<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-33675
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 4
TO
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
NEUTRAL POSTURE ERGONOMICS, INC.
(Name of small business issuer in its charter)
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<C> <C> <C>
TEXAS 2522 74-2563656
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
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3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803
(409) 778-0502
(Address and telephone number of principal executive offices
and principal place of business)
---------------------
REBECCA E. BOENIGK
CHIEF EXECUTIVE OFFICER
NEUTRAL POSTURE ERGONOMICS, INC.
3904 N. TEXAS AVENUE
BRYAN, TEXAS 77803
(409) 778-0502
(Name, address and telephone number of agent for service)
---------------------
Copies to:
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GREG R. SAMUEL DAVID E. MORRISON
HAYNES AND BOONE, LLP THOMPSON & KNIGHT, P.C.
901 MAIN STREET 1700 PACIFIC AVENUE
SUITE 3100 SUITE 3300
DALLAS, TEXAS 75202-3789 DALLAS, TEXAS 75201
(214) 651-5000 (214) 969-1700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
DISCLOSURE ALTERNATIVE USED (CHECK ONE): ALTERNATIVE 1 ___; ALTERNATIVE 2 X
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
1,334,000 SHARES
[NEUTRAL POSTURE ERGONOMICS, INC. LOGO]
COMMON STOCK
---------------------
Of the 1,334,000 shares of Common Stock being offered hereby, 900,000
shares of Common Stock are being offered by Neutral Posture Ergonomics, Inc.
(the "Company") and 434,000 shares of Common Stock are being offered by the
Selling Shareholders. See "Principal and Selling Shareholders" and
"Underwriting." The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Shareholders or from the sale of Common Stock
offered by certain of the Selling Shareholders in connection with any exercise
of the Underwriter's over-allotment option.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $6.00 and $6.50. For information relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting." The Common Stock has been approved for listing on the Nasdaq
Stock Market's National Market under the symbol "NTRL."
---------------------
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.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNT AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
==================================================================================================================
- ------------------------------------------------------------------------------------------------------------------
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(1) Does not reflect additional compensation to Huberman Financial, Inc. (the
"Underwriter") in the form of warrants granted to the Underwriter to
purchase 133,400 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
consummation of the offering (the "Underwriter's Warrants"). In addition,
the Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) Certain of the Selling Shareholders have granted the Underwriter a 45-day
option to purchase up to an additional 160,000 shares of Common Stock,
solely to cover over-allotments, if any. See "Underwriting." If the
Underwriter exercises this option in full, then the total Price to Public,
Underwriting Discount and Commissions, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively.
The shares of Common Stock are offered by the Underwriter subject to
receipt and acceptance by the Underwriter, and subject to its right to reject
any order in whole or in part. It is expected that certificates representing the
shares of Common Stock will be ready for delivery on or about
, 1997.
---------------------
HUBERMAN FINANCIAL, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
[Picture of a chair.]
[Picture of Astronaut.]
[Imagine Yourself in a Neutral Posture(R) Chair"]
[ERGO 2000(TM) Logo.]
[Picture of chairs.]
[Imagine emulating the body position of weightlessness in
space -- free, neutral and without stress.]
[Picture of a male and female sitting in chairs.]
[Picture of male and female sitting in the neutral posture position.]
[Picture of Earth.]
[Imagine a chair that emulates the body position of
weightlessness in space -- free, neutral and without stress.]
[NTR 2.]
[Pictures of chairs.]
[Neutral Posture Ergonomics, Inc. Logo]
[Picture of chairs.]
[Sit in First Class.]
[Neutral Posture(R) chairs accommodate the 5th percentile
female to the 95th percentile male.]
[Pictures of ComputErgo(TM) Logo]
[ComputErgo(TM) Logo]
[Picture of chair.]
[THE NPE DIFFERENCE]
[- Product designed by certified ergonomist]
[- Designs based on anthropometric data]
[- Chairs have interchangeable key components]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
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 19-for-1 stock dividend (accounted for as
a stock split) effected by the Company on August 11, 1997, (ii) assumes no
exercise of the Underwriter's over-allotment option to purchase additional
shares of stock and (iii) assumes no exercise of the Underwriter's Warrants. A
reference to a "fiscal year" by date refers to the Company's fiscal year ending
June 30 of that calendar year. "Neutral Posture(R)" and "ComputErgo(TM)" are
trademarks of the Company.
THE COMPANY
The Company manufactures, markets and distributes ergonomic chairs based
upon patented and/or patent-pending designs of Jerome Congleton, Ph.D., P.E.,
C.P.E., an ergonomist certified by the Board of Certification in Professional
Ergonomics who serves as a design consultant to, and a director of, the Company.
Based on anthropometrics, the scientific study of the measurements of size,
weight and proportions of the human body, the Company manufactures five series
of ergonomic chairs designed to minimize the physical stress imposed upon the
human body while seated. Virtually all chairs marketed under the Neutral Posture
tradename can be adjusted to accommodate the size, weight and proportions of
body types from as small as the 5th percentile female to as large as the 95th
percentile male. The Company is not aware of any other chair on the market that
(i) is designed by a certified ergonomist, (ii) is designed based on
anthropometric studies, and (iii) has interchangeable key components such as
seats, backs and arms.
The Company believes that the increase in computer users and other domestic
white collar office employees has benefitted, and the anticipated increase in
white collar office employees outside of the United States will benefit, its
ergonomic furniture business. The Company also believes that repetitive stress
injuries, which affect a number of seated workers, have created a market demand
for ergonomically designed products. According to the U.S. Bureau of Labor
Statistics, 62% of all workplace injuries in 1995 resulted from the stress of
repetitive motion on muscles and tendons. In addition, according to the National
Institute for Occupational Safety and Health, repetitive stress injuries cost
employers approximately $20 billion as a result of 2.73 million workers'
compensation claims in 1993. To address this reported problem, the Company
intends to research, create and develop additional ergonomic products consistent
with the Company's philosophy that its designs be based on ergonomic research
and anthropometric data. The Company's customers include AT&T Cellular One, Banc
One Corporation ("Banc One"), Hewlett-Packard Company ("Hewlett-Packard"),
International Business Machines Corporation ("IBM"), Intel Corporation, the
Internal Revenue Service, Lockheed Martin Corporation, Relax the Back
Franchising Company ("Relax the Back"), Sprint Corporation, the State of
Washington, Union Carbide Corporation, United Parcel Service of America, Inc.
("UPS"), the U.S. House of Representatives and U.S. Robotics Corporation.
During the first quarter of calendar year 1998, the Company anticipates
producing a portable ergonomic workstation for the transport and use of a laptop
computer, marketed under the tradename ComputErgo(TM). This patent-pending
product is being designed to help alleviate repetitive stress injuries
associated with the emergence of "alternative officing," utilizing a laptop
computer at any locale other than the traditional office.
The Company (formerly named Congleton Ergonomic Chairs, Incorporated) was
incorporated under the laws of the State of Texas in 1990. The Company's
principal executive offices are located at 3904 N. Texas Ave., Bryan, Texas
77803, and its telephone number is (409) 778-0502.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the
Company.................. 900,000 shares
Common Stock offered by the
Selling Shareholders..... 434,000 shares
Common Stock to be
outstanding after the
offering................. 3,200,000 shares(1)
Use of proceeds............ The Company intends to use the net proceeds from
the offering (i) to develop, manufacture and market
ComputErgo(TM), (ii) to seek to obtain ISO 9000
certification, (iii) to enhance the Company's core
products and to develop additional ergonomic
products, (iv) to add engineering and marketing
resources, (v) to repay outstanding bank
indebtedness, and (vi) for working capital. The
Company will not receive any proceeds from the sale
of shares of Common Stock by the Selling
Shareholders or from the sale of Common Stock
offered by certain of the Selling Shareholders in
connection with any exercise of the Underwriter's
over-allotment option. See "Use of Proceeds."
Nasdaq National Market
symbol................... NTRL
- ---------------
(1) Excludes (i) 200,000 shares of Common Stock reserved for issuance under the
Company's 1997 Omnibus Securities Plan, of which the Company intends to
issue as soon as practicable following consummation of the offering options
to acquire 80,000 shares of Common Stock, (ii) 200,000 shares of Common
Stock reserved for issuance pursuant to options outstanding under the
Company's Amended and Restated 1996 Nonqualified Stock Option Plan, (iii)
133,400 shares of Common Stock subject to the Underwriter's Warrants. See
"Management -- 1997 Omnibus Securities Plan," "Management -- Amended and
Restated 1996 Nonqualified Stock Option Plan" and "Underwriting."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
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YEAR ENDED JUNE 30,
---------------------------
1996 1997
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(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
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INCOME STATEMENT DATA:
Net sales................................................. $11,064 $ 12,089
Cost of sales............................................. 7,683 7,594
------- ----------
Gross profit.............................................. 3,381 4,495
Selling, general and administrative expense............... 2,980 3,414
------- ----------
Operating income.......................................... 401 1,081
Interest expense and other, net........................... 58 78
------- ----------
Income before income taxes................................ 343 1,003
Pro forma income tax expense(1)........................... 128 293
------- ----------
Pro forma net income(1)................................... $ 215 $ 710
======= ==========
Pro forma earnings per share(1)........................... $ .28
==========
Weighted average common and common equivalent shares
outstanding............................................ 2,500,000
==========
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JUNE 30, 1997
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ACTUAL AS ADJUSTED(2)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital........................................... $ 591 $5,366
Total assets.............................................. 3,698 8,473
Long-term debt, less current portion...................... 607 607
Shareholders' equity...................................... 1,599 6,374
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(1) Effective as of April 1, 1996, the Company elected to operate as a
Subchapter S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and comparable provisions of certain state
tax laws. The amounts shown reflect pro forma provisions for state and
federal income taxes as if the Company had been subject to such income
taxation during the entire fiscal years 1996 and 1997. See "Termination of
Subchapter S Corporation Status" and Note 4 of the Notes to Financial
Statements.
(2) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status" and "Capitalization."
5
<PAGE> 7
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.
STRONG COMPETITION IN THE CONTRACT FURNITURE INDUSTRY. The contract
furniture industry is highly competitive, with a significant number of
competitors offering similar products. Many of the Company's competitors are
large and have significantly greater financial, marketing, manufacturing and
technical resources than those of the Company. The Company's most significant
competitors include Steelcase, Inc., Herman Miller, Inc. and Haworth, Inc. These
competitors have a substantial volume of furniture installed at businesses
throughout the country, providing a continual source of demand for further
products and enhancements. Moreover, the products of these competitors have
strong acceptance in the marketplace, and such competitors could develop
alternative product designs which could give them a competitive advantage over
the Company. The Company also competes with numerous smaller ergonomic furniture
companies such as HAG, Inc., Grahl Industries, Inc. and Bodybilt, Inc., a
wholly-owned subsidiary of Ergobilt, Inc. ("Bodybilt"). In addition, the Company
faces significant price competition from its competitors and may encounter
competition from new market entrants. There can be no assurance that the Company
will be able to compete successfully in the future.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend on
the continued efforts of Dr. Jerome Congleton, consultant, Rebecca E. Boenigk,
Chairman of the Board and Chief Executive Officer, David W. Campbell, President,
Gregory A. Katt, Vice President, Chief Financial Officer and Secretary/
Treasurer, and David W. Ebner, Vice President of Operations. Dr. Congleton has a
consulting agreement with the Company that expires July 1, 2007. Mrs. Boenigk
and Messrs. Campbell, Katt and Ebner have employment agreements with the Company
which contain non-compete and non-solicitation clauses and expire July 1, 2000,
subject to automatic one-year extensions unless either party gives 90 days'
notice of its intention not to renew. The Company maintains key person life
insurance on Dr. Congleton, Mrs. Boenigk and Mr. Campbell. The loss of the
services of one or more key personnel could have a material adverse effect on
the Company. The Company's success also depends on its ability to retain its key
management, marketing and sales personnel and to attract, assimilate and retain
qualified personnel at a reasonable cost. There can be no assurance that the
Company will be successful in attracting, assimilating and retaining such
personnel. See "Management."
PRODUCT CONCENTRATION; NEW PRODUCTS. At the present time, the Company's
products are primarily limited to five series of ergonomic office chairs
marketed under the Neutral Posture tradename. The Company is subject to the risk
that demand for its existing products may be diminished by changing market
conditions, consumer preferences or competition, any of which could have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to develop additional ergonomic products or that a market
would develop for any such products. Significant expenditures will be necessary
for the Company to offer new products, and it may take an extended period of
time for revenues to cover expenses. In addition, new products may have quality
or other defects in the early stages of introduction that were not anticipated
in the design of those products. The Company cannot determine the effect on
operating results of unanticipated complications in product introductions. If
the Company is able to develop new products, there can be no assurance that they
will achieve market acceptance or otherwise be successfully introduced. Any such
failure may have a material adverse effect on the Company. See
"Business -- Products."
RELIANCE ON INTELLECTUAL PROPERTY. The Company owns a United States patent
and several trademarks in order to protect certain of its chair designs and
other intellectual property. The Company's patent covering virtually all of the
Neutral Posture chairs expires in October 2003. Because the Company's chairs can
be manufactured with a relatively small investment in infrastructure, expiration
of the patent in 2003 will thereafter leave the Company with few, if any, entry
barriers against existing furniture manufacturers or new market entrants that
desire to make competitive chairs based on the design encompassed by such
patent.
The Company does, however, have several patents pending, including the
patent application covering ComputErgo(TM), and the Company possesses a wide
array of unpatented proprietary know-how and common
6
<PAGE> 8
law trademarks. The Company's ability to compete effectively with other
companies depends, to a significant extent, on its ability to maintain the
proprietary nature of its intellectual property. There can be no assurance as to
the degree of protection offered by the claims of the patent and various
trademarks or the likelihood that patents or trademarks will be issued on
pending or contemplated applications. If the Company were unable to maintain the
proprietary nature of its intellectual property with respect to its current or
any future products, it could have a material adverse effect on the Company. See
"Business -- Patents and Trademarks."
There can be no assurance that any patents or trademarks that the Company
has or may obtain will not be challenged, invalidated, canceled, narrowed or
circumvented, or that the rights granted thereunder will provide significant
proprietary protection of competitive advantages to the Company. There can be no
assurance that, if challenged, the Company's patent or trademarks would be held
valid by a court of competent jurisdiction. If the Company were to lose its
patent covering virtually all of the Company's chairs prior to its expiration in
October 2003 the Company may need to rely on its license to use such patent. A
1991 settlement agreement conditions such license on the Company being
majority-owned by Rebecca E. Boenigk and Jaye E. Congleton, a limitation which
would significantly limit the Company's ability to obtain additional equity
capital in the future. In addition, the Company's competitors may have filed for
patent protection which is not as yet a matter of public knowledge. Moreover, a
court could interpret a third party's patents broadly so as to cover some of the
Company's products.
The Company has sought and intends in the future to enforce its
intellectual property rights. In May 1997, the Company initiated arbitration
proceedings against Bodybilt claiming, among other things, patent infringement.
In a separate litigation matter filed in September 1997, Bodybilt is disputing
the validity of the assignment from Dr. Congleton to the Company of the patent
covering virtually all of the Company's chairs and is seeking an injunction of
the arbitration proceeding. See "Legal Proceedings."
Because Texas A&M University, where Dr. Congleton is employed as a
professor, declined to unconditionally release any rights it may have had in
ComputErgo(TM), the Company agreed to pay to Texas A&M University a perpetual 1%
royalty of the gross sales of every ComputErgo(TM) sold by the Company. The
Company believes this was the least expensive way to obtain Texas A&M
University's assignment of all rights it may have had in ComputErgo(TM). The
Company has been informed that Texas A&M University will pay Dr. Congleton
approximately one-half of its 1% royalty in accordance with its standard policy.
Although the Company does not believe that Texas A&M University has any claims
to Dr. Congleton's inventions, there can be no assurance that Texas A&M
University will not assert such claims in the future and that, if Texas A&M
University does, such claims will not be successful.
UNCERTAINTY OF MAINTAINING LISTING ON NASDAQ STOCK MARKET'S NATIONAL
MARKET. The National Association of Securities Dealers has informed the Company
that, pursuant to an internal policy interpreting the Nasdaq National Market's
initial listing requirement that the market value of an issuer's public float be
at least $8 million, the Company may be delisted from the Nasdaq Stock Market's
National Market if the inside bid price for the Common Stock falls below $6.00
per share at any time during the initial five trading days following the
offering. Consequently, there is a significant risk that the Common Stock could
be delisted from the Nasdaq Stock Market's National Market. If the Common Stock
were delisted, the Company would seek listing on Nasdaq Stock Market's SmallCap
Market and there would be a significant risk that the liquidity of the Common
Stock would diminish.
PENNY STOCK REGULATION. In the event the Common Stock is delisted from
trading on any Nasdaq market and the trading price of the Common Stock is less
than $5.00 per share, trading in the Common Stock would also be subject to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company may be delisted from trading
on Nasdaq if certain maintenance standards concerning the public float of the
Common Stock, the market value of the public float of the Common Stock, the
number of shareholders of Common Stock or the number of market makers in the
Common Stock are not met. Under Rule 15g-9, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement
7
<PAGE> 9
Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure
in connection with any trades involving a stock defined as a "penny stock"
(generally, according to regulations adopted by the Securities and Exchange
Commission (the "Commission"), any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions), including
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith. Such
requirements could severely limit the market liquidity of the Common Stock and
the ability of purchasers in the offering to sell their securities in the
secondary market. There can be no assurance that the Company will not be
delisted from Nasdaq or that the price of the Common Stock per share will remain
above $5.00.
DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS. The Company's largest supplier,
Leggett & Platt, Inc., is currently the only source of an adjustment mechanism
that is a key component of Neutral Posture chairs. While the Company has not had
any adverse experience with this supplier, the Company has no binding supply
contract with Leggett & Platt, Inc. Unless alternative supply sources are
identified for this adjustment mechanism, the Company could be subject to
pricing risks, delivery delays and quality control problems, or even
unavailability of the component, any of which could have a material adverse
effect on the Company. Commencing in October 1997, the Company intends that
Shepherd Products, Inc. ("Shepherd") will begin to manufacture the majority of
the Company's seats and backs. Any disruption in the ability of Shepherd to
manufacture such seats and backs would have a material adverse effect on the
Company.
ECONOMIC FACTORS AFFECTING THE CONTRACT FURNITURE INDUSTRY. Fluctuations in
industry revenues may be driven by a variety of macroeconomic factors, such as
white collar employment levels, corporate cash flows and non-residential
commercial construction, as well as industry factors such as corporate
reengineering and restructuring, technology demands, ergonomic, health and
safety concerns and corporate relocations. There can be no assurance that
current or future economic or industry trends will not adversely affect the
Company.
DIFFICULTY OF MANAGING EXPANDING OPERATIONS. Since August 1992, the Company
has experienced substantial growth. If the Company continues to grow, the
Company's ability to manage growth successfully will require it to continue to
improve its operations and financial management and to train, motivate,
assimilate and effectively manage its employees. The Company's failure to manage
growth successfully could have a material adverse effect on the Company. The
Company's future success also depends on its continuing ability to attract,
assimilate and retain highly qualified managerial personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
retain its key managerial employees or that it will be successful in attracting,
assimilating or retaining highly qualified managerial and engineering personnel
in the future.
DEPENDENCE ON SIGNIFICANT CUSTOMERS. The Company's largest customers, the
General Services Administration ("GSA"), UPS, Banc One, Relax the Back, the
State of Washington and Hewlett-Packard accounted for approximately 16.2%,
10.4%, 6.2%, 5.4%, 5.3% and 4.9%, respectively, of its total revenues in fiscal
year 1997. The Company's contract with the GSA which is subject to renegotiation
or termination at the convenience of the GSA expires on January 20, 2001. The
Company has no binding contracts with UPS, Banc One, Relax the Back, the State
of Washington or Hewlett-Packard. One of the Company's dealers has an agreement
with the State of Washington, but there is no long-term contract between the
Company and such dealer. The loss of any of these customers, or a reduction in
any of these customers' purchases, could have a material adverse effect on the
Company.
POSSIBLE ACQUISITIONS AND ALLIANCES. The Company's growth strategy includes
possible acquisitions and strategic marketing alliances to broaden its product
line. However, no assurance can be given that the Company will be able to find
attractive acquisition or alliance candidates or consummate acquisitions or that
it will successfully integrate or operate any acquired business. In the event
that the Company makes any such acquisition or alliance, there can be no
assurance that any such acquisition or alliance will not have a material adverse
effect on the Company, particularly, in the case of acquisitions, during the
period in which such operations are being integrated into those of the Company.
Furthermore, the Company's ability to make acquisitions or enter into alliances
may depend upon its ability to obtain financing, and there can be no assurance
that the Company will be able to obtain financing on acceptable terms, if at
all.
8
<PAGE> 10
UNCERTAIN MARKET DEMAND. Public awareness of ergonomics and the application
of anthropometrics is limited. There is limited data to validate the potential
market demand for the Company's products. There can be no assurance that this
increased market demand will develop or that the Company will be successful in
marketing ergonomic contract furniture or other products.
POTENTIAL PRODUCT LIABILITY. The Company is subject to product liability
claims as a result of alleged product design and manufacturing defects. The
Company could be liable for product liability claims for failure to provide
appropriate literature warnings or directions with its products. The Company
also could be liable for product liability claims for defective products or
components as a result of its participation in the distribution of products or
components, even if the Company did not actually design, manufacture or assemble
the products or components. Although the Company has not experienced any
material loss due to product liability claims to date and currently maintains
product liability insurance coverage that it considers appropriate, there can be
no assurance that the amount or scope of the coverage maintained by the Company
will be adequate to protect it in the event a significant product liability
claim is asserted successfully.
WARRANTY LIABILITY. Various components of the Company's chairs are
warranted against defects in materials or work quality for up to five years. The
Company has not experienced any material loss from warranty claims to date and
maintained a reserve, at June 30, 1997, of $131,000 for such claims. There can
be no assurance, however, that material warranty claims will not be asserted in
the future or, if asserted, that the Company's reserve will be adequate.
RISK OF ENVIRONMENTAL LIABILITIES. The past and present business operations
of the Company and the past and present ownership and operation of the
manufacturing plant on real property owned by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations, including those relating to discharges to air, water and land, the
handling and disposal of solid and hazardous waste and the cleanup of properties
affected by hazardous substances. The Company cannot predict what environmental
legislation or regulations will be enacted in the future, how existing or future
laws or regulations will be administered or interpreted or what environmental
conditions on its real property may be found to exist. Compliance with more
stringent laws or regulations, or stricter interpretation of existing laws, may
require additional expenditures by the Company, some of which may be material.
CONTROL BY INSIDERS. Following completion of the offering, the Company's
directors, executive officers and their relatives will control approximately
60.8% (53.3% if the Underwriter's over-allotment option is exercised in full) 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. The existence of these levels of ownership concentrated in a few
persons makes it unlikely that any other holder of Common Stock will be able to
affect the management or direction of the Company.
SEASONALITY. Historically, the Company's business has been subject to
seasonality. Typically, the Company's revenue is greater during the second and
third quarters of the Company's fiscal year. These seasonal fluctuations in
sales are due to customer ordering patterns that emphasize purchases in these
two quarters. The Company's results of operations would be adversely and
disproportionately affected if customer ordering patterns were substantially
lower than those normally expected during these two fiscal quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BENEFITS OF OFFERING TO SELLING SHAREHOLDERS. The Selling Shareholders will
realize benefits from the offering that will not be received by persons
purchasing Common Stock in the offering. The Selling Shareholders will benefit
from the increased marketability of their shares of Common Stock and the sale of
certain of their shares of Common Stock in the offering. The aggregate purchase
price of the Selling Shareholders' shares was approximately $167,500. The shares
of Common Stock held by the Selling Shareholders will have an aggregate market
value (based upon an assumed initial offering price of $6.25 per share, the
midpoint of the range of initial public offering prices set forth on the cover
page of the prospectus) immediately following the offering of $11,662,500
(excluding options held by Mr. Campbell), thereby causing substantial dilution
to the persons acquiring Common Stock in the offering. Certain of the Selling
9
<PAGE> 11
Shareholders will also receive a benefit in the event the over-allotment option
is exercised. See "Use of Proceeds" and "Principal and Selling Shareholders." In
addition, certain loan agreements of the Company (the "Loan Agreements") are
guaranteed by Mrs. Boenigk, Bobby Boenigk, Mrs. Boenigk's husband, Mrs.
Congleton and Dr. Congleton. The Company owed $144,000 and $482,000 under such
Loan Agreements at June 30, 1997. Further, the Company's revolving credit
facility (the "Revolving Credit Facility") and the Company's term credit
facility (the "Term Facility") are guaranteed by Mrs. Boenigk and Mrs.
Congleton. Upon the consummation of the offering, the guarantees under the Loan
Agreements, the Revolving Credit Facility and the Term Facility will be released
by the lenders.
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to the offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the offering. Accordingly, no assurance can be given as to
the liquidity of the Common Stock or the price at which any sales may occur. The
future market price of the Common Stock could be subject to wide fluctuations in
response to a variety of events, including quarter-to-quarter variations in
operating results, news announcements, trading volume, general market trends,
and other factors. In the event the Company's operating results are below the
expectations of the public market investors in one or more future quarters, it
is likely that the price of the Common Stock would be materially adversely
affected. The initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter and may not
be indicative of the market price of the Common Stock after this offering. See
"Underwriting."
EXPERIENCE LEVEL OF UNDERWRITER. The Underwriter has agreed, subject to the
terms and conditions of the Underwriting Agreement, to conduct a firm commitment
offering of the Common Stock. The obligation of the Underwriter therefore is
such that if any shares of the Common Stock offered herein are purchased, all of
such shares must be purchased. See "Underwriting." To date, the Underwriter has
not previously conducted any firm commitment underwritten offerings of
securities. There can be no assurance that the experience level of the
Underwriter will not adversely affect the offering of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the offering, the
Company will have outstanding 3,200,000 shares of Common Stock excluding (i)
200,000 shares of Common Stock reserved for issuance under the Company's 1997
Omnibus Securities Plan, of which the Company intends to issue as soon as
practicable following consummation of the offering options to acquire 80,000
shares of Common Stock, (ii) 200,000 shares of Common Stock reserved for
issuance pursuant to options outstanding under the Company's Amended and
Restated 1996 Nonqualified Stock Option Plan and (iii) 133,400 shares of Common
Stock subject to the Underwriter's Warrants. The shares sold in the 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 will be "restricted securities" under the Securities
Act of 1933, as amended (the "Securities Act"). These "restricted securities"
may be publicly 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's current
shareholders have agreed that, without the prior written consent of the
Underwriter, they will not, directly or indirectly, sell or otherwise dispose of
any of such shares until January 1, 1999. 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.
DILUTION. The offering will result in immediate and substantial dilution in
net tangible book value of $4.26 per share to new investors, which amount
represents the difference between an assumed initial public offering price of
$6.25 per share (the midpoint of the range of initial public offering prices set
forth on the cover page of the prospectus) and the net tangible book value per
share after the offering. See "Dilution."
RESTRICTIONS ON PAYMENT OF DIVIDENDS AND ACQUISITIONS OF CAPITAL STOCK;
ABSENCE OF DIVIDENDS. The terms of the Company's Revolving Credit Facility, the
Term Facility and the Loan Agreements restrict, among other things, the ability
of the Company to pay dividends and acquire its capital stock. The Company
10
<PAGE> 12
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS. The Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company include certain
provisions that may be deemed to have anti-takeover effects and may delay, defer
or prevent a takeover attempt that a shareholder of the Company might consider
to be in the best interests of the Company or its shareholders. These
provisions: (i) classify the Company's Board of Directors into three classes,
each of which will serve for different three year periods, (ii) provide that
only the Board of Directors, the Chairman of the Board, or the beneficial owners
of 25% or more of the outstanding voting capital stock may call special
shareholders' meetings, (iii) require the vote of the holders of at least
two-thirds of the outstanding shares of each class of the Company's capital
stock then entitled to vote thereon for the shareholders to amend or repeal the
Amended and Restated Bylaws or certain provisions of the Amended and Restated
Articles of Incorporation, (iv) require the vote of at least two-thirds of the
members of the Board of Directors to amend or repeal the Amended and Restated
Bylaws, and (v) establish certain advance notice procedures for nomination of
candidates for election as directors. See "Description of Capital
Stock -- Special Provisions of the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws." The requirement that the vote of
the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock is necessary for the shareholders to amend or repeal
the Amended and Restated Bylaws or certain provisions of the Amended and
Restated Articles of Incorporation may adversely affect the extent to which
shareholders exercise control over the Company. In addition, the Revolving
Credit Facility, the Term Facility and the Loan Agreements provide that certain
changes of control of the Company constitute an event of default. The Revolving
Credit Facility, the Term Facility and the Loan Agreements state that such a
change of control generally includes a merger in which the Company is not the
surviving corporation, a sale of all of the assets of the Company, the approval
by the shareholders of the liquidation of the Company, the cessation of control
of the current Board of Directors (or directors subsequently nominated by the
Board) and certain bankruptcy proceedings.
ACTUAL RESULTS MAY DIFFER FROM FORWARD LOOKING STATEMENTS. Statements in
the prospectus that reflect projections or expectations of future financial or
economic performance of the Company or of results of litigation or arbitration,
and statements of the Company's plans and objectives for future operations,
including those relating to the Company's products and services, are "forward
looking" statements. No assurance can be given that actual results or events
will not differ materially from those projected, estimated, assumed or
anticipated in any such forward looking statements. Important factors that could
result in such differences, in addition to the validity of patents, availability
of key component parts and other 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; and other factors that
generally affect businesses.
11
<PAGE> 13
TERMINATION OF SUBCHAPTER S CORPORATION STATUS
Since April 1, 1996, the Company has been treated for federal income tax
purposes as a Subchapter S corporation under Subchapter S of the Code. Since
such date, the Company has not been subject to federal income tax, but its
earnings have been included in the taxable income of the Company's shareholders.
The Company has made distributions to its shareholders to enable them to pay
their income tax liabilities attributable to the Company's earnings. For the
period from April 1, 1996 through June 30, 1997, the Company had declared and
paid (currently or subsequent to June 30, 1997) distributions of $323,000 to its
shareholders. The Company's status as a Subchapter S corporation will terminate
upon completion of this offering (the "Termination Date").
In August 1997, the Board of Directors of the Company authorized the
issuance of notes as a dividend in the aggregate principal amount of $643,000 to
the Selling Shareholders for a portion of the estimated remaining accumulated
Subchapter S earnings through June 30, 1997, a portion of which was intended to
be used by the Selling Shareholders to pay their estimated federal income taxes
attributable to the Company's Subchapter S earnings. The Board of Directors
subsequently rescinded the resolution in September 1997 in order for the Company
to meet the newly issued listing requirements concerning net tangible assets for
inclusion in the Nasdaq National Market System. The Selling Shareholders have
waived in writing all rights to such dividend.
On October 9, 1997, the Company declared a cash dividend to its
shareholders of record on that date in the amount of $.0587 per share, for a
total distribution of $135,000, to provide for those shareholders' estimated
federal income tax obligations attributable to the Company's Subchapter S
earnings for the period from July 1, 1997 through the Termination Date. The cash
dividend was paid on October 14, 1997 from earnings of the Company. The Company
has no intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date for the foreseeable
future. The Company will be responsible for the payment of all federal income
taxes on the Company's earnings beginning on the Termination Date and continuing
thereafter.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $4.8 million assuming an initial
public offering price of $6.25 per share (the midpoint of the range of initial
public offering prices set forth on the cover page of the prospectus) and after
deducting the underwriting discount and other estimated offering expenses. The
Company will not receive any of the proceeds of any sale of shares of Common
Stock by the Selling Shareholders or from the sale of Common Stock offered by
certain of the Selling Shareholders in connection with any exercise of the
Underwriter's over-allotment option.
Of the net proceeds to the Company, the Company plans to use a portion of
the net proceeds of the offering as follows (all amounts are estimates):
<TABLE>
<S> <C>
Develop, manufacture and market ComputErgo(TM).............. $1,250,000
Enhance the Company's core products and develop additional
ergonomic products........................................ 1,250,000
Seek to obtain ISO 9000 certification....................... 250,000
Enhance the Company's marketing efforts by, among other
things, hiring two regional sales managers................ 400,000
Hire engineering personnel.................................. 400,000
Repay outstanding bank indebtedness(1)...................... 200,000
Provide funds for the Company's working capital
requirements.............................................. 1,050,000
----------
TOTAL............................................. $4,800,000
==========
</TABLE>
- ---------------
(1) The proceeds will be used to repay $200,000 of indebtedness under the
Revolving Credit Facility. The Company entered into the Revolving Credit
Facility as of December 30, 1996. Interest on the outstanding principal
balance under the Revolving Credit Facility accrues at the lender's base
rate plus one-half of 1% per annum. The Revolving Credit Facility is
utilized to fund operating activities, including financing inventory and
increases in receivables, and has been used for shareholder distributions
and is secured by a
12
<PAGE> 14
first lien on accounts receivable, chattel paper, contract rights, equipment and
fixtures, inventory and general intangibles.
Pending application of the net proceeds from the offering, the Company
plans to invest all net proceeds in short-term, interest-bearing, investment
grade securities.
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 terms of the Revolving Credit Facility, Term Facility
and the Loan Agreements restrict the Company's ability to pay dividends to its
shareholders and acquire its capital stock. The Company's future dividend policy
will be determined by its Board of Directors based on various factors, including
the Company's operating results, financial condition, business opportunities,
capital requirements, credit restrictions and such other factors as the Board of
Directors may deem relevant.
The Company has been treated for federal income tax purposes as a
Subchapter S corporation under the Code since April 1, 1996. As a result,
earnings of the Company have been subject to taxation at the shareholder level
rather than the corporate level for federal income tax purposes since April 1,
1996. For the period from April 1, 1996 through June 30, 1997, the Company had
declared and paid (currently or subsequent to June 30, 1997) distributions of
$323,000 to its shareholders. The Company's status as a Subchapter S corporation
will terminate on the Termination Date.
In August 1997, the Board of Directors of the Company authorized the
issuance of notes as a dividend in the aggregate principal amount of $643,000 to
the Selling Shareholders for a portion of the estimated remaining accumulated
earnings through June 30, 1997, a portion of which was intended to be used by
the Selling Shareholders to pay their estimated federal income taxes
attributable to the Company's earnings. The Board of Directors subsequently
rescinded the resolution in September 1997 in order for the Company to meet the
newly issued listing requirements concerning net tangible assets for inclusion
in the Nasdaq National Market System. The Selling Shareholders have waived in
writing all rights to such dividend.
On October 9, 1997, the Company declared a cash dividend to its
shareholders of record on that date in the amount of $.0587 per share, for a
total distribution of $135,000, to provide for those shareholders' estimated
federal income tax obligations attributable to the Company's earnings for the
period from July 1, 1997 through the Termination Date. The cash dividend was
paid on October 14, 1997 from earnings of the Company. The Company has no
intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date. See "Termination of
Subchapter S Corporation Status."
13
<PAGE> 15
DILUTION
At June 30, 1997, the Company had a net tangible book value of
approximately $1.6 million, or approximately $.69 per share of Common Stock. Net
tangible book value per share of Common Stock equals the amount of total assets
of the Company less intangible assets, less total liabilities, divided by the
aggregate number of shares of Common Stock outstanding as of June 30, 1997.
After giving effect to the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $6.25 per share, the midpoint of the
range of initial public offering prices set forth on the cover page of the
prospectus, and the application of the estimated net proceeds therefrom, the net
tangible book value of the Company at June 30, 1997, would have been
approximately $6.4 million, or $1.99 per share. This represents an immediate
increase in net tangible book value of $1.30 per share to existing shareholders,
and an immediate dilution of $4.26 per share to new investors purchasing shares
at the assumed initial public offering price. The following table illustrates
the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.25
Net tangible book value per share before offering......... $ .69
Increase in net tangible book value per share attributable
to new investors....................................... 1.30
-----
Net tangible book value per share after offering............ 1.99
-----
Dilution in net tangible book value per share to new
investors................................................. $4.26
=====
</TABLE>
The following table summarizes the differences in the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing shareholders and by
the new investors purchasing shares in this offering at an assumed initial
public offering price of $6.25 per share, the midpoint of the range of initial
public offering prices set forth on the cover page of the prospectus (before
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1) AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 2,300,000 71.9% $ 167,500 2.9% $ .07
New investors.................. 900,000 28.1% 5,625,000 97.1% 6.25
--------- ----- ---------- -----
Total................ 3,200,000 100.0% $5,792,500 100.0%
========= ===== ========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 1,866,000 shares, or 58.3% of the
total number of shares of Common Stock to be outstanding after this
offering, and will increase the number of shares held by new investors to
1,334,000 shares, or 41.7% of the total number of shares of Common Stock to
be outstanding after this offering. If the over-allotment option is
exercised in full, sales by the Selling Shareholders will reduce the number
of shares held by the existing shareholders to 1,706,000, or 53.3%, and will
increase the number of shares held by new investors to 1,494,000, or 46.7%,
of the total number of shares of Common Stock outstanding after the
offering. The table excludes (i) 200,000 shares of Common Stock reserved for
issuance under the Company's 1997 Omnibus Securities Plan, of which the
Company intends to issue as soon as practicable following consummation of
the offering options to acquire 80,000 shares of Common Stock, (ii) 200,000
shares of Common Stock reserved for issuance pursuant to options outstanding
under the Company's Amended and Restated 1996 Nonqualified Stock Option Plan
and (iii) 133,400 shares of Common Stock subject to the Underwriter's
Warrants. See "Principal and Selling Shareholders," "Management -- 1997
Omnibus Securities Plan," "Management -- Amended and Restated 1996
Nonqualified Stock Option Plan" and "Underwriting."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the sale of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $6.25 per share (the midpoint of the range of initial public offering
prices set forth on the cover page of the prospectus) and the application of net
proceeds therefrom as described under "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.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt
Current portion of long-term debt......................... $ 26 $ 26
====== ======
Long-term debt, less current portion........................ $ 607 $ 607
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $.01 par value, 14,000,000 shares
authorized; 2,300,000 shares issued and outstanding,
actual; 3,200,000 shares issued and outstanding, as
adjusted............................................... 23 32
Additional paid-in capital................................ 382 5,148
Retained earnings......................................... 1,373 1,373
Notes receivable -- shareholders.......................... (96) (96)
Deferred compensation..................................... (83) (83)
------ ------
Total shareholders' equity........................ 1,599 6,374
------ ------
Total capitalization.............................. $2,206 $6,981
====== ======
</TABLE>
- ---------------
(1) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status."
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
financial statements. This data should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1996 1997
--------- ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $11,064 $ 12,089
Cost of sales............................................. 7,683 7,594
------- ----------
Gross profit.............................................. 3,381 4,495
Selling, general and administrative expense............... 2,980 3,414
------- ----------
Operating income.......................................... 401 1,081
Interest expense and other, net........................... 58 78
------- ----------
Income before income taxes................................ 343 1,003
Pro forma income tax expense(1)........................... 128 293
------- ----------
Pro forma net income(1)................................... $ 215 $ 710
======= ==========
Pro forma earnings per share(1)........................... $ .28
==========
Weighted average common and common equivalent shares
outstanding............................................ 2,500,000
==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(2)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 591 $5,366
Total assets.............................................. 3,698 8,473
Long-term debt, less current portion...................... 607 607
Shareholders' equity...................................... 1,599 6,374
</TABLE>
- ---------------
(1) Effective as of April 1, 1996, the Company elected to operate as a
Subchapter S corporation under Subchapter S of the Code and comparable
provisions of certain state tax laws. The amounts shown reflect pro forma
provisions for state and federal income taxes as if the Company had been
subject to such income taxation during the entire fiscal years 1996 and
1997. See "Termination of Subchapter S Corporation Status" and Note 4 of the
Notes to Financial Statements.
(2) Adjusts the actual amounts to reflect the sale of the shares offered hereby.
See "Termination of Subchapter S Corporation Status" and "Capitalization."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the Company and notes thereto and the other financial information
included elsewhere in this prospectus.
GENERAL. The Company generates revenue through sales of its products to
corporate customers and retailers through independent sales representatives, who
generally are paid a commission for each unit sold. These independent sales
representatives channel sales through dealers located throughout the United
States who acquire the products from the Company at a discount from suggested
retail and then resell the products to the ultimate customers. These dealers
typically provide end-users a range of "value-added" services that may include
installation, delivery, site planning and warranty repairs.
The Company's gross profit increased approximately 33% in fiscal year 1997
from the prior fiscal year. The Company attributes this increase in gross profit
to a significant shift in the Company's strategic focus to (i) selling its
products to or through value-added dealers marketed by independent sales
representatives, instead of selling directly to end-users, (ii) upgrading the
quality of its independent sales representatives, and (iii) selling higher
priced models.
RESULTS OF OPERATIONS. The following table sets forth the percentage
relationship to net sales of certain items in the Company's statements of income
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 69.4 62.8
----- -----
Gross profit................................................ 30.6 37.2
Selling, general and administrative expenses................ 26.9 28.3
----- -----
Operating income............................................ 3.7 8.9
===== =====
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Net Sales. Net sales for fiscal year 1997 were $12.1 million, increasing
$1.0 million, or approximately 9.3%, from net sales of $11.1 million for fiscal
year 1996. The net sales growth principally resulted from the shift in product
mix to sales of higher priced models. Total units sold remained relatively
constant. Consistent with the Company's strategy, however, the Company reduced
its concentration in sales volume to a large lower margin customer while
increasing its units sold to all other customers by 24%.
Gross Profit. Gross profit for fiscal year 1997 was $4.5 million,
increasing $1.1 million, or 32.9%, from gross profit of $3.4 million for fiscal
year 1996. Gross margin increased to 37.2% for fiscal year 1997 from 30.6% for
fiscal year 1996. Although the cost per chair remained substantially flat, these
increases were achieved through the shift in product mix to the sales of higher
priced models sold to or through dealers as discussed in "Net Sales" above.
Because the Company is utilizing what it believes are "value-added" dealers, the
Company has been able to increase sales of higher priced models. The Company
believes that those end-users reached through such higher quality dealers
generally prefer, in addition to the value-added services of such dealers, its
higher-priced models inasmuch as the Company believes the purchasing decisions
of such end-users are not focused solely on price but also on other factors.
Management believes that upgrading the quality of its independent sales
representatives has attracted more qualified dealers and has improved
relationships with its dealers. Sales involving dealers resulting from the above
described shift represented approximately 73% of total sales for fiscal year
1997 as compared to approximately 52% for fiscal year 1996. The remaining 27% of
total sales for fiscal year 1997 relates primarily to sales to UPS and GSA.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3.4 million for fiscal year 1997, increasing
approximately $433,000, or 14.6%, from $3.0 million for fiscal year
17
<PAGE> 19
1996. As a percentage of sales, the Company's selling, general and
administrative expenses increased to 28.3% for fiscal year 1997 from 26.9% for
fiscal year 1996. The increases were due to slight salary increases as a result
of additional personnel, increases in payments made pursuant to the Company's
cash bonus plan, increased commission rates on sales and an increase in legal
fees of approximately $270,000 related to arbitration and litigation involving a
competitor.
Operating Income. As a result of the foregoing, operating income for fiscal
year 1997 was $1.1 million, increasing approximately $681,000, or approximately
170%, from $401,000 for fiscal year 1996. As a percentage of sales, operating
income increased to 8.9% for fiscal year 1997 from 3.6% in fiscal year 1996.
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 and variations in the Company's sales product mix. The
results of any particular quarter may not be indicative of the results for the
full year or any future period. Historically, the Company has experienced
seasonal fluctuations in sales and operating income because more orders are
shipped during the second and third quarters of each fiscal year. These seasonal
fluctuations in sales are due to customer ordering patterns that emphasize
purchases in these two quarters. The Company's results of operations would be
adversely and disproportionately affected if customer ordering patterns were
substantially lower than those normally expected during these two fiscal
quarters. The following table sets forth certain unaudited quarterly financial
information for the periods presented which reflect, in the opinion of
management, all adjustments which the Company considers necessary for a fair
presentation of the information set forth therein.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------------- -------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,638 $3,190 $2,886 $2,350 $2,970 $3,052 $3,272 $2,795
Cost of sales................. 1,993 2,084 1,956 1,650 1,849 1,972 2,033 1,740
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 645 1,106 930 700 1,121 1,080 1,239 1,055
Selling, general and
administrative.............. 555 783 841 801 849 859 814 892
------ ------ ------ ------ ------ ------ ------ ------
Operating income.............. 90 323 89 (101) 272 221 425 163
Interest expense and other,
net......................... 16 15 33 (6) 36 30 31 (19)
------ ------ ------ ------ ------ ------ ------ ------
Income before taxes........... 74 308 56 (95) 236 191 394 182
Pro forma income tax(1)....... 27 114 22 (35) 87 (7) 146 67
------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income.......... $ 47 $ 194 $ 34 $ (60) $ 149 $ 198 $ 248 $ 115
====== ====== ====== ====== ====== ====== ====== ======
Gross margin percentage....... 24.5% 34.7% 32.3% 29.8% 37.7% 35.4% 37.8% 37.8%
Operating income percentage... 3.4% 10.1% 3.1% (4.3)% 9.2% 7.2% 13.0% 5.8%
</TABLE>
- ---------------
(1) Beginning with the quarter ended June 30, 1996 through the quarter ended
June 30, 1997, pro forma income taxes are reflected as if the Company were
not a Subchapter S corporation and, therefore, were subject to federal and
state income taxation.
LIQUIDITY AND CAPITAL RESOURCES. The Company's principal sources of capital
are net cash provided by operating activities and availability of funds under
the Revolving Credit Facility. The Company's primary capital requirements are to
fund component parts inventory, receivables, research and development
activities, product improvements and shareholder distributions of Subchapter S
earnings.
Cash provided by operating activities totaled $1.4 million (before pro
forma income taxes) for fiscal year 1997, as compared to cash used for operating
activities of $108,000 for fiscal year 1996. The increase in cash flow was
primarily the result of the increased profit margin and changes in working
capital based on improved cash flow management.
Cash used in investing activities totaled $464,000 for fiscal year 1997 and
was primarily comprised of miscellaneous capital expenditures. Cash used in
investing activities totaled $754,000 for fiscal year 1996 and was comprised
primarily of the acquisition of the Company's current land and building for
$625,000 and capital expenditures by the Company. During fiscal year 1998, the
Company expects to continue to make capital expenditures in connection with
manufacturing equipment and computer hardware and software improvements.
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<PAGE> 20
Financing activities used funds totaling approximately $1.1 million for
fiscal year 1997 and provided funds of approximately $900,000 for fiscal year
1996. In fiscal year 1997, the Company used cash flow from operations to repay
existing debt and make cash distributions to the Selling Shareholders to pay
federal income taxes related to the net income attributable to them as
shareholders of a Subchapter S corporation for federal income tax purposes. The
funds provided for fiscal year 1996 were used to fund interim working capital
needs and the acquisition of the existing building at which the Company
headquarters are located.
The average number of days of trade accounts receivable outstanding was 42
and 40 for fiscal year 1997 and fiscal year 1996, respectively. The Company
typically sells its products on net 30 day terms and seeks to minimize its
credit risk by performing credit checks. The Company has from time to time
turned overdue accounts receivable over to collection agencies. Bad debt expense
for both periods was negligible.
The Company manages its inventory to maintain a level which meets its
short-term manufacturing needs. Inventory turned 12.0 times in fiscal year 1997
and 12.7 times in fiscal year 1996. With this turnover, the Company had
approximately 30 days' worth of component parts inventory on hand during both
periods. These low levels of inventory allow the Company to dedicate less
working capital to inventory, thereby lowering line-of-credit borrowing,
interest, insurance and property tax expenses.
The Company currently maintains a $2.0 million Revolving Credit Facility.
This facility is utilized to fund operating activities, including financing
inventory and increases in receivables, and has been used for shareholder
distributions. Loans made pursuant to the Revolving Credit Facility may be
borrowed, repaid and reborrowed from time to time until termination of the
Revolving Credit Facility on January 21, 1999. Indebtedness under the Revolving
Credit Facility bears interest at the lender's base rate plus one-half of 1% per
annum and is secured by a first lien on accounts receivable, chattel paper,
contract rights, equipment and fixtures, inventory and general intangibles. The
amount available under the Revolving Credit Facility is determined based upon a
percentage of eligible receivables. At June 30, 1997, the interest rate was 9.0%
and no amount was outstanding under the Revolving Credit Facility.
In addition, the Company maintains the Term Facility in the amount of
$500,000. This Term Facility is restricted to financing equipment or mold
purchases. Indebtedness under the Term Facility would bear interest at the
lender's base rate plus one-half of 1% per annum and is secured by accounts
receivable, chattel paper, contract rights, equipment and fixtures, inventory
and general intangibles. At June 30, 1997, no amount had ever been borrowed
under the Term Facility.
The Revolving Credit Facility and the Term Facility restrict additional
liens by the Company other than certain permitted liens, liens related to the
acquisition of assets and liens related to borrowings not to exceed $3,000,000.
At June 30, 1997, the Company had two loans outstanding in the amounts of
$144,000 and $482,000, pursuant to the Loan Agreements, incurred in connection
with the Company's acquisition in 1996 of the land and building currently used
by the Company. Interest accrues under one Loan Agreement at a rate of 1.5%
percent above the prime rate as reported in The Wall Street Journal (adjusted
annually). At June 30, 1997, the interest rate under this Loan Agreement was
9.75%. Interest accrues under the second Loan Agreement at the rate of 8.25% per
annum. Both notes are secured by the land, building and certain equipment,
require monthly principal and interest payments and mature in 2001.
In addition, the Revolving Credit Facility, the Term Facility and the Loan
Agreements provide that certain changes of control of the Company constitute an
event of default. The Revolving Credit Facility, the Term Facility and the Loan
Agreements state that such a change of control generally includes a merger in
which the Company is not the surviving corporation, a sale of all of the assets
of the Company, the approval by the shareholders of the liquidation of the
Company, the cessation of control of the current Board of Directors (or
directors subsequently nominated by the Board) and certain bankruptcy
proceedings.
Prior to the consummation of the offering, the Company intends to declare a
cash dividend to its existing shareholders. This cash dividend will be in an
amount sufficient to cover the present shareholders' estimated federal and state
income tax obligations attributable to the Company's Subchapter S earnings for
the period from July 1, 1997 through the Termination Date. The dividend will be
paid to these shareholders after
19
<PAGE> 21
consummation of the offering. The Company has no intention of declaring or
paying any other dividend or making any other distribution to its shareholders
after the Termination Date.
In January 1997, the Company entered into an agreement with a third party
to design and produce injection molds to be utilized in the production process
for approximately $400,000. The Company had paid approximately $150,000 through
June 30, 1997 and expects to pay the remaining $250,000 upon completion of these
molds in October 1997.
The Company believes that cash flow from operations, together with the net
proceeds from this offering and its unused capacity under the Revolving Credit
Facility should be sufficient to fund its anticipated operating needs, capital
expenditures through fiscal year 1998 and payment of the Subchapter S
distributions to the existing shareholders. However, because the Company's
future operating results will depend on a number of factors, including the
demand for the Company's products, the level of competition and general economic
conditions and other factors beyond the Company's control, there can be no
assurance that the Company's capital resources will be sufficient to fund the
Company's operations beyond such date.
NEW ACCOUNTING STANDARDS. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement No. 128, Earnings per Share, which is
required to be adopted for fiscal years ending after December 15, 1997. At that
time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of basic earnings per share and fully diluted earnings per share for
fiscal years 1997 and 1996 will not be material.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". Both standards became effective for fiscal years beginning after
December 15, 1997. Early adoption of SFAS 130 is permitted, and early adoption
of SFAS 131 is encouraged. The reporting changes resulting from both of these
standards on the Company will be immaterial.
20
<PAGE> 22
BUSINESS
Since the Company was incorporated in 1990 under the laws of the State of
Texas, the Company has manufactured, marketed and distributed ergonomic chairs
based upon patented and/or patent-pending designs of Jerome Congleton, Ph.D.,
P.E., C.P.E., an ergonomist certified by the Board of Certification in
Professional Ergonomics who serves as a design consultant to, and a director of,
the Company. The chairs are assembled at the Company's 46,000 square-foot
facility in Bryan, Texas which the Company acquired in 1996. Based on
anthropometrics, the scientific study of the measurements of size, weight and
proportions of the human body, the Company manufactures five series of ergonomic
chairs designed to minimize the physical stress imposed upon the human body
while seated. Virtually all chairs marketed under the Neutral Posture tradename
can be adjusted to accommodate the size, weight and proportions of body types
from as small as the 5th percentile female to as large as the 95th percentile
male. The Company is not aware of any other chair on the market that (i) is
designed by a certified ergonomist, (ii) is designed based on anthropometric
studies, and (iii) has interchangeable key components such as seats, backs and
arms.
The Company believes that the increase in computer users and other domestic
white collar office employees has benefitted, and the anticipated increase in
white collar office employees outside of the United States will benefit, its
ergonomic furniture business. The Company also believes that repetitive stress
injuries, which affect a number of seated workers, have created a market demand
for ergonomically designed products. According to the U.S. Bureau of Labor
Statistics, 62% of all workplace injuries in 1995 resulted from the stress of
repetitive motion on muscles and tendons. In addition, according to the National
Institute for Occupational Safety and Health, repetitive stress injuries cost
employers approximately $20 billion as a result of 2.73 million workers'
compensation claims in 1993. To address this reported problem, the Company
intends to research, create and develop additional ergonomic products consistent
with the Company's philosophy that its designs be based on ergonomic research
and anthropometric data. The Company's customers include AT&T Cellular One, Banc
One, Hewlett-Packard, IBM, Intel Corporation, the Internal Revenue Service,
Lockheed Martin Corporation, Relax the Back, Sprint Corporation, the State of
Washington, Union Carbide Corporation, UPS, the U.S. House of Representatives
and U.S. Robotics Corporation.
INDUSTRY OVERVIEW. The Company's ergonomic chairs compete in the seating
segment of the office furniture market. This segment represented approximately
25.4% of industry sales in the United States or $2.5 billion in calendar year
1996 and is the second largest industry segment. The Company's share of the
seating market segment was less than one-half of 1% on a dollar basis in
calendar year 1996. According to the Business and Institutional Furniture
Manufacturer's Association ("BIFMA"), the U.S. office furniture market had
estimated sales of $10.0 billion in calendar year 1996. The dollar value of U.S.
office furniture industry shipments has increased in each of the past 15 years,
with the exception of 1991, and, according to BIFMA estimates, had grown at a
compound annual rate of approximately 7.2% over the three year period ended
December 31, 1996.
GROWTH STRATEGY. The Company believes that it is well-positioned to achieve
further growth in revenues, profitability and market share. The key elements of
the Company's growth strategy include the following:
- Create Innovative New Products and Broaden Product Line
The Company plans to take a more active approach with respect to the
development of additional ergonomic products while continuing to
aggressively market its Neutral Posture chairs. In furtherance of this
strategy, the Company plans to introduce ComputErgo(TM), a portable
computer workstation, during the first quarter of calendar year 1998. In
addition, the Company intends to seek opportunities to develop or acquire
products that are complementary to the Company's business and philosophy to
leverage its marketing, sales and distribution systems. The Company has
budgeted a portion of the net proceeds of the offering to hire engineering
personnel, who it believes will play a vital role in creating new products
and product enhancements. See "Use of Proceeds."
21
<PAGE> 23
- Enhance Manufacturing Process
The Company plans to increase its productivity through strategies
designed to improve its manufacturing process. The Company intends to
invest a portion of the net proceeds of the offering to improve tooling
used in production of its core products to reduce production costs and
improve product quality. In addition, the Company also will seek to obtain
ISO 9000 certification, an internationally developed set of manufacturing
facility quality criteria. To obtain ISO 9000 certification, the Company
must submit an application form along with the Company's quality manual to
the International Organization for Standardization ("ISO"). ISO reviews the
application form and manual and issues a report identifying any changes
required. ISO also conducts an on-site inspection to assess the Company's
facility for compliance with ISO's standards, procedures and instructions.
A final report and certification would be issued assuming any
nonconformances are fixed. If certified, the Company still must pass ISO's
yearly maintenance and surveillance visits to maintain ISO 9000 status. The
Company estimates the process of obtaining ISO 9000 certification will take
approximately one year to complete. The Company believes that becoming ISO
9000 certified will promote continued quality in the Company's current
operations.
- Expand Existing Distribution Channels
Historically, the majority of the Company's sales were made directly
to corporate customers, but a growing percentage of the Company's sales are
being made to or through dealers. Generally, the Company's products are
marketed by its approximately 50 independent sales representatives and its
sales are channeled through a network of approximately 320 dealers. To
promote customer satisfaction, these independent sales representatives also
are responsible for maintaining corporate end-user relationships with or on
behalf of the dealers. The Company intends to expand its business with
dealers locally, regionally, nationally and internationally. The Company
also intends to use a portion of the net proceeds of the offering to
enhance its marketing efforts by, among other things, hiring two regional
sales managers. See "Use of Proceeds."
The Company believes that it will extend its reach to additional
customer groups, including the home office segment, through the Relax the
Back relationship. On January 12, 1997, Relax the Back granted the Company
the exclusive worldwide right to manufacture ergonomic office seating that
bears the Relax the Back trademark and the Relax the Back design pursuant
to a Trademark License Agreement (the "License Agreement"). The License
Agreement requires the Company to pay to Relax the Back 2% of net revenues
from Relax the Back's sales of all products marked with the Relax the Back
logo. Although the License Agreement has an indefinite term, it may be
terminated by either Relax the Back or the Company for any reason upon 90
days' prior written notice. Relax the Back has exclusive rights to an
armrest and a neckrest which are components of chairs manufactured by the
Company for Relax the Back. The Relax the Back stores are independently
owned and operated and may elect on a store-by-store basis whether to sell
the Company's chairs. As of June 30, 1997, 82% of the Relax the Back stores
carried the Company's chairs under the Relax the Back trademark.
The Company also markets the Neutral Posture chair in a catalog
published by Boise Cascade Office Products and is scheduled to be published
in Corporate Express' catalog by January 1998. The Company believes that
catalogs provide a convenient and cost-effective way for businesses to
purchase ergonomic furniture and that, over time, it may become a preferred
avenue for certain customers to order ergonomic products such as the
Neutral Posture chair.
- Build Consumer Recognition by Increasing Public Awareness of Benefits of
Ergonomic Products
The Company intends to expand consumer recognition of its products in
the marketplace by increasing awareness of the benefits of ergonomic
products generally and also by publicizing the quality of the Company's
products within the ergonomic products industry. The Company intends to
accomplish this by (i) creating an internet web site by September 1997,
which will provide general information about ergonomics and the Company's
products, (ii) sponsoring speaking engagements by the Company's consultant,
Dr. Jerome Congleton, to organizations such as the Texas Back Institute and
the National
22
<PAGE> 24
Exhibition of Contract Furnishings ("NEOCON"), and (iii) conducting
seminars for dealer groups led by the Chairman of the Board and Chief
Executive Officer, Rebecca E. Boenigk. By focusing on these goals, the
Company seeks to enhance consumer recognition for ergonomic products in new
and emerging markets in addition to improving consumer recognition in
current markets.
PRODUCTS. The concept for Neutral Posture chairs arose from Dr. Congleton's
research, which is derived from National Aeronautics and Space Administration
("NASA") data concerning the human body's reaction to weightlessness. His
research determined that in weightless conditions the body would naturally
assume a neutral position in which no tendons are extended or retracted and in
which the muscles experience no strain. This neutral position can be simulated
by relaxing all muscles while floating face down in water and represents the
human body's "neutral posture" position. Neutral Posture ergonomic chairs have
up to 12 independent adjustments, allowing an individual to assume this
stress-free posture. A recent, year-long study commissioned by the Cincinnati
Service Center of the Internal Revenue Service ("IRS") published in September
1995 determined that ergonomic programs are an important tool in the improvement
of overall organizational productivity. More specifically, the IRS study
reported that the use of Neutral Posture chairs corresponded with a drop in the
number of physiological signs of musculoskeletal disorders. The IRS study also
reported that the Neutral Posture chair increased the employees' comfort and
maintained productivity in the workplace.
Neutral Posture chairs having contoured seats, which constituted over 95%
of the Company's chairs sold in fiscal year 1997, are made with multi-densities
of foam to distribute the user's body weight over a greater surface area than
conventional seating. Additionally, the angle between the backrest and the seat
structure of these chairs can be adjusted to approximate the posture that the
body assumes naturally in the gravity-free environment of space. Five different
seat designs and five different backrest styles provide additional comfort to
meet the personal preferences of customers of various sizes and shapes. The
backrests also contain multi-densities of foam that are shaped to provide
maximum support in the lumbar area. The air lumbar pump, available on four of
the Company's five series of chairs, inflates the lumbar area, allowing the
backrest to conform even more closely to the unique curvature of each person's
back.
Neutral Posture chairs require minimal assembly by the customer and are
delivered with a computer diskette and/or owner's manual that provides each
customer with a visual explanation of how to adjust the chair for maximum
comfort. All frame parts, mechanisms, bases, casters, cylinders, seat pans,
backrests, armrests, foam and J-shaped back uprights of a Neutral Posture chair
are warranted against defects in materials and workmanship for a period of five
years from the date of delivery to the purchaser.
Although the Company does allow pre-approved merchandise returns for a
specified period of time, the Company endeavors to minimize product returns by
offering prompt, on-site customer service and repair through its factory
personnel, its network of dealers or its independent sales representatives.
Neutral Posture chairs' interchangeable components permit easy replacement of
worn or defective components. Product returns to date have been negligible.
The designs for these chairs are based upon a patent purchased from Dr.
Congleton, a consultant to, and director of, the Company, in exchange for
$30,000 and a written agreement with the Company that grants him 25% of net
royalties collected by the Company from third parties for products manufactured,
used or sold under license or sublicense of such patent. Dr. Congleton was not a
consultant or director of the Company at the time of the Company's purchase of
the patent. The purchase price was determined through negotiations between the
Company and Dr. Congleton (which resulted in terms believed by the Company to be
as favorable as would have resulted from an arms-length negotiation) based on
the potential of future earnings derived from licenses or sublicenses that may
be collected by the Company. To date, the Company has not paid any royalties to
Dr. Congleton pursuant to such agreement. The Company does not presently plan to
license the patent to third parties except in connection with the resolution of
infringement disputes. See "Certain Transactions."
In May 1997, the Company publicly announced that it anticipates producing a
portable ergonomic workstation for the transport and use of a laptop computer
and other items that would otherwise be carried in a
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<PAGE> 25
briefcase which workstation is to be marketed under the tradename
ComputErgo(TM). ComputErgo(TM)will provide laptop users with (i) a fully
adjustable portable work surface with two fold-out wings for documents, an
organizer, document file pockets, retractable power/phone cords and built-in
surge protection, and (ii) a compact carrying case on wheels with a retractable
handle. This product was designed to help alleviate repetitive stress injuries
associated with the emergence of "alternative officing," utilizing a laptop
computer at any locale other than the traditional office. In March 1997, the
Company filed a patent application relating to ComputErgo(TM)with the United
States Patent and Trademark Office and in May 1997 a prototype of
ComputErgo(TM)was designed. Although further engineering of ComputErgo(TM)is
necessary, the Company anticipates producing ComputErgo(TM)by the first quarter
of calendar year 1998.
Dr. Congleton, a consultant to, and a director of, the Company, has a
written agreement with the Company to receive a perpetual 3% royalty (exclusive
of Texas A&M University's royalty to Dr. Congleton) of the net sales of every
ComputErgo(TM) sold by the Company. In the future, Dr. Congleton will not
receive any compensation or royalties for his designs other than (i) his annual
consulting fee, and (ii) the royalties from (a) any license or sublicense of the
patent covering virtually all of the Company's chairs, and (b)
ComputErgo(TM)sales. See "Management -- Employment and Consulting Agreements"
and "Certain Transactions." Because Texas A&M University, where Dr. Congleton is
employed as a professor, declined to unconditionally release any rights it may
have had in ComputErgo(TM), the Company has agreed to pay to Texas A&M
University a perpetual 1% royalty of the gross sales of every ComputErgo sold by
the Company. The Company believes this was the least expensive way to obtain
Texas A&M University's assignment of all rights it may have had in
ComputErgo(TM). The Company has been informed that Texas A&M University will pay
Dr. Congleton approximately one-half of its 1% royalty in accordance with its
standard policy. Although the Company does not believe that Texas A&M University
has any claims to Dr. Congleton's inventions, there can be no assurance that
Texas A&M University will not assert such claims in the future and that, if
Texas A&M University does, such claims will not be successful. In addition, a
co-inventor of ComputErgo(TM), who assigned his interest in the related patent
rights to the Company, has informally asserted that his design company was not
paid for certain development work done on ComputErgo. See "Legal Proceedings."
RESEARCH AND DEVELOPMENT. During fiscal years 1996 and 1997, the Company
spent $352,000 and $224,000, respectively, on research and development. The
Company intends to increase its research and development expenses. See "Use of
Proceeds."
MARKETING AND SALES. Historically, the vast majority of the Company's sales
were made directly to corporate customers, but a growing percentage of the
Company's sales is being made to or through dealers. During fiscal year 1996,
the Company embarked on a program to attract and hire independent sales
representatives that had established long-term relationships with key dealers in
their markets. The Company believes such dealers are viewed by their customers
as "value added" dealers because they offer a broad range of products and
services. The Company markets its products and services throughout the United
States through approximately 50 independent sales representatives and its sales
are channeled through a network of approximately 320 dealers. The Company
believes that using independent sales representatives and dealers provides a
strategic advantage relative to many of its competitors. The Company does not
directly employ the independent sales representatives, but rather uses a
commission based incentive system to maintain these relationships. The
commission based incentive system rewards not only the number of units sold, but
the profitability of those sales. The independent sales representatives employ
personalized sales techniques to maintain close contact with the Company's
current customers and develop new customers. The Company's independent sales
force receives extensive training, including annual seminars focused on the
Company's products. The Company intends to use a portion of the net proceeds of
the offering to hire two regional sales managers to provide additional training
and sales management to its independent sales representatives.
In addition to coordinating sales efforts with the Company's independent
sales representatives, the Company's dealers generally handle project
management, installation and maintenance for an account after the initial
product selection and sale. Dealers typically purchase the product at a discount
from retail and resell the product at a higher price. The Company is not
dependent on any one of its dealers, the largest of them accounting for less
than 7% of the Company's fiscal year 1997 sales.
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<PAGE> 26
MANUFACTURING AND DISTRIBUTION. The Company normally operates one shift,
five days per week, at its assembly facility located in Bryan, Texas.
Approximately 31,300 chairs were manufactured during fiscal year 1997. The
Company believes that the maximum capacity of this facility based on one shift
is approximately 100,000 chairs per year. Additional capacity may be achieved by
adding additional shifts. Therefore, the Company believes that production
requirements for the foreseeable future can be satisfied with routine additional
capital investment, which is not expected to be substantial.
At its Bryan facility, the Company applies foam to seats and backs,
upholsters, assembles and does machine work. By November 1997, the Company
intends to have Shepherd injection-mold a majority of its seats and backs, which
is a more efficient and economical process than using its current vacuum-form
process. The injection molds will make an exact duplicate of the Company's seats
and backs each time by heating plastic until molten and injecting it into a
mold. This process eliminates hand-cutting the rough edges from each seat and
back, which is necessary when using vacuum forms. Vacuum forms heat plastic
until pliable and then shapes it over a mold using a suction process. The
Company believes that the use of the injection molds will reduce production
costs and improve product quality.
The Company's manufacturing goals are to: (i) continually improve design
quality, (ii) achieve the best values in purchasing, (iii) uphold stringent
quality controls, and (iv) deliver orders promptly. The Company believes its
production standards are exceptional, with in excess of 99% customer acceptance
for fiscal year 1997. The Company manufactures Neutral Posture chairs primarily
to meet customer orders placed with the Company, which it believes minimizes
finished goods inventory levels.
RAW MATERIALS AND SUPPLIERS. The Company has formed close working
relationships with its main suppliers and maintains a low level of inventory.
The Company uses a variety of materials in its manufacturing, including plastic,
foam, steel, fabrics, leathers and upholstery. Management currently maintains no
long-term supply contracts and believes that the supply sources for these
materials are adequate. Certain components of Neutral Posture chairs,
principally the adjustment mechanism, are made by third party 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 the adjustment mechanism, a key component
of the Neutral Posture chair. The adjustment mechanism is proprietary to the
Company. While the Company has not had any adverse experience with this
supplier, the Company does not have a binding supply contract with Leggett &
Platt, Inc.
DESIGN CAPABILITIES. The Company is committed to the creation and design of
quality ergonomic products. Since its inception, the Company has relied upon the
design capabilities of Dr. Jerome Congleton and Rebecca Boenigk.
CUSTOMERS. The Company has a diversified customer base. The Company's
largest customer group, the various facilities of the GSA, accounted for 16.2%
of the Company's sales for fiscal year 1997. The Company's contract with the GSA
which is subject to renegotiation or termination at the convenience of the GSA
expires on January 20, 2001. In addition to the GSA, the Company's largest
customers include UPS, Banc One, Relax the Back, the State of Washington and
Hewlett-Packard, whose individual sales for fiscal year 1997 represented 10.4%,
6.2%, 5.4%, 5.3% and 4.9%, respectively, of the Company's total revenues. The
Company does not have a binding contract with UPS, Banc One, Relax the Back, the
State of Washington or Hewlett-Packard. One of the Company's dealers has an
agreement with the State of Washington, but there is no long-term contract
between the Company and such dealer. See "Risk Factors -- Dependence on
Significant Customers."
PATENTS AND TRADEMARKS. The Company owns a United States patent on which
virtually all of the Company's chairs are based and several trademarks. The
Company's patent covering virtually all of the Neutral Posture chairs expires in
October 2003. For a discussion of legal proceedings involving the Company's
patent, see "Business -- Legal Proceedings." Neutral Posture(R), ComputErgo(TM),
ERGO 2000(TM), Establishing the Standard of Acceptability(TM) are trademarks of
the Company. In addition, the Company has several pending patent applications,
including the patent application covering ComputErgo(TM), and possesses a wide
array of unpatented proprietary know-how and common law trademarks. The
Company's success and its
25
<PAGE> 27
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, creative and design skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are also 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.
See "Risk Factors -- Reliance on Intellectual Property."
BACKLOG. As of June 30, 1997, the Company's backlog of unfilled orders was
$385,000. At June 30, 1996, the backlog totaled $418,000. The Company expects to
fill all outstanding unfilled orders within one month, except as extended by
customer requested ship dates. The Company manufactures substantially all of its
products to existing orders and, as a result, backlog is not a significant
factor used to predict the Company's long term business prospects.
PROPERTIES. The Company's manufacturing and assembly operations are
conducted in its approximately 46,000 square-foot Bryan, Texas facility. The
Company also leases an approximately 1,400 square-foot showroom in the Chicago
Merchandise Mart and an approximately 100 square-foot showroom in Washington,
DC.
COMPETITION. The Company faces significant competition in the contract
furniture market. Neutral Posture chairs compete on the basis of design, health
benefits, comfort, quality, durability, service and price. Existing and future
competitors within the office furniture industry, including Herman Miller, Inc.,
Steelcase Inc. and Haworth, Inc., offer or will offer ergonomic products. There
is also competition from numerous other ergonomic furniture companies such as
HAG Inc., Grahl Industries, Inc. and Bodybilt. Certain of these competitors have
much greater financial and other resources and offer a broader product line than
the Company. 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 employers will increasingly seek its products to
enhance employee comfort and productivity through ergonomic design. The Company
believes that the following aspects of its manufacturing, marketing, sales,
distribution and customer service are its competitive strengths: (i) its
products are based on patented and/or patent-pending product designs, (ii)
interchangeable seat, back and arm components accommodate a worker's physical
attributes, which is advantageous to a large scale purchaser of contract
furniture, (iii) interchangeable components facilitate on-site service and
repair, and (iv) the Company offers extensive training to its end users, dealers
and independent sales representatives about ergonomics, reducing stress in the
workplace and how to use the Neutral Posture chair.
EMPLOYEES. As of June 30, 1997, the Company employed 72 full-time
employees, of whom 11 were in management, 14 were in administrative positions
and 47 were in production. None of the Company's employees is subject to any
collective bargaining agreement, and management considers its relations with its
employees to be good.
ENVIRONMENTAL MATTERS. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees based upon existing facts
known to management. Compliance with federal, state, local and foreign
environmental regulations relating to the discharge of substances into the
environment, the disposal of hazardous wastes and other related activities may
have an impact on the operations of the Company, but has, since the formation of
the Company in 1990, been accomplished without having a material adverse effect
on the Company. There can be no assurance that such regulations will not change
in the future or that the Company will not incur material costs as a result of
such regulations. The Company's ultimate goal is to reduce and, wherever
possible, eliminate the use and creation of hazardous waste in its manufacturing
processes.
LEGAL PROCEEDINGS. Other than routine litigation matters, the Company is
currently involved in a lawsuit and in an arbitration proceeding. The lawsuit
and the arbitration proceeding involves the Company's United States Patent No.
4,552,404 (the "Patent") which covers the design of virtually all of the Neutral
Posture chairs. In addition, a ComputErgo(TM) designer has asserted a claim for
payment for certain services, and the Company also is involved from time to time
in various routine legal proceedings incidental to the conduct of its business.
26
<PAGE> 28
Arbitration and Litigation Involving the Company's Patent and Related
Litigation. On May 21, 1997, the Company initiated arbitration proceedings
against Bodybilt claiming patent infringement, breach of contract, tortious
interference, slander, trade libel and unfair competition. The Company believes
that substantially all of the chairs sold by Bodybilt are designed in such a
manner that they infringe the Patent. The Company intends to enforce what it
believes to be exclusive ownership rights to the Patent by seeking injunctive
relief as well as damages. The demand for arbitration was filed with the
American Arbitration Association pursuant to a mandatory arbitration clause
included in the settlement agreement executed in 1996 between the Company and
Bodybilt.
Dr. Jerome Congleton, to whom the Patent was originally issued in 1985,
reacquired the Patent in 1991 in connection with the settlement of litigation
with Bodybilt. Such settlement restricted Dr. Congleton to granting only two
licenses of the Patent. In 1991, Dr. Congleton licensed the right to use the
Patent to Bodybilt and to the Company provided, among other things, that in each
case such licensee, the Company and Bodybilt, not sell or transfer more than 50%
of its assets or outstanding shares of stock. According to a Registration
Statement on Form S-1 filed with the Commission by Ergobilt, Inc., the parent
company of Bodybilt, the initial public offering of common stock of Ergobilt,
Inc. caused the license from Dr. Congleton to Bodybilt to terminate. Shortly
after the termination of Bodybilt's license, Dr. Congleton assigned his entire
interest in the Patent to the Company. Bodybilt disputed the validity of this
assignment, and filed suit on April 1, 1997, against Dr. Congleton in the United
States District Court for the Southern District of Texas. Bodybilt asserted that
Dr. Congleton breached the Bodybilt license agreement when he assigned the
Patent to the Company. Bodybilt sought a declaratory judgment as to Dr.
Congleton's obligations and limitations under the Settlement Agreement executed
in 1991, rescission of the 1991 patent assignment to Dr. Congleton and
indemnification for any patent infringement claims asserted by the Company
against Bodybilt. Although the Company was not named as a party to the lawsuit,
the lawsuit disputed the Company's exclusive rights to own and enforce the
Patent and the Company paid Dr. Congleton's defense costs. To date, the Company
has paid fees in the amount of approximately $30,000. Future fees in connection
with this matter are not expected to have a material adverse effect on the
Company. On August 22, 1997, the United States District Court for the Southern
District of Texas dismissed without prejudice Bodybilt's claims against Dr.
Congleton for lack of subject matter jurisdiction.
On September 23, 1997, the Company was served with a suit filed by BodyBilt
on September 18, 1997 in the 361st district court of Brazos County, Texas
against Dr. Jerome Congleton. Although the sole defendant in the suit is Dr.
Congleton, both the American Arbitration Association and the Company are listed
as "Injunctive Respondents." In general, the suit claims: (i) that Dr. Congleton
exceeded the scope of his rights when he assigned the Patent to the Company;
(ii) that Dr. Congleton's assigns are prohibited from contending that BodyBilt's
chairs infringe the Patent; and (iii) that Dr. Congleton materially breached the
1991 settlement agreement. The suit seeks: (v) an injunction against both the
American Arbitration Association and the Company from proceeding with the
arbitration; (w) unspecified monetary damages against Dr. Congleton; (x) a
declaratory judgment as to BodyBilt's claims; (y) rescission of the 1991
assignment of the Patent to Dr. Congleton; and (z) other relief against Dr.
Congleton. If Bodybilt prevails on all claims that it is asserting, the Patent
assignment by Dr. Congleton to the Company would be invalidated and the Company
would no longer own the Patent. Regardless of the outcome of any such lawsuit,
the Company will continue to pay all defense costs of Dr. Congleton associated
with such litigation. Although uncertainties associated with jury trials and
other litigation risks make it impossible for the Company to predict the outcome
of this proceeding with certainty, the Company does not believe that the outcome
of this proceeding will have a material adverse impact on its financial position
because even if the Company were to lose its ownership rights in the Patent, the
Company would still retain a license to the Patent.
ComputErgo.(TM) Ronald Kemnitzer, a co-inventor of ComputErgo(TM) who
assigned his interest in the related patent rights to the Company, has
informally asserted that his design company, Kemnitzer Design, Inc. ("KDI"), was
not paid for the second phase of certain design and development work done on
ComputErgo(TM). Although the Company paid KDI for the first phase of such work,
it did not enter into a written contract for the second phase (as required by
the KDI proposal) and the Company engaged another design company to perform such
work. To date, neither KDI nor Mr. Kemnitzer has made any written
27
<PAGE> 29
demand for payment for its work under any patent issued with respect to
ComputErgo(TM). The Company believes Mr. Kemnitzer's assertion is meritless.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The names of the directors and executive
officers of the Company upon completion of the offering and their respective
ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rebecca E. Boenigk................... 33 Chairman of the Board, Chief Executive Officer
and Director
David W. Campbell.................... 55 President and Director
David W. Ebner....................... 36 Vice President of Operations
Gregory A. Katt...................... 39 Vice President, Chief Financial Officer and
Secretary/Treasurer
Dr. Jerome J. Congleton.............. 53 Director
Ronald L. Jones...................... 55 Director
James W. Thompson.................... 46 Director
Dr. Cynthia Pladziewicz.............. 40 Director
</TABLE>
It is anticipated that prior to the first annual meeting of shareholders of
the Company following the offering, the directors of the Company will increase
the size of the Company's Board of Directors from six directors to seven
directors and another director who is not an officer or employee of the Company
will be elected to fill the vacancy.
Rebecca E. Boenigk co-founded the Company in 1990 and has served as
Chairman of the Board since 1990 and Chief Executive Officer since 1996 and
served as President from 1990 to 1996. She currently serves in the class of
directors whose terms expire at the 2000 annual meeting of shareholders. Mrs.
Boenigk also serves on the Industry Advisory Board of the National Science
Foundation Industry/University Cooperative Research Center in Ergonomics at
Texas A&M University. Mrs. Boenigk is a member of the Human Factor and Ergonomic
Society. In 1997, Mrs. Boenigk was awarded, along with her mother, Jaye
Congleton, Ernst and Young's Entrepreneur of the Year award in manufacturing in
the Houston region. Mrs. Boenigk is the daughter of Dr. Jerome Congleton, a
director of, and consultant to, the Company.
David W. Campbell has served as President and a director of the Company
since April 1, 1996, and serves in the class of directors whose terms expire at
the 1998 annual meeting of shareholders. Prior to assuming these positions, from
1994 to 1996, Mr. Campbell was a principal with Pate, Winters and Stone,
Management Consultants. From 1989 to 1994, Mr. Campbell served as a Division
President of Scotsman Industries, Inc., a publicly held manufacturer and
marketer of refrigeration products primarily for the food service industry. From
1987 to 1989, Mr. Campbell served as a Division President of Household
Manufacturing, a division of Household International, Inc., a financial,
retailing and manufacturing conglomerate. Additionally, from 1980 to 1987, Mr.
Campbell served as President, Chief Executive Officer and a director of Booth,
Inc., a publicly traded manufacturer of soft drink dispensing equipment.
David W. Ebner has served as Vice President of Operations since 1995. From
1994 to 1995, Mr. Ebner served as the Company's Plant Manager. From 1982 to
1994, Mr. Ebner was the Manager of Facilities and Operations for CompuAdd, Inc.,
a computer manufacturer and retailer.
Gregory A. Katt has served as Vice President and Chief Financial Officer of
the Company since May 1997 and as Secretary/Treasurer of the Company since
August 1997. Mr. Katt served as Treasurer of American Exploration Company, a
publicly traded oil and gas exploration and production company, from June 1995
to May 1997 and as its Director of Corporate Reporting, Budgeting and Tax from
June 1992 to June 1995.
28
<PAGE> 30
Dr. Jerome J. Congleton became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 1999 annual meeting
of shareholders. Dr. Congleton is also a consultant to the Company. Dr.
Congleton is the inventor of the Neutral Posture chair and has been an associate
professor in the Safety Engineering Program at Texas A&M University since 1983
and a founder and co-director of the National Science Foundation
Industry/University Cooperative Research Center in Ergonomics at Texas A&M
University since its formation in 1994. Dr. Congleton is the father of Mrs.
Boenigk, the Chairman of the Board and Chief Executive Officer of the Company.
Ronald L. Jones became a director of the Company in August 1997 and serves
in the class of directors whose terms expire at the 1999 annual meeting of
shareholders. Since March 1996, Mr. Jones has served as President and Chief
Executive Officer of Sealy Corporation, a manufacturer of mattresses and
boxsprings. From 1988 to 1996, he served as President of Masco Home Furnishings
Inc., a furniture manufacturer. Mr. Jones served as President of HON Industries,
Inc., a publicly traded national manufacturer and marketer of office furniture,
from 1982 to 1988.
James W. Thompson became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 2000 annual meeting
of shareholders. Since December 1994, Mr. Thompson has served as President,
Chief Executive Officer and director of Vallen Corporation, a publicly held
distributor of industrial safety and health products designed for the protection
of the individual worker and the workplace environment. Mr. Thompson joined
Vallen Corporation in June 1994 as President and Chief Executive Officer of
Vallen Safety Supply Company. From 1991 to 1994, Mr. Thompson was the Senior
Group Vice President of Westburne, Inc., a publicly traded distributor of
electrical plumbing, HVAC and telecommunications equipment.
Dr. Cynthia Pladziewicz became a director of the Company in August 1997 and
serves in the class of directors whose terms expire at the 1998 annual meeting
of shareholders. Since October 1995, Dr. Pladziewicz has worked as a
psychologist at The Well Being Group, where she conducts psychological
assessments and pre-surgical psychological screenings, leads psycho-educational
and support groups focused on pain management and consults with physicians
regarding patient treatment related to spine surgery programs. Dr. Pladziewicz
is an attorney who served of counsel to Thompson & Knight, P.C. from 1991 to
June 1997.
COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors has
established an Audit Committee comprising of Dr. Pladziewicz and Messrs. Jones
and Thompson. The functions of the Audit Committee are to recommend annually to
the Board of Directors the appointment of the independent auditors of the
Company, discuss and review in advance the scope and the fees of the annual
audit and review the results thereof with the independent auditors, review and
approve non-audit services of the independent auditors, review compliance with
existing major accounting and financial reporting policies of the Company,
review the adequacy of the financial organization of the Company and review
management's procedures and policies relating to the adequacy of the Company's
internal accounting controls and compliance with applicable laws relating to
accounting practices. Prior to the offering, the Company did not have an Audit
Committee.
The Board of Directors has established a Compensation Committee comprising
of Dr. Pladziewicz and Messrs. Jones and Thompson. The functions of the
Compensation Committee are to review and approve annual salaries, bonuses, and
grants of stock options pursuant to the Company's 1997 Omnibus Securities Plan
and to review and approve the terms and conditions of all material employee
benefit plans or changes thereto. Prior to the offering, the Company did not
have a Compensation Committee.
COMPENSATION OF DIRECTORS. Directors who are not also employees of the
Company will receive options to purchase 5,000 shares of Common Stock at an
exercise price equal to the initial public offering price. Such options will
vest one year after the date of grant. See "Management -- 1997 Omnibus
Securities Plan." Such directors will also be paid a fee of $1,000 per board
meeting attended and $750 per board committee meeting attended and will be
reimbursed for out-of-pocket expenses incurred for attendance at such meetings.
Other than with respect to reimbursement of expenses, directors who are
employees of the Company will not receive additional compensation for their
services as a director.
29
<PAGE> 31
EXECUTIVE COMPENSATION. The following table sets forth, for fiscal years
1995, 1996 and 1997, individual compensation information for the Chief Executive
Officer of the Company and each of the other most highly compensated executive
officers of the Company who were serving as executive officers at June 30, 1995,
1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($)
--------------------------- ------ ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rebecca E. Boenigk....................................... 1997 200,000 78,179 0 13,938(1)
Chairman of the Board and Chief Executive Officer 1996 200,000 57,878 12,000(2)
1995 200,000 10,921 0
David W. Campbell........................................ 1997 120,000 50,406 0 6,100(3)
President 1996(4) 30,000 0 0 0
Jaye E. Congleton (5).................................... 1997 120,000 60,140 0 12,000(6)
Executive Vice President and Secretary 1996 120,000 46,878 12,000(6)
1995 120,000 10,921 0
</TABLE>
- ---------------
(1) Amount consists of (i) the estimated dollar value of the benefit to the
executive officer of Company-paid premiums on split-dollar life insurance
policies on the life of the executive in the amount of $12,000 and (ii) the
estimated dollar value of the benefit to the executive officer of the
personal use of the Company's automobile in the amount of $1,938.
(2) Amount represents the estimated dollar value of the benefit to the executive
officer of Company-paid premiums on split-dollar life insurance policies on
the life of the executive in the amount of $12,000.
(3) Amount represents the estimated dollar value of the benefit to the executive
officer and his spouse of Company-paid premiums on life insurance policies
on the life of the executive.
(4) David Campbell joined the Company in April 1996.
(5) Mrs. Congleton resigned as an officer and director on August 1, 1997.
(6) Amount represents the estimated dollar value of the benefit to the executive
officer of Company-paid premiums on split-dollar insurance policies on the
life of the executive.
Employment and Consulting Agreements. The Company has entered into
employment agreements with Rebecca Boenigk, the Company's Chairman of the Board
and Chief Executive Officer, David W. Campbell, the Company's President, David
W. Ebner, the Company's Vice President of Operations, and Gregory A. Katt, the
Company's Vice President, Chief Financial Officer and Secretary/Treasurer, for a
term expiring on July 1, 2000, subject to automatic one-year extensions unless
either party gives 90 days written notice of its intention not to renew. The
agreement with Mrs. Boenigk provides for a base salary of $200,000, with an
annual bonus based on the attainment of targets set by the Board of Directors.
Mrs. Boenigk's employment agreement provides that if she is terminated by the
Company without cause or for nonperformance due to disability or if she
terminates because of breach of the agreement by the Company then Mrs. Boenigk
will receive (i) all accrued salary, if applicable; (ii) benefits for 12 months;
(iii) an amount equal to twice her base salary for the preceding year; and (iv)
an amount equal to her bonus for the preceding year. The agreement with Mr.
Campbell provides for a base salary of $135,000 and an annual bonus based on the
attainment of targets set by the Board of Directors. The agreement with Mr.
Ebner provides for a base salary of $75,000 and an annual bonus based on the
attainment of targets set by the Board of Directors. The agreement with Mr. Katt
provides for a base salary of $75,000 and an annual bonus based on the
attainment of targets set by the Board of Directors. Each of Mr. Campbell's, Mr.
Ebner's, and Mr. Katt's employment agreements provides that if he is terminated
by the Company without cause or for nonperformance due to disability or if he
terminates because of breach of the agreement by the Company then he will
receive (i) all accrued salary,
30
<PAGE> 32
if applicable; (ii) employment benefits for 12 months; (iii) an amount equal to
his base salary for the preceding year; and (iv) an amount equal to 50% of his
bonus for the preceding year. Officers' salaries may be increased at the
discretion of the Board of Directors. The agreements contain non-compete (during
the term of the agreement and for a specified term ranging from 12 to 18 months
thereafter) and confidentiality provisions.
In addition, the Company has entered into a Consulting Agreement, dated as
of July 1, 1997, with Dr. Jerome Congleton. Pursuant to this agreement, which
terminates on July 1, 2007, Dr. Congleton receives an annual fee of $90,000. Dr.
Congleton agrees to assign to the Company all right, title and interest in and
to any inventions, designs, improvements or discoveries during the term of the
agreement. The agreement may be terminated at any time by the written mutual
agreement of Dr. Congleton and the Company or by either party in the event that
the other party has committed a material breach of any of the provisions of the
agreement. For the term of the agreement and for a period of 18 months from the
last day of the term of the agreement, Dr. Congleton agrees not to participate
in any manner in any business that is involved in the design, manufacturing,
distribution or sale of ergonomic chairs and any other office products in any
state or country where the Company is engaged in business or where Dr. Congleton
has been involved in strategic planning on behalf of the Company. The agreement
also contains non-solicitation and confidentiality provisions.
All compensation decisions concerning executive officers have been made by
the Board of Directors. See "Management -- Executive Compensation."
401(k) Plan. The Company intends, but has not taken any steps, to implement
a 401(k) plan for its employees in the foreseeable future.
Cash Bonus Plan. The Company has a discretionary cash bonus plan under
which, based on the profitability of the Company, it has in the past and expects
in the future to pay bonuses to officers and employees of the Company. Bonuses
have been paid at the discretion of the management of the Company and approved
by the Board of Directors. In the future, bonus decisions will be made by the
Compensation Committee.
Amended and Restated 1996 Nonqualified Stock Option Plan. The Board of
Directors and the shareholders approved the Company's Amended and Restated 1996
Nonqualified Stock Option Plan (the "Stock Option Plan") effective as of April
29, 1996 and subsequently amended and restated the Stock Option Plan on August
11, 1997 and again on October 9, 1997. As of June 30, 1997, the Company had
outstanding options representing the right to purchase an aggregate of 200,000
shares of Common Stock, representing all of the shares available under the Stock
Option Plan. If at any time within five years after the original date of grant
of any option under the Stock Option Plan, the Company files a registration
statement under the Securities Act, in respect of an underwritten public
offering of its common stock, the Company, at its own expense, must register
option shares purchased by an optionee, concurrently with the registration of
such other common stock. If all the option shares have not been registered by
optionees within five years after the original date of any option under the
Stock Option Plan, the Company must file a registration statement under the
Securities Act within 120 days after the expiration of such five year period.
The number of shares that may be registered by the optionee pursuant to such
registration rights is subject to customary cutbacks and exclusions by the
managing underwriter of an offering thereof. Except for the shares of Common
Stock offered by Mr. Campbell and Mr. Ebner hereby, such registration rights
have been waived for this offering.
1997 Omnibus Securities Plan. The Board of Directors and the shareholders
of the Company approved the Company's 1997 Omnibus Securities Plan (the "Plan")
for the employees, directors and consultants of the Company. The number of
shares of Common Stock reserved for issuance under the Plan is 200,000 shares,
of which the Company intends to issue as soon as practicable following
consummation of the offering options to acquire 80,000 shares of Common Stock.
The Plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee may grant stock based compensation to Plan
participants, including nonqualified stock options, incentive stock options
within the meaning of Section 422 of the Code, stock appreciation rights and
restricted stock. In the event of a change of control, all unmatured
installments of any incentive stock option, non-qualified stock option,
restricted stock or stock appreciation right outstanding will automatically be
accelerated and vested or exercisable in full. A change in control of the
31
<PAGE> 33
Company is deemed to occur upon any of the following events: (i) any
consolidation, merger or share exchange of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company in
which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate ownership of Common Stock of the
surviving corporation immediately after such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all or
substantially all of the assets of the Company; (iii) the shareholders of the
Company approve any plan or proposal for the liquidation or dissolution of the
Company; (iv) the cessation of control (by virtue of their not constituting a
majority of directors) of the Board by the individuals (the "Continuing
Directors") who (x) at the date of the Plan were directors or (y) become
directors after the date of the Plan and whose election or nomination for
election by the Company's shareholders, was approved by a vote of at least
two-thirds of the directors then in office who were directors at the date of the
Plan or whose election or nomination for election was previously so approved;
(v) the acquisition of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of an aggregate of 20% of the voting power of the
Company's outstanding voting securities by any person or group (as such term is
used in Rule 13d-5 under the Exchange Act) who beneficially owned less than 15%
of the voting power of the Company's outstanding voting securities on the date
of the Plan, or the acquisition of beneficial ownership of an additional 5% of
the voting power of the Company's outstanding voting securities by any person or
group who beneficially owned at least 15% of the voting power of the Company's
outstanding voting securities on the date of the Plan, provided, however, that
notwithstanding the foregoing, an acquisition shall not constitute a change of
control if the acquiror is (x) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company and acting in such capacity, (y) a
subsidiary of the Company or a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of voting securities of the Company or (z) any other person whose
acquisition of shares of voting securities is approved in advance by a majority
of the Continuing Directors; or (vi) in a Title 11 bankruptcy proceeding, the
appointment of a trustee or the conversion of a case involving the Company to a
case under Chapter 7. After the consummation of the offering, 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 Plan.
Stock Options. The following table shows for each of the named executive
officers the number of shares covered by both exercisable and non-exercisable
stock options as of June 30, 1997, and the values for "in-the-money" options,
based on the positive spread between the exercise price of any such existing
stock options and the year-end value of the Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE JUNE 30, 1997 JUNE 30, 1997
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David Campbell......... 100,000 $227,500 0 200,000 $0 $1,205,000(2)
</TABLE>
- ---------------
(1) Aggregate market value (based on value of $2.50 per share) of the shares
covered by the options, less aggregate exercise price payable by the named
executive officer.
(2) Will become exercisable upon consummation of the offering.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. During fiscal year 1997, the Company had no separate compensation or
stock option committee or other board committee performing equivalent functions,
and these functions were performed by Mrs. Boenigk. The Company presently has a
Compensation Committee which performs these functions.
32
<PAGE> 34
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this prospectus, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person who is known by management to be the beneficial owner of more
than 5% of the outstanding Common Stock, (ii) the Selling Shareholders, (iii)
each of the Company's directors and executive officers, and (iv) all directors
and executive officers of the Company as a group. See "Management" and "Certain
Transactions" for a description of the Selling Shareholder's position, office or
other material relationship with the Company within the past three years. Unless
otherwise indicated, each person listed in the table has or will have sole
voting and investment power over the Common Stock that the person beneficially
owns, subject to community property laws where applicable and subject to the
footnotes to this table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
-------------------- --------------------
PERCENT SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF CLASS BEING SOLD NUMBER OF CLASS
------------------------------------ --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Rebecca E. Boenigk(1)(2)................... 960,000 38.4% 72,690 887,310 27.6%
David W. Campbell(1)(3).................... 400,000 16.0% 100,000 300,000 8.8%
Dr. Jerome J. Congleton(1)(4).............. 885,760 35.4% 67,070 818,690 25.5%
Ronald L. Jones(5)(6)...................... -- -- -- -- --
James W. Thompson(6)(7).................... -- -- -- -- --
Cynthia Pladziewicz(6)(8).................. -- -- -- -- --
Gregory A. Katt(1)......................... -- -- -- -- --
David W. Ebner(1).......................... 100,000 4.0% 40,000 60,000 1.9%
Jaye E. Congleton(1)(9).................... 885,760 35.4% 67,070 818,690 25.5%
Catherine J. Coker(1)(10).................. 114,240 4.6% 114,240 -- --
Eric N. Coker(1)(11)....................... 114,240 4.6% 114,240 -- --
C. Michele Zincke(1)....................... 40,000 1.6% 40,000 -- --
All directors and executive officers as a
group (a total of 9 persons)(6)(12)...... 2,345,760 93.8% 279,760 2,066,000 60.8%(12)
</TABLE>
- ---------------
(1) The business address for the named person is 3904 N. Texas Avenue, Bryan,
Texas 77803.
(2) Does not include the shares owned by Rebecca E. Boenigk's mother, Jaye E.
Congleton, as to which Mrs. Boenigk disclaims beneficial ownership.
(3) Includes options to purchase 200,000 shares of Common Stock that will become
exercisable upon consummation of the offering pursuant to the Amended and
Restated 1996 Nonqualified Stock Option Plan.
(4) Includes the shares owned by Dr. Jerome Congleton's wife, Jaye E. Congleton,
as to which Dr. Congleton disclaims beneficial ownership. Does not include
the shares owned by Dr. Congleton's daughter, Rebecca E. Boenigk, as to
which Dr. Congleton disclaims beneficial ownership.
(5) The business address for the named person is 1228 Euclid Avenue, 10th Floor,
Halle Building, Cleveland, Ohio 44115.
(6) Does not include options to be granted upon consummation of the offering to
Dr. Pladziewicz and Messrs. Jones and Thompson under the 1997 Omnibus
Securities Plan representing the right to acquire 5,000 shares of Common
Stock each.
(7) The business address for the named person is 13333 Northwest Freeway,
Houston, Texas 77040.
(8) The business address for the named person is 6300 West Parker Road, Plano,
Texas 75093.
(9) Does not include the shares owned by Jaye E. Congleton's daughter, Rebecca
E. Boenigk, as to which Mrs. Congleton disclaims beneficial ownership.
33
<PAGE> 35
(10) Includes the shares owned by Catherine J. Coker's husband, Eric N. Coker,
as to which Mrs. Coker disclaims beneficial ownership. Does not include the
shares owned by Mrs. Coker's mother, Jaye E. Congleton, as to which Mrs.
Coker disclaims beneficial ownership.
(11) Includes the shares owned by Eric N. Coker's wife, Catherine J. Coker, as
to which Mr. Coker disclaims beneficial ownership.
(12) If the Underwriter's over-allotment option is exercised in full, the
percentage of shares to be beneficially owned by the directors and
executive officers as a group after the offering will be 53.3%.
CERTAIN TRANSACTIONS
COMPANY LOANS. In June 1996 and April 1997, the Company made loans pursuant
to notes in the amounts of $32,225 and $106,225, respectively, to Mr. Campbell,
the President and a director of the Company. The Company received the notes
pursuant to the terms of an option agreement with Mr. Campbell to cover a
portion of the exercise price of stock options to purchase 200,000 shares of
Common Stock at an exercise price of $.22 1/2 and to cover the related tax
effects. After such exercise, Mr. Campbell holds options to purchase 200,000
shares of Common Stock at an exercise price of $.22 1/2 per share. These
recourse notes bear interest at a rate of 7.5% per annum and mature on December
31, 2000 and December 31, 2001, respectively.
In June 1996, the Company made a loan pursuant to a note in the amount of
$32,225 to Mr. Ebner, Vice President of Operations of the Company. The Company
received the note pursuant to the terms of an option agreement with Mr. Ebner to
cover a portion of the exercise price of stock options to purchase 100,000
shares of Common Stock at an exercise price of $.22 1/2 per share and to cover
the related tax effects. This recourse note bears interest at a rate of 7.5% per
annum and matures on December 31, 2000.
ROYALTIES. In March 1997, Dr. Congleton, a consultant to, and director of,
the Company, assigned the rights, title and interest in the Patent to the
Company in exchange for $30,000 and 25% of net royalties collected by the
Company from third parties for products manufactured, used or sold under license
or sublicense of the Patent. Dr. Congleton also has a written agreement with the
Company that grants him a perpetual 3% royalty (exclusive of Texas A&M
University's royalty to Dr. Congleton) on the net sales of every ComputErgo(TM)
sold by the Company.
GUARANTEES. The Revolving Credit Facility is guaranteed by Mrs. Boenigk,
Chairman of the Board and Chief Executive Officer, and Mrs. Congleton, a
principal shareholder of the Company. No amounts were outstanding under the
Revolving Credit Facility loan at June 30, 1997. Upon consummation of the
offering, Mrs. Boenigk's and Mrs. Congleton's personal guarantees will be
released by the lender.
The Loan Agreements are guaranteed by Mrs. Boenigk, Bobby Boenigk, Mrs.
Boenigk's husband, Mrs. Congleton and Dr. Congleton. The Company owed $144,000
and $482,000 under such Loan Agreements at June 30, 1997. Upon consummation of
the offering, these personal guarantees will be released by the lender.
DISTRIBUTIONS. For the period between April 1, 1996 through June 30, 1997,
the Company had declared distributions of $323,000 and had paid $223,000 of this
amount to its shareholders in connection with their estimated federal income tax
obligations attributable to the Company's earnings, of which Mrs. Boenigk, Mrs.
Congleton, Mrs. Coker, Mrs. Zincke and Messrs. Campbell, Ebner and Coker
received $140,945, $130,046, $8,386, $5,873, $14,682, $14,682 and $8,386,
respectively. Prior to the consummation of the offering, the Company intends to
declare a cash dividend to its existing shareholders. This cash dividend will be
in an amount sufficient to cover the present shareholders' estimated federal and
state income tax obligations attributable to the Company's Subchapter S earnings
for the period from July 1, 1997 through the Termination Date. The dividend will
be paid to these shareholders after consummation of the offering. The Company
has no intention of declaring or paying any other dividend or making any other
distribution to its shareholders after the Termination Date.
OTHER RELATIONSHIPS. Dr. Cynthia Pladziewicz, a director of the Company,
served of counsel to Thompson & Knight, P.C. during fiscal year 1997. The
Company intends to retain Thompson & Knight, P.C. to perform certain blue sky
research and filings in connection with the offering.
FUTURE TRANSACTIONS. 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
34
<PAGE> 36
Company's policy is that any transaction in the future with an affiliated
entity, executive officer, shareholder 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 such transaction will be on no less favorable terms than the
Company could obtain from unaffiliated parties.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 14,000,000
shares of Common Stock, par value $.01 per share and (ii) 1,000,000 shares of
preferred stock, par value $.01 per share. On June 30, 1997, there were seven
holders of record of Common Stock with 2,300,000 shares outstanding, and no
shares of preferred stock were outstanding.
COMMON STOCK. Holders of shares of Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors and paid
by the Company out of funds legally available therefor, subject to prior rights
of any outstanding shares of any preferred stock. See "Dividend Policy." In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
assets remaining after payment of all liabilities and liquidation preferences,
if any, of any preferred stock.
Except as otherwise required by law or the Amended and Restated Articles of
Incorporation, the holders of Common Stock are entitled to one vote per share on
all matters voted on by shareholders, including the election of directors.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption, sinking fund or conversion rights. The rights,
preferences, and privileges of holders of Common Stock are subject to the
rights, preferences, and privileges granted to the holders of any series of
preferred stock which the Company may issue in the future.
PREFERRED STOCK. The Board of Directors may, without further action by the
Company's shareholders, from time to time, direct the issuance of fully
authorized shares of preferred stock in one or more series and may, at the time
of issuance, determine the powers, rights, preferences, and limitations of each
series. Satisfaction of any dividend preferences on outstanding shares of
preferred stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Also, holders of preferred stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution, or
winding up of the Company before any payment is made to the holders of Common
Stock. Under certain circumstances, the issuance of such preferred stock may
render more difficult or tend to discourage a merger, tender offer, or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities, or the removal of incumbent management.
SPECIAL PROVISIONS OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
AND AMENDED AND RESTATED BYLAWS. The Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company include certain
provisions that could have anti-takeover effects. The provisions are intended to
enhance the likelihood of continuity and stability in the composition of, and in
the policies formulated by, the Board of Directors. These provisions also are
intended to help ensure that the Board of Directors, if confronted by a surprise
proposal from a third party that has acquired a block of Common Stock of the
Company, will have sufficient time to review the proposal, to develop
appropriate alternatives to the proposal, and to act in what the Board of
Directors believes to be the best interests of the Company and its shareholders.
These provisions of the Amended and Restated Articles of Incorporation may not
be amended or repealed by the shareholders of the Company except upon the vote
of the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock then entitled to vote thereon. The following is a
summary of the provisions contained in the Company's Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws and is qualified in
its entirety by reference to such documents in the respective forms filed as
exhibits to the Registration Statement of which this prospectus forms a part.
Amendment of Bylaw Provisions. The Amended and Restated Articles of
Incorporation provides that Bylaw provisions may be adopted, altered, amended,
or repealed only by the affirmative vote of (i) at least two-thirds of the
members of the Board of Directors who are elected by the holders of Common Stock
or
35
<PAGE> 37
(ii) the holders of at least two-thirds of the outstanding shares of each class
of the Company's capital stock then entitled to vote thereon.
Classified Board of Directors. The Amended and Restated Articles of
Incorporation provides for a Board of Directors divided into three classes of
directors serving staggered three-year terms. The classification of directors
has the effect of making it more difficult for shareholders to change the
composition of the Board of Directors in a short period of time. At least two
annual meetings of shareholders, instead of one, will generally be required to
effect a change in a majority of the Board of Directors.
Number of Directors; Filling Vacancies; Removal. The Amended and Restated
Articles of Incorporation provides that the number of directors is currently
six, which number may be increased or decreased pursuant to the Amended and
Restated Bylaws of the Company but in no event will be less than the minimum
number required by law. The Company's Amended and Restated Bylaws provide that
the Board of Directors, acting by majority vote of the directors then in office,
may fill any newly created directorship or vacancies on the Board of Directors.
The Company's Amended and Restated Articles of Incorporation provides that
a director may be removed with or without cause. "Cause" is defined in the
Amended and Restated Articles of Incorporation to mean that a director (i) has
been convicted of a felony by a court of competent jurisdiction and such
conviction is no longer subject to direct appeal, (ii) has missed three
consecutive meetings of the Board of Directors, or (iii) has been adjudged by a
court of competent jurisdiction to be liable for gross negligence or misconduct
in the performance of his duties to the Company in a matter of substantial
importance to the Company, and such adjudication has become final and
non-appealable. These provisions will preclude a shareholder from simultaneously
removing incumbent directors without cause and gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Special Meetings. The Amended and Restated Bylaws and Amended and Restated
Articles of Incorporation provide that special meetings of shareholders may be
called by a majority of the Board of Directors, the Chairman of the Board of
Directors, or by any holder or holders of at least 25% of any class of the
Company's outstanding capital stock then entitled to vote at the meeting.
Advance Notice Requirements for Director Nominees. The Amended and Restated
Bylaws establish an advance notice procedure with regard to the nomination of
candidates for election as directors. The procedure provides that a written
notice of proposed director nominees must be received by the Secretary of the
Company not more than 180 days nor less than 120 days before the first
anniversary of the prior year's annual meeting or, in the event of a special
meeting, not more than 10 days after the notice of the special meeting.
Notice to the Company from a shareholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act, including such persons's written consent
to being named in a proxy statement as a nominee and to serving as a director if
elected.
The chairman of a meeting of shareholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
shareholders determines that other business has not been properly brought before
such meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure will preclude
discussion by any shareholder of any nomination properly made or brought before
the annual or any other meeting in accordance with the foregoing procedures.
Limitations on Directors' Liability. The Company's Amended and Restated
Articles of Incorporation provides that the liability of the directors of the
Company to the Company or its shareholders for monetary damages for acts or
omissions occurring in their capacity as directors shall be limited to the
fullest extent permitted by the laws of the State of Texas and any other
applicable law, as such laws now exist and to such greater extent as they may
provide in the future. This elimination of liability for monetary damages
permitted by Texas law does not alter the standard of conduct with which
directors must comply nor does it affect the availability of equitable relief to
the Company and its shareholders.
36
<PAGE> 38
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Common Stock is Harris Trust and Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
3,200,000 shares of Common Stock excluding (i) 200,000 shares of Common Stock
reserved for issuance under the Company's 1997 Omnibus Securities Plan, of which
the Company intends to issue as soon as practicable following consummation of
the offering options to acquire 80,000 shares of Common Stock, (ii) 200,000
shares of Common Stock reserved for issuance pursuant to options outstanding
under the Company's Amended and Restated 1996 Nonqualified Stock Option Plan and
(iii) 133,400 shares of Common Stock subject to the Underwriter's Warrants. Of
these shares of Common Stock, all of the 1,334,000 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 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. Each of the Selling Shareholders of the Company has agreed
that he or she will not, directly or indirectly, offer, sell, pledge, contract
to sell, transfer the economic risk of ownership in, make any short sale, or
otherwise dispose of shares of Common Stock or securities convertible into or
exercisable or exchangeable for or any rights to purchase or acquire Common
Stock, without the consent of the Underwriter, prior to January 1, 1999. 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 one year but less than two
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 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 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
two 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, Rule 144 may be relied upon with respect to
the resale of securities originally issued by the Company, in reliance upon the
exemption provided in Rule 701 from the registration requirements of the
Securities Act, to its employees, directors, officers, consultants or advisors.
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.
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
Company's 1997 Omnibus Securities Plan. 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.
37
<PAGE> 39
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Selling
Shareholders an aggregate of 1,334,000 shares of Common Stock. The nature of the
obligations of the Underwriter is such that if any of such shares are purchased,
all must be purchased.
The Underwriter initially proposes 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 Underwriter 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 Underwriter 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 Underwriter.
Certain of the Selling Shareholders have granted an option to the
Underwriter, exercisable within 45 days after the date of this prospectus, to
purchase up to an additional 160,000 shares of Common Stock at the initial price
to the public, less the underwriting discount, set forth on the cover page of
this prospectus. The Underwriter may exercise the option only for the purpose of
covering over-allotments.
The Company has agreed to grant to the Underwriter warrants to purchase up
to 133,400 shares of Common Stock. The Underwriter's Warrants will not be
registered. The Underwriter's 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 the public set forth on the
cover page of this prospectus. Neither the Underwriter's Warrants nor the shares
of Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this prospectus, except that they
may be assigned, in whole or in part, to any successor, officer, director,
member or partner of the Underwriter. If the holder or holders of the
Underwriter's Warrants notify the Company of their intention to exercise all or
a portion of the Underwriter's Warrants and such exercise would cause Mrs.
Boenigk and Mrs. Congleton to collectively own less than 50% of the Company's
outstanding Common Stock, the Company may, before the exercise of the
Underwriter's Warrants, redeem the Underwriter's Warrants that were being
exercised by paying to the holder or holders the difference between the exercise
price of the Underwriter's Warrant and the last reported sales price for the
Common Stock on the date that notice of intention to exercise is given to the
Company. The Company must notify the holder or holders of its intention to
redeem the Underwriter's Warrants being tendered for exercise within 24 hours of
its receipt of notice and consummate the cash redemption within five days of
receipt of notice.
The holders of the Underwriter's Warrants will have no voting, dividend or
other rights as shareholders of the Company unless and until the exercise of the
Underwriter's Warrants. The number of securities deliverable upon any exercise
of the Underwriter's Warrants or its underlying securities and the exercise
price of the Underwriter's 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. Upon the occurrence of a merger, consolidation,
reorganization or certain other extraordinary transactions prior to one year
from the date of issuance of the Underwriter's Warrants, the Underwriter's
Warrants will become immediately exercisable. The Company has granted the
holders of the Underwriter's Warrants one demand registration right and
unlimited piggyback registration rights, at the Company's expense and subject to
customary limitations, with respect to the Common Stock issuable on the exercise
thereof.
During and after the offering, the Underwriter may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions in connection with the offering. The Underwriter
may also impose a penalty bid, whereby selling concessions allowed to broker-
dealers in respect of the Common Stock sold in the offering for their account
may be reclaimed by the Underwriter if such Common Stock is repurchased by the
Underwriter in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market, and, if commenced, may be discontinued at any time.
38
<PAGE> 40
The Company's current shareholders have agreed that until January 1, 1999,
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 the Underwriter.
Prior to the 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 Underwriter. 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 and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriter may be
required to make in respect thereof. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company, the Company has been advised by the
Commission that such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
The Underwriter has agreed to reserve approximately 30,000 shares of Common
Stock in the offering for sales to officers, directors and employees of the
Company and their friends and relatives at the initial public offering price.
Any shares of Common Stock not purchased by those persons will be sold to the
general public in the offering.
The Underwriter has advised the Company that it does not expect any sales
by the Underwriter to accounts over which it exercises discretionary authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
Certain legal matters in connection with this offering will be passed upon for
the Underwriter by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The financial statements of the Company as of June 30, 1997 and for each of
the two years then ended, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
39
<PAGE> 41
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-1 (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
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 audited financial
statements certified by independent public accountants and with quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.
40
<PAGE> 42
NEUTRAL POSTURE ERGONOMICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS AND NOTES:
Balance Sheet as of June 30, 1997......................... F-3
Statements of Income for the Years Ended June 30, 1996 and
1997................................................... F-4
Statements of Shareholders' Equity for the Years Ended
June 30, 1996 and 1997................................. F-5
Statements of Cash Flows for the Years Ended June 30, 1996
and 1997............................................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Neutral Posture Ergonomics, Inc.:
We have audited the accompanying balance sheet of Neutral Posture
Ergonomics, Inc. as of June 30, 1997, and the related statements of income,
shareholders' equity and cash flows for each of the two years in the 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 audits.
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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1997, and the
results of its operations and its cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
August 11, 1997
F-2
<PAGE> 44
NEUTRAL POSTURE ERGONOMICS, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
----------------
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 294,014
Accounts receivable -- less allowance for doubtful
accounts of $68,000 (Notes 3 and 6).................... 1,124,227
Inventories (Note 3)...................................... 507,577
Prepaid expenses and other................................ 156,947
----------
Total current assets.............................. 2,082,765
Property and Equipment -- Net (Notes 2 and 3)............... 1,434,939
Notes Receivable -- shareholders (Note 5)................... 118,175
Deposits and Other.......................................... 62,162
----------
Total............................................. $3,698,041
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 3)................ $ 26,077
Accounts payable.......................................... 755,264
Accrued liabilities....................................... 563,135
Income taxes payable (Note 4)............................. 47,706
Distributions payable to shareholders..................... 100,000
----------
Total current liabilities......................... 1,492,182
Long-Term Debt -- Less current portion (Note 3)............. 606,591
Commitments and Contingencies (Note 7)
Shareholders' Equity (Note 5):
Common stock: $.01 par value; 14,000,000 shares
authorized, 2,300,000 shares issued and outstanding.... 23,000
Additional paid-in capital................................ 382,000
Retained earnings......................................... 1,373,238
Accounts and notes receivable -- shareholders............. (95,845)
Deferred compensation -- stock options granted............ (83,125)
----------
Total shareholders' equity........................ 1,599,268
----------
Total............................................. $3,698,041
==========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 45
NEUTRAL POSTURE ERGONOMICS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net Sales (Note 6).......................................... $11,063,868 $12,089,262
Cost of Sales............................................... 7,682,754 7,594,322
----------- -----------
Gross Profit................................................ 3,381,114 4,494,940
Operating Expenses:
Selling................................................... 967,223 1,232,346
General and administrative................................ 2,013,330 2,181,314
----------- -----------
Total............................................. 2,980,553 3,413,660
----------- -----------
Operating Income............................................ 400,561 1,081,280
Other Income (Expense):
Interest expense.......................................... (83,418) (138,869)
Interest income........................................... 733 13,764
Other..................................................... 24,957 46,893
----------- -----------
Total............................................. (57,728) (78,212)
----------- -----------
Income Before Income Taxes.................................. 342,833 1,003,068
Pro Forma Income Taxes (Notes 1 and 4)...................... 127,593 292,693
----------- -----------
Pro Forma Net Income........................................ $ 215,240 $ 710,375
=========== ===========
Pro Forma Net Income Per Common Share....................... $ .28
===========
Weighted Average Common and Common Equivalent Shares
Outstanding (Note 1)...................................... 2,500,000
===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 46
NEUTRAL POSTURE ERGONOMICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCOUNTS AND
COMMON ADDITIONAL NOTES TOTAL
SHARES COMMON PAID-IN RETAINED RECEIVABLE -- DEFERRED SHAREHOLDERS'
ISSUED STOCK CAPITAL EARNINGS SHAREHOLDERS COMPENSATION EQUITY
--------- ------- ---------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1995........ 2,000,000 $20,000 $ 80,000 $ 443,146 $(43,345) $ -- $ 499,801
Stock options granted to
employees (Note 5)......... -- -- 237,500 -- -- (237,500) --
Exercise of stock options
(Note 5)................... 200,000 2,000 43,000 -- (35,000) -- 10,000
Amortization of deferred
compensation............... -- -- -- -- -- 106,875 106,875
Pro forma net income......... -- -- -- 215,240 -- -- 215,240
Pro forma income tax
adjustment (Note 4)........ -- -- -- 1,000 -- -- 1,000
--------- ------- -------- ---------- -------- --------- ----------
BALANCE AT JUNE 30, 1996....... 2,200,000 22,000 360,500 659,386 (78,345) (130,625) 832,916
Exercise of stock options
(Note 5)................... 100,000 1,000 21,500 -- (17,500) -- 5,000
Amortization of deferred
compensation............... -- -- -- -- -- 47,500 47,500
Shareholder distributions
declared................... -- -- -- (323,000) -- -- (323,000)
Pro forma net income......... -- -- -- 710,375 -- -- 710,375
Pro forma income tax
adjustment (Note 4)........ -- -- -- 326,477 -- -- 326,477
--------- ------- -------- ---------- -------- --------- ----------
BALANCE AT JUNE 30, 1997....... 2,300,000 $23,000 $382,000 $1,373,238 $(95,845) $ (83,125) $1,599,268
========= ======= ======== ========== ======== ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 47
NEUTRAL POSTURE ERGONOMICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1996 1997
--------- ----------
<S> <C> <C>
Operating Activities:
Pro forma net income...................................... $ 215,240 $ 710,375
Noncash items in net income:
Depreciation -- property and equipment................. 109,560 158,308
Amortization of deferred compensation.................. 106,875 47,500
Amortization of patent and licensing agreement......... -- 5,072
(Gain) loss on disposal of property and equipment...... 11,090 (1,610)
Deferred income tax benefit............................ (8,036) --
Changes in operating working capital:
Accounts receivable.................................... (202,444) (7,522)
Inventories............................................ 54,819 (64,863)
Prepaid expenses and other............................. (45,111) (92,301)
Accounts payable....................................... (504,030) 362,025
Accrued liabilities.................................... 227,998 268,601
Income taxes payable................................... (6,663) 40,658
Notes receivable -- shareholders....................... (29,450) (88,725)
Deposits and other..................................... (37,405) 26,871
--------- ----------
Pro forma net cash from (used for) operating
activities...................................... (107,557) 1,364,389
Pro forma income tax expense.............................. 1,000 326,477
--------- ----------
Historical net cash from (used for) operating
activities...................................... (106,557) 1,690,866
--------- ----------
Investing Activities:
Additions to property and equipment....................... (754,181) (431,717)
Proceeds from sale of property and equipment.............. -- 17,590
Acquisition of patent and licensing agreement............. -- (50,000)
--------- ----------
Net cash used for investing activities............ (754,181) (464,127)
Financing Activities:
Issuance of debt.......................................... 889,621 --
Payments on debt.......................................... -- (754,348)
Distributions to shareholders............................. -- (223,000)
Contributions on exercise of stock options................ 10,000 5,000
--------- ----------
Net cash from (used for) financing activities..... 899,621 (972,348)
--------- ----------
Increase in Cash and Cash Equivalents....................... 38,883 254,391
Cash and Cash Equivalents:
Beginning of year......................................... 740 39,623
--------- ----------
End of year............................................... $ 39,623 $ 294,014
========= ==========
Supplemental Information:
Interest paid............................................. $ 76,525 $ 145,472
========= ==========
Income taxes paid......................................... $ 151,972 $ 4,000
========= ==========
Noncash investing and financing:
Property and equipment additions for long-term debt.... $ -- $ 8,833
========= ==========
Note receivable for stock issued on exercise of
options............................................... $ 35,000 $ 17,500
========= ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 48
NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Neutral Posture Ergonomics, Inc. (the "Company") designs and
manufactures ergonomic chairs, and sells to wholesale and retail customers
nationwide. The Company's manufacturing facility is located in Bryan, Texas, and
its primary product showroom is located at the Merchandise Mart in Chicago,
Illinois. The Company has been operating under an exclusive license, along with
one other licensee, until February 1997, when the Company became the sole
licensee, for use of a specified patent in applications to industrial,
laboratory and office chair use; this license may not be assigned or
transferred. In March 1997, the Company acquired the patent (Note 7).
Financial Statement Preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the periods. Differences from
those estimates are recognized in the period they become known.
Revenues are recognized as sales when products are shipped and title
passes. As revenues are recognized, estimated warranty expenses are provided.
Cash Equivalents are highly liquid investments with maturities at date of
acquisition of three months or less.
Inventories, consisting primarily of raw materials, are stated at the lower
of cost (on the first-in, first-out method) or market.
Property and Equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over estimated useful lives ranging from three to seven years, or the
related lease term if shorter.
Financial Instruments consist of cash, accounts and notes receivable,
payables and debt, the carrying values of which are a reasonable estimate of
their fair values due to their short maturities or current interest rates.
Research and Development Costs are expensed as incurred and were $352,000
and $224,000 in fiscal 1996 and 1997, respectively.
Federal Income Taxes are not recorded by the Company for fiscal 1997 and a
portion of fiscal 1996 because, effective April 1, 1996, the Company has elected
taxation status as an S corporation under the Internal Revenue Code, with
profits and losses reportable by the shareholders in their individual income tax
returns. Deferred income taxes were provided prior to April 1, 1996, under the
asset and liability method for temporary differences in the recognition of
income and expense for tax and financial reporting purposes.
Pro Forma Income Taxes represent the applicable pro forma adjustments for
federal and state income taxes as if the Company had not been treated as an S
Corporation in fiscal 1997 and a portion of fiscal 1996. Upon completion of the
public offering, the Company will terminate its status as an S Corporation and
will be subject to such income taxes.
Pro Forma Net Income Per Common Share is based on the weighted average
number of common shares and common equivalent shares from dilutive stock options
outstanding during the period. Share and per-share amounts have been adjusted
retroactively for the 19-for-1 stock dividend (accounted for as a stock split)
which was effected in August 1997.
Stock-Based Compensation arising from stock option grants is accounted for
by the intrinsic value method under Accounting Principles Board Opinion No. 25
("APB No. 25"). Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), "Accounting for Stock-Based Compensation," requires
F-7
<PAGE> 49
NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expanded disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. As permitted by SFAS No. 123, the
Company continues to apply APB No. 25 to its stock-based compensation awards to
employees and discloses the required pro forma effect on net income and earnings
per share (Note 5).
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Land........................................................ $ 90,250
Building.................................................... 534,750
Building improvements....................................... 119,099
Machinery and equipment..................................... 415,368
Furniture and fixtures...................................... 305,240
Automobiles and trucks...................................... 111,362
----------
1,576,069
Less accumulated depreciation............................... 366,467
----------
Total....................................................... 1,209,602
Deposits on machinery and equipment......................... 225,337
----------
Property and equipment -- net............................... $1,434,939
==========
</TABLE>
3. DEBT AND CREDIT FACILITIES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
Revolving line of credit, up to $2,000,000; interest at
prime plus .5% (9% at June 30, 1997) payable monthly;
principal due January 21, 1999............................ $ --
Note payable to bank in monthly installments of $5,300,
including interest at 9.75% for the first 12 months and
variable thereafter, maturing in May 2001................. 481,732
Term loan payable in monthly installments of $1,456,
including interest at 8.25%, maturing in May 2011......... 143,824
Capital lease obligation, payable in variable monthly
installments through October 1999, net of $891 discount
based on interest at 10%, collateralized by the leased
equipment................................................. 7,112
--------
Total long-term debt........................................ 632,668
Less current portion........................................ 26,077
--------
Long-term debt -- less current portion...................... $606,591
========
</TABLE>
F-8
<PAGE> 50
NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt -- less current portion at June 30,
1997, are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1999................................................. $ 28,650
2000................................................. 29,093
2001................................................. 431,453
2002................................................. 8,087
2003................................................. 8,780
Thereafter........................................... 100,528
--------
Total........................................... $606,591
========
</TABLE>
Borrowings under the revolving line of credit are subject to borrowing base
requirements and are collateralized by accounts receivable and inventories. The
line of credit is subject to a quarterly commitment fee of .25% per annum on the
difference between the commitment amount and the aggregate principal balance.
The current credit facility is guaranteed by the two majority shareholders and
terminates on January 21, 1999.
Under the same facility, the Company has available a term line of credit up
to $500,000 with interest payable monthly at prime plus .5%, with a maturity not
in excess of five years, to finance the acquisition of additional machinery,
equipment and molds to be used in the Company's operations. At June 30, 1997, no
such loan was outstanding.
In May 1996, the Company purchased an office, warehouse and manufacturing
facility for $626,431. The Company issued a $500,000 variable interest rate note
and a term note of $150,000 for capital improvements on the building. The notes
are collateralized by the building, certain equipment and the assignment of
certain insurance proceeds.
The revolving line of credit and the notes require maintenance of specified
levels of tangible net worth and other financial covenants and restrict
additional borrowings, the purchase and disposal of assets, the payment of
dividends, the purchase of treasury stock and other specified changes in the
Company's business.
4. INCOME TAXES
Since April 1, 1996, the Company has elected taxation status as an S
corporation under the Internal Revenue Code, with profits and losses reportable
by the shareholders in their individual income tax returns. Accordingly, there
is no provision for federal income taxes in fiscal 1997 and a portion of fiscal
1996. The remaining net deferred tax asset of $2,004 at April 1, 1996, is
written off to tax expense in fiscal 1996. Upon completion of the public
offering, the Company will terminate its status as an S Corporation.
Pro forma income tax adjustments represent the additional provision
necessary for federal and state income taxes to be at the statutory rate in
effect (at an effective rate of 37% before tax credits) as if the Company had
not been treated as an S Corporation in fiscal 1997 and a portion of fiscal
1996.
Pro forma income tax expense consists of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Historical current (federal and state) tax expense $134,629 $ 44,658
Deferred tax benefit (8,036) --
Pro forma federal income tax adjustment 1,000 326,477
Historical current federal tax refunds from research and
development tax credits related to prior years -- (78,442)
-------- --------
$127,593 $292,693
======== ========
</TABLE>
F-9
<PAGE> 51
NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant items comprising the Company's deferred tax asset and liability
in fiscal 1996, include differences primarily arising from allowances and
accrued liabilities not currently deductible for tax purposes and for certain
equipment additions that were currently deductible for tax purposes.
5. STOCK OPTION PLAN
In April 1996, the Company adopted a Nonqualified Stock Option Plan (the
"Plan") to remain in effect for ten years or expiration of the latest option
period, whichever is later. The Plan authorizes the board of directors to grant
up to 700,000 option shares. The Plan contains provisions upon dissolution,
liquidation or merger of the Company to allow for immediate exercise of all
issued and outstanding options. Upon adoption of the Plan in April 1996, the
Company granted 500,000 options at $0.225 exercise price per share of which
200,000 options vested when granted and were exercised in June 1996, and the
remaining 300,000 options vest in equal amounts over a period of three years. At
April 30, 1997, an additional 100,000 options were exercised; at June 30, 1997,
200,000 options are outstanding and not exercisable, and 200,000 options are
reserved for future option issuances.
Under the terms of the option grants, at the election of the optionees, the
Company loaned to the optionees amounts to cover a portion of the exercise price
of the options and the related tax effects, and received from the optionees
notes receivable of $64,450 and $106,225 in fiscal 1996 and 1997, respectively.
These recourse notes bear interest at 7.5%, payable annually, and mature in 2000
and 2001.
The Company applies the provisions of APB No. 25 and related
Interpretations in accounting for its stock option plan. Deferred compensation
of $237,500 was recorded for the 500,000 options granted, based on the $0.475
per share excess of the estimated fair value of the stock of $0.70 per share
over the exercise price, and is amortized over the vesting period of one to
three years. Amortization of deferred compensation of $106,875 and $47,500 for
fiscal 1996 and 1997, respectively, is included in selling, general and
administrative expenses. Had compensation cost for the Company's stock option
plan been determined based on the fair value of the options at the grant date
consistent with the method prescribed by SFAS No. 123, the Company's pro forma
net income would have been reduced by $14,000 and $6,000 for fiscal 1996 and
1997, respectively.
The fair value of options granted in fiscal 1996 was estimated at $0.535
per share on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest rate of 6.32%, no dividend yield,
expected lives of five years and no expected volatility (because the Company's
stock was not publicly traded).
6. CONCENTRATION OF RISKS
The Company's revenues are derived principally from uncollateralized sales
of chairs to customers.
Revenues and accounts receivable from significant customers represent the
following percentages of the Company's net sales and accounts receivable:
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
ACCOUNTS ACCOUNTS
SALES RECEIVABLE SALES RECEIVABLE
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
General Services Administration................. 14% 12% 16% 15%
United Parcel Services.......................... 23% 15% 10% 5%
</TABLE>
Because of the availability of other customers, management does not believe
that the loss of any single customer would adversely affect the Company's
operations.
F-10
<PAGE> 52
NEUTRAL POSTURE ERGONOMICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases two showroom facilities under
agreements classified as operating leases. These agreements require the Company
to pay all executory costs (such as utilities and maintenance) incurred by the
landlord. In July 1996, the Company terminated its lease of warehouse and office
facilities due to the acquisition of new facilities in Bryan, Texas, in May 1996
(Note 3). The Company also has entered into operating leases for some of its
office equipment.
Future minimum payments under all noncancelable operating lease
obligations, including an estimated pro rata share of operating expenses, as of
June 30, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30:
-----------
<S> <C> <C>
1998............................................................... $ 55,881
1999............................................................... 54,818
2000............................................................... 56,419
2001............................................................... 52,635
2002............................................................... 38,691
--------
Total minimum lease payments....................................... $258,444
========
</TABLE>
Rent expense for fiscal 1996 and 1997, totaled $63,211 and $26,007,
respectively, which includes the Company's share of executory costs associated
with its office leases.
Tooling and Licenses -- In January 1997, the Company entered into an
agreement with a third party to design and develop the molds to be utilized in
the production process for approximately $400,000. The Company has paid
approximately $150,000 through June 30, 1997, and expects to pay the remaining
$250,000 upon completion of the molds in October 1997.
Royalties -- In March 1997, the Company acquired the patent (Note 1) from
Jerome C. Congleton for $30,000 and future royalties and now holds all rights to
the patent. Royalties are based on 25% of net royalties collected by the Company
from third parties for products manufactured, used or sold under license or
sublicense of the patent.
Legal Proceedings -- The Company is a party to certain legal proceedings
related to patents and other matters arising in the ordinary course of business.
Although the Company cannot predict the outcome of such proceedings with
certainty, the Company does not expect the outcome of these proceedings, either
individually or in the aggregate, to have a material adverse impact on its
financial position.
******
F-11
<PAGE> 53
[Picture of Dr. Jerome J. Congleton]
[Jerome J. Congleton, Ph.D., P.E., C.P.E.]
["I take pride in my designs. As a certified ergonomist, I believe that
increased productivity can result from even the slightest nuance of change in a
work environment. That is why my innovations make NPE a leader in the ergonomic
industry."]
[In 1995 and 1996, NPE was listed in Inc. Magazine's "Inc. 500" as one of the
500 fastest growing privately held companies in America. In 1997, Rebecca
Boenigk and Jaye Congleton were named Ernst & Young LLP's Entrepreneurs of the
Year in manufacturing in the Houston region.]
[Pictures of employees assembling chairs]
<PAGE> 54
======================================================
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 Underwriter. 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
Termination of Subchapter S Corporation
Status............................... 12
Use of Proceeds........................ 12
Dividend Policy........................ 13
Dilution............................... 14
Capitalization......................... 15
Selected Financial Data................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 21
Management............................. 28
Principal and Selling Shareholders..... 33
Certain Transactions................... 34
Description of Capital Stock........... 35
Shares Eligible for Future Sale........ 37
Underwriting........................... 38
Legal Matters.......................... 39
Experts................................ 39
Additional Information................. 40
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 delivery
requirement 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.
======================================================
======================================================
1,334,000 SHARES
[NEUTRAL POSTURE ERGONOMICS, INC. LOGO]
NEUTRAL POSTURE
ERGONOMICS, INC.
COMMON STOCK
------------
PROSPECTUS
------------
HUBERMAN FINANCIAL, INC.
, 1997
======================================================
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Articles of Incorporation of the Company provides
that the Company shall indemnify its directors and officers to the fullest
extent permitted by the Texas Business Corporation Act (the "TBCA"). Pursuant to
the provisions of Article 2.02-1 of the TBCA, the Company has the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company, against any and all expenses, judgments, fines, and amounts paid in
settlement actually incurred in connection with such action, suit, or
proceeding. The power to indemnify applies only if such person acted in good
faith and in a manner he reasonably believed to be in the best interest, or not
opposed to the best interest, of the Company and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
The statute further provides that the indemnification authorized thereby
shall not be deemed exclusive of any other rights to which any such officer or
director may be entitled under any bylaws, agreements, resolution of
shareholders or directors, or otherwise.
The Company's Amended and Restated Articles of Incorporation also provides
that the liability of the directors of the Company to the Company or its
shareholders for monetary damages for acts or omissions occurring in their
capacity as directors shall be limited to the fullest extent permitted by the
laws of the State of Texas and any other applicable law, as such laws now exist
and to such greater extent as they may provide in the future.
The Company has directors' and officers' liability insurance which provides
coverage for the directors and officers and the Company for securities-related
exposures arising out of an offering document and open market securities
transactions. In addition, coverage has been provided for the directors and
officers for certain non-securities related acts.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 2,942.72
NASD Filing Fee............................................. 1,471.10
Nasdaq National Market Listing Fee.......................... 22,000.00
Printing Expenses........................................... 30,000.00
Accounting Fees and Expenses................................ 130,000.00
Legal Fees and Expenses..................................... 130,000.00
Fees of Transfer Agent and Registrar........................ 5,000.00
Miscellaneous Expenses...................................... 78,586.18
-----------
Total............................................. $400,000.00
===========
</TABLE>
All of the above expenses except the Securities and Exchange Commission
registration fee, the NASD filing fee and NASDAQ National Market listing fee are
estimated. All of the above expenses will be paid by the Company.
II-1
<PAGE> 56
ITEM 3. UNDERTAKINGS.
The small business issuer hereby undertakes:
(1) That the small business issuer will provide to the Underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter
to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the small business issuer has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer 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 and will be governed by the final adjudication of such
issue.
(3) That the small business issuer will:
(a) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the small business issuer under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it
effective.
(b) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and the offering of the securities at that time
as the initial bona fide offering of those securities.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
The Company issued 100,000 shares of Common Stock to David W. Campbell, the
President and a director of the Company, in exchange for $45,000 upon exercise
of options granted under the Amended and Restated 1996 Nonqualified Stock Option
Plan. The Company based this price on its estimate of the fair market value of
the Common Stock at the date of grant. Such issuance was offered in reliance
upon Rule 701 of the Securities Act which exempts issuances under compensatory
benefit plans.
II-2
<PAGE> 57
ITEM 5. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1** -- Form of Underwriting Agreement
2.1* -- Amended and Restated Articles of Incorporation of the
Company
2.2* -- Amended and Restated Bylaws of the Company
3.1* -- Specimen Common Stock Certificate
6.1** -- Employment Agreement, dated as of July 1, 1997, between
the Company and Rebecca E. Boenigk
6.2* -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Campbell
6.3* -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Ebner
6.4* -- Employment Agreement, dated as of July 1, 1997, between
the Company and Gregory A. Katt
6.5* -- Consulting Agreement, dated as of July 1, 1997, between
the Company and Dr. Jerome Congleton
6.6* -- Letter Agreement, dated as of December 20, 1996, between
the Company and Shepherd Products, Inc.
6.7* -- Amendment to Letter Agreement, dated as of June 17, 1997,
between the Company and Shepherd Products, Inc.
6.8* -- Agreement, dated as of February 21, 1995, between the
Company and the General Services Administration
6.9* -- Trademark License, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.10* -- Promissory Note, dated as of April 30, 1997, issued by
David W. Campbell in favor of the Company
6.11* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Campbell in favor of the Company
6.12* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Ebner in favor of the Company
6.13* -- Loan Agreement, dated as of December 30, 1996, between
the Company and Comerica Bank-Texas
6.14* -- Amendment to Secured Loan Agreement, dated as of August
12, 1997, between the Company and Comerica Bank-Texas
6.15* -- Split Dollar Insurance Agreement, dated as of April 28,
1997, between the Company and Rebecca E. Boenigk
6.16* -- Life Insurance Agreement, dated as of February 20, 1997,
between the Company and David W. Campbell
6.17* -- Split Dollar Insurance Agreement, dated as of June 26,
1995, between the Company and Jaye E. Congleton
6.18* -- Split Dollar Insurance Agreement, dated as of January 21,
1997, between the Company and David W. Ebner
6.19* -- Key Man Insurance Agreement, dated as of April 28, 1997,
between the Company and Rebecca Boenigk
6.20* -- Key Man Insurance Agreement, dated as of February 20,
1997, between the Company and David W. Campbell
6.21* -- Key Man Insurance Agreement, dated as of March 3, 1997,
between the Company and Dr. Jerome J. Congleton
6.22** -- Neutral Posture Ergonomics, Inc. Amended and Restated
1996 Nonqualified Stock Option Plan, dated as of October
9, 1997
6.23** -- Neutral Posture Ergonomics, Inc. 1997 Omnibus Securities
Plan, dated as of July 1, 1997
6.24** -- Form of Warrant Agreement, dated as of October , 1997,
between the Company and the Underwriter
6.25* -- Agreement, dated as of March 5, 1997, between the Company
and Jerome J. Congleton
</TABLE>
II-3
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
6.26* -- Royalty Agreement, dated as of July 1, 1997, between the
Company and Jerome J. Congleton
6.27* -- Assignment, dated as of August 27, 1997, executed by the
Company
6.28* -- Assignment, dated as of September 15, 1997, between the
Company and Texas A&M University System
6.29* -- Assignment, dated as of August 27, 1997, executed by
Jerome J. Congleton.
6.30** -- Loan Agreement, dated as of April 30, 1996 between the
Company and Commerce National Bank.
6.31** -- Loan Agreement, dated as of April 30, 1996, between the
Company and Commerce National Bank.
6.32** -- First Amendment to Loan Agreement, dated as of October
10, 1997, between the Company and Compass Bank
6.33** -- Second Amendment to Loan Agreement, dated as of October
14, 1997, between the Company and Comerica Bank -- Texas
10.1** -- Consent of Deloitte & Touche LLP
10.2** -- Consent of Haynes and Boone, LLP (included in Exhibit
11.1)
10.3** -- Consent of Huberman Financial, Inc.
11.1** -- Opinion of Haynes and Boone, LLP
12.1* -- Power of Attorney
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
II-4
<PAGE> 59
SIGNATURES AND POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-1 and authorized this
Pre-Effective Amendment No. 4 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 15th day of October, 1997.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA E. BOENIGK
----------------------------------
Rebecca E. Boenigk
Chairman of the Board
and Chief Executive Officer
In accordance with to the requirements of the Securities Act of 1933, as
amended, this Pre-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form SB-1 was signed by the following persons in the capacities
stated below on the 15th day of October, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ REBECCA E. BOENIGK Chairman of the Board, Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive Officer)
Rebecca E. Boenigk
* President and Director
- -----------------------------------------------------
David W. Campbell
* Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary/Treasurer (Principal Financial and
Gregory A. Katt Accounting Officer)
* Director
- -----------------------------------------------------
Jerome J. Congleton
* Director
- -----------------------------------------------------
Ronald L. Jones
* Director
- -----------------------------------------------------
James W. Thompson
* Director
- -----------------------------------------------------
Cynthia Pladziewicz
</TABLE>
*By: /s/ REBECCA E. BOENIGK
----------------------------------
Rebecca E. Boenigk, pursuant to
powers of
attorney previously filed with the
Securities
and Exchange Commission
II-5
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1** -- Form of Underwriting Agreement
2.1* -- Amended and Restated Articles of Incorporation of the
Company
2.2* -- Amended and Restated Bylaws of the Company
3.1* -- Specimen Common Stock Certificate
6.1** -- Employment Agreement, dated as of July 1, 1997, between
the Company and Rebecca E. Boenigk
6.2* -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Campbell
6.3* -- Employment Agreement, dated as of July 1, 1997, between
the Company and David W. Ebner
6.4* -- Employment Agreement, dated as of July 1, 1997, between
the Company and Gregory A. Katt
6.5* -- Consulting Agreement, dated as of July 1, 1997, between
the Company and Dr. Jerome Congleton
6.6* -- Letter Agreement, dated as of December 20, 1996, between
the Company and Shepherd Products, Inc.
6.7* -- Amendment to Letter Agreement, dated as of June 17, 1997,
between the Company and Shepherd Products, Inc.
6.8* -- Agreement, dated as of February 21, 1995, between the
Company and the General Services Administration
6.9* -- Trademark License, dated as of January 12, 1997, between
the Company and Relax the Back Franchising Company
6.10* -- Promissory Note, dated as of April 30, 1997, issued by
David W. Campbell in favor of the Company
6.11* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Campbell in favor of the Company
6.12* -- Promissory Note, dated as of June 30, 1996, issued by
David W. Ebner in favor of the Company
6.13* -- Loan Agreement, dated as of December 30, 1996, between
the Company and Comerica Bank-Texas
6.14* -- Amendment to Secured Loan Agreement, dated as of August
12, 1997, between the Company and Comerica Bank-Texas
6.15* -- Split Dollar Insurance Agreement, dated as of April 28,
1997, between the Company and Rebecca E. Boenigk
6.16* -- Life Insurance Agreement, dated as of February 20, 1997,
between the Company and David W. Campbell
6.17* -- Split Dollar Insurance Agreement, dated as of June 26,
1995, between the Company and Jaye E. Congleton
6.18* -- Split Dollar Insurance Agreement, dated as of January 21,
1997, between the Company and David W. Ebner
6.19* -- Key Man Insurance Agreement, dated as of April 28, 1997,
between the Company and Rebecca Boenigk
6.20* -- Key Man Insurance Agreement, dated as of February 20,
1997, between the Company and David W. Campbell
6.21* -- Key Man Insurance Agreement, dated as of March 3, 1997,
between the Company and Dr. Jerome J. Congleton
6.22** -- Neutral Posture Ergonomics, Inc. Amended and Restated
1996 Nonqualified Stock Option Plan, dated as of October
9, 1997
6.23** -- Neutral Posture Ergonomics, Inc. 1997 Omnibus Securities
Plan, dated as of July 1, 1997
6.24** -- Form of Warrant Agreement, dated as of October ,
1997, between the Company and the Underwriter
6.25* -- Agreement, dated as of March 5, 1997, between the Company
and Jerome J. Congleton
6.26* -- Royalty Agreement, dated as of July 1, 1997, between the
Company and Jerome J. Congleton
6.27* -- Assignment, dated as of August 27, 1997, executed by the
Company
6.28* -- Assignment, dated as of September 15, 1997, between the
Company and Texas A&M University System
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
6.29* -- Assignment, dated as of August 27, 1997, executed by
Jerome J. Congleton.
6.30** -- Loan Agreement, dated as of April 30, 1997, between the
Company and Commerce National Bank
6.31** -- Loan Agreement, dated as of April 30, 1997, between the
Company and Commerce National Bank
6.32** -- First Amendment to Loan Agreement, dated as of October
10, 1997, between the Company and Compass Bank
6.33** -- Second Amendment to Loan Agreement, dated as of October
14, 1997, between the Company and Comerica Bank -- Texas
10.1** -- Consent of Deloitte & Touche LLP
10.2** -- Consent of Haynes and Boone, LLP (included in Exhibit
11.1)
10.3** -- Consent of Huberman Financial, Inc.
11.1** -- Opinion of Haynes and Boone, LLP
12.1* -- Power of Attorney
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 1.1
NEUTRAL POSTURE ERGONOMICS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
____________
October ____, 1997
Huberman Financial, Inc.
8333 Douglas Avenue, Suite 520
Dallas, Texas 75225
Dear Sirs:
Neutral Posture Ergonomics, Inc., a Texas corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you (the "Underwriter") an aggregate of 900,000 shares of Common Stock, par
value $.01 per share ("Stock") of the Company; David W. Campbell and David W.
Ebner propose, subject to the terms and conditions stated herein and at the
election of the Underwriter, to sell to the Underwriter up to, respectively,
100,000 and 60,000 additional shares of Stock; and the shareholders of the
Company named in Schedule II hereto (the "Selling Shareholders") propose,
subject to the terms and conditions stated herein, to sell to the Underwriter
an aggregate of 434,000 shares of Stock. The aggregate of 1,334,000 shares to
be sold by the Company and the Selling Shareholders are herein called the "Firm
Shares" and the 160,000 additional shares to be sold by Messrs. Campbell and
Ebner are herein called the "Optional Shares". The Firm Shares and the
Optional Shares which the Underwriter elects to purchase pursuant to Section 2
hereof are herein collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees
with, the Underwriter that:
(i) A registration statement on Form SB-1 (file no.
333-33675), as amended, in respect of the Firm Shares and Optional
Shares has been filed with the Securities and Exchange Commission (the
"Commission"); such registration statement, including a registration
statement (if any) filed pursuant to Rule 462(b) of the Securities Act
of 1933, as amended (the "Act"), and any post-effective amendment
thereto, each in the form heretofore delivered to you, have been
declared effective by the Commission in such
<PAGE> 2
form; and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in such registration statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, being hereinafter called
a "Preliminary Prospectus"; the various parts of such registration
statement, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the registration statement at the time it was declared
effective and including a registration statement, if any, filed
pursuant to Rule 462(b) of the Act increasing the size of the offering
under the Act, each as amended at the time such part of the
registration statement became effective, being hereinafter called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act being hereinafter called
the "Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by (i) you expressly for use therein or (ii) a Selling
Shareholder expressly for use in the preparation of the information
required to be presented therein pursuant to Item 4(d) of Form A
pursuant to Alternative 2 of Form SB-1;
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder and do not and will not, as of the
applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by (i) you expressly for use therein or (ii) a Selling Shareholder for
use in the preparation of the information to be presented therein
pursuant to Item 4(d) of Form 1-A pursuant to Alternative 2 of Form
SB-1;
(iv) Any term sheet and prospectus subject to completion
provided by the Company to the Underwriter for use in connection with
the offering and sale of the Shares
<PAGE> 3
pursuant to Rule 434 under the Act together are not materially
different from the prospectus included in the Registration Statement
(exclusive of any information deemed to be a part thereof by virtue of
Rule 434(d));
(v) The Company has not sustained since the date of the
latest audited financial statements included in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, that is
material to the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of
operations of the Company (collectively, a "Material Adverse Change"),
otherwise than as set forth or contemplated in the Prospectus, or any
change in the capital stock, short-term debt or long-term debt of the
Company;
(vi) The Company has good and marketable title in fee
simple to all material real property and good and marketable title to
all material personal property owned by it, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and any material
real property and buildings held under lease by the Company are held
by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Texas, with full power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which
it owns or leases properties, or conducts any business, so as to
require such qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any such
jurisdiction;
(viii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus;
(ix) The unissued Shares to be issued and sold by the
Company to the Underwriter hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and
3
<PAGE> 4
fully paid and non-assessable and will conform to the description
contained in the Prospectus;
(x) The issue and sale of the Shares by the Company and
the compliance by the Company with all of the provisions of this
Agreement, the Warrant Agreement executed and delivery concurrently
herewith (the "Warrant Agreement") or the Stock Purchase Warrant (the
"Warrant") delivered pursuant to the Warrant Agreement, and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, sale/leaseback agreement,
patent, license or other agreement or instrument (collectively, the
"Specified Documents") to which the Company is a party or by which the
Company is bound or to which any of the property or assets of the
Company is subject, other than such conflict, breach, violation or
default as would not cause a Material Adverse Change, nor will such
action result in any violation of the provisions of the Articles of
Incorporation, as amended and restated, or the By-laws of the Company
or any statute or any order, rule or regulation of any court or
government agency or body having jurisdiction over the Company or any
of its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement or the Warrant Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriter;
(xi) Other than as set forth or described in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company is a party or of which any property of the Company
is subject which, if determined adversely to the Company, would
individually or in the aggregate have a material adverse effect on the
financial position, shareholders' equity or results of operations of
the Company; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(xii) Deloitte & Touche LLP, who have certified financial
statements of the Company, are independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder;
(xiii) The Company has no subsidiaries;
(xiv) The Company owns, or possesses adequate rights to
use, all the patents, trademarks, service marks, trade names and
copyrights ("Intellectual Property") necessary for the present and
planned future conduct of its business. None of the activities
engaged in by the Company infringes or conflicts with Intellectual
Property rights of others and there is no infringement on the
Intellectual Property except as disclosed in the Prospectus
4
<PAGE> 5
or as the Company has otherwise advised you in writing. Without
limiting the preceding representation and warranty:
(a) The Company is the owner of all right, title and interest in
and to U.S. Patent No. 4,552,404 (the "404 patent") entitled
"Neutral Body Posture Chair," issued to Jerome J. Congleton on
November 12, 1985 and that such patent will be in full force
and effect as of the Time of Delivery (as defined in Section 4
hereof), and the 404 patent is not subject to any liens,
licenses, security interests or encumbrances except for the
lien and security interest pursuant to the Loan Agreement
between Comerica Bank-Texas and the Company dated as of
December 30, 1996, as amended;
(b) The Company is the owner of all right, title and interest in
and to the following pending U.S. utility and design patent
applications: (IDENTIFY TYPE, SERIAL NUMBER, FILING DATE,
TITLE, INVENTORS AND PRESENT STATUS);
(c) The Company is the owner of all right, title and interest in
and to Federal Registration No. 1,725,745 for "NEUTRAL
POSTURE" used in connection with workplace furniture, and
Registration No. 1,725,745 is in full force and effect and is
not subject to any liens, licenses, security interests or
encumbrances and is not the subject of any proceedings in the
U.S. Patent and Trademark Office;
(d) The Company is the owner of the following common law marks:
ComputErgo(TM), Establishing the Standard of Acceptability(TM)
and Ergo 2000(TM) for which applications for federal
registration are currently pending in the U.S. Patent and
Trademark Office;
(e) The Company is not aware of any claims for patent, trademark
or copyright infringement, unfair competition,
misappropriation of trade secrets or confidential information
against the Company, its affiliates, predecessors in interest,
officers or directors that could materially affect the
Company's business except (LIST EXCEPTIONS, IF ANY);
(f) The Company is not aware of any claim by any third party
claiming an ownership interest in any of the Company's
intellectual property EXCEPT (LIST EXCEPTIONS, IF ANY);
(g) The Company is not (1) aware of any patent under which it
needs a license, (2) aware of any software or copyrightable
material for which it needs a license to conduct its existing
or future contemplated business, (3) to the best of its
knowledge, using any marks which conflict with the trademark
rights of any third party, and (4) to the best of its
knowledge, using in its business any confidential information
or trade secrets of any third party that would result in a
Material Adverse Change;
5
<PAGE> 6
(h) The Company is not involved in litigation concerning any of
its intellectual property rights or the intellectual property
rights of others except as described in the Prospectus;
(i) The Company is not aware of any illegal, unlicensed or pirated
copies of software being used by it or its employees in its
business that would result in a Material Adverse Change; and
(j) The Company has no written agreements or contracts with Jerome
J. Congleton pertaining to the assignment of intellectual
property rights, including rights in future inventions and/or
improvements relating to ergonomic furniture, except as
described in the Prospectus;
(xv) Other than compensation payable to you or as
otherwise disclosed in the Prospectus, no person has the right to any
payment (including without limitation any finder's fee) in connection
with the offering or sale of the Shares;
(xvi) The pro forma financial information of the Company
included in the Registration Statement and Prospectus presents fairly
the information shown therein, and the assumptions used in the
preparation thereof are reasonable;
(xvii) The Company has provided or made available to you
originals or complete and accurate copies of all agreements,
contracts, corporate records, financial statements, business plans,
product literature and other instruments and documents material to the
business or operations of the Company, and has responded fully to all
requests for documents and information submitted to it by or for you,
and the Company has updated or supplemented any such document or
information to the extent necessary to reflect new developments or
additional information relevant thereto;
(xviii) The Company's financial performance during the
current fiscal quarter has been up to the date hereof consistent in
all material respects with the operating plans and budgets for such
quarter previously provided to you by the Company, and no aspect of
such performance requires the modification or supplementation of any
information contained in the Registration Statement or any Preliminary
Prospectus;
(xix) The election by the Company, and the consent to such
election by its shareholders (and, if applicable, by the spouses of
such shareholders) to cause the Company to be taxed as an S
corporation as provided in Section 1362 of the Internal Revenue Code
of 1986, as amended (and the predecessor Code) (the "Code"), was valid
and effective at all times from April 1, 1996 through and including
the Termination Date (as defined in the Registration Statement and
Prospectus), and neither the Internal Revenue Service nor any other
person or entity has challenged or indicated a present intention to
challenge the status of the Company as an S corporation during any
portion of such period; the Company has incurred no liability for
taxes under Section 1375 of the
6
<PAGE> 7
Code during or for any year in such period; and the Company has
validly adopted a fiscal year as provided in Sections 444 and 1378 of
the Code and Revenue Procedure 83-25, 1983-1 C.B. 689;
(xx) For all periods for which the Company's election to
be taxed as an S Corporation under Section 1362 of the Code was not in
effect, all material tax returns required to be filed by the Company
in any jurisdiction have been filed, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment
received by the Company have been paid, other than those being
contested in good faith and for which adequate reserves have been
provided;
(xxi) No officer, director or shareholder of the Company
has any direct or indirect affiliation or association with any NASD
member;
(xxii) Except as set forth in the Prospectus, no person has
any right to require the Company to register any securities under the
Act;
(xxiii) The Company has all requisite power and authority,
and has taken all necessary corporate action, to authorize, execute,
deliver and perform the Warrant Agreement, to execute, issue, sell and
deliver the Warrant and a certificate or certificates evidencing the
Warrant, to authorize and reserve for issuance and, upon payment from
time to time of the exercise price, to issue, sell and deliver, the
shares of the Stock issuable upon exercise of the Warrant, and to
perform all of its obligations under the Warrant Agreement and the
Warrant. The Warrant Agreement has been duly executed and delivered
by the Company and is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights
generally and by general principles of equity. No authorization,
approval, consent or other order of any governmental authority is
required for such authorization, issue or sale except to the extent
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and applicable federal and state securities laws; and
(xxiv) The Warrant, when delivered to the Underwriter, will
be duly authorized, executed and delivered and will be a legal, valid
and binding obligation of the Company enforceable in accordance with
its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general principles of
equity. The shares of Stock of the Company, when issued upon exercise
of the Warrant, will have been duly authorized for issuance and, when
issued in accordance with the terms of the Warrant Agreement, will be
validly issued and outstanding, fully paid and nonassessable and free
of statutory preemptive rights.
7
<PAGE> 8
(b) Each of the Selling Shareholders severally and not jointly
represents and warrants to, and agrees with, the Underwriter and the Company
that:
(i) The representations and warranties of the Company set
forth in subsection (a) of this Section 1 are true, accurate and
complete.
(ii) Such Selling Shareholder has granted [_____________] a
Power of Attorney (the "Power of Attorney") and a Custody Agreement
(the "Custody Agreement") for the sale and delivery of the Shares to
be sold by such Selling Shareholder hereunder; and such Selling
Shareholder has full right, power and authority to enter into this
Agreement, the Power of Attorney and the Custody Agreement and to
sell, assign, transfer and deliver the Shares to be sold by such
Selling Shareholder hereunder;
(iii) The sale of the Shares to be sold by such Selling
Shareholder hereunder and the compliance by such Selling Shareholder
with all of the provisions of this Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder is
bound or to which any of the property or assets of such Selling
Shareholder is subject, nor will such action result in any violation
of the provisions of any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over such
Selling Shareholder or the property of such Selling Shareholder;
(iv) Such Selling Shareholder has good and valid title to the
Shares to be sold at the First Time of Delivery (as defined in Section
4 hereof) (or, with respect to Optional Shares, at the First Time of
Delivery or the Second Time of Delivery (as defined in Section 4
hereof), as applicable) by such Selling Shareholder hereunder, free
and clear of all liens, encumbrances and claims, and immediately prior
to the applicable Time of Delivery such Selling Shareholder will have
good and valid title to the Shares to be sold at such Time of Delivery
by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances or claims; and, upon delivery of such Shares and payment
therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances or claims, will pass to the
Underwriter;
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement
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<PAGE> 9
thereto are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Shareholder
expressly for use therein (including without limitation information
furnished pursuant to Item 4(d) of Form 1-A pursuant to Alternative 2
of Form SB-1), such Preliminary Prospectus and the Registration
Statement did, and the Prospectus and any further amendments or
supplements to the Registration Statement and the Prospectus will,
when they become effective or are filed with the Commission, as the
case may be, conform in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading; and
(vii) Such Selling Shareholder has not made a transfer of any
Stock which would cause the Company to lose its status as an S
Corporation under Section 1361 of the Code.
In order to document the Underwriter's compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the First Time of
Delivery (as hereinafter defined) a properly completed and executed United
States Treasury Department Form W-9 (or Form W-8 if applicable, or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
Each of the Selling Shareholders, severally and not jointly,
represents and warrants that certificates in negotiable form representing all
of the Shares to be sold by such Selling Shareholder hereunder have been placed
in custody under a Custody Agreement, in the form heretofore furnished to you,
duly executed and delivered by such Selling Shareholder to Rebecca E. Boenigk,
as custodian (the "Custodian"), and that such Selling Shareholder has duly
executed and delivered a Power of Attorney, in the form heretofore furnished to
you, appointing the persons indicated in Schedule II hereto, and each of them,
as such Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder, to determine the purchase price to be paid by the Underwriter to
the Selling Shareholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Shareholder hereunder and
otherwise to act on behalf of such Selling Shareholder in connection with the
transactions contemplated by this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees severally and not
jointly that the Shares represented by the certificates held in custody for
such Selling Shareholder under the Custody Agreement are subject to the
interests of the Underwriter hereunder and that the arrangements made by such
Selling Shareholder for such custody, and the appointment by such Selling
Shareholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable. Each of the Selling Shareholders specifically agrees
severally and not jointly that the obligations of the Selling Shareholders
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Shareholder or by the occurrence of any
other event. If any individual Selling Shareholder should die or become
incapacitated, or
9
<PAGE> 10
if any other such event should occur, before the delivery of the Shares
hereunder, certificates representing the Shares shall be delivered by or on
behalf of the Selling Shareholders in accordance with the terms and conditions
of this Agreement and of the Custody Agreement, and actions taken by the
Attorneys-in Fact pursuant to the Powers of Attorney shall be as valid as if
such death, incapacity, or other event had not occurred, regardless of whether
or not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to the Underwriter 900,000 Firm Shares, (b)
each of the Selling Shareholders agrees, severally and not jointly, to sell to
the Underwriter that number of Firm Shares set forth opposite such Selling
Shareholder's name in Schedule II, and (c) the Underwriter agrees to purchase
from the Company and each of the Selling Shareholders, at a purchase price per
share of $ , the Firm Shares.
David W. Campbell and David W. Ebner, severally and not jointly,
hereby grant to the Underwriter the one-time right to purchase at its election
up to, respectively, 100,000 and 60,000 Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
over allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to each of
Messrs. Campbell and Ebner, given within a period of 45 calendar days after
the date of this Agreement, setting forth the aggregate number of Optional
Shares to be purchased (62.5% of which will be sold by Mr. Campbell and 37.5%
of which will be sold by Mr. Ebner, subject to rounding) and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery or, unless you and Messrs. Campbell and
Ebner otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
3. The Underwriter proposes to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. Certificates in definitive form for the Shares to be purchased by
the Underwriter hereunder, and in such denominations and registered in such
names as the Underwriter may request upon at least 48 hours' prior notice to
the Company and the Selling Shareholders, shall be delivered by or on behalf of
the Company and the Selling Shareholders to the Underwriter, against payment by
the Underwriter or on its behalf of the purchase price therefor by certified
bank checks, payable to the order of the Company and the Selling Shareholders
(which shall be delivered in care of the Custodian), as their interests may
appear in immediately available funds, or by payment in such other manner as
shall be agreed to in writing by the Company and the Underwriter, all at the
offices of Thompson & Knight, A Professional Corporation, 1700 Pacific Avenue,
Suite 3300, Dallas, Texas 75201. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:00 a.m., Dallas time, on
the third or fourth business day, as required or unless otherwise permitted by
the Commission pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder
following the date of the public offering, or at such other time and date as
you and
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<PAGE> 11
the Company and the Selling Shareholders may agree upon in writing; and, with
respect to the Optional Shares, 9:00 a.m., Dallas time, on the date specified
by you in the written notice given by you of your election to purchase such
Optional Shares, or at such other time and date as you, David W. Campbell and
David W. Ebner may agree upon in writing. Such time and date for delivery of
the Firm Shares is herein called the "First Time of Delivery," such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery."
If registration of any certificate shall be requested in a name other
than that of the Underwriter, there shall be delivered to [________________] a
Transfer Application with respect to the person in whose name registration of
such certificate is so requested. The certificates will be made available for
checking and packaging at least 24 hours prior to each Time of Delivery at such
place as is designated by the Underwriter.
5. The Company agrees with the Underwriter:
(a) To prepare the Prospectus in a form reasonably approved
by you and to file such Prospectus pursuant to Rule 424(b) under the
Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement,
or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when the
Registration Statement, or any amendment thereto, has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to
advise you, promptly after it receives notice thereof, of the issuance
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in
any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus
or for additional information; and, in the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, to use promptly its commercially reasonable efforts to
obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions of the United States as
you may reasonably request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction;
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<PAGE> 12
(c) To furnish you with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of the issue of the
Prospectus in connection with the offering or sale of the Shares and
if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon
your reasonable request to prepare and furnish without charge to you
and to any dealer in securities as many copies as you may from time to
time reasonably request of an amended Prospectus or a supplement to
the Prospectus which will correct such statement or omission or effect
such compliance, and in case you are required to deliver a prospectus
in connection with sales of any of the Shares at any time nine months
or more after the time of issue of the Prospectus, upon your
reasonable request but at your expense, to prepare and deliver to you
as many copies as you may reasonably request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as
soon as practicable, but in any event not later than 18 months after
the effective date of the Registration Statement (as defined in Rule
158(c)), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act
and the rules and regulations thereunder (including at the option of
the Company Rule 158);
(e) During the period beginning from the date hereof and
continuing through January 1, 1999, not to offer, sell, contract to
sell or otherwise dispose of Stock or other securities which are
substantially similar to the Stock or which are convertible or
exchangeable into Stock or other securities which are substantially
similar to the Stock, without your prior written consent, except
pursuant to (i) the Warrant and (ii) employee benefit plans as
described in the Prospectus;
(f) To furnish to its shareholders within 90 days after the
end of each fiscal year an annual report (including a balance sheet
and statements of income, shareholders' equity and cash flow of the
Company and its consolidated subsidiaries, if any, certified by
independent public accountants) and, within 45 days after the end of
each of the first three quarters of each fiscal year (beginning with
the fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company
and its subsidiaries, if any, for such quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to shareholders,
and deliver to you as soon as they are available, copies
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<PAGE> 13
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed;
(h) To use its commercially reasonable efforts to have the
Shares accepted for quotation on the Nasdaq Stock Market's National
Market; and
(i) To apply the net proceeds of the sale of the Shares
substantially in accordance with the statements set forth under the
captain "Use of Proceeds" in the Prospectus.
6. The Company and each of the Selling Shareholders covenant and
agree with one another and with the Underwriter that, except as provided below,
the Company will pay or cause to be paid all costs and expenses incident to the
performance of the Company's and the Selling Shareholders' obligations
hereunder including: (i) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriter and dealers for a period of
time not exceeding nine months after the effective date of the Registration
Statement; (ii) the cost of printing this Agreement, the Blue Sky Memorandum
and any other documents in connection with the offering, purchase, sale and
delivery of the Shares; (iii) all expenses in connection with the qualification
of the Shares for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the fees and disbursements of counsel for the
Underwriter in connection with such qualification and in connection with the
Blue Sky Memorandum; (iv) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
the sale of the Shares; (v) the cost of preparing stock certificates; (vi) the
cost and charges of any transfer agent or registrar; (vii) any fees and
expenses of counsel for the Selling Shareholders; (viii) each Selling
Shareholder's pro rata share of the fees and expenses of the Attorneys-in- Fact
and the Custodian; and (ix) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by each Selling Shareholder to the
Underwriter hereunder; provided, however, that, notwithstanding the foregoing,
all underwriters' discounts and commissions in respect of the sale of the
Shares by any Selling Shareholder shall be paid by such Selling Shareholder.
It is understood, however, that the Company shall bear, and the Selling
Shareholders shall not be required to pay or reimburse the Company for, the
cost of any other matters not directly relating to the sale and purchase of the
Shares pursuant to this Agreement and that, except as provided in this Section,
Section 8 and Section 11 hereof, the Underwriter will pay all of its own costs
and expenses, including the fees of its counsel, stock transfer taxes on resale
of any of the Shares by the Underwriter, and any advertising expenses connected
with any offers the Underwriter may make.
7. The obligations of the Underwriter hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in its discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Shareholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
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<PAGE> 14
Shareholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Thompson & Knight, A Professional Corporation, counsel
for the Underwriter, shall have furnished to you such opinion or
opinions, dated such Time of Delivery, with respect to the
incorporation of the Company, this Agreement, the validity of the
Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may
reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass
upon such matters;
(c) Haynes and Boone, LLP, counsel for the Company and the
Selling Shareholders, shall have furnished to you their written
opinion, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Texas, with full corporate power and
authority to own its properties and conduct its business as
described in the Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the Shares being
delivered at such Time of Delivery, but with respect to such
Shares to be issued and delivered by the Company, when issued
and delivered by the Company pursuant to this Agreement
against payment therefor) have been duly and validly
authorized and issued and are fully paid and non-assessable;
and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business,
so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact
upon certificates of officers of the
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<PAGE> 15
Company, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions and officer's certificates);
(iv) The Company has no subsidiaries;
(v) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
material adverse effect on the financial position,
shareholders' equity or results of operations of the Company;
and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) The Company has full corporate power and
authority to enter into this Agreement and to issue, sell and
deliver the Firm Shares to be issued and sold by the Company
hereunder, and this Agreement has been duly authorized,
executed and delivered by the Company and each Selling
Shareholder and is the legal, valid and binding agreement of
the Company and each Selling Shareholder enforceable in
accordance with its terms (except for provisions contained in
this Agreement purporting to limit rights of third parties and
except to the extent the enforceability of the indemnification
and contribution provisions of Section 8 of this Agreement may
be limited by public policy considerations as expressed in the
Act as construed by courts of competent jurisdiction, and
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general
principles of equity and for any other provisions of the type
listed in either (1) Section 14 of the American Bar
Association's Third Party Legal Opinion Report and Accord
(1991) or (2) the "Other Common Texas Qualifications"
contained in the Report of the Legal Opinions Committee
Regarding Legal Opinions in Business Transactions (such
provisions of the type listed in clauses (1) and (2) are
collectively referred to as the "Other Qualifications"));
(vii) A Power of Attorney and a Custody Agreement
have been duly authorized, executed and delivered by each such
Selling Shareholder and constitute valid and binding
agreements of such Selling Shareholder in accordance with
their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
laws affecting creditors' rights generally, by general
principles of equity and by the Other Qualifications;
(viii) The issue and sale to you of the Shares being
delivered at such Time of Delivery by the Company in
accordance with and upon the terms and conditions set forth
herein and the compliance by the Company with all of the
15
<PAGE> 16
provisions of this Agreement, the Warrant Agreement or the
Warrant and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any agreement listed under Item 6
of the exhibits to the Registration Statement, nor will such
action result in any violation of the provisions of the
Articles of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its properties;
(ix) The sale of the Shares to be sold by each
Selling Shareholder hereunder and the compliance by such
Selling Shareholder with all of the provisions of this
Agreement, the Power of Attorney and the Custody Agreement and
the consummation of the transactions herein and therein
contemplated will not (a) conflict with the laws of the State
of Texas or the federal laws of the United States by which
such Selling Shareholder is bound, or (b) result in a breach
or violation of any order, rule or regulation known to such
counsel of any court or governmental agency or body which, to
such counsel's knowledge, has jurisdiction over such Selling
Shareholder or the Stock of such Selling Shareholder;
(x) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company and each
Selling Shareholder of the transactions contemplated by this
Agreement, except the registration under the Act of the
Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriter;
(xi) Title to the Shares to be sold by each Selling
Shareholder, free of all adverse claims, has been transferred
to the Underwriter who has purchased such Shares in good faith
and without notice of any such adverse claim within the
meaning of the Uniform Commercial Code;
(xii) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and the notes thereto and the schedules
and statistical data included therein, as to which such
counsel need not express any opinion) appear on their face to
be appropriately responsive in all material respects with the
requirements of the Act and the rules and regulations
thereunder;
(xiii) The Company has all requisite corporate power
and authority, and has taken all necessary corporate action,
to authorize, execute, deliver and perform the Warrant
Agreement, to execute, issue, sell and deliver the Warrant and
a
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<PAGE> 17
certificate or certificates evidencing the Warrant, to
authorize and reserve for issuance and, upon payment of the
exercise price, to issue, sell and deliver, the shares of the
Stock issuable upon exercise of the Warrant, and to perform
all of its obligations under the Warrant Agreement and the
Warrant. The Warrant Agreement has been duly executed and
delivered by the Company and will be a legal, valid and
binding agreement of the Company enforceable in accordance
with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium
and other laws affecting creditors' rights generally, by
general principles of equity and by the Other Qualifications.
No authorization, approval, consent or other order of any
governmental authority is required for such authorization,
issue or sale except to the extent required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
applicable federal and state securities laws; and
(xiv) The Warrant, when delivered to the
Underwriter, will be duly authorized, executed and delivered
and will be a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general
principles of equity. The shares of Stock of the Company,
when issued upon exercise of the Warrant, will have been duly
authorized for issuance and, when issued in accordance with
the terms of the Warrant Agreement, will be validly issued and
outstanding, fully paid and nonassessable and free of
statutory preemptive rights.
Haynes and Boone, LLP shall confirm in its opinion letter that
it has received certificates of good standing for the Company from the
States of Texas, Illinois and the District of Columbia, which
certificates shall be attached as an exhibit to such opinion letter.
Haynes and Boone, LLP shall further confirm that, to its knowledge,
the issue and sale of the Shares being issued at such Time of Delivery
and the performance of this Agreement and the consummation of the
transactions herein contemplated do not violate any order, judgment or
decree of any court or governmental agency or body having jurisdiction
over the Company or any of its properties or assets.
Such counsel shall also state that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for,
the accuracy or completeness of the statements in the Registration
Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and
discussion of the contents thereof, and nothing has come to the
attention of such counsel that has caused it to believe that the
Registration Statement at the time the Registration Statement became
effective, or the Prospectus, as of its date and as of each Time of
Delivery, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or
supplement to the
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<PAGE> 18
Prospectus, as of its respective date, and as of each Time of
Delivery, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and the notes thereto
and the schedules and other financial and statistical data included in
the Registration Statement or the Prospectus).
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the State of Texas (excluding conflict of law rules) and the
federal laws of the United States;
(d) Arnold, White & Durkee, intellectual property counsel
for the Company, shall have furnished to you such opinion or opinions,
dated such Time of Delivery, in form and substance satisfactory to
you, to the effect that:
(i) The Company is the owner of all right, title
and interest in and to the 404 patent, and such patent is in
full force and effect as of the Time of Delivery and is not
subject to any liens, licenses, security interests or
encumbrances;
(ii) The Company is the owner of all right, title
and interest in and to the following pending U.S. utility and
design patent applications: (IDENTIFY TYPE, SERIAL NUMBER,
FILING DATE, TITLE, INVENTORS AND PRESENT STATUS);
(iii) The Company is the owner of all right, title
and interest in and to Federal Registration No. 1,725,745 for
"NEUTRAL POSTURE" used in connection with workplace furniture,
and Registration No. 1,725,745 is in full force and effect and
is not subject to any liens, licenses, security interests or
encumbrances and is not the subject of any proceedings in the
U.S. Patent and Trademark Office;
(iv) The Company is the owner of the following
common law marks: ComputErgo(TM), Establishing the Standard of
Acceptability(TM) and Ergo 2000(TM) for which applications for
federal registration are currently pending in the U.S. Patent
and Trademark Office;
(v) They are not aware of any claims for patent,
trademark or copyright infringement, unfair competition,
misappropriation of trade secrets or confidential information
against the Company, its affiliates, predecessors in interest,
officers or directors that could materially affect the
company's business EXCEPT (LIST EXCEPTIONS, IF ANY);
18
<PAGE> 19
(vi) They are not aware of any claim by any third
party claiming an ownership interest in any of the Company's
intellectual property EXCEPT (LIST EXCEPTIONS, IF ANY);
(vii) They are not aware of any patent under which
the Company needs a license, and they are not aware of any
software or copyrightable material for which the Company needs
a license to conduct its existing or future contemplated
business; the Company is not, to the best of such counsel's
knowledge, using any marks which conflict with the trademark
rights of any third party, and the Company is not, to the best
of such counsel's knowledge, using in its business any
confidential information or trade secrets of any third party
that could materially adversely affect the Company;
(viii) The Company is not involved in litigation
concerning any of its intellectual property rights or the
intellectual property rights of others except as follows:
(LIST, IF ANY);
(ix) They are not aware of any illegal, unlicensed
or pirated copies of software being used by the Company or its
employees in its business that could materially adversely
affect the Company; and
(x) The Company has the following written
agreements or contracts with Jerome J. Congleton pertaining to
the assignment of intellectual property rights including
rights in future inventions and/or improvements relating to
ergonomic furniture: (LIST).
(e) At 9:00 a.m., Dallas time, on the effective date of the
Registration Statement and the effective date of the most recently
filed post-effective amendment to the Registration Statement and also
at each Time of Delivery, Deloitte & Touche LLP shall have furnished
to you a letter or letters, dated the respective date of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto;
(f) (i) The Company shall not have sustained since the date
of the latest audited financial statements included in the Prospectus
any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in
the Prospectus there shall not have been any change in the capital
stock (other than issuances of stock upon the exercise of stock
options which were outstanding on the date of the latest balance sheet
included in the Prospectus), short-term or long-term debt of the
Company or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, shareholders' equity or results of operations of the Company
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in
19
<PAGE> 20
clause (i) or (ii), is in your judgment so material and adverse as to
make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the
Prospectus;
(g) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market's National Market;
(ii) a general moratorium on commercial banking activities in New York
declared by either federal or New York authorities; or (iii) the
outbreak or escalation of hostilities involving the United States or
the declaration by the United States of a national emergency or war,
if the effect of any such event specified in this clause (iii) in your
judgment makes it impracticable or inadvisable to proceed with the
public offering or delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated by the
Prospectus;
(h) The Shares to be sold by the Company at such Time of
Delivery shall have been duly accepted, subject to notice of issuance,
for quotation on the Nasdaq Stock Market's National Market;
(i) The Company and the Selling Shareholders shall have
furnished or caused to be furnished to you at such Time of Delivery
certificates of officers of the Company and of the Selling
Shareholders, respectively, satisfactory to you as to the accuracy of
the representations and warranties of the Company, and of the Selling
Shareholders respectively, herein at and as of such Time of Delivery,
as to the performance by the Company and the Selling Shareholders of
all of their respective obligations hereunder to be performed at or
prior to such Time of Delivery, and as to such other matters as you
may reasonably request and the Company shall have furnished or caused
to be furnished certificates as to the matters set forth in
subsections (a) and (f) of this Section and as to such other matters
as you may reasonably request; and
(j) The Company shall have executed and delivered to the
Underwriter the Warrant pursuant to and in the form of the Warrant
Agreement.
8. (a) The Company will indemnify and hold harmless the Underwriter
against any losses, claims, damages or liabilities to which the Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Underwriter for any legal or other expenses
reasonably incurred by the Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company
20
<PAGE> 21
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you expressly for use therein or (ii)
an untrue statement or omission or alleged untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus if the person
asserting any such loss, claim, damage or liability purchased shares but was
not sent or given a copy of the Prospectus at or prior to written confirmation
of the sale of such Shares to such person and the loss, claim, damage or
omission was corrected in the Prospectus.
(b) Each of the Selling Shareholders, severally and not jointly, will
indemnify and hold harmless the Underwriter against any losses, claims, damages
or liabilities to which the Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Underwriter for any legal or other expenses reasonably incurred by the
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that (i) the Selling
Shareholders shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
therein and (ii) in no event shall the liability of any Selling Shareholder
under this subsection (b) exceed the total gross proceeds from the sale of
Shares by such Selling Shareholder hereunder.
(c) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement, each person, if any, who controls the Company or any Selling
Shareholders within the meaning of Section 15 of the Act and each Selling
Shareholder against any losses, claims, damages or liabilities to which the
Company or such Selling Shareholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by you expressly for use
21
<PAGE> 22
therein; and will reimburse the Company and any such director, officer or
control person and each Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and any such director, officer or control
person or such Selling Shareholder in connection with investigating or
defending any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection unless the defense
of such claim is materially prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriter on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Shareholders on the one hand and the Underwriter on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Shareholders on the one hand and the Underwriter on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders bear to the
total underwriting discounts and commissions received by the Underwriter with
respect to the Shares purchased under this Agreement, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Selling Shareholders on the one hand
22
<PAGE> 23
or the Underwriter on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, each of the Selling Shareholders and the Underwriter
agree that it would not be just and equitable if contributions pursuant to this
subsection (e) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (e). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) the Underwriter
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission and (ii) no Selling
Shareholder shall be required to contribute any amount in excess of the gross
proceeds from the sale of Shares by such Selling Shareholder hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Selling Shareholders'
obligations in this subsection (e) to contribute are several and not joint.
(f) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls the Underwriter within the meaning of the Act; and the obligations of
the Underwriter under this Section 8 shall be in addition to any liability
which the Underwriter may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each person,
if any, who controls the Company or any Selling Shareholder within the meaning
of the Act.
9. (a) Subject to Section 9(b) below, if the Underwriter shall
default in its obligation to purchase a portion of the Shares which it has
agreed to purchase hereunder at the Time of Delivery, you shall use your
commercially reasonable efforts to arrange for another party or other parties
to purchase such Shares on the terms contained herein. If within 36 hours
after such default you do not arrange for the purchase of such Shares, then the
Company and the Selling Shareholders shall be entitled to a period of 36 hours
within which to procure another party or other parties to purchase such Shares
on such terms. In the event that, within the prescribed period, the Company
and the Selling Shareholders notify you that they have so arranged for the
purchase of such Shares, you or the Company and the Selling Shareholders shall
have the right to postpone such Time of Delivery for a period of not more than
seven days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which may thereby be made necessary.
The term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
23
<PAGE> 24
(b) If, after giving effect to any arrangements for the purchase of
the Shares by the Company and the Selling Shareholders as provided in
subsection (a) above, the aggregate number of Shares which remains unpurchased
exceeds one- eleventh of the aggregate number of all the Shares to be purchased
at such Time of Delivery, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriter to purchase and of the
Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of the Company or the Selling Shareholders, except for
the expenses to be borne by the Company and the Selling Shareholders as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve the Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Shareholders and
the Underwriter, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of the Underwriter or any controlling person of
the Underwriter, or the Company, or any of the Selling Shareholders or any
officer or director or controlling person of the Company, or controlling person
of any Selling Shareholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Shareholders shall be under any
liability to the Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason any Shares are not delivered by on behalf
of the Company and the Selling Shareholders as provided herein, the Company and
each of the Selling Shareholders pro rata (based on the number of Shares to be
sold by the Company and such Selling Shareholder hereunder) will reimburse the
Underwriter for all out-of-pocket expenses, including fees and disbursements of
counsel, reasonably incurred by the Underwriter in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Shareholders shall then be under no further liability to the
Underwriter in respect of the Shares not so delivered except as provided in
Section 6 and Section 8 hereof.
12. All statements, requests, notices, and agreements hereunder
shall be in writing, and if to the Underwriter shall be delivered or sent by
mail, telex or facsimile transmission to you at 8333 Douglas Avenue, Suite 520,
Dallas, Texas 75225; if to the Company or any Selling Shareholder shall be
delivered or sent by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement, Attention: Secretary.
Any such statements, requests, notices or agreements shall take effect upon
receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriter, the Company and the Selling Shareholders and, to
the extent provided in Section 8 and Section 10 hereof, the officers and
directors of the Company and each person who controls the Company, any Selling
Shareholder, or the Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right by
24
<PAGE> 25
virtue of this Agreement. No purchaser of any of the Shares from the
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO THE CONFLICTS OF LAWS
PROVISIONS THEREOF.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
17. Each provision of this Agreement shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any such
provision of this Agreement is held to be invalid, illegal or unenforceable
under any applicable law or rule in any jurisdiction, such provision will be
ineffective only to the extent of such invalidity, illegality or
unenforeability in such jurisdiction.
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding
agreement among you, Company and each of the Selling Shareholders.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
NEUTRAL POSTURE ERGONOMICS, INC.
By:
----------------------------
Rebecca E. Boenigk
Chief Executive Officer
25
<PAGE> 26
SELLING SHAREHOLDERS LISTED ON
SCHEDULE II:
By:
----------------------------
As Attorney-in-Fact acting on
behalf of each of the Selling
Shareholders named in Schedule
II to this Agreement
Accepted as of the date hereof:
HUBERMAN FINANCIAL, INC.
By:
------------------------------
Isac Huberman
President
26
<PAGE> 27
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF SOLD IF
FIRM MAXIMUM
SHARES TO BE OPTION
SOLD EXERCISED
------------ ---------
<S> <C> <C>
The Company . . . . . . . . . . . . . . . 900,000 -0-
The Selling Shareholders: . . . . . . . .
Rebecca E. Boenigk . . . . . . .
Jaye E. Congleton . . . . . . .
David W. Campbell . . . . . . . 100,000
Gregory A. Katt . . . . . . . .
David W. Ebner . . . . . . . . . 60,000
Eric N. Coker . . . . . . . . .
Catherine Coker . . . . . . . .
Michele Zincke . . . . . . . . .
------------ ---------
Total . . . . . . . . . . . . . 1,334,000 160,000
============ =========
</TABLE>
27
<PAGE> 28
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Deloitte &
Touche LLP shall furnish letters to the Underwriter to the effect that:
(i) They are independent certified public accountants with
respect to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules audited (and, if
applicable, prospective financial statements and/or pro forma
financial information examined) by them and included in the Prospectus
or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited interim financial statements, selected financial
data, pro forma financial information, prospective financial
statements and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been furnished to the Underwriter.
(iii) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officers of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may
be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) any unaudited statements of income, balance
sheets and statements of cash flows as of dates or for periods
beginning after June 30, 1997 included in the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations thereunder, or are not in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with the basis for
the audited statements of income, balance sheets and
statements of cash flows included in the Prospectus;
(B) any other unaudited income statement data and
balance sheet items for the periods or as of the dates
referred to in Clause (A) above included in the Prospectus do
not agree with the corresponding items in the unaudited
financial statements from which such data and items were
derived, and any such unaudited
1
<PAGE> 29
data and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited financial statements included in the Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements as of dates or for
periods beginning after ___________________ and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined
on a basis substantially consistent with the basis for the
audited financial statements included in the Prospectus;
(D) any unaudited pro forma condensed financial
statements included in the Prospectus do not comply as to form
in all material respects with the applicable accounting
requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, in
each case which were outstanding on the date of the latest
financial statements included in the Prospectus) or any
increase in the long-term debt of the Company, or any
decreases in net current assets or net assets or other items
specified by the Underwriter or any increases in any items
specified by the Underwriter, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus; except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in net revenues or operating profit or the total or
per share amounts of net income or other items specified by
the Underwriter, or any increases in any items specified by
the Underwriter, in each case as compared with the comparable
period of the preceding year and with any other period of
corresponding length specified by the Underwriter, except in
each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(iv) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph
(iii) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, with
2
<PAGE> 30
respect to certain amounts, percentages and financial information
specified by the Underwriter, which are derived from the general
accounting records of the Company, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Underwriter, and have compared certain of
such amounts, percentages and financial information with the
accounting records of the Company and have found them to be in
agreement.
3
<PAGE> 1
EXHIBIT 6.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is entered into as of July
1, 1997 by and between NEUTRAL POSTURE ERGONOMICS, INC., a Texas corporation
(the "COMPANY"), and Rebecca Boenigk (the "EXECUTIVE").
R E C I T A L S
The Company wishes to assure itself of the services of the Executive
for the period provided in this Agreement and the Executive wishes to enter in
the employ of the Company, on the terms and conditions hereinafter provided.
A G R E E M E N T
Based on the recitals set forth above and the mutual promises and other
good and valuable consideration, the Company and the Executive hereby agree as
follows:
ARTICLE 1
Employment
1.1 Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment by the Company for the period and upon the
terms and conditions contained in this Agreement. The Executive hereby
represents and warrants to the Company that the execution of this Agreement by
the Executive and the Executive's performance of her duties hereunder will not
conflict with, cause a default under, or give any party a right to damages
under any other agreement to which the Executive is a party or is bound.
1.2 Office and Duties.
(a) Position. The Executive shall serve the Company as Chief
Executive Officer, effective from the date hereof. The Executive shall
have the responsibility and authority to carry out the duties normally
assigned to a Chief Executive Officer and to perform such other duties
or hold such other offices as may be authorized and directed from time
to time by the Company in the sole discretion of the Board of
Directors.
(b) Commitment. Throughout the Term (as hereinafter defined) of
this Agreement, the Executive shall devote substantially all of the
Executive's time, energy, skill and efforts to the performance of the
Executive's duties hereunder in a manner that will faithfully and
diligently further the business and interests of the Company and its
affiliates (the "AFFILIATES"). The Executive further agrees that,
during her employment under this Agreement she will not engage in, or
be otherwise interested in, directly or indirectly, any
<PAGE> 2
other business or activity that is in conflict or competition with the
business of the Company or the Affiliates.
1.3 Term. The "TERM" (herein so called) of this Agreement shall
commence on the date hereof and shall end on July 1, 2000, unless earlier
terminated in accordance with the terms of this Agreement or unless extended
pursuant to this Section 1.3. After July 1, 2000, this Agreement shall be
automatically renewed each July 1 for one-year terms, unless either the Company
or the Executive provides written notice of election not to renew, at least
ninety (90) days before the applicable July 1.
1.4 Compensation.
(a) Base Salary. The Company shall pay the Executive as
compensation, in accordance with the Company's ordinary payroll and
withholding practices, an aggregate salary ("BASE SALARY") of $200,000
per year during the Term, or such greater amount as shall be approved
by the Company's Board of Directors.
(b) Bonus. The Company shall pay the Executive an annual bonus
for each year during the term of this Agreement. Such bonus shall be
paid by September 30 of each year (with the first bonus payable by
September 30, 1998, relating to the first year of the Term) during the
term of this Agreement, and on or before the September 30 immediately
following termination of this Agreement under Section 1.3 above. Such
annual bonus shall be determined in accordance with the Company's
policies as determined from time to time by the Compensation Committee
of the Board of Directors.
(c) Payment and Reimbursement of Expenses. During the Term, the
Company shall pay or reimburse the Executive for all reasonable travel
and other expenses incurred by the Executive in performing the
Executive's obligations under this Agreement in accordance with the
policies and procedures of the Company for its officers, provided that
the Executive properly accounts therefor in accordance with the regular
policies of the Company.
(d) Fringe Benefits and Perquisites. During the Term, the
Executive shall be entitled to participate in or receive benefits under
any plan or arrangement generally made available by the Company to its
officers and employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and
arrangements.
(e) Vacations. During the Term and in accordance with
the regular policies of the Company, the Executive shall be entitled to
the number of paid vacation days in each calendar year determined by the
Company from time to
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time for its officers generally, but not fewer than four (4) weeks in
any calendar year (prorated in any calendar year in which the Executive
is employed hereunder for less than the entire year in accordance with
the number of days in such calendar year during which the Executive is
so employed). Unused vacation days shall be forfeited or otherwise
disposed of pursuant to the Company's policy as in effect from time to
time.
(f) Automobile. During the initial three (3) years of the Term,
the Company shall provide the Executive with an automobile (including
the payment of maintenance, repairs, insurance and all ancillary costs
thereto) suitable for her use in connection with her duties as an
executive officer of the Company. Thereafter and for the remainder of
the Term, the Company shall pay the Executive $700 per month as an
automobile allowance.
1.5 Termination.
(a) By the Company.
(i) Nonperformance due to Disability. The Company may
terminate this Agreement for Nonperformance due to Disability.
"NONPERFORMANCE DUE TO DISABILITY" shall exist if because of ill
health, physical or mental disability, or any other reason
beyond the Executive's control, and notwithstanding reasonable
accommodations made by the Company, the Executive shall have
been unable, unwilling or shall have failed to perform the
essential functions of the Executive's job, as determined in
good faith by the Company's Board of Directors, for a period of
180 days in any 365-day period, irrespective of whether or not
such days are consecutive.
(ii)Cause. The Company may terminate the Executive's
employment for Cause. Termination for "CAUSE" shall mean
termination because of the Executive's:
(A) conviction of, or a plea of nolo contendere
to, (x) a felony relating to the Company's or any
Affiliate's assets, activities, operations or employees
or (y) a felony or a misdemeanor involving moral
turpitude that causes harm to the Company or any
Affiliate or that, in the good faith judgment of the
Company has damaged or interfered with the Company's or
any Affiliate's relationships with its customers,
suppliers, employees or other agents;
(B) substance abuse or illegal use of drugs that
impairs the Executive's performance, that causes harm to
the Company or that, in the reasonable judgment of the
Company,
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<PAGE> 4
has damaged or interfered with the Company's or any
Affiliate's relationships with its customers, suppliers,
employees or other agents;
(C) frequent or habitual tardiness, absenteeism,
failure to meet performance standards that the Board of
Directors of the Company in good faith believes to be
either reasonable in light of the Executive's experience
and training or consistent with past practices,
insubordination, material violation of Company policy or
material breach by the Executive of this Agreement, other
than a breach of Section 2.2 (Confidential Information)
or Section 2.3 (Noncompetition); provided, however, that
the foregoing clause (C) shall not constitute Cause
unless (x) the Company first notifies the Executive in
writing of her inadequate performance, specifying in
reasonable detail the basis therefor and stating that it
is grounds for termination for Cause and (y) the
Executive then fails to finally cure such matter within
thirty (30) business days after such notice is sent or
given under this Agreement;
(D) commission of an act of fraud, illegality,
theft or dishonesty in the course of the Executive's
employment with the Company and relating to the Company's
or any Affiliate's assets, activities, operations or
employees; or
(E) breach by the Executive of Section 2.2
(Confidential Information) or Section 2.3
(Noncompetition) of this Agreement; provided, however,
that the foregoing clause (E) shall not constitute Cause
unless (x) the Company first notifies the Executive in
writing of her breach or alleged breach of Section 2.2 or
Section 2.3, specifying in reasonable detail the basis
therefor and stating that it is grounds for termination
for Cause and (y) the Executive then fails promptly (but
in any event not later than the earlier of the tenth
business day after such notice is given or the third
business day after such notice is received) to cease the
actions or inactions that constitute the basis for the
breach or alleged breach of Section 2.2 or 2.3.
The Company may terminate the Executive's employment Without
Cause, subject to the provisions of Section 1.6(c) (Termination
by the Company Without Cause or by the Executive for Company
Breach). Termination "WITHOUT CAUSE" shall mean termination of
the Executive's employment by the Company other than termination
for Cause or for Nonperformance due to Disability.
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<PAGE> 5
(b) By the Executive.
(i) Company Breach. The Executive may terminate the
Executive's employment hereunder for Company Breach. For
purposes of this Agreement "COMPANY BREACH" shall mean:
(A) any material breach of this Agreement by the
Company; provided, however, that a material breach hereof
by the Company shall not constitute Company Breach unless
(i) the Executive notifies the Company in writing of the
breach, specifying in reasonable detail the nature of the
breach and stating that such breach constitutes grounds
for Company Breach and (ii) the Company fails to cure
such breach within thirty (30) business days after such
notice is sent or given hereunder; or
(B) the assignment to the Executive of any duties
materially inconsistent with her position, duties,
responsibilities and status with the Company.
(ii) Without Good Reason. During the Term, the
Executive may terminate the Executive's employment Without Good
Reason. Termination "WITHOUT GOOD REASON" shall mean termination
of the Executive's employment by the Executive other than
termination for Company Breach.
(c) Explanation of Termination of Employment. In addition to any
notice required by Sections 1.5(a)(ii) or 1.5(b)(i) any party
terminating this Agreement shall give prompt written notice ("NOTICE OF
TERMINATION") to the other party hereto advising such other party of
the termination hereof. Within thirty (30) business days after the
Notice of Termination is sent, the terminating party shall deliver to
the other party hereto a written explanation, which shall state in
reasonable detail the basis for such termination and shall indicate
whether termination is being made for Cause, Without Cause or for
Nonperformance due to Disability (if the Company has terminated the
Agreement) or for Company Breach or Without Good Reason (if the
Executive has terminated the Agreement).
(d) Date of Termination. "DATE OF TERMINATION" shall mean the
date on which Notice of Termination is sent or given under this
Agreement or the date of the Executive's death.
1.6 Compensation Upon Termination.
(a) Termination by the Company for Nonperformance due
to Disability. If the Company shall terminate the Executive's
employment
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<PAGE> 6
Without Cause or for Nonperformance due to Disability then the
Company's obligation to pay salary and benefits pursuant to Section 1.4
(Compensation) shall terminate, except that the Company shall pay the
Executive and, if applicable, the Executive's heirs (i) accrued but
unpaid salary and benefits pursuant to Sections 1.4(a) (Base Salary),
1.4(b) (Discretionary Bonus) and 1.4(c) (Payment and Reimbursement of
Expenses) through the Date of Termination, (ii) payment for untaken
vacation accrued pursuant to Section 1.4(e) (Vacations) through the
Date of Termination, (iii) the benefits set forth in Section 1.6(d)
(Severance Benefits) below for twelve (12) months, as if the Executive
remained in the employment of the Company and (iv) an amount equal to
(x) two multiplied by the Base Salary for the last year of this
Agreement (including both the initial term and all renewal terms) plus
(y) one hundred percent (100%) of the Executive's bonus relating to the
last year of this Agreement (including both the initial term and all
renewal terms) (provided that if such termination occurs prior to the
payment of the first annual bonus hereunder, such annual bonus shall be
presumed to be $100,000).
(b) Termination by the Company for Cause or by the Executive
Without Good Reason. If the Company shall terminate the Executive's
employment for Cause or if the Executive shall terminate the
Executive's employment Without Good Reason, then the Company's
obligation to pay salary and benefits pursuant to Section 1.4
(Compensation) shall terminate, except that the Company shall pay the
Executive's accrued but unpaid salary and benefits pursuant to Sections
1.4(a) (Base Salary) and 1.4(c) (Payment and Reimbursement of Expenses)
through the Date of Termination.
(c) Termination by the Company Without Cause or by the Executive
for Company Breach. If the Company shall terminate the Executive's
employment Without Cause or if the Executive shall terminate her
employment for Company Breach, then the Company shall pay the Executive
and, if applicable, the Executive's heirs (i) accrued but unpaid salary
and benefits pursuant to Sections 1.4(a) (Base Salary), 1.4(b)
(Discretionary Bonus) and 1.4(c) (Payment and Reimbursement of
Expenses) through the Date of Termination, (ii) payment for untaken
vacation accrued pursuant to Section 1.4(e) (Vacations), (iii) the
benefits set forth in Section 1.6(d) (Severance Benefits) for twelve
(12) months, as if the Executive remained in the employment of the
Company and (iv) in lieu of any further salary payments for periods
subsequent to the Date of Termination, an amount equal to (x) two
multiplied by the Base Salary for the last year of this Agreement
(including both the initial term and all renewal terms) plus (y) one
hundred percent (100%) of the Executive's bonus relating to the last
year of this Agreement (including both the initial term and all renewal
terms) (provided that if such termination occurs prior to the payment
of the first annual bonus hereunder, such annual bonus shall be
presumed to be $100,000).
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<PAGE> 7
(d) Severance Benefits. Upon termination of the Executive's
employment during the Term by the Company for Nonperformance due to
Disability, by the Company Without Cause or by the Executive for
Company Breach, the Company shall permit the Executive and, if
applicable, the Executive's heirs, to continue to participate in the
Company's employee benefit plans, to the extent required by law and
subject to the terms and conditions of such employee benefit plans.
(e) No Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Section 1.6
(Compensation Upon Termination) by seeking other employment or
otherwise.
1.7 Death of Executive. If the Executive dies prior to the expiration
of the Term hereof, then the Executive's employment and other obligations
hereunder shall automatically terminate and the Company's obligation to pay
salary and benefits pursuant to Section 1.4 (Compensation) shall terminate,
except that (a) the Company shall pay the Executive's estate the accrued but
unpaid salary and benefits pursuant to Section 1.4(a) (Base Salary), 1.4(b)
(Discretionary Bonus) and 1.4(c) (Payment and Reimbursement of Expenses)
through the end of the month in which the Executive's death occurs and (b) the
Executive's heirs will be eligible to receive the benefits set forth in Section
1.6(d) (Severance Benefits) above for twelve (12) months, as if the Executive
remained in the employment of the Company.
1.8 Company Successors. The Company will require and cause any
successor to all or substantially all of the business or assets of the Company
(whether direct or indirect by purchase, merger, consolidation, reorganization,
liquidation or otherwise), by written agreement, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
1.9 Tax Withholding. The Company shall deduct or withhold from any
amounts paid to Executive hereunder all federal, state and local income tax,
Social Security, FICA, FUTA and other amounts that the Company determines are
required by law to be withheld.
ARTICLE 2
Confidentiality and Noncompetition
2.1 Acknowledgments by the Executive. The Executive acknowledges that
(a) she has occupied a position of trust and confidence with the Company and
the Affiliates prior to the date hereof and has, or has had the opportunity to,
become familiar with the following, any and all of which constitute
confidential information of the Company or the Affiliates, (collectively, the
"CONFIDENTIAL INFORMATION"):
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<PAGE> 8
(i) any and all trade secrets and proprietary technology concerning the
business and affairs of the Company or the Affiliates, product pricing, data,
know-how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
product development, supplier lists, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer
software and database technologies, systems, structures and architectures (and
related processes, formulae, compositions, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information) of
the Company or the Affiliates and any other information, whether or not
documented in any manner, of the Company or the Affiliates that is a trade
secret within the meaning of applicable trade secret law; (ii) any and all
information concerning the businesses and affairs of the Company and the
Affiliates (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, new product development information, the names and
backgrounds of key personnel, personnel training and techniques and materials),
however documented; and (iii) any and all notes, analyses, compilations,
studies, summaries, and other material prepared by or for the Company or the
Affiliates containing or based, in whole or in part, on any information
included in the foregoing; (b) the businesses of the Company and the Affiliates
is national in scope; (c) their products and services are marketed throughout
the United States; (d) the Company and the Affiliates compete with other
businesses that are or could be located in any part of the United States; (e)
the provisions of Sections 2.2 (Confidential Information) and 2.3
(Noncompetition) of this Agreement are reasonable and necessary to protect and
preserve the businesses of its Company and the Affiliates, and (g) the Company
and the Affiliates would be irreparably damaged if Executive were to breach the
covenants set forth in Sections 2.2 and 2.3 of this Agreement.
2.2 Confidential Information. The Executive acknowledges and agrees
that all Confidential Information known or obtained by the Executive, whether
before or after the date hereof, is the property of the Company or the
Affiliates. Therefore, the Executive agrees that she shall not, at any time,
disclose to any unauthorized individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, governmental or
quasi-governmental authority of any nature, or other entity (collectively, a
"PERSON") or use for her own account or for the benefit of any third party any
Confidential Information, whether the Executive has such information in her
memory or embodied in writing or other physical form, without the Company's
prior written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the
public other than as a result of Executive's actions or the actions of any
other Person bound by a duty of confidentiality to the Company or the
Affiliates. If the Executive becomes legally compelled by deposition, subpoena
or other court or governmental action to disclose any of the Confidential
Information, then the
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<PAGE> 9
Executive will give the Company prompt notice to that effect, and will
cooperate with the Company if the Company seeks to obtain a protective order
concerning the Confidential Information. The Executive will disclose only such
Confidential Information as her counsel shall advise is legally required. The
Executive agrees to deliver to the Company, at any time the Company may
request, all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and the
Affiliates and any other Confidential Information that the Executive may then
possess or have under her control.
2.3 Noncompetition.
(a) During the Term of this Agreement, the Company agrees to
provide the Executive with continued access to Confidential
Information, including Confidential Information regarding refinements
in the Company's proprietary technologies and strategic planning for
new products and refinements to existing products and attendance at the
training programs conducted by the Company regarding sales and
marketing and underwriting and purchasing of new and existing products.
(b) As an inducement for the Company's agreement in Section
2.3(a) and in exchange for the other consideration provided by the
Company under this Agreement, for a period of twenty-four (24) months
from the last day of the Term (the "NONCOMPETITION PERIOD"):
(i) the Executive shall not, directly or indirectly,
engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing,
or control of, be employed by, associated with, or in any manner
connected with, lend her name or any similar name to, lend her
credit to, or render services or advice to, (A) any business
that is involved in the design, manufacturing, marketing,
distribution or sale of ergonomic chairs and other office
products (the "BUSINESS") in any foreign country or state in the
United States where (as of the end of the Term) the Company or
any Affiliate is engaged in the Business, or where the Executive
has been involved in strategic planning on behalf of the Company
or any Affiliate to do the Business; provided, however, in each
case, that the Executive may purchase or otherwise acquire up to
(but not more than) five percent of any class of securities of
any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on
any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of
1934. The Executive agrees that this covenant is reasonable with
respect to its duration, geographical area, and scope and that
her skills and
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experience will allow her to earn a substantial income while
still abiding by the restrictions contained in this Agreement;
(ii) the Executive shall not, directly or indirectly,
either for herself or any other Person; (A) induce or attempt to
induce any employee of the Company or any Affiliate to leave the
employ of the Company or any Affiliate; (B) in any such way
interfere with the relationship between the Company or any
Affiliate and any employee thereof; (C) employ, or otherwise
engage as an employee, independent contractor, or otherwise, in
any business engaged in the Business, any employee of the
Company or any Affiliate; or (D) induce or attempt to induce any
customer, supplier, licensee, or business relation of the
Company or any Affiliate to cease doing business with the
Company or any Affiliate, or in any way interfere with the
relationship between any customer, supplier, licensee, or
business relation of the Company or any Affiliate; and
(iii) the Executive shall not, directly or indirectly,
either for herself or any other Person, solicit the business of
any Person known to the Executive to be a customer or potential
customer of the Company (meaning a Person with which the Company
has contacted or has developed plans to contact regarding
establishing a customer relationship) or any Affiliate, whether
or not the Executive had personal contact with such Person, with
respect to products, services or other business activities which
compete in whole or in part with the products, services or other
business activities of the Company or any Affiliate of the
Company; and
(c) The Executive shall not, at any time during or after the
Term, disparage the Company or any Affiliate, or any of their
respective partners, shareholders, directors, officers, employees, or
agents.
(d) The Company may extend the Noncompetition Period for an
additional twelve (12) month period by providing the Executive written
notice of such extension not more than thirty (30) days after the last
day of the Term; provided, however, that the Executive, as
consideration for such extension of the Noncompetition Period, shall be
entitled to receive (i) the benefits set forth in Section 1.6(d)
(Severance Benefits) for such twelve (12) month period, as if the
Executive remained in the employment of the Company and (ii) an amount
equal to (x) the Base Salary for the last year of the Term (including
both the initial term and all renewal terms) plus (y) fifty percent
(50%) of the Executive's bonus relating to the last year of the Term
(including both the initial term and all renewal terms) (provided that
if the Executive is terminated prior to the payment of the first annual
bonus hereunder, such annual bonus shall be presumed to be $100,000).
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2.4 Remedies. If the Executive breaches the covenants set forth in
Sections 2.2 (Confidential Information) or 2.3 (Noncompetition) of this
Agreement, then the Company or any Affiliate shall be entitled to the following
remedies:
(a) damages from the Executive;
(b) in addition to its right to damages and any other rights it
may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce
the provisions of Sections 2.2 and 2.3 of this Agreement, it being
agreed that money damages alone would be inadequate to compensate the
Company and would be an inadequate remedy for such breach.
The rights and remedies of the parties to this Agreement are cumulative and not
alternative.
ARTICLE 3
Miscellaneous
3.1 Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or on behalf of the Executive's spouse,
heirs, assigns, executors or personal or legal representatives (collectively,
the "EXECUTIVE REPRESENTATIVES") against the Company or any Company
Representative (defined below) after the expiration of two (2) years from the
date of accrual of such cause of action, and any claim or cause of action of
the Executive or any Executive Representative shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
two-year period.
3.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
3.3 Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power, or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect
to any other occurrence.
3.4 Executive's Sole Remedy. The Executive's and the Executive
Representatives' sole remedy shall be against the Company (or any assignee or
successor to all or substantially all the assets of the Company or any
transferee in receipt of material assets of the Company transferred in fraud of
creditors
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(collectively, "ASSIGNS")) for any Executive Claim (defined below). The
Executive and the Executive Representatives shall have no claim or right of any
nature whatsoever against any of the Company's or its Affiliates' directors,
officers, employees, direct or indirect stockholders, owners, trustees,
beneficiaries or agents, irrespective of when any such person held such status
(collectively, the "COMPANY REPRESENTATIVES") (other than Assigns) arising out
of any Executive Claim. The Executive, on her own behalf and on behalf of the
Executive Representatives, hereby releases and covenants not to sue any person
other than the Company or its Assigns over any Executive Claim. The Affiliates
shall be third-party beneficiaries of this Agreement for purposes of enforcing
the terms of this Section 3.4 (Executive's Sole Remedy) against the Executive
and the Executive Representatives. Except as set forth in the
immediately-preceding sentence, nothing herein, express or implied, is intended
to confer upon any party, other than the parties hereto and the Company's
Assigns, any rights, remedies, obligations or liabilities under or by reason
hereof and no person who is not a party hereto may rely on the terms hereof.
Upon termination of the Executive's employment, the sole claim of the
Executive and the Executive Representatives against the Company and its Assigns
for Executive Claims will be for the amounts described in Section 1.6
(Compensation Upon Termination), Section 1.7 (Death of Executive) and Section
3.9 (Governing Law) and the Executive and the Executive Representatives shall
have no claim against the Company or its Assigns for any Executive Claim, other
than those set forth in Sections 1.6, 1.7 and 3.9, or against any Company
Representative (other than Assigns) for Executive Claims, including without
limitation any claim for damages of any nature, be they actual, direct,
indirect, special, punitive or consequential. The Executive, on her own behalf
and on behalf of the Executive Representatives, hereby releases and covenants
not to sue for, collect or otherwise recover any amount against the Company or
its Assigns for any Executive Claim, other than the amounts set forth in
Sections 1.6, 1.7 and 3.9, or against any Company Representative (other than
Assigns) for any Executive Claim. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT
THE LIMITATIONS ON THE EXECUTIVE'S REMEDIES EXPRESSED IN THIS SECTION 2.4
(EXECUTIVE'S SOLE REMEDY) APPLY WITHOUT LIMITATION TO EXECUTIVE CLAIMS RELATING
TO NEGLIGENCE.
"EXECUTIVE CLAIM" shall mean any claim, liability or obligation of any
nature whatsoever arising out of this Agreement or an alleged breach of this
Agreement or for any other claim arising out of the Executive's employment by
the Company or the termination thereof; provided, however, that the term
"Executive Claim" shall not include (a) claims arising in favor of creditors of
the Company generally, including claims arising out of any fraudulent
conveyance or other transfer of assets in fraud of creditors or (b) any claim
against any insurance carrier for worker's compensation benefits.
3.5 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by certified or
registered
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mail, postage prepaid with return receipt requested, telecopy (with hardcopy
delivered by overnight courier service), or delivered by hand, messenger or
overnight courier service, and shall be deemed given when received at the
addresses of the parties set forth below, or at such other address furnished in
writing to the other parties hereto.
If to Executive: Rebecca Boenigk
3904 North Texas Avenue
Bryan, Texas 77803
(409) 778-0408 (fax)
If to Company: NEUTRAL POSTURE ERGONOMICS, INC.
3904 North Texas Avenue
Bryan, Texas 77803
Attn: President
(409) 778-0408 (fax)
3.6 Provisions Separable. The provisions hereof are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part. If any
provision of this Agreement, or the application thereof to any situation or
circumstance, shall be invalid or unenforceable in whole or in part, then the
parties shall seek in good faith to replace any such legally invalid provision
or portion thereof with a valid provision that, in effect, will most nearly
effectuate the parties' intentions in entering into this Agreement. If the
parties are not able to agree on a substitute provision within thirty (30) days
after the provision initially is determined to be invalid or unenforceable,
then the parties agree that the invalid or unenforceable provision or portion
thereof shall be reformed pursuant to Section 3.10 (Dispute Resolution) and the
new provision shall be one that, in effect, will most nearly effectuate the
parties' intentions in entering into this Agreement.
3.7 Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to employment, compensation and
benefits of the Executive, and supersede all other prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written, between the Executive or any of their respective Affiliates
relating to the subject matter of this Agreement, which other prior and
contemporaneous agreements and understandings, inducements or conditions shall
be deemed terminated effective immediately. The express terms hereof control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof.
3.8 Headings; Index. The headings of paragraphs and Sections herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions hereof. The words "herein,"
"hereof," "hereto"
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and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
3.9 Governing Law; Attorneys' Fees. This Agreement shall be governed by
and construed, interpreted and applied in accordance with the laws of the State
of Texas, excluding any choice-of-law rules that would refer the matter to the
laws of another jurisdiction.
Subject to Section 3.10 (Dispute Resolution), each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the Northern District of Texas and, if such court does not have
jurisdiction, of the courts of the State of Texas in Dallas County, for the
purposes of any action arising out of this Agreement or the subject matter
hereof brought by any other party.
Subject to Section 3.10 (Dispute Resolution), to the extent permitted
by applicable law, Executive hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise in any such action, any claim (a) that it is
not subject to the jurisdiction of the above-named courts, (b) that the action
is brought in an inconvenient forum, (c) that it is immune from any legal
process with respect to itself or its property, (d) that the venue of the suit,
action or proceeding is improper, or (e) that this Agreement or the subject
matter hereof may not be enforced in or by such courts.
The prevailing party in any action or proceeding relating to this
Agreement shall be entitled to recover reasonable attorneys' fees and other
costs from the non-prevailing parties, in addition to any other relief to which
such prevailing party may be entitled.
3.10 Dispute Resolution.
(a) Arbitration. All disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection
with this Agreement or the transactions described herein as to the
construction, validity, interpretation or meaning, performance,
non-performance, enforcement, operation or breach, shall be settled
exclusively by arbitration, conducted before a single arbitrator named
by the American Arbitration Association, in Dallas, Texas, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association and applying the substantive laws of the State
of Texas (excluding conflict of laws provisions). Judgment may be
entered on the arbitrator's award in any court having jurisdiction;
provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction
to prevent any violation of Article 2 hereof, and the Executive hereby
consents that such restraining order or injunction may be granted
without the necessity of the Company posting any bond. Except as set
forth in Section 3.10(b) (Emergency Relief), the parties
- 14 -
<PAGE> 15
stipulate that the provisions of this Section shall be a complete
defense to any suit, action or proceeding instituted in any federal,
state or local court or before any administrative tribunal with respect
to any controversy or dispute arising out of this Agreement or the
transactions described herein. The arbitration provisions hereof shall,
with respect to such controversy or dispute, survive the termination or
expiration hereof.
Neither any party hereto nor the arbitrators may disclose the existence
or results of any arbitration hereunder without the prior written
consent of the other party; nor will any party hereto disclose to any
third party any confidential information disclosed by any other party
hereto in the course of an arbitration hereunder without the prior
written consent of such other party.
(b) Emergency Relief. Notwithstanding anything in this Section
3.10 (Dispute Resolution) to the contrary and subject to the provisions
of Sections 3.9 (Governing Law; Attorneys' Fees), either party may seek
from a court any provisional remedy that may be necessary to protect
any rights or property of such party pending the establishment of the
arbitral tribunal or its determination of the merits of the
controversy.
3.11 Indemnification. The Company shall indemnify and hold harmless to
the maximum extent permitted by law against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by the
Executive, in connection with the defense of, or as a result of any action or
proceeding (or any appeal from any action or proceeding) in which the Executive
is made or is threatened to be made a party by reason of the fact that she is
or was an officer or director of the Company, regardless of whether such action
or proceeding is one brought by or in the right of the Company, to procure a
judgment in its favor (or other than by or in the right of the Company).
3.12 Survival. The covenants and agreements of the parties set forth in
Article 2 (Confidentiality and Noncompetition) and this Article 3
(Miscellaneous) are of a continuing nature and shall survive the expiration,
termination or cancellation hereof, regardless of the reason therefor.
3.13 Binding Effect, Etc. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and the
Company's successors and assigns, including any direct or indirect successor by
purchase, merger, consolidation, reorganization, liquidation, or otherwise to
all or substantially all of the business or assets of the Company, and the
Executive's spouses, heirs, and personal and legal representatives.
3.14 Assignment. The Executive's obligations hereunder are personal and
may not be assigned (whether voluntarily, involuntarily or by operation of law)
without the prior written consent of the Company. Any such attempted assignment
shall be null and void.
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<PAGE> 16
3.15 Amendment. This Agreement may be amended or modified only by
written instrument duly executed by the Company and the Executive.
3.16 Voluntary Agreement. The Executive acknowledges that she has had
sufficient time and opportunity to read and understand this Agreement and to
consult with her legal counsel and other advisors regarding the terms and
conditions set forth in this Agreement.
* * * * *
- 16 -
<PAGE> 17
This Agreement has been executed and delivered as of the date first
written above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ DAVID W. CAMPBELL
-------------------------------
Name: David W. Campbell
-----------------------------
Title: President
----------------------------
/s/ REBECCA BOENIGK
----------------------------------
Rebecca Boenigk
- 17 -
<PAGE> 1
EXHIBIT 6.22
NEUTRAL POSTURE ERGONOMICS, INC.
AMENDED AND RESTATED 1996 NONQUALIFIED STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
SECTION 1 CERTAIN DEFINITIONS. Unless the context otherwise
requires, the following terms shall have the following meanings for the
purposes of this Plan:
"Board" shall mean the Board of Directors of the Company.
"Company" shall mean Neutral Posture Ergonomics, Inc.
"Eligible Optionee" shall mean a person eligible to receive an Option
pursuant to this Plan as described in Section 2.3 of this Plan.
"Exercise Price" shall mean the purchase price to be paid for Option
Shares upon exercise of an Option, as determined in Section 2.5 of this Plan.
"Option" shall mean the right of an Optionee to purchase Option Shares
upon exercise of an Option granted pursuant to Article III of this Plan.
"Option Period" shall mean the period of time during which the
Optionee may exercise the option granted pursuant to this Plan.
"Option Shares" shall mean the shares of Stock which an Optionee
purchases or is entitled to purchase pursuant to the exercise of an Option
granted pursuant to this Plan.
"Optionee" shall mean the recipient of an Option granted pursuant to
this Plan.
"Other Significant Event" shall mean the occurrence of a dissolution,
liquidation, merger or consolidation as described in Section 2.2(d) hereof.
"Plan" shall mean this Neutral Posture Ergonomics, Inc. Amended and
Restated 1996 Nonqualified Stock Option Plan, as amended from time to time.
"Stock" shall mean the voting common stock of the Company, par value
$.01 per share.
SECTION 2 TERMS GENERALLY. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The term "person" or "party" only
includes individuals and does not include partnerships, corporations, trusts
and other associations. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation."
<PAGE> 2
ARTICLE II
GENERAL
SECTION 1 AMENDMENT AND RESTATEMENT; PURPOSE AND SCOPE.
Effective this October 9, 1997, the Company adopts this Plan which amends,
restates and supersedes in its entirety the 1996 Nonqualified Stock Option Plan
that was adopted by the Company as of April 29, 1996 to benefit the Company's
employees and was amended and restated on August 11, 1997. This Plan is
adopted by the Board of the Company for the purpose of offering stock ownership
in the Company to its valuable and trusted employees and (i) as an incentive
for such persons to advance the best interests of the Company, and (ii) to
assist the Company in attracting and retaining key personnel.
SECTION 2 OPTIONS AND OPTION SHARES.
(a) The Board may grant Options only pursuant to the
terms and provisions of this Plan. No other options, warrants or
stock rights may be granted by the Board pursuant to this Plan. The
total number of Option Shares that may be issued pursuant to the
exercise of Options is 500,000, subject to adjustment for future
changes in the number of issued shares as provided in Section 2.2(d).
The total number of Option Shares has been adjusted to give effect to
a 19-for-1 stock dividend effected by the Company on August 11, 1997.
(b) Options granted pursuant to this Plan shall be
evidenced by agreements ("Option Agreements") substantially in the
form attached hereto as Exhibit A (other than vesting which will vary
on a case by case basis); provided however, that subject to the
provisions of this Plan, the terms and conditions of the Option
Agreements may be amended in the sole discretion of the Board in order
to effectuate the intent of this Plan. In this regard, each Option
Agreement shall comply with and be subject to the terms and conditions
set forth in this Plan, and shall state the total number of Option
Shares covered by the Option and the applicable Option Period not to
exceed the Option Period set forth herein.
(c) The Option Shares shall be treasury, or authorized
but previously unissued, shares of Stock of the Company as determined
by the Board from time to time. The Company, during the term of this
Plan, will at all times reserve and keep available and will seek or
obtain any requisite authority necessary to issue and to sell, the
number of shares of Stock that shall be sufficient to satisfy the
requirements of this Plan. The inability of the Company (after
reasonable good faith attempts) to obtain from any regulatory body
having jurisdiction the authority deemed necessary by counsel for the
Company for the lawful issuance and sale of its Stock hereunder shall
relieve the Company of any liability in respect of the failure to
issue or sell Stock as to which the requisite authority has not been
obtained.
(d) The aggregate number of Option Shares available to be
acquired pursuant to the exercise of Options hereunder, the number of
Option Shares subject to any Option and the Exercise Price per Option
Share shall all be proportionately and equitably adjusted for any
increase or decrease in the number of issued shares of Stock
subsequent
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<PAGE> 3
to the effective date of the Plan resulting from (1) a stock split
(forward or reverse) or other subdivision or consolidation of shares
of Stock or any other capital adjustment having such effect or (2) the
payment of a stock dividend. If the Company shall be the surviving
corporation in any merger or consolidation, the Options shall pertain,
apply and relate to, and shall permit the Optionee to acquire, the new
restated securities of the Company subject to equitable adjustments to
reflect (i) the ownership that the Optionee would have been entitled
to achieve in the Company after consummation of the merger or
consolidation assuming that the Optionee had exercised the Options and
owned Stock immediately before consummation of such transaction, and
(ii) the occurrence of the events noted in Section 2.2(d)(1) - (2)
above. Upon dissolution or liquidation of the Company or upon a
merger or consolidation in which the Company is not the surviving
corporation, all Options outstanding under the Plan shall terminate;
provided, however, immediately prior to such dissolution, liquidation,
merger or consolidation ("Other Significant Event"), all issued and
outstanding options shall be immediately vested and each Optionee
shall have the right to exercise such Options in whole or in part, but
only to the extent that such Options are otherwise exercisable under
the terms of the Plan and applicable Option Agreement.
SECTION 3 ELIGIBLE OPTIONEES; NO ASSIGNMENT.
(a) An Eligible Optionee shall be any person who, at the
date the Option is granted, is (i) an active employee of the Company
who is in good standing as generally determined by the Board or (ii) a
director or officer of the Company.
(b) Options may not be assigned or transferred by
Optionee for any reason. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of an Option in contravention of this
Plan or the applicable Option Agreement shall be null and void and
shall have no effect. Options not exercised at the death of an
Optionee shall lapse. No interest in Options granted hereunder may be
transferred pursuant to a divorce decree or settlement. In the event
of any such purported transfer the Options shall lapse.
SECTION 4 GRANT OF OPTIONS.
(a) Subject to the provisions of this Plan, Options may
be awarded by the Board, in its sole discretion, at such dates and in
such quantities as is provided in Article III hereof. In this regard,
the Board may, in its sole discretion, designate any one or more
Eligible Optionees to receive Options and become Optionees hereunder,
which Optionees may include or exclude previously designated Optionees
in the Board's sole discretion. Furthermore, the number of Option
Shares covered by such Options granted to any particular Optionee
hereunder shall, subject to the limitations set forth herein, be
within the sole discretion of the Board.
(b) The Board shall notify each Optionee who is the
recipient of any Options granted pursuant to this Plan within a
reasonable period of time after the grant of such Option, which period
of time shall not exceed thirty (30) calendar days. Such notification
shall be in writing and shall be sent to the last known address of
such Optionee as reflected in the Company's employment or other
records.
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<PAGE> 4
(c) The granting of an Option shall impose no obligation
upon the Optionee to exercise such option.
SECTION 5 EXERCISE PRICE.
(a) The purchase price ("Exercise Price") for Option
Shares purchased pursuant to the exercise of each Option granted
herein shall be established by the Board for each respective Option
Agreement. The Exercise Price shall be adjusted on an equitable basis
if the Option Shares are adjusted upon the occurrence of certain
events as provided in Section 2.2(d) of this Plan in order to reflect
an Exercise Price for the adjusted number of Option Shares
substantially equivalent to the Exercise Price for the original number
of Option Shares to which the Optionee was entitled to purchase prior
to occurrence of those designated events.
(b) Unless otherwise approved in advance in writing by the
Board, the Exercise Price shall be paid to the Company in full in cash
or a check upon exercise of an Option to this Plan shall be pursuant
to this Plan. Any exercise of any Option granted pursuant to this
Plan shall be invalid and have no effect if the Exercise Price is not
paid in full as provided herein.
SECTION 6 EXERCISE OF THE OPTIONS AND OPTION PERIOD.
(a) Subject to the provisions of this Plan and the
applicable Option Agreement, an Optionee may exercise an Option in
whole or in part at any time prior to expiration of the applicable
Option Period, subject to any vesting requirements set forth herein.
In this regard, the Optionee shall deliver a written notice of
exercise to the Board and to the Board in the form attached to the
Option Agreement (as amended from time to time by the Board) which
states the number of Option Shares being exercised, the total purchase
price for the Option Shares to be acquired and any other information
which may be reasonably requested by the Board from time to time. The
exercise notice shall be accompanied by a fully executed subscription
agreement, if requested by the Company, in the form provided by the
Company, as amended from time to time by the Board, and a check
payable to the Company representing collected funds in the full amount
of the Exercise Price for the Option Shares being acquired and any
applicable withholding taxes deemed necessary in the sole discretion
of the Company. Furthermore, if, in the opinion of counsel for the
Company, such a representation is required under the Securities Act of
1933, as amended or any other applicable law, regulation or rule of
any governmental authority, then, as a condition to the exercise of
any portion of any Option, the Company may require the person
exercising such Option to represent and warrant at the time of such
exercise that any Option Shares acquired upon exercise of any Option
are being acquired only for investment and not with any present
intention to sell or distribute such Option Shares unless and until
such Option Shares are or become fully registered and tradeable in the
public marketplace.
(b) Promptly after the exercise of an Option as described
above and the payment of the full Exercise Price, the Optionee shall
be entitled to the issuance of a stock certificate evidencing his
ownership of the Option Shares acquired, subject to
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<PAGE> 5
appropriate legends recommended by counsel to the Company or required
by applicable laws, regulations or rules of any appropriate
governmental authority. An Optionee shall have none of the rights of
a shareholder in the Company until Option Shares are acquired by and
issued to him as provided in this Plan, and no adjustment shall be
made for dividends or other rights for which the record date is prior
to the date such stock certificate is (or should reasonably be) issued
except to the extent provided in Section 2.2(d) of this Plan.
(c) The Option Period is designated in Article III
hereof. Notwithstanding the provisions of Article III, however, an
Option Period may be accelerated or shortened in the manner set forth
in Section 3 of the Option Agreement.
(d) Option Shares issued pursuant to this Plan may not be
assigned or transferred by Option except by the Optionee's Last Will
and Testament or by the laws of descent and distribution. Any attempt
to sell, pledge, assign, hypothecate, transfer or dispose of an Option
Share in contravention of the Plan or the applicable Option Agreement
shall be null and void and shall have no effect. The certificates
evidencing the Option Share will have a restrictive legend stating the
following:
THE TRANSFER OF THESE SHARES IS RESTRICTED PURSUANT TO THAT
CERTAIN AMENDED AND RESTATED 1996 NONQUALIFIED STOCK OPTION PLAN AND
THAT CERTAIN OPTION AGREEMENT, COPIES OF WHICH ARE ON FILE AT THE
CORPORATION'S PRINCIPAL PLACE OF BUSINESS. ANY TRANSFER IN VIOLATION
OF THESE RESTRICTIONS IS NULL AND VOID.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993, AS AMENDED, OR ANY STATE SECURITIES LAWS.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT
UPON REGISTRATION UNDER SUCH ACTS OR AN EXEMPTION THEREFROM.
ARTICLE III
OPTIONS
SECTION 1 GRANT OF OPTIONS. All Options shall be granted in
accordance with the applicable Option Agreement.
SECTION 2 OPTION PERIOD AND VESTING SCHEDULE.
(a) Subject to the provisions of Section 2.6 hereof, each
Option granted hereunder shall be exercisable within the period set
forth in the applicable Option Agreement (the "Option Period").
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<PAGE> 6
(b) Subject to the provision of Section 2.6 hereof and
Section 3.2(a), Options may be exercised to acquire Option Shares
based on the vesting schedule set forth in the applicable Option
Agreement.
ARTICLE IV
REGISTRATION RIGHTS
SECTION 1 PIGGY-BACK AND DEMAND REGISTRATION RIGHTS.
(a) If at any time within five (5) years after the
original date of grant of any option under this Plan, the Company
shall file a registration statement under the Securities Act in
respect of an underwritten public offering of its common stock (other
than on Form S-8, Form S-4 or any successor form) with the Securities
and Exchange Commission (the "Commission"), the Company shall give the
Optionee at least forty-five (45) days' prior written notice of the
proposed filing of the registration statement. Unless the Optionee
requests in writing to be excluded from such registration or fails to
fulfill the obligations set forth in Section 4.1(c) below, the Company
shall, at the Company's sole expense, register the Option Shares
purchased by Optionee, concurrently with the registration of such
other common stock, all to the extent requisite to permit the public
offering or sale of the Option Shares through the facilities of the
appropriate stock exchange or other public market. If the
registration is in connection with an underwritten public offering of
the Company, Optionee agrees to participate in the underwriting and
distribute its Option Shares through such underwriting and to enter
into underwriting agreements with underwriters selected by the
Company. Notwithstanding the foregoing, if, in the case of an
underwritten offering by the Company, the managing underwriter of such
offering shall advise the Company in writing that, in its opinion, the
distribution of the Option Shares to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the
Company, then the offering and sale of such Option Shares shall be
delayed or restricted for such period, and/or shall be subjected to
such conditions, as the managing underwriter shall request. In the
event of a delay as provided in the preceding sentence, the Company
shall file such supplements and post-effective amendments, and take
any such other steps as may be necessary, to permit the proposed
offering and sale of such Option Shares for the period specified by
the underwriter.
(b) If all Option Shares purchased by Optionees have not
been registered by the Company within five (5) years after the
original date of grant of any option under this Plan, then the Company
shall file a registration statement under the Securities Act with the
Commission within one hundred twenty (120) days after expiration of
such five (5) year period. The registration statement shall cover all
Option Shares acquired or eligible to be acquired by Optionees who
have provided the information set forth in Section 4.1(c) below.
(c) The foregoing obligations of the Company as set forth
in Section 4.1 (a) and (b) above are conditioned on the following
obligations of optionee:
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<PAGE> 7
(i) Optionee shall promptly furnish all
information requested by the Company regarding Optionee and
the distribution of the Option Shares to the extent such
information is required in connection with registration or
qualification of the Option Shares with the Commission or any
state securities commission.
(ii) Optionee shall comply with all provisions of
federal and state securities laws in connection with the
offer, sale and distribution of its Option Shares.
(iii) Optionee shall indemnify the Company, its
directors and officers, its underwriters, if any, any experts
set forth in the registration statement, and any person who
controls the Company within the meaning of the Securities Act
against all claims, losses, damages and liabilities arising
out of or based on any untrue statement (or alleged untrue
statement) in any registration statement, prospectus, offering
circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading and will reimburse the Company, such directors,
officers, persons, experts or underwriters for any legal or
any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with information
furnished to any such party by Optionee specifically for use
therein.
(iv) If the managing underwriter advises all
Optionees selling Option Shares pursuant to this Article IV
(the "Selling Optionees") and the Company that marketing
factors require a limitation of the number of shares to be
underwritten, the Company may reduce the number of shares to
be registered on behalf of the Selling Optionees (pro rata
among the Selling Optionees on the basis of the number of
shares that each such Selling Optionee requests to be included
in the offering) to the total number of shares, if any, that
the managing underwriter is willing to include in such
registration and underwriting. To facilitate the allocation
of shares in accordance with the above provisions, the Company
may round the number of shares allocable to any such person or
to the Company to the nearest 100 shares.
SECTION 2 RIGHTS TO PURCHASE REGISTERED STOCK. The Options
shall each be exercisable for shares of Stock that have been effectively
registered under a "shelf" registration statement filed after the date hereof
with the Commission (other than on Form S-4, Form S-8, or any successor form)
if and only to the extent that (i) the Company has sufficient, registered,
unissued shares ("Available Registered Shares") available for the purpose of
issuance upon exercise of outstanding Options which are not already committed
to the exercise of other outstanding Options granted pursuant to this Plan at
the time of such exercise; (ii) Optionee advises the Company within a
reasonable time before such exercise of its intent to exercise the Option for
Available Registered Shares, and of its intentions with respect to the resale
or distribution of the Available Registered Shares; and (iii) except to the
extent required to be paid by the Company as set forth in Section 4.1 above,
Optionee will pay and reimburse the Company
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<PAGE> 8
for all costs attributable to any post-effective amendments to the applicable
registration statement, any registration filing and exchange listing fees for
Optionee's registered common shares and any other filings or actions necessary
to permit the use of the applicable registration statement for such shares and
to list such shares for trading on the appropriate stock exchange or other
public market.
ARTICLE V
DUTIES OF BOARD
AND PLAN ADMINISTRATION
SECTION 1 BOARD'S DUTIES AND RESPONSIBILITIES.
(a) The Plan shall be administered and controlled by the
Board, and the Board shall be responsible for administering over and
granting the Options in accordance with and as limited by the
provisions hereof. The Board shall not have the right to delegate the
power, authority and responsibility to act on their behalf to any
party.
(b) Except as otherwise provided herein, any action to be
taken by the Board shall require the unanimous consent of all members
of the Board.
(c) The Board members shall have the right, authority,
power, duty and obligation to implement the terms and provisions of
this Plan, and without limiting the generality of the foregoing, to
conduct or cause to be conducted the specific functions and duties as
are provided elsewhere in this Plan.
(d) The Board members may rely, and shall be protected in
acting upon, any such documents deposited with them in purported
compliance with any provision or for any other purpose under this
Plan, but may in their discretion require further evidence before
acting or relying thereupon.
(e) The Board members shall not be bound to give any
notice or do or take any act, action or proceeding by virtue of the
powers conferred upon them herein unless and until they shall have
been required to do so under the terms hereof. In that regard, nothing
contained herein shall require the Board members to expend or risk
their own funds or otherwise incur financial liability in the
performance of any of their duties or the exercise of any of their
rights or powers herein.
SECTION 2 COMPENSATION AND REIMBURSEMENT.
(a) Subject to the terms and provisions of this Article
V, the Board members shall devote such time to the performance of
their duties herein as is reasonably appropriate, and shall receive no
salary or other compensation in such capacity except as is provided
herein.
(b) Notwithstanding anything contained herein to the
contrary, the Board members shall be entitled to reimbursement for all
reasonable out of pocket expenses incurred by or on behalf of the
Board members in connection with the performance of
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<PAGE> 9
their duties hereunder. In that regard, the Board members shall be
entitled from time to time and at all times during the continuance of
this Plan to seek and take the advice of counsel in regard to the
duties of such respective parties hereunder, and all expenses and
disbursements incurred by such parties in so doing shall be paid by
the Company as provided herein.
SECTION 3 LIABILITY AND INDEMNIFICATION.
(a) No Board member, when such party is acting on behalf
of the Company or Optionees within what such party reasonably believes
to be the scope of its authority pursuant hereto, shall be liable,
responsible or accountable in damages or otherwise to the Company or
any Optionee, any Optionee's estate, transferee, successor or assign
for any act or omission performed or omitted by it or him hereunder.
Provided that such party has acted within what such party reasonably
believes to be the scope of its authority pursuant hereto, the Company
shall indemnify and hold harmless such party to the fullest extent
permitted by Texas law for officers and directors including, without
limitation, from any loss or damage incurred by reason of any act
performed or omitted by the Board members on behalf of the Company or
in furtherance of the interests of the Optionees or this Plan.
(b) It is expressly understood and agreed by the Company
and all of the Optionees as follows:
(i) The Board members shall not be liable for or
by reason of any statement of fact or recital in this Plan or
in any other document, and should not be required to verify
any facts or recitals contained therein or in any other
document delivered to them hereunder. In that regard, all
such statements or recitals are and shall be deemed to be made
by the party executing the same.
(ii) Except as is provided herein, the Board
members shall not be obligated to give notice to any Optionee
or any other person relating to the performance of its duties
hereunder.
(iii) The Board members shall not incur any
liability or responsibility whatsoever, or be in any way
responsible, for the breach of any party pursuant hereto or
any acts of any other party under this Plan.
(iv) The Board shall not be liable to any person
for any failure to issue Stock for the reasons set forth in
Section 2.2(c) hereof.
(v) Interpretation and construction of any
provision of the Plan by the Board shall be final and binding
upon the Company and all Optionees.
(c) The Board members shall not be required to give any
bond or other security in respect of the performance of their duties
and powers set forth in this Plan.
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ARTICLE VI
MISCELLANEOUS
SECTION 1 AMENDMENT AND TERMINATION. The Board, by resolution,
may terminate, amend or revise the Plan with respect to any Option Shares as to
which Options have not been granted within twelve (12) months of eligibility
for grant thereof. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect
for a period of (i) ten (10) years from the date of the Plan's adoption by the
Board, or (ii) expiration of the latest Option Period, whichever date is later.
Termination of the Plan shall not affect any Option previously granted.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer to be effective immediately.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA BOENIGK
--------------------------------------
Name: Rebecca Boenigk
Title: Chief Executive Officer
11
<PAGE> 12
EXHIBIT A
NEUTRAL POSTURE ERGONOMICS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is entered
into to be effective as of the _________ day of __________, _______, by and
between NEUTRAL POSTURE ERGONOMICS, INC., a Texas corporation (the "Company"),
and ____ ________________________________ ("Optionee") pursuant to the
Company's Amended and Restated 1996 Nonqualified Stock Option Plan (the
"Plan").
R E C I T A L S:
WHEREAS, Optionee is a valuable and trusted employee of the Company,
and the Company considers it desirable to give Optionee an added incentive to
advance the best interests of the Company; and
WHEREAS, the Company has determined to grant Optionee the right to
purchase certain common stock of the Company pursuant to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the receipt and sufficiency of which are hereby acknowledged, and
pursuant to authorization by the Board (as defined in the Plan), the parties
agree as follows:
1. OPTION; NUMBER OF SHARES; PRICE. The Company hereby grants to
Optionee the right (the "Option") to purchase all or any portion of
________________ shares (the "Shares") of the common stock, $.01 par value, of
the Company (the "Common Stock") at the purchase price of $___________ per
share (the "Option Price"). This Option is subject to the terms and conditions
stated in this Agreement and the Plan, including but not limited to the
provisions of Article II of the Plan under which this option shall be subject
to modification, and Article II of the Plan and Section 14 hereof pursuant to
which this Option is subject to acceleration and termination. It is intended
that this Option will not qualify for treatment as an incentive stock option
under Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code").
2. VESTING. The Option granted hereunder shall vest immediately
upon grant.
3. TERM OF AGREEMENT. Except for the rights conferred upon the
Company pursuant to Section 7 and Section 8 below, this Agreement and
Optionee's right to exercise the Option shall expire (the "Option Period") upon
the first to occur of the following:
a. termination of the Option pursuant to Section 2 above
or Section 14 below;
b. the expiration of ten (10) years from the date
hereof;
EXHIBIT A - 1
<PAGE> 13
c. the expiration of six (6) months from the date
Optionee's employment by the Company is interrupted or discontinued due to
permanent disability (within the meaning of Section 105(d)(4) of the Code);
d. the expiration of six (6) months from the date
Optionee dies if he or she dies while employed by the Company;
e. the expiration of thirty (30) days from the date of
the termination of Optionee's employment by the Company, for any or no reason,
or resignation by the Optionee; or
f. the death of the Optionee.
4. TERMINATION OF EMPLOYMENT. The termination by death or
permanent disability (as defined under Section 105(d)(4) of the Code) of
Optionee's employment by the Company shall not affect the number of Shares with
respect to which this Option may be exercised.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee
under this Agreement may not be assigned and transferred by Optionee for any
reason. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose
of this Option in contravention of this Agreement or the Plan shall be void and
shall have no effect. If the Optionee should die prior to exercising all of
Optionee's Option, Optionee's right to exercise this Option shall lapse. No
interest in this Option may be transferred pursuant to a divorce decree or
settlement. In the event of such a purported transfer this Option shall lapse.
6. EXERCISE OF OPTION. On or after the vesting of this Option in
accordance with Section 2 hereof and until termination of this Option in
accordance with Section 3 above, this Option may be exercised by the Optionee
(or, after his or her death, by the person designated in Section 5 above) upon
delivery of the following to the Company at its principal executive offices:
a. a written notice of exercise (as amended from time to
time by the Board, the initial form of which is attached hereto as
Form A) which identifies this Agreement and states the number (which
may not be less than 100, or all of the Shares if less than 100 Shares
then remain covered by this Option) of Shares then being purchased;
b. at Optionee's option, any combination of (i) a check
or cash or (ii) a Qualified Promissory Note (hereinafter defined)
totaling an amount equal to the Option Price; provided, however, that
a Qualified Promissory Note may not be given for that portion of the
Option Price attributable to the par value of the Shares;
c. at the Optionee's option, any combination of (i) a
check or cash in the amount reasonably requested by the Company to
satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the Optionee's taxable
income, if any, including without limitation, withholding obligations,
recognized in connection with the exercise, in whole or in part, of
the Option (herein the "Tax Liabilities") or (ii) a Qualified
Promissory Note totaling an amount equal to the Tax Liabilities; and
EXHIBIT A - 2
<PAGE> 14
d. a subscription agreement, if requested by the
Company, in such form and substance as the Company may require,
setting forth the investment intent of the Optionee, or person
designated in Section 5 above, as the case may be, and such other
agreements and representations as described in the Plan.
For purposes hereof, a "Qualified Promissory Note" shall mean a
recourse promissory note, providing for a term of not more than five years, a
market rate of interest and allowing prepayment without penalty.
7. REPURCHASE OPTION UPON TERMINATION, DEATH OR DIVORCE. In the
event that either (i) Optionee's employment by the Company terminates due to
retirement, voluntary resignation or dismissal by the Company, with or without
cause, (ii) the Optionee dies, or (iii) any of Option's Shares are transferred
or to be transferred pursuant to a divorce decree or settlement, the Company or
its nominee(s) shall have the option (the "Repurchase Option") to purchase from
Optionee all or any portion of the Shares acquired by Optionee pursuant to this
Option or, in the case of shares transferred pursuant to a divorce, that
portion of the Option Shares subject to such transfer for a period of six
months after the date of such termination, death or divorce decree or
settlement (the "Termination Date"). The purchase price for any Shares to be
purchased pursuant to the Repurchase Option shall equal the "book value" of
such Shares, defined as the Option Price plus the net income or minus the net
loss per share of Common Stock calculated from the date hereof to the end of
the fiscal quarter immediately preceding the Termination Date. The Purchase
Price for any Shares to be purchased pursuant to the Repurchase Option shall be
increased or decreased appropriately to reflect any stock dividend, split,
reverse split, combination, recapitalization, reclassification, merger or
consolidation. The Repurchase Option shall be exercised by the Company or its
nominee(s) by delivery to Optionee, within the six-month period specified
above, of (i) a written notice specifying the number of Shares to be purchased,
and (ii) a check in the amount of the purchase price, calculated as provided in
this Section 7, for all Shares to be purchased.
8. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
a. Optionee represents and warrants that this Option is
being acquired by Optionee in good faith for Optionee's personal
account, for investment purposes only, and not with a view to the
distribution, resale or other disposition thereof.
b. Optionee acknowledges that the Company may issue
Shares upon the exercise of the Option without registering such Common
Stock under the Securities Act of 1933, as amended (the "Securities
Act") on the basis of certain exemptions from such registration
requirement. Accordingly, Optionee agrees that his or her exercise of
the Option may be expressly conditioned upon his or her delivery to
the Company of a subscription agreement including such representations
and undertakings as the Company may reasonably require in order to
assure the availability of such exemptions, including a representation
that Optionee is acquiring the Shares for investment and not with a
present intention of selling or otherwise disposing thereof and an
agreement by Optionee that the certificates evidencing the Shares may
bear a legend indicating such nonregistration under the Securities Act
and the resulting restrictions on transfer. Optionee acknowledges
that, because Shares received upon exercise of an Option may be
EXHIBIT A - 3
<PAGE> 15
unregistered, Optionee may be required to hold the Shares indefinitely
unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
c. Optionee acknowledges receipt of this Option and the
Plan and understands that all rights and liabilities connected with
this Option are set forth herein and the Plan.
9. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights
as a shareholder of any shares of Stock covered by this Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 2.2(d)
of the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
10. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. During the
term of the Plan, the Company agrees at all times to reserve and keep
available, and to use its reasonable best efforts to obtain from any regulatory
body having jurisdiction any requisite authority in order to issue and sell,
such number of shares of its Common Stock as shall be sufficient to satisfy its
obligations hereunder and the requirements of the Plan. Inability of the
Company to obtain, from any regulatory body having jurisdiction, authority
deemed by the Company's counsel to be necessary for the lawful issuance and
sale of any shares of its Common Stock hereunder and under the Plan shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
11. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made under
the provisions of the Plan and shall be interpreted in a manner consistent with
it. To the extent that any provision in this Agreement is inconsistent with
the Plan, the provisions of the Plan shall control. A copy of the Plan is
available to Optionee at the Company's principal executive offices upon request
and without charge.
12. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that
federal securities laws and the securities laws of the state in which he or she
resides may require the placement of certain restrictive legends upon the
Shares issued upon exercise of this Option, and Optionee hereby consents to the
placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may deem necessary.
13. BLUE SKY LIMITATIONS: RIGHT OF ACCELERATION AND CANCELLATION.
Notwithstanding anything in this Agreement to the contrary, in the event the
Company makes any public offering of its securities and determines in its sole
discretion that it is necessary to reduce the number of granted but unexercised
stock options so as to comply with any state securities law limitations with
respect thereto, the Board shall have the right, but not the obligation, (a) to
accelerate the dates on which this Option may be exercised and (b) to cancel
such accelerated Option if it is not exercised within fourteen (14) days after
written notice of such acceleration has been given to Optionee; provided,
however, that the Board shall exercise its right to cancel such accelerated
Option in a fair and equitable manner and only to the extent reasonably
necessary to comply with state securities law limitations. Notice shall be
deemed given when delivered personally or when deposited in the United States
mail, first class postage prepaid and addressed to the Optionee at
EXHIBIT A - 4
<PAGE> 16
his or her address set forth on the signature page hereto (which the Optionee
may change upon written notice to the Company).
14. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of Texas without regard to conflict of law
provisions thereof.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one instrument.
16. ENTIRE AGREEMENT. This Agreement supersedes all prior
communications, including oral communications, prior writings and drafts, and
represents the entire agreement of the parties with respect to the subject
matter covered herein.
The Company and Optionee have executed this Agreement as of the date first
written above.
COMPANY: OPTIONEE:
NEUTRAL POSTURE ERGONOMICS, INC.,
-------------------------------------
a Texas corporation
Printed Name:
----------------------
Address:
---------------------------
By:
--------------------------- -------------------------------------
Its: Social Security Number:
-------------------------- ------------
EXHIBIT A - 5
<PAGE> 17
Form A
Notice of Exercise of Options
Amended and Restated 1996 Nonqualified Stock Option Plan
Neutral Posture Ergonomics, Inc.
The undersigned, pursuant to Section 6 of that certain Option
Agreement dated _______________________________, ________ between the
undersigned and Neutral Posture Ergonomics, Inc., a Texas corporation (the
"Company"), hereby notifies the Company that the undersigned exercises options
to purchase shares of Company stock.
Date:
--------------------------- ----------------------------------
Name of Optionee
1
<PAGE> 1
EXHIBIT 6.23
NEUTRAL POSTURE ERGONOMICS, INC.
1997 OMNIBUS SECURITIES PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 SHARES SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6 GRANT OF AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Maximum ISO Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Maximum Individual Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4 Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.5 SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.6 Tandem Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 7 RESTRICTED STOCK PRICE; OPTION PRICE; SAR PRICE . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 8 AWARD PERIOD; VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Award Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 9 TERMINATION OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10 EXERCISE OF INCENTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Disqualifying Disposition of ISO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 11 AMENDMENT OR DISCONTINUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 12 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 13 CAPITAL ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 14 RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE IN CONTROL . . . . . . . . . . . . . . . . . 13
ARTICLE 15 LIQUIDATION OR DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 16 INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 17 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.1 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.2 No Right to Continued Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.3 Indemnification of Board and Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.4 Effect of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.5 Compliance With Other Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.6 Tax Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.7 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17.8 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
- ii -
<PAGE> 4
NEUTRAL POSTURE ERGONOMICS, INC.
1997 OMNIBUS SECURITIES PLAN
The name of the plan is the NEUTRAL POSTURE ERGONOMICS, INC. 1997
OMNIBUS SECURITIES PLAN (the "PLAN"). The Plan was adopted by the Board of
Directors of NEUTRAL POSTURE ERGONOMICS, INC., a Texas corporation (hereinafter
called the "COMPANY"), effective as of September 22, 1997 and was approved by
the Company's shareholders on September 22, 1997.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
management employees of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of
incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock or whether granted singly, or in combination, or in
tandem, that will
(a) increase the interest of such persons in the
Company's welfare;
(b) furnish an incentive to such persons to continue
their services for the Company; and
(c) provide a means through which the Company may attract
able persons as employees.
With respect to Reporting Participants, the Plan and all transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "1934 ACT").
To the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void ab initio, to the extent permitted by
law and deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise,
the following terms shall have the meanings indicated:
2.1 "AWARD" means the grant of any Incentive Stock Option,
Non-qualified Stock Option, Restricted Stock or SAR whether granted singly, in
combination or in tandem (each individually referred to herein as an
"INCENTIVE").
- 1 -
<PAGE> 5
2.2 "AWARD AGREEMENT" means a written agreement between a
Participant and the Company which sets out the terms of the grant of an Award.
2.3 "AWARD PERIOD" means the period during which one or more
Incentives granted under an Award may be exercised.
2.4 "BOARD" means the board of directors of the Company.
2.5 "CHANGE OF CONTROL" means any of the following: (i) any
consolidation, merger or share exchange of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a consolidation, merger or share exchange of the Company
in which the holders of the Company's Common Stock immediately prior to such
transaction have the same proportionate ownership of Common Stock of the
surviving corporation immediately after such transaction; (ii) any sale, lease,
exchange or other transfer (excluding transfer by way of pledge or
hypothecation) in one transaction or a series of related transactions, of all
or substantially all of the assets of the Company; (iii) the shareholders of
the Company approve any plan or proposal for the liquidation or dissolution of
the Company; (iv) the cessation of control (by virtue of their not constituting
a majority of directors) of the Board by the individuals (the "CONTINUING
DIRECTORS") who (x) at the date of this Plan were directors or (y) become
directors after the date of this Plan and whose election or nomination for
election by the Company's shareholders, was approved by a vote of at least
two-thirds of the directors then in office who were directors at the date of
this Plan or whose election or nomination for election was previously so
approved; (v) the acquisition of beneficial ownership (within the meaning of
Rule 13d-3 under the 1934 Act) of an aggregate of twenty percent (20%) of the
voting power of the Company's outstanding voting securities by any person or
group (as such term is used in Rule 13d-5 under the 1934 Act) who beneficially
owned less than 15% of the voting power of the Company's outstanding voting
securities on the date of this Plan, or the acquisition of beneficial ownership
of an additional 5% of the voting power of the Company's outstanding voting
securities by any person or group who beneficially owned at least 15% of the
voting power of the Company's outstanding voting securities on the date of this
Plan, provided, however, that notwithstanding the foregoing, an acquisition
shall not constitute a Change of Control hereunder if the acquiror is (x) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company and acting in such capacity, (y) a Subsidiary of the Company or a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of voting securities
of the Company or (z) any other person whose acquisition of shares of voting
securities is approved in advance by a majority of the Continuing Directors; or
(vi) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the
conversion of a case involving the Company to a case under Chapter 7.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
- 2 -
<PAGE> 6
2.7 "COMMITTEE" means the committee appointed or designated by the
Board to serve as the Compensation Committee of the Board to administer the
Plan in accordance with ARTICLE 3 of this Plan.
2.8 "COMMON STOCK" means the voting common stock, par value $.01
per share, which the Company is currently authorized to issue or may in the
future be authorized to issue.
2.9 "COMPANY" means Neutral Posture Ergonomics, Inc., a Texas
corporation, and any successor entity.
2.10 "DATE OF GRANT" means the effective date on which an Award is
made to a Participant as set forth in the applicable Award Agreement; provided,
however, that solely for purposes of Section 16 of the 1934 Act and the rules
and regulations promulgated thereunder, the Date of Grant of an Award shall be
the date of shareholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement.
2.11 "EMPLOYEE" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company or any Subsidiary of the Company.
2.12 "FAIR MARKET VALUE" of a share of Common Stock means the
closing price per share as reported on the Nasdaq National Stock Market on the
appropriate date, or in the absence of reported sales on such day, the most
recent previous day for which sales were reported.
2.13 "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock
option within the meaning of Section 422 of the Code, granted to a Participant
pursuant to this Plan.
2.14 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not
an Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated
under the 1934 Act or any successor provision.
2.15 "NON-QUALIFIED STOCK OPTION" or "NQSO" means a non-qualified
stock option granted to a Participant pursuant to this Plan.
2.16 "OPTION PRICE" means the price which must be paid by a
Participant upon exercise of a Stock Option to purchase a share of Common
Stock.
2.17 "PARTICIPANT" shall mean a person to whom an Award is granted
under this Plan.
2.18 "PLAN" means this Neutral Posture Ergonomics, Inc. 1997
Omnibus Securities Plan, as amended from time to time.
- 3 -
<PAGE> 7
2.19 "REPORTING PARTICIPANT" means a Participant who is subject to
the reporting requirements of Section 16 of the 1934 Act.
2.20 "RESTRICTED STOCK" means the restricted stock granted to a
Participant pursuant to this Plan.
2.21 "RESTRICTED STOCK PRICE" means the price which must be paid by
a Participant to purchase a share of Restricted Stock.
2.22 "RETIREMENT" means any Termination of Service solely due to
retirement upon attainment of age 62, or permitted early retirement as
determined by the Committee.
2.23 "SAR" means the right to receive a payment, in cash and/or
Common Stock, equal to the excess of the Fair Market Value of a specified
number of shares of Common Stock on the date the SAR is exercised over the SAR
Price for such shares granted to a Participant pursuant to this Plan.
2.24 "SAR PRICE" means the Fair Market Value of each share of
Common Stock covered by an SAR, determined on the Date of Grant of the SAR.
2.25 "STOCK OPTION" means a Non-qualified Stock Option or an
Incentive Stock Option.
2.26 "SUBSIDIARY" means (i) 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 a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(iii) any partnership or limited liability company, if the partners or members
thereof are composed only of the Company, any corporation listed in item (i)
above or any limited partnership listed in item (ii) above. "SUBSIDIARIES"
means more than one of any such corporations, limited partnerships,
partnerships or limited liability companies.
2.27 "TERMINATION OF SERVICE" occurs when a Participant who is an
Employee of the Company or any Subsidiary shall cease to serve as an Employee
of the Company and its Subsidiaries, for any reason.
2.28 "TOTAL AND PERMANENT DISABILITY" means a Participant is
qualified for long-term disability benefits under the Company's disability plan
or insurance policy; or, if no such plan or policy is then in existence, that
the Participant, because of ill health, physical or mental disability or any
other reason beyond his or her control, is unable to perform his or her duties
of employment for a period of six (6)
- 4 -
<PAGE> 8
continuous months, as determined in good faith by the Committee; provided that,
with respect to any Incentive Stock Option, Total and Permanent Disability
shall have the meaning given it under the rules governing Incentive Stock
Options under the Code.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board
(the "Committee"). The Committee shall consist of not fewer than two persons.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board. Any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
Membership on the Committee shall be limited to those members of the
Board who are Non-employee Directors and who are "OUTSIDE DIRECTORS" under
Section 162(m) of the Code. The Committee shall select one of its members to
act as its Chairman. A majority of the Committee shall constitute a quorum,
and the act of a majority of the members of the Committee present at a meeting
at which a quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be granted and shall set forth in each
related Award Agreement the Award Period, the Date of Grant, and such other
terms, provisions, limitations, and performance requirements, as are approved
by the Committee, but not inconsistent with the Plan. The Committee shall
determine whether an Award shall include one type of Incentive, two or more
Incentives granted in combination, or two or more Incentives granted in tandem
(that is, a joint grant where exercise of one Incentive results in cancellation
of all or a portion of the other Incentive).
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, and (iii) make such other
determinations and take such other action as it deems necessary or advisable in
the administration of the Plan. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive
on all interested parties.
With respect to restrictions in the Plan that are based on the
requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the
Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer
quotation system upon which the Company's securities are listed or quoted, or
any other applicable law, rule or restriction (collectively, "APPLICABLE LAW"),
to the extent that any such restrictions are no longer required by applicable
law, the Committee shall have the sole discretion and authority to grant Awards
that are not subject to such mandated restrictions and/or to waive any such
mandated restrictions with respect to outstanding Awards.
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ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an
officer), director or consultant of the Company whose judgment, initiative,
and efforts contributed or may be expected to contribute to the successful
performance of the Company is eligible to participate in the Plan; provided
that only Employees shall be eligible to receive Incentive Stock Options. The
Committee, upon its own action, may grant, but shall not be required to grant,
an Award to any Employee, director, or consultant of the Company or any
Subsidiary. Awards may be granted by the Committee at any time and from time
to time to new Participants, or to then Participants, or to a greater or lesser
number of Participants, and may include or exclude previous Participants, as
the Committee shall determine. Except as required by this Plan, Awards granted
at different times need not contain similar provisions. The Committee's
determinations under the Plan (including without limitation determinations of
which Employees, directors, or consultants, if any, are to receive Awards, the
form, amount and timing of such Awards, the terms and provisions of such Awards
and the agreements evidencing same) need not be uniform and may be made by it
selectively among Employees, directors, or consultants who receive, or are
eligible to receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 13 AND 14, the maximum
number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is (a) two hundred thousand (200,000) shares; plus (b)
shares of Common Stock previously subject to Awards which are forfeited,
terminated, settled in cash in lieu of Common Stock, or exchanged for Awards
that do not involve Common Stock, or expired unexercised.
Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of
this Plan, the Company will at all times reserve and keep available the number
of shares of Common Stock that shall be sufficient to satisfy the requirements
of this Plan.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by
the Committee and shall be evidenced by an Award Agreement setting forth the
Incentive or Incentives being granted, the total number of shares of Common
Stock subject to the Incentive(s), the Option Price (if applicable), the Award
Period, the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan. The Company shall
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execute an Award Agreement with a Participant after the Committee approves the
issuance of an Award. Any Award granted pursuant to this Plan must be granted
within ten (10) years of the date of adoption of this Plan. The Plan shall be
submitted to the Company's shareholders for approval; however, the Committee
may grant Awards under the Plan prior to the time of shareholder approval. Any
such Award granted prior to such shareholder approval shall be made subject to
such shareholder approval. The grant of an Award to a Participant shall not be
deemed either to entitle the Participant to, or to disqualify the Participant
from, receipt of any other Award under the Plan.
If the Committee establishes a purchase price for an Award, the
Participant must accept such Award within a period of thirty (30) days (or such
shorter period as the Committee may specify) after the Date of Grant by
executing the applicable Award Agreement and paying such purchase price.
6.2 MAXIMUM ISO GRANTS. The Committee may not grant
Incentive Stock Options under the Plan to any Employee which would permit the
aggregate Fair Market Value (determined on the Date of Grant) of the Common
Stock with respect to which Incentive Stock Options (under this and any other
plan of the Company and its Subsidiaries) are exercisable for the first time by
such Employee during any calendar year to exceed $100,000. To the extent any
Stock Option granted under this Plan which is designated as an Incentive Stock
Option exceeds this limit or otherwise fails to qualify as an Incentive Stock
Option, such Stock Option shall be a Non-qualified Stock Option.
6.3 MAXIMUM INDIVIDUAL GRANTS. No participant may receive
during any fiscal year of the Company Awards covering an aggregate of more than
One Hundred Thousand (100,000) shares of Common Stock.
6.4 RESTRICTED STOCK. An Award of Restricted Stock shall entitle
the Participant to acquire shares of Common Stock subject to such restrictions
and conditions as the Committee may determine at the time of grant. Conditions
may be based on, among other things, achievement of pre-established performance
goals and objectives.
6.5 SAR. An SAR shall entitle the Participant at his election
to surrender to the Company the SAR, or portion thereof, as the Participant
shall choose, and to receive from the Company in exchange therefor cash in an
amount equal to the excess (if any) of the Fair Market Value (as of the date of
the exercise of the SAR) per share over the SAR Price per share specified in
such SAR, multiplied by the total number of shares of the SAR being
surrendered. In the discretion of the Committee, the Company may satisfy its
obligation upon exercise of an SAR by the distribution of that number of shares
of Common Stock having an aggregate Fair Market Value (as of the date of the
exercise of the SAR) equal to the amount of cash otherwise payable to the
Participant, with a cash settlement to be made for any fractional share
interests, or the Company may settle such obligation in part with shares of
Common Stock and in part with cash.
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<PAGE> 11
6.6 TANDEM AWARDS. The Committee may grant two or more
Incentives in one Award in the form of a "TANDEM AWARD," so that the right of
the Participant to exercise one Incentive shall be canceled if, and to the
extent, the other Incentive is exercised. For example, if a Stock Option and
an SAR are issued in a tandem award, and the Participant exercises the SAR with
respect to 100 shares of Common Stock, the right of the Participant to exercise
the related Stock Option shall be canceled to the extent of 100 shares of
Common Stock.
ARTICLE 7
RESTRICTED STOCK PRICE; OPTION PRICE; SAR PRICE
The Restricted Stock Price for any share of Restricted Stock shall be
at par value or other price determined by the Committee. The Option Price for
a Non-qualified Stock Option shall be such price as determined by the
Committee; provided, however, such Option Price shall not be less than the par
value per share of the Common Stock. The Option Price for an Incentive Stock
Option and the SAR Price for any share of Common Stock subject to an SAR shall
be at least one hundred percent (100%) of the Fair Market Value of the share on
the Date of Grant. If an Incentive Stock Option is granted to an Employee who
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary), the Option Price
shall be at least one hundred and ten percent (110%) of the Fair Market Value
of the Common Stock on the Date of Grant.
ARTICLE 8
AWARD PERIOD; VESTING
8.1 AWARD PERIOD. Subject to the other provisions of this Plan,
the Committee may, in its discretion, provide that an Incentive may not be
exercised in whole or in part for any period or periods of time or beyond any
date specified in the Award Agreement. Except as provided in the Award
Agreement, an Incentive may be exercised in whole or in part at any time during
its term. The Award Period for an Incentive shall be reduced or terminated
upon Termination of Service in accordance with this ARTICLE 8 AND ARTICLE 9.
No Incentive granted under the Plan may be exercised at any time after the end
of its Award Period. No portion of any Incentive may be exercised after the
expiration of ten (10) years from its Date of Grant. However, if an Employee
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary) and an Incentive
Stock Option is granted to such Employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five (5) years from the Date of Grant.
8.2 VESTING. The Committee, in its sole discretion, may
determine that an Incentive will be immediately exercisable, in whole or in
part, or that all or any portion may not be exercised until a date, or dates,
subsequent to its Date of Grant, or until the occurrence of one or more
specified events or the attainment of pre-
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<PAGE> 12
established goals, objectives and other conditions, subject in any case to the
terms of the Plan. If the Committee imposes conditions upon exercise, then
subsequent to the Date of Grant, the Committee may, in its sole discretion,
accelerate the date on which all or any portion of the Incentive may be
exercised.
ARTICLE 9
TERMINATION OF SERVICE
In the event of Termination of Service of a Participant, an Incentive
may only be exercised as determined by the Committee and provided in the Award
Agreement.
ARTICLE 10
EXERCISE OF INCENTIVE
10.1 IN GENERAL. A vested Incentive may be exercised during
its Award Period, subject to limitations and restrictions set forth therein and
in ARTICLE 9. A vested Incentive may be exercised at such times and in such
amounts as provided in this Plan and the applicable Award Agreement, subject to
the terms, conditions, and restrictions of the Plan.
In no event may an Incentive be exercised or shares of Common Stock be
issued pursuant to an Award if a necessary listing or quotation of the shares
of Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the
circumstances has not been accomplished. No Incentive may be exercised for a
fractional share of Common Stock. The granting of an Incentive shall impose no
obligation upon the Participant to exercise that Incentive.
(a) STOCK OPTIONS. Subject to such administrative regulations
as the Committee may from time to time adopt, a Stock Option may be exercised
by the delivery of written notice to the Committee setting forth the number of
shares of Common Stock with respect to which the Stock Option is to be
exercised and the date of exercise thereof (the "EXERCISE DATE") which shall be
at least three (3) days after giving such notice unless an earlier time shall
have been mutually agreed upon. On the Exercise Date, the Participant shall
deliver to the Company consideration with a value equal to the total Option
Price of the shares to be purchased, payable as follows: (a) cash, check, bank
draft, or money order payable to the order of the Company, (b) Common Stock
owned by the Participant on the Exercise Date, valued at its Fair Market Value
on the Exercise Date, (c) by delivery (including by FAX) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions from the Participant to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the shares of Common Stock
purchased upon exercise of the Stock Option or to pledge such shares as
collateral for a loan and promptly deliver to the Company the amount of sale or
loan proceeds necessary to pay such purchase price, and/or (d) in any other
form of valid consideration that is acceptable to the Committee in its sole
discretion.
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<PAGE> 13
Upon payment of all amounts due from the Participant, the Company
shall cause certificates for the Common Stock then being purchased to be
delivered as directed by the Participant (or the person exercising the
Participant's Stock Option in the event of his death) at its principal business
office promptly after the Exercise Date; provided that if the Participant has
exercised an Incentive Stock Option, the Company may at its option retain
physical possession of the certificate evidencing the shares acquired upon
exercise until the expiration of the holding periods described in Section
422(a)(1) of the Code. The obligation of the Company to deliver shares of
Common Stock shall, however, be subject to the condition that if at any time
the Committee shall determine in its discretion that the listing, registration,
or qualification of the Stock Option or the Common Stock upon any securities
exchange or inter-dealer quotation system 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 Stock Option or the
issuance or purchase of shares of Common Stock thereunder, the Stock Option may
not be exercised in whole or in part unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free
of any conditions not acceptable to the Committee.
If the Participant fails to pay for any of the Common Stock specified
in such notice or fails to accept delivery thereof, the Participant's right to
purchase such Common Stock may be terminated by the Company.
(b) SARS. Subject to the conditions of this Section 10.1(b) and
such administrative regulations as the Committee may from time to time adopt,
an SAR may be exercised by the delivery (including by FAX) of written notice to
the Committee setting forth the number of shares of Common Stock with respect
to which the SAR is to be exercised and the date of exercise thereof (the
"EXERCISE DATE") which shall be at least three (3) days after giving such
notice unless an earlier time shall have been mutually agreed upon. On the
Exercise Date, the Participant shall receive from the Company in exchange
therefor cash in an amount equal to the excess (if any) of the Fair Market
Value (as of the date of the exercise of the SAR) per share of Common Stock
over the SAR Price per share specified in such SAR, multiplied by the total
number of shares of Common Stock of the SAR being surrendered. In the
discretion of the Committee, the Company may satisfy its obligation upon
exercise of an SAR by the distribution of that number of shares of Common Stock
having an aggregate Fair Market Value (as of the date of the exercise of the
SAR) equal to the amount of cash otherwise payable to the Participant, with a
cash settlement to be made for any fractional share interests, or the Company
may settle such obligation in part with shares of Common Stock and in part with
cash.
(c) RESTRICTED STOCK. Subject to such administrative
regulations as the Committee may from time to time adopt and upon the
satisfaction of any conditions on which the Restricted Stock becomes vested,
the Participant can exercise an Award of Restricted Stock by delivering a
written notice to the Committee setting forth the number of shares of Common
Stock with respect to which the Award of Restricted Stock is to be exercised
and the date of exercise thereof (the "EXERCISE DATE") which shall be at least
three (3) days after giving such notice unless an earlier
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<PAGE> 14
time shall have been mutually agreed upon. On the Exercise Date, the
Participant shall deliver to the Company consideration with a value equal to
the total Restricted Stock Price of the shares to be purchased, payable as
follows: (a) cash, check, bank draft, or money order payable to the order of
the Company, (b) by the Participant delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the purchase price; provided that in the event the Participant
chooses to pay the purchase price as so provided, the Participant and the
broker shall comply with such procedures and enter into such agreements of
indemnity and other agreements as the Committee shall prescribe as a condition
of such payment procedure, or (c) in any other form of valid consideration
that is acceptable to the Committee in its sole discretion.
Upon payment of all amounts due from the Participant, the Company
shall cause certificates for the Common Stock then being purchased to be
delivered as directed by the Participant at its principal business office
promptly after the Exercise Date. The obligation of the Company to deliver
shares of Common Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration, or qualification of the Common Stock upon any securities exchange
or inter-dealer quotation system 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 issuance or purchase of
shares of Common Stock thereunder, the Award may not be exercised in whole or
in part unless such listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
If the Participant fails to pay for any of the Common Stock specified
in such notice or fails to accept delivery thereof, the Participant's right to
purchase such Common Stock may be terminated by the Company.
10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common
Stock acquired upon exercise of an Incentive Stock Option are disposed of by a
Participant prior to the expiration of either two (2) years from the Date of
Grant of such Stock Option or one (1) year from the transfer of shares of
Common Stock to the Participant pursuant to the exercise of such Stock Option,
or in any other disqualifying disposition within the meaning of Section 422 of
the Code, such Participant shall notify the Company in writing of the date and
terms of such disposition. A disqualifying disposition by a Participant shall
not affect the status of any other Stock Option granted under the Plan as an
Incentive Stock Option within the meaning of Section 422 of the Code.
ARTICLE 11
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 11, the Board may
at any time and from time to time, without the consent of the Participants,
alter, amend,
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revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment which requires shareholder approval in order for the
Plan and Incentives awarded under the Plan to continue to comply with Section
162(m) of the Code, including any successors to such Section, shall be
effective unless such amendment shall be approved by the requisite vote of the
shareholders of the Company entitled to vote thereon. Any such amendment
shall, to the extent deemed necessary or advisable by the committee, be
applicable to any outstanding Incentives theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any stock option
agreement. In the event of any such amendment to the Plan, the holder of any
Incentive outstanding under the Plan shall, upon request of the Committee and
as a condition to the exercisability thereof, execute a conforming amendment in
the form prescribed by the Committee to any Award Agreement relating thereto.
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this ARTICLE 11 shall
adversely affect any rights of Participants or obligations of the Company to
Participants with respect to any Incentive theretofore granted under the Plan
without the consent of the affected Participant.
ARTICLE 12
TERM
The Plan shall be effective from the date that this Plan is approved
by the Board. Unless sooner terminated by action of the Board, the Plan will
terminate on September 22, 2007, but Incentives granted before that date will
continue to be effective in accordance with their terms and conditions.
ARTICLE 13
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or Incentives are
outstanding, there shall be any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from (1) the declaration or
payment of a stock dividend, (2) any recapitalization resulting in a stock
split-up, combination, or exchange of shares of Common Stock, or (3) other
increase or decrease in such shares of Common Stock effected without receipt of
consideration by the Company, then and in such event:
(i) An appropriate adjustment shall be made in the
maximum number of shares of Common Stock then subject to being awarded
under the Plan and in the maximum number of shares of Common Stock
that may be awarded to a Participant to the end that the same
proportion of the Company's issued and outstanding shares of Common
Stock shall continue to be subject to being so awarded.
(ii) Appropriate adjustments shall be made in the number
of shares of Common Stock and the Option Price thereof then subject to
purchase pursuant to each such Stock Option previously granted and
unexercised, to the end that the same proportion of the Company's
issued and outstanding shares
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<PAGE> 16
of Common Stock in each such instance shall remain subject to purchase
at the same aggregate Option Price.
(iii) Appropriate adjustments shall be made in the number
of SARs and the SAR Price thereof then subject to exercise pursuant to
each such SAR previously granted and unexercised, to the end that the
same proportion of the Company's issued and outstanding shares of
Common Stock in each instance shall remain subject to exercise at the
same aggregate SAR Price.
(iv) Appropriate adjustments shall be made in the number
of shares of Common Stock and the Restricted Stock Price thereof then
subject to purchase pursuant to each Award of Restricted Stock
previously granted and unexercised, to the end that the same
proportion of the Company's issued and outstanding shares of Common
Stock in each such instance shall remain subject to purchase at the
same aggregate Restricted Stock Price.
Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to (i) the number of or Option Price of shares of
Common Stock then subject to outstanding Stock Options granted under the Plan,
(ii) the number of or SAR Price or SARs then subject to outstanding SARs
granted under the Plan, or (iii) the number of or Restricted Stock Price of
shares of Common Stock then subject to outstanding Awards of Restricted Stock
granted under the Plan.
Upon the occurrence of each event requiring an adjustment with respect
to any Incentive, the Company shall mail to each affected Participant its
computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.
ARTICLE 14
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
(a) The existence of this Plan and Incentives granted
hereunder shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes in
the Company's capital structure and its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or preference stocks ranking prior to or otherwise affecting
the Common Stock or the rights thereof (or any rights, options, or
warrants to purchase same), or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
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<PAGE> 17
(b) Subject to any required action by the shareholders,
if the Company shall be the surviving or resulting corporation in any
merger, consolidation or share exchange, any Incentive granted
hereunder shall pertain to and apply to the securities or rights
(including cash, property, or assets) to which a holder of the number
of shares of Common Stock subject to the Incentive would have been
entitled.
(c) In the event of any merger, consolidation or share
exchange pursuant to which the Company is not the surviving or
resulting corporation, there shall be substituted for each share of
Common Stock subject to the unexercised portions of such outstanding
Incentives, that number of shares of each class of stock or other
securities or that amount of cash, property, or assets of the
surviving, resulting or consolidated company which were distributed or
distributable to the shareholders of the Company in respect to each
share of Common Stock held by them, such outstanding Incentives to be
thereafter exercisable for such stock, securities, cash, or property
in accordance with their terms. Notwithstanding the foregoing,
however, all such Incentives may be canceled by the Company as of the
effective date of any such reorganization, merger, consolidation,
share exchange or any dissolution or liquidation of the Company by
giving notice to each holder thereof or his personal representative of
its intention to do so and by permitting the purchase during the
thirty (30) day period next preceding such effective date of all of
the shares of Common Stock subject to such outstanding Incentives.
(d) In the event of a Change of Control, then,
notwithstanding any other provision in this Plan to the contrary, all
unmatured installments of Incentives outstanding shall thereupon
automatically be accelerated and exercisable in full. The
determination of the Committee that any of the foregoing conditions
has been met shall be binding and conclusive on all parties.
ARTICLE 15
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive under this
Plan shall be in force and remain unexpired, (i) sell all or substantially all
of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each
Participant shall be thereafter entitled to receive, in lieu of each share of
Common Stock of the Company which such Participant would have been entitled to
receive under the Incentive, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company. If the Company shall, at any time prior to the
expiration of any Incentive, make any partial distribution of its assets, in
the nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and
designated as such) then in such event the Option Prices, SAR Prices or
Restricted Stock Prices then in effect with respect to each Award of Stock
Option, SAR, or
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<PAGE> 18
Restricted Stock shall be reduced, on the payment date of such distribution, in
proportion to the percentage reduction in the tangible book value of the shares
of the Company's Common Stock (determined in accordance with generally accepted
accounting principles) resulting by reason of such distribution.
ARTICLE 16
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Incentives may be granted under the Plan from time to time in
substitution for similar instruments held by employees of a corporation who
become or are about to become management Employees of the Company or any
Subsidiary as a result of a merger or consolidation of the employing
corporation with the Company or the acquisition by the Company of stock of the
employing corporation. The terms and conditions of the substitute Incentives
so granted may vary from the terms and conditions set forth in this Plan to
such extent as the Board at the time of grant may deem appropriate to conform,
in whole or in part, to the provisions of the Incentives in substitution for
which they are granted.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any Participant under the Plan, such evidence
as it may deem necessary to establish that the Incentives granted or the shares
of Common Stock to be purchased or transferred are being acquired for
investment and not with a view to their distribution.
17.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any
Incentive granted under the Plan shall confer upon any Participant any right
with respect to continuance of employment by the Company or any Subsidiary.
17.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the
Board or the Committee, nor any officer or Employee of the Company acting on
behalf of the Board or the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board or the Committee and each and
any officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination, or interpretation.
17.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any
action of the Board or the Committee shall be deemed to give any person any
right to be granted an Award or any other rights except as may be evidenced by
an Award Agreement, or any amendment thereto, duly authorized by the Committee
and executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
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<PAGE> 19
17.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding
anything contained herein to the contrary, the Company shall not be required to
sell or issue shares of Common Stock under any Incentive if the issuance
thereof would constitute a violation by the Participant or the Company of any
provisions of any law or regulation of any governmental authority or any
national securities exchange or inter-dealer quotation system or other forum in
which shares of Common Stock are quoted or traded (including without limitation
Section 16 of the 1934 Act and Section 162(m) of the Code); and, as a condition
of any sale or issuance of shares of Common Stock under an Incentive, the
Committee may require such agreements or undertakings, if any, as the Committee
may deem necessary or advisable to assure compliance with any such law or
regulation. The Plan, the grant and exercise of Incentives hereunder, and the
obligation of the Company to sell and deliver shares of Common Stock, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required.
17.6 TAX REQUIREMENTS. The Company shall have the right to deduct
from all amounts hereunder paid in cash or other form, any Federal, state, or
local taxes required by law to be withheld with respect to such payments. The
Participant receiving shares of Common Stock issued under the Plan shall be
required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock.
Notwithstanding the foregoing, in the event of an assignment of a Non-qualified
Stock Option or SAR pursuant to Section 17.7, the Participant who assigns the
Non-qualified Stock Option or SAR shall remain subject to withholding taxes
upon exercise of the Non-qualified Stock Option or SAR by the transferee to the
extent required by the Code or the rules and regulations promulgated
thereunder. Such payments shall be required to be made prior to the delivery
of any certificate representing such shares of Common Stock. Such payment may
be made in cash, by check, or through the delivery of shares of Common Stock
owned by the Participant (which may be effected by the actual delivery of
shares of Common Stock by the Participant or by the Company's withholding a
number of shares to be issued upon the exercise of a Stock Option, if
applicable), which shares have an aggregate Fair Market Value equal to the
required minimum withholding payment, or any combination thereof.
17.7 ASSIGNABILITY. Incentive Stock Options may not be transferred
or assigned other than by will or the laws of descent and distribution and may
be exercised during the lifetime of the Participant only by the Participant or
the Participant's legally authorized representative, and each Award Agreement
in respect of an Incentive Stock Option shall so provide. The designation by a
Participant of a beneficiary will not constitute a transfer of the Stock
Option. The Committee may waive or modify any limitation contained in the
preceding sentences of this Section 17.7 that is not required for compliance
with Section 422 of the Code. The Committee may, in its discretion, authorize
all or a portion of a Non-qualified Stock Option or SAR to be granted to a
Participant to be on terms which permit transfer by such Participant to (i) the
spouse, children or grandchildren of the Participant ("IMMEDIATE FAMILY
MEMBERS"), (ii) a trust or trusts for the exclusive benefit of
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<PAGE> 20
such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, (iv) an entity exempt from federal income
tax pursuant to Section 501(c)(3) of the Code or any successor provision, or
(v) a split interest trust or pooled income fund described in Section
2522(c)(2) of the Code or any successor provision, provided that (x) there
shall be no consideration for any such transfer, (y) the Award Agreement
pursuant to which such Non-qualified Stock Option or SAR is granted must be
approved by the Committee and must expressly provided for transferability in a
manner consistent with this Section, and (z) subsequent transfers of
transferred Non-qualified Stock Options or SARs shall be prohibited except
those by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended. Following
transfer, any such Non-qualified Stock Option and SAR shall continue to be
subject to the same terms and conditions as were applicable immediately prior
to transfer, provided that for purposes of ARTICLES 10, 11, 13, 15 AND 17
hereof the term "PARTICIPANT" shall be deemed to include the transferee. The
events of Termination of Service shall continue to be applied with respect to
the original Participant, following which the Non-qualified Stock Options and
SARs shall be exercisable by the transferee only to the extent and for the
periods specified in the Award Agreement. The Committee and the Company shall
have no obligation to inform any transferee of a Non-qualified Stock Option or
SAR of any expiration, termination, lapse or acceleration of such Option. The
Company shall have no obligation to register with any federal or state
securities commission or agency any Common Stock issuable or issued under a
Non-qualified Stock Option or SAR that has been transferred by a Participant
under this Section 17.7.
17.8 USE OF PROCEEDS. Proceeds from the sale of shares of Common
Stock pursuant to incentives granted under this Plan shall constitute general
funds of the Company.
17.8 LEGEND. Each certificate representing shares of Restricted
Stock issued to a Participant shall bear the following legend, or a similar
legend deemed by the Company to constitute an appropriate notice of the
provisions hereof (any such certificate not having such legend shall be
surrendered upon demand by the Company and so endorsed):
On the face of the certificate:
"Transfer of this stock is restricted in accordance with conditions
printed on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are subject to and
transferrable only in accordance with that certain Neutral Posture
Ergonomics, Inc. 1997 Omnibus Securities Plan, a copy of which is on
file at the principal office of the Company in Bryan, Texas. No
transfer
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<PAGE> 21
or pledge of the shares evidenced hereby may be made except in
accordance with and subject to the provisions of said Plan. By
acceptance of this certificate, any holder, transferee or pledgee
hereof agrees to be bound by all of the provisions of said Plan."
The following legend shall be inserted on a certificate evidencing
Common Stock issued under the Plan if the shares were not issued in a
transaction registered under the applicable federal and state securities laws:
"Shares of stock represented by this certificate have been acquired by
the holder for investment and not for resale, transfer or
distribution, have been issued pursuant to exemptions from the
registration requirements of applicable state and federal securities
laws, and may not be offered for sale, sold or transferred other than
pursuant to effective registration under such laws, or in transactions
otherwise in compliance with such laws, and upon evidence satisfactory
to the Company of compliance with such laws, as to which the Company
may rely upon an opinion of counsel satisfactory to the Company."
A copy of this Plan shall be kept on file in the principal office of
the Company in Bryan, Texas.
* * * * * * * * * * * * * * *
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<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of September 22, 1997 by its duly authorized representative
pursuant to prior action taken by the Board.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ Rebecca Boenigk
--------------------------------
Name: Rebecca Boenigk
Title: CEO
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<PAGE> 1
EXHIBIT 6.24
NEUTRAL POSTURE ERGONOMICS, INC.
WARRANT AGREEMENT
October ___, 1997
Huberman Financial, Inc.
8333 Douglas Avenue, Suite 520
Dallas, Texas 75225
Gentlemen:
Neutral Posture Ergonomics, Inc., a Texas corporation (the "Company"),
hereby agrees to issue and sell to you, and you hereby agree to purchase from
the Company at a purchase price of $10.00, a stock purchase warrant entitling
the holder to purchase 133,400 shares of Common Stock, to be evidenced by an
instrument in the form attached hereto as Exhibit A (hereinafter referred to as
the "Warrant," and the Warrant and all instruments hereafter issued in
replacement, substitution, combination or subdivision thereof being hereinafter
collectively referred to as the "Warrants"). The number of shares of Common
Stock purchasable upon exercise of the Warrants is subject to adjustment as
provided in Section 7 below. The Warrants will be exercisable by you or any
other Warrantholder as to all or any lesser number of shares of Common Stock
covered thereby at the per share Purchase Price (as defined below) at any time
and from time to time during a four-year period commencing at 9:00 a.m., Dallas
time, on that date which is one year after the date hereof and ending at 5:00
p.m., Dallas time, on the fifth anniversary of the date hereof (the "Term").
The purchase and sale of the Warrant shall take place at such time and
place as you and the Company mutually agree, at which time you shall deliver a
check for the full purchase price of the Warrant. At such time, the Company
will deliver to you such certificates of its officers with respect to this
Warrant Agreement and the Warrant as you may reasonably request.
1. Definitions.
As used herein the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following respective meanings:
(a) Common Stock. The term "Common Stock" refers to the common
stock, par value of $0.01 per share, of the Company and all other securities of
any class or classes (however designated) of the Company, now or hereafter
authorized, the holders of which shall have the right, without limitation as to
amount, either to all or to a part of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily in the
absence of contingency be entitled to vote generally in an election of
directors of the Company (even though the right so to vote has been suspended
by the occurrence of a contingency).
<PAGE> 2
(b) Other Securities. The term "Other Securities" refers to any
stock (other than Common Stock) and other securities of the Company or any
other person (corporate or otherwise) which the holders of the Warrants at any
time shall be entitled to receive, or shall have received, upon the exercise of
the Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement
of Common Stock or Other Securities pursuant to Section 7 below or otherwise.
(c) Purchase Price. The term "Purchase Price" refers to the per
share purchase price of the shares of the Underlying Common Stock subject to
this Warrant Agreement and the Warrants, as set forth in the form of Warrant
attached hereto as Exhibit A, as adjusted pursuant to Section 7 below.
(d) Act. The term "Act" refers to the Securities Act of 1933, as
amended from time to time.
(e) Commission. The term "Commission" refers to the Securities and
Exchange Commission.
(f) Underlying Common Stock. The term "Underlying Common Stock"
refers to the shares of Common Stock (or Other Securities) issuable under this
Warrant Agreement and the Warrants pursuant to the exercise, in whole or in
part, of the Warrants.
(g) Warrantholder. The term "Warrantholder" refers to Huberman
Financial, Inc. and any transferee or transferees of Huberman Financial, Inc.
permitted under Section 3(a) below.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a) Incorporation; Qualification. The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of Texas, with requisite power and authority (corporate
and other) to own its properties and conduct its business as currently
conducted, and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions, if any, in which it
owns or leases properties or in which the conduct of its business requires such
qualification.
(b) Corporate and Other Action. The Company has all requisite power
and authority (corporate and other), and has taken all necessary corporate
action, to authorize, execute, deliver and perform this Warrant Agreement, to
execute, issue, sell and deliver the Warrants and a certificate or certificates
evidencing the Warrants, to authorize and reserve for issuance and, upon
payment from time to time of the Purchase Price, to issue, sell and deliver,
the shares of the Underlying Common Stock issuable upon exercise of the
Warrants, and to perform all of its obligations under this Warrant Agreement
and the Warrants. This Warrant Agreement has been duly executed and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except to the extent enforceability
may be
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<PAGE> 3
limited by bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and by general principles of equity. No
authorization, approval, consent or other order of any governmental authority
is required for such authorization, issue or sale except to the extent required
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and applicable
federal and state securities laws.
(c) No Violation. The execution and delivery of this Warrant
Agreement, the consummation of the transactions herein contemplated and the
compliance with the terms and provisions of this Warrant Agreement and of the
Warrants will not conflict with, or result in a breach of, or constitute a
default or an event permitting acceleration under, any statute, the Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement or any material franchise, license,
lease, permit, or any other material agreement, understanding or instrument, or
any judgment, decree, order, statute, rule or regulation to which the Company
is a party or by which it is bound.
(d) Validity. The Warrant, when delivered to you, will be duly
authorized, executed and delivered and will be a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and by general principles of equity. The shares of Underlying Common Stock of
the Company, when issued upon exercise of the Warrants, will have been duly
authorized for issuance and, when issued in accordance with the terms of this
Warrant Agreement, will be validly issued and outstanding, fully paid and
nonassessable and free of statutory preemptive rights.
3. Representations of Warrantholders. You represent and warrant to the
Company that you are an "accredited investor" within the meaning of Regulation
D under the Act and that the Warrant and the shares of Underlying Common Stock
are being acquired for investment purposes only and not with a view to the
distribution or resale thereof. You represent that the Company has informed
you that neither this Warrant nor the securities which may be purchased
pursuant to this Warrant have been registered with or approved by the
Commission under the Act or the securities laws of any state and may not be
sold or transferred in the absence of an effective registration statement or an
exemption from such registration requirements. You agree that, during the one-
year period commencing on the date hereof, the Warrant will not be transferred,
sold, assigned or hypothecated, except to (i) persons who are officers or
directors of you; (ii) the respective successors to you in a merger or
consolidation; (iii) the respective purchasers of all or substantially all of
your assets; or (iv) your respective shareholders only in the event you are
liquidated or dissolved. You agree not to make any sale or other disposition
of either the Warrant or the Underlying Common Stock or Other Securities except
pursuant to a registration statement which has become effective under the Act,
setting forth the terms of such offering, the underwriting discount and the
commissions and any other pertinent data with respect thereto, unless you have
provided the Company with an opinion of counsel reasonably acceptable to the
Company that such registration is not required.
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<PAGE> 4
4. Registration.
(a) Piggyback Registrations. If at any time after the first
anniversary of the date of this Warrant Agreement and prior to the fifth
anniversary hereof the Company proposes to register (including for this purpose
a registration effected by the Company for shareholders of the Company other
than the Warrantholders or the holders of Underlying Common Stock (you and any
person who acquires Warrants or Underlying Common Stock in accordance with
Section 3 are collectively referred to in this Section 4 as the "Holders")) any
shares of Common Stock or Other Securities under the Act for sale within such
four-year period (other than registration for issuance or sale in connection
with (i) employee or non-employee director compensation or benefit programs,
(ii) an exchange offer or an offering of securities solely to the existing
shareholders or employees of the Company, (iii) an acquisition, merger or other
business combination using a registration statement on Form S-4 or any
successor or other appropriate or similar form), (iv) a registration statement
on Form S-8 or similar form or (v) a shelf registration pursuant to Rule 415
promulgated under the Act) (each such registration with respect to which
registration rights shall apply being an "Applicable Registration"), the
Company will give prompt written notice (which, in any event, shall be given no
less than 30 days prior to the filing of a registration statement with respect
to such offering) to the Holders of its intention so to do and, upon the
written request of any Holder sent within 20 days after receipt of any such
notice, the Company will use its best efforts to cause all Underlying Common
Stock as to which any such Holder shall have so requested registration to be
registered under the Act, all to the extent necessary to permit the sale in
such offering of the Underlying Common Stock so registered on behalf of any
such Holder in the same manner as the Company (or shareholder other than the
Holders, as the case may be) proposes to offer its shares of Common Stock or
Other Securities. The Company shall use commercially reasonable efforts to
cause the managing underwriter or underwriters of an Applicable Registration
that is a proposed underwritten offering to permit the Underlying Common Stock
so requested by any Holder to be included in the registration for such offering
on the same terms and conditions as the shares of Common Stock or Other
Securities of the Company (or other shareholders if no shares are to be offered
on behalf of the Company) included therein. Notwithstanding the foregoing, if
the managing underwriter of such offering delivers a letter to the Company and
the Holders requesting registration that the total number of shares of Common
Stock or Other Securities which such Holders or the Company, and any other
person, intend to include in such offering will in the good faith opinion of
such managing underwriter materially and adversely affect the success of such
offering, then the number of shares of Underlying Common Stock to be offered
for the account of the Holders and the shares of Common Stock or Other
Securities to be offered for the account of such other shareholder, if any,
shall be reduced pro rata based upon the number of shares of Common Stock
proposed to be sold by the Holders and other persons to the extent necessary to
reduce the total number of shares of Common Stock or Other Securities to be
included in such offering to the number of shares recommended by such managing
underwriter.
(b) Demand Registration. At any time after the first anniversary of
the date of this Warrant Agreement and prior to the fifth anniversary hereof
the Holders of not less than 50% of the Underlying Common Stock not theretofore
registered under the Act pursuant to Section 4(a) hereof may make one demand
(the "Demand Registration") for the Company to register such
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<PAGE> 5
Underlying Common Stock under the Act. The Company shall promptly give notice
of the proposed Demand Registration to all Holders (other than Holders whose
Underlying Common Stock was theretofore registered under the Act), and all such
notified Holders shall thereafter have 20 days after the giving of such notice
by the Company to notify the Company if such Holders desire to participate in
the proposed Demand Registration. The Company shall thereafter promptly
proceed with the registration of all Underlying Common Stock to be included in
the proposed Demand Registration in accordance with the registration procedures
set forth in Section 4(c) hereof; provided, however, (i) no such registration
shall be deemed a Demand Registration unless and until the applicable
registration statement becomes effective; (ii) the Company shall have no
obligation to file a shelf registration statement under Rule 415 promulgated
under the Act; and (iii) the Company may delay the filing of a requested Demand
Registration for up to 90 days if, in the good faith judgment of the Company's
Board of Directors after consultation with legal counsel, such delay is
necessary in order to avoid interference with a pending material transaction or
other corporate event to which the Company is a party or by which it is
directly affected. The Warrantholders shall collectively only be entitled to
one Demand Registration.
(c) Company's Obligations in Registration. In the event you timely
elect to participate in an offering by including shares of Underlying Common
Stock under a registration statement pursuant to Section 4(a) above, or if you
make or timely elect to participate in a Demand Registration pursuant to
Section 4(b) above, the Company shall:
(i) notify you as to the filing of any registration statement
or prospectus and of all amendments or supplements thereto filed prior
to the effective date of such registration statement and of all post-
effective amendments or supplements thereto;
(ii) comply in all material respects with all applicable rules
and regulations of the Commission;
(iii) notify you immediately, and confirm the notice in writing,
(1) when the registration statement becomes effective, (2) of the
issuance by the Commission of any stop order or of the initiation, or
the threatening, of any proceedings for that purpose, (3) of the receipt
by the Company of any notification with respect to the suspension of
qualification of the Underlying Common Stock for sale in any
jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose, and (4) of the receipt of any comments, or
requests for additional information, from the Commission or any state
regulatory authority. If the Commission or any state regulatory
authority shall enter a stop order or order suspending qualification at
any time, the Company will use all commercially reasonable efforts to
obtain the lifting of such order at the earliest possible moment;
(iv) during any time when a prospectus is required to be
delivered under the Act during the period required for the distribution
of the Underlying Common Stock, use its best efforts to comply with all
requirements imposed upon it under the Act and the rules and regulations
promulgated thereunder, so far as necessary to permit the continuance of
sales of or dealings in the Underlying Common Stock pursuant to a
prospectus complying
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<PAGE> 6
with Section 10(a)(3) of the Act. If at any time when a prospectus
relating to the Underlying Common Stock is required to be delivered
under the Act and any event shall have occurred as a result of which, in
the opinion of counsel for the Company or your counsel, the prospectus
relating to the Underlying Common Stock as then amended or supplemented
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend
such prospectus to comply with the Act and the rules and regulations of
the Commission promulgated thereunder, the Company will promptly prepare
and file with the Commission an appropriate amendment or supplement in
form satisfactory to you and your counsel;
(v) use all commercially reasonable efforts, in cooperation
with you, at or prior to the time the registration statement becomes
effective, to register or qualify the Underlying Common Stock for
offering and sale under the securities laws relating to the offering or
sale of the Underlying Common Stock in such jurisdictions as you may
reasonably designate and to continue the qualifications in effect so
long as required for purposes of the sale of the Underlying Common
Stock; provided, however, that no such qualification shall be required
in any jurisdiction where, as a result thereof, the Company would be
subject to service of process for all purposes. In each jurisdiction
where such qualification shall be effected, the Company will, unless you
agree that such action is not at the time necessary or advisable, file
and make such statements or reports at such times as are or may
reasonably be required by the laws of such jurisdiction;
(vi) make generally available to its security holders as soon
as practicable an earnings statement which shall satisfy the provisions
of Section 11(a) of the Act and any applicable rules and regulations of
the Commission thereunder covering a period of at least 12 months
beginning after the effective date of the registration statement;
(vii) use the Company's best efforts to cause the independent
certified public accountants of the Company to deliver to you, and to
the underwriters if the Underlying Common Stock is being sold through
underwriters, letters dated the date that the registration statement
becomes effective and the date the Underlying Common Stock is delivered
to the underwriters for sale pursuant to such registration or, if the
Underlying Common Stock is not being sold through underwriters, on the
date that the registration statement becomes effective, stating that
they are independent certified public accountants within the meaning of
the Act and the rules and regulations of the Commission thereunder, and
that, in their opinion, the financial statements and other financial
data of the Company included in the registration statement or
prospectus, or any amendment or supplement thereto, comply as to form in
all material respects with the applicable accounting requirements of the
Act, and such other financial and accounting matters as the
underwriters, if any, or you may reasonably request;
(viii) after the effective date of such registration statement,
prepare, and promptly notify you of the proposed filing of, and promptly
file with the Commission, each and
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<PAGE> 7
every amendment or supplement thereto or to any prospectus forming a
part thereof as may be necessary to make any statements therein not
misleading in any material respect; provided, however, that no such
amendment or supplement shall be filed if you shall advise the Company
in writing that, in your reasonable opinion, such amendment or
supplement does not comply with the Act;
(ix) furnish to you, as soon as available, copies of any such
registration statement and each preliminary or final prospectus, or
supplement or amendment prepared pursuant thereto, all in such
quantities as you may from time to time reasonably request in order to
facilitate the public sale or other disposition of the Underlying Common
Stock; and
(x) make such representations and warranties to any
underwriter of the Underlying Common Stock and to the holders thereof,
and use the Company's commercially reasonable efforts to cause the
Company's legal counsel to render, at the time or times of the letters
referred to in subparagraph (vii) above, such opinions to such
underwriters, if any, and to you, as such underwriters or you may
reasonably request.
(d) Agreements by Warrantholder. In connection with the filing of a
registration statement pursuant to this Section 4, if Underlying Common Stock
is being registered on your behalf under the Act, you shall:
(i) furnish the Company all material information requested by
the Company concerning yourself and your holdings of securities of the
Company and the proposed method of sale or other disposition of the
Underlying Common Stock and such other information and undertakings as
shall be reasonably required in connection with the preparation and
filing of any such registration statement covering all or part of the
Underlying Common Stock and in order to ensure full compliance with the
Act and the rules and regulations of the Commission promulgated
thereunder;
(ii) if in connection with a piggyback registration pursuant to
Section 4(a) the Company is at the time entering into an underwriting
agreement covering its Common Stock, enter into an underwriting
agreement in customary form with the same underwriter or underwriters
who are parties to such underwriting agreement with the Company,
provided that the sales of Common Stock by you and the Company
thereunder are at the same price and upon the same terms and conditions;
and
(iii) cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including
placing the shares of Underlying Common Stock to be included in such
registration statement in escrow or custody to facilitate the sale and
distribution thereof.
(e) Expenses of Registration. All expenses incurred in connection
with a registration, filing or qualification pursuant to this Section 4,
including, without limitation, registration, filing and qualification fees,
printers' and accounting fees, and the fees and disbursements of counsel
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<PAGE> 8
for the Company, shall be borne and paid by the Company, with the
exception of fees and disbursements of any separate counsel to the
Holders, which shall be borne by the Holders. In addition, the Holders
whose shares of Underlying Common Stock are so registered shall bear and
pay all underwriting discounts and selling commissions attributable to
sales of such shares of Underlying Common Stock.
(f) Indemnification.
(i) The Company shall indemnify and hold harmless you and any
underwriter (as defined in the Act) for you, and each person, if any,
who controls you or such underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against any loss, liability, claim, damage
and expense whatsoever (including but not limited to any and all expense
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), joint or
several, to which any of you or such underwriter or such controlling
person becomes subject, under the Act or otherwise, insofar as such
loss, liability, claim, damage or expense (or actions in respect
thereof) arise out of or are based upon (1) any untrue statement or
alleged untrue statement of any material fact contained in (A) a
registration statement covering the Underlying Common Stock, in the
prospectus contained therein, or in an amendment or supplement thereto
or, (B) in any application or other document or communication (in this
Section 4(f) collectively called an "application") executed by or on
behalf of the Company or based upon written information furnished by or
on behalf of the Company and filed in any jurisdiction in order to
qualify the Underlying Common Stock under the securities laws thereof or
filed with the Commission, or (2) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company shall not be obligated to indemnify you in any such case to the
extent that any such loss, claim, damage, expense or liability arises
out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon, and in conformity
with, written information duly executed and furnished by you or such
underwriter or such controlling person specifically for use in any such
registration statement or prospectus, or any amendment or supplement
thereto, or any application, as the case may be.
If any action is brought against a person in respect of which
indemnity may be sought against the Company pursuant to the foregoing
paragraph, such person shall promptly notify the Company in writing of
the institution of such action and the Company shall assume the defense
of the action, including the employment of counsel (satisfactory to the
indemnified person in its or his reasonable judgment) and payment of
expenses. The indemnified person shall have the right to employ its or
his own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified person unless the
employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of the action, or unless the
Company shall not have promptly employed counsel to have charge of the
defense of the action or unless the
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<PAGE> 9
indemnified person shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional
to those available to the Company (in which case the Company shall not
have the right to direct the defense of the action on behalf of the
indemnified person), in any of which events these fees and expenses
shall be borne by the Company. Anything in this paragraph to the
contrary notwithstanding, the Company shall not be liable for any
settlement of any claim or action effected without its written consent,
which shall not be unreasonably withheld.
The Company's indemnity agreements contained in this Section 4(f)
shall remain in full force and effect regardless of any investigation
made by or on behalf of any indemnified person and shall survive any
termination of this Warrant Agreement. The Company agrees promptly to
notify you of the commencement of any litigation or proceedings against
the Company or any of its officers or directors in connection with the
registration statement pursuant to this Section 4(f). The omission to
notify you promptly of the commencement of any action against the
Company or its officers and directors based upon an alleged act or
omission, which, if proven, would result in your having to indemnify the
Company pursuant to Section 4(f)(ii) below, if prejudicial to your
ability to defend such action, shall relieve you of any liability to
indemnify the Company under Section 4(f)(ii).
The Company further agrees that, if the indemnity provisions of
the foregoing paragraphs are held to be unenforceable, you, your
underwriter or any person controlling you or your underwriter ("your
controlling persons") may recover contribution from the Company in an
amount which, when added to contributions you or your underwriter or
your controlling persons have theretofore received or concurrently
receive from officers and directors of the Company or controlling
persons of the Company, will reimburse you or your underwriter or your
controlling persons for all losses, claims, damages or liabilities and
legal or other expenses; provided, however, that if the full amount of
the contribution specified in this paragraph is not permitted by law,
then you, your underwriter and your controlling persons shall be
entitled to contribution from the Company and its officers, directors
and controlling persons to the full extent permitted by law.
(ii) If you choose to include all or a part of the Underlying
Common Stock in a public offering pursuant to Section 4(a), or if you
include Underlying Common Stock in a Demand Registration pursuant to
Section 4(b), then you agree to indemnify and hold harmless the Company
and each of its directors and officers who have signed any such
registration statement or amendment thereto, and (in the case of a
piggyback registration pursuant to Section 4(a) hereof) any underwriter
for the Company (as defined in the Act), and each person, if any, who
controls the Company or such underwriter within the meaning of the Act,
to the same extent as the indemnity by the Company in this Section 4(f),
but only with respect to untrue or alleged untrue statements or
omissions or alleged omissions, if any, made in such registration
statement, in any prospectus contained therein, or in any amendment or
supplement thereto, or in any application, made or omitted in reliance
upon, and in conformity with, written information duly executed and
furnished
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<PAGE> 10
by you to the Company specifically for use in the registration
statement, the prospectus contained therein, any amendment or supplement
thereto, or any application, as the case may be. In case any action
shall be brought in respect of which indemnity may be sought against
you, you shall have the rights and duties given to the Company, and the
persons so indemnified shall have the rights and duties given to you, by
the provisions of Section 4(f)(i).
(g) Certain Definitions. Unless the context otherwise requires,
references in this Section 4 to "you" or "your" shall mean and include a
Warrantholder or a holder of Underlying Common Stock, as the case may be.
(h) Limitations on Subsequent Registration Rights. From and after
the date of this Warrant Agreement, the Company shall not, without your prior
written consent, enter into any agreement with any holder or prospective holder
of any securities of the Company which grants registration rights under the Act
on terms and conditions more favorable than the rights granted in this Warrant
Agreement unless substantially similar rights are granted to the
Warrantholders. Except as listed on Schedule 4(h) to this Warrant Agreement,
the Company is not a party to any currently subsisting agreement with respect
to its securities granting any registration rights to any person.
(i) Benefit of Registration Rights. The right to cause the Company
to register shares of Underlying Common Stock pursuant to Sections 4(a) and (b)
shall inure to the benefit of each person that is now or may hereafter become a
Holder.
5. Exercise of Warrants; Partial Exercise.
(a) Exercise in Full. Each of the Warrants may be exercised in full
by the holder thereof during the Term hereof by surrender of such Warrant, with
the form of subscription at the end thereof duly executed by such
Warrantholder, to the Company at its principal office at 3904 North Texas
Avenue, Bryan, Texas 77803, accompanied by payment, in cash or by certified or
bank cashier's check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of the Underlying Common Stock
represented by such Warrant or Warrants by the Purchase Price (after giving
effect to any adjustments as provided in Section 7 below). If this Warrant is
not exercised prior to expiration of its Term, it shall become null and void
and all rights granted hereunder shall cease.
(b) Partial Exercise. Each of the Warrants may be exercised in part
by the holder thereof during the Term hereof by surrender of such Warrant, with
the form of subscription at the end thereof duly executed by such
Warrantholder, in the manner and at the place provided in Section 5(a) above,
accompanied by payment in cash or by certified or bank cashier's check payable
to the order of the Company, in the amount obtained by multiplying the number
of shares of the Underlying Common Stock designated by the Warrantholder in the
form of subscription attached to such Warrant by the Purchase Price (after
giving effect to any adjustments as provided in Section 7 below). Upon any
such partial exercise, the Company at its expense (except as set forth below)
will, upon surrender of the relevant Warrant, forthwith issue and deliver to or
upon
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<PAGE> 11
the order of the Warrantholder stock certificates representing the Common Stock
issuable upon such partial exercise and a new Warrant of like tenor, in the
name of the Warrantholder thereof or such other person as the Warrantholder
(upon payment by such Warrantholder of any applicable transfer or similar
taxes) may request, subject to Section 3, giving the Warrantholder or such
other person, as the case may be, the right to purchase that number of shares
of the Underlying Common Stock (as such number may be adjusted from time to
time pursuant to Section 7) equal to the number of such shares called for on
the face of the Warrant so surrendered (after giving effect to any adjustment
herein as provided in Section 7 below) minus the number of such shares
designated by the Warrantholder in the aforementioned form of subscription.
(c) Company to Reaffirm Obligations. The Company will, at the time
of any exercise of any Warrant, upon the request of the holder thereof,
acknowledge in writing its continuing obligation to afford to such
Warrantholder any rights (including without limitation any right to
registration under the Act and state securities laws of the shares of the
Underlying Common Stock issuable or issued upon such exercise) to which such
Warrantholder shall continue to be entitled after such exercise in accordance
with the provisions of this Warrant Agreement; provided, however, that if the
Warrantholder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such Warrantholder
any such rights.
6. Delivery of Stock Certificates, etc., on Exercise.
Any exercise of Warrants pursuant to Section 5 shall be deemed to have
been effected immediately prior to the close of business on the date on which
the Warrants with the subscription form and the check for the aggregate
Purchase Price shall have been received by the Company. At such time, the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such exercise shall be deemed to
have become the holder or holders of record of the shares of Common Stock so
purchased. As soon as practicable after the exercise of any Warrant in full or
in part, and in any event within ten days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of, and delivered to, the purchasing Warrantholder, a
certificate or certificates for the number of fully paid and nonassessable
shares of the Underlying Common Stock to which such Warrantholder shall be
entitled upon such exercise, plus cash in lieu of any fractional share to which
such Warrantholder would otherwise be entitled in an amount determined pursuant
to Section 8(h), together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to Section 7 below or otherwise.
7. Anti-dilution Provisions.
The Warrants are subject to the following terms and conditions during
the term thereof:
(a) Stock Distributions, Splits and Combinations; Adjustments. In
case (i) the outstanding shares of Common Stock (or Other Securities) shall be
subdivided into a greater number of shares, (ii) a dividend in Common Stock (or
Other Securities) shall be paid in respect of Common Stock (or Other
Securities) or (iii) the outstanding shares of Common Stock (or Other
-11-
<PAGE> 12
Securities) shall be combined into a smaller number of shares, then the
Purchase Price in effect immediately prior to such subdivision or combination
or at the record date of such a dividend or distribution shall simultaneously
with the effectiveness of such subdivision or combination or immediately after
the record date of such dividend or distribution shall be adjusted to equal the
product obtained by multiplying the Purchase Price by a fraction, the numerator
of which is that number of shares of Common Stock (or Other Securities)
outstanding immediately prior to such combination or subdivision, or dividend
or distribution record date, and the denominator of which is that number of
shares of Common Stock (or Other Securities) outstanding after giving effect to
such combination, subdivision, dividend or distribution. Any dividend or
distribution paid or distributed on the Common Stock (or Other Securities) in
stock or any other securities convertible into or exercisable for shares of
Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock
(or Other Securities) are issuable upon the conversion or exercise thereof.
Whenever the Purchase Price is adjusted as provided in the immediately
preceding paragraph, the number of shares of the Underlying Common Stock
purchasable upon exercise of the Warrants immediately prior to such Purchase
Price adjustment shall be adjusted, effective simultaneously with such Purchase
Price adjustment, to equal the product obtained (calculated to the nearest full
share) by multiplying such number of shares of the Underlying Common Stock by a
fraction, the numerator of which is the Purchase Price in effect immediately
prior to such Purchase Price adjustment and the denominator of which is the
Purchase Price in effect upon such Purchase Price adjustment, which adjusted
number of shares of the Underlying Common Stock shall thereupon be purchasable
upon exercise of the Warrants until further adjusted as provided herein.
(b) Reorganizations and Recapitalizations. In case the Company shall
be reorganized or recapitalized by reclassifying its outstanding Common Stock
(or Other Securities) into a stock with a different par value or by changing
its outstanding Other Securities with par value to stock without par value,
then, as a condition of such reorganization or recapitalization, as the case
may be, lawful and adequate provision shall be made whereby each Warrantholder
shall thereafter have the right to purchase, upon the terms and conditions
specified herein, in lieu of the shares of Common Stock (or Other Securities)
or assets theretofore purchasable upon the exercise of the Warrants, the kind
and amount of shares of stock, other securities or assets receivable upon such
reorganization or recapitalization by a holder of the number of shares of
Common Stock (or Other Securities) which the Warrantholder might have purchased
immediately prior to such recapitalization. If any consolidation or merger of
the Company with another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected in such a way that
holders of Common Stock (or Other Securities) shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock (or
Other Securities), then, as a condition of such consolidation, merger or sale,
lawful and adequate provisions shall be made whereby the Warrantholders shall
have the right to purchase and receive in lieu of the shares of the Underlying
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the Warrants, the number or amount, as the case may be, of such
shares of stock, securities or assets as may be issuable or payable in respect
of or in exchange for the number of shares of Underlying Common Stock
purchasable and receivable upon the exercise of the Warrants
-12-
<PAGE> 13
had such consolidation, merger or sale not occurred; and in any such case
appropriate provision shall be made with respect to the rights and interests of
the Warrantholders hereunder so that the provisions hereof (including without
limitation provisions for adjustment of the Purchase Price and of the number of
shares purchasable and receivable upon the exercise of the Warrants) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
such stock or securities, or such assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the registered holder of each Warrant at the last
address of such Warrantholder appearing on the books of the Company, the
obligation to deliver to such Warrantholder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Warrantholder may
be entitled to purchase. If a purchase, tender or exchange offer is made to
and accepted by the holders of more than 50% of the outstanding shares of
Common Stock of the Company, the Company shall not effect any consolidation,
merger or sale with the Person (as hereinafter defined) having made such offer
or with any Affiliate (as hereinafter defined) of such Person, unless prior to
the consummation of such consolidation, merger or sale the Warrantholders shall
have been given the right to elect to receive upon the exercise of Warrants,
either the stock, securities or assets then issuable with respect to the Common
Stock (or Other Securities) of the Company or the stock, securities or assets,
or the equivalent issued to previous holders of the Common Stock in accordance
with such offer. The term "Person" as used in this Section 7(b) shall mean and
include an individual, a partnership, a corporation, a trust, a joint venture,
an unincorporated organization and a government or any department or agency
thereof. For the purposes of this Section 7(b), an "Affiliate" of any Person
shall mean any Person directly or indirectly controlling, controlled by or
under common control with, such other Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
(c) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Warrant Agreement and the Warrants shall terminate as of the date upon
which a certificate of dissolution or liquidation shall be filed with the
Secretary of State of Texas (or, if the Company theretofore shall have been
merged or consolidated with a corporation incorporated under the laws of
another state, the date upon which action of equivalent effect shall have been
taken); provided, however, that (i) no dissolution or liquidation shall affect
the rights under Section 7(b) of any Warrantholder and (ii) if the Company's
Board of Directors shall propose to dissolve or liquidate the Company, each
Warrantholder shall be given written notice of such proposal at the earlier of
(1) the time when the Company's shareholders are first given notice of the
proposal and (2) the time when notice to the Company's shareholders is first
required.
(d) Notice of Change of Purchase Price. Whenever the Purchase Price
or the kind or amount of securities or assets purchasable under the Warrants
shall be adjusted pursuant to any of the provisions of this Warrant Agreement,
the Company shall forthwith thereafter cause to be sent to each Warrantholder a
certificate setting forth the adjustments in the Purchase Price and/or
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<PAGE> 14
in such number of shares, securities or assets purchasable upon exercise of the
Warrants and also setting forth in detail the facts requiring such adjustments,
including without limitation a statement of the consideration received or
deemed to have been received by the Company for any additional shares of stock
or other securities issued by it requiring such adjustment.
(e) Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend payable out of earned surplus of the Company) or
other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or assets, or
to receive any other right, (ii) any reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or
any transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with, any other person or (iii) any
voluntary or involuntary dissolution or liquidation of the Company, then and in
each such event the Company will mail or cause to be mailed to each
Warrantholder a notice specifying not only the date on which any such record is
to be taken for the purpose of such dividend, distribution or right and stating
the amount and character of such dividend, distribution or right, but also the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such notice
shall be mailed at least 15 days prior to the proposed record date therein
specified.
(f) Acceleration of Exercisability. If any of the events described
in Section 7(b) or (c) hereof shall occur prior to the first anniversary of the
date of this Warrant Agreement, the Warrants shall become immediately
exercisable.
8. Further Covenants of the Company.
(a) Impairments. The Company will not, by amendment of its articles
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of the Warrants or of this Warrant Agreement, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrantholders against impairment. Without limiting
the generality of the foregoing, the Company:
(i) shall at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
the Underlying Common Stock from time to time issuable upon the exercise
of the Warrants and shall take all necessary actions to ensure that the
par value per share, if any, of the Underlying Common Stock is at all
times equal to or less than the then effective Purchase Price;
-14-
<PAGE> 15
(ii) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock (or Other
Securities) upon the exercise of the Warrants from time to time
outstanding; and
(iii) will not transfer all or substantially all of its
properties and assets to any other person or entity, or consolidate with
or merge into any other person or entity or permit any such person or
entity to consolidate with or merge into the Company (if the Company is
not the surviving corporation), unless such other person or entity shall
expressly assume in writing and will be bound by all the terms of this
Warrant Agreement and the Warrants.
(b) Title to Stock. All shares of the Underlying Common Stock
delivered upon the exercise of the Warrants shall be validly issued, fully paid
and nonassessable; each holder of a Warrant shall receive good and marketable
title to the Underlying Common Stock, free and clear of all voting and other
trust arrangements, liens, encumbrances, equities and claims whatsoever by or
through the Company; and the Company shall have paid all stamp, stock transfer
or similar taxes, if any, in respect of the issuance thereof.
(c) Listing on Securities Exchanges; Registration. The Company will,
at its expense, list on the Nasdaq Stock Market's National Market or any other
securities exchange on which the Common Stock is listed, upon official notice
of issuance upon the exercise of the Warrants, and maintain such listing of,
all shares of the Underlying Common Stock from time to time issuable upon the
exercise of the Warrants, and the Company will so list on any securities
exchange, will so register and will maintain such listing of, any Other
Securities if and at the time that any securities of like class or similar type
shall be listed on such securities exchange by the Company.
(d) Remedies. The Company stipulates that the remedies at law of the
Warrantholders or any holder of Underlying Common Stock in the event of any
default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant Agreement or the Warrants are
not and will not be adequate and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or
in the Warrants or by an injunction against a violation of any of the terms
hereof or thereof or otherwise.
(e) Exchange of Warrants. Subject to Section 3 hereof, upon
surrender for exchange of any Warrant to the Company, the Company at its
expense will promptly issue and deliver to or upon the order of the holder
thereof a new Warrant of like tenor, in the name of such holder or as such
holder (upon payment by such Warrantholder of any applicable transfer taxes)
may direct, providing the holder the right to purchase the aggregate number of
shares of the Underlying Common Stock indicated on the face or faces of the
Warrant or Warrants so surrendered as being purchasable thereunder, subject to
adjustment under Section 7. Any Warrant and all rights thereunder are
transferable in whole or in part upon the books of the Company by the
registered holder thereof subject to the provisions of Section 3, in person or
by duly authorized attorney, upon surrender of such Warrant, duly endorsed, at
the principal office of the Company.
-15-
<PAGE> 16
(f) Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company, at the expense of the Warrantholder,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(g) Reporting by the Company. The Company agrees that during the
term of the Warrants it will keep current in the filing of all forms and other
materials, if any, which it may be required to file pursuant to the Exchange
Act and will use its best efforts to keep current in the filing of all other
forms and reports required to be filed with any governmental securities
regulatory authority having jurisdiction over the Company.
(h) Fractional Shares. No fractional shares of Underlying Common
Stock are to be issued upon the exercise of any Warrant, but the Company shall
pay cash in lieu of any fraction of a share which would otherwise be issuable
upon exercise of the Warrant in an amount equal to such fraction multiplied by
the highest market price per share of Underlying Common Stock on the day of
exercise, as determined by the highest sale price, regular way, or, if there
shall have been no sale on such day, the average of the highest reported bid
and lowest reported asked price, in each case as officially reported on the
principal securities exchange on which the Underlying Common Stock is listed or
admitted to trading, or if not listed or admitted to trading on any securities
exchange, the average of the highest reported bid and lowest reported asked
price as furnished by the National Quotation Bureau Incorporated, all as
adjusted; provided, however, that if the Underlying Common Stock is not traded
in such manner that the quotations referred to herein are available, the market
price shall be deemed to be the fair market value of such Underlying Common
Stock.
9. Other Warrantholders.
The Warrants are issued upon the following terms, to all of which each
holder or owner thereof by the taking thereof consents and agrees: (a) any
person who shall become a transferee, within the limitations on transfer
imposed under Section 3 hereof, of a Warrant properly endorsed shall take such
Warrant subject to the provisions of Section 3 hereof and shall represent to
the Company that he is the absolute owner thereof and, subject to the
restrictions contained in this Warrant Agreement, shall be empowered to
transfer absolute title by endorsement and delivery thereof to a permitted bona
fide purchaser for value; (b) each prior taker or owner waives and renounces
all of his equities or rights in such Warrant in favor of each such permitted
bona fide purchaser, and each such permitted bona fide purchaser shall acquire
absolute title thereto and to all rights represented thereby; (c) until such
time as the relevant Warrant is transferred on the books of the Company, the
Company may treat the registered holder thereof as the absolute owner thereof
for all purposes, notwithstanding any notice to the contrary; and (d) all
references to the words "you" or "your" in this Warrant Agreement shall be
deemed to apply with equal effect to any person to whom a Warrant has been
transferred in accordance with the terms hereof, and where appropriate, to any
person holding shares of the Underlying Common Stock.
-16-
<PAGE> 17
10. Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to any Warrantholder shall be mailed by first class,
registered or certified mail, postage prepaid, to such address as may have been
furnished to the Company in writing by such Warrantholder, or, until an address
is so furnished, to the address of the last holder of such Warrant who has so
furnished an address to the Company, except as otherwise provided herein. This
Warrant Agreement and any of the terms hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Texas (without reference to the
conflicts of laws provisions thereof). The headings in this Warrant Agreement
are for purposes of reference only and shall not limit or otherwise affect any
of the terms hereof. This Warrant Agreement, together with the forms of
instruments annexed hereto as Exhibit A and the information on outstanding
registration rights in Schedule 4(h), constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
* * *
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be
executed on this ______day of October, 1997, in Dallas, Texas, by its proper
corporate officers, thereunto duly authorized.
NEUTRAL POSTURE ERGONOMICS,
INC.
By:
-----------------------------
Rebecca E. Boenigk
Chairman of the Board and
Chief Executive Officer
The above Warrant Agreement is
confirmed this day of
--------
October, 1997.
HUBERMAN FINANCIAL, INC.
By:
------------------------------
Isac Huberman
President
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<PAGE> 19
EXHIBIT A
NEITHER THIS WARRANT NOR THE SECURITIES WHICH MAY BE PURCHASED PURSUANT TO THIS
WARRANT HAVE BEEN REGISTERED WITH OR APPROVED BY THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES WHICH MAY BE
PURCHASED PURSUANT TO THIS WARRANT ARE BEING OFFERED AND SOLD IN RELIANCE UPON
CERTAIN EXEMPTIONS AFFORDED BY SUCH ACTS AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
NEUTRAL POSTURE ERGONOMICS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY THAT Huberman Financial, Inc. ("HFI") or its
registered assigns, is entitled to purchase at any time or from time to time
after 9:00 o'clock a.m., Dallas, Texas time, on October _____, 1998 until 5:00
o'clock p.m., Dallas, Texas time, on October _____, 2002, up to 133,400 shares
of Common Stock, par value of $0.01 per share, of Neutral Posture Ergonomics,
Inc., a Texas corporation (the "Company"), at a purchase price per share (at
the time in effect as adjusted pursuant to the Warrant Agreement referred to
herein) of $_______ (the "Purchase Price"). This Warrant is issued pursuant to
a Warrant Agreement, dated October ___, 1997 (the "Warrant Agreement"), between
the Company and HFI, and all rights of the holder of this Warrant are subject
to the terms and provisions of the Warrant Agreement, copies of which are
available for inspection at the offices of the Company.
Transfer of this Warrant is restricted as provided in the Warrant
Agreement.
Subject to the provisions of the Securities Act of 1933, as amended, and
of the Warrant Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, at the offices of the Company, at 3904 North
Texas Avenue, Bryan, Texas 77803, by the holder hereof in person or by his or
its duly authorized attorney, upon surrender of this Warrant, together with the
Assignment hereof duly endorsed. Until transfer hereof on the books of the
Company, the Company may treat the registered holder as the owner hereof for
all purposes.
<PAGE> 20
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
in Dallas, Texas this ____ day of October, 1997 by its proper corporate
officers thereunto duly authorized.
NEUTRAL POSTURE ERGONOMICS,
INC.
By:
-----------------------------
Rebecca E. Boenigk
Chairman of the Board and
Chief Executive Officer
ATTEST:
- ---------------------------------
Name:
---------------------------
Title:
--------------------------
-2-
<PAGE> 21
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Neutral Posture Ergonomics, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _______________* shares of Common Stock of Neutral Posture
Ergonomics, Inc. and herewith makes payment of $_________ therefor, and
requests that the certificate or certificates for such shares be issued in the
name of and delivered to the undersigned.
Dated:
-------------------------
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
within Warrant)
-----------------------------
-----------------------------
-----------------------------
(Address)
- ----------------
* Insert here the number of shares called for on the face of the Warrant
or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised, in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant Agreement pursuant to which the Warrant was
granted, may be deliverable upon exercise.
<PAGE> 22
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _________________________________________ the right represented by the
within Warrant to purchase __________________________ shares of Common Stock of
Neutral Posture Ergonomics, Inc. to which the within Warrant relates, and
appoints ____________________________ Attorney to transfer such right on the
books of Neutral Posture Ergonomics, Inc. with full power of substitution in
the premises.
The undersigned represents and warrants that the transfer of the within
Warrant is permitted by the terms of the Warrant Agreement pursuant to which
the within Warrant has been issued, and the transferee hereof, by his
acceptance of this Assignment, represents and warrants that he is familiar with
the terms of said Warrant Agreement and agrees to be bound by the terms thereof
with the same force and effect as if a signatory thereto.
Dated:
-------------------------
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
within Warrant)
-----------------------------
-----------------------------
-----------------------------
(Address)
Signed in the presence of:
- -------------------------------
<PAGE> 23
SCHEDULE 4(H)
OUTSTANDING REGISTRATION RIGHTS
After the consummation of the offering of Common Stock by the Company
pursuant to Form SB-1 filed with the Securities and Exchange Commission, (i)
David W. Campbell will own 100,000 shares of Common Stock and options to
acquire 200,000 shares of Common Stock and (ii) David W. Ebner will own 60,000
shares of Common Stock, all of which shares of Common Stock will be subject to
certain registration rights pursuant to the Company's Amended and Restated 1996
Nonqualified Stock Option Plan.
<PAGE> 1
EXHIBIT 6.30
LOAN AGREEMENT
Date April 30, 1996
COMMERCE NATIONAL BANK
P.O. Box 10089
College Station, TX 77842
Attention: THOMAS H. AUGHINBAUGH, III
EXECUTIVE VICE PRESIDENT
Gentlemen:
The undersigned, Neutral Posture Ergonomics, Inc. ("Borrower"), a Corporation
duly organized, existing and in good standing under the laws of the State of
Texas and with its principal office, place of record-keeping and mailing
address located at 2301 Fountain Ave., Bryan, Texas 77801, has applied to you
(Bank") for a loan to be evidenced by Borrower's promissory note ("Note") dated
April 30, 1996, in the principal sum of $500,000.00, payable to the order of
Bank as therein specified. In consideration of Bank making such loan, Borrower
agrees with Bank as follows:
1. Representations and Warranties. Borrower represents and warrants to
Bank that:
a. The foregoing statements concerning Borrower are true and
correct;
b. The borrowing hereunder and the execution, delivery, and
performance by Borrower of this Agreement, the Note and any
other agreements contemplated in connection herewith have been
duly authorized by all necessary action of borrower and are
not in contravention of any law, rule, or regulation or of the
terms of Borrower's articles of incorporation (or partnership)
or bylaws or of any agreement or instrument to which Borrower
is a party or by which it may be bound;
c. Each financial statement of Borrower herewith or heretofore
delivered to Bank was prepared in conformity with generally
accepted accounting principles applied on a basis consistent
with that of previous such statements and truly disclosed
Borrower's financial condition (including all of Borrower's
contingent liabilities) as of the date thereof and the results
of its operations for the period covered thereby, and there
has been no material adverse change in Borrower's financial
condition and operations subsequent to the date of the most
recent financial statement of Borrower delivered to Bank;
d. No litigation or governmental proceeding is pending, or, to
the knowledge of any of Borrower's officers, threatened
against or affecting Borrower, which may result in any
material adverse change in Borrower's business, properties or
operations;
<PAGE> 2
e. Borrower is not the lessee of any real or personal property
except as has been disclosed in writing to the above-named
officer of Bank;
f. None of Borrower's assets is subject to any lien, security
interest or other encumbrance except as has been disclosed in
writing to the above-named officer of Bank;
g. No certificate or statement herewith or heretofore delivered
by Borrower to Bank in connection herewith, or in connection
with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material
fact necessary to keep the statements contained therein from
being misleading.
2. Affirmative Covenants. Borrower covenants to:
a. Keep adequate records, in accordance with good accounting
practice, of all of its transactions so that at any time, and
from time to time, its true and complete financial condition
may be readily determined, and, at Bank's request, make such
records available for Bank's inspection and permit Bank to
make and take away copies thereof;
b. Promptly, and in any event within 15 days, after the close of
each Quarterly period of each fiscal year of Borrower (except
the last such period in each such fiscal year), deliver to
Bank a financial report consisting of Borrower's balance sheet
as of the end of such period and a profit and loss statement
and reconciliation of surplus from the beginning of such
fiscal year to the end of such period, which financial report
shall be prepared in such form and detail as Bank may request
and shall be in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
preceding fiscal year and shall be certified to be true and
correct by Borrower's chief financial officer;
c. Within 90 days after the close of each fiscal year of
Borrower, deliver to Bank a copy of the annual audit report of
Borrower, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the preceding fiscal year, and signed by independent
certified public accountants satisfactory to Bank;
d. Promptly, and in any event within 30 days, after the close of
each fiscal year of Borrower, deliver to Bank a certificate
signed by Borrower's chief financial officer and containing a
statement whether, to the knowledge of such officer, a Default
(as hereinafter defined) has occurred and is continuing (or in
any event which might become a Default after the lapse of time
or the giving of notice, or both), and if the certificate
shows that a Default has occurred and is continuing, it shall
also specify what steps are being taken by Borrower to cure
the same;
<PAGE> 3
e. Promptly inform Bank of any litigation, or of any claim or
controversy which might become the subject of litigation,
against Borrower or affecting any of Borrower's property, if
such litigation or potential litigation might, in the event of
an unfavorable outcome, have a material adverse effect on
Borrower's financial condition or might cause a Default;
f. Promptly furnish to Bank, at Bank's request, such additional
financial or other information concerning the assets,
liabilities, operations and transactions of Borrower as Bank
may from time to time reasonably request;
g. Promptly pay when due any and all taxes, assessments and
governmental charges upon Borrower or against any of
Borrower's property, unless the same is being contested in
good faith by appropriate proceedings and reserves deemed
adequate by Bank have been established therefor;
h. Properly pay all lawful claims, whether for labor, materials
or otherwise, which might or could, if unpaid, become a lien
or charge on any property or assets of Borrower, unless and to
the extent only that the same are being contested in good
faith by appropriate proceedings and reserves deemed adequate
by Bank have been established therefor;
i. Maintain its existence and promptly and properly comply with
all laws, statutes, ordinances and governmental regulations
applicable to it or to any of its property, business
operations and transactions;
j. Maintain, with financially sound and reputable insurance
companies or associations, insurance of the kinds, covering
the risks and in the relative proportionate amounts, usually
carried by companies engaged in businesses similar to that of
Borrower (such insurance to be in any event in such amounts
and covering such risks as shall be satisfactory to Bank),
and, at Bank's request, deliver to Bank evidence of the
maintenance of such insurance;
k. Maintain all of its tangible property in good condition and
repair, and make all necessary replacements thereof, and
operate the same properly and efficiently; and
l. Preserve and maintain all licenses, privileges, franchises,
certificates and the like necessary for the operation of its
business.
3. Negative Covenants. Until the note and all other obligations and
liabilities of Borrower hereunder are fully paid, Borrower covenants
that it will not, without the prior written consent of Bank:
a. Permit its working capital (being the excess of its current
assets over its current liabilities) to be less than
$100,000.00, or permit the ratio of its current assets to its
current liabilities to be less than 1.08;
- 3 -
<PAGE> 4
b. Permit its net worth to be less than $200,000.00, or permit
the ratio of its total liabilities to its net worth to exceed
3.00;
c. Invest in fixed assets in excess of $450,000.00 in any 12-
month period; Primarily for Injection Molds for Chair
Manufacturing;
d. In any year pay or contract to pay in the aggregate any
salaries, commissions, bonuses or other compensation in excess
of the following amounts for the following persons or groups:
Name of Person or Group Amount
N/A N/A
e. Hereafter incur or assume any indebtedness for borrowed money
except to Bank; Excepts for the Accounts Receivable Line with
Fidelity Funding, Inc.;
f. Endorse, guarantee, or otherwise become surety for or
contingently liable upon, the obligations of any person, firm
or corporation (provided, however, that the foregoing shall
not apply to endorsements of negotiable instruments by
Borrower in the ordinary course of business);
g. Mortgage, assign, hypothecate, grant a security interest in,
or encumber any of Borrower's assets, except to Bank
(provided, however, that the foregoing shall not apply to
liens for taxes which are not delinquent or which are being
contested in good faith, mechanic's and materialmen's liens
with respect to obligations which are not overdue or which are
being contested in good faith, and liens resulting from
deposits to secure the payments of workmen's compensation or
other social security or to secure the performance of bids or
contracts in the ordinary course of business);
h. Reorganize, merge or consolidate with, or acquire all or
substantially all of the assets of any other company, firm or
association, or make any other substantial change in its
capitalization or character of its business;
i. Pay any dividends (other than stock dividends consisting of
its own stock but not the stock of any subsidiary) on any of
its outstanding stock or purchase or redeem any of its stock;
j. Sell any of its assets used or useful in its business, except
in the regular course of business;
k. Sell any of its assets to any other person, firm, or
corporation with the understanding or agreement that such
assets shall be leased back to Borrower;
- 4 -
<PAGE> 5
l. Own, purchase or acquire, directly or indirectly, any stock or
securities of any other person, firm or corporation, other
than securities guaranteed as to principal and interest by the
United States government;
m. Make any loans or advances or sell any of its accounts
receivable with or without recourse; or
n. Enter into any lease in which the annual rental exceeds
$20,000.00 or permit the aggregate of all of its lease
payments to exceed $20,000.00 in any 12-month period.
4. Default. The term "Default" as used in this Agreement, means any one
or more of the following:
a. The failure of Borrower to pay the Note in accordance with its
terms;
b. The failure of Borrower to pay any other note in accordance
with its terms which at any time evidences indebtedness
(whether now existing or at any time hereafter arising) of
Borrower to Bank;
c. The failure of Borrower to perform any covenant or agreement
of Borrower contained herein or in any security agreement,
mortgage, deed of trust,, assignment or other contract
securing or assuring payment of any indebtedness (whether now
existing or at any time hereafter arising) of Borrower to
Bank;
d. The receipt by Bank of information establishing that any
statement or representation of Borrower contained herein or in
any other writing heretofore or hereafter furnished by
Borrower to Bank is false or misleading in any material
respect;
e. The insolvency of Borrower;
f. The appointment of a receiver of Borrower, or of all or any
substantial part of its property, and the failure of such
receiver to be discharged within thirty (30) days thereafter;
g. The adjudication of Borrower as a bankrupt;
h. The admission by Borrower in writing of its inability to pay
its debts generally as they become due;
i. The execution by Borrower of an assignment for the benefit of
its creditors;
j. The filing by Borrower of a petition to be adjudged a
bankruptcy, or a petition or answer seeking reorganization or
admitting the material allegations of a petition filed against
it in any bankruptcy or reorganization proceeding, or the act
of Borrower in instituting of voluntarily being or
- 5 -
<PAGE> 6
becoming a party to any other judicial proceeding intended to
effect a discharge of the debts of Borrower, in whole or in
part, or a postponement of the maturity or the collection
thereof, or a suspension of any of the rights or powers of a
trustee or of any of the rights of powers granted to Bank
herein or in any other documents executed in connection
herewith;
k. The failure of Borrower to pay any money judgment against it
before the expiration of sixty (60) days after such judgment
becomes final and no longer appealable; or
l. The failure of any attachment, sequestration or similar
proceeding against any of Borrower's property to remain
undischarged, unbonded by Borrower, or undismissed for a
period of sixty (60) days after the commencement thereof.
Upon the occurrence of a Default, Bank, at its option, without notice, demand
or presentment, which are hereby waived, may declare immediately due and
payable the entire unpaid balance of principal and all accrued interest then
unpaid on the Note and any other indebtedness of Borrower to Bank, and, upon
the exercise of such option, such entire unpaid balance of principal and
accrued interest shall become immediately due and payable.
5. Miscellaneous. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specific instance and for the purpose for which given. No notice to
or demand on Borrower in any case shall, of itself, entitle Borrower
to any other or further notice or demand in similar or other
circumstances. No delay or omission by Bank in exercising any power
or right hereunder shall impair any such right or power or be
construed as a waiver thereof or any acquiescence therein, nor shall
any single or partial exercise of any such power preclude other or
further exercise thereof, or the exercise of any other right of power
hereunder. All rights and remedies of Bank hereunder are cumulative
of each other and of every other right or remedy which Bank may
otherwise have at law or in equity or under any other contract or
document, and the exercise of one or more rights or remedies shall
not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted
principles of good accounting practice consistently applied on the
basis used by Borrower in prior years. This Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of
Bank, its successors and assigns.
6. Additional Provisions (which shall be controlling to the extent of any
conflict with the preceding provisions):
- 6 -
<PAGE> 7
1. Loan Guarantors, Jerome and Jaye Congleton and Bobby and
Rebecca Boenigk agree to provide Lender with Annual Financial
Statements in a form acceptable to Bank.
Accepted: Very truly yours,
COMMERCE NATIONAL BANK NEUTRAL POSTURE ERGONOMICS, INC.
/s/ Thomas H. Aughinbaugh, III /s/ Rebecca Boenigk
- ---------------------------------- ----------------------------------
Thomas H. Aughinbaugh, III Rebecca Boenigk
Executive Vice President Chairman and Chief Executive Officer
/s/ Jaye Congleton VP
----------------------------------
Jaye Congleton
Vice President and Secretary
Date: 4-30-96 Date: 4-30-96
----------------------------- -----------------------------
- 7 -
<PAGE> 1
EXHIBIT 6.31
LOAN AGREEMENT
Date April 30, 1996
COMMERCE NATIONAL BANK
P.O. Box 10089
College Station, TX 77842
Attention: THOMAS H. AUGHINBAUGH, III
EXECUTIVE VICE PRESIDENT
Gentlemen:
The undersigned, Neutral Posture Ergonomics, Inc. ("Borrower"), a Corporation
duly organized, existing and in good standing under the laws of the State of
Texas and with its principal office, place of record-keeping and mailing
address located at 2301 Fountain Ave., Bryan, Texas 77801, has applied to you
(Bank") for a loan to be evidenced by Borrower's promissory note ("Note") dated
April 30, 1996, in the principal sum of $150,000.00, payable to the order of
Bank as therein specified. In consideration of Bank making such loan, Borrower
agrees with Bank as follows:
1. Representations and Warranties. Borrower represents and warrants to
Bank that:
a. The foregoing statements concerning Borrower are true and
correct;
b. The borrowing hereunder and the execution, delivery, and
performance by Borrower of this Agreement, the Note and any
other agreements contemplated in connection herewith have been
duly authorized by all necessary action of borrower and are
not in contravention of any law, rule, or regulation or of the
terms of Borrower's articles of incorporation (or partnership)
or bylaws or of any agreement or instrument to which Borrower
is a party or by which it may be bound;
c. Each financial statement of Borrower herewith or heretofore
delivered to Bank was prepared in conformity with generally
accepted accounting principles applied on a basis consistent
with that of previous such statements and truly disclosed
Borrower's financial condition (including all of Borrower's
contingent liabilities) as of the date thereof and the results
of its operations for the period covered thereby, and there
has been no material adverse change in Borrower's financial
condition and operations subsequent to the date of the most
recent financial statement of Borrower delivered to Bank;
d. No litigation or governmental proceeding is pending, or, to
the knowledge of any of Borrower's officers, threatened
against or affecting Borrower, which may result in any
material adverse change in Borrower's business, properties or
operations;
<PAGE> 2
e. Borrower is not the lessee of any real or personal property
except as has been disclosed in writing to the above-named
officer of Bank;
f. None of Borrower's assets is subject to any lien, security
interest or other encumbrance except as has been disclosed in
writing to the above-named officer of Bank;
g. No certificate or statement herewith or heretofore delivered
by Borrower to Bank in connection herewith, or in connection
with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material
fact necessary to keep the statements contained therein from
being misleading.
2. Affirmative Covenants. Borrower covenants to:
a. Keep adequate records, in accordance with good accounting
practice, of all of its transactions so that at any time, and
from time to time, its true and complete financial condition
may be readily determined, and, at Bank's request, make such
records available for Bank's inspection and permit Bank to
make and take away copies thereof;
b. Promptly, and in any event within 15 days, after the close of
each Quarterly period of each fiscal year of Borrower (except
the last such period in each such fiscal year), deliver to
Bank a financial report consisting of Borrower's balance sheet
as of the end of such period and a profit and loss statement
and reconciliation of surplus from the beginning of such
fiscal year to the end of such period, which financial report
shall be prepared in such form and detail as Bank may request
and shall be in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
preceding fiscal year and shall be certified to be true and
correct by Borrower's chief financial officer;
c. Within 90 days after the close of each fiscal year of
Borrower, deliver to Bank a copy of the annual audit report of
Borrower, prepared in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the preceding fiscal year, and signed by independent
certified public accountants satisfactory to Bank;
d. Promptly, and in any event within 30 days, after the close of
each fiscal year of Borrower, deliver to Bank a certificate
signed by Borrower's chief financial officer and containing a
statement whether, to the knowledge of such officer, a Default
(as hereinafter defined) has occurred and is continuing (or in
any event which might become a Default after the lapse of time
or the giving of notice, or both), and if the certificate
shows that a Default has occurred and is continuing, it shall
also specify what steps are being taken by Borrower to cure
the same;
- 2 -
<PAGE> 3
e. Promptly inform Bank of any litigation, or of any claim or
controversy which might become the subject of litigation,
against Borrower or affecting any of Borrower's property, if
such litigation or potential litigation might, in the event of
an unfavorable outcome, have a material adverse effect on
Borrower's financial condition or might cause a Default;
f. Promptly furnish to Bank, at Bank's request, such additional
financial or other information concerning the assets,
liabilities, operations and transactions of Borrower as Bank
may from time to time reasonably request;
g. Promptly pay when due any and all taxes, assessments and
governmental charges upon Borrower or against any of
Borrower's property, unless the same is being contested in
good faith by appropriate proceedings and reserves deemed
adequate by Bank have been established therefor;
h. Properly pay all lawful claims, whether for labor, materials
or otherwise, which might or could, if unpaid, become a lien
or charge on any property or assets of Borrower, unless and to
the extent only that the same are being contested in good
faith by appropriate proceedings and reserves deemed adequate
by Bank have been established therefor;
i. Maintain its existence and promptly and properly comply with
all laws, statutes, ordinances and governmental regulations
applicable to it or to any of its property, business
operations and transactions;
j. Maintain, with financially sound and reputable insurance
companies or associations, insurance of the kinds, covering
the risks and in the relative proportionate amounts, usually
carried by companies engaged in businesses similar to that of
Borrower (such insurance to be in any event in such amounts
and covering such risks as shall be satisfactory to Bank),
and, at Bank's request, deliver to Bank evidence of the
maintenance of such insurance;
k. Maintain all of its tangible property in good condition and
repair, and make all necessary replacements thereof, and
operate the same properly and efficiently; and
l. Preserve and maintain all licenses, privileges, franchises,
certificates and the like necessary for the operation of its
business.
3. Negative Covenants. Until the note and all other obligations and
liabilities of Borrower hereunder are fully paid, Borrower covenants that it
will not, without the prior written consent of Bank:
a. Permit its working capital (being the excess of its current
assets over its current liabilities) to be less than
$100,000.00, or permit the ratio of its current assets to its
current liabilities to be less than 1.08;
- 3 -
<PAGE> 4
b. Permit its net worth to be less than $200,000.00, or permit
the ratio of its total liabilities to its net worth to exceed
3.00;
c. Invest in fixed assets in excess of $450,000.00 in any
12-month period; Primarily for Injection Molds for Chair
Manufacturing;
d. In any year pay or contract to pay in the aggregate any
salaries, commissions, bonuses or other compensation in excess
of the following amounts for the following persons or groups:
<TABLE>
<CAPTION>
Name of Person or Group Amount
----------------------- ------
<S> <C>
N/A N/A
</TABLE>
e. Hereafter incur or assume any indebtedness for borrowed money
except to Bank; Excepts for the Accounts Receivable Line with
Fidelity Funding, Inc.;
f. Endorse, guarantee, or otherwise become surety for or
contingently liable upon, the obligations of any person, firm
or corporation (provided, however, that the foregoing shall
not apply to endorsements of negotiable instruments by
Borrower in the ordinary course of business);
g. Mortgage, assign, hypothecate, grant a security interest in,
or encumber any of Borrower's assets, except to Bank
(provided, however, that the foregoing shall not apply to
liens for taxes which are not delinquent or which are being
contested in good faith, mechanic's and materialmen's liens
with respect to obligations which are not overdue or which are
being contested in good faith, and liens resulting from
deposits to secure the payments of workmen's compensation or
other social security or to secure the performance of bids or
contracts in the ordinary course of business);
h. Reorganize, merge or consolidate with, or acquire all or
substantially all of the assets of any other company, firm or
association, or make any other substantial change in its
capitalization or character of its business;
i. Pay any dividends (other than stock dividends consisting of
its own stock but not the stock of any subsidiary) on any of
its outstanding stock or purchase or redeem any of its stock;
j. Sell any of its assets used or useful in its business, except
in the regular course of business;
k. Sell any of its assets to any other person, firm, or
corporation with the understanding or agreement that such
assets shall be leased back to Borrower;
- 4 -
<PAGE> 5
l. Own, purchase or acquire, directly or indirectly, any stock or
securities of any other person, firm or corporation, other
than securities guaranteed as to principal and interest by the
United States government;
m. Make any loans or advances or sell any of its accounts
receivable with or without recourse; or
n. Enter into any lease in which the annual rental exceeds
$20,000.00 or permit the aggregate of all of its lease
payments to exceed $20,000.00 in any 12-month period.
4. Default. The term "Default" as used in this Agreement, means any one
or more of the following:
a. The failure of Borrower to pay the Note in accordance with its
terms;
b. The failure of Borrower to pay any other note in accordance
with its terms which at any time evidences indebtedness
(whether now existing or at any time hereafter arising) of
Borrower to Bank;
c. The failure of Borrower to perform any covenant or agreement
of Borrower contained herein or in any security agreement,
mortgage, deed of trust,, assignment or other contract
securing or assuring payment of any indebtedness (whether now
existing or at any time hereafter arising) of Borrower to
Bank;
d. The receipt by Bank of information establishing that any
statement or representation of Borrower contained herein or in
any other writing heretofore or hereafter furnished by
Borrower to Bank is false or misleading in any material
respect;
e. The insolvency of Borrower;
f. The appointment of a receiver of Borrower, or of all or any
substantial part of its property, and the failure of such
receiver to be discharged within thirty (30) days thereafter;
g. The adjudication of Borrower as a bankrupt;
h. The admission by Borrower in writing of its inability to pay
its debts generally as they become due;
i. The execution by Borrower of an assignment for the benefit of
its creditors;
j. The filing by Borrower of a petition to be adjudged a
bankruptcy, or a petition or answer seeking reorganization or
admitting the material allegations of a petition filed against
it in any bankruptcy or reorganization proceeding, or the act
of Borrower in instituting of voluntarily being
- 5 -
<PAGE> 6
or becoming a party to any other judicial proceeding intended
to effect a discharge of the debts of Borrower, in whole or in
part, or a postponement of the maturity or the collection
thereof, or a suspension of any of the rights or powers of a
trustee or of any of the rights of powers granted to Bank
herein or in any other documents executed in connection
herewith;
k. The failure of Borrower to pay any money judgment against it
before the expiration of sixty (60) days after such judgment
becomes final and no longer appealable; or
l. The failure of any attachment, sequestration or similar
proceeding against any of Borrower's property to remain
undischarged, unbonded by Borrower, or undismissed for a
period of sixty (60) days after the commencement thereof.
Upon the occurrence of a Default, Bank, at its option, without notice, demand
or presentment, which are hereby waived, may declare immediately due and
payable the entire unpaid balance of principal and all accrued interest then
unpaid on the Note and any other indebtedness of Borrower to Bank, and, upon
the exercise of such option, such entire unpaid balance of principal and
accrued interest shall become immediately due and payable.
5. Miscellaneous. No modification, consent, amendment or waiver
of any provision of this Agreement, nor consent to any
departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by an officer of Bank, and
then shall be effective only in the specific instance and for
the purpose for which given. No notice to or demand on
Borrower in any case shall, of itself, entitle Borrower to any
other or further notice or demand in similar or other
circumstances. No delay or omission by Bank in exercising any
power or right hereunder shall impair any such right or power
or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such
power preclude other or further exercise thereof, or the
exercise of any other right of power hereunder. All rights
and remedies of Bank hereunder are cumulative of each other
and of every other right or remedy which Bank may otherwise
have at law or in equity or under any other contract or
document, and the exercise of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies. All accounting terms
not specifically defined herein shall be construed in
accordance with generally accepted principles of good
accounting practice consistently applied on the basis used by
Borrower in prior years. This Agreement is binding upon
Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns.
6. Additional Provisions (which shall be controlling to the extent of any
conflict with the preceding provisions):
- 6 -
<PAGE> 7
1. Loan Guarantors, Jerome and Jaye Congleton and Bobby and
Rebecca Boenigk agree to provide Lender with Annual Financial
Statements in a form acceptable to Bank.
2. Commerce National Bank and Neutral Posture Ergonomics, Inc.
have entered into this Loan Agreement anticipating the
purchase of this Note by the Brazos Valley Development
Council, Revolving Loan Fund within 15 days of Note date;
Neutral Posture Ergonomics, Inc. herein agrees that should for
any reason the Revolving Loan Fund does not purchase this
loan, Commerce National Bank shall be authorized to amend the
interest rate and term of this loan as follows:
a. Interest Rate - The interest shall be modified from a
fixed Prime as published in the Wall Street Journal
to a Prime as published in the Wall Street Journal
plus 1.5% adjustable annually. With this rate
increase the monthly principal and interest shall be
adjusted to accommodate any and all interest rate
adjustments.
b. Term - The term of this loan shall be modified to 5
years with principal and interest payments based upon
the original 15 year amortization. As in item 1
above, the monthly payment of principal and interest
will be modified from time-to-time to accommodate any
and all interest rate adjustments.
Accepted: Very truly yours,
COMMERCE NATIONAL BANK NEUTRAL POSTURE ERGONOMICS, INC.
/s/ Thomas H. Aughinbaugh, III /s/ Rebecca Boenigk
- ---------------------------------- ---------------------------------------
Thomas H. Aughinbaugh, III Rebecca Boenigk
Executive Vice President Chairman and Chief Executive Officer
/s/ Jaye Congleton VP
---------------------------------------
Jaye Congleton
Vice President and Secretary
Date: 4-30-96 Date: 4-30-96
--------------------- ----------------------------------
- 7 -
<PAGE> 1
EXHIBIT 6.32
FIRST AMENDMENT TO LOAN AGREEMENT
(AND PERMANENT WAIVER)
THIS DOCUMENT is entered into as of October 10, 1997, between NEUTRAL
POSTURE ERGONOMICS, INC., a Texas corporation ("BORROWER") and COMPASS BANK
("LENDER").
WHEREAS, Borrower and Lender are parties to the Loan Agreement (as
renewed, extended, and amended the "LOAN AGREEMENT") dated as of April 30,
1996, providing for extension of credit to Borrower in the principal sum of
$500,000. Borrower has requested that Lender permanently waive the matters
described in PARAGRAPH 2 below. Lender has agreed, subject to the terms and
conditions of this document, to those permanent waivers as provided below.
Borrower and Lender have further agreed to amend the Loan Agreement in respect
of the matters described in PARAGRAPH 4 below and to provide for certain
waivers and releases as described in PARAGRAPHS 2, 5 AND 6 below.
ACCORDINGLY, for adequate and sufficient consideration, Borrower and
Lender agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Loan Agreement have the same meanings when used in this document
and (B) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to the Loan
Agreement's sections, schedules, and exhibits.
2. PERMANENT WAIVERS. As of the effective date of this document, Lender
permanently waives any Default that may exist solely as a result of Borrower's
noncompliance with SECTION 3(E), 3(G), 3(I) AND 3(M).
3. LIMITATIONS OF WAIVERS AND AMENDMENTS. The permanent waivers under
PARAGRAPH 2, the amendments under PARAGRAPH 4, the release under PARAGRAPH 5,
and the waiver, release and termination under PARAGRAPH 6 are effective only
upon, and at such time as, the Borrower's consummation of a public offering of
its shares of Common Stock, par value $.01. Except as stated in PARAGRAPH 2
above, nothing in this agreement constitutes a waiver of existing or future
Default.
4. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended as follows:
(A) SECTION 3(a) is entirely amended as follows:
a) Permit its working capital (being the excess of its current
assets over its current liabilities) to be less than
$500,000, or permit the ratio of its current assets to its
current liabilities to be less than 1.5;
(B) SECTION 3(b) is entirely amended as follows:
b) Permit its net worth to be less than $2,500,000.00, or
permit the ratio of its total liabilities to its net worth
to exceed 1.50;
(C) SECTION 3(c) is entirely deleted.
(D) SECTION 3(e) is entirely deleted.
(E) SECTION 3(g) is entirely deleted.
PERMANENT WAIVER AGREEMENT
<PAGE> 2
(F) SECTION 3(h) is entirely amended as follows:
h) Undergo a Change of Control. "Change of Control" shall mean
any of the following:
(1) any consolidation or merger of Borrower in which
Borrower is not the continuing or surviving corporation or
pursuant to which shares of Borrower's common stock would
be converted into cash, securities or other property, other
than a merger of Borrower in which the holders of
Borrower's common stock immediately prior to the merger
have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger;
(2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Borrower;
(3) any approval by the shareholders of Borrower of any
plan or proposal for the liquidation or dissolution of
Borrower;
(4) the cessation of control (by virtue of their not
constituting a majority of directors) of Borrower's Board
of Directors by the individuals (the "Continuing
Directors") who (x) at the date of this amendment were
directors or (y) become directors after the date of this
amendment and whose election or nomination for election by
Borrower's shareholders, was approved by a vote of the
directors then in office who were directors at the date of
this amendment or whose election or nomination for election
was previously so approved); or
(5) subject to applicable law, in a Chapter 11 bankruptcy
proceeding, the appointment of a trustee or the conversion
of a case involving Borrower to a case under Chapter 7.
(G) SECTION 3(i) is entirely amended as follows:
i) Pay any dividends (other than stock dividends consisting of
its own stock but not the stock of any subsidiary) on any
of its outstanding stock. NOTWITHSTANDING THE FOREGOING,
the Borrower may, from time to time, declare dividends
provided that after declaring such dividends and making
such accrual entries on its books and records as are
required in accordance with generally accepted accounting
principles no Default would result hereunder either from
the declaration of, or the accrual for, such dividends.
Borrower shall obtain the prior consent of Lender before
declaring such dividends.
(H) SECTION 3(l) is entirely amended, as follows:
l) Own, purchase or acquire, directly or indirectly, any stock or
securities of any other person, firm or corporation, other than
securities guaranteed as to principal and interest by the United
States government or short-term, interest-bearing, investment
grade securities;
PERMANENT WAIVER AGREEMENT
2
<PAGE> 3
(I) SECTION 3(m) is amended by deleting the words "with or," as
follows:
m) Make any loans or advances or sell any of its accounts
receivable without recourse; or
(J) SECTION 3(n) is entirely deleted.
(K) SECTION 6 is entirely deleted.
5. RELEASE OF CERTAIN COLLATERAL. Lender hereby releases the life insurance
policy with New York Life Insurance (#63514564) collateral referred to in the
Security Agreement attached to the Loan Agreement and shall take all actions
necessary to accomplish such release, including the filing of any required Form
UCC-3.
6. WAIVER OF GUARANTY. Lender hereby waives, releases and terminates the
personal guaranty of Rebecca Boenigk, Robert Boenigk, Jaye Congleton, and Dr.
Jerome Congleton of any and all of Borrower's existing and future indebtedness
to Lender, and Lender shall take all actions necessary to accomplish such
waiver, release and termination.
7. RATIFICATIONS. Borrower (A) ratifies and confirms all provisions of the
Loan Agreement, as amended, (B) ratifies and confirms that all guaranties,
assurances, and liens granted, conveyed, or assigned to Lender under the Loan
Agreement by Borrower are not released, reduced, or otherwise adversely
affected by this agreement and continue to guarantee, assure, and secure full
payment and performance of the present and future obligation, and (C) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional documents and certificates as Lender may request in
order to create, perfect, preserve, and protect those guaranties, assurances,
and liens.
8. REPRESENTATIONS. Borrower represents and warrants to Lender that as of the
date of this document (A) Borrower has all requisite authority and power to
execute, deliver, and perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all necessary
corporate action, require no action by or filing with any governmental
authority, do not violate any of its organizational documents or (except where
not a materially adverse event) violate any governmental law, rule, or
regulation applicable to it or any material agreement to which it or its assets
are bound, (B) upon execution and delivery by all parties to it, this agreement
will constitute the legal and binding obligation of Borrower, enforceable
against it in accordance with the terms of this agreement except as that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and general
principles of equity and (C) except as permanently waived by this document, no
Default exists.
9. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred
by Lender incident to this agreement, including, without limitation, the
reasonable fees and expenses of Lender's counsel in connection with the
negotiation, preparation, delivery, and execution of this agreement and any
related documents.
10. MISCELLANEOUS. Unless stated otherwise (A) the singular number includes
the plural and vice versa and words of any gender include each other gender, in
each case, as appropriate, (B) headings and captions may not be construed in
interpreting provisions, (C) this agreement must be construed, and its
performance enforced, under Texas law, (D) if any part of this agreement is for
any reason found to be unenforceable, all other portions of it nevertheless
remain enforceable, and (E) this agreement may be
PERMANENT WAIVER AGREEMENT
3
<PAGE> 4
executed in any number of counterparts with the same effect as if all
signatories had signed the same document, and all of those counterparts must be
construed together to constitute the same agreement.
11. ENTIRETIES. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES ABOUT THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12. PARTIES. This document binds and inures to Borrower and Lender and their
respective successors and assigns.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
PERMANENT WAIVER AGREEMENT
4
<PAGE> 5
EXECUTED as of the date first stated above.
NEUTRAL POSTURE ERGONOMICS, INC., COMPASS BANK,
as Borrower as Lender
By /s/ Rebecca Boenigk By /s/ JERRY FOX
------------------------------- ---------------------------------
Rebecca Boenigk, Name: Jerry Fox
Chief Executive Officer Title: President
PERMANENT WAIVER AGREEMENT
<PAGE> 1
EXHIBIT 6.33
SECOND AMENDMENT TO LOAN AGREEMENT
(AND PERMANENT WAIVER)
THIS DOCUMENT is entered into as of October 14, 1997, between NEUTRAL
POSTURE ERGONOMICS, INC., a Texas corporation ("BORROWER") and COMERICA
BANK-TEXAS, a Texas banking association ("LENDER").
WHEREAS, Borrower and Lender are parties to the Loan Agreement (as
renewed, extended, and amended the "LOAN AGREEMENT") dated as of December 30,
1996, and amended as of August 12, 1997, providing for extension of credit to
Borrower. Borrower has requested that Lender permanently waive the matters
described in PARAGRAPH 2 below. Lender has agreed, subject to the terms and
conditions of this document, to those permanent waivers as provided below.
Borrower and Lender have further agreed to amend the Loan Agreement in respect
of the matters described in PARAGRAPH 4 below and to provide for a certain
waiver as described in PARAGRAPHS 2 AND 5 below.
ACCORDINGLY, for adequate and sufficient consideration, Borrower and
Lender agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Loan Agreement have the same meanings when used in this document
and (B) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to the Loan
Agreement's sections, schedules, and exhibits.
2. PERMANENT WAIVERS. As of the effective date of this document, Lender
permanently waives any Default that may exist solely as a result of Borrower's
failure to previously provide the additions to Permitted Liens attached hereto
as EXHIBIT A.
3. LIMITATIONS OF WAIVERS AND AMENDMENTS. The permanent waivers under
PARAGRAPH 2, the amendments under PARAGRAPH 4, and the waiver, release and
termination under PARAGRAPH 5 are effective only upon, and at such time as,
Borrower's consummation of a public offering of its shares of Common Stock, par
value $.01. Except as stated in PARAGRAPH 2 above, nothing in this agreement
constitutes a waiver of existing or future Event of Default.
4. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended as follows:
(A) SECTION 1.1 is amended to add the following definition:
"ACQUISITION LIENS" shall be liens in Acquired Assets of the
Borrower or its Subsidiaries which have been disclosed to the Lender
in writing not later than thirty (30) days before the assets are
acquired by the Borrower or any Subsidiary and, in the case of
inventory, machinery or equipment, disclosed so that the location,
and, where applicable, the landlord's name and address are provided,
and a copy of any applicable lease is provided to Lender.
"ACQUIRED ASSETS" shall mean assets hereinafter acquired by the
Borrower or any Subsidiary from the ongoing operations of a business
not then controlled by the Borrower.
<PAGE> 2
"CHANGE OF CONTROL" shall mean any of the following:
(1) any consolidation or merger of Borrower in which Borrower is
not the continuing or surviving corporation or pursuant to which
shares of Borrower's common stock would be converted into cash,
securities or other property, other than a merger of Borrower in
which the holders of Borrower's common stock immediately prior to the
merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Borrower;
(3) any approval by the shareholders of Borrower of any plan or
proposal for the liquidation or dissolution of Borrower;
(4) the cessation of control (by virtue of their not
constituting a majority of directors) of Borrower's Board of
Directors by the individuals (the "CONTINUING DIRECTORS") who (x) at
the date of this amendment were directors or (y) become directors
after the date of this amendment and whose election or nomination for
election by Borrower's shareholders, was approved by the directors
then in office who were directors at the date of this amendment or
whose election or nomination for election was previously so
approved); or
(5) subject to applicable law, in a Chapter 11 bankruptcy
proceeding, the appointment of a trustee or the conversion of a case
involving Borrower to a case under Chapter 7.
(B) SECTION 5.6 is entirely amended as follows:
SECTION 5.6 NO LIENS, PLEDGES, MORTGAGES OR SECURITY INTERESTS.
Except for Permitted Liens, Acquisition Liens, or liens pursuant to
borrowings up to $3,000,000, none of the Borrower's or the
Subsidiaries' assets and properties, including the Collateral, is or
shall be subject to any mortgage, pledge, lien, security interest or
other encumbrance of any kind or character. With regard to
Acquisition Liens, the Borrower agrees to use its commercially
reasonable efforts to obtain landlord lien waivers, in form and
substance satisfactory to the Lender, on any property subject both to
an Acquisition Lien and a landlord's lien. Notwithstanding the
foregoing, there shall be no liens in that portion of the Collateral
which constitutes the Borrower's accounts receivable and/or
inventory. At all times the Bank shall be the owner and holder of a
first lien in and to the Borrower's accounts receivable and
inventory.
(C) SECTION 6.5 is entirely amended as follows:
SECTION 6.5 TANGIBLE NET WORTH AND TANGIBLE NET WORTH STEP UP
REQUIREMENT. The Borrower shall at all times maintain a minimum
Tangible Net Worth of Three Million and No/100 Dollars ($3,000,000)
and shall cause its Tangible Net Worth to increase by not less than
One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) each
fiscal year.
2
<PAGE> 3
(D) SECTION 6.6 is entirely amended as follows:
SECTION 6.6 MAINTAIN DEBT RATIO. The Borrower shall maintain the
ratio of Debt to Tangible Net Worth of not more than 1.5 to 1.0.
(E) SECTION 6.7 is entirely amended as follows:
SECTION 6.7 MAINTAIN WORKING CAPITAL. The Borrower shall maintain
minimum Working Capital of $1,000,000. For purposes hereof, "Working
Capital" shall mean the sum of all cash, plus accounts receivable
(less accounts receivable more than ninety days old and less any
accounts for which there is a dispute concerning payment) plus
inventory (less any obsolete inventory) less Current Liabilities.
(F) SECTION 6.8 is entirely amended as follows:
SECTION 6.8 MAINTAIN FIXED CHARGE COVERAGE. The Borrower shall
maintain a Fixed Charge Coverage ratio of not less than 1.5 to 1.0 to
be calculated quarterly on a rolling quarterly basis.
For purposes hereof, "Fixed Charge Coverage" shall mean the sum
of net income plus depreciation, plus amortization plus interest
expense, divided by the sum of current maturities of long-term debt
(the Revolving Credit Note being considered short-term debt for
purposes hereof) plus current maturities of capital leases, plus
interest expense plus non-financed capital expenditures.
(G) SECTION 7.1 is entirely amended as follows:
SECTION 7.1 DIVIDENDS. The Company may not pay any dividends (other
than dividends payable in shares of its capital stock) or make any
other distribution with respect to (whether by reduction of capital
or otherwise) any shares of its capital stock, except that dividends
from any Subsidiary to the Borrower are permitted. NOTWITHSTANDING
THE FOREGOING, the Borrower may, from time to time, declare dividends
provided that after declaring such dividends and making such accrual
entries on its books and records as are required in accord and with
GAAP no Event of Default would result hereunder either from the
declaration of, or the accrual for such dividends. Borrower shall
obtain the prior consent of Lender before declaring such dividends.
(H) SECTION 7.2 is entirely deleted.
(I) SECTION 7.3 is entirely amended as follows:
SECTION 7.3 STOCK ACQUISITION. Purchase, redeem, retire or otherwise
acquire any of the shares of its capital stock, or make any
commitment to do so, without the prior consent of Lender.
(J) SECTION 7.4 is entirely amended as follows:
SECTION 7.4 LIENS AND ENCUMBRANCES. Incur, create or suffer to exist
any mortgage, pledge, encumbrance, security interest, lien or charge
of any kind (including any charge upon property purchased or acquired
under a conditional sales or other title-retaining agreement or lease
required to be capitalized under GAAP) upon any of its property or
assets whether now owned or hereinafter acquired, other than those
permitted pursuant to
3
<PAGE> 4
Section 5.6 hereof, and in no event shall the Borrower allow to exist
inferior liens in that portion of the Collateral constituting their
accounts receivable or inventory.
(K) SECTION 7.5 is entirely deleted.
(L) SECTION 7.9 is entirely amended, as follows:
SECTION 7.9 PROPERTY, TRANSFER OR LEASE-BACK. (a) Sell, lease,
transfer or otherwise dispose of all or, except as to the sale of
Inventory in the ordinary course of business, any material part of
its properties and assets (whether in one transaction or in a series
of transactions, or (b) enter into any sale-leaseback transaction;
provided, however, that a Subsidiary wholly owned by the Borrower may
sell, lease or transfer all or a substantial part of its assets to
the Borrower or another Subsidiary wholly owned by the Borrower, and
the Borrower or such Subsidiary may acquire all or substantially all
of the properties and assets of the Subsidiary so to sold, leased or
transferred to it.
(M) SECTION 7.10 is entirely amended as follows:
SECTION 7.10 ACQUIRE SECURITIES. Purchase or hold beneficially any
stock or other securities of, or make any investment or acquire any
interest in, any other person except for (a) certificates of deposit
with maturities of one year or less of United States commercial banks
with capital, surplus and undivided profits in excess of
$100,000,000, (b) direct obligations of the United States Government
maturing within one year from the date of acquisition thereof, or (c)
short-term, interest-bearing, securities, which are rated Baa2 or
better by Moody's Investors Services, Inc., or BBB or better by
Standard & Poors Ratings Group, a division of McGraw-Hill, Inc.
(N) SECTION 7.16 is entirely deleted.
(O) SECTION 8.1.7 is entirely amended as follows:
SECTION 8.1.7 CHANGE OF CONTROL. If the Borrower shall undergo a
Change of Control.
5. WAIVER OF GUARANTY. Lender hereby waives, releases and terminates the
personal guaranty of Rebecca Boenigk, Robert Boenigk, Jaye Congleton, and Dr.
Jerome Congleton of any and all of Borrower's existing and future indebtedness
to Lender, and Lender shall take all actions necessary to accomplish such
waiver, release and termination.
6. RATIFICATIONS. Borrower (A) ratifies and confirms all provisions of the
Loan Agreement, as amended herein, (B) ratifies and confirms that all
guaranties, assurances, and liens granted, conveyed, or assigned to Lender
under the Loan Agreement by Borrower are not released, reduced, or otherwise
adversely affected by this agreement and continue to guarantee, assure, and
secure full payment and performance of the present and future obligation, and
(C) agrees to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional documents and certificates as Lender
may request in order to create, perfect, preserve, and protect those
guaranties, assurances, and liens.
7. REPRESENTATIONS. Borrower represents and warrants to Lender that as of the
date of this document (A) Borrower has all requisite authority and power to
execute, deliver, and perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all necessary
corporate action, require no action by or filing with any governmental
authority, do not violate any of its organizational documents or (except where
not a materially adverse event) violate any governmental law, rule, or
regulation applicable to it or any material agreement to which it or its assets
4
<PAGE> 5
are bound, (B) upon execution and delivery by all parties to it, this agreement
will constitute the legal and binding obligation of Borrower, enforceable
against it in accordance with the terms of this agreement except as that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and general
principles of equity and (C) except as permanently waived by this document, no
Event of Default exists.
8. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
incurred by Lender incident to this agreement, including, without limitation,
the reasonable fees and expenses of Lender's counsel in connection with the
negotiation, preparation, delivery, and execution of this agreement and any
related documents.
9. MISCELLANEOUS. Unless stated otherwise (A) the singular number includes
the plural and vice versa and words of any gender include each other gender, in
each case, as appropriate, (B) headings and captions may not be construed in
interpreting provisions, (C) this agreement must be construed, and its
performance enforced, under Texas law, (D) if any part of this agreement is for
any reason found to be unenforceable, all other portions of it nevertheless
remain enforceable, and (E) this agreement may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document, and all of those counterparts must be construed together to
constitute the same agreement.
10. ENTIRETIES. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES ABOUT THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
11. PARTIES. This document binds and inures to Borrower and Lender and their
respective successors and assigns.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
5
<PAGE> 6
SIGNATURE PAGE
EXECUTED as of the date first stated above.
NEUTRAL POSTURE ERGONOMICS, INC., COMERICA BANK-TEXAS,
as Borrower as Lender
By /s/ Gregory A. Katt By /s/ Walter F. Rodee IV
--------------------------------- -------------------------------
Gregory A. Katt, Name: Walter F. Rodee IV
Chief Financial Officer Title: Vice President
<PAGE> 7
EXHIBIT A
PERMITTED LIENS
Liens in the Borrower's real property, including all of that certain lot, tract
or parcel of land lying and being situated in Brazos County, Texas, and being
Lots One (1) and Two (2), Block One (1), C. M. Patterson Subdivision, an
addition to the City of Bryan, Brazos County, Texas, according to the plat
recorded in Vol. 407, pg. 113, Deed Records of Brazos County, Texas, pursuant
to a Deed of Trust, dated April 30, 1996, filed for record on May 2, 1996, and
in favor of Thomas H. Aughinbaugh, III, Trustee, and Commerce National Bank,
Beneficiary, securing a loan in the amount of $500,000 by Commerce National
Bank.
Secondary liens in the Borrower's real property, including all of that certain
lot, tract or parcel of land lying and being situated in Brazos County, Texas,
and being Lots One (1) and Two (2), Block One (1), C. M. Patterson Subdivision,
an addition to the City of Bryan, Brazos County, Texas, according to the plat
recorded in Vol. 407, pg. 113, Deed Records of Brazos County, Texas, pursuant
to a Deed of Trust, dated April 30, 1996, filed for record on May 2, 1996, and
in favor of to Thomas H. Aughinbaugh, III, Trustee, securing a loan in the
amount of $150,000 by Commerce National Bank, as subsequently assigned to the
Brazos Valley Development Council, Revolving Loan Fund.
<PAGE> 1
EXHIBIT 10.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Neutral Posture
Ergonomics, Inc. on Pre-effective Amendment No. 4 to Form SB-1 of our report
dated August 11, 1997, apppearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche LLP
Dallas, Texas
October 14, 1997
<PAGE> 1
EXHIBIT 10.3
CONSENT AND CERTIFICATION BY UNDERWRITER
1. The undersigned hereby consents to being named as underwriter
in the Registration Statement on Form SB- 1, as amended, filed with the
Securities and Exchange Commission by Neutral Posture Ergonomics, Inc., in
connection with a proposed offering of Common Stock, par value $0.01 per share,
to the public.
2. The undersigned hereby certifies that it furnished the
statements and information set forth in the registration statement with respect
to the undersigned, its directors and officers or partners, that such
statements and information are accurate, complete and fully responsive to the
requirements of the Registration Statement thereto, and do not omit any
information required to be stated therein with respect of any such persons, or
necessary to make the statements and information therein with respect to any of
them not misleading.
3. If Preliminary Prospectuses are distributed, the undersigned
hereby undertakes to keep an accurate and complete record of the name and
address of each person furnished a Preliminary Prospectuses and, if such
Preliminary Prospectus is inaccurate or inadequate in any material respect, to
furnish a revised Preliminary Prospectus or a Final Prospectus to all persons
to whom the securities are to be sold at least 48 hours prior to the mailing of
any confirmation of sale to such persons, or to send such a prospectus to such
persons under circumstances that it would normally be received by them 48 hours
prior to their receipt of confirmation of sale.
HUBERMAN FINANCIAL, INC.
By: /s/ Isac Huberman
-----------------------------
Name: Isac Huberman
-----------------------------
Title: President
-----------------------------
Date: October 14, 1997
-----------------------------
<PAGE> 1
EXHIBIT 11.1
October 14, 1997
Neutral Posture Ergonomics, Inc.
3904 N. Texas Avenue
Bryan, Texas 77803
Re: Registration of 1,494,000 shares of Common Stock
of Neutral Posture Ergonomics, Inc.
Ladies and Gentlemen:
We have acted as counsel to Neutral Posture Ergonomics, Inc., a Texas
corporation (the "Company"), in connection with the preparation and filing of
the Registration Statement of the Company on Form SB-1 (File No. 333-33675),
and the amendments thereto (as amended, the "Registration Statement") filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. The Registration Statement relates to the public offering by the
Company and the Selling Shareholders identified as such in the Registration
Statement of up to 1,494,000 shares (including 160,000 shares subject to an
over-allotment option) of the Company's Common Stock, par value $0.01 per share
("Common Stock"). The opinions expressed herein relate solely to, are based
solely upon and are limited exclusively to, the internal substantive laws of
the State of Texas and applicable federal laws of the United States of America.
In connection therewith, we have examined and relied upon the original, or
copies certified to our satisfaction, of (i) the Articles of Incorporation of
the Company, as amended (the "Articles of Incorporation"), and the Bylaws of
the Company, as amended (the "Bylaws"); (ii) the minutes and records of the
corporate proceedings of the Company with respect to the issuance by the
Company of the shares of Common Stock; (iii) the Registration Statement and all
exhibits thereto; (iv) the form of Underwriting Agreement (the "Underwriting
Agreement"), to be entered into among the Company, the Selling Shareholders and
Huberman Financial, Inc. (the "Underwriter"); (v) such other documents and
instruments as we have deemed necessary for the expression of the opinions
contained herein; and (vi) the specimen Common Stock certificate filed as
Exhibit 3.1 to the Registration Statement.
In making the foregoing examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies thereof. As to various questions of fact
material to this opinion, where such facts have not been independently
established, and as to the content and form of certain minutes, records,
resolutions and other documents or writings of the Company, we have relied, to
the extent we have deemed reasonably appropriate, upon representations or
certificates
<PAGE> 2
Neutral Posture Ergonomics, Inc.
October 14, 1997
Page 2
of officers of the Company or governmental officials. We have assumed that the
Underwriting Agreement will be executed in substantially the same form
submitted to us. Finally, we have assumed that all formalities required by the
Company's Articles of Incorporation, Bylaws and the Texas Business Corporation
Act will be complied with when the shares of Common Stock are sold.
Based upon the foregoing, and having due regard for such legal considerations
as we deem relevant, we are of the opinion that the shares of Common Stock to
be sold by the Selling Shareholders are, and the shares to be sold by the
Company, upon receipt by the Company of the full consideration for the Common
Stock in accordance with the terms of the Underwriting Agreement and upon
passage of the pricing resolutions of the Pricing Committee of the Company's
Board of Directors, will be, when sold, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to this firm under "Legal Matters" in the Prospectus forming a part
of such Registration Statement.
Very truly yours,
/s/ HAYNES AND BOONE, LLP
Haynes and Boone, LLP
