SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K/A (No. 1)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
incorporation or organization) (I.R.S. Employer Identification No.)
3500 W. 80th Street, Suite 130, Bloomington, Minnesota, 55431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 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. [ ]
As of March 18, 1999, 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 Nasdaq
SmallCap Market, was $3,411,877. The Company's Common Stock ceased to be traded
on the Nasdaq SmallCap Market on April 22, 1999.
As of March 18, 1999, 11,870,987 shares of the registrant's common
stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the directors and executive officers of the
Registrant and their positions and offices presently held are as follows:
Name Age Position with Company
Loren S. Brink 43 President, Chief Executive Officer and
Director
James A. Bernards 52 Chairman
Charles E. Bidwell 54 Director
Charles J. Pappas 49 President, Health & Fitness Services
Division
Susan H. DeNuccio 49 Director
William T. Simonet, M.D. 45 Director
Robert K. Spinner 56 Director
Loren S. Brink has been President and Chief Executive Officer of the
Company since its inception in 1981, and was Chairman of the Board until
December 1998. He holds a Masters Degree in Cardiac Rehabilitation and Adult
Fitness from the University of Wisconsin. He has an extensive clinical
background, has published numerous articles regarding corporate fitness and
speaks frequently at national conferences.
James A. Bernards, a Director of the Company since March 1999 and from
1993 to June 1998 and Chairman of the Board since April 1999, has been President
of Brightstone Capital, Ltd., 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 has been a partner for more than 18 years. He is also
a director of FSI International and Fieldworks, Inc.
Charles E. Bidwell has been a Director of the Company since 1988 and
served as a consultant to the Company in the position of Chief Financial Officer
from July 1997 to April 1999 and as Chairman of the Board from December 1998 to
April 1999. Mr. Bidwell is a venture capitalist and has served as a consultant
to various companies. From 1981 through April 1994, Mr. Bidwell was the Chief
Financial Officer of Red Owl Stores, Inc., a Minneapolis-based food retailer. He
has a 25-year history of starting and managing new businesses, as well as
significant corporate experience with Tonka, Inc. and Red Owl Stores, Inc. He
holds an MBA in Marketing and Finance from Carnegie-Mellon University in
Pittsburgh, Pennsylvania.
Charles J. Pappas has served as President of the Company's Health &
Fitness Services Division since March 10, 1997. Prior to joining the Company,
from 1995 to 1997 Mr. Pappas was General Manager of Bearpath Golf and Country
Club, a golf course, clubhouse, pool and tennis facility located in Eden
Prairie, Minnesota. From 1995 to 1996, Mr. Pappas was a retail business advisor
to the Shakopee Mdewakanton Dakota Community. From 1994 to 1995, Mr. Pappas was
General Manager of Dakotah! Sport and Fitness, an athletic club operated by the
Shakopee Mdewakanton Dakota Community located near Prior Lake, Minnesota. From
1985 to 1993, Mr. Pappas was Vice President/General Manager of Flagship Athletic
Club located in Eden Prairie, Minnesota.
<PAGE>
Susan H. DeNuccio, a Director of the Company since October 1998, has
been President of DeNuccio Group, a retail personnel and health care consulting
firm, since August 1998. She served as Vice President-Personnel for Target
Stores, a retail store chain, from August 1973 until her retirement in August
1998. She also currently serves as a director of Health Partners, a
Minneapolis-based provider of health care.
William T. Simonet, M.D., a Director of the Company since March 1993,
is an independent practicing orthopedic surgeon. Dr. Simonet received his
Medical degree in 1980 from the University of Minnesota medical school. He also
received a Master of Science degree in orthopedic surgery from the Mayo Graduate
School of Medicine in 1985.
Robert K. Spinner, a Director of the Company since May 1995, was
President of Abbott Northwestern Hospital in Minneapolis, Minnesota from 1988 to
1997 and a member of the administrative staff at Abbott Northwestern from 1968
to 1997. In 1997, Allina Health Systems named Mr. Spinner President of Allina
Hospitals. Mr. Spinner graduated from St. John's University in Collegeville,
Minnesota with a Bachelor's degree in Economics and Accounting in 1964; he was
awarded a Masters degree in Hospital and Healthcare Administration from the
University of Minnesota in 1969. Mr. Spinner is a member of the Board of
Directors of St. John's University, the Newt C. Little Hospice and the Minnesota
Hospital Association.
There are no family relationships among any of the Company's directors
or executive officers.
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,
1998, all Section 16(a) filing requirements applicable to Insiders were complied
with except that Charles Bidwell failed to timely file two forms reporting two
transactions and Dennis Colacino, a former officer, failed to timely file one
form reporting one transaction.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
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
Company's Chief Executive Officer and the Company's most highly compensated
executive officers who received compensation in excess of $100,000 during fiscal
1998 (such individuals referred to as the "named executive officers").
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
- -------------------------- -------- -------------------------------------- -------------------------- --------- --------------
Restricted LTIP All Other
Name and Principal Fiscal Stock Payouts Compensation
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options ($) ($)
- -------------------------- -------- ------------- ----------- ------------ ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loren S. Brink, 1998 175,385 -- 20,705(1) -- -- -- 26,000(2)
President and Chief 1997 160,000 -- 17,339 -- 100,000 -- 2,000
Executive Officer 1996 137,700 35,000 22,436 -- 100,000 -- 3,935
Charles E. Bidwell, 1998 102,395 -- 14,350(3) -- -- -- --
Former Chief Financial 1997 189,750 -- 21,677 -- 125,000 -- --
Officer 1996 74,000 -- 1,496 -- 35,000 -- --
Charles J. Pappas, 1998 118,945 -- 22,742(4) -- 25,000 -- --
President, Health & 1997 86,554 27,600 * -- 100,000 -- --
Fitness Services Division 1996 -- -- -- -- -- -- --
Patrick D. Regan, 1998 117,922 -- * -- 25,000 -- --
Former President, Pro 1997 84,727 -- * -- -- -- --
Source Fitness Division 1996 -- -- -- -- -- -- --
Michael P. Wise, Former 1998 110,078 8,500 -- -- -- -- --
Vice President and 1997 -- -- -- -- 75,000 -- --
Controller 1996 -- -- -- -- -- -- --
Dennis L. Colacino, 1998 109,039 -- 19,686(5) -- 12,500 -- --
Former Executive Vice 1997 74,039 -- -- -- -- -- --
President 1996 -- -- -- -- -- -- --
</TABLE>
* Does not exceed lesser of $50,000 or 10% of such individual's salary
and bonus.
(1) Amount reflects automobile allowance of $3,705 and entertainment
expense allowance of $17,000.
(2) Amount reflects $2,000 life insurance premiums not available to
employees generally and $24,000 payment for a partial guarantee of the
Company's credit facility.
(3) Amount reflects direct out-of-pocket expense reimbursement. Mr. Bidwell
is responsible for his own overhead and other indirect expenses, and is
not eligible for and does not receive any employee benefits. See
"Certain Relationships and Related Transactions" below.
(4) Amount reflects automobile allowance of $6,000 and entertainment
expense allowance of $16,742.
(5) Amount reflects automobile allowance of $6,000 and entertainment
expense allowance of $13,686.
<PAGE>
Employment Agreements
Loren Brink. On May 22, 1997 the Company entered into a three-year
Employment Agreement with Mr. Brink, effective January 1, 1997 (the
"Agreement"), which will automatically extend for additional three-year terms,
unless either party gives written notice of termination. Pursuant to the
Agreement, Mr. Brink will continue to serve as the Company's President and Chief
Executive Officer at a minimum base salary of $160,000, $170,000 and $180,000
for the calendar years 1997, 1998 and 1999, respectively. Mr. Brink is eligible
to earn an annual year-end cash bonus ranging from 25% of base salary (if the
Company's actual pre-tax profits are at least 80% of the budgeted amount
therefor) to 75% of his base salary (if the Company's actual pre-tax profits are
120% or more of budget). The Company granted Mr. Brink incentive stock options
to purchase up to 100,000 shares of Company Common Stock at an exercise price of
$3.00 per share. Such options vest 25% immediately and 25% on each of the first
three anniversaries of the effective date. Mr. Brink receives normal and
customary employee benefits and fringe benefits, including a $750 per month car
allowance, county club membership and $2,500 per year for professional,
financial, legal and tax planning counsel. The Company may terminate the
Agreement on 60 days' notice for cause or upon twelve-months' notice without
cause. The Agreement terminates upon Mr. Brink's death or permanent disability.
If Mr. Brink is terminated for "cause," he will continue to receive his base
salary for up to 60 days, and be entitled to participate in certain benefit
programs at his expense for up to eighteen months. If Mr. Brink is terminated
without "cause," he will continue to receive his base salary for a period of up
to 24 months following such termination. If the Agreement is terminated due to
Mr. Brink's death or disability, Mr. Brink's base salary will continue to be
paid for a period of 18 months. If Mr. Brink's employment is terminated by
reason of his death, disability, without cause or in connection with a change of
control of the Company, he will receive a pro rated portion of any bonuses or
incentive payment, and the immediate vesting and acceleration of any unexpired
and unvested stock options previously granted. The Agreement gives Mr. Brink the
option to terminate the Agreement upon a change of control or business
combination, including the sale or merger of the Company. In such event, Mr.
Brink can elect to receive his base salary for the longer of the unexpired three
year term of the Agreement or 24 months, or in lieu thereof, a cash payment
equal to 2.99 times Mr. Brink's base salary, subject to reduction to prevent
such payment (together with any other payments considered contingent upon a
change of control) from constituting an excess parachute payment under
applicable provisions of the Internal Revenue Code.
Option/SAR Grants During 1998 Fiscal Year
The following table sets forth information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 1998. The Company has not granted stock appreciation rights:
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable Value
Number of % of Total At Assumed Annual Rates of
Securities Options/SARs Stock Price Appreciation
Underlying Granted to Exercise or for Option Term
Options/SARs Employees in Base Price Expiration
----------------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ------------------------ ----------------- ------------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Loren S. Brink 0 N/A N/A N/A N/A N/A
Charles E. Bidwell 0 N/A N/A N/A N/A N/A
Charles J. Pappas 25,000 (1) 22% $2.00 5/19/03 13,814 30,525
Patrick D. Regan 25,000 (1) 22% $2.00 3/31/99 (2) 13,814 30,525
Michael P. Wise 0 N/A N/A N/A N/A N/A
Dennis L. Colacino 12,500(3) 11% $2.00 7/10/99 (3) 6,907 15,263
</TABLE>
(1) Exercisable as to 6,250 shares each year commencing May 18, 1998.
(2) Mr. Regan left the employ of the Company as of March 1, 1999 and the
option expired at that time.
(3) Exercisable as to 3,125 shares each year commencing May 19, 1998. Mr.
Colacino left the employ of the Company as of February 4, 1999. The
option remains exercisable as to 3,125 shares until July 10, 1999.
Aggregated Option/SAR Exercises During 1998 Fiscal Year and Fiscal Year End
Option/SAR 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:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In
Shares Acquired Securities Underlying the-Money Options at
on Exercise (#) Value Options at 12/31/98 12/31/98(1)
Name Realized exercisable/unexercisable exercisable/unexercisable
- ------------------------- ----------------- ------------ ---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Loren S. Brink -- -- 116,667/83,333 $0/$0
Charles E. Bidwell -- -- 140,000/20,000 $0/$0
Charles J. Pappas -- -- 46,250/78,750 $0/$0
Patrick D. Regan -- -- 53,454/34,021 $0/$0
Michael P. Wise -- -- 37,500/37,500 $0/$0
Dennis L. Colacino -- -- 3,125/9,375 $0/$0
</TABLE>
- ------------------------
(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, 1998 on
the Nasdaq SmallCap Market was $0.65625.
<PAGE>
ITEM 12. 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 28, 1999, by persons known to the Company to be
beneficial owners of more than 5% of the Company's Common Stock, by each
executive officer of the Company named in the Summary Compensation table, by
each current director and nominee for director of the Company and by all
directors and executive officers (including the named individuals) as a group.
Unless otherwise indicated, the shareholders listed in the table have sole
voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percent of Class
Beneficial Owner Beneficially Owned (1)
- ---------------------------------------------- ------------------ ----------------
<S> <C> <C>
Perkins Capital Management, Inc. 1,404,300 (2) 11.8%
730 East Lake Street
Wayzata, MN 55391
Loren S. Brink 935,123 (3) 7.7%
3500 W. 80th Street
Minneapolis, MN 55431
George E. Kline 882,276 (4) 7.2%
4750 IDS Center
Minneapolis, MN 55402
Charles E. Bidwell 580,473 (5) 4.8%
James A. Bernards 160,000 (6) 1.3%
Robert K. Spinner 96,500 (7) *
William T. Simonet, M.D. 93,250 (8) *
Susan H. DeNuccio 10,000 (9) *
Charles J. Pappas 79,252 (10) *
Patrick D. Regan 68,725 (11) *
Michael P. Wise 37,500(11) *
Dennis L. Colacino 22,102(12) *
All current directors and executive officers 1,954,598 (13) 15.6%
as a group (7 persons)
</TABLE>
* 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 28, 1999, 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 filing with the Securities and Exchange
Commission on February 4, 1999, Perkins Capital Management, Inc.
represents it has sole voting power over 660,500 such shares and sole
dispositive power over all such shares.
<PAGE>
(3) Includes 175,000 shares which may be purchased upon exercise of options
which are exercisable as of April 28, 1999 or within 60 days of such
date.
(4) Includes (i) 100,000 shares held by Brightstone Capital, Ltd., an
investment firm controlled by Mr. Bernards and Mr. Kline; and (ii)
85,782 shares and a currently exercisable warrant to purchase 50,000
shares held by Brightside Fund, 318,182 shares and a currently
exercisable warrant to purchase 79,546 shares held by Brightstone Fund
VIII, a currently exercisable warrant to purchase 67,516 shares held by
Brightbridge Fund, and 31,250 shares held by Brightstone Fund V, all of
which are investment funds managed by Messrs. Bernards and Kline. Also
includes 50,000 shares which may be purchased upon exercise of options
which are exercisable as of April 28, 1999 or within 60 days of such
date. Pursuant to written agreement between Mr. Bernards and Mr. Kline,
Mr. Kline has sole voting and investment power over Company securities
held by any investment funds managed by them.
(5) Includes 165,000 shares which may be purchased upon exercise of options
and warrants that are exercisable as of April 28, 1999 or within 60
days of such date. Does not include 10,000 shares which may be
purchased upon exercise of an option which will become exercisable if
such person is elected a director at the Annual Meeting.
(6) Includes 100,000 shares held by Brightstone Capital, Ltd., an
investment firm controlled by Mr. Bernards and Mr. Kline, 10,000 shares
held by an employee benefit plan over which Mr. Bernards has shared
voting and investment power, and 50,000 shares which may be purchased
upon exercise of options that are exercisable as of April 28, 1999 or
within 60 days of such date. Does not contain Company shares or
warrants held by any investment funds managed by Messrs. Bernards and
Kline. Pursuant to written agreement between Mr. Bernards and Mr.
Kline, Mr. Bernards has no voting or investment power over any of such
securities.
(7) Includes 77,500 shares which may be purchased upon exercise of options
and warrants that are exercisable as of April 28, 1999 or within 60
days of such date. Does not include 10,000 shares which may be
purchased upon exercise of an option which will become exercisable if
such person is elected a director at the Annual Meeting.
(8) Includes 36,250 shares which may be purchased upon exercise of options
and warrants that are exercisable as of April 28, 1999 or within 60
days of such date. Does not include 10,000 shares which may be
purchased upon exercise of an option which will become exercisable if
such person is elected a director at the Annual Meeting.
(9) Includes 10,000 shares which may be purchased upon exercise of options
that are exercisable as of April 28, 1999 or within 60 days of such
date. Does not include 10,000 shares which may be purchased upon
exercise of an option which will become exercisable if such person is
elected a director at the Annual Meeting.
(10) Includes 72,500 shares which may be purchased upon exercise of warrants
that are exercisable as of April 28, 1999 or within 60 days of such
date.
(11) Such shares are not outstanding but may be purchased upon exercise of
options that are exercisable as of April 28, 1999 or without 60 days of
such date.
(12) Includes 3,125 shares which may be purchased upon exercise of options
that are exercisable as of April 28, 1999 or within 60 days of such
date.
(13) Includes 586,250 shares which may be purchased upon exercise of options
and warrants that are exercisable as of April 28, 1999 or within 60
days of such date. Does not include 40,000 shares which may be
purchased upon exercise of options which will become exercisable if Ms.
DeNuccio and Messrs. Bidwell, Spinner and Simonet are elected directors
at the Annual Meeting.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bridge Loan. On August 26, 1997, the Company borrowed $500,000 from
Brightbridge Fund I, L.P. ("Brightbridge"), a limited partnership of which
Brightstone Capital Limited LLC ("Brightstone") is the general partner and a 20%
limited partner. Brightstone is owned 50% by James Bernards, currently a
director of the Company, and 50% by George Kline, a shareholder and former
director of the Company. The loan, which was repaid in February 1998, bore
interest at 12% per annum. Brightbridge received five-year warrants to purchase
20,000 shares of Company common stock at an exercise price of $3.00 per share
and, because the loan was not repaid when due, became entitled to receive an
additional 5,000 warrants exercisable at $3.00 per share. The number of warrant
shares and exercise price were subject to adjustment based on the price at which
the Company sold units in the February 1998 private placement, and the parties
appointed a third party to make a binding determination with respect thereto. As
a result of such third party determination, Brightbridge was issued a warrant to
purchase 67,516 shares at an exercise price of $2.25 per share in exchange for
cancellation of the 20,000 share warrant previously issued to it.
Consulting. Mr. Bidwell has served as a consultant to the Company in
the area of capital raising, and also served as the Company's Chief Financial
Officer, Secretary and Treasurer from July 1997 to April 1999. Mr. Bidwell
received $189,750 of contingent consulting compensation in February 1998 upon
completion of the Company's debt and equity offerings, and also was reimbursed
$21,677 of out-of-pocket expenses incurred, which amounts were expensed by the
Company in 1997. Effective May 1, 1998, the Company and Mr. Bidwell entered into
a Consulting Agreement pursuant to which Mr. Bidwell served as a consultant to
the Company in the capacities described above and in the areas of acquisitions,
strategic planning, and selection and training of the Company's financial and
accounting personnel. Under the terms of such Agreement Mr. Bidwell received
monthly fees of $14,500 and was eligible to receive additional fees, based upon
a comparison of the Company's actual pre-tax profits with its budgeted pre-tax
profits, up to a maximum of $95,700 per year. Such Agreement was terminated
effective April 29, 1999 by mutual agreement.
Loan. The Company's President and Chief Executive Officer, Loren Brink,
received loans and advances from the Company from time to time during fiscal
1998. As of December 31, 1998, the total of all such loans, including interest
was $48,362.
Guarantee. Loren Brink gave a limited personal guarantee securing the
Company's Credit Facility. In May 1998, the Company's Compensation Committee
recommended, and the Board approved, the Company's payment to Mr.
Brink of $24,000 as compensation for giving such guarantee.
<PAGE>
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, 1999 HEALTH FITNESS CORPORATION
By /s/ Loren S. Brink
Loren S. Brink
President and Chief Executive Officer
