UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________
Commission file number: 0-25064
HEALTH FITNESS CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1580506
(State of incorporation or organization) (I.R.S. Employer Identification No.)
3500 West 80th Street, Bloomington, Minnesota 55431
(Address of principal executive offices) (Zip Code)
(612) 831-6830
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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. [X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
capital stock, as of August 12, 1998 was:
Common Stock, $.01 par value: 11,884,413 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 47,328 $ 81,639
Trade accounts and notes receivable, less
allowance for doubtful accounts of $252,000 and
$225,000, respectively 8,212,168 6,502,963
Inventories 629,025 810,805
Prepaid expenses and other 405,694 533,321
------------- -------------
Total current assets 9,294,215 7,928,728
PROPERTY, less accumulated depreciation of $1,374,943
and $842,121, respectively 3,474,872 3,598,188
OTHER ASSETS:
Goodwill, less accumulated amortization of $1,594,499
and $1,276,287, respectively 10,078,503 8,989,848
Noncompete agreements, less accumulated amortization of
$390,392 and $279,639, respectively 821,458 932,211
Copyrights, less accumulated amortization of $63,277 and
$40,944, respectively 606,723 629,056
Trade names, less accumulated amortization of $22,336
and $13,667, respectively 237,664 246,333
Contracts, less accumulated amortization of $89,025 and
$48,194, respectively 130,975 171,806
Trade accounts and notes receivable, less allowance for
doubtful accounts of $338,000
and $650,000, respectively 1,022,566 679,376
Deferred financing costs, less accumulated amortization of $315,853 1,105,489
Other 215,563 556,736
------------- -------------
TOTAL ASSETS $26,988,028 $23,732,282
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable 1,198,894 1,873,472
Accrued salaries, wages, and payroll taxes 1,802,170 1,779,200
Accrued earn-out 194,058 533,444
Other accrued liabilities 667,338 1,233,538
Current portion of long-term debt 416,070 503,540
Deferred revenue 1,723,637 1,844,460
------------- -------------
Total current liabilities 6,002,167 7,767,654
LONG-TERM DEBT, less current portion 7,645,590 5,785,018
DEFERRED LEASE OBLIGATION 9,110 31,170
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
5,000,000 shares, none issued or outstanding
Common stock, $.01 par value; 25,000,000 shares
authorized; 11,830,307 and 8,136,828 shares
issued and outstanding, respectively 118,303 81,368
Additional paid-in capital 16,670,884 12,976,680
Accumulated deficit (3,397,056) (2,842,379)
------------- -------------
13,392,131 10,215,669
Stockholder note and interest receivable (60,970) (67,229)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,331,161 10,148,440
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,988,028 $23,732,282
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Preventive health care:
Health services $ 5,385,785 $ 4,445,095 $ 10,520,704 $ 8,729,162
Health and fitness products 1,775,693 1,326,133 4,168,729 3,326,426
--------------- ------------- ---------------- ---------------
7,161,478 5,771,228 14,689,433 12,055,588
Rehabilitative health care 2,409,477 2,111,717 4,945,930 4,060,790
--------------- ------------- ---------------- ---------------
9,570,955 7,882,945 19,635,363 16,116,378
COSTS OF REVENUES:
Preventive health care:
Health services 4,090,091 3,362,090 7,986,526 6,624,428
Health and fitness products 1,647,868 1,174,591 3,831,776 2,865,979
--------------- ------------- ---------------- ---------------
5,737,959 4,536,681 11,818,302 9,490,407
Rehabilitative health care 1,956,462 1,903,994 3,741,750 3,525,293
--------------- ------------- ------------- -------------
7,694,421 6,440,675 15,560,052 13,015,700
--------------- ------------- ---------------- ---------------
GROSS PROFIT 1,876,534 1,442,270 4,075,311 3,100,678
OPERATING EXPENSES:
Salaries 729,501 530,659 1,676,550 1,018,356
Selling, general, and administrative 1,218,627 911,132 2,134,300 1,603,736
Net gain on disposition of clinic assets - (422,319) - (452,319)
--------------- ------------- ------------- -------------
1,948,128 1,019,472 3,810,850 2,169,773
--------------- ------------- ---------------- ---------------
OPERATING (LOSS) INCOME (71,594) 422,798 264,461 930,905
INTEREST EXPENSE (563,751) (170,911) (877,680) (299,772)
OTHER INCOME 38,401 19,562 58,542 22,247
--------------- ------------- ------------- -------------
(525,350) (151,349) (819,138) (277,525)
--------------- ------------- ---------------- ---------------
(LOSS) INCOME BEFORE INCOME TAXES (596,944) 271,449 (554,677) 653,380
INCOME TAX BENEFIT (EXPENSE) 12,339 (63,345) - (178,405)
--------------- ------------- ---------------- ---------------
NET (LOSS) INCOME $ (584,605) $ 208,104 $ (554,677) $ 474,975
=============== ============= ================ ===============
NET (LOSS) INCOME PER SHARE:
Basic $ (0.05) $ 0.03 $ (0.05) $ 0.06
Diluted (0.05) 0.03 (0.05) 0.06
WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic 11,769,808 7,809,184 10,754,077 7,690,595
Diluted 11,769,808 8,125,056 10,754,077 8,018,786
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (554,677) $ 474,975
Adjustment to reconcile net (loss) income to net cash
used in operating activities:
Net gain on disposition of clinic assets - (496,461)
Depreciation and amortization 1,232,330 617,031
Deferred revenue (167,470) (43,769)
Change in assets and liabilities, net of acquisitions:
Trade accounts and notes receivable (1,896,337) (516,443)
Inventories 181,780 (148,368)
Prepaid expenses and other 40,200 233,642
Other assets 9,436 (51,659)
Trade accounts payable (880,703) (1,329,870)
Accrued liabilities and other (589,539) 186,625
--------------- -----------------
Net cash used in operating activities (2,624,980) (1,074,297)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property (81,394) (912,019)
Payments for acquisitions, net of liabilities assumed
and cash acquired (858,794) (1,221,825)
Payments in connection with earn-out provisions (367,802) (178,966)
Payments in connection with noncompete agreements - (275,000)
Proceeds from sale of physical therapy clinics, net - 1,220,600
Collection of non-trade notes receivable 335,713 -
--------------- -----------------
Net cash used in investing activities (972,277) (1,367,210)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in checks written in excess of bank balances - 6,592
Net borrowings under line of credit 5,412,925 10,000
Payment of financing costs (992,594) -
Proceeds from long term debt - 2,519,269
Repayment of long term debt (3,843,535) (246,663)
Proceeds from private placement of equity 2,785,024 -
Proceeds from the issuance of common stock 194,867 152,540
Advances on notes receivable (4,140) (4,281)
Payments received on notes receivable 10,399 4,050
--------------- -----------------
Net cash provided by financing activities 3,562,946 2,441,507
--------------- -----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (34,310) -
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 81,639 -
--------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,329 $ -
=============== =================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HEALTH FITNESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. They should be read in conjunction with the annual
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997. In the opinion of management, the interim
consolidated financial statements include all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of the results for
interim periods presented. Operating results for the three and six months ended
June 30, 1998 are not necessarily indicative of the operating results for the
year ending December 31, 1998.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." For the periods presented,
comprehensive (loss) income is the same as net (loss) income.
Certain reclassifications have been made to the consolidated statements of
income for the three and six months ended June 30, 1998. Such reclassifications
had no effect on net income or stockholders' equity as previously reported.
NOTE 2. ACQUISITIONS
On February 27, 1998, the Company completed the acquisition of all the issued
and outstanding stock of closely held Midlands Physical Therapy, Inc.
(Midlands), a Nebraska-based provider of rehabilitative services. The purchase
agreement contained a noncompete provision that covers a period of five years
and prohibits the former owners from directly or indirectly competing with the
Company. In connection with the acquisition of Midlands, the Company issued
200,000 shares of common stock valued at $362,500 and cash consideration of
$648,794.
The purchase agreement requires the Company to make annual payments up to 35% of
Midlands' net income from operations, as defined, for each of the five fiscal
years ending February 28, 1999 through 2003. The annual payment, if any, is due
in a combination of 50% in cash and 50% in the Company's common stock. The
number of shares issued in connection with the annual payment is calculated by
dividing the portion of the annual payment payable in common stock by $3.00. The
purchase agreement also requires the Company to make an annual payment of
$25,000 for each of the three fiscal years ending February 28, 1999 to 2001 if
net income from operations, as defined, exceeds 20%.
The purchase agreement also required the Company to enter into employment
agreements with certain key employees for a term of five years. These agreements
provide for minimum aggregate annual salaries of $200,000. The Company also
granted stock options to purchase up to 50,000 shares of the Company's common
stock at $4.00 per share in connection with the employment agreements.
Assets acquired:
Prepaid expenses $ 21,750
Property 196,789
Excess of purchase price over net assets acquired(i) 1,025,402
--------------
1,243,941
Liabilities assumed:
Notes payable 111,662
Accounts payable 120,985
Common stock issued 362,500
--------------
Cash consideration paid $ 648,794
==============
- ------------------------------------
(i)The excess of purchase price over net assets acquired will be reviewed by an
independent, third party appraiser to allocate appropriate values to trade
names, noncompete agreements and contracts.
<PAGE>
NOTE 2. ACQUISITIONS (Continued)
On June 4, 1998, the Company completed the acquisition of all the issued and
outstanding stock of closely held David W. Pickering, Inc. (DWP), a Rhode Island
corporation doing business as International Fitness Club Network (IFCN). IFCN is
in the business of organizing and maintaining a network of commercial fitness
and health clubs and marketing memberships in such clubs to employers and
insurance companies (the "IFCN Business"). The IFCN Business was formerly
conducted by the International Health and Racquet Sports Association (IHRSA).
The purchase agreement contained a noncompete provision that covers a period of
five years and prohibits the former owner from directly or indirectly competing
with the Company. In connection with the acquisition of DWP, the Company issued
30,000 shares of common stock valued at $45,000, an automobile valued at
approximately $30,000 and cash consideration of $210,000.
The purchase agreement requires the Company to make annual payments up to 45% of
DWP's net income from operations, as defined, for each of the five fiscal years
ending May 31, 1999 through 2003. The annual payment, if any, is due in a
combination of 50% in cash and 50% in the Company's common stock. The number of
shares issued in connection with the annual payment is calculated by dividing
the portion of the annual payment payable in common stock by $3.00
The Company also entered into a five year, management agreement with
International Club Network, Inc. (ICN) to manage the IFCN Business on behalf of
the Company. ICN is owned and operated by the former shareholder of DWP. The
management agreement requires the Company to compensate ICN at the rate of
$125,000 per year payable monthly. As additional compensation, the Company will
grant ICN nonqualified stock options to purchase up to 15,000 shares of the
Company's common stock at an exercise price equal to the fair market value of
the Company's common stock on the last day of each DWP earn-out year provided
DWP's earn-out ratio is at least 20%.
Assets acquired:
Accounts receivable $ 156,058
Prepaid expenses 10,070
Property 14,178
Excess of purchase price over net assets acquired(i) 353,050
--------------
533,356
Liabilities assumed:
Notes payable 92,050
Accounts payable 85,140
Deferred revenue 46,647
Accrued expenses 24,249
Property 30,270
Common stock issued 45,000
--------------
Cash consideration paid $ 210,000
==============
- ------------------------------------
(i)The excess of purchase price over net assets acquired will be reviewed by an
independent, third party appraiser to allocate appropriate values to trade
names, noncompete agreements and contracts.
<PAGE>
NOTE 3. FINANCING
On February 17, 1998, the Company entered into a credit agreement (the Credit
Agreement) that provides for maximum borrowings of $12.5 million. Interest on
outstanding borrowings is computed at the prime rate plus 7.0% with a minimum
rate of 15.5%. The Company is required to pay monthly interest payments on
outstanding borrowings at the prime rate plus 4.5% with a minimum rate of 13.0%.
The remaining interest is added to the outstanding borrowings as of the first of
the current month. The Company is also required to pay a monthly servicing fee
of $5,000 per month. The Credit Agreement is due on July 17, 1999.
On June 26, 1998, the Company amended the Credit Agreement. The amendment
modified certain covenants and requires the Company to maintain a "Special
Availability Reserve" in an amount equal to the Borrowing Base (as defined
below) minus $8,000,000 (see Exhibit 10.3).
The Company's Borrowing Base under the Credit Agreement is equal to (a) the
lesser of i) $12.5 million, ii) earnings before interest, taxes, depreciation,
and amortization, as defined, for the immediately preceding 12-month period
multiplied by 375%, decreasing to 350% by June 30, 1998, iii) 90% of revenue, as
defined, for the immediately preceding 13-week period, or iv) 90% of accounts
receivable collections, as defined, for the immediately preceding 17-week
period, minus (b) required reserves.
Borrowings under the Credit Agreement are secured by substantially all of the
Company's assets and partially guaranteed by the Company's President. The Credit
Agreement contains various restrictive covenants relating to changes in
accumulated deficit, maintenance of fixed charge coverage ratio, minimum working
capital requirements, prohibits dividend payments, and other matters.
The Credit Agreement required the Company to pay a closing fee of $317,500, pay
$212,991 of the lender's expenses and issue 312,497 shares (the Shares) of the
Company's common stock to the lender. The Shares' value, $343,747, was
determined based on the market value of the Company's common stock. In addition
to the costs above, the Company incurred incremental direct costs of $513,590
relating to the Credit Agreement. These costs have been capitalized as deferred
financing costs and amortized using the effective interest method over the life
of the Credit Agreement.
The Credit Agreement required a portion of the initial borrowings to be used to
repay the Company's revolving line of credit, term note, and a portion of a
related party note. The remaining portion of the related party note was paid on
February 20, 1998 with proceeds from the equity offering on February 18 and 19,
1998 (the Equity Offering) (see Note 4).
NOTE 4. STOCKHOLDERS' EQUITY
Issuance of Common Stock - In February 1998, the Company obtained gross proceeds
of $3,300,000 of equity financing through a private placement of 3,000,000
units, with each unit consisting of one share of common stock and a detachable
warrant to purchase one-fourth of a share of common stock at $2.25 per share
(the Equity Offering). The warrants are currently exercisable and expire four
years from the date of issuance.
In connection with the private placement, the Company also issued warrants to
purchase 300,000 shares of common stock to the selling agents. The selling
agents' warrants are exercisable from February 18, 1999 through February 18,
2003 at $1.65 per share and contain a net value exercise provision allowing for
the issuance of a lesser number of shares than provided in the warrant without
payment of the cash exercise price.
During the six months ended June 30, 1998, the Company received proceeds of
$140,000 when holders of stock options and warrants exercised their right to
purchase a total of 112,000 shares of common stock at a price of $1.25 per
share. The Company also issued 38,982 shares of common stock in connection with
the Company's employee stock purchase plan.
NOTE 5. INCOME TAXES
The benefit for income taxes has been offset by a valuation allowance for the
three and six months ended June 30, 1998, because the Company's net operating
losses could not be carried back and future realization of the net operating
loss carryforwards is uncertain. Income tax expense for the three and six months
ended June 30, 1997, has been offset by a reduction in the valuation allowance
for deferred taxes.
<PAGE>
NOTE 6. NET (LOSS) INCOME PER COMMON SHARE
Basic net (loss) income per share are computed by dividing net (loss) income by
the weighted average number of common shares outstanding and contingently
issuable shares. Diluted net (loss) income per share assumes conversion of
convertible subordinated notes as of the beginning of the year, issuance of
contingently issuable shares, and exercise of stock options and warrants using
the treasury stock method, if dilutive. For the three and six months ended June
30, 1998, diluted net loss per share is the same as basic loss per share due to
the antidilutive effect of the assumed conversions. The following is a
reconciliation of the numerators and denominators used to calculate net (loss)
income per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic Net (Loss) Income Per Share Computation:
Net (loss) income $ (584,605) $ 208,104 $ (554,677) $ 474,975
Weighted average common shares outstanding 11,769,808 7,809,184 10,754,077 7,642,060
Contingently issuable shares -- -- -- 48,535
------------ ------------ ------------ ------------
Average shares used in basic computation 11,769,808 7,809,184 10,754,077 7,690,595
------------ ------------ ------------ ------------
Basic net (loss) income per share $ (0.05) $ 0.03 $ (0.05) $ 0.06
============ ============ ============ ============
Diluted Net (Loss) Income Per Share Computation:
Net (loss) income $ (584,605) $ 208,104 $ (554,677) $ 474,975
Weighted average common shares outstanding 11,769,808 7,809,184 10,754,077 7,642,060
Contingently issuable shares -- 190,476 -- 199,022
Dilutive effect of stock option and warrants -- 125,396 -- 177,704
------------ ------------ ------------ ------------
Average shares used in diluted computation 11,769,808 8,125,056 10,754,077 8,018,786
------------ ------------ ------------ ------------
Diluted net (loss) income per share $ (0.05) $ 0.03 $ (0.05) $ 0.06
============ ============ ============ ============
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
1998 % 1997 %
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Preventive health care:
Health services $ 5,386,000 56.3% $ 4,445,000 56.4%
Health and fitness products 1,776,000 18.5% 1,326,000 16.8%
----------- --------- ----------- ---------
7,162,000 74.8% 5,771,000 73.2%
Rehabilitative health care 2,409,000 25.2% 2,112,000 26.8%
----------- --------- ----------- ---------
9,571,000 100.0% 7,883,000 100.0%
COSTS OF REVENUES:
Preventive health care:
Health services 4,090,000 42.8% 3,362,000 42.6%
Health and fitness products 1,648,000 17.2% 1,175,000 14.9%
----------- --------- ----------- ---------
5,738,000 60.0% 4,537,000 57.5%
Rehabilitative health care 1,956,000 20.4% 1,904,000 24.2%
----------- --------- ----------- ---------
7,694,000 80.4% 6,441,000 81.7%
----------- --------- ----------- ---------
GROSS PROFIT 1,877,000 19.6% 1,442,000 18.3%
OPERATING EXPENSES:
Salaries 730,000 7.6% 531,000 6.7%
Selling, general, and administrative 1,218,000 12.7% 910,000 11.5%
Net gain on disposition of clinic assets -- 0.0% (422,000) -5.3%
----------- --------- ----------- ---------
1,948,000 20.3% 1,019,000 12.9%
OPERATING (LOSS) INCOME:
Preventive health care 642,000 403,000
Rehabilitative health care (260,000) (1,000)
Corporate (453,000) 21,000
----------- --------- ----------- ---------
TOTAL OPERATING (LOSS) INCOME (71,000) -0.7% 423,000 5.4%
INTEREST EXPENSE (564,000) -5.9% (171,000) -2.2%
OTHER INCOME 38,000 0.4% 19,000 0.2%
----------- --------- ----------- ---------
(526,000) -5.5% (152,000) -2.0%
----------- --------- ----------- ---------
NET (LOSS) INCOME BEFORE INCOME TAXES (597,000) -6.2% 271,000 3.4%
INCOME TAX BENEFIT (EXPENSE) 12,000 0.1% (63,000) -0.8%
----------- --------- ----------- ---------
NET (LOSS) INCOME $ (585,000) -6.1% $ 208,000 2.6%
=========== ========= =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------
1998 % 1997 %
------------ --------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Preventive health care:
Health services $ 10,520,000 53.6% $ 8,729,000 54.2%
Health and fitness products 4,169,000 21.2% 3,326,000 20.6%
------------ --------- ----------- ---------
14,689,000 74.8% 12,055,000 74.8%
Rehabilitative health care 4,946,000 25.2% 4,061,000 25.2%
------------ --------- ----------- ---------
19,635,000 100.0% 16,116,000 100.0%
COSTS OF REVENUES:
Preventive health care:
Health services 7,986,000 40.7% 6,624,000 41.1%
Health and fitness products 3,832,000 19.5% 2,866,000 17.8%
------------ --------- ----------- ---------
11,818,000 60.2% 9,490,000 58.9%
Rehabilitative health care 3,742,000 19.0% 3,525,000 21.9%
------------ --------- ----------- ---------
15,560,000 79.2% 13,015,000 80.8%
------------ --------- ----------- ---------
GROSS PROFIT 4,075,000 20.8% 3,101,000 19.2%
OPERATING EXPENSES:
Salaries 1,677,000 8.5% 1,018,000 6.3%
Selling, general, and administrative 2,134,000 10.9% 1,604,000 9.9%
Net gain on disposition of clinic assets -- 0.0% (452,000) -2.8%
------------ --------- ----------- ---------
3,811,000 19.4% 2,170,000 13.4%
------------ --------- ----------- ---------
OPERATING (LOSS) INCOME:
Preventive health care 1,340,000 1,136,000
Rehabilitative health care (213,000) 105,000
Corporate (863,000) (310,000)
------------ --------- ----------- ---------
TOTAL OPERATING (LOSS) INCOME 264,000 1.4% 931,000 5.8%
INTEREST EXPENSE (878,000) -4.5% (300,000) -1.9%
OTHER INCOME 59,000 0.3% 22,000 0.1%
------------ --------- ----------- ---------
(819,000) -4.2% (278,000) -1.8%
------------ --------- ----------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (555,000) -2.8% 653,000 4.0%
INCOME TAX BENEFIT (EXPENSE) -- 0.0% (178,000) -1.1%
------------ --------- ----------- ---------
NET (LOSS) INCOME $ (555,000) -2.8% $ 475,000 2.9%
============ ========= =========== =========
</TABLE>
<PAGE>
General. The Company is engaged in two principal lines of business: (i)
preventive health care and (ii) rehabilitative health care. Preventive health
care includes the development, marketing and management of corporate and
hospital-based fitness centers (health services) and the sale and servicing of
health and fitness products. Rehabilitative health care relates to the operation
of physical therapy clinics that provide a full range of rehabilitative
services, provides occupational health (injury prevention and work-injury
management consulting services) and a network of independent physical therapy
clinics.
The Company's preventive health care revenues come from fitness center
management and consulting contracts (health services) and the sales and service
of health and fitness products. The management and consulting contracts provide
for specific management, consulting, and program fees and contain provisions for
modification, termination, and non-renewal.
The Company's rehabilitation revenues come from physical therapy services
provided to patients at Company owned locations and at hospital and corporate
locations; annual fees paid by independent physical therapy clinic network
members for consulting and group buying services; and program and consulting
fees paid by employers, insurers and others for occupational health services.
Net revenues provided to patients at Company owned and worksite locations are a
function of the number of patients treated, the payor mix and the average net
charge per treatment. Consequently, two patients provided substantially similar
treatments might result in different net revenues because of differing
reimbursement environments.
The Company incurs costs at three levels: (i) revenue generating sites; (ii)
regional sites that work closely with the revenue generating sites; and (iii)
general corporate costs. Management views the operational expenses of the
regional sites to be an integral component of the revenue generating sites.
Therefore, the discussion that follows is of revenues and operating income.
Summary of Results for the Three Months Ended June 30, 1998. For the three
months ended June 30, 1998, total revenues were up by $1,688,000, or 21.4%, from
the three months ended June 30, 1997, with slightly less than one third of the
growth coming from acquisition. Gross profit as a percent of revenue improved
1.3 percentage points, while gross profit dollars increased $435,000, or 30.2%.
The increase in gross profit percent was primarily due to the acquisition of
better-performing businesses offset by the sale of under-performing businesses
in 1997. Operating expenses as a percent of revenue increased 7.4 percentage
points, or $929,000 and 91.2% over the prior year period. A portion of this
increase was due to the 1997 operating expenses being partially offset by a
$422,000 net gain on disposition of clinic assets. The remaining increase was
due to administration, organization and infrastructure investments made within
the rehabilitative health care business. The Company incurred an operating loss
for the period as the investments made in the rehabilitative health care
business more than offset the improvements in gross profit. Interest expense
increased $393,000 from the prior year period due to the increased level and
cost of borrowing. Net loss for the three months ended June 30, 1998 was
$585,000, a $793,000 decrease in net income from the prior year period. The
decrease was due to the reduction in operating income coupled with the increase
in interest expense.
Revenues. Revenues increased $1,688,000, or 21.4%, to $9,571,000 for the three
months ended June 30, 1998 from $7,883,000 for the same period ended June 30,
1997.
Preventive health care revenues increased $1,391,000, or 24.1%, for the three
months ended June 30, 1998 compared to the same period in 1997. The increase was
primarily due to the annualized effect of adding a net of 30 corporate fitness
center sites under management and the increase in sales of health and fitness
products of $450,000, or 33.9%.
Rehabilitative health care revenues increased $297,000, or 14.1%, for the three
months ended June 30, 1998, compared to the same period in 1997. The increase
was due to the annualized effect of the 1997 acquisitions of K.A.M. (April
1997), Duffy & Associates (May 1997) and Medlink (August 1997), the acquisition
of Midlands Physical Therapy in February 1998 and the increase in patient visits
at certain other clinics, partially offset by the lost revenue at four
under-performing clinics sold in January 1997 and seven under-performing clinics
sold in May 1997. The newly acquired businesses had revenues of $1,555,000 for
the three months ended June 30, 1998 versus $627,000 for the three months ended
June 30, 1997. The eleven clinics sold had revenues of $439,000 for the three
months ended June 30, 1997.
<PAGE>
Operating (Loss) Income. The operating loss for the three months ended June 30,
1998 was $71,000 compared to operating income of $423,000 for the same period in
1997.
Preventive health care operating income increased $239,000 from $403,000 for the
three months ended June 30, 1997 to $642,000 for the same period in 1998. The
increase was primarily due the annualized effect of adding a net of 30 corporate
fitness center sites under management.
Rehabilitative health care experienced an operating loss of $260,000 for the
three months ended June 30, 1998 compared to an operating loss of $1,000 for the
same period in 1997. The increase in loss was primarily due to the increase in
expenses associated with the centralization of certain operations,
infrastructure and administrative functions.
Excluding the $422,000 net gain on disposition of clinic assets associated with
the under-performing clinics sold in 1997, corporate expenses increased $52,000
from $401,000 for the three months ended June 30, 1997 to $453,000 for the same
period in 1998.
Interest Expense. Interest expense of $564,000 for the three months ended June
30, 1998 increased $393,000 from $171,000 for the same period in 1997. The
increase was due to higher average borrowings and the effective interest rate in
1998 versus 1997.
Other Income. Other income increased $19,000 from $19,000 for the three months
ended June 30, 1997 to $38,000 for the same period in 1998.
Income Taxes. Income taxes were calculated based on management's estimate of the
Company's effective tax rate. The benefit for income taxes for the three months
ended June 30,1998 has been offset by a valuation allowance because the
Company's net operating loss could not be carried back and future realization of
the net operating loss is uncertain. Income tax expense for the three months
ended June 30, 1997 has been partially offset by a reduction in the valuation
allowance for deferred taxes.
Net (Loss) Income. The Company experienced a net loss for the three months ended
June 30, 1998 of $585,000, or $.05 diluted net loss per share compared to net
income of $208,000, or $.03 diluted net income per share for the same period in
1997.
Summary of Results for the Six Months Ended June 30, 1998. For the six months
ended June 30, 1998, total revenues increased $3,519,000, or 21.8%, from the six
months ended June 30, 1997, with slightly less than one third of the growth
coming from acquisition. Gross profit as a percent of revenue improved 1.6
percentage points, while gross profit dollars increased $974,000, or 31.4%. The
increase in gross profit percent was primarily due to the acquisition of
better-performing businesses offset by the sale of under-performing businesses
in 1997. Operating expenses as a percent of revenue increased 6.0 percentage
points, or $1,641,000 and 75.6% over the prior year period. A portion of this
increase was due to the 1997 operating expenses being partially offset by a
$452,000 net gain on disposition of clinic assets. Approximately $987,000 of the
remaining increase was due to administration, organization and infrastructure
investments within rehabilitative health care. The balance of the increase,
$202,000, was due to key additions to the Company's management team. Operating
income for the six months ended June 30, 1998 decreased $667,000 from the same
period in 1997. The decrease in operating income was primarily due to the
$452,000 net gain on disposition of the underperforming clinics that occurred in
1997 coupled with the increase in operating expenses associated with the
investments made in administration, organization and infrastructure within
rehabilitative health care and the key additions to the Company's management.
Interest expense increased $578,000 from the prior year period due to the
increased level and cost of borrowing. Net loss for the six months ended June
30, 1998 was $555,000, a $1,030,000 decrease in net income from the prior year
period. The decrease was due to the reduction in operating income coupled with
the increase in interest expense.
Revenues. Revenues increased $3,519,000, or 21.8%, to $19,635,000 for the six
months ended June 30, 1998 from $16,116,000 for the same period ended June 30,
1997.
Preventive health care revenues increased $2,634,000, or 21.8%, for the six
months ended June 30, 1998 compared to the same period in 1997. The increase was
primarily due to the annualized effect of adding a net of 30 corporate fitness
center sites under management and the increase in sales of health and fitness
products of $843,000, or 25.3%.
<PAGE>
Rehabilitative health care revenues increased $885,000, or 21.8%, for the six
months ended June 30, 1998, compared to the same period in 1997. The increase
was due to the annualized effect of the 1997 acquisitions of the Isernhagen
Companies (February 1997), K.A.M. (April 1997), Duffy & Associates (May 1997)
and Medlink (August 1997), the acquisition of Midlands Physical Therapy in
February 1998 and the increase in patient visits at certain other clinics,
partially offset by the lost revenue on four under-performing clinics sold in
January 1997 and seven under-performing clinics sold in May 1997. The newly
acquired businesses had revenues of $3,038,000 for the six months ended June 30,
1998 versus $906,000 for the six months ended June 30, 1997. The eleven clinics
sold had revenues of $1,236,000 for the six months ended June 30, 1997.
Operating Income. Operating income for the six months ended June 30, 1998 was
$264,000 compared to $931,000 for the same period in 1997, a decrease of
$667,000.
Preventive health care operating income increased $204,000 from $1,136,000 for
the six months ended June 30, 1997 to $1,340,000 for the same period in 1998.
The increase was primarily due to the annualized effect of adding a net 30
corporate fitness center sites under management.
Rehabilitative health care experienced an operating loss of $213,000 for the six
months ended June 30, 1998 compared to operating income of $105,000 for the same
period in 1997. The change from income to loss was primarily due to the increase
in operating expenses associated with the centralization of certain operations,
infrastructure and administrative functions.
Excluding the net gain on disposition of clinic assets associated with the
under-performing clinics sold in 1997, corporate expenses increased $101,000
from $762,000 for the six months ended June 30, 1997 to $863,000 for the same
period in 1998. The increase was primarily due to the investments made to
strengthen the management team.
Interest Expense. Interest expense of $878,000 for the six months ended June 30,
1998 increased $578,000 from $300,000 for the same period in 1997. The increase
was due to higher average borrowings and the effective interest rate in 1998
versus 1997.
Other Income. Other income increased $37,000 from $22,000 for the six months
ended June 30, 1997 to $59,000 for the same period in 1998.
Income Taxes. Income taxes were calculated based on management's estimate of the
Company's effective tax rate. The benefit for income taxes for the six months
ended June 30,1998 has been offset by a valuation allowance because the
Company's net operating loss could not be carried back and future realization of
the net operating loss is uncertain. Income tax expense for the six months ended
June 30, 1997 has been partially offset by a reduction in the valuation
allowance for deferred taxes.
Net (Loss) Income. The Company experienced a net loss for the six months ended
June 30, 1998 of $555,000, or $.05 diluted net loss per share compared to net
income of $475,000, or $.06 diluted net income per share for the same period in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $3,292,000 at June 30, 1998 versus working
capital of $161,000 at December 31, 1997. The change was primarily due to the
increase in accounts receivable and the overall decrease in accounts payable and
accrued liabilities. For the six months ended June 30, 1998, the Company used
$2,625,000 of cash in operating activities as compared to $1,074,000 for the
same period in 1997. The increase in usage was primarily due to the increase in
trade accounts and notes receivable.
As of June 30, 1998, the Company had $1,087,000 of availability under its
revolving credit facility with Madeleine L.L.C.
On June 4, 1998, the Company completed the acquisition of all the issued and
outstanding stock of closely held David W. Pickering, Inc. (DWP), a Rhode Island
corporation doing business as International Fitness Club Network (IFCN). IFCN is
in the business of organizing and maintaining a network of commercial fitness
and health clubs and marketing memberships in such clubs to employers and
insurance companies. The purchase agreement contained a non-compete provision
that covers a period of five years and prohibits the former owner from directly
or indirectly competing with the Company. In connection with the acquisition of
DWP, the Company issued 30,000 shares of common stock valued at $45,000, an
automobile valued at approximately $30,000 and cash consideration of $210,000.
<PAGE>
On February 27, 1998, the Company completed the acquisition of all the issued
and outstanding stock of closely held Midlands Physical Therapy, Inc.
(Midlands), a Nebraska-based provider of rehabilitative services. The purchase
agreement contained a noncompete provision that covers a period of five years
and prohibits the former owners from directly or indirectly competing with the
Company. In connection with the acquisition of Midlands, the Company issued
200,000 shares of common stock valued at $362,500 and cash consideration of
$650,000.
On June 26, 1998, the Company amended its revolving credit facility with
Madeleine L.L.C., an affiliate of Cerberus Partners, L.P. (the "Lender"). The
amendment requires the Company to maintain a "Special Availability Reserve" in
an amount equal to the Borrowing Base (as defined) minus $8,000,000. The
Company's ability to draw down on the facility is tied to the Borrowing Base
formula which is based upon the Company's EBITDA (defined as earnings before
interest, taxes, depreciation and amortization), revenues, or collections,
whichever is less. The credit facility is secured by all of the Company's
assets, including its accounts receivable, inventory, equipment, and general
intangibles and is guaranteed in part by the Company's President and Chief
Executive Officer. The Company paid the Lender a commitment fee equal to 1.5% of
the total credit facility, and a closing fee equal to 1.0% of the total credit
facility. The Company also issued to the Lender 312,497 shares of common stock.
The Company pays the Lender a loan servicing fee of $5,000 per month. The
advances under the credit facility accrue interest at a total rate of interest
equal to 7.0% in excess of Chase Manhattan's prime rate (but in no event less
than 8.5%). Interest accruing at the rate of such prime rate plus 4.5% is
payable monthly. Interest accruing at the rate of 2.5% is added to the principal
balance of the facility, and will accrue interest until paid. The credit
facility is due July 1999. The credit facility is subject to various affirmative
and negative covenants customary in transactions of this type, including a
requirement to maintain certain financial ratios and limitations on the
Company's ability to incur additional indebtedness, to make acquisitions outside
of certain established parameters, or to make dividend distributions.
In February 1998, the Company also completed the private sale of 3,000,000 Units
at an aggregate offering price of $3,300,000. Each Unit consisted of one share
of common stock and a warrant to purchase one-fourth (.25) of one share of
common stock at $2.25 per whole share.
Sources of capital to meet future obligations in 1998 are anticipated to be cash
provided by operations and the Company's revolving credit facility. In order to
conserve capital resources, the Company's policy is to lease its physical
facilities. The Company does not believe that inflation has had a significant
impact on the results of its operations.
Outlook
Over the past six months a number of factors in the rehabilitation marketplace
have led the Company to conclude that the opportunity in the freestanding
physical therapy clinic business may be diminishing. These include increased
penetration of managed care health plans, the increasing complexity of Medicare
reimbursement and increased competition for clinic acquisitions by large,
well-financed competitors.
The Company also believes the outlook for its preventive health care business
has improved dramatically as a result of increased corporate health care costs
and the wellness and fitness trend gaining momentum.
Going forward, the Company has shifted its strategy to primarily focus its
growth efforts on the preventive health care business and does not intend to
acquire additional individual freestanding physical therapy clinics.
In its preventive health care business, the Company's strategy is to expand
through the addition of new management contracts, products and services and
selective acquisitions. It is anticipated that funds required for future
acquisitions and the integration of acquired businesses with the Company will be
provided from operating cash flow, the Company's revolving credit facility and
the proceeds from potential future equity financings. Future equity financings,
if any, may result in dilution to holders of the Company's common stock.
However, there can be no assurance that suitable acquisition candidates will be
identified by the Company in the future, that suitable financing for any such
acquisitions can be obtained by the Company, or that any such acquisitions will
occur.
Preventive health care operating income, as a percentage of revenues, is
expected to increase compared with that experienced for the year ended December
31, 1997 as the Company expects to control site costs.
<PAGE>
Corporate expenses, as a percentage of revenues, are anticipated to be
consistent with 1997 levels.
Year 2000 Compliance
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" problem. The Company has
upgraded its accounting software to a version represented by the software vendor
to be Year 2000 compliant and is in the process of similarly upgrading its
operating systems software. The Company believes the Year 2000 problem will not
pose any significant operational concerns and is not anticipated to be material
to the Company's financial position or results of operations in any given year.
Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 redefines how operating
segments are determined and requires disclosures of certain financial and
descriptive information about a company's operating segments. The adoption of
SFAS No. 131 will increase the number of reportable segments for the Company. In
accordance with SFAS No. 131, the additional segment disclosure will be included
in the Company's Form 10-K for the year ending December 31, 1998.
Cautionary Statement
Portions of this Form 10-Q, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contain numerous forward-looking
statements that involve a number of risks and uncertainties. Further information
on various factors that could cause actual results to differ materially from
such forward-looking statements are set forth in the Company's Annual Report on
Form 10-KSB.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in various claims and
lawsuits incident to the operation of its business, including claims arising
from accidents or from the alleged negligent provision of physical therapy
services.
Item 2. Changes in Securities
During the three months ended June 30, 1998, the Company issued the following
securities without registration under the Securities Act:
<TABLE>
<S> <C> <C> <C> <C>
Price per Exemption Relied Upon
Date Amount Purchaser(s) Share/Unit
6/4/98 30,000 Common Stock issued to sellers of business as N/A Section 4(2)
part of purchase price
</TABLE>
During the three months ended June 30, 1998, the Company issued the following
options, warrants, or other equity securities in consideration of services
rendered or to be rendered without registration under the Securities Act:
<TABLE>
<S> <C> <C> <C> <C> <C>
Exercise Price per Share Exemption Relied
Date Amount Type Purchaser(s) Upon
6/8/98 75,000 Option Consultant $2.25 Section 4(2)
</TABLE>
Item 3. Defaults Upon Senior Securities
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting on June 3, 1998. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934. There was no solicitation in opposition to management. The
following actions were taken at the annual meeting:
(a) The following nominees were elected to the Company's Board of
Directors, with the following number of shares voted for and withheld
authority:
Nominee Shares Voted For Withholding Authority
- ---------------------------- ---------------------- ---------------------
Loren S. Brink 7,384,022 21,319
Charles E. Bidwell 7,389,622 15,719
William T. Simonet, M.D. 7,299,672 105,669
Robert K. Spinner 7,390,922 14,419
(d) The appointment of Deloitte and Touche LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 was approved
by a vote of 7,372,569 shares in favor, 6,002 shares against, and 26,770 shares
abstained.
Item 5. Other Information
Thomas Coplin ceased serving as President of the Company's
rehabilitative healthcare business effective August 7, 1998. The Company expects
to enter into a severance and release agreement with Mr. Coplin.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K
No Forms 8-K were filed by the Company during the six months ended June
30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 12, 1998 HEALTH FITNESS CORPORATION
By /s/ Loren S. Brink
Loren S. Brink
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Charles E. Bidwell
Charles E. Bidwell
Secretary, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Michael P. Wise
Michael P. Wise
Vice President and Corporate Controller
(Principal Accounting Officer)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX
HEALTH FITNESS CORPORATION
FORM 10-Q
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* Consulting Agreement I dated effective as of April 1, 1997 between
Health Fitness Corporation and Charles E. Bidwell
10.2* Consulting Agreement II dated effective as of May 1, 1998 between
Health Fitness Corporation and Charles E. Bidwell
10.3 Amendment No. 3 to Loan and Security Agreement dated June 26, 1998
between Health Fitness Corporation and its subsidiaries and Madeleine
L.L.C.
27.1 Financial Data Schedule for 6-month period ended June 30, 1998 (in
electronic version only)
- ---------------------------
*Indicates management contract or compensatory plan or arrangement.
CONSULTING AGREEMENT I
THIS CONSULTING AGREEMENT (the "Agreement") is effective as of April
1st, 1997, between Health Fitness Corporation (the "Company"), located at 3500
West 80th Street, Suite 130, Bloomington, Minnesota 55431 and Charles E. Bidwell
(the "Consultant"), residing at 835 Windjammer Lane, Mound, Minnesota 55364.
RECITALS:
WHEREAS, the Company wishes to provide for the services of Consultant
to assist it in certain matters relating to the raising of capital for the
Company during the term of this Agreement and on the conditions here set
forth; and
WHEREAS, Consultant desires to receive certain compensation from the
Company for Consultant's services during the term which shall be contingent on
raising a minimum amount of capital for the Company and,
WHEREAS, Company desires protection of Company's confidential
business and technical information which has been developed by the Company in
recent years at substantial expense.
NOW, THEREFORE, in consideration of the mutual promises here
contained, the Company and Consultant each intend to be legally bound,
covenant and agree as follows:
1. Consulting Agreement. Upon the terms and conditions set forth in this
Agreement. Company engages Consultant, and Consultant accepts the consulting
relationship. Consultant shall be an independent contractor and shall not be the
employee, servant, agent, partner, or joint venturer of the Company, or any of
its officers, directors, or employees. The Consultant shall not have the right
to or be entitled to any of the employee benefits of the Company or its
subsidiaries. The Consultant agrees to arrange for the Consultant's own
liability, disability, health, and workers' compensation insurance, and that of
the Consultant's employees, if any. The Consultant further agrees to be
responsible for the Consultant's own tax obligations accruing as a result of
payments for services rendered under this Agreement, as well as for the tax
withholding obligations with respect to the Consultant's employees, if any.
2. Duties. Consultant shall devote the time to the Company as set forth in this
agreement and shall use his best efforts to raise a minimum of $2,000,000 of
capital for the Company.
3. Term. Consultant's relationship shall commence on the above date and continue
to the earlier of: (a) thirty days after the date either party gives written
notice to the other party of its intent to terminate this Agreement or (b) the
effective date of a written agreement between the parties to terminate this
Agreement.
<PAGE>
4. Fees.
(a) Fees. For services rendered under this Agreement, Company shall pay
Consultant fees at a monthly rate of $17,250. During the term of this
Agreement, Consultant shall be expected to perform services for the
Company as mutually agreed by the parties. Provided, however that the
fees provided for in this paragraph shall be accrued and not paid to
Consultant until the Company raises a minimum of $2,000,000 of capital
during the period beginning on April 1, 1997. If the Company raises
$2,000,000 of capital within one year after the termination of this
Agreement, the Consultant shall receive the fees set forth in this
paragraph for the period of time from April 1, 1997 to the date of
termination.
(b) Stock Option Grant. Subject to the Company raising at least
$2,000,000 of capital within one year, the Company shall grant to
Consultant a nonqualified stock option to acquire up to 75,000 shares
of the Company's Common Stock, in substantially the form set forth on
the Stock Option attached as Exhibit A. Such Stock Option shall have an
exercise price of $2.25. Such option shall be exercisable only in
accordance with the following schedule:
Earliest Number of
Date of Exercise Shares Exercisable
Immediately 18,750
July 1, 1998 18,750
July 1, 1999 18,750
July 1, 2000 18,750
The Consultant's stock options shall be governed by the terms of this
Agreement and the Company's Stock Option Agreement with the Consultant attached
and incorporated by reference. Provided, however, that the Consultant shall be
entitled to immediately exercise all his Stock Options if: (a) this Agreement is
terminated before July 1, 2000 or (b) there is a Change of Control of the
Company before July 1, 2000. Change of Control is defined as (a) the sale of
substantially all the assets of the Company; or (b) one entity (including its
affiliates) owning 25% or more of the outstanding stock of the Company; or (c)
more than 50% of the members of the Board of Directors of the Company changing
within a one year period. Consultant shall have five years after each of the
above Dates to exercise each option.
5. Business Expenses. The Consultant shall bill the Company and the Company
shall pay to Consultant all customary business expenses incurred by the
Consultant in performing his duties for the Company. For purposes of business
travel expenses, Consultant's office in Hamel, Minnesota shall be considered
Consultant's office and Consultant shall be paid mileage for trips between Hamel
and Company's office in Bloomington, Minnesota.
<PAGE>
6. Termination. Subject to the respective continuing obligations of the parties
pursuant to Sections 7, 8, 9 and 10, this Agreement may be terminated prior to
the expiration of its then remaining applicable term by either the Consultant or
the Company giving the other party 30 days written notice.
7. Confidential Information.
(a) For purposes of this Section, the term "Confidential Information"
means information which is not generally known and which is proprietary
to the Company, including: (i) trade secret information about Company
and its services; and (ii) information relating to the business of
Company as conducted at any time within the previous two years or
anticipated to be conducted by Company, and to any of its past, current
or anticipated products, including, without limitation, information
about Company's research, development, services, purchasing,
accounting, engineering, marketing, selling, leasing or servicing. All
information which Consultant has a reasonable basis to consider
Confidential Information or which is treated by Company as being
Confidential Information shall be presumed to be Confidential
Information, whether originated by Consultant, or by others, and
without regard to the manner in which Consultant obtains access to such
information.
(b) Consultant will not during the term of this Agreement and following
expiration or termination of this Agreement, use or disclose any
Confidential Information to any person not employed by Company without
the prior authorization of Company and will use reasonably prudent care
to safeguard, protect and to prevent the unauthorized disclosure of,
all of such Confidential Information.
8. Inventions.
(a) For purposes of this Section, the term "Inventions" means
discoveries, improvements and ideas (whether or not in writing or
reduced to practice) and works of authorship, whether or not patentable
or copyrightable: (1) which relate directly to the business of Company,
or to Company's actual or demonstrably anticipated research or
development; (2) which result from any work performed by Consultant for
Company; (3) for which equipment, supplies, facilities or trade secret
information of Company is utilized; or (4) which were conceived or
developed during the time Consultant was obligated to perform the
duties described in Section 2.
(b) Consultant agrees that all Inventions made, authored or conceived
by Consultant, either solely or jointly with others, during the term of
this Agreement, shall be the sole and exclusive property of Company.
Upon termination of this Agreement, Consultant shall turn over to a
designated representative of Company all property in Consultant's
possession and custody belonging to Company. Consultant shall not
retain any copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs or other documents relating
in any way to the affairs of Company which came into Consultant's
possession at any time during the term of this Agreement.
<PAGE>
(c) Consultant will promptly upon request by Company fully disclose to
Company in writing any Inventions. Consultant will assign (and by this
Agreement, hereby assigns) to Company all of Consultant's rights to
Inventions, and to applications for patents or copyrights in all
countries and to patents and copyrights granted in all countries. Upon
the request of Company, Consultant will apply for such United States or
foreign patents or copyrights as Company may deem desirable, and
Consultant will do any and all acts necessary in connection with such
applications for patents or copyrights, or assignments, in order to
establish in Company the entire right, title and interest in and to
such patents or copyrights. If Consultant renders assistance to Company
under this Section after termination of this Agreement, Company shall
pay a reasonable fee as determined by Company for Consultant's time and
expenses.
9. No Adequate Remedy. The parties declare that is impossible to measure in
money the damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if either party
shall institute any action or proceeding to enforce the provisions hereof, such
person against whom such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate remedy at law, and such person shall
not urge in any such action or proceeding the claim or defense that such party
has an adequate remedy at law.
10. Indemnification Company shall indemnify Consultant for all expenses incurred
by Consultant, including any judgments, or claims, and including reasonable
attorney expenses and other expenses, for any matter arising out of or related
to Consultant's actions or failure to act on behalf of the Company, to the
extent permitted by Minn. Stat. Section 302A.559.
11. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of all successors and assigns of the Company,
whether by way of merger, consolidation, operation of law, assignment,
purchase or other acquisition of substantially all of the assets or
business of Company and shall only be assignable under the foregoing
circumstances and shall be deemed to be materially breached by Company
if any such successor or assign does not absolutely and unconditionally
assume all of Company's obligations to Consultant hereunder. Any such
successor or assign shall be included in the term "Company" as used in
this Agreement.
(b) Notices. All notices, requests and demands shall be in writing and
be delivered or mailed to any such party at its address which:
(i) In the case of Company shall be:
HEALTH FITNESS CORPORATION
3500 West 80th Street, Suite 130
Minneapolis, Minnesota 55431
<PAGE>
(ii) In the case of the Consultant shall be:
MR. CHARLES E. BIDWELL
835 Windjammer Lane
Mound, Minnesota 55364
Either party may by notice designate a change of address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified
mail, shall be deemed dispatched on the registered date or that stamped
on the certified mail receipt, and shall be deemed received within the
fifth business day thereafter, or when it is actually received,
whichever is sooner.
(c) Captions. The various headings or captions in this Agreement are
for convenience only and shall not affect the meaning or interpretation
of this Agreement.
(d) Governing Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota and
any legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the State of
Minnesota, with each of the parties consenting to the exclusive
jurisdiction of said courts for this purpose.
(e) Construction. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
(f) Waivers. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right
or remedy hereunder preclude any other or further exercise thereof or
the exercise of any right or remedy granted hereby or by any related
document or by law.
(g) Modification. This Agreement may not be, and shall not be, modified
or amended except by a written instrument signed by both parties
hereto.
(h) No Conflict in a Business. Consultant agrees that he will not,
during the term of this Agreement, transact business with the Company
personally, or as an agent, owner, partner, shareholder of any other
entity; provided, however, Consultant may enter into any business
transaction that is, in the opinion of the Company's Board of
Directors, reasonable, prudent or beneficial to the Company, so long as
any such business transaction is at arms-length as though between
independent and prudent individuals and is ratified and approved by the
designated members of the Company's Board of Directors.
<PAGE>
(i) Entire Agreement. This Agreement constitutes the entire Agreement
and understanding between the parties hereto in reference to all the
matters herein agreed upon; provided, however, that this Agreement
shall not deprive Consultant of any other rights Consultant may have
now, or in the future, pursuant to law or the provisions of Company
benefit plans.
(j) Counterparts. This Agreement shall be executed in at least two
counterparts, each of which shall constitute an original, but both of
which, when taken together, will constitute one in the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered this ______ day of June, 1998, to be effective the
day and year first above written.
HEALTH FITNESS CORPORATION
By: /s/ Loren S. Brink
Its: President
CONSULTANT
/s/ Charles E. Bidwell
Charles E. Bidwell
CONSULTING AGREEMENT II
THIS CONSULTING AGREEMENT (the "Agreement") is effective as of May 1,
1998, between Health Fitness Corporation (the "Company"), located at 3500 West
80th Street, Suite 130, Bloomington, Minnesota 55431 and Charles E. Bidwell (the
"Consultant"), residing at 835 Windjammer Lane, Mound, Minnesota 55364.
RECITALS:
WHEREAS, the Company wishes to provide for the services of Consultant
to perform certain financial, accounting and other responsibilities for the
Company for the term and on the conditions here set forth; and
WHEREAS, Consultant desires to be assured of certain payments from the
Company for Consultant's services during the term and,
WHEREAS, Company desires protection of Company's confidential business
and technical information which has been developed by the Company in recent
years at substantial expense.
NOW, THEREFORE, in consideration of the mutual promises here contained,
the Company and Consultant each intend to be legally bound, covenant and agree
as follows:
1. Termination of Previous Agreement and Consulting Agreement. The parties agree
that the Consulting Agreement dated April 1, 1997 is terminated effective April
30, 1998. Upon the terms and conditions set forth in this Agreement, the Company
hires the Consultant to perform certain functions as set forth in Section 2.
2. Duties. Consultant shall design a Management Reporting System, shall assist
in a recapitalization of the Company, and shall perform certain duties until a
Chief Financial Officer of the Company is hired, and such other duties as may,
from time to time, be negotiated between the Consultant and the President or the
Board of Directors of the Company.
3. Term. Consultant's relationship shall commence on the above date and continue
until: (a) one year after the date the Company gives written notice of
termination to the Consultant or (b) ninety days after the Consultant gives
written notice of termination to the Consultant.
4. Payments to Consultant.
(a) Fees. For services rendered under this Agreement, Company
shall pay Consultant fees at a monthly rate of $14,500. The
Consultant shall not be eligible for any benefits of the
Company. During the term of this Agreement, Consultant shall
be expected to perform services for the Company for
approximately fifteen working days per month, which shall be
adjusted by mutual agreement of the parties.
<PAGE>
(b) Additional Fees. The Consultant shall be eligible for
additional fees for each year this Agreement is in effect,
which shall be calculated on a calendar year basis and paid by
March 31st of each year. The additional fees shall be based
upon a comparison of the Company's actual pre-tax profits (not
including any bonus paid to Loren Brink or Consultant) ("PTP")
with the Company's budgeted pre-tax profits (not including any
bonus budgeted for Loren Brink or Consultant) ("BPTP"). The
bonus shall be paid in accordance with the following formula:
o If Company's PTP = 90% of BPTP, then the additional fee
shall be 25% of $174,000.
o If Company's PTP = 100% of BPTP, then the additional fee
shall be 35% of $174,000.
o If Company's PTP = 120% of BPTP, then the additional fee
shall be 55% of $174,000.
PTP's between 90% and 120% shall result in prorated fees.
5. Business Expenses. The Consultant shall bill the Company and the Company
shall pay to Consultant all business expenses incurred by the Consultant in
performing his duties for the Company. For purposes of business travel expenses,
Consultant's office in Hamel, Minnesota shall be considered Consultant's office
and Consultant shall be paid mileage for trips between Hamel and Company's
office in Bloomington, Minnesota.
6. Confidential Information.
(a) For purposes of this Section 6, the term "Confidential Information"
means information which is not generally known and which is proprietary
to the Company, including: (i) trade secret information about Company
and its services; and (ii) information relating to the business of
Company as conducted at any time within the previous two years or
anticipated to be conducted by Company, and to any of its past, current
or anticipated products, including, without limitation, information
about Company's research, development, services, purchasing,
accounting, engineering, marketing, selling, leasing or servicing. All
information which Consultant has a reasonable basis to consider
Confidential Information or which is treated by Company as being
Confidential Information shall be presumed to be Confidential
Information, whether originated by Consultant, or by others, and
without regard to the manner in which Consultant obtains access to such
information.
(b) Consultant will not during the term of this Agreement and following
expiration or termination of this Agreement, use or disclose any
Confidential Information to any person not employed by Company without
the prior authorization of Company and will use reasonably prudent care
to safeguard, protect and to prevent the unauthorized disclosure of,
all of such Confidential Information.
<PAGE>
7. Inventions.
(a) For purposes of this Section 7, the term "Inventions" means
discoveries, improvements and ideas (whether or not in writing or
reduced to practice) and works of authorship, whether or not patentable
or copyrightable: (1) which relate directly to the business of Company,
or to Company's actual or demonstrably anticipated research or
development; (2) which result from any work performed by Consultant for
Company; (3) for which equipment, supplies, facilities or trade secret
information of Company is utilized; or (4) which were conceived or
developed during the time Consultant was obligated to perform the
duties described in Section 2.
(b) Consultant agrees that all Inventions made, authored or conceived
by Consultant, either solely or jointly with others, during the term of
this Agreement, shall be the sole and exclusive property of Company.
Upon termination of this Agreement, Consultant shall turn over to a
designated representative of Company all property in Consultant's
possession and custody belonging to Company. Consultant shall not
retain any copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs or other documents relating
in any way to the affairs of Company which came into Consultant's
possession at any time during the term of this Agreement.
(c) Consultant will promptly upon request by Company fully disclose to
Company in writing any Inventions. Consultant will assign (and by this
Agreement, hereby assigns) to Company all of Consultant's rights to
Inventions, and to applications for patents or copyrights in all
countries and to patents and copyrights granted in all countries. Upon
the request of Company, Consultant will apply for such United States or
foreign patents or copyrights as Company may deem desirable, and
Consultant will do any and all acts necessary in connection with such
applications for patents or copyrights, or assignments, in order to
establish in Company the entire right, title and interest in and to
such patents or copyrights. If Consultant renders assistance to Company
under this Section 7(c) after termination of this Agreement, Company
shall pay a reasonable fee as determined by Company for Consultant's
time and expenses.
8. No Adequate Remedy. The parties declare that is impossible to measure in
money the damages which will accrue to either party by reason of a failure to
perform any of the obligations under this Agreement. Therefore, if either party
shall institute any action or proceeding to enforce the provisions hereof, such
person against whom such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate remedy at law, and such person shall
not urge in any such action or proceeding the claim or defense that such party
has an adequate remedy at law.
9. Indemnification Company shall indemnify Consultant for all expenses incurred
by Consultant, including any judgments, or claims, and including reasonable
attorney expenses and other expenses, for any matter arising out of or related
to Consultant's actions or failure to act on behalf of the Company, to the
extent permitted by Minn. Stat. Section 302A.559.
<PAGE>
10. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of all successors and assigns of the Company,
whether by way of merger, consolidation, operation of law, assignment,
purchase or other acquisition of substantially all of the assets or
business of Company and shall only be assignable under the foregoing
circumstances and shall be deemed to be materially breached by Company
if any such successor or assign does not absolutely and unconditionally
assume all of Company's obligations to Consultant hereunder. Any such
successor or assign shall be included in the term "Company" as used in
this Agreement. Consultant may not assign his rights and obligations
hereunder, except that Consultant's rights and obligations to receive
fees and expenses pursuant to Sections 4 and 5 may be assigned by will
or by operation of law to Consultant's estate or legal representative.
(b) Notices. All notices, requests and demands shall be in writing and
be delivered or mailed to any such party at its address which:
(i) In the case of Company shall be:
HEALTH FITNESS CORPORATION.
3500 West 80th Street, Suite 130
Minneapolis, Minnesota 55431
(ii) In the case of the Consultant shall be:
MR. CHARLES E. BIDWELL
835 Windjammer Lane
Mound, Minnesota 55364
Either party may by notice designate a change of address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified
mail, shall be deemed dispatched on the registered date or that stamped
on the certified mail receipt, and shall be deemed received within the
fifth business day thereafter, or when it is actually received,
whichever is sooner.
(c) Captions. The various headings or captions in this Agreement are
for convenience only and shall not affect the meaning or interpretation
of this Agreement.
(d) Governing Law. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Minnesota and
any legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the State of
Minnesota, with each of the parties consenting to the exclusive
jurisdiction of said courts for this purpose.
<PAGE>
(e) Construction. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
(f) Waivers. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right
or remedy hereunder preclude any other or further exercise thereof or
the exercise of any right or remedy granted hereby or by any related
document or by law.
(g) Modification. This Agreement may not be, and shall not be, modified
or amended except by a written instrument signed by both parties
hereto.
(h) No Conflict in a Business. Consultant agrees that he will not,
during the term of this Agreement, transact business with the Company
personally, or as an agent, owner, partner, shareholder of any other
entity; provided, however, Consultant may enter into any business
transaction that is, in the opinion of the Compensation Committee of
the Company's Board of Directors, reasonable, prudent or beneficial to
the Company, so long as any such business transaction is at arms-length
as though between independent and prudent individuals and is ratified
and approved by a majority of the members of the Compensation Committee
of the Company's Board of Directors.
(i) Entire Agreement. This Agreement constitutes the entire Agreement
and understanding between the parties hereto in reference to all the
matters herein agreed upon; provided, however, that this Agreement
shall not deprive Consultant of any other rights Consultant may have
now, or in the future, pursuant to law.
(j) Counterparts. This Agreement shall be executed in at least two
counterparts, each of which shall constitute an original, but both of
which, when taken together, will constitute one in the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered this _____ day of June, 1998 to be effective as of
the day and year first above written.
HEALTH FITNESS CORPORATION
By: /s/ Loren S. Brink
Its: President
CONSULTANT
/s/ Charles E. Bidwell
Charles E. Bidwell
4
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
AMENDMENT dated June 26, 1998, by and among Health Fitness Corporation,
a Minnesota corporation ("Borrower"), Health Fitness Rehab, Inc., a Minnesota
corporation ("HF Rehab"), The Preferred Companies, Inc., an Arizona corporation
("TPC"), Health Fitness Rehab of Iowa, Inc., an Iowa corporation ("HF Rehab
Iowa"), Duffy & Associates Physical Therapy Corp., an Iowa corporation
("Duffy"), Medlink Corporation, an Iowa corporation ("Medlink"), Medlink
Services, Inc., an Iowa corporation ("Medlink Services"), Midlands Physical
Therapy, Inc., a Nebraska corporation ("Midlands"), Fitness Centers of America,
a California corporation ("Fitness Centers"), Sports & Orthopedic Physical
Therapy, Inc., a Minnesota corporation ("Sports Therapy") and International
Fitness Club Network, Inc., a Rhode Island corporation, formerly known as David
W. Pickering, Inc. ("IFCN", and together with Sports Therapy, HF Rehab, TPC, HF
Rehab Iowa, Duffy, Medlink, Medlink Services, Midlands and Fitness Centers,
collectively, "Guarantors" and sometimes referred to individually as a
"Guarantor") and Madeleine L.L.C., a New York limited liability company
("Lender").
W I T N E S S E T H
WHEREAS, Lender and Borrower have entered into financing arrangements
pursuant to which Lender may make loans and advances and provide other financial
accommodations to Borrower as set forth in the Loan and Security Agreement,
dated February 17, 1998, by and among Lender, Borrower and Guarantors, as
amended by Amendment No. 1 to Loan and Security Agreement, dated February 28,
1998 and Amendment No. 2 to Loan and Security Agreement, dated June 4, 1998 (and
as amended hereby and as the same may be further amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement") and
the agreements, documents and instruments at any time executed and/or delivered
in connection therewith or related thereto (collectively, together with the Loan
Agreement, the "Financing Agreements");
WHEREAS, Borrower and Guarantors have requested certain amendments to
the Loan Agreement and Lender is willing to agree to such amendments, subject to
the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Definitions.
1.1 Additional Definition. As used herein, the term "Special
Availability Reserve" shall mean a reserve in an amount equal to the Borrowing
Base (calculated without regard to the Special Availability Reserve) minus
$8,000,000, and the Loan Agreement shall be deemed and is hereby amended to
include, in addition and not in limitation, such definition.
<PAGE>
1.2 Interpretation. For purposes of this Amendment, unless otherwise
defined herein, all terms used herein, including, but not limited to, those
terms used and/or defined in the recitals above, shall have the respective
meanings assigned to such terms in the Loan Agreement.
2. Amendments.
(a) Borrowing Base. Section 1.8(b) of the Loan Agreement is
hereby amended to add the following at the end thereof: "and including the
Special Availability Reserve."
(b) Loan, Investments, Guarantees. Section 8.7(e) of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor: "intentionally omitted."
(c) Change in Retained Earnings. Section 8.10 of the Loan
Agreement is hereby amended by deleting the reference to the figure "($200,000)"
contained therein and substituting the following therefor: "$(650,000)". The
parentheses with the number indicate that it is a negative number.
(d) Fixed Charge Coverage Ratio. The Section of the Loan
Agreement titled "8.10 Fixed Charged Coverage Ratio" is hereby deleted in its
entirety and the following substituted therefor:
"8.10A Fixed Charged Coverage Ratio. Borrower and each
Guarantor shall not permit the Fixed Charge Coverage Ratio for any
fiscal quarter to be less than the ratio set forth opposite such fiscal
quarter:
Fiscal Quarter Ending Ratio
March 31, 1998 1.75 to 1
June 30, 1998 .8 to 1
September 30, 1998 1.75 to 1
December 31, 1998 and each
fiscal quarter thereafter 2 to 1"
3. Binding Effect. This Amendment has been duly executed and delivered
by Borrower and Guarantors and is in full force and effect as of the date
hereof, and the agreements and obligations of Borrower and Guarantors contained
herein constitute the legal, valid and binding obligations of Borrower and
Guarantors enforceable against Borrower and Guarantors in accordance with their
respective terms.
4. Conditions Precedent. The effectiveness of the other provisions of
this Amendment shall be subject to the receipt by Lender of an original of this
Amendment, duly authorized, executed and delivered by Borrower and Guarantors.
<PAGE>
5. Effect of this Amendment. Except as modified pursuant hereto, no
other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control.
6. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary or
proper to effectuate the provisions and purposes of this Amendment.
7. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law or choice of law).
8. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns.
9. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
IN WITNESS WHEREOF, each of the undersigned have caused this agreement
to be duly authorized, executed and delivered as of the day and year first above
written.
HEALTH FITNESS CORPORATION HEALTH FITNESS REHAB, INC.
By: /s/ Charles E. Bidwell By: /s/ Charles E. Bidwell
Title: Chief Financial Officer Title: Chief Financial Officer
DUFFY & ASSOCIATES PHYSICAL THE PREFERRED COMPANIES, INC.
THERAPY SERVICES CORP.
By: /s/ Charles E. Bidwell By: /s/ Charles E. Bidwell
Title: Chief Financial Officer Title: Chief Financial Officer
[SIGNATURES CONTINUE ON NEXT PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
MEDLINK CORPORATION HEALTH FITNESS REHAB OF IOWA, INC.
By: /s/ Charles E. Bidwell By: /s/ Charles E. Bidwell
Title: Chief Financial Officer Title: Chief Financial Officer
MEDLINK SERVICES, INC. FITNESS CENTERS OF AMERICA
By: /s/ Charles E. Bidwell By: /s/ Charles E. Bidwell
Title: Chief Financial Officer Title: Chief Financial Officer
SPORTS & ORTHOPEDIC PHYSICAL INTERNATIONAL FITNESS CLUB
THERAPY, INC. NETWORK, INC.
By: /s/ Charles E. Bidwell By: /s/ Charles E. Bidwell
Title: Chief Financial Officer Title: Chief Financial Officer
MIDLANDS PHYSICAL THERAPY, INC.
By: /s/ Charles E. Bidwell
Title: Chief Financial Officer
MADELEINE, L.L.C.
By: /s/ Daniel E. Wolf
Title: Managing Director
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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