreement - Financing Statement of even date herewith executed by BODYBILT
SEATING, INC., a Texas Corporation, acting by and through its duly authorized
President, MARK A. McMILLAN to WILLIAM D. BARKLEY, Trustee, for the benefit of
FIRST NATIONAL BANK OF BRYAN, covering the rights and properties more fully
described therein including the following real property:
Being 7.45 acres of land, more or less, being partly out of the D.
TYLER SURVEY, Abstract No. 55 and partly out of the D. ARNOLD SURVEY,
Abstract No. 2 and also being known as a part of Lot 1, Block 1,
McLEMORE SHOPPING CENTER SUBDIVISION, City of Navasota, Grimes County,
Texas, according to map or plat thereof recorded in volume 380, Page
37, Real Property Records of Grimes County, Texas, and being more
particularly described on Exhibit "A" attached hereto and made a part
hereof for all purposes.
And further secured by a Security Agreement dated May 26, 1994,
executed by BODYBILT SEATING, INC., a Texas Corporation, as Debtor, to FIRST
NATIONAL BANK OF BRYAN, as Secured Party, together with UCC-1 Financing
Statements filed of record in the UCC (Personal Property) Records of Grimes
County, Texas and with the Secretary of State's Office, against the following
personal property:
a. Any and all present and future personal property, furniture,
furnishings, goods, equipment, heating and air conditioning
equipment (save and except inventory and manufacturing
equipment unless otherwise secured), carpet, rugs, shades,
blinds, draperies, plumbing pipes and fixtures, bathroom
facilities, lighting, ventilating, refrigerating, cooking and
laundry equipment, stoves, hoods, disposals, refrigerators,
swimming pool equipment and related apparatus, yard care
machinery, and such other goods and chattels and personal
property now owned by Debtor or hereafter acquired by Debtor,
as are ever used or furnished in operating of the building or
buildings or the activities conducted therein located on the
Property and/or ever used or furnished in the operation of the
Property, and all renewals or replacements thereof, or
articles in substitution therefor, whether or not the same are
or shall be attached to the said building or buildings in any
manner.
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<PAGE> 3
b. Any and all plans and specifications for development or
construction of the Improvements on the Property or for the
repair or remodelling of the Improvements on the Property.
c. Any and all contracts and subcontracts and tenant leases
including but not limited to that certain Lease Agreement
dated May 24, 1979, by and between Brookshire Brothers, Inc.,
as Lessee, and Quinten McLemore, as Lessor, subsequently
assigned to Debtor, relating to the Property.
d. Any and all accounts, contract rights, instruments, documents,
general intangibles and chattel paper arising from or by
virtue of any transactions related to the Property.
e. Any and all permits, licenses, franchises, certificates and
other rights and privileges obtained in connection with the
Property.
f. All rights, title and interests of Debtor in and to the name
"Navasota Shopping Center" for use as the trade name of the
Property hereinafter described.
g. Any and all proceeds arising from or by virtue of the sale,
lease or other disposition of any of the foregoing property
and items set forth in paragraphs (a) through (f) above.
h. Any and all proceeds payable or to be payable under each
policy of insurance relating to the item set forth in
paragraphs (a) through (f) and the Property.
i. Any and all proceeds arising from the taking of all or a part
of the Property for any public or quasi-public use under any
law, or by right of eminent domain, or by private or other
purchase in lieu thereof.
j. All building materials or equipment now or hereafter delivered
to the land herein described and intended to be installed
thereon or in any improvements erected or to be erected
thereon.
k. All future replacements and substitution for betterments of,
and accessions and additions to the property described or
referred to in paragraphs (a) through (j).
l. All other interest of every kind and character that Debtor now
has or at any time hereafter acquires in and to the property
described or referred to in paragraphs (a) through (k) above,
and all property that is used or useful in connection with the
Property.
m. All proceeds arising from or by virtue of the sale, lease or
other disposition of all or any part of the Property,
including oil, gas and other minerals.
n. All rents, revenues, lease payments, charges, purchase price
profits, insurance proceeds arising from or payable under that
certain Lease as to a part of the Property, being that Lease
in writing dated May 24, 1979, entered into by and between
Brookshire Brothers, Inc., as Lessee, and Quinten McLemore, as
Lessor, and all amendments and addendums thereto, which has
3
<PAGE> 4
been transferred and assigned to Debtor.
And further secured by an Assignment of Rents, Leases and Other
Benefits dated May 26, 1994, executed by and between BODYBILT SEATING, INC., a
Texas Corporation, as Assignor, to FIRST NATIONAL BANK OF BRYAN, as Assignee,
covering the rights and properties as therein stated.
All past due payments of principal and, if permitted by applicable
law, of interest, shall bear interest from maturity until paid at an interest
rate per annum, which from day to day, shall be equal to the lesser of either
(i) the Maximum Lawful Rate or (ii) an interest rate of eighteen (18%) percent
per annum. During the existence of any default hereunder or under any
instruments securing or evidencing the loan evidenced hereby, the entire unpaid
balance of principal shall also bear interest at the rate above provided on the
principal balance hereof from time to time remaining unpaid prior to maturity.
Interest on past due installments and default interest provided for in this
paragraph shall be calculated at a daily rate equal to 1/360th of the
applicable annual percentage rate.
Any provision contained herein, to the contrary notwithstanding,
computations of interest on the unpaid principal amount of this Note, from time
to time outstanding, at rates provided in this Note, shall be made on the basis
of actual number of days elapsed but, (i) to the extent permitted by applicable
law such interest shall be computed as if each year consisted of three hundred
sixty (360) days or (ii) to the extent computation of interest as specified in
(i) is not permitted by applicable law, interest shall be computed on the basis
of a three hundred sixty-five (365) day year or three hundred sixty-six (366)
day year, as the case may be.
This Note shall be governed by and construed in accordance with Texas
law and applicable federal law. The parties hereto intend to conform
strictly to the applicable usury laws. In no event, whether by reason of
acceleration of the maturity hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use, forbearance or detention of money
hereunder or otherwise exceed the maximum amount permissible under applicable
law. If fulfillment of any provision hereof or of any mortgage, loan agreement
or other document now or hereafter evidencing, securing or pertaining to the
indebtedness evidenced hereby, at the time performance of such provision shall
be due, would involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced automatically to the limit
of such validity. If Holder shall ever receive anything of value deemed
interest under applicable law which would exceed interest at the highest lawful
rate, an amount equal to any amount which would have been excessive interest
shall be applied to the
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<PAGE> 5
reduction of the principal amount owing hereunder in the inverse order of its
maturity and not to the payment of interest, or if such amount which would have
been excessive interest exceeds the unpaid balance of principal hereof, such
excess shall be refunded to Borrower. All sums paid or agreed to be paid to
Holder for the use, forbearance or detention of the indebtedness of Maker to
Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full stated term of such
indebtedness so that the amount of interest on account of such indebtedness
does not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
If default is made in the payment of any installment or payment
hereof, either principal or interest, or in the payment of any other sum due
hereunder, promptly when the same shall be due and payable hereunder, or if
there is any default under the Deed of Trust or any instrument which
secures the payment of this Note or which is executed in connection with
the loan evidenced by this Note, THEN HOLDER MAY ACCELERATE THE MATURITY OF
THIS NOTE AND DECLARE THE ENTIRE UNPAID PRINCIPAL BALANCE AND ACCRUED INTEREST
AT ONCE DUE AND PAYABLE.
EACH MAKER, SURETY, ENDORSER AND ALL OTHER PARTIES LIABLE FOR THIS
NOTE, WAIVE DEMAND, NOTICE OF INTENT TO DEMAND, PRESENTMENT FOR PAYMENT, NOTICE
OF NON-PAYMENT, PROTEST, NOTICE OF PROTEST, GRACE, NOTICE OF DISHONOR, NOTICE
OF INTENT TO ACCELERATE MATURITY, NOTICE OF ACCELERATION OF MATURITY, AND
DILIGENCE IN COLLECTION.
If this Note is not paid at its maturity, regardless of how such
maturity may be brought about, the Holder may foreclose the liens and security
interests securing payment hereof or exercise any of its other rights hereunder
or under any instrument which secures the payment of this Note, or at law or in
equity. Failure to exercise any of such rights upon default shall not
constitute a waiver of the right to exercise any of them at any time. Maker may
be required to pay this note in full without the assistance of any other party,
or any collateral or security for this note. Holder shall not be required to
mitigate damages, file suit, or take any action to foreclose, proceed against,
or exhaust any collateral or security in order to enforce payment of this note.
Maker acknowledges that Holder has no duty of good faith to Maker,
and acknowledges that no fiduciary, trust or other special relationship exists
between Holder and Maker.
If Holder requires the services of an attorney to enforce the payment
of this Note or the performance of the deed of trust or any other security
instruments and documents securing this Note, or other loan documents, or if
this Note is collected through any lawsuit, probate, bankruptcy, or other
judicial proceeding, Maker
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<PAGE> 6
agrees to pay Holder all court costs, reasonable attorney's fees and expenses
and other collection costs incurred by Holder.
Maker may prepay this Note in full at any time or in part from time to
time, without premium or penalty.
The term Maker, Holder and Payee and other nouns and pronouns include
the plural if more than one. The term Maker, Holder or Payee also include
their respective heirs, personal representatives, and assigns.
Words of any gender used in this Note shall be held and construed to
include any other gender and words in the singular number shall be held to
include the plural and vice versa, unless the contexts require otherwise.
When the note is executed by a corporation or other entity, then the pronouns
such as "I", "my" or "me" shall be held and construed to mean the corporation
or other entity.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the
United States of America, except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Chp.
15, as amended (which regulates certain revolving credit loan accounts and
revolving tri-party accounts) shall not apply hereto.
The money advanced and the advancements made under this note shall be
at such time and in such amounts and for the purposes provided for in that
certain Loan Agreement of even date herewith, entered into by and between Maker
and Holder of this Note.
This Note matures May 3l, 1995. YOU MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST THEN DUE. FIRST NATIONAL BANK OF BRYAN
IS UNDER NO OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. YOU WILL THEREFORE
BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS YOU MAY OWN, OR YOU WILL HAVE
TO FIND A LENDER, WHICH MAY BE FIRST NATIONAL BANK OF BRYAN, WILLING TO LEND YOU
THE MONEY. IF YOU REFINANCE THIS LOAN AT MATURITY, YOU MAY HAVE TO PAY SOME OR
ALL OF THE CLOSING COSTS NORMALLY ASSOCIATED WITH A NEW LOAN EVEN IF YOU OBTAIN
REFINANCING FROM THE SAME BANK.
BODYBILT SEATING, INC.
By: /s/ MARK A. McMILLAN
------------------------------
Mark A. McMillan
President
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<PAGE> 1
EXHIBIT 10(c)(3)
FIRST NATIONAL BANK OF BRYAN
2807 Texas Avenue South
Brazos, TX 77802
SPECIFIC GUARANTY
WHEREAS, BODYBILT SEATING, INC., a Texas Corporation, acting by and
through its duly authorized President, MARK A. McMILLAN, hereinafter called
"Borrower", contemplates becoming indebted to FIRST NATIONAL BANK OF BRYAN, a
Banking Corporation with offices and Banking quarters at 2807 Texas Avenue
South, Bryan, Texas 77802, hereinafter called "Lender", on account of loans,
discounts, overdrafts and bills of exchange or other transactions Borrower may
have with Lender; and
WHEREAS, the undersigned, MARK A. McMILLAN, hereinafter called
"Guarantor", in consideration of the extension of such credit, now or
hereafter, and for value received, has and does hereby guarantee the payment to
the extent herein and hereinafter stated.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS: That in consideration
of the premises:
1. Guarantor unconditionally guarantees the prompt payment to
Lender, its successors and assigns, of the following described promissory note
executed by Borrower payable to the order of Lender together with any and all
renewals, extensions and/or rearrangements thereof, whether with or without
notice to Guarantor:
Promissory Noted dated May 26, 1994, in the original principal amount
of FIVE HUNDRED SEVENTY-ONE THOUSAND FIVE HUNDRED AND NO/100
($571,500.00), executed by BODYBILT SEATING, INC., a Texas
Corporation, acting by and through its duly authorized President, MARK
A. McMILLAN, and payable to the order of FIRST NATIONAL BANK OF BRYAN;
together with such interest as may accrue on such note, according to its tenor
and effect, and reasonable fees if such claim, demand or indebtedness be placed
with an attorney for collection, or if collected through the probate or
bankruptcy court, receivership proceedings or any proceedings in federal court,
and reorganization in any federal court proceeding, or suit, or suits,
hereinafter referred to as "Indebtedness".
2. This guaranty is an absolute, unconditional completed and
continuing one, and no notice of the Indebtedness or any extension of credit
already or hereafter contracted by or extended to the Borrower need be given to
the Guarantor. Borrower and Lender may rearrange, extend and/or renew the
Indebtedness without notice to the Guarantor and in such event Guarantor will
remain fully bound hereunder on such Indebtedness. The Guarantor hereby
expressly waives presentment, demand, protest and notice of protest and
dishonor on any and all forms of such Indebtedness, and also notice of
acceptance of this guaranty, acceptance on the part of Lender being
conclusively presumed by its request for this guaranty and deliver of the same
to it.
3. Guarantor authorizes Lender, without notice or demand and
without affecting its liability hereunder, to take and hold security for the
payment of this guaranty and/or the Indebtedness guaranteed, and exchange,
enforce, waive and release any such security; and to apply such security and
direct the order or manner of sale thereof as Lender in its discretion may
determine; and to obtain a guaranty of the Indebtedness from any one or more
other persons, corporations or entities whomsoever and at any time or times to
enforce, waive, rearrange, modify, limit or release such other persons,
corporations or entities from their obligations under such guaranties.
4. Guarantor waives any right to require Lender to (a) proceed
against the borrower, (b) proceed against or exhaust any security held from the
Borrower, or (c) pursue any other remedy in Lender's power whatsoever.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of the Borrower or any other
Guarantor of the Indebtedness, and shall remain liable hereon regardless of
whether Borrower or any other guarantor be found not liable thereon for any
reason. Until all the Indebtedness shall have been paid in full, Guarantor
shall have no right of subrogation, and waives any right to enforce any remedy
which Lender now has or may hereafter have against the Borrower, and waives any
benefit of and any right to participate in any security now or hereafter held
by Lender.
5. Guarantor will within five (5) days from date of notice from
Lender of Borrower's failure to pay any of the Indebtedness at maturity, pay to
Lender the amount due and unpaid by said Borrower. The failure of Lender to
give notice shall not in any way release Guarantor hereunder. Guarantor agrees
that if the maturity of any Indebtedness hereby guaranteed is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed accelerated for the
purpose of this guaranty without demand or notice to Guarantor.
6. It is expressly agreed that the liability of the Guarantor for
the payment of the Indebtedness secured hereby shall be primary and not
secondary.
7. As security for its obligation hereunder, the Guarantor hereby
grants to the Lender a security interest in, a general lien upon and/or right
of set-off of, the following (herein referred to as the Security): the balance
of every deposit account, now or hereafter existing, of the Guarantor with the
Lender and any other claim of the Guarantor against the Lender, now or
hereafter existing, and all money, instruments, securities, documents, chattel
paper, credits, claims, demands and any other property, rights and
interest of the Guarantor, which at any time shall come into the possession or
custody or under the control of the Lender or any of its agents or affiliates,
for any purposes, and shall include the proceeds, products and accessions of
and to any thereof. The Lender shall be deemed to have possession of any of the
Security in transit to or set apart for it or any of its agents or affiliates.
The right is expressly granted to the Lender, at its discretion, to file one or
more financing statements under the Uniform Commercial Code naming the
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<PAGE> 2
Guarantor as Debtor and the Lender as Secured Party and indicating
therein the types or describing the items of security herein specified. The
Lender shall not be required to take any steps necessary to preserve any rights
against prior parties to any of the Security.
8. In the event of default under this guaranty, the Lender may
sell or cause to be sold in the City of Bryan, Texas, or elsewhere, in one or
more sales or parcels, at such price as the Lender may deem best, and for cash
or on credit or for future delivery, without assumption of any credit risk, all
or any of the Security at any broker's board or at public or private sale,
without demand or performance or notice of intention to sell or of time or
place of sale (except such notice as is required by applicable statute and
cannot be waived), and the Lender or anyone else may be the purchaser of any or
all of the Security so sold and thereafter hold the same absolutely, free from
any claim or right of whatsoever kind, including any equity of redemption, of
the Guarantor, any such demand, notice or right and equity being hereby
expressly waived and released.
9. The grant of the above security interest and lien shall not in
anywise limit or be construed as limiting Lender to collect payment of any
liability of Guarantor incurred hereby only out of the Security, but it is
expressly understood and provided that all such liability shall constitute the
absolute and unconditional obligation of Guarantor.
10. In the event Guarantor is a corporation, the undersigned
signing for and on behalf of Guarantor hereby represents and warrants to Lender
that he is duly authorized and empowered to execute this guaranty for and on
behalf of Guarantor and that this guaranty is a valid, binding and enforceable
obligation of Guarantor and does not violate any provisions of its articles or
certificate of incorporation or its by-laws or any law, rule, regulations,
contract or agreement enforceable against Guarantor.
11. In all instances herein, the singular shall be construed to
include the plural and the masculine to include the feminine. In the event more
than one party executes this agreement as a guarantor, then each Guarantor
agrees to be jointly and severally liable for the Indebtedness.
12. This guaranty is and shall be in every particular
available to the successors and assigns of Lender and is and shall always be
fully binding upon the heirs, administrators, successors and assigns of
Guarantor. This Guaranty shall be enforceable against each person signing this
Guaranty, even if only one person signs and regardless of any failure of other
persons to sign this Guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be and are hereby declared to be,
joint and several, in each and every particular, and shall be fully binding
upon and enforceable against either, any and all of the Guarantors on this
Indebtedness. This Guaranty shall be effective upon delivery to Lender and
without further act, condition or acceptance by Lender.
13. In the event the Borrower is a corporation and Guarantor is an
individual, it is understood and agreed that notwithstanding anything herein
contained to the contrary, Guarantor shall never be liable on this guarantee
for any sums as interest in excess of the highest legal rate payable as
interest under the laws of the State of Texas by an individual guaranteeing the
obligation of a corporation.
WITNESS THE EXECUTION HEREOF, this the 26 day of May, 1994.
/s/ MARK A. McMILLAN
--------------------------------
MARK A. McMILLAN
THE STATE OF TEXAS :
COUNTY OF BRAZOS :
This instrument was acknowledged before me on this the 26 day of
May, 1994 by MARK A. McMILLAN.
/s/ SARA MILLER
--------------------------------
NOTARY PUBLIC in and for
The State of Texas
[SEAL]
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<PAGE> 1
EXHIBIT 10(c)(4)
GENERAL SECURITY AGREEMENT
This Security Agreement is made and entered into on May 26, 1994 by and
between BODYBILT SEATING, INC., a Texas Corporation, acting by and through its
duly authorized President, MARK A. McMILLAN hereinafter referred to as
"Debtor", whose mailing address is 4455 Carter Creek Parkway, Bryan, Brazos
County, Texas 77802, and FIRST NATIONAL BANK OF BRYAN hereinafter referred to
as "Secured Party", whose mailing address is 2807 Texas Avenue South, Bryan,
Brazos County, Texas 77802, as follows:
FOR VALUE RECEIVED, the Debtor hereby grants to the Secured Party a
security interest in the following described property, hereinafter referred to
as the Collateral, to-wit;
a. Any and all present and future personal property, furniture,
furnishings, goods, equipment (save and except inventory and
manufacturing equipment unless otherwise secured), heating and
air conditioning equipment, carpet, rugs, shades, blinds,
draperies, plumbing pipes and fixtures, bathroom facilities,
lighting, ventilating, refrigerating, cooking and laundry
equipment, stoves, hoods, disposals, refrigerators, swimming
pool equipment and related apparatus, yard care machinery, and
such other goods and chattels and personal property now owned
by Debtor or hereafter acquired by Debtor, as are ever used or
furnished in operating of the building or buildings or the
activities conducted therein located on the Property and/or
ever used or furnished in the operation of the Property, and
all renewals or replacements thereof, or articles in
substitution therefor, whether or not the same are or shall be
attached to the said building or buildings in any manner.
b. Any and all plans and specifications for development or
construction of the Improvements on the Property or for the
repair or remodelling of the Improvements on the Property.
c. Any and all contracts and subcontracts and tenant leases
including but not limited to that certain Lease Agreement dated
May 24, 1979, by and between Brookshire Brothers, Inc., as
Lessee, and Quinten McLemore, as Lessor, subsequently assigned
to Debtor, relating to the Property.
d. Any and all accounts, contract rights, instruments, documents,
general intangibles and chattel paper arising from or by virtue
of any transactions related to the Property.
e. Any and all permits, licenses, franchises, certificates and
other rights and privileges obtained in connection with the
Property.
f. All rights, title and interests of Debtor in and to the name
"Navasota Shopping Center" for use as the trade name of the
Property hereinafter described.
g. Any and all proceeds arising from or by virtue of the sale,
lease or other disposition of any of the foregoing property
and items set forth in paragraphs (a) through (f) above.
h. Any and all proceeds payable or to be payable under each policy
or insurance relating to the item set forth in paragraphs (a)
through (f) and the Property.
i. Any and all proceeds arising from the taking of all or a part
of the Property for any public or quasi-public use under any
law, or by right of eminent domain, or by private or other
purchase in lieu thereof.
j. All building materials or equipment now or hereafter delivered
to the land herein described and intended to be installed
thereon or in any improvements erected or to be erected thereon.
k. All future replacements and substitution for betterments of,
and accessions and additions to the property described or
referred to in paragraphs (a) through (j).
l. All other interest of every kind and character that Debtor now
has or at any time hereafter acquires in and to the property
described or referred to in paragraphs (a) through (k) above,
and all property that is used or useful in connection with the
Property.
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<PAGE> 2
General Security Agreement
m. All proceeds arising from or by virtue of the sale, lease or
other disposition of all or any part of the Property, including
oil, gas and other minerals.
n. All rents, revenues, lease payments, charges, purchase price
profits, insurance proceeds arising from or payable under that
certain Lease as to a part of the Property, being that Lease
in writing dated May 24, 1979, entered into by and between
Brookshire Brothers, Inc., as Lessee, and Quinten McLemore,
as Lessor, and all amendments and addendums thereto, which has
been transferred and assigned to Debtor.
to secure (1) the Debtor's note of $571,500.00 to the Secured Party dated May
26, 1994 payable as to principal and interest as therein provided ("Note"); (2)
future advances to be evidenced by like notes or otherwise to be made by
Secured Party to Debtor at Secured Party's option; (3) all expenditures by
Secured Party for taxes, insurance, repairs to and maintenance of the
Collateral, other costs and expenses including attorney's fees incurred by
Secured Party in the collection and enforcement of the note and other
indebtedness of Debtor; (4) any and all indebtednesses of the Debtor to Secured
Party presently existing or which may in any manner or means hereafter be
incurred by the Debtor and evidenced in any manner whatsoever, either by notes,
advances, overdrafts, bookkeeping entries or any other method or means, it
being expressly agreed and understood that any and all sums now owed to or
hereafter advanced by said Secured Party to the Debtor of said note shall be
payable at FIRST NATIONAL BANK OF BRYAN, 2807 Texas Avenue South, Bryan, Brazos
County, Texas 77802, and shall bear interest as may be provided in such Note or
other evidences of indebtedness given by the Debtor to said Secured Party,
including any renewal and extension of any note or of any part of the said
indebtedness of the Debtor, and including any further loans and advancements
made by said Secured Party to the Debtor of said note under the provisions
hereof, which future advances, it is acknowledged are contemplated; and (5) all
liabilities of Debtor to Secured Party now existing or hereafter incurred,
matured or unmatured, direct or contingent, and any renewals and extensions
thereof and substitutions therefor.
The term "Property" as used herein shall mean "all that certain 7.45 acres
of land, more or less, being partly out of the D. TYLER SURVEY, Abstract No. 55
and partly out of the D. ARNOLD SURVEY, Abstract No. 2 and also being known as
a part of Lot 1, Block 1, McLEMORE SHOPPING CENTER SUBDIVISION, City of
Navasota, Grimes County, Texas, according to map or plat thereof recorded in
Volume 380, Page 37, Real Property Records of Grimes County, Texas, and being
more particularly described on Exhibit "A" attached hereto and make a part
hereof for all purposes."
The Debtor warrants and covenants:
The Collateral is to be used for personal, family, or household
- --------- purposes.
XXXXX The Collateral is to be used in business other than farming
- --------- operations.
The Collateral is equipment used in farming operations, or farm
- --------- products, or accounts contract rights, or general intangibles
arising from or relating to the sale of farm products by a
farmer.
The Collateral is fixtures attached to or to become attached to
- --------- the above described land.
XXXXX The Collateral is being acquired by the Debtor from the Secured
- --------- Party and is being acquired with the proceeds of the advance
evidenced by this Agreement.
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General Security Agreement
XXXXX The Debtor's principal office is at 4455 Carter Creek Parkway,
- --------- Bryan, Brazos County, Texas 77802.
XXXXX The Collateral will be kept at the Property described on
- --------- Exhibit "A" attached hereto and made a part hereof for all
purposes.
XXXXX The Debtor's chief place of business is at 4455 Carter Creek
- --------- Parkway, Bryan, Brazos County, Texas 77802.
XXXXX The owner of the property where the Collateral is located is
- --------- BODYBILT SEATING, INC., a Texas Corporation.
DEBTOR WARRANTS, COVENANTS, AND AGREES:
Title
1. Except for the security interest hereby granted, the Debtor has, or
on acquisition will have, full title to the Collateral free from any lien,
security interest, encumbrance, or claim, and the Debtor will, at the Debtor's
cost and expense, defend any action which may affect the Secured Party's
security interest in, or the Debtor's title to, the Collateral.
Financing Statement
2. No Financing Statement covering the Collateral or any part thereof
or any proceeds thereof is on file in any public office and, at the Secured
Party's request, the Debtor will join in executing all necessary Financing
Statements in forms satisfactory to the Secured Party and will pay the cost of
filing the same and will further execute all other necessary instruments deemed
necessary by the Secured Party and pay the cost of filing the same.
Sale, Lease or Disposition of Collateral
3. The Debtor will not, without the written consent to the Secured
Party, sell, contract to sell, lease, encumber, or dispose of the Collateral or
any interest therein until this Security Agreement and all debts secured
thereby have been fully satisfied.
Insurance
4. The Debtor will insure the Collateral with companies acceptable to
the Secured Party against such casualties and in such amounts as the Secured
Party shall reasonably require with a loss payable clause in favor of the
Debtor and Secured Party as their interest may appear, and the Secured Party is
hereby authorized to collect sums which may become due under any of said
policies and apply the same to the obligations hereby secured.
Protection of Collateral
5. The Debtor will keep the Collateral in good order and repair and
will not waste or destroy the Collateral or any part thereof. The Debtor will
not use the Collateral in violation of any statute or ordinance and the Secured
Party will have the right to examine and inspect the Collateral at any
reasonable time.
Taxes
6. The Debtor will pay promptly when due all taxes and assessments on
the Collateral or for its use and operation.
3
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General Security Agreement
Location and Identification
7. The Debtor will keep the Collateral separate and identifiable and
at the address shown above and will not remove the Collateral from said address
without the Secured Party's written consent.
Security Interest in Proceeds and Accessions
8. The Debtor hereby grants to the Secured Party a security interest
in and to all proceeds, increases, substitutions, replacements, additions, and
accessions to the Collateral. This provision shall not be construed to mean
that the Debtor is authorized to sell, lease, or dispose of the Collateral
without the consent of the Secured Party.
Decrease in Value of Collateral
9. The Debtor shall, if in the Secured Party's judgment the Collateral
has materially decreased in value or if the Secured Party shall at any time
deem that the Secured Party is insecure, either provide enough additional
Collateral to satisfy the Secured Party or reduce the total indebtedness by an
amount sufficient to satisfy the Secured Party.
Reimbursement of Expenses
10. At the option of the Secured Party, the Secured Party may discharge
taxes, liens, interest, or perform or cause to be performed for and on behalf
of the Debtor any actions and conditions, obligations, or covenants which the
Debtor has failed or refused to perform, and may pay for the repair,
maintenance, and preservation of the Collateral, and all sums so expended,
including, but not limited to, attorney's fees, court costs, agent's fees, or
commissions, or any other costs or expenses, shall bear interest from the date
of payment at the rate of eighteen percent (18%) per annum and shall be payable
at the place designated in the above described note and shall be secured by
this Security Agreement.
Payment
11. The Debtor will pay the notes secured by this Security Agreement
and any renewal or extension thereof and any other indebtedness hereby secured
in accordance with the terms and provisions thereof and will repay immediately
all sums expended in the Secured Party in accordance with the terms and
provisions of this Security Agreement.
Change of Residence or Place of Business
12. The Debtor will promptly notify the Secured Party of any change of
the Debtor's residence, chief place of business, or place where the records
concerning accounts and other contract rights are kept.
Time of Performance and Waiver
13. In performing any act under this Security Agreement and the note
secured hereby, time shall be of the essence. The Secured Party's acceptance
of partial or delinquent payment, or the failure of the Secured Party to
exercise any right or remedy shall not be a waiver of any obligation of the
Debtor or right of the Secured Party or constitute a waiver of any other
similar default subsequently occurring.
4
<PAGE> 5
General Security Agreement
Default
15. The Debtor shall be in default under this Security Agreement on the
happening of any of the following events or conditions:
(a) Default in the payment or performance of any note obligation,
covenant, or liability contained or referred to therein;
(b) Any warranty, representation, or statement made of furnished to the
Secured Party by or on behalf of the Debtor proves to have been
false in any material respect when made or furnished.
(c) Any event which results in the acceleration of the maturity of the
indebtedness of the Debtor to others under any indenture, agreement,
or undertaking;
(d) Loss, theft, substantial damage, destruction, sale, or encumbrance
to or of any of the Collateral, or the making of any levy,
seizure, or attachment thereof or thereon;
(e) Any time the Secured Party believes that the prospect of payment of
any indebtedness secured hereby or the performance of the
Security Agreement is impaired;
(f) Death, insolvency, business failure of the Debtor and/or any
guarantor, appointment of a receiver for any part of the Collateral,
assignment for the benefit of creditors or the commencement of any
proceeding under any bankruptcy or insolvency law by or against the
Debtor or any guarantor or surety for the Debtor.
Remedies
16. On the occurrence of any such event of default, and at any time
thereafter, the Secured Party may declare all obligations secured immediately
due and payable and may proceed to enforce payment of the same and exercise any
and all of the rights and remedies provided by the Uniform Commercial Code as
well as other rights and remedies either at law or in equity possessed by the
Secured Party.
The Secured Party may require the Debtor to assemble the Collateral
and make it available to the Secured Party at any place to be designated by the
Secured Party which is reasonably convenient to both parties. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, the Secured Party will give the
Debtor reasonable notice of the time and place of any public sale thereof or of
the time after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met if such
notice is mailed, postage prepaid, to the address of the Debtor shown at the
beginning of this Security Agreement at least five (5) days before the time of
the sale or disposition. Expenses of retaking, holding, preparing for sale,
selling, or the like shall include the Secured Party's reasonable attorney's
fees and legal expenses.
MISCELLANEOUS PROVISIONS
17. (a) Texas Law to Apply: This Agreement shall be construed under and
in accordance with the Uniform Commercial Code and other applicable laws of the
State of Texas and all obligations of the parties crated hereunder are
performable in Brazos County, Texas.
(b) Parties Bound: This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where permitted
by this Agreement.
(c) Legal Construction: In case any one or more of the provisions
contained in this
5
<PAGE> 6
General Security Agreement
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision hereof and this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision had never been contained
herein.
(d) Prior Agreements Superseded: This Agreement constitutes the sole and
only agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the within subject
matter.
(e) Definitions: All terms used herein which are defined in the Uniform
Commercial Code of Texas shall have the same meaning herein as in said Code.
The fact of repayment by the Debtor of said Notes and Indebtedness herein
secured shall not terminate this mortgage and security interest unless the Note
and Indebtedness is paid in full, and the same be so released by said Secured
Party by written instrument executed by Secured Party and recorded in the
U.C.C. Records of the County Clerk's Office of BRAZOS County, Texas and the
Office of the Secretary of State of Texas; but otherwise it shall remain in
full force and effect to secure all future advances and indebtednesses,
regardless of any additional security that may be taken as to any past or
future indebtedness, and shall be unaffected by any renewals, extensions or
partial releases hereunder.
EXECUTED May 26, 1994.
DEBTOR:
BODYBILT SEATING, INC.
By: /s/ MARK A. McMILLAN
--------------------------
Mark A. McMillan
President
SECURED PARTY:
ATTEST: FIRST NATIONAL BANK OF BRYAN
/s/ STEVE M. HUTTON By: /s/ TIM BRYAN
- -------------------------- --------------------------
Name: Name:
Title: Title:
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
This instrument was acknowledged before me on this the 26 day of May,
1994, by MARK A. McMILLAN, President of BODYBILT SEATING, INC., a Texas
Corporation, on behalf of said Corporation and in the capacity therein stated.
SARA MILLER /s/ SARA MILLER
MY COMMISSION EXPIRES -----------------------------
June 6, 1996 NOTARY PUBLIC in and for
The State of Texas
6
<PAGE> 7
General Security Agreement
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
This instrument was acknowledged before me on this the 26 day of May,
1994, by Tim Bryan, Vice Chairman of FIRST NATIONAL BANK OF BRYAN, a Banking
Corporation, on behalf of said Corporation and in the capacity therein stated.
SARA MILLER /s/ SARA MILLER
MY COMMISSION EXPIRES -----------------------------
June 6, 1996 NOTARY PUBLIC in and for
The State of Texas
7
<PAGE> 8
EXHIBIT A
Page 1 of 2 Pages
FIELD NOTES
All that certain tract or parcel of land lying and being situated in Grimes
County, Texas and being a part of the D. TYLER SURVEY, Abstract No. 55, also
being out of a called 15.00 acre tract described in a Deed from William D.
Bonham, Trustee, to Quinten McLemore dated May 8, 1979, of record in Vol. 378,
Page 460, Real Property Records of Grimes County, Texas and more fully
described as follows.
BEGINNING at a found 3/8 inch iron rod for the NE corner of called 15.00 acre
tract mentioned above in the West R.O.W. line of the State Highway #6 Bypass
Loop and the SE corner of a called 12.656 acre tract described in a Deed from
John Haynie Stoneham, et al, to Quinten McLemore dated May 13, 1981, of record
in Vol. 420, Page 639, Real Property Records of Grimes County, Texas.
THENCE S 8 deg. 57 min. 21 sec. E, 582.02 ft., along the West R.O.W. line of
the State Highway #6 Bypass Loop and East line of called 15.00 acre tract to a
found 3/8 inch iron rod for the SE corner of the tract of land herein
described.
THENCE S 81 deg. 35 min. 08 sec. W, 650.52 ft., along the South line of the
tract of land herein described to a set 1/2 inch iron rod for its SW corner.
THENCE N 8 deg. 57 min. 36 sec. W, 444.50 ft., along the West line of called
15.00 acre tract and West line of the tract of land herein described to a set
1/2 inch iron rod for its NW corner in the South line of called 12.656 acre
tract.
THENCE N 69 deg. 37 min. 37 sec. E, 663.66 ft., along the North line of called
15.00 acre tract and South line of called 12.656 acre tract to THE PLACE OF
BEGINNING CONTAINING 7.665 acres of land.
DATED this the 9 day of May, 1994
SIGNED: /s/ ROBERT LEE BOSSE, JR.
------------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927
<PAGE> 9
EXHIBIT A
Page 2 of 2 Pages
[SURVEY MAP]
The undersigned does hereby certify that this survey was this day made on the
ground of the property located in Grimes County, Texas and being a part of the
D. TYLER SURVEY, Abstract No. 55, also being out of a called 15.00 acre tract
described in a Deed from William D. Bonham, Trustee, to Quinten McLemore, dated
May 8, 1979, of record in Vol. 378, Page 460, Real Property Records of Grimes
County, Texas, that there are no overlappings of improvements, encroachments,
easements, except as shown hereon and that the property shown above as 7.665
acres is located within a Special Flood Hazard Area according to the Flood
Hazard Boundary Map, Community Panel No. 480265 0005A, dated February 4, 1988
for the City of Navasota, Texas. However, according to said Flood Hazard
Boundary Map the property shown above is located in an Area known as Zone A and
by the Legend on said Map there were no elevations run by The Federal Emergency
Management Agency to determine the base Flood Elevations of the property shown
above or any other Areas shown as Zone A.
DATED this the 9 day of May, 1994
SIGNED: ROBERT LEE BOSSE, JR.
-----------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927
[STATE OF TEXAS LAND SURVEYOR SEAL]
<PAGE> 1
EXHIBIT 10(c)(5)
MODIFICATION AND/OR EXTENSION AGREEMENT
THE STATE OF TEXAS:
COUNTY OF GRIMES:
WHEREAS, BODYBILT SEATING, INC., a Texas Corporation, acting by and
through its duly authorized President, Mark A. McMillan (hereinafter referred
to as "Borrower", whether one or more), whose mailing address is 4455 Carter
Creek Parkway, Bryan, Brazos County, Texas 77802, is indebted to FIRST NATIONAL
BANK OF BRYAN (herein referred to as "Lender"), pursuant to a promissory note
dated May 26, 1994, in the original principal sum of FIVE HUNDRED SEVENTY-ONE
THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($571,500), executed by Borrower and
payable to Lender (herein referred to as "Note") which Note is secured by the
following:
(1) Deed of Trust from Borrower to WILLIAM D. BARKLEY, Trustee
for the benefit of Lender, dated May 26, 1994, and recorded
in Volume 743, Page 451 of the Official Records of GRIMES
County, Texas, (herein referred to as "Deed of Trust")
covering the following described real property, to-wit:
Being 7.45 acres of land, more or less, being partly out of
the D. TYLER SURVEY, Abstract No. 55 and partly out of the
D. ARNOLD SURVEY, Abstract No. 2 and also being known as a
part of Lot 1, Block 1, McLEMORE SHOPPING CENTER
SUBDIVISION, City of Navasota, Grimes County, Texas,
according to map or plat thereof recorded in Volume 380,
Page 37, Real Property Records of Grimes County, Texas, and
being more particularly described on Exhibit "A" attached
hereto and made a part hereof for all purposes (hereinafter
referred to as "Property"); and
(2) Assignment of Rents, Leases and Other Benefits dated May
26, 1994, executed by Bodybilt Seating, Inc., as Assignor
and First National Bank of Bryan, as Assignee (herein
referred to as "Assignment");
(3) Security Agreement (herein referred to as "Security
Agreement") dated May 26, 1994 executed by BODYBILT
SEATING, INC., as Debtor, to FIRST NATIONAL BANK OF BRYAN,
as Secured Party, together with UCC-1 Financing Statements
filed of record in the UCC (Personal Property) Records of
Grimes County, Texas and with the Secretary of State's
Office, against the following personal property:
a. Any and all present and future personal property,
furniture, furnishings, goods, equipment (save and except
inventory and manufacturing equipment unless otherwise
secured), heating and air conditioning equipment, carpet,
rugs, shades, blinds, draperies, plumbing pipes and
fixtures, bathroom facilities, lighting, ventilating,
refrigerating, cooking and laundry equipment, stoves,
hoods, disposals, refrigerators, swimming pool equipment
and related apparatus, yard care machinery, and such other
goods and chattels and personal property now owned by
Debtor or hereafter acquired by Debtor, as are ever used or
furnished in operating of the building or buildings or the
activities conducted therein located on the Property and/or
ever used or furnished in the operation of the Property,
and all renewals or replacements thereof, or articles in
substitution therefor, whether or not the same are or shall
be attached to the said building or buildings in any
manner.
b. Any and all plans and specifications for development or
construction of the Improvements on the Property or for the
repair or remodeling of the Improvements on the Property.
c. Any and all contracts and subcontracts and tenant leases
including but not limited to that certain Lease Agreement
dated May 24, 1979, by and between Brookshire Brothers,
Inc., as Lessee, and Quinten McLemore, as Lessor,
subsequently assigned to Debtor, relating to the Property.
d. Any and all accounts, contract rights, instruments,
documents, general intangibles and chattel paper arising
from or by virtue of any transactions related to the
Property.
e. Any and all permits, licenses, franchises, certificates
and other rights and privileges obtained in connection with
the Property.
f. All rights, title and interests of Debtor in and to the
name "Navasota Shopping Center" for use as the trade name
of the Property hereinafter described.
1
<PAGE> 2
g. Any and all proceeds arising from or by virtue of the
sale, lease or other disposition of any of the foregoing
property and items set forth in paragraphs (a) through (f)
above.
h. Any and all proceeds payable or to be payable under each
policy of insurance relating to the item set forth in
paragraphs (a) through (f) and the Property.
i. Any and all proceeds arising from the taking of all or a
part of the Property for any public or quasi-public use
under any law, or by right of eminent domain, or by private
or other purchase in lieu thereof.
j. All building materials or equipment now or hereafter
delivered to the land herein described and intended to be
installed thereon or in any improvements erected or to be
erected thereon.
k. All future replacements and substitution for betterments
of, and accessions and additions to the property described
or referred to in paragraphs (a) through (j).
l. All other interest of every kind and character that Debtor
now has or at any time hereafter acquires in and to the
property described or referred to in paragraphs (a) through
(k) above, and all property that is used or useful in
connection with the Property.
m. All proceeds arising from or by virtue of the sale,
lease or other disposition of all or any part of the
Property, including oil, gas and other minerals.
n. All rents, revenues, lease payments, charges, purchase
price profits, insurance proceeds arising from or payable
under that certain Lease as to a part of the Property,
being that Lease in writing dated May 24, 1979, entered
into by and between Brookshire Brothers, Inc., as Lessee,
and Quinten McLemore, as Lessor, and all amendments and
addendums thereto, which has been transferred and assigned
to Debtor; and
(herein collectively referred to as "Property")
WHEREAS, said Note is additionally secured by a Security Agreement
(herein included in the reference term "Security Agreement") dated May 26, 1994
executed by BODYBILT SEATING, INC., as Debtor, to FIRST NATIONAL BANK OF BRYAN,
as Secured Party, together with UCC-1 Financing Statements filed of record in
the UCC (Personal Property) Records of Grimes County, Texas and with the
Secretary of State's Office, against the following personal property:
Life Insurance Policy No. 0008636700 issued by JACKSON NATIONAL LIFE
INSURANCE COMPANY of Lansing, Michigan on December 20, 1990 insuring
the life of MARK ALLEN McMILLAN, and all cash value, dividends and
proceeds therefrom (referred included in the reference term
"Property");
WHEREAS, MARK A. McMILLAN, (herein referred to as "Guarantor"), by
instrument dated May 26, 1994 guaranteed payment of the herein described Note;
and
WHEREAS, Borrower and Guarantor have requested Lender and Lender has
agreed to modify, renew and extend said Note, Deed of Trust, Assignment,
Security Agreement and any other security instruments or loan documents
executed and delivered relative to said Note, as to payments, dates of
payments, maturity date, interest rate, and other terms as hereinafter provided
and Borrower further desires to acknowledge the validity and enforceability,
and the renewal and extension of all liens and security interests against the
Property and/or other collateral granted to Lender to secure said Note and
other indebtednesses therein referenced.
NOW, THEREFORE, for and in consideration of the sum of TEN AND NO/100
DOLLARS ($10.00) paid by Borrower and Guarantor to Lender receipt and
sufficiency of which is hereby acknowledged and in consideration of the
premises and the further consideration of the advantages to accrue to all
parties of this Agreement, Lender and Borrower and Guarantor hereby covenant
and agree as follows:
I.
Borrower and Guarantor hereby acknowledge that the unpaid principal
balance of the Note as of May 31, 1995 is FOUR
2
<PAGE> 3
HUNDRED NINETY THOUSAND AND NO/100 DOLLARS ($490,000.00).
II.
The parties hereto, Borrower, Guarantor, and Lender, agree to revise,
modify, rearrange, change and/or extend the terms, covenants and provisions of
the Note, Deed of Trust, Assignment, Security Agreement, and any other
security instruments and/or loan documents of Lender, as follows, which
provisions shall be effective as of the 31st day of May, 1995:
Interest on the principal balance hereof from time to time
remaining unpaid prior to maturity shall accrue at a varying rate of
interest per annum, equal to the lesser of (a) the Maximum Lawful Rate,
or (b) THREE-FOURTHS percent (0.75%) plus the Prime Rate of First
National Bank of Bryan, Bryan, Brazos County, Texas in effect from day
to day calculated, unless otherwise provided herein, on the basis of
three hundred sixty (360) days per year. PROVIDED HOWEVER, in no event
shall the interest rate charged on the unpaid principal balance of this
Note exceed eighteen percent (18%) per annum. As used herein, the term
"Maximum Lawful Rate" means the greatest of the non-usurious rates of
interest from time to time permitted under applicable United States
Federal law and Texas law. To the extent of the applicability of
Chapter One ("Chapter One") of Title 79, Texas Revised Civil Statutes
1925 as amended (the "Texas Credit Code"), the Maximum Lawful Rate
shall be the highest permitted rate based upon the indicated rate
ceiling (as defined in Chapter One). The Maximum Lawful Rate shall be
applied by taking into account all amounts characterized by applicable
law or interest on the debt evidenced by the Note, so that the aggregate
of all interest does not exceed the maximum non-usurious amount
permitted by applicable law. If the Maximum Lawful Rate is increased or
removed by statute or other governmental actions subsequent to the date
of this Note, then the new Maximum Lawful Rate, if any, will be
applicable to this Note from the effective date of the new Maximum
Lawful Rate unless such application is precluded by statute or
governmental action or by the general law of the jurisdiction governing
this Note. The term "Prime Rate" means the interest rate established and
quoted from time to time by First National Bank of Bryan, Bryan, Brazos
County, Texas, as its prime commercial loan rate, whether or not such
rate is charged in each instance. Any change in the interest rate
resulting from a change in Prime Rate or in the Maximum Rate, as the
case may be, shall be effective, without notice to Maker, on the same
date as such change. If a published annual prime interest rate ceases to
be made available by the First National Bank of Bryan, or by any
successor thereto, the Note Holder will set the Note interest rate by
using a comparable index.
Interest computed on the unpaid principal balance is payable
monthly as it accrues on the same dates as and in addition to the
installments of principal.
The principal shall be due and payable in monthly installments
of TWO THOUSAND SEVEN HUNDRED TWENTY-TWO AND 23/100 DOLLARS ($2,722.23)
each, on or before the 31st day of each and every calendar month,
beginning the 30th day of June, 1995 and continuing regularly and
monthly thereafter until the 31st day of May, 2000, when all unpaid
principal and accrued unpaid interest shall be due and payable in full.
Interest computed on the unpaid principal balance is payable
monthly as it accrues on the same dates as and in addition to the
installments of principal.
Any principal of and to the extent permitted by applicable law,
any interest on this Note which is not paid within fifteen (15) days
from the date due, shall bear interest, from the date due and payable
until paid, payable on demand, at a varying rate per annum equal to the
lesser of (i) the Maximum Lawful Rate as defined above or (ii) the Past
Due Rate.
The term "Past Due Rate" as used in this Note means on any day,
a rate per annum equal to eighteen percent (18%) computed using the
annual basis described below.
FUNDS FOR TAXES AND INSURANCE. Subject to applicable law or to
a written waiver by Lender, Borrower shall pay to Lender on the 31st
day of each month beginning June 30, 1995, in addition to any monthly
payments of principal and interest payable under the Note, until the
Note is paid in full, a sum (herein "Funds") equal to one-twelfth of
the yearly taxes and assessments against the above described Property
which may attain priority over this Deed of Trust which secures the Note
and any Modification and/or Extension Agreement and ground rents on the
Property, if any, plus one-twelfth of yearly premium installments for
hazard insurance, if any, if required by Lender, all as reasonably
estimated initially and from time to time by Lender on the basis of
assessments and bills and reasonable estimates thereof. Lender
acknowledges granting to Borrower a waiver of the escrow for hazard
insurance premiums by written letter of even date therewith until such
time as Lender may in the future exercise its right to require such
hazard insurance escrow payment by giving Borrower written notice.
The Funds shall be held in an institution the deposits or
accounts of which are insured or guaranteed by a Federal or state
agency (including Lender if Lender is such an institution). Lender
shall apply the Funds to pay said taxes, assessments, insurance
premiums and ground rents. Lender may not charge for so holding and
3
<PAGE> 4
applying the Funds, analyzing said account or verifying and compiling
said assessments and bills, unless Lender pays Borrower interest on
the Funds, and applicable law permits Lender to make such a charge.
Borrower and Lender may agree in writing at the time of execution of
this Modification and/or Extension Agreement that interest on the Funds
shall be paid to Borrower, and unless such agreement is made or
applicable law requires such interest to be paid, Lender shall not be
required to pay Borrower any interest or earnings on the Funds. Lender
shall give to Borrower without charge, an accounting of the Funds
showing credits and debits to the Funds and the purpose for which each
debit to the Funds was made. The Funds are pledged as additional
security for the sums secured by the Deed of Trust and this
Modification and/or Extension Agreement.
If the amount of the Funds held by lender, together with the
future monthly installments of Funds payable prior to the due dates of
taxes, assessments, insurance premiums and ground rents, shall exceed
the amount required to pay said taxes, assessments, insurance premiums
and ground rents as they fall due, such excess shall be, at Borrower's
option, either promptly repaid to Borrower or credited to Borrower on
monthly installments of Funds. If the amount of the Funds held by
Lender shall not be sufficient to pay taxes, assessments, insurance
premiums and ground rents as they fall due, Borrower shall pay to
Lender any amount necessary to make up the deficiency within thirty
(30) days from the date notice is mailed by Lender to Borrower
requesting payment thereof.
Upon payment in full of all sums secured by the Deed of Trust
and this Modification and/or Extension Agreement, Lender shall promptly
refund to Borrower any Funds held by Lender. If, however, the Property
is sold under the foreclosure provision of the Deed of Trust or the
Property is otherwise acquired by Lender, Lender shall apply,
immediately prior to the sale of the Property or its acquisition by
Lender, any Funds held by Lender at the time of application as a credit
against the sums secured by the Deed of Trust and this Modification
an/or Extension Agreement.
NOTWITHSTANDING ANY PROVISION CONTAINED HEREIN TO THE CONTRARY,
IN NO EVENT SHALL THE INTEREST RATE CHARGED ON THE UNPAID PRINCIPAL
BALANCE OF THIS NOTE EXCEED EIGHTEEN PERCENT (18%) PER ANNUM.
For the purposes of this agreement, "Bank", Note Holder",
"Holder" and "Lender" shall mean FIRST NATIONAL BANK OF BRYAN or anyone
who takes the Note by transfer and who is entitled to receive payments
under the Note. Borrower shall mean BODYBILT SEATING, INC., a Texas
Corporation, acting by and through its duly authorized President, Mark
A. McMillan. Guarantor shall mean MARK A. McMILLAN.
III.
The Note herein modified and/or extended as well as this instrument has
been executed and delivered and shall be construed in accordance with and
governed by the laws of the State of Texas and the United States of America,
except that Texas Revised Civil Statutes Annotated, Art. 5069, Chp. 5, as
amended, (which regulates certain revolving credit loan accounts and revolving
tri-party accounts), shall not apply hereto.
IV.
It is understood and agreed by Borrower and Guarantor that, except as
to such changes and modification made herein, said Note, as originally written,
shall remain in all respects unchanged, and that the balance owing thereon
shall be due and payable in the manner therein set out and, except as
otherwise modified by this instrument, the Guaranty Agreement, the said Deed of
Trust, Assignment, Security Agreement and any and all other security
instruments and loan documents executed and delivered relative to said Note,
therein described and herein described securing the payment of said Note, as
well as all liens, and security interest against the Property and/or other
collateral, and the terms, covenants, provisions and conditions therein
contained, shall remain and continue in full force and effect until the full
and final payment of said Note and all indebtedness of Borrower evidenced by
said instruments.
V.
That Lender hereby agrees to the modification and/or extension of the
terms of the Note to the extent herein specifically set forth, but only on the
condition that this Modification and/or Extension shall not prejudice any
present or future rights, remedies or powers belonging or accruing to Lender
under the terms of the Note as hereby modified, rearranged and/or extended or
the Guaranty
4
<PAGE> 5
Agreement or the Deed of Trust, Assignment, Security Agreement, or any other
security instrument and loan documents executed and delivered to Lender
relative to said Note. Provided further, Borrower hereby agrees that this
Modification and/or Extension Agreement is in no way given as a release or
taken in extinguishment of any part of the indebtedness represented by the
Note, the Guaranty Agreement, the Deed of Trust, Assignment, Security Agreement
and/or other security instruments and loan documents and/or the liens and
security interest securing said indebtedness.
VI.
By these presents, Borrower and Guarantor reaffirm and agree to pay and
discharge all of the original obligations of Borrower under the Note, Deed of
Trust, Assignment, Security Agreement and other security instruments and loan
documents executed and delivered relative thereto after the date hereof as
modified and/or extended hereby. Borrower hereby agrees that the Deed of Trust,
Assignment, Security Agreement and all other security instruments and loan
documents creating liens and/or security interests against the above described
Property or other collateral described therein to secure the Note and all
indebtedness evidenced by the Note, Deed of Trust, Assignment, Security
Agreement or other security instrument or loan document and this Agreement,
herein described, are valid and subsisting and that all such liens and security
interests thereto are hereby in all things renewed, extended and carried
forward to secure the Note, and the indebtedness evidenced by the Deed of
Trust, Assignment, Security Agreement, other security instruments and loan
documents and this Agreement and Borrower further agrees that all terms,
covenants, provisions, and conditions of the Deed of Trust, Assignment,
Security Agreement and all other security instruments and loan documents
creating and/or affixing liens and/or security interest against the above
described Property and/or other collateral therein described securing said Note
and indebtedness are valid and remain in full force and effect and are hereby
so renewed and extended.
Borrower and Guarantor hereby confirm, adopt, reaffirm, and establish
that Borrower and Guarantor are legally obligated to pay the Note and all
indebtedness evidenced by the Note, Deed of Trust, Assignment, Security
Agreement and other security instruments as modified and/or renewed and
extended hereby and confirms Borrower's and Guarantor's liability for payment
of the same and if Borrower and Guarantor are not presently primarily liable
for the payment of said indebtedness and Note, then Borrower and Guarantor do
hereby expressly assume the payment thereof.
Borrower further reaffirms and confirms that the Deed of Trust,
Assignment, Security Agreement and other security instruments and the liens and
security interests created thereby against the Property and collateral herein
and therein described as renewed and extended herein shall additionally secure
all funds hereafter advanced by Lender to or for the benefit of Borrower, as
contemplated by any covenant or provision contained in the Deed of Trust,
Assignment, Security Agreement and/or other security instruments or for any
other purpose, and shall secure all other indebtedness, of whatever kind or
character, now owing or which may hereafter become owing by Borrower to Lender,
whether such indebtedness is evidenced by note, open account, overdraft,
endorsement, surety agreement, guaranty or otherwise, it being contemplated that
Borrower may hereafter become indebted to Lender in a further sum or sums. All
such indebtedness secured shall be payable to Lender, at the address herein
given, or at such other address as the Lender may in writing direct; and unless
otherwise provided in the instruments evidencing said indebtedness, the
indebtedness shall bear interest at the same rate per annum as the said Note
bears, from date of accrual of said indebtedness and/or indebtednesses until
paid.
5
<PAGE> 6
VII.
Borrower covenants and warrants that the Note, Deed of Trust,
Assignment, Security Agreement and other security instruments and loan documents
are not in default after giving effect to this modification and/or extension
herein granted either with or without notice or lapse of time or both; that
there are no oral agreements, defenses, counterclaims or offsets to the Note,
Deed of Trust, Assignment, Security Agreement, Guaranty Agreement, and/or other
security instruments and/or loan documents. Borrower also acknowledges that
Borrower has no present or future claims against Lender for any representations,
misrepresentations, actions or inactions, arising out of or associated with the
Note, Deed of Trust, Assignment, Security Agreement, and/or other security
documents or transactions associated or related therewith. For and in
consideration of this modification and/or extension by Lender, Borrower and
Guarantor further hereby release, relinquish and forever discharge Lender as
well as its predecessors, successors, assigns, agents, officers, directors,
employees, attorneys and representatives, of and from any and all claims,
demands, actions and causes of actions of any and every kind or character,
whether known or unknown, present or future, which Borrower and/or Guarantor may
have against Lender, its predecessors, successors, assigns, agents, officers,
directors, employees, attorneys and representatives arising out of or with
respect to any and all transactions relating to the Note, Deed of Trust,
Assignment, Security Agreement, Guaranty Agreement and/or other loan documents
and/or security instruments, occurring prior to the date hereof, including, but
not limited to, the right to claim that Lender or any other party has charged,
collected, and/or received usurious interest under the Note, Deed of Trust,
Assignment, Security Agreement and/or other security documents and loan
documents, and any other loss, expense and/or detriment, of any kind or
character, growing out of or in any way connected with or in any way resulting
from the acts, actions or omissions of Lender and its predecessors, successors,
assigns, agents, officers, directors, employees, attorneys, and representatives,
on or prior to the date hereof, and including any loss, cost or damage in
connection with any breach of fiduciary duty, breach of any duty of fair
dealing, breach of confidence, breach of funding commitment, undue influence,
duress, economic coercion, conflict of interest, negligence, bad faith,
malpractice, violations of the Racketeer Influence and Corruption Organizations
Act, intentional or negligent infliction of mental duress, distress, tortious
interference with contractual relations, tortious interference with corporate
governance or perspective business advance, breach of contract, deceptive trade
practices, libel, or slander.
VIII.
The parties hereto intend to conform strictly to the applicable usury
laws. In no event, whether by reason of acceleration of the maturity hereof or
otherwise, shall the amount paid or agreed to be paid to Lender for the use,
forbearance or detention of money hereunder or otherwise exceed the maximum
amount permissible under applicable law. If fulfillment of any provision
hereof or of the Note or any mortgage, Deed of Trust, Assignment, Security
Agreement, Guaranty Agreement, security instrument, loan agreement or other
document now or hereafter evidencing, securing or pertaining to the Note or
this agreement, at the time performance of such provision shall be due, would
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled shall be reduced automatically to the limit of such
validity. If Lender shall ever receive anything of value deemed interest under
applicable law which would exceed interest at the highest lawful rate, an
amount equal to any amount which would have been excessive interest shall be
applied to the reduction of the principal amount owing on the Note and/or this
Agreement in the inverse order of its maturity and not to the payment of
interest, or if such amount which would have been excessive interest exceeds
the
6
<PAGE> 7
unpaid balance of principal, such excess shall be refunded to Borrower. All
sums paid or agreed to be paid to Lender for the use, forbearance or detention
of the Note to Borrower to Lender shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full stated
term of such indebtedness so that the amount of interest on account of such
indebtedness does not exceed the maximum permitted by applicable law.
IX.
Borrower and Guarantor agree to pay and/or reimburse to Lender all
costs incurred in connection with the execution and consummation of this
Agreement, including without limitation, all recording costs, title policy
premiums, and fees and expenses of attorneys incurred by Lender, if any.
X.
The execution of this Agreement by Borrower and Guarantor shall not be
construed as a waiver of any right or options which Lender may have in the
event of default by Borrower under the terms of the Note, as modified and/or
extended herein, the Deed of Trust, Assignment, Security Agreement, the
Guaranty Agreement, or other security instruments, loan documents, guaranties,
or under any other instruments securing or guaranteeing the payment thereof or
executed and delivered in connection therewith.
XI.
Time is of the essence in the performance of the covenants contained
herein and under the terms of the Note, Deed of Trust, Assignment, Security
Agreement and/or other security instruments, loan documents, guaranties, and
liens and security interests.
XII.
THE EXECUTION OF THIS MODIFICATION, REARRANGEMENT AND/OR EXTENSION
AGREEMENT DOES NOT OBLIGATE LENDER TO MAKE ANY FURTHER RENEWAL, EXTENSION OR
OTHER MODIFICATION OF THE NOTE. BORROWER AND GUARANTOR ACKNOWLEDGE THAT THERE
EXISTS NO OBLIGATION BY LENDER TO FURTHER MODIFY, RENEW, AND/OR EXTEND THE
TERMS OF THE NOTE. BORROWER AND GUARANTOR ACKNOWLEDGE THAT ANY OTHER REQUESTED
RENEWALS, EXTENSIONS OR MODIFICATIONS OF THE NOTE ARE ONLY UPON THE SOLE
APPROVAL AND THE SOLE DISCRETION OF THE LENDER AND BY EXECUTION HEREOF,
BORROWER AND GUARANTOR ACKNOWLEDGE THAT IF NOT OTHERWISE HEREAFTER MODIFIED,
REARRANGED AND/OR EXTENDED BY THE LENDER, THE UNPAID PRINCIPAL AND UNPAID
ACCRUED INTEREST OF THIS NOTE SHALL BE DUE AND PAYABLE IN ACCORDANCE WITH THE
PROVISIONS OF PARAGRAPH II OF THIS AGREEMENT, WITH THE FINAL PAYMENT OF ALL
UNPAID PRINCIPAL AND UNPAID ACCRUED INTEREST BEING DUE ON MAY 31, 2000.
XIII.
As used in this Agreement, whenever the context so requires, the
masculine, feminine or
7
<PAGE> 8
neuter gender, and the singular or plural number, shall each be deemed to
include the others.
XIV.
The terms of this Modification and/or Extension Agreement shall inure
to the benefit of and be binding upon the parties hereto, their respective
heirs, personal and legal representatives, executors, administrators,
successors and assigns.
XV.
NOTICE TO CONSUMER: UNDER TEXAS LAW, IF YOU CONSENT TO THIS
AGREEMENT, YOU MAY BE SUBJECT TO A FUTURE RATE AS HIGH AS EIGHTEEN PERCENT (18%)
PER YEAR.
In testimony hereof the undersigned have caused this instrument to be
executed effective as of May 31, 1995.
BORROWER:
BODYBILT SEATING, INC.
By: /s/ MARK A. MCMILLAN
----------------------------
Mark A. McMillan
President
GUARANTOR:
/s/ MARK A. MCMILLAN
-------------------------------
MARK A. McMILLAN
LENDER:
ATTEST: FIRST NATIONAL BANK OF BRYAN
Name: By:
---------------------------------- -----------------------------
Name: Name:
Title: Title:
GUARANTOR'S CONSENT AND APPROVAL
The undersigned, being a Guarantor of that certain Promissory Note
("Note") described herein in the original principal sum of $571,500.00, dated
May 26, 1994, executed by Borrowers and made payable to FIRST NATIONAL BANK OF
BRYAN, having signed a Guaranty Agreement dated May 26, 1994 do hereby consent
to, approve and ratify the foregoing Modification and/or Extension Agreement of
said Note and the Deed of Trust, Assignment and/or Security Agreement which
secures the same and does hereby agree to all of the terms, covenants and
conditions of the above and foregoing Modification and/or Extension Agreement,
and further declares and agrees that the terms, provisions and conditions of
his Guaranty Agreement shall and does hereby include the terms and provisions
of this Modification and/or Extension Agreement, and is in full force and
effect and enforceable, and shall continue to be in full force and effect and
enforceable until such time as the said Note and all other indebtednesses so
guaranteed have been paid
8
<PAGE> 9
in full and the terms, provisions and conditions of this Agreement and the
Deed of Trust, Assignment and/or Security Agreement securing said Note and
indebtedness have been performed in full and/or has been released in full by
the Holder of said Note.
EXECUTED effective May 31, 1995. /s/ MARK A. MCMILLAN
---------------------------
MARK A. McMILLAN
THE STATE OF TEXAS:
COUNTY OF BRAZOS :
This instrument was acknowledged before me on this the 1st day of
June, 1995, by MARK A. McMILLAN, individually and as President of BODYBILT
SEATING, INC., a Texas Corporation, on behalf of said Corporation and in the
capacity therein stated.
/s/ VIRGINIA K. LEIGHMAN
---------------------------
NOTARY PUBLIC in and for
The State of Texas
THE STATE OF Texas:
COUNTY OF Brazos:
This instrument was acknowledged before me on this the
_________ day of May, 1995, by _________________________________,
_____________________________ of FIRST NATIONAL BANK OF BRYAN, a Banking
Corporation, on behalf of said Corporation and in the capacity therein stated.
---------------------------------
NOTARY PUBLIC in and for
The State of Texas
9
<PAGE> 10
EXHIBIT A
Page 1 of 2 Pages
Vol 743 Page 460
FIELD NOTES
All that certain tract or parcel of land lying and being situated in Grimes
County, Texas and being a part of the D. TYLER SURVEY, Abstract No. 55, also
being out of a called 15.00 acre tract described in a Deed from William D.
Bonham, Trustee, to Quinten McLemore dated May 8, 1979, of record in Vol. 378,
Page 460, Real Property Records of Grimes County, Texas and more fully
described as follows.
BEGINNING at a found 3/8 inch iron rod for the NE corner of called 15.00 acre
tract mentioned above in the West R.O.W. line of the State Highway #6 Bypass
Loop and the SE corner of a called 12.656 acre tract described in a Deed from
John Haynie Stoneham, et al, to Quinten McLemore dated May 13, 1981, of record
in Vol. 420, Page 639, Real Property Records of Grimes County, Texas.
THENCE S 8 deg. 57 min. 21 sec. E, 582.02 ft., along the West R.O.W. line of
the State Highway #6 Bypass Loop and East line of called 15.00 acre tract to a
found 3/8 inch iron rod for the SE corner of the tract of land herein
described.
THENCE S 81 deg. 35 min. 08 sec. W, 650.52 ft., along the South line of the
tract of land herein described to a set 1/2 inch iron rod for its SW corner.
THENCE N 8 deg. 57 min. 36 sec. W, 444.50 ft. along the West line of called
15.00 acre tract and West line of the tract of land herein described to a set
1/2 inch iron rod for its NW corner in the South line of called 12.656 acre
tract.
THENCE N 69 deg. 37 min. 37 sec. E, 663.66 ft., along the North line of called
15.00 acre tract and South line of called 12.656 acre tract to THE PLACE OF
BEGINNING CONTAINING 7.665 acres of land.
DATED this the 9 day of May, 1994
SIGNED: /s/ ROBERT LEE BOSSE, JR.
------------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927
RECORDER'S MEMORANDUM
AT THE TIME OF RECORDATION THIS INSTRUMENT WAS FOUND TO BE INADEQUATE FOR THE
BEST PHOTOGRAPHIC REPRODUCTION BECAUSE OF ILLEGIBILITY, CARBON, OR PHOTO COPY,
DISCOLORED PAPER, ETC. ALL BLOCKOUTS, ADDITIONS AND CHANGES WERE PRESENT AT THE
TIME THE INSTRUMENT WAS FILED AND RECORDED.
<PAGE> 11
EXHIBIT A
Page 2 of 2 Pages
SURVEY MAP
VOL 743 PAGE 461
The undersigned does hereby certify that this survey was this day made on the
ground of the property located in Grimes County, Texas and being a part of the
D. TYLER SURVEY, Abstract No. 55, also being out of a called 15.00 acre tract
described in a Deed from William D. Bonham, Trustee, to Quinten McLemore, dated
May 8, 1979, of record in Vol. 378, Page 460, Real Property Records of Grimes
County, Texas, that there are no overlappings of improvements, encroachments,
easements, except as shown hereon and that the property shown above as 7.665
acres is located within a Special Flood Hazard Area according to the Flood
Hazard Boundary Map, Community Panel No. 480265 0005A, dated February 4, 1988
for the City of Navasota, Texas. However, according to said Flood Hazard
Boundary Map the property shown above is located in an Area known as Zone A and
by the Legend on said Map there were no elevations run by The Federal Emergency
Management Agency to determine the base Flood Elevations of the property shown
above or any other Areas shown as Zone A.
DATED this the 9 day of May, 1994
SIGNED: ROBERT LEE BOSSE, JR.
-----------------------------------------
Robert Lee Bosse, Jr.
Registered Professional Land Surveyor
State of Texas No. 3927
[STATE OF TEXAS LAND SURVEYOR SEAL]
RECORDER'S MEMORANDUM
AT THE TIME OF RECORDATION THIS INSTRUMENT WAS FOUND TO BE INADEQUATE FOR THE
BEST PHOTOGRAPHIC REPRODUCTION BECAUSE OF ILLEGIBILITY, CARBON, OR PHOTO COPY,
DISCOLORED PAPER, ETC. ALL BLOCKOUTS, ADDITIONS AND CHANGES WERE PRESENT AT THE
TIME THE INSTRUMENT WAS FILED AND RECORDED.
<PAGE> 1
EXHIBIT 10(c)(6)
THIRD PARTY PLEDGE AGREEMENT
Date MAY 31, 1995
---------------------------
- --------------------------------------------------------------------------------
PLEDGOR MARK ALLEN MCMILLAN SECURED THE FIRST NATIONAL BANK OF BRYAN
PARTY
- --------------------------------------------------------------------------------
BUSINESS
OR 4455 CARTER CREEK ADDRESS 2807 TEXAS AVE. P O BOX 833
RESIDENCE
ADDRESS
- --------------------------------------------------------------------------------
CITY, BRYAN, TX 77802 CITY, BRYAN, TX. 77802
STATE & STATE &
ZIP CODE ZIP CODE
- --------------------------------------------------------------------------------
1. SECURITY INTEREST AND COLLATERAL. To secure (check one):
[ ] the payment and performance of each and every debt, liability and
obligation of every type and description which
----------------------------------------------------------------------------
("Debtor") may now or at any time hereafter owe to Secured Party (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several; all such debts,
liabilities and obligations being herein collectively referred to as the
"Obligations").
[x] the debt, liability or obligation of BODYBILT SEATING INC.
(MODIFICATION) ("Debtor") to Secured Party evidenced by or arising
under the following: PROMISSORY NOTE NUMBER #33118-68 DATED 5-31-95, and
any extensions, renewals or replacements thereof (herein referred to as the
"Obligations"),
Pledgor hereby grants Secured Party a security interest (herein called the
"Security Interest") in (check one):
[ ] all property of any kind now or at any time hereafter owned by Pledgor,
or in which Pledgor may now or hereafter have an interest, which may now be
or may at any time hereafter come into the possession or control of Secured
Party or into the possession or control of Secured Party's agents or
correspondents, whether such possession or control is given for collateral
purposes or for safekeeping, together with all proceeds of and other rights
in connection with such property (herein called the "Collateral").
[X] the property owned by Pledgor and held by Secured Party that is described
as follows: JACKSON NATIONAL LIFE INSURANCE POLICY #8636700, together with
all rights in connection with that property (herein called the "Collateral").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor represents, warrants and
covenants that:
(a) Pledgor will duly endorse, in blank, each and every instrument
constituting Collateral by signing on said instrument or by signing a separate
document of assignment or transfer, if required by Secured Party.
(b) Pledgor is the owner of the Collateral free and clear of all liens,
encumbrances, security interests and restrictions, except the Security Interest
and any restrictive legend appearing on any instrument constituting Collateral.
(c) Pledgor will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(d) Pledgor will pay, when due, all taxes and other governmental charges
levied or assessed upon or against any Collateral.
(e) At any time, upon request by Secured Party, Pledgor will deliver to
Secured Party all notices, financial statements, reports or other
communications received by Pledgor as an owner or holder of the Collateral.
(f) Pledgor will upon receipt deliver to Secured Party in pledge as
additional Collateral all securities distributed on account of the Collateral
such as stock dividends and securities resulting from stock splits,
reorganizations and recapitalizations.
3. RIGHTS OF SECURED PARTY. Pledgor agrees that Secured Party may at any time,
whether before or after the occurrence of an Event of Default and without
notice or demand of any kind, (i) notify the obligor on or issuer of any
Collateral to make payment to Secured Party of any amounts due or
distributable thereon, (ii) in Pledgor's name or Secured Party's name enforce
collection of any Collateral by suit or otherwise, or surrender, release or
exchange all or any part of it, or compromise, extend or renew for any period
any obligation evidenced by the Collateral, (iii) receive all proceeds of the
Collateral, and (iv) hold any increase or profits received from the
Collateral as additional security for the Obligations, except that any money
received from the Collateral shall, at Secured Party's option, be applied in
reduction of the Obligations, in such order of application as Secured Party
may determine, or be remitted to Debtor.
THIS AGREEMENT CONTAINS ADDITIONAL PROVISIONS SET FORTH ON PAGE 2 HEREOF,
ALL OF WHICH ARE MADE A PART HEREOF.
MARK ALLEN MCMILLAN
---------------------------------------
Pledgor's Name
By /s/ MARK ALLEN MCMILLAN
-------------------------------------
MARK ALLEN MCMILLAN
Title: PRESIDENT
---------------------------------
By
-------------------------------------
Title:
---------------------------------
BANKERS SYSTEMS, INC., ST. CLOUD, MN 56302 (1-800-397-2341) FORM M-150 5/20/91
(page 1 of 2)
<PAGE> 1
EXHIBIT 10(d)(1)
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
ErgoBilt, Inc. September 6, 1996
5000 Quorum
Suite 147
Dallas, Texas 75240
Gerald McMillan
6331 Pineview Road
Dallas, Texas 75248
Gentlemen:
This letter confirms the offer of Gerald McMillan ("McMillan") made in
July 1996 to sell and transfer to Summit Partners Management Co. ("Summit") or
its affiliates Thirty-Four Thousand (34,000) shares (the "Shares") of the
Common Stock, par value $0.10 ("Common Stock") of ErgoBilt, Inc., a Texas
corporation (the "Company") at $1.00 per share, and the acceptance of Summit.
The Company has agreed to sell, issue and deliver to Summit or its affiliates
the Common Stock Purchase Warrants (the "Warrants") described below for $100.
The Shares and the Warrants are hereinafter referred to collectively as the
"Securities."
1. Purchase. Subject to the terms and conditions hereof, the
undersigned delivers herewith a check payable to the order of McMillan in the
sum of Thirty-Four Thousand Dollars ($34,000.00) representing the aggregate
purchase price for the Shares. McMillan shall assign and transfer the Shares
concurrently herewith by Separate Stock Assignment and shall cause the Company
to deliver to Summit or its affiliates a new share certificate evidencing the
Shares.
2. Description of Warrants. The Company shall issue and deliver the
Warrants to purchase shares of Common Stock contemporaneously with the
consummation of the initial public offering of the Common Stock (the "IPO"), as
follows:
(a) In the event the IPO closes on or before December 31,
1996, the undersigned shall receive Warrants to purchase that number of
shares of Common Stock equal to one and one-half percent (1 1/2%) of the
total number of shares of Common Stock offered to the public (including
any shares issued pursuant to any exercise of any over-allotment options
to be granted to the underwriters) as stated on the cover page of the
final prospectus for the IPO, which Warrants shall contain the identical
terms and conditions as the warrant granted to the managing underwriter
of the IPO; or
(b) In the event the IPO closes on or after January 1, 1997,
the undersigned shall receive Warrants to purchase that number of shares
of Common Stock equal to three percent (3%) of the total number of
shares of Common Stock offered to the public (including any shares
issued pursuant to any exercise of any over-allotment options to be
granted to the underwriters) as stated on the cover page of the final
prospectus for the IPO, which Warrants shall contain the identical terms
and conditions as the warrant granted to the managing underwriter of the
IPO.
Company delivers herewith a check payable to the Company in the sum of
One Hundred Dollars ($100.00) representing the aggregate purchase price for the
Warrants.
3. Registration Rights. Contemporaneous with the execution and
delivery of this Agreement, the Company and Summit shall enter into that
certain form of Registration Rights Agreement in the form attached hereto as
Exhibit A with respect to the Securities acquired or to be acquired by Summit.
<PAGE> 2
4. Accredited Investor Status. Summit and its affiliates who
purchase the Shares or the Warrants represent and warrant to the Company that
either they are (i) a corporation with total assets in excess of $5,000,000,
which has not been formed for the specific purpose of acquiring the Securities;
(ii) an entity in which all of the equity owners are "accredited investors," as
defined in Regulation D; or (iii) an individual or trust which otherwise
satisfies the requirements of "accredited investors", as defined in Regulation
D.
5. Representations, Warranties and Covenants of Summit. Summit
hereby represents, warrants and covenants as follows:
(a) The undersigned has adequate means of providing for its
current needs and possible personal contingencies, and it has no need
now, and it anticipates no need in the foreseeable future, to sell the
Securities for which it hereby subscribes. It is able to bear the
economic risks of its investment, and, consequently, without limiting
the generality of the foregoing, it is able to hold the Securities for
an indefinite period of time and has a sufficient net worth to sustain a
loss of its entire investment in the Company in the event that such loss
should occur.
(b) The undersigned has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of an investment in the Company.
(c) The undersigned has received and read and is familiar with
various written materials concerning the Company (the "Materials"), and
it confirms that, if requested, all documents, records and books
pertaining to its proposed investment in the Company have been made
available to it.
(d) The undersigned has had an opportunity to ask questions of
and receive satisfactory answers from the officers and directors of the
Company concerning the terms and conditions of its investment, and all
such questions have been answered to the full satisfaction of the
undersigned.
(e) The Securities purchased by the undersigned will be
acquired for its own account for investment and not with a view to, or
for resale in connection with, any distribution of such Securities
within the meaning of the Securities Act of 1933, as amended (the "1933
Act"), and it does not now have any reason to anticipate any change in
its circumstances or any other particular occasion or event which would
cause it to sell the Securities.
(f) The undersigned has received no representations or
warranties from the Company, its officers, directors, agents or
representatives other than those contained in the Disclosure Materials,
and, in making its investment decision, it is relying solely on the
information contained in the Disclosure Materials and investigation made
by it.
(g) It is incorporated or organized under the laws of the
State of Texas, and its principal place of business is within such state
and its true and correct federal tax identification number is set forth
below.
(h) The undersigned acknowledges that the Company has made
available to it the opportunity to obtain additional information to
verify the accuracy of the information contained in the Disclosure
Materials and to evaluate the merits and risks of its investment.
(i) The undersigned represents that it has made other
investments of a similar nature and, by reason of its business and
financial experience has acquired the capacity to protect its own
interest in investments of this nature. In reaching the conclusion that
it desires to acquire the Securities, the undersigned has carefully
evaluated its financial resources and investment position and the risks
associated with its investment, and acknowledges that it is able to bear
the economic risks of its investment.
2
<PAGE> 3
(j) The undersigned understands that no Commissioner of
Securities of any state has made any finding or determination relating
to the fairness for public investment of the Securities and that no
Commissioner of Securities of any state has or will recommend or endorse
the Securities of the Company.
(k) The undersigned was not organized for the specific purpose
of acquiring the Securities subscribed to herein and has other
investments or business activities or will make other investments or
engage in other business activities.
6. Representations, Warranties and Covenants of Company. Company
hereby represents, warrants and covenants as follows:
(a) Company is duly incorporated, validly existing and in good
standing under the laws of the State of Texas, having Articles of
Incorporation, as amended, and Bylaws (all terms of which are in full
force and effect) as previously furnished to Summit. Except where the
failure to so qualify would not have a material adverse effect on
Company, Company is duly qualified to conduct business as proposed and
is in good standing as a foreign corporation in all jurisdictions in
which the nature of its business or location of its properties require
such qualification.
(b) Company has full power and authority to enter into this
Agreement and the Registration Rights Agreement and to carry out the
provisions contained herein and therein; and Company has taken all
corporate action necessary for the execution and performance of this
Agreement, the Registration Rights Agreement and the issuance of the
Securities.
(c) Company has authorized capital stock of Twenty Million
(20,000,000) shares of Common Stock, par value $0.10 per share, of
which, as of the date hereof, Three Million Four Hundred Thousand
(3,400,000) shares are issued and outstanding. All of the issued and
outstanding shares of Common Stock were duly and validly issued and are
fully paid and nonassessable. None of the outstanding shares of Common
Stock have been issued in violation of any preemptive rights of the
current or past stockholders of Company. Except as provided under that
certain Agreement and Plan of Merger among Company, BodyBilt Seating,
Inc. and BodyBilt Seating, Inc. shareholders, there are no outstanding
options, warrants or rights to subscribe for, cause, or commitments of
any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of
Company or contracts, commitments, understandings or arrangements by
which Company is or may be obligated to issue additional shares of its
capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock. The Securities and the
securities of Company into which the Securities are convertible or
exercisable have been duly and validly issued and are and will be fully
paid and nonassessable and have not been issued in violation of any
preemptive rights.
(d) This Agreement and the Registration Rights Agreement, when
executed and delivered by the parties hereto, will constitute legal,
valid and binding obligations of Company, enforceable in accordance with
their respective terms, subject to bankruptcy, reorganization and other
laws of general applicability and court decisions relating to the
enforcement of creditor's rights, including specific performance
remedies and general equitable principles.
(e) Company has sufficient authorized and unissued shares of
Common Stock to perform its obligations hereunder.
(f) Except as otherwise disclosed herein, there are (i) no
actions at law or suits in equity pending or, to the knowledge of
Company, threatened against it, and (ii) no proceedings by or before any
governmental department, commission, bureau or other administrative
agency, domestic or foreign, are pending or, to the knowledge of
Company, threatened against it.
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(g) No event has occurred, or to the knowledge of Company, is
alleged to have occurred, which could constitute a material default,
breach or other adverse claim with respect to (i) any contract,
agreement or instrument to which Company is a party or by which its
properties are affected, or (ii) any charter or bylaws restriction of
Company, which default, breach or adverse claim would materially and
adversely affect Company's business, operations, properties, financial
condition or assets.
(h) The execution, delivery and performance of this Agreement
and the Registration Rights Agreement, and the issuance, sale and
transfer of the Securities under the provisions of this Agreement by
Company, will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the assets of Company under its Articles of
Incorporation or Bylaws or other agreements or instruments to which
Company is a party, or by which it or its properties are bound or
affected.
7. Representations, Warranties and Covenants of McMillan. McMillan
hereby represents, warrants and covenants as follows:
(a) McMillan has full power and authority to enter into this
Agreement and to carry out the provisions contained herein. This
Agreement, when executed and delivered by the parties hereto, will
constitute the legal, valid and binding obligation of McMillan,
enforceable in accordance with its terms, subject to bankruptcy,
reorganization and other laws of general applicability and court
decisions relating to the enforcement of creditor's rights, including
specific performance remedies and general equitable principles.
(b) The execution and delivery hereof will not constitute a
material default, breach or other adverse claim with respect to any
contract, agreement or instrument to which McMillan is a party or by
which its properties are affected.
(c) McMillan has, and will have at the time of the sale to
Summit, good and marketable title to the Shares, free and clear of any
pledge, lien, security interest, encumbrance, claim or equity other than
pursuant to this Agreement; and upon delivery of the Shares and payment
of the purchase price therefor as herein contemplated, Summit will
receive good and marketable title to the Shares, free and clear of any
pledge, lien, security interest, encumbrance, claim or equity.
(d) All authorizations, approvals and consents necessary for
the execution and delivery by McMillan of this Agreement and the sale
and delivery of the Shares by McMillan to Summit have been obtained and
are in full force and effect; and McMillan has full right, power and
authority to enter into this Agreement and to sell, transfer and deliver
the Shares to Summit.
8. Indemnification by Summit. The undersigned acknowledges that it
understands the meaning and legal consequences of the representations and
warranties in paragraph 5 hereof and that Company, its affiliates, directors,
agents and representatives have relied upon such representations and
warranties, and Summit hereby agrees to indemnify and hold harmless Company,
and its officers, directors, agents and representatives, from and against any
and all claims, demands, losses, damages, expenses or liabilities (including
attorneys' fees) due to or arising out of a breach of any such representations
or warranties. Notwithstanding the foregoing, however, no representation,
warranty, acknowledgment or agreement made herein by the undersigned shall in
any manner be deemed to constitute a waiver of any rights granted to it under
federal or state securities laws.
9. Indemnification by Company. Company acknowledges that it
understands the meaning and legal consequences of the representations and
warranties in paragraph 6 hereof and that Summit, its affiliates, directors,
agents and representatives have relied upon such representations and
warranties, and Company hereby agrees to indemnify and hold harmless Summit,
and its officers, directors, agents and representatives, from and against any
and all claims, demands, losses, damages, expenses or liabilities (including
attorneys' fees) due to or arising out of a breach of any such representations
or warranties. Notwithstanding the foregoing, however, no representation,
warranty, acknowledgment
4
<PAGE> 5
or agreement made herein by Company shall in any manner be deemed to constitute
a waiver of any rights granted to it under federal or state securities laws
10. Survival of Representations, Warranties and Covenants. All
representations, warranties, indemnities and covenants set forth in this
Agreement above shall survive the issuance and delivery of the Securities for a
period of two (2) years.
11. Limitation on Transfer of the Common Stock. The undersigned
acknowledges that it is aware that there are substantial restrictions on the
transferability of the Securities. Since the Securities will not be, and the
undersigned has no right to require that they be, registered under the 1933
Act, the Securities may not be, and the undersigned agrees that they shall not
be, sold unless such sale is exempt from such registration under the 1933 Act.
12. Compliance with Regulation D. The undersigned agrees that the
following restrictions and limitations are applicable to its purchase of the
Securities pursuant to Regulation D under the 1933 Act:
(a) The undersigned agrees that the Securities shall not be
sold, pledged, hypothecated or otherwise transferred unless the
Securities are registered under the 1933 Act and applicable state
securities laws, or is exempt therefrom.
(b) A legend will be placed on the Certificate representing
the Securities in substantially the following form:
"The securities evidenced by this certificate have
not been registered under the Securities Act of
1933, as amended, or any state securities act, and
may not be sold, transferred or otherwise disposed
of absent such registration unless, in the opinion
of counsel to the Company, such registration is not
required."
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth below.
SUMMIT MANAGEMENT PARTNERS CO.
By: /s/ DON V. INGRAM
------------------------------------
Don V. Ingram
Address: 2200 Ross Avenue
Suite 4500, LB 170
Dallas, Texas 75201
AGREED TO AND ACCEPTED
as of September 6, 1996.
ERGOBILT, INC.
By: /s/ GERARD SMITH
-----------------------------------
Gerard Smith, President
/s/ GERALD McMILLAN
- ------------------------------------------
Gerald McMillan, An Individual
5
<PAGE> 1
EXHIBIT 10(d)(2)
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of September
6, 1996, is executed by and between ErgoBilt, Inc., a Texas corporation (the
"Company"), and Summit Partners Management Co. ("Summit").
WHEREAS, as of the date of this Agreement, Summit owns of record and
beneficially Thirty-Four Thousand (34,000) shares (the "Shares") of the
Company's Common Stock, par value $0.10 (the "Common Stock"); and
WHEREAS, Summit shall also acquire warrants (the "Warrants') to purchase
additional Shares; and
WHEREAS, Summit shall also receive additional Shares upon conversion of
that certain Convertible Promissory Note dated September 6, 1996, executed by
the Company in favor of Summit (the "Note"); and
WHEREAS, the parties have agreed that the Shares and all shares acquired
by Summit under the Warrants and upon conversion of the Note shall have certain
registration rights as set forth more fully below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
1.0 REGISTRATION RIGHTS.
Summit shall have the following registration rights with respect
to the Shares, the shares of Common Stock issued upon conversion of the Note
and any securities issued or issuable in respect of the Shares by way of stock
dividends or stock splits or in connection with a combination of shares,
recapitalization, reclassification, merger, share exchange or consolidation,
and any other securities issued pursuant to any other pro rata distribution
with respect to the Shares (the "Registrable Shares").
1.1 PIGGY-BACK RIGHTS. Subsequent to its initial public
offering of Common Stock, and subject to any restrictions imposed by "lock-up
agreements" and other arrangements, whenever the Company proposes to file a
registration statement ("Registration Statement") other than on Form S-4 or
S-8, the Company shall, prior to such filing, give written notice to Summit of
its intention to do so. Upon the written request of Summit given within twenty
(20) days after the Company provides such notice (which request shall state the
intended method of disposition of such shares), the Company shall use its best
efforts to cause all shares which the Company has been requested by Summit to
register to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the
request of Summit; provided that the Company shall have the right to postpone
or withdraw any registration effected pursuant to this Section
<PAGE> 2
without obligation to Summit. If, in the opinion of the managing underwriter,
it is appropriate because of marketing factors to limit or exclude the number
of Registrable Shares to be included in the offering, then the Company shall be
required to include in the registration only that number of Registrable Shares
which the managing underwriter believes should be included therein; provided
that any such exclusion shall be effected pro rata based upon the number of
shares requested to be included in such registration by all shareholders having
"piggy-back" rights similar to those granted to Summit hereunder. In
connection with any registration under this Section 1.1, the Company shall not
be required to include the Registrable Shares in such registration, unless
Summit accepts the terms of the underwriting as agreed upon between the Company
and the underwriters selected by the Company. The Company shall not grant any
"piggy-back" registration rights superior to those of Summit hereunder.
1.2 SHELF REGISTRATION. In the event the Company files a
"shelf" registration (the "Shelf Registration") statement on an appropriate
form under the 1933 Act covering any shares of Common Stock owned by other
shareholders of the Company, such Shelf Registration shall cover the
Registrable Shares. Summit agrees to execute such lock-up agreements
containing substantially the same terms and conditions applicable to the
executive officers and principal shareholders of the Company as the managing
underwriters may require in connection with any underwritten public offering
during the time in which the Shelf Registration is effective.
1.3 TERMINATION OF STATUS AS REGISTRABLE SECURITIES. Summit's
Registrable Shares shall cease to be Registrable Shares when (a) a Shelf
Registration becomes effective under the 1933 Act and such securities shall
have been disposed of pursuant to the Shelf Registration; or (b) the Shares
shall have been sold.
1.4 REGISTRATION PROCEDURES. In connection with the Company's
obligation to effect the registration of Registrable Shares, the Company will
(i) furnish to Summit copies of any prospectus to facilitate the public sale or
other disposition of Summit's Shares, (ii) use its best efforts to cause all
such Registrable Shares to be listed on each securities exchange on which
similar securities issued by the Company are then listed or quoted and on any
inter-dealer quotation system on which similar securities issued by the Company
are then quoted, and (iii) cooperate in any filings to be made with the
National Association of Securities Dealers, Inc. ("NASD").
1.5 EXPENSES OF REGISTRATION. All expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, registration and filing fees, printing expenses, expenses of
compliance with blue sky laws, fees and disbursements of counsel for the
Company and expenses of any audits incidental to or required by any such
registration, shall be borne by the Company, except that all Securities and
Exchange Commission ("SEC"), NASD and state securities registration or filing
fees applicable to the Shares shall be paid equally by the Company and by
Summit, and the underwriting discounts and commissions attributable to
Registrable Shares being sold by Summit shall be borne by Summit.
1.6 SUMMIT'S COVENANTS. Summit shall provide (in writing and
signed by Summit and stated to be specifically for use in the related
Registration Statement, preliminary prospectus, prospectus or other document
incident thereto) all such information and materials,
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<PAGE> 3
including, without limitation, the intended plan of distribution, and shall
take all such action as may be required in order to permit the Company to
comply with all applicable requirements of the SEC and any applicable state
securities laws and to obtain any desired acceleration of the effective date of
any Registration Statement prepared and filed by the Company pursuant to this
Agreement.
Summit shall, if requested by the Company or the managing
underwriters in connection with any proposed registration and distribution
pursuant to this Agreement, (i) agree to sell the Registrable Shares on the
basis provided in any underwriting arrangements entered into in connection
therewith, and (ii) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreement and other documents customary in
similar offerings.
1.7 WARRANT REGISTRATION RIGHTS. The registration rights for
the shares of Common Stock issuable upon exercise of the Warrants shall contain
identical terms and conditions as those contained in the warrant issued to the
managing underwriter of the Company's initial public offering of Common Stock.
2.0 INDEMNIFICATION.
2.1 INDEMNIFICATION BY THE COMPANY. To the extent permitted
by law, the Company will indemnify Summit and each underwriter and selling
broker of the Registrable Shares so registered (collectively, "Indemnitees")
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document incident to any registration, qualification or compliance (or in
any related registration statement, notification or the like) or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they were made, or any violation by the Company of
any rule or regulation promulgated under the 1933 Act and/or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance. The Company will reimburse
each such Indemnitee for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability is
caused by any untrue statement (or alleged untrue statement) or omission (or
alleged omission) so made in conformity with written information furnished to
the Company by an instrument duly executed by such Indemnitees and stated to be
specifically for use in such prospectus, offering circular or other document,
and except that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at
the time the registration statement becomes effective or in the amended
prospectus filed with the SEC at the time the registration statement becomes
effective or in the amended prospectus filed with the SEC pursuant to Rule
424(b) (the "Final Prospectus"), then the Company shall have no liability.
Such indemnity agreement shall not inure to the benefit of any underwriter, or
any Indemnitee if there is no underwriter, if a copy of the Final Prospectus
was not furnished to the person or entity asserting the
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<PAGE> 4
loss, liability, claim or damage at or prior to the time such furnishing is
required by the 1933 Act. The obligation of the Company under this subsection
shall survive the completion of any offering of Registrable Shares in a
registration statement under this Agreement, or otherwise.
2.2 INDEMNIFICATION BY SUMMIT. To the extent permitted by
law, Summit shall indemnify and hold the Company, and its respective directors
and officers who participated in preparation of the Final Prospectus, and each
Underwriter and selling broker so registered (collectively, "Company
Indemnitees"), against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made, or any violation by the
Company of any rule or regulation promulgated under the 1933 Act and/or the
1934 Act, applicable to the Company resulting from any written information
provided to the Company by Summit. Summit will reimburse each such Company
Indemnitee in the same manner that the Company is required to indemnify Summit
under subsection 2.1 above.
2.3 INDEMNIFICATION PROCEEDINGS. In any proceedings
(including any governmental investigation) instituted against any person in
respect of which indemnity may be brought pursuant to subsections 2.1 and 2.2
above, such person (the "Indemnified Party") shall promptly notify the person
or entity against whom such indemnity may be sought (the "Indemnifying Party")
in writing. No indemnification provided for in subsections 2.1 or 2.2 shall be
available to any Indemnified Party who fails to give notice if the Indemnifying
Party was not aware of the proceedings to which such notice would have related
and was materially prejudiced by the failure to receive notice. Such failure
to give notice shall not relieve the Indemnifying Party from any liability
which such party may have for contribution or otherwise than on account of the
provisions of subsections 2.1 or 2.2. If such proceedings are brought against
any Indemnified Party who has notified the Indemnifying Party of the
commencement hereof, the Indemnifying Party shall be entitled to participate in
such proceedings and, in its discretion, jointly with any other Indemnifying
Party similarly notified, to assume the defense thereof, with legal counsel
satisfactory to the Indemnified Party. The Indemnifying Party shall pay as
incurred the fees and disbursements of such counsel. In any such proceedings,
an Indemnified Party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the Indemnifying Party shall pay as
incurred, or within thirty (30) days of presentation, the fees and expenses of
legal counsel retained by Indemnifying Party in the event (i) the Indemnified
Parties have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceedings (including any impleaded parties) include both
the Indemnifying and Indemnified Parties and representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests among them. It is agreed that the Indemnifying Party shall not, in
connection with any proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all Indemnified
Parties. Such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the Indemnifying Party agrees to
indemnify the Indemnified Party from and against any loss or liability
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<PAGE> 5
by reason of such settlement or judgment. In addition, the Indemnifying Party
will not, without the prior written consent of the Indemnified Party, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding for which indemnification may be sought hereunder
(whether or not any Indemnified Party is an actual or potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each Indemnified Party from all liability
arising out of such claim, action or proceeding.
3.0 MISCELLANEOUS.
3.1 NOTICES. Any notices or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
immediately upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) after twenty-four (24) hours if sent by
express courier service, fully prepaid, addressed to such address, or upon
actual service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
To Company: ErgoBilt, Inc.
5000 Quorum Drive, Suite 147
Dallas, Texas 75240
Attention: Gerard Smith, President
With a copy to: Wolin, Fuller, Ridley & Miller LLP
3100 Bank One Center
1717 Main Street
Dallas, Texas 75201-4681
Attention: Norman R. Miller, Esq.
To Summit: Summit Partners Management Co.
2200 Ross Avenue, Suite 4500
Dallas, Texas 75201
Attention: Don V. Ingram
With a copy to: Haynes and Boone, L.L.P.
1000 Louisiana Street, Suite 4300
Houston, Texas 77002-5012
Attention: Marc H. Folladori, Esq.
3.2 HEADINGS. The headings in this Agreement are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
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<PAGE> 6
3.3 BINDING EFFECT, AMENDMENTS, ASSIGNMENT. This Agreement
shall be binding upon and inure to the benefit of the Company and Summit. This
Agreement may be amended, modified or supplemented only upon the written
agreement of the parties. This Agreement is intended for the benefit of the
Company and Summit and its affiliates and may not be transferred or assigned to
any other person or entity without the written consent of the Company; provided
that Summit may assign its rights hereunder to any affiliate of Summit or of
Don V. Ingram without prior written consent.
3.4 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Texas.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first set forth above.
ErgoBilt, Inc.
By: /s/ GERARD SMITH
--------------------------------
Gerard Smith
Its: President
Summit Partners Management Co.
By: /s/ DON V. INGRAM
--------------------------------
Don V. Ingram
6
<PAGE> 1
EXHIBIT 10(d)(3)
CONVERTIBLE PROMISSORY NOTE
$500,000.00 Dallas, Texas September 6, 1996
1. PRINCIPAL. For value received, ErgoBilt, Inc., a Texas
corporation ("Maker"), hereby promises to pay to Summit Partners Management Co.
("Payee") or order, in accordance with the terms of this promissory note
("Note"), at such place as Payee may from time to time in writing designate,
the sum of Five Hundred Thousand and No/100 Dollars ($500,000.00), together
with interest at the "Interest Rate" as defined below, on the terms and
conditions set forth herein.
2. INTEREST RATE. Interest shall accrue on the unpaid principal
balance due under this Note at an annual percentage rate (the "Interest Rate")
equal to eight percent (8%) based on a three hundred sixty (360) day year and
actual days elapsed. Interest shall accrue from the date of this Note until
paid in full.
3. PAYMENT.
3.1. Maturity Date. Subject to the mandatory prepayment
obligation described in Paragraph 3.3 below, the entire principal balance and
all accrued unpaid interest shall be due and payable one (1) year from the date
of this Note (the "Maturity Date"). All payments shall be made in currency of
the United States.
3.2. Voluntary Prepayment. Maker may prepay all or any part of
the unpaid principal balance at any time without penalty or premium.
3.3. Mandatory Prepayment. Prior to the Maturity Date, Maker
intends to complete an initial public offering of Maker's common stock (the
"IPO"). If the IPO closes at any time prior to the Maturity Date, then Maker
shall repay to Payee, concurrently with the closing of the IPO, the sum of Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in principal (or
one-half of the unpaid principal balance due under the Note, whichever is
less), plus all accrued and unpaid interest on this Note. The remaining
principal balance under this Note shall be converted into common stock of the
Maker pursuant to Paragraph 4.1 below.
3.4. Security. This Note is secured by the Investment and
Security Agreement dated as of the date hereof (the "Security Agreement") among
Maker, Gerald McMillan and Payee, and Payee shall be entitled to the benefit
thereof.
4. CONVERSION.
4.1. Conversion. Subject to the terms and conditions of this
Paragraph 4, upon Mandatory Prepayment, the unpaid principal balance remaining
due under this Note after such Mandatory Prepayment, contemporaneously
therewith, shall be automatically converted to shares of the Common Stock,
$0.10 par value, of Maker ("Maker's Common Stock") at a conversion rate
<PAGE> 2
equal to such principal amount divided by a price per share equal to the "IPOP"
(as defined herein). The term "IPOP" shall mean the "Price to the Public" of
one share of Maker's Common Stock as set forth on the cover page of the final
prospectus for the IPO.
4.2. Delivery of Shares; Reduction in Principal Balance. Upon
Conversion pursuant to Section 4.1, Maker shall issue and deliver to Payee or
its designated affiliates certificates representing the shares of Maker's
Common Stock, registered in Payee's or its designated affiliate's name(s).
Upon issuance of the shares, the principal balance due under this Note shall be
deemed automatically reduced by that amount of principal converted into shares
of Maker's Common Stock.
4.3. Anti-Dilution Provisions and Notice.
(a) Notice. In case:
(i) Maker declares a dividend or other
distribution on Maker's Common Stock payable otherwise than in cash out of
retained earnings; or
(ii) Maker authorizes the issuance to the holders
of Maker's Common Stock of rights, options or warrants entitling them to
subscribe for or purchase any shares of capital stock of any class or any other
subscription rights, options or warrants; or
(iii) Of any reclassification of the capital stock
of the corporation (other than a subdivision or combination of outstanding
shares of Maker's Common Stock), or of any consolidation or merger to which
Maker is a party, or of the sale, transfer or other disposition of all or
substantially all of the assets of Maker; or
(iv) Of the voluntary or involuntary liquidation,
dissolution or winding up of Maker;
then Maker shall file with the transfer agent for the
shares of Maker's Common Stock and shall cause to be mailed to Payee, at least
twenty (20) days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date as of which the holders of record of
Maker's Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer disposition, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that the holders of record of Maker's Common Stock shall be entitled
to exchange their shares for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding up, and if applicable, the vote on any
action authorizing such.
(b) Stock Split. In the event Maker shall at any time
split in a greater or combine in a lesser number of shares the outstanding
shares of Maker's Common Stock, the number of shares of Maker's Common Stock
issuable upon conversion shall be increased proportionately
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<PAGE> 3
in case of subdivision or decreased in the case of a combination, effective in
either case at the close of business on the date when such subdivision or
combination becomes effective.
(c) Recapitalization or Merger. In the event that
Maker shall be recapitalized, consolidated with or merged into any other
corporation, or shall sell or convey to any other corporation all or
substantially all of its property as an entirety, provision shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
conveyance so that any holder of Maker's Common Stock may thereafter receive in
lieu of Maker's Common Stock otherwise issuable to him upon conversion of his
shares the same kind and amount of securities or assets as may be distributable
upon such recapitalization, consolidation, merger, sale or conveyance with
respect to Maker's Common Stock.
(d) Dividend. In the event that Maker shall at any
time pay to the holders of Maker's Common Stock a dividend in Maker's Common
Stock, the number of shares of Maker's Common Stock issuable upon Payee's
exercise of its Conversion Rights shall be proportionately increased, effective
at the close of business on the payment date for determination of such
dividend.
4.4. Adequate Shares. Maker shall at all times reserve and
keep available, free from preemptive rights, out of the authorized but unissued
shares of Maker's Common Stock, for the purpose of issuance upon conversion, a
sufficient number of shares of Maker's Common Stock potentially deliverable
upon Payee's exercise of its Conversion Rights.
4.5. Taxes. Maker shall not be required to pay any tax which
may be payable in respect of the original issuance or payable in respect of any
transfer involved in the issuance and delivery of shares of Maker's Common
Stock in a name other than that in which the shares so converted were
registered, and no such issuance or delivery shall be made unless and until the
person requesting such issuance has paid to Maker the amount of any such tax or
has established to the satisfaction of Maker that such tax has been paid.
4.6. Limitations. Shares of Maker's Common Stock issuable upon
conversion shall include only shares of the class designated as Common Stock as
of the date of this Note or shares of Maker of any classes or series resulting
from any reclassification or reclassifications thereof and which have no
preference or priority in the payment of dividends or in the distribution of
assets in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the corporation and which are not subject to redemption by Maker,
provided that if, at any time there shall be more than one such resulting class
or series, the shares of each such class and series then so issuable shall be
substantially in the proportion which the total number of shares of such class
and series resulting from all such reclassifications bears to the total number
of shares of all such classes and series resulting from all such
reclassifications.
4.7. Restrictions on Transferability. All shares of Maker's
Common Stock issued to Payee in satisfaction of Payee's conversion rights shall
be validly issued, fully paid and nonassessable. No fractional shares shall be
issued. Payee acknowledges and understands that the
3
<PAGE> 4
certificates of Maker's Common Stock issued to it upon exercise of its
Conversion Rights will bear a restrictive legend in substantially the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act or an opinion of counsel
satisfactory to Company is obtained to the effect that
such registration is not required."
5. ALLOCATION OF PAYMENTS. Any amounts, when paid against this
Note, shall be credited first to any reasonable costs or expenses incurred by
Payee to collect on this Note, then to the interest then due, and then to
unpaid principal. Interest shall cease to accrue upon any principal paid.
6. EVENTS OF DEFAULT AND REMEDIES
6.1 An "Event of Default" shall exist if any one or more of
the following events (herein collectively called "Events of Default") occurs
and is continuing:
(a) Maker shall fail to pay when due any principal of
or interest on this Note;
(b) Maker shall fail to pay when due any fee, expense
or other payment required hereunder after five (5) days' prior written notice
from Payee of such delinquency;
(c) any representation or warranty made in this Note,
or any of the other documents executed in connection herewith or relating
hereto, including, without limitation, the Warrant and Common Stock
Subscription Agreement dated as of the date hereof between Maker and Payee and
the Security Agreement (the "Loan Documents"), or in any certificate or
statement furnished or made to Payee pursuant hereto or thereto or in
connection herewith or therewith shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty is
made;
(d) default shall occur in the performance of any of
the covenants or agreements of Maker contained herein, or in any of the other
Loan Documents;
(e) default shall occur in the payment of any
indebtedness of Maker or default shall occur in respect of any note, loan
agreement or credit agreement relating to any such indebtedness and such
default shall continue for more than the period of grace, if any, specified
therein; or any such indebtedness shall become due before its stated maturity
by acceleration of the maturity thereof or shall become due by its terms and
shall not be promptly paid or extended;
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<PAGE> 5
(f) any of the Loan Documents shall cease to be legal,
valid, binding agreements enforceable against any party executing the same in
accordance with the respective terms thereof or shall in any way be terminated
or become or be declared ineffective or inoperative or shall in any way
whatsoever cease to give or provide the respective liens, security interest,
rights, titles, interest, remedies, powers or privileges intended to be created
thereby;
(g) Company shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself or of all or a substantial part of its assets, (ii) file a voluntary
petition in bankruptcy or admit in writing that it is unable to pay its debts
as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for the
purpose of electing any of the foregoing;
(h) an involuntary petition or complaint shall be filed
against Maker seeking bankruptcy or reorganization of Maker, or the appointment
of a receiver, custodian, trustee, intervenor or liquidator of Maker, or all or
substantially all of its assets, or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint seeking reorganization of
Maker or appointment of a receiver, custodian, trustee, intervenor or
liquidator of Maker, or of all or substantially all of its assets;
(i) any final judgment(s) for the payment of money in
excess of the sum of $25,000.00 in the aggregate shall be rendered against
Maker and such judgment or judgments shall not be satisfied or discharged at
least ten (10) days prior to the date on which any of its assets could be
lawfully sold to satisfy such judgment; or
(j) Maker sells, leases or otherwise disposes of all or
substantially all of the assets of Maker, whether in one transaction or through
a series of transactions, or merges with or consolidates into any other person.
6.2 Remedies Upon Event of Default. If an Event of Default
occurs and is continuing, then Payee shall exercise any one or more of the
following rights and remedies, and any other remedies provided in any of the
Loan Documents, as Payee may deem necessary or appropriate: (i) declare the
principal of, and all interest then accrued on, this Note and any other
liabilities hereunder to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest, notice
of default, notice of acceleration or of intention to accelerate or other
notice of any kind, all of which Maker hereby expressly waives, anything
contained herein or in the Loan Documents to the contrary notwithstanding, (ii)
reduce any claim to judgment, and/or (iii) without notice of default or demand,
pursue and enforce Payee's rights and remedies under the Loan Documents, or
otherwise provided under or pursuant to any applicable law or agreement;
provided, however, that if any Event of default specified in
5
<PAGE> 6
Section 6.1(g) or (h) occurs, the principal of, and all interest on, this Note
and other liabilities hereunder shall thereupon become due and payable
concurrently therewith.
7. WAIVERS. Waiver of any provision of this Note by Payee shall not
be deemed to constitute a waiver of any other provision hereunder, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by Payee.
8. LIMITATIONS ON USURY. Regardless of any provisions contained in
this Note, Payee shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest (whether called interest herein or deemed
to be interest by operation of law or judicial determination) on this Note, any
amount in excess of the highest lawful rate, and, in the event Payee ever
receives, collects or applies as interest any such excess, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of this Note, and, if the principal balance of this Note is
paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the highest lawful rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense, fee, or premium, rather than as
interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii)
spread the total amount of interest throughout the entire contemplated term of
this Note so that the interest rate is uniform throughout such term.
9. MISCELLANEOUS.
9.1. Governing Law. This Note shall be governed by, and
construed and enforced in accordance with, Texas law.
9.2. Binding Effect. All of the terms, covenants,
representations, warranties and conditions herein shall be binding upon, and
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assignees.
9.3. Attorneys' Fees. If any party brings an action in
connection with the performance, breach or interpretation of this Note, or in
any action related hereto, the prevailing party in such action shall be
entitled to recover from the losing party in such action all reasonable
attorneys fees, court costs, costs of investigation, accounting, and other
costs reasonably incurred or related to such litigation.
9.4. Notices. All notices, demands and other communications
required or permitted to be given hereunder shall be deemed to have been duly
given and received if in writing and (i) effective immediately if delivered
personally; or (ii) effective seventy-two (72) hours after mailing if deposited
in the United States mail, first class, postage prepaid, registered or
certified mail, return receipt requested, addressed as set forth below; or
(iii) effective upon confirmation of delivery if sent by telecopier to a
party's telecopier number set forth below and after twenty-four (24) hours, if
sent by a nationally recognized overnight courier (e.g., Federal Express,
D.H.L., etc.) to the party at such party's address set forth below:
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<PAGE> 7
Maker: ErgoBilt, Inc.
Attn: Gerard Smith, President
5001 Quorum Drive, Suite 147
Dallas, Texas 75240
Telecopier No.: 214-392-9719
With courtesy copy to: Wolin, Fuller, Ridley & Miller LLP
Attn: Norman R. Miller, Esq.
3100 Bank One Center
1717 Main Street
Dallas, Texas 75201
Telecopier No.: 214-939-4949
Payee: Summit Partners Management Co.
Attn: Mr. Don V. Ingram
2200 Ross Avenue
Suite 4500, LB 170
Dallas, Texas 75201
Telecopier No.: 214-220-4349
With courtesy copy to: Haynes and Boone, L.L.P.
Attn: Marc H. Folladori, Esq.
1000 Louisiana Street, Suite 4300
Houston, Texas 77002-5012
Telecopier No.: 713-547-2600
The addresses provided above may be changed by notice given to the other
party in accordance with this Paragraph. A party's failure to provide a
courtesy copy shall not invalidate notice otherwise given in accordance with
this Paragraph.
ERGOBILT, INC.
By: /s/ GERARD SMITH
--------------------------------
Gerard Smith, President
Accepted and Agreed:
SUMMIT PARTNERS MANAGEMENT CO.
By: /s/ DON V. INGRAM
----------------------------
Don V. Ingram
7
<PAGE> 1
EXHIBIT 10(d)(4)
INVESTMENT AND
SECURITY AGREEMENT
THIS INVESTMENT AND SECURITY AGREEMENT, dated effective as of September
6, 1996 (the "Effective Date"), is made by and among Gerald McMillan, a
resident of the State of Texas ("Pledgor"), whose address is 6331 Pine View,
Dallas, Texas 75248, ErgoBilt, Inc., a Texas corporation ("Debtor"), and Summit
Partners Management Co., a Texas corporation ("Secured Party"). Unless
otherwise defined herein, capitalized terms used in this Agreement shall have
the meanings assigned in the Note.
WHEREAS, Debtor and BodyBilt Seating, Inc., a Texas corporation
("BodyBilt") among others, have entered into an Agreement and Plan of Merger
(the "Merger Agreement");
WHEREAS, Pledgor and BodyBilt entered into that certain Employment
Agreement dated January 1, 1993 (the "Employment Agreement"), pursuant to which
Pledgor has certain rights to receive a commission upon the sale of BodyBilt,
as amended by the Termination Agreement of the Employment Agreement effective
July 31, 1994 between Pledgor and BodyBilt and the Conditional Release of
Commission executed by Pledgor and BodyBilt on May 23, 1996 (collectively, as
heretofore and from time to time hereafter amended, the "Contract");
WHEREAS, Debtor has executed, as maker, the Convertible Promissory Note
dated of even date herewith payable to Secured Party in the original principal
amount of $500,000 (the "Note");
WHEREAS, Debtor, Secured Party, Pledgor and BodyBilt desire that Pledgor
grant to Secured Party a security interest in all of Pledgor's right, title and
interest with respect to only the initial $500,000 which may be or become due
and payable under the Contract (the "Collateral") to secure the Note and no
other right, title or interest under the Contract shall be subject to this
Agreement;
WHEREAS, Pledgor acknowledges that Pledgor will receive a direct and
substantial benefit as a result of the loan evidenced by the Note and the
transactions related thereto and agrees to grant such security interest in the
Collateral in consideration for and as an inducement to Secured Party to make
the loan evidenced by the Note;
NOW THEREFORE, in consideration of the Note and the related transactions
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Debtor, Pledgor and Secured Party agree as follows:
Section 1. Grant of Security Interest. For value received and as
collateral security for the Secured Indebtedness (hereinafter defined), Pledgor
hereby grants to Secured Party a security interest, lien and mortgage in and
to, and agrees and acknowledges that Secured Party has, and shall continue to
have, a security interest, lien and mortgage in and to, and assigns to Secured
Party its right, title and interest in the Collateral (as defined in the
recitals herein).
<PAGE> 2
Section 2. Indebtedness Secured. The security interest and assignment
of rights contained herein is granted to secure the payment and performance of
indebtedness arising in connection with, or evidenced by, the Note and all
renewals, extensions and modifications of such indebtedness or any part
thereof; provided, however, that in no event shall the amount of such
indebtedness secured hereby exceed $500,000 (the "Secured Indebtedness").
Section 3. Pledgor's Warranties and Representations.
Pledgor represents and warrants to Secured Party that:
(a) Pledgor has full power and authority to execute, deliver
and perform this Agreement.
(b) The Collateral is free and clear of all liens and other
adverse claims of any nature, and Pledgor has good and marketable title
to such Collateral;
(c) The residence of Pledgor is Dallas County, Texas;
(d) The Contract is valid, binding and enforceable in
accordance with its terms, and the enforcement thereof is not subject to
any defense, counterclaim, set off or right of recoupment;
(e) Except the consent of BodyBilt, no consent or approval of
any person, arbitrator, governmental body or regulatory agency is
necessary to effect the validity of the rights hereunder;
(f) No financing statement covering the Collateral or any part
thereof has been filed with any filing officer; and
(g) All of the representations and warranties made by Pledgor
in all instruments and documents evidencing and securing the Secured
Indebtedness or any part thereof, including, without limitation, this
Agreement, are true and correct in all material respects.
Section 4. Pledgor's Covenants and Agreements.
Pledgor covenants and agrees with Secured Party that:
(a) Pledgor shall, at its expense, make, procure, execute and
deliver such financing statement or statements, or amendments thereof or
supplements thereto, and take such other actions as Secured Party may
from time to time require in order to preserve and protect the security
interest hereby granted and to comply with Chapter 9 of the Uniform
Commercial Code, as amended, as adopted in the State of Texas (or any
successor statute) (the "Code"). In the event, for any reason, that the
law of any jurisdiction other than the State of Texas becomes or is
applicable to the Collateral, or any part thereof, or to any of the
Secured Indebtedness, Pledgor agrees to execute and deliver all such
instruments and to do
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<PAGE> 3
all such other things as may be necessary or appropriate to preserve,
protect and enforce the security interest or lien of Secured Party,
under the law of such other jurisdiction, to at least the same extent as
such security interest would be protected under the Code;
(b) Until the termination of this Agreement, Pledgor will not
execute and there will not be on file in any public office any financing
statement or statements creating or evidencing a security interest or
lien covering any of the Collateral, except as may have been or may
hereafter be granted to Secured Party, and Pledgor further agrees that
it will keep the Collateral free from any lien, or any other legal or
equitable process, or any encumbrance of any kind or character;
(c) Pledgor shall take all necessary steps to obtain,
preserve, perfect, defend and enforce the security interest in and
assignment of any of the Collateral and to preserve, defend, enforce and
collect the Collateral;
(d) The Collateral shall not be assigned or disposed of by
Pledgor without the prior written consent of Secured Party. Pledgor
will not amend, modify, release, postpone or change the Contract, or any
part thereof, without the prior written consent of Secured Party.
Pledgor shall promptly furnish to Secured Party any writing relating to
any of the Collateral; and
(e) Pledgor will give Secured Party thirty days' prior written
notice of any change in Pledgor's residence and will immediately notify
Secured Party of any change occurring in or to the Collateral, of any
change in any fact or circumstance warranted or represented by Pledgor
to Secured Party, or if any Event of Default (hereinafter defined)
occurs.
Section 5. Representations and Warranties of Debtor. Debtor represents
and warrants as set forth below.
(a) Due Organization. Debtor is duly incorporated, validly
existing and in good standing under the laws of its state of
incorporation, having Articles of Incorporation, as amended, and Bylaws
(all terms of which are in full force and effect) as previously
furnished to Secured Party. Except where the failure to so qualify
would not have a material adverse effect on Debtor, Debtor is duly
qualified to conduct business as proposed and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its
business or location of its properties require such qualification.
(b) Authority of Debtor. Debtor has full power and authority
to enter into this Agreement, the Note, and the Merger Agreement and to
carry out the provisions contained herein and therein, and Debtor has
taken all corporate action necessary for the execution and performance
of each of the above-named documents and each document above-named will
constitute a valid and binding obligation of Debtor enforceable in
accordance with its respective terms when executed and delivered.
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<PAGE> 4
(c) Capitalization of Debtor. Debtor has authorized capital
stock of 20,000,000 shares of Common Stock, par value $0.10 per share,
of which, as of the Effective Date, 3,400,000 shares are issued and
outstanding. All of the issued and outstanding shares of Common Stock
were duly and validly issued and are fully paid and non-assessable.
None of the outstanding shares of Common Stock have been issued in
violation of any preemptive rights of the current or past stockholders
of Debtor. There are no outstanding options, warrants or rights to
subscribe for, cause, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of Debtor or contracts, commitments,
understandings or arrangements by which Debtor is or may be obligated to
issue additional shares of its capital stock or options, warrants, or
rights to purchase or acquire any additional shares of its capital stock
other than those in favor of the Secured Party.
(d) Non-Contravention. Debtor is not in breach of, default
under, or in violation of, to the extent the same would have a material
adverse effect on Debtor, any applicable law, decree, order, rule or
regulation or any indenture, contract, agreement, deed, lease, loan
agreement, commitment, bond, note, deed of trust, restrictive covenant,
license or other instrument or obligation to which Debtor is a party or
by which Debtor is bound or to which any of Debtor's assets are subject;
the execution, delivery and performance of this Agreement will not
constitute any such breach, default or violation or require consent or
approval of any court, governmental agency or body except as
contemplated herein.
Section 6. Debtor's Covenants and Agreements. Debtor covenants and
agrees with Secured Party that, so long as the Note is outstanding:
(a) Payment of Principal and Accrued Interest. Debtor will
duly and punctually pay or cause to be paid the principal amount of the
Note, together with interest accrued thereon from the date thereof to
the date of payment, in accordance with the terms thereof.
(b) Corporate Existence. Debtor will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises.
(c) Taxes; Claims; etc. Debtor will promptly pay and
discharge all lawful taxes, assessments, and governmental charges or
levies imposed upon it or upon its income or profits, or upon any of its
properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies
or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that Debtor shall not
be required to pay or cause to be paid any such tax, assessment, charge,
levy, or claim prior to institution of foreclosure proceedings if the
validity thereof shall concurrently be contested in good faith by
appropriate proceedings and if Debtor shall have established reserves
deemed by Debtor adequate with respect to such tax, assessment, charge,
levy, or claim.
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<PAGE> 5
(d) Maintenance of Existence and Properties. Debtor will keep
its properties in good repair, working order, and condition, ordinary
wear and tear excepted, and from time to time will make all needful and
proper repairs, renewals, replacements, extensions, additions,
betterments, and improvements thereto, so that the business carried on
may be properly conducted at all times in accordance with prudent
business management.
(e) Notice of Defaults. Debtor will promptly notify Secured
Party in writing of the occurrence of any Event of Default under the
Note.
(f) Covenant Regarding Capitalization. Debtor will maintain
its authorized capital stock as set forth in Section 5(c) above and will
not alter such authorized capital stock without the prior written
consent of Secured Party.
(g) New Debt. Without prior written consent from Secured
Party which shall not be unreasonably withheld, Debtor will not incur
any indebtedness for borrowed money in the aggregate outstanding
principal amount in excess of $250,000; provided that if Debtor elects
to pay a portion of the merger consideration (with respect to the merger
transaction contemplated under the terms of the Merger Agreement) in
borrowed funds, Secured Party agrees that no such consent shall be
required so long as the portion of the indebtedness evidenced by the
Note to be paid in cash is paid concurrently with the consummation of
such merger transaction as contemplated under the terms of the Note.
(h) Limitation on Distributions. Without prior written
consent from Secured Party which shall not be unreasonably withheld,
Debtor will not (a) declare or pay any dividends in cash or property on
any shares of its capital stock, (b) make any other distributions in
cash or property with respect to any shares of its capital stock, or (c)
make any payment on account of the purchase, redemption or other
acquisition or retirement of any shares of Debtor's capital stock, or
(d) return any capital to its shareholders, except that Debtor may
declare and deliver stock dividends.
(i) Limitation on Prepayment of Indebtedness. Debtor will not
prepay any of its indebtedness (other than the Secured Indebtedness) nor
will Debtor sell, assign or otherwise dispose of any of its properties
(whether now owned or hereafter acquired) to any person for
consideration including, in whole or in part, the exchange,
cancellation, payment or discharge of Debtor's indebtedness (other than
the Secured Indebtedness).
(j) Transactions with Officers, Directors, Shareholders and
Affiliates. Debtor will not enter into any transaction with any
director, officer, shareholder, employee or affiliate, other than
payment of officers' salaries, directors' fees and consulting fees to
officers or prospective officers, except for transaction for purchase,
sale or exchange of property or rendering of any service in the ordinary
course of and pursuant to the reasonable requirements of Debtor's
business and upon fair and reasonable terms no less favorable to Debtor
than Debtor would obtain in a comparable arm's length transaction with a
person not an affiliate.
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<PAGE> 6
(k) Sale or Discount of Accounts. Debtor shall not discount
or sell with recourse any of its notes receivables or accounts
receivable, other than customary discounts to account obligors for
prompt payment of accounts arising in the ordinary course of business.
(l) Limitation on Investments. Except with respect to the
Debtor's proposed acquisition of Metamorphis, Inc. and except with
respect to the transactions related to the Merger Agreement, Debtor
shall not make or have outstanding any cash investments in excess of
$250,000 in the aggregate, whether by means of share purchase, loan,
advance, extension of credit, capital contribution or otherwise, in any
person, the guaranty of indebtedness of any person, or the subordination
of any claim against any person to other indebtedness of such person
without prior written consent from Secured Party which shall not be
unreasonably withheld.
(m) Limitation on Mergers and Sale of Assets. Except with
respect to investments and acquisitions permitted under paragraph (l)
immediately preceding above and pursuant to the Merger Agreement,
Debtor will not consolidate or merge with or into, or sell, convey,
transfer or lease in a single transaction or series of related
transactions, any substantial part of its assets to, any person or
entity, or make any material change in the nature of its business as
conducted on the date of this Agreement; provided, however, that Debtor
shall not be precluded from entering into any agreements in
contemplation of any of the foregoing set forth in this paragraph (m).
Section 7. Events of Default.
Pledgor shall be in default under this Agreement upon the happening of
any of the following events or conditions (hereinafter called an "Event of
Default"):
(a) An Event of Default under the Note shall occur;
(b) The ownership of the Collateral, or any legal or equitable
interest therein, becomes vested in a person or entity other than
Pledgor;
(c) Secured Party's liens in the Collateral should become
unenforceable, or cease to be first priority liens;
(d) Default is made in the due observance or performance by
the Pledgor or Debtor of any of the covenants or agreements contained
herein;
(e) Any statement, warranty or representation by or on behalf
of Pledgor or Debtor contained in this Agreement or in any other
instrument or certificate furnished in connection with this Agreement,
proves to have been materially incorrect as of the date made or deemed
made;
(f) Default is made in the due observance or performance by
BodyBilt or Pledgor of any of the covenants or agreements contained in
the Contract;
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<PAGE> 7
(g) Debtor, Pledgor or BodyBilt shall generally not pay its or
his debts as they become due or shall admit in writing its or his
inability to pay its or his debts, or shall make any general assignment
for the benefit of creditors;
(h) Debtor, Pledgor or BodyBilt shall commence any case,
proceeding or other action seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or him or its
or his debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or him for
all or any substantial part of its or his property;
(i) Debtor or BodyBilt shall take any corporate action to
authorize any of the actions set forth above in paragraphs (g) or (h)
above;
(j) Any case, proceeding or other action against Debtor,
Pledgor or BodyBilt shall be commenced seeking to have an order for
relief entered against it or him as debtor, seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it
or him or its or his debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment
of a receiver, trustee, custodian or similar official of it or him or
for all or any substantial part of its or his property, and any such
case, proceeding or other action (i) results in the entry of any order
for relief against it or him which is not fully stayed within seven (7)
business days after the entry thereof or (ii) remains undismissed for a
period of sixty (60) business days; or
(k) Failure of Debtor, Pledgor or BodyBilt to pay any money
judgment against it or him before the expiration of ten (10) days after
such judgment becomes final and no longer appealable.
Section 8. Secured Party's Rights and Remedies.
(a) Secured Party, at any time, after an Event of Default:
(i) may, at the sole option of Secured Party, discharge
taxes, liens and interest, perform or cause to be performed, for
and on behalf of Pledgor, any actions and conditions, obligations
or covenants which Pledgor has failed or refused to perform, and
may pay for the repair, maintenance or preservation of any of the
Collateral, and may do all other things deemed necessary by
Secured Party to perfect the security interest granted hereby and
to preserve, collect, enforce and protect the Collateral, and may
exercise all rights of Pledgor in the Collateral, and Pledgor
hereby appoints Secured Party its attorney-in-fact for such
purposes, and all sums expended therefor, including, but limited
to, attorneys' fees, court costs, agents' fees or commissions, or
any other costs or expenses, shall become part of the Secured
Indebtedness, shall bear interest from the date of payment at the
highest lawful rate and shall be payable at the place designated
for payment of the Secured Indebtedness and shall be secured by
this Agreement;
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<PAGE> 8
(ii) may, in its sole discretion, to the extent
permitted by law, require Pledgor to give possession or control
of the Collateral to Secured Party; endorse as Pledgor's agent
any instruments, documents, or accounts relating to the
Collateral; take control of the Collateral or proceeds thereof,
including, without limitation, stock, stock or cash dividends or
stock splits, and use cash proceeds to reduce any part of the
Secured Indebtedness; exchange any of the Collateral for any
other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and,
in connection therewith, deposit any of the Collateral with any
committee, depositary, transfer agent, registrar or other
designated agency upon such terms as Secured Party may determine;
and may require Pledgor to use its best efforts to cause the
issuer of the Collateral to register any or all of the Collateral
under applicable securities laws, at the expense of Pledgor or
such issuer;
(iii) may, in its sole discretion, in its own name or the
name of Pledgor, notify BodyBilt to make all payments due or to
become due under the Contract directly to Secured Party, or such
other person or officer as Secured Party may require, whereupon
the power and authority of Pledgor to collect the same shall be
deemed to be immediately revoked and terminated; and
(iv) may, in its sole discretion, take all steps,
actions, suits or proceedings deemed by Secured Party necessary
or desirable to enforce the Contract.
(b) In the event of the occurrence of any Event of Default,
Secured Party may, at its option, in addition to the rights and remedies
provided in Section 8(a) hereof, without demand, presentment, notice of
intention to accelerate, notice of acceleration or any other notice
(which are fully waived), take possession and dispose of all or any
portion of the Collateral, to the extent permitted by law, at public or
private sale, as a unit or in parcels, upon any terms and prices and in
any order, free from any claim or right of any kind including any equity
of redemption of Pledgor, ANY SUCH DEMAND, RIGHT OR EQUITY BEING
EXPRESSLY WAIVED AND RELEASED. Upon Secured Party's demand, Pledgor
will take all steps necessary to prepare the Collateral for and
otherwise assist in any proposed disposition of the Collateral; and
assemble the Collateral and make it available to Secured Party at a
reasonably convenient location. Any disposition of the Collateral may
be made by way of one or more contracts.
(c) In addition:
(i) Secured Party shall not be liable for any act or
omission on the part of Secured Party, its officers, agents, or
employees, except for willful misconduct or gross negligence.
All rights and remedies of Secured Party hereunder are cumulative
and may be exercised singly or concurrently. The exercise of any
right or remedy will not be a waiver of any other;
(ii) The rights, titles, interests, liens and securities
of Secured Party hereunder shall be cumulative of all of the
securities, rights, titles, interests or liens
- 8 -
<PAGE> 9
which Secured Party may now or at any time hereafter hold
securing the payment of the Secured Indebtedness, or any part
thereof;
(iii) Secured Party is hereby expressly authorized to
apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Pledgor
hereby expressly consents to any such appointment; and
(iv) Secured Party shall apply the proceeds of any sale
or other disposition of the Collateral, and the payments received
by Secured Party with respect to any of the Collateral, to the
payment of the balance of the Secured Indebtedness.
Section 9. Miscellaneous.
(a) Secured Party agrees that upon the final discharge of the
obligations with respect to the Secured Indebtedness pursuant to the
payment of cash and the conversion of the portion of the Note into
shares of common stock of Debtor pursuant to the terms of the Note, this
Agreement shall without further action of either party terminate and
Secured Party will execute and deliver any UCC-3 termination statements
necessary to terminate its security interest in the Collateral or the
perfection thereof.
(b) This Agreement is entered into and is to be governed by
the laws of the State of Texas.
(c) This Agreement is binding upon and shall inure to the
benefit of Pledgor, Secured Party, Debtor, their respective heirs,
executors, representatives, administrators, successors and assigns;
provided, however, that Pledgor may not, without the prior written
consent of Secured Party, assign any rights, powers, duties or
obligations hereunder. Secured Party reserves the right to assign any
or all of its rights hereunder.
(d) Any notice of sale, disposition or other action by Secured
Party required by the Code and sent to Pledgor at Pledgor's address
shown above, or at such other address of Pledgor as may from time to
time be shown on the records of Secured Party, at least ten (l0) days
prior to such action, shall constitute reasonable notice to Pledgor.
Notice shall be deemed given or sent when mailed by certified mail,
return receipt requested to Pledgor's address.
(e) No failure to exercise, and no delay in exercising, on the
part of Secured Party, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right.
(f) This Agreement shall not be amended in any way except by a
written agreement signed by Secured Party, Pledgor and Debtor.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, this Agreement is executed as of the Effective Date.
/s/ GERALD McMILLAN
----------------------------------------
GERALD McMILLAN
ERGOBILT, INC.
By: /s/ GERALD SMITH
-------------------------------------
Name: Gerald Smith
-----------------------------------
Title: President & CEO
----------------------------------
SUMMIT PARTNERS MANAGEMENT CO.
/s/ DON V. INGRAM
----------------------------------------
Name: Don V. Ingram, Pres.
----------------------------------
CONSENT OF SPOUSE
The undersigned hereby consents to the grant by Pledgor to Secured Party
of a security interest, lien and mortgage in and to the Collateral and also
consents to the sale and transfer of 34,000 shares of common stock of ErgoBilt,
Inc. by Pledgor to Secured Party pursuant to the terms of the Common Stock and
Warrant Purchase Agreement dated the date hereof.
/s/ BERIT H. McMILLAN
----------------------------------------
Berit H. McMillan
-------------------
- 10 -
<PAGE> 1
EXHIBIT 10(e)(1)
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
BODYBILT SEATING, INC. THE FIRST NATIONAL BANK OF BRYAN ACCOUNT #: 033-118-01
4455 CARTER CREEK PKWY. 2807 TEXAS AVE., P.O. BOX 833 Loan Number 033-118-61
BRYAN, TX 77802 BRYAN, TX 77805 Date MAY 27, 1993
Maturity Date MAY 27, 1998
Loan Amount $32,875.27
Renewal Of _________________
SSN/CL/LN/OC:
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS 74-2246394 TB
"I" includes each borrower above, "You" means the lender, its
joint and severally successors and assigns.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of THIRTY TWO THOUSAND EIGHT HUNDRED SEVENTY FIVE
AND 27/100 * * * * Dollars $32,875.27
[X] SINGLE ADVANCE: I will receive all of this principal sum on MAY 27, 1993.
No additional advances are contemplated under this note.
[ ] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On _________________ I will receive
the amount of $________ and future principal advances are contemplated.
CONDITIONS: The conditions for future advances are ________________________
___________________________________________________________________________
___________________________________________________________________________
[ ] OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on ________________________.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from MAY
27, 1993 at the rate of 7.250% per year until MAY 27, 1998.
[ ] VARIABLE RATE: The rate may then change as stated below.
[ ] INDEX RATE: The future rate will be _________ the following index rate:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
[ ] CEILING RATE: The interest rate ceiling for this note is the ______
ceiling rate announced by the Credit Commissioner from time to time.
[ ] FREQUENCY AND TIMING: The rate on this note may change as often as
____________________. A change in the interest rate will take effect
______________________________________________________________________.
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than ________________% or less than
______________%.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ] ______________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[X] at a rate equal to HIGHEST RATE PERMITTED BY LAW
[ ] LATE CHARGE: If a payment is made more than _________ days after it is
due, I agree to pay a late charge of _____________________________________.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
__________________________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[ ] INTEREST: I agree to pay accrued interest ________________________________
__________________________________________________________________________
[ ] PRINCIPAL: I agree to pay the principal __________________________________
__________________________________________________________________________
[X] INSTALLMENTS: I agree to pay this note in 60 payments. The first payment
will be in the amount of $656.59 and will be due JUNE 27, 1993. A payment of
$656.59 will be due EACH MONTH thereafter. The final payment of the entire
unpaid balance of principal and interest will be due MAY 27, 1998.
ADDITIONAL TERMS:
<TABLE>
<S> <C>
******************************************************
* *
* THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL * PURPOSE: The purpose of this loan is BUSINESS: PURCHASE
* AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE * TWO VEHICLES
* CONTRADICTED BY EVIDENCE OF PRIOR, *
* CONTEMPORANEOUS, OR SUBSEQUENT ORAL * SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING
* AGREEMENTS OF THE PARTIES. * THOSE ON PAGE 2). I have received a copy on today's date.
* *
* THERE ARE NO UNWRITTEN ORAL *
* AGREEMENTS BETWEEN THE PARTIES. *
* *
******************************************************
Signature for Lender BODYBILT SEATING, INC.
____________________________________________________ BY:_____________________________________________________
MARK A. MCMILLAN
____________________________________________________ ________________________________________________________
________________________________________________________
UNIVERSAL NOTE
(c) 1984, 1991 BANKERS SYSTEMS, INC., ST. CLOUD MN (1-800-397-2341) FORM UN-TX 8/3/91 (page 1 of 2)
</TABLE>
<PAGE> 2
APPLICABLE LAW: The law of the state of Texas will govern this note. Any term
of this note which is contrary to applicable law will not be effective, unless
the law permits you and me to agree to such a variation. If any provision of
this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification
of this agreement may be made without your express written consent. Time is of
the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of
each payment will then reduce accrued unpaid interest, and then unpaid
principal. If you and I agree to a different application of payments, we will
describe our agreement on this note. I may prepay a part of, or the entire
balance of this loan without penalty, unless we specify to the contrary on this
note. Any partial prepayment will not excuse or reduce any later scheduled
payment until this note is paid in full (unless, when I make the prepayment,
you and I agree in writing to the contrary).
INTEREST: If I receive the principal in more than one advance, each advance
will start to earn interest only when I receive the advance. The interest rate
in effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not
agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment of the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect
that you will make only one advance of principal. However, you may add other
amounts to the principal if you make any payments described in the "PAYMENTS BY
LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf,
charges I am obligated to pay (such as property insurance premiums), then you
may treat those payments made by you as advances and add them to the unpaid
principal under this note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not
apply to any Individual Retirement Account or other tax-deferred retirement
account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default on this loan and any agreement securing this
loan if any one or more of the following occurs:
(1) I fail to perform any obligation which I have undertaken in
this note or any agreement securing this note; or
(2) you, in good faith, believe that the prospect of payment or
the prospect of my performance of any other of my obligations
under this note or any agreement securing this note is
impaired.
If any of us are in default on this note or any security agreement,
you may exercise your remedies against any or all of us.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of my debt under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the
payment of money from you, subject to the terms of the
"Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional
parties to be obligated to pay this note as a condition for
not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on
credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In
addition, if you hire an attorney to collect this note, I also agree to pay
any fee you incur with such attorney plus court costs (except where prohibited
by law). To the extent permitted by the United States Bankruptcy Code, I also
agree to pay the reasonable attorney's fees and costs you incur to collect this
debt as awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of
dishonor);
(4) give notice of intent to accelerate; or
(5) give notice of acceleration.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if
someone else has also agreed to pay it (by, for example, signing this form or a
separate guarantee or endorsement). You may sue me alone, or anyone else who
is obligated on this note, or any number of us together, to collect this note.
You may do so without any notice that it has not been paid (notice of
dishonor). You may without notice release any party to this agreement without
releasing any other party. If you give up any of your rights, with or without
notice, it will not affect my duty to pay this note. Any extension of new
credit to any of us, or renewal of this note by all or less than all of us
will not release me from my duty to pay it. (Of course, you are entitled to
only one payment in full.) I agree that you may at your option extend this note
or the debt represented by this note, or any portion of the note or debt, from
time to time without limit or notice and for any term without affecting my
liability for payment of the note. I will not assign my obligation under this
agreement without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address state on page 1 of this agreement, or to any
other address that you have designated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
BANKERS SYSTEMS, INC. ST. CLOUD, MN (1-800-397-2341) FORM UN-TX 6/3/91
<PAGE> 3
EXHIBIT 10(e)(1) - SCHEDULE OF SIMILAR UNIVERSAL NOTES
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
I. Date: . . . . . . . . . . . August 27, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-62)
Amount: . . . . . . . . . . $20,797.48
Interest Rate: . . . . . . . 7.25% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $415.31 from
September 27, 1993 to August 27, 1998
II. Date: . . . . . . . . . . . December 9, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-63)
Amount: . . . . . . . . . . $43,278.04
Interest Rate: . . . . . . . 6.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,033.25 from
January 1, 1994 to December 9, 1997
III. Date: . . . . . . . . . . . March 25, 1994
Loan Type: . . . . . . . . . Single Advance (#033-118-64)
Amount: . . . . . . . . . . $35,066.99
Interest Rate: . . . . . . . 7.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,092.79 from
April 25, 1994 to March 25, 1997
IV. Date: . . . . . . . . . . . January 17, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-65)
Amount: . . . . . . . . . . $16,900.00
Interest Rate: . . . . . . . 8.625% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $348.75 from
February 17, 1996 to January 17, 2001
<PAGE> 4
V. Date: . . . . . . . . . . . April 12, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-66)
Amount: . . . . . . . . . . $19,250.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $477.92 from
May 12, 1996 to April 12, 2000
VI. Date: . . . . . . . . . . . May 23, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-67)
Amount: . . . . . . . . . . $13,775.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase leased vehicle
Repayments: . . . . . . . . Monthly installments of $437.31 from
June 23, 1996 to May 23, 1999
VII. Date: . . . . . . . . . . . June 15, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-69)
Amount: . . . . . . . . . . $29,550.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $733.75 from
July 15, 1995 to June 15, 1999
VIII. Date: . . . . . . . . . . . August 21, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-71)
Amount: . . . . . . . . . . $21,295.78
Interest Rate: . . . . . . . 9.125% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $532.63 from
September 21, 1995 to August 21, 1999
IX. Date: . . . . . . . . . . . August 24, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-72)
Amount: . . . . . . . . . . $19,313.10
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase Plymouth Voyager
Repayments: . . . . . . . . Monthly installments of $620.00 from
September 24, 1995 to August 24, 1998
<PAGE> 5
X. Date: . . . . . . . . . . . October 26, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-73)
Amount: . . . . . . . . . . $79,500.00
Interest Rate: . . . . . . . 10.0% per annum on 360-day year
Purpose: . . . . . . . . . . Business; Renewal - Purchase Equipment
Repayments: . . . . . . . . Monthly interest installments from
November 26, 1995 to October 26, 2000
Monthly principal installments of
$1,325.00 from November 26, 1995 to
October 26, 2000
XI. Date: . . . . . . . . . . . November 8, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-74)
Amount: . . . . . . . . . . $17,950.00
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase car for salesman's
use
Repayments: . . . . . . . . Monthly installments of $505.20 from
December 8, 1995 to May 8, 1999
<PAGE> 1
<TABLE>
<S> <C>
EXHIBIT 10(e)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
BODYBILT SEATING, INC. THE FIRST NATIONAL BANK OF BRYAN
- ------------------------------------------------------------------ 2807 TEXAS AVE., P.O. BOX 833
4455 CARTER CREEK PKWY. BRYAN, TX 77805
- ------------------------------------------------------------------
BRYAN, TX 77802
- ------------------------------------------------------------------
- ------------------------------------------------------------------
TAXPAYER I.D. NUMBER : 74-2246394
- ------------------------------------------------------------------
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ADDRESS
("I" means each Debtor who signs.) ("You" means the Secured Party, its successors and assigns.)
- ------------------------------------------------------------------------------------------------------------------------------------
I am entering into this security agreement with you on MAY 27, 1993 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and performance of the debts, liabilities or
obligations described below that (Check one) [ ] [XX] (name) BODYBILT SEATING, INC. owe(s) to you now or in the future:
(Check one below):
[XX] Specific Debt(s). The debt(s), liability or obligations evidenced by (describe): PROMISSORY NOTE NUMBER 033-118-61 DATED
MAY 27, 1993 and all extensions, renewals, refinancings, modifications and replacements of the debt, liability or obligation.
[ ] All Debt(s). Except in those cases listed in the "LIMITATIONS" paragraph on page 2, each and every debt, liability and
obligation of every type and description (whether such debt, liability or obligation now exists or is incurred or created
in the future and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or joint, several or joint and several).
Security Interest. To secure the payment and performance of the above described Secured Debts, liabilities and obligations, I give
you a security interest in all of the property described below that I now own and that I may own in the future (including, but
not limited to, all parts, accessories, repairs, improvements, and accessions to the property), wherever the property is or may
be located, and all proceeds and products from the property.
[ ] Inventory: All inventory which I hold for ultimate sale or lease, or which has been or will be supplied under contracts of
service, or which are raw materials, work in process, or materials used or consumed in my business.
[ ] Equipment: All equipment including, but not limited to, all machinery, vehicles, furniture, fixtures, manufacturing
equipment, farm machinery and equipment, shop equipment, office and recordkeeping equipment, and parts and tools. All
equipment described in a list or schedule which I give to you will also be included in the secured property, but such a
list is not necessary for a valid security interest in my equipment.
[ ] Farm Products: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or produced in my farming operations.
[ ] Accounts, Instruments, Documents, Chattel Paper and Other Rights to Payment: All rights I have now and that I may have in
the future to the payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for services rendered, whether or not I have earned such payment
by performance;
and
(b) rights to payment arising out of all present and future debt instruments, chattel paper and loans and obligations
receivable.
The above include any rights and interests (including all liens and security interests) which I may have by law or agreement
against any account debtor or obligor of mine.
[ ] General Intangibles: All general intangibles including, but not limited to, tax refunds, applications for patents, patents,
copyrights, trademarks, trade secrets, good will, trade names, customer lists, permits and franchises, and the right to use
my name.
[ ] Government Payments and Programs: All payments, accounts, general intangibles, or other benefits (including, but not
limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency
assistance payments, diversion payments, and conservation reserve payments) in which I now have and in the future may have
any rights or interest and which arise under or as a result of any preexisting, current or future Federal or state
governmental program (including, but not limited to, all programs administered by the Commodity Credit Corporation and the
ASCS).
[XX] The secured property includes, but is not limited by, the following:
1993 PLYMOUTH VOYAGER, ID #____________________; 1993 PLYMOUTH VOYAGER, ID #____________________
If this agreement covers timber to be cut, minerals (including oil and gas), fixtures or crops growing or to be grown, the legal
description is:
- ------------------------------------------------------------------------------------------------------------------------------------
I am a(n) [ ] individual [ ] partnership [xx] corporation I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS
[ ] AGREEMENT. I have received a copy of this document on today's
----------------------------------------------- date.
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me): BODYBILT SEATING, INC.
-------------------------------------- ---------------------------------------------------------------
- --------------------------------------------------------------- (Debtor's Name)
- --------------------------------------------------------------.
By:
The property will be used for [ ] personal [xx] business ------------------------------------------------------------
[ ] agricultural [ ] reasons MARK A McMILLAN
---------------
THE FIRST NATIONAL BANK OF BRYAN Title:
- --------------------------------------------------------------- ---------------------------------------------------------
(Secured Party's Name)
By: By:
------------------------------------------------------------ ------------------------------------------------------------
Title: Title:
--------------------------------------------------------- ---------------------------------------------------------
(C) 1986, 1990 BANKERS SYSTEMS, INC., ST. CLOUD, MN (1-800-397-2341) SECURITY AGREEMENT FORM SA 8/5/91 (page 1 of 2)
</TABLE>
<PAGE> 2
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I," "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt
to you, until discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of applicable law may not be varied by
agreement, any provision of this agreement that does not comply with that law
will not be effective. If any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. Your claim to the property is ahead of the claims
of any other creditor. I agree to do whatever you require to protect your
security interest and to keep your claim in the property ahead of the claims of
other creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my
business in general. I will let you examine these records at any reasonable
time. I will prepare any report or accounting you request, which deals with the
property.
I will keep the property in my possession and will keep it in good
repair and use it only for the purpose(s) described on page 1 of this
agreement. I will not change this specified use without your express written
permission. I represent that I am the original owner of the property and, if I
am not, that I have provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this
agreement, unless we agree I may keep it at another location. If the property
is to be used in another state, I will give you a list of those states. I will
not try to sell the property unless it is inventory or I receive your written
permission to do so. If I sell the property I will have the payment made
payable to the order of you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identity or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due.
You have the right of reasonable access in order to inspect the property. I
will immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this
security interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you
fail to provide (to all persons entitled) any notice of right of
rescission required by law for such other debt;
3) to the extent that this security interest is in "household goods"
and the other debt to be secured is a "consumer" loan (as those
terms are defined in applicable federal regulations governing
unfair and deceptive credit practices);
4) if this security interest is in margin stock subject to the
requirements of 12 C.F.R Section 207 or 221 and you do not obtain
a statement of purpose if required under these regulations with
respect to that debt; or
5) if this security interest is unenforceable by law with respect to
that debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will be deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by
you in respect to the property. If I fail to pay such sums, you may do so for
me, adding the amount paid to the other amounts secured by this agreement. All
such sums will be due on demand and will bear interest at the highest rate
provided in any agreement, note or other instrument evidencing the Secured
Debt(s) and permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or
any mortgage, deed of trust, lien or other security interest, you may without
notice to me perform the duties or cause them to be performed. I understand
that this authorization includes, but is not limited to, permission to: (1)
prepare, file, and sign my name to any necessary reports or accountings; (2)
notify any account debtor of your interest in this property and tell the
account debtor to make the payments to you or someone else you name, rather
than me; (3) place on any chattel paper a note indicating your interest in the
property; (4) in my name, demand, collect, receive and give a receipt for,
compromise, settle, and handle any suits or other proceedings involving the
collateral; (5) take any action you feel is necessary in order to realize on
the collateral, including performing any part of a contract or endorsing it in
my name; and (6) make an entry on my books and records showing the existence of
the security agreement. Your right to perform for me shall not create an
obligation to perform and your failure to perform will not preclude you from
exercising any of your other rights under the law or this security agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I
will have the insurance company name you as loss payee on any such policy. You
may require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to
do business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name
you as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will
not settle any account for less than its full value without your written
permission. I will collect all accounts until you tell me otherwise. I will
keep the proceeds from all the accounts and any goods which are returned to me
or which I take back in trust for you. I will not mix them with any other
property of mine. I will deliver them to you at your request. If you ask me to
pay you the full price on any returned items or items retaken by myself, I will
do so.
If this agreement covers inventory, I will not dispose of it except in
my ordinary course of business at the fair market value for the property, or at
a minimum price established between you and me.
If this agreement covers farm products I will provide you, at your
request, a written list of the buyers, commission merchants or selling agents to
or through whom I may sell my farm products. In addition to those parties
named on this written list, I authorize you to notify at your sole discretion
any additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security Act. In this paragraph
the terms farm products, buyers, commission merchants and selling agents have
the meanings given to them in the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am
declared incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) I change my name or assume an
additional name without first notifying you before making such change; (9)
failure to plant, cultivate and harvest crops in due season; (10) if any loan
proceeds are used for a purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any
obligation secured by this agreement.
2) You may set off any obligation I have to you against any right I
have to the payment of money from you.
3) You may demand more security or new parties obligated to pay any
debt I owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal
law.
5) If I default by failing to pay taxes or other charges, you may
pay them (but you are not required to do so). If you do, I will
repay to you the amount you paid plus interest at the highest
contract rate.
6) You may require me to gather the property and make it available
to you in a reasonable fashion.
7) You may repossess the property and sell it as provided by law.
You may repossess the property so long as the repossession does
not involve a breach of the peace or an illegal entry onto my
property. You may sell the property as provided by law. You may
apply what you receive from the sale of the property to: your
expenses; your reasonable attorneys' fees and legal expenses
(where not prohibited by law); any debt I owe you. If what you
receive from the sale of the property does not satisfy the debts,
you may take me to court to recover the difference (where
permitted by law). I agree that 10 days written notice sent to my
address listed on page 1 by first class mail will be reasonable
notice to me under the Uniform Commercial Code. If any items not
otherwise subject to this agreement are contained in the property
when you take possession, you may hold these items for me at my
risk and you will not be liable for taking possession of them.
8) In some cases, you may keep the property to satisfy the debt.
You may enter upon and take possession of all or any part of my
property, so long as you do not breach the peace or illegally
enter onto the property, including lands, plants, buildings,
machinery, and equipment as may be necessary to permit you to
manufacture, produce, process, store or sell or complete the
manufacture, production, processing, storing or sale of any of
the property and to use and operate the property for the length
of time you feel is necessary to protect your interest, all
without payment or compensation to me.
By choosing any one or more of these remedies, you do not waive your
right to later use any other remedy. You do not waive a default if you choose
not to use any remedy, and, by electing not to use any remedy, you do not waive
your right to later consider the event a default and to immediately use any
remedies if it continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security
agreement or the financing statement covering the property described in this
agreement may be used as a financing statement where allowed by law. Where
permitted by law, you may file a financing statement which does not contain my
signature, covering the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this agreement, will not affect my duty
under the agreement.
BANKERS SYSTEMS, INC., ST. CLOUD. MN (1-800-397-2341) SECURITY AGREEMENT FORM
SA 8/5/91 (page 2 of 2)
<PAGE> 3
EXHIBIT 10(e)(2) - SCHEDULE OF SIMILAR SECURITY AGREEMENTS
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
I. Date: . . . . . . . . . . . August 27, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-62)
Amount: . . . . . . . . . . $20,797.48
Interest Rate: . . . . . . . 7.25% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $415.31 from
September 27, 1993 to August 27, 1998
Security: . . . . . . . . . 1994 Plymouth Voyager
II. Date: . . . . . . . . . . . December 9, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-63)
Amount: . . . . . . . . . . $43,278.04
Interest Rate: . . . . . . . 6.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,033.25 from
January 1, 1994 to December 9, 1997
Security: . . . . . . . . . Two 1994 Plymouth Voyagers
III. Date: . . . . . . . . . . . March 25, 1994
Loan Type: . . . . . . . . . Single Advance (#033-118-64)
Amount: . . . . . . . . . . $35,066.99
Interest Rate: . . . . . . . 7.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,092.79 from
April 25, 1994 to March 25, 1997
Security: . . . . . . . . . Two 1994 Plymouth Voyagers
IV. Date: . . . . . . . . . . . January 17, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-65)
Amount: . . . . . . . . . . $16,900.00
Interest Rate: . . . . . . . 8.625% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $348.75 from
February 17, 1996 to January 17, 2001
Security: . . . . . . . . . 1996 Dodge Caravan
<PAGE> 4
V. Date: . . . . . . . . . . . April 12, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-66)
Amount: . . . . . . . . . . $19,250.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $477.92 from
May 12, 1996 to April 12, 2000
Security: . . . . . . . . . 1996 Dodge Grand Caravan SE FWD
VI. Date: . . . . . . . . . . . May 23, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-67)
Amount: . . . . . . . . . . $13,775.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase leased vehicle
Repayments: . . . . . . . . Monthly installments of $437.31 from
June 23, 1996 to May 23, 1999
Security: . . . . . . . . . 1992 Mazda 929
VII. Date: . . . . . . . . . . . June 15, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-69)
Amount: . . . . . . . . . . $29,550.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $733.75 from
July 15, 1995 to June 15, 1999
Security: . . . . . . . . . 1995 Chevrolet Suburban
VIII. Date: . . . . . . . . . . . August 21, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-71)
Amount: . . . . . . . . . . $21,295.78
Interest Rate: . . . . . . . 9.125% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $532.63 from
September 21, 1995 to August 21, 1999
Security: . . . . . . . . . 1995 Dodge Caravan
IX. Date: . . . . . . . . . . . August 24, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-72)
Amount: . . . . . . . . . . $19,313.10
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase Plymouth Voyager
Repayments: . . . . . . . . Monthly installments of $620.00 from
September 24, 1995 to August 24, 1998
Security: . . . . . . . . . 1995 Plymouth Voyager SE FWD
<PAGE> 5
X. Date: . . . . . . . . . . . October 26, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-73)
Amount: . . . . . . . . . . $79,500.00
Interest Rate: . . . . . . . 10.0% per annum on 360-day year
Purpose: . . . . . . . . . . Business; Renewal - Purchase Equipment
Repayments: . . . . . . . . Monthly interest installments from
November 26, 1995 to October 26, 2000
Monthly principal installments of
$1,325.00 from November 26, 1995 to
October 26, 2000
Security: . . . . . . . . . Thermwood Model 67DT Dual Table
Five-Axis CNC Machine System, Serial
No. C67 D
XI. Date: . . . . . . . . . . . November 8, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-74)
Amount: . . . . . . . . . . $17,950.00
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase car for salesman's
use
Repayments: . . . . . . . . Monthly installments of $505.20 from
December 8, 1995 to May 8, 1999
Security: . . . . . . . . . 1994 Chrysler Town & Country Minivan
<PAGE> 1
EXHIBIT 10(e)(3)
GUARANTY
BRYAN , TX
---------------------------------------
(City) (State)
MAY 27, 1993
---------------------------------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce THE FIRST NATIONAL BANK OF BRYAN, 2807 TEXAS
AVE., P.O. BOX 833, BRYAN, TX 77805 (herein, with its participants, successors
and assigns, called "Lender"), at its option, at any time or from time to time
to make loans or extend other accommodations to or for the account of BODYBILT
SEATING, INC. (herein called "Borrower") or to engage in any other transactions
with Borrower, the Undersigned hereby absolutely and unconditionally guarantees
to Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:
A. If this [ ] is checked, the Undersigned guarantees to Lender the payment
and performance of the debt, liability or obligation of Borrower to
Lender evidenced by or arising out of the
following:________________________________ and any extensions, renewals
or replacements thereof (hereinafter referred to as the "Indebtedness").
B. If this [xx] is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or at
any time hereafter owe to Lender (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether
it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several, or joint and several; all such debts, liabilities and
obligations being hereinafter collectively referred to as the
"Indebtedness"). Without limitation, this guaranty includes the
following described debt(s): PROMISSORY NOTE NUMBER 033-118-61 DATED
MAY 27, 1993.
The term "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations) for
which Borrower meets the Lender's standard of creditworthiness based on
Borrower's own assets and income without the addition of a guaranty, or for
which a guaranty is required but Borrower chooses someone other than the
joint Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the Undersigned
hereunder, and no act or thing, except full payment and discharge of all
indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of payment of
the Indebtedness and shall continue to be in force and be binding upon the
Undersigned, whether or not all Indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Lender, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall have
the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The liability of the Undersigned hereunder shall be limited to a principal
amount of $32,875.27 (if unlimited or if no amount is stated, the Undersigned
shall be liable for all Indebtedness, without any limitation as to amount),
plus accrued interest thereon and all attorneys' fees, collection costs and
enforcement expenses referable thereto. Indebtedness may be created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect
or impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to
reduce or discharge such liability only if accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse Lender for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender in
connection with the protection, defense or enforcement of this guaranty in any
litigation or bankruptcy or insolvency proceedings.
This guaranty includes the additional provisions on page 2, all of which are
made a part hereof.
This guaranty is [xx[ unsecured; [ ] secured by a mortgage or security
agreement dated ___________; [ ] secured by ____________________________.
IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned
the day and year first above written.
X
-----------------------------------------
MARK A. MCMILLAN
-----------------------------------------
-----------------------------------------
-----------------------------------------
"Undersigned" shall refer to all persons
who sign this guaranty, severally and
jointly.
BANKERS SYSTEMS, INC., ST. CLOUD, MN 56301 (1-800-397-2341) FORM M-240 5/20/91
(For Corporate Guarantor use M-250) (page 1 of 2)
<PAGE> 2
ADDITIONAL PROVISIONS
6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, Lender may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent
or approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts or things (which Lender is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or
indulgence granted to Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness; (iv)
any full or partial release of, settlement with, or agreement not to sue,
Borrower or any other guarantor or other person liable in respect of any
Indebtedness; (v) any discharge of any evidence of Indebtedness or the
acceptance of any instrument in renewal thereof or substitution therefor; (vi)
any failure to obtain collateral security (including rights of setoff) for
Indebtedness, or to see to the proper or sufficient creation and perfection
thereof, or to establish the priority thereof, or to protect, insure, or
enforce any collateral security; or any release, modification, substitution,
discharge, impairment, deterioration, waste, or loss of any collateral
security; (vii) any foreclosure or enforcement of any collateral security;
(viii) any transfer of any Indebtedness or any evidence thereof; (ix) any order
of application of any payments or credits upon Indebtedness; (x) any election
by the Lender under Section 1111(b)(2) of the United States Bankruptcy Code.
7. The Undersigned waives any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against Lender any
defense of waiver, release, statute of limitations, res judicata, statute of
frauds, fraud, incapacity, minority, usury, illegality or unenforceability
which may be available to Borrower or any other person liable in respect of any
indebtedness, or any setoff available against Lender to Borrower or any such
other person, whether or not on account of a related transaction. The
Undersigned expressly agrees that the Undersigned shall be and remain liable,
to the fullest extent permitted by applicable law, for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The
undersigned shall remain obligated, to the fullest extent permitted by law, to
pay such amounts as though the Borrower's obligations had not been discharged.
8. The Undersigned further agrees that the undersigned shall be and remain
obligated to pay Indebtedness even though any other person obligated to pay
Indebtedness, including Borrower, has such obligation discharged in bankruptcy
or otherwise discharged by law. "Indebtedness" shall include post-bankruptcy
petition interest and attorneys' fees and any other amounts which Borrower is
discharged from paying or which do not otherwise accrue to Indebtedness due to
Borrower's discharge, and the Undersigned shall remain obligated to pay such
amounts as though Borrower's obligations had not been discharged.
9. If any payment applied by Lender to Indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
10. The Undersigned waives any claim, remedy or other right which the
Undersigned may now have or hereafter acquire against Borrower or any other
person obligated to pay Indebtedness arising out of the creation or performance
of the Undersigned's obligation under this guaranty, including, without
limitation, any right of subrogation, contribution, reimbursement,
indemnification, exoneration, and any right to participate in any claim or
remedy the Undersigned may have against the Borrower, collateral, or other
party obligated for Borrower's debts, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law.
11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
Borrower or other persons or their properties, or first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
12. The liability of the Undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the Undersigned to Lender
as guarantor or otherwise, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
13. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all
agreements and promises herein shall be construed to be, and are hereby
declared to be, joint and several in each of every particular and shall be
fully binding upon and enforceable against either, any or all the Undersigned.
This guaranty shall be effective upon delivery to Lender, without further act,
condition or acceptance by Lender, shall be binding upon the Undersigned and
the heirs, representatives, successors and assigns of the Undersigned and shall
inure to the benefit of Lender and its participants, successors and assigns.
Any invalidity or unenforceability of any provision or application of this
guaranty shall not affect other lawful provisions and application hereof, and
to this end the provisions of this guaranty are declared to be severable.
Except as authorized by the terms herein, this guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a
writing signed by the Undersigned and Lender. This guaranty shall be governed
by the laws of the State in which it is executed. The Undersigned waives
notice of Lender's acceptance hereof.
BANKERS SYSTEMS, INC., ST. CLOUD, MN 56301 (1-800-397-2341) FORM M-240 5/20/91
(For Corporate Guarantor use M-250) (page 2 of 2)
<PAGE> 3
EXHIBIT 10(e)(3) - SCHEDULE OF SIMILAR GUARANTIES
Lender: . . . . . . . . . . The First National Bank of Bryan
2807 Texas Avenue
PO Box 833
Bryan, Texas 77805
Borrower: . . . . . . . . . BodyBilt Seating, Inc.
4455 Carter Creek Parkway
Bryan, Texas 77802
I. Date: . . . . . . . . . . . August 27, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-62)
Amount: . . . . . . . . . . $20,797.48
Interest Rate: . . . . . . . 7.25% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $415.31 from
September 27, 1993 to August 27, 1998
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . $20,797.48
II. Date: . . . . . . . . . . . December 9, 1993
Loan Type: . . . . . . . . . Single Advance (#033-118-63)
Amount: . . . . . . . . . . $43,278.04
Interest Rate: . . . . . . . 6.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,033.25 from
January 1, 1994 to December 9, 1997
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . $43,278.04
III. Date: . . . . . . . . . . . March 25, 1994
Loan Type: . . . . . . . . . Single Advance (#033-118-64)
Amount: . . . . . . . . . . $35,066.99
Interest Rate: . . . . . . . 7.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase two vehicles
Repayments: . . . . . . . . Monthly installments of $1,092.79 from
April 25, 1994 to March 25, 1997
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
<PAGE> 4
IV. Date: . . . . . . . . . . . January 17, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-65)
Amount: . . . . . . . . . . $16,900.00
Interest Rate: . . . . . . . 8.625% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $348.75 from
February 17, 1996 to January 17, 2001
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
V. Date: . . . . . . . . . . . April 12, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-66)
Amount: . . . . . . . . . . $19,250.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle for
salesman's use
Repayments: . . . . . . . . Monthly installments of $477.92 from
May 12, 1996 to April 12, 2000
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
VI. Date: . . . . . . . . . . . May 23, 1996
Loan Type: . . . . . . . . . Single Advance (#033-118-67)
Amount: . . . . . . . . . . $13,775.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase leased vehicle
Repayments: . . . . . . . . Monthly installments of $437.31 from
June 23, 1996 to May 23, 1999
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
VII. Date: . . . . . . . . . . . June 15, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-69)
Amount: . . . . . . . . . . $29,550.00
Interest Rate: . . . . . . . 8.75% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $733.75 from
July 15, 1995 to June 15, 1999
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
<PAGE> 5
VIII. Date: . . . . . . . . . . . August 21, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-71)
Amount: . . . . . . . . . . $21,295.78
Interest Rate: . . . . . . . 9.125% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase vehicle
Repayments: . . . . . . . . Monthly installments of $532.63 from
September 21, 1995 to August 21, 1999
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
IX. Date: . . . . . . . . . . . August 24, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-72)
Amount: . . . . . . . . . . $19,313.10
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase Plymouth Voyager
Repayments: . . . . . . . . Monthly installments of $620.00 from
September 24, 1995 to August 24, 1998
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
X. Date: . . . . . . . . . . . October 26, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-73)
Amount: . . . . . . . . . . $79,500.00
Interest Rate: . . . . . . . 10.0% per annum on 360-day year
Purpose: . . . . . . . . . . Business; Renewal - Purchase Equipment
Repayments: . . . . . . . . Monthly interest installments from
November 26, 1995 to October 26, 2000
Monthly principal installments of
$1,325.00 from November 26, 1995 to
October 26, 2000
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . Unlimited
XI. Date: . . . . . . . . . . . November 8, 1995
Loan Type: . . . . . . . . . Single Advance (#033-118-74)
Amount: . . . . . . . . . . $17,950.00
Interest Rate: . . . . . . . 9.5% per annum on 360-day year
Purpose: . . . . . . . . . . Business; purchase car for salesman's
use
Repayments: . . . . . . . . Monthly installments of $505.20 from
December 8, 1995 to May 8, 1999
Guarantor: . . . . . . . . . Mark McMillan
Security: . . . . . . . . . None
Liability Limit: . . . . . . None
<PAGE> 1
EXHIBIT 10(f)
NON RECOURSE PROMISSORY NOTE
DATE: MAY 1, 1989
MAKER: LUBBOCK MOLASSES, INC.
PAYEE: DR. RICHARD TROUTMAN
PLACE FOR PAYMENT: 755 PARK AVE.
NEW YORK, NY 10021
PRINCIPAL AMOUNT: SEVENTY FIVE THOUSAND AND NO/100 DOLLARS
($75,000.00)
INTEREST RATE: ZERO PERCENT (0%)
TERMS OF PAYMENT
Maker and Payee agree that payment of this note shall be made
solely out of the distributable profits of Lubbock Molasses,
Inc., dba Congleton Chair Works.
No scheduled periodic reductions of principal payments shall
be required. However, Maker and Payee agree that timely
performance on this note is essential and required.
Maker promises to pay to the order of Payee or its assigns at
the place for payment and according to the terms of payment
the principal amount.
All payments are to be credited, dollar for dollar, against
the principal amount of this note, no such payments being
deemed as interest or finance charge.
Maker is responsible for all obligations represented by this
Note.
When the context requires, singular nouns and pronouns include
the plural.
Security
This note shall be secured by the stock of the Maker, Lubbock
Molasses, Inc. and subject to the provisions outlined in the
signed letter of agreement attached hereto as Exhibit A.
Lubbock Molasses, Inc.
/s/ MARK MCMILLAN
-------------------
By: Mark McMillan, Vice President
The State of Texas
County of Brazos
Before me, Cherie E. Niblett, a notary public, on this
day personally appeared Mark McMillan known to me to be the
persons whose names are subscribed to the foregoing instrument
and acknowledged to me that they executed the same for the
purposes and consideration therein expressed.
Given under my hand and seal of office this 9th day
of May, 1989.
/s/ CHERIE E. NIBLETT
-----------------------
Notary Public
/s/ CHERIE E. NIBLETT
-----------------------
Notary Public Printed or
Typed
My commission expires: 9/5/92
Page 1 of 4
<PAGE> 1
EXHIBIT 10(g)
PATENT LICENSE AGREEMENT
THIS AGREEMENT made this the 15th day of May, 1991, by and between
JEROME J. CONGLETON (herein called "Licensor") and THE CHAIRWORKS f/k/a
CONGLETON CHAIR WORKS, INC. (herein called "Licensee").
WHEREAS, Licensor is the owner of the entire right, title and interest
in, to and under U.S. Patent Application Serial No. 541,093 and patent No.
4,552,404, entitled "Neutral Body Posture Chair", filed on October 12, 1983,
and issued on November 12, 1985 (herein referred to as the "Patented Product");
WHEREAS, Licensee is desirous of securing and Licensor is willing to
grant an exclusive license to Licensee and one other Licensee (Neutral Posture
Ergonomics, Inc.) under the patent to manufacture, use, sell and otherwise
practice the Patented Product in its application to industrial, laboratory, and
office chairs;
NOW, THEREFORE, in consideration of the payment of ONE DOLLAR ($1.00)
and other good and valuable consideration, including the execution of an
Assignment of The Chairwork's rights, title and interest in said Patented
Product to Licensor and the execution of a Settlement Agreement between
Licensor and Licensee, the receipt of which is hereby acknowledged and
confessed, and in consideration of the covenants and obligations hereinafter
set forth to be well and truly performed, the parties hereby agree as follows:
1. Licensor agrees to and does hereby grant to Licensee the sole and
exclusive right and license, together with the license and rights granted to
Neutral Posture Ergonomics, Inc. by Patent License Agreement which is executed
contemporaneously herewith, to manufacture, use, sell, and otherwise practice
the Patented Product in its application to industrial, laboratory, and office
chairs.
2. Licensee agrees to pay all costs related to prosecution, issuance
and maintenance of the Patented Product in the areas in which this License
Agreement is granted.
3. This License is personal to Licensee and may not be assigned or
transferred. In the event that Licensee attempts to assign or transfer this
License Agreement, it shall be considered null and void and of no force and
effect. Licensee shall not sublicense any third party to manufacture, use,
sell or otherwise practice the Patented Product. In the event of a sale of
all, or substantially all of the assets and/or outstanding stock of Licensee to
a third party, this License Agreement shall be null and void and of no force
and effect.
4. Unless sooner terminated or by mutual agreement of the parties,
this Agreement shall continue in full force and effect until the expiration of
the Licensed Patent or any reissue, continuation or extension thereof.
5. In the event of any adjudication of bankruptcy, appointment of a
receiver by a court of competent jurisdiction, assignment for the benefit of
creditors or levy of execution directly
<PAGE> 2
involving Licensee, or in the event that Licensee is liquidated or disbanded
for any reason, this Agreement shall thereupon forthwith terminate and no
longer be of any further force and effect.
6. Licensee agrees to use every reasonable endeavor to mark all
apparatus embodying the invention with the number of patent thereon during the
life of the patent.
7. This License Agreement does not include application of the Patent
to chairs or seating which are not intended for industrial, laboratory, and
office use.
8. This License Agreement shall be construed and performed in
accordance with the laws of the State of Texas. This License Agreement is to
be construed together with the Settlement Agreement and Assignment of Patent in
order to express the intent of the parties.
LICENSOR:
/s/ JEROME J. CONGLETON
-----------------------------------
JEROME J. CONGLETON
LICENSEE:
THE CHAIRWORKS
By: /s/ GALEN E. GREEN
-----------------------------------
<PAGE> 1
EXHIBIT 10(h)(1)
STANDARD FORM 26 (REV. 4-85)
AWARD/CONTRACT
1. This contract is a rated order under DPAS (15 CFR 350)
Rating
Page of Pages
2. Contract (Proc. Inst. Ident.) No.
GS-29F-0119C
3. Effective Date
See Block 20C
4. Requisition/Purchase Request/Project No.
5. Issued By
Code
General Services Administration
National Furniture Center (3FNSB)
Washington, DC 20406
6. Administered By (If other than Item 5)
Code
7. Name and address of contractor (No., street, city, county, State and ZIP
code)
Bodybilt Seating
One Bodybilt Place
Navasota, Texas 77868
8. Delivery
FOB Origin
9. Discount for prompt payment
Net / 30 days
10. Submit invoices (4 copies unless otherwise specified) to the address shown
in: Item
Code
Facility Code
11. Ship to/ Mark for
Code
To be shown on orders issued under this contract.
12. Payment will be made by
Code
See Block 11
13. Authority for using other than full and open competition:
____ 10 U.S.C. 2304(c)( )
____ 41 U.S.C. 253(c)( )
14. Accounting and appropriation data
See Block 11
15a. Item No.
496-8
15b. Supplies/Services
Ergonomic Chairs
Federal supply schedule -- \FSC Group 71, Part III, Section H
<PAGE> 2
Miscellaneous Furniture, Multi-Purpose Seating
15c. Quantity
15d. Unit
15e. Unit Price
15f. Amount
The following discounts, terms and conditions and correspondence are
accepted as part of the above referenced contract:
Special Item Number: 496-8/Ergonomic Chairs
Discounts: 62.5%
65% (for model J756 only)
Volume Discounts:
$25,001-35,000 3%
$35,001-50,000 4%
$50,001-75,000 6%
$75,001-100,000 8%
Pricelist: November 1993
Delivery: 42-50 days aro
Warranty: To the original purchaser, seven (7) years on the base,
steel structure, backrest post, armrest structure, and all
welds; 2 years on pneumatic cylinder and Air Limbar option;
and 5 years on the rest of the chair.
Restocking charge: NTE 25% of net cost of order
Cancellation charges:
None prior to production. After production only actual costs incurred
that cannot be recovered through resale of the items within a
reasonable period of time (6 months).
Price Reduction Customer:
This award is predicated on maintaining the price/discount ratio
between the dealers, who receive 62.5% and the Government receiving
the same for all models, except J756 receiving 65%.
Letters dated December 1, 1994, December 2, 1994, revised page 30 of
the DSMD dated December 5, 1994, and letter dated December 6, 1994 are
incorporated as part of this award.
15G. Total amount of contract: $833,935.00
16. Table of Contents
Sec./Description/Page(s)
Part I -- The Schedule
A Solicitation/contract form
B Supplies or services and prices/costs
C Description/specs./work statement
D Packaging and Marking
E Inspection and Acceptance
F Deliveries or Performance
G Contract Administration Data
H Special Contact Requirements
Part II -- Contract Clauses
I Contract Clauses
Part III -- List of Documents, Exhibits and Other Attach.
<PAGE> 3
J List of Attachments
Part IV -- Representations and Instructions
K Representations, Certifications and Other Statements
of Offerors
L Instrs., Conds., and Notices of Offerors
M Evaluation Factors for Award
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
17. ___ Contractor's Negotiated Agreement
(Contractor is required to sign this document and return _____ copies
to issuing office.) Contractor agrees to furnish and deliver all
items or perform all the services set forth or otherwise identified
above and on any continuation sheets for the consideration stated
herein. The rights and obligations of the parties to this contract
shall be subject to and governed by the following documents: (a) this
award/contract, (b) the solicitation, if any, and (c) such provisions,
representations, certifications, and specifications, as are attached
or incorporated by reference herein. (Attachments are listed herein.)
18. XX AWARD
(Contractor is not required to sign this document.) Your offer on
Solicitation Number 3FNO-93-S303-2-4-14-94, including the additions or
changes made by you which additions or changes are set forth in full
above, is hereby accepted as to the items listed above and on any
continuation sheets. This award consummates the contract which
consists of the following documents: (a) the Government's
solicitation and your offer, and (b) this award/contract. No further
contractual document is necessary.
19A. Name and Title of Signer (Type or print)
Drew Congleton, Vice President
19B. Name of Contractor
By Drew Congleton (Signature of person authorized to sign)
19C. Date Signed: 12/15/94
20A. Name of Contracting Officer
Theresa Keith
20B. United States of America
By Theresa A. Keith (Signature of Contracting Officer)
20C. Date Signed: 12/28/94
<PAGE> 1
EXHIBIT 10(h)(2)
STANDARD FORM 30 (REV. 10-83)
AMENDMENT OF SOLICITATION MODIFICATION OF CONTRACT
1. Contract ID Code
Page of Pages
2. Amendment/Modification No.
3. Effective Date
4. Requisition/Purchase Req. No.
5. Project No. (If applicable)
6. Issued By
Code
General Services Administration
National Furniture Center (3FNSB)
Washington, DC 20406
7. Administered By (If other than Item 6)
Code
8. Name and Address of Contractor (No., street, country, State and ZIP Code)
Bodybilt Seating, Inc.
One Bodybilt Place
Navasota, TX 77868
9A. Amendment of Solicitation No.
9B. Dated (See Item 11)
10A. Modification of Contract/Order No.
GS-29F-0119c
10B. Dated (See Item 13)
Code
Facility Code
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
___ The above numbered solicitation is amended as set forth in Item
14. The hour and date specified for receipt of Offers
___ is extended,
___ is not extended.
Offers must acknowledge receipt of this amendment prior to the hour
and date specified in the solicitation or as amended, by one of the
following methods:
(a) By completing Items 8 and 15, and returning _____ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy
of the offer submitted; or (c) By separate letter or telegram which
includes a reference to the solicitation and amendment numbers.
FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED
FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY
RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you
desire to change an offer already submitted, such change may be made
by telegram or letter, provided each telegram or letter makes
reference to the solicitation and this amendment, and is received
prior to the opening hour and date specified.
12. Accounting and Appropriation Date (If required)
13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACTS/ORDERS, IT
<PAGE> 2
MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
___ A. This change order is issued pursuant to: (Specify authority)
The changes set forth in Item 14 are made in the contract
order no. in Item 10A.
___ B. The above numbered contract/order is modified to reflect the
administrative changes (such as changes in paying office,
appropriation date, etc.) set forth in Item 14, pursuant to
the authority of Far 43,103(b).
XX C. This supplemental agreement is entered into pursuant to
--- authority of:
Amendment No. 9 and FSS Acquisition Letter 95-4.
___ D. Other (Specify type of modification and authority)
E. IMPORTANT:
Contractor ___ is not,
XX is required to sign this document and return 2 copies to the issuing
office.
14. Description of Amendment/Modification (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
FEDERAL SUPPLY SCHEDULE - 71-III-H- MISCELLANEOUS FURNITURE,
MULTI-PURPOSE FURNITURE The above referenced contract is hereby
modified as follows:
This Modification becomes effective upon the date signed by the
Contracting Officer.
Special Item Numbers Awarded: 496-5
Estimated Dollar Value: $14,949,800.00
Base Discount:
62.12% and 64.65% for model J756 only based on pricelist dated
November 1993.
Volume Discounts are as follows:
$1.00-25,000 62.12%
$25,001-35,000 63.2%
$35,001-50,000 63.6%
$50,001-75,000 64.4%
$75,001-100,000 65.1%
Maximum Order: $100,000.00
Base Figure of Aggregate Discount: For the contract period beginning
February 1, 1996 through January 31, 2001, Nodiscount is offered on
sales exceeding $_________.
With relation to the 1% Industrial Funding Fee (to be remitted to GSA
quarterly), the prices/discounts offered to the Government are:
(X) inclusive of the Industrial Funding Fee.
( ) not inclusive of the Industrial Funding Fee and the contractor has
agreed to absorb the cost.
Collection of Industrial Funding Fee will be accomplished by:
( ) combining industrial funding fees into one payment for contractors
with multiple contracts....
or
(X) remitting separate payments for individual contracts.
Individual responsible for 72A cards and IFF remittances is as
follows:
Bob Schubert
Bodybilt Seating, Inc.
One Bodybilt Place
Navasota, TX 77868
(409) 825-1700
<PAGE> 3
(409) 825-1725 [FAX]
Delete all references to the Requote Procedures throughout the entire
solicitation
Page 46 Section H Special Contract Requirements:
Delete: General Provisions governing the Requote Procedure for
Requirements Exceeding the Maximum Order limitation (MOL)
Page 46 Section H, Open Season For Contract Modifications, par. (h):
Delete: All request to modify the contract will be accepted only
during the established "open season" periods identified below.
Insert: All request to modify the contract will be accepted only
during the established "open window" periods identified below.
Documents incorporated and made a part of this contract are:
Amendment Number 9, Standard Form 33 that reflects a closing date of
November 17, 1995, 3:30 PM local time and the following:
Letter dated November 3, 1995 cover letter.
Letter dated November 3, 1995 including the certification for
ANSI/BIFMAx5.1993.
Memo dated 1/29/96.
All items offered are accepted in accordance with the following:
This modification is executed contingent upon receipt and
approval of the required tests. The tests are required to be
submitted within thirty (30) calendar days from the effective
date of this modification. If applicable tests are not
received and approved within the specified time frame, this
contract will be canceled in accordance with the requirements
of the Cancellation provision in the contract.
Except as provided herein, all terms and conditions of the
document referenced in Item 9A or 10A, as heretofore changed,
remains unchanged and in full force and effect.
15A. Name and Title of Signer (Type or print)
Drew Congleton, Vice President
15B. Contractor/Offeror
Drew Congleton (Signature of person authorized to sign)
15C. Date Signed: 1/29/96
16A. Name and Title of Contracting Officer (Type or print)
16B. United States of America
By Theresa A. Keith (Signature of Contracting Officer)
16C. Date Signed: 2/1/96
<PAGE> 1
EXHIBIT 10(i)
Settlement Agreement
for Cause No. 40519-361
Bodybilt et al
vs
Neutral Posture Ergonomics et al
vs
Drew Congleton et al
Outline of Release
(1) Parties shall execute a mutual release of all contract and tort
liability raised in above litigation with prejudice. Release shall
include only parties, their employees, their parties' attorneys and not
their dealers and representatives or any other companies or entities
affiliated with the parties. Release shall not in any way change or
alter 1991 Settlement or documents attached thereto in Cause No.
33588-85 in the 85th Court of Brazos County. Release shall exclude any
claim NPE may have as to Bodybilt's current advertising.
(2) At time of signing, Rob Holt shall provide list of people contacted in
this litigation who are on NPE's interrogatory list
<PAGE> 2
or are customers of NPE. Mr. Holt shall provide a copy of the letter or
letters he sent to such people.
(3) Signed Agreed Judgment with prejudice to refile, take nothing, parties
bear all costs.
(4) Bodybilt is not responsible for Mike Jack's fraud action because he is
not an employee of Bodybilt.
(5)
APPROVED
NPE By /s/ REBECCA CONGLETON BOENIGK, President
/s/ JAYE CONGLETON, V.P.
/s/ JEROME J. CONGLETON
/s/ REBECCA CONGLETON BOENIGK
/s/ JOHN PIERCE GRIFFIN
APPROVED
BODYBILT By /s/ MARK MCMILLAN
/s/ ROBERT H. HOLT
By Power of Attorney Mark McMillan for Mike Jack,
Galen Green and Drew Congleton
All documents signed by 5:00, January 23, 1995.
<PAGE> 3
CAUSE NO. 40,519-85
BODYBILT SEATING, INC., ) IN THE DISTRICT COURT
A TEXAS CORPORATION AND )
MARK MCMILLAN )
PLAINTIFFS AND COUNTER-DEFENDANTS )
)
VS. )
)
NEUTRAL POSTURE ERGONOMICS, INC., )
A TEXAS CORPORATION, )
JEROME J. CONGLETON, JAYE ) 85TH JUDICIAL DISTRICT
CONGLETON, AND REBECCA )
CONGLETON BOENIGK )
DEFENDANTS, COUNTER-PLAINTIFFS, AND )
THIRD-PARTY PLAINTIFFS )
)
VS. )
)
DREW CONGLETON, MICHAEL )
JACK, AND GALEN GREEN, )
THIRD-PARTY DEFENDANTS ) BRAZOS COUNTY, TEXAS
MUTUAL RELEASE IN FULL
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF BRAZOS )
That we, Bodybilt Seating, Inc. ("Bodybilt"), Mark McMillan, Drew
Congleton, Michael Jack, Galen Green, Neutral Posture Ergonomics, Inc., Jerome
J. Congleton, Jaye Congleton, and Rebecca Congleton Boenigk, for and in
consideration of the covenants and promises contained herein, and subject to
the reservations below, have RELEASED, ACQUITTED, and FOREVER DISCHARGED, and by
these presents do for ourselves, our heirs, executors, administrators, legal
representatives, successors, and assigns, RELEASE, ACQUIT, and FOREVER
DISCHARGE (1) each other and (2) each other's employees, officers, directors,
shareholders, attorneys, successors, and assigns of all contract and tort
liability raised in the above litigation.
Mutual Release in Full - Page 1
<PAGE> 4
It is expressly agreed and understood that this Release in no way
releases or affects any claims or causes of action that any party hereto may
have against each other's dealers and representatives or any other companies or
entities affiliated with any of the parties.
The parties agree to present to the Court for signature a Final
Judgment of Dismissal with Prejudice on the form attached hereto as Exhibit "A"
with the Motion to Enter Judgment attached as Exhibit "B".
It is also expressly agreed and understood by the parties that his
Release shall in no way change or alter the previously entered 1991 Settlement
Agreement and all documents attached thereto, including but not limited to the
Mutual Release in Full, Non-Competition Agreement, Patent License Agreement,
Assignment, and Judgment in Cause No. 33588-85 in the 85th Judicial District
Court of Brazos County, Texas, styled Jerome J. Congleton and Jaye Congleton
vs. Lubbock Molasses, Inc. d/b/a Congleton Chair Works of College Station vs.
Rebecca Congleton Boenigk and Congleton Ergonomic Chairs.
It is also expressly agreed and understood by the parties that this
Release shall in no way affect or release any claim or cause of action that
Neutral Posture Ergonomics, Inc. may have as to Bodybilt's current advertising.
During the course of discovery in this case, Rob H. Holt of the law
firm of Adams, Brantley, Holt & Sanders, P.L.L.C., attorney for the Plaintiffs,
Counter-defendants, and Third-party Defendants, contacted and/or interviewed
factual witnesses. Prior to settling this case, Defendants Neutral Posture
Ergonomics, Inc., Jerome J. Congleton, Jaye Congleton, and Rebecca Congleton
Boenigk made the allegations that Rob H. Holt did or may have breached the above
referenced 1991 Settlement Agreement and or tortuously interfered with their
business contracts,
Mutual Release in Full - Page 2
<PAGE> 5
potential contracts, and/or advantageous business relationships. Rob H. Holt
claimed that any such contact with these witnesses was privileged under the
laws of the State of Texas, and denies any wrongdoing. In consideration for
being released by Bodybilt Seating, Inc. and Mark McMillan, above, Neutral
Posture Ergonomics, Inc., Jerome J. Congleton, Jaye Congleton, and Rebecca
Congleton Boenigk have RELEASED, ACQUITTED, and FOREVER DISCHARGED, and by
these presents do for ourselves, our heirs, executors, administrators, legal
representatives, successors, and assignees release, acquit, and forever
discharge Rob H. Holt of the law firm of Adams, Brantley, Holt & Sanders,
P.L.L.C., all of the members and staff of his firm, Bodybilt Seating, Inc.,
Mark McMillan, Michael Jack, Drew Congleton, and Galen Green from all claims,
demands, and causes of action of whatsoever nature, whether in contract or in
tort or statutory, for damages and losses, which have accrued or may ever
accrue to us, our heirs, executors, attorneys, successors, or assigns, for or
on account of Rob H. Holt contacting, communicating with, and/or interviewing
said witnesses. Rob H. Holt agrees and covenants that at the time of the signing
of this Release and the Judgment by the parties and the Court, he shall deliver
to John Pierce Griffin a list of all persons or other entities which he
contacted in this litigation by phone, writing, or otherwise, who are on the
Interrogatory Answers previously provided by Neutral Posture Ergonomics, Inc.
or are customers of Neutral Posture Ergonomics, Inc. and shall provide a copy
of the letter or letters he sent to such people.
The execution of this Mutual Release and the acceptance of the
consideration stated herein is not to be construed as an admission of any
liability, which has been expressly denied by all parties hereto.
Mutual Release in Full - Page 3
<PAGE> 6
As part of the consideration for the execution of this Release by the
parties, the parties and each of them have expressly warranted and represented
and do hereby for themselves, their heirs, executors, administrators,
attorneys, successors and assigns, expressly warrant and represent to each
other and all of the parties hereby released that:
(1) they are legally competent to execute this Mutual Release;
(2) they will each be responsible for the payment of any expenses
related to this litigation, including attorney's fees;
(3) they have not assigned, pledged, or otherwise in any manner
whatsoever, sold or transferred, either by instrument in writing or
otherwise, any right, title, interest, or claim which they have or
which they may assert by reason of the matters arising out of or
related hereto.
Each of the parties expressly warrant and represent that before
executing this instrument they have fully informed themselves of its terms,
contents, conditions, and effect; that in making this settlement they have had
the benefit of the advice of counsel of their own choosing; and no promise or
representation of any kind has been made by any of the other parties or anyone
acting for them, except as expressly stated in this instrument. Each party has
relied solely and completely upon their own judgment and advice of their
counsel in making this settlement and it is understood that this is a full,
complete and final release from any and all monetary claims or other claims
which were asserted in the litigation by the parties against each other.
EXECUTED in multiple counterparts, effective this 23rd day of January,
1995, all of which taken together constitute but one in the same instrument.
Mutual Release in Full - Page 4
<PAGE> 7
/s/ REBECCA BOENIGK, President Date: 3/2/95
- ----------------------------------------- -------
Neutral Posture Ergonomics, Inc.
By: Rebecca Congleton Boenigk
/s/ JEROME J. CONGLETON Date: 3/2/95
- ----------------------------------------- -------
Jerome J. Congleton
/s/ JAYE CONGLETON Date: 3/2/95
- ----------------------------------------- -------
Jaye Congleton
/s/ REBECCA BOENIGK Date: 3/2/95
- ----------------------------------------- -------
Rebecca Congleton Boenigk
/s/ MARK MCMILLAN Date: 3/16/95
- ----------------------------------------- -------
Bodybilt Seating, Inc.
By: Mark McMillan
/s/ MARK MCMILLAN Date: 3/16/95
- ----------------------------------------- -------
Mark McMillan
/s/ DREW CONGLETON Date: 3/16/95
- ----------------------------------------- -------
Drew Congleton
/s/ MICHAEL A. JACK Date: 3/16/95
- ----------------------------------------- -------
Michael Jack
/s/ GALEN GREEN Date: 3/16/95
- ----------------------------------------- -------
Galen Green
/s/ ROB H. HOLT Date: 3/16/95
- ----------------------------------------- -------
Rob H. Holt
Mutual Release in Full - Page 5
<PAGE> 8
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Rebecca Congleton Boenigk, an authorized representative for Neutral Posture
Ergonomics, Inc., known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that she executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 2 day of March, 1995.
/s/ JUDITH H. HESTERS
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
[SEAL] JUDITH H. HESTERS
MY COMMISSION EXPIRES
January 6, 1998
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Jerome J. Congleton, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 2 day of March, 1995.
/s/ JUDITH H. HESTERS
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
[SEAL] JUDITH H. HESTERS
MY COMMISSION EXPIRES
January 6, 1998
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Jaye Congleton, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that she executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 2 day of March, 1995.
/s/ JUDITH H. HESTERS
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
[SEAL] JUDITH H. HESTERS
MY COMMISSION EXPIRES
January 6, 1998
Mutual Release in Full - Page 6
<PAGE> 9
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Rebecca Congleton Boenigk, known to me to be the person whose name is
subscribed to the foregoing instrument, and acknowledged to me that she
executed the same for the purposes and consideration therein expressed and in
the capacity therein stated.
Given under my hand and seal of office, this the 2 day of March, 1995.
/s/ JUDITH H. HESTERS
----------------------------------------
NOTARY PUBLIC, STATE OF TEXAS
[SEAL] JUDITH H. HESTERS
MY COMMISSION EXPIRES
January 6, 1998
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Mark McMillan, an authorized representative of Bodybilt Seating, Inc., known to
me to be the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed and in the capacity therein stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Mark McMillan, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
Mutual Release in Full - Page 7
<PAGE> 10
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Drew Congleton, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Michael Jack, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Galen Green, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
Mutual Release in Full - Page 8
<PAGE> 11
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
Rob H. Holt, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and in the capacity therein
stated.
Given under my hand and seal of office, this the 16 day of March, 1995.
[SEAL] VIRGINIA K. LEIGHMAN /s/ VIRGINIA K. LEIGHMAN
Notary Public, State of Texas -----------------------------
My Commission Expires: 6-25-96 NOTARY PUBLIC, STATE OF TEXAS
Mutual Release in Full - Page 9
<PAGE> 12
CAUSE NO. 40,519-85
BODYBILT SEATING, INC., ) IN THE DISTRICT COURT
A TEXAS CORPORATION AND )
MARK MCMILLAN )
PLAINTIFFS AND COUNTER-DEFENDANTS )
)
VS. )
)
NEUTRAL POSTURE ERGONOMICS, INC., )
A TEXAS CORPORATION, )
JEROME J. CONGLETON, JAYE ) 85th JUDICIAL DISTRICT
CONGLETON, AND REBECCA )
CONGLETON BOENIGK )
DEFENDANTS, COUNTER-PLAINTIFFS, AND )
THIRD-PARTY PLAINTIFFS )
)
VS. )
)
DREW CONGLETON, MICHAEL )
JACK, AND GALEN GREEN, )
THIRD-PARTY DEFENDANTS ) BRAZOS COUNTY, TEXAS
AGREED FINAL JUDGMENT OF DISMISSAL WITH PREJUDICE
Came on to be heard, the above entitled and numbered cause, wherein
Bodybilt Seating, Inc. and Mark McMillan are Plaintiffs and Counter-Defendants
and Neutral Posture Ergonomics, Inc.; Jerome J. Congleton, Jaye Congleton, and
Rebecca Congleton Boenigk are Defendants, Counter-Plaintiffs and Third-Party
Plaintiffs, and Drew Congleton; Michael Jack, and Galen Green are Third-Party
Defendants, and the parties appeared by and through their respective attorneys
of record and announced to the Court that all matters of controversy between
them have been fully and finally compromised and settled. It is therefore
ORDERED that the above entitled and numbered cause be and the same is
dismissed with prejudice. All costs of court are to be taxed against the party
previously incurring same. This
Agreed Judgment of Dismissal with Prejudice - Page 1
<PAGE> 13
Judgment in no way affects any claim or cause of action that Neutral Posture
Ergonomics, Inc. may have as to Bodybilt Seating, Inc.'s current advertising.
All relief not granted is hereby denied.
SIGNED this ________ day of _____________________, 1995.
----------------------------------------
JUDGE PRESIDING
AGREED AS TO FORM:
ADAMS, BRANTLEY, HOLT & SANDERS
- -----------------------------------------
Rob H. Holt
Attorney for Bodybilt Seating, Inc., Mark
McMillan, Drew Congleton, Michael Jack,
and Galen Green
KIRK, GRIFFIN & MELTON
- -----------------------------------------
John Pierce Griffin
Attorneys for Neutral Posture Ergonomics,
Inc., Jerome J. Congleton, Jaye Congleton,
and Rebecca Congleton Boenigk
Agreed Judgment of Dismissal with Prejudice - Page 2
<PAGE> 14
CAUSE NO. 40,519-85
BODYBILT SEATING, INC., ) IN THE DISTRICT COURT
A TEXAS CORPORATION AND )
MARK MCMILLAN )
PLAINTIFFS AND COUNTER-DEFENDANTS )
)
VS. )
)
NEUTRAL POSTURE ERGONOMICS, INC., )
A TEXAS CORPORATION, )
JEROME J. CONGLETON, JAYE ) 85TH JUDICIAL DISTRICT
CONGLETON, AND REBECCA )
CONGLETON BOENIGK )
DEFENDANTS, COUNTER-PLAINTIFFS, AND )
THIRD-PARTY PLAINTIFFS )
)
VS. )
)
DREW CONGLETON, MICHAEL )
JACK, AND GALEN GREEN, )
THIRD-PARTY DEFENDANTS ) BRAZOS COUNTY, TEXAS
JOINT MOTION TO ENTER FINAL JUDGMENT OF DISMISSAL WITH PREJUDICE
COME NOW, Bodybilt Seating, Inc. and Mark McMillan, Plaintiffs and
Counter-Defendants, Neutral Posture Ergonomics, Inc., Jerome J. Congleton, Jaye
Congleton, and Rebecca Congleton Boenigk, Defendants, Counter-Plaintiffs, and
Third-Party Plaintiffs, Drew Congleton, Michael Jack, Galen Green, Third-Party
Defendants, and announce to the Court that the above case is settled, and all
the parties request the Court to enter the attached Agreed Final Judgment of
Dismissal with Prejudice.
Joint Motion to Enter Final Judgment of Dismissal with Prejudice - Page 1
<PAGE> 15
Respectfully submitted,
ADAMS, BRANTLEY, HOLT & SANDERS
By:
-------------------------------------
Rob H. Holt
Bar Card No.09931200
2700 E. Bypass 6, Suite 4400
College Station, Texas 77845
(409) 696-8853
(409) 696-8436 Fax
ATTORNEY FOR PLAINTIFFS AND THIRD-PARTY
DEFENDANTS
KRIK, GRIFFIN & MELTON
By:
-------------------------------------
John Pierce Griffin
Bar Card No. 08460500
3250 Lincoln Plaza
500 N. Akard
Dallas, Texas 75201
(214) 954-1250
(214) 954-0559 Fax
ATTORNEYS FOR DEFENDANTS, COUNTER-
PLAINTIFFS AND THIRD-PARTY PLAINTIFFS
Joint Motion to Enter Final Judgment of Dismissal with Prejudice - Page 2
<PAGE> 16
------------------------
RECEIVED
At 11:30 o'clock am
MAR 14 1995
MARC HAMLIN, DIST. CLERK
Brazos County, Texas
/s/ [ILLEGIBLE] Deputy
------------------------
CAUSE NO. 40,519-85
BODYBILT SEATING, INC., ) IN THE DISTRICT COURT
A TEXAS CORPORATION AND )
MARK MCMILLAN )
PLAINTIFFS AND COUNTER-DEFENDANTS )
)
VS. )
)
NEUTRAL POSTURE ERGONOMICS, INC., )
A TEXAS CORPORATION, )
JEROME J. CONGLETON, JAYE ) 85TH JUDICIAL DISTRICT
CONGLETON, AND REBECCA )
CONGLETON BOENIGK )
DEFENDANTS, COUNTER-PLAINTIFFS, AND )
THIRD-PARTY PLAINTIFFS )
)
VS. )
)
DREW CONGLETON, MICHAEL )
JAM AND GALEN GREEN, )
THIRD-PARTY DEFENDANTS ) BRAZOS COUNTY, TEXAS
AGREED FINAL JUDGMENT OF DISMISSAL WITH PREJUDICE
Came on to be heard, the above entitled and numbered cause, wherein
Bodybilt Seating Inc. and Mark McMillan am Plaintiffs and Counter-Defendants
and Neutral Posture Ergonomics, Inc.; Jerome J. Congleton, Jaye Congleton, and
Rebecca Congleton Boenigk are Defendants, Counter-Plaintiffs and Third-Party
Plaintiffs, and Drew Congleton; Michael Jack, and Galen Green are Third-Party
Defendants, and the parties appeared by and through their respective attorneys
of record and announced to the Court that all of controversy between them have
been fully and finally compromised and settled. It is therefore
ORDERED that the above entitled and numbered cause be and the same is
dismissed with prejudice. All costs of court are to be taxed against the party
previously incurring same. This
Agreed Judgment of Dismissal with Prejudice - Page 1
<PAGE> 17
Judgment in no way affects any claim or cause of action that Neutral Posture
Ergonomics, Inc. may have as to Bodybilt Seating, Inc.'s current advertising.
All relief not granted is hereby denied.
SIGNED this 24th day of March, 1995.
[ILLEGIBLE]
----------------------------------------
JUDGE PRESIDING
AGREED AS TO FORM:
ADAMS, BRANTLEY, HOLT & SANDEN
/s/ ROB H. HOLT
- ----------------------------------------
Rob H. Holt
Attorney for Bodybilt Seating Inc., Mark
McMillan, Draw Congleton, Michael Jack,
and Galen Green
KIRK, GRIFFIN & MELTON
/s/ JOHN PIERCE GRIFFIN
- ----------------------------------------
John Pierce Griffin
Attorneys for Neutral Posture Ergonomics,
Inc., Jerome J. Congleton, Jaye Congleton,
and Rebecca Congleton Boenigk
Agreed Judgment of Dismissal with Prejudice - Page 2
<PAGE> 1
EXHIBIT 10(k)
CONSULTING AGREEMENT
(Mark McMillan)
This CONSULTING AGREEMENT ("Agreement"), dated as of October 15,
1996, is made and entered into by and between ERGOBILT, INC., a Texas
corporation ("Company"), and Mark McMillan, an individual ("Consultant").
W I T N E S S E T H:
WHEREAS, Company owns all the issued and outstanding stock of EB
Subsidiary, Inc., which has acquired by merger the assets of BodyBilt Seating,
Inc. ("BBSI"). BBSI was engaged in the manufacturing, marketing and selling of
ergonomically-correct chairs. Company intends to continue the operation and
management of the business of BBSI through its subsidiary and to change the
subsidiary's name name to "BodyBilt Seating, Inc.;" and
WHEREAS, Consultant was an officer, director, shareholder and key
employee of BBSI, and Consultant has represented to Company that he has
substantial experience, skills and expertise in managing and operating BBSI and
is willing to consult with Company, on the terms and conditions set forth in
this Agreement, to assist in the continued operation and management of the
assets of BBSI.
NOW, THEREFORE, the parties, for and in consideration of the mutual
promises herein contained, agree as follows:
ARTICLE I
Consulting Services
1.1 General Scope of Consulting Services. Commencing on the date
of closing of Company's initial public offering (the "Effective Date"), Company
shall employ Consultant as a consultant of Company. Consultant's services
shall be rendered on the terms and subject to the conditions of this Agreement.
Consultant shall perform such principal duties and responsibilities consistent
with his professional experience as reasonably required of him by Company from
time to time. Consultant hereby agrees to render such services in a faithful
and competent manner. Consultant shall make himself available up to five hours
per business day as determined by Company and Consultant jointly. Consultant
shall serve as a senior advisor to the Board of Directors of Company and its
subsidiary on a variety of matters, including but without limitation the
following: transition management issues, operations, financial issues
including budgeting, strategic financial planning, and tax planning and shall
work with the Chief Financial Officer of Company on general financial matters,
and general strategic planning and advice. Consultant shall attend meetings of
the Board of Directors of Company and shall report on such matters deemed by
<PAGE> 2
Consultant to be relevant to the management and operation of Company and/or as
to matters requested by the Board.
1.2 Independent Contractor. It is expressly understood by the
parties that Consultant is acting as an independent contractor and is not
subject to Company's control nor is authorized to act as Company's agent or
legal representative. This Agreement shall not act or be construed to create
an employer-employee relationship, partnership, joint venture or any other
agency relationship between the parties. Consultant shall have no authority or
power to make any commitments of any nature whatsoever for the account of or on
behalf of Company. Consultant shall have the right to employ such personnel as
Consultant deems necessary to render services hereunder; however, such
personnel shall be at Consultant's sole cost, risk and responsibility.
1.3 Liability Insurance. After the Closing under the Merger
Agreement, Company shall take out and maintain, if commercially reasonable,
directors and officers liability insurance for the benefit of Consultant in
such amounts deemed necessary and/or appropriate by Company's Board. In the
event such insurance is not obtained, then Company shall indemnify Consultant
as provided in the Bylaws of Comopany to the fullest extent permitted under
applicable law.
ARTICLE II
Term
This Agreement shall be for an initial term ("Term") of two (2) years
commencing on the Effective Date.
ARTICLE IIICompensation
3.1 Consulting Fee. As compensation for all duties and services
to be rendered by Consultant hereunder to Company, Company shall pay to
Consultant a "Consulting Fee" on an hourly basis at the rate of One Hundred
Fifty Dollars ($150) per hour. Such fee shall be due and payable no less than
ten (10) days from Company's receipt of a written statement for services
rendered. Consultant shall be responsible for all social security, income tax
withholding, unemployment insurance, and such other amounts Company would
otherwise be required to deduct and withhold from amounts payable to employees.
Each payment shall constitute a waiver of claims by Company for the services
rendered.
3.2 Expenses. During the term of this Agreement, Consultant shall
be entitled to incur reasonable business expenses ("Business Expenses") in
performing his services hereunder, including transportation, entertainment,
travel, professional dues, professional periodicals, and business promotion.
All Business Expenses shall be reimbursed by Company in accordance with
Company's policies as adopted from time to time upon presentation of receipts
or other documentation establishing the nature of the expense, the
time-date-place incurred, and the business reason for such Business Expense.
2
<PAGE> 3
3.3 Performance Incentive Plan. It is the intent of the parties
that Company adopt as soon as reasonably possible such bonus and/or incentive
plans, stock option plans and such other plans adopted by Company from time to
time to provide incentive or additional compensation to its senior executives
("Senior Management Incentive Plans"). Such Senior Management Incentive Plans
shall be adopted on such terms and conditions deemed to be in the best
interests of Company and may provide for awards in the form of cash, equity or
other benefits. Consultant shall be eligible to become a named participant to
such Senior Management Incentive Plans. It is the further intention of the
parties that said Senior Management Incentive Plan provide for awards to
participants based on the achievement of various specified metrics and
milestones established in the business plans for the business adopted and
approved by Company's Board on behalf of Company, as amended from time to time,
and based further on the overall profitability of the business, the
participants' performances, the general financial condition of Company, and
other such factors as Company's Board may deem relevant. Such Senior
Management Incentive Plan shall be adopted on such terms and conditions deemed
to be in the best interests of Company and may provide for awards in the form
of cash, equity or other benefits.
3.4 Payment of Compensation and Other Benefits on Death or
Disability. In the event of the termination of this Agreement by reason of
Consultant's death or disability, Consultant (or his estate) shall be entitled
to payment of amounts due under this Agreement as follows:
(i) Incentive Plan and Bonus Compensation. Any
amounts awarded to Consultant but unpaid under any Senior
Management Incentive Plan or as bonus compensation under
Paragraph 3.3 of this Agreement shall be paid by Company to
Consultant (or his estate) within twelve (12) full calendar
months of the applicable termination date of this Agreement or
as otherwise specified in such Senior Management Incentive
Plan or award of bonus compensation.
(ii) Employee Benefit Plans. Consultant (or his
estate) shall be entitled to receive all other benefits
provided to employees of Company as set forth in any employee
benefit plans in effect as of the applicable termination date
of this Agreement in which Consultant was a qualified
participant.
3.5 Vehicle. Company shall provide to Consultant during the Term
of this Agreement a Suburban or other acceptable vehicle and shall reimburse
Consultant for all related expenses.
3.6 Other Benefits. Consultant shall be eligible to participate
in all Company bonus/incentive programs and stock option plans and to receive
benefits under all other Company employee benefits plans, as and when adopted,
consistent with the level of participation and benefits received by senior
management.
ARTICLE IV
Inventions, Competition and Confidentiality
4.1 Inventions. All designs, discoveries, improvements, and
inventions (collectively, "Inventions"), whether patentable or unpatentable,
whether copyrightable or uncopyrightable,
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<PAGE> 4
whether of a business or technical nature, made or conceived by Consultant
alone or with others, during the Term of this Agreement shall be owned
exclusively by Company whether or not such Inventions are along the lines of
the actual or anticipated business, work, research or investigations of Company
or which result from or are suggested by any work done for Company or which
relate to Company's business. Consultant shall promptly disclose such
Inventions to Company. In addition, Consultant shall perform all actions
(without any expense to Consultant) reasonably requested by Company to
establish and confirm such ownership including, but not limited to, assigning
to Company, without additional compensation, the entire worldwide rights to
such Inventions, signing all necessary papers, instruments and other documents
and giving sworn testimony in support thereof.
4.2 Non-Competition. Consultant covenants and agrees with Company
that, except as otherwise consented to, approved or permitted in writing by
Company's Board, at any time while employed as an Consultant employee of
Company and for a period of three (3) years after the termination of
Consultant's services hereunder, Consultant will not, directly or indirectly,
whether as an officer, director, employee, independent contractor, or whether
acting alone or as a member of a partnership, joint venture or as a holder or
investor in any security or other financial interest of any corporation or
other business entity, engage in any "Competitive Activity" as defined herein.
For the purposes of this Agreement, "Competitive Activity" shall mean:
(a) the solicitation of any customers or potential
customers of Company to purchase any products or services in direct
competition with the products and services provided by Company;
(b) requesting any actual or prospective customer or
supplier of Company to curtail or cancel their business with Company;
(c) except as provided by law or in any other contract or
agreement of even date herewith executed and delivered pursuant
hereto, the disclosure to any person, firm or corporation any details
of the organization, business affairs, intellectual property or
technology of Company; or
(d) any action designed to induce or attempt to influence
any employee of Company to terminate his or her employment with
Company or employ or assist anyone else in the employment of any of
the employees of Company.
The restrictions of this section shall apply only to the metropolitan
areas where Company was conducting business as of the date of
termination. Competitive Activity shall not include Consultant's mere
ownership of securities in any publicly-traded company in which
Consultant holds or controls less than five percent (5%) of the issued
and outstanding securities.
The parties agree that the duration and geographic scope of the non-competition
provision set forth in this Section are reasonable. In the event that any
court determines that the duration or the geographic scope, or both, are
unreasonable and that such provision is to that extent unenforceable,
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<PAGE> 5
the parties agree that the provision shall remain in full force and effect for
the greatest time period and in the greatest area that would not render it
unenforceable. The parties intend that this non-competition provision shall be
deemed to be a series of separate covenants, one for each and every county of
each and every state of the United States of America and each and every
political subdivision of each and every country outside the United States of
America where this provision is intended to be effective. The parties agree
that damages are an inadequate remedy for any breach of this provision and that
Company shall, whether or not it is pursuing any potential remedies at law, be
entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision.
4.3 Non-Disclosure. Consultant shall execute and deliver,
contemporaneous with the execution and delivery of this Agreement, Company's
standard form Non-Disclosure Agreement in the form attached hereto as Exhibit
4.3-A.
4.4 Enforcement. Consultant and Company further agree and
acknowledge that Company does not have an adequate remedy at law for the breach
or threatened breach by Consultant of the covenants and agreements set forth in
Sections 4.2, 4.3 and the Non-Disclosure Agreement executed pursuant to Section
4.3 above. Accordingly, Consultant further agrees that Company may, in
addition to the other remedies which may be available to it hereunder, file
suit in equity to enjoin Consultant from such breach or threatened breach.
ARTICLE V
Termination
5.1 Termination by Company Upon Consultant's Death or Disability.
This Agreement and Consultant's services hereunder shall terminate
automatically in the event of Consultant's death or disability upon written
notice to Consultant and/or his representatives. "Disability" shall mean
Consultant's permanent disability to perform the duties and responsibilities
required hereunder as determined by a licensed physician selected by Company's
Board in consultation with Consultant's personal physicians. In the event of
such termination, Consultant shall be entitled to all consulting fees and
expenses through the date of termination, together with any and all stock
options and other benefits to which he is otherwise entitled.
5.2 Termination by Company for Due Cause.
5.2.1 "Due Cause". Company shall have the right to
terminate this Agreement and Consultant's services hereunder for "Due Cause"
upon written notice to Consultant, effective upon such date specified in such
notice (also "Termination Date").
"Due Cause" shall mean that Consultant has:
(i) committed an intentional act of fraud,
embezzlement or theft in connection with his duties or in the course
of his services to Company;
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<PAGE> 6
(ii) pled guilty or nolo contendere to, or is
convicted of, a felony, whether or not related to his duties or in the
course of his services to Company;
(iii) knowingly, wilfully and wrongfully disclosed
"Confidential Information" of Company as defined in the Non-Disclosure
Agreement executed by Consultant pursuant to Section 4.3;
(iv) knowingly, wilfully and wrongfully engaged in
any Competitive Activity as defined in Section 4.2 above;
(v) engaged in misconduct or in conduct contrary
to written directions of Company's Board that materially injures
Company's financial or other interests;
(vi) knowingly, wilfully and wrongfully breached
any material provision of this Agreement; and
(vii) knowingly, wilfully and wrongfully violated
any federal, state or local governmental policies, plans or procedures
governing the work place environment (e.g., EEOC, Title VII, Texas
Workers Compensation Acts or Wage/Salary/Benefits policies or
procedures) or any such policies, plans or procedures developed by the
Company or its holding company with respect to its desire to operate a
professional working environment.
5.2.2 Effect on Compensation. In the event of termination
of Consultant's employment by Company for Due Cause, Consultant shall be
entitled to receive only any unpaid amounts awarded to Consultant under a
Senior Management Incentive Plan under Paragraph 3.3 and any rights and
benefits Consultant may have under employee benefit plans and programs of
Company generally and under any incentive plan of Comoany determined in
accordance with the terms of such plans and programs. Consultant shall also be
entitled to all consulting fees and expenses due through the date of
termination, together with any and all stock options and other benefits to
which he is otherwise entitled.
5.3 Consultant's Right of Termination on Company's
Breach. Consultant shall have the right upon no less than sixty (60) days
prior written notice to terminate this Agreement in the event of Company's
breach of any material provision of this Agreement. Such notice shall state
the nature and scope of such breach in detail and identify the specific
relevant provisions of this Agreement allegedly breached. Company shall have
thirty (30) days within which to cure such breach or, if such breach is not of
such nature that it can be cured within thirty (30) days, Company has commenced
reasonable and diligent efforts to cure said breach. If Company does not cure
or commence to cure the specific breach within the thirty (30) day period,
then, upon confirming written notice from Consultant, this Agreement shall
terminate on the date specified in Consultant's original notice (also
"Termination Date").
5.4 Breach of Agreements. Consultant acknowledges that a
material part of the inducement for Company to enter into this Agreement is
Consultant's covenant with respect to non-competition, non-disclosure,
non-cooperation and non-solicitation set forth in Articles IV and
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V hereof. Consultant agrees that if Consultant breaches any of those
covenants, Company shall have no further obligation to pay Consultant any
amounts or benefits otherwise payable hereunder (except as may otherwise be
required at law) and shall be entitled to such other legal and equitable relief
as a court or arbitrator shall reasonably determine unless such breach is an
inadvertent breach that does not result in any material harm to Company.
5.5 No Negative Public Comments. Upon the expiration or
earlier termination of this Agreement for any reason, Consultant agrees not to
make any false, misleading or negative statement, either orally or in writing,
about Company or its directors or organizations or its officers, shareholders
or any affiliates of the same or to otherwise disparage them or any of them.
ARTICLE VI
General
6.1 Notice. All notices and other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when: (i) delivered personally; (ii) mailed by United States
registered mail or certified mail, return receipt requested, postage prepaid,
addressed as set forth below; or (iii) mailed by Federal Express, DHL, or such
other nationally recognized overnight courier service, addressed as set forth
below:
Address for Company:
ErgoBilt, Inc.
5000 Quorum
Suite 147, Lock Box 43
Dallas, Texas 75240
Attention: Gerard Smith, President
with copies to:
Wolin, Fuller, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Attention: Norman R. Miller, Esq.
Address for Consultant:
Mark McMillan
2506 River Forest
Bryan, Texas 77802
or to such other address as a party may furnish to the others in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
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<PAGE> 8
6.2 Binding Effect. This Agreement shall inure to the benefit of
and be enforceable by the parties and their respective successors, heirs,
representatives and permitted assigns.
6.3 No Waiver; Entire Agreement. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Consultant and such officer as
may be specifically designated by Company's Board for Company. No waiver by
any party at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
6.4 Headings. Section and paragraph headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Agreement.
6.5 Assignments. This Agreement is personal to Consultant and may
not be assigned by Consultant or the duties delegated without the prior written
consent of Company's Board. Also, Consultant may not assign, transfer,
hypothecate or dispose of any interest in compensation or payments without
Company's Board's prior written consent.
6.6 Governing Law and Venue. The laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of this
Agreement. Venue and jurisdiction of this Agreement shall lie in Brazos
County, Texas.
6.7 Severability. If any provision of this Agreement is held to
be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
6.8 Mediation/Arbitration/Legal Fees. If any dispute arises among
the parties with respect to this Agreement, then the parties shall submit such
dispute to mediation before a mediator in accordance with the mediation rules
of Dallas County, Texas. If the parties are unable to resolve the dispute
through mediation, they shall then submit the dispute to binding arbitration
pursuant to the rules and regulations of the American Arbitration Association
(the "AAA"). The parties agree that if arbitration becomes necessary, they
will utilize and comply with all available rules of the AAA for expediting such
arbitration. The site of the arbitration will be the City of Dallas, Dallas
County, Texas, and will commence as soon as possible but in no event later than
thirty (30) days after a party files for arbitration. In the event of any
action to enforce or interpret this Agreement, the prevailing party therein
shall be entitled to recover all reasonable costs and expenses incurred,
including reasonable attorneys' fees.
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<PAGE> 9
IN WITNESS HEREOF, the parties have duly executed this Agreement as of
the date first above written.
COMPANY:
ERGOBILT, INC.
By:/s/ GERARD SMITH
-------------------------
Gerard Smith
Its: President
CONSULTANT:
/s/ MARK MCMILLAN
----------------------------
MARK MCMILLAN
9
<PAGE> 10
ERGOBILT COMPANIES
STANDARD NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement (the "Agreement") is executed as of
October 15, 1996, by and between ErgoBilt, Inc., a Texas corporation
("Company"), and/or BodyBilt Seating, Inc., a Texas corporation ("Subsidiary"),
and the undersigned (the "Undersigned") with respect to the following facts.
A. Company and Subsidiary (collectively, the "ErgoBilt
Companies") are engaged in the business of designing, manufacturing, marketing,
and selling ergonomically correct chairs.
B. The ErgoBilt Companies may from time to time disclose to the
Undersigned certain confidential proprietary information that has been
developed by the ErgoBilt Companies and/or their affiliates. Confidential
Information may also be disclosed to the Undersigned inadvertently or
unlawfully by third parties. Such confidential information represents a unique
valuable asset of the ErgoBilt Companies.
Now, therefore, in consideration of the premises and mutual covenants
contained herein, and for such other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
(i) Confidential Information. For purposes of this
Agreement, the term "Confidential Information" shall mean trade
secrets, product and other research and development activities,
inventions, and any other knowledge, data or information that the
ErgoBilt Companies treat as proprietary, whether or not such
Confidential Information is patentable or copyrightable, however it is
embodied and irrespective of whether it is labeled as "proprietary" or
"confidential" and whether or not it was developed by the Undersigned.
By way of illustration but not limitation, Confidential Information
includes (a) know-how, ideas, improvements, discoveries, developments,
processes, existing and future product design and performance
specifications, techniques, formulas, algorithms, product
architectures, source and object codes, data, data compilations and
other works of authorship; and (b) information regarding the ErgoBilt
Companies' marketing, sales, research and development and new product
plans, ErgoBilt Companies' business plans, budgets, and unpublished
financial statements, ErgoBilt Companies' licenses, suppliers and
customers, and information regarding the skills and compensation of
ErgoBilt Companies' officers and employees.
(ii) Non-Disclosure. The Undersigned recognizes that the
Undersigned shall have no right whatsoever to use, exploit, or
disclose the Confidential Information for any other purpose, or to
disclose it to any other employee of the ErgoBilt Companies other than
on a "need to know" basis, to disclose it to any third party without
the written consent of the ErgoBilt Companies, which consent may be
withheld in the ErgoBilt Companies'
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sole discretion and which consent, when given, may require the third
party to execute a Non-Disclosure Agreement in a form satisfactory to
the ErgoBilt Companies.
(iii) Protection Policies and Procedures. The Undersigned
shall strictly comply with any and all policies and procedures adopted
by the ErgoBilt Companies so as to protect the Confidential
Information. Such policies and procedures may include, without
limitation: marking all written materials "Confidential Information
of (Name of Specific ErgoBilt Company)" and/or with such other legends
necessary or appropriate to identify the materials as the ErgoBilt
Companies' Confidential Information; limiting access to and/or
dissemination of the Confidential Information to those persons who
have a "need to know" the Confidential Information to enable such
persons to perform their duties consistent with the purposes for which
such Confidential Information was disclosed; limiting and otherwise
controlling copies or other forms of reproduction of the Confidential
Information; and maintaining the Confidential Information in a secure
place or places so as to preclude unauthorized access thereto. If the
Undersigned is in doubt as to whether certain information constitutes
Confidential Information, the Undersigned should assume such
information is Confidential Information subject to protection under
this Agreement and treat such information accordingly.
(iv) Grounds of Dismissal. The Undersigned acknowledges
and agrees that the Undersigned's breach of his or her obligations under the
terms of this Agreement shall constitute grounds for dismissal for cause.
(v) Non-Competition. The Undersigned expressly agrees
that the Undersigned will not use any of the Confidential Information to
compete, in any way, with the ErgoBilt Companies without the prior written
consent of the ErgoBilt Companies, which consent may be withheld in their sole
and absolute discretion.
(vi) Injunctive Relief. The Undersigned understands and
agrees that the ErgoBilt Companies have a substantial ongoing investment in the
development of the Confidential Information, and the ErgoBilt Companies would
be irreparably injured if this Agreement were to be breached. Should the
ErgoBilt Companies bring suit for breach of this Agreement or for unauthorized
use or disclosure of any Confidential Information, the Undersigned consents to
jurisdiction and venue in any federal or state court in Texas, in Dallas
County, and agrees that preliminary and permanent injunctive relief would be an
appropriate, though not exclusive, remedy and agrees not to oppose any request
for expedited discovery in such an action.
(vii) Return of Written Materials. Immediately upon the
Undersigned's voluntary or involuntary termination of employment with the
ErgoBilt Companies for any reason, with or without cause, or at any time
promptly upon the written request of the ErgoBilt Companies, the Undersigned
shall return to the ErgoBilt Companies the original and all copies of the
Confidential Information, and all notes, diagrams, papers, documents and other
materials irrespective of form, concerning or relating to such Confidential
Information in the possession or control of the Undersigned.
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(viii) No Assignment, Binding Effect. The Undersigned may
not assign this Agreement or the Undersigned's obligations hereunder. This
Agreement shall be binding on the Undersigned and his or her heirs,
beneficiaries, representatives, successors and assigns. This Agreement will
inure to the benefit of the ErgoBilt Companies and their respective successors
and assigns.
(ix) Governing Law. This Agreement shall be governed and
interpreted by the laws of the State of Texas. Jurisdiction and venue shall
lie in Brazos County, Texas.
(x) Attorneys' Fees. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the ErgoBilt
Companies shall be entitled to reasonable attorney's fees, costs, and necessary
disbursements in addition to any other relief to which they may be entitled.
(xi) Modifications. All additions or modifications to
this Agreement must be made in writing and must be signed by the Undersigned
and the ErgoBilt Companies.
(xii) Survival of Certain Covenants. Employee's
obligations hereunder and his or her acknowledgments and agreements contained
in paragraphs (ii), (v), and (vii) hereof shall survive the termination of this
Agreement.
This Agreement shall be deemed executed and effective as of the date
first set forth above.
ErgoBilt, Inc.
A Texas Corporation
/s/ MARK MCMILLAN
- ------------------------------
Signature By: /s/ GERARD SMITH
-----------------------------
Printed Name: Gerard Smith
--------------------
Its: President & CEO
-----------------------------
BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By: /s/ GERARD SMITH
-----------------------------
Printed Name: Gerard Smith
--------------------
Its: President & CEO
-----------------------------
12
<PAGE> 1
EXHIBIT 10(l)
July 2, 1996
Mr. Gerard Smith
3605 Harvard Avenue
Dallas, Texas 75205
Re: Consulting Services Agreement
Dear Mr. Smith:
ErgoBilt, Inc., a newly formed Texas corporation ("Company"), intends to
acquire by merger the business of BodyBilt Seating, Inc. ("BodyBilt"), and to
thereafter operate BodyBilt as a wholly-owned subsidiary. In connection with
such acquisition, Company desires to conduct an initial public offering of its
common stock (the "IPO"). Company desires to retain you as a consultant for
the purposes of preparing Company for the IPO and for its introduction to the
investment and financial communities. You have agreed to provide such
consulting services on the terms and conditions set forth in this letter
agreement ("Letter Agreement").
1. GENERAL SCOPE OF SERVICES. Effective as of the date of this
Letter Agreement, Company shall retain you as a consultant for the purposes of
providing advice and expertise on issues which directly or indirectly relate to
the IPO. You will be required to render such services on an as needed basis
(but as necessary to perform you duties and responsibilities hereunder) from
the date of this Letter Agreement until the closing of the IPO or December 31,
1996, whichever is the first to occur. If the IPO does not close by December
31, 1996, this Letter Agreement shall be extended until March 20, 1996.
2. COMPENSATION.
2.1 CONSULTING FEE. Company agrees to pay to you the sum of
Seventy-Seven Thousand Five Hundred and No/100 Dollars ($77,500.00) as a
consulting fee (the "Consulting Fee") hereunder. The Consulting Fee shall be
paid in three (3) installments as follows. The first installment shall be due
on July 31, 1996, in the sum of Thirty-Three Thousand Three Hundred
Thirty-Three and 34/100 Dollars ($33,333.34). The second installment shall be
due on September 1, 1996, in the sum of Thirty Thousand Eight Hundred
Thirty-Three and 33/100 Dollars ($30,833.33). The third installment shall be
due on December 1, 1996, in the sum of Thirteen Thousand Three Hundred
Thirty-Three and 33/100 Dollars ($13,333.33); provided, however, if the IPO
closes before October 31, 1996, then the third installment shall be paid upon
such closing. Company further agrees to compensate you for all personal
federal, state and local income taxes incurred by you by reason of payment of
the Consulting Fee to you such that the total amount of the Consulting Fees
payable to you as specified herein is the net amount received by you ("Tax
Indemnification"). Amounts payable to you to indemnify you for such personal
income tax liability shall be paid to you upon the earlier of the closing of
the IPO or December 31, 1996 as to fee earned for the period prior to December
31, 1996, and by March 31, 1997, as to fees earned for the period between
December 31, 1996 and March 20, 1997.
<PAGE> 2
Mr. Gerard Smith
July 2, 1996
Page 2
In the event the IPO has not closed by December 31, 1996, the Company
will continue to retain your services through March 20, 1997, and pay you
additional Consulting Fees at the rate of Ten Thousand Dollars ($10,000.00) per
month, payable on the last day of each calendar month.
2.2 BUSINESS EXPENSES. In addition to the Consulting Fees,
you will be entitled to reimbursement on a monthly basis for reasonable,
documented business expenses incurred with respect to your services rendered.
On the date of the Closing of the IPO, you shall provide to Company a full and
final accounting of all business expenses incurred. Such business expenses
shall be paid with ten (10) business days following your submission of a
written expense report.
2.3 FAILURE OF IPO. You shall be entitled to receive and
retain your Consulting Fee in full, expense reimbursements and taxes
indemnification without regard to the success or failure of the IPO. Company
may obtain a bridge loan in order to pay these obligations to you. In the
event the IPO fails to close and/or bridge financing is not obtained, all
amounts due you shall be paid personally by me in my individual capacity. To
secure my obligations to personally pay to you the amounts due under this
Letter Agreement and all other agreements between you and the Company, I hereby
agree to assign to you that number of shares of SA TeleCom, owned of record or
beneficially by me as set forth below. I agree to execute such other documents
necessary or desirable to perfect such assignment.
3. TERMINATION OF AGREEMENT. Our respective obligations under this
Letter Agreement shall terminate in the event of your death or inability to
provide services due to mental or physical disability. Upon such termination,
Company shall have no further obligation to you except for accrued and unpaid
Consulting Fees, expenses and Tax Indemnification at the time of termination.
Additionally, if, in the opinion of the Company, you fail to render services as
enumerated herein, or you terminate your services for any reason other than
Permissible Termination (as defined below), prior to the IPO closing or
December 31, 1996, whichever occurs first, you agree to repay any and all
Consulting Fees heretofore received from Company, and in addition you agree to
pay a termination penalty fee of One Hundred Thousand and No/100 Dollars
($100,000.00). This Letter Agreement shall also terminate upon our mutual
agreement that efforts to continue the conduct and/otherwise close the IPO are
not commercially reasonable and that your services are no longer reasonably
required. In such case, you shall receive your Consulting Fee pro rated
through the effective date of such termination based on a period ending
December 31, 1996, plus your expenses and Tax Indemnification.
You shall have the right to terminate your obligations under this Letter
Agreement without penalty ("Permissible Termination") upon the occurrence of
any of the following events: (1) the breach by the Company or me of any our
respective obligations under this Letter Agreement, including the payment of
any installment of the Consulting Fee or the failure to assign the asset(s)
described in paragraph 2.3 above; (ii) Company's failure to obtain a written
commitment from a reputable underwriter to undertake the IPO before September
1, 1996; or (iii) Company's failure to enter into a definitive written
agreement with BodyBilt and its shareholder before September 1, 1996, for the
acquisition by merger of BodyBilt. In the event of a Permissible Termination,
you shall have the right to be paid your Consulting Fee pro rated through the
termination date based on a period ending December 31, 1996, plus all business
expenses incurred through such termination date and your Tax Indemnification.
In all event of termination, you shall be entitled to receive your
Consulting Fee on a net basis as described in Section 2.1 with full
compensation for all personal federal, state and local income taxes incurred
<PAGE> 3
Mr. Gerard Smith
July 2, 1996
Page 3
by you, which amount shall be due within ten (10) business days of presentation
of a statement evidencing the calculation of the same.
4. Non-Disclosure. You have agreed that you shall not, directly or
indirectly, for yourself or on behalf of any other person, firm, partnership,
organization, corporation, or any other entity or association, reveal to any
person, entity or association, any information about the Company which the
Company treats as confidential or trade secrets of the Company, neither of
which are generally known in the business community in which Company operates,
or its customers, suppliers, employees, officers, directors, shareholders or
sales force, or any confidential information or trade secrets relating to the
processes, techniques, designs or pricing or business practices of the Company.
5. Independent Contractor. It is expressly understood by the
parties that you are acting as an independent contractor and are not subject to
Company's control nor authorized to act as Company's agent or legal
representative. This Agreement shall not act or be construed to create an
employer-employee relationship, partnership, joint venture or any other agency
relationship between the parties. Absent Company's prior approval, you shall
have no authority or power to make any commitments of any nature whatsoever for
the account of or on behalf of Company. You shall have the right to employ
such personnel as you deem necessary to render services hereunder; however,
such personnel shall be at your sole cost, risk and responsibility. You shall
be responsible for all social security, income tax withholding, unemployment
insurance, and such other amounts Company would otherwise be required to deduct
and withhold from amounts payable to employees.
If the foregoing accurately states our agreement with respect to the
subject matter hereof, please execute the original and enclosed copy of this
Letter Agreement. Retain the original letter for your files and return the
fully executed duplicate original to me for Company's files.
Very truly yours,
/s/ GERALD McMILLAN
-------------------------------
Gerald McMillan
Chairman of the Board
No. of Shares of SA TeleCom to be Pledged: 80,000 gm
---------
Accepted and Agreed:
/s/ GERARD SMITH
- ------------------------------
Gerard Smith
<PAGE> 1
EXHIBIT 10(m)
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
(Gerard Smith)
This AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT ("Amended
Agreement"), dated as of October 15, 1996, is made and entered into by and
between ErgoBilt, Inc., a Texas corporation ("Company"), and Gerard Smith, an
individual ("Executive"). This Amended Agreement supersedes in its entirety
that certain Executive Employment Agreement dated as of August 15, 1996,
executed between the parties.
W I T N E S S E T H:
WHEREAS, BodyBilt Seating, Inc. ("BBSI") is engaged in the
manufacturing, marketing and selling of ergonomically-correct chairs; and
WHEREAS, Company and its wholly-owned subsidiary, EB Subsidiary, Inc., a
Texas corporation ("Surviving Subsidiary"), have entered into that certain
Agreement and Plan of Merger dated as of August 14, 1996 (the "Merger
Agreement"), pursuant to which Surviving Subsidiary will merge with BBSI, with
Surviving Subsidiary surviving under the name of "BodyBilt Seating, Inc.;" and
WHEREAS, Company intends to continue to operate Surviving Subsidiary and
to acquire other businesses and assets compatible with or complementary to the
business of Surviving Subsidiary and Company; and
WHEREAS, Executive has represented to Company that he has substantial
experience, skills and expertise in managing and operating a variety of
businesses; and
WHEREAS, Company desires to employ Executive on a full-time basis as
president and chief executive officer upon completion of an initial public
offering of the securities of Company (the "IPO") and the merger, and on a
part-time basis prior thereto; and
WHEREAS, the parties entered into an Executive Employment Agreement (the
"Agreement") dated as of August 15, 1996, pursuant to which Executive agreed to
provide such services and take on such responsibilities for the consideration
set forth therein; and
WHEREAS, the BBSI "Shareholders" (as that term is defined in the Merger
Agreement) have requested changes to the original Agreement and, to avoid a
dispute with said Shareholders and to avoid delaying the Merger, the Company
and Executive are willing to modify the Agreement and to restate the same,
which modifications are set forth herein.
NOW, THEREFORE, the parties, for and in consideration of the mutual
promises herein contained, agree as follows:
<PAGE> 2
ARTICLE I
Employment
1.1 General Scope of Employment. Commencing as of August 15, 1996
(the "Commencement Date"), Company shall be deemed to have employed Executive
as the President and Chief Executive Officer ("CEO") of Company. As soon as
possible after the Commencement Date, Executive shall also be deemed to have
commenced to serve as a member of the Board of Directors of Company ("Company's
Board"), President and CEO of Subsidiary and a member of Subsidiary's Board of
Directors and such other boards of directors of companies acquired by Company
from time to time. Executive's employment shall be on the terms of and subject
to the conditions of this Amended Agreement. Executive shall report directly
to Company's Board and shall perform the principal duties and responsibilities
set forth in Section 1.2 below and such additional duties and responsibilities,
consistent with his professional experience, as may reasonably be assigned to
him from time to time by Company's Board. Executive hereby accepts such
employment and agrees to devote his full time and energy to Company's business
as shall be necessary to perform his duties and responsibilities in a faithful
and competent manner.
1.2 Principal Duties and Responsibilities.
1.2.1 General. As President and CEO of Company, Executive shall
have the general charge of the business affairs and properties of Company and
shall be fully responsible for the general management and supervision of its
other officers, employees, agents and representatives except as otherwise
provided by the bylaws or the agreements of the Company. Executive shall
perform all duties incident to the offices of President/CEO, and shall see that
all orders and resolutions of the Board are carried into effect.
1.2.2 Pre-IPO Closing. Prior to the "Closing" under the Merger
Agreement (as defined therein), Executive shall serve to facilitate the general
organization of the Company and assist in the development of general business
plans.
1.2.3 Post-IPO Closing. After the Closing under the Merger
Agreement, during the term of this Amended Agreement, Executive's principal
duties and responsibilities shall be to use best efforts to: (i) act in a
manner consistent with the direction of the Board of Directors that will
maximize the value of the outstanding stock of the Company; (ii) develop and
implement, execute and carry out business plans as and when approved by the
Board; (iii) hire and manage all key executive personnel of Company; (iv)
develop, implement and oversee employee benefit programs; (v) promote
nationally and internationally the business of Company; (vi) review and comment
on all material contracts concerning Company; (vii) review and comment on all
strategic and operational plans; (viii) review and comment on all financial and
tax planning for Company; (ix) identify and pursue new business opportunities
compatible with and complementary to the businesses of Company; and (x) such
other duties and responsibilities necessary to integrate and coordinate the
activities of Company into an overall investment and management philosophy.
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1.3 Extent of Services.
1.3.1 Pre-IPO Closing. Prior to Closing under the Merger
Agreement, Executive shall serve on a part-time basis, rendering services as
needed and as reasonably necessary to perform his duties and responsibilities.
Until such Closing, Executive may not engage in other business activities
competitive with the business of Company.
1.3.2 Post-IPO Closing. After Closing under the Merger
Agreement, Executive shall devote all of his time, attention and energy to
Company's business and shall not engage in any other business or consulting
activity for gain, profit or other pecuniary advantage except as expressly
provided in this Amended Agreement.
1.3.3 Passive Investments Permissible. Nothing hereinabove is
intended to prevent Executive from making personal passive investments in other
business activities not directly or indirectly competitive with the business of
Company.
1.4 Outside Board Activities. Subject to the conditions hereinafter
set forth, after the Closing under the Merger Agreement, Executive may, upon
prior notice to Company's Board, serve as a member of no more than three (3)
boards of directors, boards of trustees or other governing bodies of "for
profit" companies and/or "non-profit" civic, cultural, educational and/or
charitable organizations, provided that in all cases: (i) such company or
organization is not directly or indirectly engaged in a business or does not
support a business that is competitive, directly or indirectly, with the
business of Company, and (ii) such service does not interfere with Executive's
ability to perform his duties and responsibilities to Company.
1.5 Outside Income. After the Closing under the Merger Agreement,
absent Company's Board's written consent, all fees, compensation and other
income (collectively "Outside Income") received by Executive while employed by
Company from any source other than personal gifts, inheritance, or passive
investments, including, but not limited to, all fees for teaching, speaking
engagements, acting as an officer, director, trustee, receiver, executor,
administrator or other fiduciary (other than as a trustee, executor, or
administrator of a trust or estate of Executive or a member of his family)
shall be the property of Company and shall be immediately disclosed and
remitted to Company.
1.6 Directors and Officers Liability Insurance. After the Closing
under the Merger Agreement, Company shall take out and maintain, if
commercially reasonable, directors and officers liability insurance for the
benefit of the members of Company's Board and the officers of Company in such
amounts deemed necessary and/or appropriate by Company's Board. In the event
such insurance is not obtained, then Company shall indemnify Executive as
provided in the Bylaws of Company to the fullest extent permitted under
applicable law.
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ARTICLE II
Term
Executive's employment shall be for an initial term ("Term") commencing
as of August 15, 1996 (the "Commencement Date") and terminating three (3) years
after the Closing under the Merger Agreement.
ARTICLE III
Annual Base Salary and Miscellaneous Benefits
3.1 Annual Base Salary.
3.1.1 Pre-IPO Closing Annual Base Salary. Commencing on the
Commencement Date and for such period ending on the first to occur of either
the Closing under the Merger Agreement or March 20, 1997, Company shall pay to
Executive Annual Base Salary of Sixty Thousand Dollars ($60,000.00), payable in
monthly installments of Five Thousand Dollars ($5,000.00). Such Annual Base
Salary shall be due and payable on the last day of each calendar month for
services rendered during such month. Annual Base Salary for any partial month
of services shall be prorated on the basis of a thirty (30) day month.
3.1.2 Post-IPO Funding Annual Base Salary. Commencing on the
earlier of March 20, 1997 or the Closing under the Merger Agreement, as
compensation for all duties and services to be rendered by Executive hereunder
to Company, Company shall pay to Executive an Annual Base Salary of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) for each twelve (12) month period of
the Term. Annual Base Salary shall be paid in twelve (12) equal monthly
installments, payable in accordance with Company's customary payroll policy in
effect at the time such payment is made, or as may otherwise be mutually agreed
upon in writing by the parties. Annual Base Salary for services rendered for a
partial month shall be prorated based on a thirty (30) day month.
3.2 Performance Incentive Plan. It is the intent of the parties that
Company adopt as soon as reasonably possible such bonus and/or incentive plans,
stock option plans and such other plans adopted by Company from time to time to
provide incentive or additional compensation to its senior executives ("Senior
Management Incentive Plans"). Such Senior Management Incentive Plans shall be
adopted on such terms and conditions deemed to be in the best interests of
Company and may provide for awards in the form of cash, equity or other
benefits. Executive shall be eligible to become a named participant to such
Senior Management Incentive Plans. It is the further intention of the parties
that said Senior Management Incentive Plan provide for awards to participants
based on the achievement of various specified metrics and milestones
established in the business plans for the business adopted and approved by
Company's Board on behalf of Company, as amended from time to time, and based
further on the overall profitability of the business, the participants'
performances, the general financial condition of Company, and other such
factors as Company's Board may deem relevant. Such Senior Management Incentive
Plan shall be adopted on such terms and conditions deemed to be in the best
interests of Company and may provide for awards in the form of cash, equity or
other benefits.
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3.3 Expenses. During the term of his employment hereunder, Executive
shall be entitled to incur reasonable business expenses ("Business Expenses")
in performing his services hereunder, including transportation, entertainment,
travel, professional dues, professional periodicals, and business promotion.
All Business Expenses shall be reimbursed by Company upon presentation of
receipts or other documentation establishing the nature of the expense, the
time-date- place incurred, and the business reason for such Business Expense.
Company shall not have any obligation to reimburse any Business Expense not
presented for reimbursement within ninety (90) days of the date on which such
Business Expense was incurred.
3.4 Vacation and Sick Days.
3.4.1 Executive shall be entitled to twenty (20) business days
of paid vacation per year (which need not be taken consecutively and,
during the first twelve-month period after the closing of the Merger,
shall not be taken consecutively). Such vacation shall be scheduled to
minimize interference with the business. Executive shall also be
entitled to all paid holidays given by Company to its employees.
3.4.2 Executive shall be entitled to not more than five (5) days
paid sick days per year.
3.4.3 Vacation and sick day benefits must be taken in the year
in which they accrue and may not be taken in any subsequent year absent
the consent of Company's Board, nor may Executive request payment of the
cash equivalent of accrued vacation or sick days not taken.
3.5 Other Benefits. Company shall provide to Executive the following
additional benefits:
3.5.1 Miscellaneous Benefits. Executive shall be entitled to
participate in Company major medical and/or dental plans, life insurance
programs, accidental death and dismemberment insurance, retirement
benefits, disability benefits, any other insurance programs provided by
Company, and any other benefit programs hereafter adopted by Company
consistent with Company policies, if and when adopted from time to time.
3.5.2 Medical/Dental Benefits. Company shall pay for all
premiums for Executive, his spouse and children to obtain full benefits
provided under Company's major medical and dental plans as and when
obtained. Company shall also pay for all costs and expenses not
otherwise covered by insurance for an annual general physical for
Executive.
3.5.3 ERISA Plans. Executive shall have the right to
participate in any plans providing deferred compensation benefits as and
when adopted by Company under the various provisions of the Employee
Retirement Income Security Act ("ERISA"), as amended from time to time.
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3.5.4 Company Car. Consistent with Company policies as adopted
from time to time, Executive shall be provided a "Company Car" for his
use during the term of this Amended Agreement. Company shall pay or
reimburse Executive for all "Company Car Expenses." Company Car
Expenses shall include: (i) insurance; (ii) gas, regular servicing,
maintenance and repairs (unless caused by Executive's own negligence,
mistreatment or misuse of the Company Car, or from Executive's own
misconduct); and (iii) all lease or debt service payments on such
Company Car. Executive shall be responsible for all personal costs and
expenses associated with any personal use of the Company Car. All
Company Car Expenses shall be reimbursed and payable consistent with the
provisions of Section 3.3 above. In the event that Company adopts a
"car allowance" policy, Executive's allowance shall be approximately
Five Hundred and No/100 Dollars ($500.00), provided such sum is
reasonably comparable to that being provided similar executives and
managers of Company.
ARTICLE IV
Inventions, Competition and Confidentiality
4.1 Inventions. All designs, discoveries, improvements, and
inventions (collectively, "Inventions"), whether patentable or unpatentable,
whether copyrightable or uncopyrightable, whether of a business or technical
nature, made or conceived by Executive alone or with others, during the Term of
this Amended Agreement shall be owned exclusively by Company whether or not
such Inventions are along the lines of the actual or anticipated business,
work, research or investigations of Company or which result from or are
suggested by any work done for Company or which relate to Company's business.
Executive shall promptly disclose such Inventions to Company. In addition,
Executive shall perform all actions (without any expense to Executive)
reasonably requested by Company to establish and confirm such ownership
including, but not limited to, assigning to Company, without additional
compensation, the entire worldwide rights to such Inventions, signing all
necessary papers, instruments and other documents and giving sworn testimony in
support thereof.
4.2 Non-Competition. Executive covenants and agrees with Company
that, except as otherwise consented to, approved or permitted in writing by
Company's Board, at any time while employed as an executive employee of Company
and for a period of two (2) years after the termination of Executive's
employment hereunder, Executive will not, directly or indirectly, whether as an
officer, director, employee, independent contractor, or whether acting alone or
as a member of a partnership, joint venture or as a holder or investor in any
security or other financial interest of any corporation or other business
entity, engage in any "Competitive Activity" as defined herein. For the
purposes of this Amended Agreement, "Competitive Activity" shall mean:
(a) the solicitation of any customers or potential customers
of Company to purchase any products or services in direct competition
with the products and services provided by Company;
(b) requesting any actual or prospective customer or supplier
of Company to curtail or cancel their business with Company;
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(c) except as provided by law or in any other contract or
agreement of even date herewith executed and delivered pursuant hereto,
the disclosure to any person, firm or corporation any details of the
organization, business affairs, intellectual property or technology of
Company; or
(d) any action designed to induce or attempt to influence any
employee of Company to terminate his or her employment with Company or
employ or assist anyone else in the employment of any of the employees
of Company.
The restrictions of this section shall apply only to the metropolitan
areas where Company was conducting business as of the Termination Date.
Competitive Activity shall not include Executive's mere ownership of securities
in any publicly-traded company in which Executive holds or controls less than
five percent (5%) of the issued and outstanding securities.
The parties agree that the duration and geographic scope of the
non-competition provision set forth in this section are reasonable. In the
event that any court determines that the duration or the geographic scope, or
both, are unreasonable and that such provision is to that extent unenforceable,
the parties agree that the provision shall remain in full force and effect for
the greatest time period and in the greatest area that would not render it
unenforceable. The parties intend that this non-competition provision shall be
deemed to be a series of separate covenants, one for each and every county of
each and every state of the United States of America and each and every
political subdivision of each and every country outside the United States of
America where this provision is intended to be effective. Executive agrees
that damages are an inadequate remedy for any breach of this provision and that
the Company shall, whether or not it is pursuing any potential remedies at law,
be entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision.
4.3 Non-Disclosure. Executive shall execute and deliver,
contemporaneous with the execution and delivery of this Amended Agreement,
Company's standard form Non-Disclosure Agreement in the form attached hereto as
Exhibit 4.3.
4.4 Enforcement. Executive and Company further agree and acknowledge
that Company does not have an adequate remedy at law for the breach or
threatened breach by Executive of the covenants and agreements set forth in
Sections 4.2, 4.3 and the Non-Disclosure Agreement executed pursuant to Section
4.3 above. Accordingly, Executive further agrees that Company may, in addition
to the other remedies which may be available to it hereunder, file suit in
equity to enjoin Executive from such breach or threatened breach.
4.5 Disclosure of Competitive Investments. To the best of
Executive's knowledge, Executive does not own or hold directly, indirectly or
beneficially by Executive any investments competitive with the business of
Company. In the event that Company determines that Executive holds a material
interest in a competitive investment, Company may require Executive to divest
himself of such investment unless such interest is held in a publicly-traded
mutual fund in which Executive holds less than five percent (5%) of the issued
and outstanding shares or is held in a
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portfolio account over which Executive has no power to exercise any investment
or management decisions.
ARTICLE V
Termination
5.1 Termination by Company Upon Executive's Death or Disability.
Company has the right to terminate this Amended Agreement and Executive's
employment hereunder in the event of Executive's death or disability as
provided below.
5.1.1 Death. If Executive dies during the term of this Amended
Agreement, then this Amended Agreement shall terminate immediately
effective on the date of Executive's death ("Termination Date"), without
notice.
5.1.2 Disability. If, during the term of this Amended
Agreement, Company's Board reasonably determines that Executive has
become physically or mentally disabled, whether totally or partially, so
that he is prevented from performing fully his usual duties and services
hereunder, Company may provide written notice to Executive and terminate
Executive's employment hereunder, effective on such date specified in
such notice (also "Termination Date"). "Disability" shall mean
Executive's permanent disability to perform the duties and
responsibilities required hereunder as determined by a licensed
physician selected by Company's Board in consultation with Executive's
personal physicians.
5.1.3 Payment of Compensation and Other Benefits on Death or
Disability. In the event of the termination of this Amended Agreement
by reason of Executive's death or disability, Executive (or his estate)
shall be entitled to payment of amounts due under this Amended Agreement
as follows:
(i) Annual Base Salary. Company shall pay in full and
complete satisfaction of amounts due under Section 5.2 as Annual
Base Salary: (i) upon death, Annual Base Salary through the last
day of the calendar month in which the applicable Termination
Date occurs; and (ii) upon disability, Annual Base Salary equal
to the immediately succeeding six (6) monthly payments from the
last day of the calendar month in which the applicable
Termination Date occurs, less any monthly disability payments for
such period which could be claimed.
(ii) Incentive Plan and Bonus Compensation. Any amounts
awarded to Executive but unpaid under any Senior Management
Incentive Plan or as bonus compensation under Section 3.2 of this
Amended Agreement shall be paid by Company to Executive (or his
estate) within twelve (12) full calendar months of the applicable
Termination Date or as otherwise specified in such Senior
Management Incentive Plan or award of bonus compensation.
(iii) Employee Benefit Plans. Executive (or his estate)
shall be entitled to receive all other benefits provided to
employees of Company as set forth in any
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employee benefit plans in effect as of the applicable Termination
Date in which Executive was a qualified participant.
5.2 Termination by Company for Due Cause.
5.2.1 Due Cause. Company shall have the right to terminate this
Amended Agreement and Executive's employment hereunder for "Due Cause"
upon written notice to Executive, effective upon such date specified in
such notice (also "Termination Date"). Executive shall not be deemed to
have been terminated for "Due Cause" hereunder unless and until Company
delivers to Executive a copy of a resolution duly adopted by Company's
Board (exclusive of Executive's vote) at a meeting of Company's Board
called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with his counsel, to be
heard), finding that, in the good faith opinion of Company's Board,
Executive committed an act or omission set forth above in this Section
5.2.1 and specifying the particulars thereof in detail. Nothing herein
shall limit the right of Executive to contest the validity or propriety
of any such determination.
"Due Cause" shall mean that Executive has:
(i) committed an intentional act of fraud, embezzlement
or theft in connection with his duties or in the course of his
employment with Company;
(ii) pled guilty or nolo contendere to, or is convicted
of, a felony, whether or not related to his duties or in the
course of his employment;
(iii) knowingly, wilfully and wrongfully disclosed
"Confidential Information" of Company as defined in the
Non-Disclosure Agreement executed by Executive pursuant to
Section 4.3;
(iv) knowingly, wilfully and wrongfully engaged in any
Competitive Activity as defined in Section 4.2 above;
(v) engaged in misconduct or in conduct contrary to
written directions of Company's Board that materially injures
Company's financial or other interests;
(vi) knowingly, wilfully and wrongfully breached any
material provision of this Amended Agreement;
(vii) knowingly, wilfully, and wrongfully violated any
federal, state, or local governmental policies, plans or
procedures governing the workplace environment (e.g., EEOC, Title
VII, Texas Workers Compensation Act or Wage/Salary/Benefits
policies or procedures) or any such policies, plans or procedures
developed by Company or its subsidiaries with respect to
Company's desire to operate a professional working environment;
and
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(viii) knowingly, wilfully and wrongfully engaged in any
unprofessional conduct unbecoming a senior executive of the
Company or comparable businesses after written notice of such
conduct and Executive's subsequent failure to cease and desist.
5.2.2 Effect on Compensation and Benefits. In the event the
termination of Executive's employment by the Company under Paragraph
5.2.1 above, Executive shall be entitled to receive only any unpaid
amounts awarded to Executive under a Senior Management Incentive Plan
under Section 3.2 and any rights and benefits Executive may have under
employee benefit plans and programs of Company generally and under any
incentive plan of Company determined in accordance with the terms of
such plans and programs.
5.3 Termination Without Cause.
5.3.1 Termination By Board. Upon the vote of no less than a
majority of the directors then in office (exclusive of Executive), the
Company may terminate Executive's employment under this Amended
Agreement without cause at any regular meeting or at a special meeting
of the Board of Directors called upon no less than ten (10) business
days' prior written notice to Executive of the Board's intention to
terminate Executive without cause.
5.3.2 Effect on Compensation and Benefits. In the event of the
termination of Executive's employment by the Company under Paragraph
5.3.1 above, Company shall pay to Executive as "Liquidated Damages" by
certified check or by wire transfer the following amounts in cash no
less than five (5) business days after the effective date of such
termination: (i) an amount equal to six (6) months' installments of
Executive's Annual Base Salary payable under Section 4.2, and (ii)
Executive shall also be entitled to receive only any unpaid amounts
awarded to Executive under a Senior Management Incentive Plan under
Section 3.2 and any rights and benefits Executive may have under
employee benefit plans and programs of Company generally and under any
incentive plan of Company determined in accordance with the terms of
such plans and programs. In addition, upon such termination, and
notwithstanding the terms of any employee benefit plans or programs to
the contrary, the Company shall continue to provide to Executive and his
family at no cost to Executive full major medical, dental and disability
benefits for the one-year period commencing after the effective date of
termination, which benefits shall be of the same nature as received by
Executive immediately prior to his termination.
Termination of Executive's employment pursuant to this Section
5.3 shall not affect Executive's obligations and undertakings in the
last sentence of Section 4.1 and in Section 4.2 hereof or under the
Non-Disclosure Agreement executed pursuant to Section 4.3.
5.4 Executive's Right of Termination on Company's Breach. Executive
shall have the right upon no less than sixty (60) days prior written notice to
terminate this Amended Agreement and his employment hereunder in the event of
Company's breach of any material provision of this
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Amended Agreement. Such notice shall state the nature and scope of such breach
in detail and identify the specific relevant provisions of this Amended
Agreement breached. Company shall have thirty (30) days within which to cure
such breach or, if such breach is not of such nature that it can be cured
within thirty (30) days, Company has commenced reasonable and diligent efforts
to cure said breach. If Company does not cure or commence to cure the specific
breach within the thirty (30) day period, then, upon confirming written notice
from Executive, this Amended Agreement shall terminate on the date specified in
Executive's original notice (also "Termination Date").
5.5 Breach of Agreements. Executive acknowledges that a material
part of the inducement for Company to enter into this Amended Agreement is
Executive's covenant with respect to non-competition, non-disclosure,
non-cooperation, non-solicitation and consideration for termination without
cause, all as set forth in Articles IV and V hereof. Executive agrees that if
Executive breaches any of those covenants, Company shall have no further
obligation to pay Executive any amounts or benefits otherwise payable hereunder
(except as may otherwise be required at law) and shall be entitled to such
other legal and equitable relief as a court of arbitrator shall reasonably
determine unless such breach is an inadvertent breach that does not result in
any material harm to Company.
5.6 McMillan's Right to Purchase Executive's Shares in the Company.
5.6.1 McMillan's Purchase Rights on Termination for Cause. In
the event the Company terminates Executive's employment pursuant to Paragraph
5.2, Gerald McMillan ("McMillan") shall have the right to purchase from
Executive a portion of the shares of the Company owned or controlled by
Executive ("Executive's Shares"), at the same price per share Executive
purchased the initial Executive's Shares from McMillan, plus an additional
amount equal to interest at an annual percentage rate of seven and one-half
percent (7.5%) from and after the date of purchase on the initial purchase
price of Executive's Shares:
(i) If the effective date of Executive's termination on
or prior to the one (1) year of the anniversary of the closing of
the Merger, then McMillan may purchase all of Executive's Shares
based on the IPO price;
(ii) If the effective date of Executive's termination is
on or before the two (2) year anniversary of the closing of the
Merger but after the one (1) year anniversary of the closing of
the Merger, then McMillan may purchase a total of eighty percent
(80%) of Executive Shares based on the IPO price; or
(iii) If the effective date of Executive's termination is
at any time after the two (2) year anniversary of the closing of
the Merger but prior to the three (3) year anniversary of the
closing of the Merger, then McMillan may purchase a total of
forty percent (40%) of Executive's Shares based on the IPO price.
5.6.2 McMillan's Purchase Rights on Termination Without Cause.
In the event the Company terminates Executive's employment pursuant to
Paragraph 5.3, McMillan shall have the right to purchase from Executive a
portion of Executive's Shares at the same price per share
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Executive purchased the initial Executive's Shares from McMillan, plus an
additional amount equal to interest at an annual percentage rate of seven and
one-half percent (7.5%) from and after the date of purchase on the initial
purchase price of Executive's Shares:
(i) If the effective date of Executive's termination is on or
prior to the one (1) year of the anniversary of the closing of the
Merger, then McMillan may purchase all of Executive's Shares less that
number of Executive's Shares with a total value equal to One Million
Seven Hundred Fifty Thousand Dollars ($1,750,000.00) based on the IPO
Price;
(ii) If the effective date of Executive's termination is on or
before the two (2) year anniversary of the closing of the Merger but
after the one (1) year anniversary of the closing of the Merger, and
provided that the value of Executive's Shares to be retained by
Executive is not less than the amount specified in Paragrah 5.6.2(i)
above, then McMillan may purchase a total of sixty-six and sixty-six
one-hundredths percent (66.66%) of Executive Shares based on the IPO
price; or
(iii) If the effective date of Executive's termination is at any
time after the two (2) year anniversary of the closing of the Merger but
prior to the three (3) year anniversary of anniversary of the closing of
the Merger, then McMillan may purchase a total of fifteen percent (15%)
of Executive's Shares based on the IPO price.
5.6.3 McMillan's Purchase Rights on Executive's Voluntary Resignation.
In the event Executive voluntarily resigns his employment with Company,
McMillan shall have the right to purchase from Executive a portion of
Executive's Shares at the same price per share Executive purchased the initial
Executive's Shares from McMillan, plus an additional amount equal to interest
at an annual percentage rate of seven and one-half percent (7.5%) from and
after the date of purchase on the initial purchase price of Executive's Shares:
(i) If the effective date of Executive's termination is on or
prior to the one (1) year of the anniversary of the closing of the
Merger, then McMillan may purchase all of Executive's Shares less that
number of Executive's Shares with a total value equal to Five Hundred
Thousand Dollars ($500,000.00) based on the IPO Price;
(ii) If the effective date of Executive's termination is on or
before the two (2) year anniversary of the closing of the Merger but
after the one (1) year anniversary of the closing of the Merger, then
McMillan may purchase a total of sixty-six and sixty-six one-hundredths
percent (66.66%) of Executive Shares based on the IPO price; or
(iii) If the effective date of Executive's termination is at any
time after the two (2) year anniversary of the closing of the Merger but
prior to the three (3) year anniversary of the closing of the Merger,
then McMillan may purchase a total of fifteen percent (15%) of
Executive's Shares based on the IPO price.
12
<PAGE> 13
5.6.4 Executive's Shares. For the purposes of this Paragraph
5.7, any shares of Company held in trust for the benefit of Executive's
children shall be deemed to be controlled by Executive and included as part of
Executive's Shares.
5.6.5 Company's Right of Redemption. Any of Executive's Shares
not purchased by McMillan may be redeemed by Company on the same basis as set
forth in Paragraphs 5.7.1, 5.7.2, and 5.7.3 above.
5.6.6 Shares Retained By Executive. Any of Executive's Shares
not subject to purchase by McMillan or redeemed by Company shall continue to be
held by Executive. McMillan shall have no purchase rights and Company shall
have no redemption rights upon the termination of Executive for any other
reasons except as set forth herein.
5.7 Registration Rights. Upon the termination of his employment
hereunder, in the event that the BodyBilt Shareholders (as defined in the
Merger Agreement) exercise their registration rights at any time with respect
to their shares of Company, Executive shall be entitled to register his shares,
at no cost to Executive, along with the BodyBilt Shareholders in the same
manner to the extent permitted by law.
5.8 Waiver of Claims for Wrongful Termination. In the event that
Company exercises its right to terminate Executive under the provisions of
Paragraphs 5.2.1 and 5.3 above, Executive shall be deemed to have waived any
and all claims against Company based on a claim of wrongful termination or
otherwise arising out of the termination of Executive's employment, provided
that all amounts due and payable to Executive as Liquidated Damages have been
paid in full. Nothing herein shall limit the right of Executive to contest the
validity or propriety of any determination of Due Cause pursuant to Paragraph
5.2.1 hereof.
5.9 No Negative Public Comments. Upon the expiration or earlier
termination of this Amended Agreement for any reason, Executive agrees not to
make any false, misleading or negative statement, either orally or in writing,
about Company or its directors or organizations or its officers, shareholders
or any affiliates of the same or to otherwise disparage them or any of them.
ARTICLE VI
General
6.1 Notice. All notices and other communications provided for in
this Amended Agreement shall be in writing and shall be deemed to have been
duly given when: (i) delivered personally; (ii) mailed by United States
registered mail or certified mail, return receipt requested, postage prepaid,
addressed as set forth below; or (iii) mailed by Federal Express, DHL, or such
other nationally recognized overnight courier service, addressed as set forth
below:
13
<PAGE> 14
Address for Company:
ErgoBilt, Inc.
5000 Quorum
Suite 147, Lock Box 43
Dallas, Texas 75240
Attention: Gerald McMillan, Chairman
with copies to:
Wolin, Fuller, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Attention: Norman R. Miller, Esq.
Address for Executive:
Gerard Smith
3605 Harvard Avenue
Dallas, Texas 75205
or to such other address as a party may furnish to the others in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
6.2 Binding Effect. This Amended Agreement shall inure to the
benefit of and be enforceable by the parties and their respective successors,
heirs, representatives and permitted assigns.
6.3 No Waiver; Entire Agreement. No provision of this Amended
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Executive and
such officer as may be specifically designated by Company's Board for Company.
No waiver by any party at any time of any breach by any other party hereto of,
or compliance with, any condition or provision of this Amended Agreement to be
performed by such party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
expressly set forth in this Amended Agreement.
6.4 Headings. Section and paragraph headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Amended Agreement.
6.5 Assignments. This Amended Agreement is personal to Executive and
may not be assigned by Executive or the duties delegated without the prior
written consent of Company's Board. Also, Executive may not assign, transfer,
hypothecate or dispose of any interest in compensation or payments without
Company's Board's prior written consent.
14
<PAGE> 15
6.6 Governing Law and Venue. This Amended Agreement has been
executed in Dallas County, State of Texas, and the substantive laws of the
State of Texas shall govern the validity, construction, enforcement and
interpretation of this Amended Agreement.
6.7 Severability. If any provision of this Amended Agreement is held
to be unenforceable, this Amended Agreement shall be considered divisible and
such provision shall be deemed inoperative to the extent it is deemed
unenforceable and in all other respects this Amended Agreement shall remain in
full force and effect; provided, however, that if any such provision may be
made enforceable by limitation thereof, then such provision shall be deemed to
be so limited and shall be enforceable to the maximum extent permitted by
applicable law.
6.8 Mediation/Arbitration/Legal Fees. If any dispute arises among
the parties with respect to this Amended Agreement, then the parties shall
submit such dispute to mediation before a mediator in accordance with the
mediation rules of Dallas County, Texas. If the parties are unable to resolve
the dispute through mediation, they shall then submit the dispute to binding
arbitration pursuant to the rules and regulations of the American Arbitration
Association (the "AAA"). The parties agree that if arbitration becomes
necessary, they will utilize and comply with all available rules of the AAA for
expediting such arbitration. The site of the arbitration will be the City of
Dallas, Dallas County, Texas, and will commence as soon as possible but in no
event later than thirty (30) days after a party files for arbitration. In the
event of any action to enforce or interpret this Amended Agreement, the
prevailing party therein shall be entitled to recover all reasonable costs and
expenses incurred, including reasonable attorneys' fees.
IN WITNESS HEREOF, the parties have duly executed this Amended Agreement
as of the date first above written.
COMPANY:
-------
ERGOBILT, INC.,
A Texas Corporation
By: /s/ GERALD McMILLAN
------------------------------------------
Gerald McMillan
Its: Chairman of the Board of Directors
EXECUTIVE:
---------
/s/ GERARD SMITH
---------------------------------------------
GERARD SMITH
15
<PAGE> 16
ERGOBILT COMPANIES
STANDARD EMPLOYEE NON-DISCLOSURE AGREEMENT
This Employee Non-Disclosure Agreement (the "Agreement") is executed as
of October 15, 1996, by and between the undersigned employee ("Employee") of
ErgoBilt, Inc., a Texas corporation ("Company"), and/or of BodyBilt Seating,
Inc., a Texas corporation ("Subsidiary"), with respect to the following facts.
A. Company and Subsidiary (collectively, the "ErgoBilt
Companies") are engaged in the business of designing, manufacturing, marketing,
and selling ergonomically correct chairs.
B. The ErgoBilt Companies may from time to time disclose to
Employee certain confidential proprietary information that has been developed
by the ErgoBilt Companies and/or their affiliates. Confidential Information
may also be disclosed to Employee inadvertently or unlawfully by third parties.
Such confidential information represents a unique valuable asset of the
ErgoBilt Companies.
C. Employee desires to be employed by the ErgoBilt Companies
and the ErgoBilt Companies are willing to employ Employee on the condition that
Employee agrees to define Employee's duties and obligations regarding the
disclosure and/or use of such confidential proprietary information on the terms
and conditions set forth herein.
Now, therefore, in consideration of the premises and mutual
covenants contained herein, and for such other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
(i) Confidential Information. For purposes of this
Agreement, the term "Confidential Information" shall mean trade
secrets, product and other research and development activities,
inventions, and any other knowledge, data or information that the
ErgoBilt Companies treat as proprietary, whether or not such
Confidential Information is patentable or copyrightable, however
it is embodied and irrespective of whether it is labeled as
"proprietary" or "confidential" and whether or not it was
developed by Employee. By way of illustration but not
limitation, Confidential Information includes (a) know-how,
ideas, improvements, discoveries, developments, processes,
existing and future product design and performance
specifications, techniques, formulas, algorithms, product
architectures, source and object codes, data, data compilations
and other works of authorship; and (b) information regarding the
ErgoBilt Companies' marketing, sales, research and development
and new product plans, ErgoBilt Companies' business plans,
budgets, and unpublished financial statements, ErgoBilt
Companies' licenses, suppliers and customers, and information
regarding the skills and compensation of ErgoBilt Companies'
officers and employees.
<PAGE> 17
(ii) Non-Disclosure. Employee recognizes that Employee
shall have no right whatsoever to use, exploit, or disclose the
Confidential Information for any other purpose, or to disclose it
to any other employee of the ErgoBilt Companies other than on a
"need to know" basis, to disclose it to any third party without
the written consent of the ErgoBilt Companies, which consent may
be withheld in the ErgoBilt Companies' sole discretion and which
consent, when given, may require the third party to execute a
Non- Disclosure Agreement in a form satisfactory to the ErgoBilt
Companies.
(iii) Protection Policies and Procedures. Employee shall
strictly comply with any and all policies and procedures adopted
by the ErgoBilt Companies so as to protect the Confidential
Information. Such policies and procedures may include, without
limitation: marking all written materials "Confidential
Information of (Name of Specific ErgoBilt Company)" and/or with
such other legends necessary or appropriate to identify the
materials as the ErgoBilt Companies' Confidential Information;
limiting access to and/or dissemination of the Confidential
Information to those persons who have a "need to know" the
Confidential Information to enable such persons to perform their
duties consistent with the purposes for which such Confidential
Information was disclosed; limiting and otherwise controlling
copies or other forms of reproduction of the Confidential
Information; and maintaining the Confidential Information in a
secure place or places so as to preclude unauthorized access
thereto. If Employee is in doubt as to whether certain
information constitutes Confidential Information, Employee should
assume such information is Confidential Information subject to
protection under this Agreement and treat such information
accordingly.
(iv) Grounds of Dismissal. Employee acknowledges and
agrees that Employee's breach of his or her obligations under the
terms of this Agreement shall constitute grounds for dismissal
for cause.
(v) Non-Competition. Employee expressly agrees that
Employee will not use any of the Confidential Information to
compete, in any way, with the ErgoBilt Companies without the
prior written consent of the ErgoBilt Companies, which consent
may be withheld in their sole and absolute discretion.
(vi) Injunctive Relief. Employee understands and agrees
that the ErgoBilt Companies have a substantial ongoing investment
in the development of the Confidential Information, and the
ErgoBilt Companies would be irreparably injured if this Agreement
were to be breached. Should the ErgoBilt Companies bring suit
for breach of this Agreement or for unauthorized use or
disclosure of any Confidential Information, Employee consents to
jurisdiction and venue in any federal or state court in Texas, in
Dallas County, and agrees that preliminary and permanent
injunctive relief would be an appropriate, though not exclusive,
remedy and agrees not to oppose any request for expedited
discovery in such an action.
2
<PAGE> 18
(vii) Return of Written Materials. Immediately upon
Employee's voluntary or involuntary termination of employment
with the ErgoBilt Companies for any reason, with or without
cause, or at any time promptly upon the written request of the
ErgoBilt Companies, Employee shall return to the ErgoBilt
Companies the original and all copies of the Confidential
Information, and all notes, diagrams, papers, documents and other
materials irrespective of form, concerning or relating to such
Confidential Information in the possession or control of
Employee.
(viii) No Assignment, Binding Effect. Employee may not
assign this Agreement or Employee's obligations hereunder. This
Agreement shall be binding on Employee and his or her heirs,
beneficiaries, representatives, successors and assigns. This
Agreement will inure to the benefit of the ErgoBilt Companies and
their respective successors and assigns.
(ix) Governing Law. This Agreement shall be governed
and interpreted by the laws of the State of Texas.
(x) Attorneys' Fees. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement,
the ErgoBilt Companies shall be entitled to reasonable attorney's
fees, costs, and necessary disbursements in addition to any other
relief to which they may be entitled.
(xi) Modifications. All additions or modifications to
this Agreement must be made in writing and must be signed by
Employee and the ErgoBilt Companies.
(xii) Survival of Certain Covenants. Employee's
obligations hereunder and his or her acknowledgments and
agreements contained in paragraphs (ii), (v), and (vii) hereof
shall survive the termination of this Agreement.
This Agreement shall be deemed executed and effective as of the date
first set forth above.
Employee: ErgoBilt, Inc.
A Texas Corporation
/s/ GERARD SMITH /s/ GERALD McMILLAN
-------------------------------- ------------------------------------
Signature By:
---------------------------------
Printed Name:
-----------------------
Its:
--------------------------------
3
<PAGE> 19
BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By:
----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
4
<PAGE> 1
EXHIBIT 10(n)
September 16, 1996
Mr. P. Michael Sullivan
5009 Sail Creek Drive
Plano, Texas 75093
Re: IPO Consulting Services Agreement
Dear Mr. Sullivan:
ErgoBilt, Inc., a Texas corporation ("Company"), intends to acquire by
merger the business of BodyBilt Seating, Inc. ("BodyBilt"), and to thereafter
operate BodyBilt as a wholly-owned subsidiary. In connection with such
acquisition, the Company desires to conduct an initial public offering of its
common stock (the "IPO"). The Company desires to retain you as a consultant to
the Company with respect to the IPO. You have agreed to provide such
consulting services on the terms and conditions set forth in this letter
agreement ("Letter Agreement").
1. GENERAL SCOPE OF SERVICES. Effective as of September 16, 1996,
the Company shall retain you as a consultant for the purposes of providing
advice and expertise on issues which directly or indirectly relate to the IPO,
including, but without limitation, all matters concerning the prospective
financial operations of the Company and its subsidiaries. You will be required
to render such services on an as-needed basis and to devote such time necessary
and/or desirable to perform your duties and responsibilities as directed by the
undersigned. The term of this Letter Agreement shall be for a period
commencing as of September 16, 1996, and shall continue until the earlier of
the Closing of the IPO or December 31, 1996. This Letter Agreement may be
extended upon the mutual agreement of the parties. In the event the IPO
closes, the Company has agreed to employ you on the terms and conditions set
forth in the form of Executive Employment Agreement attached hereto as Exhibit
A, and you have agreed to accept such employment. Such employment shall
commence on the date of the Closing of the IPO, which date shall be deemed the
"Effective Date" for said Executive Employment Agreement.
2. COMPENSATION.
2.1 CONSULTING FEE. The Company agrees to pay to you the
monthly sum of Seven Thousand and No/100 Dollars ($7,000.00) as consulting fees
( "Consulting Fees"). Consulting Fees shall be payable on the last day of each
calendar month and shall be prorated on the basis of a thirty (30) day month
for services rendered during any partial month.
<PAGE> 2
Mr. P. Michael Sullivan
September 16, 1996
Page 2
2.2 BUSINESS EXPENSES. In addition to Consulting Fees, you
will be entitled to reimbursement on a monthly basis for reasonable, documented
business expenses incurred with respect to your services rendered. Such
business expenses shall be paid with ten (10) business days following your
submission of a written expense report. On the date of the Closing of the IPO,
you will be required to provide to the Company a full and final accounting of
all business expenses incurred.
3. TERMINATION OF LETTER AGREEMENT. Our respective obligations
under this Letter Agreement shall terminate in the event of your death or
inability to provide services due to mental or physical disability. Upon such
termination, the Company shall have no further obligation to you except for
accrued and unpaid Consulting Fees through the date of termination and business
expenses at the time of termination. This Letter Agreement shall also
terminate upon our mutual agreement that efforts to continue the conduct of
and/or otherwise close the IPO are not commercially reasonable and that your
services are no longer reasonably required. In such case, you shall receive
your Consulting Fees prorated through the effective date of such termination
plus your business expenses incurred through the termination date.
4. NON-DISCLOSURE.
(i) Confidential Information. You have agreed that you shall
not, directly or indirectly, for yourself or on behalf of any other
person, firm, partnership, organization, corporation, or any other
entity or association, reveal to any person, entity or association any
information about the Company which the Company, BodyBilt or the
Company's subsidiaries (collectively, the "ErgoBilt Companies") treats
as confidential or as trade secrets ("Confidential Information"),
neither of which are generally known in the business communities in
which the ErgoBilt Companies operate, or known to their customers,
suppliers, employees, officers, directors, shareholders or sales force.
For purposes of this Letter Agreement, the term "Confidential
Information" shall mean trade secrets, product and other research and
development activities, inventions, and any other knowledge, data or
information that the ErgoBilt Companies treat as proprietary, whether or
not such Confidential Information is patentable or copyrightable,
however it is embodied and irrespective of whether it is labeled as
"proprietary" or "confidential" and whether or not it was developed by
you. By way of illustration but not limitation, Confidential
Information includes (a) know-how, ideas, improvements, discoveries,
developments, processes, existing and future product design and
performance specifications, techniques, formulas, algorithms, product
architectures, source and object codes, data, data compilations and
other works of authorship; and (b) information regarding the ErgoBilt
Companies' marketing, sales, research and development and new product
plans, ErgoBilt Companies' business plans, budgets, and unpublished
financial statements, ErgoBilt Companies' licenses, suppliers and
customers,
<PAGE> 3
Mr. P. Michael Sullivan
September 16, 1996
Page 3
and information regarding the skills and compensation of ErgoBilt
Companies' officers and employees. Confidential Information shall also
include any and all matters relating to the IPO, the merger with
BodyBilt, and the Company's agreements with its underwriters, bridge
lenders, or other third parties.
(ii) Non-Disclosure Agreement. You shall have no right
whatsoever to use, exploit, or disclose the Confidential Information for
any purpose other than in the performance of your obligations hereunder,
or to disclose it to any employee or other representative of the
ErgoBilt Companies other than on a "need to know" basis, or to disclose
it to any third party without the written consent of the ErgoBilt
Companies, which consent may be withheld in the ErgoBilt Companies' sole
discretion and which consent, when given, may require the third party to
execute a Non-Disclosure Agreement in a form satisfactory to the
Company.
(iii) Protection Policies and Procedures. You shall strictly
comply with any and all policies and procedures adopted by the ErgoBilt
Companies so as to protect the Confidential Information. Such policies
and procedures may include, without limitation: marking all written
materials "Confidential Information of (Name of Specific ErgoBilt
Company)" and/or with such other legends necessary or appropriate to
identify the materials as the ErgoBilt Companies' Confidential
Information; limiting access to and/or dissemination of the Confidential
Information to those persons who have a "need to know" the Confidential
Information to enable such persons to perform their duties consistent
with the purposes for which such Confidential Information was disclosed;
limiting and otherwise controlling copies or other forms of reproduction
of the Confidential Information; and maintaining the Confidential
Information in a secure place or places so as to preclude unauthorized
access thereto. If you are in doubt as to whether certain information
constitutes Confidential Information, you should assume such information
is Confidential Information subject to protection under this Letter
Agreement and treat such information accordingly.
(iv) Grounds of Dismissal. You acknowledge and agree that your
breach of your obligations under the terms of this Letter Agreement
shall constitute grounds for immediate termination.
(v) Non-Competition. You expressly agree that, any time
during or after the termination of this Letter Agreement, you will not
use any of the Confidential Information to compete, in any way, with the
ErgoBilt Companies without the prior written consent of the Company,
which consent may be withheld in its sole and absolute discretion.
<PAGE> 4
Mr. P. Michael Sullivan
September 16, 1996
Page 4
(vi) Injunctive Relief. You understand and agree that the
ErgoBilt Companies have a substantial ongoing investment in the
development of the Confidential Information, and the ErgoBilt Companies
would be irreparably injured if this Letter Agreement were to be
breached. Should the ErgoBilt Companies, or any one of them, bring suit
for breach of this Letter Agreement or for unauthorized use or
disclosure of any Confidential Information, you consent to jurisdiction
and venue in any federal or state court in Texas, in Dallas County, and
agree that preliminary and permanent injunctive relief would be an
appropriate, though not exclusive, remedy and agree not to oppose any
request for expedited discovery in such an action.
(vii) Return of Written Materials. Immediately upon the
termination of this Letter Agreement and provided that you do not become
an employee of the Company for any reason, you shall return to the
Company the original and all copies of any written Confidential
Information.
5. INDEPENDENT CONTRACTOR. It is expressly understood that you are
acting as an independent contractor and are not subject to the Company's
control nor authorized to act as the Company's agent or legal representative.
This Letter Agreement shall not act or be construed to create an
employer-employee relationship, partnership, joint venture or any other agency
relationship between the parties. Absent the Company's prior approval, you
shall have no authority or power to make any commitments of any nature
whatsoever for the account of or on behalf of the Company. You shall have the
right to employ such personnel as you deem necessary to render services
hereunder; however, such personnel shall be at your sole cost, risk and
responsibility. You shall be responsible for all social security, income tax
withholding, unemployment insurance, and such other amounts the Company would
otherwise be required to deduct and withhold from amounts payable to you.
6. NO ASSIGNMENT, BINDING EFFECT. You may not assign this Letter
Agreement or your obligations hereunder. This Letter Agreement shall be
binding on you and your heirs, beneficiaries, representatives, successors and
assigns. This Letter Agreement will inure to the benefit of the Company and
its respective successors and assigns.
7. GOVERNING LAW. This Letter Agreement shall be governed and
interpreted by the laws of the State of Texas.
8. ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Letter Agreement, the prevailing
party in such action shall be entitled to reasonable attorney's fees, costs,
and necessary disbursements in addition to any other relief to which they may
be entitled.
<PAGE> 5
Mr. P. Michael Sullivan
September 16, 1996
Page 5
9. MODIFICATIONS. All additions or modifications to this Letter
Agreement must be made in writing and must be signed by both you and the
Company.
10. SURVIVAL OF CERTAIN COVENANTS. Your obligations contained in
paragraph 4 above shall survive the termination of this Letter Agreement.
If the foregoing accurately states our agreement with respect to the
subject matter hereof, please execute the original and enclosed copy of this
Letter Agreement. Retain the original letter for your files and return the
fully executed duplicate original to me for the Company's files.
Very truly yours,
/s/ GERARD SMITH
-----------------------------------
Gerard Smith
President
Accepted and Agreed:
/s/ P. MICHAEL SULLIVAN
- ------------------------------
P. Michael Sullivan
<PAGE> 1
EXHIBIT 10(o)
EXECUTIVE EMPLOYMENT AGREEMENT
(P. Michael Sullivan)
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated as of September
16, 1996 (the "Effective Date"), is made and entered into by and between
ErgoBilt, Inc., a Texas corporation ("Company"), and P. Michael Sullivan, an
individual ("Executive").
W I T N E S S E T H:
WHEREAS, BodyBilt Seating, Inc. ("BBSI") is engaged in the
manufacturing, marketing and selling of ergonomically-correct chairs; and
WHEREAS, Company and its wholly-owned subsidiary, EB Subsidiary, Inc., a
Texas corporation ("Company's Subsidiary") has merged with BBSI, with Company's
Subsidiary surviving under the name of "BodyBilt Seating, Inc.;" and
WHEREAS, Company intends to continue to operate Company's Subsidiary and
to acquire other businesses and assets compatible with or complementary to the
business of Company's Subsidiary and Company; and
WHEREAS, Executive has represented to Company that he has substantial
financial and accounting experience, skills and expertise; and
WHEREAS, Company desires to employ Executive on a full-time basis as
senior vice president and chief financial officer, and Executive is willing to
provide such services and take on such responsibilities for the consideration
hereinafter set forth.
NOW, THEREFORE, the parties, for and in consideration of the mutual
promises herein contained, agree as follows:
ARTICLE I
Employment
1.1 General Scope of Employment. Commencing on the "Commencement
Date" (as defined in Article II below), Company shall employ Executive as the
Senior Vice President ("Sr. V.P.") and Chief Financial Officer ("CFO") of
Company on the terms of and subject to the conditions of this Agreement.
Executive shall report directly to Company's President and shall perform the
principal duties and responsibilities set forth in Section 1.2 below and such
additional duties and responsibilities, consistent with his professional
experience, as may reasonably be assigned to him from time to time by Company's
President. Executive hereby accepts such employment and agrees to devote his
full time and energy to Company's business as shall be necessary to perform his
duties and responsibilities in a faithful and competent manner.
<PAGE> 2
1.2 Principal Duties and Responsibilities. As Sr. V.P. and CFO of
Company, Executive shall be fully responsible for the general financial
operations of the Company and its subsidiaries and shall perform all duties
incident to the offices of Sr. V.P./CFO, and shall see that directions of the
President are carried into effect. Executive's principal duties and
responsibilities shall be to: (i) act in a manner consistent with the
direction of the President that will maximize the value of the outstanding
stock of the Company; (ii) develop, oversee and maintain all accounting
procedures and functions; (iii) prepare all Company financial statements; (iv)
interact with and otherwise serve as a liaison to Company's outside certified
public accountants; (v) oversee and supervise any Company audits; (vi)
undertake Company's tax planning; (vii) develop, implement, execute and carry
out in conjunction with the other officers of the Company its business plans as
and when approved by the Board; (viii) hire and manage all accounting and
financial personnel; (ix) review and comment on the financial implications of
all material contracts concerning Company; (x) review and comment on the
financial aspects of all strategic and operational plans; and (xi) perform such
other duties and responsibilities necessary to integrate and coordinate the
financial activities of Company into an overall investment and management
philosophy.
1.3 Office Facilities. Company shall furnish Executive with an
office, secretary services, supplies, equipment and such other facilities and
services suitable to his position and adequate for the performance of his
duties.
1.4 Extent of Services. After Closing under the Merger Agreement,
Executive shall devote all of his time, attention and energy to Company's
business and shall not engage in any other business or consulting activity for
gain, profit or other pecuniary advantage except as expressly provided in this
Agreement. Nothing hereinabove is intended to prevent Executive from making
personal passive investments in other business activities not directly or
indirectly competitive with the business of Company.
1.5 Outside Board Activities. Subject to the conditions hereinafter
set forth, after the Closing under the Merger Agreement, Executive may, upon
prior notice to Company's Board, serve as a member of no more than two (2)
boards of directors, boards of trustees or other governing bodies of "for
profit" companies and/or "non-profit" civic, cultural, educational and/or
charitable organizations, provided that in all cases: (i) such company or
organization is not directly or indirectly engaged in a business or does not
support a business that is competitive, directly or indirectly, with the
business of Company, and (ii) such service does not interfere with Executive's
ability to perform his duties and responsibilities to Company.
1.6 Outside Income. Absent Company's written consent, all fees,
compensation and other income (collectively "Outside Income") received by
Executive while employed by Company from any source other than personal gifts,
inheritance, or passive investments, including, but not limited to, all fees
for teaching, speaking engagements, acting as an officer, director, trustee,
receiver, executor, administrator or other fiduciary (other than as a trustee,
executor, or administrator of a trust or estate of Executive or a member of his
family) shall be the property of Company and shall be immediately disclosed and
remitted to Company.
2
<PAGE> 3
ARTICLE II
Term
Executive's employment shall be for an initial term ("Term") of three
(3) years commencing on the date of the closing of the Company's initial public
offering ("IPO") of its common stock (the "Commencement Date") and terminating
three (3) years thereafter. In the event that the IPO does not close for any
reason, this Agreement shall be rendered null and void and of no further force
and effect.
ARTICLE III
Annual Base Salary and Miscellaneous Benefits
3.1 Annual Base Salary. As compensation for all duties and services
to be rendered by Executive hereunder to Company, Company shall pay to
Executive an Annual Base Salary of Eighty-Five Thousand Dollars ($85,000.00)
for each twelve (12) month period of the Term. Annual Base Salary shall be
paid in twelve (12) equal monthly installments, payable in accordance with
Company's customary payroll policy in effect at the time such payment is made,
or as may otherwise be mutually agreed upon in writing by the parties. Annual
Base Salary for services rendered for a partial month shall be prorated based
on a thirty (30) day month.
3.2 Performance Incentive Plan. It is the intent of the parties that
Company adopt as soon as reasonably possible and/or from time to time such
bonus and/or incentive plans, stock option plans and such other plans to
provide incentive or additional compensation to its senior executives ("Senior
Management Incentive Plans"). Such Senior Management Incentive Plans shall be
adopted on such terms and conditions deemed to be in the best interests of
Company and may provide for awards in the form of cash, equity or other
benefits. Executive shall become a named participant to such Senior Management
Incentive Plans.
3.3 Expenses. During the term of his employment hereunder, Executive
shall be entitled to incur reasonable business expenses ("Business Expenses")
in performing his services hereunder, including transportation, entertainment,
travel, professional dues, professional periodicals, and business promotion.
All Business Expenses shall be subject to the approval of the Company and
reimbursed by Company upon presentation of receipts or other documentation
establishing the nature of the expense, the time-date-place incurred, and the
business reason for such Business Expense. Company shall not have any
obligation to reimburse any Business Expense not presented for reimbursement
within ninety (90) days of the date on which such Business Expense was
incurred.
3.4 Vacation and Sick Days.
3.4.1 Executive shall be entitled to fifteen (15) business days
of paid vacation per year (which need not be taken consecutively). Such
vacation shall be scheduled to minimize interference with the business.
Executive shall also be entitled to all paid holidays given by Company
to its employees.
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3.4.2 Executive shall be entitled to not more than five (5) days
paid sick days per year.
3.4.3 Vacation and sick day benefits must be taken in the year
in which they accrue and may not be taken in any subsequent year absent
the Company's consent, nor may Executive request payment of the cash
equivalent of accrued vacation or sick days not taken.
3.5 Other Benefits. Company shall provide to Executive the following
additional benefits:
3.5.1 Miscellaneous Benefits. Executive shall be entitled to
participate in Company major medical and/or dental plans, life insurance
programs, accidental death and dismemberment insurance, retirement
benefits, disability benefits, any other insurance programs provided by
the Company, and any other benefit programs hereafter adopted by the
Company consistent with Company policies, if and when adopted.
3.5.2 ERISA Plans. Executive shall have the right to
participate in any plans providing deferred compensation benefits as and
when adopted by Company under the various provisions of the Employee
Retirement Income Security Act ("ERISA"), as amended from time to time.
3.5.3 Company Car. Consistent with Company policies as adopted
from time to time, Executive shall be provided a "Company Car" for his
use during the term of this Agreement. Company shall pay or reimburse
Executive for all "Company Car Expenses." Company Car Expenses shall
include: (i) insurance; (ii) gas, regular servicing, maintenance and
repairs (unless caused by Executive's own negligence, mistreatment or
misuse of the Company Car, or from Executive's own misconduct); and
(iii) all lease or debt service payments on such Company Car. Executive
shall be responsible for all personal costs and expenses associated with
any personal use of the Company Car. All Company Car Expenses shall be
reimbursed and payable consistent with the provisions of Section 3.3
above. In the event that Company adopts a "car allowance " policy,
Executive's allowance shall be approximately Five Hundred and No/100
Dollars ($500.00), provided such sum is reasonably comparable to that
being provided similar executives and managers of the Company.
ARTICLE IV
Inventions, Competition and Confidentiality
4.1 Inventions. All designs, discoveries, improvements, and
inventions (collectively, "Inventions"), whether patentable or unpatentable,
whether copyrightable or uncopyrightable, whether of a business or technical
nature, made or conceived by Executive alone or with others, during the Term of
this Agreement shall be owned exclusively by Company whether or not such
Inventions are along the lines of the actual or anticipated business, work,
research or investigations of Company or which result from or are suggested by
any work done for Company or which relate
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to Company's business. Executive shall promptly disclose such Inventions to
Company. In addition, Executive shall perform all actions (without any expense
to Executive) reasonably requested by Company to establish and confirm such
ownership including, but not limited to, assigning to Company, without
additional compensation, the entire worldwide rights to such Inventions,
signing all necessary papers, instruments and other documents and giving sworn
testimony in support thereof.
4.2 Non-Competition. Executive covenants and agrees with Company
that, except as otherwise consented to, approved or permitted in writing by
Company's Board, at any time while employed as an executive employee of Company
and for a period of two (2) years after the termination of Executive's
employment hereunder, Executive will not, directly or indirectly, whether as an
officer, director, employee, independent contractor, or whether acting alone or
as a member of a partnership, joint venture or as a holder or investor in any
security or other financial interest of any corporation or other business
entity, engage in any "Competitive Activity" as defined herein. For the
purposes of this Agreement, "Competitive Activity" shall mean:
(a) the solicitation of any customers or potential customers
of Company to purchase any products or services in direct competition
with the products and services provided by Company;
(b) requesting any actual or prospective customer or supplier
of Company to curtail or cancel their business with Company;
(c) except as provided by law or in any other contract or
agreement of even date herewith executed and delivered pursuant hereto,
the disclosure to any person, firm or corporation any details of the
organization, business affairs, intellectual property or technology of
Company; or
(d) any action designed to induce or attempt to influence any
employee of Company to terminate his or her employment with Company or
employ or assist anyone else in the employment of any of the employees
of Company.
The restrictions of this section shall apply only to the metropolitan
areas where Company was conducting business as of the Termination Date.
Competitive Activity shall not include Executive's mere ownership of securities
in any publicly-traded company in which Executive holds or controls less than
five percent (5%) of the issued and outstanding securities.
The parties agree that the duration and geographic scope of the
non-competition provision set forth in this section are reasonable. In the
event that any court determines that the duration or the geographic scope, or
both, are unreasonable and that such provision is to that extent unenforceable,
the parties agree that the provision shall remain in full force and effect for
the greatest time period and in the greatest area that would not render it
unenforceable. The parties intend that this non-competition provision shall be
deemed to be a series of separate covenants, one for each and
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every county of each and every state of the United States of America and each
and every political subdivision of each and every country outside the United
States of America where this provision is intended to be effective. Executive
agrees that damages are an inadequate remedy for any breach of this provision
and that the Company shall, whether or not it is pursuing any potential
remedies at law, be entitled to equitable relief in the form of preliminary and
permanent injunctions without bond or other security upon any actual or
threatened breach of this non-competition provision.
4.3 Non-Disclosure. Executive shall execute and deliver,
contemporaneous with the execution and delivery of this Agreement, Company's
standard form Non-Disclosure Agreement in the form attached hereto as Exhibit
4.3.
4.4 Enforcement. Executive and Company further agree and acknowledge
that Company does not have an adequate remedy at law for the breach or
threatened breach by Executive of the covenants and agreements set forth in
Sections 4.1, 4.2 and the Non-Disclosure Agreement executed pursuant to Section
4.3 above. Accordingly, Executive further agrees that Company may, in addition
to the other remedies which may be available to it hereunder, file suit in
equity to enjoin Executive from such breach or threatened breach.
4.5 Disclosure of Competitive Investments. To the best of Executive
knowledge, Executive does not own or hold directly, indirectly or beneficially
by Executive any investments competitive with the business of Company. In the
event that Company determines that Executive holds a material interest in a
competitive investment, Company may require Executive to divest himself of such
investment unless such interest is held in a publicly-traded mutual fund in
which Executive holds less than five percent (5%) of the issued and outstanding
shares or is held in a portfolio account over which Executive has no power to
exercise any investment or management decisions.
ARTICLE V
Termination
5.1 Termination by Company Upon Executive's Death or Disability.
Company has the right to terminate this Agreement and Executive's employment
hereunder in the event of Executive's death or disability as provided below.
5.1.1 Death. If Executive dies during the term of this
Agreement, then this Agreement shall terminate immediately effective on
the date of Executive's death ("Termination Date") without notice.
5.1.2 Disability. If, during the term of this Agreement,
Company's Board reasonably determines that Executive has become
physically or mentally disabled, whether totally or partially, so that
he is prevented from performing fully his usual duties and services
hereunder, Company may provide written notice to Executive and terminate
Executive's employment hereunder, effective on such date specified in
such notice (also "Termination
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Date"). "Disability" shall mean Executive's permanent inability to
perform the duties and responsibilities required hereunder due to
Executive's physical or mental condition as determined by a licensed
physician selected by Company's Board in consultation with Executive's
personal physicians.
5.1.3 Payment of Compensation and Other Benefits on Death or
Disability. In the event of the termination of this Agreement by reason
of Executive's death or disability, Executive (or his estate) shall be
entitled to payment of amounts due under this Agreement as follows:
(i) Annual Base Salary. Company shall pay in full and
complete satisfaction of amounts due under Section 3.1 as Annual
Base Salary: (i) upon death, Annual Base Salary through the last
day of the calendar month in which the applicable Termination
Date occurs; and (ii) upon disability, Annual Base Salary equal
to the immediately succeeding six (6) monthly payments from the
last day of the calendar month in which the applicable
Termination Date occurs, less any monthly disability payments, if
any, for such period which could be claimed.
(ii) Incentive Plan and Bonus Compensation. Any amounts
awarded to Executive but unpaid under any Senior Management
Incentive Plan or as bonus compensation under Section 3.2 of this
Agreement shall be paid by Company to Executive (or his estate)
within twelve (12) full calendar months of the applicable
Termination Date or as otherwise specified in such Senior
Management Incentive Plan or award of bonus compensation.
(iii) Employee Benefit Plans. Executive (or his estate)
shall be entitled to receive all other benefits provided to
employees of Company as set forth in any employee benefit plans
in effect as of the applicable Termination Date in which
Executive was a qualified participant.
5.2 Termination by Company for Due Cause.
5.2.1 "Due Cause". Company shall have the right to terminate
this Agreement and Executive's employment hereunder for "Due Cause" upon
written notice to Executive, effective upon such date specified in such
notice (also "Termination Date"). Executive shall not be deemed to have
been terminated for "Due Cause" hereunder unless and until notice of
such termination stating the grounds therefor has been delivered to
Executive and Executive, together with his counsel, has had an
opportunity to be heard by a panel of no less than two (2) senior
officers and three (3) board members, who find in good faith that
Executive committed an act or omission set forth below in this Section
5.2.1. Nothing herein shall limit the right of Executive to contest the
validity or propriety of any such determination.
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"Due Cause" shall mean that Executive has:
(i) committed an intentional act of fraud, embezzlement
or theft in connection with his duties or in the course of his
employment with Company;
(ii) pled guilty or nolo contendere to, or is convicted
of, a felony, whether or not related to his duties or in the
course of his employment;
(iii) wrongfully disclosed "Confidential Information" of
Company as defined in the Non-Disclosure Agreement executed by
Executive pursuant to Section 4.3;
(iv) engaged in any Competitive Activity;
(v) engaged in misconduct or in conduct contrary to
written directions of Company's Board that materially injures
Company's financial or other interests;
(vi) breached any material provision of this Agreement;
(vii) violated any federal, state, or local governmental
policies, plans or procedures governing the workplace environment
(e.g., EEOC, Title VII, Texas Workers Compensation Act or
Wage/Salary/Benefits policies or procedures) or any such
policies, plans or procedures developed by Company or its
subsidiaries with respect to Company's desire to operate a
professional working environment; and
(viii) engaged in any unprofessional conduct unbecoming a
senior executive of the Company or comparable businesses after
notice of such conduct and Executive's subsequent failure to
cease and desist.
5.2.2 Effect on Compensation and Benefits. In the event of
termination for Due Cause, Company shall pay to Executive: (i) Annual
Base Salary under Section 3.1 on a pro rata basis to the applicable
Termination Date; and (ii) any unpaid amounts awarded to Executive under
an Senior Management Incentive Plan under Section 3.2. In the event of
such termination, any rights and benefits Executive may have under
employee benefit plans and programs of Company generally and under any
incentive plan of Company shall be determined in accordance with the
terms of such plans and programs. Termination of Executive's employment
pursuant to this Section 5.2 shall not affect Executive's obligations
and undertakings in the last sentence of Section 4.1 and in Section 4.2
hereof or under the Non-Disclosure Agreement executed pursuant to
Section 4.3.
5.3 Breach of Agreements. Executive acknowledges that a material
part of the inducement for Company to enter into this Agreement is Executive's
covenant with respect to non-competition, non-disclosure, non-cooperation and
non-solicitation set forth in Article IV hereof.
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Executive agrees that if Executive breaches any of those covenants, Company
shall have no further obligation to pay Executive any amounts or benefits
otherwise payable hereunder (except as may otherwise be required at law) and
shall be entitled to such other legal and equitable relief as a court of
arbitrator shall reasonably determine unless such breach is an inadvertent
breach that does not result in any material harm to Company.
5.4 No Negative Public Comments. Upon the expiration or earlier
termination of this Agreement for any reason, Executive agrees not to make any
false, misleading or negative statement, either orally or in writing, about
Company or its directors or organizations or its officers, shareholders or any
affiliates of the same or to otherwise disparage them or any of them.
ARTICLE VI
General
6.1 Notice. All notices and other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when: (i) delivered personally; (ii) mailed by United States registered mail or
certified mail, return receipt requested, postage prepaid, addressed as set
forth below; or (iii) mailed by Federal Express, DHL, or such other nationally
recognized overnight courier service, addressed as set forth below:
Address for Company:
ErgoBilt, Inc.
5000 Quorum
Suite 147, Lock Box 43
Dallas, Texas 75240
Attention: Gerard Smith, President
with copies to:
Wolin, Fuller, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Attention: Norman R. Miller, Esq.
Address for Executive:
P. Michael Sullivan
5009 Sail Creek Drive
Plano, Texas 75093
or to such other address as a party may furnish to the others in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
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6.2 Binding Effect. This Agreement shall inure to the benefit of and
be enforceable by the parties and their respective successors, heirs,
representatives and permitted assigns.
6.3 No Waiver; Entire Agreement. No provision of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by Executive and Company. No waiver by any
party at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not expressly set
forth in this Agreement.
6.4 Headings. Section and paragraph headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Agreement.
6.5 Assignments. This Agreement is personal to Executive and may not
be assigned by Executive or the duties delegated without the prior written
consent of Company. Also, Executive may not assign, transfer, hypothecate or
dispose of any interest in compensation or payments without Company's prior
written consent.
6.6 Governing Law and Venue. This Agreement has been executed in
Dallas County, State of Texas, and the substantive laws of the State of Texas
shall govern the validity, construction, enforcement and interpretation of this
Agreement.
6.7 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
6.8 Mediation/Arbitration/Legal Fees. If any dispute arises among
the parties with respect to this Agreement, then the parties shall submit such
dispute to mediation before a mediator in accordance with the mediation rules
of Dallas County, Texas. If the parties are unable to resolve the dispute
through mediation, they shall then submit the dispute to binding arbitration
pursuant to the rules and regulations of the American Arbitration Association
(the "AAA"). The parties agree that if arbitration becomes necessary, they
will utilize and comply with all available rules of the AAA for expediting such
arbitration. The site of the arbitration will be the City of Dallas, Dallas
County, Texas, and will commence as soon as possible but in no event later than
thirty (30) days after a party files for arbitration. In the event of any
action to enforce or interpret this Agreement, the prevailing party therein
shall be entitled to recover all reasonable costs and expenses incurred,
including reasonable attorneys' fees.
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6.9 Confidentiality. To the fullest extent permitted by law, the
parties agree not to disclose any provision of this Agreement to any third
party except if required in response to litigation among the parties, a
subpoena, governmental inquiry, or other legal process.
IN WITNESS HEREOF, the parties have duly executed this Agreement as of
the Effective Date.
COMPANY:
-------
ERGOBILT, INC.,
A Texas Corporation
By: /s/ GERARD SMITH
-----------------------------------
Gerard Smith
Its: President
EXECUTIVE:
---------
/s/ P. MICHAEL SULLIVAN
--------------------------------------
P. MICHAEL SULLIVAN
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EXHIBIT 4.3
ERGOBILT COMPANIES
STANDARD EMPLOYEE NON-DISCLOSURE AGREEMENT
This Employee Non-Disclosure Agreement (the "Agreement") is executed as
of ____________, 199_, by and between the undersigned employee ("Employee") of
ErgoBilt, Inc., a Texas corporation ("Company"), and/or of BodyBilt Seating,
Inc., a Texas corporation ("Subsidiary"), with respect to the following facts.
A. Company and Subsidiary (collectively, the "ErgoBilt
Companies") are engaged in the business of designing, manufacturing, marketing,
selling and ergonomically correct chairs.
B. The ErgoBilt Companies may from time to time disclose to
Employee certain confidential proprietary information that has been developed
by the ErgoBilt Companies and/or their affiliates. Confidential Information
may also be disclosed to Employee inadvertently or unlawfully by third parties.
Such confidential information represents a unique valuable asset of the
ErgoBilt Companies.
C. Employee desires to be employed by the ErgoBilt Companies
and the ErgoBilt Companies are willing to employ Employee on the condition that
Employee agrees to define Employee's duties and obligations regarding the
disclosure and/or use of such confidential proprietary information on the terms
and conditions set forth herein.
Now, therefore, in consideration of the premises and mutual
covenants contained herein, and for such other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
(i) Confidential Information. For purposes of this
Agreement, the term "Confidential Information" shall mean trade
secrets, product and other research and development activities,
inventions, and any other knowledge, data or information that the
ErgoBilt Companies treat as proprietary, whether or not such
Confidential Information is patentable or copyrightable, however
it is embodied and irrespective of whether it is labeled as
"proprietary" or "confidential" and whether or not it was
developed by Employee. By way of illustration but not
limitation, Confidential Information includes (a) know-how,
ideas, improvements, discoveries, developments, processes,
existing and future product design and performance
specifications, techniques, formulas, algorithms, product
architectures, source and object codes, data, data compilations
and other works of authorship; and (b) information regarding the
ErgoBilt Companies' marketing, sales, research and development
and new product plans, ErgoBilt Companies' business plans,
budgets, and unpublished financial statements, ErgoBilt
<PAGE> 13
Companies' licenses, suppliers and customers, and information
regarding the skills and compensation of ErgoBilt Companies'
officers and employees.
(ii) Non-Disclosure. Employee recognizes that Employee
shall have no right whatsoever to use, exploit, or disclose the
Confidential Information for any other purpose, or to disclose it
to any other employee of the ErgoBilt Companies other than on a
"need to know" basis, to disclose it to any third party without
the written consent of the ErgoBilt Companies, which consent may
be withheld in the ErgoBilt Companies' sole discretion and which
consent, when given, may require the third party to execute a
Non- Disclosure agreement in a form satisfactory to the ErgoBilt
Companies.
(iii) Protection Policies and Procedures. Employee shall
strictly comply with any and all policies and procedures adopted
by the ErgoBilt Companies so as to protect the Confidential
Information. Such policies and procedures may included, without
limitation: marking all written materials "Confidential
Information of (Name of Specific ErgoBilt Company)" and/or with
such other legends necessary or appropriate to identify the
materials as the ErgoBilt Companies' Confidential Information;
limiting access to and/or dissemination of the Confidential
Information to those persons who have a "need to know" the
Confidential Information to enable such persons to perform their
duties consistent with the purposes for which such Confidential
Information was disclosed; limiting and otherwise controlling
copies or other forms of reproduction of the Confidential
Information; and maintaining the Confidential Information in a
secure place or places so as to preclude unauthorized access
thereto. If Employee is in doubt as to whether certain
information constitutes Confidential Information, Employee should
assume such information is Confidential Information subject to
protection under this Agreement and treat such information
accordingly.
(iv) Grounds of Dismissal. Employee acknowledges and
agrees that Employee's breach of his or her obligations under the
terms of this Agreement shall constitute grounds for dismissal
for cause.
(v) Non-Competition. Employee expressly agrees that
Employee will not use any of the Confidential Information to
compete, in any way, with the ErgoBilt Companies without the
prior written consent of the ErgoBilt Companies, which consent
may be withheld in their sole and absolute discretion.
(vi) Injunctive Relief. Employee understands and agrees
that the ErgoBilt Companies have a substantial ongoing investment
in the development of the Confidential Information, and the
ErgoBilt Companies would be irreparably injured if this Agreement
were to be breached. Should the ErgoBilt Companies bring suit
for breach of this Agreement or for unauthorized use or
disclosure of any Confidential Information, Employee consents to
jurisdiction and venue in any
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federal or state court in Texas, in Dallas County, and agrees
that preliminary and permanent injunctive relief would be an
appropriate, though not exclusive, remedy and agrees not to
oppose any request for expedited discovery in such an action.
(vii) Return of Written Materials. Immediately upon
Employee's voluntary or involuntary termination of employment
with the ErgoBilt Companies for any reason, with or without
cause, or at any time promptly upon the written request of the
ErgoBilt Companies, Employee shall return to the ErgoBilt
Companies the original and all copies of the Confidential
Information, and all notes, diagrams, papers, documents and other
materials irrespective of form, concerning or relating to such
Confidential Information in the possession or control of
Employee.
(viii) No Assignment, Binding Effect. Employee may not
assign this Agreement or Employee's obligations hereunder. This
Agreement shall be binding on Employee and his or her heirs,
beneficiaries, representatives, successors and assigns. This
Agreement will enure to the benefit of the ErgoBilt Companies and
their respective successors and assigns.
(ix) Governing Law. This Agreement shall be governed
and interpreted by the laws of the State of Texas.
(x) Attorneys' Fees. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement,
the ErgoBilt Companies shall be entitled to reasonable attorney's
fees, costs, and necessary disbursements in addition to any other
relief to which they may be entitled.
(xi) Modifications. All additions or modifications to
this Agreement must be made in writing and must be signed by
Employee and the ErgoBilt Companies.
(xii) Survival of Certain Covenants. Employee's
obligations hereunder and his or her acknowledgments and
agreements contained in paragraphs (ii), (v), and (vii) hereof
shall survive the termination of this Agreement.
This Agreement shall be deemed executed and effective as of the date
first set forth above.
Employee: ErgoBilt, Inc.
A Texas Corporation
/s/ MICHAEL SULLIVAN /s/ GERARD SMITH
- ------------------------------ ------------------------------
Signature By: Gerard Smith
Its: President
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BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By: /s/ GERARD SMITH
------------------------------
Gerard Smith
Its: President
4
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EXHIBIT 10(p)
BUSINESS MANAGEMENT CONTRACT
THIS BUSINESS MANAGEMENT CONTRACT, hereinafter referred to as BMC,
entered into this 1st day of JANUARY, 1996, between BODYBILT SEATING, INC., a
Texas Corporation, hereinafter referred to as BBS, and AGRIVEST, INC., a Texas
Corporation, hereinafter referred to as AV.
In consideration of the mutual promises herein contained and the
consideration herein provided, the parties hereto agree as follows:
RECITALS
WHEREAS, it is the desire of BBS to engage the services of AV to perform
for BBS general administrative and management oversight functions for the
operation of BBS as an independent consultant, and has engaged AV in such a
position since July 1, 1988, and
WHEREAS, it is the desire of AV to provide and render general
administrative and management oversight functions for BBS, in the capacity of
an independent consultant, and has provided such services for BBS since July 1,
1988, and
WHEREAS, it is the desire of BBS and AV to extend and revise the
Business Management Contract between BBS and AV dated 1 March 1993,
THEREFORE, the following contract is hereby entered into by the parties.
AGREEMENT
TERM
1. Term: The respective duties and obligations of the parties
hereto shall be for a period of three (3) years commencing on January 1, 1996,
and may be terminated after the end of such period by either party giving
thirty (30) days written notice to the other party provided that AV and Mark
McMillan are first released from any corporate or personal guarantees which
they may be required to pledge on behalf of BBS. It is understood and agreed
that this BMC shall continue in effect as long as AV and/or Mark McMillan have
any corporate or personal guarantees securing any BBS debt, whether it be with
lending institutions, suppliers, or other creditors. This contract may be
canceled 30 days after the sale of the entire business if requested by the new
board of directors provided all personal and corporate guarantees of Mark
McMillan and Agrivest, Inc. are paid off.
DUTIES AND OBLIGATIONS OF AV
2. During the period of this BMC, AV shall provide the customary and
incidental duties necessarily possessed and performed by an executive and
general manager of similar business venture. Such duties and authority
include, but are in no way limited to having:
<PAGE> 2
A. the absolute and complete authority and responsibility to employ
(in such terms and for such compensation as AV deems proper), discharge direct,
supervise control and direct the payment of each and every employee of BBS;
B. the absolute and complete authority and responsibility to direct
the business affairs of BBS encompassing such things that affect (either
directly or indirectly) the operation of BBS including entering contracts on
behalf of BBS arising in the ordinary course of business, opening and closing
bank accounts on behalf of BBS necessary for carrying out the fiscal policies
of BBS, purchasing insurance, supplies, equipment and machinery necessary for
the operation of BBS, establishing open credit with suppliers and creditors,
borrowing and securing money on behalf of BBS, and filing all required business
related reports to state and federal agencies;
C. the absolute and complete authority and responsibility to hire
specialists and assistants on behalf of BBS to advise, consult and protect the
physical, financial and legal interest of BBS such as attorneys, CPAs, and
financial analysts; and
D. the authority and responsibility for formulating and
administrating the policies of BBS in connection with BBS's advice and consent.
DEPOSIT OF FUNDS
3. All funds of BBS shall be deposited in one or more banks, located
where ever it is necessary, as determined by AV, for such accounts to be
maintained. All checks, drafts, or other instruments by which funds are
withdrawn from said accounts shall be properly ledgered and bear the signature
of a designated officer or employee of AV or designated officer or employee of
BBS.
LIMITED LIABILITY
4. With regard to the services to be performed by AV pursuant to the
terms of this BMC, AV shall not be liable to BBS or to anyone who may claim any
right due to his relationship with BBS, for any acts, errors or omissions in
the performance of said services on the part of AV or on the part of agents or
employees of AV, except when said acts, errors or omissions of AV are due to
their willful misconduct or culpable negligence. BBS shall hold AV free and
harmless from any obligations costs, claims, judgments attorney's fees and
attachments arising from or growing out of the services rendered to BBS
pursuant to the terms of this BMC or in any way connected with the rendering of
said services, except when the same shall arise due to the willful misconduct
or culpable negligence of AV, and AV is adjudged to be guilty of willful
misconduct or culpable negligence by a court of competent jurisdiction.
COMPENSATION
5. During the term of this BMC and beginning January 1, 1993, AV
shall receive the sum of $5,000 per month for bookkeeping services and general
administrative services, such as filing
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<PAGE> 3
of required state and federal reports, etc. plus $150/hour for other services
attributable to Chief Executive Officers (CEO) or Chief Financial Officers
(CFO). It is anticipated that the bookkeeping and general administrative
services provided to BBS by AV shall require on average 40 - 50 hours per
month. Services for CEO and CFO services will be billed separately to BBS by
AV.
ACCOUNTING
6. AV shall, at the end of each of BBS's fiscal years, render a full
and comprehensive financial statement to BBS containing all the pertinent
information necessary for BBS to complete its income taxes for that fiscal
year. AV shall provide BBS all financial and accounting information and data
it should desire from time to time.
NOTICES
7. Any notice given hereunder shall be in writing and delivered or
mailed by certified mail, return receipt requested to:
A. To BBS, addressed to BodyBilt Seating, Inc., One BodyBilt Place,
Navasota, TX 77868.
B. To AV, addressed to Agrivest, Inc., 4455 Carter Creek Parkway,
Bryan, TX 77802.
DISPUTES
8. Any claim or dispute arising out of or relating to this BMC shall
be settled by mediation and, if necessary, binding arbitration in accordance
with the "Rules of Procedure for Christian Conciliation" of the Association of
Christian Conciliation Services, and judgment upon an arbitration award may be
entered in any court of competent jurisdiction. If such mediation and or
arbitration is required, the prevailing party shall be entitled to
reimbursement of all costs, fees, and other disbursements from the other party.
TEXAS LAW TO APPLY
9. This BMC shall be construed under and in accordance with the laws
of the State of Texas, and all obligations, of the parties created hereunder
are performable in Brazos County, Texas.
PARTIES BOUND
10. This BMC shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and assigns where permitted by this BMC.
3
<PAGE> 4
LEGAL CONSTRUCTION
11. In case any one or more of the provisions contained in this BMC
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision thereof, and this BMC shall be construed as if such invalid,
illegal, or unenforceable provision had never been contained herein.
PRIOR AGREEMENTS SUPERSEDED
12. This BMC constitutes the sole and only agreement of the parties
hereto and supersedes any prior understanding or written or oral agreements
between the parties respecting the within subject matter.
13. This contract is cancelable with a 60 day notice in the event of
the death or permanent disability of Mark McMillan.
BODYBILT SEATING, INC. AGRIVEST, INC.
by its President: by its President:
/s/ MARK McMILLAN /s/ GALEN E. GREEN
- ------------------------------ ------------------------------
Mark McMillan Galen E. Green
Acknowledged by:
/s/ DREW CONGLETON /s/ RICHARD TROUTMAN
- ------------------------------ ------------------------------
Drew Congleton Richard Troutman
Shareholder, BodyBilt Seating Shareholder, BodyBilt Seating
4
<PAGE> 1
EXHIBIT 10(q)
CONSULTING AGREEMENT
BETWEEN
THE CHAFFERTON COMPANY AND BODYBILT SEATING
EFFECTIVE DATE: AUGUST 1, 1994
WHEREAS, BodyBilt Seating, Inc. (BodyBilt) wishes to obtain from The Chafferton
Company (Chafferton), certain consulting services relating to creative design
and advertising projects, and
WHEREAS, Chafferton wishes to provide those certain consulting services
relating to creative design and advertising projects or any other projects
mutually agreed to which BodyBilt wishes to obtain, (hereafter referred to as
"SERVICES"),
IT IS THEREFORE AGREED that BodyBilt shall obtain from Chafferton, and
Chafferton shall provide to BodyBilt, "services" under the following terms and
conditions:
Chafferton will service BodyBilt's needs as requested on a independent
consultant basis. It is understood and agreed that the full intent of this
Agreement is to establish an independent contractor relationship between the
parties. No employment relationship exists between the parties.
Chafferton agrees to charge BodyBilt on a sliding rate scale for all consulting
services rendered by Gerald McMillan. The sliding rate scale shall be as
follows:
$70/hr for 51 or more hours worked per week
$80/hr for 40-50 hours worked per week
$90/hr for 30-40 hours worked per week
$100/hr for 29 or fewer hours worked per week
Rate scales for other Chafferton employees or subcontractors shall be
negotiated between Chafferton and BodyBilt.
Chafferton agrees to charge BodyBilt, and BodyBilt agrees to reimburse
Chafferton for previously approved expenses at cost. These previously approved
expenses specifically do not include in-town gasoline, cellular phone,
unapproved personal meals, etc., unless otherwise agreed to by BodyBilt.
Chafferton agrees to submit receipts for all costs for which he wants
reimbursement.
Chafferton agrees to bill BodyBilt on a monthly basis for services rendered.
BodyBilt shall have 10 working days to review each billing sent by Chafferton.
Any questions or disputes relating to any bill submitted for payment shall be
raised and resolved within the allotted 10 day review period. Payment of a
bill shall constitute acceptance by BodyBilt of the charges billed by
Chafferton. Acceptance of a payment (or partial payment) by Chafferton shall
constitute full and complete satisfaction and compensation for the services
provided by Chafferton for that month.
<PAGE> 2
It is anticipated that the majority of consulting services requested by
BodyBilt will relate to consultation regarding design issues and advertising
trade issue. It is understood that Chafferton will have other clients and it
will likely be unavailable to work exclusively on projects for BodyBilt.
It is currently anticipated that Chafferton will sublease office space from
BodyBilt at 5000 Quorum Drive. In this regard, beginning September 1, 1994,
and continuing until Chafferton is no longer using the space in BodyBilt's
Dallas office, $400 of the monthly office expense, rent and utilities, will be
charged to Chafferton for his use of the office. As monthly costs increase,
the monthly amount charged to Chafferton will increase proportionately. These
charges will first be offset against any consulting services which Chafferton
has provided to BodyBilt. If a balance is still due after the offset against
consulting, the remaining amount will be offset against the next month's
consulting. At such time that it appears that there will be no more consulting
to offset the monthly office expense against, then the monthly amount shall be
due and payable the first of each month in cash.
Executed effective the first date stated above for the purposed stated herein.
/s/ MARK McMILLAN /s/ GERALD McMILLAN
- ------------------------------ ------------------------------
MARK McMILLAN, PRESIDENT THE CHAFFERTON COMPANY
BODYBILT SEATING, INC. GERALD McMILLAN
/s/ Drew Congleton
- ------------------------------
<PAGE> 1
EXHIBIT 10(r)
CONDITIONAL RELEASE OF COMMISSION
This is an agreement between Gerald McMillan (McMillan) and BodyBilt
Seating, Inc. (BodyBilt).
BACKGROUND AND RECITALS.
1. Commission. McMillan and BodyBilt entered into an Employment
Agreement dated January 1, 1993 (Exhibit "A"). Pursuant to Paragraphs 11 and
12 of the Employment Agreement, McMillan was entitled to receive a commission
on the sale of BodyBilt under the conditions set forth therein. Effective July
31, 1994, the Employment Agreement was terminated by agreement (Exhibit "B").
2. Contemplated transaction. Contemporaneously with the execution
of this agreement, McMillan, BodyBilt and the shareholders of BodyBilt shall
deliver to McMillan a letter of intent dated May 20, 1996 whereby BodyBilt will
merger with a holding company formed by McMillan (hereafter referred to as
"Letter of Intent"). The type of merger contemplated is known as a forward
triangular merger, which will be followed by an IPO (collectively referred to
as "contemplated transaction.").
3. Dispute over commission. A dispute has arisen between McMillan
and BodyBilt on whether the contemplated transaction triggers an obligation on
behalf of BodyBilt to pay McMillan a commission under Paragraphs 11 and 12 of
the Employment Agreement. BodyBilt and its shareholders contend that it does
not trigger any obligation. McMillan contends that it does.
4. Consideration. The parties agree that unless this dispute is
resolved, it could postpone, delay, and even de-rail, the contemplated
transaction. In consideration for moving the contemplated transaction towards
closing an IPO, McMillan and BodyBilt have agreed to enter into this agreement.
BodyBilt's consideration supporting this agreement is the delivery of the
Letter of Intent by BodyBilt's shareholders to McMillan.
COVENANTS.
5. Conditional release. In the event that the contemplated
transaction actually closes through an IPO, then McMillan hereby releases
BodyBilt, its shareholders, officers, and agents of any and all obligations of
any type referred to in Paragraphs 11 and 12 of the Employment Agreement.
6. Intent. The parties acknowledge that by agreement of the parties
the contemplated transaction may change or vary in a variety of ways and by
varying degrees from the date of delivery of the Letter of Intent until the
actual funding and closing of an IPO. It is the intent of McMillan and
BodyBilt that if the contemplated transaction matures into a closed IPO that
all of BodyBilt's obligations under Paragraphs 11 and 12 of the Employment
Agreement are completely and fully released as stated in paragraph 5
notwithstanding the fact that the final transaction may vary, slightly or
significantly, from the contemplated transaction as set out in the Letter of
Intent.
<PAGE> 2
7. No waiver. In the event that the contemplated transaction does
not close through an IPO, this agreement is null and void. Additionally,
neither BodyBilt, nor McMillan, shall be able to use this agreement in any
future dispute as evidence to support their position or to contradict the
other's position.
Signed this 23 day of May, 1996.
/s/ GERALD McMILLAN May 23, 1996
- --------------------------------- ---------------------------------------
Gerald McMillan Date
BodyBilt Seating, Inc.
By: /s/ MARK McMILLAN May 23, 1996
--------------------------- ---------------------------------------
Mark McMillan, President Date
2
<PAGE> 1
EXHIBIT 10(s)
MEMORANDUM OF UNDERSTANDING
REGARDING
1984 PACE ARROW MOTOR HOME
THIS MEMORANDUM OF UNDERSTANDING is entered into on this _____ day of December.
1992 by and between DREW CONGLETON and MARK McMILLAN.
DREW and MARK hereby acknowledge their understanding of and agreement with the
following:
1. Mark has provided goods and/or services to THE CHAIR WORKS, INC. for
which he has not been paid and for which he has not billed the company.
2. THE CHAIR WORKS, INC. will purchase a 1984 Pace Arrow motor home for a
price of $22,500.
3. MARK will have the sole and exclusive use of the motor home during the
time it is owned by THE CHAIR WORKS, INC.
4. At any time MARK has the right to purchase the motor home from The Chair
Works for $1,000.
5. The difference in the price identified in #2 and #4 above is in
recognition of and "partial payment for" the goods and/or services
provided by MARK in #1 above.
6. It is understood and agreed that MARK shall pay The Chair Works, Inc. a
nominal fee for the lease and MARK will be responsible for the insurance
coverage on the motor home.
7. It is understood and agreed that although the motor home will show up on
the assets of the company, it will not be depreciated, and in the event
the company is ever sold, the motor home shall not be considered or sold
as a part of the assets of the company.
/s/ MARK McMILLAN /s/ DREW CONGLETON
- -------------------------------- ---------------------------------
MARK McMILLAN DREW CONGLETON
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
EB Subsidiary, Inc. (into which BodyBilt Seating, Inc. will be merged)
<PAGE> 1
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
ErgoBilt, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
October 7, 1996
<PAGE> 1
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Body Bilt Seating, Inc.
Bryan, Texas
We consent to the use of our report on the financial statements of BodyBilt
Seating, Inc. and to the reference to our firm under the heading "Experts" in
the registration statement on Form S-1 and prospectus of ErgoBilt, Inc.
relating to the registration of 2,000,000 shares of common stock.
Thompson, Derrig & Slovacek
Bryan, Texas
October 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 AND JUNE 30, 1996 COMPANY FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 86,541 115,556
<SECURITIES> 0 0
<RECEIVABLES> 2,470,488 1,682,744
<ALLOWANCES> 0 0
<INVENTORY> 1,456,248 1,498,952
<CURRENT-ASSETS> 4,155,758 3,566,791
<PP&E> 1,908,017 2,456,723
<DEPRECIATION> 254,804 390,492
<TOTAL-ASSETS> 5,811,544 5,633,022
<CURRENT-LIABILITIES> 1,250,633 669,437
<BONDS> 0 0
0 0
0 0
<COMMON> 1,000 1,000
<OTHER-SE> 3,400,967 3,378,503
<TOTAL-LIABILITY-AND-EQUITY> 5,811,544 5,633,022
<SALES> 13,672,349 7,431,996
<TOTAL-REVENUES> 13,672,349 7,431,996
<CGS> 7,218,561 3,920,912
<TOTAL-COSTS> 11,736,248 6,667,255
<OTHER-EXPENSES> 0 18,988
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 56,910 45,884
<INCOME-PRETAX> 1,879,191 699,869
<INCOME-TAX> 85,000 39,000
<INCOME-CONTINUING> 1,879,191 660,869
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,794,191 660,869
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of ErgoBilt, Inc. immediately after the
closing of its initial public offering. I also consent to the use of my name
and information I provided about myself in the registration statement on Form
S-1 for the initial public offering.
Date: October 15, 1996 Signature: /s/ WILLIAM H. WEED
-----------------------------
Printed Name: William H. Weed
---------------------------
<PAGE> 1
EXHIBIT 99(b)
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of ErgoBilt, Inc. immediately after the
closing of its initial public offering. I also consent to the use of my name
and information I provided about myself in the registration statement on Form
S-1 for the initial public offering.
Date: October 11, 1996 Signature: /s/ WILLIAM B. GLENN JR.
-------------------------
Printed Name: William B. Glenn Jr.
-----------------------
<PAGE> 1
EXHIBIT 99(c)
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of ErgoBilt, Inc. immediately after the
closing of its initial public offering. I also consent to the use of my name
and information I provided about myself in the registration statement on Form
S-1 for the initial public offering.
Date: October 11, 1996 Signature: /s/ W. B. MUNRO
-----------------------------
Printed Name: W. BARTON (BART) MUNRO
--------------------------
<PAGE> 1
EXHIBIT 99(d)
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of ErgoBilt, Inc. immediately after the
closing of its initial public offering. I also consent to the use of my name
and information I provided about myself in the registration statement on Form
S-1 for the initial public offering.
Date: October 14, 1996 Signature: /s/ DREW CONGLETON
---------------------------
Printed Name: Drew Congleton
---------------------------
<PAGE> 1
EXHIBIT 99(e)
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of ErgoBilt, Inc. immediately after the
closing of its initial public offering. I also consent to the use of my name
and information I provided about myself in the registration statement on Form
S-1 for the initial public offering.
Date: October 15, 1996 Signature: /s/ ROBERT E. FAUST
------------------------
Printed Name: Robert E. Faust
---------------------
