SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Rule 14a-12
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Health Fitness Corporation
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Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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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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 May 13, 2002, at 3:30 p.m. CST, at the Company's corporate offices,
3500 West 80th Street, Bloomington, Minnesota, for the following purposes:
1. To elect seven individuals to serve on the Board of Directors
for a term of one year or until their successors are duly
named.
2. To approve a 300,000 share increase in the number of shares
reserved for the Company's 1995 Employee Stock Purchase Plan.
3. To approve the selection of Grant Thornton LLP as the
Company's independent auditors for the current fiscal year.
4. To consider and act upon such other matters as may properly
come before the meeting and any adjournments thereof.
Only shareholders of record at the close of business on March 25, 2002,
are entitled to notice of and to vote at the meeting or any adjournment thereof.
Your vote is important. We ask that you complete, sign, date and return
the enclosed proxy in the envelope provided for your convenience. 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
April 8, 2002
HEALTH FITNESS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 2002
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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
May 13, 2002, 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. 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
3500 West 80th Street, Suite 130, 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 April 8, 2002.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 25, 2002, 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
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business on March 25, 2002, 12,265,250 shares of the Company's Common Stock were
issued and outstanding. The Common Stock is the only outstanding class 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. Holders of Common Stock are not entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 25, 2002, 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 NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
---------------------- ------------------ ----------------
Perkins Capital Management, Inc. 1,086,750 (2) 8.9%
730 East Lake Street
Wayzata, MN 55391
Charles E. Bidwell 1,072,973 (3) 8.7%
3535 Kilkenny Lane
Hamel, MN 55340
Wells Fargo & Company 985,473 (4) 8.0%
420 Montgomery Street
San Francisco, CA 94104
Jeanne C. Crawford 226,886 (5) 1.8%
James A. Bernards 184,000 (6) 1.5%
Mark W. Sheffert 144,000 (7) 1.2%
James A. Narum 79,095 (8) *
Jerry V. Noyce 80,000 (9) *
K. James Ehlen, M.D. 44,000 (10) *
John C. Penn 44,000 (10) *
Wesley W. Winnekins 33,500 (9) *
Linda Hall Whitman 44,000 (10) *
Rodney A. Young 44,000 (10) *
All current directors and current executive 923,481 (11) 7.2%
officers as a group (10 persons)
------------------------
* Less than 1%
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(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of March 25, 2002, 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.
(2) In its most recent Schedule 13G/A filing with the Securities and
Exchange Commission on January 29, 2002, Perkins Capital Management,
Inc. represents it has sole voting power over 757,800 of such shares
and sole dispositive power over all such shares.
(3) Includes 132,500 shares which may be purchased upon exercise of options
and warrants which are exercisable as of March 25, 2002 or within 60
days of such date.
(4) In its most recent Schedule 13G/A filing with the Securities and
Exchange Commission on February 14, 2002, Wells Fargo & Company
represents it has sole voting power over all of such shares and sole
dispositive power over 944,473 of such shares.
(5) Includes 39,000 shares and currently exercisable options and warrants
to purchase 135,216 shares held by Ms. Crawford's spouse.
(6) Includes 100,000 shares held by Brightstone Capital, Ltd., an
investment firm controlled by Mr. Bernards and David Dalvey, 10,000
shares held by an employee benefit plan over which Mr. Bernards has
shared voting and investment power, and 74,000 shares which may be
purchased upon exercise of options that are exercisable by Mr. Bernards
as of March 25, 2002 or within 60 days of such date. Does not contain
Company shares or warrants held by any investment funds managed by
Messrs. Bernards and Dalvey. Pursuant to written agreement between Mr.
Bernards and Mr. Dalvey, Mr. Bernards has no voting or investment power
over any of such securities.
(7) Includes currently exercisable option to purchase 24,000 shares and
currently exercisable warrant to purchase 100,000 shares held by
Manchester Companies, 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.
(8) Includes 60,000 shares which may be purchased upon exercise of options
that are exercisable as of March 25, 2002 or within 60 days of such
date.
(9) Such shares are not outstanding but may be purchased upon exercise of
options that are exercisable as of March 25, 2002 or within 60 days of
such date.
(10) Includes 24,000 shares which may be purchased upon exercise of options
that are exercisable as of March 25, 2002 or within 60 days of such
date.
(11) Includes 602,716 shares which may be purchased upon exercise of options
and warrants that are exercisable as of March 25, 2002 or within 60
days of such date.
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ELECTION OF DIRECTORS
(PROPOSAL #1)
GENERAL INFORMATION
The Board of Directors has fixed the number of directors for the
ensuing year at seven and has nominated the seven current members of the Board
to be elected at the Annual Meeting. Under applicable Minnesota law, the
election of each nominee requires the affirmative vote of the holders of the
greater of (1) a majority of the voting power of the shares represented in
person or by proxy at the Annual Meeting with authority to vote on such matter
or (2) a majority of the voting power of the minimum number of shares that would
constitute a quorum for the transaction of business at the Annual Meeting.
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 unexpected 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 Board of Directors has no reason
to believe that any nominee will be unable to serve.
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 55 Chairman
K. James Ehlen, M.D. 57 Director
Jerry V. Noyce 57 President, CEO and Director
John C. Penn 62 Director
Mark W. Sheffert 54 Director
Linda Hall Whitman 53 Director
Rodney A. Young 47 Director
JAMES A. BERNARDS, a director of the Company from 1993 to June 1998,
since March 1999 and Chairman of the Board since April 1999, has been President
of Brightstone Capital, LLC, a venture capital firm, since 1985 and President of
Facilitation Incorporated, a strategic planning firm he founded 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 FSI International, Inc., August Technology
Corporation and Entegris, Inc.
K. JAMES EHLEN, M.D., a director of the Company since April 2001, has
been Chief of Clinical Leadership for Humana Inc., a health services company,
since February 2001. He was Executive Leader of Health Care Practice for
Halleland Health Consulting, a Minneapolis-based health
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consulting firm, 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, a four state
integrated health care organization. Dr. Ehlen is a director of Augustine
Medical, Inc.
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. Mr. Noyce continues to provide
consulting services to CSI/Wellbridge.
JOHN C. PENN, a director of the Company since April 2001, is 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
1998. 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 Centers for Diagnostic Imaging, Benson Optical and Arctic
Enterprises. Mr. Penn is also a director of Angeion Corporation.
MARK W. SHEFFERT, a director of the Company since January 2001, has
been in the financial services industry for 30 years and is currently Chairman
and Chief Executive Officer of Manchester Companies, Inc., a financial and
business advisory firm that he founded in December 1989. Prior to founding
Manchester, Mr. Sheffert held executive officer positions with First Bank System
(now US Bank Corp.), including the position of President of First Bank System.
Before joining First Bank, he was Chief Operating Officer and Director of North
Central Insurance Company. Mr. Sheffert is also a director of Angeion
Corporation.
LINDA HALL WHITMAN, a director of the Company since April 2001, was
President of Ceridian Performance Partners, Ceridian Corporation (an information
services company), from 1996 through December 2000, and Vice President, Business
Integration, at Ceridian from 1995 to 1996. From 1980 to 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 MTS Systems Corporation and the Ninth District Federal Reserve Bank
Board.
RODNEY A. YOUNG, a director of the Company since April 2001, has been
Chief Executive Officer, President and a director of LecTec Corporation, a
developer, manufacturer and marketer of healthcare consumer and over-the-counter
pharmaceutical products, since August 1996 and Chairman of the Board of LecTec
since November 1996. Prior to assuming the leadership role with LecTec, 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., and Delta Dental Plan of Minnesota, as well as the University of Minnesota
Science Undergraduate Advisory Board.
There are no 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
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was selected as a director or nominee of the Company. There are no family
relationships among the Company's directors.
COMMITTEE AND BOARD MEETINGS
The Company's Board of Directors has three standing committees, the
Audit Committee, Compensation Committee, and Finance Committee. The Audit
Committee, which consists of John C. Penn (Chair), K. James Ehlen and Mark W.
Sheffert, is charged with responsibility for reviewing the Company's external
and internal auditing system, monitoring accounting and financial reporting
practices, determining the adequacy of administrative and internal accounting
controls, monitoring compliance with the Company's prescribed procedures and
reviewing publicly disseminated financial information. The Audit Committee
functions include supervision of the independent auditors, including
recommendation of the engagement or discharge of such auditors, and review with
the independent auditors of the audit plan and results of the auditing
engagement. The Audit Committee met four times during fiscal 2001.
The Compensation Committee, which consists of Linda Hall Whitman
(Chair), James A. Bernards and Rodney A. Young, 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 remuneration arrangements
for senior management, and adoption of employee compensation and benefit plans.
The Compensation Committee met four times during fiscal 2001.
The Finance Committee, which consists of James Bernards and Mark
Sheffert, was formed in January, 2002, and is charged with exploring
opportunities for strategic acquisitions and the methods that might be available
for financing such opportunities.
The directors often communicate informally to discuss the affairs of
the Company and, when appropriate, take formal Board action by written consent
of a majority of all directors, in accordance with the Company's Articles of
Incorporation and Minnesota law, rather than hold formal meetings. During fiscal
2001, the Board of Directors held seven formal meetings. Each incumbent director
attended 75% or more of the total number of meetings held during the period(s)
for which he or she has been a director or served on committee(s) of the Board
and of committee(s) of which he or she was a member.
DIRECTORS FEES
During fiscal 2001 the Board implemented a compensation plan for
outside directors pursuant to which directors who are not employees of the
Company receive a fee of $1,000 for each Board meeting attended and are
reimbursed for out-of-town travel expenses incurred to attend Board meetings.
Under the plan, each non-employee director also receives (i) a fully vested
grant of 20,000 shares of Common Stock upon first election to the Board and (ii)
a six-year option to purchase 12,000 shares of Common Stock upon first election
to the Board and annually thereafter. Each such option is granted at the fair
market value of the Company's Common Stock on the date of grant and is fully
exercisable on the date of grant. In accordance with such plan, as of May 8,
2001, Directors Bernards, Ehlen, Penn, Sheffert, Whitman and Young each received
an option to purchase 12,000 shares at an
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exercise price of $0.65 per share, and as of July 2, 2001, Directors Ehlen,
Penn, Sheffert, Whitman and Young each received a stock grant of 20,000 shares.
AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee currently comprised
of three of the Company's outside directors. The Board of Directors and the
Audit Committee believe that the Audit Committee's current member composition
satisfies the rule of the National Association of Securities Dealers, Inc.
("NASD") that governs audit committee composition, Rule 4310(c)(26)(B)(i),
including the requirement that audit committee members all be "independent
directors" as that term is defined by NASD Rule 4200(a)(15).
In accordance with its written charter adopted by the Board of
Directors (set forth in Appendix A to the proxy statement for the Company's 2001
annual meeting of shareholders), 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 and auditors;
(2) discussed with the independent auditors the material required
to be discussed by Statement on Auditing Standards No. 61
regarding communication with audit committees;
(3) reviewed the written disclosures and the letter from the
independent auditors required by the Independence Standards
Board's Standard No. 1 (Independent Discussions with Audit
Committees), and discussed with the Company's independent
auditors their 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, 2001, as filed with the Securities and Exchange
Commission.
MEMBERS OF THE AUDIT COMMITTEE:
John C. Penn (Chair)
K. James Ehlen
Mark W. Sheffert
CERTAIN TRANSACTIONS
On April 8, 1999, the Company retained Manchester Business Services,
Inc., a Minneapolis-based multi-disciplinary professional services firm
("Manchester") which provides investment banking, finance, turnaround and
management advisory services to small and middle market companies. Mark W.
Sheffert, a director of the Company, is Chairman, Chief Executive Officer and a
controlling shareholder of Manchester. Manchester's contract expired on December
31, 2000, and thereafter Manchester continued to provide consulting and
strategic planning services on an as-needed basis through April 2001, for which
it was paid $50,000. In July 2000, in consideration of providing services to
secure the Company's bank financing, the Company agreed to pay Manchester
$100,000
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and issued Manchester a five-year Warrant to purchase 100,000 shares at an
exercise price of $0.2969 per share. During fiscal 2001, the Company paid
Manchester fees in the total amount of $62,500.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Commencing
in June 2001, the Compensation Committee of the Board of Directors has been
composed of outside directors Linda Hall Whitman, James A. Bernards and 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 is 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 (appended to this Proxy Report as Appendix A), 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, Senior Vice
President of Operations, Senior Vice President of Corporate Business
Development, Vice President of Marketing, and Vice President of Human
Resources); (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. During
fiscal 2000, the Company's CEO and CFO were compensated primarily through a
Management Agreement between the Company and Manchester Business Services.
However, the Company retained Jerry Noyce as its CEO in November, 2000, and Wes
Winnekins as its CFO in February, 2001, and the Compensation Committee has now
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.
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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 60% 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.
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.
GENERAL. 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 2001, the Company made
aggregate matching contributions of $122,000 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 reviews the individual performance of the CEO.
COMPENSATION IN 2001. In November 2000, the Company entered into an
Employment Agreement with Jerry Noyce, the Company's new Chief Executive
Officer, and in February, 2001, the Company entered into an Employment Agreement
with Wes Winnekins, the Company's new Chief Financial Officer. See "Employment
Agreements" below. During 2001, the Company paid a $30,000 cash bonus to James
Narum, the Company's Senior Vice President of Corporate Business Development, in
connection with an employment retention provision contained within Mr. Narum's
employment agreement. No other cash bonuses were paid to the CEO or other
principal executives in 2001. However, on August of 2001, the CEO and CFO were
awarded stock option bonuses of 15,000 shares and 10,000 shares, respectively,
based on the Company's year-to-date performance. At the same time, the CEO and
CFO were given the opportunity to earn additional stock options based on the
Company's performance through December 31, 2001, as a result of which the CEO
and CFO earned
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options for an additional 15,000 shares and 7,500 shares, respectively. All of
such options were granted at fair market value as of August 1, 2001 and vested
immediately or when earned.
CHIEF EXECUTIVE OFFICER COMPENSATION. Jerry Noyce was employed as the
Company's Chief Executive Officer in November, 2000 pursuant to a written
Employment Agreement. See "Employment Agreements." During 2001, the Board of
Directors approved the recommendation of the Compensation Committee to grant Mr.
Noyce immediately vested options to purchase 15,000 shares of the Company's
common stock, with an exercise price equal to fair market value as of the date
of grant. At the same time, the Board of Directors also implemented a stock
option bonus program that gave Mr. Noyce the opportunity to receive additional
immediately vested options based upon the Company's achievement of certain
performance targets as of December 31, 2001. Mr. Noyce received 15,000 options
as a result of the performance targets achieved by the Company pursuant to such
plan.
At its meeting in December, 2001, the Board of Directors approved the
recommendation of the Compensation Committee to adopt a bonus program for Mr.
Noyce for FY 2002 pursuant to which Mr. Noyce has the opportunity to earn a
bonus of between 5% and 40% of his base pay based upon achievement of certain
revenue targets and a bonus of between 5% and 20% of base pay based upon
achievement of certain EBITDA targets.
MEMBERS OF THE COMPENSATION COMMITTEE:
Linda Hall Whitman (Chair)
James A. Bernards
Rodney A. Young
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
person serving as Chief Executive Officer during fiscal 2001 and to the
Company's most highly compensated executive officers who received compensation
in excess of $100,000 during fiscal 2001 (such individuals referred to as the
"named executive officers").
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted Securities LTIP All Other
Name and Principal Fiscal Stock Underlying Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)
--------- ---- ---------- --------- --------- ---------- ------- ------- -------
Jerry V. Noyce, 2001 230,000 -- 8,000(3) -- 30,000 -- --
President and Chief 2000 15,538 -- 7,272 250,000 -- --
Executive Officer (1)
James A. Narum, 2001 114,999 30,000 -- -- -- -- --
Corporate Vice President 2000 110,770 20,000 -- -- 60,000 -- --
of Operations 1999 96,614 -- -- -- -- -- --
Wesley W. Winnekins, 2001 105,489 -- -- -- 97,500 -- --
Chief Financial Officer(2) -- --
Jeanne C. Crawford, Vice 2001 106,924 -- -- -- 40,000 -- --
President Human
Resources (2)
----------
-10-
(1) Mr. Noyce began employment with the Company during fiscal 2000.
(2) Such persons first became executive officers during fiscal 2001.
(3) Amount represents payments for a car allowance and country club
membership. See "Employment Agreements -- Jerry V. Noyce."
EMPLOYMENT AGREEMENTS
JERRY V. NOYCE. In November 2000, the Company entered into an
employment agreement with Jerry V. Noyce pursuant to which Mr. Noyce will serve
as the Company's President and Chief Executive Officer at an annual base salary
of $230,000, subject to future increases as determined by the Board of
Directors. Mr. Noyce is also eligible to earn an annual bonus based on criteria
to be set by the Board. Mr. Noyce will also receive normal and customary
employee benefits and fringe benefits, including a $500 per month car allowance
and 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.
JAMES V. NARUM. The Company has a five-year employment agreement with
James V. Narum, effective April 21, 1995, as amended (the "Agreement"), which
will automatically extend for additional one-year terms unless either party
gives written notice of termination. Pursuant to the Agreement, Mr. Narum serves
as the Company's Senior Vice President of Corporate Business Development at a
minimum base salary of $115,000. Mr. Narum is eligible to earn a sales
commissions of 3%, as well as an annual bonus of up to 15% of his annual base
salary if the Company achieves certain annual sales targets. Mr. Narum receives
normal and customary employee fringe benefits. In the event Mr. Narum's
employment is terminated in the event of a change of control where Mr. Narum is
not offered comparable employment with the new entity, he will be entitled to
receive six months base salary, certain COBRA payments, and up to $5,000 of
outplacement fees.
WESLEY W. WINNEKINS. The Company has an employment agreement with
Wesley W. Winnekins, effective February 9, 2001, which continues for an
indefinite term until terminated in accordance with the agreement. Pursuant to
the Agreement, Mr. Winnekins will serve as Chief Financial Officer at an annual
base salary of $120,000 subject to future increases as determined by the Board
of Directors. Mr. Winnekins is also eligible to earn an annual bonus based on
criteria to be set by the Board. The agreement may be terminated by either party
upon written notice to the other party. If Mr. Winnekins is terminated without
"cause," he will continue to receive his base salary for a period of three
months following such termination.
OPTION GRANTS DURING FISCAL YEAR 2001
The following table sets forth information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 2001. The Company has not granted stock appreciation rights:
-11-
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
-------- --------------- ------------- ---------- ---------- --------- --------
Jerry V. Noyce 15,000 (1) 4% .95 8/1/11 8,962 22,711
15,000 (2) 4% .95 8/1/11 8,962 22,711
James A. Narum 0 N/A N/A N/A N/A N/A
Wesley W. Winnekins 80,000 (3) 21% .6875 2/9/07 18,705 42,436
10,000 (1) 3% .95 8/1/11 5,974 15,141
7,500 (2) 2% .95 8/1/11 4,481 11,355
Jeanne C. Crawford 40,000 (4) 10% .55 12/13/07 7,482 16,974
------------------------
(1) Exercisable in full on August 1, 2001.
(2) Exercisable in full on December 31, 2001.
(3) Exercisable in annual increments of 16,000 shares each, commencing
February 9, 2002.
(4) Exercisable in annual increments of 10,000 shares each, commencing
December 13, 2002.
AGGREGATED OPTION EXERCISES DURING FISCAL YEAR 2001 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 12/31/01 12/31/01(1)
NAME (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
Jerry V. Noyce -- -- 80,000 / 200,000 $11,155 / $44,620
James A. Narum -- -- 60,000 / 0 $12,600 / $0
Wesley W. Winnekins -- -- 17,500 / 80,000 $0 / $0
Jeanne C. Crawford -- -- 0 / 40,000 $0 / $0
------------------------
(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, 2001 on
the OTC Bulletin Board was $0.52.
-12-
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock from December 31, 1996 through
December 31, 2001, with the cumulative total return of the S&P 500 Index and the
Service (Commercial and Consumer)-500 Index. The comparison assumes $100 was
invested on December 31, 1996, in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
TOTAL SHAREHOLDER RETURNS
[PERFORMANCE GRAPH]
BASE INDEXED RETURNS
PERIOD YEARS ENDING
COMPANY / INDEX DEC-96 DEC-97 DEC-98 DEC-99 DEC-00 DEC-01
------------------------------------------------------------------------------------------------------------------------
HEALTH FITNESS CORP 100 52.07 21.88 16.67 11.00 17.33
S&P 500 INDEX 100 133.36 171.48 207.56 188.66 166.24
SERVICE (COMML&CONSUMER)-500 100 137.21 112.55 107.24 69.07 94.43
-13-
INCREASE IN SHARES RESERVED FOR
1995 EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL #2)
GENERAL
The Company has in effect a 1995 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The Board of Directors has recommended an increase in
the number of shares of the Company's Common Stock reserved for issuance under
the Stock Purchase Plan from 400,000 to 700,000 shares. A general description of
the basic features of the Stock Purchase Plan is presented below, but such
description is qualified in its entirety by reference to the full text of the
Stock Purchase Plan, a copy of which may be obtained without charge upon written
request to the Company's Chief Financial Officer.
DESCRIPTION OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN
Purpose. The purpose of the Stock Purchase Plan is to encourage stock
ownership by employees of the Company and its subsidiaries and in so doing to
provide an incentive to remain in the Company's employ, to improve operations,
to increase profits and to contribute more significantly to the Company's
success.
Eligibility. The Stock Purchase Plan permits employees to purchase
stock of the Company at a favorable price and possibly with favorable tax
consequences to the employees. Generally speaking, all full-time and part-time
employees (including officers) of the Company (or those subsidiaries authorized
by the Board from time to time (a "designated subsidiary")) who (i) are
regularly scheduled to work 20 or more hours per week, (ii) who have been
employed by the Company or designated subsidiary for at least 30 days prior to
the commencement date of a phase, and (iii) who are not classified as an on-call
or temporary employee in the Company's payroll system are eligible to
participate in any of the phases of the Stock Purchase Plan. However, any
employee who would own (as determined under the Internal Revenue Code),
immediately after the grant of an option, stock possessing 5% or more of the
total combined voting power or value of all classes of the stock of the Company
cannot purchase stock through the Stock Purchase Plan. As of March 29, 2002, the
Company had approximately 590 full-time and part-time employees eligible to
participate.
Administration; Term. The Stock Purchase Plan is administered by the
Board of Directors or a Committee appointed by the Board. The Stock Purchase
Plan gives broad powers to the Board or Committee to administer and interpret
the Stock Purchase Plan. The Stock Purchase Plan will terminate on May 4, 2005.
Options. The Stock Purchase Plan is carried out in phases of six months
each, commencing on January 1 and July 1 of each year. Before the commencement
date of the phase, each participating employee must elect to have a certain
percentage of his or her compensation deducted during each pay period in such
phase; provided, however, that the payroll deductions during a phase may not
exceed 10% of the participant's compensation or such other maximum percentage
established by the Board or Committee. An employee may not increase or decrease
his or her payroll deduction percentage during a phase. An employee may request
a withdrawal of all accumulated payroll deductions at any time during the phase.
Based on the amount of accumulated payroll deductions made at the end of the
phase, shares will be purchased for each employee at the termination date of
such phase (generally six
-14-
months after the commencement date). The purchase price to be paid by the
employees will be the lower of: (i) 90% of the fair market value on the
commencement date of the phase; or (ii) 90% of the fair market value on the
termination date of the phase. The closing price of one share of the Company's
Common Stock on March 25, 2002, was $0.46 per share. As required by tax law, an
employee may not, during any calendar year, receive options under the Stock
Purchase Plan for shares which have a total fair market value in excess of
$25,000 determined at the time such options are granted. Any amount not used to
purchase shares will be returned to the participant at the end of the phase. No
interest is paid by the Company on funds withheld and used to purchase shares,
and such funds are used by the Company for general operating purposes. If the
employee dies or terminates employment for any reason before the end of the
phase, the employee's payroll deductions will be refunded, without interest, as
soon as practicable after such termination.
Amendment. The Board of Directors may, from time to time, revise or
amend the Stock Purchase Plan as the Board may deem proper and in the best
interest of the Company or as may be necessary to comply with Section 423 of the
Internal Revenue Code (the "Code"); provided, that no such revision or amendment
may (i) increase the total number of shares available for issuance under the
Stock Purchase Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events, (ii) modify requirements as
to eligibility for participation in the Stock Purchase Plan, or (iii) materially
increase the benefits accruing to participants under the Stock Purchase Plan,
without prior approval of the Company's shareholders if that approval is
required for compliance with Code Section 423 or other applicable laws and
regulations.
Federal Income Tax Consequences of the Stock Purchase Plan. Options
granted under the Stock Purchase Plan are intended to qualify for favorable tax
treatment to the employees under Code Sections 421 and 423. Employee
contributions are made on an after-tax basis. Under current federal income tax
provisions, no income is taxable to the optionee upon the grant or exercise of
an option. For tax purposes, the date of grant of the option is the commencement
date of the applicable phase. In addition, certain favorable tax consequences
may be available to the employee if shares purchased pursuant to the Stock
Purchase Plan are not disposed of by the employee within two years after the
date the option was granted nor within one year after the date of transfer of
purchased shares to the employee. The Company generally will not receive an
income tax deduction upon either the grant or exercise of the option unless the
employee disposes of the shares before the end of the two-year/one-year holding
periods described above.
Plan Benefits. The table below shows the total number of shares that
have been purchased by the following individuals and groups under the Stock
Purchase Plan as of March 29, 2002:
Total Number of
Name and Position/Group Shares Received
----------------------- ---------------
Jerry V. Noyce, President and CEO --
James A. Narum, Corporate Vice President of Operations/
Corporate Health and Fitness Division 629
Wesley W. Winnekins, CFO --
Jeanne C. Crawford, Vice President Human Resources --
Current Executive Officer Group 629
Current Non-executive Officer Director Group --
Current Non-executive Officer Employee Group 68,297
-15-
Because participation in the Stock Purchase Plan is voluntary, the
future benefits that may be received by participating individuals or groups
under the Stock Purchase Plan cannot be determined at this time.
VOTE REQUIRED
Because of the employees' positive response to the 1995 Employee Stock
Purchase Plan, the Board of Directors recommends that the shareholders approve
the 300,000 share increase in the number of shares reserved for the Plan.
Approval of the increase requires the affirmative vote of the greater of (i) 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 or (ii) a majority of the
voting power of the minimum number of shares that would constitute a quorum for
the transaction of business at the Annual Meeting.
APPROVAL OF SELECTION OF AUDITORS
(PROPOSAL #3)
Grant Thornton LLP acted as the Company's independent auditors for the
fiscal year ended December 31, 2001, and has been selected to act as the
Company's auditors for fiscal 2002. Although it is not required to do so, the
Board wishes to submit the selection of Grant Thornton LLP to the shareholders
for approval. In the event the shareholders do not approve such selection, the
Board 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.
AUDIT FEES. The aggregate fees billed by Grant Thornton LLP for
professional services rendered in connection with the audit of the Company's
annual financial statements, reviews of the quarterly financial statements
included in the Company's Forms 10-Q for fiscal 2001, and other accounting
issues were $48,486.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Grant
Thornton LLP did not bill any fees nor provide services to the Company during
fiscal 2001 for financial information systems design and implementation.
ALL OTHER FEES. The aggregate fees billed by Grant Thornton LLP for all
other non-audit services rendered to the Company during fiscal 2001, including
fees for tax return preparation, tax-related consulting services, employee
benefit plan audit, and other consulting fees were $48,653.
The amounts shown above include out-of-pocket expenses incurred by
Grant Thornton in connection with the provision of such services. 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.
-16-
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,
2001, all Section 16(a) filing requirements applicable to Insiders were complied
with.
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 annual meeting in calendar year 2003 must be
received by the Company by December 25, 2002, to be includable in the Company's
proxy statement and related proxy for the 2003 annual meeting.
Also, if a shareholder proposal intended to be presented at the 2003
annual meeting but not included in the Company's proxy statement and proxy is
received by the Company after March 10, 2003, then management named in the
Company's proxy form for the 2003 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.
-17-
FORM 10-K
A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2001 (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 MR. WESLEY W. WINNEKINS, CHIEF FINANCIAL
OFFICER, AT THE COMPANY'S PRINCIPAL ADDRESS.
Dated: April 8, 2002
Bloomington, Minnesota
-18-
HEALTH FITNESS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH MARCH 31, 2002)
The following constitutes the provisions of the Health Fitness
Corporation Employee Stock Purchase Plan (the "Plan") sponsored by Health
Fitness Corporation (the "Company"), as amended from time to time.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through payroll deductions. It is the intention of the
Company that the Plan qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations issued thereunder. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of that Code Section 423.
2. DEFINITIONS.
2.1 "ADMINISTRATOR" means the Board of Directors or such
Committee appointed by the Board of Directors to administer the Plan. The Board
or the Committee may, in its sole discretion, authorize the officers of the
Corporation to carry out the day-to-day operation of the Plan. In its sole
discretion, the Board may take such actions as may be taken by the
Administrator, in addition to those powers expressly reserved to the Board under
this Plan.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "COMMON STOCK" means the Common Stock, $.01 par value, of
the Company.
2.4 "COMPENSATION" means gross pay, including all other
amounts such as amounts attributable to overtime, shift premium, incentive
compensation, bonuses and
1
commissions (except to the extent that the exclusion of any such item is
specifically directed by the Board or the Committee, in a manner consistent with
the requirements of Code Section 423).
2.5 "DESIGNATED SUBSIDIARIES" means those Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
2.6 "EMPLOYEE" means any person, including an officer, who is
employed by the Company or one of its Designated Subsidiaries.
2.7 "OFFERING DATE" means the first day of each Offering
Period.
2.8 "OFFERING PERIOD" means the period beginning on the date
that the option is granted and ending on the date that the option is exercised,
as set forth in Paragraph 4.
2.9 "SUBSIDIARY" means any corporation, domestic or foreign,
in which the Company owns, directly or indirectly, 50% or more of the voting
shares.
2.10 "TERMINATION DATE" means the last day of each Offering
Period.
3. ELIGIBILITY.
3.1 Any Employee who (i) is regularly scheduled to work at
least 20 hours per week, (ii) has been employed by the Company or one of its
Designated Subsidiaries for at least 30 days prior to the Offering Date, and
(iii) is not designated as an on-call or temporary employee in the Company's
payroll system shall be eligible to participate in the Plan, subject to the
limitations imposed by Code Section 423(b). Further, individuals employed as
interns or who provide services as independent contractors shall not be eligible
to participate in the Plan.
3.2 Notwithstanding any provisions of the Plan to the
contrary, no Employee shall be granted an option under the Plan if,
3.2.1 Immediately after the grant, such Employee (or
any other person whose stock ownership would be attributed to such
Employee pursuant to Code Section
2
424(d)) would own shares and/or hold outstanding options to purchase
shares possessing five percent (5%) or more of the total combined
voting power or value of all classes of shares of the Company or of any
Subsidiary, or
3.2.2 The rate of withholding under such option would
permit the employee's rights to purchase shares under all employee
stock purchase plans of the Company and its Subsidiaries to accrue
(i.e., become exercisable) at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) of fair market value of such shares (determined at
the time such option is granted) for each calendar year in which such
option is outstanding at any time.
3.3 For purposes of Paragraph 3.1, the Administrator shall
grant credit for service with such entities as shall be acquired by or as shall
become affiliated with the Company from time to time as provided in the
applicable asset purchase, merger or similar agreement or as approved by the
Company by resolution of the Board.
4. OFFERINGS. The Plan shall be implemented by one or more offering
periods of six months each (hereinafter referred to as an "Offering Period").
Unless otherwise determined by the Administrator, in its discretion, each
Offering Periods shall commence on January 1st and July 1st of each year during
the term of the Plan, with the first Offering Period commencing January 1, 1995,
and ending June 30, 1995. No two Offering Periods shall run concurrently.
5. PARTICIPATION.
5.1 An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions on the
form provided by the Company and filing it with the Company's Human Resources
Department not less than 15 days prior to the applicable Offering Date, or such
other date determined by the Administrator for all eligible Employees with
respect to the Offering Period.
3
5.2 Payroll deductions for a participant shall commence with
the first paycheck issued immediately after the Offering Date and shall
terminate with the paycheck issued immediately prior to the Termination Date,
unless terminated earlier as provided in Paragraph 10.
5.3 An eligible Employee who elects to participate in an
Offering Period shall be deemed to have elected to participate in each
subsequent Offering Period unless such participant elects to withdraw from the
Plan as provided in Paragraph 10. In that event, such participant must complete
a new subscription agreement and file such form with the Company's Human
Resources Department not less than 15 days prior to the Offering Date for the
Offering Period in which the participant wishes to participate, or such other
date determined by the Administrator.
6. PAYROLL DEDUCTIONS.
6.1 The participant shall designate in his or her subscription
agreement designate a percentage of such participant's Compensation to be
deducted during the Offering Period. Such percentage shall be at least one
percent (1%) but not more than ten percent (10%) of the participant's
Compensation to be paid during the Offering Period, or such other maximum
percentage as the Administrator may establish from time to time; provided, that
the participant's aggregate payroll deductions during the Offering Period shall
not exceed ten percent (10%), or such other maximum percentage as may be
determined by the Administrator, of the Compensation which the participant would
otherwise have received during the Offering Period.
6.2 Unless the participant elects to withdraw as provided in
Paragraph 10, the Company shall continue to withhold from the participant's
Compensation the same percentage specified by the participant in the most recent
enrollment form previously completed by the participant in all subsequent
Offering Periods; provided, however, that the participant may, if he or she so
chooses, increase, decrease or discontinue payroll deductions for any or all
such subsequent Offering Periods by properly completing a new subscription
agreement prior to the Offering Date
4
for such subsequent Offering Period and delivering such form to the Company's
Human Resource Department office by the date provided in Paragraph 5.1.
6.3 In the event that the participant's Compensation is, for
any reason, increased or decreased during an Offering Period, so that the amount
actually withheld on behalf of the participant as of the termination date of the
Phase is different from the amount anticipated to be withheld as determined on
the Offering Date, then the extent to which the participant may exercise his or
her option shall be based on the amounts actually withheld on his or her behalf,
subject to the limitations contained herein. In the event of a change in the pay
period of any participant, such as from biweekly to monthly, an appropriate
adjustment shall be made to the deduction in each new pay period so as to ensure
the deduction of the proper amount authorized by the participant.
6.4 All payroll deductions authorized by a participant shall
be credited to the participant's account under the Plan. A participant may not
make any additional payments into such account.
6.5 A participant may discontinue his or her participation in
the Plan as provided in Paragraph 10, but may not decrease or increase the rate
of his or her payroll deductions during the Offering Period.
7. GRANT OF OPTION.
7.1 On each Offering Date, each participant shall be granted
an option to purchase (at the option price) that number of whole shares of the
Company's Common Stock determined by dividing the total payroll deductions to be
accumulated for the participant during such Offering Period by ninety percent
(90%) of the fair market value of a share of the Company's Common Stock at the
Offering Date, subject to the limitations set forth in Paragraphs 3.2 and 12
hereof. The fair market value of a share of the Company's Common Stock shall be
determined as provided in Paragraph 7.2 herein.
5
7.2 The option price per share shall be the lower of:
7.2.1 Ninety percent (90%) of the price for a share
of the Company's Common Stock at the close of the regular trading
session of the Nasdaq National Market, Nasdaq SmallCap Market or other
established securities exchange as of the Offering Date; or
7.2.2 Ninety percent (90%) of the price for a share
of the Company's Common Stock at the close of the regular trading
session of the Nasdaq National Market, Nasdaq SmallCap Market or other
established securities exchange as of the Termination Date.
In the event that the Offering Date or Termination Date is a Saturday, Sunday or
holiday, the amounts determined under the foregoing subsections shall be
determined using the price at the close of the regular trading session on the
last preceding trading day. If the Company's Common Stock is not listed on the
Nasdaq National Market, Nasdaq SmallCap Market or on an established securities
exchange, then the option price shall equal the lower of (i) ninety percent
(90%) of the fair market value of a share of the Company's Common Stock as of
the Offering Date, or (ii) ninety percent (90%) of the fair market value of such
stock as of the Termination Date. Such "fair market value" shall be determined
by the Board, in its sole discretion by applying principles of valuation and
such other factors the Board determines relevant.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Paragraph 10, the participant's option shall be exercised
automatically at the Termination Date, In no event shall the participant be
allowed to exercise an option for more shares of Common Stock than can be
purchased with the payroll deductions accumulated by the participant in his or
her bookkeeping account during such Phase. During his lifetime, a participant's
option to purchase shares hereunder is exercisable only by him.
6
9. DELIVERY. As promptly as practicable after the Termination Date of
the Offering Period, the Company shall arrange the delivery to each participant,
as appropriate, of a certificate representing the shares purchased upon exercise
of his or her option. Any accumulated payroll deductions remaining after the
exercise of the participant's option shall be returned to the participant,
without interest, as soon as administratively practicable after the Termination
Date; provided, however, that the Company may, under rules of uniform
application, retain such remaining amount in the participant's account and apply
it toward the purchase of shares of Common Stock in the next succeeding Phase,
unless the participant requests a withdrawal of such amount pursuant to
Paragraph 10.
10. WITHDRAWAL: TERMINATION OF EMPLOYMENT.
10.1 A participant may withdraw all, but not less than all,
the accumulated payroll deductions credited to his or her account under the Plan
any time prior to the Termination Date by giving written notice to the Company
on a form provided for such purpose. All of the accumulated payroll deductions
credited to the participant's account will be paid to the participant as soon as
practicable after receipt of his or her notice of withdrawal, the participant's
option for the current Offering Period will be automatically canceled, and no
further payroll deductions for the purchase of shares will be made during such
Offering Period.
10.2 Upon termination of the participant's employment for any
reason, including retirement or death, the accumulated payroll deductions
credited to the participant's account will be returned to the participant as
soon as practicable after such termination of employment or, in the case of the
participant's death, to the person or persons entitled thereto under Paragraph
14, and the participant's option will be automatically canceled.
10.3 A participant's employment shall be deemed to have
terminated on the date that the participant ceases to perform any services for
the Company. Notwithstanding the
7
foregoing, the participant shall not be deemed to have ceased to be an employee
for purposes of the Plan until the 91st day of any bona fide leave of absence
approved by the Company or a Designated Subsidiary (including, but not limited
to, a layoff), unless the participant's right to reemployment is guaranteed
either by statute or contract.
10.4 A participant's withdrawal from an Offering Period will
not have any effect upon the participant's eligibility to participate in a
succeeding offering or in any similar plan which may hereafter be adopted by the
Company.
11. INTEREST. No interest shall accrue on the payroll deductions
credited to the participant's account in the Plan.
12. STOCK.
12.1 The maximum number of shares of the Company's Common
Stock which shall be reserved for sale under the Plan shall be 700,000 shares,
subject to further adjustment upon changes in capitalization of the Company as
provided in Paragraph 18. The shares to be sold to participants in the Plan may
be, at the election of the Company, either treasury shares or shares authorized
but unissued. If the total number of shares which would otherwise be subject to
options granted pursuant to Paragraph 7.1 hereof at the Offering Date exceeds
the number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available for
option grants in as uniform and equitable a manner as is practicable. In such
event, the Company shall give written notice of such reduction of the number of
shares subject to the option to each participant affected thereby and shall
return any excess funds accumulated in each participant's account as soon as
practicable after the termination date of such offering period.
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12.2 The participant shall have no rights as a shareholder
with respect to any shares of Common Stock subject to the participant's option
until the date of the issuance of a stock certificate evidencing such shares as
provided in Paragraph 9. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date such stock
certificate is actually issued, except as otherwise provided in Paragraph 18
hereof.
12.3 Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or, if the participant so
directs by written notice to the Administrator prior to the Termination Date, in
the names of the participant and his or her spouse as joint tenants with rights
of survivorship, to the extent permitted by law.
13. ADMINISTRATION. Except for those matters expressly reserved to the
Board pursuant to any provision of the Plan, the Administrator shall have full
responsibility for administration of the Plan, which responsibility shall
include, but shall not be limited to, the following:
13.1 The Administrator shall, subject to the provisions of the
Plan, establish, adopt and revise such rules and procedures for administering
the Plan, and shall make all other determinations as it may deem necessary or
advisable for the administration of the Plan;
13.2 The Administrator shall, subject to the provisions of the
Plan, determine all terms and conditions that shall apply to the grant and
exercise of options under this Plan, including, but not limited to, the number
of shares of Common Stock that may be granted, the date of grant, the exercise
price and the manner of exercise of an option. The Administrator may, in its
discretion, consider the recommendations of the management of the Company when
determining such terms and conditions;
9
13.3 The Administrator shall have the exclusive authority to
interpret the provisions of the Plan, and each such interpretation or
determination shall be conclusive and binding for all purposes and on all
persons, including, but not limited to, the Company and its Subsidiaries, the
shareholders of the Corporation and its Subsidiaries, the Administrator, the
directors, officers and employees of the Corporation and its Subsidiaries, and
the participants and the respective successors-in-interest of all of the
foregoing; and
13.4 The Administrator shall keep minutes of its meetings or
other written records of its decisions regarding the Plan and shall, upon
requests, provide copies to the Board.
13.5 Members of the Board or the Committee who are eligible
employees are permitted to participate in the Plan, provided that:
13.5.1 Members of the Board who are eligible to
participate in the Plan may not vote on any matter affecting the administration
of the Plan or the grant of any option pursuant to the Plan; and
13.5.2 No member of the Board who is eligible to
participate in the Plan may be counted in determining the existence of a quorum
at any meeting of the Board during which action is taken with respect to the
granting of options pursuant to the Plan.
14. DESIGNATION OF BENEFICIARY.
14.1 A participant may file a written designation of a
beneficiary who is to receive shares and/or cash, if any, from the participant's
account under the Plan in the event of such participant's death at a time when
cash or shares are held for his account.
14.2 Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant in the absence of a valid designation of a beneficiary who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
10
participant; or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant; or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Paragraph 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
employees semi-annually as soon as practicable following the Termination Date,
which statements will set forth the amounts of payroll deductions, the per share
purchase price, the number of shares purchased and the remaining cash balance,
if any. Each participant shall be provided, not less frequently than annually,
with copies of the audited financial statements of the Company.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
18.1 Subject to any required action by the shareholders of the
Company, in the event of an increase or decrease in the number of outstanding
shares of Common Stock or in the event the Common Stock is changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or another corporation by reason of a reorganization,
11
merger, consolidation, divestiture (including a spin-off), liquidation,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, rights offering or any other change in the corporate structure or shares
of the Company, the Board (or, if the Company is not the surviving corporation
in any such transaction, the board of directors of the surviving corporation),
in its sole discretion, shall adjust the number and kind of securities subject
to and reserved under the Plan and, to prevent the dilution or enlargement of
rights of those participants to whom options have been granted, shall adjust the
number and kind of securities subject to such outstanding options and, where
applicable, the exercise price per share for such securities; provided, however,
that conversion of any convertible security of the Company shall not require
such adjustment. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to option.
18.2 In the event of the sale by the Company of substantially
all of its assets and the consequent discontinuance of its business, or in the
event of a merger, exchange, consolidation, reorganization, divestiture
(including a spin-off), liquidation, reclassification or extraordinary dividend
(collectively referred to as a "transaction"), after which the Company is not
the surviving corporation, the Board may, in its sole discretion, at the time of
adoption of the plan for such transaction, provide for one or more of the
following:
18.2.1 The acceleration of the exercisability of
outstanding options granted at the Offering Date for the Offering
Period then in effect, to the extent of the accumulated payroll
deductions credited to each participant's account as of the date of
such acceleration;
18.2.2 The complete termination of this Plan and a
refund of amounts credited to the participants' accounts hereunder; or
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18.2.3 The continuance of the Plan only with respect
to completion of the then current Offering Period and the exercise of
options thereunder. In the event of such continuance, participants
shall have the right to exercise their options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
In the event of a transaction where the Company survives, then the Plan shall
continue in effect, unless the Board takes one or more of the actions set forth
above. The grant of an option pursuant to the Plan shall not limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
19. AMENDMENT OR TERMINATION. The Plan may be terminated at any time by
the Board of Directors, provided that, except as permitted in Paragraph 18.2
hereof, no such termination shall take effect with respect to any options then
outstanding. The Board may, from time to time, amend the Plan as it may deem
proper and in the best interests of the Company or as may be necessary to comply
with Code Section 423, as amended, and the regulations thereunder, or other
applicable laws or regulations; provided, however, no such amendment shall,
without the consent of a participant, materially adversely affect or impair the
right of a participant with respect to any outstanding option; and provided,
further, that no such amendment shall:
19.1 Increase the total number of shares for which options may
be granted under the Plan (except as provided in Paragraph 18.1 herein);
19.2 Materially modify any requirements as to eligibility for
participation in the Plan; or
19.3 Materially increase the benefits accruing to participants
under the Plan;
13
without the approval of the Company's shareholders, if such approval is required
for compliance with Code Section 423, as amended, and the regulations
thereunder, or other applicable laws or regulations.
20. NOTICES. All notices or other communications by a participant to
the Company in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL. This Plan, as amended, was most recently
approved by the shareholders of the Company at the annual shareholders' meeting
held on May 16, 2001.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of an option and if required by
applicable securities laws, the Company may require the participant for whose
account the option is being exercised to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM. Unless terminated earlier pursuant to Paragraph 19, this Plan
shall terminate on May 4, 2005, ten years after the date the Plan was adopted by
the Board.
14
HEALTH FITNESS CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Monday, May 13, 2002
3:30 p.m.
3500 West 80th Street
Bloomington, Minnesota 55431
HEALTH FITNESS CORPORATION
3500 WEST 80TH STREET, BLOOMINGTON, MN 55431 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 13, 2002.
The shares of stock you hold in your account or in a dividend reinvestment
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 JAMES A. BERNARDS and MARK W. SHEFFERT, and each
of them, with full power of substitution, as Proxies to represent and vote, as
designated below, all shares of Common 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, 3500 West 80th
Street, Bloomington, Minnesota, at 3:30 p.m. (Minneapolis time) on May 13, 2002,
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 -- LindaHall Whitman all nominees from all nominees
3 -- Jerry V. Noyce 7 -- Rodney A. Young (except as marked)
4 -- John C. Penn
(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 300,000 share increase in number of shares reserved for 1995 [ ] FOR [ ] AGAINST [ ] ABSTAIN
Employee Stock Purchase Plan
3. Ratify selection of Grant Thornton LLP as independent auditors [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, upon such other business as may properly
come before the Meeting or any adjournment 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