<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO. 333-33675
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT NO. 3
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)
</TABLE>
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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<C> <C>
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 SEPTEMBER 24, 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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<CAPTION>
====================================================================================================================
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 $ 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
["Imagine Yourself in a Neutral Posture(R) Chair"]
[Picture of chair.]
["Emulating the body position of weightlessness in
space -- free, neutral and without stress."]
[ERGO 2000(TM) certified Logo.]
[Picture of Astronaut.]
["NPE can accommodate an array of body shapes,
sizes, heights and weights, all with one chair."]
[Picture of male and female sitting in the neutral posture position.]
[Imagine a chair that emulates the body position of
weightlessness in space -- free, neutral and without stress.]
["Neutral Posture(R) chairs accommodate the 5th percentile female to the 95th
percentile male."]
["The NPE Difference"]
["- Product designed by certified ergonomist"]
["- Designs based on anthropometric data"]
["- Chairs have interchangeable key components"]
[Pictures of ComputErgo(TM).]
[ComputErgo(TM) Logo]
[ERGO 2000(TM) Logo.]
[Pictures of chairs.]
[Pictures of employees assembling chairs.]
[Neutral Posture Ergonomics, Inc. Logo]
[Sit in First Class(TM)]
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 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, and (v) 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
<TABLE>
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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
==========
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<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(2)
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(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
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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."
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."
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; ABSENCE OF DIVIDENDS. The terms of
the Company's revolving credit facility with its bank lender (the "Revolving
Credit Facility") restrict, among other things, the ability of the Company to
pay dividends. The Company 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
10
<PAGE> 12
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.
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.
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
distributions of $323,000 and had paid $223,000 of this amount to its
shareholders. The Company's status as a Subchapter S corporation will terminate
upon completion of this offering (the "Termination Date"). 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. 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.
11
<PAGE> 13
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
Provide funds for the Company's working capital
requirements.............................................. 1,250,000
----------
TOTAL............................................. $4,800,000
==========
</TABLE>
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 restrict the
Company's ability to pay dividends to its shareholders. 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 distributions of $323,000 and had paid $223,000 of this amount to its
shareholders. The Company's status as a Subchapter S corporation will terminate
on the Termination Date. 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.
See "Termination of Subchapter S Corporation Status."
12
<PAGE> 14
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."
13
<PAGE> 15
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."
14
<PAGE> 16
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."
15
<PAGE> 17
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
16
<PAGE> 18
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.
17
<PAGE> 19
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 a term credit facility (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.
At June 30, 1997, the Company had two loans outstanding in the amounts of
$144,000 and $482,000 bearing interest at, respectively, 8.25% and 9.75% per
annum incurred in connection with the Company's acquisition in 1996 of the land
and building currently used by the Company. Both notes are secured by the land,
building and certain equipment, require monthly principal and interest payments
and mature in 2001.
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.
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.
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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.
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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."
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- 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
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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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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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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
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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.
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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 filed with the Commission, the initial public offering of common stock
of Bodybilt 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.
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 demand for
payment for its work under any patent issued with respect to ComputErgo(TM). The
Company believes Mr. Kemnitzer's assertion is meritless.
26
<PAGE> 28
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.
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
27
<PAGE> 29
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 $750 per board committee meeting attended and will be
reimbursed for out-of-pocket expenses incurred for attendance at such meetings.
Other than with respect to reimbursement of expenses, directors who are
employees of the Company will not receive additional compensation for their
services as a director.
EXECUTIVE COMPENSATION. The following table sets forth, for fiscal years
1995, 1996 and 1997, individual compensation information for the Chief Executive
Officer of the Company and each of the other most highly compensated executive
officers of the Company who were serving as executive officers at June 30, 1995,
1996 and 1997.
28
<PAGE> 30
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($)
--------------------------- ------ ------- -------- ------------ ------------
<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, 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.
29
<PAGE> 31
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. 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. 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
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
30
<PAGE> 32
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.
31
<PAGE> 33
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 1333 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.
32
<PAGE> 34
(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.
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 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.
33
<PAGE> 35
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 (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.
34
<PAGE> 36
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.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Common Stock is Harris Trust and Savings Bank.
35
<PAGE> 37
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.
36
<PAGE> 38
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. 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.
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
37
<PAGE> 39
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 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.
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
38
<PAGE> 40
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.
39
<PAGE> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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>
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> 52
[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."]
<PAGE> 53
======================================================
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............................... 11
Use of Proceeds........................ 12
Dividend Policy........................ 12
Dilution............................... 13
Capitalization......................... 14
Selected Financial Data................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Business............................... 20
Management............................. 27
Principal and Selling Shareholders..... 32
Certain Transactions................... 33
Description of Capital Stock........... 34
Shares Eligible for Future Sale........ 36
Underwriting........................... 37
Legal Matters.......................... 38
Experts................................ 38
Additional Information................. 38
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> 54
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> 55
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> 56
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 August
11, 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 , 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
6.29** -- Assignment, dated as of August 27, 1997, executed by
Jerome J. Congleton.
</TABLE>
II-3
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
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.
*** To be filed by amendment.
**** Previously filed and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.
II-4
<PAGE> 58
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. 3 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 24th day of September, 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. 3 to the Registrant's Registration
Statement on Form SB-1 was signed by the following persons in the capacities
stated below on the 24th day of September, 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> 59
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 August
11, 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 , 1997,
between the Company and the Underwriter
6.25* -- Agreement, dated as of March 5, 1997, between the Company
and Jerome J. Congleton
</TABLE>
<PAGE> 60
<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.
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.
*** To be filed by amendment.
**** Previously filed and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.
<PAGE> 1
Exhibit 2.2
AMENDED AND RESTATED
BYLAWS OF
NEUTRAL POSTURE ERGONOMICS, INC.
A TEXAS CORPORATION
<PAGE> 2
AMENDED AND RESTATED
BYLAWS OF
NEUTRAL POSTURE ERGONOMICS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. REGISTERED OFFICE AND AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. ANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. FIXING RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. NOTICE OF SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 6. VOTING LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. VOTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9. MAJORITY/PLURALITY VOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. ACTION BY SHAREHOLDERS WITHOUT MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. TELEPHONIC MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 12. INSPECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. NUMBER OF DIRECTORS; ELECTION; TERM;
QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5. MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6. FIRST MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 8. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9. QUORUM; MAJORITY VOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. CONSENT OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 11. TELEPHONIC MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 12. COMMITTEES OF DIRECTORS19
Section 13. COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 14. RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1. METHOD OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 1. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2. ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3. TERM; REMOVAL; RESIGNATION; VACANCIES;
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5. CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8. CONTROLLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9. SECRETARY AND ASSISTANT SECRETARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10. TREASURER AND ASSISTANT TREASURERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI. CERTIFICATES AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 1. CERTIFICATES OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3. REGISTERED SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII. INDEMNIFICATION; INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1. DISTRIBUTIONS AND SHARE DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2. RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 3. CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4. ANNUAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5. DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7. CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX. BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 1. AMENDMENT, ALTERATION AND REPEAL OF BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3. TABLE OF CONTENTS; HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
NEUTRAL POSTURE ERGONOMICS, INC.
A TEXAS CORPORATION
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICE AND AGENT. The registered office
and registered agent of the Corporation shall be as designated from time to
time by the appropriate filing by the Corporation with the Office of the
Secretary of State of the State of Texas.
Section 2. OTHER OFFICES. The Corporation may also have offices
at such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation
may require or as may be desirable.
ARTICLE II.
SHAREHOLDERS
Section 1. MEETINGS. All meetings of shareholders for any
purpose shall be held at such times and places, within or without the State of
Texas, as shall be stated in the notices of the meetings or in executed waivers
of notice thereof.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held annually at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of meeting.
1
<PAGE> 5
Section 3. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by law
or by the Articles of Incorporation or by these Bylaws, may be called by the
Chairman of the Board, by a majority of the Board of Directors, or by
shareholders owning at least twenty-five (25) percent of all shares of stock
entitled to vote at such meeting. The request for a special meeting shall be
submitted to the Secretary of the Corporation and shall state the purpose or
purposes of the proposed meeting. The Secretary shall within five (5) days
from the date of its receipt cause notice of the meeting to be given in the
manner provided in Section 5 of this Article II. If the Secretary does not
give notice of the meeting within five (5) days after the date of receipt of
written request, the person or persons calling the meeting may fix the time of
meeting and give notice in the manner provided in Section 5 of this Article II.
Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice of such meeting or in an executed waiver of
notice thereof.
Section 4. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of, or to vote at, any meeting of shareholders
or any adjournment thereof, or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of
its shares) or a share dividend, or in order to make a determination of
shareholders for any other proper purpose (other than determining shareholders
entitled to consent to action by shareholders proposed to be taken without a
meeting), the Board of Directors may provide that the stock transfer books
shall be closed for a stated period but not to exceed, in any case, sixty (60)
days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
2
<PAGE> 6
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as a record date for the determination
of shareholders, such date not to be more than sixty (60) days and, in the case
of a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the
Corporation of any of its own shares) or a share dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such distribution or share dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this Section 4, such
determination shall be applied to any adjournment thereof except when the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired, in which case the Board of Directors
shall make a new determination as provided above.
Whenever action by shareholders is proposed to be taken by consent in
writing without a meeting of shareholders, the Board of Directors may fix a
record date for the purpose of determining shareholders entitled to consent to
that action, which record date shall neither precede nor be more than ten (10)
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors; provided, however, that the Board of Directors may
not so fix a record date if a record date shall have
3
<PAGE> 7
previously been fixed or determined pursuant to the provisions of this
paragraph below. If no record date has been fixed by the Board of Directors
and the prior action of the Board of Directors is not required by the Texas
Business Corporation Act, the record date for determining shareholders entitled
to consent to action in writing without a meeting shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office,
registered agent, principal place of business, transfer agent, registrar,
exchange agent, or an officer or agent of the Corporation having custody of the
books in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or by certified or registered mail, return receipt requested.
Delivery to the Corporation's principal place of business shall be addressed to
the President or the principal executive officer of the Corporation. If no
record date shall have been fixed by the Board of Directors and prior action of
the Board of Directors is required by the Texas Business Corporation Act, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be at the close of business on the date on
which the Board of Directors adopts a resolution taking such prior action.
Section 5. NOTICE OF SHAREHOLDERS' MEETINGS.
(a) Written or printed notice stating the place, day and hour of
each meeting of shareholders, and in the case of a special meeting (or
if otherwise required by law), the purpose or purposes for which it is
called, shall be delivered (unless otherwise required by law) not less
than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the
President, the Secretary, or the officer or person calling the
meeting, to each shareholder of record entitled to vote at such
meeting.
4
<PAGE> 8
Any notice required to be given to any shareholder, under any
provision of the Texas Business Corporation Act, or the Articles of
Incorporation of this Corporation or these Bylaws, need not be given
to the shareholder if (i) notice of two consecutive annual meetings
and all notices of meetings held during the period between those
annual meetings, if any, or (ii) all (but in no event less than two)
payments (if sent by first class mail) of distributions or interest on
securities during a twelve-month period, have been mailed to that
person, addressed at his address as shown on the records of the
Corporation, and have been returned undeliverable. If such a person
delivers to the Corporation a written notice setting forth his then
current address, the requirement that notice be given to that person
shall be reinstated.
(b) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as
Directors. Nominations of persons for election to the Board of
Directors may be made at a meeting of shareholders (i) by or at the
direction of the Board of Directors or (ii) by any other shareholder
of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this Section 5, who shall be entitled
to vote for the election of Directors at the meeting, and who complies
with the notice procedures set forth in this Section 5.
(c) A shareholder must give timely, written notice to the
Secretary of the Corporation to nominate Directors at an annual
meeting pursuant to Section 5(b) hereof. To be timely in the case of
an annual meeting, a shareholder's notice must be received at the
principal executive offices of the Corporation not more than 180 days
nor less than 120 days before the first anniversary of the preceding
5
<PAGE> 9
year's annual meeting. To be timely in the case of a special meeting
or in the event that the date of the annual meeting is changed by more
than 30 days from such anniversary date, a shareholder's notice must
be received at the principal executive offices of the Corporation no
later than the close of business on the tenth day following the
earlier of the day on which notice of the meeting date was mailed or
public disclosure of the meeting date was made. For purposes of this
Section 5(c), "public disclosure" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934.
Such shareholder's notice shall set forth with respect to each person,
if any, whom the shareholder proposes to nominate for election as a
Director, all information relating to such person (including such
person's written consent to being named in the proxy statement as a
nominee and to serving as a Director) that is required under the
Securities Exchange Act of 1934, as amended, (ii) the name and
address, as they appear on the Corporation's records, of the
shareholder nominating such persons (as the case may be), and the name
and address of the beneficial owner, if any, on whose behalf the
nomination is made, (iii) the class and number of shares of capital
stock of the Corporation that are owned beneficially and of record by
such shareholder of record and by the beneficial owner, if any, on
whose behalf the nomination is made, and (iv) any material interest or
relationship that such shareholder of record and/or the beneficial
owner, if any, on whose behalf the nomination is made may have with
such nominee. At the request of the Board of Directors, any person
nominated
6
<PAGE> 10
for election as a Director shall furnish to the Secretary of the
Corporation the information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted, and no person shall be nominated to serve
as a Director, at an annual or special meeting of shareholders, except
in accordance with the procedures set forth in this Section 5. The
chairman of the meeting shall, if the facts warrant, determine that
business was not properly brought before the meeting, or that a
nomination was not made, in accordance with the procedures prescribed
by these Bylaws and, if he shall so determine, he shall so declare to
the meeting, and any such business not properly brought before the
meeting shall not be transacted and any defective nomination shall be
disregarded. A shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set
forth in this Section 5.
Section 6. VOTING LIST. The officer or agent who has charge of
the stock transfer books for shares shall make, at least ten (10) days before
every meeting of shareholders, a complete list of the shareholders entitled to
vote at the meeting or any adjournment thereof, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares held by
each shareholder. Such list shall be kept on file at the registered office or
the principal place of business of the Corporation and shall be subject to the
inspection of any shareholder during usual business hours, for a period of at
least ten (10) days prior to the meeting. The list shall also be produced and
kept open at the time and place of the meeting during the whole time thereof,
and
7
<PAGE> 11
may be inspected by any shareholder. The original stock transfer books shall
be prima facie evidence as to who are the shareholders entitled to examine such
list or transfer books or to vote at any meeting of the shareholders.
Section 7. VOTING SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except (i) to the extent that the Articles of
Incorporation provide for more or less than one vote per share or limit or deny
voting rights to the holders of the shares of any class or series or (ii) as
otherwise provided by law.
Shareholders are prohibited in the Articles of Incorporation from
cumulating their votes in any election of Directors of this Corporation.
At any meeting of shareholders, a shareholder having the right to vote
may vote either in person or by proxy executed in writing by the shareholder.
A telegram, telex, cablegram, or similar transmission by the shareholder, or
photographic, photostatic, facsimile, or similar reproduction of a writing
executed by the shareholder, shall be treated as an execution in writing for
purposes of this Section. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy. Each
proxy shall be revocable unless the proxy form conspicuously states that the
proxy is irrevocable and the proxy is coupled with an interest. Any vote may
be taken by voice or show of hands unless a shareholder entitled to vote,
either in person or by proxy, objects, in which case written ballots shall be
used.
Treasury shares, shares of the Corporation's own stock owned by
another corporation (the majority of the voting stock of which is owned or
controlled by the Corporation) and shares of the Corporation's own stock held
by the Corporation in a
8
<PAGE> 12
fiduciary capacity shall not be voted (directly or indirectly) at any meeting
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 8. QUORUM. The holders of a majority of the shares
issued and outstanding and entitled to be voted, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of shareholders except as otherwise provided by law or by the Articles
of Incorporation.
If a quorum is present at a meeting of shareholders, the shareholders
represented in person or by proxy at the meeting may conduct such business as
may be properly brought before the meeting until it is adjourned, and the
subsequent withdrawal from the meeting of any shareholder or the refusal of any
shareholder represented in person or by proxy to vote shall not affect the
presence of a quorum at the meeting, except as may otherwise be provided by the
Articles of Incorporation or by these Bylaws.
If, however, a quorum shall not be present or represented at a meeting
of the shareholders, the holders of a majority of the shares represented in
person or by proxy and entitled to vote shall have the power, unless otherwise
provided in the Articles of Incorporation or these Bylaws, to adjourn the
meeting until such time and to such place, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally called.
Section 9. MAJORITY/PLURALITY VOTE. When a quorum is present at
any meeting of shareholders, the act of the shareholders relative to any matter
(except the election of Directors (see paragraph below) and except in cases
where a different vote is required by express provision of law, the Articles of
Incorporation or these Bylaws,
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in which cases such express provision shall govern and control the decision of
such matters) shall be decided by the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter and represented in
person or by proxy at the meeting.
Directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of Directors at a meeting of
shareholders at which a quorum is present, unless otherwise provided in the
Articles of Incorporation or these Bylaws.
Section 10. ACTION BY SHAREHOLDERS WITHOUT MEETING. Any action
required by the Texas Business Corporation Act to be taken at any annual or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to
take such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted. The consent may be in more than one
counterpart so long as each shareholder signs one of the counterparts. Every
written consent signed by the holders of less than all the shares entitled to
vote with respect to the action that is the subject of the consent shall bear
the date of signature of each shareholder who signs the consent. No written
consent signed by the holders of less than all the shares entitled to vote with
respect to the action that is the subject of the consent shall be effective to
take the action that is the subject of the consent unless, within 60 days after
the date of the earliest dated consent delivered to the Corporation in the
manner required by this Section, a consent or
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consents signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take the action that is the
subject of the consent are delivered to the Corporation by delivery to its
registered office, registered agent, principal place of business, transfer
agent, registrar, exchange agent or an officer or agent of the Corporation
having custody of the books in which proceedings of meetings of shareholders
are recorded. Delivery shall be by hand or certified or registered mail,
return receipt requested. Delivery to the Corporation's principal place of
business shall be addressed to the President or principal executive officer of
the Corporation. A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, facsimile, or similar reproduction of a writing
signed by a shareholder, shall be regarded as signed by a shareholder for
purposes of this Section. Prompt notice of the taking of any action by
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders who did not consent in writing to the action.
If any action by shareholders is taken by written consent, any article
or documents filed with the Secretary of State of the State of Texas as a
result of the taking of the action shall state, in lieu of any statement
required by the Texas Business Corporation Act concerning any vote of
shareholders, that written consent has been given in accordance with the
provisions of Article 9.10 of the Texas Business Corporation Act and that any
written notice required by such Article has been given.
Section 11. TELEPHONIC MEETING. Unless otherwise restricted by
the Articles of Incorporation, subject to the provisions required or permitted
by law and these Bylaws for notice of meetings, shareholders may participate in
and hold a meeting by means of conference telephone or similar communications
equipment by means of
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which all persons participating in the meeting can hear each other.
Participation in a meeting by such means shall constitute presence in person at
the meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 12. INSPECTORS. The Board of Directors may, in advance
of any meeting of shareholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if
inspectors shall not have been appointed, the chairman of the meeting may,
appoint one or more inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, and
the validity and effect of proxies and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count, and tabulate all votes, ballots, or consents,
determine the results, and do such acts as are proper to conduct the election
or vote with fairness to all shareholders. On request of the chairman of the
meeting, the inspectors shall make a report in writing of any challenge,
request, or matter determined by them and shall execute a certificate of any
fact found by them. No Director or candidate for the office of Director shall
act as an inspector of an election of Directors. Inspectors need not be
shareholders.
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ARTICLE III.
DIRECTORS
Section 1. BOARD OF DIRECTORS. The powers of the Corporation
shall be exercised by or under the authority of, and the business and affairs
of the Corporation shall be managed under the direction of, the Board of
Directors who may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, by the Articles of Incorporation or
by these Bylaws directed or required to be exercised or done by the
shareholders.
In the discharge of any duty imposed or power conferred upon a
Director of the Corporation, including as a member of a committee, the Director
may in good faith and ordinary care rely upon the statements, valuations or
information referred to in Article 2.38-3 of the Texas Business Corporation Act
or upon other information, opinions, reports, or statements, including
financial statements and other financial data, concerning the Corporation or
another person, that were prepared or presented by (i) one or more officers or
employees of the Corporation, (ii) legal counsel, public accountants,
investment bankers, or other persons as to matters the Director reasonably
believes are within the person's professional or expert competence, or (iii) a
committee of the Board of Directors of which the Director is not a member. A
Director is not relying in good faith within the meaning of the preceding
sentence if the Director has knowledge concerning the matter in question that
makes reliance otherwise permitted by the above sentence unwarranted.
Section 2. NUMBER OF DIRECTORS; ELECTION; TERM; QUALIFICATION.
The initial Board of Directors shall consist of the number of Directors named
in the Articles of Incorporation. Thereafter, the number of Directors to be
elected shall be
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fixed and determined by resolution adopted by the Board of Directors from time
to time or by the shareholders at the annual meeting. The number of Directors
may be increased or decreased from time to time as provided in these Bylaws,
but no decrease shall have the effect of shortening the term of any incumbent
Director.
The Directors of the Corporation (exclusive of Directors who are
elected pursuant to the terms of, and serve as representatives of the holders
of, any series of preferred stock of the Corporation) shall be referred to
herein as "Classified Directors" and shall be divided into three classes, with
the first class referred to herein as "Class 1," the second class as "Class 2,"
and the third class as "Class 3." If the total number of Classified Directors
equals a number divisible by three, then the number of Directors in each of
Class 1, Class 2, and Class 3 shall be that number of Directors equal to the
total number of Directors divided by three. If, however, the total number of
Classified Directors equals a number that is not divisible by three, each such
class of Directors shall consist of that number of Directors as nearly equal in
number as possible to the total number of Directors divided by three, as
determined by the Board of Directors in advance of each respective election of
Directors by holders of shares of capital stock of the Corporation then
entitled to vote in such election. The term of office of the initial Class 1
Directors shall expire at the 1998 annual meeting of shareholders, the term of
office of the initial Class 2 Directors shall expire at the 1999 annual meeting
of shareholders and the term of office of the initial Class 3 Directors shall
expire at the 2000 annual meeting of shareholders, with each Director to hold
office until his successor shall have been duly elected and qualified. At each
annual meeting of shareholders, commencing with the 1998 annual meeting,
Directors elected to succeed those Directors whose terms then expire shall be
elected for a term of office to expire
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at the third succeeding annual meeting of shareholders after their election,
with each Director to hold office until his successor shall have been duly
elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of common
stock), to elect Directors at an annual or special meeting of shareholders, the
election, term of office, filling of vacancies, and other features of such
Directorships shall be governed by the terms of the Articles of Incorporation
(including any amendment to the Articles of Incorporation that designates a
series of preferred stock), and such Directors so elected by the holders of
preferred stock shall not be divided into classes pursuant to this Section 2
unless expressly provided by the terms of the Articles of Incorporation.
Directors need not be residents of the State of Texas or shareholders
of the Corporation.
Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies
occurring on the Board of Directors may be filled by election at an annual or
special meeting of shareholders called for that purpose, or by a majority of
the remaining Directors, though less than a quorum. A Director elected to fill
the vacancy shall be elected for the unexpired term of his predecessor in
office.
Any Directorship to be filled by reason of any increase in the number
of Directors may be filled by election at an annual or special meeting of
shareholders called for that purpose, or by the Board of Directors for a term
of office continuing only until the next election of one or more Directors by
the shareholders, provided that the Board of Directors may not fill more than
two such Directorships during the period between any two successive annual
meetings of shareholders.
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Notwithstanding the foregoing, whenever the holders of any class or
series of shares, or group of classes or series of shares, of stock of the
Corporation are entitled to elect one or more Directors by the provisions of
the Articles of Incorporation, any vacancies in such Directorships and any
newly created Directorships of such class or series to be filled by reason of
an increase in the number of such Directors may be filled by the affirmative
vote of a majority of the Directors elected by such class or series, or by such
group, then in office, or by a sole remaining Director so elected, or by the
vote of the holders of the outstanding shares of such class or series, or of
such group, and such Directorships shall not in any case be filled by the vote
of the remaining Directors or the holders of the outstanding shares as a whole
unless otherwise provided in the Articles of Incorporation.
Section 4. REMOVAL OF DIRECTORS. Except to the extent limited
by law, the Articles of Incorporation or these Bylaws, at any meeting of
shareholders called expressly for that purpose, any Director or the entire
Board of Directors may be removed, with or without cause, by the holders of
two-thirds of shares entitled to vote at an election of Directors. Except as
may otherwise be provided by law, cause for removal shall exist only if the
Director whose removal is proposed (a) has been convicted of a felony by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal, (b) 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 Corporation in a matter of substantial importance to the Corporation, and
such adjudication has become final and non-appealable, or (c) has missed three
consecutive meetings of the Board of Directors. Whenever the holders of any
class or series of shares, or any group of classes or series of shares, of
stock of the Corporation are entitled to elect one or more
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Directors by the provisions of the Articles of Incorporation, only the holders
of shares of that class or series or group shall be entitled to vote for or
against the removal of any Directors elected by the holders of that class or
series or group. If the Articles of Incorporation should be amended so as to
permit cumulative voting and if less than the entire Board of Directors is to
be removed, no one of the Directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire Board of Directors, or if there be classes of Directors,
at an election of the class of Directors of which he is a part.
Section 5. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, within or without the State of
Texas.
Section 6. FIRST MEETING. The first meeting of each newly
elected Board of Directors shall be held without further notice immediately
following the annual meeting of shareholders, and at the same place, unless by
the unanimous consent of the Directors, then elected and serving, such time or
place shall be changed.
Section 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held, with or without notice, at such time and place as shall
from time to time be determined by the Board of Directors.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President on not
less than twenty-four (24) hours' notice to each Director. Special meetings
shall be called by the Chairman of the Board, President or Secretary in like
manner and on like notice at the written request of any two of the Directors.
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Unless otherwise required by law, the Articles of Incorporation or
these Bylaws, neither the business to be transacted at, nor the purpose of, any
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 9. QUORUM; MAJORITY VOTE. At all meetings of the Board
of Directors, a majority of the number of Directors fixed in the manner
provided in these Bylaws shall constitute a quorum for the transaction of
business, and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law, the Articles of Incorporation or
these Bylaws; provided, however, that if a Board of one Director shall be
authorized, then one Director shall constitute a quorum and the act of that one
Director shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 10. CONSENT OF DIRECTORS. Unless otherwise restricted by
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of the Board or the
committee, as the case may be, execute a written consent setting forth the
action so taken. Such consent shall have the same force and effect as a
unanimous vote at a meeting. The consent may be in more than one counterpart
so long as each Director signs one of the counterparts.
Section 11. TELEPHONIC MEETING. Unless otherwise restricted by
the Articles of Incorporation, subject to the provisions required or permitted
by law or these Bylaws for notice of meetings, members of the Board of
Directors, or any committee
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designated by the Board of Directors, may participate in and hold a meeting of
the Board of Directors, or such committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such means
shall constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 12. COMMITTEES OF DIRECTORS. The Board of Directors may,
by resolution adopted by a majority of the whole Board, from time to time
designate from among the members of the Board of Directors one or more
committees. Each committee shall consist of one or more members of the Board
of Directors. The Board of Directors may designate one or more of its members
as alternate members of any committee, who may, subject to limitations imposed
by the Board of Directors, replace absent or disqualified members at any
meeting of that committee.
Except as limited by law, the Articles of Incorporation, these Bylaws
or the resolution establishing such committee, each committee shall have and
may exercise all of the authority of the Board of Directors as the Board of
Directors may determine and specify in the respective resolutions appointing
each such committee. The designation of any committee and the delegation of
any authority to the committee shall not operate to relieve the Board of
Directors, or any member of the Board of Directors, of any responsibility
imposed by law.
A majority of all the members of any such committee may fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide, and meetings of
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any committee may be held upon such notice as shall from time to time be
determined by the members of any such committee.
At all meetings of any committee, a majority of its members shall
constitute a quorum for the transaction of business, and the act of a majority
of the members present shall be the act of any such committee, unless otherwise
specifically provided by law, the Articles of Incorporation, the Bylaws or the
resolution establishing such committee. The Board of Directors shall have
power at any time, subject as aforesaid, to change the number and members of
any such committee, to fill vacancies thereon and to discharge any such
committee.
Section 13. COMPENSATION OF DIRECTORS. By resolution of the
Board of Directors, the Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees may be allowed like compensation for attending committee
meetings.
Section 14. RESIGNATION. Any Director may resign at any time by
written notice to the Corporation. Any such resignation shall take effect at
the date of receipt of such notice or at such other time as may be specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Director who does
not, for any reason, stand for election at any meeting of shareholders called
for such purpose shall be conclusively deemed to have resigned, effective as of
the date of such meeting, for all purposes, and the Corporation need not
receive any written notice to evidence such resignation.
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ARTICLE IV.
NOTICES
Section 1. METHOD OF NOTICE. Whenever by law, the Articles of
Incorporation, or these Bylaws, notice is required to be given to any committee
member, Director, or shareholder, it shall not be construed to mean personal
notice, but any such notice may be given (i) in writing, by mail, postage
prepaid, addressed to such member, Director or shareholder at his address as it
appears on the records of the Corporation, or (ii) by any other method
permitted by law (including, but not limited to, by telegram, telex, cablegram
and, in the case of Directors, by telephone). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by telegram, telex or cablegram shall be
deemed to be delivered and given at the time transmitted with all charges
prepaid and addressed as aforesaid.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to
be given under the provisions of law, of the Articles of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
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ARTICLE V.
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be
chosen by the Board of Directors and shall consist of a President and a
Secretary, and may consist of such other officers and agents as the Board of
Directors may deem necessary, including a Chairman of the Board and/or a Chief
Executive Officer, one or more Vice Presidents (and, in the case of each Vice
President, with such descriptive title, if any, as the Board of Directors shall
determine), a Treasurer, a Controller, and one or more Assistant Secretaries
and Assistant Treasurers. Two or more offices may be held by the same person.
In the discharge of any duty imposed or power conferred upon an
officer of the Corporation, the officer may in good faith and ordinary care
rely on information, opinions, reports, or statements, including financial
statements and other financial data, concerning the Corporation or another
person, that were prepared or presented by (i) one or more other officers or
employees of the Corporation including members of the Board of Directors or
(ii) legal counsel, public accountants, investment bankers, or other persons as
to matters the officer reasonably believes are within the person's professional
or expert competence. An officer is not relying in good faith within the
meaning of the preceding sentence if the officer has knowledge concerning the
matter in question that makes reliance otherwise permitted by the above
sentence unwarranted.
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No officer shall execute, acknowledge, verify or countersign any
instrument on behalf of the Corporation in more than one capacity, if such
instrument is required by law, the Articles of Incorporation, these Bylaws or
any act of the Corporation to be executed, acknowledged, verified or
countersigned by two or more officers.
None of the officers need be a Director or a shareholder of the
Corporation.
Section 2. ELECTION. Without limiting the right of the Board of
Directors to choose officers of the Corporation at any time when vacancies
occur or when the number of officers is increased, the Board of Directors, at
its first regular meeting after each annual meeting of shareholders or as soon
thereafter as conveniently practicable, shall elect the officers of the
Corporation and such agents as the Board of Directors shall deem necessary or
desirable.
Section 3. TERM; REMOVAL; RESIGNATION; VACANCIES; COMPEN-SATION.
The officers of the Corporation shall hold office until their successors are
elected or appointed and qualified, or until their earlier death, resignation,
retirement, disqualification or removal. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time with or without
cause by the affirmative vote of a majority of the Board of Directors whenever,
in its judgment, the best interests of the Corporation shall be served thereby,
but any such removal shall be without prejudice to the contractual rights, if
any, of the person so removed. Any officer may resign at any time by giving
written notice to the Corporation. Any such resignation shall take effect at
the date of the receipt of such notice or at such other time specified therein,
and unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. Election or appointment of an
officer or agent shall not
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of itself create contract rights. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors for the unexpired portion
of the term.
The compensation of all officers and agents of the Corporation shall
be fixed from time to time by the Board of Directors or pursuant to its
direction. No officer shall be prevented from receiving such compensation by
reason of his also being a Director.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board (if
one be elected and serving) shall be preside at all meetings of shareholders
and the Board of Directors, shall see that all orders and resolutions of the
Board of Directors are carried into effect, and shall have such other authority
and perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
Section 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
(if one be elected and serving) shall be the ranking and chief executive
officer of the Corporation. As such, he shall have, subject only to the Board
of Directors, general and active management, and see that all orders and
resolutions of the Board are carried into effect. The Chief Executive Officer
shall have all of the powers granted by the Bylaws to the President, including
the power to make and sign contracts and agreements in the name and on behalf
of the Corporation. He shall also, in general, have supervisory powers over
the President, the other officers, the executive committees, and the business
activities of the Corporation, subject to the approval or review of the Board
of Directors.
Section 6. PRESIDENT. The President shall be the chief
operating officer of the Corporation and, subject to the direction of the Board
of Directors, the Chairman of the Board and the Chief Executive Officer, shall
have and exercise direct charge of and general supervision over the business
affairs and employees of the Corporation. He shall also have such other
authority and perform such other duties as may be prescribed
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from time to time by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or these Bylaws. The President shall, if there is no
Chief Executive Officer, or in the absence or disability of the Chief Executive
Officer, be the chief executive officer of the Corporation, preside at all
meetings of shareholders and of the Board of Directors, and perform the duties
and exercise the powers of the Chief Executive Officer.
Section 7. VICE PRESIDENTS. Vice Presidents shall have such
authority and perform such duties as may be delegated, permitted or assigned
from time to time by the Chief Executive Officer, the President or the Board of
Directors and, in the event of the absence, unavailability or disability of the
President, or in the event of his inability or refusal to act, shall, in the
order of their seniority, perform the duties and have the authority and
exercise the powers of the President, unless otherwise determined by the Board
of Directors.
Section 8. CONTROLLER. If a Controller is appointed, the
Controller shall have charge of the Corporation's books of account, records and
auditing.
Section 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary
shall have the duty of recording the proceedings of the meetings of
shareholders and Board of Directors in a minute book to be kept for that
purpose and shall perform all like duties for any committees. The Secretary
shall give or cause to be given notice, as required by these Bylaws or by law,
of all meetings of the shareholders and all meetings of the Board of Directors
and shall perform such other duties as may be prescribed by these Bylaws or by
the Board of Directors, the Chief Executive Officer or the President, under
whose supervision the Secretary shall be. The Secretary also shall perform
such other duties and have such other powers as may be permitted by law or as
the Board
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of Directors, the Chief Executive Officer or the President may from time to
time prescribe or authorize.
The Assistant Secretaries, if any, in the order of their seniority,
unless otherwise determined by the Board of Directors shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
be permitted by law or as the Board of Directors, the Chief Executive Officer
or the President may from time to time prescribe, authorize or delegate.
In the absence of the Secretary or an Assistant Secretary, the minutes
of all meetings of the Board of Directors and of shareholders shall be recorded
by such person as shall be designated by the Board of Directors.
Section 10. TREASURER AND ASSISTANT TREASURERS. If a Treasurer
is designated as an officer of the Corporation by the Board of Directors, he
shall be the Chief Financial Officer of the Corporation. The Treasurer shall
have the custody of the corporate funds and securities and shall keep, or cause
to be kept, full and accurate accounts and records of receipts and
disbursements and other transactions in books belonging to the Corporation and
shall deposit, or see to the deposit of, all moneys and other valuable effects
in the name and to the credit of the Corporation in such depositories as may be
designated by or under the authority of the Board of Directors. He shall: (i)
endorse or cause to be endorsed in the name of the Corporation for collection
the bills, notes, checks or other negotiable instruments received by the
Corporation; (ii) sign or cause to be signed all checks issued by the
Corporation; and (iii) pay out or cause to be paid out money as the Corporation
may require, taking vouchers therefor. In addition, he shall perform such
other duties as may be permitted
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by law or as the Board of Directors, the Chief Executive Officer or the
President may from time to time prescribe, authorize or delegate. The Board of
Directors may by resolution delegate, with or without power to re-delegate, any
or all of the foregoing duties of the Treasurer to other officers, employees or
agents of the Corporation, and to provide that other officers, employees and
agents shall have the power to sign checks, vouchers, orders or other
instruments on behalf of the Corporation. The Treasurer shall render to the
Board of Directors, whenever they may require it, an account of his
transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a bond of
such type, character and amount as the Board of Directors may require.
If a Treasurer is not designated as an officer of the Corporation, the
functions of the Treasurer shall be performed by the Chief Executive Officer,
the President, the Secretary or such other officer or officers of the
Corporation as shall be designated by the Board of Directors at any time or
from time to time.
The Assistant Treasurers, if any, in the order of their seniority,
unless otherwise determined by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as may
be permitted by law or as the Board of Directors, the Chief Executive Officer
or the President may from time to time prescribe, authorize or delegate. If
required by the Board of Directors, the Assistant Treasurers shall give the
Corporation a bond of such type, character and amount as the Board of Directors
may require.
27
<PAGE> 31
ARTICLE VI.
CERTIFICATES AND SHAREHOLDERS
Section 1. CERTIFICATES OF SHARES. The Corporation shall
deliver certificates representing shares to which shareholders are entitled or
the shares of a Corporation may be uncertificated shares. Certificates
representing shares shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall be signed by the Chief Executive
Officer, the Chairman of the Board, the President or any Vice President, and by
the Secretary or any Assistant Secretary or by the Treasurer (if any) or any
Assistant Treasurer. Any or all of the officer signatures upon the
certificates may be facsimiles. If any officer or officers who have signed or
whose facsimile signature or signatures have been used on any such certificate
or certificates cease to be such officer or officers of the Corporation before
said certificate or certificates shall have been issued, such certificate or
certificates may nevertheless be issued by the Corporation with the same effect
as though the person or persons who signed such certificates or whose facsimile
signature or signatures shall have been used thereon had been such officer or
officers at the date of its issuance. Certificates for shares shall be in such
form as shall be in conformity to law and as may be prescribed from time to
time by the Board of Directors.
In the event the Corporation is authorized to issue shares of more
than one class or series, each certificate representing shares issued by the
Corporation (i) shall conspicuously set forth on the face or back of the
certificate a full statement of all the designations, preferences, limitations
and relative rights of the shares of each class or series to the extent they
have been fixed and determined and the authority of the Board of Directors to
fix and determine the designations, preferences, limitations, and relative
28
<PAGE> 32
rights of subsequent series or (ii) shall conspicuously state on the face or
back of the certificate that (a) such a statement is set forth in the Articles
of Incorporation on file in the office of the Secretary of State of the State
of Texas and (b) the Corporation will furnish a copy of such statement to the
record holder of the certificate without charge on written request to the
Corporation at its principal place of business or registered office.
Each certificate representing shares issued by the Corporation (i)
shall conspicuously set forth on the face or back of the certificate a full
statement of the limitation or denial of preemptive rights contained in the
Articles of Incorporation, if any, or (ii) shall conspicuously state on the
face or back of the certificate that (a) such a statement is set forth in the
Articles of Incorporation on file in the office of the Secretary of State of
the State of Texas and (b) the Corporation will furnish a copy of such
statement to the record holder of the certificate without charge on request to
the Corporation at its principal place of business or registered office. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
cases of a lost, stolen, destroyed or mutilated certificate a new one may be
issued therefor pursuant to the provisions of Section 4 of this Article VI.
Certificates shall not be issued representing fractional shares of stock.
Section 2. TRANSFER OF SHARES. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares of stock or other securities of the Corporation duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and otherwise meeting all legal
29
<PAGE> 33
requirements for transfer, a new certificate shall be issued to the person
entitled thereto and the old certificate cancelled and the transaction recorded
upon the books of the Corporation. Transfers of shares or other securities
shall be made only on the books of the Corporation by the registered holder
thereof, or by such holder's attorney thereunto authorized by power of attorney
and filed with the Secretary of the Corporation or the transfer agent.
Section 3. REGISTERED SHAREHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive distributions or share dividends, to vote, to
receive notifications, and otherwise exercise all the rights and powers of an
owner, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
Section 4. LOST CERTIFICATES. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of shares to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient and may require such sureties,
assurances or indemnities as it deems adequate to protect the Corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.
30
<PAGE> 34
ARTICLE VII.
INDEMNIFICATION; INSURANCE
The Corporation shall indemnify and advance expenses to and may
provide indemnity insurance for persons who are named in any lawsuits or other
proceedings as a result of their service to the Corporation as Directors or
officers of the Corporation to the fullest extent permitted by the laws of the
State of Texas as such laws may now or hereafter exist. The Corporation may,
but is not required to, indemnify, advance expenses to, and provide indemnity
insurance for, persons who are named in any lawsuits or other proceedings as a
result of their service to the Corporation as employees or agents of the
Corporation to the fullest extent permitted by the laws of the State of Texas
as such laws may now or hereafter exist.
Any repeal or modification of this Article shall operate prospectively
only and shall not adversely affect the rights existing at the time of such
repeal or modification of any of the aforementioned persons.
ARTICLE VIII.
GENERAL PROVISIONS
Section 1. DISTRIBUTIONS AND SHARE DIVIDENDS. Subject to the
provisions of the Articles of Incorporation relating thereto, if any, and the
restrictions imposed by applicable law, distributions and/or share dividends on
the Corporation's outstanding shares may be declared from time to time by the
Board of Directors, in its discretion, at any regular or special meeting,
pursuant to law.
Section 2. RESERVES. Before payment of any distribution or
share dividend, the Board of Directors by resolution from time to time, in
their absolute discretion, may create a reserve or reserves out of the
Corporation's surplus, or designate or allocate any
31
<PAGE> 35
part or all of such surplus in any manner for any proper purpose, including,
without limitation, a reserve or reserves for meeting contingencies, equalizing
dividends, repairing or maintaining any property of the Corporation, or for
such other purpose as the Directors deem beneficial to the interests of the
Corporation, and the Board of Directors may modify or abolish any such reserve,
designation or allocation in the manner in which it was created.
Section 3. CONTRACTS. Subject to the provisions of Article V,
the Board of Directors may authorize any officer, officers, agent or agents to
enter into any contract or agreement of any nature whatsoever, including,
without limitation, any contract, deed, bond, mortgage, guaranty, deed of
trust, security agreement, pledge agreement, act of pledge, collateral
mortgage, collateral chattel mortgage or any other document or instrument of
any nature whatsoever, and to execute and deliver any such contract, agreement,
document or other instrument of any nature whatsoever for and in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances.
Section 4. ANNUAL STATEMENT. On request, the Board of Directors
shall present at each annual meeting, and at any special meeting of the
shareholders, a full and clear statement of the business and condition of the
Corporation.
Section 5. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
Section 6. BOOKS AND RECORDS. The Corporation shall keep
correct and complete books and records of account and shall keep minutes of the
proceedings of its shareholders, Board of Directors and each committee of its
Board of Directors, and shall
32
<PAGE> 36
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of the original issuance of shares
issued by the Corporation and a record of each transfer of those shares that
has been presented to the Corporation for registration of transfer. Such
original issuance and transfer records shall contain the names and addresses of
all past and current shareholders of the Corporation and the number and class
or series of shares held by each. Any books, records, minutes and share
transfer records may be in written form or in any other form capable of being
converted into written form within a reasonable time.
Section 7. CHECKS. All checks or demands for money and notes of
the Corporation shall be signed by the Chief Executive Officer, the President
or such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 8. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
ARTICLE IX.
BYLAWS
Section 1. AMENDMENT, ALTERATION AND REPEAL OF BYLAWS. The
power to alter, amend, or repeal these Bylaws or adopt new Bylaws, subject to
repeal or change by action of the shareholders, shall be vested in Board of
Directors unless reserved to the shareholders by law or the Articles of
Incorporation. These Bylaws may be altered, amended or repealed or new Bylaws
may be adopted, subject to repeal or change by action of the shareholders, at
any regular or special meeting of the Board of Directors by resolution adopted
thereat.
33
<PAGE> 37
Section 2. CONSTRUCTION. Whenever the context so requires, the
masculine shall include the feminine and neuter, and the singular shall include
the plural, and conversely. If any portion of these Bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(a) The remainder of these Bylaws shall be considered
valid and operative, and
(b) Effect shall be given to the intent manifested by the
portion held invalid or inoperative.
Section 3. TABLE OF CONTENTS; HEADINGS. The table of contents
and headings are for organization, convenience and clarity. In interpreting
these Bylaws, the table of contents and headings shall be subordinated in
importance to the other written material.
34
<PAGE> 38
I, the undersigned, being the Secretary of the Corporation DO HEREBY
CERTIFY THAT the foregoing are the Bylaws of said Corporation, as adopted by
the Board of Directors of said Corporation on the 22nd day of September,
1997.
/s/ GREGORY A. KATT
----------------------------
Gregory A. Katt, Secretary
35
<PAGE> 1
EXHIBIT 3.1
NEUTRAL POSTURE ERGONOMICS, INC. COMMON STOCK
INCORPORATED UNDER THE
LAWS OF THE STATE OF TEXAS
NUMBER SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS
AND LIMITATIONS
CUSIP 64125E 10 5
THIS CERTIFICATE IS TRANSFERRABLE
IN CHICAGO, IL OR IN NEW YORK, NY
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE OF
NEUTRAL POSTURE ERGONOMICS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures
of its duly authorized officers and its facsimile seal to be affixed hereto.
Dated:
/s/ REBECCA BOENIGK Countersigned and Registered:
CHAIRMAN OF THE BOARD HARRIS TRUST AND SAVINGS BANK
AND CHIEF EXECUTIVE OFFICER
[SEAL]
Transfer Agent and Registrar
/s/ GREGORY A. KATT BY
VICE PRESIDENT, CHIEF Authorized Signature
FINANCIAL OFFICER AND SECRETARY/TREASURER
<PAGE> 2
NEUTRAL POSTURE ERGONOMICS, INC.
A FULL STATEMENT OF (A) ALL OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS,
AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES OF NEUTRAL POSTURE
ERGONOMICS, INC. (THE "COMPANY) TO THE EXTENT THEY HAVE BEEN FIXED AND
DETERMINED AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE COMPANY TO FIX
AND DETERMINE THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS
OF SUBSEQUENT SERIES, (B) THE DENIAL TO THE COMPANY'S SHAREHOLDERS OF
PREEMPTIVE RIGHTS, AND (C) THE DENIAL TO THE COMPANY'S SHAREHOLDERS OF THE
RIGHT TO CUMULATIVE VOTING IS SET FORTH IN THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION ON FILE IN THE OFFICE OF THE SECRETARY OF STATE OF
TEXAS, AS SUCH DOCUMENT MAY BE AMENDED FROM TIME TO TIME. THE COMPANY WILL
FURNISH A COPY OF ANY SUCH STATEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE
SECRETARY OF THE COMPANY.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ------ --------
entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts to
right of survivorship Minors
and not as tenants Act
in common ------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code of assignee)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shares
----------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney
--------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation,
with full power of substitution in the premises.
Dated
---------------------------------
X
-----------------------------------
NOTICE:
X
THE SIGNATURE(S) TO -----------------------------------
THIS ASSIGNMENT
MUST CORRESPOND
WITH THE NAME(S) AS
WRITTEN UPON THE
FACE OF THE
CERTIFICATE IN
EVERY PARTICULAR
WITHOUT
ALTERATION OR
ENLARGEMENT
OR ANY CHANGE
WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
-----------------------------------
SIGNATURE(S) GUARANTEED BY:
- ------------------------------------------------
AMERICAN BANK NOTE COMPANY SEPT 16, 1997fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 052587bk
(562) 989-2333
(FAX) (562) 426-7450 Proof ___ REV 1
- ------------------------------------------------
<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
- 2 -
<PAGE> 3
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,
- 3 -
<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.
- 4 -
<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
- 5 -
<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).
- 6 -
<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 eighteen (18) months
from the last day of the Term:
(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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<PAGE> 10
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.
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.
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<PAGE> 11
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 (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
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<PAGE> 12
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 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)
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<PAGE> 13
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" 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
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<PAGE> 14
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
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
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<PAGE> 15
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.
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.
* * * * *
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<PAGE> 16
This Agreement has been executed and delivered as of the date first written
above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ DAVID CAMPBELL
-----------------------------------
Name: David Campbell
-----------------------------------
Title: President
-----------------------------------
/s/ REBECCA BOENIGK
-----------------------------------
Rebecca Boenigk
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<PAGE> 1
EXHIBIT 6.2
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 David W. Campbell (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 his 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
President, effective from the date hereof. The Executive shall have
the responsibility and authority to carry out the duties normally
assigned to a President 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 his employment under this Agreement he 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 $135,000
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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<PAGE> 3
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 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, has damaged or
interfered with the Company's or any Affiliate's
relationships with its customers, suppliers,
employees or other agents;
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<PAGE> 4
(C) frequent or habitual tardiness,
absenteeism, failure to meet performance standards
that the President, Chief Executive Officer or 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 his 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 his 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 his 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) the Base Salary for the last year of
this Agreement (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 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 fifty percent (50%) of the Executive's current Base
Salary).
(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 his 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) the Base Salary for the last year of this Agreement
(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
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 fifty percent (50%) of the Executive's current Base Salary).
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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) he 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 he 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 his own account or for the benefit of any third party any
Confidential Information, whether the Executive has such information in his
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 his 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 his 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 twelve (12) months from
the last day of the Term:
(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 his name or any similar
name to, lend his 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 his skills and experience
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<PAGE> 10
will allow him 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 himself 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 himself 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.
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.
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<PAGE> 11
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 (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 his 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
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<PAGE> 12
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 his 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 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: David W. Campbell
3904 North Texas Avenue
Bryan, Texas 77803
(409) 778-0408 (fax)
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<PAGE> 13
If to Company: NEUTRAL POSTURE ERGONOMICS, INC.
3904 North Texas Avenue
Bryan, Texas 77803
Attn: Chief Executive Officer
(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" 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
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<PAGE> 14
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 aware 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
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
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<PAGE> 15
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 he is or
was an officer 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 this Article 2 (Confidentiality and Noncompetition) and 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.
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 he has had
sufficient time and opportunity to read and understand this Agreement and to
consult with his legal counsel and other advisors regarding the terms and
conditions set forth in this Agreement.
* * * * *
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<PAGE> 16
This Agreement has been executed and delivered as of the date first
written above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA BOENIGK
------------------------------------
Name: Rebecca Boenigk
----------------------------------
Title: Chief Executive Officer
---------------------------------
/s/ DAVID W. CAMPBELL
---------------------------------------
David W. Campbell
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<PAGE> 1
EXHIBIT 6.3
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 David W. Ebner (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 his 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 Vice President of Operations, effective from the date
hereof. The Executive shall have the responsibility and authority to
carry out the duties normally assigned to a Vice President of
Operations 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 his employment under this Agreement he
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 $75,000 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 three (3) 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 his use in connection
with his duties as an executive officer of the Company. Thereafter
and for the remainder of the Term, the Company shall pay the Executive
$350 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 President, Chief Executive Officer or 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 his 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 his 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 his 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) the Base Salary for the last year of
this Agreement (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 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 fifty percent (50%) of the Executive's current Base
Salary).
(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 his 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) the Base Salary for the last year of this Agreement
(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
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 fifty percent (50%) of the Executive's current Base Salary).
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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) he 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 he 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 his own account or for the benefit of any
third party any Confidential Information, whether the Executive has such
information in his 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 his 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 his 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 twelve (12)
months from the last day of the Term:
(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 his
name or any similar name to, lend his 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 his skills and experience
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<PAGE> 10
will allow him 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 himself 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 himself 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.
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.
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<PAGE> 11
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 (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 his 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
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<PAGE> 12
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 his 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 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: David W. Ebner
3904 North Texas Avenue
Bryan, Texas 77803
(409) 778-0408 (fax)
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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" 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
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<PAGE> 14
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
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
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<PAGE> 15
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 he 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.
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
he has had sufficient time and opportunity to read and understand this
Agreement and to consult with his legal counsel and other advisors regarding
the terms and conditions set forth in this Agreement.
* * * * *
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<PAGE> 16
This Agreement has been executed and delivered as of the date first
written above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA BOENIGK
------------------------------------
Name: Rebecca Boenigk
----------------------------------
Title: Chief Executive Officer
---------------------------------
/s/ DAVID W. EBNER
--------------------------------------------
David W. Ebner
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<PAGE> 1
EXHIBIT 6.4
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 Gregory A. Katt (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 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 his 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
Vice President, Chief Financial Officer and Secretary/Treasurer,
effective from the date hereof. The Executive shall have the
responsibility and authority to carry out the duties normally assigned
to a Vice President, Chief Financial Officer and Secretary/Treasurer
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 his employment under this Agreement
<PAGE> 2
he will not engage in, or be otherwise interested in, directly or
indirectly, any 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 $75,000
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.
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<PAGE> 3
(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 time for its officers generally, but not
fewer than two (2) weeks during the first year of the Term, and
thereafter three (3) 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 Term, the Company shall pay
the Executive $350 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 President, Chief Executive Officer or 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 his 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 his 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 his 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) the Base Salary for the last year of
this Agreement (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 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 fifty percent (50%) of the Executive's current Base
Salary).
(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 his 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) the Base Salary for the last year of this Agreement
(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
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 fifty percent (50%) of the Executive's current Base Salary).
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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 ARTICLE 2
Confidentiality and Noncompetition
2.1 Acknowledgments by the Executive. The Executive acknowledges
that (a) he 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 he 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 his own account or for the benefit of any third party any
Confidential Information, whether the Executive has such information in his
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 his 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 his 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 twelve (12) months
from the last day of the Term:
(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 his
name or any similar name to, lend his 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 his skills and experience
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<PAGE> 10
will allow him 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 himself 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 himself 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.
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.
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<PAGE> 11
The rights and remedies of the parties to this Agreement are cumulative and not
alternative.
ARTICLE 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 (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 his 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
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<PAGE> 12
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 his 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 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: Gregory A. Katt 3904 North
Texas Avenue Bryan, Texas
77803 (409) 778-0408 (fax)
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<PAGE> 13
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" 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
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<PAGE> 14
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 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
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<PAGE> 15
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 he 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.
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 he has
had sufficient time and opportunity to read and understand this Agreement and
to consult with his legal counsel and other advisors regarding the terms and
conditions set forth in this Agreement.
* * * * *
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<PAGE> 16
This Agreement has been executed and delivered as of the date first
written above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA BOENIGK
------------------------------------
Name: Rebecca Boenigk
----------------------------------
Title: Chief Executive Officer
---------------------------------
/s/ GREGORY A. KATT
----------------------------------------
Gregory A. Katt
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<PAGE> 1
EXHIBIT 6.5
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), effective as of July 1,
1997, by and between Neutral Posture Ergonomics, Inc. ("NPE"), a Texas
corporation, located at 3904 N. Texas Avenue, Bryan, Texas 77803, and Dr.
Jerome Congleton ("Dr. Congleton") of 13065 Valley Circle, College Station,
Texas 77845.
WHEREAS, NPE has engaged Dr. Congleton, and Dr. Congleton has agreed,
to assist NPE in certain matters described below.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, NPE and Dr. Congleton hereby agree as follows:
ARTICLE 1
TERM OF EMPLOYMENT
1.01 NPE hereby engages Dr. Congleton, and Dr. Congleton hereby
agrees to become a consultant with NPE, subject to the terms and conditions of
this Agreement, for a period of ten (10) years, beginning on the 1st day of
July, 1997.
ARTICLE 2
DUTIES OF DR. CONGLETON
GENERAL DESCRIPTION
2.01 Subject to the terms and conditions of this Agreement, Dr.
Congleton is hereby engaged by NPE as a consultant to invent, discover, develop
and improve designs, methods, formulas, machines and devices relating in any
manner whatsoever to ergonomic devices (including chairs) and to otherwise
advise and assist NPE in the furtherance of its business interests. The
services of Dr. Congleton shall be performed at any laboratory, research
facility, manufacturing plant or other facility or location at
CONSULTING AGREEMENT - PAGE 1
<PAGE> 2
which NPE conducts its business. Whenever Dr. Congleton invents, discovers,
develops or improves any of the designs, methods, formulas, machines and
devices described above, Dr. Congleton shall immediately make a full disclosure
of the subject matter to NPE and shall keep NPE fully informed at all times of
all progress in connection with the process and product.
TRAVEL
2.02 During the term of this Agreement, Dr. Congleton shall be
available to and shall travel on NPE business no more than twenty-five (25)
days each calendar year, prorated for any period of partial service. Such
travel shall be at NPE's expense and under such terms and conditions and to
such places as directed by NPE.
ENGAGEMENT IN OTHER EMPLOYMENT
2.03 NPE understands that Dr. Congleton is an Associate Professor
at Texas A&M University and at no time shall NPE request Dr. Congleton to
perform any service that is in conflict with his responsibilities as an
Associate Professor at Texas A&M University. Dr. Congleton shall not perform
any services hereunder, either solely or jointly with others, during the course
of his regularly assigned duties as an Associate Professor at Texas A&M
University System ("TAMUS") or with the utilization of any TAMUS facilities or
services or in the performance of sponsored work under a contract or grant
administered by TAMUS or any component thereof. Dr. Congleton agrees that if
any conflict of interest between NPE and Texas A&M University shall arise during
the term of the Agreement, Dr. Congleton shall promptly notify NPE and NPE may,
at its option, immediately cancel this Agreement.
INDEPENDENT CONTRACTOR STATUS
2.04 The parties hereby acknowledge and covenant that (i) Dr.
Congleton is an independent contractor and has acted exclusively as an
independent contractor and not as an employee of NPE in performing the duties
assigned hereunder, and (ii) the parties do not intend, and will not hold out
that
CONSULTING AGREEMENT - PAGE 2
<PAGE> 3
there exists, any company, joint venture, undertaking for a profit or other
form of business venture or any employment relationship among the parties other
than that of an independent contractor relationship.
ARTICLE 3
COMPENSATION OF DR. CONGLETON
BASIC COMPENSATION
3.01 As compensation for services under this Agreement, Dr.
Congleton shall be paid $90,000.00 annually, payable in equal bimonthly
installments of $3,750.00 on the first and fifteenth day of each month during
the period of service, prorated for any partial service period.
COST OF LIVING INCREASE
3.02 Upon the completion of each calendar year during which Dr.
Congleton is engaged by NPE, he shall be paid additional compensation in the
form of a cost of living increase computed by multiplying the base salary by
the consumer price index (CPI) as reported in the Wall Street Journal. Such
cost of living increases shall be cumulative.
ARTICLE 4
REIMBURSEMENT OF EXPENSES INCURRED BY DR. CONGLETON
BUSINESS EXPENSES
4.01 Dr. Congleton is authorized to incur reasonable business
expenses for promoting the business of NPE, including expenditures for
entertainment and travel at NPE's request. NPE will reimburse Dr. Congleton
from time to time for all such business expenses, provided that Dr. Congleton
presents to NPE:
(a) An account book in which Dr. Congleton recorded at or
near the time each expenditure was made:
(i) The amount of the expenditure;
CONSULTING AGREEMENT - PAGE 3
<PAGE> 4
(ii) The time, place and designation of the type
of the entertainment and travel or other
expenses;
(iii) The business reason for the expenditure and
the nature of the business benefit derived or
expected to be derived as a result of the
expenditure; and
(iv) The names, occupations, addresses and other
information concerning each person who was
entertained, sufficient to establish a
relationship to NPE.
(b) Documentary evidence, such as a receipt or a paid
bill, that states sufficient information to establish
the amount, date, place and the essential character
of the expenditure, for each expenditure of $25.00 or
more and for lodging while traveling away from home.
SPECIFICATION OF BUSINESS EXPENSES IN NPE'S RULES
4.02 This meaning of "business expenses," as used in this
Agreement, is limited to those expenditures specified in the rules and
regulations issued by NPE now in effect or as subsequently modified,
notwithstanding anything else to the contrary in this Agreement.
ARTICLE 5
PROPERTY RIGHTS OF THE PARTIES
INVENTIONS AND PATENTS
5.01 Dr. Congleton agrees that he will promptly and fully inform
and disclose to NPE all inventions, designs, improvements and discoveries that
Dr. Congleton may have during the term of this Agreement that pertain or relate
to the business of NPE or to any experimental work carried on by NPE, whether
conceived by Dr. Congleton alone or with others. Dr. Congleton agrees to
assign and hereby does assign to NPE all right, title and interest in and to
any such inventions, designs, improvements, or discoveries conceived, developed
or reduced to practice, either individually or jointly with others, during the
term of this Agreement. Dr. Congleton shall assist NPE in obtaining patents on
all such inventions, designs, improvements and discoveries deemed patentable by
NPE and shall execute all
CONSULTING AGREEMENT - PAGE 4
<PAGE> 5
documents and do all things necessary to obtain such patents and vest title in
any such inventions, designs, improvements or discoveries in NPE.
CONFIDENTIAL INFORMATION
5.02 Dr. Congleton, while engaged by NPE hereunder or at any time
thereafter, will not, without the express written consent of NPE, directly or
indirectly communicate or divulge, or use for the benefit of Dr. Congleton or
of any other person, firm, association or company, any of NPE's trade secrets,
proprietary data or other confidential information, which trade secrets and
confidential information were communicated to or otherwise learned or acquired
by Dr. Congleton in the course of Dr. Congleton's engagement with NPE, except
that Dr. Congleton may disclose such matters to the extent that disclosure is
required (a) in the course of Dr. Congleton's engagement with NPE or (b)
pursuant to any deposition, interrogatory, request for documents, subpoena,
civil investigative demand, or similar process. Dr. Congleton will not use
such trade secrets or confidential information in any way or in any capacity
other than as a consultant of NPE and to further NPE's interests.
Dr. Congleton recognizes that NPE has received, and in the future will
receive, from third parties their confidential or proprietary information
subject to a duty on NPE's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. Dr. Congleton
agrees that Dr. Congleton owes NPE and such third parties, during the term of
Dr. Congleton's engagement hereunder and thereafter, a duty to hold all such
confidential or proprietary information in the strictest confidence and not to
disclose it to any person, firm or corporation (except as necessary in carrying
out work for NPE consistent with NPE's agreement with such third party) or to
use it for the benefit of anyone other than for NPE or such third party
(consistent with NPE's agreement with such third party) without the prior
consent of an authorized representative of NPE.
CONSULTING AGREEMENT - PAGE 5
<PAGE> 6
TRADE NAME OR TRADEMARK
5.03 Dr. Congleton shall not, without the express written consent
of NPE, either during the term of this Agreement or at any time after its
termination, use or permit the use of NPE's name, or in connection with the
trade name or trademark of any enterprise other than NPE's, whether it is a
sole proprietorship, partnership, firm or corporation.
COPYRIGHTS
5.04 Dr. Congleton further agrees to assign and does hereby assign
to NPE all right, title and interest in and to any copyrightable subject matter
embodied in any of his work product pursuant to this Agreement. Dr. Congleton
shall execute all documents necessary to vest title to any such copyrights in
NPE.
ARTICLE 6
NONCOMPETITION AND NONSOLICITATION
6.01 (a) During the term of this Agreement, NPE agrees to
provide Dr. Congleton with continued access to
confidential information, including confidential
information regarding refinements in NPE's
proprietary technologies and strategic planning for
new products and refinements to existing products and
attendance at the training programs conducted by NPE
regarding sales and marketing and underwriting and
purchasing of new and existing products.
(b) Except as set forth in paragraph 6.01(c) below, as an
inducement for NPE's agreement in paragraph 6.01(a)
above and in exchange for the other consideration
provided by NPE under this Agreement, during the term
of this Agreement and for a period of 18 months from
the last day of the term of this Agreement:
(i) Dr. Congleton 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, or render services or advice to 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) NPE or any
affiliate is engaged in the Business, or
where Dr. Congleton has been involved in
strategic planning on behalf of NPE or any
affiliate to do the Business; provided,
however, in each case, that Dr. Congleton may
purchase or otherwise
CONSULTING AGREEMENT - PAGE 6
<PAGE> 7
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. Dr.
Congleton agrees that this covenant is
reasonable with respect to its duration,
geographical area, and scope and that his
skills and experience will allow him to earn
a substantial income while still abiding by
the restrictions contained in this Agreement.
(ii) Dr. Congleton shall not, directly or
indirectly, either for himself or any other
person (A) induce or attempt to induce any
employee of NPE or any affiliate to leave the
employ of NPE or any affiliate; (B) in any
such way interfere with the relationship
between NPE or any affiliate and any employee
thereof; (C) induce or attempt to induce any
customer, supplier, licensee, or business
relation of NPE or any affiliate to cease
doing business with NPE or any affiliate, or
in any way interfere with the relationship
between any customer, supplier, licensee, or
business relation of NPE or any affiliate;
and
(iii) Dr. Congleton shall not, directly or
indirectly, either for himself or any other
person, solicit the business of any person
known to Dr. Congleton to be a customer or
potential customer of NPE (meaning a person
with which NPE has contacted or has developed
plans to contact regarding establishing a
customer relationship) or any affiliate,
whether or not Dr. Congleton 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 NPE or any affiliate of NPE;
(c) In the event that this Agreement is terminated by Dr.
Congleton for NPE's breach, the terms of paragraph
6.01(b) shall be null and void.
REMEDIES
6.02 Dr. Congleton acknowledges that in view of the nature of the
business in which NPE is engaged, the restrictions contained in Articles 5 and
6 above are reasonable and necessary in order to protect the legitimate
interests of NPE. Dr. Congleton further acknowledges that Dr. Congleton may
have access to certain confidential information of NPE that constitutes
valuable, special, and unique property of NPE.
Dr. Congleton therefore hereby agrees that for violation of any of the
provisions of Articles 5 and 6 of this Agreement, NPE shall be entitled to the
following remedies:
CONSULTING AGREEMENT - PAGE 7
<PAGE> 8
(a) Damages from Dr. Congleton; and
(b) Injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to
specifically enforce the provisions of Articles 5 and
6 of this Agreement, it being agreed that money
damages alone would be inadequate to compensate NPE
and would be an inadequate remedy for such breach.
ARTICLE 7
EFFECT OF NPE'S MERGER, TRANSFER OF ASSETS, OR DISSOLUTION
7.01 This Agreement shall not be automatically terminated by:
(a) Merger when NPE is not the surviving corporation; or
(b) Transfer of all or substantially all of the assets of
NPE.
In the event of any such merger or transfer of assets, the surviving
or resulting corporation or the transferee of NPE's assets shall be bound by
and shall have the benefit of the provisions of this Agreement, except that Dr.
Congleton shall have the option to terminate this Agreement by giving the
surviving or resulting corporation 60 days written notice of his intent to
terminate. Such notice to terminate must be made within 60 days of the
effective date of the merger or transfer. In the event of such termination by
Dr. Congleton, he shall be entitled to compensation as set out in Article 8.
ARTICLE 8
MUTUAL TERMINATION AND EFFECT ON COMPENSATION
8.01 This Agreement may be terminated at any time by the written
mutual agreement of the parties hereto, or by either party in the event that
the other party has committed a material breach of any of the provisions of
this Agreement and such breach has not been cured within 30 days of written
notice thereof. In the event of the termination of this Agreement, as set
forth in this paragraph, prior to the completion of the term herein specified
in Article 1, Dr. Congleton shall be entitled to the compensation earned by him
prior to the date of termination as provided for in Article 3 and the business
expenses incurred by him prior to the date of termination as provided for in
Article 4, and thereafter NPE shall have no further liability under this
Agreement to Dr. Congleton.
CONSULTING AGREEMENT - PAGE 8
<PAGE> 9
ARTICLE 9
GENERAL PROVISIONS
ENTIRETY OF AGREEMENT
9.01 This Agreement supersedes all other agreements, either oral or
in writing, between the parties with respect to the services of Dr. Congleton
by NPE and contains all of the covenants and agreements between the parties
with respect to such engagement. Each party to this Agreement acknowledges
that no representations, inducements, promises or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, that are not embodied in this Agreement, and that no other agreement,
statement, or promise shall be valid or binding.
LAW GOVERNING AGREEMENT
9.02 This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
VALIDITY
9.03 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
COUNTERPARTS
9.04 This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and
the same agreement.
AMENDMENTS
9.05 This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by each of the parties hereto.
CONSULTING AGREEMENT - PAGE 9
<PAGE> 10
ASSIGNABILITY
9.06 This Agreement shall inure to the benefit of NPE and its
successors and assigns. This Agreement shall not be assignable by Dr.
Congleton and shall not be subject to attachment, execution, pledge or
hypothecation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ REBECCA BOENIGK
-----------------------------------------
Name: Rebecca Boenigk
-------------------------------
Its: Chief Executive Offficer
--------------------------------
/s/ JEROME J. CONGLETON
--------------------------------------------
Dr. Jerome Congleton
CONSULTING AGREEMENT - PAGE 10
<PAGE> 1
EXHIBIT 6.15
INSURED - REBECCA E. BOENIGK
POLICY NUMBER - 63-514-564
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A Delaware Corporation)
THE CORPORATION will pay the benefits of this policy in accordance with its
provisions. The pages which follow are also a part of this policy.
RIGHT TO EXAMINE POLICY. THIS PROVISION DOES NOT APPLY. Please examine your
policy. Within 20 days after delivery, you can return the policy to the
Corporation or to the Registered Representative through whom it was purchased.
If this option is returned, the policy will be void from the start and a refund
will be made. The amount we refund will equal the greater of the policy's cash
value as of the date the policy is returned or the premiums paid, less loans
and withdrawals. THIS PROVISION DOES NOT APPLY.
VARIABLE LIFE INSURANCE BENEFIT. THE LIFE INSURANCE BENEFIT OF THIS POLICY MAY
INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE
ACCOUNT AND THE LIFE INSURANCE BENEFIT OPTION SELECTED. FURTHER INFORMATION
REGARDING THIS BENEFIT IS GIVEN IN THE LIFE INSURANCE BENEFIT SECTION ON PAGE 4
OF THE POLICY.
CASH VALUE. TO THE EXTENT THE POLICY'S CASH VALUE IS ALLOCATED TO THE SEPARATE
ACCOUNT, THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY REFLECTING THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THE METHOD OF DETERMINING THE
CASH VALUE IS DESCRIBED IN THE CASH VALUE AND LOANS SECTION. THERE IS NO
GUARANTEED MINIMUM CASH VALUE.
PAYMENT OF PREMIUMS. While this policy is in force, premiums can be paid at
any time before the policy anniversary on which the Insured is age 95, and while
the Insured is living. They can be paid at any interval or by any method we
make available, subject to the Premiums section. The amount and interval of
scheduled premiums, as stated in the application for this policy, are shown on
the Policy Data page.
ANNUAL REPORT TO OWNER. An annual report in connection with this policy will
be provided to you without charge. This report will tell you how much cash
value and cash surrender value there is as of the most recent policy
anniversary, together with the amount of any unpaid loan. The report will also
give you any other facts required by state law or regulation.
/s/ SY STARBIN
President
/s/ GEORGE J. TRAPP
Secretary
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
Variable Life Insurance Benefit - Flexible Premium Payments
Proceeds Payable at Insured's Death.
AMOUNT OF VARIABLE LIFE INSURANCE OR CASH VALUE
PROCEEDS MAY VARY, REFLECTING INVESTMENT EXPERIENCE
OF SEPARATE ACCOUNT.
No Premiums Payable on or After Age 95.
Policy is Non-Participating.
<PAGE> 2
INSURED - REBECCA E. BOENIGK INSURED'S AGE AND SEX
AT ISSUE - 32 FEMALE
POLICY NUMBER - 63 514 564 INSURED'S CLASS
OF RISK - NON-SMOKER
POLICY/ISSUE DATE - JUNE 28, 1995 LIFE INSURANCE BENEFIT OPTION - 1
INITIAL FACE AMOUNT - $1,600,000
BENEFICIARY/OWNER AS DESIGNATED IN THE APPLICATION UNLESS CHANGED AS PROVIDED
IN THE POLICY.
SCHEDULED PREMIUM PAYABLE* AT MONTHLY INTERVALS: $1,000.00
GUIDELINE ANNUAL PREMIUM: $15,955.60
<TABLE>
<CAPTION>
ADDITIONAL
BENEFITS AMOUNT MONTHLY RIDER COSTS
- ---------- ------ -------------------
<S> <C> <C>
N/A
</TABLE>
* PREMIUMS CANNOT BE PAID ON OR AFTER THE POLICY ANNIVERSARY ON WHICH THE
INSURED IS AGE 95, WHICH IS JUNE 28, 2058. COVERAGE WILL EXPIRE WHEN THE
CASH VALUE, LESS SURRENDER CHARGES, AND ANY UNPAID LOANS AND ACCRUED
INTEREST IS INSUFFICIENT TO COVER THE MONTHLY DEDUCTION. IN ADDITION,
BECAUSE POLICY VALUES ARE BASED ON THE INVESTMENT PERFORMANCE OF THE
SEPARATE ACCOUNT, PAYMENT OF PREMIUMS IN ANY FREQUENCY OR AMOUNT WILL NOT
GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE TO THE DATE SHOWN.
MONTHLY DEDUCTION DAY IS THE TWENTY EIGHTH DAY OF EACH CALENDAR MONTH.
9390TX-2 PAGE 2 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 3
POLICY NUMBER - 63 514 564 INSURED - REBECCA E. BOENIGK
TABLE OF EXPENSE CHARGES
MONTHLY DEDUCTION CHARGE CONSISTS OF:
- - AN ANNUAL CONTRACT CHARGE NOT TO EXCEED $324.00 IN THE FIRST POLICY YEAR AND
$96.00 IN EACH POLICY YEAR THEREAFTER. THESE CHARGES ARE DEDUCTED ON A
MONTHLY BASIS. THE EXCESS OF THE CONTRACT CHARGE FOR THE FIRST POLICY YEAR
OVER THE AMOUNT OF THE CONTRACT CHARGE APPLICABLE IN A RENEWAL YEAR IS
DEFERRED TO THE EARLIER OF THE FIRST POLICY ANNIVERSARY OR THE SURRENDER OF
THE POLICY. HOWEVER, IF THE POLICY IS SURRENDERED IN THE FIRST POLICY YEAR,
THE FULL FIRST YEAR CONTRACT CHARGE IS DEDUCTED.
- - MONTHLY COST OF INSURANCE FOR BASIC POLICY.
- - MONTHLY COST OF ANY RIDERS.
OTHER CHARGES AGAINST THE POLICY:
- - PERCENT OF SALES EXPENSE CHARGE NOT TO EXCEED 5% OF ANY PREMIUM PAID.
- - PREMIUM TAX CHARGE OF 2% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS SUBTRACTED
FROM EACH PREMIUM PAYMENT. WE RESERVE THE RIGHT TO CHANGE THIS PERCENTAGE TO
CONFORM TO CHANGES IN THE LAW.
- - FEDERAL TAX CHARGE OF 1.25% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS
SUBTRACTED FROM EACH PREMIUM PAYMENT. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE TO CONFORM TO CHANGES IN THE LAW.
9390TX-2.1 PAGE 2.1 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 4
POLICY NUMBER - 63 514 564 INSURED - REBECCA E. BOENIGK
TABLE OF MAXIMUM SURRENDER CHARGES
Policy Surrender
Year Charge
------ ---------
1 $6,540.36
2 $6,540.36
3 $6,540.36
4 $6,540.36
5 $6,540.36
6 $6,540.36
7 $5,886.32
8 $5,232.29
9 $4,578.25
10 $3,924.22
11 $3,270.18
12 $2,616.14
13 $1,962.11
14 $1,308.07
15 $ 654.04
THIS TABLE APPLIES TO THE INITIAL FACE AMOUNT FOR THE NUMBER OF YEARS SHOWN
ABOVE. THE ACTUAL SURRENDER CHARGE, WHICH APPLIES IN ANY YEAR, IS DESCRIBED IN
THE MOST CURRENT PROSPECTUS WHICH IS ON FILE WITH THE SEC.
PARTIAL WITHDRAWALS ARE SUBJECT TO A PROCESSING CHARGE OF THE LESSER OF $25 OR
2% OF THE AMOUNT WHICH IS BEING WITHDRAWN. THE MINIMUM AMOUNT THAT MAY BE
WITHDRAWN IS $500.
9390-2.2 PAGE 2.2 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 5
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
(PER $1,000)
GUARANTEED
FEMALE
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
<S> <C> <C> <C>
0 .24 48 .36
1 .07 49 .39
2 .07 50 .41
3 .07 51 .44
4 .06 52 .48
5 .06 53 .51
6 .06 54 .55
7 .06 55 .59
8 .06 56 .63
9 .06 57 .67
10 .06 58 .71
11 .06 59 .75
12 .06 60 .79
13 .06 61 .84
14 .07 62 .91
15 .07 63 1.00
16 .08 64 1.11
17 .08 65 1.22
18 .08 66 1.34
19 .09 67 1.45
20 .09 68 1.57
21 .09 69 1.70
22 .09 70 1.85
23 .09 71 2.02
24 .10 72 2.24
25 .10 73 2.52
26 .10 74 2.84
27 .10 75 3.20
28 .11 76 3.59
29 .11 77 4.20
30 .11 78 4.47
31 .12 79 4.97
32 .12 80 5.53
33 .13 81 6.17
34 .13 82 6.91
35 .14 83 7.77
36 .15 84 8.73
37 .16 85 9.77
38 .17 86 10.89
39 .19 87 12.09
40 .20 88 13.36
41 .22 89 14.71
42 .24 90 16.15
43 .26 91 17.71
44 .28 92 19.44
45 .30 93 21.41
46 .32 94 23.83
47 .34
</TABLE>
<PAGE> 6
WE & YOU
In this policy, the words "we", When you write to us, please
"our" or "us" refer to New York include the policy number,
Life Insurance and Annuity the Insured's full name,
Corporation, and the words and your current address.
"you" or "your" refer
to the owner of this policy.
CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECTION PROVISIONS PAGE
- ------- ---------- ----
<S> <C> <C>
POLICY DATA PAGES 2
ONE LIFE INSURANCE BENEFITS 4
TWO OWNER AND BENEFICIARY 5
THREE POLICY CHANGES 5-6
FOUR PREMIUMS 6-7
FIVE SEPARATE ACCOUNT 8-10
(Separate Account Charges)
SIX FIXED ACCOUNT 10
SEVEN CASH VALUE AND LOANS 10-13
(Policy Charges)
EIGHT PAYMENT OF POLICY PROCEEDS 13-14
NINE GENERAL PROVISIONS 15-16
APPLICATION-Attached to the Policy
RIDERS OR ENDORSEMENTS
(IF ANY)-Attached to the Policy
</TABLE>
NOTE: This policy is a legal contract between the policyowner and the
Corporation.
PLEASE READ THIS POLICY CAREFULLY FOR FULL DETAILS.
PAGE 3
<PAGE> 7
SECTION ONE - LIFE INSURANCE BENEFITS
1.1 IS A LIFE INSURANCE BENEFIT PAYABLE UNDER THIS POLICY? We will pay the
life insurance proceeds to the beneficiary promptly, when we have proof
that the Insured died while the life insurance under this policy was in
effect.
1.2 WHAT IS THE AMOUNT OF LIFE INSURANCE PROCEEDS WHICH ARE PAYABLE UNDER
THIS POLICY? The proceeds payable under this policy will be based on
the Life Insurance Benefit Option in effect on the date of death, and
any increases or decreases that are made in the initial face amount
shown on the Policy Data page. We will deduct any unpaid loan and
accrued interest. The Policy Changes section of this policy contains
information about how to change this policy. It also provides details
about the effect of any change on the Life Insurance Benefit.
1.3 WHAT ARE THE LIFE INSURANCE BENEFIT OPTIONS WHICH ARE AVAILABLE UNDER
THIS POLICY? The amount of life insurance benefit payable under this
policy will be determined in accordance with one of the following
options:
OPTION 1 - This option provides a life insurance benefit option equal
to the greater of the face amount of the policy or a percentage of the
cash value equal to the minimum necessary for this policy to qualify as
life insurance under Section 7702 of the Internal Revenue Code. (See
the following table for these percentages.)
OPTION 2 - This option provides a life insurance benefit option equal
to or greater to the face amount of the policy plus the cash value or a
percentage of the cash value equal to the minimum necessary for this
policy to qualify as life insurance under Section 7702 of the Internal
Revenue Code (See the following table for these percentages.)
===============================================================================
<TABLE>
<CAPTION>
Insured's Age Insured's Age
on Policy % of Cash on Policy % of Cash
Anniversary Value Anniversary Value
- ----------- ------------ ------------ -------------
<S> <C> <C> <C>
0-40 250 68 117
41 243 69 116
42 236 70 115
43 229 71 113
44 222 72 111
45 215 73 109
46 209 74 107
47 203 75 105
48 197 76 105
49 191 77 105
50 185 78 105
51 178 79 105
52 171 80 105
53 164 81 105
54 157 82 105
55 150 83 105
56 146 84 105
57 142 85 105
58 138 86 105
59 134 87 105
60 130 88 105
61 128 89 105
62 126 90 105
63 124 91 104
64 122 92 103
65 120 93 102
66 119 94 101
67 118 95&Over 100
</TABLE>
1.4 WHAT HAPPENS WHEN THE INSURED REACHES AGE 95? Beginning on the
anniversary on which the Insured is age 95, the face amount of this
policy shown on the Policy Data page will no longer apply. Instead,
the Life Insurance Benefit of this policy will equal the cash value, as
defined in Section 7.1. No further monthly deductions will be made for
cost of insurance. You can surrender the policy for the cash value
proceeds in your signed written request which gives us the facts that
we need. We will deduct any unpaid loan and accrued interest. If this
policy is still in force upon the death of the Insured, these proceeds
will be paid to the beneficiary.
Any insurance on an Other Covered Insured, provided by a rider attached
to the policy, which is still in effect will end on the policy
anniversary when the Insured under this policy is age 95. However, if
an Other Covered Insured is younger than age 70 when the rider ends,
that insured can convert the term insurance at that time as provided in
the rider.
PAGE 4
<PAGE> 8
SECTION TWO - OWNER AND BENEFICIARY
2.1 WHO IS THE OWNER OF THIS POLICY? The owner of this policy is stated on
the Policy Data page. In this policy, the words "you" and "your" refer
to the policyholder.
2.2 CAN A SUCCESSOR TO THE OWNER BE NAMED? A successor owner can be named
in the application, or in a notice you sign which gives us the facts
that we need. If you die before the successor owner, the successor
owner will become the new owner. If no successor survives you and you
die before the Insured, your estate becomes the new owner.
2.3 HOW DO YOU CHANGE THE OWNER OF THIS POLICY? You may change the owner
of this policy, from yourself to a new owner, in a notice you sign
which gives us the facts that we need. This change will take effect as
of the date you signed the notice, subject to any payment we made or
action we took before recording this change When this change takes
effect, all rights of ownership will pass to the new owner. Changing
the owner cancels any prior choice of owner, but does not change the
beneficiary.
2.4 MAY MORE THAN ONE BENEFICIARY BE NAMED FOR THIS POLICY? One or more
beneficiaries for any life insurance proceeds may be named in the
application. If more than one beneficiary is named, they can be classed
as first, second and so on. If 2 or more are named in a class, their
shares in the proceeds are equal, unless you state otherwise. The
stated shares of the proceeds will be paid to any first beneficiaries
who survive the Insured. If no first beneficiaries survive, payment
will be made to any beneficiaries surviving in the second class, and so
on.
2.5 MAY YOU CHANGE A BENEFICIARY? While the Insured is living, you can
change a beneficiary in a notice you sign which gives us the facts that
we need. This change will take effect as of the date you signed the
notice, subject to any payment we made or action we took before
recording the change.
2.6 WHAT HAPPENS IF NO BENEFICIARIES ARE LIVING WHEN THE PROCEEDS BECOME
PAYABLE? If no beneficiary for the life insurance proceeds, or for a
stated share, survives the Insured, the right to these proceeds, or
this share, will pass to you. If you are the Insured, this right will
pass to your estate.
2.7 WHAT IF THE BENEFICIARY AND THE INSURED DIE AT THE SAME TIME? Unless
stated otherwise in the policy or in your signed notice which is in
effect at the Insured's death, if any beneficiary dies at the same time
as the Insured, or within 15 days after the Insured but before we
receive proof of the Insured's death, we will pay the proceeds as
though that beneficiary died first.
SECTION THREE - POLICY CHANGES
3.1 WHAT CHANGES MAY YOU MAKE TO THIS POLICY? You can apply in writing to
have the face amount increased or decreased (without changing the Life
Insurance Benefit Option), or have the Life Insurance Benefit Option
changed. As described in this section, we reserve the right to limit
increases in the face amount, and to limit decreases in the face amount
and Life Insurance Benefit Option changes in the first policy year on a
uniform basis by class. Changes may only be made while the Insured is
living, and only if this policy would continue to qualify as Life
Insurance, as defined under Section 7702 of the Internal Revenue Code.
See Section 7.4 for further information regarding decreases in face
amount and changes in the Life Insurance Benefit Option.
PAGE 5
<PAGE> 9
SECTION THREE - POLICY CHANGES (CONTINUED)
3.2 WHAT HAPPENS WHEN YOU APPLY TO INCREASE THE POLICY FACE AMOUNT? You can
have the face amount of this policy increased, only once a year, unless
we agree otherwise, subject to our minimum amount requirements and our
Corporation's maximum retention limits. To increase the face amount, we
must have your written application, also signed by the Insured, together
with any proof of insurability that we require. Any increase will take
effect on the Monthly Deduction Day on or after the day we approve the
application for the increase. The cost of insurance for each increase
will be based on the Insured's age, sex and class of risk at the time
the increase takes effect, as well as the duration since the increase.
A new set of surrender charges will apply to the increased face amount.
We will tell you the amount of these charges when you apply for the
increase. They will also be shown on a new Policy Data page when
the increase takes effect. For the amount of the increase, new
Incontestability and Suicide Exclusion periods will apply, beginning on
the effective date of such increase.
3.3 WHAT HAPPENS WHEN YOU DECREASE THE FACE AMOUNT? You can decrease the
new face amount only once a year, unless we agree otherwise, provided
the new face amount is at least $50,000. Any decrease will take
effect on the Monthly Deduction Day on or after the day we receive your
signed request at our Home Office.
The decrease will first be applied to reduce the most recent increase
in the face amount. It will then be applied to reduce other increases
in the face amount in the reverse order in which they took place, and
then to the initial face amount.
When the face amount is decreased, we will deduct from the cash value a
surrender charge equal to the difference between the surrender charge
immediately before the decrease and the surrender charge immediately
after the decrease. In assessing this surrender charge, we first take
into the account the surrender charge associated with any increases in
face amount in the reverse order made, and then initial face amount.
3.4 WHAT HAPPENS WHEN YOU CHANGE THE LIFE INSURANCE BENEFIT OPTION?
You can change the Life Insurance of this policy only once a year
unless we agree otherwise. Any change of Option will take effect on
the Monthly Deduction Day on or after the date we receive your signed
request at our Home Office. If you change from Option 1 to Option 2,
the face amount of the policy will be decreased by the cash value. If
you change from Option 2 to Option 1, the face amount of the policy
will be increased by the cash value.
SECTION FOUR - PREMIUMS
4.1 HOW DO YOU PAY PREMIUMS? At any time before the policy anniversary on
which the Insured is age 95 and while the Insured is living, premiums
can be paid at any interval or by any method we make available.
Premiums are payable at our Home Office, at any other location that we
indicate to you in writing, or to any one of our authorized agents in
exchange for a receipt signed by the President or Secretary of the
Corporation and duly countersigned. The cash value and amount of
insurance under this policy are based on the amount and interval of the
premiums that have been paid. You may pay scheduled premiums and/or
unscheduled premiums.
4.2 WHAT ARE SCHEDULED PREMIUMS? The amount and interval of any scheduled
premiums, as stated in the application, are shown on the Policy Data
page. The first premium is payable as of the policy's date of issue.
A scheduled premium does not have to be paid to keep this policy in
force, if the cash surrender value is enough to cover charges made on
the Monthly Deduction Day. The amount of any scheduled premium may be
increased on decreased subject to the limits we set. The frequency of
premium payments may also be changed subject to our minimum premium
rules. Scheduled premiums end on the policy anniversary on which the
Insured is age 95.
PAGE 6
<PAGE> 10
SECTION FOUR - PREMIUMS (CONTINUED)
4.3 WHAT ARE UNSCHEDULED PREMIUMS? Once a year you may elect to make an
unscheduled premium payment which is in addition to scheduled premiums,
unless we agree otherwise. The Insured must be living, payment must be
made prior to the policy anniversary on which the Insured is age 95 and
the policy must continue to qualify as Life Insurance, as defined under
Section 7702 of the Internal Revenue Code. If an unscheduled premium
payment would result in an increase in the life insurance benefit
greater than the increase in the cash value, we reserve the right to
require proof of insurability before affecting that payment and
applying it to the policy.
4.4 HOW ARE YOUR PREMIUM PAYMENTS ALLOCATED TO THE INVESTMENT DIVISIONS?
When we receive a premium payment, we will deduct a Sales Expense Charge
not to exceed the amount shown on the Policy Data page. We will also
deduct an amount equal to the Premium Tax Charge and the Federal Tax
Charge in effect at the time. The balance of the premium (the net
premium) will be applied to the Separate Account and Fixed Account in
accordance with your allocation election in effect at that time, and
before any other deductions which may be due are made.
4.5 CAN YOUR ALLOCATION ELECTION BE CHANGED? You can change your
allocation election stated in the application by a written request.
Your allocation percentages must total 100%. Each percentage must be
either zero, or a whole number which is at least 1%.
4.6 WHAT HAPPENS IF YOU STOP MAKING PREMIUM PAYMENTS? When premium
payments are not made as scheduled, this policy will continue in effect
as long as the cash value less any surrender charge, policy loan and
accrued interest, is sufficient to pay Monthly Deduction Charges.
4.7 WHAT IS THE LATE PERIOD? If, on a Monthly Deduction Day, the cash value
less any surrender charge, policy loan and accrued interest is less
than the Monthly Deduction Charge for the next policy month, the policy
will continue for a later period of 62 days after that Monthly
Deduction Day. If we do not receive payment before the end of the late
period, the policy will end and there will be no more benefits under
the policy. To inform you of this event, we will mail a notice to your
last known address at least 31 days before the end of the late period.
We will also mail a copy of the notice to the last known address of any
assignee on our records.
4.8 WHAT IF THE INSURED DIES DURING THE LATE PERIOD? If the Insured dies
during the late period, we will pay the policy proceeds. However,
these proceeds will be reduced by the amount of any unpaid loan and
accrued interest and Monthly Deduction Charges for the full policy
month or months that run from the beginning of the late period through
the policy month in which the Insured died.
4.9 CAN YOU REINSTATE THE POLICY IF IT ENDS? Within 5 years after this
policy has ended, you may apply to reinstate the policy if you did not
surrender it. When you apply for reinstatement, you must provide proof
of insurability that is acceptable to us. However, if the required
payment is made within 31 days after the end of the late period, no
proof if insurability is required.
4.10 WHAT PAYMENT IS REQUIRED TO REINSTATE THE POLICY? In order to
reinstate this policy, a payment must be made in an amount which is
sufficient to keep this policy in force for at least 3 months. This
payment will be in lieu of the payment of all premiums in arrears. It
may happen that the policy lapses before, and is reinstated after, the
first policy anniversary. In this case, we will also require payment of
150% of the deferred contract charge to reinstate this policy. Any
unpaid loan must also be repaid, together with loan interest at 6%
compounded once each year from the end of the late period to the date
of reinstatement. If a policy loan interest rate of less than 6% is in
effect when the policy is reinstated, the interest rate for the any
unpaid loan at the time of reinstatement will be the same as the policy
loan interest rate. The effective date of reinstatement will be the
Monthly Deduction Day on or following the date we approve the request
for reinstatement.
PAGE 7
<PAGE> 11
SECTION FIVE - SEPARATE ACCOUNT
5.1 HOW IS THE SEPARATE ACCOUNT ESTABLISHED AND MAINTAINED? We have
established and maintained the Separate Account under the laws of the
State of Delaware. Any realized or unrealized income, net gains and
losses from the assets of the Separate Account are credited or charged
to it without regard to our other income, gains or losses. We put assets
in the Separate Account for this policy, and we may also do the same for
any other variable life insurance policies we may issue.
5.2 HOW ARE THE SEPARATE ACCOUNT ASSETS INVESTED? The Separate Account
invests its assets in shares of one or more mutual funds. Fund shares
are purchased, redeemed and valued on behalf of the Separate Account.
The Separate Account is divided into Investment Divisions. We reserve
the right to add or remove any Investment Division of the Separate
Account.
5.3 TO WHOM DO THE ASSETS IN THE SEPARATE ACCOUNT BELONG? The assets
of the Separate Account are our property. There are Separate Account
assets which equal the reserves and other contract liabilities of the
Separate Account. Those assets will not be chargeable with liabilities
arising out of any other business we conduct. We reserve the right to
transfer assets of an Investment Division, in excess of the reserves and
other contract liabilities with respect to that Investment Division, to
another Investment Division or to our General Account.
5.4 HOW WILL THE ASSETS OF THE SEPARATE ACCOUNT BE VALUED? We will determine
the value of the assets of the Separate Account on each day during which
the New York Stock Exchange is open for trading except for the Friday
after Thanksgiving and the day before Christmas. The assets of the
Separate Account will be valued at fair market value, as determined in
accordance with a method of valuation which we established in good
faith.
5.5 CAN WE TRANSFER ASSETS OF THE SEPARATE ACCOUNT TO ANOTHER SEPARATE
ACCOUNT? We reserve the right to transfer assets of the Separate
Account, which we determine to be associated with the class of policies
to which this policy belongs, to another separate account. If this type
of transfer is made, the term "Separate Account", as used in this
policy, shall then mean the separate account to which the assets were
transferred.
5.6 WHAT OTHER RIGHTS DO WE HAVE? We also reserve the right, when permitted
by law to:
(a) de-register the Separate Account under the Investment Company Act of
1940;
(b) manage the Separate Account under the direction of a committee or
discharge such committee at any time:
(c) restrict or eliminate any voting rights of policyowners or other
persons who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate
accounts.
5.7 CAN A CHANGE IN THE INVESTMENT OBJECTIVE OR STRATEGY OF THE SEPARATE
ACCOUNT BE REQUIRED? When required by law or regulation, an investment
objective of the Separate Account may be changed. It will only be
changed if approved by the appropriate insurance official of the State
of Delaware or deemed approved in accordance with such law or
regulation. If so required, the request to obtain such approval will
be filed with the insurance official of the state or district in which
this policy is delivered.
PAGE 8
<PAGE> 12
SECTION FIVE - SEPARATE ACCOUNT (CONTINUED)
5.8 IF THE ASSETS IN THE SEPARATE ACCOUNT BELONG TO US, WHAT DO YOUR FUNDS
PURCHASE? The interest of this policy in the Separate Account prior to
the date on which the life insurance benefit becomes payable is
represented by accumulation units. The number of accumulation units
purchased in an Investment Division will be determined by dividing the
part of any payment or the part of any transfer applied to that
Investment Division, by the value of an accumulation unit for that
Division on the transaction date. Payments allocated, transferred or
otherwise added to the Investment Divisions will be applied to provide
accumulation units in those Investment Divisions. Accumulation units are
redeemed when amounts are loaned, transferred, surrendered or otherwise
deducted. These transactions are called policy transactions.
5.9 WHAT ARE ACCUMULATION UNITS? Accumulation units are the accounting units
used to calculate the values under this policy.
5.10 HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED? The value of an
accumulation unit on any business day is determined by multiplying the
value of that unit on the immediately preceding business day by the net
investment factor for the valuation period. The valuation period is the
period from the close of the immediately preceding business day to the
close of the current business day. The net investment factor for this
policy used to calculate the value of an accumulation unit in any
Investment Division of the Separate Account for the valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the sum of:
(1) the net asset value of a fund share held in the Separate
Account for that Investment Division determined at the end of
the current valuation period, plus
(2) the per share amount of any dividends or capital gain
distributions made by the fund for shares held in the Separate
Account for that Investment Division if the ex-dividend date
occurs during the valuation period.
(b) is the net asset value of a fund share held in the Separate
Account for that Investment Division determined as of the end of the
immediately preceding valuation period.
(c) is a factor representing the mortality and expense risk charge and
administrative charges. This factor represents a charge which
accrues daily, and will never exceed, on an annual basis, 1% of the
daily net asset value of a fund share in the Separate Account for
that Investment Division.
The net investment factor may be greater or less than one; therefore,
the value of an accumulation unit may increase or decrease.
5.11 CAN YOU TRANSFER FUNDS BETWEEN INVESTMENT DIVISIONS AND TO THE
FIXED ACCOUNT? Transfers may be made between Investment Divisions of the
Separate Account and to the Fixed Account. We reserve the right to limit
the number of transfers to the Fixed Account after the first two policy
years.
5.12 HOW DO YOU MAKE A TRANSFER BETWEEN INVESTMENT DIVISIONS AND TO THE FIXED
ACCOUNT? If you want to make a transfer, you must tell us in a notice
you sign which gives us the facts that we need. We reserve the right to
limit the amount of transfers to the Fixed Account after the first two
policy years.
5.13 WHEN WILL THESE TRANSFERS TAKE EFFECT? Transfers will take
effect as of the day after we receive your signed written consent.
PAGE 9
<PAGE> 13
SECTION FIVE - SEPARATE ACCOUNT (CONTINUED)
5.14 ARE THERE LIMITS ON WHAT YOU MAY TRANSFER? The minimum amount that
can be transferred is the lesser of $500 or the value of all remaining
accumulation units in the Investment Division, unless we agree
otherwise. The Investment Division from which the transfer is being
made must maintain a minimum balance of $500 after the transfer is
completed. If, after a transfer, the value of the remaining
accumulation units in an Investment Division would be less than $500,
we have the right to include that amount as part of the transfer.
There is no limit to the number of transfers that can be made. We
reserve the right to apply a charge, not to exceed $30, for each
transfer after the first twelve in a given policy year. This charge
is applied to the appropriate Investment Divisions on the basis of the
amount of the total transfer which is allocated from each Investment
Division.
Amounts which may be transferred from the Fixed Account to the
Investment Divisions are limited as provided in the Fixed Account
Section of this policy.
SECTION SIX - FIXED ACCOUNT
6.1 WHAT IS THE FIXED ACCOUNT? The Fixed Account is supported by assets
of the Corporation that are not segregated in any of the separate
accounts of New York Life Insurance and Annuity Corporation. Payments
applied to and any amounts transferred to the Fixed Account are
credited with interest using a fixed interest rate which we declare
periodically. We will set this rate in advance at least annually.
This rate will never be less than 4% per year. All payments applied
to, or amounts transferred to, the Fixed Account thereafter receive
the rate in effect at that time. The interest we credit may be
different for loaned and unloaned amounts.
6.2 CAN TRANSFERS BE MADE FROM THE FIXED ACCOUNT TO THE SEPARATE ACCOUNT?
Each policy year you may make transfers from the Fixed Account to the
Separate Account Investment Divisions. The minimum amount which may
be transferred is the lesser of : (a) $500, or (b) the accumulation
value in the Fixed Account, unless we agree otherwise. However, if
the values remaining in the Fixed Account would be less than $500,
we have the right to include that amount as part of the transfer.
The sum of all such transfers in a policy year may not be greater
that 20% of the accumulation value in the Fixed Account at the
beginning of that policy year.
SECTION SEVEN - CASH VALUE AND LOANS
7.1 WHAT IS THE CASH VALUE OF THIS POLICY? The cash value of this policy
at any time is equal to the total accumulation value of the portion of
the cash value of this policy allocated to the Separate Account plus
the portion of the cash value of this policy allocated to the Fixed
Account.
7.2 CAN YOU SURRENDER THIS POLICY OR MAKE A PARTIAL WITHDRAWAL? At any
time after this policy has cash value, and while the Insured is
living, you may surrender it for that value. The cash surrender value
is equal to the cash value less any surrender charges which may apply,
including any deferred contract charge less any unpaid loan and
accrued interest. You can also elect to make a partial withdrawal for
a selected amount or a percentage of the cash surrender value.
7.3 HOW CAN FUNDS BE WITHDRAWN FROM THIS POLICY? You may request a
partial withdrawal by sending us your signed written request which
must be received while the Insured is living. The minimum amount
which may be withdrawn is $500, unless we agree otherwise. The
withdrawal will be made on a pro-rata basis from the Fixed Account
and/or Investment Divisions, unless you indicate otherwise. If the
portion of your request for a partial withdrawal from the Fixed
Account of Investment Division is greater than the amount in the Fixed
Account and/or Investment Division, we will pay you the entire value
of that Fixed Account and/or Investment Division, less any surrender
charge which may apply. (See Section 7.4 for additional information.)
PAGE 10
<PAGE> 14
SECTION SEVEN - CASH VALUE AND LOANS (CONTINUED)
We may charge a fee, not to exceed the lesser of $25, or 2% of the amount
withdrawn, for processing a partial withdrawal. This fee is deducted from the
Fixed Account and/or Investment Divisions based on the withdrawal allocation
or, if none, on a pro-rata basis. When you make a partial withdrawal, the life
insurance benefit, the cash value, and the cash surrender value will be reduced
by the amount of the withdrawal proceeds and any applicable surrender charge,
you receive as of the date we make the payment.
You may elect to make only one partial withdrawal in the first policy year, if
Life Insurance Benefit Option 1 is in effect.
7.4 HOW IS THE SURRENDER CHARGE DETERMINED? For the number of years shown on
the Surrender Charge page a surrender charge will be assessed any time the
face amount is decreased, whether due to a partial withdrawal, full
surrender, a change in the Life Insurance Benefit Option or requested
decreases in the face amount. A table of maximum surrender charges is
shown on the Surrender Charge page. A surrender charge will be assessed
when the face amount is decreased but the policy is not fully surrendered.
This charge is equal to the difference between the surrender charge which
would have been payable on a complete surrender prior to the decrease and
the surrender charge which would be payable on a complete surrender after
the decrease. A separate surrender charge is calculated separately for the
initial face amount and for each increase in the face amount. (See
Section 3.2 for additional information.)
The surrender charge in the first policy year is equal to 25% of premiums
paid to date up to the guideline annual premium for the first year, plus 5%
of premiums paid in that year which are in excess of the guideline annual
premium for the first year but not in excess of the sum of the guideline
annual premiums through the sixth policy year. The guideline annual
premium is shown on the Policy Data page. The surrender charge in the
second policy year and thereafter is equal to the applicable percentage
shown in the table below multiplied by the base surrender charge. The base
surrender charge is equal to 25% of the lesser of the premiums paid to date
or the guideline annual premium for the first policy year, plus 5% of the
lesser of: (i) premiums paid in excess of the guideline annual premium for
the first policy year, or (ii) the sum of the guideline annual premiums for
the first six policy years minus the guideline annual premium for the first
policy year.
<TABLE>
<CAPTION>
Year Year
--------------------------------------------------------------------------
<S> <C> <C> <C>
2-6 100% 11 50%
7 90% 12 40%
8 80% 13 30%
9 70% 14 20%
10 60% 15 10%
16+ 0%
</TABLE>
The following is an example of how the surrender charges are calculated for
a policy with a guideline annual premium of $1,500, and annual premiums of
$1,000.
YEAR ONE
Total premiums paid = $1,000
Since the total premiums paid are less than one guideline premium, the
surrender charge is: 25% x $1,000 = $250.
YEAR FIVE
Total premiums paid = 5 x $1,000 = $5,000
The surrender charge in the fifth year is 100% of the base surrender
charge. The base surrender charge is 25% of premiums up to the guideline
premium ($1,500), plus 5% of the lesser of premiums paid in excess of the
guideline annual premium ($5,000 - $1,500 = $3,500) or the sum of five
guideline annual premiums (5 x $1,500 = $7,500).
Therefore, the total charge is:
100% x {(25% x $1,500) + (5% x $3,500)} = $550.
YEAR TEN
Total premiums paid = 10 x $1,000 = $10,000
The surrender charge in the tenth year is 60% of the base surrender charge.
The base surrender charge is 25% of premiums up to the guideline premium
($1,500), plus 5% of the lesser of premiums paid in excess of the
guideline annual premium ($10,000 - $1,500 = $8,500) or the sum of five
guideline annual premiums (5 x $1,500 = $7,500).
Therefore, the total charge is:
60% x {(25% x $1,500) + (5% x $7,500)} = $450.
PAGE 11
<PAGE> 15
SECTION SEVEN - CASH VALUE AND LOANS (CONTINUED)
7.5 WHAT MONTHLY DEDUCTIONS ARE MADE AGAINST THE CASH VALUE? On each Monthly
Deduction Day, the following deductions are made from the policy's cash
value:
(a) A monthly contract charge not to exceed the amount shown on the Policy
Data page;
(b) The monthly cost of insurance for the amount of the life insurance
benefit in effect at that time;
(c) The monthly cost for any riders attached to this policy.
A deduction may also be made for any temporary flat extras which may apply.
The amount and duration of these flat extras, if any, are shown in a
footnote on the Policy Data page. In addition, a deferred contract charge
will be deducted at the first anniversary, as described in the Policy Data
page.
The Monthly Deduction Day for this policy is shown on the Policy Data
page. The first Monthly Deduction Day is the date of issue of the policy.
All monthly deductions are made on a pro-rata basis from each of the
Investment Divisions and the Fixed Account.
7.6 HOW IS THE COST OF INSURANCE FOR THIS POLICY CALCULATED? The cost of
insurance is calculated on each Monthly Deduction Day. The monthly cost of
insurance for the initial face amount, and for each subsequent increase in
the face amount, is calculated separately. For this calculation, the cash
value will be used to reduce the cost of insurance first with regard to any
increases in face amount, in the reverse order made, and then to the
initial face amount. The monthly cost of insurance is equal to
(1) multiplied by the result of (2) minus (3) where:
(1) is the monthly cost of insurance rate per $1,000 of insurance;
(2) is the number of thousands of life insurance benefit as of the Monthly
Deduction Day divided by 1.00327; and
(3) is the cash value as of the Monthly Deduction Day (before this cost of
insurance, any applicable contract charge, and the monthly cost of any
riders are deducted).
7.7 WHAT IS THE COST OF INSURANCE RATE? The rates used to obtain the cost of
insurance for the initial face amount and for each increase in the face
amount are based on the Insured's issue age, sex, and class of risk at the
time the initial face amount or increase took effect, as well as the
duration since issue of such insurance. For the initial face amount, the
monthly cost of insurance rates will never exceed the maximum rates shown
in the Table of Guaranteed Maximum Monthly Cost of Insurance Rates attached
to this policy. For each increase in the face amount which is based on the
same class of risk as the initial face amount, the monthly rates that apply
to the cost of insurance for this increase will also not be greater than
the table of maximum rates attached to this policy. However, if the class
of risk for an increase in the face amount is different than the class of
risk for the initial face amount, we will furnish the Insured with the
applicable table of maximum rates for that increase, if that table is
different from the table of maximum rates attached to this policy. The
actual rate will be set by us, in advance, at least once a year. Any change
in cost of insurance rates will be made on a uniform basis for Insureds in
the same class, based on issue age, as well as the duration since issue of
such insurance, sex and risk classification.
7.8 WHAT IS THE MONTHLY COST OF RIDERS? The monthly cost of any riders
attached to this policy is described on the Policy Data pages.
7.9 WHAT IS THE LOAN VALUE OF THIS POLICY? Using this policy as sole security,
you can borrow any amount up to the loan value of this policy. The loan
value on any given date is equal to: (1) 90% of the cash value less
surrender charges and less any deferred contract charge, less (2) any
unpaid loan and accrued interest, on that date.
7.10 WHAT HAPPENS WHEN YOU REQUEST A LOAN? When a loan is requested, an amount
is transferred from the Separate Account to the Fixed Account equal to the
excess of: (a) 108% of the requested loan amount over (b) the cash value
in the Fixed Account, less any outstanding policy loan. This transfer
will be made on a pro-rata basis from the various Investment Divisions.
While a policy loan is outstanding, no partial withdrawals or transfers
which would reduce the cash value of the Fixed Account below 108% of the
outstanding loan are permitted.
The amount in the Fixed Account which equals the amount of an unpaid loan
will be credited with interest at a rate which will never be less than 2%
less than the effective annual loan interest rate.
PAGE 12
<PAGE> 16
SECTION SEVEN - CASH VALUE AND LOANS (continued)
7.11 WHAT IS THE LOAN INTEREST RATE FOR THE POLICY? Unless we set a lower
rate for any period, the effective annual loan interest rate is 8%,
which is payable in arrears. Loan interest for the policy year in which
a loan is taken will be due on the next policy anniversary. Loan
interest accrues each day and is payable on the anniversary, on the
date of death, surrender, or lapse, or on the date of a loan increase
or loan repayment. Loan interest not paid when due will be charged as
a new unpaid loan.
7.12 IF THE LOAN INTEREST RATE IS REDUCED, CAN IT SUBSEQUENTLY INCREASE? Yes.
If we have set a rate lower than 8% per year, any subsequent increase in
the interest rate will be subject to the following conditions:
(1) The effective date of any increase in the interest rate shall
not be earlier than one year after the effective date of the
establishment of the previous rate.
(2) The amount by which the interest rate may be increased will not
exceed one percent per year, but the rate of interest shall in no
event ever exceed 8%.
(3) We will give notice of the interest rate in effect when a loan is
made and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date
of an increase in the interest rate, we will notify you of that
increase at least 30 days prior to the effective date of the
increase.
(5) We will give notice of any increase in the interest rate when a
loan is made during the 40 days before the effective date of the
increase.
7.13 HOW ARE LOAN REPAYMENTS CREDITED TO THE POLICY? All or part of an unpaid
loan can be repaid before the Insured's death or before the policy is
surrendered. Loan repayments are allocated to the Investment Divisions
using the same allocation in effect for the payment of premiums, unless
you indicate otherwise.
7.14 WHAT HAPPENS IF A LOAN IS NOT REPAID? If a loan is outstanding when the
life insurance benefit becomes payable, we will deduct the amount of the
unpaid loan plus accrued interest from these proceeds. The cash
surrender value reflects a deduction of any outstanding policy loan and
accrued interest. In addition, it may happen in a given policy year
that, based on the loan interest rate in effect when that year began
(ignoring any subsequent increase in the rate during that year), any
unpaid loan plus accrued interest exceeds the cash value of this policy
less surrender charges. In that event, we will mail a notice to you at
your last known address, and a copy to the last known assignee on our
records. All insurance will end 31 days after the date on which we mail
that notice to you if the excess of the unpaid loan plus accrued
interest over the cash value less surrender charges is not paid within
that 31 days.
SECTION EIGHT - PAYMENT OF POLICY PROCEEDS
8.1 HOW WILL THE POLICY PROCEEDS BE PAID? The proceeds of this policy will
be paid in one sum, or if elected, all or part of these proceeds can be
placed under one or more of the options described in this section. If we
agree, the proceeds may be placed under some other method of payment
instead.
Any life insurance proceeds paid in on sum will bear interest
compounded each year from the Insured's death to the date of payment. We
set the interest rate each year. This rate will be at least 3% per year,
and will not be less than required by law.
8.2 HOW DO YOU ELECT AN OPTIONAL METHOD OF PAYMENT? While the Insured is
living, you can elect or change an option. You can also elect or change
one or more beneficiaries who will be the payee or payees under that
option.
After the Insured dies, any person who is to receive proceeds in one sum
(other than an assignee) can elect an option and name payees. The
person who elects an option can also name one or more successor payees
to received any amount remaining at the death of the payee. Naming these
payees cancels any prior choice of successor payees.
A payee who did not elect the option does not have the right to advance
or assign payments, take the payments in one sum, or make any other
change. However, the payees may be given the right to do one or more of
these things if the person who elects the option tells us in writing and
we agree.
PAGE 13
<PAGE> 17
SECTION EIGHT - PAYMENT OF POLICY PROCEEDS (CONTINUED)
8.3 HOW CAN AN OPTION BE CHANGED? If we agree, a payee who elects Option 1A,
1B or 2 may later elect to have any amount we still have, or the present
value of any elected payments, place under some other option described in
this section.
8.4 WHO CAN BE NAMED PAYEES? Only individuals who are to receive payments on
their own behalf may be named as payees or successor payees, unless we
agree otherwise. We may require proof of the age of the survival of a
payee.
8.5 WHAT HAPPENS IF THE PAYEE DIES BEFORE ALL PROCEEDS HAVE BEEN PAID? It may
happen that when the last surviving payee dies, we still have an unpaid
amount, or there are some payments which remain to be made. If so, we will
pay the unpaid amount with interest to the date of payment, or pay the
present value of the remaining payments, to that payee's estate in one
sum. The present value of the remaining payments is based on the interest
rate used to compute them, and is always less that their sum.
8.6 IS THERE A MINIMUM PAYMENT THE COMPANY WILL MAKE? When any payment under
an option would be less than $100, we may pay any unpaid amount or present
value in one sum.
8.7 WHAT ARE THE PROCEEDS AT INTEREST OPTIONS (1A AND 1B)? The policy proceeds
may be left with us at interest. We will set the interest rate each year.
This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time
in sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based
on the amount we still have.
8.8 WHAT IS THE LIFE INCOME OPTION (2)? We make equal payments each month
during the lifetime of the payee or payees. We determine the amount of the
monthly payment by applying the policy proceeds to purchase a
corresponding single premium life annuity policy which is being issued
when the first payment is due. Payments are based on the appropriately
adjusted annuity premium rate in effect at that time, but will not be less
than the corresponding minimum shown in the Option 2 Table. These minimum
amounts are based on the 1983 Table "a" with Projection Scale G, and with
interest compounded each year at 3%.
When asked, we will state in writing what the minimum amount of each
monthly payment would be under this option. It is based on the sex and
adjusted age of the payee or payees.
To find the adjusted age in the year the first payment is due, we increase
or decrease the payee's age at that time, as follows:
<TABLE>
<CAPTION>
1995 & 1996-2005 2006-2015 2016-2025 2026-2035 2036 &
earlier later
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+2 +1 0 -1 -2 -3
</TABLE>
We make a payment each month during the lifetime of the payee. Payments do
not change, and are guaranteed for 10 years, even if that payee dies
sooner.
- -------------------------------------------------------------------------------
OPTION 2 TABLE
- -------------------------------------------------------------------------------
MINIMUM MONTHLY PAYMENT PER $1,000 OF PROCEEDS
Guaranteed for 10 years
<TABLE>
<CAPTION>
Payee's
Adjusted
Age MALE FEMALE
- -------------------------------------------------------------------------------
<S> <C> <C>
60 4.46 4.03
61 4.55 4.11
62 4.66 4.19
63 4.76 4.27
64 4.87 4.37
65 4.99 4.46
66 5.11 4.57
67 5.24 4.67
68 5.38 4.79
69 5.52 4.91
70 5.66 5.04
71 5.81 5.18
72 5.96 5.32
73 6.12 5.47
74 6.28 5.63
75 6.45 5.79
76 6.61 5.96
77 6.78 6.14
78 6.96 6.32
79 7.13 6.51
80 7.30 6.70
81 7.46 6.89
82 7.63 7.07
83 7.78 7.26
84 7.93 7.44
85 & over 8.07 7.62
</TABLE>
PAGE 14
<PAGE> 18
SECTION NINE - GENERAL PROVISIONS
9.1 WHAT CONSTITUTES THE ENTIRE CONTRACT? The entire contract consists of
this policy, any attached riders or endorsements, and the attached
riders or endorsements, and the attached copy of the application. Also,
any application used to apply for increases in the policy face amount
will be attached to and made a part of this policy. Only our Chairman,
President, Secretary, or one of our Vice Presidents is authorized to
change the contract, and then, only in writing. No change will be made
to this contract without your consent. No agent is authorized to
change this contract.
9.2 HOW IMPORTANT IS THE INFORMATION YOU PROVIDE IN THE APPLICATION FOR THIS
POLICY? In issuing this policy, we have relied on the statements made in
the application. All such statements are deemed to be representations
and not warranties. We assume these statements are true and complete to
the best of the knowledge and belief of those who made them. No
statement made in connection with the application will be used by us to
void this policy unless that statement is a material misrepresentation
and is part of the application.
9.3 WILL WE BE ABLE TO CONTEST THIS POLICY? We will not contest the payment
of the life insurance proceeds based on the initial face amount, after
this policy has been in force during the lifetime of the Insured for 2
years form the date of issue.
It may happen that the face amount of this policy is increased as
described in the Policy Changes section. In this case, the 2 year
contestable period for each increase will begin on the effective date
of such increase. We may contest the payment of that amount only on
the basis of those statements made in the application for such
increase in face amount.
9.4 DOES THIS POLICY COVER SUICIDE OF THE INSURED? Suicide of the Insured,
while sane or insane within 2 years of the date of issue, is not covered
by this policy. In that event, this policy will end and the only amount
payable will be the premiums paid to us, less any unpaid loan and any
partial surrender benefits paid.
It may happen that the face amount of this policy is increased as
described in the Policy Changes section. In this case, the 2 year
suicide exclusion period for each increase will begin on the effective
date of such increase. If the suicide exclusion period applies to such
an increase, the only amount payable with respect to that increase will
be the total cost of insurance we deducted for the increase.
9.5 HOW ARE THE DATES REFERRED TO IN THIS POLICY MEASURED? Policy years,
month, and anniversaries are measured from the policy date, unless
otherwise stated.
9.6 HOW IS A PERSON'S AGE CALCULATED FOR THE PURPOSES OF THIS POLICY? When
we refer to a person's age in this policy, we mean his or her age on the
birthday which is nearest to the previous anniversary.
9.7 WHAT HAPPENS IF A PERSON'S AGE OR SEX HAS BEEN STATED INCORRECTLY? If we
would pay too little or too much because the age or sex of the Insured
is not correct as stated, we will adjust the proceeds, up or down, to
reflect the correct age or sex. The amount of the death benefit shall
be that which would be purchased by the most recent mortality charge at
the correct age and sex.
9.8 CAN PAYMENT OF A LOAN OR SURRENDER PROCEEDS BE DEFERRED? Generally, we
will grant any loan, or pay any surrender proceeds or life insurance
proceeds within 7 days after we receive all the requirements that we
need. However, we may defer making any of these payments for any period
during which the New York Stock Exchange is closed for trading (other
than the usual weekend or holiday closings), or if the Securities and
Exchange Commission restricts trading or has determined that a state of
emergency exists. If so, it may not be practical for us to determine the
investment experience of the Separate Account.
9.9 MAY YOU ASSIGN OR TRANSFER THE POLICY? While the Insured is living, you
may assign this policy, or any interest in it. If you do this, your
interest, and anyone else's is subject to that of the assignee. As
owner, you still have the rights or ownership which have not been
assigned.
9.10 MAY THE ASSIGNEE CHANGE THE OWNER OR BENEFICIARY? An assignee cannot
change the owner or beneficiary of the policy, and may not elect or
change an optional method of payment of proceeds. Any amount payable to
the assignee will be paid in one sum.
PAGE 15
<PAGE> 19
SECTION NINE - GENERAL PROVISIONS (CONTINUED)
9.11 HOW DO YOU ASSIGN THE POLICY? You must provide us with a copy of the
assignment. We are not responsible for the validity of any
assignment. Any assignment will be subject to any payment we make or
other action we take before we record the assignment.
9.12 ARE THE PAYMENTS MADE UNDER THIS POLICY PROTECTED AGAINST CREDITORS?
Payments we make under this policy are, to the extent the law permits,
exempt from the claims, attachments, or levies of any creditors.
9.13 TO WHOM SHOULD PAYMENTS FOR THIS POLICY BE MADE? Any payment made to
us be check or money order must be payable to New York Life Insurance
and Annuity Corporation. When asked, we will provide a countersigned
receipt, signed by our President or Secretary, for any premium paid to
us.
9.14 IS THIS POLICY SUBJECT TO ANY LAW? This policy is subject to all laws
which apply.
9.15 ARE ANY DIVIDENDS PAYABLE ON THIS POLICY? This is a non-participating
policy, on which no dividends are payable.
9.16 WILL YOU BE UPDATED REGARDING THE STATUS OF YOUR POLICY? Each policy
year after the first, while this policy is in force and the Insured
is living, we will send a written report to you within 30 days after
the policy anniversary. It will show, as of that anniversary, the
cash value, and the amount of any unpaid loan and accrued interest.
This report will also give you any other facts required by state law
or regulation.
9.17 CAN YOU EXCHANGE YOUR POLICY? Within 24 months of the issue date of
this policy, you may exchange it for a new policy on the life of the
Insured without evidence of insurability. In order to exchange this
policy, we will require:
(a) that this policy be in effect on the date of exchange;
(b) repayment of any unpaid loan and accrued interest;
(c) an adjustment, if any, for premiums and cash values of this and
the new policy.
The date of exchange will be the later of: (a) the date you send us
this policy along with a signed written request for an exchange; or
(b) the date we receive at our Home Office, or at any other location
that we indicate to you in writing, the necessary payment for the
exchange.
The benefits of the new policy will not reflect the investment
experience of the Separate Account. The new policy will be on a
permanent plan of life insurance which we were offering this purpose
on the date of issue of this policy. The new policy will have a face
amount equal to the initial face amount of this policy. It will be
based on the same issue age, sex and class of risk as this policy.
All riders attached to this policy will end on the date of exchange,
unless we agree otherwise.
9.18 WHAT IS THE BASIS USED FOR COMPUTATION OF POLICY VALUES? All cash
surrender values and maximum cost of insurance rates referred to in
this policy are based on the 1980 CSO Tables of Mortality if the
Insured is in a standard class of risk. Separate scales of maximum
cost of insurance rates apply to other risk classes. Continuous
functions are used, with interest as stated in the Fixed Account
section. We have filed a statement with the insurance official in the
state or district in which this policy is delivered. It describes, in
detail, how we compute policy benefits and cash surrender values.
PAGE 16
<PAGE> 20
BENEFICIARY
- --------------------------------------------------------------------------------
BENEFICIARY
SUBJECT TO CHANGE
<PAGE> 21
NEW YORK LIFE INSURANCE COMPANY (NYLIC)
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION (NYLIAC-A DELAWARE CORP.)
ENDORSEMENT
- ------------------------------------------------------------------------------
MODIFICATION OF SPOUSES' PAID-UP INSURANCE PURCHASE OPTION (SPPO) RIDER
This endorsement is made a part of the policy to which it is attached.
It may happen that the Owner of this policy is a beneficiary for life insurance
proceeds under this policy, and is not the Insured's spouse. In this case, even
if the SPPO Rider attached to this policy states otherwise, the
Owner-beneficiary has the right to purchase paid-up life insurance on the life
of the spouse. This purchase must be made within the 90 days after the Insured's
death, in accordance with the provisions of the rider. The application for this
insurance, signed by the Insured's spouse, must be received by the Company
while the spouse is living. If it is not so received, and even if the SPPO
Rider states otherwise, no paid-up life insurance will be payable under this
endorsement or the rider, even if the Insured's spouse dies within the 90 days
after the Insured's death.
It may happen that a Trust is the Owner and is a beneficiary for life insurance
proceeds under this policy, and is authorized by the terms of the Trust
instrument to purchase insurance on the life of the Insured's spouse. In this
case, even if the SPPO Rider states otherwise, the Trust may purchase the
paid-up life insurance. This purchase must be made in accordance with the
provisions of the rider and as described in this endorsement. The Company has
the right to obtain a copy of the Trust instrument.
Unless stated otherwise in this policy or in the policy for the paid-up
insurance described in this endorsement, the beneficiary for that insurance
will be the Owner, if living; otherwise, the estate of the Owner.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By /s/ SY STARBIN
-----------------------------
President
/s/ GEORGE J. TRAPP
-----------------------------
Secretary
NEW YORK LIFE INSURANCE COMPANY
By /s/ SY STARBIN
-----------------------------
President
/s/ GEORGE J. TRAPP
-----------------------------
Secretary
<PAGE> 22
RIDER
- --------------------------------------------------------------------------------
SPOUSE'S PAID-UP INSURANCE PURCHASE OPTION (SPPO)
DEFINITIONS Any reference to an Insured under this rider includes both the
Insured under the basic policy and any Other Covered Insured under any Term
Insurance on Other Covered Insured rider attached to this policy.
BENEFIT If this rider is in effect at an Insured's death, the person who at
that time is that Insured's spouse, has the right to purchase, without proof of
insurability, a level amount of new paid-up life insurance on his or her own
life, in accordance with the provisions of this rider. That Insured's spouse
must be a beneficiary to whom all or part of the life insurance proceeds
resulting from that Insured's death under this policy or its riders will be
payable in one sum.
HOW MUCH INSURANCE MAY BE PURCHASED The largest amount of paid-up life
insurance which may be purchased is the amount of the insurance proceeds,
applicable to that Insured, which is payable in one sum, to that Insured's
spouse who is the beneficiary. The amount of insurance refers to amounts
provided by the basic plan of insurance and/or by any Term Insurance on Other
Covered Insured rider attached to the policy, plus any insurance (excluding
accidental death benefits) from riders or dividends and which is payable in one
sum (prior to deducting any unpaid loan). However, the amount of paid-up
insurance which may be purchased will be reduced by any increase in the life
insurance benefit resulting from any unscheduled premiums paid under the basic
policy during the 24 month period prior to the date of the Insured's death.
In addition, the actual amount which can be purchased on any one person must
meet our minimum amount requirements.
The maximum amount of insurance which can be purchased on any one person can
never be greater than the lesser of: (a) the amount which can be purchased by
the life insurance proceeds (prior to deducting any unpaid loan) which the
Insured's spouse is entitled to receive in one sum because of that Insured's
death, or (b) 5 million dollars.
PREMIUM FOR NEW INSURANCE The single premium rate for the new paid-up life
insurance is based on the spouse's age and sex on the date the new insurance
takes effect. This rate will not be more than 105% of the net single premium
for paid-up life insurance, defined in the Values provision of this rider.
PURCHASE OF NEW INSURANCE The Insured's spouse can apply to purchase the new
paid-up life insurance before we have paid life insurance proceeds under the
policy to him or her. However, he or she must apply within the 90 days after
the Insured's death.
The new paid-up life insurance will be available in a policy issued by New York
Life Insurance Company or by one of its affiliated companies. It will have the
same provisions as are in the series of policies being issued by the new
insuring company on its policy date.
The paid-up life insurance will take effect on the date when all three of the
following events have taken place:
1. The spouse's signed application is received by us while he or she
is living.
2. We determine the life insurance proceeds payable to the spouse.
3. The entire single premium for the paid-up life insurance purchased
under this rider has been received by us.
We will reduce the life insurance proceeds in Item 2 to pay the single premium
for the paid-up life insurance. If these proceeds are not sufficient to pay
that entire single premium, then the balance of that premium must paid to us
before any such insurance will take effect.
It may happen that an Insured's spouse, who has the right to apply for paid-up
life insurance under this rider, dies at the same time as that Insured, or
within 90 days after that date and before that paid-up insurance takes effect.
In these cases, provided the Insured's spouse's death did not result from
suicide, while sane or insane, we will pay the maximum amount of
(over)
<PAGE> 23
SPOUSE'S PAID-UP INSURANCE PURCHASE OPTION (continued)
paid-up life insurance that the spouse could have applied for under this rider,
less the applicable single premium for that insurance.
The beneficiary for any paid-up life insurance payable under a policy issued in
connection with this rider will be the estate of that Insured's spouse, unless
stated otherwise in the policy for that insurance.
AVAILABILITY OF RIDERS Riders may not be included with the new paid-up life
insurance.
SUICIDE EXCLUSION Suicide of the Insured's spouse, while sane or insane, within
two years after the date of the Insured's death, is not covered by this rider.
In the event of the spouse's suicide within that two year period, any single
premium paid for any new paid-up life insurance will be refunded.
VALUES The new paid-up life insurance has cash value and loan value, and is
eligible for dividends. However, it is not expected that any dividends will be
payable on this insurance.
The net single premiums and the cash values for the paid-up insurance are based
on the 1980 CSO Tables of Mortality. Continuous functions are used. Interest is
compounded each year at 4%.
CONTRACT The rider is made a part of the policy to which it is attached at
issue of the policy. If added to a policy which is already in force, this rider
is made a part of that policy, based on the application for the rider.
INCONTESTABILITY OF RIDER We will not contest this rider if it is attached at
issue of the policy.
If this rider is added to a policy which is already in force, we will not
contest the rider after it has been in force during the lifetime of the Insured
for 2 years from the date of issue of the rider.
DATES This rider and the basic policy have the same date of issue, unless the
rider is added to a policy which is already in force. In this case, the date
of issue of this rider is shown in an add-on rider which we put in the basic
policy.
WHEN RIDER ENDS You can cancel this rider as of any date. To do this, a signed
notice must be sent to us within 31 days of that date. This rider ends if the
basic policy ends, is surrendered, or is exchanged for a new policy.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By /s/ SY STARBIN
-------------------------
President
/s/ GEORGE J. TRAPP
-------------------------
Secretary
<PAGE> 24
RIDER
- --------------------------------------------------------------------------------
ACCELERATED BENEFITS (AB)
RECEIPT OF ACCELERATED BENEFITS MAY BE TAXABLE OR MAY AFFECT YOUR ELIGIBILITY
FOR BENEFITS UNDER STATE OR FEDERAL LAW. YOU SHOULD CONSULT WITH YOUR PERSONAL
TAX ADVISOR. DEATH BENEFITS, AND ANY CASH OR LOAN VALUES, WILL BE REDUCED IF AN
ACCELERATED BENEFIT IS PAID.
BENEFIT This is a life insurance rider which pays accelerated death benefits as
described below. Provided the policy is in force on the date we receive an
election under this rider, we will make a payment of these death benefits in a
single sum to you as the Owner, when we have proof that the insured under the
basic policy has a life expectancy of 12 months or less.
The amount payable under this rider will equal: the Percentage Elected
multiplied by the Eligible Proceeds; multiplied by the Discount Factor minus an
Administrative Fee of up to $150: minus the elected percentage of any unpaid
policy loan.
ELIGIBLE PROCEEDS The total amount of Eligible Proceeds under this rider shall
be determined as of the date we receive your application for benefits under this
rider and shall equal:
(a) the life insurance benefit; plus
(b) any paid-up insurance additions or other benefits provided under the basic
policy; plus
(c) the amount payable under any rider providing a level amount of insurance
on the Insured.
However, any level term insurance rider shall not be considered part of the
Eligible Proceeds under this rider, if its expiration date is within one year
of the date we receive your application. Instead, such rider will continue to
its expiry date.
PERCENTAGE ELECTED You can elect to receive the minimum accelerated death
benefit of 25% of the Eligible Proceeds. You may also elect to receive an
accelerated death benefit based of 50%, 75% or 100% of the Eligible Proceeds.
However, in no event can this benefit be less than $25,000, or exceed $250,000
under all of our policies in force of the Insured. You may elect to receive an
accelerated death benefit based on another percentage, or based on Eligible
Proceeds in excess of $250,000, only if we agree.
DISCOUNT FACTOR. The Discount Factor shall be an adjustment which reduces the
Eligible Proceeds. This adjustment will be based on our assumptions of the life
expectancy of the Insured. We also will determine, based on these assumptions,
the appropriate adjustments for interest on any cash value, or for any monthly
costs of insurance or scheduled premiums.
The discount rate used in determining the Discount Factor will be based on the
greater of: (a) the current yield on 90-day Treasury bills; or (b) our current
maximum adjustable policy loan interest rate, as permitted by law. However,
such discount rate will not exceed 10% on an annual basis.
These adjustments are based upon procedures and standards on file with, or
required by, the Insurance Department of the state in which this rider is
delivered.
APPLICATION FOR BENEFITS You must provided us with a written application for
benefits under this rider specifying the Percentage Elected along with the
policy. You must also provide evidence of the Insured's reduced life
expectancy. Such evidence is a certification from a licensed physician that the
Insured's reduced life expectancy is 12 months or less. In addition, we reserve
the right to have the Insured examined by a physician of our choice, at our
expense.
If the opinions of the Insured's physician and our physician differ, the
Insured shall be examined by a third physician, acceptable to the Insured and
to us, at our expense. This third opinion shall be binding on us.
If the policy is subject to an irrevocable beneficiary designation or an
assignment, you must provide us with a written consent by any such beneficiary
or assignee to any payment under this rider.
Your application for benefits under this rider must be received by us more than
one year prior to the expiration date of the policy.
CONTINUATION OF POLICY COVERAGE The face amount of any insurance which stays in
force after a payment under the terms of this rider must meet our minimum
amount limits for the plan of insurance under the policy or $25,000, whichever
is greater.
(over)
<PAGE> 25
ACCELERATED
BENEFITS
(AB)
(CONTINUED)
Upon our making payment under the terms of this rider, the basic policy's face
amount and any other death benefits, the basic policy premiums, monthly costs
of insurance, and any cash values, paid-up insurance additions or unpaid policy
loan will be reduced based on the Percentage Elected. The amount of any
insurance under a rider which is part of the Eligible Proceeds shall also be
reduced based on the Percentage Elected.
All policy and rider benefits, premiums, monthly costs of insurance and any
cash values, shall also be adjusted, based on our rules in effect at that time
for determining applicable benefits, premiums, monthly costs of insurance and
values. All such adjustments will be made effective as of the date your
application for benefits under this rider is received by us.
Any insurance remaining after the acceleration of death benefits shall be paid,
to the beneficiary, upon the death of the Insured, in accordance with our rules.
CONTINUATION OF RIDERS All riders attached to the policy, except an
Accidental Death Benefit rider, a Waiver of Premium Benefit or Monthly
Deduction Waiver rider, any rider providing a level amount of insurance, or a
decreasing term insurance rider, shall end when we make a partial payment under
the terms of this rider, unless we agree otherwise. In the case of a partial
payment, any Waiver of Premium Benefit or Monthly Deduction Waiver rider, any
rider providing a level amount of insurance, and the full amount of any
Accidental Death Benefit rider shall continue in accordance with its terms. In
addition, if the policy contains a decreasing term rider, such rider can not be
accelerated. Instead, it shall be continued to its expiry date.
COVERAGE ON ANOTHER INSURED Any rider providing a level amount of insurance
on the life of another Insured not covered under the basic policy can be
accelerated. However, we must have proof that the other Insured has a life
expectancy of 12 months or less. Such rider must be accelerated 100%, unless we
agree to a lower percentage.
STATEMENT TO OWNER If a partial acceleration of death benefits has been elected,
you will receive a statement specifying the impact on the policy values.
RESTORATION OF DEATH BENEFIT If we have proof that the Insured died within 60
days after the payment of an Accelerated Benefit under this rider, we will
refund to the beneficiary, the Administrative Fee and the amount of the
Discount Factor adjustment that we deducted when benefits were accelerated.
VALUES This rider does not have any cash or loan value. It is not eligible
for dividends.
CONTRACT This rider is made a part of the policy to which it is attached at
issue of the policy. If added to a policy which is already in force, this
rider is made a part of the policy, based on the application for this rider.
DATES This rider and the policy to which it is attached have the same date of
issue, unless the rider is added to a policy which is already in force. In
this case, the date of issue of this rider is shown in an add-on rider. The
add-on rider will be put in the policy.
PROTECTION AGAINST CREDITORS AND GOVERNMENT AGENCIES Payments we make under
this rider are, to the extent applicable law permits, exempt from the claims,
attachments or levies of creditor or government agencies. If you are required
by a government agency to use this option in order to apply for, obtain, or
keep a government benefit or entitlement, you are not eligible for this benefit.
WHEN RIDER ENDS Unless we agree otherwise this rider ends when we receive an
application for benefits under this rider. This rider also ends if the policy
is surrendered or if it lapses, even if it is continued as extended term or
reduced paid-up insurance. You may cancel this rider on any date by sending us a
signed written request which will be effective when we receive it.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
BY /s/ [ILLEGIBLE]
-------------------
PRESIDENT
/s/ GEORGE GRACE
--------------------
SECRETARY
<PAGE> 1
EXHIBIT 6.16
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
A Stock Company
Will pay the Beneficiary the death proceeds as defined in this Policy. Payment
will be made after the following have been received at the home office:
o this Policy;
o due proof that the Insured died while this Policy was in force;
o a written claim for the death proceeds completed on a form supplied by
the Company; and
o an authorization, on a form supplied by the Company, from the
Insured's next of kin or other authorized person which will allow the
Company to obtain and disclose information concerning the Insured.
Any payment is subject to the provisions on this page and on the following
pages.
The consideration for this Policy is the application and payment of the Total
Initial Premium on or before policy delivery. Subsequent premiums are payable
on each Premium Due Date during the Insured's lifetime.
The Owner may return this Policy within 20 days after its delivery. To return
this Policy, take it or mail it to the Company or to the agent through whom it
was purchased. Immediately upon delivery or mailing, this Policy will be deemed
void from the beginning. Any premium paid will be returned.
Signed at the home office at 700 Main Street, Lynchburg, Virginia, on the Date
of Issue.
/s/ RONALD V. DOLAN /s/ DAVID H. McMAHON
President Secretary
GRADED PREMIUM LIFE POLICY
INSURANCE PAYABLE AT DEATH
SEE SCHEDULE FOR AMOUNT OF INSURANCE AND PREMIUMS
PREMIUMS PAYABLE DURING INSURED'S LIFETIME
PREMIUM SUBJECT TO CHANGE AS SHOWN IN SCHEDULE
BUT WILL NOT EXCEED SPECIFIED MAXIMUM PREMIUM
CASH VALUES AVAILABLE AS SHOWN IN SCHEDULE
EXCHANGEABLE ON OR BEFORE THE EXCHANGE DATE
NONPARTICIPATING - NO DIVIDENDS
<TABLE>
================================================================================
<S> <C> <C> <C>
Insured DAVID W. CAMPBELL 2,746,459 Policy Number
Amount Of
Insurance $1,500,000 FEBRUARY 20, 1997 Policy Date
Total
Initial Premium $ 6,160.00 APRIL 2, 1997 Date Of Issue
Form No. 1410-GP-12
================================================================================
</TABLE>
<PAGE> 2
GENERAL PROVISIONS
THE CONTRACT. The entire contract consists of this Policy and the application. A
copy of the application was attached at issue. All statements made in the
application are, in the absence of fraud, deemed representations and not
warranties. No statement will void this Policy or be used in defense of a claim
unless it is contained in the application. Only the President, a Vice President,
or the Secretary of the Company can change or waive any provision of this
Policy. Any change or waiver must be made in writing.
POLICY DATE. Policy anniversaries, policy years, policy months, and Premium Due
Dates are determined from the Policy Date.
PREMIUM PAYMENTS. Each premium after the first is payable at the home office.
Payment may also be made to a Company agent in exchange for a receipt signed by
the President or Secretary of the Company and countersigned by the agent.
Each premium after the first is payable in advance. Any premium not paid when
due is in default. If a premium has not been paid by the end of the grace
period, this Policy will terminate as of the due date of such premium. Policy
termination is subject to the Nonforfeiture Provisions of this Policy.
As of any policy anniversary, the Owner may change the mode of premium payment
with the Company's consent. Written request must be filed at the home office.
The modes available are annual, semiannual, and quarterly. Premiums may also be
paid by automatic bank draft. Premiums are based on the rates then in use for
the class to which the Insured belongs.
That portion of the premium paid for the period beyond the end of the policy
month of death will be paid to the Beneficiary.
No premiums will be refunded except as specifically stated in this Policy.
GRACE PERIOD. A grace period of 31 days is allowed for payment, without
interest, of any premium after the first. This Policy will stay in force during
that period. If the Insured dies during the grace period, the premium required
to keep this Policy in force to the end of the policy month of death will be
deducted from the proceeds.
REINSTATEMENT. This Policy may be reinstated unless:
1. it has been surrendered;
2. the period of extended term insurance has expired; or
3. the total loan under this Policy, including interest,
has exceeded the cash value.
To reinstate, the following must be received at the home office within five
years after default in premium payment:
1. evidence of insurability satisfactory to the Company;
2. payment of all past-due premiums with interest calculated from their
respective Premium Due Dates at the Reinstatement interest rate shown in
the Schedule; and
3. payment or reinstatement of any policy loan including interest at the
Policy Loan interest rate shown in the Schedule.
After the application for reinstatement has been approved by the Company, this
Policy will be reinstated on the day the above conditions are satisfied.
OWNER AND BENEFICIARY. The designations of Owner and Beneficiary in the
Schedule remain in effect until changed by the Owner.
The Owner has all rights stated in this Policy. The Owner may amend this Policy
during the Insured's lifetime with the Company's consent. The rights of the
Owner are subject to the rights of an irrevocable beneficiary.
The interest of a beneficiary terminates if that beneficiary dies before the
Insured. If no beneficiary survives at the Insured's death, payment will be made
to the Owner or the Owner's estate or successors.
CHANGE OF OWNER AND BENEFICIARY. The Owner may change the designations of Owner
and Beneficiary during the Insured's lifetime. Any change is subject to the
consent of an irrevocable beneficiary. Written notice of change must be filed at
the home office in a form acceptable to the Company. The new designation will
then take effect as of the date the Owner signed the notice. Such a change does
not affect any payment made or other action taken by the Company before the
notice is received.
2
<PAGE> 3
This Policy is a legal contract between the Owner and First Colony Life
Insurance Company.
READ YOUR POLICY CAREFULLY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule - General Policy Information ................................... 3
Schedule - Table of Nonforfeiture Values ................................ 4
Schedule - Table of Premiums ............................................ 5
GENERAL PROVISIONS ...................................................... 2,7
The Contract .................................................... 2
Policy Date ..................................................... 2
Premium Payments ................................................ 2
Grace Period .................................................... 2
Reinstatement ................................................... 2
Owner and Beneficiary ........................................... 2
Change of Owner and Beneficiary ................................. 2
Assignment ...................................................... 7
Incontestability ................................................ 7
Misstatement .................................................... 7
Suicide ......................................................... 7
Payment of Proceeds ............................................. 7
Amount of the Death Proceeds .................................... 7
Nonparticipating ................................................ 7
NONFORFEITURE PROVISIONS ................................................ 7
Nonforfeiture 0ptions ........................................... 7
Net Cash Value ................................................ 7
Paid-Up Insurance ............................................. 7
Extended Term Insurance ....................................... 7
Automatic Option .............................................. 7
Basis of Values ................................................. 7
Table of Nonforfeiture Values ................................... 7
POLICY LOANS ............................................................ 8
Cash Loan ....................................................... 8
Automatic Premium Loan Option ................................... 8
Deferral ........................................................ 8
Interest and Repayment .......................................... 8
EXCHANGE OPTION ......................................................... 9
SETTLEMENT OPTIONS ...................................................... 9,10
General Provisions .............................................. 9
Death of Payee .................................................. 9
First Installment ............................................... 9
Interest ........................................................ 9
Option 1 - Fixed Period ......................................... 9
Option 2 - Life Income with
Installments Certain .......................................... 9
Option 3 - Interest ............................................. 9
Option 4 - Fixed Installments ................................... 9
Option 5 - Single Premium Annuity ............................... 9
Other Settlement Options ................................................ 9
Option 1 Table .......................................................... 10
Option 2 Table .......................................................... 10
</TABLE>
FOR INFORMATION, OR TO MAKE A COMPLAINT, CALL: 1-800-283-7893
Form No. 1410.1 2A
<PAGE> 4
SCHEDULE
<TABLE>
<CAPTION>
BENEFIT ANNUAL PREMIUM PREMIUM PERIOD
<S> <C> <C>
$1,500,000 GRADED PREMIUM LIFE $ 6,160.00* YEARS 1-5
$ 9,505.00* YEARS 6-10
</TABLE>
*SUBSEQUENT ANNUAL AND MAXIMUM ANNUAL PREMIUMS ARE SHOWN IN THE TABLE OF
PREMIUMS.
INTEREST RATES
BASIS OF VALUES - 5.5% A YEAR, COMPOUNDED ANNUALLY
REINSTATEMENT - 6% A YEAR, COMPOUNDED ANNUALLY
POLICY LOAN - 7.4% A YEAR, PAYABLE IN ADVANCE
MORTALITY TABLE
1980 CSO MORTALITY TABLE, SEX DISTINCT, AGE NEAREST BIRTHDAY, FOR ATTAINED AGES
UP THROUGH 14 AND THE 1980 CSO SMOKER/NONSMOKER MORTALITY TABLES, SEX DISTINCT,
AGE NEAREST BIRTHDAY, FOR ATTAINED AGES 15 AND ABOVE.
<TABLE>
<S> <C> <C> <C>
PREMIUM REQUALIFICATION
DUE DATES 20TH DAY OF FEBRUARY OF EACH YEAR FEB 20, 2013 EXPIRY DATE
BENEFICIARY MARILYN CAMPBELL FEB 20, 2018 EXCHANGE DATE
OWNER NEUTRAL POSTURE INC
STANDARD PREMIUM
(NONSMOKER) CLASSIFICATION
AGE NEAREST
54M BIRTHDAY
</TABLE>
THE BENEFICIARY AND OWNER ARE SUBJECT TO CHANGE AS PROVIDED HEREIN
<TABLE>
<S> <C> <C> <C>
INSURED DAVID W CAMPBELL 2,746,459 POLICY NUMBER
AMOUNT OF
INSURANCE $1,500,000 FEB 20, 1997 POLICY DATE
INITIAL
PREMIUM $ 6,160.00 APR 02, 1997 DATE OF ISSUE
</TABLE>
FORM NO. 1410-S 3
<PAGE> 5
POL # 2,746,459
SCHEDULE *CONTINUED*
TABLE OF NONFORFEITURE VALUES
<TABLE>
<CAPTION>
END OF ATTAINED GUARANTEED EXTENDED TERM
POLICY AGE OF CASH OR LOAN PAID-UP INSURANCE
YEAR INSURED VALUE INSURANCE YEARS DAYS
<S> <C> <C> <C> <C> <C>
1-37 55-91 $ .00 $ 0 0 0
38 92 159,000.00 187,500 0 158
39 93 178,500.00 208,500 0 166
40 94 205,500.00 237,000 0 177
41 95 249,OO0.00 283,500 0 194
42 96 324,000.00 361,500 0 217
43 97 468,000.00 513,000 0 251
44 98 631,500.00 679,500 0 247
45 99 829,500.00 876,000 0 213
46 100 1,500,000.00 1,500,000 0 0
</TABLE>
THIS POLICY PROVIDES FOR A LATER GENERATION OF CASH VALUES.
4
<PAGE> 6
POL # 2,746,459
SCHEDULE *CONTINUED*
TABLE OF PREMIUMS
THE ANNUAL PREMIUM IS THAT PREMIUM WHICH THE COMPANY ANTICIPATES WILL BE PAYABLE
ON THE DATE SHOWN. THE PREMIUMS PAYABLE ARE SUBJECT TO CHANGE BUT WILL NEVER
EXCEED THE MAXIMUM ANNUAL PREMIUMS SHOWN IN THIS TABLE.
ANY CHANGE IN PREMIUM WILL BE DUE TO A RE-EVALUATION BY THE COMPANY OF EXPECTED
FUTURE MORTALITY, INTEREST, EXPENSES, AND/OR PERSISTENCY. THE COMPANY'S PAST
EXPERIENCE WILL NOT BE A FACTOR IN SUCH CHANGE. CHANGE WILL BE APPLIED UNIFORMLY
TO A CLASS OF INSUREDS. CLASS WILL BE DETERMINED BY 1. ISSUE AGE AND SEX 2.
PREMIUM CLASSIFICATION 3. AMOUNT OF INSURANCE AND 4. THE NUMBER OF YEARS THE
INSURANCE HAS BEEN IN FORCE. THE COMPANY WILL MAIL NOTICE OF ANY SUCH CHANGE IN
PREMIUM. PREMIUMS WILL NOT BE CHANGED MORE THAN ONCE A YEAR. ANY CHANGE DOES NOT
ALTER THE NONFORFEITURE VALUES. NO CHANGE IN CLASSIFICATION OR PREMIUM WILL
OCCUR ON ACCOUNT OF THE DETERIORATION OF THE INSURED'S HEALTH.
RIDER PREMIUMS ARE INCLUDED.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
POLICY YR ANNUAL ANNUAL POLICY YR ANNUAL ANNUAL
BEGINNING PREMIUM PREMIUM BEGINNING PREMIUM PREMIUM
FEB. 20 FEB. 20
<S> <C> <C> <C> <C> <C>
1997 6,160.00 $ 6,160.00 2022 $ 149,035.00 $ 257,230.00
1998 6,160.00 6,160.00 2023 163,150.00 281,080.00
1999 6,160.00 6,160.00 2024 178,285.00 307,630.00
2000 6,160.00 6,160.00 2025 194,290.00 337,630.00
2001 6,160.00 6,160.00 2026 211,255.00 371,440.00
2002 9,505.00 9,505.00 2027 229,945.00 408,400.00
2003 9,505.00 9,505.00 2028 262,870.00 447,670.00
2004 9,505.00 9,505.00 2029 340,630.00 488,470.00
2005 9,505.00 9,505.00 2030 444,565.00 530,440.00
2006 9,505.00 9,505.00 2031 515,185.00 572,740.00
2007 18,400.00 18,400.00 2032 575,755.00 615,940.00
2008 27,295.00 27,295.00 2033 660,640.00 660,640.00
2009 36,205.00 36,205.00 2034 707,590.00 707,590.00
2010 45,100.00 45,100.00 2035 739,525.00 758,320.00
2011 53,995.00 53,995.00 2036 767,965.00 814,960.00
2012 62,890.00 94,210.00 2037 794,755.00 887,020.00
2013 67,885.00 103,960.00 2038 905,320.00 989,950.00
2014 73,120.00 115,000.00 2039 958,585.00 1,153,720.00
2015 78,535.00 127,750.00 2040 1,009,795.00 1,224,580.00
2016 85,960.00 142,390.00 2041 1,103,830.00 1,332,475.00
2017 94,090.00 158,83O.OO 2042 1,268,365.00 1,380,070.00
2018 103,090.00 176,470.00
2019 113,005.00 195,250.00
2020 123,970.00 214,990.00
2021 135,985.00 235,480.00
</TABLE>
5
<PAGE> 7
GENERAL PROVISIONS (CONTINUED)
ASSIGNMENT. The Company is not responsible for the validity or effect of any
assignment of this Policy. No assignment will bind the Company until it is
received at the home office.
INCONTESTABILITY. This Policy is not contestable after it has been in force
during the Insured's lifetime for a period of two years from the Date of Issue.
This provision also applies to any rider providing additional benefits which is
included with this Policy on the Date of Issue.
MISSTATEMENT. If the Insured's age or sex is misstated, any amount payable will
be adjusted to that amount which the premiums paid would have purchased based on
the correct information.
"Attained age" is the age shown in the Schedule plus the number of years,
including fractions, elapsed from the Policy Date.
SUICIDE. If the Insured, while sane or insane, dies by suicide within two years
after the Date of Issue, the death proceeds under this Policy will be an amount
equal to the premiums paid less any loan against this Policy.
PAYMENT OF PROCEEDS. Any payments by the Company under this Policy will be made
from the home office. This Policy must be returned to the Company. Unless a
settlement option is elected, the proceeds will be paid in one sum.
AMOUNT OF THE DEATH PROCEEDS. The proceeds payable at the death of the Insured
will be:
1. the Amount of Insurance shown in the Schedule subject to any adjustment
for misstatement; plus
2. that portion of the premium paid for the period beyond the end of the
policy month of death; less
3. any premium required to keep this Policy in force to the end of the
policy month of death; less
4. the amount of any policy loan.
Any proceeds payable will also be adjusted due to a successful contest
of this Policy or for death as provided in the Suicide provision.
NONPARTICIPATING. This Policy does not share in any distribution of surplus. No
dividends are payable.
NONFORFEITURE PROVISIONS
NONFORFEITURE OPTIONS. A nonforfeiture option may be elected by written request.
Such request must be received at the home office not later than 60 days after a
premium is due but not paid and before the Insured's death. The net cash value
is the cash value less any policy loan. The following options apply if this
Policy has a positive net cash value.
Net Cash Value. The Owner may surrender this Policy for its net cash
value. It may be surrendered only as of the date to which premiums were
paid. The amount payable upon surrender will be the net cash value on that
date. A surrender within 60 days after the date to which premiums have
been paid will be for an amount not less than the value on such date, less
any policy loan made after such date. Payment may be deferred up to six
months after request is received at the home office.
Paid-Up Insurance. This Policy may be continued as level paid-up insurance
from the date of default, which is the date to which premiums were paid.
The amount will be that which the net cash value will provide when applied
as a net single premium at the Insured's attained age. This paid-up
insurance will be payable at the same time as the insurance under this
Policy. It will be subject to the applicable provisions of this Policy.
Extended Term Insurance. This option is available if extended term
insurance values are shown in the Table of Nonforfeiture Values in the
Schedule. The Amount of Insurance less any policy loan will be continued
in force as level term insurance from the date of default. The period of
such term insurance will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age.
Automatic Option. This option applies if:
1. the unpaid premium has not been paid by an automatic premium loan; and
2. no option above has been elected.
When the grace period expires, this Policy will be continued as extended
term insurance, if available. Otherwise, the paid-up insurance option will
apply. The Owner may elect one of the other available options within 60
days after the date to which premiums were paid.
Paid-up or extended term insurance may be surrendered at any time for its
net cash value. This value is the net single premium at the Insured's attained
age for any benefits remaining under such insurance, less any policy loan made
after the date of default. A surrender within 30 days after a policy anniversary
will be for an amount not less than the value on such anniversary, less any
loan made since the anniversary.
BASIS OF VALUES. All calculations, including net single premium calculations,
are based on the mortality tables and rate of interest shown in the Schedule.
Death is assumed to occur at the end of the policy year. Riders are ignored when
determining nonforfeiture values under this Policy. Values are in no case less
than the minimum values required by the state in which this Policy was issued.
TABLE OF NONFORFEITURE VALUES. The values shown assume that no policy loan is
made and that premiums have been paid to the end of the policy year. If premiums
are paid for part of the year, values will be prorated.
Negative values are shown as zero in the Table. All calculations will use
the actual negative value.
7
<PAGE> 8
POLICY LOANS
CASH LOAN. The Company will make a loan upon the sole security and assignment of
this Policy. The Owner may obtain the loan while this Policy is in force other
than as extended term insurance.
The loan value of this Policy is the cash value as of the next Premium Due
Date. For paid-up insurance, the loan value is the cash value at the end of the
current policy year. The amount advanced as a policy loan may not exceed the
loan value less:
1. the amount of any existing policy loan;
2. loan interest to the end of the current policy year; and
3. any premium in default.
AUTOMATIC PREMIUM LOAN OPTION. This option may be elected in the application. It
may also be elected by written request received at the home office before the
end of the grace period for an unpaid premium. The Owner may revoke the election
by written request to the home office.
If elected, this option provides automatic payment of an unpaid premium by
policy loan. The loan will be made at the end of the grace period. After two
consecutive premiums have been paid by loan, the Company may change to a less
frequent mode of premium payment if there is sufficient loan value.
If there is not sufficient value to advance the premium and interest for
the loan, no automatic premium loan will be made. The premium will be in
default. Any remaining value will be applied in accordance with the
Nonforfeiture Options provision.
While this Policy remains in force, the Owner may resume premium payments
at any time without furnishing evidence of insurability.
DEFERRAL. The Company may defer making a policy loan up to six months after
written request is received at the home office. However, a loan for payment of
premiums to the Company will not be deferred.
INTEREST AND REPAYMENT. Interest is payable annually in advance on each policy
anniversary. The Policy Loan interest rate is shown in the Schedule. Interest
not paid when due is added to the loan and bears interest at the same rate.
All or any part of a policy loan may be repaid while this Policy is in
force during the Insured's lifetime. After policy lapse, loans made prior to the
end of the grace period may not be repaid unless this Policy is reinstated.
When the total loan including interest exceeds the cash value, this Policy
will terminate. Notice of termination will be mailed to the Owner and to any
assignee of record. Termination will be effective 31 days after the notice is
mailed.
8
<PAGE> 9
FIRST COLONY LIFE INSURANCE COMPANY
Lynchburg, Virginia
ENDORSEMENT
This Policy is amended to include the following additional section:
"REQUALIFICATION OPTION. The Owner may elect to requalify for a new premium
guarantee period in a new Graded Premium Life Policy. Riders may be
included in the new policy subject to Company approval.
This Option may be elected to be effective as of a policy anniversary:
1. on or before the Requalification Expiry Date shown in the
Schedule; and
2. on or after the later of the following:
o the tenth policy anniversary; and
o other anniversary at which premiums for this Policy are first
scheduled to increase annually as shown in the Table of
Premiums.
To requalify, the Owner must:
1. file written request in a form acceptable to the Company at least
60 days prior to the policy anniversary on which this option is to
be effective;
2. return this Policy to the home office;
3. provide satisfactory evidence of the insurability of the Insured;
and
4. pay the required premium.
Following Company approval, this Option will be effective on the policy
anniversary as of which it was elected.
The Company will issue the new Graded Premium Life policy at the Insured's
attained age. The Table of Premiums of the new policy will show the
premiums for the new guarantee period. The premiums for the new policy will
be based on the premium rates in use on the effective date of this Option.
The policy date of the new policy will be the effective date of this
Option. The contestability and suicide periods of the new policy will be
measured from the date specified in the new policy.
Other policy provisions will be the same as under this Policy except that
this Option will be unavailable after the Requalification Expiry Date."
/s/ DAVID H. McMAHON
Secretary
Form No. 9117-02 (94)
<PAGE> 10
FIRST COLONY LIFE INSURANCE COMPANY
LYNCHBURG, VIRGINIA
ENDORSEMENT
This Endorsement is intended to clarify the Premium Class shown on Schedule
Page 3:
"In determining the Premium Class for this Policy, the Insured has been
classified as either a 'nonsmoker' or a 'smoker' based on statements made
regarding the use of tobacco. The Insured may be classified as a 'smoker'
for the use of any form of tobacco. If the Insured has been classified as
a 'nonsmoker,' the Premium Class of this Policy will indicate 'Nonsmoker';
otherwise, the Insured has been classified as a 'smoker.'"
/s/ DAVID H. McMAHON
Secretary
FORM NO. 9186
<PAGE> 11
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
ACCELERATED DEATH BENEFIT RIDER
THIS RIDER PROVIDES FOR AN ACCELERATED PAYMENT OF LIFE INSURANCE PROCEEDS. IT IS
NOT INTENDED OR DESIGNED TO PROVIDE HEALTH, NURSING HOME, OR LONG-TERM CARE
INSURANCE. RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT WILL REDUCE THE
DEATH PROCEEDS AND ANY SURRENDER OR LOAN VALUES PROVIDED BY THE POLICY.
DISCLOSURE: RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT MAY BE TAXABLE. THE
OWNER OF THE POLICY SHOULD SEEK ASSISTANCE FROM A TAX ADVISOR BEFORE ELECTING TO
RECEIVE A PAYMENT.
- --------------------------------------------------------------------------------
BENEFIT
The Company will make an accelerated death benefit payment to the Owner of the
Policy subject to the provisions of this Rider. The requirements for payment
are:
o the Owner's written request for an accelerated death benefit payment;
o proof acceptable to the Company that the Owner is eligible for a
payment according to the terms of this Rider;
o written approval of payment from any irrevocable beneficiary; and
o full release of any collateral assignment of the Policy except a
collateral assignment to the Company.
Payment will be made in a single sum. The Company will make only one accelerated
death benefit payment under this Rider.
The Company will not make an accelerated death benefit payment if:
o it does not receive all of the requirements for payment as stated
above at its home office;
o the Policy is being continued as extended term insurance on the date
payment is to be made;
o there is less than one year remaining until any expiry or maturity
date for the Policy on the date payment is to be made; or
o the Policy is being contested or has been voided as the result of a
successful contest.
BENEFIT LIMITATIONS
The Owner requests the amount of accelerated death benefit subject to the
maximums stated below. The maximum accelerated death benefit available for
request is equal to the lesser of (a) and (b) below:
(a) The sum of the following:
o 75% of the difference between the primary death benefit on the
date the Company approves payment of an accelerated death benefit
and the loan value on that date; and
o the loan value on the date the Company approves payment of an
accelerated death benefit.
(b) $500,000.
The primary death benefit is the death benefit provided by the Policy and does
not include any accidental death benefits, the amount of the death benefit of
any riders, or any benefits payable because of the death of any person other
than the Insured. If the Policy provides for policy loans, loan value is defined
in the Policy; otherwise, loan value is defined to be zero.
ELIGIBILITY
To be eligible to receive an accelerated death benefit payment, the Owner must
provide the following to the Company:
o evidence acceptable to the Company that the Insured is living and has
a life expectancy of six months or less; this evidence must include,
but is not limited to, certification by a physician approved by the
Company who is licensed to practice medicine in the United States or
Canada and is acting within the scope of that license;
o evidence that election of this benefit is voluntary and without
coercion on the part of any third party, including any creditor or
government agency; and
o evidence that only one of the Insureds is living if the Policy is a
last survivor policy.
FORM NO. R-85-05
<PAGE> 12
GENERAL PROVISIONS
Wherever used in this Rider, the term "Policy" means the Policy to which this
Rider is attached. This Rider is a part of the Policy. Policy provisions apply
to this Rider except where modified by this Rider.
If the Policy is in a grace period at the time an accelerated death benefit
payment is made, the premium required to remove the Policy from the grace period
will be deducted from the payment.
The Owner will remain liable for any required premium payments under the Policy
after the Company makes an accelerated death benefit payment.
There is no premium or cost of insurance charge for this Rider; however, an
administrative fee that will not exceed $150 will be deducted from the
accelerated death benefit prior to payment to the Owner.
EFFECT OF AN ACCELERATED DEATH BENEFIT PAYMENT
As a result of making an accelerated death benefit payment, the primary death
benefit, any policy values (including any loan value or policy loan), and any
nonforfeiture values for the Policy will be reduced on the date of payment by
application of the accelerated death benefit factor. This factor equals one (1)
minus the accelerated death benefit ratio. This ratio equals:
o the amount of the approved accelerated death benefit before any
deductions are made; divided by
o the primary death benefit on the date the Company approves payment of
the accelerated death benefit.
The Company will also recalculate the premium based on the reduced primary
death benefit.
Upon making an accelerated death benefit payment, the Company will send the
Owner a notice showing the effects of the payment on the Policy and the premium.
AMOUNT OF THE ACCELERATED DEATH BENEFIT PAYMENT
The Company will discount the approved accelerated death benefit based on a life
expectancy of six months. This discounting will account for the Company's
payment of a death benefit prior to the actual date of the Insured's death. The
interest rate used will be the greater of the following as of the date of
payment but will not exceed 10%:
o the current yield on a 90-day treasury bill; and
o the current legal maximum adjustable policy loan interest rate of the
state in which the Policy was delivered.
The amount the Company will pay to the Owner as an accelerated death benefit is
equal to:
o the amount of the approved accelerated death benefit; less
o the amount of the discount for early payment of a death benefit; less
o the administrative fee; less
o the amount of any premium required to remove the Policy from the grace
period; less
o the amount of any policy loan, including interest, times the
accelerated death benefit ratio.
TERMINATION
This Rider will terminate on the earliest of the following dates:
o the date of maturity or termination of the Policy; and
o the date the Owner signs written request for termination of this
Rider; request must be received at the home office.
/s/ RONALD V. DOLAN /s/ DAVID H. McMAHON
President Secretary
<PAGE> 13
[FIRST COLONY LIFE INSURANCE COMPANY LETTERHEAD]
AMENDMENT OF APPLICATION FOR INSURANCE
Insured: DAVID W CAMPBELL POLICY NUMBER: 2746459
--------------------------------------- -----------------
The application attached to the policy is amended to apply for the policy as
issued. The issued policy differs from the policy applied for as follows:
AMOUNT OF INSURANCE IS $1,500,000.
The undersigned accept(s) the policy to which a signed and dated copy of
this amendment form is attached.
Signed at this day of , 19
------------------------------- ------ -------------- ----
City and State
- ----------------------------------- -----------------------------------------
Witness Signature of Insured
- ----------------------------------- ----------------------------------------
Witness Signature of Owner
(if other than Insured)
DO NOT ALTER THIS FORM. If this amendment is unacceptable, return the policy
for reissue. If acceptable, SIGN BOTH COPIES AND RETURN LOOSE COPY to the
Company.
<PAGE> 14
EXCHANGE OPTION
While this Policy is in force, it may be exchanged for a new policy as of any
Premium Due Date on or before the Exchange Date shown in the Schedule.
Evidence is not required except that any riders included in the new policy will
be subject to satisfactory evidence of insurability.
To exchange this Policy, the Owner must:
1. submit written request to the home office; and
2. return this Policy to the home office. The Company will pay the net
cash value, if any, to the Owner.
The policy date of the new policy will be the date of exchange. The date of
exchange is the Premium Due Date on which the exchange is effective.
Except for Preferred and graded premium plans, the new policy may be on any
whole life or endowment plan:
1. offered by the Company on the date of exchange; and
2. with a premium per $1,000 which is higher than the premium per $1,000
for this Policy as of the date of exchange.
The amount of insurance of the new policy:
1. may not exceed the net amount at risk under this Policy on the date
of exchange; and
2. may not be less than the minimum for the plan selected.
There will always be at least one plan available for exchange. The net amount
at risk referred to above is the amount then in force less the cash value.
Using the Company's rates then in effect for the new policy, premiums will be
determined by:
1. the Insured's sex and age nearest birthday on the date of exchange;
and
2. the premium classification of the new policy. The new policy will
have the same premium classification as this Policy, except when
exchanging to a plan that does not provide for the same premium
classification as this Policy. In such a case, the new policy will
be classified as standard unless this Policy is in a rated
classification. Then the premium classification of the new policy
will be a rated classification.
SETTLEMENT OPTIONS
GENERAL PROVISIONS. Policy proceeds may be paid in a single sum or left with
the Company for payment under one or more of the following settlement options.
The amount applied under an option must be at least $2,000. The amount of each
payment under an option must be at least $50.
The Owner, with the consent of any irrevocable beneficiary, may elect
or revoke a settlement option at any time before the proceeds are payable. If
no settlement option election is then in effect, the payee may make an
election. Written notice of election or revocation must be filed at the home
office in a form satisfactory to the Company. The notice will then take effect
as of the date the Owner or payee signed the notice. An election does not
affect any payment made or other action taken by the Company before the notice
is received. A payee that is not a natural person may elect a settlement
option only with the Company's consent.
An assignee cannot elect any settlement option. Change of owner or
beneficiary automatically revokes any election in effect.
DEATH OF PAYEE. Unless otherwise specified, at the death of the last payee a
final payment will be made to the payee's estate. For Options 1 and 2, the
final payment will be the commuted value of the remaining unpaid installments
certain. Such value will be computed based on the rate of interest used in
the calculation of the payments. For Options 3 and 4, the final payment will
be the unpaid proceeds with any unpaid interest to the date of death of the
payee.
FIRST INSTALLMENT. The first installment under Options 1, 2, and 4 is payable
on the effective date of the option. The effective date is:
1. the Premium Due Date on which the net cash value is payable;
2. the date of the Insured's death; or
3. any later date agreeable with the Company.
INTEREST. The guaranteed interest rate for Options 1, 2, 3, and 4 is 2 1/2% a
year, compounded annually. Excess interest may be declared annually by the
Company.
OPTION 1. Fixed Period. Proceeds will be paid for a fixed period. The amount
of the payments is determined from the Option 1 Table.
OPTION 2. Life Income with Installments Certain. Proceeds will be paid in
equal installments throughout the certain period. After the certain period,
payments will continue to be made throughout the payee's lifetime. The amount
and certain period of the payments are determined from the Option 2 Table. At
some ages the same amount is payable for different periods certain. In such a
case the Company will assume that the longest period was chosen. Satisfactory
proof of the payee's age is required. The Company may require evidence that
the payee is living on the date of each payment.
OPTION 3. Interest. Interest on the proceeds will be paid in the manner agreed
upon when the option is elected.
OPTION 4. Fixed Installments. Proceeds will be paid in fixed installments at
regular intervals until proceeds, together with interest on the unpaid balance,
are exhausted.
OPTION 5. Single Premium Annuity. Proceeds will be used to purchase any
single premium annuity the Company offers at the time proceeds are applied.
The annuity payments will be 102% of the payments otherwise purchased by the
single premium.
OTHER SETTLEMENT OPTIONS. Proceeds may be applied in any other mutually
agreeable manner.
9
<PAGE> 15
SETTLEMENT OPTIONS (CONTINUED)
OPTION 1 TABLE - Fixed Period Installments
Installments for fixed number of years for each $1,000 of proceeds
<TABLE>
<CAPTION>
Term of
Installment Semi-
Payments Annual Annual Quarterly Monthly
- -----------------------------------------------------------------------------
Years
<S> <C> <C> <C> <C>
1 $503.09 $252.32 $84.28
2 $506.17 254.65 127.72 42.66
3 341.60 171.85 86.19 28.79
4 259.33 130.47 65.44 21.86
5 210.00 105.65 52.99 17.70
6 177.12 89.11 44.69 14.93
7 153.65 77.30 38.77 12.95
8 136.07 68.45 34.33 11.47
9 122.40 61.58 30.88 10.32
10 111.47 56.08 28.13 9.38
15 78.80 39.64 19.88 6.64
20 62.58 31.48 15.79 5.27
25 52.95 26.64 13.36 4.46
30 46.61 23.45 11.76 3.93
</TABLE>
OPTION 2 TABLE - Life Income with Installments Certain
Monthly installments are shown for each $1,000 of proceeds.
Age is age nearest birthday when the first installment is payable.
<TABLE>
<CAPTION>
Age No. of Months Certain
Male Female 60 120 180 240
<S> <C> <C> <C> <C> <C>
12* $ 2.63 $ 2.63 $ 2.62 $ 2.61
13 2.64 2.64 2.63 2.63
14 2.66 2.66 2.65 2.65
10* 15 2.67 2.67 2.66 2.66
11 16 2.69 2.69 2.68 2.68
12 17 2.71 2.71 2.70 2.70
13 18 2.73 2.73 2.72 2.71
14 19 2.74 2.74 2.74 2.73
15 20 2.76 2.76 2.76 2.75
16 21 2.78 2.78 2.78 2.77
17 22 2.81 2.81 2.80 2.79
18 23 2.83 2.83 2.82 2.81
19 24 2.85 2.85 2.84 2.84
20 25 2.88 2.88 2.87 2.86
21 26 2.90 2.90 2.89 2.88
22 27 2.93 2.93 2.92 2.91
23 28 2.95 2.95 2.94 2.93
24 29 2.98 2.98 2.97 2.96
25 30 3.01 3.01 3.00 2.99
26 31 3.04 3.04 3.03 3.02
27 32 3.08 3.08 3.07 3.05
28 33 3.11 3.11 3.09 3.08
29 34 3.14 3.14 3.12 3.11
30 35 3.18 3.18 3.16 3.15
31 36 3.22 3.22 3.20 3.18
32 37 3.27 3.26 3.24 3.22
33 38 3.31 3.30 3.28 3.25
34 39 3.36 3.34 3.32 3.29
35 40 3.40 3.39 3.36 3.33
36 41 3.45 3.43 3.41 3.37
37 42 3.50 3.48 3.45 3.41
38 43 3.55 3.53 3.50 3.45
39 44 3.61 3.59 3.55 3.50
40 45 3.66 3.64 3.60 3.54
41 46 3.72 3.70 3.65 3.59
42 47 3.78 3.76 3.71 3.64
43 48 3.85 3.82 3.77 3.69
44 49 3.92 3.88 3.82 3.74
45 50 3.99 3.95 3.88 3.79
46 51 4.06 4.02 3.95 3.84
47 52 4.14 4.09 4.01 3.90
48 53 4.22 4.17 4.08 3.95
49 54 4.31 4.25 4.15 4.01
50 55 4.40 4.33 4.22 4.07
51 56 4.49 4.42 4.29 4.12
52 57 4.59 4.50 4.37 4.18
53 58 4.69 4.60 4.44 4.24
54 59 4.80 4.69 4.52 4.30
55 60 4.91 4.79 4.60 4.36
56 61 5.02 4.90 4.69 4.41
57 62 5.15 5.01 4.77 4.47
58 63 5.28 5.12 4.86 4.53
59 64 5.42 5.23 4.94 4.59
60 65 5.56 5.35 5.03 4.64
61 66 5.72 5.48 5.12 4.70
62 67 5.87 5.61 5.21 4.75
63 68 6.04 5.74 5.30 4.80
64 69 6.22 5.87 5.39 4.85
65 70 6.40 6.01 5.48 4.90
66 71 6.59 6.16 5.56 4.94
67 72 6.79 6.30 5.65 4.98
68 73 7.00 6.45 5.73 5.02
69 74 7.23 6.60 5.82 5.05
70 75 7.46 6.76 5.90 5.09
71 76 7.70 6.91 5.97 5.12
72 77 7.95 7.07 6.05 5.14
73 78 8.22 7.23 6.12 5.17
74 79 8.50 7.38 6.18 5.19
75 80 8.78 7.54 6.24 5.20
76 81 9.08 7.69 6.30 5.22
77 82 9.40 7.84 6.35 5.23
78 83 9.72 7.98 6.39 5.24
79 84 10.05 8.13 6.43 5.25
80 85 10.39 8.26 6.47 5.26
and and
over over
</TABLE>
*Also applies to younger ages
GRADED PREMIUM LIFE POLICY
INSURANCE PAYABLE AT DEATH
SEE SCHEDULE FOR AMOUNT OF INSURANCE AND PREMIUMS
PREMIUMS PAYABLE DURING INSURED'S LIFETIME
PREMIUM SUBJECT TO CHANGE AS SHOWN IN SCHEDULE
BUT WILL NOT EXCEED SPECIFIED MAXIMUM PREMIUM
CASH VALUES AVAILABLE AS SHOWN IN SCHEDULE
EXCHANGEABLE ON OR BEFORE THE EXCHANGE DATE
NONPARTICIPATING - NO DIVIDENDS
Form No. 1410-GP-12
10
<PAGE> 16
[FIRST COLONY LIFE INSURANCE COMPANY LETTERHEAD]
NOTICE
THE ATTACHED POLICY SUMMARY HAS BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS
AND BENEFITS OF THE ATTACHED POLICY AND MUST BE DELIVERED TO THE POLICYHOLDER
AT THE TIME THE POLICY IS DELIVERED.
PLEASE NOTE:
THE SOLICITING AGENT SHOULD INCLUDE HIS/HER NAME AND COMPLETE ADDRESS UNDER THE
STATEMENT, "FOR MORE INFORMATION ABOUT THIS POLICY PLEASE CONTACT." WHEN THIS
INFORMATION HAS NOT BEEN COMPUTED PRINTED.
IT IS IMPERATIVE THIS NAME AND ADDRESS INFORMATION BE PROVIDED. AN ADDRESS
LABEL MAY BE USED. IN COLORADO ALSO INCLUDE TELEPHONE NUMBER.
<PAGE> 17
INSURER: FIRST COLONY LIFE INSURANCE COMPANY
HOME OFFICE: P.O. BOX 1280 LYNCHBURG, VIRGINIA 24505
WESTERN REGIONAL OFFICE: P.O. BOX 4114 WOODLAND HILLS, CALIFORNIA 91365
IMPORTANT INFORMATION ABOUT COVERAGE UNDER THE TEXAS LIFE, ACCIDENT,
HEALTH AND HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION
Texas law establishes a system, administered by the Texas Life, Accident,
Health and Hospital Service Insurance Guaranty Association (the "Association"),
to protect policyholders if their life or health insurance company fails to or
cannot meet its contractual obligations. Only the policyholders of insurance
companies which are members of the Association, protection is limited and
policyholders must meet certain guidelines to qualify. (The law is found in the
Texas Insurance Code, Article 21.28-D.)
BECAUSE OF STATUTORY LIMITATIONS ON POLICYHOLDER PROTECTION, IT IS POSSIBLE
THAT THE ASSOCIATION MAY NOT COVER YOUR POLICY OR MAY NOT COVER YOUR POLICY IN
FULL.
ELIGIBILITY OF PROJECTION BY THE ASSOCIATION
When an insurance company which is a member of the Association is designated as
impaired by the Texas Commissioner of Insurance, the Association provides
coverage to policyholders who are:
o RESIDENTS OF TEXAS at the time that their insurance company is impaired
o RESIDENTS OF OTHER STATES, ONLY if the following conditions are met:
1) The policyholder has a policy with a company based in Texas;
2) The company has never held a license in the policyholder's state of
residence;
3) The policyholder's state of residence has a similar guaranty
association; and
4) The policyholder is not eligible for coverage by the guaranty
association of the policyholder's state of residence.
LIMITS OF PROTECTION BY THE ASSOCIATION
ACCIDENT, ACCIDENT AND HEALTH, OR HEALTH INSURANCE:
o up to a total of $200,000 for one or more policies for each individual
covered.
LIFE INSURANCE:
o net cash surrender value up to a total of $100,000 under one or more
policies on any one life; or
o death benefits up to a total of $300,000 under one or more policies on any
one life.
INDIVIDUAL ANNUITIES:
o net cash surrender amount up to a total of $100,000 under one or more
policies owned by one contractholder.
GROUP ANNUITIES:
o net cash surrender amount up to $100,000 in allocated benefits under one or
more policies owned by one contractholder; or
o net cash surrender amount up $5,000,000 in unallocated benefits under one
contractholder regardless of the number of contracts.
THE INSURANCE COMPANY AND ITS AGENTS ARE PROHIBITED BY LAW FROM USING THE
EXISTENCE OF THE ASSOCIATION FOR THE PURPOSE OF SALES, SOLICITATION, OR
INDUCEMENT TO PURCHASE ANY FORM OR INSURANCE.
WHEN YOU ARE SELECTING AN INSURANCE COMPANY, YOU SHOULD NOT RELY ON COVERAGE BY
THE ASSOCIATION.
Texas Life, Accident, Health and Hospital Texas Department of Insurance
Service Insurance Guaranty Association P. O. Box 149104
301 Congress, Suite 500 Austin, Texas 78714-9104
Austin, Texas 78701 800-252-3439
800-982-6362
Form No. 9216
<PAGE> 18
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
1 IMPORTANT NOTICE
To obtain information or make a complaint:
2 You may contact your agent at the telephone number provided on the agent's
business card.
3 You may call First Colony Life Insurance Company's toll-free telephone
number for information or to make a complaint at
1-800-283-7893
4 You may also write to First Colony Life
Insurance Company at:
Policy Services Department
P.O. Box 1280
Lynchburg, VA 24505-1280
5 You may contact the Texas Department of Insurance to obtain information on
companies, coverages, rights, or complaints at
1-800-252-3439
6 You may write the Texas Department of Insurance
P.O. Box 149104
Austin, TX 78714-9104
FAX # (512) 475-1771
7 PREMIUM OR CLAIM DISPUTES:
Should you have a dispute concerning your premium or about a claim you
should contact the agent or the company first. If the dispute is not
resolved, you may contact the Texas Department of Insurance.
8 ATTACH THIS NOTICE TO YOUR POLICY: This notice is for information only and
does not become a part or condition of the attached document.
AVISO IMPORTANTE
Para obtener informacion o para someter una queja:
Puede comunicarse con su agente al el numero de telefono en la carta el
agente.
Usted puede llamar al numero de telefono gratis de First Colony Life
Insurance Company's para informacion o para someter una queja al
1-800-283-7893
Usted tambien puede escribir a First Colony Life Insurance Company:
Policy Services Department
P.O. Box 1280
Lynchburg, VA 24505-1280
Puede comunicarse con el Departamento de Seguros de Texas para obtener
informacion acerca de companias, coberturas, derechos o quejas al
1-800-252-3439
Puede escribir al Departamento de Seguros de Texas
P.O. Box 149104
Austin, TX 78714-9104
FAX # (512) 475-1771
DISPUTAS SOBRE PRIMAS 0 RECLAMOS: Si tiene una disputa concerniente asu
prima o a un reclamo, debe comunicarse con el agente o la compania primero.
Si no se resuelve la disputa, puede entonces comunicarse con el
departamento (TDI).
UNA ESTE AVISO A SU POLIZA: Este aviso es solo para proposito de
informacion y no se convierte en parte o condicion del documento adjunto.
Form No. 9057-04
<PAGE> 19
FIRST COLONY LIFE INSURANCE COMPANY FOR MORE INFORMATION ABOUT THIS
700 MAIN STREET POLICY PLEASE CONTACT:
P O BOX 1280 04/10/97
LYNCHBURG, VIRGINIA 24505 POLICY NUMBER
PHONE: (804) 845-0911 2746459
STATEMENT OF POLICY COST AND BENEFIT INFORMATION
PREPARED FOR: DAVID W CAMPBELL
AGE BASIS: 54 ISSUE BASIS: STANDARD (NONSMOKER)
BASIC POLICY GRADED PREMIUM LIFE BILLED PREMIUMS MAY CHANGE BUT
WILL NEVER EXCEED THE MAXIMUM PREMIUMS. SEE ACCOMPANYING
SUMMARY FOR MAXIMUM PREMIUMS.
<TABLE>
<CAPTION>
POL ANNUAL AMOUNT OF CASH SURRENDER
YR PREMIUM INSURANCE VALUES AT END
BEGINNING OF POLICY YEAR
OF POL YR TOTAL INCR
<S> <C> <C> <C> <C>
01-05 6160.00 1500,000 0 0
06 9505.00 1500,000 0 0
10 9505.00 1500,000 0 0
12 27295.00 1500,000 0 0
15 53995.00 1500,000 0 0
20 85960.00 1500,000 0 0
</TABLE>
ANNUAL POLICY LOAN INTEREST RATE IS 7.40% PAID IN ADVANCE.
ANNUAL EFFECTIVE POLICY LOAN INTEREST RATE IS 8.00%.
<TABLE>
<CAPTION>
SURRENDER NET PAYMENT
COST INDEX COST INDEX
<S> <C> <C> <C>
EXPLANATIONS OF THE INTENDED USE
YEAR 10 5.086 5.086 OF THESE INDEXES ARE PROVIDED IN
YEAR 20 16.321 16.321 THE LIFE INSURANCE BUYER'S GUIDE.
</TABLE>
<PAGE> 20
FIRST COLONY LIFE INSURANCE COMPANY FOR MORE INFORMATION ABOUT THIS
700 MAIN STREET POLICY PLEASE CONTACT:
P O BOX 1280 04/10/97
LYNCHBURG, VIRGINIA 24505 POLICY NUMBER
PHONE: (804) 845-0911 2746459
STATEMENT OF POLICY COST AND BENEFIT INFORMATION (CONTINUED)
PREPARED FOR: DAVID W CAMPBELL
AGE BASIS: 54 ISSUE BASIS: STANDARD (NONSMOKER)
BASIC POLICY GRADED PREMIUM LIFE THIS SUMMARY SHOWS MAXIMUM PREMIUMS.
SEE ACCOMPANYING SUMMARY FOR BILLED PREMIUMS.
<TABLE>
<CAPTION>
POL ANNUAL AMOUNT OF CASH SURRENDER
YR PREMIUM INSURANCE VALUES AT END
BEGINNING OF POLICY YEAR
OF POL YR TOTAL INCR
<S> <C> <C> <C> <C>
01-05 6160.00 1500,000 0 0
06 9505.00 1500,000 0 0
10 9505.00 1500,000 0 0
12 27295.00 1500,000 0 0
15 53995.00 1500,000 0 0
20 142390.00 1500,000 0 0
</TABLE>
ANNUAL POLICY LOAN INTEREST RATE IS 7.40%
PAID IN ADVANCE. ANNUAL EFFECTIVE
POLICY LOAN INTEREST RATE IS 8.00%.
<TABLE>
<CAPTION>
SURRENDER NET PAYMENT
COST INDEX COST INDEX
<S> <C> <C> <C>
EXPLANATIONS OF THE INTENDED USE
YEAR 10 5.086 5.086 OF THESE INDEXES ARE PROVIDED IN
YEAR 20 21.041 21.041 THE LIFE INSURANCE BUYER'S GUIDE.
</TABLE>
<PAGE> 21
FIRST COLONY LIFE INSURANCE COMPANY FOR MORE INFORMATION ABOUT THIS
700 MAIN STREET POLICY PLEASE CONTACT:
P.O. BOX 1280 04/10/97
LYNCHBURG, VIRGINIA 24505 POLICY NUMBER
PHONE: (804) 845-0911 2746459
STATEMENT OF POLICY COST AND BENEFIT INFORMATION
PREPAID FOR: DAVID W CAMPBELL
AGE BASIS: 54 ISSUE BASIS: STANDARD (NONSMOKER)
BASIC POLICY GRADED PREMIUM LIFE BILLED PREMIUMS MAY CHANGE BUT WILL NEVER
EXCEED THE MAXIMUM PREMIUMS. SEE ACCOMPANYING SUMMARY FOR
MAXIMUM PREMIUMS.
<TABLE>
<CAPTION>
POL ANNUAL AMOUNT OF CASH SURRENDER
YR PREMIUM INSURANCE VALUES AT END
BEGINNING OF POLICY YEAR
OF POL YR TOTAL INCR
<S> <C> <C> <C> <C>
01-05 6160.00 1500,000 0 0
06 9505.00 1500,000 0 0
10 9505.00 1500,000 0 0
12 27295.00 1500,000 0 0
15 53995.00 1500,000 0 0
20 85960.O0 1500,000 0 0
</TABLE>
ANNUAL POLICY LOAN INTEREST RATE IS 7.40% PAID IN ADVANCE.
ANNUAL EFFECTIVE POLICY LOAN INTEREST RATE IS 8.00%
<TABLE>
<CAPTION>
SURRENDER NET PAYMENT
COST INDEX COST INDEX
<S> <C> <C> <C>
YEAR 10 5.086 5.086 EXPLANATIONS OF THE INTENDED USE OF
YEAR 20 16.321 16.321 THESE INDEXES ARE PROVIDED IN THE
LIFE INSURANCE BUYER'S GUIDE.
</TABLE>
<PAGE> 22
FIRST COLONY LIFE INSURANCE COMPANY FOR MORE INFORMATION ABOUT THIS
700 MAIN STREET POLICY PLEASE CONTACT:
P O BOX 1280 04/10/97
LYNCHBURG, VIRGINIA 24505 POLICY NUMBER
PHONE: (804) 845-0911 2746459
STATEMENT OF POLICY COST AND BENEFIT INFORMATION
PREPARED FOR: DAVID W CAMPBELL
AGE BASIS: 54 ISSUE BASIS: STANDARD (NONSMOKER)
BASIC POLICY GRADED PREMIUM LIFE THIS SUMMARY SHOWS MAXIMUM PREMIUMS.
SEE ACCOMPANYING SUMMARY FOR BILLING PREMIUMS.
<TABLE>
<CAPTION>
POL ANNUAL AMOUNT OF CASH SURRENDER
YR PREMIUM INSURANCE VALUES AT END
BEGINNING OF POLICY YEAR
OF POL YR TOTAL INCR
<S> <C> <C> <C> <C>
01-05 6160.00 1500,000 0 0
06 9505.00 1500,000 0 0
10 9505.00 1500,000 0 0
12 27295.00 1500,000 0 0
15 53995.00 1500,000 0 0
20 142390.00 1500,000 0 0
</TABLE>
ANNUAL POLICY LOAN INTEREST RATE IS 7.40%
PAID IN ADVANCE. ANNUAL EFFECTIVE
POLICY LOAN INTEREST RATE IS 8.00%.
<TABLE>
<CAPTION>
SURRENDER NET PAYMENT
COST INDEX COST INDEX
<S> <C> <C> <C>
EXPLANATIONS OF THE INTENDED USE
YEAR 10 5.086 5.086 OF THESE INDEXES ARE PROVIDED IN
YEAR 20 21.041 21.041 THE LIFE INSURANCE BUYER'S GUIDE.
</TABLE>
<PAGE> 1
EXHIBIT 6.17
[MML BAY STATE LIFE INSURANCE COMPANY LETTERHEAD]
FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
Policy Number 7 855 030 024
Insured JAYE E CONGLETON
Selected Face Amount $ 500,000
- --------------------------------------------------------------------------------
Dear Policy Owner:
READ YOUR POLICY CAREFULLY. It has been written in readable language to help
you understand its terms. We have used examples to explain some of its
provisions. These examples do not reflect the actual amounts or status of this
policy. As you read through the policy, remember the words "we", "us" and "our"
refer to MML Bay State Life Insurance Company.
We will, subject to the terms of this policy, pay the death benefit to
the Beneficiary when due proof of the Insured's death is received at our
Principal Administrative Office. The terms of this policy are contained on this
and the following pages.
For service or information on this policy, contact the agent who sold
the policy, any of our agency offices or our Principal Administrative Office.
YOU HAVE A RIGHT TO RETURN THIS POLICY. If you decide not to keep this
policy, return it within ten days after you receive it, or within 10 days after
you receive the notice of right to withdraw, or within 45 days after the date
of the Part 1 of the application for this policy, whichever is latest. It may
be returned by delivering or mailing it to our Principal Administrative Office,
to any of our agency offices or to the agent who sold the policy. Then, the
policy will be as though it had never been issued. We will promptly refund any
premium paid for it.
Signed for MML Bay State Life Insurance Company.
Sincerely yours,
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
President Secretary
This Policy provides that: Insurance is payable when the Insured dies.
Within specified limits, flexible premiums
may be paid during the Insured's lifetime.
No dividends will be paid.
THE AMOUNT OF DEATH BENEFIT AND THE DURATION OF INSURANCE COVERAGE MAY BE FIXED
OR VARIABLE AS DESCRIBED IN PARTS 3 AND 5.
THE VARIABLE ACCOUNT VALUE OF THE POLICY MAY INCREASE OR DECREASE IN ACCORDANCE
WITH THE EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO MINIMUM GUARANTEES AS
TO THE VARIABLE ACCOUNT VALUE.
THE FIXED ACCOUNT VALUE OF THE POLICY EARNS INTEREST AT A RATE NOT LESS THAN
THE MINIMUM DESCRIBED IN THE INTEREST ON FIXED ACCOUNT VALUE PROVISION.
<PAGE> 2
POLICY SUMMARY
This Summary briefly describes some of the major policy provisions.
Since it does not go into detail, the actual provisions will control.
See those provisions for full information and any limits that may
apply. The "Where To Find It" on the inside of the back cover shows
where these provisions may be found.
This is a variable life insurance policy. We will pay a death benefit
if the Insured dies while the policy is in force. "In force" means
that the insurance has not terminated. "Variable" means that all
values which depend on the investment performance of the Separate
Account shown on the Schedule Page are not guaranteed as to dollar
amount.
Premiums for this policy are flexible. After the first premium has
been paid, there is no requirement that any specific amount of premium
be paid on any date. Instead, within the limits stated in the policy,
any amount may be paid on any date before the death of the Insured.
Premiums are applied to increase the value of this policy. Monthly
charges are deducted from the value of this policy each month. If
there is not enough value to pay the monthly charges for a month, the
policy will terminate at the end of 61 days. There is, however, a
right to reinstate the policy.
There are other rights available while the Insured is living. These
include:
o The right to assign this policy.
o The right to change the Owner or any Beneficiary.
o The right to surrender this policy.
o The right to make withdrawals.
o The right to make loans.
o The right to increase the Selected Face Amount.
o The right to allocate net premiums among the
Guaranteed Principal Account and the divisions of the
Separate Account.
o The right to transfer values between the Guaranteed
Principal Account and the divisions of the Separate
Account.
The policy also includes a number of Payment Options. These provide
alternate ways to pay the death benefit or the amount payable upon
surrender of the policy.
FOR INFORMATION, CALL: 1-800-272-2216
TO MAKE A COMPLAINT, CALL: 1-800-828-4902
<PAGE> 3
================================================================================
IMPORTANT INFORMATION ABOUT COVERAGE UNDER THE TEXAS LIFE, ACCIDENT,
HEALTH AND HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION
================================================================================
Texas law establishes a system, administered by the Texas Life, Accident,
Health and Hospital Service Insurance Guaranty Association (the "Association"),
to protect policyholders if their life or health insurance company fails to or
cannot meet its contractual obligations. Only the policyholders of insurance
companies which are members of the Association are eligible for this
protection. However, even if a company is a member of the Association,
protection is limited and policyholders must meet certain guidelines to
qualify. (The law is found in the Texas Insurance Code, Article 21.28D.)
BECAUSE OF STATUTORY LIMITATIONS ON POLICYHOLDER PROTECTION, IT IS POSSIBLE
THAT THE ASSOCIATION MAY NOT COVER YOUR POLICY OR MAY NOT COVER YOUR POLICY IN
FULL.
ELIGIBILITY FOR PROTECTION BY THE ASSOCIATION
When an insurance company which is a member of the Association is designated as
impaired by the Texas Commissioner of Insurance, the Association provides
coverage to policyholders who are:
o residents of Texas at the time that their insurance company is impaired
o residents of other states, ONLY if the following conditions are met:
1) The policyholder has a policy with a company based in Texas;
2) The company has never held a license in the policyholder's
state of residence;
3) The policyholder's state of residence has a similar guaranty
association; and
4) The policyholder is not eligible for coverage by the guaranty
association of the policyholder's state of residence.
LIMITS OF PROTECTION BY THE ASSOCIATION
ACCIDENT, ACCIDENT AND HEALTH, OR HEALTH INSURANCE:
o up to a total of $200,000 for one or more policies for each individual
covered.
LIFE INSURANCE
o net cash surrender value up to a total of $100,000 under one or more
policies on any one life; or
o death benefits up to a total of $300,000 under one or more policies on any
one life.
INDIVIDUAL ANNUITIES:
o net cash surrender amount up to a total of $100,000 under one or more
policies owned by one contractholder.
GROUP ANNUITIES:
o net cash surrender amount up to $100,000 in allocated benefits under one or
more policies owned by one contractholder; or
o net cash surrender amount up to $5,000,000 in unallocated benefits under
one contractholder regardless of the number of contracts.
THE INSURANCE COMPANY AND ITS AGENTS ARE PROHIBITED BY LAW FROM USING THE
EXISTENCE OF THE ASSOCIATION FOR THE PURPOSE OF SALES, SOLICITATION, OR
INDUCEMENT TO PURCHASE ANY FORM OF INSURANCE.
WHEN YOU ARE SELECTING AN INSURANCE COMPANY, YOU SHOULD NOT RELY ON COVERAGE BY
THE ASSOCIATION.
Texas Life, Accident, Health and Hospital Texas Department of Insurance
Service Insurance Guaranty Association PO Box 149104
Suite 500 Austin TX 78714-9104
301 Congress 800-252-3439
Austin TX 78701
800-982-6382
<PAGE> 4
IMPORTANT NOTICE
To obtain information or make a complaint:
You may call MML Bay State Life Insurance Company's toll-free telephone number
for information or to make a complaint at
INFORMATION - 1-800-272-2216
COMPLAINT - 1-800-828-4902
You may also write to MML Bay State Life Insurance Company at:
1295 STATE STREET
SPRINGFIELD MA 01111-0001
You may contact the Texas Department of Insurance to obtain information on
companies, coverages, rights, or complaints at:
1-800-252-3439
You may write the Texas Department of Insurance
P.O. BOX 149104
AUSTIN, TX 78714-9104
FAX# (512)475-1771
PREMIUM OR CLAIM DISPUTES:
Should you have a dispute concerning your premium or about a claim you should
contact MML Bay State Life Insurance Company first. If the dispute is not
resolved, you may contact the Texas Department of Insurance.
ATTACH THIS NOTICE TO YOUR POLICY:
This notice is for information only and does not become apart or condition of
the attached policy.
AVISO IMPORTANTE
Para obtener informacion o para someter una queja:
Usted puede llamar al numero de telefono gratis de MML Bay State Life Insurance
Company's para informacion o para someter una queja al
INFORMACION - 1-800-272-2216
QUEJA - 1-800-828-4902
Usted tambien puede escribir a MML Bay State Life Insurance Company:
1295 STATE STREET
SPRINGFIELD MA 01111-0001
Puede comunicarse con el Departamento de Seguros de Texas para obtener
informacion acerca de companias, coberturas, derechos o quejas al:
1-800-252-3439
Puede escribir al Departamento de Seguros de Texas
P.O. BOX 149104
AUSTIN, TX 78714-9104
FAX# (512)475-1771
DISPUTAS SOBRE PRIMAS 0 RECLAMOS:
Si tiene una disputa concerniente a su prima o a un reclamo debe comunicarse
con el MML Bay State Life Insurance Company primero. Si no se resuelve la
disputa, puede entonces comunicarse con el departamento (TDI).
UNA ESTE AVISO A SU POLIZA:
Este aviso es solo para proposito de informacion y no se convierte en parte o
condicion del documento adjunto.
<PAGE> 5
SM JUL 13 1995
THE SCHEDULE PAGE
THIS PAGE SHOWS SPECIFIC INFORMATION ABOUT THIS POLICY AND IS REFERRED TO
THROUGHOUT THE POLICY
POLICY NUMBER FL07 855 030
INSURED JAYE E CONGLETON
SELECTED FACE AMOUNT $500,000
ISSUE DATE JUN 26 1995
POLICY DATE JUN 26 1995
INSURED'S AGE ON POLICY DATE 51 FEMALE
- -------------------------------------------------------------------------------
BASIC POLICY INFORMATION
<TABLE>
<CAPTION>
SELECTED MINIMUM
PLAN FACE AMOUNT FACE AMOUNT
- ---- ----------- -----------
<S> <C> <C>
FLEXIBLE PREMIUM VARIABLE $500,000 SEE MINIMUM FACE
LIFE AMOUNT PROVISION
</TABLE>
- -------------------------------------------------------------------------------
PREMIUM INFORMATION AS OF JUN 26 1995
FIRST PREMIUM $ 1,000.00
PLANNED ANNUAL PREMIUM $ 12,000.00
PLANNED PREMIUM ON OTHER FREQUENCIES IS AS FOLLOWS:
<TABLE>
<CAPTION>
SEMIANNUAL QUARTERLY MONTHLY
---------- --------- -------
<S> <C> <C> <C>
$ 6,000.00 $ 3,000.00 $ 1,000.00
</TABLE>
THE MAXIMUM LIMIT FOR PREMIUMS IN ANY POLICY YEAR IS $17,750.00 IF PAYMENT OF A
GREATER AMOUNT WOULD INCREASE THE AMOUNT OF INSURANCE WHICH REQUIRES A CHARGE.
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT INFORMATION
THE SEPARATE ACCOUNT REFERRED TO IN THIS POLICY IS MML BAY STATE VARIABLE
LIFE SEPARATE ACCOUNT 1.
- -------------------------------------------------------------------------------
OTHER INFORMATION
THIS IS A NONSMOKER'S POLICY.
OWNER AND BENEFICIARY - SEE APPLICATION AND OPTION D CONDITIONS ATTACHED
TO THIS POLICY
POLICY NO. FL07 855 030
-1-
<PAGE> 6
THE MAXIMUM SURRENDER CHARGE FOR EACH $1,000 OF ANY INCREASE IN SELECTED FACE
AMOUNT WILL BE THE INITIAL SURRENDER CHARGE FACTOR AT THE INSURED'S AGE AS OF
THE POLICY ANNIVERSARY ON OR IMMEDIATELY PRECEDING THE EFFECTIVE DATE OF THE
INCREASE, MULTIPLIED BY THE DURATIONAL FACTOR FOR THE INCREASE.
INITIAL SURRENDER CHARGE FACTORS FOR EACH AGE ARE SHOWN BELOW.
<TABLE>
<CAPTION>
INITIAL SURRENDER INITIAL SURRENDER
INSURED'S CHARGE FACTOR INSURED'S CHARGE FACTOR
AGE PER $1,000 AGE PER $1000
- --- ---------- --- ---------
<S> <C> <C> <C>
51 11.53 66 20.15
52 11.87 67 21.11
53 12.24 68 22.16
54 12.63 69 23.29
55 13.05 70 24.53
56 13.49 71 25.89
57 13.96 72 27.37
58 14.46 73 28.99
59 15.00 74 30.73
60 15.59 75 AND OVER 31.30
61 16.22
62 16.90
63 17.63
64 18.41
65 19.25
</TABLE>
ANNUAL DURATIONAL FACTORS ARE SHOWN BELOW.
YEARS FROM EFFECTIVE DATE
OF INCREASE IN SELECTED DURATIONAL
FACE AMOUNT FACTOR
- -------------------------- ----------
0-10 1.00
11 .90
12 .75
13 .55
14 .30
15 OR MORE 0
DURATIONAL FACTORS WILL REDUCE UNIFORMLY EACH MONTH BETWEEN THE ANNUAL
DURATIONS SHOWN.
BASIS OF COMPUTATION - FOR MAXIMUM MONTHLY MORTALITY CHARGES, MINIMUM ANNUAL
INTEREST RATE FOR THE GUARANTEED PRINCIPAL ACCOUNT AND MINIMUM CASH SURRENDER
VALUES.
MORTALITY TABLE - COMMISSIONERS 1980 STANDARD ORDINARY NONSMOKER
MORTALITY TABLE - FEMALE
INTEREST RATE - 4% PER YEAR
POLICY NO. FL07 855 030
-1- CONTINUED
<PAGE> 7
TABLE OF MAXIMUM MONTHLY MORTALITY CHARGES
THESE MAXIMUM MONTHLY MORTALITY CHARGES ARE FOR EACH $1.000 OF INSURANCE WHICH
REQUIRES A CHARGE. THESE CHARGES APPLY TO THE ORIGINAL SELECTED FACE AMOUNT OF
$500,000, ISSUED ON JUN 26 1995.
<TABLE>
<CAPTION>
POLICY YEAR MAXIMUM MONTHLY POLICY YEAR MAXIMUM MONTHLY
BEGINNING MORTALITY CHARGE BEGINNING MORTALITY CHARGE
- ----------- --------------- ----------- ---------------
<S> <C> <C> <C>
JUN 26 1995 0.37592 JUN 26 2020 3.58552
JUN 26 1996 0.40523 JUN 26 2021 4.02941
JUN 26 1997 0.43959 JUN 26 2022 4.50679
JUN 26 1998 0.47480 JUN 26 2023 5.03160
JUN 26 1999 0.51254 JUN 26 2024 5.62720
JUN 26 2000 0.55114 JUN 26 2025 6.31509
JUN 26 2001 0.58975 JUN 26 2026 7.11783
JUN 26 2002 0.62671 JUN 26 2027 8.05280
JUN 26 2003 0.66621 JUN 26 2028 9.10225
JUN 26 2004 0.71246 JUN 26 2029 10.26689
JUN 26 2005 0.76715 JUN 26 2030 11.53529
JUN 26 2006 0.83619 JUN 26 2031 12.91426
JUN 26 2007 0.92301 JUN 26 2032 14.39531
JUN 26 2008 1.02598 JUN 26 2033 16.00739
JUN 26 2009 1.13753 JUN 26 2034 17.75602
JUN 26 2010 1.25772 JUN 26 2035 19.68512
JUN 26 2011 1.37980 JUN 26 2036 21.86462
JUN 26 2012 1.50291 JUN 26 2037 24.42267
JUN 26 2013 1.63474 JUN 26 2038 27.67145
JUN 26 2014 1.78726 JUN 26 2039 32.32212
JUN 26 2015 1.97000 JUN 26 2040 40.04678
JUN 26 2016 2.19689 JUN 26 2041 55.15920
JUN 26 2017 2.47434 JUN 26 2042 AND LATER 83.33333
JUN 26 2018 2.80204
JUN 26 2019 3.17455
</TABLE>
POLICY NO. FL07 855 030 -2-
<PAGE> 8
TABLE OF MINIMUM FACE AMOUNT PERCENTAGES
THE MINIMUM FACE AMOUNT ON ANY DATE IS A PERCENTAGE OF THE ACCOUNT VALUE ON
THAT DATE. THE PERCENTAGES WHICH APPLY ARE SHOWN BELOW.
<TABLE>
<CAPTION>
POLICY YEAR MINIMUM FACE POLICY YEAR MINIMUM FACE
BEGINNING AMOUNT PERCENTAGE BEGINNING AMOUNT PERCENTAGE
- ----------- ----------------- ----------- -------------------
<S> <C> <C> <C>
JUN 26 1995 302% JUN 26 2020 147%
JUN 26 1996 284% JUN 26 2021 143%
JUN 26 1997 275% JUN 26 2022 141%
JUN 26 1998 267% JUN 26 2023 138%
JUN 26 1999 259% JUN 26 2024 135%
JUN 26 2000 251% JUN 26 2025 133%
JUN 26 2001 244% JUN 26 2026 130%
JUN 26 2002 237% JUN 26 2027 128%
JUN 26 2003 230% JUN 26 2028 126%
JUN 26 2004 223% JUN 26 2029 124%
JUN 26 2005 217% JUN 26 2030 123%
JUN 26 2006 210% JUN 26 2031 121%
JUN 26 2007 204% JUN 26 2032 119%
JUN 26 2008 199% JUN 26 2033 118%
JUN 26 2009 193% JUN 26 2034 117%
JUN 26 2010 188% JUN 26 2035 115%
JUN 26 2011 183% JUN 26 2036 114%
JUN 26 2012 178% JUN 26 2037 113%
JUN 26 2013 174% JUN 26 2038 112%
JUN 26 2014 169% JUN 26 2039 110%
JUN 26 2015 165% JUN 26 2040 109%
JUN 26 2016 161% JUN 26 2041 107%
JUN 26 2017 157% JUN 26 2042 106%
JUN 26 2018 153% JUN 26 2043 104%
JUN 26 2019 150% JUN 26 2044 AND LATER 100%
</TABLE>
POLICY NO. FL07 855 030 -3-
<PAGE> 9
TABLE OF MAXIMUM SURRENDER CHARGES
<TABLE>
<CAPTION>
THE MAXIMUM
SURRENDER
DATE CHARGE IS
----------- ------------
<S> <C> <C>
JUN 26 1995 5,765.00
JUN 26 1996 5,765.00
JUN 26 1997 5,765.00
JUN 26 1998 5,765.00
JUN 26 1999 5,765.00
JUN 26 2000 5,765.00
JUN 26 2001 5,765.00
JUN 26 2002 5,765.00
JUN 26 2003 5,765.00
JUN 26 2004 5,765.00
JUN 26 2005 5,765.00
JUN 26 2006 5,190.00
JUN 26 2007 4,325.00
JUN 26 2008 3,170.00
JUN 26 2009 1,730.00
JUN 26 2010 0.00
</TABLE>
SURRENDER CHARGES REDUCE UNIFORMLY EACH MONTH BETWEEN THE DATES SHOWN.
POLICY NO. FL07 855 030 -4-
<PAGE> 10
TABLE OF MINUMUM ACCOUNT VALUES AFTER WITHDRAWAL
<TABLE>
<CAPTION>
FOR POLICY MINIMUM ACCOUNT VALUE
YEAR BEGINNING REQUIRED AFTER WITHDRAWAL
-------------- -------------------------
<S> <C>
JUN 26 1995 $ 8,825.00
JUN 26 1996 17,650.00
JUN 26 1997 26,475.00
JUN 26 1998 35,300.00
JUN 26 1999 44,125.00
JUN 26 2000 52,950.00
JUN 26 2001 61,775.00
JUN 26 2002 70,600.00
JUN 26 2003 79,425.00
JUN 26 2004# 88,250.00
JUN 26 2005 97,075.00
JUN 26 2006# 105,900.00
JUN 26 2007 114,725.00
JUN 26 2008 123,550.00
JUN 26 2009# 132,375.00
JUN 26 2010 141,200.00
JUN 26 2011 150,025.00
JUN 26 2012 158,850.00
JUN 26 2013 167,675.00
JUN 26 2014 176,500.00
</TABLE>
# ANNIVERSARIES NEAREST AGES 60, 62, AND 65
THESE MINIMUMS APPLY TO THE ORIGINAL SELECTED FACE AMOUNT OF $500,000 ISSUED ON
JUN 26 1995.
MINIMUM ACCOUNT VALUES FOR POLICY YEARS NOT SHOWN WILL BE FURNISHED ON REQUEST.
POLICY NO. FL07 855 030 -5-
<PAGE> 11
OPTION D CONDITIONS
The Definitions and General Provisions on the reverse side of this page are a
part of these conditions.
Upon the death of the insured, the proceeds payable under the terms of the
policy shall be retained by the Company under Option D, subject to the
following conditions.
EQUAL SHARES TO PRIMARY BENEFICIARIES- The entire proceeds shall be the share
set aside for the Primary Beneficiary if there is only one Primary Beneficiary
living. But if two or more Beneficiaries are living, an equal share of the
proceeds shall be set aside for each of them. If any Primary Beneficiary dies
after the insured, any amount then payable under the share that was set aside
for that Beneficiary shall be set aside in equal shares for the Primary
Beneficiaries who are living.
EQUAL SHARES TO SECONDARY BENEFICIARIES- If at any time no Primary Beneficiary
is living, the entire amount then payable by the policy shall be the share set
aside for the Secondary Beneficiary if there is only one Secondary Beneficiary
living. But if two or more Secondary Beneficiaries are living, an equal share
shall be set aside for each of them. If any Secondary Beneficiary dies after a
share has been set aside for him or her, any amount payable under the share for
that Beneficiary shall be set aside in equal shares for the Secondary
Beneficiaries who are living.
PAYMENT OPTION- If a share has been set aside for a Beneficiary under Option D,
the Beneficiary shall have the right to withdraw the whole or any part of that
share. The Beneficiary shall also have the right to elect that his or her share
shall be paid under any other payment option (Optional Methods of Settlement)
contained in the policy.
WHEN RIGHTS CAN BE EXERCISED- The rights given to a Primary Beneficiary may be
exercised at any time after the death of the insured. The rights given to a
Secondary Beneficiary may be exercised at any time after the death of the
insured and all Primary Beneficiaries.
FINAL PAYMENT- After the death of the insured and all Primary and Secondary
Beneficiaries, if the policy designates a Tertiary Beneficiary, any amount then
payable by the policy shall be paid in one sum to that Tertiary Beneficiary, if
living. If there are two or more Tertiary Beneficiaries, payment shall be made
in one sum in equal shares to such of the Tertiary Beneficiaries as are living.
After the death of the insured and all Primary and Secondary Beneficiaries, if
there are no Tertiary Beneficiaries then living, payment shall be made in one
sum to the estate of whichever of the named Beneficiaries is the last to die.
However, if no Beneficiaries had survived the insured, payment shall be made in
one sum to the Owner of the policy or the estate of the Owner.
EXCEPTION- Notwithstanding the above conditions, if the policy directs that
payment to a class of Beneficiaries be made in one sum, then any amount payable
to the Beneficiaries in that class shall be paid in one sum.
<PAGE> 12
DEFINITIONS
Certain words in this designation have special meanings. These words are:
o INSURED means "Annuitant" if this policy is an annuity contract.
o PROCEEDS means the amount payable when the Insured dies. If the
policy provides for periodic payments after the Insured dies,
"proceeds" means the commuted value of the future payments.
o COMPANY means the insurance company that issued this policy.
o LAWFUL CHILDREN or LAWFUL ISSUE of a person means only the lawful
children born to or adopted by that person.
GENERAL PROVISIONS
MINORS. Any money payable to a minor will be paid to the legal guardian of the
minor. Any right given to a minor can be exercised only by the legal guardian
of the minor. But, if provided by this designation or by law, payment will be
made to, and any right can be exercised by, someone other than the minor's
legal guardian.
POLICY PROVISIONS APPLY. The provisions of "Payment Options" ("Optional Methods
of Settlement") of the policy apply to this designation.
PROOF OF LIFETIME OPTIONS. We will not make any payments under the lifetime
payment options (Options C, E or F) until we receive satisfactory proof of age
for each person on whose life payments depend. If payments depend on the
survival of any person, we can require satisfactory proof that the person is
still living before making further payments.
WITHDRAWALS. If this designation permits withdrawals of less than the entire
proceeds held under Option D or Option A, not more than four withdrawals may be
made in any one calendar year. But if this designation permits the entire
proceeds to be withdrawn then any balance of the proceeds may be withdrawn at
any time.
If a Beneficiary has the right to withdraw the commuted value of Option B
payments, he or she shall have the right to place that commuted value under any
other payment option (Optional Methods of Settlement).
FINAL PAYMENT. Upon the death of the last person who would have a right to
receive option payments, the Company will make a one sum payment to the estate
of that person unless otherwise provided. Under Options A and D, this final
payment will be any unpaid balance. Under Option B, it will be the commuted
value of any future payments. Under Options C and E, it will be the commuted
value of any guaranteed future payments. Because Option F provides no
guaranteed payments, there will be no one sum final payment.
PROOF OF DECISIONS. The Company must decide matters of fact in administering
the terms of this designation. When making these decisions, the Company may
require proof satisfactory to it, by affidavit or other written evidence. If
the Company makes a decision based on this proof it will have no further
liability under the policy in connection with the decision.
TRUSTS AND OTHER AGREEMENTS. The Company is not responsible for carrying out
the terms of any trust or any agreement outside of this policy. Its only
responsibility is to perform according to the terms of the policy.
<PAGE> 13
PART 1. THE BASICS OF THIS POLICY
THE PARTIES INVOLVED - OWNER, INSURED, BENEFICIARY, IRREVOCABLE BENEFICIARY
In this Part we discuss some insurance concepts that are necessary to
understand this policy.
The Owner is the person who owns this policy, as shown on our records.
The Insured is the person whose life this policy insures. The Insured may be
the Owner of this policy, or someone else may be the Owner.
EXAMPLE:
You buy a policy that insures your own life and name yourself as Owner. In
this case, you are both the Insured and Owner. If you buy a policy that
insures your son and name yourself as Owner, then the Insured and Owner
are different people.
A Beneficiary is any person named on our records to receive insurance proceeds
after the Insured dies. There may be different classes of Beneficiaries, such
as primary and secondary. These classes set the order of payment. There may be
more than one Beneficiary in a class.
EXAMPLE:
Debbie is named as primary (first) Beneficiary. Anne and Scott are named
as Beneficiaries in the secondary class. If Debbie is alive when the
Insured dies, she receives the death benefit. But if Debbie is dead and
Anne and Scott are alive when the Insured dies, Anne and Scott receive the
death benefit.
Any Beneficiary may be named an Irrevocable Beneficiary. An Irrevocable
Beneficiary is one whose consent is needed to change that Beneficiary. Also,
this Beneficiary must consent to the exercise of certain other rights.
DATES - POLICY DATE, POLICY ANNIVERSARY DATE, POLICY YEAR, ISSUE DATE, MONTHLY
CALCULATION DATE, VALUATION DATE, VALUATION PERIOD, REGISTER DATE
The Policy Date is shown on the Schedule Page. It is the starting point for
determining Policy Anniversary Dates and Policy Years. The first Policy
Anniversary Date is one year after the Policy Date. The period from the Policy
Date to the first Policy Anniversary Date, or from one Policy Anniversary Date
to the next, is called a Policy Year.
EXAMPLE:
The Policy Date is June 10, 19X1. The first Policy Anniversary Date is
June 10, 19X2. The period from June 10, 19X1 to June 10, 19X2 is a Policy
Year.
The Issue Date is also shown on the Schedule Page. It is the same as the Policy
Date. The Issue Date is used to determine the start of the suicide and
contestability periods. We discuss contestability below. See "Part 5. The Death
Benefit" for a discussion of the suicide exclusion.
The Monthly Calculation Date is the monthly date on which we deduct monthly
charges for this policy. The first Monthly Calculation Date is the Policy Date.
Subsequent Monthly Calculation Dates are the same day of each month thereafter.
A valuation date is any date on which the New York Stock Exchange (or its
successor) is open for trading. A valuation period is the period of time from
the end of one valuation date to the end of the next valuation date.
The Register Date is the date on which the first net premium payment for this
policy is allocated to the Separate Account or the Guaranteed Principal
Account. It is the Valuation Date which is on, or next follows, the latest of:
o The Policy Date; or
o The date on which we receive a completed Part 1 of the application
for this policy at our Principal Administrative Office; or
-6-
<PAGE> 14
-7-
o The date on which we receive the first premium for this policy at
our Principal Administrative Office.
POLICY A LEGAL CONTRACT
This policy is a legal contract between the Owner and us. The entire contract
consists of the application and the policy, which includes any riders the
policy has. We have issued this policy in return for the application and the
payment of the first premium. Any changes or waiver of its terms must be in
writing and signed by our Secretary or an Assistant Secretary to be effective.
POLICY IS NOT PARTICIPATING
This policy is "not participating," which means that no dividends are payable
on this policy.
REPRESENTATIONS AND CONTESTABILITY
We rely on all statements made by or for the Insured in the application(s).
Legally, those statements are considered to be representations and not
warranties. We can contest the validity of this policy or any subsequent
increases in the Selected Face Amount for any material misrepresentation of a
fact. To do so, however, the misrepresentation must have been made in the
application, or in a supplemental application to increase the Selected Face
Amount, and a copy of the application must have been attached to this policy
when issued, or made a part of the policy when changes in the Selected Face
Amount become effective.
Except for any increases in the Selected Face Amount, we must bring legal
action to contest this policy within two years from its Issue Date. For any
increase in the Selected Face Amount, we must bring legal action to contest
that increase:
o Within two years from the effective date of the increase (except
for increases provided by any insurability protection type of
rider this policy has).
o Within two years from the Issue Date of the insurability
protection type of rider, if the increase is provided by that
rider.
MISSTATEMENT OF AGE OR SEX
If the Insured's date of birth or sex as given in the application is not
correct, an adjustment will be made. If the adjustment is made when the Insured
dies, the death benefit will reflect the amount provided by the most recent
mortality charge according to the correct age and sex. If the adjustment is
made before the Insured dies, then future monthly deductions will be based on
the correct age and sex.
MEANING OF IN FORCE
"In force" means that the insurance provided by this policy has not terminated.
This policy will be in force from its Issue Date or, if later, the date the
first premium is paid.
PRINCIPAL ADMINISTRATIVE OFFICE
Our Principal Administrative Office is in Springfield, Massachusetts. The
address is MML Bay State Life Insurance Company, Springfield, Massachusetts
01111.
PART 2. PREMIUM PAYMENTS
Premiums are the payments that may be paid to us to increase the account value
of this policy.
THE FIRST PREMIUM
The first premium for this policy is shown on the Schedule Page. This premium
is due on the Policy Date. This policy will not be in force until the first
premium has been paid.
PLANNED PREMIUMS
The planned annual premium for this policy is shown on the Schedule Page.
Planned premiums on other frequencies are also shown on that page. The
frequency of planned premiums for this policy is as elected in the application.
This frequency may be changed by giving us advance written notice. The planned
premium for this policy may be increased by giving us advance written notice.
However, evidence of insurability, satisfactory to us, is required for each
increase.
We also provide a pre-authorized payment plan. This plan, and any other
alternate premium plans we provide, are covered by the rules and rates we set.
<PAGE> 15
The payment of planned premiums on the frequency elected does not guarantee
that this policy will continue in force.
PREMIUM FLEXIBILITY AND PREMIUM NOTICES
After the first premium has been paid, there is no requirement that any amount
of premium be paid on any date. Subject to the Right To Refund Premiums
provision in this Part, while the policy is in force any amount of premium may
be paid at any time before the death of the Insured. Each premium paid must be
at least $10 or, if greater, the amount needed to prevent termination, as
discussed in the Grace Period And Termination provision in Part 3.
We will send premium notices for the planned premium according to the amount
and frequency in effect. We will stop sending notices for the planned premium
if no premium has been paid for 18 consecutive months. However, if a premium is
paid after that time, we will send notices for the planned premium again.
We will also send notice of any premium needed to prevent termination of this
policy.
Notices will be sent only while this policy is in force.
WHERE TO PAY PREMIUMS
All premiums are payable to us at our Principal Administrative Office or at the
place shown for payment on the premium notice. Upon request, a receipt signed
by our Secretary or an Assistant Secretary will be given for any premium
payment.
RIGHT TO REFUND PREMIUMS
We have the right to promptly refund any amount of premium paid if application
of that premium to the account value would increase the amount of insurance
which requires a charge.
This right is limited to premiums paid in a Policy Year which exceed:
o The maximum limit shown on the Schedule Page; and
o The planned annual premium for this policy.
PART 3. ACCOUNTS, VALUES, AND CHARGES
This policy provides that certain values (referred to as the variable account
values) are based on the investment performance of the Separate Account and are
not guaranteed as to dollar amount. This policy also provides that other values
(referred to as the fixed account values) are based on the interest credited to
the Guaranteed Principal Account. The account value of this policy is the
variable account value plus the fixed account value. This Part gives
information about the Separate Account, the Guaranteed Principal Account, and
the values and charges connected with them.
NET PREMIUM
Net premium is 92.5% of each premium we receive.
ALLOCATION OF NET PREMIUMS
Each net premium we receive will be allocated among the Guaranteed Principal
Account and the divisions of the Separate Account, as directed in the
application. This allocation will remain in effect until changed by any later
written election satisfactory to us and received at our Principal
Administrative Office. We will allocate the first net premium payment as of the
Register Date.
THE SEPARATE ACCOUNT
The Separate Account shown on the Schedule Page is a separate investment
account which we have established under Missouri law. This Separate Account has
four divisions. They are:
o THE EQUITY DIVISION. Amounts credited to this division are
invested in shares of MML Equity Fund, or its successor. This Fund
invests primarily in common stocks and other equity securities.
o THE MONEY MARKET DIVISION. Amounts credited to this division are
invested in shares of MML Money Market Fund, or its successor.
This Fund invests primarily in short-term debt instruments.
- 8 -
<PAGE> 16
-9-
o THE MANAGED BOND DIVISION. Amounts credited to this division are
invested in shares of MML Managed Bond Fund, or its successor.
This Fund invests primarily in fixed-income securities.
o THE BLEND DIVISION. Amounts credited to this division are invested
in shares of MML Blend Fund, or its successor. This Fund may
invest in: common stocks and other equity securities; money market
instruments and other debt securities with maturities generally
not exceeding one year; and bonds and other debt securities with
maturities generally exceeding one year.
The values of the assets in the divisions are variable and are not guaranteed.
They depend on the investment results of the Separate Account shown on the
Schedule Page.
We own the assets of the Separate Account. Those assets will only be used to
support variable life insurance policies. A portion of the assets, equal to the
reserves and other liabilities of the Separate Account, will not be charged
with liabilities that arise from any other business we may conduct. However, we
may transfer assets, which exceed the reserves and other liabilities of the
Separate Account, to our general account. Income, gains and losses, whether or
not realized, from each division of the Separate Account are credited to or
charged against that division without regard to any of our other income, gains
or losses.
CHANGES IN THE SEPARATE ACCOUNT
We have the right to establish additional divisions of the Separate Account
from time to time. Amounts credited to any additional divisions established
would be invested in shares of other Funds. For any division, we have the right
to substitute new Funds.
We have the right to change the investment policy of any division of the
Separate Account with the approval of the Missouri Insurance Commissioner. If
required, the process for obtaining approval of a material change from the
Missouri Insurance Commissioner will be filed with the insurance supervisory
official of the state where this policy is delivered. We will notify the Owner
if the Missouri Insurance Commissioner approves any material change.
We have the right to operate the Separate Account as a unit investment trust
under the Investment Company Act of 1940 or in any other form permitted by law.
ACCUMULATION UNITS
Accumulation units are used to measure the variable account value of this
policy. The value of a unit is determined at the time set by us on each
valuation date for valuation of the Separate Account. The value of any unit can
vary from valuation date to valuation date. That value reflects the investment
performance of the division of the Separate Account applicable to that unit.
PURCHASE OF ACCUMULATION UNITS
The amount of each net premium we receive for this policy for allocation to
each division of the Separate Account will be applied to purchase accumulation
units for this policy in that division.
Accumulation units will be purchased in any division of the Separate Account at
the time set by us on the valuation date which is on or next follows the date
the premium is received by us, but not earlier than the Register Date.
However, if any premium is received other than by mail at our Principal
Administrative Office after the time set for valuation of the Separate Account,
that premium will be deemed to have been received on the next day. Accumulation
units will be purchased with the net premium at the unit value on the date of
purchase. The number of units purchased will be the amount applied divided by
the accumulation unit value on the date of purchase.
EXAMPLE:
The amount applied is $550. The date of purchase is June 10, 19X4. The
accumulation unit value on that date is $10. The number of units purchased
would be 55. ($550 divided by $10 = 55). If, instead, the unit value was
$11, then the amount applied would purchase 50 units. ($550 divided by $11
= 50).
VARIABLE ACCOUNT VALUE OF POLICY
The variable account value of this policy reflects:
o The net premiums which are allocated for this policy to the
Separate Account;
<PAGE> 17
o Any amounts transferred into the Separate Account for this policy
from the Guaranteed Principal Account;
o Any transfers and withdrawals from the Separate Account for this
policy;
o Any monthly charges deducted from the Separate Account for this
policy; and
o The net investment experience of the Separate Account for this
policy.
Net premiums, transfers, withdrawals, and monthly deductions are all reflected
in the variable account value through the purchase or sale of accumulation
units. The net investment experience is reflected in the value of the
accumulation units. Net premiums and monthly deductions are discussed in this
Part 3. Transfers and withdrawals are discussed in Part 4.
The value of this policy's accumulation units in a division of the Separate
Account is equal to the accumulation unit value in that division on the date
the value is determined, multiplied by the number of those units in that
division. How accumulation unit values are determined is discussed in "Part 7.
Notes On Our Computations."
The variable account value of this policy on any date is the total of the
values of this policy's accumulation units in each division of the Separate
Account.
THE GUARANTEED PRINCIPAL ACCOUNT
The Guaranteed Principal Account is part of our general account. It has no
connection with, and does not depend on, the investment performance of the
Separate Account.
We have the right to establish additional guaranteed principal accounts from
time to time.
FIXED ACCOUNT VALUE OF POLICY
The fixed account value of this policy is the accumulation at interest of:
o The net premiums which are allocated for this policy to the
Guaranteed Principal Account; plus
o Any amounts transferred into the Guaranteed Principal Account for
this policy from the Separate Account; less
o Any transfers and withdrawals from the Guaranteed Principal
Account for this policy; and less
o Any monthly charges deducted from the Guaranteed Principal Account
for this policy.
INTEREST ON FIXED ACCOUNT VALUE
The fixed account value of this policy earns interest at a rate not less than
the minimum annual interest rate for the Guaranteed Principal Account shown in
the Basis Of Computation section on the Schedule Page. Interest is credited
daily to and including the date the fixed account value is determined.
For any fixed account value in excess of an amount equal to any policy loan,
the interest rate we use will be the daily equivalent of the greater of:
o The minimum annual rate; or
o An alternate annual rate established by us.
This alternate annual rate will not be less than the following rate:
o The Treasury Bill Index (as discussed below); reduced by
o Any tax charge which reflects the policy's share of our federal
income tax liability.
On the 15th day of March, June, September and December, we determine the
Treasury Bill Index to be effective during the period beginning on the first
day of the next calendar quarter and ending on the last day of that quarter.
The index is equal to the arithmetic average of the discount rates established
at the regular weekly auctions of 91-day United States Treasury Bills. Auctions
occurring during the period beginning with the 16th day of the last month of
the preceding calendar quarter and ending with the 15th day of the last month
of the current calendar quarter are used to determine the average.
-10-
<PAGE> 18
-11-
EXAMPLE:
On March 15,19X2 we determine that the Treasury Bill Index for the period
December 16, 19X1 through March 15, 19X2 is 10.5%. We reduce the index by
a tax charge of .5%. The alternate annual rate for the calendar quarter
beginning April 1, 19X2 and ending June 30, 19X2 will not be less than
10%.
If the regular auction program for 91-day Treasury Bills is discontinued, we
will, with the approval of the insurance supervisory official of the state
where this policy was delivered, use a comparable index.
For any fixed account value equal to policy loan, the interest rate we use will
be the daily equivalent of the greater of:
o The minimum annual rate; or
o The annual loan interest rate in effect on the previous Monthly
Calculation Date less not more than 2%.
ACCOUNT VALUE OF POLICY
The account value of this policy on any date is the variable account value plus
the fixed account value, both determined as of that date.
MONTHLY CHARGES
Charges will be deducted from the account value of this policy. The charges are
due on each Monthly Calculation Date.
The charges will be taken from the divisions of the Separate Account and from
the Guaranteed Principal Account in proportion to the values of this policy in
each of those divisions and in the Guaranteed Principal Account (excluding
outstanding policy loans). Deductions will be made, and values will be
determined, on the valuation date which is on, or next follows, the latest of:
o The Register Date; or
o The date the deduction is due; or
o The date we receive the amount of premium needed to prevent
termination in accordance with the Grace Period And Termination
provision in this Part.
Deductions from the Separate Account are made by selling accumulation units at
their value on the date determined above.
We assess monthly charges of three types:
1. ADMINISTRATIVE CHARGE. The amount of this charge will be determined by us.
However, it will not be greater than $8.00 per month.
2. MORTALITY CHARGE. The maximum monthly mortality charges for each $1,000 of
insurance which requires a charge are shown in the Table(s) Of Maximum Monthly
Mortality Charges. There is one table for the original Selected Face Amount and
any increases that have the same maximum charges as shown in the table. If any
increase in the Selected Face Amount has different maximum charges because it
is in a different underwriting classification, those charges will be shown in
the table which applies to that increase. If there is more than one table, the
maximum charges in the most recent table will apply to the amount of insurance
which requires a charge, up to the amount to which that table applies. Maximum
charges for any insurance in excess of that amount will be those shown in the
next most recent table(s), up to the amount of each table, using the most
recent table first.
We have the right to charge less than the maximum charges shown in the
table(s). Any change in these charges will apply to all individuals who are in
the same class as the Insured. These charges may differ depending on whether or
not this policy is in a tax-qualified pension or profit sharing plan.
<PAGE> 19
The amount of insurance which requires a charge is determined as follows. This
computation is made as of the date the charge is due. All amounts are computed
as of that date.
a. We compute the account value after all additions and deductions other than
the deduction of the mortality charge.
b. We determine the greater of the Selected Face Amount in effect or the
Minimum Face Amount in effect (as discussed in Part 5). The Minimum Face Amount
used here is based on the account value computed in (a) above.
c. We divide the amount of benefit determined in (b) above by 1 plus the
monthly equivalent (expressed as a decimal fraction) of the minimum annual
interest rate for the Guaranteed Principal Account shown in the Basis Of
Computation section on the Schedule Page.
d. We subtract the account value, as computed in (a) above, from the amount
determined in (c) above. The result is the amount of insurance which requires a
charge.
3. RIDER CHARGE. The monthly charges for any rider are shown in a table of
charges for that rider.
GRACE PERIOD AND TERMINATION
If the account value less any policy debt is not enough to cover the monthly
charges due on a Monthly Calculation Date, we allow a grace period for payment
of the amount of premium needed to increase the account value so that the
monthly deduction can be made. This grace period begins on the date the
deduction is due. It ends 61 days from that date or, if later, 30 days after we
have mailed a written notice to the Owner at the last known address shown on
our records. This notice will state the amount needed to increase the account
value to cover the charges.
During the grace period, the policy will continue in force. The policy will
terminate if we do not receive payment of the required amount by the end of the
grace period.
PART 4. LIFE BENEFITS
A life insurance policy provides a death benefit if the Insured dies while the
policy is in force. There are also rights and benefits that are available
before the Insured dies. These "Life Benefits" are discussed in this Part.
POLICY OWNERSHIP
RIGHTS OF OWNER
While the Insured is living, the Owner may exercise all rights given by this
policy or allowed by us. These rights include assigning this policy, changing
Beneficiaries, changing ownership, enjoying all policy benefits and exercising
all policy options.
The consent of any Irrevocable Beneficiary is needed to exercise any policy
right except the right to:
o Change the frequency of planned premiums.
o Change the premium payment plan.
o Reinstate this policy after termination.
ASSIGNING THIS POLICY
This policy may be assigned. But for any assignment to be binding on us, we
must receive a signed copy of it at our Principal Administrative Office. We
will not be responsible for the validity of any assignment.
-12-
<PAGE> 20
-13-
Once we receive a signed copy, the rights of the Owner and the interest of any
Beneficiary or any other person will be subject to the assignment. An
assignment is subject to any policy debt. See "Borrowing On This Policy" in
this Part for a discussion of policy debt.
CHANGING THE OWNER OR BENEFICIARY
The Owner or any Beneficiary may be changed during the Insured's lifetime. We
do not limit the number of changes that may be made. To make a change, a
written request, satisfactory to us, must be received at our Principal
Administrative Office. The change will take effect as of the date the request
is signed, even if the Insured dies before we receive it. Each change will be
subject to any payment we made or other action we took before receiving the
request.
TRANSFERS OF VALUES
Transfers of values may be made upon written direction satisfactory to us
received at our Principal Administrative Office. These transfers are:
o Transfers of values between divisions of the Separate Account.
These transfers will be made by selling all or part of the
accumulation units in a division and applying the value of the
units sold to purchase units in any other division.
o Transfers of values from one or more divisions of the Separate
Account to the Guaranteed Principal Account. These transfers will
be made by selling all or part of the accumulation units in a
division and applying the value of the units sold to the
Guaranteed Principal Account.
o Transfers of values from the Guaranteed Principal Account to one
or more divisions of the Separate Account. These transfers will be
made by applying all or part of the value in the Guaranteed
Principal Account to purchase accumulation units in one or more
divisions of the Separate Account.
Unit values will be determined as of the valuation date which is on or next
follows the date the written direction is received at our Principal
Administrative Office.
LIMITATIONS ON TRANSFERS
Transfers of values out of the Guaranteed Principal Account to the Separate
Account are limited to one in each Policy Year. Any transfer out of the
Guaranteed Principal Account cannot be more than 25% of the fixed account value
of this policy on the date the transfer is made.
Up to four transfers will be allowed in any one Policy Year. However, this
limitation does not apply to any transfers resulting from a policy loan. In
addition, all values may be transferred to the Guaranteed Principal Account at
any time.
All transfers made on one Valuation Date will be considered one transfer.
SURRENDERING THIS POLICY AND MAKING WITHDRAWALS
RIGHT TO SURRENDER
This policy may be surrendered for its cash surrender value at any time while
the Insured is living. Surrender will be effective on the date we receive this
policy and a written surrender request, satisfactory to us, at our Principal
Administrative Office. A later effective date may be elected in the surrender
request.
CASH SURRENDER VALUE
The cash surrender value is equal to the account value less any surrender
charges that apply and less any policy debt. The surrender charge for this
policy is the sum of the surrender charges for the original Selected Face
Amount and all increases in Selected Face Amount. These charges are shown in
the Table(s) Of Maximum Surrender Charges. There are separate tables of
surrender charges for any increase(s) in the Selected Face Amount.
The charges shown in these tables are maximum charges. We have the right to
charge less than the maximum charges.
<PAGE> 21
MAKING WITHDRAWALS
While the Insured is living, withdrawals may be made on any Monthly Calculation
Date after six months from the Policy Date. The request for a withdrawal must
be written and satisfactory to us. It must state the Account (or Accounts) from
which the withdrawal will be made. For any withdrawal from the Separate
Account, the request must also state the division (or divisions) from which the
withdrawal will be made.
Withdrawals from the Guaranteed Principal Account will be made by reducing the
value in that Account to provide the withdrawal including any withdrawal charge
that applies to that withdrawal. Withdrawals from a division (or divisions) of
the Separate Account will be made by selling a sufficient number of
accumulation units to provide the withdrawal including any withdrawal charge
that applies to that withdrawal. Each withdrawal will be subject to the limits
set forth below.
o The minimum amount of a withdrawal (before deducting the
withdrawal charge) is $100.
o A withdrawal charge of 2% of the withdrawal, but not more than
$25, will be deducted from the amount of the withdrawal. The
charges shown in the Table Of Surrender Charges do not apply to
any withdrawal.
o The account value remaining after a withdrawal must be at least
equal to the amount shown in the Table Of Minimum Account Values
After Withdrawal.
o The maximum amount of a withdrawal is the cash surrender value of
this policy.
The Selected Face Amount will be automatically reduced by the amount of any
withdrawal. However, the surrender charges for this policy will not be reduced
as the result of this reduction in the Selected Face Amount.
EXAMPLE:
You have a Selected Face Amount of $50,000 and an account value of
$20,000. You make a withdrawal of $5,000. The account value will be
reduced to $15,000 and the Selected Face Amount will be reduced to
$45,000.
HOW WE PAY
Any withdrawal made will be paid in one sum. However, if the entire policy is
surrendered, the cash surrender value may be paid in one sum, or it may be
applied under any payment option elected. See "Part 5. Payment Options".
We may delay paying any surrender or withdrawal value from the Guaranteed
Principal Account for up to six months from the date the request is received at
our Principal Administrative Office.
We may delay paying any surrender or withdrawal value from the Separate Account
during any period that:
o The New York Stock Exchange is closed, except for normal weekend
or holiday closings, or trading is restricted; or
o The Securities and Exchange Commission determines that a state of
emergency exists; or
o The Securities and Exchange Commission permits us to delay payment
for the protection of our policy owners.
If payment is delayed for 30 days or more, we will add interest at an annual
rate of 3%.
BORROWING ON THIS POLICY
RIGHT TO MAKE LOANS
After the first Policy Year, loans can be made on the sole security of this
policy at any time while the Insured is living. However, the policy must be
properly assigned to us before the loan is made. No other collateral is
needed. We refer to all outstanding loans plus accrued interest as "policy
debt".
-14-
<PAGE> 22
-15-
EFFECT OF LOAN
A loan is attributed to each division of the Separate Account and to the
Guaranteed Principal Account in proportion to the values of this policy in each
of those divisions and in the Guaranteed Principal Account (excluding any
outstanding policy loans) at the time of the loan. The amount of the loan
attributed to each division of the Separate Account will be transferred to the
Guaranteed Principal Account. Any such transfer is made by selling accumulation
units in the division and applying the value of those units to the Guaranteed
Principal Account on the date the loan is made. Any interest added to the loan
will be treated as a new loan under this provision.
The amount equal to any outstanding policy loans will be held in the
Guaranteed Principal Account, and will earn interest as described in the
Interest On Fixed Account Value provision.
MAXIMUM LOAN AVAILABLE
The maximum amount that can be borrowed on any date is determined as follows.
1. We subtract from the account value any surrender charges that would apply if
the policy were surrendered on that date.
2. We subtract any policy debt from the amount determined in (1) above. The
amount that results from this subtraction is the maximum amount that can be
borrowed.
INTEREST
Interest on any loan is at an annual rate of not more than 15%. Subject to this
limit, the rate may change from year to year. Each year we will set the rate
that will apply for the next Policy Year.
Each year there is a maximum limit on the interest rate we can set. That limit
is based on a Published Monthly Average. That Average will be:
o The Monthly Average of the Composite Yield on Seasoned Corporate
Bonds as published by Moody's Investors Service, Inc., or any
successor to that Service; or
o If that Monthly Average is no longer published, a substantially
similar average, established by regulation issued by the insurance
supervisory official of the state where this policy was delivered.
Subject to the 15% limit mentioned above, the maximum limit is the Published
Monthly Average for the calendar month ending two months before the Policy Year
begins, or the annual interest rate shown in the Basis Of Computation on the
Schedule Page plus 1%, whichever is higher.
EXAMPLE:
A Policy Year begins on June 10, 19X1. The calendar month ending two
months before that date is March. The loan interest rate for the Policy
Year beginning June 10, 19X1 will not be greater than the Published
Monthly Average for March, 19X1. However, if the Basis Of Computation's
annual interest rate (plus 1%) is higher than the Average, then that rate
(plus 1%) will be the maximum loan interest rate for that Policy Year.
If the maximum limit for a Policy Year is at least 1/2% higher than the rate in
effect for the previous year, we may increase the rate to not more than that
limit.
If the maximum limit for a Policy Year is at least 1/2% lower than the rate in
effect for the previous year, we must decrease the rate to not more than that
limit.
Interest on loans is not due in advance. This interest accrues (builds up) each
day and becomes part of the policy debt as it accrues. Interest payments are
due on each Policy Anniversary Date. If interest is not paid when due, it will
be added to the loan and will bear interest at the rate payable on the loan.
EXAMPLE:
You have a loan of $961.54. The interest due on the Policy Anniversary Date is
$38.46. If it is not paid on that date, we will add it to the existing loan.
The loan will then be $1,000 and interest will be charged on this amount from
then on.
<PAGE> 23
POLICY DEBT LIMIT
Policy debt (including accrued interest) may not equal or exceed the account
value less any surrender charges that apply. If this limit is reached, we can
terminate this policy. To terminate for this reason we must mail written notice
to the Owner and any assignee shown on our records at their last known
addresses. This notice will state an amount that will bring the policy debt
back within the limit. If we do not receive payment within 31 days after the
date we mailed the notice, the account value will be reduced by any surrender
charges that apply and this policy will terminate at the end of those 31 days.
REPAYMENT OF POLICY DEBT
All or part of any policy debt may be repaid at any time while the Insured is
living. However, policy debt can only be repaid while this policy is in force.
Any repayment of policy debt will be attributed to the Guaranteed Principal
Account. Repayments will not result in the transfer of values from the
Guaranteed Principal Account to the divisions of the Separate Account.
OTHER BORROWING RULES
We may delay the granting of any loan attributable to the Guaranteed Principal
Account for up to six months.
We may delay the granting of any loan attributable to the Separate Account
during any period that:
o The New York Stock Exchange is closed, except for normal weekend
or holiday closings, or trading is restricted; or
o The Securities and Exchange Commission determines that a state of
emergency exists; or
o The Securities and Exchange Commission permits us to delay payment
for the protection of our policy owners.
REINSTATING THIS POLICY
WHEN REINSTATEMENT CAN BE MADE
After this policy has terminated, it may be reinstated - that is, put back in
force. However, the policy cannot be reinstated if it has been surrendered for
its cash surrender value. Reinstatement must be made within 5 years after the
date of termination and during the Insured's lifetime.
REQUIREMENTS TO REINSTATE
Evidence of insurability satisfactory to us is required to reinstate. A premium
is also required as a cost to reinstate. That premium must be no less than the
amount necessary to produce an account value equal to three times the monthly
charges due on the Monthly Calculation Date which is on, or next follows, the
date of reinstatement.
RIGHT TO INCREASE SELECTED FACE AMOUNT
INCREASES IN THE SELECTED FACE AMOUNT
While this policy is in force, the Selected Face Amount may be increased upon
written application. Except for any increase elected under an insurability
protection type of rider, evidence of insurability, satisfactory to us, is
required for each increase. Any increase must be for at least $15,000, except
we may adopt rules which establish a lower minimum.
Any increase elected under any insurability protection type of rider will be
effective as directed in that rider. Any other increase in the Selected Face
Amount will be effective on the Monthly Calculation Date which is on, or next
follows, the date we approve the application.
Mortality charges for each increase elected are determined and deducted from
the account value of this policy in accordance with the Monthly Charges
provision. These charges will be deducted from the account value beginning on
the effective date of the increase. Additional surrender charges will apply for
each increase elected.
-16-
<PAGE> 24
-17-
You have a "right to return" any increase in Selected Face Amount as set forth
for a new policy on the cover of this policy. However, this right applies only
to the increase and to any premiums paid on or after the date of the
application for that increase.
LIMITATIONS ON INCREASES
No increase in the Selected Face Amount can be elected:
o Within six months after the Policy Date; or
o Within six months after any previous increase; or
o After the Policy Anniversary Date nearest the Insured's 82nd
birthday.
The limitations on increases in the Selected Face Amount do not apply to any
increase which is elected in accordance with any insurability protection type
of rider this policy has.
EVIDENCE OF INCREASES
If the Selected Face Amount is increased we will send a copy of the application
for the increase and an amended Schedule Page reflecting that increase. We will
also send any Tables pages that may be required. However, we have the right to
require that the policy be sent to us so that the increase can be made.
REPORTS TO OWNER
ANNUAL REPORT
Each year within 30 days after the Policy Anniversary Date we will mail a
report to the Owner. There will be no charge for this report. This report will
show the account value at the beginning of the previous Policy Year and all
premiums paid since that time. It will also show the additions to, and
deductions from, the account value during that Year, and the account value,
death benefit, cash surrender value, and policy debt as of the current Policy
Anniversary Date.
This report will also include any additional information required by applicable
law or regulation.
ILLUSTRATIVE REPORT
In addition to the periodic reports, we will, upon request, send an
illustrative report of projected values to the Owner. We will not charge a fee
for providing an illustrative report on an annual basis. However, if the Owner
requests illustrative reports more frequently, we may charge a reasonable fee,
but only for those additional reports.
PART 5. THE DEATH BENEFIT
The death benefit is the amount of money we will pay when we receive due proof
at our Principal Administrative Office that the Insured died while the policy
was in force. We discuss the death benefit in this Part.
DEATH BENEFIT
If the Insured dies while this policy is in force, the death benefit is the
greater of:
o The Selected Face Amount in effect on the date of death; or
o The Minimum Face Amount in effect on the date of death;
with the following additions and deductions.
We add that part of any monthly deduction which applies to a period beyond the
date of death. We deduct any policy debt outstanding on the date of death. We
also deduct any unpaid monthly charges to the date of death.
The Selected Face Amount is shown on the Schedule Page. The Minimum Face Amount
is discussed in the provision which follows.
<PAGE> 25
MINIMUM FACE AMOUNT
In order to qualify as life insurance under the federal tax
laws in effect on the Issue Date, this policy has a Minimum Face Amount. The
Minimum Face Amount on any date is a percentage of the account value on that
date. The percentage for each Policy Year is shown in the Table Of Minimum Face
Amount Percentages in this policy.
EXAMPLE:
The Minimum Face Amount is determined on June 10, 19X1. The account value
on that date is $50,000. The last Policy Anniversary Date was May 2, 19X1.
If the applicable Minimum Face Amount Percentage for the Policy Year
beginning May 2, 19XI is 260%, then the Minimum Face Amount is 260% of
$50,000, or $130,000.
The Minimum Face Amount increases and decreases directly with changes in the
account value. The account value may increase or decrease in accordance with
the experience of the Separate Account as discussed in "Part 3. Accounts,
Values, And Charges."
WHEN WE PAY
The death benefit will be paid within seven days of the date we receive due
proof of the Insured's death, and any other requirements necessary for us to
make payment, at our Principal Administrative Office. However, we may delay
payment of the death benefit during any period that:
o The New York Stock Exchange is closed, except for normal weekend
or holiday closings, or trading is restricted; or
o The Securities and Exchange Commission determines that a state of
emergency exists; or
o The Securities and Exchange Commission permits us to delay payment
for the protection of our policy owners.
INTEREST ON DEATH BENEFIT
If the death benefit is paid in one sum, we will add interest from the date of
death to the date of payment. The amount of interest will be the same as would
be paid under Option D of the payment options for that period of time. See
"Part 6. Payment Options" for a description of Option D.
If the death benefit is applied under a payment option, interest will be paid
from the date of death to the effective date of that option. It will be paid in
one sum to the Beneficiary living on that effective date. The amount of
interest will be the same as would be paid under Option D for that period of
time.
SUICIDE EXCLUSION
Except for any increases in the Selected Face Amount, we will pay a limited
death benefit if the Insured commits suicide, while sane or insane, within two
years from the Issue Date and while this policy is in force. The limited death
benefit will be the amount of premiums paid for this policy, less any policy
debt.
For any increases in the Selected Face Amount, we will pay a limited death
benefit if the Insured commits suicide, while sane or insane, within two years
from the effective date of the increase and while it is in force. The limited
death benefit will be the monthly deductions made for that increase. However,
if the limited death benefit as described in the preceding paragraph is
payable, there will be no death benefit for the increase.
Any limited death benefit will be paid in one sum to the Beneficiary.
PART 6. PAYMENT OPTIONS
These are Optional Methods Of Settlement. They provide alternate ways in which
payment can be made.
-18-
<PAGE> 26
-19-
AVAILABILITY OF OPTIONS
All or part of the death benefit or cash surrender value may be applied under
any payment option. If this policy is assigned, any amount due to the assignee
will be paid in one sum. The balance, if any, may be applied under any payment
option.
MINIMUM AMOUNTS
If the amount to be applied under any option for any one person is less than
$2,000, we may pay that amount in one sum instead. If the payments under any
option come to less than $20 each, we have the right to make payments at less
frequent intervals.
DESCRIPTION OF OPTIONS
Our payment options are described below. Any other payment option agreed to by
us may be elected.
If the Schedule Page shows that this policy was issued on a unisex rate basis,
the female rates shown in the Option C, E and F Tables apply in all cases. The
male rates in those tables do not apply to unisex rate policies.
OPTION A
FIXED AMOUNT PAYMENT OPTION. Each monthly payment will be for an agreed fixed
amount. The amount of each payment may not be less than $10 for each $1,000
applied. Interest will be credited each month on the unpaid balance and added
to it. This interest will be at a rate determined by us, but not less than the
equivalent of 3% per year. Payments continue until the amount we hold runs out.
The last payment will be for the balance only.
OPTION B
FIXED TIME PAYMENT OPTION. Equal monthly payments will be made for any period
selected, up to 30 years. The amount of each payment depends on the total
amount applied, the period selected and the monthly payment rates we are using
when the first payment is due. The rate of any payment will not be less than
shown in the Option B Table.
OPTION B TABLE
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
MONTHLY MONTHLY
YEARS PAYMENT YEARS PAYMENT
<S> <C> <C> <C>
1 $84.47 16 $6.53
2 42.86 17 6.23
3 28.99 18 5.96
4 22.06 19 5.73
5 17.91 20 5.51
6 15.14 21 5.32
7 13.16 22 5.15
8 11.68 23 4.99
9 10.53 24 4.84
10 9.61 25 4.71
11 8.86 26 4.59
12 8.24 27 4.47
13 7.71 28 4.37
14 7.26 29 4.27
15 6.87 30 4.18
</TABLE>
<PAGE> 27
OPTION C
LIFETIME PAYMENT OPTION. Equal monthly payments are based on the life of a
named person. Payments will continue for the lifetime of that person. The three
variations are:
(1) PAYMENTS FOR LIFE ONLY. No specific number of payments is guaranteed.
Payments stop when the named person dies.
(2) PAYMENTS GUARANTEED FOR AMOUNT APPLIED. Payments stop when they equal the
amount applied or when the named person dies, whichever is later.
(3) PAYMENTS GUARANTEED FOR 5, 10 OR 20 YEARS. Payments stop at the end of the
selected guaranteed period or when the named person dies, whichever is later.
The Option C Table shows the minimum monthly payment for each $1,000 applied.
The actual payments will be based on the monthly payment rates we are using
when the first payment is due. They will not be less than shown in the Table.
OPTION C TABLE
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
PAYMENTS PAYMENTS GUARANTEED FOR
AGE* FOR LIFE AMOUNT 5 10 20
MALE FEMALE ONLY APPLIED YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
35 40 $3.30 $3.25 $3.29 $3.28 $3.27
40 45 3.47 3.41 3.46 3.45 3.43
45 50 3.69 3.60 3.68 3.67 3.62
50 55 3.96 3.83 3.95 3.93 3.85
55 60 4.31 4.13 4.30 4.27 4.14
60 65 4.77 4.49 4.75 4.70 4.44
65 70 5.41 4.96 5.38 5.26 4.77
70 75 6.30 5.56 6.21 5.96 5.07
75 80 7.50 6.31 7.30 6.77 5.30
80 85 9.16 7.29 8.72 7.64 5.43
85 11.48 8.54 10.46 8.44 5.49
</TABLE>
*Age on birthday nearest due date of the first payment. Monthly
payment rates for ages not shown will be furnished on request.
Monthly payment rates for ages over 85 are the same as those for 85.
OPTION D
INTEREST PAYMENT OPTION. We will hold any amount applied under this option.
Interest on the unpaid balance will be paid each month at a rate determined by
us. This rate will be not less than the equivalent of 3% per year.
-20-
<PAGE> 28
- 21 -
OPTION E
JOINT LIFETIME PAYMENT OPTION. Equal monthly payments are based on the lives of
two named persons. While both are living, one payment will be made each month.
When one dies, the same payment will continue for the lifetime of the other.
The two variations are:
(1) PAYMENTS FOR TWO LIVES ONLY. No specific number of payments is guaranteed.
Payments stop when both named persons have died.
(2) PAYMENTS GUARANTEED FOR 10 YEARS. Payments stop at the end of 10 years, or
when both named persons have died, whichever is later.
The Option E Table shows the minimum monthly payment for each $1,000 applied.
The actual payments will be based on the monthly payment rates we are using
when the first payment is due. They will not be less than shown in the Table.
OPTION E TABLE
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
PAYMENTS FOR TWO LIVES ONLY
<TABLE>
<CAPTION>
M50 M55 M60 M65 M70 M75
AGE* F55 F60 F65 F70 F75 F80
M F
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $3.53 $3.64 $3.72 $3.80 $3.85 $3.89
55 60 3.64 3.78 3.91 4.03 4.12 4.18
60 65 3.72 3.91 4.10 4.27 4.42 4.54
65 70 3.80 4.03 4.27 4.52 4.76 4.97
70 75 3.85 4.12 4.42 4.76 5.11 5.44
75 80 3.89 4.18 4.54 4.97 5.44 5.92
80 85 3.91 4.23 4.63 5.12 5.71 6.36
</TABLE>
PAYMENTS GUARANTEED FOR 10 YEARS
<TABLE>
<CAPTION>
M50 M55 M60 M65 M70 M75
AGE* F55 F60 F65 F70 F75 F80
M F
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $3.52 $3.63 $3.71 $3.79 $3.84 $3.88
55 60 3.63 3.77 3.90 4.02 4.11 4.17
60 65 3.71 3.90 4.09 4.26 4.41 4.53
65 70 3.79 4.02 4.26 4.51 4.75 4.94
70 75 3.84 4.11 4.41 4.75 5.08 5.38
75 80 3.88 4.17 4.53 4.94 5.38 5.82
80 85 3.90 4.22 4.61 5.08 5.62 6.19
</TABLE>
* Age on birthday nearest the due date of the first payment. Monthly payment
rates for ages not shown will be furnished on request. Monthly payment
rates for ages over 85 are the same as those for 85.
<PAGE> 29
OPTION F
JOINT LIFETIME PAYMENT OPTION WITH REDUCED PAYMENTS. Monthly payments are based
on the lives of two named persons. Payments will continue while both are
living. When one dies, payments are reduced by one-third and will continue for
the lifetime of the other. Payments stop when both persons have died.
The Option F Table shows the minimum monthly payment for each $1,000 applied.
The actual payments will be based on the monthly payment rates we are using
when the first payment is due.
They will not be less than shown in the Table.
OPTION F TABLE
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
M50 M55 M60 M65 M70 M75
Age* F55 F60 F65 F70 F75 F80
M F
<S> <C> <C> <C> <C> <C> <C> <C>
50 55 $3.80 $3.94 $4.10 $4.28 $4.47 $4.66
55 60 3.94 4.11 4.30 4.51 4.73 4.96
60 65 4.10 4.30 4.52 4.77 5.05 5.33
65 70 4.28 4.51 4.77 5.08 5.42 5.77
70 75 4.47 4.73 5.05 5.42 5.85 6.30
75 80 4.66 4.96 5.33 5.77 6.30 6.88
80 85 4.86 5.19 5.61 6.13 6.77 7.51
</TABLE>
* Age on birthday nearest the due date of the first payment. Monthly payment
rates for ages not shown will be furnished on request. Monthly payment
rates for ages over 85 are the same as those for 85.
ELECTING A PAYMENT OPTION
To elect any option, we require that a written request, satisfactory to us, be
received at our Principal Administrative Office. The Owner may elect an option
during the Insured's lifetime. If the death benefit is payable in one sum when
the Insured dies, the Beneficiary may elect an option with our consent.
Options for any amount payable to an association, corporation, partnership or
fiduciary are available with our consent. However, a corporation or partnership
may apply any amount payable to it under Option C, E or F if the option
payments are based on the life or lives of the Insured, the Insured's spouse,
any child of the Insured, or any other person agreed to by us.
EFFECTIVE DATE AND PAYMENT DATES
The effective date of an option is the date the amount is applied under that
option. For a death benefit, this is the date that due proof of the Insured's
death is received at our Principal Administrative Office. For the cash
surrender value, it is the effective date of surrender.
The first payment is due on the effective date, except the first payment under
Option D is due one month later. A later date for the first payment may be
requested in the payment option election. All payment dates will fall on the
same day of the month as the first one. No payment will become due until a
payment date. No part payment will be made for any period shorter than the time
between payment dates.
EXAMPLE:
Monthly payments of $100 are being made to your son on the lst of each
month. He dies on the 1Oth. No part payment is due your son or his estate
for the period between the 1st and the 1Oth.
- 22 -
<PAGE> 30
-23-
WITHDRAWALS AND If provided in the payment option election, all or part of
CHANGES the unpaid balance under Options A or D may be withdrawn or
applied under any other option.
If the cash surrender value is applied under Option A or D,
we may delay payment of any withdrawal for up to six
months. Interest at the rate in effect for Option D during
this period win be paid on the amount withdrawn.
INCOME PROTECTION To the extent permitted by law, each option payment and any
withdrawal shall be free from legal process and the claim
of any creditor of the person entitled to them. No option
payment and no amount held under an option can be taken or
assigned in advance of its payment date, unless the Owner's
written consent is given before the Insured dies. This
consent must be received at our Principal Administrative
Office.
PART 7. NOTES ON OUR COMPUTATIONS
This Part covers some technical points about this policy.
NET INVESTMENT For each division of the Separate Account, the Net
FACTOR Investment Factor for any valuation period is the gross
investment rate for that period plus 1.00000000 and minus
an asset charge. This asset charge will be not more
than .00001094 for each day of a valuation period. The Net
Investment Factor may be greater or less than 1.00000000.
For each division of the Separate Account, the gross
investment rate for any valuation period is equal to:
o The net earnings of that division during the valuation
period, divided by
o The value of the total assets of that division at the
beginning of the valuation period.
The net earnings of each division are equal to the accrued
investment income and capital gains and losses (realized
and unrealized) of that division reduced by any amount
charged against that division for taxes paid or reserved
for by us. The gross investment rate win be determined by
us in accordance with generally accepted accounting
principles and applicable laws, rules and regulations. This
determination shall be conclusive upon the Owner, the
Insured, any Beneficiary and any assignee and any other
person under this policy.
ACCUMULATION UNIT The value of an accumulation unit in each division was set
VALUE at $1.00000000 on the first valuation date selected by us.
The value on any date thereafter is equal to the product of
the Net Investment Factor for that division for the
valuation period which includes that date and the
accumulation unit value on the preceding valuation date.
ADJUSTMENTS OF We have the right to split or consolidate the number of
UNITS AND VALUES accumulation units credited to the policy, with a
corresponding increase or decrease in the unit values. We
may exercise this right whenever we consider an adjustment
of units to be desirable. However, strict equity will be
preserved in making any adjustment. No adjustment will have
any material effect on the benefits, provisions or
investment return of this policy, or on the Owner, Insured,
any Beneficiary, any assignee or other person, or on us.
BASIS OF The Basis Of Computation is the mortality table and
COMPUTATION interest rate we use to determine:
o The minimum cash surrender values;
o The maximum monthly mortality charges;
o The minimum annual interest earned on the fixed
account value of the policy; and
o The minimum payments under Payment Options C, E and F.
<PAGE> 31
The Basis Of Computation for the minimum cash surrender
values, for the maximum monthly mortality charges and for
the minimum interest earned on the fixed account value of
the policy is shown on the Schedule Page. The mortality
table specified on the Schedule Page applies to amounts in
a standard underwriting classification. Appropriate
modifications are made to this table for any amount which
is not in a standard underwriting classification.
In computing the minimum payments under Payment Options C,
E and F, we use mortality rates from the 1983 Table "a"
with Projection G for 30 years and with female rates set
back five years. The interest used is at an annual rate of
3%.
METHOD OF COMPUTING VALUES
When required by the state where this policy was delivered,
we filed a detailed statement of the method we use to
compute the policy benefits and values. These benefits and
values are not less than those required by the laws of that
state.
-24-
<PAGE> 32
ENDORSEMENT
MODIFICATION OF
INTEREST
PROVISION
The INTEREST provision in the BORROWING ON THIS POLICY section was changed
before this policy was signed by us. This change removes that provision and
replaces it with the provision set forth below.
"Interest on any loan is at an annual rate of not more than 15%. Subject
to this limit, the rate may change from year to year. Each year we will
set the rate that will apply for the next Policy Year.
Each year there is a maximum limit on the interest rate we can set. That
limit is based on a Published Monthly Average. That Average will be:
o The Monthly Average of the Composite Yield on Seasoned Corporate
Bonds as published by Moody's Investors Service, Inc., or any
successor to that Service; or
o If that Monthly Average is no longer published, a substantially
similar average, established by regulation issued by the insurance
supervisory official of the state where this policy was delivered.
Subject to the 15% limit mentioned above, the maximum limit is the
Published Monthly Average for the calendar month ending two months before
the Policy Year begins, or the annual interest rate shown in the Basis Of
Computation on the Schedule Page plus 1%, whichever is higher.
EXAMPLE: A Policy Year begins on June 10, 19XI. The calendar month ending
two months before that date is March. The loan interest rate for
the Policy Year beginning June 10, 19XI will not be greater than
the Published Monthly Average for March, 19XI. However, if the
Basis Of Computation's annual interest rate (plus 1%) is higher
than the Average, then that rate (plus 1%) will be the maximum
loan interest rate for that Policy Year.
If the maximum limit for a Policy Year is at least 1/2% higher than the
rate in effect for the previous year, we may increase the rate to not more
than that limit.
If the maximum limit for a Policy Year is at least 1/2% lower than the
rate in effect for the previous year, we must decrease the rate to not
more than that limit.
Interest on loans is not due in advance. This interest accrues (builds up)
each day and becomes part of the policy debt as it accrues. Interest
payments are due on each Policy Anniversary Date. If interest is not paid
when due, it will be added to the loan and will bear interest at the rate
payable on the loan.
EXAMPLE: You have a loan of $961.54. The interest due on the Policy
Anniversary Date is $38.46. If it is not paid on that date, we
will add it to the existing loan. The loan will then be $1,000
and interest will be charged on this amount from then on."
MML BAY STATE LIFE INSURANCE COMPANY
/s/ THOMAS J. LOFTUS Secretary
<PAGE> 1
EXHIBIT 6.18
INSURED - DAVID W. EBNER
POLICY NUMBER - 63-514-561
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A Delaware Corporation)
THE CORPORATION will pay the benefits of this policy in accordance with its
provisions. The pages which follow are also a part of this policy.
RIGHT TO EXAMINE POLICY. THIS PROVISION DOES NOT APPLY. Please examine your
policy. Within 20 days after delivery, you can return the policy to the
Corporation or to the Registered Representative through whom it was purchased.
If this option is returned, the policy will be void from the start and a refund
will be made. The amount we refund will equal the greater of the policy's cash
value as of the date the policy is returned or the premiums paid, less loans
and withdrawals. THIS PROVISION DOES NOT APPLY.
VARIABLE LIFE INSURANCE BENEFIT. THE LIFE INSURANCE BENEFIT OF THIS POLICY MAY
INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE
ACCOUNT AND THE LIFE INSURANCE BENEFIT OPTION SELECTED. FURTHER INFORMATION
REGARDING THIS BENEFIT IS GIVEN IN THE LIFE INSURANCE BENEFIT SECTION ON PAGE 4
OF THE POLICY.
CASH VALUE. TO THE EXTENT THE POLICY'S CASH VALUE IS ALLOCATED TO THE SEPARATE
ACCOUNT, THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY REFLECTING THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THE METHOD OF DETERMINING THE
CASH VALUE IS DESCRIBED IN THE CASH VALUE AND LOANS SECTION. THERE IS NO
GUARANTEED MINIMUM CASH VALUE.
PAYMENT OF PREMIUMS. While this policy is in force, premiums can be paid at
any time before the policy anniversary on which the Insured is age 95, and while
the Insured is living. They can be paid at any interval or by any method we
make available, subject to the Premiums section. The amount and interval of
scheduled premiums, as stated in the application for this policy, are shown on
the Policy Data page.
ANNUAL REPORT TO OWNER. An annual report in connection with this policy will
be provided to you without charge. This report will tell you how much cash
value and cash surrender value there is as of the most recent policy
anniversary, together with the amount of any unpaid loan. The report will also
give you any other facts required by state law or regulation.
/s/ SY STARBIN
President
/s/ GEORGE J. TRAPP
Secretary
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
Variable Life Insurance Benefit - Flexible Premium Payments
Proceeds Payable at Insured's Death.
AMOUNT OF VARIABLE LIFE INSURANCE OR CASH VALUE
PROCEEDS MAY VARY, REFLECTING INVESTMENT EXPERIENCE
OF SEPARATE ACCOUNT.
No Premiums Payable on or After Age 95.
Policy is Non-Participating.
<PAGE> 2
INSURED - DAVID W. EBNER INSURED'S AGE AND SEX
AT ISSUE - 35 MALE
POLICY NUMBER - 63 514 561 INSURED'S CLASS
OF RISK - NON-SMOKER
POLICY/ISSUE DATE - JUNE 28, 1995 LIFE INSURANCE BENEFIT OPTION - 1
INITIAL FACE AMOUNT - $550,000
BENEFICIARY/OWNER AS DESIGNATED IN THE APPLICATION UNLESS CHANGED AS PROVIDED
IN THE POLICY.
SCHEDULED PREMIUM PAYABLE* AT MONTHLY INTERVALS: $500.00
GUIDELINE ANNUAL PREMIUM: $7,672.99
<TABLE>
<CAPTION>
ADDITIONAL
BENEFITS AMOUNT MONTHLY RIDER COSTS
- ---------- ------ -------------------
<S> <C> <C>
N/A
</TABLE>
* PREMIUMS CANNOT BE PAID ON OR AFTER THE POLICY ANNIVERSARY ON WHICH THE
INSURED IS AGE 95, WHICH IS JUNE 28, 2055. COVERAGE WILL EXPIRE WHEN THE
CASH VALUE, LESS SURRENDER CHARGES, AND ANY UNPAID LOANS AND ACCRUED
INTEREST IS INSUFFICIENT TO COVER THE MONTHLY DEDUCTION. IN ADDITION,
BECAUSE POLICY VALUES ARE BASED ON THE INVESTMENT PERFORMANCE OF THE
SEPARATE ACCOUNT, PAYMENT OF PREMIUMS IN ANY FREQUENCY OR AMOUNT WILL NOT
GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE TO THE DATE SHOWN.
MONTHLY DEDUCTION DAY IS THE TWENTY EIGHTH DAY OF EACH CALENDAR MONTH.
9390TX-2 PAGE 2 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 3
POLICY NUMBER - 63 514 561 INSURED - DAVID W. EBNER
TABLE OF EXPENSE CHARGES
MONTHLY DEDUCTION CHARGE CONSISTS OF:
- - AN ANNUAL CONTRACT CHARGE NOT TO EXCEED $324.00 IN THE FIRST POLICY YEAR AND
$96.00 IN EACH POLICY YEAR THEREAFTER. THESE CHARGES ARE DEDUCTED ON A
MONTHLY BASIS. THE EXCESS OF THE CONTRACT CHARGE FOR THE FIRST POLICY YEAR
OVER THE AMOUNT OF THE CONTRACT CHARGE APPLICABLE IN A RENEWAL YEAR IS
DEFERRED TO THE EARLIER OF THE FIRST POLICY ANNIVERSARY OR THE SURRENDER OF
THE POLICY. HOWEVER, IF THE POLICY IS SURRENDERED IN THE FIRST POLICY YEAR,
THE FULL FIRST YEAR CONTRACT CHARGE IS DEDUCTED.
- - MONTHLY COST OF INSURANCE FOR BASIC POLICY.
- - MONTHLY COST OF ANY RIDERS.
OTHER CHARGES AGAINST THE POLICY:
- - PERCENT OF SALES EXPENSE CHARGE NOT TO EXCEED 5% OF ANY PREMIUM PAID.
- - PREMIUM TAX CHARGE OF 2% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS SUBTRACTED
FROM EACH PREMIUM PAYMENT. WE RESERVE THE RIGHT TO CHANGE THIS PERCENTAGE TO
CONFORM TO CHANGES IN THE LAW.
- - FEDERAL TAX CHARGE OF 1.25% OF EACH PREMIUM PAYMENT. THIS AMOUNT IS
SUBTRACTED FROM EACH PREMIUM PAYMENT. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE TO CONFORM TO CHANGES IN THE LAW.
9390TX-2.1 PAGE 2.1 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 4
POLICY NUMBER - 63 514 564 INSURED - DAVID W. EBNER
TABLE OF MAXIMUM SURRENDER CHARGES
Policy Surrender
Year Charge
------ ---------
1 $3,267.79
2 $3,267.79
3 $3,267.79
4 $3,267.79
5 $3,267.79
6 $3,267.79
7 $2,941.01
8 $2,614.23
9 $2,287.45
10 $1,960.67
11 $1,633.90
12 $1,307.12
13 $ 980.34
14 $ 653.56
15 $ 326.78
THIS TABLE APPLIES TO THE INITIAL FACE AMOUNT FOR THE NUMBER OF YEARS SHOWN
ABOVE. THE ACTUAL SURRENDER CHARGE, WHICH APPLIES IN ANY YEAR, IS DESCRIBED IN
THE MOST CURRENT PROSPECTUS WHICH IS ON FILE WITH THE SEC.
PARTIAL WITHDRAWALS ARE SUBJECT TO A PROCESSING CHARGE OF THE LESSER OF $25 OR
2% OF THE AMOUNT WHICH IS BEING WITHDRAWN. THE MINIMUM AMOUNT THAT MAY BE
WITHDRAWN IS $500.
9390-2.2 PAGE 2.2 NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIFE Distributors Inc., Distributor, 51 Madison Avenue, New York, NY 10010
<PAGE> 5
TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES
(PER $1,000)
GUARANTEED
MALE
<TABLE>
<CAPTION>
ATTAINED ATTAINED
AGE AGE
<S> <C> <C> <C>
0 .35 48 .48
1 .09 49 .52
2 .08 50 .56
3 .08 51 .61
4 .08 52 .66
5 .08 53 .73
6 .07 54 .80
7 .06 55 .87
8 .06 56 .96
9 .06 57 1.04
10 .06 58 1.13
11 .06 59 1.23
12 .07 60 1.34
13 .08 61 1.46
14 .10 62 1.60
15 .11 63 1.76
16 .13 64 1.93
17 .14 65 2.12
18 .15 66 2.33
19 .16 67 2.54
20 .16 68 2.77
21 .16 69 3.02
22 .16 70 3.30
23 .16 71 3.62
24 .15 72 3.99
25 .15 73 4.41
26 .14 74 4.87
27 .14 75 5.38
28 .14 76 5.91
29 .14 77 6.47
30 .14 78 7.04
31 .15 79 7.65
32 .15 80 8.31
33 .16 81 9.04
34 .17 82 9.87
35 .18 83 10.80
36 .19 84 11.83
37 .20 85 12.91
38 .22 86 14.04
39 .23 87 15.19
40 .25 88 16.37
41 .27 89 17.58
42 .30 90 18.83
43 .32 91 20.15
44 .35 92 21.58
45 .38 93 23.20
46 .41 94 25.28
47 .44
</TABLE>
POLICY DATA NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
<PAGE> 6
WE & YOU
In this policy, the words "we", When you write to us, please
"our" or "us" refer to New York include the policy number,
Life Insurance and Annuity the Insured's full name,
Corporation, and the words and your current address.
"you" or "your" refer
to the owner of this policy.
CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECTION PROVISIONS PAGE
- ------- ---------- ----
<S> <C> <C>
POLICY DATA PAGES 2
ONE LIFE INSURANCE BENEFITS 4
TWO OWNER AND BENEFICIARY 5
THREE POLICY CHANGES 5-6
FOUR PREMIUMS 6-7
FIVE SEPARATE ACCOUNT 8-10
(Separate Account Charges)
SIX FIXED ACCOUNT 10
SEVEN CASH VALUE AND LOANS 10-13
(Policy Charges)
EIGHT PAYMENT OF POLICY PROCEEDS 13-14
NINE GENERAL PROVISIONS 15-16
APPLICATION-Attached to the Policy
RIDERS OR ENDORSEMENTS
(IF ANY)-Attached to the Policy
</TABLE>
NOTE: This policy is a legal contract between the policyowner and the
Corporation.
PLEASE READ THIS POLICY CAREFULLY FOR FULL DETAILS.
PAGE 3
<PAGE> 7
SECTION ONE - LIFE INSURANCE BENEFITS
1.1 IS A LIFE INSURANCE BENEFIT PAYABLE UNDER THIS POLICY? We will pay the
life insurance proceeds to the beneficiary promptly, when we have proof
that the Insured died while the life insurance under this policy was in
effect.
1.2 WHAT IS THE AMOUNT OF LIFE INSURANCE PROCEEDS WHICH ARE PAYABLE UNDER
THIS POLICY? The proceeds payable under this policy will be based on
the Life Insurance Benefit Option in effect on the date of death, and
any increases or decreases that are made in the initial face amount
shown on the Policy Data page. We will deduct any unpaid loan and
accrued interest. The Policy Changes section of this policy contains
information about how to change this policy. It also provides details
about the effect of any change on the Life Insurance Benefit.
1.3 WHAT ARE THE LIFE INSURANCE BENEFIT OPTIONS WHICH ARE AVAILABLE UNDER
THIS POLICY? The amount of life insurance benefit payable under this
policy will be determined in accordance with one of the following
options:
OPTION 1 - This option provides a life insurance benefit option equal
to the greater of the face amount of the policy or a percentage of the
cash value equal to the minimum necessary for this policy to qualify as
life insurance under Section 7702 of the Internal Revenue Code. (See
the following table for these percentage.)
OPTION 2 - This option provides a life insurance benefit option equal
to or greater to the face amount of the policy plus the cash value or a
percentage of the cash value equal to the minimum necessary for this
policy to qualify as life insurance under Section 7702 of the Internal
Revenue Code (See the following table for these percentages.)
===============================================================================
<TABLE>
<CAPTION>
Insured's Age Insured's Age
on Policy % of Cash on Policy % of Cash
Anniversary Value Anniversary Value
- ----------- ------------ ------------ -------------
<S> <C> <C> <C>
0-40 250 68 117
41 243 69 116
42 236 70 115
43 229 71 113
44 222 72 111
45 215 73 109
46 209 74 107
47 203 75 105
48 197 76 105
49 191 77 105
50 185 78 105
51 178 79 105
52 171 80 105
53 164 81 105
54 157 82 105
55 150 83 105
56 146 84 105
57 142 85 105
58 138 86 105
59 134 87 105
60 130 88 105
61 128 89 105
62 126 90 105
63 124 91 104
64 122 92 103
65 120 93 102
66 119 94 101
67 118 95&Over 100
</TABLE>
1.4 WHAT HAPPENS WHEN THE INSURED REACHES AGE 95? Beginning on the
anniversary on which the Insured is age 95, the face amount of this
policy shown on the Policy Data page will no longer apply. Instead,
the Life Insurance Benefit of this policy will equal the cash value, as
defined in Section 7.1. No further monthly deductions will be made for
cost of insurance. You can surrender the policy for the cash value
proceeds in your signed written request which gives us the facts that
we need. We will deduct any unpaid loan and accrued interest. If this
policy is still in force upon the death of the Insured, these proceeds
will be paid to the beneficiary.
Any insurance on an Other Covered Insured, provided by a rider attached
to the policy, which is still in effect will end on the policy
anniversary when the Insured under this policy is age 95. However, if
an Other Covered Insured is younger than age 70 when the rider ends,
that insured can convert the term insurance at that time as provided in
the rider.
PAGE 4
<PAGE> 8
SECTION TWO - OWNER AND BENEFICIARY
2.1 WHO IS THE OWNER OF THIS POLICY? The owner of this policy is stated on
the Policy Data page. In this policy, the words "you" and "your" refer
to the policyholder.
2.2 CAN A SUCCESSOR TO THE OWNER BE NAMED? A successor owner can be named
in the application, or in a notice you sign which gives us the facts
that we need. If you die before the successor owner, the successor
owner will become the new owner. If no successor survives you and you
die before the Insured, your estate becomes the new owner.
2.3 HOW DO YOU CHANGE THE OWNER OF THIS POLICY? You may change the owner
of this policy, from yourself to a new owner, in a notice you sign
which gives us the facts that we need. This change will take effect as
of the date you signed the notice, subject to any payment we made or
action we took before recording this change When this change takes
effect, all rights of ownership will pass to the new owner. Changing
the owner cancels any prior choice of owner, but does not change the
beneficiary.
2.4 MAY MORE THAN ONE BENEFICIARY BE NAMED FOR THIS POLICY? One or more
beneficiaries for any life insurance proceeds may be named in the
application. If more than one beneficiary is named, they can be classed
as first, second and so on. If 2 or more are named in a class, their
shares in the proceeds are equal, unless you state otherwise. The
stated shares of the proceeds will be paid to any first beneficiaries
who survive the Insured. If no first beneficiaries survive, payment
will be made to any beneficiaries surviving in the second class, and so
on.
2.5 MAY YOU CHANGE A BENEFICIARY? While the Insured is living, you can
change a beneficiary in a notice you sign which gives us the facts that
we need. This change will take effect as of the date you signed the
notice, subject to any payment we made or action we took before
recording the change.
2.6 WHAT HAPPENS IF NO BENEFICIARIES ARE LIVING WHEN THE PROCEEDS BECOME
PAYABLE? If no beneficiary for the life insurance proceeds, or for a
stated share, survives the Insured, the right to these proceeds, or
this share, will pass to you. If you are the Insured, this right will
pass to your estate.
2.7 WHAT IF THE BENEFICIARY AND THE INSURED DIE AT THE SAME TIME? Unless
stated otherwise in the policy or in your signed notice which is in
effect at the Insured's death, if any beneficiary dies at the same time
as the Insured, or within 15 days after the Insured but before we
receive proof of the Insured's death, we will pay the proceeds as
though that beneficiary died first.
SECTION THREE - POLICY CHANGES
3.1 WHAT CHANGES MAY YOU MAKE TO THIS POLICY? You can apply in writing to
have the face amount increased or decreased (without changing the Life
Insurance Benefit Option), or have the Life Insurance Benefit Option
changed. As described in this section, we reserve the right to limit
increases in the face amount, and to limit decreases in the face amount
and Life Insurance Benefit Option changes in the first policy year on a
uniform basis by class. Changes may only be made while the Insured is
living, and only if this policy would continue to qualify as Life
Insurance, as defined under Section 7702 of the Internal Revenue Code.
See Section 7.4 for further information regarding decreases in face
amount and changes in the Life Insurance Benefit Option.
PAGE 5
<PAGE> 9
SECTION THREE - POLICY CHANGES (CONTINUED)
3.2 WHAT HAPPENS WHEN YOU APPLY TO INCREASE THE POLICY FACE AMOUNT? You can
have the face amount of this policy increased, only once a year, unless
we agree otherwise, subject to our minimum amount requirements and our
Corporation's maximum retention limits. To increase the face amount, we
must have your written application, also signed by the Insured, together
with any proof of insurability that we require. Any increase will take
effect on the Monthly Deduction Day on or after the day we approve the
application for the increase. The cost of insurance for each increase
will based on the Insured's age, sex and class of risk at the time the
increase takes effect, as well as the duration since the increase. A new
set of surrender charges will apply to the increased face amount. We
will tell you the amount of these charges when you apply for the
increase. They will also be shown on a new Policy Data page when
the increase takes effect. For the amount of the increase, new
Incontestability and Suicide Exclusion periods will apply, beginning on
the effective date of such increase.
3.3 WHAT HAPPENS WHEN YOU DECREASE THE FACT AMOUNT? You can decrease the
new face amount only once a year, unless we agree otherwise, provided
the new face amount is at least $50,000. Any decrease will take
effect on the Monthly Deduction Day on or after the day we receive your
signed request at our Home Office.
The decrease will first be applied to reduce the most recent increase
in the face amount. It will then be applied to reduce other increases
in the face amount in the reverse order in which they took place, and
then to the initial face amount.
When the face amount is decreased, we will deduct from the cash value a
surrender charge equal to the difference between the surrender charge
immediately before the decrease and the surrender charge immediately
after the decrease. In assessing this surrender charge, we first take
into account the surrender charge associated with any increases in
face amount in the reverse order made, and the initial face amount.
3.4 WHAT HAPPENS WHEN YOU CHANGE THE LIFE INSURANCE BENEFIT OPTION?
You can change the Life Insurance Benefit Option of this policy only
once a year, unless we agree otherwise. Any change of Option will take
effect on the Monthly Deduction Day on or after the date we receive your
signed request at our Home Office. If you change from Option 1 to Option
2, the face amount of the policy will be decreased by the cash value. If
you change from Option 2 to Option 1, the face amount will be increased
by the cash value.
SECTION FOUR - PREMIUMS
4.1 HOW DO YOU PAY PREMIUMS? At any time before the policy anniversary on
which the Insured is age 95 and while the Insured is living, premiums
can be paid at any interval or by any method we make available.
Premiums are payable at our Home Office, at any other location that we
indicate to you in writing, or to any one of our authorized agents in
exchange for a receipt signed by the President or Secretary of the
Corporation and duly countersigned. The cash value and amount of
insurance under this policy are based on the amount and interval of the
premiums that have been paid. You may pay scheduled premiums and/or
unscheduled premiums.
4.2 WHAT ARE SCHEDULED PREMIUMS? The amount and interval of any scheduled
premiums, as stated in the application, are shown on the Policy Data
page. The first premium is payable as of the policy's date of issue.
A scheduled premium does not have to be paid to keep this policy in
force, if the cash surrender value is enough to cover charges made on
the Monthly Deduction Day. The amount of any scheduled premium may be
increased on decreased subject to the limits we set. The frequency of
premium payments may also be changed subject to our minimum premium
rules. Scheduled premiums end on the policy anniversary on which the
Insured is age 95.
PAGE 6
<PAGE> 10
SECTION FOUR - PREMIUMS (CONTINUED)
4.3 WHAT ARE UNSCHEDULED PREMIUMS? Once a year you may elect to make an
unscheduled premium payment which is in addition to scheduled premiums,
unless we agree otherwise. The Insured must be living, payment must be
made prior to the policy anniversary on which the Insured is age 95 and
the policy must continue to qualify as Life Insurance, as defined under
Section 7702 of the Internal Revenue Code. If an unscheduled premium
payment would result in an increase in the life insurance benefit
greater than the increase in the cash value, we reserve the right to
require proof of insurability before accepting that payment and
applying it to the policy.
4.4 HOW ARE YOUR PREMIUM PAYMENTS ALLOCATED TO THE INVESTMENT DIVISIONS?
When we receive a premium payment, we will deduct a Sales Expense Charge
not to exceed the amount shown on the Policy Data page. We will also
deduct an amount equal to the Premium Tax Charge and the Federal Tax
Charge in effect at the time. The balance of the premium (the net
premium) will be applied to the Separate Account and Fixed Account in
accordance with your allocation election in effect at that time, and
before any other deductions which may be due are made.
4.5 CAN YOUR ALLOCATION ELECTION BE CHANGED? You can change your
allocation election stated in the application by a written request.
Your allocation percentages must total 100%. Each percentage must be
either zero, or a whole number which is at least 1%.
4.6 WHAT HAPPENS IF YOU STOP MAKING PREMIUM PAYMENTS? When premium
payments are not made as scheduled, this policy will continue in effect
as long as the cash value less any surrender charge, policy loan and
accrued interest, is sufficient to pay Monthly Deduction Charges.
4.7 WHAT IS THE LATE PERIOD? If, on a Monthly Deduction Day, the cash
value less any surrender charge, policy loan and accrued interest is
less than the Monthly Deduction Charge for the next policy month, the
policy will continue for a late period of 62 days after that Monthly
Deduction Day. If we do not receive payment before the end of the late
period, the policy will end and there will be no more benefits under
the policy. To inform you of this event, we will mail a notice to your
last known address at least 31 days before the end of the late period.
We will also mail a copy of the notice to the last known address of any
assignee on our records.
4.8 WHAT IF THE INSURED DIES DURING THE LATE PERIOD? If the Insured dies
during the late period, we will pay the policy proceeds. However,
these proceeds will be reduced by the amount of any unpaid loan and
accrued interest and Monthly Deduction Charges for the full policy
month or months that run from the beginning of the late period through
the policy month in which the Insured died.
4.9 CAN YOU REINSTATE THE POLICY IF IT ENDS? Within 5 years after this
policy has ended, you may apply to reinstate the policy if you did not
surrender it. When you apply for reinstatement you must provide proof
of insurability that is acceptable to us. However, if the required
payment is made within 31 days after the end of the late period, no
proof if insurability is required.
4.10 WHAT PAYMENT IS REQUIRED TO REINSTATE THE POLICY? In order to
reinstate this policy, a payment must be made in an amount which is
sufficient to keep this policy in force for at least 3 months. This
payment will be in lieu of the payment of all premiums in arrears. It
may happen that the policy lapses before, and is reinstated after, the
first policy anniversary. In this case, we will also require payment of
150% of the deferred contract charge to reinstate this policy. Any
unpaid loan must also be repaid, together with loan interest at 6%
compounded once each year from the end of the late period to the date
of reinstatement. If a policy loan interest rate of less than 6% is in
effect when the policy is reinstated, the interest rate for the any
unpaid loan at the time of reinstatement will be the same as the policy
loan interest rate. The effective date of reinstatement will be the
Monthly Deduction Day on or following the date we approve the request
for reinstatement.
PAGE 7
<PAGE> 11
SECTION FIVE - SEPARATE ACCOUNT
5.1 HOW IS THE SEPARATE ACCOUNT ESTABLISHED AND MAINTAINED? We have
established and maintained the Separate Account under the laws of the
State of Delaware. Any realized or unrealized income, net gains and
losses from the assets of the Separate Account are credited or charged
to it without regard to our other income, gains or losses. We put assets
in the Separate Account for this policy, and we may also do the same for
any other variable life insurance policies we may issue.
5.2 HOW ARE THE SEPARATE ACCOUNT ASSETS INVESTED? The Separate Account
invests its assets in shares of one or more mutual funds. Fund shares
are purchased, redeemed and valued on behalf of the Separate Account.
The Separate Account is divided into Investment Divisions. We reserve
the right to add or remove any Investment Division of the Separate
Account.
5.3 TO WHOM DO THE ASSETS IN THE SEPARATE ACCOUNT BELONG? The assets
of the Separate Account are our property. There are Separate Account
assets which equal the reserves and other contract liabilities of the
Separate Account. Those assets will not be chargeable with liabilities
arising out of any other business we conduct. We reserve the right to
transfer assets of an Investment Division, in excess of the reserves and
other contract liabilities with respect to that Investment Division, to
another Investment Division or to our General Account.
5.4 HOW WILL THE ASSETS OF THE SEPARATE ACCOUNT BE VALUED? We will determine
the value of the assets of the Separate Account on each day during which
the New York Stock Exchange is open for trading except for the Friday
after Thanksgiving and the day before Christmas. The assets of the
Separate Account will be valued at fair market value, as determined in
accordance with a method of valuation which we established in good
faith.
5.5 CAN WE TRANSFER ASSETS OF THE SEPARATE ACCOUNT TO ANOTHER SEPARATE
ACCOUNT? We reserve the right to transfer assets of the Separate
Account, which we determine to be associated with the class of policies
to which this policy belongs, to another separate account. If this type
of transfer is made, the term "Separate Account", as used in this
policy, shall then mean the separate account to which the assets were
transferred.
5.6 WHAT OTHER RIGHTS DO WE HAVE? We also reserve the right, when permitted
by law to:
(a) de-register the Separate Account under the Investment Company Act of
1940;
(b) manage the Separate Account under the direction of a committee or
discharge such committee at any time;
(c) restrict or eliminate any voting rights of policyowners or other
persons who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate
accounts.
5.7 CAN A CHANGE IN THE INVESTMENT OBJECTIVE OR STRATEGY OF THE SEPARATE
ACCOUNT BE REQUIRED? When required by law or regulation, an investment
objective of the Separate Account may be changed. It will only be
changed if approved by the appropriate insurance official of the State
of Delaware or deemed approved in accordance with such law or
regulation. If so required, the request to obtain such approval will
be filed with the insurance official of the state or district in which
this policy is delivered.
PAGE 8
<PAGE> 12
SECTION FIVE - SEPARATE ACCOUNT (CONTINUED)
5.8 IF THE ASSETS IN THE SEPARATE ACCOUNT BELONG TO US, WHAT DO YOUR FUNDS
PURCHASE? The interest of this policy in the Separate Account prior to
the date on which the life insurance benefit becomes payable is
represented by accumulation units. The number of accumulation units
purchased in an Investment Division will be determined by dividing the
part of any payment or the part of any transfer applied to that
Investment Division, by the value of an accumulation unit for that
Division on the transaction date. Payments allocated, transferred or
otherwise added to the Investment Divisions will be applied to provide
accumulation units in those Investment Divisions. Accumulation units are
redeemed when amounts are loaned, transferred, surrendered or otherwise
deducted. These transactions are called policy transactions.
5.9 WHAT ARE ACCUMULATION UNITS? Accumulation units are the accounting units
used to calculate the values under this policy.
5.10 HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED? The value of an
accumulation unit on any business day is determined by multiplying the
value of that unit on the immediately preceding business day by the net
investment factor for the valuation period. The valuation period is the
period from the close of the immediately preceding business day to the
close of the current business day. The net investment factor for this
policy used to calculate the value of an accumulation unit in any
Investment Division of the Separate Account for the valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the sum of:
(1) the net asset value of a fund share held in the Separate
Account for that Investment Division determined at the end of
the current valuation period, plus
(2) the per share amount of any dividends or capital gain
distributions made by the fund for shares held in the Separate
Account for that Investment Division if the ex-dividend date
occurs during the valuation period.
(b) is the net asset value of a fund share held in the Separate
Account for that Investment Division determined as of the end of the
immediately preceding valuation period.
(c) is a factor representing the mortality and expense risk charge and
administrative charges. This factor represents a charge which
accrues daily, and will never exceed, on an annual basis, 1% of the
daily net asset value of a fund share in the Separate Account for
that Investment Division.
The net investment factor may be greater or less than one; therefore
the value of an accumulation unit may increase or decrease.
5.11 CAN YOU TRANSFER FUNDS BETWEEN INVESTMENT DIVISIONS AND TO THE
FIXED ACCOUNT? Transfers may be made between Investment Divisions of the
Separate Account and to the Fixed Account. We reserve the right to limit
the number of transfers to the Fixed Account after the first two policy
years.
5.12 HOW DO YOU MAKE A TRANSFER BETWEEN INVESTMENT DIVISIONS AND TO THE FIXED
ACCOUNT? If you want to make a transfer, you must tell us in a notice
you sign which gives us the facts that we need. We reserve the right to
limit the amount of transfers to the Fixed Account after the first two
policy years.
5.13 WHEN WILL THESE TRANSFERS TAKE EFFECT? Transfers will take
effect as of the day after we receive your signed written consent.
PAGE 9
<PAGE> 13
SECTION FIVE - SEPARATE ACCOUNT (CONTINUED)
5.14 ARE THERE LIMITS ON WHAT YOU MAY TRANSFER? The minimum amount that
can be transferred is the lesser of $500 or the value of all remaining
accumulation units in the Investment Division, unless we agree
otherwise. The Investment Division from which the transfer is being
made must maintain a minimum balance of $500 after the transfer is
completed. If, after a transfer, the value of the remaining
accumulation units in an Investment Division would be less than $500,
we have the right to include that amount as part of the transfer.
There is no limit to the number of transfers that can be made. We
reserve the right to apply a charge, not to exceed $30, for each
transfer after the first twelve in a given policy year. This charge
is applied to the appropriate Investment Divisions on the basis of the
amount of the total transfer which is allocated from each Investment
Division.
Amounts which may be transferred from the Fixed Account to the
Investment Divisions are limited as provided in the Fixed Account
Section of this policy.
SECTION SIX - FIXED ACCOUNT
6.1 WHAT IS THE FIXED ACCOUNT? The Fixed Account is supported by assets
of the Corporation that are not segregated in any of the separate
accounts of New York Life Insurance and Annuity Corporation. Payments
applied to and any amounts transferred to the Fixed Account are
credited with interest using a fixed interest rate which we declare
periodically. We will set this rate in advance at least annually.
This rate will never be less than 4% per year. All payments applied
to, or amounts transferred to, the Fixed Account thereafter receive
the rate in effect at that time. The interest we credit may be
different for loaned and unloaned amounts.
6.2 CAN TRANSFERS BE MADE FROM THE FIXED ACCOUNT TO THE SEPARATE ACCOUNT?
Each policy year you may make transfers from the Fixed Account to the
Separate Account to the Separate Account Investment Divisions. The
minimum amount which may be transferred is the lesser of : (a) $500,
or (b) the accumulation value in the Fixed Account, unless we agree
otherwise. However, if the values remaining in the Fixed Account
would be less than $500, we have the right to include that amount as
part of the transfer. The sum of all such transfers in a policy year
may not be greater that 20% of the accumulation value in the Fixed
Account at the beginning of that policy year.
SECTION SEVEN - CASH VALUE AND LOANS
7.1 WHAT IS THE CASH VALUE OF THIS POLICY? The cash value of this policy
at any time is equal to the total accumulation value of the portion of
the cash value of this policy allocated to the Separate Account plus
the portion of the cash value of this policy allocated to the Fixed
Account.
7.2 CAN YOU SURRENDER THIS POLICY OR MAKE A PARTIAL WITHDRAWAL? At any
time after this policy has cash value, and while the Insured is
living, you may surrender it for that value. The cash surrender value
is equal to the cash value less any surrender charges which may apply,
including any deferred contract charge less any unpaid loan and
accrued interest. You can also elect to make a partial withdrawal for
a selected amount or a percentage of the cash surrender value.
7.3 HOW CAN FUNDS BE WITHDRAWN FROM THIS POLICY? You may request a
partial withdrawal by sending us your signed written request which
must be received while the Insured is living. The minimum amount
which may be withdrawn is $500, unless we agree otherwise. The
withdrawal will be made on a pro-rata basis from the Fixed Account
and/or Investment Divisions, unless you indicate otherwise. If the
portion of your request for a partial withdrawal from the Fixed
Account or Investment Division is greater than the amount in the Fixed
Account and/or Investment Division, we will pay you the entire value
of that Fixed Account and/or Investment Division, less any surrender
charge which may apply. (See Section 7.4 for additional information.)
PAGE 10
<PAGE> 14
SECTION SEVEN - CASH VALUE AND LOANS (CONTINUED)
We may charge a fee, not to exceed the lesser of $25, or 2% of the amount
withdrawn, for processing a partial withdrawal. This fee will be deducted from
the Fixed Account and/or Investment Divisions based on the withdrawal
allocation or, if none, on a pro-rata basis. When you make a partial
withdrawal, the life insurance benefit, the cash value, and the cash surrender
value will be reduced by the amount of the withdrawal proceeds and any
applicable surrender charge, you receive as of the date we make the payment.
You may elect to make only one partial withdrawal in the first policy year, if
Life Insurance Benefit Option 1 is in effect.
7.4 HOW IS THE SURRENDER CHARGE DETERMINED? For the number of years shown on
the Surrender Charge page a surrender charge will be assessed any time the
face amount is decreased, whether due to a partial withdrawal, full
surrender, a change in the Life Insurance Benefit Option or requested
decreases in the face amount. A table of maximum surrender charges is
shown on the Surrender Charge page. A surrender charge will be assessed
when the face amount is decreased but the policy is not fully surrendered.
This charge is equal to the difference between the surrender charge which
would have been payable on a complete surrender prior to the decrease and
the surrender charge which would be payable on a complete surrender after
the decrease. A separate surrender charge is calculated separately for the
initial face amount and for each increase in the face amount. (See
Section 3.2 for additional information.)
The surrender charge in the first policy year is equal to 25% of premiums
paid to date up to the guideline annual premium for the first year, plus 5%
of premiums paid in that year which are in excess of the guideline annual
premium for the first year but not in excess of the sum of the guideline
annual premiums through the sixth policy year. The guideline annual
premium is shown on the Policy Data page. The surrender charge in the
second policy year and thereafter is equal to the applicable percentage
shown in the table below multiplied by the base surrender charge. The base
surrender charge is equal to 25% of the lesser of the premiums paid to date
or the guideline annual premium for the first policy year, plus 5% of the
lesser of: (i) premiums paid in excess of the guideline annual premium for
the first policy year, or (ii) the sum of the guideline annual premiums for
the first six policy years minus the guideline annual premium for the first
policy year.
<TABLE>
<CAPTION>
Year Year
--------------------------------------------------------------------------
<S> <C> <C> <C>
2-6 100% 11 50%
7 90% 12 40%
8 80% 13 30%
9 70% 14 20%
10 60% 15 10%
16+ 0%
</TABLE>
The following is an example of how the surrender charges are calculated for
a policy with a guideline annual premium of $1,500, and annual premiums of
$1,000.
YEAR ONE
Total premiums paid = $1,000
Since the total premiums paid are less than one guideline premium, the
surrender charge is: 25% x $1,000 = $250.
YEAR FIVE
Total premiums paid = 5 x $1,000 = $5,000
The surrender charge in the fifth year is 100% of the base surrender
charge. The base surrender charge is 25% of premiums up to the guideline
premium ($1,500), plus 5% of the lesser of premiums paid in excess of the
guideline annual premium ($5,000 - $1,500 = $3,500) or the sum of five
guideline annual premiums (5 x $1,500 = $7,500).
Therefore, the total charge is:
100% x {(25% x $1,500) + (5% x $3,500)} = $550.
YEAR TEN
Total premiums paid = 10 x $1,000 = $10,000
The surrender charge in the tenth year is 60% of the base surrender charge.
The base surrender charge is 25% of premiums up to the guideline premium
($1,500), plus 5% of the lesser of premiums paid in excess of the
guideline annual premium ($10,000 - $1,500 = $8,500) or the sum of five
guideline annual premiums (5 x $1,500 = $7,500).
Therefore, the total charge is:
60% x {(25% x $1,500) + (5% x $7,500)} = $450.
PAGE 11
<PAGE> 15
SECTION SEVEN - CASH VALUE AND LOANS (CONTINUED)
7.5 WHAT MONTHLY DEDUCTIONS ARE MADE AGAINST THE CASH VALUE? On each Monthly
Deduction Day, the following deductions are made from the policy's cash
value:
(a) A monthly contract charge not to exceed the amount shown on the Policy
Data page;
(b) The monthly cost of insurance for the amount of the life insurance
benefit in effect at that time;
(c) The monthly cost for any riders attached to this policy.
A deduction may also be made for any temporary flat extras which may apply.
The amount and duration of these flat extras, if any, are shown in a
footnote on the Policy Data page. In addition, a deferred contract charge
will be deducted at the first anniversary, as described in the Policy Data
page.
The Monthly Deduction Day for this policy is shown on the Policy Data
page. The first Monthly Deduction Day is the date of issue of the policy.
All monthly deductions are made on a pro-rata basis from each of the
Investment Divisions and the Fixed Account.
7.6 HOW IS THE COST OF INSURANCE FOR THIS POLICY CALCULATED? The cost of
insurance is calculated on each Monthly Deduction Day. The monthly cost of
insurance for the initial face amount, and for each subsequent increase in
the face amount, is calculated separately. For this calculation, the cash
value will be used to reduce the cost of insurance first with regard to any
increases in face amount, in the reverse order made, and then to the
initial face amount. The monthly cost of insurance is equal to
(1) multiplied by the result of (2) minus (3) where:
(1) is the monthly cost of insurance rate per $1,000 of insurance;
(2) is the number of thousands of life insurance benefit as of the Monthly
Deduction Day divided by 1.00327; and
(3) is the cash value as of the Monthly Deduction Day (before this cost of
insurance, any applicable contract charge, and the monthly cost of any
riders are deducted).
7.7 WHAT IS THE COST OF INSURANCE RATE? The rates used to obtain the cost of
insurance for the initial face amount and for each increase in the face
amount are based on the Insured's issue age, sex, and class of risk at the
time the initial face amount or increase took effect, as well as the
duration since issue of such insurance. For the initial face amount, the
monthly cost of insurance rates will never exceed the maximum rates shown
in the Table of Guaranteed Maximum Monthly Cost of Insurance Rates attached
to this policy. For each increase in the face amount which is based on the
same class of risk as the initial face amount, the monthly rates that apply
to the cost of insurance for this increase will also not be greater than
the table of maximum rates attached to this policy. However, if the class
of risk for an increase in the face amount is different than the class of
risk for the initial face amount, we will furnish the Insured with the
applicable table of maximum rates for that increase, if that table is
different from the table of maximum rates attached to this policy. The
actual rate will be set by us, in advance, at least once a year. Any change
in cost of insurance rates will be made on a uniform basis for Insureds in
the same class, based on issue age, as well as the duration since issue of
such insurance, sex and risk classification.
7.8 WHAT IS THE MONTHLY COST OF RIDERS? The monthly cost of any riders
attached to this policy is described on the Policy Data pages.
7.9 WHAT IS THE LOAN VALUE OF THIS POLICY? Using this policy as sole security,
you can borrow any amount up to the loan value of this policy. The loan
value on any given date is equal to: (1) 90% of the cash value less
surrender charges and less any deferred contract charge, less (2) any
unpaid loan and accrued interest, on that date.
7.10 WHAT HAPPENS WHEN YOU REQUEST A LOAN? When a loan is requested, an amount
is transferred from the Separate Account to the Fixed Account equal to the
excess of: (a) 108% of the requested loan amount over (b) the cash value
in the Fixed Account, less any outstanding policy loan. This transfer
will be made on a pro-rata basis from the various Investment Divisions.
While a policy loan is outstanding, no partial withdrawals or transfers
which would reduce the cash value of the Fixed Account below 108% of the
outstanding loan are permitted.
The amount in the Fixed Account which equals the amount of an unpaid loan
will be credited with interest at a rate which will never be less than 2%
less than the effective annual loan interest rate.
PAGE 12
<PAGE> 16
SECTION SEVEN - CASH VALUE AND LOANS (continued)
7.11 WHAT IS THE LOAN INTEREST RATE FOR THE POLICY? Unless we set a lower
rate for any period, the effective annual loan interest rate is 8%,
which is payable in arrears. Loan interest for the policy year in which
a loan is taken will be due on the next policy anniversary. Loan
interest accrues each day and is payable on the anniversary, on the
date of death, surrender, or lapse, or on the date of a loan increase
or loan repayment. Loan interest not paid when due will be charged as
a new unpaid loan.
7.12 IF THE LOAN INTEREST RATE IS REDUCED, CAN IT SUBSEQUENTLY INCREASE? Yes.
If we have set a rate lower than 8% per year, any subsequent increase in
the interest rate will be subject to the following conditions:
(1) The effective date of any increase in the interest rate shall
not be earlier than one year after the effective date of the
establishment of the previous rate.
(2) The amount by which the interest rate may be increased will not
exceed one percent per year, but the rate of interest shall in no
event ever exceed 8%.
(3) We will give notice of the interest rate in effect when a loan is
made and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date
of an increase in the interest rate, we will notify you of that
increase at least 30 days prior to the effective date of the
increase.
(5) We will give notice of any increase in the interest rate when a
loan is made during the 40 days before the effective date of the
increase.
7.13 HOW ARE LOAN REPAYMENTS CREDITED TO THE POLICY? All or part of an unpaid
loan can be repaid before the Insured's death or before the policy is
surrendered. Loan repayments are allocated to the Investment Divisions
using the same allocation in effect for the payment of premiums, unless
you indicate otherwise.
7.14 WHAT HAPPENS IF A LOAN IS NOT REPAID? If a loan is outstanding when the
life insurance benefit becomes payable, we will deduct the amount of the
unpaid loan plus accrued interest from these proceeds. The cash
surrender value reflects a deduction of any outstanding policy loan and
accrued interest. In addition, it may happen in a given policy year
that, based on the loan interest rate in effect when that year began
(ignoring any subsequent increase in the rate during that year), any
unpaid loan plus accrued interest exceeds the cash value of this policy
less surrender charges. In that event, we will mail a notice to you at
your last known address, and a copy to the last known assignee on our
records. All insurance will end 31 days after the date on which we mail
that notice to you if the excess of the unpaid loan plus accrued
interest over the cash value less surrender charges is not paid within
that 31 days.
SECTION EIGHT - PAYMENT OF POLICY PROCEEDS
8.1 HOW WILL THE POLICY PROCEEDS BE PAID? The proceeds of this policy will
be paid in one sum, or if elected, all or part of these proceeds can be
placed under one or more of the options described in this section. If we
agree, the proceeds may be placed under some other method of payment
instead.
Any life insurance proceeds paid in on sum will bear interest
compounded each year from the Insured's death to the date of payment. We
set the interest rate each year. This rate will be at least 3% per year,
and will not be less than required by law.
8.2 HOW DO YOU ELECT AN OPTIONAL METHOD OF PAYMENT? While the Insured is
living, you can elect or change an option. You can also elect or change
one or more beneficiaries who will be the payee or payees under that
option.
After the Insured dies, any person who is to receive proceeds in one sum
(other than an assignee) can elect an option and name payees. The
person who elects an option can also name one or more successor payees
to received any amount remaining at the death of the payee. Naming these
payees cancels any prior choice of successor payees.
A payee who did not elect the option does not have the right to advance
or assign payments, take the payments in one sum, or make any other
change. However, the payees may be given the right to do one or more of
these things if the person who elects the option tells us in writing and
we agree.
PAGE 13
<PAGE> 17
SECTION EIGHT - PAYMENT OF POLICY PROCEEDS (CONTINUED)
8.3 HOW CAN AN OPTION BE CHANGED? If we agree, a payee who elects Option 1A,
1B or 2 may later elect to have any amount we still have, or the present
value of any elected payments, placed under some other option described in
this section.
8.4 WHO CAN BE NAMED PAYEES? Only individuals who are to receive payments on
their own behalf may be named as payees or successor payees, unless we
agree otherwise. We may require proof of the age of the survival of a
payee.
8.5 WHAT HAPPENS IF THE PAYEE DIES BEFORE ALL PROCEEDS HAVE BEEN PAID? It may
happen that when the last surviving payee dies, we still have an unpaid
amount, or there are some payments which remain to be made. If so, we will
pay the unpaid amount with interest to the date of payment, or pay the
present value of the remaining payments, to that payee's estate in one
sum. The present value of the remaining payments is based on the interest
rate used to compute them, and is always less that their sum.
8.6 IS THERE A MINIMUM PAYMENT THE COMPANY WILL MAKE? When any payment under
an option would be less than $100, we may pay any unpaid amount or present
value in one sum.
8.7 WHAT ARE THE PROCEEDS AT INTEREST OPTIONS (1A AND 1B)? The policy proceeds
may be left with us at interest. We will set the interest rate each year.
This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time
in sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based
on the amount we still have.
8.8 WHAT IS THE LIFE INCOME OPTION (2)? We make equal payments each month
during the lifetime of the payee or payees. We determine the amount of the
monthly payment by applying the policy proceeds to purchase a
corresponding single premium life annuity policy which is being issued
when the first payment is due. Payments are based on the appropriately
adjusted annuity premium rate in effect at that time, but will not be less
than the corresponding minimum shown in the Option 2 Table. These minimum
amounts are based on the 1983 Table "a" with Projection Scale G, and with
interest compounded each year at 3%.
When asked, we will state in writing what the minimum amount of each
monthly payment would be under this option. It is based on the sex and
adjusted age of the payee or payees.
To find the adjusted age in the year the first payment is due, we increase
or decrease the payee's age at that time, as follows:
<TABLE>
<CAPTION>
1995 & 1996-2005 2006-2015 2016-2025 2026-2035 2036 &
earlier later
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+2 +1 0 -1 -2 -3
</TABLE>
We make a payment each month during the lifetime of the payee. Payments do
not change, and are guaranteed for 10 years, even if that payee dies
sooner.
- -------------------------------------------------------------------------------
OPTION 2 TABLE
- -------------------------------------------------------------------------------
MINIMUM MONTHLY PAYMENT PER $1,000 OF PROCEEDS
Guaranteed for 10 years
<TABLE>
<CAPTION>
Payee's
Adjusted
Age MALE FEMALE
- -------------------------------------------------------------------------------
<S> <C> <C>
60 4.46 4.03
61 4.55 4.11
62 4.66 4.19
63 4.76 4.27
64 4.87 4.37
65 4.99 4.46
66 5.11 4.57
67 5.24 4.67
68 5.38 4.79
69 5.52 4.91
70 5.66 5.04
71 5.81 5.18
72 5.96 5.32
73 6.12 5.47
74 6.28 5.63
75 6.45 5.79
76 6.61 5.96
77 6.78 6.14
78 6.96 6.32
79 7.13 6.51
80 7.30 6.70
81 7.46 6.89
82 7.63 7.07
83 7.78 7.26
84 7.93 7.44
85 & over 8.07 7.62
</TABLE>
Page 14
<PAGE> 18
SECTION NINE - GENERAL PROVISIONS
9.1 WHAT CONSTITUTES THE ENTIRE CONTRACT? The entire contract consists of
this policy, any attached riders or endorsements, and the attached
riders or endorsements, and the attached copy of the application. Also,
any application used to apply for increases in the policy face amount
will be attached to and made a part of this policy. Only our Chairman,
President, Secretary, or one of our Vice Presidents is authorized to
change the contract, and then, only in writing. No change will be made
to this contract without your consent. No agent is authorized to
change this contract.
9.2 HOW IMPORTANT IS THE INFORMATION YOU PROVIDE IN THE APPLICATION FOR THIS
POLICY? In issuing this policy, we have relied on the statements made in
the application. All such statements are deemed to be representations
and not warranties. We assume these statements are true and complete to
the best of the knowledge and belief of those who made them. No
statement made in connection with the application will be used by us to
void this policy unless that statement is a material misrepresentation
and is part of the application.
9.3 WILL WE BE ABLE TO CONTEST THIS POLICY? We will not contest the payment
of the life insurance proceeds based on the initial face amount, after
this policy has been in force during the lifetime of the Insured for 2
years form the date of issue.
It may happen that the face amount of this policy is increased as
described in the Policy Changes section. In this case, the 2 year
contestable period for each increase will begin on the effective date
of such increase. We may contest the payment of that amount only on
the basis of those statements made in the application for such
increase in face amount.
9.4 DOES THIS POLICY COVER SUICIDE OF THE INSURED? Suicide of the Insured,
while sane or insane within 2 years of the date of issue, is not covered
by this policy. In that event, this policy will end and the only amount
payable will be the premiums paid to us, less any unpaid loan and any
partial surrender benefits paid.
It may happen that the face amount of this policy is increased as
described in the Policy Changes section. In this case, the 2 year
suicide exclusion period for each increase will begin on the effective
date of such increase. If the suicide exclusion period applies to such
an increase, the only amount payable with respect to that increase will
be the total cost of insurance we deducted for the increase.
9.5 HOW ARE THE DATES REFERRED TO IN THIS POLICY MEASURED? Policy years,
month, and anniversaries are measured from the policy date, unless
otherwise stated.
9.6 HOW IS A PERSON'S AGE CALCULATED FOR THE PURPOSES OF THIS POLICY? When
we refer to a person's age in this policy, we mean his or her age on the
birthday which is nearest to the previous anniversary.
9.7 WHAT HAPPENS IF A PERSON'S AGE OR SEX HAS BEEN STATED INCORRECTLY? If we
would pay too little or too much because the age or sex of the Insured
is not correct as stated, we will adjust the proceeds, up or down, to
reflect the correct age or sex. The amount of the death benefit shall
be that which would be purchased by the most recent mortality charge at
the correct age and sex.
9.8 CAN PAYMENT OF A LOAN OR SURRENDER PROCEEDS BE DEFERRED? Generally, we
will grant any loan, or pay any surrender proceeds or life insurance
proceeds within 7 days after we receive all the requirements that we
need. However, we may defer making any of these payments for any period
during which the New York Stock Exchange is closed for trading (other
than the usual weekend or holiday closings), or if the Securities and
Exchange Commission restricts trading or has determined that a state of
emergency exists. If so, it may not be practical for us to determine the
investment experience of the Separate Account.
9.9 MAY YOU ASSIGN OR TRANSFER THE POLICY? While the Insured is living, you
may assign this policy, or any interest in it. If you do this, your
interest, and anyone else's is subject to that of the assignee. As
owner, you still have the rights or ownership which have not been
assigned.
9.10 MAY THE ASSIGNEE CHANGE THE OWNER OR BENEFICIARY? An assignee cannot
change the owner or beneficiary of the policy, and may not elect or
change an optional method of payment of proceeds. Any amount payable to
the assignee will be paid in one sum.
PAGE 15
<PAGE> 19
SECTION NINE - GENERAL PROVISIONS (CONTINUED)
9.11 HOW DO YOU ASSIGN THE POLICY? You must provide us with a copy of the
assignment. We are not responsible for the validity of any
assignment. Any assignment will be subject to any payment we make or
other action we take before we record the assignment.
9.12 ARE THE PAYMENTS MADE UNDER THIS POLICY PROTECTED AGAINST CREDITORS?
Payments we make under this policy are, to the extent the law permits,
exempt from the claims, attachments, or levies of any creditors.
9.13 TO WHOM SHOULD PAYMENTS FOR THIS POLICY BE MADE? Any payment made to
us be check or money order must be payable to New York Life Insurance
and Annuity Corporation. When asked, we will provide a countersigned
receipt, signed by our President or Secretary, for any premium paid to
us.
9.14 IS THIS POLICY SUBJECT TO ANY LAW? This policy is subject to all laws
which apply.
9.15 ARE ANY DIVIDENDS PAYABLE ON THIS POLICY? This is a non-participating
policy, on which no dividends are payable.
9.16 WILL YOU BE UPDATED REGARDING THE STATUS OF YOUR POLICY? Each policy
year after the first, while this policy is in force and the insured
is living, we will send a written report to you within 30 days after
the policy anniversary. It will show, as of that anniversary, the
cash value, and the amount of any unpaid loan and accrued interest.
This report will also give you any other facts required by state law
or regulation.
9.17 CAN YOU EXCHANGE YOUR POLICY? Within 24 months of the issue date of
this policy, you may exchange it for a new policy on the life of the
Insured without evidence of insurability. In order to exchange this
policy, we will require:
(a) that this policy be in effect on the date of exchange;
(b) repayment of any unpaid loan and accrued interest;
(c) an adjustment, if any, for premiums and cash values of this and
the new policy.
The date of exchange will be the later of: (a) the date you send us
this policy along with a signed written request for an exchange; or
(b) the date we receive at our Home Office, or at any other location
that we indicate to you in writing, the necessary payment for the
exchange.
The benefits of the new policy will not reflect the investment
experience of the Separate Account. The new policy will be on a
permanent plan of life insurance which we were offering this purpose
on the date of issue of this policy. The new policy will have a face
amount equal to the initial face amount of this policy. It will be
based on the same issue age, sex and class of risk as this policy.
All riders attached to this policy will end on the date of exchange,
unless we agree otherwise.
9.18 WHAT IS THE BASIS USED FOR COMPUTATION OF POLICY VALUES? All cash
surrender values and maximum cost of insurance rates referred to in
this policy are based on the 1980 CSO Tables of Mortality if the
Insured is in a standard class of risk. Separate scales of maximum
cost of insurance rates apply to other risk classes. Continuous
functions are used, with interest as stated in the Fixed Account
section. We have filed a statement with the insurance official in the
state or district in which this policy is delivered. It describes, in
detail, how we compute policy benefits and cash surrender values.
PAGE 16
<PAGE> 20
BENEFICIARY
- --------------------------------------------------------------------------------
BENEFICIARY
SUBJECT TO CHANGE
<PAGE> 21
NEW YORK LIFE INSURANCE COMPANY (NYLIC)
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION (NYLIAC-A DELAWARE CORP.)
ENDORSEMENT
- ------------------------------------------------------------------------------
MODIFICATION OF SPOUSES' PAID-UP INSURANCE PURCHASE OPTION (SPPO) RIDER
This endorsement is made a part of the policy to which it is attached.
It may happen that the Owner of this policy is a beneficiary for life insurance
proceeds under this policy, and is not the Insured's spouse. In this case, even
if the SPPO Rider attached to this policy states otherwise, the
Owner-beneficiary has the right to purchase paid-up life insurance on the life
of the spouse. This purchase must be made within the 90 days after the Insured's
death, in accordance with the provisions of the rider. The application for this
insurance, signed by the Insured's spouse, must be received by the Company
while the spouse is living. If it is not so received, and even if the SPPO
rider states otherwise, no paid-up life insurance will be payable under this
endorsement or the rider, even if the Insured's spouse dies within the 90 days
after the Insured's death.
It may happen that a Trust is the Owner and is a beneficiary for life insurance
proceeds under this policy, and is authorized by the terms of the Trust
instrument to purchase insurance on the life of the Insured's spouse. In this
case, even if the SPPO Rider states otherwise, the Trust may purchase the
paid-up life insurance. This purchase must be made in accordance with the
provisions of the rider and as described in this endorsement. The Company has
the right to obtain a copy of the Trust instrument.
Unless stated otherwise in this policy or in the policy for the paid-up
insurance described in this endorsement, the beneficiary for that insurance
will be the Owner, if living; otherwise, the estate of the Owner.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By /s/ ILLEGIBLE
-----------------------------
President
/s/ GEORGE J. TRAPP
-----------------------------
Secretary
NEW YORK LIFE INSURANCE COMPANY
By /s/ ILLEGIBLE
-----------------------------
President
/s/ GEORGE J. TRAPP
-----------------------------
Secretary
<PAGE> 22
RIDER
- --------------------------------------------------------------------------------
SPOUSE'S PAID-UP INSURANCE PURCHASE OPTION (SPPO)
DEFINITIONS Any reference to an Insured under this rider includes both the
Insured under the basic policy and any Other Covered Insured under any Term
Insurance on Other Covered Insured rider attached to this policy.
BENEFIT If this rider is in effect at an Insured's death, the person who at
that time is that Insured's spouse, has the right to purchase, without proof of
insurability, a level amount of new paid-up life insurance on his or her own
life, in accordance with the provisions of this rider. That Insured's spouse
must be a beneficiary to whom all or part of the life insurance proceeds
resulting from that Insured's death under this policy or its riders will be
payable in one sum.
HOW MUCH INSURANCE MAY BE PURCHASED The largest amount of paid-up life
insurance which may be purchased is the amount of the insurance proceeds,
applicable to that Insured, which is payable in one sum, to that Insured's
spouse who is the beneficiary. The amount of insurance refers to amounts
provided by the basic plan of insurance and/or by any Term Insurance on Other
Covered Insured rider attached to the policy, plus any insurance (excluding
accidental death benefits) from riders or dividends and which is payable in one
sum (prior to deducting any unpaid loan). However, the amount of paid-up
insurance which may be purchased will be reduced by any increase in the life
insurance benefit resulting from any unscheduled premiums paid under the basic
policy during the 24 month period prior to the date of the Insured's death.
In addition, the actual amount which can be purchased on any one person must
meet our minimum amount requirements.
The maximum amount of insurance which can be purchased on any one person can
never be greater than the lesser of: (a) the amount which can be purchased by
the life insurance proceeds (prior to deducting any unpaid loan) which the
Insured's spouse is entitled to receive in one sum because of that Insured's
death, or (b) 5 million dollars.
PREMIUM FOR NEW INSURANCE The single premium rate for the new paid-up life
insurance is based on the spouse's age and sex on the date the new insurance
takes effect. This rate will not be more than 105% of the net single premium
for paid-up life insurance, defined in the Values provision of this rider.
PURCHASE OF NEW INSURANCE The Insured's spouse can apply to purchase the new
paid-up life insurance before we have paid life insurance proceeds under the
policy to him or her. However, he or she must apply within the 90 days after
the Insured's death.
The new paid-up life insurance will be available in a policy issued by New York
Life Insurance Company or by one of its affiliated companies. It will have the
same provisions as are in the series of policies being issued by the new
insuring company on its policy date.
The paid-up life insurance will take effect on the date when all three of the
following events have taken place:
1. The spouse's signed application is received by us while he or she
is living.
2. We determine the life insurance proceeds payable to the spouse.
3. The entire single premium for the paid-up life insurance purchased
under this rider has been received by us.
We will reduce the life insurance proceeds in Item 2 to pay the single premium
for the paid-up life insurance. If these proceeds are not sufficient to pay
that entire single premium, then the balance of that premium must paid to us
before any such insurance will take effect.
It may happen that an Insured's spouse, who has the right to apply for paid-up
life insurance under this rider, dies at the same time as that Insured, or
within 90 days after that date and before that paid-up insurance takes effect.
In these cases, provided the Insured's spouse's death did not result from
suicide, while sane or insane, we will pay the maximum amount of
(over)
<PAGE> 23
SPOUSE'S PAID-UP INSURANCE PURCHASE OPTION (continued)
paid-up life insurance that the spouse could have applied for under this rider,
less the applicable single premium for that insurance.
The beneficiary for any paid-up life insurance payable under a policy issued in
connection with this rider will be the estate of that Insured's spouse, unless
stated otherwise in the policy for that insurance.
AVAILABILITY OF RIDERS Riders may not be included with the new paid-up life
insurance.
SUICIDE EXCLUSION Suicide of the Insured's spouse, while sane or insane, within
two years after the date of the Insured's death, is not covered by this rider.
In the event of the spouse's suicide within that two year period, any single
premium paid for any new paid-up life insurance will be refunded.
VALUES The new paid-up life insurance has cash value and loan value, and is
eligible for dividends. However, it is not expected that any dividends will be
payable on this insurance.
The net single premiums and the cash values for the paid-up insurance are based
on the 1980 CSO Tables of Mortality. Continuous functions are used. Interest is
compounded each year at 4%.
CONTRACT The rider is made a part of the policy to which it is attached at
issue of the policy. If added to a policy which is already in force, this rider
is made a part of that policy, based on the application for the rider.
INCONTESTABILITY OF RIDER We will not contest this rider if it is attached at
issue of the policy.
If this rider is added to a policy which is already in force, we will not
contest the rider after it has been in force during the lifetime of the Insured
for 2 years from the date of issue of the rider.
DATES This rider and the basic policy have the same date of issue, unless the
rider is added to a policy which is already in force. In this case, the date
of issue of this rider is shown in an add-on rider which we put in the basic
policy.
WHEN RIDER ENDS You can cancel this rider as of any date. To do this, a signed
notice must be sent to us within 31 days of that date. This rider ends if the
basic policy ends, is surrendered, or is exchanged for a new policy.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By /s/ SY STARBIN
-------------------------
President
/s/ GEORGE J. TRAPP
-------------------------
Secretary
<PAGE> 1
EXHIBIT 6.19
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
A Stock Company
Will pay the Beneficiary the death proceeds as defined in this Policy. Payment
will be made after the following have been received at the home office:
o this Policy;
o due proof that the Insured died while this Policy was in force;
o a written claim for the death proceeds completed on a form supplied by
the Company; and
o an authorization, on a form supplied by the Company, from the
Insured's next of kin or other authorized person which will allow the
Company to obtain and disclose information concerning the Insured.
Any payment is subject to the provisions on this page and on the following
pages.
The consideration for this Policy is the application and payment of the Total
Initial Premium on or before policy delivery. Subsequent premiums are payable
on each Premium Due Date during the Insured's lifetime.
The Owner may return this Policy within 20 days after its delivery. To return
this Policy, take it or mail it to the Company or to the agent through whom it
was purchased. Immediately upon delivery or mailing, this Policy will be deemed
void from the beginning. Any premium paid will be returned.
Signed at the home office at 700 Main Street, Lynchburg, Virginia, on the Date
of Issue.
/s/ RONALD V. DOLAN /s/ DAVID H. McMAHON
President Secretary
GRADED PREMIUM LIFE POLICY
INSURANCE PAYABLE AT DEATH
SEE SCHEDULE FOR AMOUNT OF INSURANCE AND PREMIUMS
PREMIUMS PAYABLE DURING INSURED'S LIFETIME
PREMIUM SUBJECT TO CHANGE AS SHOWN IN SCHEDULE
BUT WILL NOT EXCEED SPECIFIED MAXIMUM PREMIUM
CASH VALUES AVAILABLE AS SHOWN IN SCHEDULE
EXCHANGEABLE ON OR BEFORE THE EXCHANGE DATE
NONPARTICIPATING - NO DIVIDENDS
<TABLE>
================================================================================
<S> <C> <C> <C>
Insured REBECCA BOENIGK 2,746,458 Policy Number
Amount Of
Insurance $5,000,000 APRIL 28, 1997 Policy Date
Total
Initial Premium $ 2,320.00 APRIL 28, 1997 Date Of Issue
Form No. 1410-GP-13
================================================================================
</TABLE>
<PAGE> 2
GENERAL PROVISIONS
THE CONTRACT. The entire contract consists of this Policy and the application. A
copy of the application was attached at issue. All statements made in the
application are, in the absence of fraud, deemed representations and not
warranties. No statement will void this Policy or be used in defense of a claim
unless it is contained in the application. Only the President, a Vice President,
or the Secretary of the Company can change or waive any provision of this
Policy. Any change or waiver must be made in writing.
POLICY DATE. Policy anniversaries, policy years, policy months, and Premium Due
Dates are determined from the Policy Date.
PREMIUM PAYMENTS. Each premium after the first is payable at the home office .
Payment may also be made to a Company agent in exchange for a receipt signed by
the President or Secretary of the Company and countersigned by the agent.
Each premium after the first is payable in advance. Any premium not paid when
due is in default. If a premium has not been paid by the end of the grace
period, this Policy will terminate as of the due date of such premium. Policy
termination is subject to the Nonforfeiture Provisions of this Policy.
As of any policy anniversary, the Owner may change the mode of premium payment
with the Company's consent. Written request must be filed at the home office.
The modes available are annual, semiannual, and quarterly. Premiums may also be
paid by automatic bank draft. Premiums are based on the rates then in use for
the class to which the Insured belongs.
That portion of the premium paid for the period beyond the end of the policy
month of death will be paid to the Beneficiary.
No premiums will be refunded except as specifically stated in this Policy.
GRACE PERIOD. A grace period of 31 days is allowed for payment, without
interest, of any premium after the first. This Policy will stay in force during
that period. If the Insured dies during the grace period, the premium required
to keep this Policy in force to the end of the policy month of death will be
deducted from the proceeds.
REINSTATEMENT. This Policy may be reinstated unless:
1. it has been surrendered;
2. the period of extended term insurance has expired; or
3. the total loan under this Policy, including interest,
has exceeded the cash value.
To reinstate, the following must be received at the home office within five
years after default in premium payment:
1. evidence of insurability satisfactory to the Company;
2. payment of all past-due premiums with interest calculated from their
respective Premium Due Dates at the Reinstatement interest rate shown in
the Schedule; and
3. payment or reinstatement of any policy loan including interest at the
Policy Loan interest rate shown in the Schedule.
After the application for reinstatement has been approved by the Company, this
Policy will be reinstated on the day the above conditions are satisfied.
OWNER AND BENEFICIARY. The designations of Owner and Beneficiary in the
Schedule remain in effect until changed by the Owner.
The Owner has all rights stated in this Policy. The Owner may amend this Policy
during the Insured's lifetime with the Company's consent. The rights of the
Owner are subject to the rights of an irrevocable beneficiary.
The interest of a beneficiary terminates if that beneficiary dies before the
Insured. If no beneficiary survives at the Insured's death, payment will be made
to the Owner or the Owner's estate or successors.
CHANGE OF OWNER AND BENEFICIARY. The Owner may change the designations of Owner
and Beneficiary during the Insured's lifetime. Any change is subject to the
consent of an irrevocable beneficiary. Written notice of change must be filed at
the home office in a form acceptable to the Company. The new designation will
then take effect as of the date the Owner signed the notice. Such a change does
not affect any payment made or other action taken by the Company before the
notice is received.
2
<PAGE> 3
This Policy is a legal contract between the Owner and First Colony Life
Insurance Company.
READ YOUR POLICY CAREFULLY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule - General Policy Information ................................... 3
Schedule - Table of Nonforfeiture Values ................................ 4
Schedule - Table of Premiums ............................................ 5
GENERAL PROVISIONS ...................................................... 2,7
The Contract .................................................... 2
Policy Date ..................................................... 2
Premium Payments ................................................ 2
Grace Period .................................................... 2
Reinstatement ................................................... 2
Owner and Beneficiary ........................................... 2
Change of Owner and Beneficiary ................................. 2
Assignment ...................................................... 7
Incontestability ................................................ 7
Misstatement .................................................... 7
Suicide ......................................................... 7
Payment of Proceeds ............................................. 7
Amount of the Death Proceeds .................................... 7
Nonparticipating ................................................ 7
NONFORFEITURE PROVISIONS ................................................ 7
Nonforfeiture 0ptions ........................................... 7
Net Cash Value ................................................ 7
Paid-Up Insurance ............................................. 7
Extended Term Insurance ....................................... 7
Automatic Option .............................................. 7
Basis of Values ................................................. 7
Table of Nonforfeiture Values ................................... 7
POLICY LOANS ............................................................ 8
Cash Loan ....................................................... 8
Automatic Premium Loan Option ................................... 8
Deferral ........................................................ 8
Interest and Repayment .......................................... 8
EXCHANGE OPTION ......................................................... 9
SETTLEMENT OPTIONS ...................................................... 9,10
General Provisions .............................................. 9
Death of Payee .................................................. 9
First Installment ............................................... 9
Interest ........................................................ 9
Option 1 - Fixed Period ......................................... 9
Option 2 - Life Income with
Installments Certain .......................................... 9
Option 3 - Interest ............................................. 9
Option 4 - Fixed Installments ................................... 9
Option 5 - Single Premium Annuity ............................... 9
Other Settlement Options ................................................ 9
Option 1 Table .......................................................... 10
Option 2 Table .......................................................... 10
</TABLE>
FOR INFORMATION, OR TO MAKE A COMPLAINT, CALL: 1-800-283-7893
2A
<PAGE> 4
SCHEDULE
<TABLE>
<CAPTION>
BENEFIT ANNUAL PREMIUM PREMIUM PERIOD
<S> <C> <C>
$5,000,000 GRADED PREMIUM LIFE $ 2,320.00* 10 YEARS
</TABLE>
SUBSEQUENT ANNUAL AND MAXIMUM ANNUAL PREMIUMS ARE SHOWN IN THE TABLE OF
PREMIUMS.
INTEREST RATES
BASIS OF VALUES - 5.5% A YEAR, COMPOUNDED ANNUALLY
REINSTATEMENT - 6% A YEAR, COMPOUNDED ANNUALLY
POLICY LOAN - 7.4% A YEAR, PAYABLE IN ADVANCE
MORTALITY TABLE
1980 CSO MORTALITY TABLE, SEX DISTINCT, AGE NEAREST BIRTHDAY, FOR ATTAINED AGES
UP THROUGH 14 AND THE 1980 CSO SMOKER/NONSMOKER MORTALITY TABLES, SEX DISTINCT,
AGE NEAREST BIRTHDAY, FOR ATTAINED AGES 15 AND ABOVE.
<TABLE>
<S> <C> <C> <C>
PREMIUM REQUALIFICATION
DUE DATES 28TH DAY OF APRIL OF EACH YEAR APR 28, 2029 EXPIRY DATE
BENEFICIARY NEUTRAL POSTURE INC APR 28, 2039 EXCHANGE DATE
OWNER NEUTRAL POSTURE INC
PREFERRED PREMIUM
BEST CLASSIFICATION
AGE NEAREST
33F BIRTHDAY
</TABLE>
THE BENEFICIARY AND OWNER ARE SUBJECT TO CHANGE AS PROVIDED HEREIN.
<TABLE>
<S> <C> <C> <C>
INSURED REBECCA BOENIGK 2,746,458 POLICY NUMBER
AMOUNT OF
INSURANCE $5,000,000 APR 28, 1997 POLICY DATE
TOTAL
INITIAL PREMIUM $ 2,320.00 APR 28, 1997 DATE OF ISSUE
</TABLE>
3
FORM NO. 1410-5
<PAGE> 5
POL # 2,746,458
S C H E D U L E *CONTINUED*
TABLE OF NONFORFEITURE VALUES
<TABLE>
<CAPTION>
END OF ATTAINED GUARANTEED EXTENDED TERM
POLICY AGE OF CASH OR LOAN PAID-UP INSURANCE
YEAR INSURED VALUE INSURANCE YEARS DAYS
<S> <C> <C> <C> <C> <C>
1-58 34-91 $ .00 $ 0 0 0
59 92 335,000.00 400,000 0 111
60 93 395,000.00 465,000 0 120
61 94 490,000.00 570,000 0 136
62 95 640,000.00 730,000 0 156
63 96 895,000.00 1,000,000 0 184
64 97 1,390,000.00 1,525,000 0 226
65 98 1,960,000.00 2,110,000 0 231
66 99 2,650,000.00 2,800,000 0 205
67 100 5,000,000.00 5,000,000 0 0
</TABLE>
THIS POLICY PROVIDES FOR A LATER GENERATION OF CASH VALUES.
4
<PAGE> 6
POL # 2,746,458
SCHEDULE *CONTINUED*
TABLE OF PREMIUMS
THE ANNUAL PREMIUM IS THAT PREMIUM WHICH THE COMPANY ANTICIPATES WILL BE PAYABLE
ON THE DATE SHOWN. THE PREMIUMS PAYABLE ARE SUBJECT TO CHANGE BUT WILL NEVER
EXCEED THE MAXIMUM ANNUAL PREMIUMS SHOWN IN THIS TABLE.
ANY CHANGE IN PREMIUM WILL BE DUE TO A RE-EVALUATION BY THE COMPANY OF EXPECTED
FUTURE MORTALITY, INTEREST, EXPENSES, AND/OR PERSISTENCY. THE COMPANY'S PAST
EXPERIENCE WILL NOT BE A FACTOR IN SUCH CHANGE. CHANGE WILL BE APPLIED UNIFORMLY
TO A CLASS OF INSUREDS. CLASS WILL BE DETERMINED BY 1. ISSUE AGE AND SEX
2. PREMIUM CLASSIFICATION 3. AMOUNT OF INSURANCE AND 4. THE NUMBER OF YEARS THE
INSURANCE HAS BEEN IN FORCE. THE COMPANY WILL MAIL NOTICE OF ANY SUCH CHANGE IN
PREMIUM. PREMIUMS WILL NOT BE CHANGED MORE THAN ONCE A YEAR. ANY CHANGE DOES NOT
ALTER THE NONFORFEITURE VALUES. NO CHANGE IN CLASSIFICATION OR PREMIUM WILL
OCCUR ON ACCOUNT OF THE DETERIORATION OF THE INSURED'S HEALTH.
RIDER PREMIUMS ARE INCLUDED.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
POLICY YR ANNUAL ANNUAL POLICY YR ANNUAL ANNUAL
BEGINNING PREMIUM PREMIUM BEGINNING PREMIUM PREMIUM
APR. 28 APR. 28
<C> <C> <C> <C> <C> <C>
1997 $ 2,320.00 $ 2,320.00 2022 $ 28,970.00 $ 74,970.00
1998 2,320.00 2,320.00 2023 32,120.00 79,670.00
1999 2,320.00 2,320.00 2024 34,870.00 85,170.00
2000 2,320.00 2,320.00 2025 37,770.00 91,670.00
2001 2,320.00 2,320.00 2026 41,620.00 99,870.00
2002 2,320.00 2,320.00 2027 44,220.00 110,170.00
2003 2,320.00 2,320.00 2028 47,820.00 122,370.00
2004 2,320.00 2,320.00 2029 51,720.00 135,570.00
2005 2,320.00 2,320.00 2030 55,070.00 149,770.00
2006 2,320.00 2,320.00 2031 59,720.00 164,170.00
2007 4,220.00 4,220.00 2032 63,620.00 178,670.00
2008 6,120.00 6,120.00 2033 66,620.00 194,170.00
2009 8,070.00 8,070.00 2034 71,220.00 212,070.00
2010 9,970.00 9,970.00 2035 77,870.00 233,470.00
2011 11,870.00 11,870.00 2036 85,570.00 259,970.00
2012 13,770.00 36,570.00 2037 96,420.00 292,270.00
2013 14,070.00 39,070.00 2038 109,220.00 330,270.00
2014 14,470.00 41,970.00 2039 124,420.00 373,270.00
2015 15,620.00 45,070.00 2040 142,220.00 420,470.00
2016 16,870.00 48,570.00 2041 163,170.00 471,170.00
2017 18,320.00 52,670.00 2042 187,570.00 525,370.00
2018 20,270.00 56,870.00 2043 215,770.00 584,570.00
2019 22,070.00 61,370.00 2044 247,970.00 651,270.00
2020 24,020.00 65,970.00 2045 281,220.00 727,670.00
2021 26,570.00 70,570.00 2046 318,070.00 815,970.00
</TABLE>
5
<PAGE> 7
POL # 2,746,458
SCHEDULE *CONTINUED*
TABLE OF PREMIUMS
<TABLE>
<CAPTION>
MAXIMUM
POLICY YR ANNUAL ANNUAL
BEGINNING PREMIUM PREMIUM
APR. 28
<S> <C> <C>
2047 358,620.00 917,670.00
2048 402,970.00 1,030,370.00
2049 473,820.00 1,153,870.00
2050 629,620.00 1,285,870.00
2051 840,520.00 1,427,170.00
2052 994,170.00 1,576,170.00
2053 1,133,470.00 1,735,170.00
2054 1,363,220.00 1,903,970.00
2055 1,438,870.00 2,085,870.00
2056 1,513,220.00 2,286,070.00
2057 1,585,970.00 2,514,070.00
2058 1,656,520.00 2,793,170.00
2059 2,022,720.00 3,173,270.00
2060 2,204,520.00 3,757,470.00
2061 2,383,970.00 4,037,320.00
2062 2,667,870.00 4,427,070.00
2063 2,941,270.00 4,600,070.00
</TABLE>
5A
<PAGE> 8
GENERAL PROVISIONS (CONTINUED)
ASSIGNMENT. The Company is not responsible for the validity or effect of any
assignment of this Policy. No assignment will bind the Company until it is
received at the home office.
INCONTESTABILITY. This Policy is not contestable after it has been in force
during the Insured's lifetime for a period of two years from the Date of Issue.
This provision also applies to any rider providing additional benefits which is
included with this Policy on the Date of Issue.
MISSTATEMENT. If the Insured's age or sex is misstated, any amount payable will
be adjusted to that amount which the premiums paid would have purchased based on
the correct information.
"Attained age" is the age shown in the Schedule plus the number of years,
including fractions, elapsed from the Policy Date.
SUICIDE. If the Insured, while sane or insane, dies by suicide within two years
after the Date of Issue, the death proceeds under this Policy will be an amount
equal to the premiums paid less any loan against this Policy.
PAYMENT OF PROCEEDS. Any payments by the Company under this Policy will be made
from the home office. This Policy must be returned to the Company. Unless a
settlement option is elected, the proceeds will be paid in one sum.
AMOUNT OF THE DEATH PROCEEDS. The proceeds payable at the death of the Insured
will be:
1. the Amount of Insurance shown in the Schedule subject to any adjustment
for misstatement; plus
2. that portion of the premium paid for the period beyond the end of the
policy month of death; less
3. any premium required to keep this Policy in force to the end of the
policy month of death; less
4. the amount of any policy loan.
Any proceeds payable will also be adjusted due to a successful contest of
this Policy or for death as provided in the Suicide provision.
NONPARTICIPATING. This Policy does not share in any distribution of surplus. No
dividends are payable.
NONFORFEITURE PROVISIONS
NONFORFEITURE OPTIONS. A nonforfeiture option may be elected by written request.
Such request must be received at the home office not later than 60 days after a
premium is due but not paid and before the Insured's death. The net cash value
is the cash value less any policy loan. The following options apply if this
Policy has a positive net cash value.
Net Cash Value. The Owner may surrender this Policy for its net cash
value. It may be surrendered only as of the date to which premiums were
paid. The amount payable upon surrender will be the net cash value on that
date. A surrender within 60 days after the date to which premiums have been
paid will be for an amount not less than the value on such date, less any
policy loan made after such date. Payment may be deferred up to six months
after request is received at the home office.
Paid-Up Insurance. This Policy may be continued as level paid-up
insurance from the date of default, which is the date to which premiums
were paid. The amount will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age. This
paid-up insurance will be payable at the same time as the insurance under
this Policy. It will be subject to the applicable provisions of this
Policy.
Extended Term Insurance. This option is available if extended term
insurance values are shown in the Table of Nonforfeiture Values in the
Schedule. The Amount of Insurance less any policy loan will be continued
in force as level term insurance from the date of default. The period of
such term insurance will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age.
Automatic Option. This option applies if:
1. the unpaid premium has not been paid by an automatic premium loan; and
2. no option above has been elected.
When the grace period expires, this Policy will be continued as extended
term insurance, if available. Otherwise, the paid-up insurance option will
apply. The Owner may elect one of the other available options within 60
days after the date to which premiums were paid.
Paid-up or extended term insurance may be surrendered at any time for its
net cash value. This value is the net single premium at the Insured's attained
age for any benefits remaining under such insurance, less any policy loan made
after the date of default. A surrender within 30 days after a policy anniversary
will be for an amount not less than the value on such anniversary, less any
loan made since the anniversary.
BASIS OF VALUES. All calculations, including net single premium calculations,
are based on the mortality tables and rate of interest shown in the Schedule.
Death is assumed to occur at the end of the policy year. Riders are ignored when
determining nonforfeiture values under this Policy. Values are in no case less
than the minimum values required by the state in which this Policy was issued.
TABLE OF NONFORFEITURE VALUES. The values shown assume that no policy loan is
made and that premiums have been paid to the end of the policy year. If premiums
are paid for part of the year, values will be prorated.
Negative values are shown as zero in the Table. All calculations will use
the actual negative value.
7
<PAGE> 9
POLICY LOANS
CASH LOAN. The Company will make a loan upon the sole security and assignment of
this Policy. The Owner may obtain the loan while this Policy is in force other
than as extended term insurance.
The loan value of this Policy is the cash value as of the next Premium Due
Date. For paid-up insurance, the loan value is the cash value at the end of the
current policy year. The amount advanced as a policy loan may not exceed the
loan value less:
1. the amount of any existing policy loan;
2. loan interest to the end of the current policy year; and
3. any premium in default.
AUTOMATIC PREMIUM LOAN OPTION. This option may be elected in the application. It
may also be elected by written request received at the home office before the
end of the grace period for an unpaid premium. The Owner may revoke the election
by written request to the home office.
If elected, this option provides automatic payment of an unpaid premium by
policy loan. The loan will be made at the end of the grace period. After two
consecutive premiums have been paid by loan, the Company may change to a less
frequent mode of premium payment if there is sufficient loan value.
If there is not sufficient value to advance the premium and interest for
the loan, no automatic premium loan will be made. The premium will be in
default. Any remaining value will be applied in accordance with the
Nonforfeiture Options provision.
While this Policy remains in force, the Owner may resume premium payments
at any time without furnishing evidence of insurability.
DEFERRAL. The Company may defer making a policy loan up to six months after
written request is received at the home office. However, a loan for payment of
premiums to the Company will not be deferred.
INTEREST AND REPAYMENT. Interest is payable annually in advance on each policy
anniversary. The Policy Loan interest rate is shown in the Schedule. Interest
not paid when due is added to the loan and bears interest at the same rate.
All or any part of a policy loan may be repaid while this Policy is in
force during the Insured's lifetime. After policy lapse, loans made prior to the
end of the grace period may not be repaid unless this Policy is reinstated.
When the total loan including interest exceeds the cash value, this Policy
will terminate. Notice of termination will be mailed to the Owner and to any
assignee of record. Termination will be effective 31 days after the notice is
mailed.
8
<PAGE> 10
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
ENDORSEMENT
This Policy is amended to include the following additional section:
"REQUALIFICATION OPTION. The Owner may elect to requalify for a new premium
guarantee period in a new Graded Premium Life Policy. Riders may be
included in the new policy subject to Company approval.
This Option may be elected to be effective as of a policy anniversary:
1. on or before the Requalification Expiry Date shown in the
Schedule; and
2. on or after the later of the following:
o the tenth policy anniversary; and
o the anniversary at which premiums for this Policy are first
scheduled to increase annually as shown in the Table of
Premiums.
To requalify, the Owner must:
1. file written request in a form acceptable to the Company at least
60 days prior to the policy anniversary on which this option is to
be effective;
2. return this Policy to the home office;
3. provide satisfactory evidence of the insurability of the Insured;
and
4. pay the required premium.
Following Company approval, this Option will be effective on the policy
anniversary as of which it was elected.
The Company will issue the new Graded Premium Life policy at the Insured's
attained age. The Table of Premiums of the new policy will show the
premiums for the new guarantee period. The premiums for the new policy will
be based on the premium rates in use on the effective date of this Option.
The policy date of the new policy will be the effective date of this
Option. The contestability and suicide periods of the new policy will be
measured from the date specified in the new policy.
Other policy provisions will be the same as under this Policy except that
this Option will be unavailable after the Requalification Expiry Date."
/s/ DAVID H. McMAHON
Secretary
<PAGE> 11
[FIRST COLONY LIFE INSURANCE COMPANY LOGO]
ACCELERATED DEATH BENEFIT RIDER
THIS RIDER PROVIDES FOR AN ACCELERATED PAYMENT OF LIFE INSURANCE PROCEEDS. IT IS
NOT INTENDED OR DESIGNED TO PROVIDE HEALTH, NURSING HOME, OR LONG-TERM CARE
INSURANCE. RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT WILL REDUCE THE
DEATH PROCEEDS AND ANY SURRENDER OR LOAN VALUES PROVIDED BY THE POLICY.
DISCLOSURE: RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT MAY BE TAXABLE. THE
OWNER OF THE POLICY SHOULD SEEK ASSISTANCE FROM A TAX ADVISOR BEFORE ELECTING TO
RECEIVE A PAYMENT.
- --------------------------------------------------------------------------------
BENEFIT
The Company will make an accelerated death benefit payment to the Owner of the
Policy subject to the provisions of this Rider. The requirements for payment
are:
o the Owner's written request for an accelerated death benefit payment;
o proof acceptable to the Company that the Owner is eligible for a
payment according to the terms of this Rider;
o written approval of payment from any irrevocable beneficiary; and
o full release of any collateral assignment of the Policy except a
collateral assignment to the Company.
Payment will be made in a single sum. The Company will make only one accelerated
death benefit payment under this Rider.
The Company will not make an accelerated death benefit payment if:
o it does not receive all of the requirements for payment as stated
above at its home office;
o the Policy is being continued as extended term insurance on the date
payment is to be made;
o there is less than one year remaining until any expiry or maturity
date for the Policy on the date payment is to be made; or
o the Policy is being contested or has been voided as the result of a
successful contest.
BENEFIT LIMITATIONS
The Owner requests the amount of accelerated death benefit subject to the
maximums stated below. The maximum accelerated death benefit available for
request is equal to the lesser of (a) and (b) below:
(a) The sum of the following:
o 75% of the difference between the primary death benefit on the date
the Company approves payment of an accelerated death benefit and the
loan value on that date; and
o the loan value on the date the Company approves payment of an
accelerated death benefit.
(b) $500,000.
The primary death benefit is the death benefit provided by the Policy and does
not include any accidental death benefits, the amount of the death benefit of
any riders, or any benefits payable because of the death of any person other
than the Insured. If the Policy provides for policy loans, loan value is defined
in the Policy; otherwise, loan value is defined to be zero.
ELIGIBILITY
To be eligible to receive an accelerated death benefit payment, the Owner must
provide the following to the Company:
o evidence acceptable to the Company that the Insured is living and has
a life expectancy of six months or less; this evidence must include,
but is not limited to, certification by a physician approved by the
Company who is licensed to practice medicine in the United States or
Canada and is acting within the scope of that license;
o evidence that election of this benefit is voluntary and without
coercion on the part of any third party, including any creditor or
government agency; and
o evidence that only one of the Insureds is living if the Policy is a
last survivor policy.
FORM NO. R-85-05
<PAGE> 12
GENERAL PROVISIONS
Wherever used in this Rider, the term "Policy" means the Policy to which this
Rider is attached. This Rider is a part of the Policy. Policy provisions apply
to this Rider except where modified by this Rider.
If the Policy is in a grace period at the time an accelerated death benefit
payment is made, the premium required to remove the Policy from the grace period
will be deducted from the payment.
The Owner will remain liable for any required premium payments under the Policy
after the Company makes an accelerated death benefit payment.
There is no premium or cost of insurance charge for this Rider; however, an
administrative fee that will not exceed $150 will be deducted from the
accelerated death benefit prior to payment to the Owner.
EFFECT OF AN ACCELERATED DEATH BENEFIT PAYMENT
As a result of making an accelerated death benefit payment, the primary death
benefit, any policy values (including any loan value or policy loan), and any
nonforfeiture values for the Policy will be reduced on the date of payment by
application of the accelerated death benefit factor. This factor equals one (1)
minus the accelerated death benefit ratio. This ratio equals:
o the amount of the approved accelerated death benefit before any
deductions are made; divided by
o the primary death benefit on the date the Company approves payment of
the accelerated death benefit.
The Company will also recalculate the premium based on the reduced primary
death benefit.
Upon making an accelerated death benefit payment, the Company will send the
Owner a notice showing the effects of the payment on the Policy and the premium.
AMOUNT OF THE ACCELERATED DEATH BENEFIT PAYMENT
The Company will discount the approved accelerated death benefit based on a
life expectancy of six months. This discounting will account for the Company's
payment of a death benefit prior to the actual date of the Insured's death. The
interest rate used will be the greater of the following as of the date of
payment but will not exceed 10%:
o the current yield on a 90-day treasury bill; and
o the current legal maximum adjustable policy loan interest rate of the
state in which the Policy was delivered.
The amount the Company will pay to the Owner as an accelerated death benefit is
equal to:
o the amount of the approved accelerated death benefit; less
o the amount of the discount for early payment of a death benefit; less
o the administrative fee; less
o the amount of any premium required to remove the Policy from the grace
period; less
o the amount of any policy loan, including interest, times the
accelerated death benefit ratio.
TERMINATION
This Rider will terminate on the earliest of the following dates:
o the date of maturity or termination of the Policy; and
o the date the Owner signs written request for termination of this
Rider; request must be received at the home office.
/s/ RONALD V. DOLAN /s/ DAVID H. McMAHON
President Secretary
<PAGE> 1
EXHIBIT 6.20
FIRST COLONY LIFE INSURANCE COMPANY
Lynchburg, Virginia 24505
A Stock Company
Will pay the Beneficiary the death proceeds as defined in this Policy.
Payment will be made after the following have been received at the home
office:
o this Policy;
o due proof that the Insured died while this Policy was in force;
o a written claim for the death proceeds completed on a
form supplied by the Company; and
o an authorization, on a form supplied by the Company, from the
Insured's next of kin or other authorized person which will
allow the Company to obtain and disclose information
concerning the Insured.
Any payment is subject to the provisions on this page and on the following
pages.
The consideration for this Policy is the application and payment of the
Total Initial Premium on or before policy delivery. Subsequent premiums
are payable on each Premium Due Date during the Insured's lifetime.
The Owner may return this Policy within 20 days after its delivery. To
return this Policy, take it or mail it to the Company or to the agent
through whom it was purchased. Immediately upon delivery or mailing, this
Policy will be deemed void from the beginning. Any premium paid will be
returned.
Signed at the home office at 700 Main Street, Lynchburg, Virginia, on the
Date of Issue.
/s/ RONALD V. DOLAN /s/ DAVID H. MCMAHON
President Secretary
GRADED PREMIUM LIFE POLICY
INSURANCE PAYABLE AT DEATH
SEE SCHEDULE FOR AMOUNT OF INSURANCE AND PREMIUMS
PREMIUMS PAYABLE DURING INSURED'S LIFETIME
PREMIUM SUBJECT TO CHANGE AS SHOWN IN SCHEDULE
BUT WILL NOT EXCEED SPECIFIED MAXIMUM PREMIUM
CASH VALUES AVAILABLE AS SHOWN IN SCHEDULE
EXCHANGEABLE ON OR BEFORE THE EXCHANGE DATE
NONPARTICIPATING - NO DIVIDENDS
===============================================================================
<TABLE>
<S> <C> <C> <C>
Insured DAVID W CAMPBELL 2,746,461 Policy Number
Amount Of
Insurance $250,000 FEBRUARY 20, 1997 Policy Date
Total
Initial Premium $1,207.50 APRIL 2, 1997 Date Of Issue
Form No. 1410-GP-13
</TABLE>
===============================================================================
<PAGE> 2
GENERAL PROVISIONS
THE CONTRACT. The entire contract consists of this Policy and the application.
A copy of the application was attached at issue. All statements made in the
application are, in the absence of fraud, deemed representations and not
warranties. No statement will void this Policy or be used in defense of a claim
unless it is contained in the application. Only the President, a Vice
President, or the Secretary of the Company can change or waive any provision of
this Policy. Any change or waiver must be made in writing.
POLICY DATE. Policy anniversaries, policy years, policy months, and Premium Due
Dates are determined from the Policy Date.
PREMIUM PAYMENTS. Each premium after the first is payable at the home office.
Payment may also be made to a Company agent in exchange for a receipt signed by
the President or Secretary of the Company and countersigned by the agent.
Each premium after the first is payable in advance. Any premium not paid
when due is in default. If a premium has not been paid by the end of the grace
period, this Policy will terminate as of the due date of such premium. Policy
termination is subject to the Nonforfeiture Provisions of this Policy.
As of any policy anniversary, the Owner may change the mode of premium
payment with the Company's consent. Written request must be filed at the home
office. The modes available are annual, semiannual, and quarterly. Premiums may
also be paid by automatic bank draft. Premiums are based on the rates then in
use for the class to which the Insured belongs.
That portion of the premium paid for the period beyond the end of the
policy month of death will be paid to the Beneficiary.
No premiums will be refunded except as specifically stated in this Policy.
GRACE PERIOD. A grace period of 31 days is allowed for payment, without
interest, of any premium after the first. This Policy will stay in force during
that period. If the Insured dies during the grace period, the premium required
to keep this Policy in force to the end of the policy month of death will be
deducted from the proceeds.
REINSTATEMENT. This Policy may be reinstated unless:
1. it has been surrendered;
2. the period of extended term insurance has expired; or
3. the total loan under this Policy, including interest, has exceeded the
cash value.
To reinstate, the following must be received at the home office within five
years after default in premium payment:
1. evidence of insurability satisfactory to the Company;
2. payment of all past-due premiums with interest calculated from their
respective Premium Due Dates at the Reinstatement interest rate shown
in the Schedule; and
3. payment or reinstatement of any policy loan including interest at the
Policy Loan interest rate shown in the Schedule.
After the application for reinstatement has been approved by the Company, this
Policy will be reinstated on the day the above conditions are satisfied.
OWNER AND BENEFICIARY. The designations of Owner and Beneficiary in the
Schedule remain in effect until changed by the Owner.
The Owner has all rights stated in this Policy. The Owner may amend this
Policy during the Insured's lifetime with the Company's consent. The rights of
the Owner are subject to the rights of an irrevocable beneficiary.
The interest of a beneficiary terminates if that beneficiary dies before
the Insured. If no beneficiary survives at the Insured's death, payment will be
made to the Owner or the Owner's estate or successors.
CHANGE OF OWNER AND BENEFICIARY. The Owner may change the designations of Owner
and Beneficiary during the Insured's lifetime. Any change is subject to the
consent of an irrevocable beneficiary. Written notice of change must be filed
at the home office in a form acceptable to the Company. The new designation
will then take effect as of the date the Owner signed the notice. Such a change
does not affect any payment made or other action taken by the Company before
the notice is received.
2
<PAGE> 3
This Policy is a legal contract between the Owner and First Colony Life
Insurance Company.
READ YOUR POLICY CAREFULLY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule - General Policy Information.......................................3
Schedule - Table of Nonforfeiture Values....................................4
Schedule - Table of Premiums................................................5
GENERAL PROVISIONS................. ......................................2,7
The Contract..............................................................2
Policy Date...............................................................2
Premium Payments..........................................................2
Grace Period..............................................................2
Reinstatement.............................................................2
Owner and Beneficiary.....................................................2
Change of Owner and Beneficiary...........................................2
Assignment................................................................7
Incontestability..........................................................7
Misstatement..............................................................7
Suicide...................................................................7
Payment of Proceeds.......................................................7
Amount of the Death Proceeds..............................................7
Nonparticipating..........................................................7
NONFORFEITURE PROVISIONS....................................................7
Nonforfeiture Options.....................................................7
Net Cash Value..........................................................7
Paid-Up Insurance.......................................................7
Extended Term Insurance.................................................7
Automatic Option......................................................7
Basis of Values.........................................................7
Table of Nonforfeiture Values...........................................7
POLICY LOANS................................................................8
Cash Loan...............................................................8
Automatic Premium Loan Option...........................................8
Deferral................................................................8
Interest and Repayment..................................................8
EXCHANGE OPTION.............................................................9
SETTLEMENT OPTIONS.......................................................9,10
General Provisions......................................................9
Death of Payee..........................................................9
First Installment.......................................................9
Interest................................................................9
Option 1 - Fixed Period.................................................9
Option 2 - Life Income with
Installments Certain..................................................9
Option 3 - Interest.....................................................9
Option 4 - Fixed Installments...........................................9
Option 5 - Single Premium Annuity.......................................9
Other Settlement Options................................................9
Option 1 Table.........................................................10
Option 2 Table.........................................................10
</TABLE>
FOR INFORMATION, OR TO MAKE A COMPLAINT, CALL: 1-800-283-7893
Form No. 1410.1 2A
<PAGE> 4
S C H E D U L E
<TABLE>
<CAPTION>
BENEFIT ANNUAL PREMIUM PREMIUM PERIOD
<S> <C> <C>
$250,000 GRADED PREMIUM LIFE $ 1,207.50* 10 YEARS
</TABLE>
SUBSEQUENT ANNUAL AND MAXIMUM ANNUAL PREMIUMS ARE SHOWN IN THE TABLE OF
PREMIUMS.
INTEREST RATES
BASIS OF VALUES - 5.5% A YEAR, COMPOUNDED ANNUALLY
REINSTATEMENT - 6% A YEAR, COMPOUNDED ANNUALLY
POLICY LOAN - 7.4% A YEAR, PAYABLE IN ADVANCE
MORTALITY TABLE
1980 CSO MORTALITY TABLE, SEX DISTINCT, AGE NEAREST BIRTHDAY, FOR ATTAINED AGES
UP THROUGH 14 AND THE 1980 CSO SMOKER/NONSMOKER MORTALITY TABLES, SEX DISTINCT,
AGE NEAREST BIRTHDAY, FOR ATTAINED AGES 15 AND ABOVE.
<TABLE>
<CAPTION>
PREMIUM REQUALIFICATION
<S> <C> <C> <C>
DUE DATES 20TH DAY OF FEBRUARY OF EACH YEAR FEB 20, 2008 EXPIRY DATE
BENEFICIARY NEUTRAL POSTURE INC FEB 20, 2018 EXCHANGE DATE
OWNER NEUTRAL POSTURE INC STANDARD PREMIUM
(NONSMOKER) CLASSIFICATION
AGE NEAREST
54M BIRTHDAY
</TABLE>
THE BENEFICIARY AND OWNER ARE SUBJECT TO CHANGE AS PROVIDED HEREIN.
<TABLE>
<S> <C> <C> <C>
INSURED DAVID W CAMPBELL 2,746,461 POLICY NUMBER
AMOUNT OF
INSURANCE $250,000 FEB 20, 1997 POLICY DATE
TOTAL
INITIAL PREMIUM $1,207.50 APR 02, 1997 DATE OF ISSUE
</TABLE>
FORM NO. 1410-S
3
<PAGE> 5
POL # 2,746,461
S C H E D U L E *CONTINUED*
TABLE OF NONFORFEITURE VALUES
<TABLE>
<CAPTION>
END OF ATTAINED GUARANTEED EXTENDED TERM
POLICY AGE OF CASH OR LOAN PAID-UP INSURANCE
YEAR INSURED VALUE INSURANCE YEARS DAYS
<S> <C> <C> <C> <C> <C>
1-37 55-91 $ .00 $ 0 0 0
38 92 26,500.00 31,250 0 158
39 93 29,750.00 34,750 0 166
40 94 34,250.00 39,500 0 177
41 95 41,500.00 47,250 0 194
42 96 54,000.00 60,250 0 217
43 97 78,000.00 85,500 0 251
44 98 105,250.00 113,250 0 247
45 99 138,250.00 146,000 0 213
46 100 250,000.00 250,000 0 0
</TABLE>
THIS POLICY PROVIDES FOR A LATER GENERATION OF CASH VALUES.
4
<PAGE> 6
POL # 2,746,461
S C H E D U L E *CONTINUED*
TABLE OF PREMIUMS
THE ANNUAL PREMIUM IS THAT PREMIUM WHICH THE COMPANY ANTICIPATES WILL BE
PAYABLE ON THE DATE SHOWN. THE PREMIUMS PAYABLE ARE SUBJECT TO CHANGE BUT WILL
NEVER EXCEED THE MAXIMUM ANNUAL PREMIUMS SHOWN IN THIS TABLE.
ANY CHANGE IN PREMIUM WILL BE DUE TO A RE-EVALUATION BY THE COMPANY OF EXPECTED
FUTURE MORTALITY, INTEREST, EXPENSES, AND/OR PERSISTENCY. THE COMPANY'S PAST
EXPERIENCE WILL NOT BE A FACTOR IN SUCH CHANGE. CHANGE WILL BE APPLIED
UNIFORMLY TO A CLASS OF INSUREDS. CLASS WILL BE DETERMINED BY 1. ISSUE AGE AND
SEX 2. PREMIUM CLASSIFICATION 3. AMOUNT OF INSURANCE AND 4. THE NUMBER OF YEARS
THE INSURANCE HAS BEEN IN FORCE. THE COMPANY WILL MAIL NOTICE OF ANY SUCH
CHANGE IN PREMIUM. PREMIUMS WILL NOT BE CHANGED MORE THAN ONCE A YEAR. ANY
CHANGE DOES NOT ALTER THE NONFORFEITURE VALUES. NO CHANGE IN CLASSIFICATION OR
PREMIUM WILL OCCUR ON ACCOUNT OF THE DETERIORATION OF THE INSURED'S HEALTH.
RIDER PREMIUMS ARE INCLUDED.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
POLICY YR ANNUAL ANNUAL POLICY YR ANNUAL ANNUAL
BEGINNING PREMIUM PREMIUM BEGINNING PREMIUM PREMIUM
FEB. 20 FEB. 20
<C> <C> <C> <C> <C> <C>
1997 $ 1,207.50 $ 1,207.50 2022 $ 24,897.50 $ 42,930.00
1998 1,207.50 1,207.50 2023 27,250.00 46,905.00
1999 1,207.50 1,207.50 2024 29,772.50 51,330.00
2000 1,207.50 1,207.50 2025 32,440.00 56,330.00
2001 1,207.50 1,207.50 2026 35,267.50 61,965.00
2002 1,207.50 1,207.50 2027 38,382.50 68,125.00
2003 1,207.50 1,207.50 2028 43,870.00 74,670.00
2004 1,207.50 1,207.50 2029 56,830.00 81,470.00
2005 1,207.50 1,207.50 2030 74,152.50 88,465.00
2006 1,207.50 1,207.50 2031 85,922.50 95,515.00
2007 2,762.50 2,762.50 2032 96,017.50 102,715.00
2008 4,317.50 4,317.50 2033 110,165.00 110,165.00
2009 5,875.00 5,875.00 2034 117,990.00 117,990.00
2010 7,430.00 7,430.00 2035 123,312.50 126,445.00
2011 8,985.00 8,985.00 2036 128,052.50 135,885.00
2012 10,540.00 15,760.00 2037 132,517.50 147,895.00
2013 11,372.50 17,385.00 2038 150,945.00 165,050.00
2014 12,245.00 19,225.00 2039 159,822.50 192,345.00
2015 13,147.50 21,350.00 2040 168,357.50 204,155.00
2016 14,385.00 23,790.00 2041 184,030.00 222,137.50
2017 15,740.00 26,530.00 2042 211,452.50 230,070.00
2018 17,240.00 29,470.00
2019 18,892.50 32,600.00
2020 20,720.00 35,890.00
2021 22,722.50 39,305.00
</TABLE>
5
<PAGE> 7
GENERAL PROVISIONS (CONTINUED)
ASSIGNMENT. The Company is not responsible for the validity or effect of any
assignment of this Policy. No assignment will bind the Company until it is
received at the home office.
INCONTESTABILITY. This Policy is not contestable after it has been in force
during the Insured's lifetime for a period of two years from the Date of Issue.
This provision also applies to any rider providing additional benefits which is
included with this Policy on the Date of Issue.
MISSTATEMENT. If the Insured's age or sex is misstated, any amount payable will
be adjusted to that amount which the premiums paid would have purchased based
on the correct information.
"Attained age" is the age shown in the Schedule plus the number of
years, including fractions, elapsed from the Policy Date.
SUICIDE. If the Insured, while sane or insane, dies by suicide within two years
after the Date of Issue, the death proceeds under this Policy will be an amount
equal to the premiums paid less any loan against this Policy.
PAYMENT OF PROCEEDS. Any payments by the Company under this Policy will be made
from the home office. This Policy must be returned to the Company. Unless a
settlement option is elected, the proceeds will be paid in one sum.
AMOUNT OF THE DEATH PROCEEDS. The proceeds payable at the death of the Insured
will be:
1. the Amount of Insurance shown in the Schedule subject to any
adjustment for misstatement; plus
2. that portion of the premium paid for the period beyond the end of
the policy month of death; less
3. any premium required to keep this Policy in force to the end of
the policy month of death; less
4. the amount of any policy loan.
Any proceeds payable will also be adjusted due to a successful contest
of this Policy or for death as provided in the Suicide provision.
NONPARTICIPATING. This Policy does not share in any distribution of surplus.
No dividends are payable.
NONFORFEITURE PROVISIONS
NONFORFEITURE OPTIONS. A nonforfeiture option may be elected by written
request. Such request must be received at the home office not later than 60
days after a premium is due but not paid and before the Insured's death. The
net cash value is the cash value less any policy loan. The following options
apply if this Policy has a positive net cash value.
Net Cash Value. The Owner may surrender this Policy for its net cash
value. It may be surrendered only as of the date to which premiums were
paid. The amount payable upon surrender will be the net cash value on
that date. A surrender within 60 days after the date to which premiums
have been paid will be for an amount not less than the value on such
date, less any policy loan made after such date. Payment may be deferred
up to six months after request is received at the home office.
Paid-Up Insurance. This Policy may be continued as level paid-up
insurance from the date of default, which is the date to which premiums
were paid. The amount will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age. This
paid-up insurance will be payable at the same time as the insurance
under this Policy. It will be subject to the applicable provisions of
this Policy.
Extended Term Insurance. This option is available if extended term
insurance values are shown in the Table of Nonforfeiture Values in the
Schedule. The Amount of Insurance less any policy loan will be continued
in force as level term insurance from the date of default. The period of
such term insurance will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age.
Automatic Option. This option applies if:
1. the unpaid premium has not been paid by an automatic premium
loan; and
2. no option above has been elected.
When the grace period expires, this Policy will be continued as extended
term insurance, if available. Otherwise, the paid-up insurance option
will apply. The Owner may elect one of the other available options
within 60 days after the date to which premiums were paid.
Paid-up or extended term insurance may be surrendered at any time for
its net cash value. This value is the net single premium at the Insured's
attained age for any benefits remaining under such insurance, less any policy
loan made after the date of default. A surrender within 30 days after a policy
anniversary will be for an amount not less than the value on such anniversary,
less any loan made since the anniversary.
BASIS OF VALUES. All calculations, including net single premium calculations,
are based on the mortality tables and rate of interest shown in the Schedule.
Death is assumed to occur at the end of the policy year. Riders are ignored
when determining nonforfeiture values under this Policy. Values are in no case
less than the minimum values required by the state in which this Policy was
issued.
TABLE OF NONFORFEITURE VALUES. The values shown assume that no policy loan is
made and that premiums have been paid to the end of the policy year. If
premiums are paid for part of the year, values will be prorated.
Negative values are shown as zero in the Table. All calculations will
use the actual negative value.
Form No. 1400.2A
7
<PAGE> 8
POLICY LOANS
CASH LOAN. The Company will make a loan upon the sole security and assignment
of this Policy. The Owner may obtain the loan while this Policy is in force
other than as extended term insurance.
The loan value of this Policy is the cash value as of the next Premium
Due Date. For paid-up insurance, the loan value is the cash value at the end of
the current policy year. The amount advanced as a policy loan may not exceed
the loan value less:
1. the amount of any existing policy loan;
2. loan interest to the end of the current policy year; and
3. any premium in default.
AUTOMATIC PREMIUM LOAN OPTION. This option may be elected in the application.
It may also be elected by written request received at the home office before
the end of the grace period for an unpaid premium. The Owner may revoke the
election by written request to the home office.
If elected, this option provides automatic payment of an unpaid premium
by policy loan. The loan will be made at the end of the grace period. After two
consecutive premiums have been paid by loan, the Company may change to a less
frequent mode of premium payment if there is sufficient loan value.
If there is not sufficient value to advance the premium and interest for
the loan, no automatic premium loan will be made. The premium will be in
default. Any remaining value will be applied in accordance with the
Nonforfeiture Options provision.
While this Policy remains in force, the Owner may resume premium
payments at any time without furnishing evidence of insurability.
DEFERRAL. The Company may defer making a policy loan up to six months after
written request is received at the home office. However, a loan for payment of
premiums to the Company will not be deferred.
INTEREST AND REPAYMENT. Interest is payable annually in advance on each policy
anniversary. The Policy Loan interest rate is shown in the Schedule. Interest
not paid when due is added to the loan and bears interest at the same rate.
All or any part of a policy loan may be repaid while this Policy is in
force during the Insured's lifetime. After policy lapse, loans made prior to
the end of the grace period may not be repaid unless this Policy is reinstated.
When the total loan including interest exceeds the cash value, this
Policy will terminate. Notice of termination will be mailed to the Owner and to
any assignee of record. Termination will be effective 31 days after the notice
is mailed.
8
<PAGE> 9
FIRST COLONY LIFE INSURANCE COMPANY
LYNCHBURG, VIRGINIA
ENDORSEMENT
This Policy is amended to include the following additional section:
"REQUALIFICATION OPTION. The Owner may elect to requalify for a new
premium guarantee period in a new Graded Premium Life policy. Riders may
be included in the new policy subject to Company approval.
This Option may be elected to be effective as of a policy anniversary:
1. on or before the Requalification Expiry Date shown in the
Schedule; and
2. on or after the later of the following:
o the tenth policy anniversary; and
o the anniversary at which premiums for this Policy
are first scheduled to increase annually as shown
in the Table of Premiums.
To requalify, the Owner must:
1. file written request in a form acceptable to the Company
at least 60 days prior to the policy anniversary on which
this option is to be effective;
2. return this Policy to the home office;
3. provide satisfactory evidence of the insurability of the
Insured; and
4. pay the required premium.
Following Company approval, this Option will be effective on the policy
anniversary as of which it was elected.
The Company will issue the new Graded Premium Life policy at the
Insured's attained age. The Table of Premiums of the new policy will
show the premiums for the new guarantee period. The premiums for the new
policy will be based on the premium rates in use on the effective date
of this Option.
The policy date of the new policy will be the effective date of this
Option. The contestability and suicide periods of the new policy will be
measured from the date specified in the new policy.
Other policy provisions will be the same as under this Policy except
that this Option will be unavailable after the Requalification Expiry
Date."
/s/ DAVID H. MCMAHON
Secretary
Form No. 9117-02 (94)
<PAGE> 10
FIRST COLONY LIFE INSURANCE COMPANY
LYNCHBURG, VIRGINIA
ENDORSEMENT
This Endorsement is intended to clarify the Premium Class shown on Schedule
Page 3:
"In determining the Premium Class for this Policy, the Insured has been
classified as either a 'nonsmoker' or a 'smoker' based on statements
made regarding the use of tobacco. The Insured may be classified as a
'smoker' for the use of any form of tobacco. If the Insured has been
classified as a 'nonsmoker' the Premium Class of this Policy will
indicate 'Nonsmoker'; otherwise, the Insured has been classified as a
'smoker.'
/s/ DAVID H. MCMAHON
Secretary
Form No. 9186
<PAGE> 11
FIRST COLONY LIFE INSURANCE COMPANY
LYNCHBURG, VIRGINIA
ACCELERATED DEATH BENEFIT RIDER
THIS RIDER PROVIDES FOR AN ACCELERATED PAYMENT OF LIFE INSURANCE PROCEEDS. IT
IS NOT INTENDED OR DESIGNED TO PROVIDE HEALTH, NURSING HOME, OR LONG-TERM CARE
INSURANCE. RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT WILL REDUCE THE
DEATH PROCEEDS AND ANY SURRENDER OR LOAN VALUES PROVIDED BY THE POLICY.
DISCLOSURE: RECEIPT OF AN ACCELERATED DEATH BENEFIT PAYMENT MAY BE TAXABLE. THE
OWNER OF THE POLICY SHOULD SEEK ASSISTANCE FROM A TAX ADVISOR BEFORE ELECTING
TO RECEIVE A PAYMENT.
- --------------------------------------------------------------------------------
BENEFIT
The Company will make an accelerated death benefit payment to the Owner of the
Policy subject to the provisions of this Rider. The requirements for payment
are:
o the Owner's written request for an accelerated death benefit
payment;
o proof acceptable to the Company that the Owner is eligible for a
payment according to the terms of this Rider;
o written approval of payment from any irrevocable beneficiary; and
o full release of any collateral assignment of the Policy except a
collateral assignment to the Company.
Payment will be made in a single sum. The Company will make only one
accelerated death benefit payment under this Rider.
The Company will not make an accelerated death benefit payment if:
o it does not receive all of the requirements for payment as stated
above at its home office;
o the Policy is being continued as extended term insurance on the
date payment is to be made;
o there is less than one year remaining until any expiry or
maturity date for the Policy on the date payment is to be made;
or
o the Policy is be contested or has been voided as the result of a
successful contest.
BENEFIT LIMITATIONS
The Owner requests the amount of accelerated death benefit subject to the
maximums stated below.
The maximum accelerated death benefit available for request is equal to the
lesser of (a) and (b) below:
(a) The sum of the following:
o 75% of the difference between the primary death benefit on
the date the Company approves payment of an accelerated
death benefit and the loan value on that date; and
o the loan value on the date the Company approves payment of
an accelerated death benefit.
(b) $500,000.
The primary death benefit is the death benefit provided by the Policy and does
not include any accidental death benefits, the amount of the death benefit of
any riders, or any benefits payable because of the death of any person other
than the Insured. If the Policy provides for policy loans, loan value is
defined in the Policy; otherwise, loan value is defined to be zero.
ELIGIBILITY
To be eligible to receive an accelerated death benefit payment, the Owner must
provide the following to the Company:
o evidence acceptable to the Company that the Insured is living and
has a life expectancy of six months or less; this evidence must
include, but is not limited to, certification by a physician
approved by the Company who is licensed to practice medicine in
the United States or Canada and is acting within the scope of
that license;
o evidence that election of this benefit is voluntary and without
coercion on the part of any third party, including any creditor
or government agency; and
o evidence that only one of the Insureds is living if the Policy is
a last survivor policy.
Form No. R-85-05
<PAGE> 12
GENERAL PROVISIONS
Wherever used in this Rider, the term "Policy" means the Policy to which this
Rider is attached. This Rider is a part of the Policy. Policy provisions apply
to this Rider except where modified by this Rider.
If the Policy is in a grace period at the time an accelerated death benefit
payment is made, the premium required to remove the Policy from the grace
period will be deducted from the payment.
The Owner will remain liable for any required premium payments under the Policy
after the Company makes an accelerated death benefit payment.
There is no premium or cost of insurance charge for this Rider; however, an
administrative fee that will not exceed $150 will be deducted from the
accelerated death benefit prior to payment to the Owner.
EFFECT OF AN ACCELERATED DEATH BENEFIT PAYMENT
As a result of making an accelerated death benefit payment, the primary death
benefit, any policy values (including any loan value or policy loan), and any
nonforfeiture values for the Policy will be reduced on the date of payment by
application of the accelerated death benefit factor. This factor equals one (1)
minus the accelerated death benefit ratio. This ratio equals:
o the amount of the approved accelerated death benefit before any
deductions are made; divided by
o the primary death benefit on the date the Company approves
payment of the accelerated death benefit.
The Company will also recalculate the premium based on the reduced primary
death benefit.
Upon making an accelerated death benefit payment, the Company will send the
Owner a notice showing the effects of the payment on the Policy and the
premium.
AMOUNT OF THE ACCELERATED DEATH BENEFIT PAYMENT
The Company will discount the approved accelerated death benefit based on a
life expectancy of six months. This discounting will account for the Company's
payment of a death benefit prior to the actual date of the Insured's death. The
interest rate used will be the greater of the following as of the date of
payment but will not exceed 10%:
o the current yield on a 90-day treasury bill; and
o the current legal maximum adjustable policy loan interest rate of
the state in which the Policy was delivered.
The amount the Company will pay to the Owner as an accelerated death benefit is
equal to:
o the amount of the approved accelerated death benefit; less
o the amount of the discount for early payment of a death benefit;
less
o the administrative fee; less
o the amount of any premium required to remove the Policy from the
grace period; less
o the amount of any policy loan, including interest, times the
accelerated death benefit ratio.
TERMINATION
This Rider will terminate on the earliest of the following dates:
o the date of maturity or termination of the Policy; and
o the date the Owner signs written request for termination of this
Rider; request must be received at the home office.
/s/ RONALD V. DOLAN DAVID H. MCMAHON
President Secretary
<PAGE> 1
EXHIBIT 6.21
===============================================================================
VALLEY FORGE LIFE INSURANCE COMPANY [CNA LOGO]
- -------------------------------------------------------------------------------
Executive Office: A Stock Company Home Office:
CNA Plaza 401 Penn St.
Chicago, Illinois 60685 Reading, Pennsylvania 19601
===============================================================================
In this policy the Owner is referred to as "You" or "Your"; the Valley Forge
Life Insurance Company is referred to as "We," "Our," or "Us." "He" is used
to mean "he" or "she". "His" is used to mean "his" or "hers".
THIS IS A LEGAL CONTRACT BETWEEN YOU AND US. READ IT CAREFULLY.
We agree to pay to the Beneficiary the Face Amount and any other policy
proceeds payable due to the Insured's death if the Insured dies before the
Expiry Date while this policy is in force. Payment will be made upon receipt
at Our Executive Office of due proof of the Insured's death. This Agreement is
subject to the terms of this policy.
CONSIDERATION - This policy is issued in consideration of the application and
payment of the first premium. While the Insured is alive premiums must be paid
as described in the Schedule of Policy Premiums until the Expiry Date.
TWENTY-ONE DAY RIGHT TO EXAMINE POLICY - IT IS IMPORTANT TO US THAT YOU ARE
SATISFIED WITH THIS POLICY AND THAT IT MEETS YOUR INSURANCE GOALS. READ IT
CAREFULLY. IF YOU ARE NOT SATISFIED WITH IT YOU MAY RETURN IT TO OUR EXECUTIVE
OFFICE OR TO YOUR AGENT WITHIN 21 DAYS AFTER YOU RECEIVE IT. WE WILL THEN
CANCEL IT AS OF THE POLICY DATE AND REFUND ANY PREMIUMS WHICH HAVE BEEN PAID.
Signed for the Valley Forge Life Insurance Company at its Executive Office, CNA
Plaza, Chicago, Illinois 60685.
/s/ D. H. CHOOKASZIAN /s/ D. M. LOWRY
Chairman of the Board Secretary
ADJUSTABLE PREMIUM
LEVEL TERM INSURANCE TO POLICY AGE 95
PREMIUMS CHANGE AS SHOWN IN THE SUPPLEMENT
TO THE SCHEDULE OF POLICY PREMIUMS
CONVERTIBLE DURING CONVERSION PERIOD
INSURANCE PAYABLE UPON DEATH BEFORE EXPIRY DATE
PREMIUMS PAYABLE TO EXPIRY DATE
NOT ELIGIBLE FOR DIVIDENDS
<PAGE> 2
SCHEDULE OF POLICY BENEFITS
DESCRIPTION OF BENEFITS EXPIRY DATE PREMIUM
ADJUSTABLE PREMIUM March 03, 2039 $4,895.00
LEVEL TERM INSURANCE
TO POLICY AGE 95
INITIAL ANNUAL PREMIUM: $4,895.00
*SUBJECT TO THE REDUCTION OF PREMIUM PROVISION, SEE THE SCHEDULE OF MAXIMUM
POLICY PREMIUMS ON PAGE 3.
POLICY SPECIFICATIONS
<TABLE>
<S> <C>
INSURED - Jerome J. CONGLETON INSURED'S POLICY AGE ON THE POLICY DATE - 53
POLICY NUMBER - VIHN003031 FACE AMOUNT - $2,000,000.00
POLICY DATE - March 03, 1997 PREMIUM CLASS - PREFERRED NONSMOKER
CLASS TWO
MODE OF PREMIUM PAYMENT - Annual
CONVERSION PERIOD - The earlier of the fifth
policy anniversary or
the policy anniversary
nearest the insured's
70th birthday.
</TABLE>
PAGE 1 OF 5
<PAGE> 3
ADDITIONAL BENEFITS PROVIDED BY RIDER EXPIRY DATE PREMIUM
NO RIDERS ON POLICY
PAGE 2 OF 5
<PAGE> 4
SCHEDULE OF MAXIMUM POLICY PREMIUMS
REDUCTION OF PREMIUM PROVISION
THE FOLLOWING PREMIUMS REPRESENT THE MAXIMUM PREMIUMS. WE RESERVE THE RIGHT TO
REDUCE THE PREMIUM PAYABLE FROM THE MAXIMUM PREMIUMS SHOWN BELOW FOR ANY POLICY
YEAR AFTER THE FIRST POLICY YEAR. BEFORE EACH POLICY YEAR BEGINS, WRITTEN
NOTICE OF THE PREMIUM FOR THAT YEAR WILL BE GIVEN. ANY REDUCTION FROM THE
MAXIMUM PREMIUM WILL BE ON A UNIFORM BASIS FOR INSUREDS OF THE SAME POLICY AGE,
SEX AND PREMIUM CLASS WHOSE POLICIES HAVE BEEN IN FORCE THE SAME LENGTH OF TIME.
NO CHANGE IN PREMIUM CLASS OR PREMIUM WILL OCCUR ON ACCOUNT OF DETERIORATION OF
THE INSURED'S HEALTH. PREMIUMS FOR SUPPLEMENTARY BENEFITS ARE NOT SUBJECT TO
THIS PROVISION.
<TABLE>
<CAPTION>
BEGINNING PRE-AUTHORIZED
OF PREMIUM
POLICY YEAR ANNUAL SEMI-ANNUAL QUARTERLY PAYMENTS
- ----------- ------ ----------- --------- --------
<S> <C> <C> <C> <C>
1 $ 4,895.00 $ 2,496.45 $ 1,287.39 $ 425.87
2 $ 4,895.00 $ 2,496.45 $ 1,287.39 $ 425.87
3 $ 4,895.00 $ 2,496.45 $ 1,287.39 $ 425.87
4 $ 4,895.00 $ 2,496.45 $ 1,287.39 $ 425.87
5 $ 4,895.00 $ 2,496.45 $ 1,287.39 $ 425.87
6 $ 48,535.00 $ 24,752.85 $ l2,764.71 $ 4,222.55
7 $ 53,975.OO $ 27,527.25 $ 14,195.43 $ 4,695.83
8 $ 60,115.00 $ 30,658.65 $ 15,810.25 $ 5,230.01
9 $ 66,995.00 $ 34,167.45 $ 17,619.69 $ 5,828.57
10 $ 74,855.00 $ 38,176.05 $ 19,686.87 $ 6,512.39
11 $ 83,915.00 $ 42,796.65 $ 22,069.65 $ 7,300.61
12 $ 94,215.00 $ 48,O49.65 $ 24,778.55 $ 8,196.71
13 $105,735.00 $ 53,924.85 $ 27,808.31 $ 9,198.95
14 $117,075.00 $ 59,708.25 $ 3O,79O.73 $ 10,185.53
15 $129,375.00 $ 65,981.25 $ 34,O25.63 $ 11,255.63
16 $142,575.00 $ 72,713.25 $ 37,497.23 $ 12,404.03
17 $156,975.CO $ 80,057.25 $ 41,284.43 $ 13,656.83
18 $173,235.00 $ 88,349.85 $ 45,560.81 $ 15,071.45
19 $194,635.00 $ 99,263.85 $ 51,189.01 $ 16,933.25
20 $212.875.00 $lO8,566.25 $ 55,986.13 $ 18,520.13
21 $237,275.00 $121,010.25 $ 62,403.33 $ 20,642.93
22 $264,675.00 $l34,984.25 $ 69,609.53 $ 23,026.73
23 $294,075.00 $l49,978.25 $ 77,341.73 $ 25,584.53
24 $325,375.00 $165,941.25 $ 85,573.63 $ 28,307.63
25 $358,275.00 $182,720.25 $ 94,226.33 $ 31,169.93
26 $392,435.00 $200,141.85 $103,210.41 $ 34,141.85
27 $428,675.00 $218,624.25 $112,741.53 $ 37,294.73
28 $468,435.00 $238,9Ol.85 $123,198.41 $ 40,753.85
29 $512,675.00 $261,464.25 $134,833.53 $ 44,602.73
30 $562,675.00 $286,964.25 $147,983.53 $ 48,952.73
31 $619,O35.00 $315,707.85 $162,806.21 $ 53,856.05
32 $680,635.00 $347,123.85 $179,007.01 $ 59,215.25
33 $746,075.00 $380,498.25 $196,217.73 $ 64,908.53
34 $814,075.00 $415,178.25 $214,101.73 $ 70,824.53
35 $884,035.00 $45O,857.85 $232,5Ol.21 $ 76,911.05
</TABLE>
PAGE 3 OF 5
<PAGE> 5
SCHEDULE OF MAXIMUM POLICY PREMIUMS, CONTINUED
<TABLE>
<CAPTION>
BEGINNING PRE-AUTHORIZED
OF PREMIUM
POLICY YEAR ANNUAL SEMI-ANNUAL QUARTERLY PAYMENTS
- ----------- ------ ----------- --------- --------
<S> <C> <C> <C> <C>
36 $ 954,535.00 $ 486,812.85 $ 251,042.71 $ 83,044.55
37 $ 1,026,535.00 $ 523,532.85 $ 269,978.71 $ 89,308.55
38 $ 1,101,035.00 $ 561,527.85 $ 289,572.21 $ 95,790.05
39 $ 1,179,275.00 $ 601,430.25 $ 310,149.33 $ 102,596.93
40 $ 1,263,835.00 $ 644,555.85 $ 332,388.61 $ 109,953.65
41 $ 1,358,235.00 $ 692,699.85 $ 357,215.81 $ 118,166.45
42 $ 1,478,335.00 $ 753,950.85 $ 388,802.11 $ 128,615.15
</TABLE>
PAGE 4 OF 5
<PAGE> 6
SUPPLEMENT TO THE SCHEDULE OF POLICY PREMIUMS
THE FOLLOWING PREMIUMS ARE THE CURRENT AND MAXIMUM ANNUAL PREMIUMS FOR
THE BASE POLICY ONLY NOT INCLUDING ANY SUPPLEMENTARY BENEFITS. PREMIUMS
FOR SUPPLEMENTARY BENEFITS, IF ANY, ARE SHOWN ON THE FOLLOWING PAGES.
<TABLE>
<CAPTION>
BEGINNING CURRENT MAXIMUM BEGINNING CURRENT MAXIMUM
OF ANNUAL ANNUAL OF ANNUAL ANNUAL
POLICY YEAR PREMIUMS + PREMIUMS POLICY YEAR PREMIUMS + PREMIUMS
- ----------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
1 $4,895.00 $4,895.00 39 $424,595.00 $1,179,275.00
2 $4,895.00 $4,895.00 40 $455,035.00 $1,263,835.00
3 $4,895.00 $4,895.00 41 $489,015.00 $1,358,235.00
4 $4,895.00 $4,895.00 42 $532,255.00 $1,478,335.00
5 $4,895.00 $4,895.00 $.00 $.00
6 $7,315.00 $48,535.00 $.00 $.00
7 $8,535.00 $53,975.00 $.00 $.00
8 $9,735.00 $60,115.00 $.00 $.00
9 $10,935.00 $66,995.00 $.00 $.00
10 $12,135.00 $74,855.00 $.00 $.00
11 $30,875.00 $83,915.00 $.00 $.00
12 $34,315.00 $94,215.00 $.00 $.00
13 $38,115.00 $105,735.00 $.00 $.00
14 $42,195.00 $117,075.00 $.00 $.00
15 $46,615.00 $129,375.00 $.00 $.00
16 $51,375.00 $142,575.00 $.00 $.00
17 $56,555.00 $156,975.00 $.00 $.00
18 $62,415.00 $173,235.00 $.00 $.00
19 $70,115.00 $194,635.00 $.00 $.00
20 $76,675.00 $212,875.00 $.00 $.00
21 $85,475.00 $237,275.00 $.00 $.00
22 $95,335.00 $264,675.00 $.00 $.00
23 $105,915.00 $294,075.00 $.00 $.00
24 $117,175.00 $325,375.00 $.00 $.00
25 $129,035.00 $358,275.00 $.00 $.00
26 $141,315.00 $392,435.00 $.00 $.00
27 $154,375.00 $428,675.00 $.00 $.00
28 $168,675.00 $468,435.00 $.00 $.00
29 $184,615.00 $512,675.00 $.00 $.00
30 $202,615.00 $562,675.00 $.00 $.00
31 $222,895.00 $619,035.00 $.00 $.00
32 $245,075.00 $680,635.00 $.00 $.00
33 $268,635.00 $746,075.00 $.00 $.00
34 $293,115.00 $814,075.00 $.00 $.00
35 $318,295.00 $884,035.00 $.00 $.00
36 $343,675.00 $954,535.00 $.00 $.00
37 $369,595.00 $1,026,535.00 $.00 $.00
38 $396,415.00 $1,101,035.00 $.00 $.00
$.00 $.00
</TABLE>
+ THE CURRENT ANNUAL PREMIUMS ARE THE PREMIUMS CURRENTLY CHARGED BY US
AND PROJECTED FOR POLICY YEARS AFTER THE FIRST POLICY YEAR. THE PREMIUMS ARE NOT
GUARANTEED. IN THE FIRST FIVE POLICY YEARS, THE ANNUAL PREMIUM PAYABLE MAY BE
LESS THAN BUT NEVER MORE THAN THE CURRENT ANNUAL PREMIUM. AFTER THE FIFTH POLICY
YEAR, THE ANNUAL PREMIUM PAYABLE MAY BE GREATER THAN OR LESS THAN THE CURRENT
ANNUAL PREMIUM BUT NEVER MORE THAN THE MAXIMUM ANNUAL PREMIUM.
PAGE 5 OF 5
<PAGE> 7
GUIDE TO POLICY PROVISIONS
SECTION
<TABLE>
<CAPTION>
Policy Face Page Twenty One Day Right to Examine Policy
<S> <C>
1 Definitions
2 Policy Proceeds
3 General Provisions
3.1 Contract
3.11 Entire Contract
3.12 Changes to Contract
3.13 Incontestability
3.14 Suicide
3.15 Misstatement of Age or Sex
3.2 Premiums and Reinstatement
3.21 Payment of Premiums
3.22 Grace Period
3.23 Reinstatement
3.3 Ownership and Beneficiary
3.31 Owner's Rights
3.32 Change of Owner or Contingent Owner
3.33 Assignment
3.34 Beneficiary
3.35 Change of Beneficiary
4 Policy Settlement
4.1 General Policy Settlement Provisions
4.11 Payee
4.12 Payment of Policy Proceeds
4.13 Choosing on Optional Method of Settlement
4.14 Frequency of Payments
4.15 First Payment
4.16 Death of Payee
4.17 Protection Against Creditors
4.18 Settlement Agreement
4.19 Additional Interest Earnings
4.2 Optional Methods of Policy Settlement
4.21 Option 1 - Interest Payments
4.22 Option 2 - Installments of a Specified Amount
4.23 Option 3 - Installments for a Specified Period
4.24 Option 4 - Life Annuity
4.25 Option 5 - Life Annuity with Period Certain
4.26 Option 6 - Joint Life and Survivorship Annuity
5 Conversion Privilege
5.1 Conversion Period
5.2 How to Convert this Policy
5.3 Terms of the New Policy
</TABLE>
The Schedule of Policy Benefits, Policy Specifications, Schedule of Policy
Premiums and Supplemental Schedules of Policy Premiums appear immediately
preceding the Guide to Policy Provisions.
A copy of the application and any Riders are attached.
<PAGE> 8
SECTION 1: DEFINITIONS
The following are key words used in this policy. They are important in
describing both Your rights and Ours. When they are used, they are capitalized.
As You read Your policy, refer back to these definitions.
ASSIGN - means to transfer Your rights as the Owner of this policy to another
person. If You transfer all of Your rights irrevocably, the Assignment is
absolute. If You transfer all or some of Your rights as the Owner of this
policy as security for a loan, but on the condition that they return to You
once the debt is paid, then the Assignment is collateral. Details are in
Section 3.33.
BENEFICIARY - is the payee of the policy proceeds at the Insured's death.
Details are in Section 4.11.
CONVERSION PERIOD - is the period during which You may convert this policy to
another plan of insurance. Details are in Section 5.1.
EXECUTIVE OFFICE - is Our office at CNA Plaza, Chicago, Illinois 60685.
EXPIRY DATE - is the date on which the insurance coverage under this policy
ends.
GRACE PERIOD - is the period after a Premium Due Date during which We will
accept premiums without any change to Your benefits. Details are in Section
3.22.
INSURED'S POLICY AGE ON POLICY DATE - is the Insured's age on his birthday
nearest the date on which this policy is issued.
OWNER - is the person who may exercise the rights listed in Section 3.31.
POLICY AGE - is the Insured's age on his birthday nearest the Policy
Anniversary.
POLICY ANNIVERSARY - is the same day and month as the Policy Date for each year
the policy is in force.
POLICY DATE - is the date on which this policy is issued and the insurance
coverage becomes effective.
POLICY MONTHS AND POLICY YEARS - refer to the month and years during which this
policy is in force. Policy Months and Policy Years are measured from the Policy
Date.
PREMIUM DUE DATE - is the date by which premiums, other than the first, must be
paid. If the annual Mode of Premium Payment is chosen, the Premium Due Dates
are the Policy Anniversaries. If the pre-authorized premium payment, quarterly,
or semi-annual mode of premium payment is chosen, the Premium Due Dates are,
respectively, every 1 month, 3 months or 6 months from the Policy Date. The
first Premium Due Date is measured from the Policy Date. All following Premium
Due Dates are measured from the immediately preceding Premium Due Date.
RIDER - is a form which amends the policy or which provides additional benefits.
When a Rider is attached to the policy it is a part of the policy and is
subject to all the terms of the policy unless We state otherwise in the Rider.
SUPPLEMENTARY BENEFIT - is a benefit provided by a Rider and is in addition to
the other benefits of the policy.
WRITTEN NOTICE - means a written form satisfactory to Us and which must be
received by Us at Our Executive Office.
SECTION 2: POLICY PROCEEDS
If the Insured dies while this policy is in force, We will pay the proceeds
below to the Beneficiary after We receive at Our Executive Office due proof of
the insured's death.
1. The Face Amount of insurance in effect on the Insured's life;
2. Any benefits under a Rider providing proceeds which are payable on the
Insured's death; and
3. An amount equal to the premium already paid to Us for each Policy Month
following the Policy Month of the Insured's death. (However, We will not pay
this amount if We are waiving premiums for this policy.)
<PAGE> 9
If the Insured dies during the Grace Period, We will deduct the unpaid premium
for the Policy Month in which the Insured dies from the policy proceeds.
Any payment is subject to the terms of this policy.
The policy proceeds will be exempt from the claims of creditors and from legal
process to the extent the law permits.
<PAGE> 10
SECTION 3: GENERAL PROVISIONS
3.1: CONTRACT
3.11: ENTIRE CONTRACT - The entire contract between You and Us consists of
this policy, including the endorsements and the attached written
application. All statements made in the written application are
representations and not warranties. We will not use any statement made
by the Insured or on his behalf to challenge a claim under this policy
unless it is contained in the written application.
Any Rider attached to this policy is a part of the policy and is
subject to its terms unless We state otherwise in the Rider.
3.12: CHANGES TO CONTRACT - No one has the right to change any part of this
policy or to waive any of its provisions unless the change is approved
in writing on the policy by one of Our officers.
3.13: INCONTESTABILITY - We cannot contest this policy, except for non-payment
of premiums, after it has been in force during the Insured's lifetime
for 2 years from the Policy Date or if reinstated the date of
reinstatement.
Reinstatements may be contested only with respect to material
misstatements made in the application for reinstatement.
3.14: SUICIDE - If the Insured commits suicide while sane or insane within 2
years from the Policy Date, Our liability is limited to an amount equal
to the total premiums paid. We will pay this amount to the Beneficiary
in one sum.
3.15: MISSTATEMENT OF AGE OR SEX - If the age or sex of the Insured has been
misstated, We will adjust the policy proceeds to the amount which the
premiums paid would have purchased at the correct age or sex.
3.2: PREMIUMS AND REINSTATEMENT
3.21: PAYMENT OF PREMIUMS - Each premium, other than the first, must be paid
on or before its Premium Due Date. The first premium must be paid to Our
authorized agent in exchange for a receipt signed by Our Corporate
Secretary and countersigned by the agent. Premiums, other than the
first, must be paid to Us at Our Executive Office. Premiums must be paid
at the rates and modes shown in the Schedule of Policy Premiums. If You
want to change the Mode of Premium Payment, We must receive Written
Notice from You.
3.22: GRACE PERIOD - Any premium, other than the first, which is not paid by
its Premium Due Date may be paid while the Insured is living within a
Grace Period of 31 days after its Premium Due Date. At least 30 days
prior written notice of such premium will be mailed to Your last known
address. The notice will also be mailed to any assignee of record. Your
policy stays in force during the Grace Period. If the Insured dies
during a Grace Period, We will deduct the unpaid premium for the Policy
Month in which the Insured dies from the policy proceeds.
3.23: REINSTATEMENT - This policy may be reinstated while the Insured is alive
within 20 days after the end of the Grace Period by payment of the
unpaid premium. We will not require evidence of insurability.
Reinstatement does not extend the Grace Period.
This policy may also be reinstated following the 20 day period after
the end of the Grace Period. Such reinstatement must be made while the
Insured is living and within 5 years after the Premium Due Date of the
unpaid premium. For such reinstatement We will require:
1. Evidence of Insurability satisfactory to Us; and
2. Payment of all past due premiums with interest at 6% per year
compounded annually to the date of reinstatement.
The reinstated policy will be in force from the date We approve the
reinstatement application.
<PAGE> 11
3.3: OWNERSHIP AND BENEFICIARY
3.31: OWNER'S RIGHTS - Without any Beneficiary's consent, You may:
1. Transfer ownership of Your policy by absolute Assignment; or
2. Designate, change or revoke a contingent Owner.
With each irrevocable Beneficiary's consent, You may:
1. Change the Beneficiary during the Insured's lifetime;
2. Receive any benefit, exercise any right, and use any privilege
granted by Your policy or allowed by Us; or
3. Agree with Us to any change or amendment of Your policy.
If You die while the Insured is alive, the contingent Owner, if any,
will become the Owner. If there is no contingent Owner, ownership
will pass to Your estate.
3.32: CHANGE OF OWNER OR CONTINGENT OWNER - On the Policy Date the Owner and
any contingent Owner are as designated in the application. You may
change the Owner by absolute Assignment as stated in Section 3.33. You
may designate, change or revoke a contingent Owner. We must receive
Written Notice informing Us of the designation, change or revocation.
Upon receipt, a designation, change or revocation takes effect as of
the date the Written Notice was signed. However, We are not liable for
any payment made by Us before We record the Written Notice.
3.33: ASSIGNMENT - You may Assign this policy. We are bound by an Assignment
only if We receive a duplicate of the original Assignment at Our
Executive Office. We are not liable for any payment made by Us before
We record the Assignment. We take no responsibility for the validity
of any Assignment. An Assignment will not change or revoke the
Beneficiary designation in effect at the time the Assignment is made. If
an Assignment is absolute, Your rights and privileges, including any
right to change the Beneficiary, vest in the Assignee. If an Assignment
is collateral, the collateral Assignee has priority over the interest
of any revocable Beneficiary or revocable payee under any optional
method of policy settlement chosen in Section 4.2.
3.34: BENEFICIARY - A Beneficiary is revocable unless otherwise stated in the
Beneficiary designation. The interest of any Beneficiary who dies
before the Insured vests in You unless otherwise stated in the
Beneficiary designation.
3.35: CHANGE OF BENEFICIARY - On the Policy Date the Beneficiary is as stated
in the application. You may change a revocable Beneficiary. We must
receive Written Notice informing Us of the change. Upon receipt a
change takes effect as of the date the Written Notice was signed.
However, We are not liable for any payment made by Us before We record
the Written Notice.
<PAGE> 12
SECTION 4: POLICY SETTLEMENT
4.1: GENERAL POLICY SETTLEMENT PROVISIONS
4.11: PAYEE - The Beneficiary is the payee of the policy proceeds at the
Insured's death; any contingent Beneficiary is the contingent payee.
If the Beneficiary is revocable, then the payee is also revocable.
4.12: PAYMENT OF POLICY PROCEEDS - When a policy becomes a claim by the death
of the insured, settlement will be made within two months after receipt
of due proof of death. If the policy proceeds are less than $5,000, We
will pay them to the payee in one sum. If the policy proceeds are
$5,000 or more, We will pay them to the payee in one sum, unless one of
the optional methods of policy settlement in Section 4.2 is chosen.
4.13: CHOOSING AN OPTIONAL METHOD OF SETTLEMENT - You may, at any time before
the Insured's death, choose an optional method of policy settlement.
If the Insured dies and You have not yet chosen an option, then the
payee may choose an option. We must receive Written Notice informing Us
of the option chosen. If the payee is an executor, administrator,
trustee, corporation, partnership or association, the options are
available only with Our consent.
4.14: FREQUENCY OF PAYMENTS - If Option 1, 2 or 3 is chosen, We will make
payments every 1 year, 6 months, 3 months or 1 month. The frequency of
payments must be specified at the time the option is chosen. If Option
4, 5 or 6 is chosen, We will make payments every 1 month. If any
payment under an option would be less than $50, We may make payments
less frequently so that each payment is at least $50.
4:15: FIRST PAYMENT - Depending on the frequency of payments specified, the
first payment under Option 1 is payable 1 year, 6 months, 3 months or 1
month from the date of the Insured's death. The first payment under
any other option is payable on the date of the Insured's death.
If the amount that could be purchased by a single premium of $1,000 at
Our regular annuity rates in effect at the time the first installment
is payable is larger than the amount of the first monthly installment
for each $1,000 applied under Option 3, 4, 5, or 6. We will pay the
larger amount as the benefit under the option. We will furnish this
amount upon request.
4:16: DEATH OF PAYEE - At the payee's death, We will pay the amounts below in
one sum to the payee's estate, unless We are directed otherwise at the
time the option is chosen:
1. Under Option 1, the amount which was left on deposit with Us to
accumulate with interest plus any unpaid interest.
2. Under Option 2, 3, or 5, the commuted value of the amount
payable at the payee's death as provided under the option
chosen. The commuted value will be based on the interest at
the rate which would have been used to compute the first
installment of the installments remaining to be paid at the
payee's death.
4:17: PROTECTION AGAINST CREDITORS - Unless provided otherwise at the time an
option is chosen, the payee may neither commute, anticipate, assign,
alienate nor otherwise encumber any payment under an option. Payments
under any option are exempt from the claims of creditors and from legal
process to the extent the law permits.
4:18: SETTLEMENT AGREEMENT - In exchange for this policy We will issue a
settlement agreement stating the terms of the option chosen.
4:19: ADDITIONAL INTEREST EARNINGS - We may pay interest earnings beyond
those guaranteed in Options 1 and 2. If We do, We will determine the
amount of the additional interest earnings and how they are paid.
<PAGE> 13
4.2: OPTIONAL METHODS OF POLICY SETTLEMENT
4.21: OPTION 1-INTEREST PAYMENTS - We will hold the policy proceeds as
principal and pay the interest to the payee. The interest rate will be
3% per year compounded annually. We will pay the interest every 1 year,
6 months, 3 months or 1 month, as specified at the time this option is
chosen. At the death of the payee, We will make payment as stated in
Section 4.16, "Death of Payee".
4.22: OPTION 2-INSTALLMENTS OF A SPECIFIED AMOUNT - We will pay the policy
proceeds to the payee in equal installments every 1 year, 6 months, 3
months or 1 month. The amount of the equal installment payments and the
frequency of payments must be specified at the time this option is
chosen. After each payment, We will add interest to that portion of the
policy proceeds applied under this option which has not yet been paid as
installments. The interest rate will be 3% per year compounded annually.
Installments will be paid to the payee until the amount applied under
this option, including interest, is exhausted. The total of the
installments paid each year must be at least 5% of the proceeds applied
under this option. If the payee dies before the amount applied is
exhausted, We will pay the unpaid installments as stated in Section 4.16,
"Death of Payee."
4.23: OPTION 3-INSTALLMENTS FOR A SPECIFIED PERIOD - We will pay the policy
proceeds in equal installments to the payee for the number of years
specified at the time this option is chosen. Payments will be made every
1 year, 6 months, 3 months or 1 month, as specified at the time this
option is chosen. The amount of the equal installments for each $1,000
applied under this option is shown in the following table. If the payee
dies before the number of years specified ends, We will pay the unpaid
installments as stated in Section 4.16, "Death of Payee."
<TABLE>
<CAPTION>
Number Amount of
of Years Installments
Specified Annual S.A.
- --------------- ---------- --------
<S> <C> <C>
1 $1,000.00 $503.70
2 507.39 255.57
3 343.23 172.89
4 261.19 131.56
5 211.99 106.78
6 179.22 90.27
7 155.83 78.49
8 138.31 69.67
9 124.69 62.81
10 113.82 57.33
11 104.93 52.85
12 97.54 49.13
13 91.29 45.98
14 85.95 43.29
15 81.33 40.96
16 77.29 38.93
17 73.74 37.14
18 70.59 35.56
19 67.78 34.14
20 65.26 32.87
25 55.76 28.08
30 49.53 24.95
</TABLE>
<TABLE>
<CAPTION>
Number Amount of
of Years Installments
Specified Quar. Mo.
- --------------- ---------- --------
<S> <C> <C>
1 $252.78 $84.47
2 128.26 42.86
3 86.76 28.99
4 66.02 22.06
5 53.59 17.91
6 45.30 15.14
7 39.39 13.16
8 34.96 11.68
9 31.52 10.53
10 28.77 9.61
11 26.52 8.86
12 24.66 8.24
13 23.08 7.71
14 21.73 7.26
15 20.56 6.87
16 19.54 6.53
17 18.64 6.23
18 17.84 5.96
19 17.13 5.73
20 16.50 5.51
25 14.09 4.71
30 12.52 4.18
</TABLE>
<PAGE> 14
4.24: OPTION 4 - LIFE ANNUITY - We will pay equal monthly installments to the
payee for as long as he lives. The amount of each installment for each
$1,000 applied under this option is shown in the table below.
<TABLE>
<CAPTION>
=================================================================================
Age Option 4 Age Option 4 Age Option 4
of Payee* Monthly of Payee* Monthly of Payee* Monthly
---------------- Life ------------- Life ------------- Life
Male Female Annuity Male Female Annuity Male Female Annuity
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 and 21 and 39 44 $3.78 63 68 $6.39
under under $3.02 40 45 3.83 64 69 6.61
17 22 3.04 41 46 3.89 65 70 6.84
18 23 3.06 42 47 3.95 66 71 7.08
19 24 3.08 43 48 4.02 67 72 7.35
20 25 3.10 44 49 4.09 68 73 7.63
21 26 3.12 45 50 4.16 69 74 7.94
22 27 3.15 46 51 4.24 70 75 8.27
23 28 3.17 47 52 4.32 71 76 8.59
24 29 3.19 48 53 4.40 72 77 8.91
25 30 3.22 49 54 4.49 73 78 9.23
26 31 3.25 50 55 4.58 74 79 9.55
27 32 3.28 51 56 4.68 75 80 9.89
28 33 3.32 52 57 4.78 76 81 10.36
29 34 3.35 53 58 4.88 77 82 10.83
30 35 3.38 54 59 5.00 78 83 11.30
31 36 3.42 55 60 5.11 79 84 11.77
32 37 3.46 56 61 5.24 80 85 12.92
33 38 3.50 57 62 5.38 81 and 13.59
34 39 3.54 58 63 5.52 82 over 14.26
35 40 3.58 59 64 5.67 83 14.93
36 41 3.63 60 65 5.83 84 15.62
37 42 3.67 61 66 6.01 85
38 43 3.72 62 67 6.19 and
over
=================================================================================
</TABLE>
*Use the payee's age nearest the date of the Insured's death.
<PAGE> 15
4.25: OPTION 5 - LIFE ANNUITY WITH PERIOD CERTAIN - We will pay equal monthly
installments to the payee for as long as he lives. At the time this
option is chosen, a period certain of 5, 10, 15, or 20 years must be
specified. If the payee dies before the specified period certain ends,
the installments which have not been paid will be paid as stated in
Section 4.16, "Death of Payee." The amount of the equal monthly
installments depends on the period certain chosen. The amount of the
equal monthly installments for each period certain available is shown in
the table below. The amounts shown are for each $1,000 applied under this
option. If at any age the amount of the equal installment payments is the
same for two or more periods certain, payment will be made as if the
longest period certain was chosen.
<TABLE>
<CAPTION>
==============================================================================================================
Age Number Of Age Number Of Age Number Of
of Payee* Years of Payee* Years of Payee* Years
Specified Specified Specified
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Male Female 5 10 Male Female 5 10 Male Female 5 10
- --------------------------------------------------------------------------------------------------------------
16 and 21 and 39 44 $3.78 $3.77 63 68 $6.30 $6.03
under under $3.02 $3.02 40 45 3.83 3.82 64 69 6.50 6.19
17 22 3.04 3.04 41 46 3.89 3.87 65 70 6.71 6.36
18 23 3.06 3.06 42 47 3.95 3.93 66 71 6.94 6.53
19 24 3.08 3.08 43 48 4.01 3.99 67 72 7.18 6.70
20 25 3.10 3.10 44 49 4.08 4.06 68 73 7.43 6.88
21 26 3.12 3.12 45 50 4.15 4.13 69 74 7.71 7.07
22 27 3.15 3.15 46 51 4.23 4.20 70 75 8.00 7.26
23 28 3.17 3.17 47 52 4.31 4.27 71 76 8.29 7.45
24 29 3.20 3.20 48 53 4.39 4.35 72 77 8.58 7.64
25 30 3.23 3.23 49 54 4.47 4.43 73 78 8.86 7.83
26 31 3.26 3.25 50 55 4.56 4.51 74 79 9.15 8.01
27 32 3.29 3.28 51 56 4.66 4.60 75 80 9.44 8.20
28 33 3.32 3.31 52 57 4.76 4.69 76 81 9.79 8.37
29 34 3.35 3.35 53 58 4.86 4.79 77 82 10.14 8.54
30 35 3.38 3.38 54 59 4.97 4.89 78 83 10.49 8.70
31 36 3.42 3.42 55 60 5.09 4.99 79 84 10.84 8.84
32 37 3.46 3.45 56 61 5.21 5.10 80 85 11.19 8.98
33 38 3.50 3.49 57 62 5.34 5.22 81 and 11.60 9.10
34 39 3.54 3.53 58 63 5.47 5.34 82 over 12.01 9.20
35 40 3.58 3.57 59 64 5.62 5.46 83 12.42 9.29
36 41 3.62 3.62 60 65 5.77 5.60 84 12.83 9.37
37 42 3.67 3.67 61 66 5.94 5.73 85 13.22 9.42
38 43 3.72 3.71 62 67 6.11 5.88 and
over
==============================================================================================================
</TABLE>
* Use the payee's age nearest the date of the Insured's death.
<PAGE> 16
4.25: OPTION 5 - LIFE ANNUITY WITH PERIOD CERTAIN - CONTINUED
<TABLE>
<CAPTION>
==============================================================================================
Number Of Number Of Number Of
Age Years Age Years Age Years
of Payee* Specified of Payee* Specified of Payee* Specified
- ----------------------------------------------------------------------------------------------
Male Female 15 20 Male Female 15 20 Male Female 5 20
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16 and 21 and 39 44 $3.74 $3.71 63 68 $5.62 $5.12
under under $3.01 $3.01 40 45 3.79 3.75 64 69 5.72 5.17
17 22 3.03 3.03 41 46 3.84 3.80 65 70 5.83 5.22
18 23 3.05 3.05 42 47 3.90 3.85 66 71 5.93 5.27
19 24 3.07 3.07 43 48 3.96 3.90 67 72 6.03 5.31
20 25 3.10 3.09 44 49 4.02 3.95 68 73 6.13 5.35
21 26 3.12 3.11 45 50 4.08 4.01 69 74 6.22 5.38
22 27 3.14 3.14 46 51 4.14 4.06 70 75 6.31 5.41
23 28 3.17 3.16 47 52 4.21 4.12 71 76 6.39 5.43
24 29 3.19 3.19 48 53 4.28 4.18 72 77 6.47 5.45
25 30 3.22 3.21 49 54 4.35 4.24 73 78 6.54 5.47
26 31 3.25 3.24 50 55 4.42 4.30 74 79 6.60 5.48
27 32 3.28 3.27 51 56 4.50 4.36 75 80 6.65 5.49
28 33 3.31 3.30 52 57 4.58 4.42 76 81 6.70 5.50
29 34 3.34 3.33 53 58 4.66 4.49 77 82 6.74 5.50
30 35 3.37 3.36 54 59 4.75 4.55 78 83 5.77 5.51
31 36 3.40 3.39 55 60 4.83 4.62 79 84 6.80 5.51
32 37 3.44 3.43 56 61 4.92 4.68 80 85 6.82 5.51
33 38 3.48 3.46 57 62 5.02 4.75 81 and 6.83 5.51
34 39 3.52 3.50 58 63 5.11 4.81 82 over 6.85 5.51
35 40 3.56 3.54 59 54 5.21 4.88 83 6.85 5.51
36 41 3.60 3.58 60 65 5.31 4.94 84 6.86 5.51
37 42 3.55 3.62 61 66 5.41 5.00 85 6.86 5.51
38 43 3.69 3.66 62 67 5.51 5.06 and
over
==============================================================================================
</TABLE>
* Use the payee's age nearest the date of the Insured's death.
<PAGE> 17
4.26: OPTION 6 - JOINT LIFE AND SURVIVORSHIP ANNUITY - We will pay equal
monthly installments jointly to two payees while both are living. After
the death of either payee, We will pay installments to the survivor for
as long as he lives. The mount of each installment for each $1,000
applied under this option is shown in the table below.
<TABLE>
<CAPTION>
======================================================================
Ages of
Payees* Male 55 56 57 58 59 60 61
- ----------------------------------------------------------------------
Male Female 65 61 62 63 64 65 66
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
51 56 $4.14 $4.17 $4.20 $4.23 $4.26 $4.29 $4.32
52 57 4.19 4.22 4.25 4.29 4.32 4.35 4.38
53 58 4.23 4.26 4.30 4.34 4.37 4.41 4.44
54 59 4.27 4.31 4.35 4.39 4.43 4.46 4.50
55 60 4.32 4.36 4.40 4.44 4.48 4.52 4.56
56 61 4.36 4.41 4.45 4.50 4.54 4.58 4.62
57 62 4.40 4.45 4.50 4.55 4.59 4.64 4.69
58 63 4.44 4.50 4.55 4.60 4.65 4.70 4.75
59 64 4.48 4.54 4.59 4.65 4.70 4.76 4.81
60 65 4.52 4.58 4.64 4.70 4.76 4.82 4.88
61 66 4.56 4.62 4.69 4.75 4.81 4.88 4.94
62 67 4.60 4.66 4.73 4.80 4.87 4.93 5.00
63 68 4.63 4.70 4.77 4.85 4.92 4.99 5.06
64 69 4.67 4.74 4.82 4.89 4.97 5.04 5.12
65 70 4.70 4.78 4.86 4.94 5.01 5.10 5.18
66 71 4.73 4.81 4.90 4.98 5.06 5.15 5.24
67 72 4.76 4.85 4.93 5.02 5.11 5.20 5.29
68 73 4.79 4.88 4.97 5.06 5.15 5.25 5.35
69 74 4.82 4.91 5.00 5.10 5.20 5.30 5.40
70 75 4.85 4.94 5.03 5.13 5.23 5.34 5.45
======================================================================
</TABLE>
Values for ages not shown will be furnished upon request.
*Use the payee's ages nearest the date of the Insured's death.
<PAGE> 18
4.26: OPTION 6 - JOINT LIFE AND SURVIVORSHIP ANNUITY - CONTINUED
<TABLE>
===================================================================================
Ages of
Payees* Male 62 63 64 65 66 67 68 69 70
- -----------------------------------------------------------------------------------
Male Female 67 68 69 70 71 72 73 74 75
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
51 56 $4.34 $4.37 $4.37 $4.41 $4.43 $4.45 $4.47 $4.49 $4.51
52 57 4.41 4.43 4.46 4.48 4.51 4.53 4.55 4.57 4.59
53 58 4.47 4.50 4.53 4.55 4.58 4.61 4.63 4.65 4.67
54 59 4.53 4.57 4.60 4.63 4.66 4.68 4.71 4.73 4.76
55 60 4.60 4.63 4.67 4.70 4.73 4.76 4.79 4.82 4.85
56 61 4.66 4.70 4.74 4.78 4.81 4.85 4.88 4.91 4.94
57 62 4.73 4.77 4.82 4.86 4.90 4.93 4.97 5.00 5.03
58 63 4.80 4.85 4.89 4.94 4.98 5.02 5.06 5.10 5.13
59 64 4.87 4.92 4.97 5.02 5.06 5.11 5.15 5.20 5.23
60 65 4.93 5.99 5.04 5.10 5.15 5.20 5.25 5.30 5.34
61 66 5.00 5.06 5.12 5.18 5.24 5.29 5.35 5.40 5.45
62 67 5.07 5.13 5.20 5.26 5.33 5.39 5.45 5.50 5.56
63 68 5.13 5.20 5.28 5.35 5.41 5.48 5.55 5.61 5.67
64 69 5.20 5.28 5.35 5.43 5.50 5.58 5.65 5.72 5.79
65 70 5.26 5.35 5.43 5.51 5.59 5.67 5.75 5.83 5.90
66 71 5.33 5.41 5.50 5.59 5.68 5.77 5.85 5.94 6.02
67 72 5.39 5.48 5.58 5.67 5.77 5.86 5.96 6.05 6.14
68 73 5.45 5.55 5.65 5.75 5.85 5.96 6.06 6.16 6.26
69 74 5.50 5.61 5.72 5.83 5.94 6.05 6.16 6.27 6.38
70 75 5.56 5.67 5.79 5.90 6.02 6.14 6.26 6.38 6.50
===================================================================================
</TABLE>
Values for ages not shown will be furnished upon request.
*Use the payees' ages nearest the date of the Insured's death.
<PAGE> 19
SECTION 5: CONVERSION PRIVILEGE
You may convert up to the Face Amount of this policy without evidence of
insurability, to any permanent life or endowment insurance policy then available
from Us for conversion, subject to the terms below.
5.1: CONVERSION PERIOD - You may convert this policy while it is in force at
any time during the Conversion Period shown in the Policy
Specifications.
5.2: HOW TO CONVERT THIS POLICY - We must receive all of the items below:
1. Written Notice that You wish to convert.
2. The first premium for the new policy.
3. This policy.
We will issue the new policy after We receive these items. The
Conversion Date is the Policy Date of the new policy. Unless We are
waiving premiums for this policy. We will refund any portion of premium
paid for coverage under this policy which extends past the Conversion
Date.
5.3: TERMS OF THE NEW POLICY - The new policy will be issued subject to
these terms:
1. The new policy will be issued at the underwriting class then
available for the plan of insurance being applied for, which
reflects the risk classification of the Insured on the Policy
Date of this policy.
2. Its effective date will be its Policy Date.
3. Its Policy Date will be the same as the Conversion Date.
4. The Insured's Policy Age on the Policy Date will be the Insured's
age on his birthday nearest the Policy Date of the new policy.
5. It will be issued on the form and at the premium rate We are
using on the Conversion Date.
6. Its premium, excluding the premium for any Supplementary Benefit,
will not be less than the premium for this policy on the
Conversion Date, excluding the premium for any Supplementary
Benefit.
7. It will be subject to any Assignment of this policy recorded at
Our Executive Office.
8. If this policy includes an accidental death benefit Rider in
force on the Conversion Date, then the new policy may include such
a Rider. The new Rider will be issued on the form We are issuing
on the Conversion Date.
9. If this policy includes a waiver of premium Rider in force on the
Conversion Date, then the new policy may include such a Rider.
The new Rider will be issued on the form We are issuing on the
conversion Date. We will waive premiums for the new policy only
for a disability which starts while the new policy is in force.
However, if We are waiving premiums for this policy, then We will
waive premiums for the new policy if:
(a) The Insured is disabled on the Conversion Date;
(b) The Conversion Date is the last day of the Conversion
Period; and
(c) The new policy is a non-participating level premium,
level death benefit whole life policy;
Disability is as defined in the new Rider.
<PAGE> 20
10. Except as stated in Nos. 8 and 9 above, a Supplementary Benefit
may be included on the new policy only with Our consent.
11. The new policy will be amended so that the time limit specified
in the Incontestability and Suicide Provisions of the new policy
will be measured from the same date as this policy.
<PAGE> 21
[LOGO]
===============================================================================
[VALLEY FORGE LIFE INSURANCE COMPANY LETTERHEAD]
===============================================================================
RIDER
EXTENDED CONVERSION PRIVILEGE
This Rider is a part of the Policy. It is subject to all the terms of
the Policy unless We state otherwise.
You may convert an amount up to the Face Amount of this policy without evidence
of insurability, to any permanent life or endowment insurance policy then
specifically available from Us for conversion under this Rider. Conversion
will be subject to the terms below.
EXTENDED CONVERSION PERIOD - You may convert this policy under the
terms of this rider during the Extended Conversion Period. The
Extended Conversion Period begins on the date the Policy Conversion
Period terminates, and ends on the tenth Policy anniversary or the
Policy anniversary nearest the insured's age 70, whichever is later.
HOW TO CONVERT THE POLICY - We must receive all of the items below:
1. Written Notice that You wish to convert.
2. The first premium for the new policy.
3. This policy.
We will issue the new policy after We receive these items. The
Conversion Date is the Policy Date of the new policy. We will refund
any portion of premium paid for coverage under this policy that extends
past the Conversion Date. The refunded premium may be applied toward
payment of the premium on the new policy.
TERMS OF THE NEW POLICY - The new policy will be issued subject to
these terms:
1. Its effective date will be its Policy Date.
2. Its Policy Date will be the same as the Conversion Date.
3. The Insured's Policy Age on the Policy Date will be the
Insured's age on his birthday nearest the Policy Date of the
new policy.
4. It will be issued on the form and at the premium rate We are
using on the Conversion Date.
5. Its premium, excluding the premium for any Supplementary
Benefit, will not be less than the premium for this policy on
the Conversion Date, excluding the premium for any
Supplementary Benefit.
6. It will be subject to any Assignment of this policy recorded at
Our Executive Office.
<PAGE> 22
7. If this policy includes an accidental death benefit Rider in force on
the Conversion Date, then the new policy may include such a Rider. The
new Rider will be issued on the form We are issuing on the Conversion
Date.
8. Except as stated in No. 7 above, a Supplementary Benefit may be included
on the new policy only with Our consent.
9. The new policy will be amended so that the time limit specified in the
incontestability and Suicide Provisions of the new policy will be
measured from the same date as this policy.
TERMINATION - This Rider will terminate on the earliest of:
1. The tenth Policy anniversary, or the Policy anniversary nearest age 70,
whichever is later;
2. the date the Policy terminates; or
3. receipt by Us of Your Written Notice canceling this rider.
SIGNED FOR THE VALLEY FORGE LIFE INSURANCE COMPANY AT OUR EXECUTIVE OFFICE, CNA
PLAZA, CHICAGO ILLINOIS 60685.
/S/ [ILLEGIBLE]
-----------------------------------
Chief Operating Officer
<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 August 11, 1996, 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. 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 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
2
<PAGE> 3
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.
(c) The granting of an Option shall impose no obligation upon
the Optionee to exercise such option.
3
<PAGE> 4
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 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
4
<PAGE> 5
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").
(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.
5
<PAGE> 6
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:
(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.
6
<PAGE> 7
(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 identify 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.
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 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.
7
<PAGE> 8
(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 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 identify 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.
8
<PAGE> 9
(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.
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.
9
<PAGE> 10
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
10
<PAGE> 11
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> 12
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> 13
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
unregistered, Optionee may be required to hold the Shares indefinitely
EXHIBIT A - 3
<PAGE> 14
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 his or her
address
EXHIBIT A - 4
<PAGE> 15
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> 16
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 6.26
ROYALTY AGREEMENT
This ROYALTY AGREEMENT (the "Agreement") dated as of the 1st day of
July, 1997, is by and between Neutral Posture Ergonomics, Inc. located at 3904
N. Texas Ave., Bryan, Texas 77803-0555 and Dr. Jerome Congleton, 13065 Valley
Cir., College Station, Texas 77845.
RECITALS
Dr. Congleton is a joint inventor of an invention which is disclosed and
claimed in United States Patent Application Serial Number 08/819,701, filed on
March 21, 1997, entitled "Apparatus for Housing and Transporting, and
Furnishing an Adjustable User-Platform for a Portable Computer" (the "Patent
Application"). Dr. Congleton has assigned all of his right, title and interest
in and to the Patent Application to Neutral Posture Ergonomics, Inc. in
exchange for the royalties payable pursuant to this Agreement.
DEFINITIONS
1. "Neutral Posture Ergonomics", a Texas Corporation, "Neutral Posture
Ergonomics, Inc.", or "NPE" shall mean Neutral Posture Ergonomics, Inc., its
successors and assigns, and any sublicensees and their successors and assigns.
2. "Patent Application" shall have the meaning set forth in the Recitals
of this Agreement.
3. "Net Sales Value" shall mean the invoice price less quality and cash
discounts thereon actually allowed but shall not include (i) sales or excise
taxes paid directly or indirectly by Neutral Posture Ergonomics, (ii) any
shipping costs actually paid and separately itemized by Neutral Posture
Ergonomics or (iii) normal and customary trade discounts, returns and
allowances actually allowed.
4. "Product" shall mean any device which would infringe one or more claims
of the patent or patents resulting under the Patent Application.
5. "Sold" shall mean a Product billed out, or shipped, or paid for,
whichever shall occur first.
REMUNERATION AND TERM
(A) Neutral Posture Ergonomics, Inc., shall pay Dr. Congleton a royalty
fee under the terms and conditions specified below to the earlier of (i) the
end of the term of any patent that issues arising from the Patent Application
(ii) the abandonment or failure to issue of the Patent Application and any
dependent patent applications or issued patents. The royalty shall be at a rate
of three percent (3%) of the Net Sales Value of Products Sold by Neutral
Posture Ergonomics.
<PAGE> 2
REPORTS AND AUDIT
(1) Neutral Posture Ergonomics shall keep full, true, and accurate
books of account containing all particulars which may be necessary for the
purpose of showing the amount payable to Dr. Congleton by way of royalty as
aforesaid. Said books of account shall be kept at Neutral Posture Ergonomics'
principal place of business. Said books and the supporting data shall be
opened upon reasonable prior notice, no more than twice during any calendar
year, during normal business hours at all reasonable times to the inspection of
an independent certified public accountant retained by Dr. Congleton for the
purpose of verifying Neutral Posture Ergonomics' royalty statements, or Neutral
Posture Ergonomics' compliance in other respects to this agreement. The
accountant shall only have the authority to report the amount of royalties that
should have been paid to Dr. Congleton during the period under inspection.
(2) Neutral Posture Ergonomics, within sixty (60) days after the
first day of January, April, July and October of each year shall deliver to Dr.
Congleton a true and accurate report, giving such particulars of the business
conducted by Neutral Posture Ergonomics during the preceding three (3) months
under this Agreement as are pertinent to an accounting for royalty under this
Agreement. These shall include at least the following:
(i) model numbers of each Product Sold;
(ii) quantity of each Product Sold;
(iii) unit prices;
(iv) gross billings;
(v) deductions, stating the basis for each deduction claimed;
and
(vi) royalty due Dr. Congleton.
Simultaneously with the delivery of each such report, Neutral Posture
Ergonomics shall pay to Dr. Congleton the royalty due for the period covered by
such report. If no royalties are due, it shall be so reported.
ARBITRATION
If any dispute arises with respect to the endorsement or interpretation
of the terms and conditions of this Agreement, such dispute shall not serve to
terminate this Agreement but shall instead be resolved by binding arbitration
upon thirty (30) days prior written notice in accordance with the notice
requirements of this Agreement, in accordance with the ten existing rules of
the American Arbitration Association. The award of the arbitrator shall be
confirmed as a judgement by any court having competent jurisdiction. This
Agreement shall be interpreted under the laws of the State of Texas and all
disputes shall be arbitrated in the City of College Station, Texas.
2
<PAGE> 3
MISCELLANEOUS
(1) This Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Texas.
(2) This Agreement does not constitute a partnership, joint
venture or agency relationship between the parties.
(3) All notices and payments required or permitted to be given
hereunder must be in writing and shall be deemed effectively given when
received or, if not received, when deposited with the U.S. Post Office as U.S.
Certified mail, return receipt requested, addressed as follows:
To Neutral Posture Ergonomics: 3904 N. Texas Ave.
Bryan, TX 77845
Attn: Rebecca Boenigk
To Dr. Congleton: 13065 Valley Circle
College Station, TX 77845
Each party shall give written notice to the other of any change in its address.
(4) No delay or omission by any party to exercise any right or
remedy under this Agreement shall be construed to be either acquiescence or the
waiver of the ability to exercise any right or remedy in the future.
(5) If any part of this Agreement is held to be invalid, illegal or
unenforceable, the remainder of the Agreement shall continue in effect.
(6) This Agreement shall be construed and interpreted in accordance
with the laws of the State of Texas and exclusive jurisdiction and venue for
all actions arising hereunder is agreed to be with the courts in Dallas, Texas.
(7) This Agreement shall be binding upon and inure to the benefit
of the successors, assigns and heirs of the parties.
(8) This Agreement supersedes any previous contract between the
parties and constitutes the entire agreement between them together with the
Assignment document by which Neutral Posture Ergonomics acquired Dr.
Congleton's rights in the Patent Application. The parties acknowledge that any
statements or documents not specifically referenced or made a part of this
Agreement shall not have any effectiveness. This Agreement may not be changed
except by a written agreement signed by the parties hereto.
3
<PAGE> 4
EXECUTED at Bryan, Texas, on September 22, 1997
DR. JEROME CONGLETON NEUTRAL POSTURE ERGONOMICS, INC.
/s/ JEROME J. CONGLETON By: /s/ REBECCA BOENIGK
- ----------------------------- -----------------------------
Date: September 22, 1997 Title: Chief Executive Officer
----------------------- --------------------------
Date: September 22, 1997
--------------------------
4
<PAGE> 1
Exhibit 6.27
ASSIGNMENT
WHEREAS, Neutral Posture Ergonomics, Inc. (ASSIGNOR), a corporation, of
Texas, having a place of business at 3904 North Texas Avenue, Bryan, Texas
77803, is the owner, by virtue of an assignment of the full and exclusive
right, title and interest in and to the following application for United States
Patent and the inventions described therein:
U.S. Patent Application Serial Number 08/819, 701, filed March 12,
1997, and entitled "APPARATUS FOR HOUSING AND TRANSPORTING, AND
FURNISHING AN ADJUSTABLE USER PLATFORM FOR A PORTABLE COMPUTER."
WHEREAS, Dr. Jerome Congleton, an individual residing at 13065 Valley
Circle, College Station, Texas 77845 (ASSIGNEE) is desirous of acquiring the
entire right, title and interest in and to said patent application, said
inventions and any patent or patents that may issue on said application within
the United States of America and its territorial possessions;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, ASSIGNOR does hereby sell, assign
and transfer unto ASSIGNEE, its successors, assigns and legal representatives,
its entire right, title and interest in and to said application, said
inventions, and all patents which may be granted therefor, and all divisions,
reissues, substitutions, continuations and extensions thereof; and ASSIGNOR
hereby authorizes and requests that Commissioner of Patents and Trademarks to
issue all patents for said inventions, or patents resulting therefrom, to
ASSIGNEE.
ASSIGNOR further agrees to execute any and all powers of attorney,
applications, assignments, declarations, affidavits, and any other papers in
connection therewith necessary to perfect such rights, title and interest in
ASSIGNEE, its successors, assigns and legal representatives.
ASSIGNOR hereby further agrees that it will communicate to ASSIGNEE, or
to its successors, assigns and legal representatives, any facts known to
ASSIGNOR respecting any improvements; and, at the expense of ASSIGNEE, to
testify in any legal proceedings, sign all lawful papers, execute all
divisional, continuation, reissue and substitute applications, make all
lawful oaths, and generally do everything possible to vest title in said
ASSIGNEE and to aid said ASSIGNEE, its successors, assigns and legal
representatives to obtain and enforce proper protection for said invention in
all countries.
<PAGE> 2
IN WITNESS WHEREOF, I have hereunto set my hand this 27 day of August,
1997.
For: NEUTRAL POSTURE ERGONOMICS, INC.
By: /s/ DAVID W. CAMPBELL PRESIDENT
-----------------------------------
David W. Campbell Title
Date: August 27, 1997
-----------------------------------
THE STATE OF TEXAS )
COUNTY OF BRAZOS )
Before me, the undersigned, a Notary Public, on this day personally
appeared David W. Campbell, known to me to be the person and officer whose name
is subscribed to the foregoing instrument and acknowledged to me that the same
was the act of Neutral Posture Ergonomics, Inc., a corporation, and that he has
executed the same as the act of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 27 day of August, 1997.
/s/ ELIZABETH C. VICKERY
---------------------------------------
Notary Public Signature
(PERSONALIZED SEAL)
NOTARY PUBLIC STATE OF TEXAS
ELIZABETH C. VICKERY
Notary Public, State of Texas
My Commission Expires
MAY 24, 2000
<PAGE> 1
Exhibit 6.28
ASSIGNMENT
WHEREAS, THE TEXAS A&M UNIVERSITY SYSTEM (hereinafter referred to as
"SYSTEM"), having an address in College Station, Texas, is the owner of all
right, title and interest in and to the United states Patent Application, Serial
Number 08/819,701 (hereinafter referred to as "Application"), filed on March
12, 1997, entitled "Apparatus for Housing and Transporting, and Furnishing an
Adjustable User-Platform for a Portable Computer" (hereinafter referred to as
"Inventions"), and naming as one of its inventors Dr. Jerome Congleton, of the
Nuclear Engineering Division of the Texas Engineering Experiment Station, a
component of the SYSTEM; and
WHEREAS, Dr. Congleton has assigned all rights in the Application to
the SYSTEM; and
WHEREAS, Dr. Congleton's contributions to the Inventions arose and were
made in informal discussions with personnel employed by Neutral Posture
Ergonomics, Inc. a Texas corporation (the "COMPANY"), and were not made
utilizing the facilities, laboratories, equipment or any other resources of the
SYSTEM; and
WHEREAS, the COMPANY has funded the prosecution of the Application, and
has conducted all development activities associated with the reduction to
practice of the Inventions described in the Application internally within the
COMPANY; and
WHEREAS, the SYSTEM and the COMPANY desire to cooperate in the
commercialization of the Inventions by consolidating rights in the COMPANY.
NOW THEREFORE, in consideration of these facts:
The SYSTEM hereby sells and assigns to the COMPANY all of its right,
title and interest in the Application and the Inventions described and claimed
therein, to be held and enjoyed by the COMPANY as fully and entirely as the same
would have been held and enjoyed by the SYSTEM had this Assignment not been
made.
The Assignment includes without limitation any and all applications for
patent and patents in any and all countries, including all divisions,
continuations, and reissues thereof and all rights of priority resulting from
the filing of the Application, and authorizes and requests any official whose
duty it is to issue patents to issue any patent on said patent applications to
the COMPANY (such patent applications and patents hereinafter referred to
collectively as "Patents").
The SYSTEM agrees that upon the request of and at the expense of the
COMPANY or its agents or licensees, it will communicate to the COMPANY or its
agents or licensee all facts known by and reasonably available to the SYSTEM
respecting said Patents, testify in any legal proceedings, sign all lawful
papers, execute all divisional, continuation, or reissue applications, make all
rightful oaths and generally cooperate with the COMPANY and its agents or
licensees to obtain and enforce proper patent protections for said Inventions in
all countries.
Page 1 of 2
<PAGE> 2
In consideration for this Assignment, the COMPANY shall pay to the
SYSTEM one percent (1%) of the net sales received by the COMPANY during each
Calendar Year directly resulting from the commercialization of the Inventions
claimed in said Patents. Net sales shall mean gross receipts from the sale of
products claimed in the Patents, less shipping expenses and taxes directly
related to such sales, whether such sales are made by COMPANY, or a licensee,
subsidiary, affiliate, or successor in business interest thereof, and including
any fees, or any equity in a company, which may be negotiated by the COMPANY
for a transfer of rights in the Patents. Until such time as all patent
applications or patents comprising patents have expired or been abandoned, the
COMPANY shall provided to the System an annual payment and accounting of
amounts due for each Calendar Year no later than January 31st following the end
of each Calendar Year.
IN WITNESS WHEREOF, the parties have caused this Assignment to become
effective as of the date last executed below by a signatory to this Assignment.
This Assignment shall be binding upon the assigns, representatives and
successors of the undersigned parties, and shall extend to the successors,
assigns and nominees of the assignee.
FOR THE TEXAS A&M UNIVERSITY SYSTEM
/s/ RICHARD LINDSAY
- -----------------------------------
Richard Lindsay
Deputy Chancellor
Date: 9/10/97
------------------------------
FOR NEUTRAL POSTURE ERGONOMICS, INC.
- -----------------------------------
Name: David W. Campbell
-----------------------------
Title: President
-----------------------------
Date: 9/15/97
-----------------------------
Page 2 of 2
<PAGE> 1
EXHIBIT 6.29
ASSIGNMENT
IN CONSIDERATION OF my employment by The Texas A&M University System,
and for other good and valuable consideration, including the policies of The
Texas A&M University System for distribution of income from commercialization
of patents, the sufficiency and adequacy of which are hereby acknowledged, I
hereby:
SELL, ASSIGN AND TRANSFER to the Texas A&M University System (the
"Assignee"), a Texas State Agency, having a place of business at College
Station, Texas 77843, the entire right, title and interest for the United
States and all foreign countries in and to any and all inventions which are
disclosed in the United States Patent Application Serial Number 08/819,701,
filed on March 12, 1997 entitled, "Apparatus for Housing and Transporting, and
Furnishing an Adjustable User-Platform for a Portable Computer," such
application and all divisional, continuing, substitute, renewal, reissue and
all other applications for patent which have been or shall be filed in the
United States and all foreign countries on any of such inventions; all original
and reissued patents which have been or shall be issued in the United States
and all foreign countries on such inventions; and specifically including the
right to file foreign applications under the provisions of any convention or
treaty and claim priority based on such applications in the United States.
AUTHORIZE AND REQUEST the issuing authority to issue any and all United
States and foreign patents granted on such inventions to the Assignee;
WARRANT AND COVENANT that no assignment, grant, mortgage, license or
other agreement affecting the rights and property herein conveyed has been or
will be made to others by the undersigned, and that the full right to convey
the same as herein expressed is possessed by the undersigned;
COVENANT, when requested and at the expense of the Assignee, to carry
out in good faith the intent and purpose of this assignment, the undersigned
will execute all divisional, continuing, substitute, renewal, reissue and all
other patent applications on any and all such inventions; execute all rightful
oaths, declarations, assignments, powers of attorney and other papers;
communicate to the Assignee all facts known to the undersigned relating to such
inventions and the history thereof; and generally do everything possible which
the Assignee shall consider desirable for vesting title to such inventions in
the Assignee, and for securing, maintaining and enforcing proper patent
protection for such inventions;
TO BE BINDING on the heirs, assigns, representatives and successors of
the undersigned and extend to the successors, assigns and nominees of the
Assignee.
IN WITNESS WHEREOF, I have hereunto set my hand this 27 day of August,
1997.
By: /s/ JEROME J. CONGLETON
-----------------------------
Jerome Congleton
NOTARY PUBLIC STATE OF TEXAS
Date: August 27, 1997 ELIZABETH C. VICKERY
----------------------------- Notary Public, State of Texas
My Commission Expires
MAY 24, 2000
THE STATE OF TEXAS
COUNTY OF BRAZOS
Before me, the undersigned, a Notary Public, on this day personally
appeared Jerome J. Congleton, known to me to be the person whose name is
subscribed in the foregoing instrument, and acknowledged to me that he
executed the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 27 day of August, 1997.
/s/ ELIZABETH C. VICKERY
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Notary Public Signature
<PAGE> 1
EXHIBIT 10.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Neutral Posture
Ergonomics, Inc. on Pre-effective Amendment No. 3 to Form SB-1 of our report
dated August 11, 1997, appearing 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
September 24, 1997
