EXHIBIT 10.38(1)

                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT  AGREEMENT (the "AGREEMENT") is entered into as of March
1, 2000 by and between NEUTRAL POSTURE  ERGONOMICS,  INC., a Texas corporation
(the "COMPANY"), and Thomas G. Peterson (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 and
      Chief Operating Officer, effective from the date hereof. The Executive
      shall have the responsibility and authority to carry out the duties
      normally assigned to a President and Chief Operating 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 his employment
      under this Agreement 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.
<PAGE>
      1.3 TERM. The "TERM" (herein so called) of this Agreement shall commence
on the date hereof and shall end on March 1, 2003, unless earlier terminated in
accordance with the terms of this Agreement or unless extended pursuant to this
Section 1.3. After March 1, 2003, this Agreement shall be automatically renewed
each March 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 March 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 $165,000 per
      year during the Term, or such greater amount as shall be approved by the
      Company's Board of Directors. The executive will not have to submit time
      sheets.

            (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,
      2000, relating to the first partial 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 therefore 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 time for its officers generally, but not fewer than three (3)
      weeks in the calendar year 2000 and beyond 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.

                                       2
<PAGE>
            (f) AUTOMOBILE. During the Term, the Company shall pay the Executive
      $650 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;

                        (C) frequent or habitual tardiness, absenteeism, failure
                  to meet performance standards that the 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
                  therefore and stating

                                       3
<PAGE>
                  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 therefore 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.

            (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.

                                       4
<PAGE>
                  (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 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 fifteen percent (15%) 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

                                       5
<PAGE>
      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.

            (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) the contract payment terms
      would be honored for the full remaining duration including (x) Base Salary
      for remaining year at time of termination plus minimum raise corresponding
      % level for each subsequent year (y) minimum bonus level of 15% of base
      salary for current year in addition to each year remaining. In the case of
      the occurrence of either event all payments to be made within 15 business
      days of termination date.

            (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.

                                       6
<PAGE>
      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"): (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,

                                       7
<PAGE>
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 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)

                                       8
<PAGE>
            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 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.

The rights and remedies of the parties to this Agreement are cumulative and not
alternative.

                                       9
<PAGE>
                                    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 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

                                       10
<PAGE>
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:             Thomas G. Peterson
                                   8720 East San Martin Drive
                                   Scottsdale, AZ  85258
                                   (480)998-3629 (fax)

      If to Company:               NEUTRAL POSTURE ERGONOMICS, INC.
                                   3904 North Texas Avenue
                                   Bryan, Texas  77803
                                   Attn:  CEO
                                   (979) 778-9389 (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

                                       11
<PAGE>
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 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.

                                       12
<PAGE>
      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
      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).

                                       13
<PAGE>
      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 therefore.

      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. This Agreement has been executed and
delivered as of the date first written above.

                                    NEUTRAL POSTURE ERGONOMICS, INC.


                                    By: /S/ REBECCA E. BOENIGK
                                    Name:   REBECCA E. BOENIGK
                                    Title:  CHAIRMAN OF THE BOARD & CEO

                                        /S/ THOMAS G. PETERSON
                                            Thomas G. Peterson

                                       14