SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K/A-1
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
Commission File Number: 0-25064
HEALTH FITNESS CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1580506
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3600 W. 80TH STREET, SUITE 560, BLOOMINGTON, MINNESOTA, 55431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (952) 831-6830
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of June 30, 2002, the aggregate market value of the voting stock
held by non-affiliates of the registrant, computed by reference to the last
quoted price at which such stock was sold on such date as reported by the OTC
Bulletin Board, was approximately $4,029,000.
As of March 28, 2003, 12,322,908 shares of the registrant's common
stock, $.01 par value, were outstanding.
1
This Form 10-K/A-1 is being filed in order to include information
required by Part III, Items 10-13, originally intended to be incorporated by
reference to the information to be included in the Company's Proxy Statement for
the 2003 Annual Meeting of Shareholders.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Company's Board of Directors consists of seven directors. Each
director serves on the Board until his or her successor is duly elected and
qualified. The names and ages of all of the Company's directors and the
positions held by each with the Company are as follows:
NAME AGE POSITION
---- --- --------
James A. Bernards 56 Chairman
K. James Ehlen, M.D. 58 Director
Jerry V. Noyce 58 President, CEO and Director
John C. Penn 63 Director
Mark W. Sheffert 55 Director
Linda Hall Whitman 54 Director
Rodney A. Young 48 Director
JAMES A. BERNARDS, a director of the Company from 1993 to June 1998 and
since March 1999, has served as 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 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 he 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 is also a
director of Arizant and IZEX Technology.
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.
2
JOHN C. PENN, a director of the Company since April 2001, 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 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
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.
LINDA HALL WHITMAN, a director of the Company since April 2001, has
been Chief Executive Officer of QuickMedx, 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 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 a director of two additional public companies, MTS Systems
Corporation and August Technology Corporation. Since 1999 she has served on the
Ninth District Federal Reserve Bank Board, and is currently Deputy Chair.
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.
EXECUTIVE OFFICERS
The names, ages and positions of the Company's executive officers are
as follows:
NAME AGE POSITION
---- --- --------
Jerry V. Noyce 58 President, Chief Executive Officer and Director
Wesley W. Winnekins 41 Chief Financial Officer and Treasurer
James A. Narum 46 Senior Vice President-Corporate Business Development
Jeanne C. Crawford 45 Vice President-Human Resources and Secretary
3
Geri Martin 44 Vice President - Marketing
David T. Hurt 37 Senior Vice President - Operations
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 Northwest Clubs and the Flagship Athletic Club.
WESLEY W. WINNEKINS has been Chief Financial Officer and Treasurer of
the Company since February 2001. Prior to joining the Company, Mr. Winnekins
served as CFO (from January 2000 to February 2001) of University.com, Inc., a
privately held provider of online learning solutions for corporations. From June
1995 to April 1999 he served as CFO and vice president of operations for Reality
Interactive, a publicly held developer of CD-ROMs and online training for the
corporate market. From June 1993 to May 1995 he served as controller and
director of operations for The Marsh, a Minneapolis-based health club, and was
controller of the Greenwood Athletic Club in Denver from October 1987 to January
1989.
JAMES A. NARUM has been the Company's Senior Vice President-Corporate
Business Development since December 2001, and served as Corporate Vice President
of Operations-Corporate Health and Fitness Division from November 2000 to
December 2001. From 1995 until November 2000, Mr. Narum was responsible for
national operations in the Company's Corporate Health and Fitness Division. From
1983 to 1995, Mr. Narum was responsible for regional operations, sales,
consulting, and client account management for Fitness Systems Inc., a provider
of fitness center management services that the Company acquired in 1995.
JEANNE C. CRAWFORD has been the Company's Vice President of Human
Resources since July 1998 and Secretary of the Company since February 2001. From
July 1996 through July 1998, Ms. Crawford served as a Human Resource consultant
to the Company. From October 1991 through September 1993, Ms. Crawford served as
Vice President of Human Resources for RehabClinics, Inc. a publicly held
outpatient rehabilitation company. From May 1989 through October 1991, Ms.
Crawford served as Director of Human Resources for Greater Atlantic Health
Service, an HMO and physicians medical group. From 1979 through 1989, Ms.
Crawford served in various human resources management positions in both the
retail and publishing industries.
GERI MARTIN has been the Company's Vice President of Marketing since
February 2002. From 1996 to 2002, she held various marketing positions with
Express Scripts, Inc., a national pharmacy benefits manager.
DAVID T. HURT has been the Company's Senior Vice President - Operations
since May 2001. Since 1993, Mr. Hurt has held various management positions with
the Company.
There are no arrangements or understandings between any of the
directors, officers or any other person (other than arrangements or
understandings with directors and officers acting as such) pursuant to which any
person was selected as a director or officer of the Company. There are no family
relationships among the Company's directors or officers.
4
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,
2002, all Section 16(a) filing requirements applicable to Insiders were complied
with, except that Form 3 was not timely filed by each of the Company's Vice
President of Marketing and the Company's Senior Vice President - Operations.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
Compensation Committee of the Board of Directors is comprised 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, 2001 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, Senior Vice President - Operations, Senior Vice President -
Corporate Business Development, Vice President of Marketing and Vice President
-Human Resources); (iii) reviews the performance evaluation procedures for the
CEO and principal executives; and (iv) approves compensation plans for the CEO
and principal executives. 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 approved by the Board and the Compensation Committee and increases for
the CFO approved by the Compensation Committee.
Annual Incentive Bonus. In addition to base pay, the CEO and principal
executives may be eligible to receive an annual cash bonus based on criteria
determined by the Compensation Committee and Board of Directors for the CEO and
by the CEO and Compensation Committee for the principal executives. Bonus
eligibility for fiscal year 2003 may range from 10% to 45% of base pay.
5
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
Compensation Committee. Stock option grants for the CEO and CFO are made by the
Compensation Committee and approved by the Board. Stock option grants for
principal executives are made by the CEO and Compensation Committee.
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 2002, the Company made
aggregate matching contributions of $132,000 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 Compensation Committee
and Board of Directors review the individual performance of the CEO.
COMPENSATION IN 2002. Jerry Noyce was employed as the Company's Chief
Executive Officer in November 2000 pursuant to a written Employment Agreement.
See "Employment Agreements." During 2002, the Board of Directors approved the
recommendation of the Compensation Committee to increase Mr. Noyce's annual base
salary by 3.5%, to $238,050, and to grant Mr. Noyce options to purchase 82,000
shares of the Company's common stock, vesting over 4 years, with an exercise
price equal to fair market value as of the date of grant. The Company paid a
cash bonus to Mr. Noyce of $10,000 for fiscal year 2002. In April 2003, the
Board of Directors, upon the recommendation of the Compensation Committee,
approved a bonus program for Mr. Noyce for fiscal year 2003 pursuant to which
Mr. Noyce has the opportunity to earn a bonus of up to 20% of his base pay upon
achievement of certain revenue targets and a bonus of up to 25% 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 2002, Mr. Winnekins' annual base salary was increased by
3.5%, to $131,860, and he was granted options to purchase 17,000 shares of the
Company's common stock, vesting over 4 years, with an exercise price equal to
fair market value as of the date of grant. The Company paid a cash bonus to Mr.
Winnekins of $5,000 for fiscal year 2002.
6
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
Chief Executive Officer and to the Company's most highly compensated executive
officers who received compensation in excess of $100,000 during fiscal 2002
(such individuals referred to as the "named executive officers").
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted Securities LTIP All Other
Name and Principal Stock Underlying Payouts Compensation
Position Year Salary ($) Bonus($) Other($) Awards ($) Options ($) ($)
------------------ ---- ---------- -------- -------- ---------- ---------- ------- ------------
Jerry V. Noyce, 2002 236,533 -- 8,000 (4) -- 82,000 -- --
President and Chief 2001 230,000 -- 8,000 (4) -- 30,000 -- --
Executive Officer (1) 2000 15,538 -- 7,272 -- 250,000 -- --
James A. Narum, 2002 118,730 19,463 -- -- 15,000 -- --
Senior Vice President 2001 114,999 30,000 -- -- -- -- --
- Corporate Business 2000 110,770 20,000 -- -- 60,000 -- --
Development
Wesley W. 2002 126,318 -- -- -- 17,000 -- --
Winnekins, Chief 2001 105,489 -- -- -- 97,500 -- --
Financial Officer (2)
Jeanne C. Crawford, 2002 113,421 10,692 -- -- 15,000 -- --
Vice President - 2001 106,924 -- -- -- 40,000 --
Human Resources (2)
David T. Hurt, Senior 2002 108,904 10,426 -- -- 15,000 -- --
Vice President -
Operations (3)
------------------------
(1) Mr. Noyce began employment with the Company during fiscal 2000.
(2) Such persons first became executive officers during fiscal 2001.
(3) Such person first became an executive officer during fiscal 2002.
(4) Amount represents payments for a car allowance and country club
membership. See "Employment Agreements - Jerry V. Noyce."
7
OPTION GRANTS DURING FISCAL YEAR 2002
The following table sets forth information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 2002. The Company has not granted stock appreciation rights.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE PER OPTION TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION ---------------------
NAME GRANTED (#) (1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
-------- --------------- ------------ --------- ---------- ------ ------
Jerry V. Noyce 82,000 32% .47 2/21/08 13,107 29,736
James A. Narum 15,000 6% .47 2/21/08 2,398 5,440
Wesley W. Winnekins 17,000 7% .47 2/21/08 2,717 6,165
Jeanne C. Crawford 15,000 6% .47 2/21/08 2,398 5,440
David T. Hurt 15,000 6% .47 2/21/08 2,398 5,440
------------------------
(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 2002 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.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 12/31/02 OPTIONS AT 12/31/02(1)
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- --------------------- -------------
Jerry V. Noyce -- -- 130,000 / 232,000 $20,310 / $32,925
James A. Narum -- -- 60,000 / 15,000 $11,250 / $450
Wesley W. Winnekins -- -- 33,500 / 81,000 $0 / $510
Jeanne C. Crawford -- -- 10,000 / 45,000 $0 / $450
David T. Hurt -- -- 10,000 / 45,000 $0 / $450
------------------------
(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, 2002 on
the OTC Bulletin Board was $0.50.
8
EMPLOYMENT AGREEMENTS
JERRY V. NOYCE. In November 2000, the Company entered into an
employment agreement with Jerry V. Noyce pursuant to which Mr. Noyce serves 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's current annual base salary under his employment agreement is
$238,050. 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.
JAMES V. NARUM. In March 2003, the Company amended and restated its
employment agreement with James V. Narum. Pursuant to the agreement, Mr. Narum
serves as the Company's Senior Vice President - Corporate Business Development
at an annual base salary of $123,188 effective March 1, 2003. Mr. Narum is
eligible to earn a sales commissions of 5%, as well as an annual bonus of up to
20% of his annual base salary if the Company achieves certain annual sales
targets. Mr. Narum receives normal and customary employee fringe benefits. The
agreement may be terminated by either party upon written notice to the other
party. In the event Mr. Narum's employment is terminated without "cause", he
will continue to receive his base salary for a period of four months following
such termination.
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 serves 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' current annual base salary under his employment
agreement is $131,860. 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 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
C. Crawford, effective March 1, 2003, which continues for an indefinite term
until terminated in accordance with the agreement. Under the agreement, Ms.
Crawford serves as Vice President - Human Resources at an annual base salary of
$125,235, subject to future increases as determined by the Company. 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.
DAVID T. HURT. The Company has an employment agreement with David Hurt,
effective August 14, 2001, which continues for an indefinite term until
terminated in accordance with the agreement. Under the agreement, Mr. Hurt
serves as Senior Vice President - Operations at an annual base salary of
$104,251, subject to future increases as determined by the Company. Mr. Hurt's
current annual base salary under his employment agreement is $114,384. Mr. Hurt
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. Hurt is
9
terminated without "cause," he will continue to receive his base salary for a
period of four months following such termination.
GERI MARTIN. The Company has an employment agreement with Geri Martin,
effective February 11, 2002, which continues for an indefinite term until
terminated in accordance with the agreement. Under the agreement, Ms. Martin
serves as Vice President of Marketing at an annual base salary of $115,000,
subject to future increases as determined by the Company. Ms. Martin's current
annual base salary under her employment agreement is $118,450. Ms. Martin 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. Martin is terminated
without "cause," she will continue to receive her base salary for a period of
three months following such termination.
COMPENSATION OF DIRECTORS
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 13,
2002, Directors Bernards, Ehlen, Penn, Sheffert, Whitman and Young each received
an option to purchase 12,000 shares at an exercise price of $0.60 per share.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock from December 31, 1997 through
December 31, 2002, 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, 1997, in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
10
TOTAL SHAREHOLDER RETURNS
[LINE GRAPH]
Base Indexed Returns
Period Years Ending
------ ------------
Company/Index Dec 97 Dec 98 Dec 99 Dec 00 Dec 01 Dec 02
------------- ------ ------ ------ ------ ------ ------
Health Fitness Corporation 100 42.01 32.01 21.13 33.29 32.01
S&P 500 Index 100 128.58 155.63 141.46 124.65 97.10
S&P 500 Consumer Discretionary 100 141.13 176.67 141.34 145.27 110.67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned as of April 23, 2003, 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 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.
11
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
---------------------- ------------------ --------------------
Perkins Capital Management, Inc. 1,333,250 (2) 10.8%
730 East Lake Street
Wayzata, MN 55391
Destin Capital Partners, LLC (3) 1,000,502 8.1%
P. O. Box 27
Eldorado, IL 62930
Charles E. Bidwell 1,005,973 (4) 8.1%
3535 Kilkenny Lane
Hamel, MN 55340
Wells Fargo & Company 944,473 7.7%
420 Montgomery Street
San Francisco, CA 94104
Jeanne C. Crawford 240,636 (5) 1.9%
James A. Bernards 184,000 (6) 1.5%
Jerry V. Noyce 173,902 (7) 1.4%
Mark W. Sheffert 119,000 (8) 1.0%
James A. Narum 86,482 (9) *
Wesley W. Winnekins 53,750 (10) *
K. James Ehlen, M.D. 44,000 (11) *
John C. Penn 44,000 (11) *
Linda Hall Whitman 44,000 (11) *
David T. Hurt 13,750 (12) *
Rodney A. Young 44,000 (11) *
All current directors and current executive officers 1,047,520 (13) 8.0%
as a group (11 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 April 23, 2003 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 February 3, 2003, Perkins Capital Management,
Inc. represents it has sole voting power over 921,800 of such shares
and sole dispositive power over all such shares.
(3) Destin Capital Partners, LLC is controlled by Burt H. Rowe, Jr.
12
(4) Includes 45,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of April 23, 2003 or within 60
days of such date.
(5) Includes 13,750 shares which may be purchased upon exercise of options
which are exercisable as of April 23, 2003 or within 60 days of such
date Also 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 April 23, 2003 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 150,500 shares which may be purchased upon exercise of options
that are exercisable as of April 23, 2003 or within 60 days of such
date.
(8) Includes 24,000 shares which may be purchased upon exercise of options
which are exercisable as of April 23, 2003 or within 60 days of such
date. Also includes a currently exercisable warrant to purchase 75,000
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.
(9) Includes 63,750 shares which may be purchased upon exercise of options
that are exercisable as of April 23, 2003 or within 60 days of such
date.
(10) Such shares are not outstanding but may be purchased upon exercise of
options that are exercisable as of April 23, 2003 or within 60 days of
such date.
(11) Includes 24,000 shares which may be purchased upon exercise of options
that are exercisable as of April 23, 2003 or within 60 days of such
date.
(12) Such shares are not outstanding but may be purchased upon exercise of
options and warrants that are exercisable as of April 23, 2003 or
within 60 days of such date.
(13) Includes 699,716 shares which may be purchased upon exercise of options
and warrants that are exercisable as of April 23, 2003 or within 60
days of such date.
INFORMATION REGARDING EQUITY COMPENSATION PLANS
The following table provides information concerning the Company's
equity compensation plans as of December 31, 2002.
Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance under
of outstanding options, outstanding options equity compensation plans (excluding
warrants and rights warrants and rights securities reflected in column (a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security holders 1,422,300 $1.19 982,938 (1)
Equity compensation plans not
approved by security holders 616,697 (2) $1.62 --
Total 2,038,997 $1.32 982,938
13
(1) Includes 405,238 shares of common stock available for issuance
under the Company's Employee Stock Purchase Plan.
(2) Represents outstanding warrants to directors, selling agents and
consultants in consideration for services performed and in
connection with the issuance of debt.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
14
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Documents filed as part of this report.
(1) Financial Statements. The following financial
statements are included in Part II, Item 8 of this
Annual Report on Form 10-K:
Report of Grant Thornton LLP on Consolidated
Financial Statements and Financial Statement Schedule
as of December 31, 2002 and 2001 and for each of the
three years in the period ended December 31, 2002
Consolidated Balance Sheets as of December 31, 2002
and 2001
Consolidated Statements of Earnings for each of the
three years in the period ended December 31, 2002
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December
31, 2002
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2002
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. The following
consolidated financial statement schedule is included
in Item 8:
Schedule II-Valuation and Qualifying Accounts
All other financial statement schedules have been
omitted, because they are not applicable, are not
required, or the information is included in the
Financial Statements or Notes thereto
(3) Exhibits. See "Exhibit Index to Form 10-K"
immediately following the signature page of this Form
10-K
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on October 28, 2002 to report
that a press release had been issued to announce that the Company has been
selected by 3M to develop and operate onsite employee fitness centers at
3M's headquarters in St. Paul, Minnesota.
15
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Exchange Act, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 30, 2003 HEALTH FITNESS CORPORATION
By /s/ Jerry V. Noyce
------------------------------------
Jerry V. Noyce
Chief Executive Officer
(Principal Executive Officer)
16
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Jerry V. Noyce, certify that:
1. I have reviewed this annual report on Form 10-K, as amended, of
Health Fitness Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 30, 2003
By /s/ Jerry V. Noyce
---------------------------------
Jerry V. Noyce
Chief Executive Officer
17
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Wesley W. Winnekins, certify that:
1. I have reviewed this annual report on Form 10-K, as amended, of
Health Fitness Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 30, 2003
By /s/ Wesley W. Winnekins
-----------------------------------
Wesley W. Winnekins
Chief Financial Officer
18
EXHIBIT INDEX
HEALTH FITNESS CORPORATION
FORM 10-K
Exhibit No. Description
3.1 Articles of Incorporation, as amended, of the Company -
incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1997
3.2 Restated By-Laws of the Company - incorporated by reference to
the Company's Registration Statement on Form SB-2 No.
33-83784C
4.1 Specimen of Common Stock Certificate - incorporated by
reference to the Company's Registration Statement on Form SB-2
No. 33-83784C
10.1 Standard Office Lease Agreement (Net) dated as of June 13,
1996 covering a portion of the Company's headquarters -
incorporated by reference to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996
10.2 Amendment dated March 1, 2001 to Standard Office Lease
Agreement (Net) dated as of June 13, 1996 covering a portion
of the Company's headquarters - incorporated by reference to
the Company's Form 10-K for the year ended December 31, 2000.
10.3 Second Amendment, dated June 12, 2002, to Standard Office
Lease Agreement dated as of June 13, 1996 - incorporated by
reference to the Company's Form 10-Q for the quarter ended
June 30, 2002.
*10.4 Company's 1995 Stock Option Plan - incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995
*10.5 Amendment to Company's 1995 Stock Option Plan - incorporated
by reference to Part II, Item 4 of the Company's Form 10-QSB
for the quarter ended June 30, 1997
*10.6 Employment agreement dated November 30, 2000 between Company
and Jerry V. Noyce - incorporated by reference to the
Company's Form 10-K for the year ended December 31, 2000.
*+10.7 Employment agreement dated April 21, 1995 between the Company
and James A. Narum, as amended October 19, 1999, November 2,
2000 and March 25, 2003.
*10.8 Employment agreement dated February 9, 2001 between Company
and Wesley W. Winnekins - incorporated by reference to the
Company's Form 10-K for the year ended December 31, 2000.
*+10.9 Employment agreement dated March 1, 2003 between Company and
Jeanne Crawford
10.10 Agreement of Purchase and Sale of Stock of David W. Pickering,
Inc. dated January 1, 2001 - incorporated by reference to the
Company's Quarterly Report on form 10-QSB for the quarter
ended September 30, 2001
10.11 WCMA Loan and Security Agreement dated October 31, 2002
between the Company and Merrill Lynch Business Financial
Services, Inc. - incorporated by reference to the Company's
Form 10-Q for the quarter ended September 30, 2002
+11.0 Statement re: Computation of Earnings per Share
+21.1 Subsidiaries
19
Exhibit No. Description
+23.1 Consent of Grant Thornton LLP
+24.1 Power of Attorney (included on Signature Page)
99.1 Certification by Jerry Noyce, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification by Wesley Winnekins, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
--------------------
* Indicates management contract or compensatory plan or arrangement
+ Previously filed with Form 10-K for year ended December 31, 2002
20