<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997.
REGISTRATION NO. 333-14205
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ERGOBILT, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
TEXAS 2590 75-2600529
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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>
---------------------
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
---------------------
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. [ ]
---------------------
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)
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
<C> <S> <C>
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
</TABLE>
<PAGE> 3
***************************************************************************
* *
* 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 JANUARY 13, 1997
1,500,000 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 $7.00 and $8.00 per share. For information
relating to the factors to be considered in determining the initial public
offering price, see "Underwriting." The Company has applied for inclusion of the
Common Stock on the Nasdaq National Market under the symbol "ERGB."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNT PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
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 150,000 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
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,
including the Representatives' non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 225,000 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 Cruttenden
Roth Incorporated, Irvine, California, on or about , 1997.
------------------
CRUTTENDEN ROTH PRINCIPAL FINANCIAL SECURITIES, INC.
INCORPORATED
The date of this Prospectus is , 1997.
<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
<PAGE> 5
ERGOBILT INC
ERGONOMICS
[GRAPHIC IMAGE OF DA VINCIS' DRAWING OF A HUMAN MALE]
"Sitting is blamed for most of the lower back pain that strikes 90% of
Americans sooner or later at an estimated cost of $70 billion a year."
The Wall Street Journal, September 12, 1995
"Almost two thirds of all occupational illnesses are for culminative trauma...
almost 40% of all the workers' compensation dollars go to pay for back and upper
extremity injuries."
Dr. Roger Stephens, Director of Ergonomics, OSHA
"Repetitive stress injuries -- RSIs -- have become the workplace curse of the
'90s...[and] cost companies an estimated $100 billion a year."
USA Today, January 9, 1997
<PAGE> 6
from space to the workplace
ERGOBILT INC
A SAMPLING OF ERGONOMIC PRODUCT APPLICATIONS
-----------------------------------------
PHOTOGRAPH OF ASTRONAUT FLOATING IN SPACE
-----------------------------------------
Gemini Astronaut 6/3/65 Photo Courtesy of NASA
---------------------------------------------------------
DIAGRAM OF HUMAN BODY OUTLINE SEATED IN DIAGRAM OF CHAIR,
SURROUNDED BY SIX EQUATIONS AND 10 DEGREES.
---------------------------------------------------------
- --------------------------------------------------------------------------------
NASA studies reveal that, in the absence of gravity, the "human body
automatically assumes and indefinitely maintains a singular, characteristic
posture."
This body posture can be mathematically defined through a series of specific
measurements.
"To force other postures on the body..., frequently leads to discomfort,
fatigue, and inefficiency."
NASA Reference Publication 1024
- --------------------------------------------------------------------------------
By adapting NASA findings, seating and work stations have been engineered to
allow each user to emulate the same single characteristic posture.
- --------------------------------------------------------------------------------
"As the body moves toward a more open trunk-to-thigh alignment, muscle tension
in key muscle groups (including the neck, shoulders, and lower back) is reduced
significantly."
- Dr. Steve Brooks,
Neurologist
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Partial listing of the media coverage on the BodyBilt chair. Listing of these
publications is not meant to imply endorsements therefrom of any kind.
ENTERTAINMENT TONIGHT WINDOWS MAGAZINE
WASHINGTON POST GOOD MORNING AMERICA
NEW YORK DAILY NEWS INVESTOR'S BUSINESS DAILY
PEOPLE MAGAZINE LOS ANGELES TIMES
CBS THIS MORNING WIRED MAGAZINE
NEWSWEEK TEXAS BUSINESS MAGAZINE
NEW YORK TIMES CRAIN'S SMALL BUSINESS
CONSUMER REPORTS COMPUTER USER
NBC TODAY SHOW DALLAS MORNING NEWS
USA TODAY CHICAGO SUN TIMES
WALL STREET JOURNAL PC WORLD
- --------------------------------------------------------------------------------
-------------------------------------
PHOTOGRAPH OF SCULPT(TM) CONTOUR SEAT
-------------------------------------
- --------------------------------------------------------------------------------
A study by the Internal Revenue Service Austin Service Center showed an 8%
increase in productivity when using the company's chairs.
A study by the Safety Department of Lockheed Austin Division experienced a 12%
increase in productivity and identified the company's chairs as the highest
ranked contributing factor.
- --------------------------------------------------------------------------------
-----------------------------------
PHOTOGRAPH OF EXECUTIVE SERIES
10 POINT POSTURE CONTROL(TM) CHAIR
-----------------------------------
-------------------------------------
PHOTOGRAPH OF LINEAR TRACKING(TM) ARM
-------------------------------------
- --------------------------------------------------------------------------------
BodyBilt Seating's Linear Tracking(TM) Arms cradle and move with your arms to
provide support when typing, mousing or writing.
- --------------------------------------------------------------------------------
-------------------------------
PHOTOGRAPH OF X-TENSION(TM) ARM
-------------------------------
----------------------------------
PHOTOGRAPH OF *BUTTERFLY(TM) BOARD
----------------------------------
--------------------------------
PHOTOGRAPH OF *POWER STATION(TM)
--------------------------------
* Subject to acquisition pursuant to a letter of intent. See "Recent
Developments."
- --------------------------------------------------------------------------------
"There is no reason to keep work surfaces flat, and they should probably be
tilted to accommodate the visual angles."
NASA Reference Publication 1024
- --------------------------------------------------------------------------------
---------------------------------
PHOTOGRAPH OF AIR LUMBAR(TM) PUMP
---------------------------------
- --------------------------------------------------------------------------------
"Significant reductions in the muscle stresses of the lower back, neck,
shoulders, and forearms will both increase worker comfort and help reduce
susceptibility to chronic back pain and other cumulative trauma disorders."
- Dr. Stewart R. Leavitt,
Ph.D., CIE
Ergonomist
- --------------------------------------------------------------------------------
----
ERGB
----
10 Point Posture Control(TM), Linear Tracking(TM), Air Lumbar(TM),
X-Tension(TM), and Sculpt(TM) Contour are trademarks of Ergobilt, Inc and or
its companies. Butterfly(TM) and Power Station(TM) are trademarks of
Metamorphosis Design & Development Inc.
<PAGE> 7
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 2,826-for-1 split of Common Stock paid as
a dividend on January 9, 1997; (ii) gives effect to the merger of ErgoBilt, Inc.
("ErgoBilt") with BodyBilt Seating, Inc. ("BodyBilt"), which will occur
contemporaneously with the closing of this offering (the "Merger"), which is
accounted for as a purchase; (iii) gives effect to a change in the par value of
the Common Stock to $.01 per share; and (iv) assumes the Underwriters'
over-allotment option is not exercised. Since its incorporation in 1995,
ErgoBilt's operations have consisted primarily of providing advertising and
marketing services to BodyBilt, and ErgoBilt's assets and results of operations
are not significant to the combined operations on a going forward basis.
Accordingly, the financial information presented in the "Summary Historical and
Pro Forma Financial and Operating Data," "Selected Financial Data," "Selected
Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relates solely to the historical operations
of BodyBilt. 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 products that re-engineer the workplace
and the home office by scientifically minimizing physical stress imposed upon
the human body. Its current product line primarily consists of four series of
premium-priced, ergonomic office chairs, marketed under the BodyBilt(R)
tradename, that can be customized through proprietary modular designs to meet
the needs of each customer.
The Company has positioned itself to capitalize on consumer trends,
possible government regulation and recent national publicity, which have
increased the awareness of and desire for ergonomic products in the workplace
and home office. The Company intends to use its current product line as a
platform to develop and acquire complementary ergonomic products. Such 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.
BodyBilt(R) chairs are based on research conducted by the National
Aeronautics and Space Commission ("NASA") conducted during its SkyLab missions
that identified the least stressful body position for astronauts during extended
missions in space. BodyBilt(R) 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 the New York Times,
Wall Street Journal, 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.
MARKET TRENDS. The Company believes that certain trends in the workplace
have expanded the market opportunity for ergonomic office products. First,
increased reliance on personal computers has resulted in workers spending more
time in a constantly seated position. A result has been a significant increase
in the number of work-related employee injury claims and lost employee time from
(i) back and upper extremity injuries, which account for approximately 40% of
all workers' compensation dollars, and (ii) repetitive stress injuries or "RSI,"
including carpal tunnel syndrome, which affects approximately 22% of seated
workers. Second, the Occupational Safety and Health Administration ("OSHA") has
required employers to provide safe work environments, which may include the
acquisition of ergonomic office products. Third, the emergence of the corporate
"telecommuter" has produced significant growth in the number of home offices,
now estimated at 41.1 million in the United States alone. 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.
3
<PAGE> 8
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 efficiently
small customized orders, the traditional mainstay of the ergonomic business;
(iii) orders are generally processed, manufactured and delivered in four weeks
or less, 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.
GROWTH STRATEGY. The Company believes its growth has been driven by its
success in (i) providing superior quality products and service; (ii) expanding
its direct sales force; (iii) upgrading the quality of its independent sales
representative firms; (iv) increasing market acceptance of ergonomics and; (v)
educating consumers about the benefits of ergonomics and the solutions provided
by the Company's products. 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 (i) increase market penetration by expanding its direct sales
force; (ii) broaden the product line by developing or acquiring other ergonomic
products; (iii) develop new distribution channels, including telemarketing,
catalog sales and the use of the Internet; and (iv) build consumer recognition
for ergonomic products.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,500,000 shares
Common Stock to be outstanding after the 5,756,000 shares(1)
offering.......................................
Use of proceeds.................................. To pay the cash portion of the Merger
consideration and borrowings for S
Corporation distribution made in
connection with the Merger, to repay
certain indebtedness, to fund the non-con-
tingent cash portion of the purchase price
for certain intellectual property
described under "Recent Developments" and
for other general corporate purposes.
Nasdaq National Market symbol.................... ERGB
</TABLE>
- ---------------
(1) Includes 678,644 shares of Series A Preferred Stock that are convertible
into shares of Common Stock in the ratio that the Common Stock's initial
public offering price bears to its average closing price for the 30 trading
days immediately preceding the date on which notice of conversion is
delivered to the Company, but not less than one. 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,
150,000 shares of Common Stock subject to the Representatives' Warrants and
up to 45,000 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 -- Credit Facilities."
---------------------
The Company was incorporated as the Chafferton Company, Inc. in 1995 to
provide advertising and marketing services to BodyBilt, a manufacturer of
premium-priced, ergonomic office chairs since 1988. Simultaneously with the
closing of this offering, the Company will use a portion of the proceeds to
complete its Merger with BodyBilt. The Company's principal executive offices are
located at 5000 Quorum Drive, Dallas, Texas 75240, and its telephone number is
(972) 233-8504.
4
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The financial information presented below is derived from the financial
statements of BodyBilt.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................... $2,484 $4,448 $6,535 $ 9,189 $13,672 $ 9,251 $12,553
Cost of sales.............. 1,380 2,053 3,237 4,789 7,218 5,080 6,617
------ ------ ------- ------- ------- ------- -------
Gross profit............... 1,104 2,395 3,298 4,400 6,454 4,171 5,936
Selling, general and
administrative
expenses................ 914 1,353 2,164 3,266 4,555 3,107 4,082
------ ------ ------- ------- ------- ------- -------
Operating income........... 190 1,042 1,134 1,134 1,899 1,064 1,854
Interest expense and other,
net..................... -- 14 24 24 20 50 108
------ ------ ------- ------- ------- ------- -------
Income before income
taxes................... 190 1,028 1,110 1,110 1,879 1,014 1,746
Income tax expense......... -- 46 50 50 85 42 40
------ ------ ------- ------- ------- ------- -------
Net income................. $ 190 $ 982 $1,060 $ 1,060 $ 1,794 $ 972 $ 1,706
====== ====== ======= ======= ======= ======= =======
PRO FORMA DATA:
Pro forma net income(1)........................................... $ 885 $ 455 $ 698
Pro forma earnings per share...................................... $ .16 $ .08 $ .13
Pro forma shares outstanding(2)................................... 5,400 5,400 5,400
OPERATING DATA:
Units sold................. 5,262 8,882 13,549 18,946 25,759 17,401 22,248
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------
PRO FORMA(3) AS ADJUSTED(4)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................ $ (3,781) $ 5,629
Total assets................................................... 20,810 22,387
Long-term debt, including current portion...................... 1,596 1,521
Shareholders' equity........................................... 10,457 19,942
</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; and (iii) recognize tax expense related to BodyBilt as if its S
corporation status had terminated at the beginning of the period presented.
See "Selected Pro Forma Financial Data."
(2) The computation of pro forma shares outstanding is based on 4,256,000
weighted average shares of Common Stock outstanding and 1,144,000 shares
assumed to be issued at an initial public offering price of $7.50 per share
(after deducting the estimated underwriting discount) to (i) fund payments
of $6.875 million to BodyBilt Shareholders (as defined herein) and (ii) pay
approximately $850,000 of indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Credit Facilities." The computation of pro forma
shares outstanding excludes an additional 356,000 shares to be sold in the
offering, the proceeds of which may be used to fund the non-contingent cash
portion of the purchase price for certain intellectual property and for
other general corporate purposes. See "Use of Proceeds."
(3) Assumes that the Merger was completed on September 30, 1996, and that the
cash consideration to be paid (including an S corporation distribution of
approximately $4.4 million) is reflected as a reduction of working capital.
Approximately $13.2 million of goodwill is recorded as a result of the
Merger.
(4) As adjusted to reflect the sale of 1,500,000 shares of Common Stock by the
Company and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
5
<PAGE> 10
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 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 may 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
primarily consist of four series of premium-priced, ergonomic office chairs
marketed under the BodyBilt(R) tradename. 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 products 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 offerings to include an additional 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 the use of the Internet, 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 and 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
6
<PAGE> 11
Company's ability to make acquisitions or enter into joint ventures or strategic
alliances may depend upon its 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 manage the combined companies after the
Merger or 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, Controller and Director of Human Resources and Safety of BodyBilt, and
Matt Prochaska, Director of Plant Operations of BodyBilt. Messrs. McMillan,
Smith and Congleton each has a three-year employment agreement with the Company.
In addition, the Company has agreed to enter into a two-year consulting
agreement with Mark McMillan, the President of BodyBilt, who will become a
consultant, director and 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, the
Company has no binding supply contract with Leggett & Platt, Inc. 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. Independent sales
representatives accounted for 46.6% and 32.8% of sales for the year ended
December 31, 1995, and the nine months ended September 30, 1996, respectively.
One sales representative accounted for 17.1% and 16.4% of sales during these
periods. 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.
7
<PAGE> 12
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 loss from warranty claims to date and does not
maintain a reserve for such claims. There can be no assurance, however, 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 and their affiliates will control approximately
66.9% of the Company's outstanding voting securities 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 its principal shareholders have
entered into a voting agreement pursuant to which the parties have agreed to
vote all shares of ErgoBilt stock that they hold to elect designated individuals
to the Board of Directors commencing immediately after the Merger closes. See
"Management," "Principal Shareholders" and "Description of Capital Stock."
BENEFITS OF OFFERING TO CERTAIN SHAREHOLDERS. Of the net proceeds of this
offering, approximately $2,475 million will be used to pay the cash portion of
the Merger Consideration (as defined herein) and approximately $4.4 million will
be used to repay borrowings for the S corporation distribution made in
connection with the Merger. 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 has pledged certain collateral as security, and to repay a
$75,000 loan from another BodyBilt Shareholder. 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 the closing of this offering, the
Convertible Note will be repaid in full and the pledged collateral will be
released. Approximately $300,000 of the net proceeds of this offering will be
used to pay certain obligations to a company wholly-owned by Mark McMillan, the
President of BodyBilt, who will become a consultant, director and principal
shareholder of the Company, for consulting services related to the Merger and
this offering. Following the closing of this offering, the Company anticipates
that the existing BodyBilt line of credit will be replaced with a line of credit
established by the Company, the terms of which will be substantially similar to
the existing BodyBilt line of credit, and the personal guarantees of Mark
McMillan on the existing BodyBilt line of credit will be released. The Chairman
of the Board of Directors has secured certain payment obligations of ErgoBilt to
its President and Chief Executive Officer under the President's Consulting
Services Agreement by pledging stock of an unrelated company. Upon completion of
the offering, these payment obligations of ErgoBilt will be fully satisfied and
the pledged collateral released. Accordingly, approximately $7.5 million, or
78.8%, of the net proceeds from this offering will directly or indirectly be
paid to the BodyBilt Shareholders (as defined herein). 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 678,644 shares of Series A Preferred
Stock and 5,077,356 shares of Common Stock, assuming an initial public offering
price of $7.50 per share. The 1,500,000 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
8
<PAGE> 13
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 current and future 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 Cruttenden Roth Incorporated, on behalf of itself and
Principal Financial Securities, Inc., as representatives of the Underwriters
(the "Representatives"). These shareholders have certain demand, "piggyback" and
shelf registration rights. There are also (i) 400,000 shares of Common Stock
reserved for issuance under the Company's stock option plan, (ii) 150,000 shares
of Common Stock subject to the Representatives' Warrants and (iii) up to 45,000
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. Certain demand
and "piggy-back" registration rights have been granted with respect to the
Representatives' Warrants and the Lender's Warrant. See "Shares Eligible for
Future Sale."
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 $6.32 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 $7.50
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, ErgoBilt and certain current and future
principal shareholders of ErgoBilt and their affiliates have entered into a
voting agreement pursuant to which the parties have agreed, among other things,
to vote all shares of stock of ErgoBilt held by them to elect designated
individuals to the Board of Directors commencing immediately after the closing
of the Merger (the "Voting Agreement"). See "Principal Shareholders."
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 has applied 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
9
<PAGE> 14
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.
THE REORGANIZATION
ErgoBilt has entered into a merger agreement, dated August 19, 1996 (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 contemporaneously 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 ($6.875
million), 751,356 shares of Common Stock valued at $5.64 million and 678,644
shares of Series A Preferred Stock valued at $5.09 million, assuming an initial
public offering price of $7.50 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
Merger is to be accounted for as a purchase. The cash portion of the Merger
Consideration will be reduced by the S corporation distribution of approximately
$4.4 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.
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. Mark McMillan will become a
consultant, director and principal shareholder of the Company. ErgoBilt and
certain current and future principal shareholders of ErgoBilt and their
affiliates have entered into a Voting Agreement pursuant to which the parties
have agreed, among other things, to affirm and clarify these obligations. Mark
McMillan and Gerald McMillan, Chairman of the Board, are brothers. See "Certain
Transactions" and "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.
Tax Consequences. The Merger 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"). Accordingly, no gain or loss will
be recognized for federal income tax purposes to the BodyBilt Shareholders, the
Company's subsidiary or BodyBilt as a result of the Merger, except for the cash
portion of the Merger consideration received by BodyBilt Shareholders. The
Company's subsidiary's basis for federal income tax purposes in the BodyBilt
assets will be the same as BodyBilt's basis in such assets, and the Company's
basis in its stock in the Company's subsidiary will be the same as the Company's
subsidiary's basis in the transferred assets. If, for any reason, the Merger is
disallowed as a tax-free reorganization, then it would most likely be treated as
a taxable sale of assets between BodyBilt and the Company's subsidiary, followed
by a liquidation of BodyBilt. There is uncertainty as to whether Section 1032 of
the Code applies to the issuance of Company stock in the context of a failed
tax-free reorganization. If Section 1032 of the Code were held not to apply, the
Company's subsidiary would recognize gain on the exchange of Company stock for
BodyBilt assets equal to the fair market value of such assets. In any event, it
is unlikely that the Company's subsidiary would be entitled to amortize the
stepped-up basis of certain intangible assets of BodyBilt resulting from such
deemed
10
<PAGE> 15
sale under Section 197 of the Code, due to the fact that the Company and
BodyBilt may be considered "related parties" under Section 197(f)(9) of the
Code. Such taxation could have a material adverse effect on the Company's
results of operations.
S Corporation Distribution. 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 approximately $4.4 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.
RECENT DEVELOPMENTS
The Company has entered into a non-binding letter of intent to purchase
certain intellectual property from Metamorphosis Design & Development, Inc.
("Metamorphosis"), a company that owns the rights to certain design patents,
including patents relating to an ergonomic workcenter. If this purchase is
consummated, the Company would pay Metamorphosis $500,000 in cash and issue
warrants to purchase 150,000 shares of Common Stock exercisable at the closing
price on the date of the acquisition. The Company has agreed to pay
Metamorphosis additional cash and/or securities aggregating up to $15 million if
after-tax earnings derived from the acquired intellectual property meet certain
targets over a three-year period commencing on the closing date and/or certain
revenue targets are met and certain other events occur within the first five
years immediately following the closing date. The acquisition of this
intellectual property is subject to the completion of satisfactory due diligence
and other conditions. There can be no assurance that a definitive agreement will
be executed or that this acquisition will be consummated.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $9.5 million (approximately $11.0
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $7.50 per share and after deducting
the underwriting discount and other estimated offering expenses.
The Company intends to pay $6.875 million of the net proceeds to the
BodyBilt Shareholders, of which approximately $2.475 million represents the cash
portion of the Merger Consideration and approximately $4.4 million represents
the payment of borrowings for S corporation distribution made in connection with
the Merger.
Approximately $300,000 of the net proceeds of this offering will be used to
pay certain obligations to a company wholly-owned by Mark McMillan, the
President of BodyBilt who will become a consultant, director and principal
shareholder of the Company, for consulting services related to the Merger and
this offering.
The Company has entered into a letter agreement with Mark McMillan pursuant
to which the Company will purchase from him or Dr. Richard Troutman, a BodyBilt
Shareholder who will become a principal shareholder of the Company, the number
of shares sufficient to satisfy the Company's obligation to issue shares 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
acquired shares, assuming a price to public of $7.50 per share. See "Certain
Transactions" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company expects to use the balance of the net proceeds (i) to fund the
non-contingent cash portion of the purchase price for certain intellectual
property described under "Recent Developments"; (ii) to repay approximately
$250,000, plus interest, of the Convertible Note issued by ErgoBilt to fund
Merger and offering expenses, which bears interest at 8% per annum and matures
on September 3, 1997; (iii) to fund the acquisition of shares to satisfy the
remainder of the Company's obligations under the Convertible Note; (iv) to repay
a $75,000 non-interest bearing demand loan to BodyBilt for working capital by
Dr. Richard Troutman;
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<PAGE> 16
and (v) for other general corporate purposes. Pending such uses, the Company
intends to invest such funds in short-term, investment-grade, interest-bearing
obligations.
DILUTION
At September 30, 1996, the Company had a pro forma net tangible book value
of approximately $(2.7) million or approximately $(.64) 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 $7.50 per share
and the application of the net proceeds therefrom, the as adjusted net tangible
book value of the Company at September 30, 1996, would have been approximately
$6.8 million, or $1.18 per share. This represents an immediate increase of $1.82
per share to existing shareholders, and an immediate dilution of $6.32 per share
to new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $7.50
Pro forma net tangible book value per share as of September 30,
1996........................................................... $ (.64)
Increase per share attributable to new investors.................. 1.82
------
As adjusted net tangible book value per share after offering........ 1.18
-----
Dilution per share to new investors................................. $6.32
=====
</TABLE>
The following table sets forth the number of shares of Common Stock and
Series A Preferred Stock purchased or to be purchased from the Company, the
total consideration paid to the Company and the average price paid per share by
existing shareholders, BodyBilt 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.......... 2,826,000 49.1% $ 1,000 0.0% $0.00
BodyBilt Shareholders.......... 1,430,000 24.8 (6,875,000) NA NA
New investors.................. 1,500,000 26.1 11,250,000 257.1 $7.50
--------- ----- ----------- -----
Total................ 5,756,000 100.0% $ 4,376,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, then the
number of shares of Common Stock held by existing shareholders will be
reduced to 47.3% 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 1,725,000 shares, or 28.9% of the
total number of shares of Common Stock to be outstanding after this
offering. The table gives effect to 678,644 shares of Series A Preferred
Stock which is convertible into Common Stock and does not give effect to
400,000 shares of Common Stock reserved for issuance under the Company's
stock option plan, 150,000 shares of Common Stock subject to the
Representatives' Warrants, up to 45,000 shares of Common Stock subject to
the Lender's Warrant and the purchase by the Company of 33,333 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 -- Credit Facilities," "Principal Shareholders,"
"Management -- Stock Option Plan," "Certain Transactions" and
"Underwriting."
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<PAGE> 17
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at September 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>
SEPTEMBER 30, 1996
-------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt....................................................... $ 7,563 $ 188
Current portion of long-term debt..................................... 192 192
------- -------
$ 7,755 $ 380
======= =======
Long-term debt, less current portion.................................. $ 1,404 $ 1,329
Shareholders' equity:
Preferred stock, $.10 par value, 10,000,000 shares authorized, of
which 2,000,000 shares are designated Series A Preferred Stock;
678,644 shares of Series A Preferred Stock pro forma and as
adjusted......................................................... 68 68
Common stock, $.01 par value, 20,000,000 shares authorized;
3,577,356 shares pro forma; 5,077,356 shares as adjusted(1)...... 36 51
Paid-in capital..................................................... 10,582 20,052
Accumulated deficit(2).............................................. (229) (229)
------- -------
Total shareholders' equity.................................. 10,457 19,942
------- -------
Total capitalization........................................ $19,616 $21,651
======= =======
</TABLE>
- ---------------
(1) Excludes 400,000 shares of Common Stock reserved for issuance under the
Company's stock option plan, 150,000 shares of Common Stock subject to the
Representatives' Warrants and up to 45,000 shares of Common Stock subject to
the Lender's Warrant. Prior to this offering, the par value of the Common
Stock was $.0001 per share. See "Management -- Stock Option Plan" and
"Underwriting."
(2) Represents the Company's accumulated deficit since inception in June 1995.
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.
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<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data presented below for the year ended December 31,
1995, are 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 nine months ended September 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $9,251 $12,553
Cost of sales.................... 1,380 2,053 3,237 4,789 7,218 5,080 6,617
------ ------ ------ ------ ------- ------ -------
Gross profit..................... 1,104 2,395 3,298 4,400 6,454 4,171 5,936
Selling, general and
administrative expenses....... 914 1,353 2,164 3,266 4,555 3,107 4,082
------ ------ ------ ------ ------- ------ -------
Operating income................. 190 1,042 1,134 1,134 1,899 1,064 1,854
Interest expense and other,
net........................... -- 14 24 24 20 50 108
------ ------ ------ ------ ------- ------ -------
Income before income taxes....... 190 1,028 1,110 1,110 1,879 1,014 1,746
Income tax expense............... -- 46 50 50 85 42 40
------ ------ ------ ------ ------- ------ -------
Net income....................... $ 190 $ 982 $1,060 $1,060 $ 1,794 $ 972 $ 1,706
====== ====== ====== ====== ======= ====== =======
PRO FORMA DATA:
Pro forma net income(1).......... $ 885 $ 455 $ 698
Pro forma earnings per share..... $ .16 $ .08 $ .13
Pro forma shares
outstanding(2)................ 5,400 5,400 5,400
BALANCE SHEET DATA:
Working capital.................. $ 471 $ 891 $1,742 $2,137 $ 2,905 $2,016 $ 3,544
Total assets..................... 704 1,319 2,687 3,606 5,812 4,682 7,036
Long-term debt, including current
portion....................... 325 75 633 877 1,385 1,471 1,596
Shareholders' equity............. 203 1,004 1,481 2,208 3,402 2,580 4,425
</TABLE>
- ---------------
(1) The unaudited pro forma adjustments (i) combine the results of operations
and financial position of ErgoBilt with BodyBilt; (ii) recognize goodwill
associated with the acquisition of BodyBilt; and (iii) recognize tax expense
related to BodyBilt as if its S corporation status had terminated at the
beginning of the period presented. See "Selected Pro Forma Financial Data."
(2) The computation of pro forma shares outstanding is based on 4,256,000
weighted average shares of Common Stock outstanding and 1,144,000 shares
assumed to be issued at an initial public offering price of $7.50 per share
(after deducting the estimated underwriting discount) to (i) fund payments
of $6.875 million to BodyBilt Shareholders and (ii) repay approximately
$850,000 of indebtedness. The computation of pro forma shares outstanding
excludes an additional 356,000 shares to be sold in this offering, the
proceeds of which may be used to fund the non-contingent cash portion of the
purchase price for the acquisition of certain intellectual property and for
other general corporate purposes. See "Use of Proceeds."
14
<PAGE> 19
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma income statement data for the year ended
December 31, 1995, the nine months ended September 30, 1995, and the nine months
ended September 30, 1996, adjust the historical results of 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; (ii) the amortization of
approximately $13.2 million of goodwill that will be created as a result of the
acquisition of BodyBilt by the Company pursuant to purchase accounting; and
(iii) the income tax effect resulting from the conversion of BodyBilt from an S
corporation to a C corporation. The Company believes that a 40-year amortization
period is appropriate for goodwill, since BodyBilt is a manufacturer of office
furniture that is expected to have value to the Company beyond 40 years. The
Merger will be accounted for as a purchase with ErgoBilt as the acquirer. 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, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
BodyBilt net income.......................................................... $1,794 $ 972 $ 1,706
ErgoBilt net income (loss)................................................... 45 91 (274)
Goodwill amortization........................................................ (329) (247) (247)
Income tax expense adjustments............................................... (625) (361) (487)
------ ----- -------
Pro forma net income......................................................... $ 885 $ 455 $ 698
====== ===== =======
Pro forma earnings per share................................................. $ .16 $ .08 $ .13
Pro forma shares outstanding................................................. 5,400 5,400 5,400
</TABLE>
Since its incorporation in 1995, ErgoBilt's operations have consisted
primarily of providing advertising and marketing services to BodyBilt.
ErgoBilt's assets and results of operations are not significant to the combined
operations on a going forward basis. Accordingly, presentation of a detailed
income statement, pro forma for the impact of the Merger for the respective
periods, has been omitted. Pro forma shares outstanding have been calculated in
accordance with note (2) in "Summary Historical and Pro Forma Financial and
Operating Data."
The following unaudited pro forma combined balance sheet as of September 30,
1996, gives effect to the Merger as if it had been consummated at September 30,
1996. The unaudited pro forma adjustments reflect goodwill associated with the
acquisition of BodyBilt; cash consideration to be paid to BodyBilt Shareholders
(including an S corporation distribution of approximately $4.4 million);
deferred taxes related to temporary differences between tax bases and amounts
recorded and the issuance of 751,356 shares of Common Stock and 678,644 shares
of Series A Preferred Stock. The per share value assigned to Common Stock and
Series A Preferred Stock to be issued in the Merger is $7.50. This value was
determined by using the assumed initial public offering price. The following
unaudited pro forma combined balance sheet does not give effect to the sale of
the Common Stock offered by this prospectus.
PRO FORMA COMBINED BALANCE SHEET AT SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
BODYBILT ERGOBILT ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................................. $ 46 $260 $ -- $ 306
Accounts receivable........................................................ 2,833 6 -- 2,839
Inventory.................................................................. 1,690 -- -- 1,690
Prepaid expenses and other assets.......................................... 182 109 -- 291
------ ---- ------- -------
Total current assets..................................................... 4,751 375 -- 5,126
Property, plant and equipment, net......................................... 2,285 41 -- 2,326
Other assets............................................................... -- 183 13,175 13,358
------ ---- ------- -------
Total assets............................................................. $7,036 $599 $13,175 $20,810
====== ==== ======= =======
Current portion of long-term debt.......................................... $ 192 $ -- $ -- $ 192
Short-term debt............................................................ -- 688 6,875 7,563
Accounts payable and accrued liabilities................................... 1,015 137 -- 1,152
------ ---- ------- -------
Total current liabilities................................................ 1,207 825 6,875 8,907
Notes payable, less current portion........................................ 1,404 -- -- 1,404
Deferred income taxes...................................................... -- 2 40 42
Preferred stock............................................................ -- -- 68 68
Common stock............................................................... 1 -- 35 36
Paid-in capital............................................................ -- 1 10,581 10,582
Retained earnings (deficit)................................................ 4,424 (229) (4,424) (229)
------ ---- ------- -------
Total shareholders' equity............................................... 4,425 (228) 6,260 10,457
------ ---- ------- -------
Total liabilities and shareholders' equity............................... $7,036 $599 $13,175 $20,810
====== ==== ======= =======
</TABLE>
15
<PAGE> 20
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. Since its
incorporation in 1995, ErgoBilt's operations have consisted primarily of
providing advertising and marketing services to BodyBilt. ErgoBilt's assets and
results of operations are not significant to the combined operations on a going
forward basis. Accordingly, the financial information presented herein relates
solely to the historical operations of BodyBilt. Following the Merger, BodyBilt
will be the operating company, and ErgoBilt will be the parent company. 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 35.7% for the first nine months of 1996 as
compared to the nine months ended September 30, 1995. The Company believes that
its growth has been driven by its success in (i) providing superior quality
products and service; (ii) expanding its direct sales force; (iii) upgrading the
quality of its independent sales representative firms; (iv) increasing market
acceptance of ergonomics and; (v) educating consumers about the benefits of
ergonomics and the solutions provided by the Company's products. The Company did
not increase the suggested retail prices of its chairs during this period. From
1991 to September 30, 1996, the Company expanded its direct sales force from
four to 17 individuals while during the same period the number of independent
sales representatives changed from 22 to 21. There can be no assurance that the
Company's growth will continue at the historic rate in the future.
Contemporaneously with the closing of this offering, the Company will
complete the Merger. The historical results of operations through September 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 $13.2 million in goodwill,
which will be amortized over a 40-year period. The amortization of goodwill
associated with the Merger will total approximately $329,000 annually and will
not be deductible for income tax purposes.
RESULTS OF OPERATIONS. The following table sets forth certain historical
financial data as a percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------------
------------------------- SEPTEMBER 30, SEPTEMBER 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 54.9 52.7
----- ----- ----- ----- -----
Gross profit..................... 50.5 47.8 47.2 45.1 47.3
Selling, general and
administrative expenses........ 33.1 35.5 33.3 33.6 32.5
----- ----- ----- ----- -----
Operating income................. 17.4% 12.3% 13.9% 11.5% 14.8%
</TABLE>
Comparison of Nine Months Ended September 30, 1995, and 1996. Sales
increased $3.3 million, or 35.7%, from $9.3 million for the nine months ended
September 30, 1995, to $12.6 million for the nine months ended September 30,
1996. Units sold increased by 4,847, or 27.9%, from 17,401 for the nine months
ended
16
<PAGE> 21
September 30, 1995, to 22,248 for the nine months ended September 30, 1996. This
increase was attributable to a shift in the mix of products sold to higher-end,
more technologically-equipped chairs, the addition of direct sales personnel,
increased advertising and marketing expenditures and increased acceptance of the
Company's products.
Gross profit increased $1,765,000 or 42.3%, from $4,171,000 in the nine
months ended September 30, 1995, to $5,936,000 for the nine months ended
September 30, 1996. As a percentage of sales, gross profit increased from 45.1%
in the first nine months of 1995 to 47.3% in the first nine months of 1996. The
increase in gross profit as a percentage of sales was attributable to increased
sales of higher-margin chairs, improved manufacturing efficiencies and the
allocation of fixed costs over higher production volumes.
Selling, general and administrative expenses increased by $1.0 million, or
31.4%, from $3.1 million for the nine months ended September 30, 1995, to $4.1
million for the nine months ended September 30, 1996. As a percentage of sales,
selling, general and administrative expenses decreased from 33.6% for the nine
months ended September 30, 1995, to 32.5% in the nine months ended September 30,
1996. This dollar increase was attributable to increases in compensation and
commissions due to the addition of direct sales personnel and to increases in
advertising and promotional expenses.
Operating income increased by $790,000, or 74.2%, from $1.1 million for the
nine months ended September 30, 1995, to $1.9 million for the nine months ended
September 30, 1996.
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 the result of the addition
of direct sales personnel, an increase in the number of corporate accounts and
increased acceptance of the Company's products.
Gross profit increased $2,054,000 or 46.7%, from $4,400,000 in the year
ended December 31, 1994 to $6,454,000 for the year ended December 31, 1995. As a
percentage of sales, gross profit declined from 47.8% in the year ended December
31, 1994 to 47.2% in the year ended December 31, 1995. The decline in gross
profit as a percentage in sales was attributable to enhancements in product
quality, resulting in an increase in the cost of certain components. In
addition, sales of lower-margin chairs to certain corporate and government
accounts increased as a percentage of total sales. The effect of these two
factors on the overall gross margin was partially offset by greater plant
utilization.
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 direct sales and sales support personnel and increased advertising,
literature and other promotional expenses.
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.
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 attributable to the addition of
direct sales personnel and sales management, a restructuring of sales
territories, increased expenditures in advertising and marketing and increased
acceptance of the Company's products.
Gross profit increased $1,102,000 or 33.4%, from $3,298,000 in the year
ended December 31, 1993 to $4,400,000 in the year ended December 31, 1994. As a
percentage of sales, gross profit declined from 50.5% in the year ended December
31, 1993 to 47.8% in the year ended December 31, 1994. The decrease in gross
profit as a percentage of sales was attributable to a strategic shift in the
sales and distribution system which resulted in a greater reliance on a dealer
network. Additionally, the Company incurred start-up costs and
17
<PAGE> 22
increased operating expenses associated with its relocation to and renovation of
a much larger 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, the addition of direct
sales and administrative support personnel and increases in advertising and
promotional materials.
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 Company's quarterly results of
operations may vary significantly depending on factors such as the timing of
large customer orders, the timing of new product introductions, the adequacy of
component parts supply, variations in the Company's product costs, variations in
the Company's product mix, sales 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. Historically, the Company has
experienced seasonal fluctuations in sales and operating income due to customer
ordering patterns that emphasize purchases in the third and fourth quarters of
each fiscal year. Further, the Company's sales and operating income in the first
quarter of each fiscal year have been lower than the Company's sales and
operating income in the immediately preceding fourth quarter. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................. $ 2,460 $3,154 $ 3,637 $4,421 $ 3,582 $3,850 $ 5,121
Cost of sales.......... 1,422 1,683 1,975 2,138 1,990 1,995 2,632
------- ------ ------- ------ ------- ------ -------
Gross profit........... 1,038 1,471 1,662 2,283 1,592 1,855 2,489
Selling, general and
administrative
expenses............. 829 1,057 1,221 1,448 1,536 1,219 1,327
------- ------ ------- ------ ------- ------ -------
Operating income....... 209 414 441 835 56 636 1,162
Interest expense and
other, net........... 16 16 18 (30) 38 38 32
------- ------ ------- ------ ------- ------ -------
Income before income
taxes................ 193 398 423 865 18 598 1,130
Income tax expense
(benefit)............ -- 24 18 43 (30) 38 32
------- ------ ------- ------ ------- ------ -------
Net income............. $ 193 $ 374 $ 405 $ 822 $ 48 $ 560 $ 1,098
======= ====== ======= ====== ======= ====== =======
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......... 57.8 53.4 54.3 48.4 55.6 51.8 51.4
----- ----- ----- ----- ----- ----- -----
Gross profit........... 42.2 46.6 45.7 51.6 44.4 48.2 48.6
Selling, general and
administrative
expenses............. 33.7 33.5 33.6 32.7 42.9 31.7 25.9
----- ----- ----- ----- ----- ----- -----
Operating income....... 8.5 13.1 12.1 18.9 1.6 16.5 22.7
Interest expense and
other, net........... 0.7 0.5 0.5 (0.7) 1.1 1.0 .6
----- ----- ----- ----- ----- ----- -----
Income before income
taxes................ 7.8 12.6 11.6 19.6 .5 15.5 22.1
Income tax expense
(benefit)............ -- 0.8 0.5 1.0 (.8) 1.0 .6
----- ----- ----- ----- ----- ----- -----
Net income............. 7.8% 11.8% 11.1% 18.6% 1.3% 14.5% 21.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES.
Cash Flow. Historically, the Company has satisfied its cash requirements
through profitable operations and borrowings under a bank 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 $1.2 million for the
nine months ended September 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,
during 1993, 1994 and 1995, respectively, and $759,000 for the nine months ended
September 30, 1996. Substantially all of the cash used for investing 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 $472,000 for the nine months ended
September 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, respectively, and $683,000 for the nine months ended
September 30, 1996. The 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 months ended September 30, 1996. The primary source of cash for the
financing activities during each period was borrowings under BodyBilt's line of
credit.
Asset Management. The Company typically sells its products and services on
net 30 day 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 $2.8 million at September 30, 1996. The number of days' sales
outstanding in trade accounts receivable were 66 days, 66 days and 61 days
respectively, 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 attempts to keep its raw materials inventory low to minimize
the risk of obsolescence. The Company also attempts to maintain the minimum
level of such inventory necessary to meet its near term manufacturing
requirements by relying on just-in-time delivery of products from its principal
suppliers. Inventory turnover was 4.9 times and 6.0 times for 1994, 1995
respectively and 5.6 times on an annualized basis the first nine months of 1996.
19
<PAGE> 24
Credit Facilities. BodyBilt maintains a revolving line of credit facility
with The First National Bank of Bryan (the "Line of Credit"). Borrowings under
the Line of Credit are utilized primarily for working capital to finance
inventory and receivables and for distributions to the BodyBilt Shareholders.
Borrowings under the Line of Credit bear interest at the Bank's 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 BodyBilt's President, Mark McMillan. The Line of Credit is
personally guaranteed by Mark McMillan. At September 30, 1996, the interest rate
on the Line of Credit was 8.25% and total borrowings under the Line of Credit
were $825,000. The remaining available credit under the Line of Credit, subject
to borrowing base limitations which are generally computed as a percentage of
various classes of eligible accounts receivable and qualifying inventory, was
$1,125,000 at September 30, 1996. Following the closing of this offering, the
Company anticipates that the Line of Credit will be replaced with a line of
credit facility established by the Company, which terms will be substantially
similar to the Line of Credit, and the total borrowings under the Line of Credit
will be refinanced under this new line of credit facility.
In May 1994, the Company purchased a building and land that was formerly a
large retail facility, in Navasota, Texas. During the summer of 1994, BodyBilt
moved its manufacturing and administrative operations from leased facilities to
the Navasota facility. Since June 1994, this facility has undergone significant
renovations, improvements and equipment additions. The acquisition and
improvement of this facility was financed through an amortizing bank loan from
The First National Bank of Bryan in the principal amount of $571,000, currently
bearing interest at the bank's prime rate plus 0.75% per annum and maturing in
the year 2000. At September 30, 1996, the interest rate on this loan was 9.5%
and the outstanding principal balance was $446,000. 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 September 30, 1996, the Company also had other term note obligations to
the First National Bank of Bryan aggregating approximately $249,000, the
proceeds of which were used to fund working capital and equipment and vehicle
purchases.
On September 6, 1996, ErgoBilt obtained a $500,000 loan from Summit
Partners Management Co. ("Summit") to fund the Merger and offering expenses. The
convertible note evidencing this loan (the "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. The Convertible Note is secured by a pledge of certain assets
of Gerald McMillan. In connection with the issuance of the Convertible Note, Dr.
McMillan sold 34,000 shares of Common Stock to Summit, and the Company agreed to
issue to Summit at the closing of this offering a warrant to acquire up to
45,000 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 next twelve
months.
INFLATION. During the nine months ended September 30, 1996 and the years
ended December 31, 1995 and 1994, the cost of raw materials and component parts,
salaries and manufacturing 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 product 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
20
<PAGE> 25
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> 26
BUSINESS
The Company is a rapidly-growing developer, manufacturer and marketer of
customized, high-end ergonomic products that re-engineer the workplace and the
home office by scientifically minimizing the physical stress imposed upon the
human body. Its current product line primarily consists of four series of
premium-priced, ergonomic office chairs, marketed under the BodyBilt(R)
tradename, which can be customized through proprietary modular designs to meet
the needs of each customer.
The Company has positioned itself to capitalize on consumer trends,
possible government regulation and recent national publicity, which have
increased the awareness of and desire for ergonomic products in the workplace
and home office. The Company intends to use its current product line as a
platform to develop and acquire complementary ergonomic products, enter into
joint ventures and establish strategic alliances to manufacture or market such
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.
BodyBilt has manufactured ergonomic office chairs since 1988. BodyBilt(R)
chairs are based on NASA research conducted during its SkyLab missions that
identified the least stressful body position for astronauts during extended
missions in space. BodyBilt(R) 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.
INDUSTRY OVERVIEW. Ergonomics addresses the interaction of people and their
environment, integrating engineering, bio-mechanics and other disciplines to
improve worker safety, productivity and product quality. The Company's ergonomic
office chairs compete 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. 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.
MARKET TRENDS. The Company believes that certain trends in the work
environment have expanded the market opportunity for ergonomic office products.
First, increased reliance on the personal computer has resulted in more workers
spending more time in a constantly seated position. A result has been a
significant increase in the number of work-related employee injury claims and
lost employee time from (i) back and upper extremity injuries, which account for
approximately 40% of all workers' compensation dollars, and (ii) repetitive
stress injuries or "RSI," including carpal tunnel syndrome, which affect
approximately 22% of seated workers, according to the Bureau of Labor and
Statistics. Second, OSHA, has required employers to provide safe work
environments, which may include the acquisition of ergonomic office products. As
a result, the Company believes that employers are seeking ways to alleviate
injuries related to body stress in the workplace. Third, the emergence of the
corporate "telecommuter" has produced significant growth in the number of home
offices, now estimated at 41.1 million in the United States alone.
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
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:
- INCREASE 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
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BodyBilt(R) chairs exclusively, is more productive and cost-efficient than
independent sales representatives, who sell other manufacturers' office
furniture lines. Despite a higher number of independent sales
representatives, for the nine months ended September 30, 1996, the
Company's direct sales force accounted for 67.2% of revenues. The Company
believes that the employment of 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 that have tended to be more
receptive to the Company's ergonomic products.
- BROADEN 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 an additional line of
ergonomic chairs marketed under a different brand name that will be priced
to appeal to a broader market segment. Such a 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 expects to begin shipments of a side chair in early 1997 to
complement its executive chairs. This product will enable the Company to
market a suite of ergonomically-designed chairs for the executive office.
The Company has executed a non-binding letter of intent to purchase
certain intellectual property from a company that owns the rights to
certain design patents, including patents relating to an ergonomic
workcenter. See "Recent Developments."
- DEVELOP 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 of expanding
into international markets. The Company believes that exports to foreign
markets have become a significant factor in the office furniture industry.
To date, substantially all of the Company's sales have been made within
the United States. In October 1996, the Company exhibited its products
internationally for the first time at ORGATEC -- International Trade Fair
for Office Furnishings in Cologne, Germany.
- BUILD 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 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
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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 expand its 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 Anthropometric 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. Corporate comparative tests based on
comfort conducted by the Safety Department of Lockheed Austin Division ("LAD")
and the Austin, Texas Service Center of the Internal Revenue Service
("IRS-Austin") have documented the effectiveness of the BodyBilt(R) chair in
alleviating worker discomfort and increasing productivity. In its 1991 study,
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 IRS-Austin 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 greater surface
area. 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 eight 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 which is 23.5% larger than the average
seat. These chairs are capable of supporting persons weighing up to 350 pounds.
The Company's collection of BodyBilt(R) chairs meets and often exceeds the
current ergonomic standards in seating design, from American National Standards
Institute -- Human Factors Society 100-88 to those proposed by OSHA.
The modular design of the BodyBilt(R) chairs allows each customer to create
a custom chair, selecting from more than 1,600 possible combinations of arms,
backrests, headrests, 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(R) chairs are warranted against defects in materials or work
quality as follows: seven years on the base, the steel structure of the
mechanism and the backrest post; five 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 two years on the Air Lumbar(TM) pillow.
Although the Company does not have a stated return policy, the Company
endeavors 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. Product returns to date have been
negligible.
MARKETING, SALES AND DISTRIBUTION. The Company primarily markets and sells
its chairs to corporate ergonomists and health, human services and safety
managers in Fortune 1000 companies. The chairs are sold mostly for "special use"
applications, where employees have requested a non-standard chair to reduce or
alleviate existing back problems or repetitive stress injuries. The sales
process usually 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. This process may also
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. The typical BodyBilt(R) chair order is one to
three chairs because BodyBilt(R) chairs are purchased for "special-use"
purposes. The Company believes that it has an 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 1,439 accounts during the
nine-month period ending September 30, 1996. No single customer accounted for
more than 10% of the Company's sales for the 12-month period ended September 30,
1996. The Company's largest customers include Relax the Back(TM) retail stores,
Boeing Commercial Aircraft Company and Texas Instruments, Inc., whose individual
sales for the nine-month period ended September 30, 1996, represented 7.7%, 1.7%
and 1.6%, respectively, of the Company's total sales.
The Company believes it has achieved a high level of brand identity and
consumer awareness not typically found in the office furniture industry.
BodyBilt(R) chairs have received national publicity in newspapers, magazines and
television, including the New York Times, Wall Street Journal, 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 Company's products are marketed by its direct sales force of 17 persons
and 21 independent sales representatives and its sales are channeled 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. Independent
sales representatives accounted for 46.6% and 32.8% of sales for the year ended
December 31, 1995, and the nine months ended September 30, 1996, respectively.
One sales representative accounted for 17.1% and 16.4% of sales during these
periods. See "Risk Factors -- Dependence on Key Independent Sales
Representatives." The Company also has three employees to support marketing and
distribution personnel, eight employees providing customer service and a
computer graphics department consisting of three employees that creates sales
promotional literature, training films and specialized instructional videos for
customers upon request.
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The map set forth below indicates the locations of the Company's showrooms
and sales offices. In addition, the map illustrates the geographic location of
the Company's sales for the nine months ended September 30, 1996.
[MAP]
MANUFACTURING AND ASSEMBLY. The Company normally operates one shift, 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 30,000 chairs have been manufactured and assembled for
the 12-month period ended September 30, 1996, representing an increase of 33.1%
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 with routine
additional capital investment, which is not expected to be substantial.
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 were met
consistently at the 99% level during this period. The number of work hours
required to produce each chair has been reduced to 3.4 work hours per chair in
September 1996, down from 5.1 work hours per chair in September 1995. Largely as
a result of this improvement in manufacturing efficiency, the Company has
reduced its order backlog. As of September 30, 1996, backlog was $749,755,
compared to $1,096,515 as of September 30, 1995. The Company expects all orders
outstanding as of September 30, 1996 to be filled by year end.
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<PAGE> 31
To further enhance its performance and maintain a high standard of customer
service, the Company has recently purchased 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.
SUPPLIERS. The Company uses a variety of materials in its manufacturing,
including plastic, foam, steel and various coverings. Certain components of
BodyBilt(R) chairs, principally the base mechanism, are made 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, the Company does not have binding supply contract with Leggett &
Platt, Inc. 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 its 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 its ability to compete are dependent in part upon its proprietary
technology. While the Company relies on patent, trademark, trade secret and
copyright laws 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, which accounted for
less than five percent of the Company's sales for the year ended December 31,
1995, was patented by Dr. Jerome Congleton (the "Congleton Patent"). Dr.
Congleton granted a license to manufacture seats using the Congleton Patent to
both BodyBilt and Ergonomic Chairs, Inc., predecessor in interest to Neutral
Posture Ergonomics, Inc. ("NPE"). 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, an agreement
executed in connection with a 1991 settlement of litigation between BodyBilt,
NPE and Dr. Congleton provides that a successor to BodyBilt has the right to
manufacture, market, distribute and sell commercial, industrial and laboratory
chairs using the Congleton Patent, although such successor may not advertise its
use of the Congleton Patent. Accordingly, the Company believes that termination
of its license of the Congleton Patent upon consummation of the Merger will have
no material impact on the Company's business. NPE is owned and controlled in
part by Drew Congleton's mother and sister. Dr. Congleton is the father of Drew
Congleton, who will become a director of the Company and is an officer of
BodyBilt. See "Management." Dr. Congleton is a consultant to NPE and has no
association with the Company.
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. The Company's other sales
offices are located in the homes of its direct sales representatives.
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
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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 worker's specifications, and the chairs can be adjusted to accommodate
changing individual needs; (ii) manufacturing, sales and customer service are
equipped to handle small orders, the traditional mainstay of the ergonomic
business; (iii) orders generally are processed, manufactured and delivered in
four weeks, approximately half the time normally required by large companies;
and (iv) using interchangeable components facilitates on-site service and
repair.
EMPLOYEES. As of September 30, 1996, the Company employed 138 full-time and
two part-time employees, of whom 14 were in management and administrative
positions, 29 were in marketing, sales and distribution, and 97 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. The Company is involved from time to time in various
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 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 Brown Glenn Jr.(1)............. 43 Director
Mark McMillan(1)....................... 42 Director
W. Barton Munro(1)(2)(3)............... 54 Director
William Weed(1)(3)..................... 66 Director
</TABLE>
- ---------------
(1) To be appointed immediately after the completion of this offering
(2) Member of the Audit Committee
(3) Member of the Compensation 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. Dr. McMillan currently serves as Chairman of the Board of
Directors of ErgoBilt pursuant to the terms of that certain Executive Employment
Agreement dated October 1, 1996, between ErgoBilt and Dr. McMillan (the
"McMillan Employment Agreement"). 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, an MS and a BS in economics from Texas A&M
University. Dr. McMillan is the brother of Mark McMillan, the President of
BodyBilt and a consultant of the Company, who will become a director and a
principal shareholder of the Company upon the closing of this offering and the
completion of the Merger.
Gerard Smith became President and Chief Executive Officer of the Company
and a director of ErgoBilt as of August 15, 1996 pursuant to the terms of that
certain First Amended and Restated Executive Employment Agreement dated as of
October 15, 1996, among ErgoBilt, BodyBilt and Mr. Smith (the "Smith Employment
Agreement"). See "Management -- Employment and Consulting Agreements." Mr. Smith
will become President and Chief Executive Officer of BodyBilt upon completion of
the Merger. 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 of 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 date of closing of this offering pursuant to the terms of that certain
Executive Employment Agreement dated as of September 16, 1996, among ErgoBilt,
BodyBilt and Mr. Sullivan (the "Sullivan Employment Agreement"). See
"Management -- Employment and Consulting Agreements." 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.
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Drew Congleton has consented to become Executive Vice President and
National Sales Director of BodyBilt and has consented to become a director of
the Company immediately after the closing of the offering and the Merger. He has
served as BodyBilt's Vice President since 1994, and its 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
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 the Harvard University Advanced Management Program.
William Brown Glenn, Jr. has consented to become a director of the Company
immediately after the closing of the offering. Mr. Glenn is principally engaged
in private investments. Since 1994, Mr. Glenn has been a Vice President of Air
Age Services, Inc., a privately-held commercial aircraft maintenance and
modification facility. 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. Prior to November 1996, Mr.
Glenn was a registered representative of APEX Securities, Inc. 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.
Mark McMillan has consented to become a director of, and has entered into
an agreement to serve as a consultant for a two-year period to, the Company
immediately after the closing of the offering. From 1994 to the closing of the
offering Mr. McMillan has served as President of BodyBilt. Prior to that, he
served as Vice-President of BodyBilt from 1988 to 1994. He holds a BA in
Agricultural Economics from Texas A&M University. See "Certain Transactions."
W. Barton Munro has consented to become a director of the Company
immediately after the closing of the 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 Weed has consented to become a director of the Company immediately
after the closing of the 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.
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. ErgoBilt and certain current and future principal shareholders of
ErgoBilt and their affiliates have entered into a voting agreement pursuant to
which the parties thereto have agreed, among other things, to vote all shares of
stock of ErgoBilt held by them to elect designated individuals to the Board of
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Directors commencing immediately after the closing of the Merger. Vacancies in
unexpired terms and any additional positions created are filled by action of the
Board of Directors, subject to the Voting Agreement. See "Principal
Shareholders." 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 COMMITTEE. The Company's Board of Directors has established a
Compensation Committee. The Compensation Committee is responsible for reviewing
and making recommendations to the Board of Directors with respect to
compensation of executive officers, other compensation matters and awards under
the Company's stock option plan. Members of the Compensation Committee are
appointed annually by the Board of Directors and serve at the discretion of the
Board 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 each
receive an annual formula grant of nonqualified options to purchase 2,000 shares
of Common Stock exercisable at the fair market value on the date of grant. See
"Management -- Stock Option Plan."
KEY EMPLOYEES. In addition to its executive officers, the Company believes
that the following persons are key employees:
Bob Schubert, 42, has served as the Controller and Director of Human
Resources and Safety of BodyBilt since 1993. He joined BodyBilt as General
Manager in 1990. Mr. Schubert holds a BA from Texas A&M University.
Matthew L. Prochaska, 32, is BodyBilt's 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.
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 Mark 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.
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<PAGE> 36
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 or 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
Compensation Committee. Subject to the provisions of the Stock Option Plan, the
Compensation Committee 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 Compensation Committee 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 Compensation Committee deems relevant. The Compensation
Committee 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 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 Compensation Committee 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 Company
anticipates that Stock Options will 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. In addition, outside directors of the Company receive an annual
formula grant of nonqualified options with a five-year term to purchase 2,000
shares of Common Stock exercisable at the fair market value on the date of
grant.
EMPLOYMENT AND CONSULTING AGREEMENTS
Gerald McMillan. The Company has entered into the McMillan Employment
Agreement with Gerald McMillan to serve as Chairman of the Board of Directors of
the Company for a term commencing as of
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<PAGE> 37
October 1, 1996, and continuing for three years after the closing of the Merger.
Dr. McMillan will receive an annual base salary of $1, be eligible to
participate in all Company bonus/incentive programs and stock option plans and
be eligible to receive benefits under all other Company employee benefit plans.
The McMillan Employment Agreement contains a non-competition covenant for the
term of his employment and for a period of two years thereafter.
Gerard Smith. ErgoBilt has entered into the Smith Employment Agreement with
Gerard Smith to serve as a director and President and Chief Executive Officer of
ErgoBilt and BodyBilt, for a term commencing as of August 15, 1996, and
continuing for three years after the closing of this offering. Mr. Smith will
receive an annual base salary of $125,000 following the closing of this offering
and will be eligible to participate in all Company bonus/incentive programs and
stock option plans and to receive benefits under all other Company employee
benefit plans. The Smith Employment Agreement also sets forth certain terms
under which Mr. Smith is granted registration rights for shares of Common Stock
owned by him. Pursuant to the terms of the Smith Employment Agreement, upon Mr.
Smith's voluntary termination of employment with the Company, Gerald McMillan
has the right to purchase varying amounts of Mr. Smith's shares of Common Stock
based upon Mr. Smith's length of service, less that number of shares having a
value equal to $500,000, based on the price per share of Common Stock in this
offering. Upon the termination of Mr. Smith's employment with the Company for
due cause or the breach of the Smith Employment Agreement by the Company, Dr.
McMillan has the right to purchase varying amounts of Mr. Smith's shares of
Common Stock, less that number of shares having a value equal to $1,750,000,
based on the price per share of Common Stock in this offering. Upon the
occurrence of any triggering event, if Dr. McMillan does not purchase all of the
shares he is entitled to purchase, any unpurchased shares may be redeemed by the
Company. Mr. Smith has also agreed to a non-competition covenant with ErgoBilt
during the term of his employment and for a period of two years thereafter.
Mr. Smith also renders services to the Company under a Consulting Services
Agreement entered into with the Company in July 1996. Pursuant to this
agreement, Mr. Smith provides certain management services to the Company. This
agreement terminates on the earlier of the closing of this offering or March 20,
1997. Mr. Smith has been compensated in the amount of $71,700 to date under this
agreement. The Company's payment obligation to Mr. Smith is secured by the
pledge of unrelated securities by Gerald McMillan. See "Certain Transactions."
P. Michael Sullivan. ErgoBilt has entered into the Sullivan Employment
Agreement with P. Michael Sullivan to serve as Senior Vice President and Chief
Financial Officer of the Company for a three-year term commencing as of the
closing of this offering. Mr. Sullivan will receive an annual base salary of
$85,000 and be eligible to participate in all Company bonus/incentive programs
and stock option plans and to receive benefits under all other Company employee
benefit plans. Mr. Sullivan has also agreed to a non-competition covenant with
the Company during the term of his employment and for a period of two years
thereafter.
Mr. Sullivan renders services to the Company pursuant to a Consulting
Services Agreement entered into with ErgoBilt in September 1996. Pursuant to
this agreement, Mr. Sullivan provides certain financial management services
related to this offering during the period commencing on the date of the
Consulting Services Agreement and terminating on the earlier of the closing of
this offering or March 20, 1997. Mr. Sullivan receives a consulting fee of
$7,000 per month for his services and has been paid $21,000 to date under the
agreement.
Drew Congleton. Upon the closing of this offering and the Merger, BodyBilt
will enter into an Executive Employment Agreement with Drew Congleton, who will
become a director and principal shareholder of the Company upon completion of
this offering, pursuant to which Mr. Congleton will serve as Executive Vice
President and National Sales Director of BodyBilt for an initial three-year
term. The term shall be automatically renewed for successive one year terms
until either party gives written notice of termination 60 days prior to the
expiration of a then current term. Mr. Congleton will receive an annual base
salary of $80,000 and be eligible to participate in all Company bonus/incentive
programs and stock option plans and to receive benefits under all other Company
employee benefit plans. The Executive Employment Agreement will include a
non-competition covenant for the term of his employment and for a period of
three years thereafter.
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<PAGE> 38
For information regarding a consulting services agreement between the
Company and Mark McMillan, see "Certain Transactions."
All compensation decisions concerning executive officers have been made by
the Board of Directors. See "Management -- Executive Compensation."
CERTAIN TRANSACTIONS
Gerald McMillan, the Chairman of the Board and a principal shareholder of
the Company, served either as a consultant or an employee of BodyBilt from
January 1993 to February 1995. Dr. McMillan, or other entities controlled by
him, received $132,660, $204,516 and $9,240 in 1993, 1994 and 1995,
respectively, as consulting fees or employee salary for services provided to
BodyBilt. BodyBilt paid or accrued $403,917 to the Company, then wholly-owned by
Dr. McMillan, during the period from July 12, 1995, through December 31, 1995,
and $291,173 for the nine-month period ended September 30, 1996, for promotional
literature and marketing development.
Approximately $300,000 of the net proceeds of this offering will be used to
pay certain obligations to Agrivest, Inc., a corporation owned by Mark McMillan
("Agrivest"), for consulting services related to the Merger and this offering.
Pursuant to a March 1993 agreement, in each of 1993, 1994 and 1995,
BodyBilt paid Agrivest $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.
In January 1996, BodyBilt entered into a revised Business Management
Contract with Agrivest, pursuant to which Agrivest provides accounting and other
administrative services. Agrivest receives $5,000 a month for bookkeeping and
general administrative services and $150 an hour for chief executive officer and
chief financial officer services. During the nine-month period ended September
30, 1996, BodyBilt paid Agrivest an aggregate of $98,750 pursuant to this
contract. This contract, which has a three-year term, may be terminated on 30
days' written notice by either party.
During 1995 and the nine-month period ended September 30, 1996, BodyBilt
purchased $172,588 and $10,000, respectively, of furniture and fixtures and
building and leasehold improvements from Genemco, Inc., a corporation owned by
Mark McMillan.
All of BodyBilt's loans from The First National Bank of Bryan are
guaranteed by Mark McMillan. The total amount of these loans was approximately
$1.5 million at September 30, 1996. The Company intends to replace BodyBilt's
existing line of credit with a new line of credit to be established by the
Company after completion of the offering, at which time all of Mr. McMillan's
personal guarantees of the existing BodyBilt line of credit will be released.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds" and Note 3 to BodyBilt's financial statements.
Mr. McMillan has also guaranteed the Company's obligations to Leggett & Platt,
Inc.
In connection with the issuance of the Convertible Note to Summit, Gerald
McMillan sold 34,000 shares of Common Stock to Summit. The Convertible Note is
secured by a pledge of the first $500,000 that Gerald McMillan would be entitled
to receive as a commission upon the sale of BodyBilt (other than in connection
with the Merger) pursuant to certain agreements between Dr. McMillan and
BodyBilt. This pledge will be released upon payment of the Convertible Note. If
the Merger is consummated, Dr. McMillan will not be entitled to any commission.
For further information concerning the issuance of the Convertible Note, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 39
The Company has entered into a letter agreement with Mark McMillan pursuant
to which the Company will purchase from Mr. McMillan or Dr. Troutman, 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 acquired shares,
assuming a price to public of $7.50 per share. Mr. McMillan may assign a portion
of his obligation to Dr. Troutman. See "Use of Proceeds."
In October 1996, the Company entered into a Consulting Services Agreement
with Mark McMillan, who will become a director and a principal shareholder of
the Company, for a two-year term commencing on the closing of this offering. 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 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
to receive benefits under all other Company employee benefit plans. The
Consulting Services Agreement includes a non-competition covenant by Mr.
McMillan during the term of the agreement and for three years thereafter.
Gerald McMillan has secured the payment obligations of ErgoBilt to Mr.
Smith under Mr. Smith's Consulting Services Agreement by pledging 80,000 shares
of common stock of SA TeleCom, Inc. Upon completion of this offering, these
payment obligations of ErgoBilt will be fully satisfied and the pledged stock
released.
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 678,240 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 Employment
Agreement gives Dr. McMillan and/or the Company the right to purchase varying
amounts of such shares upon the termination of his employment with the Company,
based upon his length of service. See "Management -- Employment and Consulting
Agreements" and "Principal Shareholders."
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.
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<PAGE> 40
PRINCIPAL SHAREHOLDERS
The following table sets forth as of January 9, 1997, and as adjusted to
reflect the issuance of Common Stock and Series A Preferred Stock in the Merger,
the sale of the shares of Common Stock offered hereby and the addition of six
members to the Board of Directors immediately after this offering, certain
information with respect to the beneficial ownership of Common Stock and Series
A Preferred Stock by (i) each person who is or will be 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 or will have 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 COMMON STOCK SHARES OF COMMON STOCK SHARES OF SERIES A
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)......... 2,109,904 74.7% 2,109,904 41.6% -- 0.0%
Gerard Smith(4)(5)............ 678,240 24.0% 678,240 13.4% -- 0.0%
Drew Congleton(6)............. -- 0.0% 357,500(7) 6.8% 169,660 25.0%
Robert E. Faust(6)............ -- 0.0% -- 0.0% -- 0.0%
William Brown Glenn, Jr.(6)... -- 0.0% -- 0.0% -- 0.0%
Mark McMillan(6)(8)........... -- 0.0% 536,250(7) 10.1% 254,492 37.5%
W. Barton Munro(6)............ -- 0.0% -- 0.0% -- 0.0%
Dr. Richard Troutman.......... -- 0.0% 536,250(7) 10.1% 254,492 37.5%
William Weed(6)............... -- 0.0% -- 0.0% -- 0.0%
All directors and executive
officers as a group (2
persons; 9 persons after
this offering).............. 2,775,044 98.2% 3,681,894(7) 66.9% 424,152 62.5%
</TABLE>
- ---------------
(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 2,826,000 shares of Common Stock
outstanding on January 9, 1997, and 5,077,356 shares of Common Stock and
678,644 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 $7.50 per share. See "The Reorganization."
(3) Includes 296,230 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 25,434 shares held by the Ashleigh Lynch Smith 1996 Irrevocable
Trust for which Mr. Smith is trustee and 25,434 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 Employment Agreement gives Gerald McMillan and/or the Company the
right to purchase varying amounts of the shares of Common Stock beneficially
owned by Mr. Smith upon the termination of Mr. Smith's employment with the
Company during the three-year term of the Smith Employment Agreement. See
"Management -- Employment and Consulting Agreements."
(6) To become a director of the Company immediately after the closing of this
offering.
(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."
(8) Does not give effect to the Company's purchase of 33,333 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. See
"Use of Proceeds" and "Certain Transactions."
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<PAGE> 41
VOTING AGREEMENT. ErgoBilt, the BodyBilt Shareholders, Gerard Smith,
Gerald McMillan and certain of these shareholders' affiliates have entered into
a voting agreement pursuant to which, among other agreements, the parties have
agreed to vote any and all shares of voting stock of ErgoBilt held by them
(collectively, the "Voting Shares") to elect Gerald McMillan, Gerard Smith, Drew
Congleton and William Brown Glenn, Jr. members of the Board of Directors
commencing immediately following the closing of the Merger and continuing for
three consecutive one-year terms thereafter at each of ErgoBilt's 1997, 1998 and
1999 annual shareholders' meetings. In addition, the parties have agreed to vote
the Voting Shares to elect W. Barton Munro, William Weed and Robert Faust
members of the Board of Directors commencing immediately following the closing
of the Merger and continuing for a one-year term thereafter at the 1997 annual
meeting of shareholders of ErgoBilt. The Voting Agreement also provides that if
William Brown Glenn, Jr. is unable to fulfill any term of service as a director
as contemplated, Dr. Troutman retains the right to nominate a successor to fill
the seat vacated by Mr. Glenn, and the parties agree to vote their Voting Shares
for such nominee. 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 2,826,000 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 will
be designated Series A Preferred Stock prior to the completion of the Merger,
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
678,644 shares of Series A Preferred Stock and 751,356 shares of Common Stock to
BodyBilt Shareholders, assuming an initial public offering price of $7.50 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 10.0 million shares of Preferred Stock
in one or more series and to determine the relative rights, preferences and
privileges of the shares of any such series. Except with respect to the Series A
Preferred Stock to be issued upon completion of the Merger, 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 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 on which notice of conversion is delivered by a holder of Series A
Preferred Stock to the Company, divided by (2) the initial
37
<PAGE> 42
public offering price; 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 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, divided by (2) the initial public offering price; 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 limiting the right of shareholders to call special meetings and
eliminating the right 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 certain 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 eight. 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
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 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. See "Principal Shareholders -- Voting
Agreement."
38
<PAGE> 43
Amendment of Bylaws. The Company's Amended and Restated Bylaws may be
adopted, amended or repealed by a two-thirds vote of (i) the shares entitled to
vote 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 90 days nor more than 120 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 officers,
directors, employees and consultants of the Company. 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 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 678,644 shares of Series A Preferred Stock and 5,077,356 shares of
Common Stock, including shares issued to the BodyBilt Shareholders, assuming an
initial public offering price of $7.50 per share. Of these shares of Common
Stock, the 1,500,000 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
39
<PAGE> 44
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 or Rule 701 thereunder. The Company, its executive officers,
directors and certain current and future 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, affiliates 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 51,000 shares immediately after the offering and the
completion of the Merger and using an initial public offering price of $7.50 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.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors before the date the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. Securities issued in reliance on
Rule 701 are restricted securities and, beginning 90 days after the date of this
Prospectus, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements. Such
securities will be subject, however, to any lock-up agreements related to such
securities.
There are also (i) 400,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan, (ii) 150,000 shares of Common Stock
subject to the Representatives' Warrants, and (iii) up to 45,000 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 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 certain 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 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 Shareholders' registration rights. The Company has
granted identical "piggy-back" registration rights to Summit with respect to
34,000 shares of Common Stock and up to approximately 33,333 additional shares
which Summit is
40
<PAGE> 45
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 678,240 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 demand and "piggy-back" registration rights in
connection with the Representatives' Warrants, and Summit will receive identical
registration rights in connection with the Lender's Warrant to purchase up to
45,000 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 Cruttenden Roth Incorporated and
Principal Financial 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>
Cruttenden Roth Incorporated..............................................
Principal Financial Securities, Inc.......................................
---------
Total........................................................... 1,500,000
=========
</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
45 days after the date of this prospectus, to purchase up to an additional
225,000 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 150,000 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 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
41
<PAGE> 46
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 to register the Lender's
Warrants, the Representatives' Warrants and/or the underlying shares for resale,
on one such occasion at any time during the four-year period commencing one year
following the date of this prospectus upon written demand by either the
Representatives or Summit. Once such demand has been made by either the
Representatives or Summit, the demand registration rights will expire for the
other party. The Company has agreed with the Representatives that if, during the
four-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 shares, to include such
securities as a part of the registration statement. The Company will bear all
the costs, except underwriting discounts and the Representatives' legal fees,
for one "piggy-back" registration.
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 Cruttenden Roth Incorporated, on
behalf of itself and Principal Financial Securities, Inc., as Representatives of
the Underwriters.
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
equal to 2% of the aggregate offering price to the public 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.
42
<PAGE> 47
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. Thompson, Derrig & Slovacek PC continues to perform work for BodyBilt
Seating but was succeeded as BodyBilt's auditors on February 28, 1996 by KPMG
Peat Marwick LLP. Their report on the financial statements did not contain any
adverse opinion or disclaimer of opinion nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. BodyBilt's decision to change
auditors was approved by BodyBilt's board of directors. In connection with their
audits, Thompson, Derrig & Slovacek PC did not identify any reportable
conditions. During BodyBilt's two most recent fiscal years and the interim
period preceding the change in auditors, there were no disagreements between
BodyBilt and Thompson, Derrig & Slovacek PC on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Thompson, Derrig &
Slovacek PC, would have caused it to make reference to the subject matter of the
disagreement in connection with its report.
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.
43
<PAGE> 48
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ERGOBILT, INC.
Report of Independent Auditors........................................................ F-2
Balance Sheet, December 31, 1995...................................................... F-3
Statement of Income for the Period Ended December 31, 1995............................ F-4
Statement of Shareholder's Equity for the Period Ended December 31, 1995.............. F-5
Statement of Cash Flows for the Period Ended December 31, 1995........................ F-6
Notes to Financial Statements......................................................... F-7
Balance Sheet, September 30, 1996 (unaudited)......................................... F-9
Statements of Income (Loss) for the Nine-Month Period Ended September 30, 1996 and the
Period from June 12, 1995 to September 30, 1995 (unaudited)......................... F-10
Statements of Shareholders' Equity for the Nine-Month Period Ended September 30, 1996
and the Period from June 12, 1995 to September 30, 1995 (unaudited)................. F-11
Statements of Cash Flows for the Nine-Month Period Ended September 30, 1996 and the
Period from June 12, 1995 to September 30, 1995 (unaudited)......................... F-12
Notes to Financial Statements (unaudited)............................................. F-13
BODYBILT SEATING, INC.
Reports of Independent Auditors....................................................... F-14
Balance Sheets, December 31, 1994 and 1995............................................ F-16
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995............. F-18
Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and
1995................................................................................ F-19
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995......... F-20
Notes to Financial Statements......................................................... F-21
Balance Sheet, September 30, 1996 (unaudited)......................................... F-25
Statements of Income for the Nine-Month Periods Ended September 30, 1995 and 1996
(unaudited)......................................................................... F-26
Statements of Shareholders' Equity for the Nine-Month Periods Ended September 30, 1995
and 1996 (unaudited)................................................................ F-27
Statements of Cash Flows for the Nine-Month Periods Ended September 30, 1995 and 1996
(unaudited)......................................................................... F-28
Notes to Financial Statements (unaudited)............................................. F-29
</TABLE>
F-1
<PAGE> 49
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> 50
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
Deferred tax assets............................................................. 6,728
--------
Total current assets.................................................... 58,812
--------
Property and equipment:
Furniture and fixtures.......................................................... 2,050
Equipment....................................................................... 9,205
Computer equipment.............................................................. 17,677
Less: Accumulated depreciation............................................... (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............................................................ $119,634
========
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............................................................. 7,676
Shareholder's equity:
Preferred stock, $.10 par value, 10,000,000 shares authorized...................
Common stock; $.0001 par value 20,000,000 shares authorized; 2,826,000 shares
issued and outstanding....................................................... 283
Paid-in capital................................................................. 717
Retained earnings............................................................... 45,243
--------
Total shareholder's equity...................................................... 46,243
--------
Commitments and contingencies
Total liabilities and shareholder's equity.............................. $119,634
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 51
ERGOBILT, INC.
STATEMENT OF INCOME
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 sales..................................................... 107,009
--------
Gross profit............................................................ 296,908
Selling, general and administrative expenses
Compensation.................................................................... 174,549
Other........................................................................... 64,953
--------
Total selling, general and administrative expenses...................... 239,502
--------
Operating income........................................................ 57,406
--------
Interest expense.................................................................. 1,321
--------
Income before income taxes........................................................ 56,085
Income tax expense................................................................ 10,842
--------
Net income.............................................................. $ 45,243
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 52
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)..... 2,826,000 $283 $ 717 $ -- $ 1,000
Net income............................... -- -- -- 45,243 45,243
--------- ---- ----- -------- -------
Balance at December 31, 1995............. 2,826,000 $283 $ 717 $ 45,243 $46,243
========= ==== ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 53
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 taxes........................................................ 948
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable........................................................ (32,617)
Other noncurrent assets.................................................... (310)
Accounts payable, trade.................................................... 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 related parties, net................................................... (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> 54
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 and Revenue Recognition
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. Revenue is
recognized as consulting projects are completed as the projects are of
short-duration.
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
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.
F-7
<PAGE> 55
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 another
company owned by the sole shareholder in the amount of $42,976. The loan to the
company owned by the sole shareholder is a long-term advance expected to be
repaid quarterly over a five year period plus 6% interest. 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.
The Company has had virtually one customer from inception, BodyBilt
Seating, Inc. (Body Bilt) which is partially owned (37.5%) by the sole
shareholder's brother.
(3) INCOME TAXES
Deferred tax assets and liabilities as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Current deferred tax asset......................................... $ 6,728
Non-current deferred tax liability................................. (7,676)
-------
</TABLE>
The non-current deferred tax liability results from the use of statutory
accelerated tax depreciation methods and the current deferred tax asset results
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>
The Company's effective tax rate is approximately 19% due to the graduated
tax rates available to the Company.
(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 (Body Bilt). 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.
(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 2,826-for-1 stock split in January 1997. The effects
of the stock split have been retroactively applied to the financial statements.
F-8
<PAGE> 56
ERGOBILT, INC.
BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Current assets
Cash............................................................................ $260,301
Accounts receivable............................................................. 6,271
Prepaid federal & state income tax.............................................. 18,480
Deferred tax assets............................................................. 42,749
Notes receivable -- related party............................................... 47,675
--------
Total current assets.................................................... 375,476
--------
Property and equipment
Furniture and fixtures.......................................................... 4,344
Equipment....................................................................... 9,455
Computer equipment.............................................................. 35,411
Less: Accumulated depreciation............................................... (8,698)
--------
Property and equipment, net..................................................... 40,512
--------
Other assets
IPO costs....................................................................... 182,809
Organizational cost, net........................................................ 227
--------
Total other assets...................................................... 183,036
--------
Total assets............................................................ $599,024
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable, trade......................................................... $ 37,250
Accrued liabilities............................................................. 98,941
Payable to related party........................................................ 188,250
Notes payable................................................................... 500,000
--------
Total current liabilities............................................... 824,441
--------
Deferred income taxes............................................................. 2,102
Shareholders' equity
Preferred stock, $.10 par value, 10,000,000 shares authorized...................
Common stock; $.0001 par value; 20,000,000 shares authorized; 2,826,000 shares
issued and outstanding....................................................... 283
Paid-in capital................................................................. 717
Retained earnings (deficit)..................................................... (228,519)
--------
Total shareholders' equity.............................................. (227,519)
--------
Commitments and contingencies
Total liabilities and shareholders' equity.............................. $599,024
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 57
ERGOBILT, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND
THE PERIOD FROM JUNE 12, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Sales................................................................... $271,699 $ 301,610
Cost of sales:
Subcontractors and direct labor costs................................. 51,936 122,167
Advertising and media costs........................................... 4,647 16,775
-------- ---------
Total cost of sales........................................... 56,583 138,942
-------- ---------
Gross profit....................................................... 215,116 162,668
Selling, general and administrative expenses
Compensation.......................................................... 43,224 146,128
Other (including $188,250 to a related party)......................... 48,518 328,566
-------- ---------
Total selling, general and administrative expenses............ 91,742 474,694
-------- ---------
Operating income (loss)............................................ 123,374 (312,026)
-------- ---------
Interest income....................................................... 1,695 --
Interest expense...................................................... (1,143) 3,333
Income (loss) before income taxes............................. 123,926 (315,359)
Income tax (expense) benefit.......................................... (33,262) 41,595
Net income (loss).................................................. $ 90,664 $(273,764)
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 58
ERGOBILT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND
THE PERIOD FROM JUNE 12, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 12, 1995 (inception)..... 2,826,000 $283 $717 $ -- $ 1,000
Net income (loss)........................ -- -- -- 90,664 90,664
--------- ---- ---- --------- ---------
Balance at September 30, 1995............ 2,826,000 $283 $711 $ 90,664 $ 91,664
========= ==== ==== ========= =========
Balance at December 31, 1995............. 2,826,000 $283 $717 $ 45,245 $ 46,245
Net income (loss)........................ -- -- -- (273,764) (273,764)
--------- ---- ---- --------- ---------
Balance at September 30, 1996............ 2,826,000 $283 $717 $(228,519) $(227,519)
========= ==== ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 59
ERGOBILT, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
AND THE PERIOD FROM JUNE 12, 1995 (INCEPTION) TO SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 90,664 $(273,764)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation.................................................... 1,315 6,319
Amortization.................................................... 21 47
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................................. (20,137) 26,346
Prepaid federal & state income tax.............................. (310) (18,480)
Deferred tax asset.............................................. 0 (42,749)
Accounts payable, trade......................................... 3,503 33,034
Deferred tax liability.......................................... 3,429 1,154
Payable to related party........................................ -- 188,250
Other current liabilities....................................... 34,339 37,444
--------- ---------
Net cash used by operating activities...................... 112,824 (42,399)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment................................ (22,175) (20,279)
Loans to shareholder............................................... (81,667) (8,362)
--------- ---------
Net cash used by investing activities...................... (103,842) (28,641)
--------- ---------
Cash flows from financing activities:
Note payable....................................................... -- 500,000
IPO costs.......................................................... -- (182,809)
Common stock....................................................... 204 --
Additional paid-in capital......................................... 796 --
--------- ---------
Net cash provided by financing activities.................. 1,000 317,191
--------- ---------
Net increase in cash................................................. 9,982 246,151
Cash at beginning of period.......................................... 0 14,150
--------- ---------
Cash at end of period................................................ $ 9,982 $ 260,301
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 60
ERGOBILT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
(1) GENERAL
Ergobilt, Inc. (the "Company"), was incorporated on June 12, 1995 pursuant
to the laws of the State of Texas as The Chafterton Company, 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) STOCK SPLIT
The Company affected a 2,826-for-1 stock split in January 1997. The effects
of the stock split have been retroactively applied to the financial statements.
(3) NOTE PAYABLE
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 45,000
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 partly from the
proceeds of this initial public offering of the Company's Common Stock and also
by shares of Common Stock at the initial offering price per share.
(4) 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 BodyBilt will
receive $17.6 million payable in a combination of cash ($6.875 million), 751,356
shares of common stock of the Company valued at $5.64 million, and 678,644
shares of Series A Preferred Stock of the Company valued at $5.09 million,
assuming an initial public offering price of $7.50 per share. The cash portion
of the Merger Consideration will be reduced by the anticipated distribution of
approximately $4.4 million related to S corporation earnings to be made to the
shareholders of BodyBilt prior to the Merger.
F-13
<PAGE> 61
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-14
<PAGE> 62
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-15
<PAGE> 63
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-16
<PAGE> 64
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-17
<PAGE> 65
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-18
<PAGE> 66
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-19
<PAGE> 67
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
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................... (648,087) (455,052) (817,720)
Inventories....................................... (499,128) 50,580 (495,189)
Prepaids.......................................... (2,754) (11,760) (85,125)
Deposits and loans................................ (26,337) 29,561 6,142
Related party receivables......................... (7,391) 34,173 (2,623)
Accounts payable.................................. 325,842 (124,371) 387,533
Accrued salaries.................................. 26,734 27,586 12,775
Taxes payable..................................... 6,584 13,354 49,102
Commissions payable............................... 5,926 (417) 105,169
Customer deposits................................. (31,197) (19,574) --
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-20
<PAGE> 68
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.
Revenue Recognition
The Company recognizes revenue at the time chairs are shipped to customers.
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-21
<PAGE> 69
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's 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-22
<PAGE> 70
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-23
<PAGE> 71
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-24
<PAGE> 72
BODYBILT SEATING, INC.
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 46,148
Accounts receivable............................................................ 2,833,018
Inventory...................................................................... 1,690,201
Prepaid expenses............................................................... 124,123
Employee receivable............................................................ 54,492
Deposits....................................................................... 2,702
----------
Total current assets................................................... 4,750,684
----------
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................... 7,450
Building and improvements...................................................... 1,210,467
Furniture and fixtures......................................................... 154,887
Equipment...................................................................... 555,094
Vehicles....................................................................... 398,668
Computer equipment............................................................. 417,575
----------
2,744,141
Less accumulated depreciation.................................................. 459,029
----------
Property, plant and equipment, net..................................... 2,285,112
----------
Total assets........................................................... $7,035,796
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 191,849
Accounts payable and accrued expenses:
Trade....................................................................... 670,152
Other....................................................................... 153,593
Taxes payable.................................................................. 93,282
Commissions payable............................................................ 98,228
----------
Total current liabilities.............................................. 1,207,104
----------
LONG-TERM DEBT:
Notes payable, less current portion............................................ 1,329,037
Note payable -- shareholder.................................................... 75,000
----------
Total long-term debt................................................... 1,404,037
----------
SHAREHOLDERS' EQUITY:
Common stock, no par value; Authorized 500 shares; issued and outstanding
-- 200 shares............................................................... 1,000
Retained earnings.............................................................. 4,423,655
----------
Total shareholders' equity............................................. 4,424,655
COMMITMENTS AND CONTINGENCIES
----------
Total liabilities and shareholders' equity............................. $7,035,796
==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-25
<PAGE> 73
BODYBILT SEATING, INC.
STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Sales.............................................................. $9,250,906 $12,553,265
Cost of sales...................................................... 5,080,371 6,617,577
---------- -----------
Gross profit............................................. 4,170,535 5,935,668
Selling, general and administrative expenses....................... 3,106,942 4,081,595
---------- -----------
Operating income......................................... 1,063,593 1,854,073
Interest expense................................................... (73,873) (108,541)
Other income (expense)............................................. 24,058 147
---------- -----------
Income before income taxes......................................... 1,013,778 1,745,679
Income tax expense................................................. 41,614 39,658
---------- -----------
Net income............................................... $ 972,164 $ 1,706,021
========== ===========
</TABLE>
See accompanying notes to unaudited financial statements.
F-26
<PAGE> 74
BODYBILT SEATING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 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..................................... -- -- 972,164 972,164
--- ------ ---------- ----------
Balance at September 30, 1995.................. 200 1,000 2,578,940 2,579,940
=== ====== ========== ==========
Balance at January 1, 1996..................... 200 1,000 3,400,967 3,401,967
Distributions to shareholders.................. -- -- (683,333) (683,333)
Net income..................................... -- -- 1,706,021 1,706,021
--- ------ ---------- ----------
Balance at September 30, 1996.................. 200 $1,000 $4,423,655 $4,424,655
=== ====== ========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-27
<PAGE> 75
BODYBILT SEATING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 972,164 $1,706,021
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................... 76,180 205,923
Bad debts...................................................... 4,438 13,046
Loss on sale of assets......................................... 6,178 --
Barter transactions............................................ -- (64,534)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................................ (264,605) (375,576)
Inventories.................................................... (371,304) (233,953)
Prepaids....................................................... (42,493) (14,078)
Deposits and loans............................................. 4,800 (129)
Related party receivables...................................... 2,010 (36,705)
Accounts payable............................................... 232,609 16,883
Accrued salaries............................................... (89,712) 36,085
Taxes payable.................................................. 12,075 (21,489)
Commissions payable............................................ 6,468 (40,922)
Deferred revenue............................................... (51,031) --
--------- ----------
Net cash provided by operations........................... 497,777 1,190,572
--------- ----------
Cash flows from investing activities -- purchase of property, plant
and equipment..................................................... (498,097) (758,639)
Cash flows from financing activities:
Net borrowings under revolving line of credit..................... 725,000 821,007
Repayment of notes payable........................................ (129,068) (610,000)
Distributions to shareholders..................................... (600,000) (683,333)
--------- ----------
Net cash used in financing activities..................... (4,068) (472,326)
Net increase in cash................................................ (4,388) (40,393)
Cash and cash equivalents at beginning of the period................ 30,073 86,541
--------- ----------
Cash and cash equivalents at end of the period...................... $ 25,685 $ 46,148
========= ==========
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.............. -- 49,925
========= ==========
Supplemental disclosure of cash flow information:
Interest paid during the period................................... $ 73,873 $ 108,541
========= ==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-28
<PAGE> 76
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
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.
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. All of the Company's chairs are manufactured in a plant in
Navasota, Texas, and are sold primarily to customers in Texas, California and
Washington.
Revenue Recognition
The Company recognizes revenue at the time chairs are shipped to customers.
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 September 30, 1996, it was determined that no allowance was
necessary. No single customer accounted for more than ten percent of the
Company's sales during the nine months ended September 30, 1996, and no account
receivable from any customer exceeded ten percent of total accounts receivable
at September 30, 1996.
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. At September 30, 1996, the net
difference between the tax bases and the amounts recorded of assets and
liabilities was approximately $121,000.
Inventories
Inventories at September 30, 1996 consist of the following:
<TABLE>
<S> <C>
Raw materials.................................................. $ 387,129
Component parts................................................ 750,098
Finished goods, including demos................................ 552,974
----------
$1,690,201
==========
</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. During the nine months
ended September 30, 1996, the Company purchased approximately 23% of its
inventory from one supplier. This supplier is currently the only source of a key
component of BodyBilt chairs.
F-29
<PAGE> 77
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
Property, Plant, and 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>
Buildings and improvements.................................... 39
Furniture and fixtures........................................ 10
Equipment..................................................... 10
Vehicles...................................................... 5
Computer equipment............................................ 5
</TABLE>
Effective January 1, 1996, the Company adopted SFAS 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 non-current 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.
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, employee and shareholder
receivables, other current assets, accounts payable and accrued expenses
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.
NOTE 2 -- RELATED PARTY TRANSACTIONS
During the nine-month period ended September 30, 1996, the Company paid
Agrivest, Inc. (Agrivest), a corporation wholly-owned by the Company's president
and director, a management fee of $45,000 for accounting and other
administrative services provided. The Company paid consulting fees to Agrivest
for additional management services of $53,750 during the same period.
The Company leased vehicles and equipment from Agrivest and paid rentals of
$3,133 during the nine-month period ended September 30, 1996.
The brother of the Company's president and director assisted in the
development of the Company's promotional literature. During the nine-month
period ended September 30, 1996, payments of $291,173 were made to a company
owned by this individual.
During the nine-month period ended September 30, 1996, the Company
purchased $10,000 of furniture and fixtures from a company owned by the brother
of the Company's president and director.
F-30
<PAGE> 78
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
Accounts payable to related parties at September 30, 1996 totaled $4,774.
NOTE 3 -- BARTER TRANSACTIONS
During the nine-month period ended September 30,1996, Body Bilt entered
into agreements with various parties to exchange custom built ergonomic chairs
for advertising and other goods and services. The exchanges are recorded at the
dealer list prices of the chairs which management believes to be the fair value.
The barter transactions are included in the financial statements for the
nine-month period ended September 30, 1996 as follows:
<TABLE>
<S> <C>
Sales.............................................................. $487,114
Cost of sales...................................................... $ 96,725
--------
Gross profit....................................................... $390,389
========
Selling, general and administrative expenses....................... $422,559
Prepaid expense.................................................... $ 77,271
Property, plant, and equipment..................................... $ 77,485
</TABLE>
NOTE 4 -- NOTES PAYABLE
Notes payable at September 30, 1996 consist of the following:
<TABLE>
<CAPTION>
INTEREST BALANCE AT
PAYEE RATE MATURITY 9/30/96 COLLATERAL
- ------------------------- --------------- -------- ---------- --------------------------
<S> <C> <C> <C> <C>
The First National Bank
of Bryan............... Prime rate of 2000(1) $ 825,000 Accounts receivable,
Texas Commerce inventory, property, plant
Bank (8.25%) and equipment, and life
insurance policy(2)
The First National Bank
of Bryan............... Prime rate of 2000 446,444 Property, plant and
First National equipment and life
Bank of Bryan + insurance policy(2)
.75% (9.5%)
The First National Bank
of Bryan............... Prime rate of 2000 64,925 Equipment(2)
First National
Bank of Bryan +
.75% (9.5%)
The First National Bank
of Bryan............... 6.75% to 9.5% 1997 to 184,517 Vehicles(2)
2001
Richard Troutman,
Shareholder............ 0% 2001(3) 75,000 Company stock
----------
$1,595,886
Less amount due within
one year...............
191,849
----------
$1,404,037
==========
</TABLE>
F-31
<PAGE> 79
BODYBILT SEATING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
- ---------------
(1) Repayment of the line of credit requires monthly interest payments beginning
July 30, 1996 until June 30, 1997, at which time equal monthly principal
installments and interest are required until June 30, 2002, the maturity
date. Effective June 30, 1996, the Company renewed its revolving loan
agreement with a bank. Under the terms of the agreement, the Company may
borrow up to $2,000,000, subject to a borrowing base limitation based on a
percentage of eligible accounts receivable and qualified inventory. The
revolving feature expires on June 30, 1997, at which time the revolving note
payable converts to a term note with a final maturity date at June 30, 2002.
Borrowings under the line of credit and any unpaid interest become payable
immediately in the event of a substantial change in ownership or control of
the Company. At September 30, 1996 unused amounts available under the
revolving loan agreement were $1,175,000.
(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.
Notes payable are subject to various restrictive and affirmative covenants.
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 of the
Company's financial position, results of operations, or liquidity.
NOTE 6 -- SUBSEQUENT EVENTS
The Company has entered into a merger agreement with ErgoBilt, Inc.
(ErgoBilt) for 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), ErgoBilt common stock and ErgoBilt Series
A Preferred stock. The cash portion of the consideration will be reduced by the
anticipated distribution of approximately $4.4 million related to S corporation
earnings to be made to the shareholders of the Company prior to the merger.
F-32
<PAGE> 80
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.
-------------------------------------------------------------------
PHOTOGRAPH OF PROPOSED INTERNET WEB SITE DEPICTING NETSCAPE TOOLBAR
AND OPTIONS BUTTONS AND CHAIR WITH 10 POSTURE CONTROL POINTS.
-------------------------------------------------------------------
-------------------------------------------------------------------
PHOTOGRAPH OF PROPOSED INTERNET WEB SITE DEPICTING NETSCAPE TOOLBAR
AND OPTIONS BUTTONS AND ERGOBILT LOGO AND DIAGRAM
OF ERGONOMIC WORKSTATION.
-------------------------------------------------------------------
ERGOBILT INC
<PAGE> 81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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................................ 6
The Reorganization.......................... 10
Recent Developments......................... 11
Use of Proceeds............................. 11
Dilution.................................... 12
Capitalization.............................. 13
Dividend Policy............................. 13
Selected Financial Data..................... 14
Selected Pro Forma Financial Data........... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 16
Business.................................... 22
Management.................................. 29
Certain Transactions........................ 34
Principal Shareholders...................... 36
Description of Capital Stock................ 37
Shares Eligible for Future Sale............. 39
Underwriting................................ 41
Legal Matters............................... 42
Experts..................................... 43
Additional Information...................... 43
Index to Financial Statements............... F-1
</TABLE>
------------------------
UNTIL , 1997 (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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,500,000 Shares
Ergobilt Logo
Common Stock
------------------------
PROSPECTUS
------------------------
CRUTTENDEN ROTH
INCORPORATED
PRINCIPAL FINANCIAL
SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 82
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 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)............ 1,000
Underwriters' Nonaccountable Expense Allowance.................... 225,000
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, key employees and
consultants, to the fullest extent permitted in the Texas Business Corporation
Act.
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 McMillan for
$1,000. On January 9, 1997, the registrant effected a 2,826:1 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.
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
II-1
<PAGE> 83
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> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on January 13, 1997.
ERGOBILT, INC.
By: /s/ GERARD SMITH
----------------------------------
Gerard Smith,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1
to 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 January 13, 1997
- ---------------------------------------------- Director
Gerald McMillan
/s/ GERARD SMITH President, Chief Executive January 13, 1997
- ---------------------------------------------- Officer and Director
Gerard Smith (Principal Executive
Officer and Acting
Principal Financial and
Accounting Officer)
</TABLE>
II-3
<PAGE> 85
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) -- Form of Certificate of Designation of Series A Preferred Stock of
ErgoBilt, Inc.
*5 -- Opinion of Wolin, Fuller, Ridley & Miller LLP
**9 -- Voting Agreement among ErgoBilt, Inc. and the Shareholders named
therein dated December 1, 1996
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
</TABLE>
II-4
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------------ ---------------------------------------------------------------------------------
<C> <S> <C>
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
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)(1) -- Settlement Agreement among Jerome J. Congleton, Jaye Congleton,
Rebecca Congleton Boenigk and Congleton Ergonomic Chairs, Inc.,
Mark McMillan, Michael McWhorter, and Congleton Chair Works, Inc.
(f/k/a Lubbock Molasses, Inc., d/b/a Congleton Chair Works, Inc.),
entered into May 1991
10(i)(2) -- 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) -- First 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
</TABLE>
II-5
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------------ ---------------------------------------------------------------------------------
<C> <S> <C>
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
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
**10(u) -- Letter of Intent between Metamorphosis Design & Development, Inc.
and Ergobilt, Inc. dated January 8, 1997
**10(v) -- Executive Employment Agreement between Gerald McMillan and
ErgoBilt, Inc. dated October 1, 1996
**16 -- Letter of Thompson, Derrig & Slovacek PC
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 Brown 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)
**99(f) -- Consent of Person About to Become Director (Mark McMillan)
</TABLE>
- ---------------
* To be filed by amendment.
** Filed with Amendment No. 1 to the registration statement.
II-6
<PAGE> 1
EXHIBIT 3(i)
RESTATED ARTICLES OF INCORPORATION
OF
ERGOBILT, INC.
ARTICLE ONE
ErgoBilt, Inc. (the "Corporation"), pursuant to the provisions of
Article 4.07 of the Texas Business Corporation Act (the "Act"), hereby adopts
Restated Articles of Incorporation ("Restated Articles") which accurately copy
the Articles of Incorporation and all amendments thereto that are in effect to
date and such Restated Articles of Incorporation contain no change in any
provision thereof.
ARTICLE TWO
The Restated Articles were adopted by resolution of the Board of
Directors of the Corporation on December 6, 1996.
ARTICLE THREE
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded by the following Restated Articles which accurately copy
the entire text thereof:
ARTICLE ONE
The name of the Corporation is ErgoBilt, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized
are: the transaction of any and all lawful business for which
corporations may be incorporated under the Texas Business Corporation
Act.
ARTICLE FOUR
The Corporation is authorized to issue two classes of capital
stock, to be designated "Common Stock" and "Preferred Stock,"
respectively. The number of shares of Common Stock authorized to be
issued is Twenty Million (20,000,000) shares, par value $0.01 per share,
and the number of shares of Preferred Stock authorized to be issued is
Ten Million (10,000,000) shares, par value $0.01 per share.
The Board of Directors of the Corporation (the "Board of
Directors") is expressly authorized, at any time and from time to time,
to fix, by resolution or
<PAGE> 2
resolutions, the following provisions for shares of any class or classes
of Preferred Stock of the Corporation or any series of any class of
Preferred Stock:
(a) the designation of such class or series, the number
of shares to constitute such class or series and the stated value
thereof if different from the par value thereof;
(b) whether the shares of such class or series shall
have voting rights, in addition to any voting rights provided by
law, and, if so, the terms of such voting rights, which may (i)
be general or limited, (ii) subject to applicable law or
regulation, including, without limitation, the rules of any
securities exchange on which securities of any class of the
Corporation may be listed, permit more than one vote per share,
or (iii) vary among stockholders of the same class based upon
such factors as the Board of Directors may determine including,
without limitation, the size of a stockholder's position and/or
the length of time with respect to which such position has been
held;
(c) the dividends, if any, payable on such class or
series, whether any such dividends shall be cumulative, and, if
so, from what dates, the conditions and dates upon which such
dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any shares of
stock of any other class or any other series of the same class;
(d) whether the shares of such class or series shall be
subject to redemption by the Corporation and, if so, the times,
prices and other conditions of such redemption;
(e) the amount or amounts payable upon shares of such
series upon, and the rights of the holders of such class or
series in, the voluntary or involuntary liquidation, dissolution
or winding up, or upon any distribution of the assets, of the
Corporation;
(f) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and, if
so, the extent to and manner in which any such retirement or
sinking fund shall be applied to the purchase or redemption of
the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any
other class or any other series of the same class or any other
securities (including Common Stock) and, if so, the price or
prices or the rate or rates of conversion or exchange and the
method, if any, of
2
<PAGE> 3
adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be
effective while any shares of such class or series are
outstanding upon the payment of dividends or the making of other
distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of the same class;
(i) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issue of
any additional stock, including additional shares of such class
or series or of any other series of the same class or of any
other class;
(j) the ranking (be it pari passu, junior or senior) of
each class or series vis-a-vis any other class or series of any
class of Preferred Stock as to the payment of dividends, the
distribution of assets and all other matters; and
(k) any other powers, preferences and relative,
participating, optional and other special rights, and any
qualifications, limitations and restrictions thereof, insofar as
they are not inconsistent with the provisions of these Articles
of Amendment to the Articles of Incorporation, to the full extent
permitted in accordance with the laws of the State of Texas.
ARTICLE FIVE
The Corporation will not commence business until it has received
for the issuance of its shares consideration of the value of One
Thousand ($1000.00), consisting of money, labor done, or property
received, which sum is not less than One Thousand and No/100 Dollars
($1,000.00).
ARTICLE SIX
The address of its initial registered office is 5000 Quorum,
Suite 147, Dallas, Texas 75240, and the name of its initial registered
agent at such address is Gerald McMillan.
ARTICLE SEVEN
The names and addresses of the members of the Board of Directors
are:
1. Gerard Smith, 5000 Quorum, Suite 147, Dallas, Texas
75240
2. Gerald McMillan, 5000 Quorum, Suite 147, Dallas,
Texas 75240
3
<PAGE> 4
ARTICLE EIGHT
8.1. NUMBER OF DIRECTORS. The Board of Directors of the
Corporation shall consist of not less than five (5) and not more than
nine (9) persons. A director need not be a resident of the State of
Texas or a shareholder of the Corporation. The exact number of
directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors.
8.2 TERM OF OFFICERS. Directors shall be elected to serve for
a term to expire at the next succeeding Annual Meeting of Shareholders
after their election.
8.3. NEWLY CREATED DIRECTORSHIPS. A directorship created by
reason of an increase in the number of directors may be filled: (i) by
an election at an Annual or Special Meeting of the Shareholders called
for that purpose; or (ii) by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided, however that the Board of Directors may not fill
more than two such directorships during the period between any two
successive Annual Meetings of the Shareholders.
ARTICLE NINE
Special meetings of the shareholders of the Corporation may be
called only by: (i) the Chairman of the Board of Directors,(ii)the
President, (iii) any two (2) members of the Board of Directors, or (iv)
shareholders holding at least fifty percent (50%) of all the outstanding
shares of the Corporation entitled to vote at the proposed special
meeting.
ARTICLE TEN
Any action required or permitted to be taken by the shareholders
of the Corporation must be effected at an annual or special meeting of
the shareholders of the Corporation and may not be effected by any
consent in writing by such shareholders.
ARTICLE ELEVEN
A director, duly appointed or elected to the Board of Directors,
may be removed only for cause by the affirmative vote of a majority of
the members of the Board of Directors exclusive of the member whose
removal is sought. Shareholders may remove a director for cause only at
a special meeting called for such purpose and only upon the affirmative
vote of shareholders holding more than fifty percent (50%) of the stock
entitled to vote at such special meeting.
4
<PAGE> 5
ARTICLE TWELVE
The Corporation shall indemnify, to the fullest extent permitted
by, and in the manner permitted under, the Act, any person who was, is,
or is threatened to be made, a named defendant or respondent in a
"proceeding" (as defined in Article 2.02-1 of the Act) because the
person is or was a director of the Corporation. The Corporation shall
similarly indemnify any officer, key employees or consultants of the
Corporation who are made a party to a proceeding by reason of the fact
that he is or was an officer, key employee or consultant of the
Corporation. The provisions of this Article Twelve shall be applicable
to persons who have ceased to be directors, officers, key employees or
consultants of the Corporation and shall inure to the benefit of their
heirs, executors, and administrators.
The personal liability of a director to the Corporation or its
shareholders for monetary damages for an act or omission in the
director's capacity as a director is hereby eliminated to the fullest
extent permitted under applicable law. The terms of the preceding
sentence, however, shall not eliminate or limit the liability of a
director: (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good
faith that constitute a breach of duty of the director to the
Corporation or an act or omission that involves intentional misconduct
or knowing violation of law, (iii) for any transaction from which the
director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office;
or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ARTICLE THIRTEEN
The Bylaws of the Corporation may be amended only upon the
affirmative vote of two-thirds of the members of the Board of Directors
then in office or upon the affirmative vote of two-thirds of the issued
and outstanding shares of this Corporation entitled to vote.
ARTICLE FOURTEEN
Cumulative voting is expressly prohibited. Each shareholder
holding shares entitled to vote at the election of the directors shall
only have the right to vote the number of shares owned by such
shareholder for as many persons as there are directors to be elected and
for whose election such shareholder has a right to vote.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has caused these Restated
Articles of Incorporation to be executed by the Secretary of the
Corporation on December 6, 1996.
ErgoBilt, Inc.
By: /s/ P. MICHAEL SULLIVAN
--------------------------------------
P. Michael Sullivan, Secretary
6
<PAGE> 1
EXHIBIT 3(ii)
AMENDED AND RESTATED BYLAWS
OF
EGROBILT, INC.
A TEXAS CORPORATION
(ADOPTED AS OF NOVEMBER 6, 1996)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II SHAREHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 4. Notice . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Closing of Share Transfer Records and Fixing
Record Dates . . . . . . . . . . . . . . . . . . . . . 2
Section 6. List of Shareholders . . . . . . . . . . . . . . . . . . 2
Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Voting and Proxies . . . . . . . . . . . . . . . . . . . 3
Section 9. No Action by Written Consent . . . . . . . . . . . . . . 4
Section 10. Presence at Meetings by Means of
Communications Equipment . . . . . . . . . . . . . . . 4
Section 11. Notice of New Shareholder Business . . . . . . . . . . . 4
ARTICLE III DIRECTORS
Section 1. Number of Directors . . . . . . . . . . . . . . . . . . 5
Section 2. Vacancies . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. General Powers . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . 6
Section 5. Annual Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 8. Quorum and Voting . . . . . . . . . . . . . . . . . . . 6
Section 9. Committees of the Board . . . . . . . . . . . . . . . . 7
Section 10. Compensation of Directors . . . . . . . . . . . . . . . 7
Section 11. Action by Unanimous Consent . . . . . . . . . . . . . . 7
Section 12. Presence at Meetings by Means of
Communications Equipment . . . . . . . . . . . . . . . 8
Section 13. Reliance Upon Books . . . . . . . . . . . . . . . . . . 8
ARTICLE IV NOTICES
Section 1. Form of Notice . . . . . . . . . . . . . . . . . . . . . 8
Section 2. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. When Notice Unnecessary . . . . . . . . . . . . . . . . 8
ARTICLE V OFFICERS
Section 1. General . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Chairman of the Board . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4. President . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5. Vice Presidents . . . . . . . . . . . . . . . . . . . . 10
Section 6. Assistant Vice Presidents . . . . . . . . . . . . . . . 10
Section 7. Secretary . . . . . . . . . . . . . . . . . . . . . . . 10
Section 8. Assistant Secretaries . . . . . . . . . . . . . . . . . 11
Section 9. Chief Financial Officer . . . . . . . . . . . . . . . . 11
Section 10. Bonding . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . 11
Section 2. Lost Certificates . . . . . . . . . . . . . . . . . . . 12
Section 3. Transfer of Shares . . . . . . . . . . . . . . . . . . . 12
Section 4. Registered Shareholders . . . . . . . . . . . . . . . . 12
Section 5. Annual Statement . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Insurance . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII GENERAL PROVISIONS
Section 1. Distributions and Share Dividends . . . . . . . . . . . 14
Section 2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Resignation . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX AMENDMENTS TO BYLAWS
ARTICLE X REQUIRED VOTE ON BUSINESS COMBINATIONS WITH RELATED PERSONS
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
ERGOBILT, INC.
(ADOPTED AS OF NOVEMBER 6, 1996)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be located at 5000 Quorum Place, Suite 147, City of Dallas, Dallas
County, Texas, or such other county as the Board of Directors of this
Corporation (the "Board") may from time to time designate.
Section 2. Other Offices. The Corporation may also have offices at
such other places both in and/or outside the State of Texas as the Board may
from time to time determine or the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings. Meetings of the shareholders
shall be held at such time and at such place in or outside the State of Texas,
as shall be determined by the Board.
Section 2. Annual Meetings. Annual meetings of shareholders ("Annual
Shareholders' Meeting") shall be held on such date and at such time as shall be
determined by the Board. At each Annual Shareholder' Meeting, the shareholders
shall elect a Board and transact such other business as may properly be brought
before the meeting.
Section 3. Special Meetings. Special meetings ("Special Shareholders'
Meetings") of the shareholders may be called only by: (i) the Chairman of the
Board, (iii) any two (2) members of the Board; (ii) the President of the
Corporation; or (iv) shareholders holding no less than fifty percent (50%) of
the shares entitled to vote at said special meeting. The Board, from time to
time, by resolution duly adopted by a majority of its members may amend these
Bylaws to authorize other person or persons to call Special Shareholders'
Meetings.
Section 4. Notice. Written or printed notice stating the place, day
and hour of any Annual Shareholders' Meeting and, in the case of a Special
Shareholders' meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than thirty (30) nor more than sixty (60) days
before the date of the meeting, either personally or by mail, by or at the
direction of the Chief Executive Officer, President, Secretary or the officer
or person calling the meeting, to each shareholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, postage prepaid, addressed to the shareholder at
such shareholder's address as it last appears on the Corporation's share
transfer records.
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Section 5. Closing of Share Transfer Records and Fixing Record Dates.
For the purpose of determining shareholders entitled to notice of or to vote at
any Annual Shareholders' Meeting, Special Shareholders' Meeting, or any
adjournment of any of said meetings, or entitled to receive payment of any
distribution or share dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board may provide that the share
transfer records shall be closed for a stated period but not to exceed, in any
case, sixty (60) days. If the share transfer records are closed for the
purpose of determining shareholders, such records shall be closed for at least
ten (10) days immediately preceding such meeting. In lieu of closing the share
transfer records, the Board may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty (60) days and, in the case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the share transfer
records are not closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of
its own shares) or share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board declaring such
distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of
share transfer records and the stated period of closing has expired.
Section 6. List of Shareholders. The officer or agent of the
Corporation having charge of the share transfer records for shares of the
Corporation shall make, at least ten (10) days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of ten (10) days prior to such meeting, shall be kept on file at the
registered office or principal place of business of the Corporation and shall
be subject to inspection by any shareholder at any time during the usual
business hours of the Corporation. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The
original share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer records or to vote at
any meeting of shareholders. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at such meeting.
Section 7. Quorum. A quorum shall be deemed present at a meeting of
shareholders if the holders of shares having a majority of the voting power
represented by all issued and outstanding shares entitled to vote at the
meeting are present in person or are represented by proxy, unless otherwise
provided by the Articles of Incorporation in accordance with the Act. Once a
quorum is present at a meeting of shareholders, the shareholders represented in
person or by proxy at the meeting may conduct such business as may properly be
brought before the meeting until it is adjourned. The subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting. If, however, a quorum is not be present at any meeting
of shareholders, the
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shareholders entitled to vote, present in person or represented by proxy, shall
have the power to adjourn the meeting, without notice (other than announcement
at the meeting at which the adjournment is taken of the time and place of the
adjourned meeting), until such time and to such place as may be determined by a
vote of the holders of a majority of the shares represented in person or by
proxy at such meeting until a quorum is present. At such adjourned meeting at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Section 8. Voting and Proxies. When a quorum is present at any
meeting, the vote of the holders of a majority of the shares entitled to vote,
present in person or represented by proxy at such meeting, shall decide any
matter brought before such meeting, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the Texas Business Corporations Act
(the "Act"), and shall be the act of the shareholders, unless otherwise
provided by the Articles of Incorporation or these Bylaws (as said Articles or
Bylaws are now or are hereinafter in effect) or by resolution of the Board in
accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws (as now or hereinafter in effect) in accordance with the Act, directors
of the Corporation shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present.
At every meeting of the shareholders, each shareholder shall be entitled
to such number of votes, in person or by proxy, for each share having voting
power held by such shareholder, as is specified in the Articles of
Incorporation as now or hereinafter in effect (including the resolution of the
Board [or a committee thereof] creating such shares), except to the extent that
the voting rights of the shares of any class or series are limited or denied by
the Articles of Incorporation as now or are hereinafter in effect. At each
election of directors, every shareholder shall be entitled to cast, in person
or by proxy, the number of votes to which the shares owned by him are entitled
for as many persons as there are directors to be elected and for whose election
he has a right to vote. Cumulative voting is prohibited by the Articles of
Incorporation.
Every proxy shall be in writing and be executed by the shareholder. A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
executed by the shareholder, shall be treated as an execution in writing for
the purposes of this Section 8. No proxy shall be valid after 11 months from
the date of its execution unless otherwise provided therein. Each proxy shall
be revocable unless (i) the proxy form conspicuously states that the proxy is
irrevocable, and (ii) the proxy is coupled with an interest, as defined in the
Act and other Texas law.
Shares standing in the name of a corporation may be voted by an officer,
agent or proxy as the bylaws of such corporation may prescribe or, in the
absence of such provision, as the Board of such corporation may determine.
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Shares held by an administrator, executor, guardian or conservator may
be voted by him or her, either in person or by proxy, without a transfer of
such shares into his or her name. Shares standing in the name of a trustee may
be voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name as trustee.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without being transferred into his or her name, if such authority is
contained in an appropriate order of the court appointing the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee.
Thereafter, the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of this Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
this Corporation, and shares of this Corporation's own stock held by this
Corporation in a fiduciary capacity shall not be voted, directly or indirectly,
at any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
Section 9. No Action by Written Consent. No action or vote of the
shareholders may be taken by written consent.
Section 10. Presence at Meetings by Means of Communications Equipment.
Shareholders may not participate in and hold a meeting of the shareholders by
means of conference telephone or similar communications equipment.
Section 11. Notice of New Shareholder Business. In the event a
shareholder desires to bring any business ("New Shareholder Business") before
an Annual or Special Shareholders' Meeting, such shareholder must give prior
written notice to the Secretary of the Corporation, which notice must be given
no less than ninety (90) and no more than one hundred twenty (120) days prior
to the meeting date. If less than one hundred (100) days prior notice of the
meeting is given to the shareholders, then the shareholder's notice of New
Shareholder Business must be received no later than the tenth (10th) day
following the date the notice of the meeting was mailed. A Shareholder's
notice of New Shareholder Business shall set forth in reasonable detail 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 Articles of Incorporation or
the Bylaws, the language of the proposed amendment; (ii) the name and record
address of the shareholder proposing such New Shareholder Business; (iii) the
class and number of the shares of the Corporation which are beneficially owned
by such shareholder; and (iv) any material interest of such shareholder in such
New Shareholder Business.
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ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors of the
Corporation shall be fixed from time to time by resolution of the Board, but in
no case shall the number of directors be less than five (5) nor more than nine
(9). No decrease in the number of directors shall have the effect of reducing
the term of any incumbent director. Directors shall be elected at each Annual
Shareholders' Meeting by the holders of shares entitled to vote in the election
of directors, except as provided in Section 2 of this Article III, and each
director shall hold office until the next succeeding annual meeting of
shareholders following his or her election and until his or her successor is
elected and qualified. Directors need not be residents of the State of Texas
or shareholders of the Corporation.
Section 2. Vacancies. Subject to other provisions of this Section 2,
any vacancy occurring in the Board may be filled by election at an Annual
Shareholders' Meeting or any Special Shareholders' Meeting called for that
purpose or by the affirmative vote of a majority of the remaining directors,
though the remaining directors may constitute less than a quorum of the Board
as fixed by Section 8 of this Article III. A director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office. Any directorship to be filled by reason of an increase in the number
of directors shall be filled by election at an Annual Shareholders' Meeting or
at a Special Shareholders' Meeting called for that purpose or may be filled by
the Board for a term of office continuing only until the next election of one
or more directors by the shareholders; provided that the Board may not fill
more than two (2) such directorships during the period between any two
successive Annual Shareholders' Meetings. Shareholders holding a majority of
shares then entitled to vote at an election of directors may, at any time
terminate the term of office of all or any of the directors for cause only by a
vote at any Annual Shareholders' Meeting or any Special Shareholders' Meeting
called for that purpose. The Board may remove a director for cause upon the
vote of a majority of the members of the Board (excluding the director whose
removal is sought). Such removal for cause shall be effective immediately upon
such shareholder or Board of Director action even if successors are not elected
simultaneously. The vacancies on the Board caused by such action shall be
filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or
series of shares are entitled to elect one or more directors by the provisions
of the Articles of Incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or
by the vote of the holders of the outstanding shares of such class or series,
and such directorships shall not in any case be filled by the vote of the
remaining directors or the holders of the outstanding shares as a whole unless
otherwise provided in the Articles of Incorporation.
Section 3. General Powers. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction
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of, its Board, which may do or cause to be done all such lawful acts and things
as are not by the Act, the Articles of Incorporation or these Bylaws (as now or
are hereinafter in effect) directed or required to be exercised or done by the
shareholders. The Board shall consider and approve all material contracts and
agreements of the Corporation.
Section 4. Place of Meetings. The Board of the Corporation may hold
meetings, both regular and special, either in or outside the State of Texas.
Section 5. Annual Meetings. The first meeting of each newly elected
Board ("Annual Board Meeting") shall be held, without further notice,
immediately following the Annual Shareholders' Meeting at the same place,
unless by the majority vote or unanimous consent of the directors then elected
and serving, such time or place shall be changed.
Section 6. Regular Meetings. Regular meetings of the Board ("Regular
Board Meetings") may be held with or without notice at such time and place as
the Board may determine by resolution.
Section 7. Special Meetings. Special meetings of the Board ("Special
Board Meetings") may be called by or at the request of the Chief Executive
Officer or President and shall be called by the Secretary on the written
request of a majority of the incumbent directors. The person or persons
authorized to call Special Board Meetings may fix the place for holding any
such meeting called by such person or persons. Notice of any Special Board
Meeting shall be given at least twenty-four (24) hours previous thereto if
given either personally (including written notice delivered personally or
telephone notice) or by telex, telecopy, telegram or other means of immediate
communication, and at least seventy-two (72) hours previous thereto if given by
written notice mailed or otherwise transmitted to each director at the address
of his business or residence. Neither the business to be transacted at, nor
the purpose of, any Regular or Special Board Meeting need be specified in the
notice or waiver of notice of such meeting. Any director may waive notice of
any meeting, as provided in Section 2 of Article IV of these Bylaws. A
director's attendance at a meeting shall constitute a waiver of notice of such
meeting, except where a director has attended a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
Section 8. Quorum and Voting. At all meetings of the Board, the
presence of a majority of the number of directors fixed in the manner provided
in Section 1 of this Article III shall constitute a quorum for the transaction
of business. At all meetings of committees of the Board (if one or more be
designated in the manner described in Section 9 of this Article III), the
presence of a majority of the number of directors fixed from time to time by
resolution of the Board to serve as members of such committees shall constitute
a quorum for the transaction of business. The affirmative vote of at least a
majority of the directors present and entitled to vote at any meeting of the
Board or a committee of the Board at which there is a quorum shall be the act
of the Board or the committee, except as may be otherwise specifically provided
by the Act, the Articles of Incorporation or these Bylaws as now or are
hereinafter in effect. Directors may not vote or take action by written
consent by proxy. Directors with an interest in a business transaction of the
Corporation and directors who are directors or officers or have a financial
interest in any other corporation, partnership, association
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or other organization with which the Corporation is transacting business may be
counted in determining the presence of a quorum at a meeting of the Board or of
a committee of the Board to authorize such business transaction. If a quorum
is not present at any meeting of the Board or a committee thereof, a majority
of the directors present thereat may adjourn the meeting, without notice other
than announcement at the meeting, until such time and to such place as may be
determined by such majority of directors, until a quorum is present.
Section 9. Committees of the Board.
Section 9.1. General. The Board may, by resolution passed by a
majority of the whole Board, designate from among its members one or more
committees, each of which shall be composed of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the Board, replace absent or
disqualified members at any meeting of that committee. Any such committee, to
the extent provided in the resolution of the Board designating the committee or
in the Articles of Incorporation or these Bylaws, shall have and may exercise
all of the authority of the Board of the Corporation, except where action of
the Board is required by the Act or by the Articles of Incorporation. as now or
hereinafter are in effect. Any member of a committee of the Board may be
removed, for or without cause, by the affirmative vote of a majority of the
whole Board. If any vacancy or vacancies occur in a committee of the Board
caused by death, resignation, retirement, disqualification, removal from office
or otherwise, the vacancy or vacancies shall be filled by the affirmative vote
of a majority of the whole Board. Such committee or committees shall have such
name or names as may be designated by the Board and shall keep regular minutes
of their proceedings and report the same to the Board when required.
Section 9.2. Limitations on Authority. Notwithstanding the
general power of the Board of Directors to establish committees pursuant to
Paragraph 9.1 above, the Board shall have no right to delegate to any
committee, including a compensation and/or stock option committee, the right
and power to determine the compensation, bonuses, stock options, or other
compensation or benefits provided to any of the executive officers of this
Corporation, wich power shall at all times remain vested in the Board and shall
be exercised upon the vote of the majority of the members of the Board. For
the purposes of these Bylaws, the term "executive officers" shall mean the
president/chief executive officer, the chairman of the Board, the secretary,
the chief financial officer, and all vice-presidents. Additional officers may
be included in the definition of "executive officers" upon resolution adopted
by a majority of the members of the Board.
Section 10. Compensation of Directors. Unless otherwise provided by
resolution of the Board, members of the Board or of any committee thereof shall
not be entitled to receive any stated salary for their services. Nothing
herein contained, however, shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation for
such services.
Section 11. Action by Unanimous Consent. Any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if a written
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consent, setting forth the action so taken, is signed by all the members of the
Board or the committee, as the case may be. Such written consent shall have
the same force and effect as a unanimous vote at a meeting of the Board.
Section 12. Presence at Meetings by Means of Communications Equipment.
Members of the Board of the Corporation or any committee designated by the
Board may participate in and hold a meeting of such board or committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section 12 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 13. Reliance Upon Books. Directors and members of any
committee designated by the Board shall, in the performance of their duties, be
fully protected in relying in good faith upon the books of accounts or reports
made to the Corporation by any of its officers, or by an independent certified
public accountant, or by an appraiser selected with reasonable care by the
Board or by any such committee, or in relying in good faith upon other records
of the Corporation.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever under the provisions of the Act,
the Articles of Incorporation or these Bylaws as now or are hereinafter in
effect, notice is required to be given to any director or shareholder, and no
provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice exclusively. Any such notice may be given in
writing, by mail, postage prepaid, or by telex, telecopy, or telegram, or other
means of immediate communication, addressed or transmitted to such director or
shareholder at such address as appears on the books of the Corporation. Any
notice required or permitted to be given by mail shall be deemed to be given at
the time when the same be thus deposited, postage prepaid, in the United States
mail as aforesaid. Any notice required or permitted to be given by telex,
telecopy, telegram, or other means of immediate communication shall be deemed
to be given at the time of actual delivery.
Section 2. Waiver. Whenever under the provisions of the Act, the
Articles of Incorporation or these Bylaws as now or hereinafter in effect, any
notice is required to be given to any director or shareholder, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time stated in such notice, shall be equivalent to the
giving of such notice.
Section 3. When Notice Unnecessary. Whenever, under the provisions of
the Act, the Articles of Incorporation or these Bylaws as now or hereinafter in
effect, any notice is required to be given to any shareholder, such notice need
not be given to the shareholder if:
(a) notice of two (2) consecutive Annual Shareholders' Meeting
and all notices of meetings held during the period between
those two meetings, if any, or
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(b) all, but in no event less than two (2) payments (if sent
by first class mail) of distributions or interest on
securities during a 12-month period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action
or meeting taken or held without notice to such a person shall have the same
force and effect as if the notice had been duly given. If such a person
delivers to the Corporation a written notice setting forth his or her then
current address, the requirement that notice be given to that person shall be
reinstated.
ARTICLE V
OFFICERS
Section 1. General. The elected officers of the Corporation shall be a
Chairman of the Board, a President and a Secretary. The Board may also elect
or appoint one or more Vice Presidents, with or without such descriptive titles
as the Board shall deem appropriate, a Chief Financial Officer, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, and such other
officers as may be deemed necessary, all of whom shall also be officers. Two
(2) or more offices may be held by the same person.
Section 2. Election. The Board shall elect the officers of the
Corporation at each Annual Board Meeting of the Board. The Board may appoint
such other officers and agents as it deems necessary and shall determine the
salaries of all officers and agents from time to time. The officers shall hold
office until their successors are chosen and qualified. No officer need be a
member of the Board except the Chairman of the Board. Any officer elected or
appointed by the Board may be removed, with or without cause, at any time by a
majority vote of the whole Board. Election or appointment of an officer or
agent shall not of itself create contract rights.
Section 3. Chairman of the Board. The Chairman of the Board shall
preside, when present, at all meetings of shareholders and the Board. To the
extent permitted by applicable law, upon resolution adopted by the Board, the
Chairman of the Board may possess the same powers as the President to execute
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board. During the absence or disability of the President,
the Chairman of the Board shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by the Board or by amendment to these Bylaws.
Section 4. President. The President shall be the Chief Executive
Officer of the Corporation and shall be subject to the control and supervision
of the Board.. The President shall have general supervision of the business of
the Corporation and shall see that all orders and resolutions of the Board and
the shareholders are carried into effect. The President also shall have
general authority to execute bonds, deeds and contracts in the name of the
Corporation which may be authorized by the Board; to sign stock certificates;
to cause the employment or appointment of such employees and agents of the
Corporation as the proper conduct of operations may require, and to fix their
compensation, subject to the provisions of these Bylaws; to remove or suspend
any employee or
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agent who shall have been employed or appointed under his authority or under
authority of an officer subordinate to him; to suspend for cause, pending final
action by the authority which shall have elected or appointed him, any officer
subordinate to the Chairman of the Board; and, in general, to exercise all the
powers and authority usually appertaining to the chief executive officer of a
corporation, except as otherwise provided in these Bylaws. In the absence of
the Chairman of the Board, the President shall preside at the meeting of the
Board and the shareholders. The President shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to him
by the Board or by amendment to these Bylaws.
Section 5. Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act and the absence , inability or refusal
of the Chairman of the Board to act, the Vice President, if any (or in the
event there be more than one, the Vice Presidents in the order designated or,
in the absence of any designation, then in the order of their election), shall
perform the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the
Board may from time to time prescribe. The Vice President in charge of
finance, if any, shall also perform the duties and assume the responsibilities
described in Section 9 of this Article for the Chief Financial Officer, and
shall report directly to the Chief Executive Officer of the Corporation.
Section 6. Assistant Vice Presidents. In the absence of a Vice
President or in the event of his inability or refusal to act, the Assistant
Vice President, if any (or, if there be more than one, the Assistant Vice
Presidents in the order designated or, in the absence of any designation, then
in the order of their election), shall perform the duties and exercise the
powers of that Vice President and shall perform such other duties and have such
other powers as the Board, the Chief Executive Officer, the Chief Operating
Officer or the Vice President under whose supervision he is appointed may from
time to time prescribe.
Section 7. Secretary. The Secretary shall attend and record minutes of
the proceedings of all meetings of the Board and any committees thereof and all
meetings of the shareholders. He shall file the records of such meetings in
one or more books to be kept by him for that purpose. Unless the Corporation
has appointed a transfer agent or other agent to keep such a record, the
Secretary shall also keep at the Corporation's registered office or principal
place of business a record of the original issuance of shares issued by the
Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration of transfer. Such records shall
contain the names and addresses of all past and current shareholders of the
Corporation and the number and class of shares issued by the Corporation held
by each of them. He shall give, or cause to be given, notice of all meetings
of the shareholders and Special Board Meetings, and shall perform such other
duties as may be prescribed by the Board or the Chief Executive Officer, under
whose supervision he shall be. He shall have custody of the corporate seal of
the Corporation and he, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it, and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary. The
Board may give general authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The Secretary shall
keep and account for all books, documents, papers and records of the
Corporation except those for which some other officer or agent is properly
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accountable. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of the
secretary of a corporation.
Section 8. Assistant Secretaries. In the absence of the Secretary or
in the event of his inability or refusal to act, the Assistant Secretary, if
any (or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary
and shall perform such other duties and have such other powers as the Board,
the Chief Executive Officer or the Secretary may from time to time prescribe.
Section 9. Chief Financial Officer. The Chief Financial Officer, if
any (or the Vice President in charge of finance, if one be elected), shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board. He shall disburse the funds of the Corporation as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render
to the Chief Executive Officer and the Board, at its regular meetings, or when
the Board so requires, an account of all his transactions as Chief Financial
Officer and of the financial condition of the Corporation. If required by the
Board, he shall give the Corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board for the faithful performance of the duties of his office and for the
restoration of the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the Corporation. The Chief Financial Officer shall be under the supervision of
the Vice President in charge of finance, if any, and he shall perform such
other duties as may be prescribed by the Board, the Chief Executive Officer or
any such Vice President in charge of finance.
Section 10. Bonding. If required by the Board, all or certain of the
officers shall give the Corporation a bond, in such form, in such sum and with
such surety or sureties as shall be satisfactory to the Board, for the faithful
performance of the duties of their office and for the restoration to the
Corporation, in case of their death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board and shall be numbered consecutively
and entered in the share transfer records of the Corporation as they are
issued. Each certificate shall state on the face thereof that the Corporation
is organized under the laws of the State of Texas, the name of the registered
holder, the number and class of shares, and the designation of the series, if
any, which said certificate represents, and either the par value of the shares
or a statement that the
11
<PAGE> 15
shares are without par value. Each certificate shall also set forth on the
back thereof a full or summary statement of matters required by the Act or the
Articles of Incorporation to be described on certificates representing shares,
and shall contain a conspicuous statement on the face thereof referring to the
matters set forth on the back thereof. Certificates shall be signed by the
Chairman of the Board, President or any Vice President and the Secretary or any
Assistant Secretary, and may be sealed with the seal of the Corporation.
Either the seal of the Corporation or the signatures of the Corporation's
officers or both may be facsimiles. In case any officer or officers who have
signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed the certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Corporation.
Section 2. Lost Certificates. The Corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board, in its
discretion and as a condition precedent to the issuance thereof, may require
the owner of the lost or destroyed certificate, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such form, in such sum, and with such surety or sureties
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be transferable
only on the share transfer records of the Corporation by the holder thereof in
person or by his duly authorized attorney. Subject to any restrictions on
transfer set forth in the Articles of Incorporation, these Bylaws or any
agreement among shareholders to which this Corporation is a party or has
notice, upon surrender to the Corporation or to the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation or the transfer agent of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise provided in
the Act or other Texas law, the Corporation shall be entitled to regard the
person in whose name any shares issued by the Corporation are registered in the
share transfer records of the Corporation at any particular time (including,
without limitation, as of the record date fixed pursuant to Section 5 or
Section 6 of Article II hereof) as the owner of those shares and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof.
Section 5. Annual Statement. The Board shall present at each Annual
Shareholders' Meeting and when called for at any Special Shareholders' Meeting
upon the vote of shareholders'
12
<PAGE> 16
holding no less than fifty percent (50%) of the outstanding voting stock of the
Corporation, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General. This Corporation shall indemnify, to the fullest
extent permitted by, and in the manner permitted, under the Act, any person who
was, is, or is threatened to be made, a named defendant or respondent in a
"proceeding" (as defined in Article 2.02-1 of the Act) because the person is or
was a director of the Corporation. The Corporation shall also indemnify
similarly any officer, key employee or consultant of the Corporation made a
party to a proceeding by reason of the fact that he is or was an officer, key
employee or consultant of the Corporation. The provisions of this Article VII
shall be applicable to persons who have ceased to be directors, officers, key
employees or consultants of the Corporation and shall inure to the benefit of
their heirs, executors, and administrators.
The personal liability of a director to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director is hereby eliminated to the fullest extent permitted
under applicable law. The terms of the preceding sentence, however, shall not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions not in good faith that constitute a breach of duty of the
director to the Corporation or an act or omission that involves intentional
misconduct or knowing violation of law, (iii) for any transaction from which
the director received an improper benefit, whether or not the benefit resulted
from an action taken within the scope of the director's office; or (iv) an act
or omission for which the liability of a director is expressly provided by an
applicable statute.
Section 2. Insurance. The Corporation may purchase or maintain
insurance on behalf of any officer, director, employee or consultant of the
Corporation ("Corporate Functionary") against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as a
Corporate Functionary, whether or not the Corporation would have the power to
indemnify him or her against the liability under the Act or these Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a liability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been
approved by the Board. Without limiting the power of the Corporation to
procure or maintain any kind of insurance or arrangement, the Corporation may,
for the benefit of persons indemnified by the Corporation, (i) create a trust
fund, (ii) establish any form of self-insurance, (iii) secure its
indemnification obligation by grant of any security interest or other lien on
the assets of the Corporation, or (iv) establish a letter of credit, guaranty
or surety arrangement. Any such insurance or other arrangement may be
procured, maintained or established within the Corporation or its affiliates or
with any insurer or other person deemed appropriate by the Board regardless of
whether all or part of the stock or other securities thereof are owned in whole
or in part by the Corporation. In the absence of fraud, the judgment of
13
<PAGE> 17
the Board as to the terms and conditions of such insurance or other arrangement
and the identity of the insurer or other person participating in an arrangement
shall be conclusive, and the insurance or arrangement shall not be voidable and
shall not subject the directors approving the insurance or arrangement to
liability, on any ground, regardless of whether directors participating in
approving such insurance or other arrangement shall be beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions or share
dividends to the shareholders of the Corporation, subject to the provisions of
the Act and the Articles of Incorporation and any agreements or obligations of
the Corporation, if any, may be declared by the Board at any meeting of the
Board. Distributions may be declared and paid in cash or in property (other
than shares or rights to acquire shares of the Corporation), provided that all
such declarations and payments of distributions, and all declarations and
issuances of share dividends, shall be in strict compliance with all applicable
laws and the Articles of Incorporation.
Section 2. Reserves. The Board, may create by resolution, out of the
surplus of the Corporation such reserve or reserves as the Board from time to
time, in its discretion, deems proper to provide for contingencies, or to
equalize distributions or share dividends, or to repair or maintain any
property of the Corporation, or for such other proper purpose as the Board
deems beneficial to the Corporation. The Board may increase, decrease or
abolish any reserve in the same manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 4. Seal. The Corporation shall have a seal which may be used
by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced. Any officer of the Corporation shall have authority to
affix the seal to any document requiring it.
Section 5. Resignation. Any director, officer or agent of the
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the Board, these Bylaws may be amended or repealed, or new bylaws
may be adopted, by either: (i) a vote of two-thirds (2/3) of the members of the
Board, or (ii) a vote of two-thirds (2/3) of the issued and outstanding shares
of the Corporation entitled to vote.
14
<PAGE> 18
ARTICLE X
REQUIRED VOTE ON BUSINESS COMBINATIONS
WITH RELATED PERSONS
In addition to any vote required by law or agreement, the affirmative
vote of at least two-thirds (2/3) of either (i) the outstanding voting shares
of the Corporation or (ii) the Board shall be required to approve, authorize,
adopt or consummate by the Corporation and any of its subsidiaries any
"business combination" with a "related person." For the purposes of these
Bylaws, the term "business combination" shall be deemed to include (i) any
merger or consolidation of the Corporation 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 recapitalization, (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. The term
"related person" shall be deemed to include, but shall not be limited to, any
person that owns or is the beneficial owner of five percent (5%) or more of the
outstanding shares of the Company entitled to vote for the election of the
Company's directors. A related person's voting shares shall be excluded from
the calculation of required votes relating to a "business combination."
15
<PAGE> 19
CERTIFICATION
I, the undersigned, Secretary of the Corporation, hereby certify that
the foregoing is a true, accurate and complete copy of the Amended and Restated
Bylaws of ErgoBilt, Inc., adopted by its Board of Directors and Shareholders by
written consent actions dated as of November 6, 1996.
------------------------------------------
P. Michael Sullivan, Secretary
16
<PAGE> 1
EXHIBIT 4(a)
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS
OF THE STATE OF TEXAS
---------------- ----------------
NUMBER SHARES
C [ERGOBILT INC. LOGO]
---------------- ----------------
THIS CERTIFICATE IS TRANSFERABLE IN
DALLAS, TEXAS AND NEW YORK, NEW YORK COMMON STOCK
ERGOBILT, INC. CUSIP
SEE REVERSE FOR CERTAIN LEGENDS
- --------------------------------------------------------------------------------
This Certifies that
is the owner of:
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, $0.10 PAR VALUE, OF THE COMMON STOCK OF
ERGOBILT, INC.
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed or accompanied by a proper assignment. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the
provisions of the Articles of incorporation and Bylaws of the Corporation and
all amendments thereof, to all of which the holder by the acceptance hereof
consents. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDERS SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
[SEAL]
BY
/s/ GERALD M. MILLER /s/ [ILLEGIBLE]
Chairman President and Chief Executive Officer
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
AMERICAN BANK NOTE COMPANY DEC. 3, 1996 SE
3504 ATLANTIC AVENUE
SUITE 12 047763fc
LONG BEACH, CA 90807
(310) 989-2333
(FAX) (310) 426-7450 METRO Proof /s/ CL NEW
<PAGE> 2
ERGOBILT, INC.
THE ARTICLES OF INCORPORATION OF THE CORPORATION ON FILE IN THE OFFICE
OF THE SECRETARY OF STATE OF TEXAS SET FORTH (A) THE AGGREGATE NUMBER OF SHARES
AND THE PAR VALUE OF EACH CLASS OF CAPITAL STOCK THAT THE CORPORATION IS
AUTHORIZED TO ISSUE, INCLUDING ONE OR MORE SERIES OF PREFERRED STOCK, (B) A
STATEMENT OF THE AUTHORITY VESTED IN THE BOARD OF DIRECTORS OF THE CORPORATION
TO ESTABLISH SERIES AND TO FIX AND DETERMINE THE VARIATIONS IN THE RELATIVE
RIGHTS AND PREFERENCES BETWEEN ANY SUCH SERIES OF THE PREFERRED STOCK SO
ESTABLISHED AND (C) A DENIAL OF PREEMPTIVE RIGHTS OF THE SHAREHOLDERS TO
ACQUIRE UNISSUED OR TREASURY SHARES OF THE CORPORATION. THE CORPORATION WILL
FURNISH A COPY OF THE FOREGOING PROVISIONS TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATION AT ITS
REGISTERED OFFICE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regualtions:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
----- -------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act
tenants in common ----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
--------------------------------
NOTICE:
THE SIGNATURE(S) TO THIS X
ASSIGNMENT MUST CORRES- ---------------------------------------
POND WITH THE NAME(S) AS (SIGNATURE)
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY X
PARTICULAR, WITHOUT ---------------------------------------
ALTERATION OR ENLARGEMENT (SIGNATURE)
OR ANY CHANGE WHATEVER.
----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION AS
DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
----------------------------------------
SIGNATURE(S) GUARANTEED BY:
----------------------------------------
---------------------------------------------
AMERICAN BANK NOTE COMPANY DEC. 3, 1996 se
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 047763bk
(310) 989-2333
(FAX) (310) 426-7450 Proof CL NEW
---------------------------------------------
<PAGE> 1
EXHIBIT 4(b)
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
ERGOBILT, INC.
The undersigned, the duly appointed secretary of ErgoBilt, Inc., a Texas
corporation (the "Corporation"), does hereby certify as follows:
That, pursuant to authority conferred upon the Board of Directors (the
"Board") of the Corporation by virtue of its original Articles of Incorporation
and in accordance with Article 2.13 of the Business Corporation Act of the
State of Texas, the Board has duly adopted a resolution providing for the
issuance of a series of preferred stock, par value $0.01 per share, designated
as "Series A Preferred Stock," which resolution reads as follows:
"BE IT RESOLVED, this Board hereby authorizes the issuance of a
series of preferred stock and fixes its designation, powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions thereof, as follows:
SECTION 1. DESIGNATION.
The distinctive designation of this series shall be "Series A Preferred
Stock" ("Series A"). Each share of Series A shall be identical in all respects
with all other shares of Series A.
SECTION 2. NUMBER OF SHARES.
The number of shares in Series A shall initially be Two Million
(2,000,000), which number may from time to time be increased or decreased by
this Board, but not below the number thereof then outstanding. Shares of
Series A that are redeemed, purchased or otherwise acquired by the Corporation
or converted into Common Stock as provided herein shall be canceled and shall
revert to authorized but unissued shares of preferred stock undesignated as to
series.
SECTION 3. LIQUIDATION RIGHTS.
In the event of any involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of shares of Series A
shall be entitled to be paid in full an amount equal to Three Dollars ($3.00)
per share ( the "Involuntary Liquidation Preference"). If the Involuntary
Liquidation Preference has been paid in full to all holders of shares of Series
A, the remaining assets of the Corporation shall be distributed among the
holders of Junior Stock, according to their respective rights and preferences
and in each case according to their respective numbers of shares. For the
<PAGE> 2
purposes of this Section 3, the consolidation or merger of the Corporation with
any other corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
SECTION 4. CONVERSION RIGHTS.
SECTION 4.1. CONVERSION PRIOR TO ________(INSERT DATE FOUR YEARS
AND ONE DAY FROM THE CLOSING). The holders of shares of Series A shall have
the right, at their option, to convert their Series A shares into shares of
Common Stock of the Corporation at any time prior to ___________(Insert date
four years and one day from the Closing), on and subject to the terms and
conditions set forth below. If a Series A holder exercises such conversion
right, any such conversion must cover at least thirty-three percent (33%) of
the Series A shares by such Shareholder.
(a) The shares of Series A shall be convertible at the
office of any transfer agent for the Common Stock, and at such other office or
offices, if any, as the Board may designate, into fully paid and non-assessable
shares (calculated as to each conversion to the nearest 1/100th of a share) of
Common Stock of the Corporation, at the conversion price, determined as
hereinafter provided. Each share of Series A shall be convertible into that
number of shares of Common Stock equal to the greater of either:
(i) the quotient of (1) the average closing
price of the Common Stock as quoted on a national securities exchange or on the
Nasdaq Stock Market for the thirty (30) trading days immediately preceding the
date on which notice of conversion is delivered by a holder of Series A shares
to the Corporation, divided by (2) $ ___________ (insert IPO price); or
(ii) one (1).
(b) To convert shares of Series A into Common Stock,
the holders thereof shall surrender at the office or offices hereinabove
mentioned the certificate or certificates therefor, duly endorsed or assigned
to the Corporation or in blank, and give written notice to the Corporation at
said office or offices that such holder elects to convert such shares. Shares
of Series A shall be deemed to have been converted immediately prior to the
close of business on the day of the surrender of the certificates for such
shares for conversion in accordance with the foregoing provisions. The holders
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the conversion date, the
Corporation shall issue and shall deliver at such office a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion to the holder(s) entitled to receive the same.
(c) No fractional shares of Common Stock shall be
issued upon conversion of shares of Series A and no cash payment shall be made
in place of any fraction of a share which would otherwise be issuable to the
holder(s).
4.2. AUTOMATIC CONVERSION AFTER ________ (INSERT DATE FOUR
YEARS AND ONE DAY AFTER CLOSING). If any shares of Series A have not been
converted by ___________ (insert the
2
<PAGE> 3
date four (4) years and one day from the Closing), then each outstanding share
of Series A shall convert automatically into that number of shares of Common
Stock equal to the greater of either:
(i) the quotient of (1) $__________(insert IPO price)
divided by (2) the average closing price of the Common Stock as quoted on a
national securities exchange or on the Nasdaq Stock Market for the thirty (30)
trading days immediately preceding __________(insert date four years and one
day after Closing); or
(ii) one (1).
4.3. ANTI-DILUTION PROVISIONS AND OTHER RIGHTS.
(a) In case:
(i) The Corporation declares a dividend or other
distribution on its Common Stock payable otherwise than in cash out of retained
earnings; or
(ii) The Corporation authorizes the issuance to
the holders of its Common Stock rights or warrants entitling them to subscribe
for or purchase any shares of capital stock of any class or any other
subscription rights or warrants; or
(iii) Of any reclassification of the capital stock
of the corporation (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of the
Corporation is required, or of the sale, transfer or other disposition of all
or substantially all of the assets of the Corporation; or
(iv) Of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall file with each transfer
agent for the shares of Series A and shall cause to be mailed to the holders of
record of the outstanding shares of Series A, at least twenty (20) days (or ten
(10) days in any case specified in clause (i) or (ii) above) prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date as of which the holders of record of 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 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, or
the vote on any action authorizing such.
(b) In the event Corporation shall at any time split in
a greater or combine in a lesser number of shares the outstanding shares of
3
<PAGE> 4
Common Stock, the number of shares of Common Stock issuable upon conversion of
the Series A shares shall be increased proportionately 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) In the event that the Corporation 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 Series A shares may thereafter receive in lieu of the Common Stock otherwise
issuable to him upon conversion of his Series A 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 the Common Stock of
the Corporation.
(d) In the event that the Corporation shall at any time
pay to the holders of Common Stock a dividend in Common Stock, the number of
shares of Common Stock issuable upon conversion of the Series A shares shall be
proportionately increased, effective at the close of business on the payment
date for determination of such dividend.
4.4. ADEQUATE SHARES. The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock, for the purpose of issuance upon conversion of
shares of Series A, a sufficient number of shares of Common Stock potentially
deliverable upon the conversion of all shares of Series A then outstanding.
4.5. TAXES. The Corporation 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
Common Stock in a name other than that in which the shares of Series A so
converted were registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to the
Corporation the amount of any such tax or has established to the satisfaction
of the Corporation that such tax has been paid.
4.6. LIMITATIONS. Shares of Common Stock issuable upon
conversion of shares of Series A shall include only shares of the class
designated as Common Stock as of the original date of issuance of shares of
Series A or shares of the Corporation 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 the Corporation,
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.
SECTION 5. VOTING RIGHTS. The holders of the shares of Series A
shall be entitled to one vote per share on all matters submitted to a vote of
the shareholders of the Corporation, and shall
4
<PAGE> 5
vote together with the holders of shares of Common Stock (and of any other
class or series of capital stock of the corporation which may be entitled to
vote with the holders of shares of Common Stock) as a single class upon all
matters upon which stockholders are entitled to vote.
SECTION 6. DEFINITIONS. As used herein with respect to Series A, the
following terms shall have the following meanings:
(a) The term "Junior Stock" shall mean the Common Stock and
any other class or series of stock of the Corporation now or hereafter issued,
other than the Series A Shares.
(b) The term "Accrued Dividends," with respect to any shares
of any class or series, shall mean an amount computed at the annual dividend
rate for the class or series of which the particular share is a part, from the
date on which dividends on such share became cumulative to and including the
date to which such dividends are to be accrued, less the aggregate amount of
all dividends theretofore paid thereon.
(c) The term "Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday or Friday on which banking institutions in the City of
Dallas, are not authorized or obligated by law or executive order to close.
SECTION 7. OTHER RIGHTS. The shares of Series A shall not have any
powers, preferences or relative, participating, optional or other special
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein.
IN WITNESS WHEREOF, ErgoBilt, Inc. has caused this certificate to be
signed by its duly authorized officer as of ____________, 199___.
ERGOBILT, INC.
By:
--------------------------------------
Secretary
5
<PAGE> 1
EXHIBIT 9
VOTING AGREEMENT
This Voting Agreement ("Agreement"), dated as of December 1, 1996, by
and among Gerald McMillan ("G. McMillan"), William H. Griffin, as Trustee of
the Morgan Trust (the "Morgan Trust"), Gerard Smith ("Smith"), Gerard Smith as
Trustee of the Ashleigh Lynch Smith Irrevocable Trust (the "A.L. Smith Trust"),
Gerard Smith as Trustee of the Alyssa Kay Smith Irrevocable Trust (the "A.K.
Smith Trust"), Mark A. McMillan ("M. McMillan"), Dr. Richard Troutman
("Troutman"), Drew Congleton ("Congleton") and ErgoBilt, Inc., a Texas
corporation (the "Corporation"). The parties hereto, excluding the
Corporation, are hereafter sometimes referred to individually as a
"Shareholder" or collectively as the "Shareholders".
RECITALS
A. G. McMillan, the Morgan Trust, Smith, the A.L. Smith Trust and
the A.K. Smith Trust each own shares of common stock, par value $0.01, of the
Corporation ("Common Stock").
B. M. McMillan, Troutman and Congleton (collectively, the "BodyBilt
Shareholders") presently own all the issued and outstanding stock of BodyBilt
Seating, Inc., a Texas corporation ("BodyBilt").
C. The BodyBilt Shareholders and the Corporation have entered into
that certain Agreement and Plan of Merger (the "Merger Agreement") dated as of
August 19, 1996, pursuant to which BodyBilt will merge into a wholly owned
subsidiary of the Corporation (the "Merger"). As partial consideration for the
Merger, the BodyBilt Shareholders will receive shares of the Corporation's
Common Stock and shares of the Corporation's Series A Convertible Preferred
Stock (the "Series A Preferred Stock").
D. The Merger Agreement contains certain provisions: (i) requiring
that Troutman, Congleton and Smith each be elected to serve as members of the
Board of Directors (the "Board") of the Corporation for three (3) years; (ii)
requiring G. McMillan and Smith to deliver written agreements not to remove
them as directors, except for cause; (iii) entitling Troutman to nominate his
successor should he resign as a director; (iv) requiring G. McMillan to remain
as a director; and (v) requiring that other nominees to the Board be approved
by either M. McMillan or Congleton, such approval not being unreasonably
withheld.
E. Troutman has declined to serve as a director and has nominated
William Brown Glenn, Jr. ("Glenn"), as his successor.
F. The parties have determined that, to affirm and clarify the
foregoing provisions of the Merger Agreement, it is in their respective best
interests to enter into a voting agreement pursuant to Article 2.30.B of the
Texas Business Corporation Act (the "Act") obligating each Shareholder to vote
his shares of Common Stock and Series A Preferred and any other voting stock
(collectively the "Shares") as follows:
<PAGE> 2
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and based upon the premises set forth above, the parties agree as
follows:
1. Voting Agreement. Each Shareholder expressly agrees that, during
the term of this Agreement, such Shareholder shall, either directly or by
proxy, vote any and all Shares now or hereafter acquired by the Shareholder to
elect (i) Congleton, G. McMillan, Smith and Glenn (or his successor nominated
pursuant to Section 2.4 hereof) to the Board, such that each individual serves
as a director commencing immediately following the Closing of the Merger (as
such term is defined in the Merger Agreement) and for one-year terms thereafter
at each of the 1997, 1998, and 1999 Annual Meetings of Shareholders of the
Corporation; and (ii) W. Barton Munro, William Weed and Robert Faust to the
Board, such that each individual serves as a director commencing immediately
following the Closing of the Merger and for a one-year term thereafter at the
1997 Annual Meeting of Shareholders.
2. Additional Covenants.
2.1. M. McMillan and Congleton approve the nomination and
election of the persons named above to serve as members of the Board pursuant
to Section 1 hereof.
2.2. The BodyBilt Shareholders agree that the nomination and
election of Glenn to the Board as Troutman's designee shall be deemed to
satisfy the obligation to elect Troutman to serve on the Board, as specified in
Paragraph 8.9 of the Merger Agreement.
2.3. G. McMillan, Morgan, Smith, A.K. Smith Trust, and the A.L.
Smith Trust agree not to remove Glenn or Congleton as directors of the
Corporation during the term of this Agreement, except for cause.
2.4. Troutman retains the right to nominate a successor to
serve as a member of the Board, in the event that Glenn fails to complete three
one-year terms, as provided in Section 1 hereof, and the Shareholders agree to
vote for such nominee.
2.5. Notwithstanding Section 2.1 hereof, the obligations of the
Shareholders pursuant to Section 1 hereof shall terminate with respect to
voting their Shares for the election of Smith in the event of his removal with
cause or resignation as President and CEO of the Corporation.
2.6. Upon execution and delivery of this Agreement, Paragraph
8.9 of the Merger Agreement shall have no further force or effect. By
executing the signature page of this Agreement, BodyBilt shall have consented
to the nullification of Paragraph 8.9 of the Merger Agreement as provided for
herein in all respects.
3. Shares Encumbered by Voting Agreement. Each Shareholder agrees
that any and all Shares now held or hereinafter acquired and/or held of record
or beneficially by the Shareholder during the term of this Agreement, whether
acquired as partial consideration for the Merger, or by
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<PAGE> 3
way of purchase, assignment, stock dividend, stock split, operation of law,
stock bonuses, or stock option plans, shall be deemed subject to and restricted
by this Agreement.
4. Term. The term of this Agreement shall be deemed to have
commenced as of the date first set forth above and shall continue until the
commencement of the 2000 Annual Meeting of Shareholders of the Corporation.
The provisions of Paragraph 2.5 above shall survive the termination of this
Agreement. In the event the Merger does not close on or prior to March 20,
1997 at 5:00 p.m., then this Agreement shall terminate automatically and shall
be of no further force and effect.
5. Miscellaneous.
5.1. Notice. Any notices or other communications required or
permitted hereunder shall be in writing and shall be sufficiently given if
delivered personally or sent by Federal Express, registered or certified mail,
postage prepaid, addressed as follows or to such other address of which the
parties may have given notice:
Gerald McMillan
6331 Pineview
Dallas, Texas 75248
William H. Griffin, Trustee
The Morgan Trust
c/o King Burns & Company, P.C.
14160 Dallas Parkway, Ninth Floor
Dallas, Texas 75240
Gerard Smith
The A.L. Smith Trust
The A.K. Smith Trust
3605 Harvard Avenue
Dallas, Texas 75205
Mark A. McMillan
2506 River Forest
Bryan, Texas 77802
Dr. Richard Troutman
10225 Collins Avenue
Bal Harbour, Florida 33154
3
<PAGE> 4
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.
5.2. Arbitration, Venue, and Binding Effect
5.2.1 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 Paragraph 5.2. Any arbitration pursuant to this Paragraph 5.2
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
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 participating
parties shall pay that portion of the fees and expenses of the
arbitrator equal to the percentage that the number of shares held by a
party bears to the total number of Shares held by all the parties
participating in the proceedings.
5.2.2 Venue/Binding Effect. The parties agree that any
such arbitration will occur in Bryan, 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 any party in any
court.
5.3. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors. It is
expressly intended that this Agreement be specifically enforceable only against
the Shareholders and not against any subsequent purchaser or transferee of the
Shares.
5.4. Entire Agreement; Amendments; Attachments. This Agreement
represents the entire understanding and agreement among the parties with
respect to the subject matter hereof and supersedes all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings among
such parties. If the provisions of any other agreement or document are
inconsistent with the provisions of this Agreement, the provisions of this
Agreement shall prevail.
4
<PAGE> 5
5.5. Legal Fees. In the event legal proceedings are commenced
by a party against any other party 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.
5.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
5.7. 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.
5.8. 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.
5.9. 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.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
as of and on the date first above written.
/s/ GERALD MCMILLAN
------------------------------------------
Gerald McMillan
/s/ WILLIAM H. GRIFFIN
------------------------------------------
William H. Griffin, as Trustee of the
Morgan Trust
/s/ GERARD SMITH
------------------------------------------
Gerard Smith
/s/ GERARD SMITH
------------------------------------------
Gerard Smith as Trustee of the Ashleigh
Lynch Smith Irrevocable Trust dated as of
June 1, 1996
/s/ GERARD SMITH
------------------------------------------
Gerard Smith as Trustee of the Alyssa Kay
Smith Irrevocable Trust dated as of
June 1, 1996
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<PAGE> 6
/s/ MARK A. MCMILLAN
------------------------------------------
Mark A. McMillan
/s/ DR. RICHARD TROUTMAN
------------------------------------------
Dr. Richard Troutman
/s/ DREW CONGLETON
------------------------------------------
Drew Congleton
ErgoBilt, Inc.
By: /s/ GERARD SMITH
--------------------------------------
Gerard Smith, President
Consent of BodyBilt:
BodyBilt Seating, Inc.
By: /s/ MARK A. MCMILLAN
------------------------------
Mark A. McMillan, President
6
<PAGE> 7
CONSENT OF SPOUSES OF SHAREHOLDERS
TO TERMS AND CONDITIONS OF
VOTING AGREEMENT
ERGOBILT, INC.
The undersigned, being the spouse of ______________________________, a
"Shareholder" or prospective Shareholder of ErgoBilt, Inc. in that certain
Voting Agreement ("Agreement") with respect to the shares of ErgoBilt, Inc. now
or hereafter owned by said Shareholder, hereby acknowledges and agrees that:
1. I have read and understand or had explained to me the
terms and conditions of the Agreement; and
2. I understand that my spouse has agreed to vote his shares
of ErgoBilt, Inc. in accordance with the provisions of the Agreement; and
3. I hereby consent to the transactions described in the
Agreement.
Dated: December ___, 1996
-------------------------------------
Printed Name:
----------------------
Shareholder's Name:
----------------
<PAGE> 1
EXHIBIT 10(i)(1)
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into on this the 2nd day of May,
1991, by and between JEROME J. CONGLETON, JAYE CONGLETON, REBECCA CONGLETON
BOENIGK, AND CONGLETON ERGONOMIC CHAIRS, INC., hereinafter referred to by name
or, collectively, as "ERGONOMIC CHAIRS"; and MARK McMILLAN, MICHAEL McWHORTER,
AND CONGLETON CHAIR WORKS, INC., formerly known as LUBBOCK MOLASSES, INC.
D/B/A CONGLETON CHAIR WORKS OF COLLEGE STATION, hereinafter referred to by name
or, collectively, as "CHAIR WORKS";
WHEREAS, JEROME J. CONGLETON and JAYE CONGLETON have filed suit in the
85th Judicial District Court in Cause No. 33,588-85 against CHAIR WORKS and
CHAIR WORKS has filed a counterclaim and third party action in that suit
against ERGONOMIC CHAIRS;
WHEREAS, ERGONOMIC CHAIRS and CHAIR WORKS are manufacturers of office,
lab, and industrial chairs employing ergonomic technology and each have
complained about the similarity in each business names and other business
practices related to both past and current relationships and dealing between
the parties;
WHEREAS, ERGONOMIC CHAIRS and CHAIR WORKS have agreed to resolve and
compromise their dispute with the entry of a settlement agreement and to
conclude the litigation and other controversy between the parties based upon
the terms of this Settlement Agreement.
NOW, THEREFORE, for and in consideration of the promises and covenants
herein expressed, and other good and valuable consideration, the receipt and
sufficiency of which
<PAGE> 2
is hereby acknowledged and confessed, JEROME J. CONGLETON, JAYE CONGLETON,
REBECCA CONGLETON BOENIGK, and CONGLETON ERGONOMIC CHAIRS, INC., individually,
and for their stockholders, officers, directors, employees, agents, legal
representatives, successors, and assigns; and MARK McMILLAN, MICHAEL McWHORTER,
and CONGLETON CHAIR WORKS, INC., individually, and on behalf of their
stockholders, officers, directors, employees, agents, legal representatives,
employees, successors and assigns, do hereby agree as follows:
1. CONGLETON ERGONOMIC CHAIRS, INC. will remove the name
"Congleton" from any business name and will not adopt in the future any
business name which contains the name "Congleton" within it. CONGLETON CHAIR
WORKS, INC. will remove the name "Congleton" from any business name and will
not use in the future any business name which contains the name "Congleton"
within it. CHAIR WORKS and ERGONOMIC CHAIRS will not use, adopt, or refer to
any products as the "Congleton Chair" or use, adopt, or refer to any product
using the name "Congleton", except as authorized in this paragraph. The change
of name will be completed within thirty (30) days of the execution of this
Settlement Agreement. Either company may employ any business or corporate name
which is available for use so long as the business name does not contain the
name "Congleton" within it. Either company may use existing advertisement so
long as it complies with the other terms of this Agreement with a notation of
the former company name (e.g., formerly known as) or orally advise persons of
their former name but shall not do either for longer than six (6) months from
the effective date of this Settlement Agreement. Both companies will change the
current name of their respective companies in the white pages and the yellow
pages of all telephone directories in the next publication to reflect their
doing business under their new name with a notation of formerly known as.
2
<PAGE> 3
After the next publication, there will be no reference to the former name in
the white pages or in the yellow pages of any telephone directory. Thirty (30)
days from the execution of this Settlement Agreement, the name "Congleton" may
not be listed in either company's business name except as authorized in this
paragraph. This provision of the Settlement Agreement does not prohibit
ERGONOMIC CHAIRS from advertising and/or advising prospective customers or any
other persons that JEROME J. CONGLETON designed, manufactured, consults with, or
has any other current involvement with the chair being manufactured by that
company, subject to the restrictions provided for in paragraph 2 and 3.
2. CHAIR WORKS and its stockholders, officers, directors,
employees, agents, representatives, dealers, and successors will immediately
delete all reference to JEROME J. CONGLETON in their advertisements, videos,
literature, and discussions, subject to the responses provided for in paragraph
6 and will immediately discontinue the use of JEROME J. CONGLETON's name in any
manner which may infer that JEROME J. CONGLETON is in any manner connected with
CHAIR WORKS. ERGONOMIC CHAIRS will not use the deletion of JEROME J. CONGLETON
from such advertising, literature, and discussion for a competitive advantage,
but would be restricted to the responses provided for in paragraph 6 of this
Settlement Agreement. CHAIR WORKS may use any published article or publication
by JEROME J. CONGLETON as of the effective date of this Settlement Agreement on
neutral posture chairs or ergonomic chairs as long as the use of the article
does not imply or infer that the chairs manufactured by CHAIR WORKS are
affiliated with, endorsed by, or connected with JEROME J. CONGLETON. Any
mention of JEROME J. CONGLETON by name shall include a disclaimer of
association of JEROME J. CONGLETON with CHAIR WORKS.
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<PAGE> 4
3. ERGONOMIC CHAIRS and CHAIR WORKS will not use the name "POS
Chair" in a description of a type of chair being manufactured and sold by
either company. It is the intention of the parties that all employees, agents,
and representatives of each company immediately cease and desist from the use
of the words "POS Chair" as a descriptive term for the type of chair
manufactured and sold by either company. All future advertisements, literature,
or written material (including correspondence) of both parties will not include
any reference to the words "POS Chair" from the date of this agreement. This
provision of the Settlement Agreement does not prohibit either company or both
companies from taking any action deemed necessary to protect the name "POS
Chair" from use by any party not subject to this Settlement Agreement. All
existing advertisements, literature, or written material (including
correspondence) in the possession of either party which does not comply with
this Settlement Agreement will be destroyed or altered to comply with this
Settlement Agreement within thirty (30) days of the execution of this
Agreement. Both parties will use their best efforts to destroy or alter any
noncomplying advertisements, literature, or written material which is in the
possession of a third party not subject to their direct control.
4. ERGONOMIC CHAIRS and CHAIR WORKS will change all model numbers,
systems, and nomenclature necessary to insure that their model numbers,
systems, and nomenclatures of types of chairs are dissimilar from those being
used by the other company. It is agreed that the first company (CHAIR WORKS or
ERGONOMIC CHAIRS) to use or adopt a model number, system, or nomenclature shall
retain the right to use of each and the company with a subsequent use or
adoption of a similar model number, system, or nomenclature shall change within
thirty (30) days of the execution of this Agreement. Any model numbers,
systems, or nomenclatures adopted or used by CONGLETON
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<PAGE> 5
WORKPLACE SYSTEMS, INC. shall not be considered to be model numbers, systems,
and nomenclatures used or adopted by ERGONOMIC CHAIRS.
5. ERGONOMIC CHAIRS will within thirty (30) days cease to use and
abandon the use of telephone number (409) 693-9356 and Post Office Box 9440,
College Station, Texas. It is agreed that all parties to this settlement,
including their officers, directors, employees, representatives, and any person
subject to their control, will not seek to obtain the use of the phone number
described above or the Post Office box described above at any time in the
future.
6. The parties have agreed that each of them, their officers,
employees, and sales representatives under the parties control, expressly
excluding independent dealers, will be restricted to the following scripted
responses on certain subjects as set forth below. All parties, their officers,
employees, and sales representatives under the parties control, expressly
excluding independent dealers, will respond to any inquiries on the subject
matter(s) or any discussion involving these subject matter(s) with any person,
including, but not limited to, customers, dealers, vendors, or acquaintances,
or any situation generally described herein, only by reading the prepared
response listed below.
Subject Scripted Response
------- -----------------
a. Congleton Workplace Systems "That company has been dissolved and no
longer exists."
b. Connection or association "There is no connection or association
of the two companies, i.e. between our company and the company
Ergonomic Chairs and Chair Works which you have just identified."
c. Dr. Congleton's former associ- "Dr. Congleton was a consultant for the
ation with Chair Works Chair Works until October, 1988.
Currently, he has no association or
affiliation with the Chair Works or
its products."
5
<PAGE> 6
d. The propriety of the other "The company which you have just
company producing chairs identified is not prohibited from
producing chairs. Our company and
the company which you just
identified are the only two companies
licensed to use a patent on these
chairs."
e. The lawsuit, including all "The lawsuit has been resolved and
inquiries concerning the dis- settled through a mutual agreement of
pute and contentions of the the parties. I am not permitted to
parties. make any further comment."
f. Contact made by a person of the 1. Identification - "You have
wrong company based upon contacted the wrong company. Our
identification, referral, or company name is ___________."
discussions with a dealer which 2. By an identified dealer - "The
has no association with the dealer you have just identified is
company being contacted. not associated with our company. That
dealer may be associated with (name of
other company.)"
g. Communication misdirected to an "The person who you have just
identified person. identified does not work for this
company. It is believed that person
works for (name of the other
company.)"
h. Change in name "In settlement of a lawsuit, we
agreed to change our business name."
As to subject matters listed under 6e, 6f, 6g, and 6h, above, the
parties have agreed that they will be restricted to the use of the scripted
responses until July 1, 1992. As to the subject matters listed in paragraphs
6a, 6b, 6c, and 6d, the parties agree that they will be restricted to the
scripted responses until January 1, 1993.
The parties agree that if it is determined a customer, dealer, vendor,
or any other persons has contacted the wrong party that under no circumstances
will there be an attempt to sell, market, or discuss their products or services
with such person. The party should state the appropriate response and terminate
the conversation. In the event any mail, facsimile transmission, or any other
written communication is misdelivered, the party receiving it will promptly
forward the writing to the other company without copying, using, or relying on
the
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<PAGE> 7
writing for any purpose. If a person contacts one of the parties to this
Agreement, believing it to be the other party, this may not be used as an
occasion to promote or transact business with the mistaken caller. The parties
will advise all independent dealers about the terms of this Settlement
Agreement and request their assistance to insure compliance with the terms and
spirit of the Agreement.
7. CHAIR WORKS will transfer all its right, title and interest in
Letters Patent of the United States, Application Serial No. 541,093 and Patent
No. 4,552,404, entitled "Neutral Body Posture Chair", filed October 12, 1983,
and issued on November 12, 1985, to JEROME J. CONGLETON as shown in the Patent
Assignment attached as Exhibit "A". The interest of CHAIR WORKS in the Patent
was acquired from the Small Business Administration and/or Allied Bank as a
result of a foreclosure sale under the Uniform Commercial Code. JEROME J.
CONGLETON agrees to execute only two license agreements of the Patent for the
manufacturing of commercial, industrial, and laboratory chairs as follows: (1)
a license agreement with ERGONOMIC CHAIRS which shall be non-assignable and
non-transferable in the form reflected in Exhibit "B", attached hereto and
incorporated herein for all purposes; and (2) a license agreement with CHAIR
WORKS which shall be non-assignable and non-transferable in the form as
reflected in Exhibit "C" attached hereto and incorporated herein for all
purposes. The license agreement(s) for the Patent for the manufacturing of
commercial, industrial, and laboratory chairs shall be null and void in the
event of an attempt to assign said Patent license or in the event of a transfer
as defined herein. JEROME J. CONGLETON agrees not to permit or license any
other party to use or practice the Patent for the manufacturing of commercial,
industrial, and laboratory chairs. A "Transfer" is defined as the sale or
transfer of more than fifty percent (50%) of the assets and/or outstanding
shares of CHAIR WORKS or ERGONOMIC
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<PAGE> 8
CHAIRS or an attempted assignment of the license agreement. It is agreed by the
parties that neither party will object to, dispute, or contend that CHAIR
WORKS or ERGONOMIC CHAIRS does not have the right to produce commercial,
industrial, and laboratory chairs or the right to claim that such chairs are
being produced pursuant to a license to a patent or are "patented" products, as
long as the license agreement(s) are still in full force and effect. In the
event of a transfer as defined herein by CHAIR WORKS or ERGONOMIC CHAIRS
resulting in the voiding of the Patent license agreement(s), it is agreed by
the parties that neither party will object to, dispute, or contend that the
successor, assignee, or purchaser of CHAIR WORKS or ERGONOMIC CHAIRS does not
have the right to produce commercial, industrial, and laboratory chairs,
although said successor company will not have the right to claim that such
chairs are being produced pursuant to a license to a patent or are "patented"
products. JEROME J. CONGLETON will not object to, dispute, contest, or contend
that CHAIR WORKS or ERGONOMIC CHAIRS or their successors and assigns do not
have the right to produce commercial, industrial, and laboratory chairs or
claim, contend, dispute, or contest said companies' production as being an
infringement of the Patent so long as CHAIR WORKS or ERGONOMIC CHAIRS or their
successors and assigns are producing the same or substantially the same
commercial, industrial, and laboratory chairs currently being produced by said
companies under the license agreement(s).
8. ERGONOMIC CHAIRS and CHAIR WORKS agree that they will not
interfere with, discuss, or solicit any agreement, purchase order, or contracts
of the other company which are in existence at the time of this Settlement
Agreement. Except as provided for in paragraph 9 below, this provision does not
prohibit or restrict either company from competing for any future orders,
agreements, or contracts with the same
8
<PAGE> 9
customers so long as such competition is done in compliance with this
Settlement Agreement.
9. ERGONOMIC CHAIRS, specifically including JEROME J. CONGLETON,
JAYE CONGLETON, REBECCA CONGLETON BOENIGK, their officers, directors,
employees, servants, agents, representatives, and sales representatives under
the parties control, expressly excluding independent dealers, agree not to
contact the following companies for any purpose, including the sale of any
products to said companies, to solicit said companies for any purchases or to
enter into any contractual relationships with such companies until December 1,
1991:
a. The Harris Corporation
b. IBM
c. Kodak
d. Lockheed
e. Texaco
f. Texas Instruments
In the event that any of these six (6) companies contact ERGONOMIC
CHAIRS, the parties, or any of their officers, directors, employees, agents,
servants, or representatives within this time frame, such parties are to inform
the company or its representative that "our company is prohibited by court
order and agreement from discussing the sale of any products with you until
December 1, 1991. We are also restricted and prohibited from selling any
products to you until that date." To evidence their agreement not to compete
for these customers, ERGONOMIC CHAIRS agrees to execute a Non-Competition
Agreement in a form as shown in Exhibit "D" attached hereto. ERGONOMIC CHAIRS
will advise all independent dealers currently selling or marketing ERGONOMIC
CHAIRS products or who contact ERGONOMIC CHAIRS about selling its product until
December 1, 1991, of the terms of the Non-Competition Agreement and of the
restriction
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<PAGE> 10
on sales to the listed companies. ERGONOMIC CHAIRS will request the assistance
of such independent dealers to insure compliance with the terms and spirit of
this Settlement Agreement.
10. ERGONOMIC CHAIRS agrees not to use the logo attached hereto
marked Exhibit "E" at any time in the future in connection with the sale of its
products and will not challenge the right of CHAIR WORKS to use the trademark
in the advertising of its company or products. Any existing advertising of
ERGONOMIC CHAIRS employing this trademark will be destroyed.
11. The test study performed by the Industrial Engineering Staff at
the Internal Revenue Service, Austin Service Center (Exhibit "F") is the
exclusive property of the CHAIR WORKS. ERGONOMIC CHAIRS agrees not to use the
IRS study and test results for any purpose, including, but not limited to,
advertisements. The FDA registration number 1640211 is to be used exclusively
by CHAIR WORKS. ERGONOMIC CHAIRS agrees not to use or refer to such FDA
registration number for any purpose, including, but not limited to,
advertisements and purchase order numbers.
12. The parties will execute a joint and mutual release without the
payment of any monetary consideration by either party (Exhibit "G"). Each party
will bear their own attorney's fees, court costs, and other expenses associated
with the litigation. Except for the provisions granting Injunctive relief in
the Judgment, a final judgment will be entered directing that each party take
nothing from the other in the litigation. A final judgment will be entered in
the litigation granting permanent injunctive relief which will, by the
agreement of the parties, restrain and enjoin each of the parties, their
officers, directors, employees, representatives, agents, servants, successors,
and assigns from any conduct or action prohibited or restricted under this
Settlement Agreement. The Injunctive Order will provide
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<PAGE> 11
that it can be enforced by either contempt action or a suit for recovery of
damages for violation of this Settlement Agreement and/or the final judgment.
The Judgment to be tendered to the Court for entry is attached hereto and
marked Exhibit "H".
It is the intent of all parties to this Settlement Agreement to allow
each to compete on the open market manufacturing similar products and to avoid
and prevent any confusion between the two businesses and their former
association. It is also the intent of the parties to this Settlement Agreement
that the competition and marketing of the products and services to be provided
be conducted in an honest, nondisparaging manner and that each company not use
the former association between the parties, the acquisition of the assets of
Congleton Workplace Systems, or the allegations and contentions of the parties
in this litigation for a competitive advantage.
13. WHEREAS, DREW JEROME CONGLETON is an employee and/or owner of
CHAIR WORKS, but is not a named party to the litigation above-described;
however, it is the intention of this Agreement that all of the CONGLETON family
cease using the CONGLETON name as set forth in this Agreement. Therefore, DREW
JEROME CONGLETON agrees to be bound by all of the terms of this settlement
agreement as evidenced by his signature hereto.
14. This Agreement shall be binding upon and inure to the benefit
of the respective heirs, successors, and assigns of the parties hereto. Several
obligations created by this Agreement have a finite term as specifically stated
within the Agreement. Unless an obligation is stated to have a definitive term,
it is expected that the obligation will continue into perpetuity.
15. This Agreement is executed and fully performable in Brazos
County, Texas. Venue for the enforcement of this Agreement shall be in Brazos
County, Texas. It is agreed
11
<PAGE> 12
that any action to enforce the injunctive relief granted in Cause No. 33,588-85,
in the 85th Judicial District Court of Brazos County, Texas, shall be
maintained in that Court or in another court of competent jurisdiction in
Brazos County, Texas, if directed by the Court.
This Agreement is signed and entered into on this the 1st day of May,
1991.
/s/ JEROME J. CONGLETON /s/ JAYE CONGLETON
- --------------------------------- ---------------------------------
JEROME J. CONGLETON JAYE CONGLETON
/s/ REBECCA CONGLETON BOENIGK
- ---------------------------------
REBECCA CONGLETON BOENIGK
CONGLETON ERGONOMIC CHAIRS, INC.
By: /s/ REBECCA CONGLETON BOENIGK
-----------------------------
President
/s/ MARK McMILLAN /s/ MICHAEL McWHORTER
- --------------------------------- ---------------------------------
MARK McMILLAN MICHAEL McWHORTER
CONGLETON CHAIR WORKS, INC. /s/ DREW JEROME CONGLETON
f/k/a LUBBOCK MOLASSES, INC. ---------------------------------
d/b/a/ CONGLETON CHAIR WORKS OF DREW JEROME CONGLETON
COLLEGE STATION
By: /s/ GALEN E. GREEN
-----------------------------
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 1st day of May, 1991.
/s/ LEATRICE BOUSE
---------------------------------
Notary Public, State of Texas
12
<PAGE> 13
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 2nd day of May, 1991.
[SEAL] /s/ CONNI D. KORTH
-----------------------------
Notary Public, State of Texas
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 1st day of May, 1991.
/s/ LEATRICE BOUSE
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned Notary Public, in and for the State of
Texas, personally appeared [signed] REBECCA CONGLETON BOENIGK, [signed] JEROME
J. CONGLETON of CONGLETON ERGONOMIC CHAIRS, INC., known to me to be the person
and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said corporation, and that
he executed the same for the purposes and consideration therein expressed and
in the capacity therein stated.
SWORN TO AND SUBSCRIBED before me on this 1st day of May, 1991.
/s/ LEATRICE BOUSE
-----------------------------
Notary Public, State of Texas
13
<PAGE> 14
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 3rd day of May, 1991.
[SEAL]
/s/ CHERIE E. NIBLETT
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
MICHAEL McWHORTER, 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 3rd day of May, 1991.
[SEAL]
/s/ CHERIE E. NIBLETT
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned authority, on this day personally appeared
DREW JEROME 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 3rd day of May, 1991.
[SEAL]
/s/ CHERIE E. NIBLETT
-----------------------------
Notary Public, State of Texas
14
<PAGE> 15
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
BEFORE ME, the undersigned Notary Public in and for the State of Texas,
personally appeared GALEN E. GREEN, Secretary, of CONGLETON CHAIR WORKS, INC.,
f/k/a LUBBOCK MOLASSES, INC. d/b/a CONGLETON CHAIR WORKS OF COLLEGE STATION,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that the same was the act of the
said corporation, and that he executed the same for the purposes and
consideration therein expressed and in the capacity therein stated.
SWORN TO AND SUBSCRIBED before me on this 3rd day of May, 1991.
/s/ CHERIE E. NIBLETT
[SEAL] -----------------------------
Notary Public, State of Texas
15
<PAGE> 16
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 Chairworks'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.
<PAGE> 17
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 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. License 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
2
<PAGE> 18
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
--------------------------------
3
<PAGE> 1
EXHIBIT 10(j)
EXECUTIVE EMPLOYMENT AGREEMENT
(Drew Congleton)
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated as of
_________, 1996 (the "Effective Date"), is made and entered into by and between
EB SUBSIDIARY, INC., a Texas corporation ("Company"), and DREW CONGLETON, an
individual ("Executive").
W I T N E S S E T H:
WHEREAS, Company has acquired by merger the assets of BodyBilt Seating,
Inc. ("BBSI"), which 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 and to change its corporate name to
"BodyBilt Seating, Inc.;" and
WHEREAS, Executive was an officer, director, shareholder and key
employee of BBSI, and Executive has represented to Company that he has
substantial experience, skills and expertise in managing and operating BBSI and
is willing to work 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
Employment
1.1 General Scope of Employment. Commencing on the Effective Date
(the "Commencement Date" as defined below in Article II), Company shall employ
Executive as an Executive Vice President ("EVP") of Company. Executive's
employment shall be on the terms and subject to the conditions of this
Agreement. Executive shall report directly to Company's President and/or Chief
Executive Officer (collectively, the "President") and, from time to time, shall
report directly to the Board of Directors (the "Board"). Executive shall
perform such principal duties and responsibilities consistent with his
professional experience as may reasonably be assigned to him from time to time
by the President and/or the 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. As an EVP of Company,
Executive shall perform those duties and responsibilities delegated to him by
the President and/or the Board which may (but shall not necessarily) include,
without limitation, assisting the President with his obligations to: (i)
develop and implement sales, plans and programs; (ii) develop key customer
relationships and identify new customers; (iii) develop, implement, execute and
carry out business plans as and when approved by the Board; (iv) review,
comment on, and oversee the performance of all material contracts concerning
Company; (v) develop, review, and comment on all strategic and
<PAGE> 2
operational plans; (vi) identify and pursue new business opportunities
compatible with and complementary to the businesses of Company; (vii) the
conduct of new and compatible research and development efforts ; and (viii)
perform such other duties and responsibilities necessary to integrate and
coordinate the 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 for the performance of his duties.
1.4 Extent of Services. Executive shall not engage in any other
business or consulting activity for gain, profit or other pecuniary advantage.
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. Executive shall spend such time
necessary or desirable to perform his duties and responsibilities under this
Agreement.
1.5 Outside Board Activities. Executive may, upon prior notice to
Company's Board, serve as a member of not 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 Board's written consent, while
employed by Company, all fees, compensation and other income (collectively
"Outside Income") received by Executive from any business or consulting
activity in violation of Section 1.4 above, 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 or other than as permitted by Section 1.5 above) shall be
the property of Company and immediately shall be disclosed and remitted to
Company.
1.7 Directors and Officers Liability Insurance. 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.
ARTICLE II
Term
Executive's employment shall be for an initial term ("Term") of three
(3) years commencing on the "Commencement Date," which shall be the Effective
Date first set forth above, and shall be renewed automatically for successive
one (1) year terms unless either party gives written notice no less than sixty
(60) days prior to the expiration of the then current term terminating an
automatic extension of this Agreement. In such case, this Agreement shall
terminate at the expiration of such current term.
2
<PAGE> 3
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" for each year of the Initial Term of Eighty
Thousand and No/100 Dollars ($80,000.00) payable in no less than twelve (12)
monthly installments 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.
3.2 Senior Management Incentive Plans. Executive will be a named
participant in such bonus and/or incentive plans, stock option plans and such
other plans adopted by the 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's
participation under any such Senior Management Incentive Plans shall be
commensurate with his position and with the participation by the Company's
other senior executives. Any bonus and the amount therefor shall be awarded
based on Executive's performance and/or achievement of reasonable achievable
metrics, milestones and goals established by the President or the Board. Any
cash bonus may be payable in installments or lump sum, as determined by the
Board in its discretion and may be paid either under the terms of an
appropriate Senior Management Incentive Plan or, if no such plan has been
adopted, by a separate award exclusive to Executive.
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 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 and shall
otherwise be subject to the approval by Company. 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
or which is not adequately documented.
3.4 Vacation and Sick Days.
3.4.1 Executive shall be entitled to three weeks 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.
3.4.2 Executive shall be entitled to paid sick days consistent
with Company policy as adopted from time to time.
3
<PAGE> 4
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. The 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 from time to time.
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 which result from or are
suggested by any work done for Company or which relate to Company's business as
now or hereinafter conducted by Company during the term hereof. 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. Nothing
herein shall apply to inventions designed or developed
4
<PAGE> 5
by Executive on Executive's own time, outside the scope of his employment
duties and responsibilities.
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 three (3) 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 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.
5
<PAGE> 6
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 4.2, 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. Executive hereby
represents and warrants to Company that Executive does not own or hold
directly, indirectly or beneficially any investment competitive with the
business of Company. This representation shall not be deemed to include any
interest held in a publicly-traded mutual fund in which Executive holds less
than five percent (5%) of the issued and outstanding shares.
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 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 for a period of either six (6) consecutive months or for six (6)
non-consecutive months in any twelve (12) month period.
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 upon death or disability, Annual Base Salary through the last day
of the calendar month in which the
6
<PAGE> 7
Termination Date occurs plus an amount equal to Annual Base Salary equal
to three (3) monthly installments less any monthly disability payments,
if any, for such period which could be claimed.
(ii) General Employee Benefit Plans and Senior
Management Incentive Plans. Executive (or his estate) shall be entitled
to receive all other general 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. Executive shall also be entitled to receive payment in
full of any benefits prorated to the Termination Date in accordance with
the terms and conditions of any Senior Management Incentive Plans
providing the same.
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 only 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, if then a member of the Board) at a meeting of Company's
Board called and held for such purpose (after no less than ten (10) days 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 below in this Section 5.2.1 and
specifying the particulars thereof in detail.
"Due Cause" shall mean that Executive has:
(i) committed an 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) continued to violate any federal, state or local
governmental policies, plans or procedures governing the work place
environment (e.g., EEOC, Title VII, Texas
7
<PAGE> 8
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 after written notice of prior similar
violations; and
(viii) engaged in any unprofessional conduct unbecoming a
senior executive of this 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 of
termination for Due Cause, Company shall pay to Executive as severance
compensation provided that Executive does not contest the termination in any
respect after it becomes effective: (i) a lump sum payment equal to one year's
Annual Base Salary under Section 3.1; and (ii) any rights and benefits
Executive may have upon termination of Employment under employee benefit plans
and programs of Company generally and under any Senior Management Incentive
Plans of Company 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 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 Agreement and his employment hereunder 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 Executive, this Agreement shall
terminate on the date specified in Executive's original notice (also
"Termination Date"). In the event of Company's breach, Executive shall have
the right to assert and pursue any and all legal or equitable claims for
damages or other remedies or relief recognized under applicable law.
5.4 Breach of Agreements. Executive acknowledges that a material
part of the inducement for Company to enter into this Agreement are Executive's
covenants with respect to the extent and nature of Executive's services and
time and travel commitments as set forth in Article I, Section 1.4, and with
respect to non-competition, non-disclosure, non-cooperation and
non-solicitation set forth in Articles IV and V hereof. Executive agrees that
if Executive breaches any of those covenants, Company 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, Executive agrees not to make any
false, misleading or negative statement,
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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:
BodyBilt Seating, Inc.
5000 Quorum, Suite 147
Dallas, Texas 75240
Attention: Gerard Smith, President
with copies to:
ErgoBilt, Inc.
5000 Quorum
Suite 147, Lock Box 43
Dallas, Texas 75240
Attention: Gerard Smith, President
Wolin, Fuller, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Attention: Norman R. Miller, Esq.
Address for Executive:
Drew Congleton
2815 Manzano Circle
College Station, Texas 77845
with copies to:
Jenkens & Gilchrist, A Professional Corporation
Attn: Donald W. Brodsky, Esq.
1100 Louisiana, Suite 1800
Houston, Texas 77002
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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 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 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 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 Board's
prior written consent. Company shall not assign or transfer it rights or
interests under this Agreement, except for any transfer which occurs by
operation of law, including but without limitation, merger or sale of stock.
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
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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.
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 date first above written.
COMPANY:
-------
EB SUBSIDIARY, INC.
A Texas Corporation (to be known as
BodyBilt Seating, Inc.)
By: /s/ GERARD SMITH
--------------------------------------
Gerard Smith
Its: President
EXECUTIVE:
---------
/s/ DREW CONGLETON
------------------------------------------
DREW CONGLETON
11
<PAGE> 12
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 Companies' licenses,
suppliers and customers, and information regarding the skills and
compensation of ErgoBilt Companies' officers and employees.
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<PAGE> 13
(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 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,
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<PAGE> 14
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/ DREW CONGLETON
- ------------------------
Signature By: /s/ GERARD SMITH
--------------------------------------
Printed Name: Gerard Smith
Its: Its President
BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By: /s/ GERARD SMITH
--------------------------------------
Printed Name: Gerard Smith
Its: President
14
<PAGE> 1
EXHIBIT 10(m)
FIRST AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
(Gerard Smith)
This FIRST AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
("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 Agreement supersedes in its entirety that
certain Executive Employment Agreement dated as of August 15, 1996 (the
"Original Agreement"), executed between the parties.
W I T N E S S E T H:
WHEREAS, BodyBilt Seating, Inc. ("BBSI") is engaged in manufacturing,
marketing and selling 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 (the
"Merger"), 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, pursuant to the Original Agreement, Executive agreed to provide
such services and take on such responsibilities for the consideration set forth
therein; and
WHEREAS, the Original Agreement was amended and restated as of October
15, 1996; and
WHEREAS, the parties desire to further amend and restate the Original
Agreement.
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 will 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 will 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 will be on the terms of and subject
to the conditions of this Agreement. Executive will report directly to
Company's Board and will 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 will 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 will
have the general charge of the business affairs and properties of Company and
will 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 Company. Executive will perform
all duties incident to the offices of President/CEO, and will 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 will serve to facilitate the general
organization of 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 Agreement, Executive's principal duties and
responsibilities will be to: (i) generate results in accordance with the
reasonable direction of the Board of Directors that will, among other things,
maximize the value of the outstanding stock of 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.
1.3 Extent of Services.
1.3.1 Pre-IPO Closing. Prior to Closing under the Merger
Agreement, Executive will 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
2
<PAGE> 3
with the business of Company.
1.3.2 Post-IPO Closing. After Closing under the Merger
Agreement, Executive will devote all of his time, attention and energy to
Company's business and will not engage in any other business or consulting
activity for gain, profit or other pecuniary advantage except as expressly
provided in this 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) will
be the property of Company and will be immediately disclosed and remitted to
Company.
1.6 Directors and Officers Liability Insurance. After the Closing
under the Merger Agreement, Company will 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 will indemnify Executive as provided in the
bylaws of Company to the fullest extent permitted under applicable law.
ARTICLE II
Term
Executive's employment will 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.
3
<PAGE> 4
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 will 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 will 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 will 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 will pay to Executive an Annual Base Salary of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) for each twelve-month period of the
Term. Annual Base Salary will 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 will 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 will 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 will 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 Plans 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
Plans will 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.
3.3 Expenses. During the term of his employment hereunder, Executive
will 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 will 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 will 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.
4
<PAGE> 5
3.4 Vacation and Sick Days.
3.4.1 Executive will 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, will not be taken
consecutively). Such vacation will be scheduled to minimize interference with
the business. Executive will also be entitled to all paid holidays given by
Company to its employees.
3.4.2 Executive will 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 will provide to Executive the following
additional benefits:
3.5.1 Miscellaneous Benefits. Executive will 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 will 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 will 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 will 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.
3.5.4 Company Car. Consistent with Company policies as adopted
from time to time, Executive will be provided a "Company Car" for his use
during the term of this Agreement. Company will pay or reimburse Executive for
all "Company Car Expenses." Company Car Expenses will 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 will be responsible for all personal costs and
expenses associated with any personal use of the Company Car. All Company Car
Expenses will 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 monthly allowance will 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
5
<PAGE> 6
a business or technical nature, made or conceived by Executive alone or with
others, during the Term of this Agreement will 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 will promptly disclose such Inventions to Company. In
addition, Executive will 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" will 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 of 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 will apply only to the metropolitan
areas where Company was conducting business as of the Termination Date.
Competitive Activity will 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 will 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 will 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
6
<PAGE> 7
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 Company will, 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 will 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 4.2, 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 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 will 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 Date").
"Disability" will 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 Agreement by reason of
Executive's death or disability, Executive (or his estate) will be entitled to
payment of amounts due under this Agreement as follows:
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<PAGE> 8
(i) Annual Base Salary. Company will 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 Agreement will
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) will 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. In addition to the right of termination set
forth in Section 5.1, Company will have the right to terminate this Agreement
and Executive's employment hereunder only for "Due Cause" upon written notice
to Executive, effective upon such date specified in such notice (also
"Termination Date"). Executive will not be deemed to have been terminated
prior to the expiration of the Term hereof for "Due Cause" 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 duly
called and held for such purpose (after thirty days' notice to Executive and an
opportunity for Executive, together with his one or more advisors, to be
heard), finding that, in the good faith opinion of Company's Board, Executive
committed an act or omission set forth below in this Section 5.2.1 and
specifying the particulars thereof in detail. Nothing herein will limit the
right of Executive to present his position to the Board prior to such
termination.
"Due Cause" will 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;
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<PAGE> 9
(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;
(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;
(viii) knowingly, wilfully and wrongfully engaged in any
unprofessional conduct unbecoming a senior executive of Company or
comparable businesses after written notice of such conduct and
Executive's subsequent failure to cease and desist;
(ix) materially failed to perform any of his principal duties
and responsibilities specified in Section 1.2 of this Agreement and such
failure continues for a period of 30 days after written notice to
Executive by the Board of Directors of the existence of such failure,
or, if such failure is not of such nature that it can be cured within 30
days, Executive has commenced reasonable and diligent efforts to cure
said failure.
5.2.2 Effect on Compensation and Benefits. In the event of the
termination of Executive's employment by Company under Section 5.2.1 above,
Company will 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 will 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 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, Company will 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 will be of the same nature as received by
Executive immediately prior to his termination.
Termination of Executive's employment pursuant to Section 5.2.1 will 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 Executive's Right of Termination on Company's Breach. Executive
will have the right upon no less than sixty (60) days prior written notice to
terminate this Agreement and his employment hereunder in the event of Company's
breach of any material provision of this Agreement. Such notice will state the
nature and scope of such breach in detail and identify the specific relevant
provisions of this Agreement breached. Company will 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
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<PAGE> 10
specific breach within the thirty-day period, then, upon confirming written
notice from Executive, this Agreement will terminate on the date specified in
Executive's original notice (also "Termination Date"). In the event of
termination pursuant to this Section 5.3, 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 price per share of common stock in Company's IPO, and Executive will
fully comply with all of the covenants and agreements set forth in Sections 5.7
and 5.8 hereof.
5.4 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 performance, continued employment, non-competition,
non-disclosure, non-cooperation and non-solicitation, all as set forth in
Articles IV and V hereof. Executive agrees that if Executive breaches any of
those covenants, Company will have no further obligation to pay Executive any
amounts or benefits otherwise payable hereunder (except as may otherwise be
required at law) and will be entitled to such other legal and equitable relief
as a court of arbitrator will reasonably determine unless such breach is an
inadvertent breach that does not result in any material harm to Company.
5.5 McMillan's Right to Purchase Executive's Shares in Company.
5.5.1 McMillan's Purchase Rights on Termination for Cause. In
the event Company terminates Executive's employment pursuant to Section 5.2,
Gerald McMillan ("McMillan") will have the right to purchase from Executive a
portion of the shares of Company owned or controlled by Executive ("Executive's
Shares"), at the same price per share that 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 the Executive's purchase of the initial Executive's Shares:
(i) If the effective date of Executive's termination is
on or prior to the first 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 price per share of common stock in Company's IPO;
(ii) If the effective date of Executive's termination is
on or before the second anniversary but after the first
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 Section 5.5.1(i) above, then
McMillan may purchase a total of sixty-six and sixty-six one-
hundredths percent (66.66%) of Executive's Shares, provided that
the number of shares retained by Executive will not be less than
the number of shares that Executive is entitled to retain
pursuant to Section 5.5.1(i); or
(iii) If the effective date of Executive's termination is
at any time after the second anniversary but prior to the third
anniversary of the closing of the Merger, then McMillan may
purchase a total of fifteen percent (15%) of Executive's Shares,
provided that the number of shares retained by Executive will not
be less than the aggregate number of shares that Executive is
entitled to retain pursuant to Sections 5.5.1(i) and (ii).
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<PAGE> 11
5.5.2 McMillan's Purchase Rights on Executive's Voluntary
Resignation. In the event Executive voluntarily resigns his employment with
Company, McMillan will 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 Executive's purchase of the initial Executive's Shares:
(i) If the effective date of Executive's voluntary
resignation is on or prior to the first 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 price per share of common stock in Company's IPO;
(ii) If the effective date of Executive's voluntary
resignation is on or before the second anniversary but after the
first 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's Shares, provided that the number
of shares retained by Executive will not be less than the number
of shares that Executive is entitled to retain pursuant to
Section 5.5.2(i); or
(iii) If the effective date of Executive's voluntary
resignation is at any time after the second anniversary but prior
to the third anniversary of the closing of the Merger, then
McMillan may purchase a total of fifteen percent (15%) of
Executive's Shares, provided that the number of shares retained
by Executive will not be less than the aggregate number of shares
that Executive is entitled to retain pursuant to Sections
5.5.2(i) and (ii).
5.5.3 Executive's Shares. For the purposes of this Section 5.5,
any shares of Company held in trust for the benefit of Executive's children
will be deemed to be controlled by Executive and included as part of
Executive's Shares.
5.5.4 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 Sections 5.5.1 and 5.5.2 above.
5.5.5 Shares Retained By Executive. Any of Executive's Shares
not subject to purchase by McMillan or redeemed by Company will continue to be
held by Executive. McMillan will have no purchase rights and Company will have
no redemption rights upon the termination of Executive's employment for any
other reasons except as set forth herein.
5.6 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 will 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.
5.7 Waiver of Claims and Covenant Not To Sue. Executive hereby
waives any and all claims he may have against Company based on or arising out
of the termination of Executive's employment for any reason, provided that all
amounts due and payable to Executive as Liquidated Damages under Section
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<PAGE> 12
5.2.2 have been paid in full. Executive hereby covenants not to file any legal
action or complaint against or otherwise sue Company to assert any claims
waived in this Section 5.7.
5.8 Disparaging Comments. Except in connection with proceedings by
or before a judicial, administrative, self-regulatory, arbitral or mediation
tribunal or agency and not otherwise proscribed by Section 5.7, Executive will
make no negative or disparaging statement, either orally or in writing, about
Company or any of its directors, officers, shareholders or affiliates following
termination of Executive's employment for any reason.
ARTICLE VI
General
6.1 Notice. All notices and other communications provided for in
this Agreement will be in writing and will 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: WITH COPIES TO:
ErgoBilt, Inc. Wolin, Fuller, Ridley & Miller LLP
5000 Quorum 1717 Main Street, Suite 3100
Suite 147, Lock Box 43 Dallas, Texas 75201
Dallas, Texas 75240 Attention: Norman R. Miller, Esq.
Attention: Gerald McMillan, Chairman
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 will be effective
only upon receipt.
6.2 Binding Effect. This Agreement will 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 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 will 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.
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6.4 Headings. Section and Section headings are used herein for
convenience of reference only and will 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'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.
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
will 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 will be considered divisible and such provision
will be deemed inoperative to the extent it is deemed unenforceable and in all
other respects this Agreement will remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision will be deemed to be so limited and will 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 will 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 will 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
will be entitled to recover all reasonable costs and expenses incurred,
including reasonable attorneys' fees.
IN WITNESS HEREOF, the parties have duly executed this Agreement as of
the date first above written.
COMPANY:
-------
ERGOBILT, INC.,
A Texas Corporation
By:
---------------------------------------
Gerald McMillan
Its: Chairman of the Board of
Directors
EXECUTIVE:
---------
------------------------------------------
GERARD SMITH
13
<PAGE> 14
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" will 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.
(ii) Non-Disclosure. Employee recognizes that Employee will 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.
<PAGE> 15
(iii) Protection Policies and Procedures. Employee will 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
will 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.
(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 will 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 will 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 will be governed and interpreted
by the laws of the State of Texas.
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<PAGE> 16
(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
will 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 Sections (ii), (v),
and (vii) hereof will survive the termination of this Agreement.
This Agreement will be deemed executed and effective as of the date
first set forth above.
Employee: ErgoBilt, Inc.
A Texas Corporation
------------------------------ -------------------------------------
Signature By:
----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By:
----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
3
<PAGE> 1
EXHIBIT 10(t)
ERGOBILT, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purposes of the ErgoBilt, Inc. 1996 Stock Option
Plan (the "Plan") are to provide additional incentives to those officers, key
employees, nonemployee Directors and Consultants of ErgoBilt, Inc. and its
Subsidiaries (as hereinafter defined) whose substantial contributions are
essential to the continued growth and success of the Company's business, to
strengthen their commitment to the Company and its Subsidiaries, to motivate
those officers, key employees, nonemployee Directors and Consultants to perform
their assigned responsibilities faithfully and diligently, and to attract and
retain competent and dedicated individuals whose efforts will result in the
long-term growth and profitability of the Company. To accomplish these
purposes, the Plan provides that the Company may grant Stock Options and
Nonqualified Stock Options (as each term is hereinafter defined).
2. DEFINITIONS. For purposes of the Plan:
a. "ADJUSTED FAIR MARKET VALUE" means, in the event of a
Change in Control, the greater of (i) the highest price per Share paid
to holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest
Fair Market Value of a Share during the ninety (90) day period ending on
the date of a Change in Control.
b. "AGREEMENT" means the written agreement between the
Company and an Optionee evidencing the grant of an Option and setting
forth the terms and conditions thereof.
c. "BOARD" means the Board of Directors of the Company.
d. "CHANGE IN CAPITALIZATION" means any increase or reduction
in the number of Shares, or any change (including, but not limited to, a
change in value) or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a
reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split, or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, public offering, private placement, change in
corporate structure or otherwise, which in the judgment of the
Compensation Committee is material or significant.
e. "CHANGE IN CONTROL" means any of the following events:
i. The acquisition (other than from the Company) by
any "Person" (as the term is used for purposes of Sections 13(d)
or 14(d) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the
<PAGE> 2
Exchange Act) of twenty percent (20%) or more of the combined
voting power of the Company's then outstanding voting securities;
or
ii. The individuals who, as of December 31, 1996, are
members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least two-thirds of the Board; provided,
however, that if the election, or nomination for election by the
Company's shareholders, of any new Director was approved by a
vote of at least two-thirds of the Incumbent Board, such new
Director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board; or
iii. Approval by the shareholders of the Company of (a)
a merger or consolidation involving the Company if the Company's
shareholders, immediately before such merger or consolidation, do
not, as a result of such merger or consolidation, own, directly
or indirectly, more than seventy percent (70%) of the combined
voting power of the then outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Company
outstanding immediately before such merger or consolidation or
(b) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
pursuant to Section 2(g)(i) solely because twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities is acquired
by (i) a trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or any Subsidiary or (ii) any
corporation which, immediately prior to such acquisition, is owned directly or
indirectly by the shareholders of the Company in the same proportion as their
ownership of stock in the Company immediately prior to such acquisition.
f. "CODE" means the Internal Revenue Code of 1986, as
amended.
g. "COMPANY" means ErgoBilt, Inc., a Texas corporation.
h. "COMPENSATION COMMITTEE" means a committee consisting of
at least two (2) Disinterested Persons appointed by the Board to
administer the Plan and to perform the functions set forth herein.
i. "CONSULTANT" means any person performing consulting
services for the Company or any subsidiary of the Company, with or
without compensation, to whom the Company chooses to grant Nonqualified
Stock Options in accordance with the Plan, provided that bona fide
services must be rendered by such person and such services shall not be
rendered in connection with the offer or sale of securities in a
capital-raising transaction.
j. "DIRECTOR" means a member of the Board.
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<PAGE> 3
k. "DISINTERESTED PERSON" means a disinterested administrator
with respect to the Company or any Subsidiary as described in Rule 16b-
3(b)(2) under the Exchange Act.
l. "DIVISION" means any of the operating units or Divisions
of the Company designated as a Division by the Compensation Committee.
m. "ELIGIBLE EMPLOYEE" means any officer or other designated
employees of the Company or a Subsidiary designated by the Compensation
Committee as eligible to receive Options subject to the conditions set
forth herein.
n. "EMPLOYEE" means an employee of the Company or any
Subsidiary of the Company that adopts the Plan, as defined under Section
3401(c) of the Code and regulations thereunder.
o. "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
p. "FAIR MARKET VALUE" means the fair market value of the
Shares as determined in good faith by the Compensation Committee;
provided, however, that (i) if the Shares are admitted to trading on a
national securities exchange, Fair Market Value on any date shall be the
last sale price reported for the Shares on such exchange on such date
or, if no sale was reported on such date, on the last date preceding
such date on which a sale was reported, as quoted in The Wall Street
Journal (Southwest Edition); (ii) if the Shares are admitted to
quotation on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") and have been designated as a National
Market System ("NMS") security, Fair Market Value on any date shall be
the last sale price reported for the Shares on such system on such date
or on the last day preceding such date on which a sale was reported, as
quoted in The Wall Street Journal (Southwest Edition); or (iii) if the
Shares are admitted to quotation on NASDAQ and have not been designated
an NMS security or are listed on another comparable quotation system,
Fair Market Value on any date shall be the average of the highest bid
and lowest asked prices of the Shares on such system on such date.
q. "NONQUALIFIED STOCK OPTION" means an Option which is not a
Stock Option.
r. "OPTION" means a Stock Option, a Nonqualified Stock
Option, or either or both of them.
s. "OPTIONEE" means a person to whom an Option has been
granted under the Plan.
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<PAGE> 4
t. "SHARES" means the Common Stock, one cent ($.01) par
value, of the Company (including any new, additional or different stock
or securities resulting from a Change in Capitalization).
u. "STOCK OPTION" means an Option within the meaning of
Section 422 of the Code.
v. "SUBSIDIARY" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations,
other than the last corporation in the unbroken chain, owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
w. "TEN PERCENT SHAREHOLDER" means an Eligible Employee, who,
at the time a Stock Option is to be granted to such Eligible Employee,
owns (within the meaning of Section 422(b)(6) of the Code) stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or of a parent or a
Subsidiary within the meaning of Section 422(b)(6) of the Code.
3. ADMINISTRATION
a. The Plan shall be administered by the Compensation
Committee. No member of the Compensation Committee shall be personally
liable for any action, determination or interpretation made in good
faith with respect to the Plan, Agreements or Options, and all members
of the Compensation Committee shall be fully indemnified by the Company
with respect to any such action, determination or interpretation.
b. Subject to the express terms and conditions set forth
herein, the Compensation Committee shall have the power from time to
time to determine those Eligible Employees, nonemployee Directors or
Consultants to whom Options shall be granted under the Plan, the number
of Stock Options and/or Nonqualified Stock Options to be granted to each
Eligible Employee, the number of Nonqualified Stock Options to be
granted to each nonemployee Director or Consultant, and to prescribe the
terms and conditions (which need not be identical) of each Option,
including the purchase price per Share subject to each Option, and make
any amendment or modification to any Agreement consistent with the terms
of the Plan.
c. Subject to the express terms and conditions set forth
herein, the Compensation Committee shall have the power from time to
time:
i. to construe and interpret the Plan and the Options
granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including,
without limitation, correcting any defect or supplying any
omission, or reconciling any inconsistency in the Plan or in any
Agreement, in the manner and
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<PAGE> 5
to the extent it shall deem necessary or advisable to make the
Plan fully effective, and all decisions and determinations by the
Compensation Committee in the exercise of this power shall be
final, binding and conclusive upon the Company, a Subsidiary, and
the Optionees;
ii. to determine the duration and purposes for leave of
absence which may be granted to an Optionee on an individual
basis without constituting a termination of employment or service
for purposes of the Plan;
iii. to exercise its discretion with respect to the
powers and rights granted to it as set forth in the Plan; and
iv. generally, to exercise such powers and to perform
such acts as are deemed necessary or advisable to promote the
best interests of the Company with respect to the Plan.
4. STOCK SUBJECT TO PLAN.
a. The maximum number of Shares that may be issued or
transferred pursuant to Options under the Plan is four hundred thousand
(400,000) Shares (or the number and kind of shares of stock or other
securities to which such Shares are adjusted upon a Change in
Capitalization pursuant to Section 7) and the Company shall reserve for
the purposes of the Plan, out of its authorized but unissued Shares or
out of Shares held in the Company's treasury, or partly out of each,
such number of Shares as shall be determined by the Board.
b. Whenever any outstanding Option or portion thereof
expires, is canceled or is otherwise terminated for any reason (other
than by exercise of the Option), the Shares allocable to the canceled or
otherwise terminated portion of such Option may again be the subject of
Options hereunder.
c. Whenever any Shares subject to an Option are forfeited for
any reason pursuant to the terms of the Plan, such Shares may again be
the subject of Options hereunder.
5. ELIGIBILITY. Subject to the provisions of the Plan, the
Compensation Committee shall have full and final authority to select those
Eligible Employees who will receive Options and those nonemployee Directors and
Consultants who will receive Nonqualified Stock Options; provided, however,
that no Eligible Employee shall receive any Stock Options, unless such Eligible
Employee is an employee of the Company or a Subsidiary (within the meaning of
Section 422 of the Code) at the time the Stock Option is granted. Stock
Options may be granted only to persons who are Eligible Employees.
6. OPTIONS. The Compensation Committee may grant Options in
accordance with the Plan, and the terms and conditions of the Option shall be
set forth in an Agreement. Each Option and Agreement shall be subject to the
following conditions:
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<PAGE> 6
a. PURCHASE PRICE. The purchase price or the manner in which
the purchase price is to be determined for Shares under each Option
shall be set forth in the Agreement, provided that the purchase price
per Share under each Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share at the time the Stock
Option is granted (one hundred ten percent (110%) in the case of a Stock
Option granted to a Ten Percent Shareholder).
b. DURATION. Options granted hereunder shall be for such
term as the Compensation Committee shall determine, provided that no
Stock Option shall be exercisable after the expiration of ten (10) years
from the date it is granted (five (5) years in the case of a Stock
Option granted to a Ten Percent Shareholder). The Compensation
Committee may, subsequent to the granting of any Option, extend the term
thereof but in no event shall the term as so extended exceed the maximum
term provided for in the preceding sentence.
c. NON-TRANSFERABILITY. No Option hereunder shall be
transferable by the Optionee to whom granted otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, and an Option may be exercised during
the lifetime of such Optionee only by the Optionee or such Optionee's
guardian or legal representative. The terms of such Option shall be
final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
d. VESTING. Subject to Section 6(i) hereof, each Option
shall be exercisable in such installments (which need not be equal) and
at such times as may be designated by the Compensation Committee and set
forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after
becoming exercisable, but not later than the date the Option expires.
The Compensation Committee may accelerate the exercisability of any
Option or portion thereof at any time.
e. METHOD OF EXERCISE. The exercise of any Option shall be
made only by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive office,
specifying the number of Shares to be purchased and accompanied by
payment therefor and otherwise in accordance with the Agreement pursuant
to which the Option was granted. The purchase price for any Shares
purchased pursuant to the exercise of an Option shall be paid in full
upon such exercise, as determined by the Compensation Committee. The
written notice pursuant to this Section 6(e) may also provide
instructions from the Optionee to the Company that upon receipt of the
purchase price in cash from the Optionee's broker or dealer, designated
as such on the written notice, in payment for any Shares purchased
pursuant to the exercise of an Option, the Company shall issue such
Shares directly to the designated broker or dealer. Any Shares
transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding
the date of exercise of such Option. If requested by the Compensation
Committee, the Optionee shall deliver the Agreement evidencing the
Option
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<PAGE> 7
to the Secretary of the Company, who shall endorse thereon a notation of
such exercise and return such Agreement to the Optionee. No fractional
Shares shall be issued upon exercise of an Option, and the number of
Shares that may be purchased upon exercise shall be rounded to the
nearest number of whole Shares.
f. RIGHTS OF OPTIONEES. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (i) the Option shall have been exercised pursuant to the terms
thereof, (ii) the Company shall have issued and delivered the Shares to
the Optionee, and (iii) the Optionee's name shall have been entered as a
shareholder of record on the books of the Company. Thereupon, the
Optionee shall have full voting, dividend and other ownership rights
with respect to such Shares.
g. TERMINATION OF EMPLOYMENT OR SERVICE. The Agreement shall
set forth the terms and conditions of the Option upon the termination of
the Employee's employment, or upon termination of the Consultant's
services, with the Company, Subsidiary or a Division (including an
Optionee's ceasing to be employed by a Subsidiary or Division as a
result of the sale of such Subsidiary or Division or an interest in such
Subsidiary or Division) as the Compensation Committee may, in its
discretion, determine at the time the Option is granted or thereafter;
provided, however, that no Option shall be exercisable beyond its
maximum term as described in Section 6(b) hereof.
h. MODIFICATION OR SUBSTITUTION. Subject to the terms of the
Plan, the Compensation Committee may, in its discretion, modify
outstanding Options or accept the surrender of outstanding Options (to
the extent not exercised) and grant new Options in substitution for
them. Notwithstanding the foregoing, no modification of an Option shall
adversely alter or impair any rights or obligations under any Agreement
without the Optionee's consent.
i. EFFECT OF CHANGE IN CONTROL. Notwithstanding anything
contained in the Plan or any Agreement to the contrary, in the event of
a Change in Control, (i) all Options outstanding on the date of such
Change in Control shall become immediately and fully exercisable and
(ii) an Optionee will be permitted to surrender for cancellation within
sixty (60) days after such Change in Control any Option or portion of an
Option to the extent not yet exercised, and the Optionee will be
entitled to receive a cash payment in an amount equal to the excess, if
any, of (x)(A) in the case of Nonqualified Stock Options, the greater of
(1) the Fair Market Value, on the date preceding the date of surrender,
of the Shares subject to the Option or portion thereof surrendered or
(2) the Adjusted Fair Market Value of the Shares subject to the Option
or portion thereof surrendered or (B) in the case of a Stock Option, the
Fair Market Value, at the time of surrender, of the Shares subject to
the Option or portion thereof surrendered, over (y) the aggregate
purchase price for such Shares under the Option; provided, however, that
in the case of an Option granted within six (6) months prior to the
Change in Control to any Optionee who may be subject to liability under
Section 16(b) of the Exchange Act, such Optionee shall be entitled to
surrender for
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<PAGE> 8
cancellation such Optionee's Option during the sixty (60) day period
commencing upon the expiration of six (6) months from the date of grant
of any such Option.
j. FORMULA GRANT TO DIRECTORS. Each Director who is neither
an employee, consultant or principal stockholder of the Company shall
receive annually Nonqualified Stock Options to purchase 2,000 shares of
Common Stock which shall be automatically awarded at the first meeting
of the Board of Directors subsequent to each Annual Meeting of
Stockholders. The Option price shall be the Fair Market Value at the
date of grant. Each Option shall be immediately vested and shall have a
term of five years.
7. ADJUSTMENT UPON CHANGE IN CAPITALIZATION.
a. In the event of a Change in Capitalization, the
Compensation Committee shall conclusively determine the appropriate
adjustments, if any, to the maximum number and class of Shares or other
stock or securities with respect to which Options may be granted under
the Plan, the number and class of Shares or other stock or securities
which are subject to outstanding Options granted under the Plan, and the
purchase price therefor, if applicable.
b. Any such adjustment in the Shares or other stock or
securities subject to outstanding Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not
to constitute a modification as defined by Section 424(h)(3) of the Code
and only to the extent otherwise permitted by Sections 422 and 424 of
the Code.
c. If, by reason of a Change in Capitalization, an Optionee
shall be entitled to exercise an Option with respect to, new, additional
or different shares of stock or securities (other than rights or
warrants to purchase securities), such new, additional or different
shares shall thereupon be subject to all of the conditions, restrictions
and performance criteria which were applicable to the Shares subject to
the Option prior to such Change in Capitalization.
8. EFFECT OF CERTAIN TRANSACTIONS. Subject to Section 6(i), in the
event of (i) the liquidation or dissolution of the Company or (ii) a merger or
consolidation of the Company (a "Transaction"), all Options issued hereunder
shall continue in effect in accordance with their respective terms and each
Optionee shall be entitled to receive in respect of each Share subject to any
outstanding Options, as the case may be, upon exercise of any Option, the same
number and kind of stock, securities, cash, property or other consideration
that each holder of a Share was otherwise entitled to receive in the
Transaction in respect of a Share.
9. RELEASE OF FINANCIAL INFORMATION. A copy of the Company's annual
report to shareholders shall be delivered to each Optionee at the time such
report is distributed to the Company's shareholders.
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<PAGE> 9
10. TERMINATION AND AMENDMENT OF THE PLAN.
a. The Plan shall terminate on December 31, 2006, and no
Option may be granted thereafter. The Board may sooner terminate or
amend the Plan (other than to reduce the rights of Optionees under
Section 6(i), at any time and from time to time; provided, however, that
to the extent necessary under Section 16(b) of the Exchange Act and the
rules and regulations promulgated thereunder, no amendment shall be
effective unless approved by the shareholders of the Company in
accordance with applicable law and regulations at an annual or special
meeting held within twelve (12) months before or after the date of
adoption of such amendment.
b. Except as provided in Sections 7 and 8 hereof, rights and
obligations under any Option granted before any amendment of the Plan
shall not be adversely altered or impaired by such amendment, except
with the consent of the Optionee.
11. NON-EXCLUSIVITY OF THE PLAN. The adoption of the Plan by the
Board shall not be construed as amending, modifying or rescinding any
previously approved incentive arrangement or as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem
desirable.
12. LIMITATION OF LIABILITY. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
a. give any person any right to be granted an Option other
than at the sole discretion of the Compensation Committee;
b. give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
c. limit in any way the right of the Company to terminate the
employment of any person at any time; or
d. be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person in any particular
position at any particular rate of compensation or for any particular
period of time.
13. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
a. This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the
State of Texas without giving effect to the conflicts of laws principles
thereof, except to the extent that such law is preempted by federal law.
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<PAGE> 10
b. The obligation of the Company to sell or deliver Shares
with respect to Options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Compensation Committee.
c. The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act, and the Compensation Committee shall interpret
and administer the provisions of the Plan or any Agreement in a manner
consistent therewith Any provisions inconsistent with such Rule shall
be inoperative and shall not affect the validity of the Plan.
d. The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority or to obtain for Eligible Employees granted Stock Options the
tax benefits under the applicable provisions of the Code and regulations
promulgated thereunder.
e. Each Option is subject to the requirement that, if at any
time the Compensation Committee determines, in its discretion, that the
listing, registration or qualification of Shares issuable pursuant to
the Plan is required by any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with,
the grant of an Option or the issuance of Shares, no Options shall be
granted or payment made or Shares issued, in whole or in part, unless
listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions as acceptable to the
Compensation Committee.
f. Notwithstanding anything contained in the Plan to the
contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement
under the Securities Act of 1933, as amended (the "Act"), and is not
otherwise exempt from such registration, such Shares shall be restricted
against transfer to the extent required by the Act and Rule 144 or other
regulations thereunder. The Compensation Committee may require any
individual receiving Shares pursuant to the Plan, as a condition
precedent to receipt of such Shares (including upon exercise on an
Option), to represent and warrant to the Company in writing, in addition
to other applicable representations, that the Shares acquired by such
individual are acquired without a view to any distribution thereof and
will not be sold or transferred other than pursuant to an effective
registration thereof under the Act or pursuant to an exemption
applicable under the Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately legended to reflect their status as restricted securities
as aforesaid.
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14. MISCELLANEOUS.
a. MULTIPLE AGREEMENTS. The terms of each Option may differ
from other Options granted under the Plan at the same time, or at some
other time. The Compensation Committee may also grant more than one
Option to a given Eligible Employee, nonemployee Director or Consultant
during the term of the Plan, either in addition to, or in substitution
for, one or more Options previously granted to that Eligible Employee,
nonemployee Director or Consultant. The grant of multiple Options may
be evidenced by a single Agreement or multiple Agreements, as determined
by the Compensation Committee.
b. WITHHOLDING OF TAXES.
i. The Company shall have the right to deduct from any
distribution of cash to any Optionee an amount equal to the
federal, state and local income taxes and other amounts as may be
required by law to be withheld (the "Withholding Taxes") with
respect to any Option. If an Optionee is entitled to receive
Shares upon exercise of an Option, the Optionee shall pay the
Withholding Taxes to the Company prior to the issuance or release
from escrow of such Shares. In satisfaction of the Withholding
Taxes to the Company, the Optionee may make a written election
(the "Tax Election"),which may be accepted or rejected in the
discretion of the Compensation Committee, to have withheld a
portion of the Shares issuable to such Optionee upon exercise of
the Option having an aggregate Fair Market Value equal to the
Withholding Taxes, provided that: (i) in respect of an Optionee
who may be subject to liability under Section 16(b) of the
Exchange Act (unless such Optionee's employment was terminated
due to disability or death), the Tax Election is made either at
least six (6) months prior to the date that the amount of the
Withholding Taxes are determined (the "Tax Date") or during the
ten (10) day period beginning on the third (3rd) business day and
ending on the twelfth (12th) business day following the release
for publication of the Company's quarterly or annual statements
of earnings, (ii) the Tax Election is made prior to the Tax Date,
and (iii) the Tax Election is irrevocable; provided, however, in
the event that the Tax Date occurs subsequent to the exercise of
the Option or issuance of Shares, the Optionee shall tender back
to the Company on the Tax Date that number of Shares having a
Fair Market Value on the date preceding the Tax Date at least
equal to the Withholding Taxes.
ii. If an Optionee makes a disposition, within the
meaning of Section 424(c) of the Code and regulations promulgated
thereunder, of any Share or Shares issued to Optionee pursuant to
Optionee's exercise of an Option within the two (2) year period
commencing in the day after the date of the grant or within the
one (1)year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written
notice
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to the Company at its principal executive office, and immediately
deliver to the Company the amount of Withholding Taxes.
c. DESIGNATION OF BENEFICIARY. Each Optionee may designate a
person or persons to receive, in the event of such Optionee's death, any
Option or any amount payable pursuant thereto, to which such Optionee
would then be entitled. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing.
If an Optionee fails effectively to designate a beneficiary, then such
Optionee's estate will be deemed to be the beneficiary.
15. EFFECTIVE DATE. The effective date of the Plan shall be November
6, 1996.
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<PAGE> 1
EXHIBIT 10(u)
ERGOBILT, INC.
5000 Quorum-Suite 147
Dallas, Texas 75240
Tel (972) 233-8504 Fax (972) 392-9719
January 8, 1997
Mr. Edwin P. Lochridge
Metamorphosis Design & Development, Inc.
1347 Spring Street
Atlanta, Georgia 30309
Dear Win:
As we have discussed, ErgoBilt is interested in purchasing from you and
Metamorphosis (1) all intellectual property rights relating to the
Metamorphosis work station, boogie board, tilt mechanism, power station, and
computer processing unit, (2) an assignment of the license agreement with
O'Sullivan, Inc., and (3) all other patents pending, designs, and future
patents, designs, and other intellectual property rights of Metamorphosis or
you, including the Metamorphosis chair/seating concept (TOM) currently under
development.
The purchase price for all of these assets would include the following:
(1) $500,000 cash, $300,000 of which Metamorphosis would use
for such product development as you and ErgoBilt may agree upon.
(2) ErgoBilt would make contingent payments for intellectual
property acquired as follows:
(A) an additional $350,000 if ErgoBilt's cumulative
after tax earnings from the sale or licensing of
Metamorphosis-related products reaches $500,000 within three
years after closing, plus an amount equal to 70% of net income
in excess of $500,000 from all such sales or licensing during
the three-year period;
(B) amounts payable pursuant to (2)(A) would be due
quarterly beginning within a reasonable time after the quarter
in which the $500,000 has been earned from Metamorphosis-related
products and continuing each subsequent quarter up to and
including but not continuing after the third anniversary of the
closing; and
(C) in no event would amounts payable pursuant to
(2)(A) exceed $5,000,000.
(3) ErgoBilt would issue five-year warrants to purchase
150,000 shares of unregistered ErgoBilt common stock at a price per
share equal to the last reported sale price on the NASDAQ
<PAGE> 2
Mr. Edwin P. Lochridge
January 8, 1997
Page 2
National Market System on the closing date, exercisable beginning on the
first anniversary of the closing.
Additionally, if ErgoBilt is sold for at least $350 million or its
market capitalization exceeds that amount for a period of 180 days at any time
within five years after closing, and at such time at least one-third of its
gross revenues are from sales or license fees with respect to products
utilizing the patents, designs, and intellectual property rights that ErgoBilt
acquired from you and Metamorphosis or products derived from such intellectual
property, then ErgoBilt would also pay to Metamorphosis contingent additional
consideration of $10 million in cash or securities, at the option of ErgoBilt.
ErgoBilt would license to you and Metamorphosis the right to make and
sell turnkey integrated workstations that include a power station and computer
processing unit ("CPU") or to make or license for sale the CPU on a
stand-alone basis. ErgoBilt would receive a fee of 3.0% on gross sales of all
products sold under this license.
The consummation of any transaction on the terms described in this
letter is expressly conditioned on the following:
1. ErgoBilt's satisfactory completion of its due diligence review.
2. Our good faith negotiations toward and execution of a
definitive agreement with additional terms, conditions, representations, and
warranties acceptable to all parties.
3. If any of us desires to terminate negotiations at any time
before a definitive agreement is executed, then we will so advise the other
parties in writing, and may do so without any obligation or liability. Until
such termination, however, you agree not to negotiate with any other parties
with respect to the sale of assets covered by this letter.
This letter is only a proposal and not a contract. None of us will be
entitled to any recourse if, for any reason, we fail to agree on and enter
into a definitive agreement.
If you agree to move forward with the possible sale of assets and
options on the terms outlined in this letter, please sign, date, and return the
enclosed copy of this letter.
Very truly yours,
/s/ GERALD McMILLAN
--------------------------------------
Gerald McMillan, Chairman of the Board
<PAGE> 3
Mr. Edwin P. Lochridge
January 8, 1997
Page 3
AGREED this 8th day of January 1997.
METAMORPHOSIS DESIGN & DEVELOPMENT, INC.
By: /s/ EDWIN P. LOCHRIDGE
-------------------------------------------
Edwin P. Lochridge, President
/s/ EDWIN P. LOCHRIDGE
- ----------------------------------------------
Edwin P. Lochridge, in his individual capacity
<PAGE> 1
EXHIBIT 10(v)
EXECUTIVE EMPLOYMENT AGREEMENT
(Gerald McMillan)
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated as of October
1, 1996, is made and entered into by and between ErgoBilt, Inc., a Texas
corporation ("Company"), and Gerald McMillan ("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 ("Surviving Subsidiary"), have entered into that certain
Agreement and Plan of Merger dated as of August 19, 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, Executive is presently serving as Chairman of the Board of
Directors of Company; and
WHEREAS, Company has determined that it is in the best interests of
Company and its shareholders that it employ Executive under a written contract
on a full-time basis as Chairman of the Board of Directors and Executive is
willing to serve in such capacity on the terms and conditions set forth in this
Agreement.
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 as of the date set forth
above (the "Commencement Date"), Company shall be deemed to have employed
Executive as the Chairman of the Board of Directors ("COB") of Company.
Executive shall also continue to serve as a member of the Board of Directors of
Company ("Company's Board") and a member of Subsidiary's Board of Directors and
such other boards of directors of companies acquired by Company from time to
<PAGE> 2
time. Executive's employment shall be on the terms of and subject to the
conditions of this 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. As COB, Executive shall
have the responsibilities assigned to him under the Bylaws of Company as now or
hereinafter in effect. Such responsibilities shall include: (i) presiding
over the meetings of the Board and the shareholders of Company; and (ii)
serving on such committees established by the Board as directed by the Board.
Executive shall perform all duties incident to the offices of COB and shall see
that all orders and resolutions of the Board are carried into effect.
Executive shall use best efforts to: (i) act in a manner consistent with the
direction of the Board that will maximize the value of the outstanding stock of
Company; (ii) assist as necessary to develop and implement, execute and carry
out business plans as and when approved by the Board; (iii) promote nationally
and internationally the business of Company; (iv) identify and pursue new
business opportunities compatible with and complementary to the businesses of
Company; and (v) such other duties and responsibilities necessary to integrate
and coordinate the activities of Company into an overall investment and
management philosophy.
1.3 Office Facilities. Company shall furnish Executive with an
office, secretary, 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.
1.4.1 Full-Time. 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.
1.4.2 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.
1.5 Outside Board Activities. Subject to the conditions hereinafter
set forth, 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.
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1.6 Outside Income. 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.
1.7 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.
ARTICLE II
Term
Executive's employment shall be for an initial term ("Term") commencing
as of 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. 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 Dollar ($1.00) for each twelve (12)
month period of the Term. Annual Base Salary shall be paid in annual payments,
commencing upon the Commencement Date and continuing every twelve (12) month
period thereafter. Annual Base Salary shall not be prorated for any period
less than twelve (12) months, but shall be paid in full for such lesser period.
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
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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.
3.3 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
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various provisions of the Employee Retirement Income Security Act
("ERISA"), as amended from time to time.
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 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 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 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;
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(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 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
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 4.2, 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
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
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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 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 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 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
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.
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(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 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 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); and
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(viii) knowingly, wilfully and wrongfully engaged in any
unprofessional conduct unbecoming a senior executive of Company
or comparable businesses after written notice of such conduct and
Executive's subsequent failure to cease and desist.
5.3 Effect on Compensation and Benefits. In the event of the
termination of Executive's employment by Company under Paragraph 5.2 above,
Executive shall be entitled to receive only any unpaid amounts awarded to
Executive under an 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, 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 5.2 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.
5.4 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 Agreement and his employment hereunder 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 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 Agreement shall terminate on the
date specified in Executive's original note (also "Termination Date").
5.5 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 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 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.
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5.7 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:
Gerald McMillan
6331 Pineview
Dallas, Texas 75248
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 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 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
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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'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.
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.
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.
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IN WITNESS HEREOF, the parties have duly executed this Agreement as of
the date first above written.
COMPANY:
ERGOBILT, INC.,
A Texas Corporation
By: /s/ GERARD SMITH
------------------------------
Gerard Smith
Its: President
EXECUTIVE:
/s/ GERALD McMILLAN
---------------------------------
GERALD MCMILLAN
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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, 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
<PAGE> 14
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 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
2
<PAGE> 15
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/ GERALD McMILLAN
--------------------------- ----------------------------------
Signature By: /s/ GERARD SMITH
-------------------------------
Printed Name: Gerard Smith
---------------------
Its: President & CEO
------------------------------
3
<PAGE> 16
BodyBilt Seating, Inc.,
A Texas Corporation
(formerly, EB Subsidiary, Inc.)
By: /s/ GERARD SMITH
---------------------------------
Printed Name: Gerard Smith
-----------------------
Its: President & CEO
--------------------------------
4
<PAGE> 1
EXHIBIT 16
December 9, 1996
Securities and Exchange Commission
Washington, D.C.
Gentlemen:
We were previously principal accountants for Bodybilt Seating, Inc. and, under
the date of June 22, 1996, we reported on the financial statements of Bodybilt
Seating, Inc. as of and for the years ended December 31, 1994 and 1993. On
February 28, 1996, our appointments as principal accountants was terminated. We
have read ErgoBilt, Inc.'s statements included under the heading "Experts" in
the registration statement on Form S-1 and prospectus of ErgoBilt, Inc., and we
agree with such statements.
Very truly yours,
/s/ THOMPSON, DERRIG & SLOVACEK, P.C.
THOMPSON, DERRIG & SLOVACEK, P.C.
<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
Houston, Texas
January 9, 1997
<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 1,500,000 shares of common stock.
Thompson, Derrig & Slovacek PC
Bryan, Texas
January 9, 1997
<PAGE> 1
EXHIBIT 99(f)
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: January 8, 1997 Signature: /s/ MARK MCMILLAN
---------------------------
Printed Name: Mark McMillan
------------------------
