<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ERGOBILT INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ERGOBILT, INC.
9244 MARKVILLE DRIVE
DALLAS, TEXAS 75243-4404
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Annual Meeting") of ErgoBilt, Inc. ("ErgoBilt" or the "Company") which will be
held on Friday, December 19, 1997, at 10:00 a.m., local time, at the Company's
principal executive offices in Dallas, Texas.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) the election of eight directors of the Company, (ii)
the approval of the amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
from 400,000 to 1,000,000, and (iii) the ratification of KPMG Peat Marwick LLP
as independent auditors of the Company for the year ended December 31, 1997.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has approved
the proposals and recommends that you vote IN FAVOR OF each such proposal.
After reading the Proxy Statement, please mark, date, sign and return, as
soon as possible, the enclosed proxy card in the accompanying reply envelope. If
you decide to attend the Annual Meeting, please notify the Secretary of the
Company that you wish to vote in person and your proxy will not be voted. YOUR
SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, OR
ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the ErgoBilt, Inc. 1996 Annual Report on Form 10-K is also
enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
GERARD SMITH
President and Chief Executive
Officer
Dallas, Texas
December 1, 1997
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT, IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
<PAGE> 3
ERGOBILT, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 1997
------------------------------------------------------
The Annual Meeting of Shareholders (the "Annual Meeting") of ErgoBilt, Inc.
("ErgoBilt" or the "Company") will be held at the Company's principal executive
offices at 9244 Markville Drive, Dallas, Texas 75243-4404, on Friday, December
19, 1997, at 10:00 a.m. At the meeting, shareholders will consider and vote upon
the following proposals:
1. To elect eight (8) directors to hold office until the next Annual
Meeting of Shareholders and until their respective successors are duly
elected and qualified. The nominees are Gerald McMillan, Gerard Smith,
William Brown Glenn, Jr., Drew Congleton, Laurence D. King, Mark McMillan,
W. Barton Munro and William Weed.
2. To approve an amendment to the Company's 1996 Stock Option Plan
(the "1996 Plan") to increase the number of shares of Common Stock reserved
for issuance thereunder from 400,000 to 1,000,000.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending December 31, 1997.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for determining those shareholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournment thereof is October 31,
1997. Accordingly, only shareholders of record at the close of business on that
day will be entitled to vote at the meeting, notwithstanding any transfer of
shares on the books of the Company after that date.
A Proxy Statement which contains information with respect to the matters to
be voted upon at the meeting and a Proxy Card and return envelope are furnished
herewith. Management urges each shareholder to carefully read the Proxy
Statement. If you cannot be present personally at the meeting, you are requested
to complete and sign the Proxy Card and return it promptly in the envelope
enclosed for that purpose.
By Order of the Board of Directors,
WILLIAM BROWN GLENN, JR.
Secretary
Dallas, Texas
December 1, 1997
IT IS DESIRABLE THAT AS MANY OF THE SHAREHOLDERS AS POSSIBLE BE REPRESENTED AT
THE MEETING IN PERSON OR BY PROXY. YOU ARE CORDIALLY INVITED TO ATTEND IN
PERSON. IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING, OR ARE NOT SURE WHETHER
YOU WILL BE, YOU ARE REQUESTED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY SO
THAT YOUR SHARES WILL BE REPRESENTED. SIGNING A PROXY AT THIS TIME WILL NOT
AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE
MEETING.
<PAGE> 4
ERGOBILT, INC.
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of ErgoBilt, Inc., a Texas
corporation, with principal executive offices at 9244 Markville Drive, Dallas,
Texas 75243-4404 ("ErgoBilt" or the "Company"), to be voted upon at the Annual
Meeting of Shareholders on Friday, December 19, 1997 (the "Annual Meeting") and
at any adjournment or adjournments thereof.
It is anticipated that these proxy materials will be mailed to shareholders
on or about December 1, 1997. The Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1996 will also be mailed to all shareholders
entitled to notice of and to vote at the Annual Meeting. The Annual Report is
not incorporated into this Proxy Statement and is not considered proxy
soliciting material.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy Statement.
PROXY/VOTING INSTRUCTIONS AND REVOCABILITY OF PROXIES
When the proxy in the enclosed form is returned, properly executed, the
shares represented thereby will be voted at the meeting in accordance with the
instructions given by the shareholder. If no instructions are given, the
returned proxy will be voted in favor of the election of the nominees named
herein as directors and in favor of each of the other proposals. Any shareholder
giving a proxy pursuant to this solicitation may revoke it at any time prior to
exercise of such proxy by providing written notice of such revocation to the
Secretary of the Company at its offices at 9244 Markville Drive, Dallas, Texas
75243-4404, or by providing a duly executed proxy bearing a later date, or by
attending the meeting and voting in person.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record at the close of business on October 31, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the close of business on the Record Date, the Company had approximately
6,156,000 shares of Common Stock outstanding and entitled to vote and
approximately 37 shareholders of record. Each holder of Common Stock is entitled
to one vote for each share held as of the Record Date.
VOTING AND SOLICITATION
Every shareholder of record on the Record Date is entitled, for each share
held, to one vote on each proposal or item that comes before the meeting. Each
shareholder will be entitled to vote for eight nominees in the election of
directors, and the eight nominees with the greatest number of votes will be
elected. There are no cumulative voting rights.
The cost of this solicitation will be borne by the Company. The Company may
reimburse expenses incurred by brokerage firms and other persons representing
beneficial owners of shares in forwarding soliciting materials to beneficial
owners. Proxies may be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally, by
telephone, by facsimile or by telegram. These persons will receive no extra
compensation for their services.
<PAGE> 5
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST," or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in Texas as to
the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of the quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against a proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 1998 Annual Meeting must be received by
the Company, addressed to Secretary, ErgoBilt, Inc., 9244 Markville Drive,
Dallas, Texas 75243-4404, no later than January 15, 1998 for inclusion in the
proxy statement and form of proxy relating to that meeting. Such proposals must
comply with the Bylaws of the Company and the requirements of Regulation 14A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
With respect to business to be brought before the Annual Meeting to be held
on December 19, 1997, the Company has not received any notices from shareholders
that the Company is required to include in this Proxy Statement.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, eight (8) directors will be elected by the
shareholders to serve until the next Annual Meeting and until their successors
are elected and qualified, or until their death, resignation or removal. THE
BOARD OF DIRECTORS WILL VOTE ALL PROXIES RECEIVED BY THEM IN FAVOR OF THE EIGHT
(8) NOMINEES LISTED BELOW UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH PROXY.
In the event any nominee is unable to or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for an additional nominee
who will be designated by the current Board of Directors to fill the vacancy. As
of the date of this Proxy Statement, the Board of Directors is not aware of any
nominee who is unable or will decline to serve as director.
The eight nominees receiving the highest number of votes in person or by
proxy at the Annual Meeting will be elected as directors. Certain shareholders
of the Company, including Gerard Smith, Gerald McMillan and certain of their
affiliates, have entered into a voting agreement (the "Voting Agreement")
pursuant to which, among other things, the parties have agreed to vote any and
all shares of voting stock of the Company held by them and their affiliates
(collectively, the "Voting Shares") to elect Gerald McMillan, Gerard Smith, Drew
Congleton and William Brown Glenn, Jr. (the nominee of Dr. Richard Troutman)
members of the Board of Directors at each of the Company's 1997, 1998 and 1999
Annual Meetings of Shareholders. 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 at the 1997 Annual Meeting of Shareholders.
Mr. Faust has declined his nomination for personal reasons. The parties to the
Voting Agreement hold in the aggregate 4,169,664 shares, representing 67.7%, of
the Company's outstanding capital stock as of the Record Date.
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INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to their principal occupation at present and
for the last five years, certain other directorships held by them, the year in
which each became a director of the Company and their ages as of October 31,
1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerald McMillan, Ph.D.(1)............ 46 Chairman of the Board and Director
Gerard Smith(1)...................... 55 President and Chief Executive Officer of the
Company and Director
William Brown Glenn, Jr.(1).......... 43 Chief Financial Officer, Secretary and
Director
Drew Congleton....................... 35 Director
Laurence D. King(2).................. 43 Director
Mark McMillan........................ 43 Director
W. Barton Munro(2)(3)................ 55 Director
William Weed(3)...................... 67 Director
</TABLE>
- ---------------
(1) Member of the Acquisition Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Gerald McMillan, Ph.D., has been Chairman of the Board of Directors of
ErgoBilt since its inception in June 1995, and was President from inception to
August 1996. He served as Director of Marketing of BodyBilt Seating, Inc., a
subsidiary of the Company acquired in February 1997 ("BodyBilt"), from January
1993 to July 1994 and served as a consultant to BodyBilt from August 1994 until
the inception of ErgoBilt. He also served as a consultant to BodyBilt during
1991 and 1992. Dr. McMillan taught economics at the University of Dallas
Graduate School of Management. He holds a Ph.D., an M.S. and a B.S. in economics
from Texas A&M University. Dr. McMillan is the brother of Mark McMillan, a
consultant, director and a shareholder of the Company.
Gerard Smith has served as President and Chief Executive Office of the
Company and a director of ErgoBilt since August 1996. In August 1994, Mr. Smith
formed Smith & Associates, a marketing consulting firm, where he served as
President until August 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 B.A. in psychology from Seton Hall
University.
William Brown Glenn, Jr. has served as a director of the Company since
February 1997 and as Chief Financial Officer since August 1997. Mr. Glenn is
principally engaged in private investments. Since 1994, Mr. Glenn has been the
Chief Executive Officer 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. Mr.
Glenn also has held capital markets and corporate finance positions with Merrill
Lynch and Smith Barney, Harris Upham, Co. He holds a B.A. in Business
Administration from the University of North Carolina.
Drew Congleton has served as a director of the Company since February 1997.
From February 1997 until August 1997, Mr. Congleton also served as Executive
Vice President of the Company and as National Sales Director of BodyBilt and is
currently a consultant to BodyBilt. Prior to that, he served as BodyBilt's Vice
President since 1994 and as its National Sales Manager and Director of Research
and Development since 1988. Mr. Congleton is a member of the Human Factors and
Cooperative Research Center for Ergonomics at Texas A&M University. Mr.
Congleton holds a B.S. in Organizational Communication from the University of
Texas.
3
<PAGE> 7
Laurence D. King has not previously served on the Board of Directors of the
Company, and is currently a shareholder and managing director of King Griffin &
Adamson P.C., a public accounting firm that he founded in 1982. Mr. King is a
certified public accountant and a certified fraud examiner. Mr. King obtained a
B.S. in Accounting and Quantitative Methods from Babson College.
Mark McMillan became a director and a consultant of the Company in February
1997. Mr. McMillan has served as President of BodyBilt since July 1997, was a
consultant to BodyBilt from February 1997 to July 1997, and served as President
of BodyBilt from 1988 to February 1997. He holds a B.A. in Agricultural
Economics from Texas A&M University. Mr. McMillan is the brother of Dr. Gerald
McMillan, Chairman of the Board, and a shareholder of the Company.
W. Barton Munro became a director of the Company in February 1997. 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 Diary 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 B.B.A. and a J.D. from Southern Methodist University.
William Weed became a director of the Company in February 1997. 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 B.S. from
Carleton College and an M.B.A. from Harvard University.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The eight (8) nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum, but have no other legal effect under Texas law. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH NAMED NOMINEE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of two meetings and acted by written
consent five times during the year ended December 31, 1996. The Company has an
Audit Committee, a Compensation Committee and an Acquisition Committee of the
Board of Directors, each of which was formed in late 1996. Each incumbent
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and of the Committees on which such directors served and that were
held during the period that such individual was a member of the Board of
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. This Committee currently consists of
Messrs. W. Barton Munro and Robert Faust. The Board intends to appoint Laurence
D. King to the Audit Committee. The Audit Committee did not hold meetings during
the year ended December 31, 1996.
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
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Board of Directors and serve at the discretion of the Board until their
successors are appointed or their earlier resignation or removal. This Committee
currently consists of Messrs. W. Barton Munro and William Weed. The Compensation
Committee did not hold meetings during the year ended December 31, 1996.
The Acquisition Committee's function is to evaluate potential acquisitions
for the Company and make recommendations to the Board of Directors. Members of
the Acquisition 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. This Committee currently consists of Dr.
Gerald McMillan and Messrs. William Brown Glenn, Gerard Smith and Drew
Congleton. The Acquisition Committee did not hold meetings during the year ended
December 31, 1996.
REMUNERATION
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. In
addition, under the Company's stock option plan, nonemployee directors 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.
PROPOSAL NO. 2
APPROVAL OF 600,000 SHARE INCREASE TO 1996 STOCK OPTION PLAN
GENERAL
In November 1996, the Company's Board of Directors and shareholders adopted
and approved the 1996 Stock Option Plan. The 1996 Plan originally provided for
the issuance of 400,000 shares of Common Stock of the Company. For a detailed
description of the 1996 Plan, see "Summary of the 1996 Plan."
PROPOSAL
In October 1997, the Board of Directors approved an amendment to the 1996
Plan to, among other things, increase the number of shares reserved for issuance
thereunder by 600,000 shares (the "Increase"), for a total number of shares
authorized for issuance under the 1996 Plan of 1,000,000 shares. The Increase is
necessary in order to provide an effective method of recognizing employee
contributions to the success of the Company. The Company also believes that its
ability to grant stock options is critical to its success in attracting and
retaining experienced and qualified employees. At the Annual Meeting, the
shareholders are being requested to approve the Increase.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast will be required to
approve the Increase. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THIS PROPOSAL.
SUMMARY OF THE 1996 PLAN
The essential features of the 1996 Plan are outlined below.
Purpose. The purposes of the 1996 Plan are to provide additional incentives
to those officers, key employees, nonemployee directors and consultants of the
Company and its subsidiaries 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.
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<PAGE> 9
Administration. The 1996 Plan provides for administration by the
Compensation Committee of the Board, which shall consist of two or more "outside
directors." Subject to the other provisions of the 1996 Plan, the administrator
has the authority to determine the employees, nonemployee directors or
consultants to whom, and the time or times at which, options are granted, the
number of shares to be represented by each option and the other terms and
conditions of such option. The interpretation and construction of any provision
of the 1996 Plan by the administrator shall be final and binding.
Eligibility. The 1996 Plan provides that nonstatutory stock options may be
granted to employees, including officers, nonemployee directors and consultants
of the Company or any subsidiary of the Company. Incentive stock options may be
granted only to employees, including officers and directors who are employees,
of the Company or any subsidiary of the Company.
Stock Options. The 1996 Plan permits the granting of stock options that
either qualify as incentive stock options ("Incentive Stock Options" or "ISOs")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or do not so qualify ("Nonstatutory Stock Options" or "NSOs").
The term of each option is fixed by the administrator but may not exceed
ten years from the date of grant in the case of ISOs or five years from the date
of grant in the case of ISOs granted to the holder of Common Stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or any subsidiary (a "10% Shareholder"). When the fair market value of
shares subject to ISOs first exercisable in one calendar year is greater than
$100,000, the excess options shall be treated as NSOs. For these purposes, fair
market value is determined on the date of grant, and ISOs shall be taken into
account in the order in which they were granted. The administrator determines
the time or times each option may be exercised. Options may be made exercisable
in installments, and the exercisability of options may be accelerated by the
administrator. The Company reserves the right under the 1996 Plan to pay an
optionee the net cash value (the fair market value less the exercise price) of
the stock subject to an option at the time the Company receives a notice of
exercise of the option from the optionee.
Automatic Grant of Director Options. Each director who is neither an
employee, consultant or principal shareholder of the Company shall receive
annually NSOs 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 Shareholders. The option price of each such option
shall be the fair market value as of the date of grant and each option shall be
immediately vested and shall have a term of five years.
Option Price. The option exercise price for each share covered by an ISO
may not be less than 100% of the fair market value of a share of Common Stock on
the date of grant of such option. In the case of ISOs granted to a 10%
Shareholder, the option exercise price for each share covered by such option may
not be less than 110% of the fair market value of a share of Common Stock on the
date of grant of such option. In the case of an NSO, the per share exercise
price shall be determined by the administrator. For so long as the Company's
Common Stock is traded on the Nasdaq National Market, the fair market value of a
share of Common Stock shall be the last sales price for such stock (or the
closing bid if no sales were reported) as quoted on such system on the date of
grant.
Consideration. The consideration to be paid for shares issued upon exercise
of options granted under the 1996 Plan, including the method of payment, is
determined by the administrator (and, in the case of ISOs, determined at the
time of grant) and may consist entirely of (1) cash, (2) check, (3) shares of
Common Stock which, in the case of shares acquired upon exercise of an option,
have been beneficially owned for at least six months or which were not acquired
directly or indirectly from the Company, with a fair market value on the
exercise date equal to the aggregate exercise price of the shares being
purchased, or (4) any combination of the foregoing methods.
Miscellaneous Provisions. Under the 1996 Plan, in the event of an
optionee's termination of employment or consulting relationship for any reason
other than death or total and permanent disability, an option shall terminate
immediately. If an optionee retires in good standing for reasons of age (but not
due to a total and permanent disability), the option will be exercisable for
three months following such retirement, but only to the extent it was
exercisable at the date of such retirement and to the extent that the term of
the option has not
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<PAGE> 10
expired. If an optionee's employment or consulting relationship is terminated as
a result of the optionee's total and permanent disability, the option will be
exercisable for twelve months following such termination, but only to the extent
it was exercisable at the date of termination and to the extent that the term of
the option has not expired. If an optionee's employment or consulting
relationship is terminated by reason of the optionee's death, the option will be
exercisable by the optionee's estate or successor for twelve months following
death, but only to the extent it was exercisable at the date of death and to the
extent that the term of the option has not expired.
All options granted under the 1996 Plan are evidenced by a stock option
agreement between the Company and the optionee to whom such option is granted.
Options granted to persons who are subject to Section 16 of the Exchange Act are
subject to any additional restrictions applicable to options granted to such
persons in compliance with Rule 16b-3 of the Exchange Act.
Nontransferability of Options. Options granted pursuant to the 1996 Plan
are nontransferable by the optionee, other than by will or by the laws of
descent and distribution, and may be exercised, during the lifetime of the
optionee, only by the optionee.
Adjustment Upon Changes in Capitalization. In the event any change, such as
a stock split or dividend, is made in the Company's capitalization which results
in an increase or decrease in the number of outstanding shares of Common Stock
without receipt of consideration by the Company, an appropriate adjustment shall
be made in the number of shares which have been reserved for issuance under the
1996 Plan and the price per share covered by each outstanding option.
Change of Control. In the event of a Change in Control (as defined in the
1996 Plan), (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 any 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 NSOs, 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 (as determined pursuant to the 1996 Plan) of the shares subject to
the option or portion thereof surrendered or (B) in the case of an ISO, 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 of 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 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.
Liquidation, Dissolution, Merger or Consolidation. Subject to the
provisions regarding a Change of Control, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company (a
"Transaction"), all outstanding options 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.
Amendment and Termination. The Board may at any time amend, alter, suspend
or terminate the 1996 Plan, but such amendment, alteration, suspension or
termination shall not adversely affect any stock option then outstanding under
the 1996 Plan, without the written consent of the optionee. To the extent
necessary and desirable to comply with applicable state and federal laws and the
Code, the Company shall obtain shareholder approval of any amendment to the 1996
Plan in such a manner and to such a degree as required.
OUTSTANDING OPTIONS
As of the Record Date, outstanding and unexercised options under the 1996
Plan totaled 518,550 shares of Common Stock, no shares of Common Stock had been
issued upon exercise of stock options, and 418,450
7
<PAGE> 11
shares remained available for grant (giving effect to the Increase being
presented to the shareholders pursuant to this Proposal No. Two for approval at
the Annual Meeting).
TAX INFORMATION
Options granted under the 1996 Plan may be either Incentive Stock Options
or Nonstatutory Stock Options.
An optionee who is granted an Incentive Stock Option will not recognize
income either at the time the option is granted or upon its exercise, although
the exercise may subject the optionee to the alternative minimum tax. Upon a
sale or exchange of the shares more than two years after the grant of the option
and one year after its exercise, any gain or loss will be treated as long-term
capital gain or loss. If these holding periods are not satisfied, the optionee
will recognize ordinary income at the time of the sale or exchange equal to the
difference between the exercise price and the lower of (i) the fair market value
of the shares on the date of exercise or (ii) the sale price of the shares. A
different rule of measuring ordinary income upon such a premature disposition
may apply if the optionee is also an officer, director, or 10% Shareholder of
the Company.
Any gain or loss recognized on such a premature disposition of the shares
in excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
Generally, the Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee at the time of such disposition.
Options that do not qualify as Incentive Stock Options are referred to as
Nonstatutory Stock Options. An optionee will not recognize income at the time a
Nonstatutory Stock Option is granted. However, upon its exercise, the optionee
will recognize ordinary income generally measured as the excess of the then fair
market value of the shares over the exercise price. Any ordinary income
recognized in connection with the exercise of a Nonstatutory Stock Option by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. Generally, the Company will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee
upon exercise of a Nonstatutory Stock Option.
Upon resale of the shares by the optionee, any difference between the sale
price and the optionee's purchase price, to the extent not recognized as
ordinary income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE OPTIONEE AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF
OPTIONS UNDER THE 1996 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND IT DOES NOT
DISCUSS THE TAX CONSEQUENCES OF THE OPTIONEE'S DEATH OR THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE OPTIONEE MAY RESIDE.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP served as independent auditors for the
Company for the year ended December 31, 1996. The Board of Directors has
selected that firm to continue in this capacity for the current fiscal year. The
Company is asking the shareholders to ratify the selection by the Board of
Directors of KPMG Peat Marwick LLP, as independent auditors, to audit the
accounts and records of the Company for the year ending December 31, 1997, and
to perform other appropriate services. A representative of KPMG Peat Marwick LLP
is expected to be present at the Annual Meeting to respond to shareholders'
questions, and if he or she so desires, will be given an opportunity to make a
brief statement.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF
THE SELECTION OF KPMG PEAT MARWICK LLP. The affirmative vote of a majority of
the Votes Cast will be required to ratify the selection of KPMG Peat Marwick
LLP. In the event that a majority of the Votes Cast does not vote for the
ratification,
8
<PAGE> 12
the Board of Directors will reconsider such selection. Under all circumstances,
the Board of Directors retains the corporate authority to change its independent
auditors at a later date.
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 31, 1997,
with respect to the beneficial ownership of Common Stock by each nominee for
director, each executive officer included in the Summary Compensation Table, the
directors and executive officers as a group and each shareholder known to
management to own beneficially more than 5% of the Common Stock. Unless
otherwise noted, and except as set forth in the Voting Agreement, the persons
listed below have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED
NAME AND ADDRESS OF ----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
------------------- --------- -------
<S> <C> <C>
Gerald McMillan (2)(4)...................................... 2,554,794 41.5%
Gerard Smith (3)(4)......................................... 664,869 10.8%
Drew Congleton (5).......................................... 371,429 6.0%
Mark McMillan (6)........................................... 289,286 4.7%
William Brown Glenn, Jr. (7)................................ 8,360 *
W. Barton Munro (7)......................................... 3,000 *
William Weed (7)............................................ 2,000 *
Laurence D. King(8)......................................... 5,541 *%
All directors and executive officers as a group (8
persons)(9)............................................... 3,899,279 63.3%
</TABLE>
- ---------------
* Less than 1%
(1) The address for Gerald McMillan and Gerard Smith is 9244 Markville Drive,
Dallas, Texas 75243-4404. The address for Drew Congleton is 216 Sarasota
Circle South, Montgomery, Texas 77356.
(2) Includes 290,880 shares of Common Stock held by a trust for the benefit of
Gerald McMillan's three minor children, as to which Gerald McMillan
disclaims beneficial ownership.
(3) Includes 24,933 shares of Common Stock held by the Ashleigh Lynch Smith
1996 Irrevocable Trust for which Mr. Smith is trustee and 24,933 shares of
Common Stock 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.
(4) The Employment Agreement between the Company, Mr. Smith and Gerald McMillan
dated October 15, 1996 (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.
(5) Represents shares held by The Congleton Family Limited Partnership, of
which Mr. Congleton is a general partner.
(6) All of the shares of Common Stock are held of record by Carter Creek
Investments, Ltd., a Texas limited partnership, the general partner of
which is River Forest Investments, Inc., a Texas corporation wholly-owned
by Mark McMillan.
(7) Includes 2,000 shares issuable upon exercise of vested options or options
that vest within 60 days of the Record Date.
(8) All of the shares shown as beneficially owned by Mr. King are held of
record by KGA Consulting L.L.C., a limited liability company of which Mr.
King is a member.
(9) Includes 6,000 shares issuable upon exercise of vested options or options
that vest within 60 days of the Record Date.
9
<PAGE> 13
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information regarding the executive officers of the
Company, and their respective ages and positions as of October 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerald McMillan, Ph.D.................. 46 Chairman of the Board
Gerard Smith........................... 55 President and Chief Executive Officer of the
Company
William Brown Glenn, Jr................ 43 Chief Financial Officer and Secretary
</TABLE>
Gerald McMillan, Ph.D., has been Chairman of the Board of Directors of
ErgoBilt since its inception in June 1995, and was President from inception to
August 1996. He served as Director of Marketing of BodyBilt from January 1993 to
July 1994 and served as a consultant to BodyBilt from August 1994 until the
inception of ErgoBilt. He also served as a consultant to BodyBilt during 1991
and 1992. Dr. McMillan taught economics at the University of Dallas Graduate
School of Management. He holds a Ph.D., an M.S. and a B.S. in economics from
Texas A&M University. Dr. McMillan is the brother of Mark McMillan, a
consultant, director and a principal shareholder of the Company.
Gerard Smith has served as President and Chief Executive Officer of the
Company and a director of ErgoBilt since August 1996. In August 1994, Mr. Smith
formed Smith & Associates, a marketing consulting firm, where he served as
President from 1994 to 1996. He also served as Chief Executive Officer of WTA
TOUR Players Association, the organization responsible for managing the
worldwide women's professional tennis tour, from 1989 to 1994. Mr. Smith
previously served as Publisher and Vice Chairman of Newsweek from 1984 to 1989.
Mr. Smith was Managing Director of the Los Angeles office of Ogilvy & Mather
Advertising from 1978 to 1984. He holds a B.A. in psychology from Seton Hall
University.
William Brown Glenn, Jr. has served as a director of the Company since
February 1997 and as Chief Financial Officer since August 1997. Mr. Glenn is
principally engaged in private investments. Since 1994, Mr. Glenn has been the
Chief Executive Officer 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. Mr.
Glenn also has held capital markets and corporate finance positions with Merrill
Lynch and Smith Barney, Harris Upham, Co. He holds a B.A. in Business
Administration from the University of North Carolina.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors was established at the
end of 1996 and did not meet during fiscal 1996. Prior to 1997, the compensation
of the officers of the Company was determined by the Board. The primary
components of the Company's compensation package are salary, bonuses and, since
February 1997, stock options. No stock options were granted in 1996.
SALARY
The base salary for each executive officer is based upon his or her scope
of responsibility, level of experience and individual performance. The salary
range for each position is reviewed in light of current market conditions for
like-situated executives and general business and economic conditions in the
Dallas and Austin, Texas areas. None of the factors considered by the Company
are assigned a specific weight. The Company believes that its salaries are
competitive with the marketplace.
10
<PAGE> 14
BONUSES
The Company pays bonuses to its executive officers based on the
accomplishment of specific individual performance objectives by the executive
officers. In 1996, the Board reviewed the performance of each executive officer
at the end of the year to determine the level of bonus to be paid, if any, to
each executive officer. No bonuses were paid to the executive officers of the
Company in 1996.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Gerard Smith has been President and Chief Executive Officer since August
1996. At such time, he entered into an employment agreement with the Company,
pursuant to which he is entitled to an annual base salary of $125,000 and is
eligible to participate in all of the Company's incentive plans, including the
1996 Plan. Mr. Smith received $100,000 in compensation in 1996, of which $77,500
related to a consulting agreement between Mr. Smith and the Company that expired
upon the Company's initial public offering in February 1997.
Compensation Committee
W. Barton Munro
William Weed
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, which might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report is not to be incorporated
by reference into any of those previous filings; nor is such report to be
incorporated by reference into any future filings which the Company may make
under those statutes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Mr. Munro and Mr. Weed.
Neither Mr. Munro nor Mr. Weed was at any time during the year ended December
31, 1996 or at any other time an officer or employee of the Company. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company to
certain of its executive officers for services rendered to the Company in all
capacities during each of the last two fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY($) BONUS($) COMPENSATION(1)
------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Gerald McMillan................................ 1995 72,377 -- --
Chairman of the Board 1996 86,852 -- --
Gerard Smith................................... 1996 100,000(2) -- --
President and Chief Executive Officer
and Director
</TABLE>
- ---------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and bonuses. The aggregate amount of such personal
benefits, however, does not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for any of the named executive officers.
11
<PAGE> 15
(2) Includes $77,500 for services rendered pursuant to a consulting services
agreement entered into with the Company in July of 1996. This agreement
terminated in February 1997 upon the closing of the Company's initial public
offering of common stock.
Companies owned by Gerald McMillan received payments from BodyBilt during
1996. See "Certain Relationships and Related Transactions."
OPTION GRANTS
No options were granted to any of the Company's executive officers during
the year ended December 31, 1996, nor were there any options outstanding as of
December 31, 1996.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Gerald McMillan. The Company entered into an Executive Employment Agreement
with Gerald McMillan dated October 1, 1996 (the "McMillan Employment
Agreement"), pursuant to which Dr. McMillan agreed to serve as Chairman of the
Board of Directors of the Company for a term commencing as of October 1, 1996,
and continuing for three years from February 5, 1997. Prior to 1998, Dr.
McMillan received $1 of annual compensation under this agreement. In 1996, Dr.
McMillan also received no bonuses or stock options. Beginning in 1998, Dr.
McMillan is eligible to receive an annual base salary of $150,000, to
participate in all Company bonus/incentive programs and stock option plans and
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 entered into the Smith Employment Agreement with
Gerard Smith, pursuant to which Mr. Smith agreed to serve as a director and
President and Chief Executive Officer of the Company, for a term commencing as
of August 15, 1996, and continuing for three years after January 31, 1997. Mr.
Smith is entitled to receive an annual base salary of $125,000 and is 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
$5,000,000. 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 $5,000,000 plus
50% of the appreciated value of the shares over the price to the public of such
shares in the Company's initial public offering ($7.00). 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, payments of $309,510 were made by BodyBilt to companies owned
by Dr. Gerald McMillan, the Chairman of the Board and a principal shareholder of
the Company, including the Company, for promotional literature and marketing
development. Additionally, in 1996, goods and services were sold by BodyBilt to
ErgoBilt for $76,555 in cash and services.
Payment in February 1997 for $229,350 from the net proceeds of the
Company's initial public offering was used to pay certain obligations to
Agrivest, Inc., a corporation owned by Mark McMillan ("Agrivest"), for
consulting services related to the merger of BodyBilt with the Company. During
1996, BodyBilt also paid Agrivest $103,300 for management services and $5,000
for equipment rental. Additionally, BodyBilt purchased vehicles from Agrivest
for $6,133 in 1996.
12
<PAGE> 16
In January 1996, BodyBilt entered into a revised Business Management
Contract with Agrivest, pursuant to which Agrivest provided accounting and other
administrative services. Agrivest received $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 year ended December 31, 1996,
BodyBilt paid Agrivest an aggregate of $60,000 pursuant to this contract. This
contract was terminated in February of 1997.
During 1996, BodyBilt purchased $47,901 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 were
guaranteed by Mark McMillan. The total amount of these loans was approximately
$2.0 million at December 31, 1996. All amounts owed to The First National Bank
of Bryan were paid in 1997 and Mr. McMillan's guarantee was released. Mr.
McMillan also guaranteed the Company's obligations to Leggett & Platt, Inc.
In February 1997, the Company purchased 17,857 shares of common stock from
Mark McMillan at a purchase price of $6.30 per share, which the Company
delivered to the holder of the convertible note upon conversion.
In October 1996, the Company entered into a Consulting Services Agreement
with Mark McMillan, who became a director and a principal shareholder of the
Company, for a two-year term commencing in February 1997. Mr. McMillan will
serve as a consultant to the Company with respect to the Company's operations,
particularly during the transition period. Mr. McMillan was 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.
In connection with the execution and delivery of a consulting agreement
between Mr. Smith and the Company, Gerald McMillan, Chairman of the Board of
Directors of the Company, sold and transferred 664,868 shares of Common Stock to
Mr. Smith in exchange for $31,040 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 was secured by a pledge of the transferred
shares. This debt has been paid. The Smith Employment Agreement gives Dr.
McMillan and/or the Company the right to purchase varying amounts of such shares
upon the termination of Mr. Smith's employment with the Company, based upon his
length of service.
In 1996 and 1997, King Griffin and Adamson P.C., a firm in which Laurence
King is a shareholder, performed accounting and financial accounting services
for the Company. The Company paid such firm $65,415 and $40,832 in fees for 1996
and 1997, respectively.
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.
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, 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.
13
<PAGE> 17
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting other than the matters set forth in
this Proxy Statement. Should any other matter requiring a vote of the
shareholders arise, it is intended that the persons named as proxy holders on
the enclosed proxy card will vote the shares represented thereby in accordance
with their best judgment in the interest of the Company. Discretionary authority
with respect to such other matters is granted by the execution of the enclosed
proxy.
By Order of the Board of Directors
WILLIAM BROWN GLENN, JR.
Secretary
14
<PAGE> 18
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ERGOBILT, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ErgoBilt, Inc., a Texas corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated December 1, 1997, and hereby appoints Gerard Smith
and William Brown Glenn, Jr., and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Shareholders of ErgoBilt, Inc. to be held on December 19, 1997 at 10:00 a.m.,
at the offices of ErgoBilt, Inc. at 9244 Markville Drive, Dallas, Texas
75243-4404 and at any adjournments thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NAMED HEREIN, "FOR" EACH PROPOSAL
LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME
BEFORE THE MEETING. EITHER OF SUCH ATTORNEYS OR SUBSTITUTES SHALL HAVE AND MAY
EXERCISE ALL OF THE POWERS OF SAID ATTORNEYS-IN-FACT HEREUNDER.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 19
Please mark
your votes as [X]
indicated in
this example
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: NOMINEES: Gerald McMillan, Gerard Smith, 2. Proposal to amend the 1996 Stock Option
William Brown Glenn, Jr., Drew Congleton, Plan to increase the authorized number
FOR all WITHHOLD Lawrence D. King, Mark McMillan, W. Barton of shares for issuance thereunder from
nominees listed AUTHORITY Munro and William Weed 400,000 to 1,000,000.
to the right to vote for all
(except as marked nominees listed -------------------------------------------- FOR AGAINST ABSTAIN
to the contrary) to the right (INSTRUCTION: To withhold authority to [ ] [ ] [ ]
[ ] [ ] vote for any individual nominee, write their
name on the space provided above.)
3. Proposal to ratify the appointment of KPMG Peat and upon such other matters which may properly come before the
Marwick LLP as the independent auditors of the Company meeting and any adjournment(s) thereof.
for the fiscal year ended December 31, 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] MARK HERE FOR ADDRESS CHANGE AND NOTE LEFT [ ]
(This Proxy should be dated, signed by the shareholder(s)
exactly as his or her name appears hereon, and returned
promptly in the enclosed envelope. Persons signing in
a fiduciary capacity should so indicate. If shares are
held by joint tenants or as community property, both
should sign.)
Dated , 1997
---------------------------------------------
--------------------------------------------------------
Signature
--------------------------------------------------------
Signature
</TABLE>
- --------------------------------------------------------------------------------
--FOLD AND DETACH HERE--
