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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
HEALTH FITNESS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
HEALTH FITNESS CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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The Annual Meeting of Shareholders of Health Fitness Corporation will
be held on Tuesday, June 7, 2005, at 3:30 p.m. CDT, at the Company's corporate
offices, 3600 American Boulevard, West, Bloomington, Minnesota, for the
following purposes:
1. To elect nine individuals to serve on the Board of Directors
for a term of one year or until their successors are duly
elected and qualified.
2. To approve the 2005 Stock Option Plan.
3. To ratify the selection of Grant Thornton LLP as the Company's
independent registered public accounting firm for the current
fiscal year.
4. To consider and act upon such other matters as may properly
come before the meeting and any adjournments or postponements
thereof.
Only shareholders of record at the close of business on May 2, 2005 are
entitled to notice of the meeting and to vote at the meeting or any adjournment
or postponement thereof.
Your vote is important. We ask that you complete, sign, date and return
the enclosed proxy in the envelope provided. The prompt return of proxies will
save the Company the expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Jerry V. Noyce
President and Chief Executive Officer
Bloomington, Minnesota
May 2, 2005
HEALTH FITNESS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 2005
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PROXY STATEMENT
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INTRODUCTION
Your Proxy is solicited by the Board of Directors of Health Fitness
Corporation ("the Company") for the Annual Meeting of Shareholders to be held on
Tuesday, June 7, 2005, at the location and for the purposes set forth in the
notice of meeting, and at any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to beneficial owners of the Company's Common Stock,
will be borne by the Company. Directors, officers and regular employees of the
Company may, without compensation other than their regular remuneration, solicit
proxies personally or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the meeting by giving written notice of such revocation to the Secretary
of the Company or by attending and voting at the meeting. Proxies not revoked
will be voted in accordance with the choice specified by shareholders by means
of the ballot provided on the Proxy for that purpose. Proxies which are signed
but which lack any such specification will, subject to the following, be voted
in favor of the proposals set forth in the Notice of Meeting and in favor of the
number and slate of directors proposed by the Board of Directors and listed
herein. If a shareholder abstains from voting as to any matter, then the shares
held by such shareholder shall be deemed present at the meeting for purposes of
determining a quorum and for purposes of calculating the vote with respect to
such matter, but shall not be deemed to have been voted in favor of such matter.
Abstentions, therefore, as to any proposal will have the same effect as votes
against such proposal. If a broker returns a "non-vote" proxy, indicating a lack
of voting instructions by the beneficial holder of the shares and a lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote proxy shall be deemed present
at the meeting for purposes of determining a quorum but shall not be deemed to
be represented at the meeting for purposes of calculating the vote required for
approval of such matter.
The mailing address of the principal executive office of the Company is
3600 American Boulevard West, Suite 560, Bloomington, Minnesota 55431. The
Company expects that this Proxy Statement, the related proxy and notice of
meeting will first be mailed to shareholders on or about May 9, 2005.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed May 2, 2005 as the
record date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on May 2, 2005, 12,652,370 shares
of the Company's Common Stock were issued and outstanding, and 1,078,740 shares
of Series A Convertible Preferred Stock (the "Series A Stock") were issued and
outstanding. On May 2, 2005, the Series A Stock was convertible into 2,157,480
shares of Common Stock. The Common Stock and the Series A stock are the only
outstanding classes of capital stock of the Company entitled to vote at the
meeting. Each share of Common Stock is entitled to one vote on each matter to be
voted upon at the meeting. Each share of Series A Stock is entitled, on an
as-converted basis, to one vote on each matter to be voted upon at the meeting.
No holders of capital stock of the Company are entitled to cumulative voting
rights. Combined, and on an aggregate basis, the Company's Common Stock and
Series A Stock entitle the Company's shareholders to 14,809,850 votes on all
matters to be voted on at the meeting.
2
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of May 2, 2005 by persons known to the Company to be
beneficial owners of more than 5% of the Company's Common Stock, by each
executive officer of the Company named in the Summary Compensation table, by
each current director and nominee for director of the Company and by all current
directors and executive officers as a group. Unless otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated. Officers and directors can be reached at the
Company's principal executive office.
NAME (AND ADDRESS OF 5% HOLDER) NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
------------------------------- ------------------ ----------------
Bayview Capital Partners LP 3,387,800 (2) 21.1%
301 Carlson Parkway, Suite 325
Minnetonka, MN 55305
Cary Musech 3,417,800 (3) 21.3%
c/o Bayview Capital Partners LP
301 Carlson Parkway, Suite 325
Minnetonka, MN 55305
Perkins Capital Management, Inc. 2,718,834 (4) 21.5%
730 East Lake Street
Wayzata, MN 55391
Destin Capital Partners, LLC 650,002 (5) 5.1%
P. O. Box 27
Eldorado, IL 62930
Jerry V. Noyce 409,672 (6) 3.1%
Jeanne C. Crawford 154,170 (7) 1.2%
Mark W. Sheffert 146,000 (8) 1.1%
Wesley W. Winnekins 117,000 (9) *
James A. Bernards 111,000 (10) *
K. James Ehlen, M.D. 71,000 (11) *
John C. Penn 71,000 (11) *
Linda Hall Whitman 71,000 (11) *
Rodney A. Young 71,000 (11) *
Robert J. Marzec 35,000 (12) *
Michael Seethaler 10,000 (9) *
Brian Gagne 10,000 (9) *
All current directors and current executive 4,869,249 (13) 28.3%
officers as a group (17 persons)
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of May 2, 2005 or within sixty
days of such date are treated as outstanding only when determining the
percent owned by such individual and when determining the percent owned
by a group.
3
(2) Includes of 20,000 shares held by Bayview Capital Partners LP ("Bayview
Partners"), 1,210,320 shares that may be purchased upon exercise of
warrants by Bayview Partners that are exercisable as of May 2, 2005 or
within 60 days of such date and 2,157,480 shares that Bayview Partners
would be entitled to receive upon conversion of 1,078,740 shares of
Series A Convertible Preferred Stock (which is 100% of the outstanding
shares of Series A Convertible Preferred Stock).
(3) Includes 3,387,800 shares beneficially owned by Bayview Partners and
30,000 shares which may be purchased upon exercise of options that are
exercisable by Mr. Musech as of May 2, 2005 or within 60 days of such
date. Mr. Musech is the Chief Executive Officer of Bayview Capital
Management LLC ("Bayview Management"), which is the general partner of
Bayview Partners. Mr. Musech serves as one of five members of the Board
of Governors of Bayview Management, and the Board of Governors makes
all investment decisions on behalf of Bayview Partners, including any
decisions regarding acquisition or disposition of securities of the
Company. Mr. Musech disclaims any beneficial ownership of the shares
beneficially owned by Bayview Partners.
(4) In its most recent Schedule 13G/A filing with the Securities and
Exchange Commission on February 10, 2005, Perkins Capital Management,
Inc. represents that it has sole voting power over 1,115,500 of the
shares, no voting power over the remaining 1,603,334 shares and sole
dispositive power over all such shares.
(5) Destin Capital Partners, LLC ("Destin") which is controlled by Burt H.
Rowe, Jr., Manager of Destin, and Mr. Rowe beneficially own the shares
with sole voting and dispositive power. The Company has relied on
information contained in a Schedule 13G filed with the Securities and
Exchange Commission by Destin and Mr. Rowe on January 22, 2004 and
other information available to the Company.
(6) Includes 372,500 shares which may be purchased upon exercise of options
that are exercisable by Mr. Noyce as of May 2, 2005 or within 60 days
of such date.
(7) Includes 62,500 shares which may be purchased upon exercise of options
by Ms. Crawford which are exercisable as of May 2, 2005 or within 60
days of such date. Also includes 39,000 shares held by Ms. Crawford's
spouse.
(8) Includes 51,000 shares which may be purchased upon exercise of options
by Mr. Sheffert which are exercisable as of May 2, 2005 or within 60
days of such date. Also includes a currently exercisable warrant to
purchase 75,000 shares held by Manchester Business Services, Inc.
("Manchester"). As President, Chief Executive Officer and controlling
shareholder of Manchester, Mr. Sheffert may be deemed to share
dispositive power over the shares underlying such warrant.
(9) Represents shares which may be purchased upon exercise of options that
are exercisable as of May 2, 2005 or within 60 days of such date.
(10) Includes 10,000 shares held by an employee benefit plan over which Mr.
Bernards has voting and investment power, and 65,000 shares which may
be purchased upon exercise of options that are exercisable by Mr.
Bernards as of May 2, 2005 or within 60 days of such date.
(11) Includes 51,000 shares which may be purchased upon exercise of options
by each of Mr. Ehlen, Mr. Penn, Ms. Whitman and Mr. Young that are
exercisable as of May 2, 2005 or within 60 days of such date.
(12) Includes 15,000 shares which may be purchased upon exercise of options
by Mr. Marzec that are exercisable as of May 2, 2005 or within 60 days
of such date.
(13) Includes 2,374,195 shares which may be purchased upon exercise of
options and warrants that are exercisable as of May 2, 2005 or within
60 days of such date and 2,157,480 shares to be received upon
conversion of preferred shares.
4
ELECTION OF DIRECTORS
(PROPOSAL #1)
GENERAL INFORMATION
The Board of Directors has fixed the number of directors for the
ensuing year at nine (9) and the independent directors of the Board recommend
that the nine (9) current members be nominated and elected at the Annual
Meeting. Under applicable Minnesota law, the election of each nominee requires
the affirmative vote by a plurality of the voting power of the shares
represented in person or by proxy at the annual meeting with authority to vote
on the election of directors.
In the absence of other instructions, each proxy will be voted for each
of the nominees listed below. If elected, each nominee will serve until the next
annual meeting of shareholders and until his or her successor shall be elected
and qualified. If, prior to the meeting, it should become known that any of the
nominees will be unable to serve as a director after the meeting by reason of
death, incapacity or other occurrence, the proxies will be voted for such
substitute nominee as is selected by the Board of Directors or, alternatively,
not voted for any nominee.
The names and ages of all of the director nominees and the positions
held by each with the Company are as follows:
NAME AGE POSITION
---- --- --------
James A. Bernards 58 Director
K. James Ehlen, M.D. 60 Director
Robert J. Marzec 60 Director
Cary Musech 47 Director
Jerry V. Noyce 60 President, CEO and Director
John C. Penn 65 Chairman
Mark W. Sheffert 57 Director
Linda Hall Whitman 56 Director
Rodney A. Young 50 Director
JAMES A. BERNARDS, a director of the Company since March 1999, serving
as Chairman of the Board from 1999 through 2003. In addition, Mr. Bernards
served as a director of the Company from 1993 to 1998. Mr. Bernards has served
as President of Brightstone Capital, LLC, a venture capital firm, since 1985 and
President of Facilitation Incorporated, a consulting firm since founding it in
July 1993. Prior to that time he was President of Stirtz Bernards & Co., a CPA
firm he founded and with which he had been a partner for more than 12 years. Mr.
Bernards is also a director of three public companies, FSI International, Inc.,
August Technology Corporation and Entegris, Inc., and several private companies.
K. JAMES EHLEN, M.D., a director of the Company since April 2001,
currently serves as Chief Executive Officer of the Halleland Health Consulting
Group, a Minneapolis-based health consulting firm. From February 2001 to
February 2003, Dr. Ehlen served as Chief, Clinical Leadership for Humana Inc., a
national managed care organization. He was Executive Leader of Health Care
Practice for Halleland Health Consulting Group from May 2000 to February 2001
and was a self-employed health care consultant from June 1999 to May 2000. From
October 1988 to June 1999, Dr. Ehlen served as Chief Executive Officer of Allina
Health System, an integrated health care organization. Dr. Ehlen currently
5
provides medical advisory consulting services to the Company as a representative
of Halleland Health Consulting. See "Certain Transactions" contained within this
Proxy Statement. Dr. Ehlen is also a director of Transoma Medical, Inc., IZEX
Technologies, Inc., Cardtronic Technology, Inc., privately-held companies, and
GelStat Corporation, a publicly-held company.
ROBERT J. MARZEC, a director of the Company since May 2004, retired
from PricewaterhouseCoopers in 2002, where he was an audit partner and a public
accountant for 35 years. Mr. Marzec is also a director of Medtox Scientific,
Inc., and Apogee Enterprises, Inc., both of which are publicly-held companies.
CARY MUSECH, a director of the Company since December 2003, serves as
Chief Executive Officer of Bayview Capital Management LLC ("Bayview
Management"), the general partner of Bayview Capital Partners LP ("Bayview
Partners"), a private equity investment firm. Mr. Musech co-founded Bayview
Management and Bayview Partners in June 1998. Since November 2004, he has also
served as Chief Executive Officer of Tonka Bay Equity Partners LLC, the
investment advisor for Bayview Partners. From October 1993 to November 1997, Mr.
Musech was the Chief Financial Officer of Wright Products Corporation, a
privately-held manufacturer and distributor of storm and screen door hardware.
From February 1984 to September 1993, Mr. Musech was a corporate finance
specialist for US Bank (formerly First Bank System) and Wells Fargo Bank, N.A.
(formerly Norwest Corporation) where he developed expertise in financing
complex, highly leveraged transactions including buyouts, acquisitions,
recapitalizations and growth financings. From January 1981 to January 1984, Mr.
Musech was an auditor with Ernst & Young.
JERRY V. NOYCE has been President and Chief Executive Officer of the
Company since November 2000 and a director since February 2001. From October
1973 to March 1997, he was Chief Executive Officer and Executive Vice President
of Northwest Racquet, Swim & Health Clubs. From March 1997 to November 1999, Mr.
Noyce served as Regional Chief Executive Officer of CSI/Wellbridge Company, the
successor to Northwest Racquet, where he was responsible for all operations at
the Norwest Clubs and the Flagship Athletic Club.
JOHN C. PENN, a director of the Company since April 2001 and Chairman
of the Board since January 2004, currently serves as President, CEO and Chairman
of Intek Plastics, Inc., a custom extruder of plastic products for the window
and door industries. From 1999 to 2003, he served as Vice Chairman and Chief
Executive Officer of Satellite Companies, a family-owned group of three
companies engaged in the manufacture and international sales of portable
restroom equipment, distribution and rental of relocateable buildings, and sales
and maintenance of private aircraft. He served for 21 years as an outside board
member of those companies before joining them as an employee in 1999. For 25
years prior to joining Satellite Companies, Mr. Penn served as chief executive
officer of several companies in the manufacturing and medical industries,
including Center for Diagnostic Imaging, Benson Optical and Arctic Enterprises.
Mr. Penn is also a director of Angeion Corporation, a publicly-held company.
MARK W. SHEFFERT, a director of the Company since January 2001, has
served as Chairman and Chief Executive Officer of Manchester Companies, Inc., an
investment banking and business advisory firm, since December 1989. Prior to
that, he was President of First Bank System, Inc. (now U.S. Bank) a $28 billion
bank holding company headquartered in Minneapolis, Minnesota. He also served as
Chairman and CEO for First Trust, a $20 billion trust company based in St. Paul,
Minnesota. For 10 years prior to First Bank, Mr. Sheffert served as President
and Chief Operating Officer of North Central Insurance Company. Mr. Sheffert has
served on the Board of Directors for over thirty companies, including NYSE,
NASDAQ and private companies, and he currently serves on the Board of BNCCORP,
Inc., a publicly-held company.
LINDA HALL WHITMAN, a director of the Company since April 2001, has
been Chief Executive Officer of MinuteClinic, a healthcare services company,
since May 2002. Prior to that, she was President of Ceridian Performance
Partners (an employee benefits provider), Ceridian Corporation from 1996 through
2000 and Vice President, Business Integration at Ceridian from 1995 to 1996.
From 1980 to
6
1995 she served in various management and executive positions with Honeywell,
Inc., including Vice President, Consumer Business Group from 1993 to 1995. Ms.
Whitman is also a director of two additional public companies, MTS Systems
Corporation and August Technology Corporation, as well as several private
companies. Since 1999, she has served on the Ninth District Federal Reserve Bank
Board, and is currently serving as its Chair.
RODNEY A. YOUNG, a director of the Company since April 2001, has served
as President, Chief Executive Officer and director of Angeion Corporation, a
medical company, since November 2004, joining Angeion as its Executive Vice
President in July 2004. Mr. Young was Chief Executive Officer and President of
LecTec Corporation, a developer, manufacturer and marketer of healthcare
consumer and over-the-counter pharmaceutical products, from August 1996 to July
2003, also serving as its Chairman of the Board of LecTec from November 1996 to
July 2003. Prior to that, Mr. Young served Baxter International, Inc. for five
years in various management roles, most recently as Vice President and General
Manager of the Specialized Distribution Division. Mr. Young also serves as a
director of Possis Medical, Inc., a publicly-held company, and Delta Dental Plan
of Minnesota.
Pursuant to the terms of a stock purchase agreement, Bayview Capital
Partners LP ("Bayview Partners") has the right to designate an individual for
one directorship on the Company's Board of Directors. Mr. Musech was designated
as the Bayview Partners nominee and was elected as a director of the Company
effective as of December 8, 2003. There are no other arrangements or
understandings between any of the directors or any other person (other than
arrangements or understandings with directors acting as such) pursuant to which
any person was selected as a director or nominee of the Company. There are no
family relationships among the Company's directors.
CORPORATE GOVERNANCE
INDEPENDENCE
The Board of Directors has determined that Messrs. James A. Bernards,
John C. Penn, Robert J. Marzec, Mark W. Sheffert and Rodney A. Young and Ms.
Linda Hall Whitman, constituting a majority of the Board of Directors, are
"independent" directors since none of them are believed to have any
relationships that, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgement in carrying out the responsibilities
of a director. Jerry Noyce is precluded from being considered independent since
he currently serves as an executive officer of the Company. K. James Ehlen is
precluded from being considered independent because of his services as a
consultant to the Company. Cary Musech is precluded from being considered
independent since he has a relationship as a principal of a significant investor
to the Company.
CODE OF CONDUCT
The Board has approved an Ethics and Code of Conduct policy that
applies to all employees, directors and officers, including the principal
executive officer, principal financial officer, principal accounting officer and
controller. The Ethics and Code of Conduct policy addresses such topics as
protection and proper use of our assets, compliance with applicable laws and
regulations, accuracy and preservation of records, accounting and financial
reporting, conflicts of interest and insider trading. The Ethics and Code of
Conduct policy is available on the Company's website at www.hfit.com. Health
Fitness Corporation intends to include on its website any amendment to, or
waiver from, a provision of its code of ethics that applies to the principal
executive officer, principal financial officer, principal accounting officer and
controller that relates to any element of the code of ethics definition
enumerated in Item 406(b) of Regulation S-K under the Securities Act of 1933.
7
SHAREHOLDER COMMUNICATION WITH BOARD
Shareholders may communicate directly with the Board of Directors. All
communications should be directed to the Company's Secretary at the address
below and should prominently indicate on the outside of the envelope that it is
intended for the Board of Directors or for non-management directors. If no
director is specified, the communication will be forwarded to the entire Board.
Shareholder communications to the Board should be sent to:
Health Fitness Corporation Board of Directors
Attention: Secretary
3600 American Boulevard West, Suite 560
Bloomington, Minnesota 55431
DIRECTOR ATTENDANCE AT ANNUAL MEETINGS
Directors' attendance at Annual Meetings can provide shareholders with
an opportunity to communicate with directors about issues affecting the Company.
The Company does not have a policy regarding director attendance, but all
directors are encouraged to attend the Annual Meeting of Shareholders. The 2004
Annual Meeting of Shareholders was attended by nine directors.
BOARD AND COMMITTEE MEETINGS
During Fiscal 2004, the Board held 10 formal meetings. The directors
often communicate informally to discuss the affairs of the Company and, when
appropriate, take formal action by written consent of a majority of all
directors, in accordance with the Company's charter and bylaws and Minnesota
law.
The Company's Board of Directors has four standing committees, the
Audit Committee, the Compensation Committee, the Finance Committee and the
Nominating Committee. Members of such committees meet formally and informally
from time to time throughout fiscal 2004 on committee matters.
Each director attended 75% or more of the total number of meetings of
the Board and of Committees of which he or she was a member.
Audit Committee
The Audit Committee is comprised of directors Robert J. Marzec (Chair),
Mark W. Sheffert and John C. Penn. Messrs. Marzec, Sheffert and Penn are, in the
judgment of the Board of Directors, "independent" directors. The Board also
believes that each member of the Audit Committee satisfies the independence
requirement of Nasdaq Rule 4200(a)(15) and the criteria of Section 10A(m)(3) of
the Securities Exchange Act of 1934. The Audit Committee is responsible for the
oversight relating to the Company's financial reporting process, its systems of
internal accounting and financial controls, the internal audit process and the
annual independent audit process of the Company's annual financial statements.
The Committee is also responsible for appointment, compensation, retention and
oversight of the work of any publicly registered accounting firm, including the
Company's independent public accountants. The Charter for the Audit Committee is
attached as Exhibit A to the Proxy Statement for the 2004 Annual Meeting of
Shareholders. The Audit Committee met seven times during fiscal 2004.
Audit Committee Financial Expert
The Board has determined that Robert J. Marzec is the "audit committee
financial expert" as defined by Item 401(h)(2) of Regulation S-K under the
Securities Act of 1933. The designation of Mr. Marzec as the audit committee
financial expert does not impose on Mr. Marzec any duties, obligations or
liability that are greater than the duties, obligations and liability imposed on
Mr. Marzec as a member of the Audit Committee and the Board of Directors in the
absence of such designation or identification.
Compensation Committee
The Compensation Committee consists of Linda Hall Whitman (Chair),
James A. Bernards and Rodney A. Young. Each member of the Compensation Committee
is, in the judgment of the Board an "independent" director. The Compensation
Committee is charged with oversight responsibility for management's performance
and the adequacy and effectiveness of compensation and benefit plans. In
addition, the Compensation Committee makes recommendations to the Board of
Directors regarding
8
remuneration arrangements for senior management, and adoption of employee
compensation and benefit plans. The Compensation Committee met five times during
fiscal 2004.
Finance Committee
The Finance Committee, which consists of Mark W. Sheffert (Chair),
James A. Bernards, and Cary Musech, was formed in January, 2002, and is charged
with exploring strategic opportunities and the methods that might be available
for financing such opportunities. The Finance Committee met once during fiscal
2004.
Nominating Committee
The Company's Nominating Committee consists of the Chairman of the
Board (John C. Penn), the Chairman of the Audit Committee (Robert J. Marzec),
the Chairman of the Compensation Committee (Linda Hall Whitman), and the
Chairman of the Finance Committee (Mark W. Sheffert), all of whom are
"independent" directors in the judgment of the Board. The Board also believes
that each member of the Nominating Committee satisfies the independence criteria
of Nasdaq Rule 4200(a)(15). The nominees for election to the Board at the annual
meeting of shareholders to be held on June 7, 2005 were recommended by the
Nominating Committee. The Nominating Committee met once during fiscal 2004.
The Nominating Committee has not adopted a charter. The Company has not
yet adopted a nominating policy regarding director nominee proposals by
shareholders and does not believe such a policy is needed because shareholders
are free at any time to recommend a nominee to be considered by the Board by
submitting a written proposal to the Chairman of the Board of Directors, at
Health Fitness Corporation, 3600 American Boulevard West, Suite 560,
Bloomington, Minnesota 55431. A consent signed by the proposed nominee agreeing
to be considered as a director should accompany the written proposal. The
proposal should include the name and address of the nominee, in addition to the
qualifications and experience of said nominee.
The independent directors will consider the attributes of the
candidates and the needs of the Board and will review all candidates in the same
manner, regardless of the source of the recommendation. In evaluating director
nominees, a candidate should have certain minimum qualifications, including
being able to read and understand basic financial statements, be familiar with
our business and industry, have high moral character and mature judgment, and be
able to work collegially with others. In addition, factors such as the following
shall be considered:
o appropriate size and diversity of the Board;
o needs of the Board with respect to particular talent and
experience;
o knowledge, skills and experience of nominee;
o familiarity with domestic and international business
affairs;
o legal and regulatory requirements;
o appreciation of the relationship of our business to the
changing needs of society; and
o desire to balance the benefit of continuity with the
periodic injection of the fresh perspective provided by a
new member.
9
DIRECTORS FEES
Under a compensation plan for outside directors, directors who are not
employees of the Company receive the following compensation:
1. The chairperson and each director receive a monthly cash
retainer of $416.67 payable quarterly at a rate of $1,125.
2. The chairperson and each director receive a cash payment of
$1,300 and $1,000, respectively, for attending each regular
and special board meeting. Telephonic board meetings, or a
director's telephonic attendance at a board meeting, are
compensated at 75% of the full payment.
3. Committee chairpersons and committee members receive a cash
payment of $650 and $500, respectively, for attending each
regular and special committee meeting up to the following
annual limit: Compensation Committee - eight meetings; Audit
Committee - eight meetings; Finance Committee - eight
meetings. Telephonic committee meetings, or a director's
telephonic attendance at a committee meeting, will be
compensated at 75% of the full payment.
4. Upon the initial election to the Board of Directors, a
director receives a grant of 20,000 shares of Common Stock.
5. Upon the initial election to the Board of Directors and
annually thereafter, a director will receive a six-year fully
vested option to purchase 15,000 shares of Common Stock. The
option will have an exercise price equal to the fair market
value of the Common Stock on the date of grant.
In May 2004, Directors Bernards, Ehlen, Marzec, Penn, Sheffert, Whitman
and Young each received a six-year option to purchase 15,000 shares at an
exercise price of $1.55 per share. Additionally, Directors Marzec and Musech
each received a stock grant of 20,000 shares upon their initial election to the
Board in May 2004. Mr. Musech also received a six-year option to purchase 15,000
shares in May 2004 and December 2004 at an exercise price per share of $1.26 and
$1.99, respectively. In consideration for consulting services provided to the
Company in 2004, Mr. Young received $10,000. See "Certain Transactions" for
information as to consulting fees paid to Dr. Ehlen.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of
Directors, as amended, (set forth in Exhibit A to the 2004 proxy statement), the
Audit Committee assists the Board of Directors with fulfilling its oversight
responsibility regarding the quality and integrity of the accounting, auditing
and financial reporting practices of the Company. In discharging its oversight
responsibilities regarding the audit process, the Audit Committee:
(1) reviewed and discussed the audited financial statements with
management;
10
(2) discussed with the independent auditors the material required
to be discussed by Statement on Auditing Standards No. 61; and
(3) reviewed the written disclosures and the letter from the
independent auditors required by the Independence Standards
Board's Standard No. 1, and discussed with the independent
auditors any relationships that may impact their objectivity
and independence.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, as filed with the Securities and Exchange
Commission.
MEMBERS OF THE AUDIT COMMITTEE:
Robert J. Marzec (Chair)
Mark W. Sheffert
John C. Penn
CERTAIN TRANSACTIONS
On December 1, 2003, the Company entered into a Professional Services
Agreement with K. James Ehlen, M.D., representing Halleland Health Consulting.
The scope of services provided by Dr. Ehlen under the agreement primarily
included serving as the Company's Medical Advisor, representing the Company as
its lead clinical representative with clients, and supporting the Company's
enhancement of its corporate health and wellness services strategy. The
agreement stated that Dr. Ehlen would receive a monthly retainer of $10,000 and
expire after 120 days. On April 1, 2004, the Company renewed the agreement with
Dr. Ehlen. The new agreement stated that Dr. Ehlen would receive a monthly
retainer of $7,500 and expired on December 31, 2004. Currently, Dr. Ehlen
continues to provide substantially the same services to the Company on a
month-to-month basis. For fiscal year 2004, the Company paid Dr. Ehlen $100,000
for his services.
Pursuant to an investment by Bayview Capital Partners LP ("Bayview
Partners") on December 8, 2003, a $2,000,000 term note (the "Term Note") was
issued to Bayview Partners, along with 1,000,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") and a ten-year warrant to purchase
1,210,320 shares of Common Stock of the Company at $0.50 per share. The
Preferred Stock has a stated dividend rate of 6% per year, computed on a simple
interest basis, paid in kind in the form of additional shares of Preferred Stock
using a price of $1.00 per share ("PIK Dividends"). Between March 31, 2004 and
March 31, 2005, an aggregate of 74,907 shares of Preferred Stock were issued to
Bayview Partners in payment of the dividends. At the option of Bayview Partners,
the Preferred Stock, including any PIK Dividends, may be converted into the
Company's common stock at a price of $0.50 per share. Currently, the 1,078,740
shares of Preferred Stock are convertible into 2,157,480 shares of common stock.
In addition, Bayview Partners may require redemption of the Preferred Stock and
PIK Dividends upon a change of control or default (including default under the
Term Note). On December 29, 2004, the Company repaid the Term Note to Bayview
Partners. Cary Musech, a director of the Company, is the Chief Executive Officer
of Bayview Capital Management LLC, which is the general partner of Bayview
Partners.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
Compensation Committee of the Board of Directors is composed of outside
directors Linda Hall Whitman, James A. Bernards and
11
Rodney A. Young. None of such members of the Committee is or ever has been an
employee or officer of the Company and none of such persons are affiliated with
any entity other than the Company with which an executive officer of the Company
is affiliated. Mr. Noyce, the Company's President and CEO, served on the
Compensation Committee during the period from January 19 to June 15, 2001;
however, during this period the Compensation Committee limited its activities to
review and recommendation of a compensation package for the Company's directors
and did not undertake to review or make recommendations regarding CEO
compensation.
OVERVIEW AND PHILOSOPHY. In accordance with the Compensation Committee
Charter, the Compensation Committee (i) develops procedures and policies for
compensating directors; (ii) reviews the Company's procedures, processes and
policies used to compensate the Company's CEO and principal executives (Chief
Financial Officer, National Vice Presidents of Account Services, Vice President
of Human Resources, Vice President of Marketing, Vice President of Programs and
Partnerships, Vice President of Consulting and Best Practices and National Vice
President of Business Development); (iii) reviews the performance evaluation
procedures for the CEO and principal executives; (iv) recommends compensation
plans for the CEO to the Board and approves compensation plans for the principal
executives. The Compensation Committee has developed executive compensation
programs designed to attract and retain qualified executives and to motivate
them to maximize shareholder investment by achieving Company goals. There are
three basic components to the Company's executive compensation program: base
pay, annual incentive bonus, and long-term, equity-based incentive compensation
in the form of stock options. Each component is established in light of
individual and Company performance, comparable compensation programs in the
Minneapolis/Saint Paul metropolitan area, equity among employees and cost
effectiveness.
BASE PAY. Base pay is designed to be competitive, although
conservative, as compared to salary levels for equivalent positions at
comparable companies in the Minneapolis/Saint Paul metropolitan area. The
executive's actual salary within this competitive framework depends on the
individual's performance, responsibilities, experience, leadership and potential
future contribution. The base pay of the CEO and CFO are currently set by their
employment agreements (See "Employment Agreements" below), with increases for
the CEO determined by the Board upon recommendation of the Compensation
Committee and increases for the CFO determined by the CEO and the Compensation
Committee.
ANNUAL INCENTIVE BONUS. In addition to base pay, the CEO and other
principal executives may be eligible to receive an annual cash bonus based on
criteria determined by the Board of Directors for the CEO and for other
principal executives by the CEO and Compensation Committee. Bonus eligibility
may range from 10% to 45% of base pay.
LONG-TERM, EQUITY-BASED INCENTIVE COMPENSATION. The long-term,
equity-based compensation program is tied directly to shareholder return. Under
the current program, long-term incentive compensation consists of stock options
that generally do not fully vest until after four years. Stock options are
awarded with an exercise price equal to the fair market value of the Company's
common shares on the date of grant. Accordingly, the executive is rewarded only
if the shareholders receive the benefit of appreciation in the price of the
Common Stock.
Because long-term options vest over time, the Company periodically
(generally once each year) grants new options to provide continuing incentives
for future performance. The size of the previous grants and the number of
options held are considered by the Compensation Committee, but are not entirely
determinative of future grants. Each executive's annual grants are based upon
the individual's performance, responsibilities, experience, leadership and
potential future contribution and any other factors deemed relevant by the
Committee. Stock option grants for the CEO and CFO are made by the Board of
Directors upon recommendation of the Compensation Committee. Stock option grants
for other principal executives are made by the CEO and Compensation Committee,
including grants from a stock option pool subject to the discretion of the CEO
within certain parameters.
12
Stock options are designed to align the interests of the Company's
executives with those of shareholders by encouraging executives to enhance the
value of the Company and, hence, the price of the Common Stock and the
shareholders' investment. In addition, through deferred vesting, this component
of the compensation system is designed to create an incentive for the executive
to remain with the Company.
BENEFITS. The Company also provides medical and insurance benefits to
its executive officers, which are generally available to all Company employees.
The Company has a 401(k) plan in which all qualified employees, including the
executive officers, are eligible to participate. During 2004, the Company made
aggregate matching contributions of approximately $270,000 to plans qualified
under IRC Section 401(k).
ANNUAL REVIEWS. Each year the Compensation Committee reviews its
executive compensation polices and programs and determines what changes, if any,
are appropriate for the following year. In addition, the Committee and Board of
Directors review the individual performance of the CEO.
COMPENSATION IN 2004. Jerry Noyce was employed as the Company's Chief
Executive Officer in November 2000 pursuant to a written Employment Agreement.
See "Employment Agreements." During 2004, the Board of Directors approved the
recommendation of the Compensation Committee to increase Mr. Noyce's annual base
salary by 3% to $245,192, and to grant Mr. Noyce options to purchase 80,000
shares of the Company's common stock, vesting over four years, with an exercise
price equal to fair market value as of the date of grant. The Company did not
pay a cash bonus to Mr. Noyce in fiscal year 2004. In April 2004, the Board of
Directors, upon the recommendation of the Compensation Committee, approved a
bonus program for Mr. Noyce for fiscal year 2004 pursuant to which Mr. Noyce has
the opportunity to earn a bonus of up to 27% of his base pay upon achievement of
certain revenue targets and a bonus of up to 18% of base pay based upon
achievement of certain EBITDA targets.
Wes Winnekins was employed as the Company's Chief Financial Officer in
February 2001 pursuant to a written Employment Agreement. See "Employment
Agreements." During 2004, Mr. Winnekins' annual base salary was increased by
approximately 13.8%, to $150,000, and he was granted options to purchase 17,000
shares of the Company's common stock, vesting over four years, with an exercise
price equal to fair market value as of the date of grant. The Company did not
pay a cash bonus to Mr. Winnekins in fiscal year 2004.
MEMBERS OF THE COMPENSATION COMMITTEE:
Linda Hall Whitman (Chair)
James A. Bernards
Rodney A. Young
13
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Chief Executive Officer and to the Company's other four most highly compensated
executive officers who received compensation in excess of $100,000 during fiscal
2004 (such individuals referred to as the "named executive officers").
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted Securities LTIP All Other
Name and Principal Fiscal Stock Underlying Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)
--------- ---- ---------- --------- --------- ---------- ------- ------- ------------
Jerry V. Noyce, 2004 243,269 -- 8,400(2) -- 80,000 -- --
President and Chief 2003 238,050 10,000 8,400 -- 102,000 -- --
Executive Officer 2002 236,533 -- 8,000 -- 82,000 -- --
Wesley W. Winnekins, 2004 143,780 -- -- -- 17,000 -- --
Chief Financial Officer 2003 131,159 15,000 -- -- 27,000 -- --
2002 126,318 -- -- -- 17,000 -- --
Jeanne C. Crawford, Vice 2004 128,895 8,766 -- -- 35,000 -- --
President - Human 2003 123,311 20,230 -- -- 25,000 -- --
Resources 2002 113,421 10,692 -- -- 15,000 -- --
Brian Gagne, Vice 2004 125,221 8,658 27,489(3) -- -- -- --
President - Programs and
Partnerships (1)
Michael Seethaler, 2004 120,101 10,000 -- -- -- -- --
National Vice President
-Business Development (1)
------------------------
(1) Such persons first became executive officers during fiscal 2004.
(2) Amount represents payments for a car allowance and country club
membership. See "Employment Agreements - Jerry V. Noyce."
(3) Amount represents payments for relocation expenses.
EMPLOYMENT AGREEMENTS
JERRY V. NOYCE. In November 2000, the Company entered into an
employment agreement with Jerry Noyce, the Company's President and Chief
Executive Officer. Salary increases under the agreement are determined by the
Compensation Committee. Mr. Noyce's current annual base salary under the
agreement is $250,096. Mr. Noyce is also eligible to earn an annual bonus based
on criteria set by the Board. Mr. Noyce also receives normal and customary
employee benefits and fringe benefits, including a $500 per month car allowance
and up to $200 per month for a country club membership. The agreement may be
terminated by either party upon written notice to the other party. If Mr. Noyce
is terminated without "cause," he will continue to receive his base salary for a
period of 12 months following such termination. If the agreement is terminated
by the Company because of a change of control, Mr. Noyce will receive his base
salary for a period of 24 months following termination. If Mr. Noyce resigns as
a result of a change of control because he will not be named chief executive
officer of the new controlling entity, he will receive his base salary for a
period of 12 months following termination.
WESLEY W. WINNEKINS. The Company has an employment agreement with Wes
Winnekins, the Company's Chief Financial Officer, which agreement was effective
as of February 9, 2001 and continues for an indefinite term until terminated in
accordance with the agreement. Mr. Winnekins' current annual base salary under
his employment agreement is $162,000. Mr. Winnekins is also eligible to earn an
annual bonus based on criteria set by the Company's CEO and approved by the
Compensation Committee. The agreement may be terminated by either party upon
written notice to the other party. If
14
Mr. Winnekins is terminated without "cause," he will continue to receive his
base salary for a period of three months following such termination.
JEANNE C. CRAWFORD. The Company has an employment agreement with Jeanne
Crawford, Vice President - Human Resources, which agreement was effective as of
March 1, 2003 and continues for an indefinite term until terminated in
accordance with its terms. Ms. Crawford's current annual base salary under the
agreement is $136,105. Ms. Crawford is also eligible to earn an annual bonus
based on criteria set by the Company's CEO and approved by the Compensation
Committee. The agreement may be terminated by either party upon written notice
to the other party. If Ms. Crawford is terminated without "cause," she will
continue to receive her base salary for a period of three months following such
termination.
BRIAN GAGNE. The Company has an employment agreement with Brian Gagne,
Vice President - Programs and Partnerships, which agreement was effective as of
December 8, 2003 and continues for an indefinite term until terminated in
accordance with its terms. Mr. Gagne's current annual base salary under the
agreement is $131,890. Mr. Gagne is also eligible to earn an annual bonus based
on criteria set by the Company's CEO and approved by the Compensation Committee.
The agreement may be terminated by either party upon written notice to the other
party. If Mr. Gagne is terminated without "cause," he will continue to receive
his base salary for a period of three months following such termination.
MICHAEL SEETHALER. The Company has an employment agreement with Michael
Seethaler, National Vice President - Business Development, which agreement was
effective as of December 22, 2003 and continues for an indefinite term until
terminated in accordance with its terms. Mr. Seethaler's current annual base
salary under his employment agreement is $124,200. Mr. Seethaler is also
eligible to earn an annual bonus based on criteria set by the Company's CEO and
approved by the Compensation Committee. The agreement may be terminated by
either party upon written notice to the other party. If Mr. Seethaler is
terminated without "cause," he will continue to receive his base salary for a
period of three months following such termination.
15
OPTION GRANTS DURING FISCAL YEAR 2004
The following table sets forth information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 2004. The Company has not granted stock appreciation rights:
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS EXERCISE RATES OF STOCK PRICE
UNDERLYING GRANTED TO PRICE PER APPRECIATION FOR
OPTIONS EMPLOYEES IN SHARE EXPIRATION OPTION TERM
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
-------- ------------ ------------ --------- --------- --------- -------
Jerry V. Noyce 80,000 (1) 43% $2.07 03/10/10 56,320 127,771
Wesley W. Winnekins 17,000 (1) 9% $2.07 03/10/10 11,968 27,151
Jeanne C. Crawford 15,000 (1) 8% $2.07 03/10/10 10,560 23,957
20,000 (1) 11% $2.27 12/15/10 15,440 35,029
Brian Gagne -- -- -- -- -- --
Michael Seethaler -- -- -- -- -- --
----------
(1) Exercisable in four annual increments, each in the amount of 25% of the
number of shares granted, commencing on the first anniversary of the
date of grant.
AGGREGATED OPTION EXERCISES DURING FISCAL YEAR 2004 AND FISCAL YEAR END OPTION
VALUES
The following table provides information related to the number of
options exercised during the last fiscal year and the number and value of
options held at fiscal year end by the named executive officers.
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON EXERCISE VALUE OPTIONS AT 12/31/04 12/31/04(1)
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- --------- ------------------------- -------------------------
Jerry V. Noyce -- -- 311,500 / 232,500 $763,205 / $450,550
Wesley W. Winnekins -- -- 88,250 / 70,250 $193,748 / $137,568
Jeanne C. Crawford -- -- 51,250 / 63,750 $120,238 / $95,013
Brian Gagne -- -- 10,000 / 30,000 $16,500 / $49,500
Michael Seethaler -- -- 10,000 / 30,000 $17,100 / $51,300
------------------------
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the market price of the Common Stock at fiscal year
end and the option exercise price per share multiplied by the number of
shares subject to options. The closing price as of December 31, 2004 on
the OTC Bulletin Board was $2.90.
16
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock from December 31, 1999 through
December 31, 2004, with the cumulative total return of the S&P 500 Index and the
S&P 500 Consumer Discretionary Index. The comparison assumes $100 was invested
on December 31, 1999 in the Company's Common Stock and in each of the foregoing
indices, and assumes reinvestment of dividends.
Base Indexed Returns
Period Years Ending
------ ---------------
Company/Index Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04
------------- ------ ------ ------ ------ ------ ------
HEALTH FITNESS CORPORATION $100 66.00 104.00 100.00 246.00 580.00
S&P 500 INDEX $100 90.90 80.09 62.39 80.29 89.03
S&P 500 CONSUMER DISCRETIONARY $100 80.00 82.23 62.65 86.09 97.48
17
APPROVE 2005 STOCK OPTION PLAN
(AMENDED AND RESTATED 1995 STOCK OPTION PLAN)
(PROPOSAL #2)
The term of the 1995 Stock Option Plan (the "1995 Plan") ended on
February 25, 2005; therefore, the Board of Directors amended and restated the
1995 Plan to be known as the 2005 Stock Option Plan (the "2005 Plan") effective
as of February 26, 2005. The terms of the 2005 Plan are identical to the
original terms of the 1995 Plan, except that the term of the plan has been
extended to December 15, 2014. The 1995 Plan had 3,500,000 shares reserved for
issuance, which number of shares is not being increased; therefore, there will
continue to be 3,500,000 shares reserved under the 2005 Plan. As of April 25,
2005, there were outstanding options to purchase 2,073,175 shares of our Common
Stock at prices ranging from $0.30 to $2.81, and there were 1,331,100 shares
available for future grants under the 2005 Plan. Options to purchase an
aggregate of 95,725 shares at prices ranging from $0.39 to $0.65 per share have
been exercised under the 2005 Plan. The Board believes that the granting of
options offers incentives to employees, officers, consultants, advisors and
directors, which is an effective means to promote the future growth and
development of the Company. In addition, option grants increase proprietary
interest in our success, which enables the Company to attract and retain
qualified personnel. The Board therefore recommends that all shareholders vote
in favor of the approval of the 2005 Plan.
GENERAL
A general description of the basic features of the 2005 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 2005 Plan, a copy of which may be obtained without
charge upon written request to the Company's Chief Financial Officer.
DESCRIPTION OF THE 2005 STOCK OPTION PLAN
PURPOSE. The purpose of the 2005 Plan is to advance the interests of
the Company and its shareholders by enabling the Company to attract and retain
persons of ability as employees, directors and consultants, by providing an
incentive to such individuals through equity participation in the Company.
TERM. Options may be granted under the 2005 Plan until December 15,
2014, or until such earlier date as the 2005 Plan is discontinued or terminated
by the Board.
ADMINISTRATION. The 2005 Plan is administered by the Board of Directors
or by a Committee of the Board of Directors (the "Administrator"). The 2005 Plan
gives broad powers to the Administrator to administer and interpret the 2005
Plan, including the authority to select the individuals to be granted options
and to prescribe the particular form and conditions of each option granted.
ELIGIBILITY. All salaried employees of the Company or any subsidiary
are eligible to receive incentive stock options pursuant to the 2005 Plan. All
salaried employees, non-employee directors and officers of, and consultants to,
the Company or any subsidiary are eligible to receive nonqualified stock
options. As of April 25, 2005, the Company had approximately thirty employees
(of which nine are executive officers) and eight directors who are not
employees.
OPTIONS. When an option is granted under the 2005 Plan, the
Administrator at its discretion specifies the option price, the type of option
(either "incentive" or "nonqualified") to be granted, and the number of shares
of Common Stock which may be purchased upon exercise of the option. The exercise
price of an incentive stock option may not be less than 100% of the fair market
value of the Company's Common Stock and the option price of a nonqualified
option may not be less than 85% of the fair market value of the Company's Common
Stock on the date of grant. The fair market value of the Company's Common Stock
on April 25, 2005 was $2.60. The term during which the option may be exercised
and whether the option will be exercisable immediately, in stages or otherwise
are set by the Administrator,
18
but the term of an incentive stock option may not exceed ten years from the date
of grant. Optionees may pay for shares upon exercise of options with cash,
certified check or Common Stock of the Company valued at the stock's then fair
market value. Each stock option granted under the 2005 Plan is nontransferable
during the lifetime of the optionee. Each outstanding option under the 2005 Plan
may terminate earlier than its stated expiration date in the event of the
optionee's termination of employment, directorship or other relationship with
the Company.
AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the 2005 Plan or revise or amend it in any respect; provided, the
2005 Plan may not, without the approval of the shareholders, be amended in any
manner that will (a) materially increase the number of shares subject to the
2005 Plan except as provided in the case of stock splits, consolidations, stock
dividends or similar events; (b) materially modify the requirements for
eligibility for participation in the 2005 Plan; (c) materially increase the
benefits accruing to optionees under the 2005 Plan or (d) cause incentive stock
options to fail to meet the requirements of the Internal Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2005 PLAN. Under present law, an
optionee will not realize any taxable income on the date a nonqualified option
is granted pursuant to the 2005 Plan. Upon exercise of the option, however, the
optionee must recognize, in the year of exercise, ordinary income equal to the
difference between the option price and the fair market value of the Company's
Common Stock on the date of exercise. Upon the sale of the shares, any resulting
gain or loss will be treated as capital gain or loss. The Company will receive
an income tax deduction in its fiscal year in which options are exercised, equal
to the amount of ordinary income recognized by those optionees exercising
options, and must withhold income and other employment-related taxes on such
ordinary income.
Incentive stock options granted under the 2005 Plan are intended to
qualify for favorable tax treatment under Code Section 422. Under Section 422,
an optionee recognizes no taxable income when the option is granted. Further,
the optionee generally will not recognize any taxable income when the option is
exercised if he or she has at all times from the date of the option's grant
until three months before the date of exercise been an employee of the Company.
The Company ordinarily is not entitled to any income tax deductions upon the
grant or exercise of an incentive stock option. Certain other favorable tax
consequences may be available to the optionee if he or she does not dispose of
the shares acquired upon the exercise of an incentive stock option for a period
of two years from the granting of the option and one year from the receipt of
the shares.
2005 PLAN BENEFITS. The table below shows the total number of stock
options that previously have been granted to the following individuals and
groups under the 2005 Plan. The information below for each person and group
reflects options that have been granted, and any currently outstanding options
will continue to be outstanding regardless of whether shareholders approve the
2005 plan. The terms of the stock options included in the below information will
not be affected by whether shareholders approve the 2005 plan.
Total Number of
Name and Position/Group Options Received(1)
----------------------- -------------------
Jerry V. Noyce, President and CEO 584,000
Wesley W. Winnekins, CFO 168,500
Jeanne C. Crawford, Vice President - Human Resources 122,500
Brian Gagne, Vice President - Programs and Partnerships 55,000
Michael Seethaler, National Vice President - Business Development 55,000
Current Executive Officer as a Group (9 persons) 1,310,000
Current Directors who are not Executive Officers as a Group (8 persons) 365,000
Current Employees who are not Executive Officers as a Group (21 persons) 203,175
----------
(1) This table reflects the total number of options granted under the Plan as of
April 25, 2005. Because future grants of stock options under the Plan are
subject to the discretion of the Committee, the future benefits that may be
received by these individuals and groups under the Plan cannot be determined at
this time.
19
VOTE REQUIRED
The Board of Directors recommends that the shareholders approve the
2005 Stock Option Plan. Under applicable Minnesota law, approval of the 2005
Stock Option Plan requires the affirmative vote of the holders of a majority of
the voting power of the shares represented in person or by proxy at the meeting
with authority to vote on such matter provided that such majority must be
greater than 25% of the Company's outstanding shares.
The following table provides information as of December 31, 2004 about
the Company's equity compensation plans.
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED AVERAGE FUTURE ISSUANCE UNDER
EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
--------------------------------------------------------------------------
(a) (b) (c)
----------------------------------------------------------------------------------------------------
Equity compensation 1,921,550 $1.06 1,777,461(1)
plans approved by
security holders
----------------------------------------------------------------------------------------------------
Equity compensation 1,415,320(2) $0.48 --
plans not approved by
security holders
----------------------------------------------------------------------------------------------------
TOTAL 3,336,870 $0.82 1,777,461
----------------------------------------------------------------------------------------------------
(1) Includes 271,361 shares of common stock available for issuance under
the Company's Employee Stock Purchase Plan.
(2) Represents outstanding warrants to selling agents and consultants in
consideration for services performed.
20
APPROVAL OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(PROPOSAL #3)
Grant Thornton LLP acted as the Company's independent registered public
accounting firm for the fiscal years ended December 31, 2004, and has been
selected by the Audit Committee to act as the Company's auditors for fiscal
2005. Although it is not required to do so, the Board wishes to submit the
selection of Grant Thornton LLP to the shareholders for ratification. The Board,
and in particular the Audit Committee, retains discretion at all times to select
the Company's independent registered public accounting firm, notwithstanding
ratification by the Company's shareholders. In the event the shareholders do not
approve such selection, the Audit Committee will reconsider its selection. A
representative of Grant Thornton LLP is expected to be present at the Annual
Meeting of Shareholders. Such representative will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to
appropriate questions.
The ratification of Grant Thornton LLP as the independent registered
public accounting firm for the Company requires the affirmative vote of a
majority of the shares represented in person or by proxy at the Annual Meeting.
AUDIT FEES
The following fees were paid to Grant Thornton LLP in fiscal years 2003
and 2004:
FY 2003 FY 2004
-------- --------
Audit Fees $51,479 $117,753
Audit-Related Fees 6,565 7,104
Tax Fees 38,849 28,472
All Other Fees 16,705 23,793
-------- --------
$113,598 $177,122
-------- --------
Audit fees are for professional services rendered and expenses incurred
for the audit of the Company's annual financial statements and review of
financial statements included in our Forms 10-K and 10-Q or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements.
Audit-related fees are primarily for services rendered and expenses
incurred for the audit of the Company's 401K Employee Benefit Plan.
Tax fees include fees for services provided and expenses incurred in
connection with the preparation of federal and state tax returns, tax advice and
tax planning.
All other fees include fees for services provided and expenses incurred
for non-audit related accounting services. The other fees paid in 2004 relate
primarily to document review services provided in connection with the Company's
2003 acquisition of the Health & Fitness Services Division of Johnson & Johnson
Health Care Systems Inc., as well as research services provided for
miscellaneous accounting matters.
Pursuant to its written charter, the Audit Committee is required to
pre-approve the audit and non-audit services performed by the Company's
independent auditors in order to assure that the provision of such services does
not impair the auditor's independence. Unless a particular service has received
general pre-approval by the Audit Committee, each service provided must be
specifically pre-approved. Any proposed services exceeding pre-approved costs
levels will require specific pre-approval by the Audit Committee. As such, the
Audit Committee adopted a policy in February 2003 that states the Audit
Committee is required to approve all audit and non-audit accounting-related
services. The Audit Committee has pre-approved services to be requested from
time to time by the Company's Chief
21
Executive Officer and Chief Financial Officer only on accounting matters that do
not exceed $5,000 on any one occasion or $25,000 per year; provided that the
Company's Chief Financial Officer must report to the Audit Committee on the
provision of such services at the Audit Committee meeting held immediately
thereafter.
The Company's Audit Committee has considered whether provision of the
above non-audit services is compatible with maintaining Grant Thornton LLP's
independence and has determined that such services have not adversely affected
Grant Thornton LLP's independence.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten percent shareholders ("Insiders") are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company during the fiscal year ended December 31, 2004,
all Section 16(a) filing requirements applicable to Insiders were complied with,
except that Mr. Musech and Bayview Capital Partners LP reported five
transactions late on a Form 5 that was not timely filed.
OTHER BUSINESS
Management knows of no other matters to be presented at the meeting. If
any other matter properly comes before the meeting, the appointees named in the
proxies will vote the proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 2006 Annual Meeting must be received by the
Company by January 9, 2006 to be includable in the Company's proxy statement and
related proxy for the 2005 Annual Meeting.
Also, if a shareholder proposal intended to be presented at the 2006
Annual Meeting but not included in the Company's proxy statement and proxy is
received by the Company after March 25, 2006, then management named in the
Company's proxy form for the 2006 Annual Meeting will have discretionary
authority to vote the shares represented by such proxies on the shareholder
proposal, if presented at the meeting, without including information about the
proposal in the Company's materials.
22
FORM 10-K
A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2004 (WITHOUT EXHIBITS), ACCOMPANIES THIS NOTICE OF MEETING
AND PROXY STATEMENT. NO PART OF THE ANNUAL REPORT IS INCORPORATED HEREIN AND NO
PART THEREOF IS TO BE CONSIDERED PROXY SOLICITING MATERIAL. THE COMPANY WILL
FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING SOLICITED, UPON
WRITTEN REQUEST OF ANY SUCH PERSON, ANY EXHIBIT DESCRIBED IN THE LIST
ACCOMPANYING THE FORM 10-K, UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES
RELATED TO THE COMPANY'S FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH
EXHIBIT(S) SHOULD BE DIRECTED TO WESLEY W. WINNEKINS, CHIEF FINANCIAL OFFICER,
AT THE COMPANY'S PRINCIPAL ADDRESS.
Dated: May 2, 2005
Bloomington, Minnesota
23
HEALTH FITNESS CORPORATION
2005 STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 Establishment. Health Fitness Corporation (the "Company") hereby
establishes a plan providing for the grant of stock options to certain eligible
employees, directors and consultants of the Company and its subsidiaries. This
plan shall be known as the 2005 Stock Option Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
persons of ability as employees, directors and consultants, by providing an
incentive to such individuals through equity participation in the Company and by
rewarding such individuals who contribute to the achievement by the Company of
its long-term economic objectives.
ARTICLE 2. DEFINITIONS
The following terms shall have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Change in Control" means an event described in Article 11 below.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the entity administering the Plan, as provided in
Article 3 below.
2.5 "Common Stock" means the common stock of the Company, par value $.01
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 below.
2.6 "Disability" means the occurrence of an event which constitutes
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
2.7 "Eligible Persons" means individuals who are (a) salaried employees
(including, without limitation, officers and directors who are also employees)
of the Company, (b) Non-Employee Directors, or (c) consultants to the Company.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Fair Market Value" means, with respect to the Common Stock, as of any
date:
(a) if the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
Stock Market, the mean between the reported high and low sale prices of
the Common Stock on such exchange or by the NASDAQ Stock Market as of such
date (or, if no shares were traded on such day, as of the next preceding
day on which there was such a trade); or
(b) if the Common Stock is not listed or admitted to unlisted
trading privileges or reported on the Nasdaq Stock Market, and bid and
asked prices therefor in the over-the-counter market are reported by the
National Quotation Bureau, Inc. (or any comparable reporting service), the
mean of the closing bid and asked prices as of such date, as reported by
the National Quotation Bureau, Inc. (or a comparable reporting service);
or
(c) if the Common Stock is not listed or admitted to unlisted
trading privileges, or reported on the NASDAQ Stock Market, and bid and
asked prices are not reported, the price that the Committee determines in
good faith in the exercise of its reasonable discretion. The Committee's
determination as to the current value of the Common Stock shall be final,
conclusive and binding for all purposes and on all persons, including,
without limitation, the Company, the shareholders of the Company, the
Optionees and their respective successors-in-interest. No member of the
Board or the Committee shall be liable for any determination regarding
current value of the Common Stock that is made in good faith.
2.10 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.5 of the Plan that qualifies as an
incentive stock option within the meaning of Section 422 of the Code.
2.11 "Non-Employee Director" means any member of the Board who is not an
employee of the Company or any Subsidiary.
2.12 "Non-Statutory Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.5 of the Plan that does not qualify
as an Incentive Stock Option.
2.13 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.14 "Optionee" means an Eligible Person who receives one or more
Incentive Stock Options or Non-Statutory Stock Options under the Plan.
2.15 "Person" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company.
2
2.16 "Retirement" means the retirement of an Optionee pursuant to and in
accordance with the regular retirement plan or practice of the Company or the
Subsidiary employing the Optionee.
2.17 "Securities Act" means the Securities Act of 1933, as amended.
2.18 "Subsidiary" means any corporation that is a subsidiary corporation
of the Company (within the meaning of Section 424(f) of the Code).
2.19 "Tax Date" means a date defined in Section 6.4(e) or Section 6.5(c)
of the Plan.
ARTICLE 3. PLAN ADMINISTRATION
The Plan shall be administered by the Board or by a Committee of the Board
consisting of two or more directors who shall be appointed by and serve at the
pleasure of the Board. As long as the Company's securities are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, then,
to the extent necessary for compliance with Rule 16b-3, or any successor
provision, each of the members of the Committee shall be a 'Non-Employee
Director.' For purposes of this paragraph, 'Non-Employee Director' shall have
the same meaning as set forth in Rule 16b-3, or any successor provision, as then
in effect, of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended. Members of a Committee, if established, shall be
appointed from time to time by the Board, shall serve at the pleasure of the
Board and may resign at any time upon written notice to the Board. A majority of
the members of the Committee shall constitute a quorum. The Committee shall act
by majority approval of its members, shall keep minutes of its meetings and
shall provide copies of such minutes to the Board. Action of the Committee may
be taken without a meeting if unanimous written consent thereto is given. Copies
of minutes of the Committee's meetings and of its actions by written consent
shall be provided to the Board and kept with the corporate records of the
Company. As used in this Plan, the term "Committee" will refer either to the
Board or to such a Committee, if established.
In accordance with the provisions of the Plan, the Committee shall select
the Optionees from Eligible Persons; shall determine the number of shares of
Common Stock to be subject to Options granted pursuant to the Plan, the time at
which such Options are granted, the Option exercise price, Option period and the
manner in which each such Option vests or becomes exercisable; and shall fix
such other provisions of such Options as the Committee may deem necessary or
desirable and as consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Optionees which shall
evidence the particular terms, conditions, rights and duties of the Company and
the Optionees under Options granted pursuant to the Plan. The Committee shall
have the authority, subject to the provisions of the Plan, to establish, adopt
and revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. With the consent of
the Optionee affected thereby, the Committee may amend or modify the terms of
any outstanding Incentive Stock Option or Non-Statutory Stock Option in any
manner, provided that the amended or modified terms are permitted by the Plan as
then in effect. Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Optionee affected thereby, modify the
exercise price, number of shares or other terms and conditions of an Option,
extend
3
the term of an Option, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Option, extend, renew or accept the
surrender of any outstanding Option to the extent not previously exercised, and
the Committee may authorize the grant of new Options in substitution therefor to
the extent not previously exercised.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including, without limitation, the Company
and its Subsidiaries, the shareholders of the Company, the Committee and each of
the members thereof, the directors, officers and employees of the Company and
its Subsidiaries, and the Optionees and their respective successors in interest.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under the Plan.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number. The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be Two Million (3,500,000), subject
to adjustment upon changes in the capitalization of the Company as provided in
Section 4.3 below. Shares of Common Stock that may be issued upon exercise of
Options shall be applied to reduce the maximum number of shares of Common Stock
remaining available for use under the Plan.
4.2 Unused Stock. Any shares of Common Stock that are subject to an Option
(or any portion thereof) that lapses, expires or for any reason is terminated
unexercised shall automatically again become available for use under the Plan.
4.3 Change in Shares, Adjustments, Etc. If the number of outstanding
shares of Common Stock is increased or decreased or changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, rights offering or any other change
in the corporate structure or shares of the Company, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation) shall make appropriate adjustment as to
the number and kind of securities subject to and reserved under the Plan and, in
order to prevent dilution or enlargement of the rights of Optionees, the number
and kind of securities subject to outstanding Options. Any such adjustment in
any outstanding Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with an
appropriate adjustment in the price for each share or other unit of any security
covered by the Option. However, no change shall be made in the terms of any
outstanding Incentive Stock Options as a result of any such change in the
corporate structure or shares of the Company, without the consent of the
Optionee affected thereby, that would disqualify that Incentive Stock Option
from treatment under Section 422 of the Code or would be considered a
modification, extension or renewal of an option under Section 424(h)of the code.
4
ARTICLE 5. ELIGIBILITY
Incentive Stock Options or Non-Statutory Stock Options shall be granted
only to those Eligible Persons who, in the judgment of the Committee, are
performing, or during the term of an Option, will perform, vital services in the
management, operation and development of the Company or a Subsidiary, and
significantly contribute or are expected to significantly contribute to the
achievement of long-term corporate economic objectives. Optionees may be granted
from time to time one or more Incentive Stock Options and/or Non-Statutory Stock
Options under the Plan, in any case as may be determined by the Committee in its
sole discretion. The number, type, terms and conditions of Options granted to
various Eligible Persons need not be uniform, consistent or in accordance with
any plan, whether or not such Eligible Persons are similarly situated. The
Committee may grant both an Incentive Stock Option and a Non-Statutory Stock
Option to the same Optionee at the same time or at different times. Incentive
Stock Options and Non-Statutory Stock Options, whether granted at the same or
different times, shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event will the exercise of one Option affect
the right to exercise any other Option or affect the number of shares of Common
Stock for which any other Option may be exercised. Upon determination by the
Committee that an Option is to be granted to an Optionee, written notice shall
be given such person specifying such terms, conditions, rights and duties
related thereto. Each Optionee shall enter into an agreement with the Company,
in such form as the Committee shall determine and which is consistent with the
provisions of the Plan, specifying the terms, conditions, rights and duties of
Incentive Stock Options and Non-Statutory Stock Options granted under the Plan.
Options shall be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date shall be the date of the related
agreement with the Optionee.
ARTICLE 6. DURATION AND EXERCISE
6.1 Manner of Option Exercise. An Option may be exercised by an Optionee
in whole or in part from time to time, subject to the conditions contained
herein and in the agreement evidencing such Option, by delivery, in person or
through certified or registered mail, or written notice of exercise to the
Company at its principal executive office (Attention: Secretary), and by paying
in full the total Option exercise price for the shares of Common Stock purchased
in accordance with Section 6.3. Such notice shall be in a form satisfactory to
the Committee and shall specify the particular Option (or portion thereof) that
is being exercised and the number of shares with respect to which the Option is
being exercised. Subject to Section 9.1, the exercise of the Option shall be
deemed effective upon receipt of such notice and payment. As soon as practicable
after the effective exercise of the Option, the Company shall record on the
stock transfer books of the Company the ownership of the shares purchased in the
name of the Optionee, and the Company shall deliver to the Optionee one or more
duly issued stock certificates evidencing such ownership.
6.2 Method of Payment of Option Exercise Price. At the time of the
exercise of an Incentive Stock Option or a Non-Statutory Stock Option, the
Optionee may determine whether the total purchase price of the shares to be
purchased shall be paid solely in cash or by transfer from the Optionee to the
Company of previously acquired shares of Common Stock, or by a combination
thereof. In the event the Optionee elects to pay the purchase price in whole or
in part with previously acquired shares of Common Stock, the value of such
shares shall be equal to
5
their Fair Market Value on the date of exercise. The Committee may reject an
Optionee's election to pay all or part of the purchase price with previously
acquired shares of Common Stock and require such purchase price to be paid
entirely in cash if, in the sole discretion of the Committee, payment in
previously acquired shares would cause the Company to be required to recognize a
charge to earnings in connection therewith. For purposes of this Section 6.2,
"previously acquired shares" shall include both shares of Common Stock that are
already owned by the Optionee at the time of exercise and shares of Common Stock
that are to be acquired pursuant to the exercise of the Option concerned. In its
sole discretion, the Committee may determine either at the time of grant or
exercise of an Incentive Stock Option or a Non-Statutory Stock Option, to permit
a Optionee to pay all or any portion of the purchase price by deliver of a
promissory note in form and substance acceptable to the Committee.
6.3 Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustment shall be made for dividends or other distributions or other rights as
to which there is a record date preceding the date the Optionee becomes the
holder of record except as the Committee may determine pursuant to Section 4.3.
6.4 Incentive Stock Options.
(a) Incentive Stock Option Exercise Price. The per share price to be
paid by the Optionee at the time an Incentive Stock Option is exercised
will be determined by the Committee, but shall not be less than (i) 100%
of the Fair Market Value of one share of Common Stock on the date the
Option is granted, or (ii) 110% of the Fair Market Value of one share of
Common Stock on the date the Option is granted if, at that time the Option
is granted, the Optionee owns, directly or indirectly (as determined
pursuant to Section 424(d) of the Code), more than 10% of the total
combined voting power of all classes of stock of the Company, any
Subsidiary or any parent corporation of the Company (within the meaning of
Section 424(e) of the Code).
(b) Aggregate Limitation of Stock Subject to Incentive Stock
Options. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value (determined as of the date an Incentive Stock Option is
granted) of the shares of Common Stock with respect to which Incentive
Stock Options (within the meaning of Section 422 of the Code) are
exercisable for the first time by an Optionee during any calendar year
(under the Plan and any other incentive stock option plans of the Company,
any Subsidiary or any parent corporation of the Company (within the
meaning of Section 424(e) of the Code)) shall not exceed $100,000 (or such
other amount as may be prescribed by the Code from time to time; provided,
however, that if the exercisability or vesting of an Incentive Stock
Option is accelerated as permitted under the provisions of this Plan and
such acceleration would result in a violation of the limit imposed by this
Section 6.4(b), such acceleration shall be of full force and effect but
the number of shares of Common Stock which exceed such limit shall be
treated as having been granted pursuant to a Non-Statutory Stock Option;
and provided, further, that the limits imposed by this Section 6.4(b)
shall be applied to all outstanding Incentive Stock Options (under this
Plan and any other incentive stock option plans of the Company, any
Subsidiary or
6
any parent corporation of the Company (within the meaning of Section
424(e) of the Code)) in chronological order according to the dates of
grant.
(c) Duration of Incentive Stock Options. The period during which an
Incentive Stock Option may be exercised shall be fixed by the Committee at
the time such Option is granted, but in no event shall such period exceed
ten years from the date the Option is granted or, in the case of any
Optionee that owns, directly or indirectly (as determined pursuant to
Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company, any Subsidiary or any parent
corporation of the Company (within the meaning of Section 424(e) of the
Code), five years from the date the Incentive Stock Option is granted. An
Incentive Stock Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the
Committee at the time the Option is granted. Upon the completion of its
exercise period, an Incentive Stock Option, to the extent not then
exercised, shall expire. Except as otherwise provided in Article 7 or 11,
all Incentive Stock Options granted to an Optionee hereunder shall
terminate and may no longer be exercised if the Optionee ceases to be an
employee of the Company and all Subsidiaries or if the Optionee is an
employee of a Subsidiary and the Subsidiary ceases to be a Subsidiary of
the Company (unless the Optionee continues as an employee of the Company
or another Subsidiary).
(d) Disposition of Common Stock Acquired Pursuant to the Exercise of
Incentive Stock Options. Prior to making a disposition (as defined in
Section 424(c) of the Code) of any shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option granted under the
Plan before the expiration of two years after the date on which the Option
was granted or before the expiration of one year after the date on which
such shares of Common Stock were transferred to the Optionee pursuant to
exercise of the Option, the Optionee shall send written notice to the
Company of the proposed date of such disposition, the number of shares to
be disposed of, the amount of proceeds to be received from such
disposition and any other information relating to such disposition that
the Company may reasonably request. The right of an Optionee to make any
such disposition shall be conditioned on the receipt by the Company of all
amounts necessary to satisfy any federal, state or local withholding tax
requirements attributable to such disposition. The Committee shall have
the right, in its sole discretion, to endorse the certificates
representing such shares with a legend restricting transfer and to cause a
stop transfer order to be entered with the Company's transfer agent until
such time as the Company receives the amounts necessary to satisfy such
withholding requirements or until the later of the expiration of two years
from the date the Option was granted or one year from the date on which
such shares were transferred to the Optionee pursuant to the exercise of
the Option.
(e) Withholding Taxes. The Company shall be entitled to withhold and
deduct from future wages of the Optionee all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes
attributable to the Optionee's exercise of an Incentive Stock Option or a
"disqualifying disposition" of shares acquired through the exercise of an
Incentive Stock Option as defined in Code
7
Section 421(b). In the event the Optionee is required to pay the Company,
or make arrangements satisfactory to the Company respecting payment of,
such withholding and employment-related taxes, the Committee may, in its
discretion and pursuant to such rules as it may adopt, permit the Optionee
to satisfy such obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock otherwise issuable to the Optionee
as a result of the exercise of the Incentive Stock Option, or by electing
to deliver to the Company already-owned shares of Common Stock, in either
case having a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes, that are applicable to
the supplemental income resulting from such exercise or disqualifying
disposition. In no event may the Company withhold shares having a Fair
Market Value in excess of such statutory minimum required tax withholding.
The Optionee's election to have shares withheld or to deliver
already-owned shares of Common Stock shall be irrevocable and shall be
made on or before the date the Incentive Stock Option is exercised or, if
later, the date that the amount of tax to be withheld is determined under
applicable tax law (the "Tax Date"). Such election shall be subject to
approval by the Committee and shall otherwise comply with such rules as
the Committee may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable. If
shares of Common Stock are issued to the Optionee prior to the Tax Date
and Optionee elects to have shares withheld, the Optionee shall agree in
writing to surrender that number of shares on the Tax Date having an
aggregate Fair Market Value equal to such minimum required tax
withholding.
6.5 Non-Statutory Stock Options.
(a) Option Exercise Price. The per share price to be paid by the
Optionee at the time a Non-Statutory Stock Option is exercised will be
determined by the Committee, but shall not be less than 85% of the Fair
Market Value of one share of Common Stock on the date the Option is
granted.
(b) Duration of Non-Statutory Stock Options. The period during which
a Non-Statutory Stock Option may be exercised shall be fixed by the
Committee at the time such Option is granted, but in no event shall such
period exceed 10 years and one month from the date the Option is granted.
A Non-Statutory Stock Option shall become exercisable at such times and in
such installments (which may be cumulative) as shall be determined by the
Committee at the time the Option is granted. Upon the completion of its
exercise period, a Non-Statutory Stock Option, to the extent not then
exercised, shall expire. Except as otherwise provided in Articles 7 or 11,
all Non-Statutory Stock Options granted hereunder to an Optionee who is an
employee of the Company or any Subsidiaries shall terminate and may no
longer be exercised if the Optionee ceases to be an employee of the
Company or a Subsidiary or if the Optionee is an employee of a Subsidiary
and the Subsidiary ceases to be a Subsidiary of the Company (unless the
Optionee continues as an employee of the Company or another Subsidiary). A
Non-Statutory Stock Option granted hereunder to an Optionee who is not an
employee of the
8
Company or a Subsidiary will terminate as determined by the Committee at
the time of grant.
(c) Withholding Taxes.
(i) The Company is entitled to (aa) withhold and deduct from
future wages of the Optionee, or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any
federal, state or local withholding tax requirements attributable to
the Optionee's exercise of a Non-Statutory Stock Option or otherwise
incurred with respect to the Option, or (bb) require the Optionee
promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise or the Option.
(ii) The Committee may, in its discretion and pursuant to such
rules as it may adopt, permit the Optionee to satisfy any
withholding tax obligation, in whole or in part, by electing to have
the Company withhold shares of Common Stock otherwise issuable to
the Optionee as a result of the exercise of the Nonqualified Stock
Option, or by electing to deliver to the Company already-owned
shares of Common Stock, in either case having a Fair Market Value
equal to the minimum required tax withholding, based on the minimum
statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental
income resulting from such exercise. In no event may the Company
withhold shares having a Fair Market Value in excess of such
statutory minimum required tax withholding. The Optionee's election
to have shares withheld or to deliver already-owned shares of Common
Stock shall be irrevocable and shall be made on or before the date
the Nonqualified Stock Option is exercised or, if later, the date
that the amount of tax to be withheld is determined under applicable
tax law (the "Tax Date"). Such election shall be subject to approval
by the Committee and shall otherwise comply with such rules as the
Committee may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if
applicable. If shares of Common Stock are issued to the Optionee
prior to the Tax Date and Optionee elects to have shares withheld,
the Optionee shall agree in writing to surrender that number of
shares on the Tax Date having an aggregate Fair Market Value equal
to such minimum required tax withholding.
ARTICLE 7. EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS
7.1 Termination of Employment or Other Service Due to Death, Disability or
Retirement. In the event an Optionee's employment or other service is terminated
with the Company and all Subsidiaries by reason of his death, Disability or
Retirement, all outstanding Incentive Stock Options and Non-Statutory Stock
Options then held by the Optionee shall become immediately exercisable in full
and remain exercisable for a period of three months in the case of Retirement
and one year in the case of death or Disability, provided, however, that an
exercise may not occur after the expiration date thereof in any event. The
Company shall
9
undertake to use its best efforts to notify the Optionee or his heirs or
representatives, as the case may be, of the last date by which Options may be
exercised pursuant to this Section 7.1, at least thirty (30) days in the case of
Retirement and at least sixty (60) days in the case of death or Disability,
prior to such date.
7.2 Termination of Employment or Other Service for Reasons Other than
Death, Disability or Retirement.
(a) Except as otherwise provided in Article 11 or as otherwise
determined by the Committee at the time of grant of an Incentive Stock
Option, in the event an Optionee's employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
his death, Disability or Retirement, each Incentive Stock Option then held
by the Optionee shall completely terminate on the earlier of (i) the close
of business on the three-month anniversary date of such termination of
employment and (ii) the expiration date of such Incentive Stock Option. In
such period following termination of employment, the Incentive Stock
Option shall be exercisable only to the extent the Option was exercisable
on the vesting date immediately preceding such termination of employment
but had not previously been exercised. To the extent an Incentive Stock
Option is not exercisable on the date of termination of employment or if
the Optionee does not exercise the Option within the time specified in
this subsection (a), all rights of the Optionee under the Plan and such
Incentive Stock Option shall terminate.
(b) Except as otherwise provided in Article 11 and subsection (c)
below, in the event an Optionee's employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
his death, Disability or Retirement no Non-Statutory Stock Option then
held by the Optionee shall thereafter be exercisable.
(c) Notwithstanding the provisions of subsection (b) above, upon an
Optionee's termination of employment or other service with the Company and
all Subsidiaries, the Committee may, in its sole discretion (which may be
exercised before or following such termination), cause Non-Statutory Stock
Options then held by such Optionee to become exercisable and to remain
exercisable following such termination of employment or other service in
the manner determined by the Committee; provided, however, that no Option
shall be exercisable after the expiration date thereof in any event.
7.3 Date of Termination. For purposes of the Plan, an Optionee's
employment or other service shall be deemed to have terminated on the date that
the Optionee ceases to perform services for the Company or the last day of the
pay period covered by the Optionee's final paycheck, as the case may be.
Notwithstanding the foregoing, the employee Optionee shall not be deemed to have
ceased to be an employee for purposes of the Plan until the later of the 91st
day of any bona fide leave of absence approved by the Company or a Subsidiary
for the Optionee (including, without limitation any layoff) or the expiration of
the period of any bona fide leave of absence approved by the Company or a
Subsidiary for the Optionee (including without limitation any layoff) during
which the Optionee's right to reemployment is guaranteed either by statute or
contract.
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ARTICLE 8. RIGHTS OF EMPLOYEES; OPTIONEES
8.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate the employment of
any Eligible Person or Optionee at any time, nor confer upon any Eligible Person
or Optionee any right to continue in the employ of the Company or any
Subsidiary.
8.2 Nontransferability. No right or interest of any Optionee in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Optionee, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of
an Optionee's death, an Optionee's rights and interest in any Options shall be
transferable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options (to the extent permitted pursuant to Section 7.1) may be made by, the
Optionee's legal representatives, heirs or legatees. If in the opinion of the
Committee an Optionee holding any Option is disabled from caring for his or her
affairs because of mental condition, physical condition or age, any payments due
the Optionee may be made to, and any rights of the Optionee under the Plan shall
be exercised by, such Optionee's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
8.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended
to amend, modify or rescind any previously approved compensation plans or
programs entered into by the Company. The Plan will be construed to be an
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
ARTICLE 9. SHARE ISSUANCE AND TRANSFER RESTRICTIONS
9.1 Share Issuances. Notwithstanding any other provision of the Plan or
any agreements entered into pursuant hereto, the Company shall not be required
to issue or deliver any certificate for shares of Common Stock under this Plan
(and an Option shall not be considered to be exercised, notwithstanding the
tender by the Optionee of any consideration therefor), unless and until each of
the following conditions has been fulfilled:
(a) (i) there shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its sole discretion, shall have
determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the Committee has
determined not to so register the shares of Common Stock to be issued
under the Plan, (A) exemptions from registration under the Securities Act
and applicable state securities laws shall be available for such issuance
(as determined by counsel to the Company) and (B) there shall have been
received from the Optionee (or, in the event of death or disability, the
11
Optionee's heir(s) or legal representative(s)) any representations or
agreements requested by the Company in order to permit such issuance to be
made pursuant to such exemptions; and
(b) there shall have been obtained any other consent, approval or
permit from any state or federal governmental agency which the Committee
shall, in its sole discretion upon the advice of counsel, deem necessary
or advisable.
9.2 Share Transfer. Shares of Common Stock issued pursuant to the exercise
of Options granted under the Plan may not be sold, assigned, transferred,
pledged, encumbered or otherwise disposed of (whether voluntarily or
involuntarily) except pursuant to registration under the Securities Act and
applicable state securities laws or pursuant to exemptions from such
registrations. The Company may condition the sale, assignment, transfer, pledge,
encumbrance or other disposition of such shares not issued pursuant to an
effective and current registration statement under the Securities Act and all
applicable state securities laws on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and applicable
state securities laws.
9.3 Legends. Unless a registration statement under the Securities Act is
in effect with respect to the issuance or transfer of shares of Common Stock
issued under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless counsel for
the Company is of the opinion as to any such certificate that such legend is
unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
ARTICLE 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Stock Options and Non-Statutory Stock
Options under the Plan shall conform to any change in applicable laws or
regulations or in any other respect that the Board may deem to be in the best
interests of the Company; provided, however, that no amendment shall, either
directly or indirectly, (a) materially increase the total number of shares of
Common Stock as to which Options may be granted under the Plan, except as
provided in Section 4.3 of the Plan; (b)
12
materially increase the benefits accruing to Optionees under the Plan; or (c)
materially modify the requirements as to eligibility for participation in the
Plan without the approval of the shareholders, but only if such approval is
required for compliance with the requirements of any applicable law or
regulation; and provided, further, that the Plan may not, without the approval
of the shareholders, be amended in any manner that will cause Incentive Stock
Options to fail to meet the requirements of Internal Revenue Code Section 422.
No termination, suspension or amendment of the Plan shall alter or impair any
outstanding Option without the consent of the Optionee affected thereby;
provided, however, that this sentence shall not impair the right of the
Committee to take whatever action it deems appropriate under Section 4.3.
ARTICLE 11. CHANGE IN CONTROL
If, during the term of an Option, (i) the Company merges or consolidates
with any other corporation and is not the surviving corporation after such
merger or consolidation; (ii) the Company transfers all or substantially all of
its business and assets to any other person; or (iii) more than 50% of the
Company's outstanding voting shares are purchased by any other person, the
Committee may, in its sole discretion, provide for the acceleration of the right
to exercise the option prior to the anticipated effective date of any of the
foregoing transactions or take any other action as it may deem appropriate to
further the purposes of this Plan or protect the interests of the Optionee.
ARTICLE 12. EFFECTIVE DATE OF THE PLAN
12.1 Effective Date. The Plan is effective as of February 26, 2005,
subject to the approval of the shareholders within 12 months. If shareholder
approval is not obtained within such 12-month period, any Incentive Stock Option
previously granted under this Plan shall be deemed to be a Non-Statutory Stock
Option.
12.2 Duration of the Plan. The Plan shall terminate at midnight on
December 14, 2014, and may be terminated prior thereto by Board action, and no
Options shall be granted after such termination. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
ARTICLE 13. MISCELLANEOUS
13.1 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Minnesota
without regard to the conflict of laws provisions of any jurisdictions. All
parties agree to submit to the jurisdiction of the state and federal courts of
Minnesota with respect to matters relating to the Plan and agree not to raise or
assert the defense that such forum is not convenient for such party.
13.2 Gender and Number. Except when otherwise indicated by the context,
reference to the masculine gender in the Plan shall include, when used, the
feminine gender and any term used in the singular shall also include the plural.
13
13.3 Construction. Wherever possible, each provision of this Plan shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Plan shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Plan.
13.4 Successors and Assigns. This Plan shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company's obligations under the
Plan.
13.5 Survival of Provisions. The rights, remedies, agreements, obligations
and covenants contained in or made pursuant to the Plan, any agreement
evidencing an Option and any other notices or agreements in connection
therewith, including, without limitation, any notice of exercise of an Option,
shall survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.
14
HEALTH FITNESS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, June 7, 2005
3:30 p.m.
3600 American Boulevard West
Bloomington, Minnesota 55431
HEALTH FITNESS CORPORATION
3600 AMERICAN BOULEVARD WEST, BLOOMINGTON, MN 55431
PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON JUNE 7, 2005.
The shares of stock you hold in your account will be voted as you specify on the
reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
The undersigned hereby appoints JOHN C. PENN, JAMES A. BERNARDS and MARK W.
SHEFFERT, and each of them, individually, with full power of substitution, as
Proxies to represent and vote, as designated below, all shares of capital stock
of Health Fitness Corporation registered in the name of the undersigned at the
Annual Meeting of Shareholders of the Company to be held at the Company's
corporate offices, 3600 American Boulevard West, Bloomington, Minnesota, at 3:30
p.m. (Minneapolis time) on June 7, 2005, and at any adjournment thereof, and the
undersigned hereby revokes all proxies previously given with respect to the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Elect directors: 1 - James A. Bernards 5 - Mark W. Sheffert [ ] Vote FOR [ ] Vote WITHHELD
2 - K. James Ehlen, M.D. 6 - Linda Hall Whitman all nominees from all nominees
3 - Jerry V. Noyce 7 - Rodney A. Young (except as marked)
4 - John C. Penn 8 - Cary Musech
9 - Robert J. Marzec
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED
NOMINEE, WRITE THE NUMBER(s) OF THE NOMINEE(s) IN THE BOX PROVIDED
TO THE RIGHT).
2. Approve the 2005 Stock Option Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Ratify selection of Grant Thornton LLP as independent auditors. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other business as may properly
come before the Meeting or any adjournment or postponement
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Date
-------------------------------------------------
Indicate changes below:
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Signature(s) in Box
PLEASE DATE AND SIGN ABOVE exactly as
name appears at the left indicating,
where appropriate, official position
or representative capacity. For stock
held in joint tenancy, each joint
tenant should sign.