SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
HEALTH FITNESS PHYSICAL THERAPY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
HEALTH FITNESS PHYSICAL THERAPY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Health Fitness Physical Therapy, Inc.
will be held on June 4, 1997, at 3:30 p.m. (Minneapolis time), at the Doubletree
Grand Hotel at the Mall of America, 7901 24th Avenue South, Bloomington,
Minnesota, for the following purposes:
1. To elect six directors for the ensuing year.
2. To amend the Company's Articles of Incorporation to change the
Company's name to Health Fitness Corporation.
3. To approve a 1,000,000 share increase in the number of shares
reserved for issuance under the Company's 1995 Stock Option Plan.
4. To approve the selection of Deloitte & Touche LLP as independent
auditors for the current fiscal year.
5. To consider and act upon such other matters as may properly come
before the meeting and any adjournments thereof.
Only shareholders of record at the close of business on April 11, 1997, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
Your vote is important. We ask that you complete, sign, date and return the
enclosed proxy in the envelope provided for your convenience. The prompt return
of proxies will save the Company the expense of further requests for proxies.
BY ORDER OF THE BOARD OF DIRECTORS
DON P. COCHRAN
SECRETARY
BLOOMINGTON, MINNESOTA
MAY 9, 1997
HEALTH FITNESS PHYSICAL THERAPY, INC.
Annual Meeting of Shareholders
May 22, 1997
PROXY STATEMENT
INTRODUCTION
Your Proxy is solicited by the Board of Directors of Health Fitness
Physical Therapy, Inc. ("the Company") for use at the Annual Meeting of
Shareholders to be held on June 4, 1997, at the location and for the purposes
set forth in the notice of meeting, and at any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its use
at the meeting by giving written notice of such revocation to the Secretary of
the Company. Proxies not revoked will be voted in accordance with the choice
specified by shareholders by means of the ballot provided on the Proxy for that
purpose. Proxies which are signed but which lack any such specification will,
subject to the following, be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the number and slate of directors proposed by
the Board of Directors and listed herein. If a shareholder abstains from voting
as to any matter, then the shares held by such shareholder shall be deemed
present at the meeting for purposes of determining a quorum and for purposes of
calculating the vote with respect to such matter, but shall not be deemed to
have been voted in favor of such matter. Abstentions, therefore, as to any
proposal will have the same effect as votes against such proposal. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote proxy shall be deemed present at the meeting for purposes of
determining a quorum but shall not be deemed to be represented at the meeting
for purposes of calculating the vote required for approval of such matter.
The mailing address of the principal executive office of the Company is
3500 West 80th Street, Suite 130, Minneapolis, Minnesota 55431. The Company
expects that this Proxy Statement, the related proxy and notice of meeting will
first be mailed to shareholders on or about May 9, 1997.
- 1 -
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed April 11, 1997, as the
record date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on April 11, 1997, 7,733,433 shares
of the Company's Common Stock were issued and outstanding. The Common Stock is
the only outstanding class of capital stock of the Company entitled to vote at
the meeting. Each share of Common Stock is entitled to one vote on each matter
to be voted upon at the meeting. Holders of Common Stock are not entitled to
cumulative voting rights.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning persons known to the
Company to be the beneficial owners of more than 5% of the Company's outstanding
Common Stock as of April 11, 1997. Unless otherwise indicated, the shareholders
listed in the table have sole voting and investment powers with respect to the
shares indicated.
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class (1)
Perkins Capital Management, Inc. 1,119,000 (2) 14.2%
730 E. Lake Street
Wayzata, MN 55391
Loren S. Brink 927,333 (3) 11.9%
3500 W. 80th Street
Minneapolis, MN 55431
Heartland Advisors, Inc. 429,099 (4) 5.5%
790 N. Milwaukee Street
Milwaukee, WI 53202
Okabena Partnership K 424,656 (5) 5.3%
90 S. Seventh Street
Minneapolis, MN 55402
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of April 11, 1997, 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) Ownership is as reported in Schedule 13G dated February 4, 1997, which
indicates sole power to vote or direct the vote of 592,000 shares and
sole power to dispose or direct the disposition of 1,119,000 shares.
These securities are beneficially owned by clients of Perkins Capital
Management, Inc., an investment advisor. Includes 125,000 shares
issuable pursuant to a currently exercisable warrant.
- 2 -
(3) Includes 58,333 shares which may be purchased upon exercise of options
which are exercisable as of April 11, 1997 or within 60 days of such
date.
(4) Ownership is as reported in Schedule 13G dated February 12, 1997. These
securities are beneficially owned by investment advisory accounts of
Heartland Advisors, Inc., an investment adviser. Includes 33,333 shares
issuable pursuant to a currently exercisable warrant.
(5) Ownership is as reported in Amendment to Schedule 13D dated February
11, 1997. Includes 250,000 shares issuable pursuant to a currently
exercisable warrant.
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of April 11, 1997, 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.
Name of Beneficial Owner Number of Shares Percent of
or Identity of Group Beneficially Owned Class (1)
---------------------------- ------------------ ---------
Loren S. Brink 927,333 (2) 11.9%
Charles E. Bidwell 327,596 (3)(4) 4.2%
James A. Bernards 277,032 (4)(5) 3.5%
George E. Kline 277,032 (4)(5) 3.5%
Robert K. Spinner 64,000 (4)(6) *
William T. Simonet, M.D. 54,000 (4)(7) *
All directors and executive officers
as a group (10 persons) 1,781,063 (8) 21.9%
* Less than 1%
(1) See footnote (1) to preceding table.
(2) See footnote (3) to preceding table.
(3) Includes 45,000 shares which may be purchased upon exercise of options
which are exercisable as of April 11, 1997 or within 60 days of such
date.
- 3 -
(4) Does not include 10,000 shares which will become purchasable upon
vesting of an option if such person is elected a director at the
Annual Meeting. (See "Election of Directors-Directors Fees.")
(5) Includes (i) 20,000 shares and a currently exercisable warrant to
purchase 80,000 shares held by Brightstone Capital, Ltd., an investment
firm controlled by Mr. Bernards and Mr. Kline, (ii) 85,782 shares and a
currently exercisable warrant to purchase 50,000 shares held by
Brightside Fund and 31,250 shares held by Brightstone Fund V, both of
which are investment funds managed by Messrs. Bernards and Kline, and
(iii) 10,000 shares which may be purchased upon exercise of an option
which is exercisable as of April 11, 1997 or within 60 days of such
date. Neither Mr. Bernards nor Mr. Kline holds any shares individually.
(6) Includes 55,000 shares which may be purchased upon exercise of options
which are exercisable as of April 11, 1997 or within 60 days of such
date.
(7) Includes 22,000 shares which may be purchased upon exercise of options
which are exercisable as of April 11, 1997 or within 60 days of such
date.
(8) Includes 387,265 shares which may be purchased upon exercise of options
and warrants which are exercisable as of April 11, 1997 or within 60
days of such date.
ELECTION OF DIRECTORS
(Proposal #1)
General Information
The Board of Directors has fixed the number of directors to be elected at
the Annual Meeting at six and has nominated as management's slate all current
members of the Board. Under applicable Minnesota law, the election of each
nominee requires the affirmative vote of the holders of the greater of (1) a
majority of the voting power of the shares represented in person or by proxy at
the Annual Meeting with authority to vote on such matter or (2) a majority of
the voting power of the minimum number of shares that would constitute a quorum
for the transaction of business at the Annual Meeting.
In the absence of other instructions, each proxy will be voted for each of
the nominees listed below. If elected, each nominee will serve until the next
annual meeting of shareholders and until his successor shall be elected and
qualified. If, prior to the meeting, it should become known that any of the
nominees will be unable to serve as a director after the meeting by reason of
death, incapacity or other unexpected occurrence, the proxies will be voted for
such substitute nominee as is selected by the Board of Directors or,
alternatively, not voted for any nominee. The Board of Directors has no reason
to believe that any nominee will be unable to serve.
The names and ages of all of the director nominees and the positions held
by each with the Company are as follows:
- 4 -
Name Age Position
Loren S. Brink 41 President, Chief Executive Officer and
Chairman of the Board of Directors
James A. Bernards 50 Director
Charles E. Bidwell 52 Director
George E. Kline 61 Director
William T. Simonet, M.D. 43 Director
Robert K. Spinner 54 Director
Loren S. Brink has been President, Chief Executive Officer and Chairman of
the Company since its inception in 1981. 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 1993, is President of
Brightstone Capital, Ltd., a venture capital firm and has been President of
Facilitation Incorporated, a strategic planning firm he founded in July 1993.
Prior to that time he was President of Stirtz Bernards & Co., a CPA firm he
founded and with which he had been a partner for more than twelve years. He is
also a director of FSI International and Reality Interactive, Inc.
Charles E. Bidwell, a Director of the Company since 1988, was Chief
Financial Officer of Red Owl Stores, Inc., a Minneapolis-based food retailer,
from 1981 until April 1994. 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. ROS Stores, Inc.
(formerly Red Owl Stores, Inc.) was the subject of an involuntary Chapter 7
bankruptcy petition, filed on June 11, 1992. This involuntary proceeding was
converted to a Chapter 11 reorganization action on July 6, 1992. A plan of
reorganization was filed and confirmed as of February 18, 1993 in the United
States Bankruptcy Court, District of Minnesota (Case Number 3-92-3833) providing
for full payment to all creditors.
George E. Kline, a Director of the Company since March 1993, is an
executive officer of Brightstone Capital, Ltd., a venture capital firm and has
been President of Venture Management, a firm engaged in investing and providing
financial consulting services to corporations, since 1968. He is also a director
of Applied Biometrics, Inc., CyberOptics Corporation, Rimage Corporation,
Fieldworks, Inc. and Nutrition Medical, Inc.
William T. Simonet, M.D., a Director of the Company since March 1993, is an
independent practicing orthopedic surgeon. From 1985 until August, 1994, Dr.
Simonet practiced with Orthopedic Consultants, P.A. 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.
- 5 -
Robert K. Spinner, a Director of the Company since May 1995, has been
President of Abbott Northwestern Hospital in Minneapolis, Minnesota since 1988
and a member of the administrative staff at Abbott Northwestern since 1968. 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 arrangements or understandings between any of the directors or
any other person (other than arrangements or understandings with directors
acting as such) pursuant to which any person was selected as a director or
nominee of the Company. There are no family relationships among the Company's
directors.
Committee and Board Meetings
The Company's Board of Directors has two standing committees, the Audit
Committee and the Compensation Committee. The Audit Committee, consisting of
Messrs. Bernards and Bidwell, is charged with responsibility for reviewing the
Company's external and internal auditing system, monitoring accounting and
financial reporting practices, determining the adequacy of administrative and
internal accounting controls, monitoring compliance with the Company's
prescribed procedures and reviewing publicly disseminated financial information.
The Audit Committee functions include supervision of the independent auditors,
including recommendation of the engagement or discharge of such auditors, and
review with the independent auditors of the audit plan and results of the
auditing engagement. The Audit Committee met two times during fiscal 1996.
The Compensation Committee, which consists of Messrs. Bernards, Kline,
Simonet and Spinner, is charged with oversight responsibility for management's
performance and the adequacy and effectiveness of compensation and benefit
plans. In addition, the Compensation Committee makes recommendations to the
Board of Directors regarding remuneration arrangements for senior management,
and adoption of employee compensation and benefit plans. The Compensation
Committee met three times during fiscal 1996. Members of both of such Committees
meet informally from time to time throughout the year on Committee matters.
The directors often communicate informally to discuss the affairs of the
Company and, when appropriate, take formal Board action by unanimous written
consent of all directors, in accordance with Minnesota law, rather than hold
formal meetings. During fiscal 1996, the Board of Directors held ten formal
meetings. Each incumbent director attended 75% or more of the total number of
meetings (held during the period(s) for which he has been a director or served
on committee(s)) of the Board and of committee(s) of which he was a member.
- 6 -
Directors Fees
Directors are not paid fees for attending Board or Committee meetings, but
are reimbursed for their out-of-pocket expenses incurred on the Company's
behalf. On April 8, 1997, the Company adopted a stock option program for
nonemployee directors whereby each nonemployee director (Messrs. Bernards,
Bidwell, Kline, Simonet and Spinner) was granted a nonqualified stock option
under the Company's 1995 Stock Option Plan (the "Plan") to purchase 50,000
shares of Company Common Stock at $3.00 per share. Such options expire April 8,
2007. In recognition of the directors' past service as directors without
compensation, such options were made immediately exercisable ("vested") to the
extent of 10,000 shares. Such options will vest to the extent of an additional
10,000 shares upon each re-election of such respective director to the Company's
Board of Directors, commencing with the May 1997 Annual Meeting of Shareholders.
If a optionee ceases to be a director, such options shall remain exercisable but
only to the extent vested at the date of termination, unless such optionee
ceases to be a director for cause, in which event the option shall immediately
terminate.
CERTAIN TRANSACTIONS
Robert K. Spinner, a Director of the Company, is President of Abbott
Northwestern Hospital in Minneapolis, Minnesota. Abbott Northwestern contracted
with the Company to manage its fitness center. In 1995, the Company received
approximately $97,000 in management fees for management of this fitness center.
The revenues realized from this contract are similar to revenues realized by the
Company from comparable fitness center contracts that the Company has with other
non-affiliated customers. This contract expired on December 31, 1995.
Effective January 1, 1996, the Company and Charles E. Bidwell, a Director
of the Company, entered into a Consulting Agreement whereby Mr. Bidwell will
provide consulting services to the Company in the areas of strategic planning,
and exploration and negotiation of joint ventures and acquisitions. The
Consulting Agreement provided for monthly payments of $2,000 to Mr. Bidwell as
well as a grant to Mr. Bidwell, on April 1, 1996, of options to purchase 10,000
shares of the Company's Common Stock. These options are immediately exercisable
at $3.00 per share through March 2000. The Consulting Agreement was extended on
October 15, 1996 and Mr. Bidwell received an additional grant of options to
purchase 25,000 shares of the Company's Common Stock. These options are
immediately exercisable at $3.00 per share through October 15, 2000. The
Consulting Agreement was terminated effective March 31, 1997.
The President and Chief Executive Officer, Loren Brink, has received loans
and advances from the Company from time to time over the last two years. As of
December 31, 1996, the total of all such loans, including interest was $77,573.
Such loans carry an interest rate equal to the Company's cost of borrowing
funds.
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 President and
Chief Executive Officer. No other executive officers received compensation in
excess of $100,000 during fiscal 1996.
- 7 -
Long Term Compensation
Annual Compensation Awards
Securities
Underlying
Name and Fiscal Options All Other
Principal Position Year Salary ($) Bonus ($) Other /SARs (#) Compensation ($)
- ------------------ -------- --------------------------- -------------- ---------------- -----------------
Loren S. Brink, 1996 $137,700 $35,000 $ 22,436 (1) 100,000 $3,935 (2)
Chief Executive 1995 111,800 - 15,054 - 3,422 (2)
Officer and President 1994 111,800 - 16,268 - 3,097 (2)
(1) Amount reflects automobile allowance and entertainment expense
allowance.
(2) Amount reflects health insurance premiums and life insurance premiums
not available to employees generally.
Employment Agreements
In February 1992, the Company entered into a five-year Employment Agreement
with Loren S. Brink. The agreement, which expired on December 31, 1996, and has
been replaced with a new Employment Agreement described below, entitled Mr.
Brink to annual base compensation of $100,000 and discretionary annual base
adjustments of $10,000 up to a maximum annual base salary of $140,000. The
agreement also entitled Mr. Brink to an annual bonus based upon certain
specified goals and objectives set by the Company's Board of Directors. The
agreement prohibited Mr. Brink from directly or indirectly competing with the
Company in the in-house fitness or wellness center or program business for
hospitals, corporations or governmental entities in the United States for two
years after termination of his employment, provided the Company pays Mr. Brink
$100,000 for each year of such non-competition.
On April 8, 1997 the Board of Directors approved a new 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% over 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.
- 8 -
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 1996 Fiscal Year
The following table sets forth information regarding stock options granted
to the Chief Executive Officer during the fiscal year ended December 31, 1996.
The Company has not granted stock appreciation rights.
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/Sh) Date
Loren S. Brink 100,000(1) 27.8% $3.00 5/31/01
- ------------------------
(1) Such option is exercisable as to 33,333 shares on June 1, 1997, 1998
and 1999.
Aggregated Option/SAR Exercises During 1996 Fiscal Year
and Fiscal Year End Option/SAR Values
No options were exercised by the Chief Executive Officer during fiscal
1996. The following table provides information related to the number and value
of options held at fiscal year end by the Chief Executive Officer:
- 9 -
Number of Unexercised
Securities Underlying Value of Unexercised In-the-
Options at 12/31/96 Money Options at 12/31/96(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Loren S. Brink..................... 200,000 100,000 $470,500 $0
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the market price of the Common Stock at fiscal year
end and the option exercise price per share multiplied by the number of
shares subject to options. The closing price as of December 31, 1996 on
the Nasdaq SmallCap Market was $3.00.
AMENDMENT OF ARTICLES OF INCORPORATION
TO CHANGE CORPORATE NAME
(Proposal #2)
At the Annual Meeting, shareholders will be asked to approve an amendment
to the Company's Articles of Incorporation to change the name of the Company
from "Health Fitness Physical Therapy, Inc." to its former name, "Health Fitness
Corporation." The longer name attempted to embrace both of the Company's lines
of business but has proved unwieldy and sometimes confusing in daily business
use. Accordingly, the Board of Directors has adopted and recommends for
shareholder approval an amendment to the Articles of Incorporation of the
Company which would change the name of the Company to "Health Fitness
Corporation".
Vote Required
Adoption of the amendment to the Company's Articles of Incorporation to
change the Company's name requires the affirmative vote of the holders of the
greater of (1) a majority of the voting power of the shares represented in
person or by proxy at the Annual Meeting with authority to vote on such matter
or (2) a majority of the voting power of the minimum number of shares that would
constitute a quorum for the transaction of business at the Annual Meeting.
INCREASE IN NUMBER OF SHARES RESERVED
FOR ISSUANCE UNDER 1995 STOCK OPTION PLAN
(Proposal #3)
General
The Board of Directors has adopted, subject to shareholder approval, an
increase in the number of shares of the Company's Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan (the "Plan") from 1,000,000
to 2,000,000 shares. The Board of Directors anticipates that such additional
shares reserved for issuance under the Plan will be used over the next two years
for normal option grants to the Company's Fitness Management and corporate
employees, the nonemployee director option grants described above, and option
grants in connection with the expected growth of the Company's Rehabilitative
healthcare business.
- 10 -
A general description of the Plan is set forth below, but such description
is qualified in its entirety by reference to the full text of the Plan, a copy
of which may be obtained without charge upon written request to the Company's
Chief Financial Officer.
Description of Plan
Purpose. The purpose of the Plan is to advance the interests of the Company
and its shareholders by enabling the Company to attract and retain persons of
ability as employees, directors and consultants, by providing an incentive to
such individuals through equity participation in the Company.
Term. Options may be granted under the Plan until February 25, 2005, or
until such earlier date as the Plan is discontinued or terminated by its Board.
Administration. The Plan is administered by the Board of Directors or by a
Committee of the Board of Directors (the "Administrator"). The Plan gives broad
powers to the Administrator to administer and interpret the Plan, including the
authority to select the individuals to be granted options and to prescribe the
particular form and conditions of each option granted.
Eligibility. All salaried employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the Plan. All salaried
employees, non-employee directors and officers of, and consultants to, the
Company or any subsidiary are eligible to receive nonqualified stock options. As
of April 11, 1997, the Company had approximately 350 salaried employees (of
which five are officers), five directors who are not employees and approximately
15 consultants.
Options. When an option is granted under the Plan, the Administrator at its
discretion specifies the option price, the type of option (either "incentive" or
"nonqualified") to be granted, and the number of shares of Common Stock which
may be purchased upon exercise of the option. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Company's
Common Stock and the option price of a nonqualified option may not be less than
85% of the fair market value of the Company's Common Stock on the date of grant.
The market value of the Company's Common Stock on April 11, 1997 was $2.56. The
term during which the option may be exercised and whether the option will be
exercisable immediately, in stages or otherwise are set by the Administrator,
but the term of an incentive stock option may not exceed ten years from the date
of grant. Optionees may pay for shares upon exercise of options with cash,
certified check or Common Stock of the Company valued at the stock's then fair
market value. Each stock option granted under the Plan is nontransferable during
the lifetime of the optionee. Each outstanding option under the Plan may
terminate earlier than its stated expiration date in the event of the optionee's
termination of employment, directorship or other relationship to the Company.
- 11 -
Amendment. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, the Plan
may not, without the approval of the shareholders, be amended in any manner that
will (a) materially increase the number of shares subject to the Plan except as
provided in the case of stock splits, consolidations, stock dividends or similar
events; (b) materially modify the requirements for eligibility for participation
in the Plan; (c) materially increase the benefits accruing to optionees under
the Plan or (d) cause incentive stock options to fail to meet the requirements
of the Internal Revenue Code.
Federal Income Tax Consequences of the Plan. Under present law, an optionee
will not realize any taxable income on the date a nonqualified option is granted
pursuant to the Plan. Upon exercise of the option, however, the optionee must
recognize, in the year of exercise, ordinary income equal to the difference
between the option price and the fair market value of the Company's Common Stock
on the date of exercise. Upon the sale of the shares, any resulting gain or loss
will be treated as capital gain or loss. The Company will receive an income tax
deduction in its fiscal year in which nonqualified options are exercised, equal
to the amount of ordinary income recognized by those optionees exercising
options, and must withhold income and other employment-related taxes on such
ordinary income.
Incentive stock options granted under the Plan are intended to qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code. Under
Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable income
when the option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain other
favorable tax consequences may be available to the optionee if he or she does
not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the granting of the option and one year
from the receipt of the shares.
Plan Benefits. The table below shows the total number of stock options that
have been received by the following individuals and groups under the Plan as of
April 11, 1997:
Total Number of
Name and Position/Group Options Received (1)
Loren S. Brink, Chief Executive
Officer and President 200,000
Current Executive Officer Group 362,475
Current Non-executive Officer Director Group 330,000
Non-executive Officer Employee Group 248,524
(1) This table reflects the total stock options granted without
taking into account exercises or cancellations. Because future
grants of stock options are subject to the discretion of the
Administrator, the future benefits that may be received by
these individuals or groups under the Plan cannot be
determined at this time, except for the automatic option
grants to outside directors as described above.
- 12 -
Vote Required
Because of the employees' positive response to the Plan and because of its
belief that making a greater number of shares available to employees, directors
and consultants is an effective means to insure the future growth and
development of the Company, the Board of Directors recommends that the
shareholders approve the increase in the number of shares reserved under the
Plan to 2,000,000 shares. Approval of such increase requires the affirmative
vote of the greater of (i) a majority of the shares represented at the meeting
with authority to vote on such matter or (ii) a majority of the voting power of
the minimum number of shares that would constitute a quorum for the transaction
of business at the meeting.
APPROVAL OF SELECTION OF AUDITORS
(Proposal #4)
The Board of Directors of the Company has selected Deloitte & Touche LLP as
independent auditors of the Company for the current fiscal year ending December
31, 1997. Deloitte & Touche LLP has acted as the Company's independent auditors
since 1992. The Board of Directors desires that the selection of such auditors
for the current 1997 fiscal year be submitted to the shareholders for approval.
If the selection is not approved, the Board of Directors will reconsider its
decision.
A representatives of Deloitte & Touche LLP is expected to be present at the
meeting, will be given an opportunity to make a statement regarding financial
and accounting matters of the Company and will be available at the meeting to
respond to appropriate questions from the Company's shareholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent shareholders ("Insiders") are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based on a review of the copies of such reports
furnished to the Company, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to Insiders were complied with
except that Charles Bidwell was late filing a form reporting one transaction.
- 13 -
OTHER BUSINESS
Management knows of no other matters to be presented at the meeting. If any
other matter properly comes before the meeting, the appointees named in the
proxies will vote the proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 annual meeting of shareholders must be
received by the Company by December 11, 1997, to be includable in the Company's
proxy statement and related proxy for the 1998 annual meeting.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996, accompanies this notice of meeting and Proxy Statement.
No part of the Annual Report is incorporated herein and no part thereof is to be
considered proxy soliciting material.
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES THERETO. THE COMPANY WILL
FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE
FORM 10-KSB, UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE
COMPANY'S FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH REPORT AND/OR
EXHIBITS(S) SHOULD BE DIRECTED TO MR. DON P. COCHRAN, CHIEF FINANCIAL OFFICER,
AT THE COMPANY'S PRINCIPAL ADDRESS.
BY ORDER OF THE BOARD OF DIRECTORS
Don P. Cochran
SECRETARY
Dated: May 9, 1997
Minneapolis, Minnesota
- 14 -
HEALTH FITNESS PHYSICAL THERAPY, INC.
PROXY FOR ANNUAL MEETING
Of Shareholders To Be Held
June 4, 1997
The undersigned hereby appoints LOREN S. BRINK and DON P. COCHRAN, and each
of them, with full power of substitution, as Proxies to represent and vote, as
designated below, all shares of Common Stock of Health Fitness Physical Therapy,
Inc. registered in the name of the undersigned at the Annual Meeting of
Shareholders of the Company to be held at the Doubletree Grand Hotel at the Mall
of America, 7901 24th Avenue South, Bloomington, Minnesota, at 3:30 p.m.
(Minneapolis time) on June 4, 1997, and at any adjournment thereof, and the
undersigned hereby revokes all proxies previously given with respect to the
meeting.
The Board of Directors recommends that you vote FOR each proposal below.
1. Elect six directors: [Nominees: Loren S. Brink, James A. Bernards,
Charles E. Bidwell, George E. Kline, William T. Simonet, M.D. and
Robert K. Spinner]
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote
(except those whose names have for all nominees listed above
been written in below)
To withhold authority to vote for any individual nominee
write that nominee's name on the line below
2. Amend Articles of Incorporation to change Company's name to "Health Fitness
Corporation":
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Increase number of shares reserved for 1995 Stock Option Plan from
1,000,000 to 2,000,000 shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approve selection of Deloitte & Touche LLP as independent auditors for
current fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. OTHER MATTERS. In their discretion, the Proxies are . . .
[ ] AUTHORIZED [ ] NOT AUTHORIZED . . .
to vote upon such other business as may properly come before the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL,
AND WILL BE DEEMED TO GRANT AUTHORITY UNDER PROPOSAL NUMBER 5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: , 1997
PLEASE DATE AND SIGN ABOVE exactly as name appears at
the left, indicating, where appropriate, official
position or representative capacity. For stock held in
joint tenancy, each joint owner should sign.
HEALTH FITNESS PHYSICAL THERAPY, INC.
1995 STOCK OPTION PLAN
(As Amended Through April 15, 1997)
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 Establishment. Health Fitness Physical Therapy, Inc. (the "Company")
hereby establishes a plan providing for the grant of stock options to certain
eligible employees, directors and consultants of the Company and its
subsidiaries. This plan shall be known as the 1995 Stock Option Plan (the
"Plan").
1.1 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enabling the Company to attract and retain
persons of ability as employees, directors and consultants, by providing an
incentive to such individuals through equity participation in the Company and by
rewarding such individuals who contribute to the achievement by the Company of
its long-term economic objectives.
ARTICLE 2. DEFINITIONS
The following terms shall have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Change in Control" means an event described in Article 11 below.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the entity administering the Plan, as provided in
Article 3 below.
2.5 "Common Stock" means the common stock of the Company, par value $.01
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 below.
2.6 "Disability" means the occurrence of an event which constitutes
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
2.7 "Eligible Persons" means individuals who are (a) salaried employees
(including, without limitation, officers and directors who are also employees)
of the Company, (b) Non- Employee Directors, or (c) consultants to the Company.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Fair Market Value" means, with respect to the Common Stock, as of any
date:
(a) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the Nasdaq Stock Market, the mean between the reported high and low
sale prices of the Common Stock on such exchange or by the Nasdaq Stock
Market as of such date (or, if no shares were traded on such day, as of
the next preceding day on which there was such a trade); or
(b) if the Common Stock is not listed or admitted to unlisted
trading privileges or reported on the Nasdaq Stock Market, and bid and
asked prices therefor in the over-the-counter market are reported by
the National Quotation Bureau, Inc. (or any comparable reporting
service), the mean of the closing bid and asked prices as of such date,
as reported by the National Quotation Bureau, Inc. (or a comparable
reporting service); or
(c) if the Common Stock is not listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System,
and bid and asked prices are not reported, the price that the Committee
determines in good faith in the exercise of its reasonable discretion.
The Committee's determination as to the current value of the Common
Stock shall be final, conclusive and binding for all purposes and on
all persons, including, without limitation, the Company, the
shareholders of the Company, the Optionees and their respective
successors-in-interest. No member of the Board or the Committee shall
be liable for any determination regarding current value of the Common
Stock that is made in good faith.
2.10 "Inventive Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.5 of the Plan that qualifies as an
incentive stock option within the meaning of Section 422 of the Code.
2.11 "Non-Employee Director" means any member of the Board who is not an
employee of the Company or any Subsidiary.
2.12 "Non-Statutory Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.6 of the Plan that does not qualify
as an Incentive Stock Option.
2.13 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.14 "Optionee" means an Eligible Person who receives one or more Inventive
Stock Options or Non-Statutory Stock Options under the Plan.
2.15 "Person" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company.
- 2 -
2.16 "Retirement" means the retirement of an Optionee pursuant to and in
accordance with the regular retirement plan or practice of the Company or the
Subsidiary employing the Optionee.
2.17 "Securities Act" means the Securities Act of 1933, as amended.
2.18 "Subsidiary" means any corporation that is a subsidiary corporation of
the Company (within the meaning of Section 424(f) of the Code).
2.19 "Tax Date" means a date defined in Section 6.5(c) of the Plan.
ARTICLE 3. PLAN ADMINISTRATION
The Plan shall be administered by the Board or by a Committee of the Board
consisting of two or more directors who shall be appointed by and serve at the
pleasure of the Board. As long as the Company's securities are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, then,
to the extent necessary for compliance with Rule 16b-3, or any successor
provision, each of the members of the Committee shall be a "Non-Employee
Director." For purposes of this paragraph, "Non-Employee Director" shall have
the same meaning as set forth in Rule 16b-3, or any successor provision, as then
in effect, of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended. Members of a Committee, if established, shall be
appointed from time to time by the Board, shall serve at the pleasure of the
Board and may resign at any time upon written notice to the Board. A majority of
the members of the Committee shall constitute a quorum. The Committee shall act
by majority approval of its members, shall keep minutes of its meetings and
shall provide copies of such minutes to the Board. Action of the Committee may
be taken without a meeting if unanimous written consent thereto is given. Copies
of minutes of the Committee's meetings and of its actions by written consent
shall be provided to the Board and kept with the corporate records of the
Company. As used in this Plan, the term "Committee" will refer either to the
Board or to such a Committee, if established.
In accordance with the provisions of the Plan, the Committee shall select
the Optionees from Eligible Persons; shall determine the number of shares of
Common Stock to be subject to Options granted pursuant to the Plan, the time at
which such Options are granted, the Option exercise price, Option period and the
manner in which each such Option vests or becomes exercisable; and shall fix
such other provisions of such Options as the Committee may deem necessary or
desirable and as consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Optionees which shall
evidence the particular terms, conditions, rights and duties of the Company and
the Optionees under Options granted pursuant to the Plan. The Committee shall
have the authority, subject to the provisions of the Plan, to establish, adopt
and revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. With the consent of
the Optionee affected thereby, the Committee may amend or modify the terms of
any outstanding Incentive Stock Option or Non-Statutory Stock Option in any
manner, provided that the amended or modified terms are permitted by the Plan as
then in effect. Without limiting the generality of the foregoing sentence, the
Committee may, with the consent of the Optionee affected thereby, modify the
exercise price, number of shares or other terms and conditions of an Incentive
Award, extend the term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an Incentive Award,
extend, renew or accept the surrender of any outstanding Incentive Stock Option
or Non-Statutory Stock Option, to the extent not previously exercised, and the
Committee may authorize the grant of new Options in substitution therefor to the
extent not previously exercised.
- 3 -
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including, without limitation, the Company
and its Subsidiaries, the shareholders of the Company, the Committee and each of
the members thereof, the directors, officers and employees of the Company and
its Subsidiaries, and the Optionees and their respective successors in interest.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under the Plan.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number. The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be Two Million (2,000,000), subject
to adjustment upon changes in capitalization of the Company as provided in
Section 4.3 below. Shares of Common Stock that may be issued upon exercise of
Options shall be applied to reduce the maximum number of shares of Common Stock
remaining available for use under the Plan.
4.2 Unused Stock. Any shares of Common Stock that are subject to an Option
(or any portion thereof) that lapses, expires or for any reason is terminated
unexercised shall automatically again become available for use under the Plan.
4.3 Change in Shares, Adjustments, Etc. If the number of outstanding shares
of Common Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, combination of shares, rights offering or any other change
in the corporate structure or shares of the Company, the Committee (or, if the
Company is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation) shall make appropriate adjustment as to
the number and kind of securities subject to and reserved under the Plan and, in
order to prevent dilution or enlargement of the rights of Optionees, the number
and kind of securities subject to outstanding Options. Any such adjustment in
any outstanding Option shall be made without change in the aggregate purchase
price applicable to the unexercised portion of the Option but with an
appropriate adjustment in the price for each share or other unit of any security
covered by the Option. However, no change shall be made in the terms of any
outstanding Incentive Stock Option as a result of any such change in the
corporate structure or shares of the Company, without the consent of the
Optionee affected thereby, that would disqualify that Incentive Stock Option
from treatment under Section 422 of the Code or would be considered a
modification, extension or renewal of an option under Section 424(h) of the
Code.
- 4 -
ARTICLE 5. ELIGIBILITY
Incentive Stock Options or Non-Statutory Stock Options shall be granted
only to those Eligible Persons who, in the judgment of the Committee, are
performing, or during the term of an Option, will perform, vital services in the
management, operation and development of the Company or a Subsidiary, and
significantly contribute or are expected to significantly contribute to the
achievement of long-term corporate economic objectives. Optionees may be granted
from time to time one or more Incentive Stock Options and/or Non-Statutory Stock
Options under the Plan, provided that only employees of the Company or a
Subsidiary may be granted Incentive Stock Options under the Plan, in any case as
may be determined by the Committee in its sole discretion. The number, type,
terms and conditions of Options granted to various Eligible Persons need not be
uniform, consistent or in accordance with any plan, whether or not such Eligible
Persons are similarly situated. The Committee may grant both an Incentive Stock
Option and a Non-Statutory Stock Option to the same Optionee at the same time or
at different times. Incentive Stock Options and Non-Statutory Stock Options,
whether granted at the same or different times, shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event will
the exercise of one Option affect the right to exercise any other Option or
affect the number of shares of Common Stock for which any other Option may be
exercised. Upon determination by the Committee that an Option is to be granted
to an Optionee, written notice shall be given such person specifying such terms,
conditions, rights and duties related thereto. Each Optionee shall enter into an
agreement with the Company, in such form as the Committee shall determine and
which is consistent with the provisions of the Plan, specifying the terms,
conditions, rights and duties of Incentive Stock Options and Non-Statutory Stock
Options granted under the Plan. Options shall be deemed to be granted as of the
date specified in the grant resolution of the Committee, which date shall be the
date of the related agreement with the Optionee.
ARTICLE 6. DURATION AND EXERCISE
6.1 Manner of Option Exercise. An Option may be exercised by an Optionee in
whole or in part from time to time, subject to the conditions contained herein
and in the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office (Attention: Secretary), and by paying in full the
total Option exercise price for the shares of Common Stock purchased in
accordance with Section 6.3. Such notice shall be in a form satisfactory to the
Committee and shall specify the particular Option (or portion thereof) that is
being exercised and the number of shares with respect to which the Option is
being exercised. Subject to Section 9.1, the exercise of the Option shall be
deemed effective upon receipt of such notice and payment. As soon as practicable
after the effective exercise of the Option, the Company shall record on the
stock transfer books of the Company the ownership of the shares purchased in the
name of the Optionee, and the Company shall deliver to the Optionee one or more
duly issued stock certificates evidencing such ownership.
- 5 -
6.2 Method of Payment of Option Exercise Price. At the time of the exercise
of an Incentive Stock Option or a Non-Statutory Stock Option, the Optionee may
determine whether the total purchase price of the shares to be purchased shall
be paid solely in cash or by transfer from the Optionee to the Company of
previously acquired shares of Common Stock, or by a combination thereof. In the
event the Optionee elects to pay the purchase price in whole or in part with
previously acquired shares of Common Stock, the value of such shares shall be
equal to their Fair Market Value on the date of exercise. The Committee may
reject an Optionee's election to pay all or part of the purchase price with
previously acquired shares of Common Stock and require such purchase price to be
paid entirely in cash if, in the sole discretion of the Committee, payment in
previously acquired shares would cause the Company to be required to recognize a
charge to earnings in connection therewith. For purposes of this Section 6.2,
"previously acquired shares" shall include both shares of Common Stock that are
already owned by the Optionee at the time of exercise and shares of Common Stock
that are to be acquired pursuant to the exercise of the Option concerned. In its
sole discretion, the Committee may determine either at the time of grant or
exercise of an Incentive Stock Option or a Non-Statutory Stock Option, to permit
an Optionee to pay all or any portion of the purchase price by delivery of a
promissory note in form and substance acceptable to the Committee.
6.3 Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date the Optionee becomes the
holder of record except as the Committee may determine pursuant to Section 4.3.
6.4 Incentive Stock Options.
(a) Incentive Stock Option Exercise Price. The per share price to
be paid by the Optionee at the time an Incentive Stock Option is
exercised will be determined by the Committee, but shall not be less
than (i) 100% of the Fair Market Value of one share of Common Stock on
the date the Option is granted, or (ii) 110% of the Fair Market Value
of one share of Common Stock on the date the Option is granted if, at
that time the Option is granted, the Optionee owns, directly or
indirectly (as determined pursuant to Section 424(d) of the Code),
more than 10% of the total combined voting power of all classes of
stock of the Company, any Subsidiary or any parent corporation of the
Company (within the meaning of Section 424(e) of the Code).
(b) Aggregate Limitation of Stock Subject to Incentive Stock
Option. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value (determined as of the date an Incentive Stock Option
is granted) of the shares of Common Stock with respect to which
incentive stock options (within the meaning of Section 422 of the
Code) are exercisable for the first time by an Optionee during any
calendar year (under the Plan and any other incentive stock option
plans of the Company, any Subsidiary or any parent corporation of the
Company (within the meaning of Section 424(e) of the Code)) shall not
exceed $100,000 (or such other amount as may be prescribed by the Code
from time to time); provided, however, that if the exercisability or
vesting of an Incentive Stock Option is accelerated as permitted under
the provisions of this Plan and such acceleration would result in a
violation of the limit imposed by this Section 6.4(b), such
acceleration shall be of full force and effect but the number of
shares of Common Stock which exceed such limit shall be treated as
having been granted pursuant to a Non-Statutory Stock Option; and
provided, further, that the limits imposed by this Section 6.4(b)
shall be applied to all outstanding Incentive Stock Options (under
this Plan and any other incentive stock option plans of the Company,
any Subsidiary or any parent corporation of the Company (within the
meaning of Section 424(e) of the Code)) in chronological order
according to the dates of grant.
- 6 -
(c) Duration of Incentive Stock Options. The period during which
an Incentive Stock Option may be exercised shall be fixed by the
Committee at the time such Option is granted, but in no event shall
such period exceed ten years from the date the Option is granted or,
in the case of an Optionee that owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the
Company, any Subsidiary or any parent corporation of the Company
(within the meaning of Section 424(e) of the Code), five years from
the date the Incentive Stock Option is granted. An Incentive Stock
Option shall become exercisable at such times and in such installments
(which may be cumulative) as shall be determined by the Committee at
the time the Option is granted. Upon the completion of its exercise
period, an Incentive Stock Option, to the extent not then exercised,
shall expire. Except as otherwise provided in Articles 7 or 11, all
Incentive Stock Options granted to an Optionee hereunder shall
terminate and may no longer be exercised if the Optionee ceases to be
an employee of the Company and all Subsidiaries or if the Optionee is
an employee of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Optionee continues as an
employee of the Company or another Subsidiary).
(d) Disposition of Common Stock Acquired Pursuant to the Exercise
of Incentive Stock Options. Prior to making a disposition (as defined
in Section 424(c) of the Code) of any shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option granted under
the Plan before the expiration of two years after the date on which
the Option was granted or before the expiration of one year after the
date on which such shares of Common Stock were transferred to the
Optionee pursuant to exercise of the Option, the Optionee shall send
written notice to the Company of the proposed date of such
disposition, the number of shares to be disposed of, the amount of
proceeds to be received from such disposition and any other
information relating to such disposition that the Company may
reasonably request. The right of an Optionee to make any such
disposition shall be conditioned on the receipt by the Company of all
amounts necessary to satisfy any federal, state or local withholding
tax requirements attributable to such disposition. The Committee shall
have the right, in its sole discretion, to endorse the certificates
representing such shares with a legend restricting transfer and to
cause a stop transfer order to be entered with the Company's transfer
agent until such time as the Company receives the amounts necessary to
satisfy such withholding requirements or until the later of the
expiration of two years from the date the Option was granted or one
year from the date on which such shares were transferred to the
Optionee pursuant to the exercise of the Option.
(e) Withholding Taxes. The Company is entitled to withhold and
deduct from future wages of the Optionee, or make other arrangements
for the collection of, all legally required amounts necessary to
satisfy any federal, state or local withholding tax requirements
attributable to any action by the Optionee, including, without
limitation, a disposition of shares of Common Stock described in
Section 6.4(d) above, that causes the Incentive Stock Option to cease
to qualify as an incentive stock option within the meaning of Section
422 of the Code.
- 7 -
6.5 Non-Statutory Stock Options.
(a) Option Exercise Price. The per share price to be paid by
the Optionee at the time a Non-Statutory Stock Option is exercised will
be determined by the Committee, but shall not be less than 85% of the
Fair Market Value of one share of Common Stock on the date the option
is granted.
(b) Duration of Non-Statutory Stock Options. The period during
which a Non-Statutory Stock Option may be exercised shall be fixed by
the Committee at the time such Option is granted, but in no event shall
such period exceed 10 years and one month from the date the Option is
granted. A Non-Statutory Stock Option shall become exercisable at such
times and in such installments (which may be cumulative) as shall be
determined by the Committee at the time the Option is granted. Upon the
completion of its exercise period, a Non-Statutory Stock Option, to the
extent not then exercised, shall expire. Except as otherwise provided
in Articles 7 or 11, all Non-Statutory Stock Options granted hereunder
to an Optionee who is an employee of the Company or any Subsidiaries
shall terminate and may no longer be exercised if the Optionee ceases
to be an employee of the Company or a Subsidiary or if the Optionee is
an employee of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Optionee continues as an employee
of the Company or another Subsidiary). A Non- Statutory Stock Option
granted hereunder to an Optionee who is not an employee of the Company
or a Subsidiary will terminate as determined by the Committee at the
time of grant.
(c) Withholding Taxes.
(i) The Company is entitled to (aa) withhold and
deduct from future wages of the Optionee, or make other
arrangements for the collection of, all legally required
amounts necessary to satisfy any federal, state or local
withholding tax requirements attributable to the Optionee's
exercise of a Non- Statutory Stock Option or otherwise
incurred with respect to the Option, or (bb) require the
Optionee promptly to remit the amount of such withholding to
the Company before acting on the Optionee's notice of exercise
of the Option.
(ii) The Committee may, in its discretion and subject
to such rules as the Committee may adopt, permit an Optionee
to satisfy, in whole or in part, any withholding tax
obligation which may arise in connection with the exercise of
a Non-Statutory Stock Option either by electing to have the
Company withhold from the shares of Common Stock to be issued
upon exercise that number of shares of Common Stock, or by
electing to deliver to the Company already-owned shares of
Common Stock, in either case having a Fair Market Value, on
the date such tax is determined under the Code (the "Tax
Date"), equal to the amount necessary to satisfy the
withholding amount due. An Optionee's election to have the
- 8 -
Company withhold shares of Common Stock or to deliver
already-owned shares of Common Stock upon exercise is irrevocable
and is subject to the consent or disapproval of the Committee.
When shares of Common Stock are issued prior to the Tax Date to
an Optionee making such an election, the Optionee shall agree in
writing to surrender that number of shares on the Tax Date having
an aggregate Fair Market Value equal to the tax due.
ARTICLE 7. EFFECT OF TERMINATION OF EMPLOYMENT ON OPTIONS
7.1 Termination of Employment or Other Service Due to Death, Disability or
Retirement. In the event an Optionee's employment or other service is terminated
with the Company and all Subsidiaries by reason of his death, Disability or
Retirement, all outstanding Incentive Stock Options and Non-Statutory Stock
Options then held by the Optionee shall become immediately exercisable in full
and remain exercisable for a period of three months in the case of Retirement
and one year in the case of death or Disability, provided, however, that an
exercise may not occur after the expiration date thereof in any event. The
Company shall undertake to use its best efforts to notify the Optionee or his
heirs or representatives, as the case may be, of the last date by which Options
may be exercised pursuant to this Section 7.1, at least thirty (30) days in the
case of Retirement and at least sixty (60) days in the case of death or
Disability, prior to such date.
7.2 Termination of Employment or Other Service for Reasons Other than
Death, Disability or Retirement.
(a) Except as otherwise provided in Article 11 and Subsection
(b) below, in the event an Optionee's employment or other service is
terminated with the Company and all Subsidiaries for any reason other
than his death, Disability or Retirement, all rights of the Optionee
under the Plan shall immediately terminate without notice of any kind
and no Incentive Stock Option or Non-Statutory Stock Option then held
by the Optionee shall thereafter be exercisable.
(b) Notwithstanding the provisions of Subsection (a) above,
upon an Optionee's termination of employment or other service with the
Company and all Subsidiaries, the Committee may, in its sole discretion
(which may be exercised before or following such termination), cause
Incentive Stock Options and Non-Statutory Stock Options then held by
such Optionee to become exercisable and to remain exercisable following
such termination of employment or other service in the manner
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration date thereof in any event, and any
Incentive Stock Option that remains unexercised more than three months
following termination of employment shall thereafter be deemed to be a
Non-Statutory Stock Option.
- 9 -
7.3 Date of Termination. For purposes of the Plan, an Optionee's employment
or other service shall be deemed to have terminated on the date that the
Optionee ceases to perform services for the Company or the last day of the pay
period covered by the Optionee's final paycheck, as the case may be.
Notwithstanding the foregoing, the employee Optionee shall not be deemed to have
ceased to be an employee for purposes of the Plan until the later of the 91st
day of any bona fide leave of absence approved by the Company or a Subsidiary
for the Optionee (including, without limitation, any layoff) or the expiration
of the period of any bona fide leave of absence approved by the Company or a
Subsidiary for the Optionee (including, without limitation, any layoff) during
which the Optionee's right to reemployment is guaranteed either by statute or
contract.
ARTICLE 8. RIGHTS OF EMPLOYEES; OPTIONEES
8.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary to terminate the employment of
any Eligible Person or Optionee at any time, nor confer upon any Eligible Person
or Optionee any right to continue in the employ of the Company or any
Subsidiary.
8.2 Nontransferability. No right or interest of any Optionee in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Optionee, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of
an Optionee's death, an Optionee's rights and interest in any Options shall be
transferable by testamentary will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options (to the extent permitted pursuant to Section 7.1) may be made by, the
Optionee's legal representatives, heirs or legatees. If in the opinion of the
Committee an Optionee holding any Option is disabled from caring for his or her
affairs because of mental condition, physical condition or age, any payments due
the Optionee may be made to, and any rights of the Optionee under the Plan shall
be exercised by, such Optionee's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
8.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended
to amend, modify or rescind any previously approved compensation plans or
programs entered into by the Company. The Plan will be construed to be an
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
ARTICLE 9. SHARE ISSUANCE AND TRANSFER RESTRICTIONS
9.1 Share Issuance. Notwithstanding any other provision of the Plan or any
agreements entered into pursuant hereto, the Company shall not be required to
issue or deliver any certificate for shares of Common Stock under this Plan (and
an Option shall not be considered to be exercised, notwithstanding the tender by
the Optionee of any consideration therefor), unless and until each of the
following conditions has been fulfilled:
- 10 -
(a) (i) there shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its sole discretion, shall have determined
to file, cause to become effective and maintain the effectiveness of such
registration statement; or (ii) if the Committee has determined not to so
register the shares of Common Stock to be issued under the Plan, (A)
exemptions from registration under the Securities Act and applicable state
securities laws shall be available for such issuance (as determined by counsel
to the Company) and (B) there shall have been received from the Optionee (or,
in the event of death or disability, the Optionee's heir(s) or legal
representative(s)) any representations or agreements requested by the Company
in order to permit such issuance to be made pursuant to such exemptions; and
(b) there shall have been obtained any other consent, approval
or permit from any state or federal government agency which the Committee shall,
in its sole discretion upon the advice of counsel, deem necessary or advisable.
9.2 Share Transfer. Shares of Common Stock issued pursuant to the exercise
of Options granted under the Plan may not be sold, assigned, transferred,
pledged, encumbered or otherwise disposed of (whether voluntarily or
involuntarily) except pursuant to registration under the Securities Act and
applicable state securities laws or pursuant to exemptions from such
registrations. The Company may condition the sale, assignment, transfer, pledge,
encumbrance or other disposition of such shares not issued pursuant to an
effective and current registration statement under the Securities Act and all
applicable state securities laws on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and applicable
state securities laws.
9.3 Legends. Unless a registration statement under the Securities Act is in
effect with respect to the issuance or transfer of shares of Common Stock issued
under the Plan, each certificate representing any such shares shall be endorsed
with a legend in substantially the following form, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH
STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
- 11 -
ARTICLE 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Stock Options and Non-Statutory Stock
Options under the Plan shall conform to any change in applicable laws or
regulations or in any other respect that the Board may deem to be in the best
interests of the Company; provided, however, that no amendment shall, either
directly or indirectly, (a) materially increase the total number of shares of
Common Stock as to which Options may be granted under the Plan, except as
provided in Section 4.3 of the Plan; (b) materially increase the benefits
accruing to Optionees under the Plan; or (c) materially modify the requirements
as to eligibility for participation in the Plan without the approval of the
shareholders, but only if such approval is required for compliance with the
requirements of any applicable law or regulation; and provided, further, that
the Plan may not, without the approval of the shareholders, be amended in any
manner that will cause Incentive Stock Options to fail to meet the requirements
of Internal Revenue Code Section 422. No termination, suspension or amendment of
the Plan shall alter or impair any outstanding Option without the consent of the
Optionee affected thereby; provided, however, that this sentence shall not
impair the right of the Committee to take whatever action it deems appropriate
under Section 4.3.
ARTICLE 11. CHANGE IN CONTROL
If, during the term of an Option, (i) the Company merges or consolidates
with any other corporation and is not the surviving corporation after such
merger or consolidation; (ii) the Company transfers all or substantially all of
its business and assets to any other person; or (iii) more than 50% of the
Company's outstanding voting shares are purchased by any other person, the
Committee may, in its sole discretion, provide for the acceleration of the right
to exercise the option prior to the anticipated effective date of any of the
foregoing transactions or take any other action as it may deem appropriate to
further the purposes of this Plan or protect the interests of the Optionee.
ARTICLE 12. EFFECTIVE DATE OF THE PLAN
12.1 Effective Date. The Plan is effective as of February 25, 1995, the
effective date it was adopted by the Board subject to the approval of the
shareholders within 12 months. Options may be granted under the Plan prior to
shareholder approval if made subject to shareholder approval.
12.2 Duration of the Plan. The Plan shall terminate at midnight on ten (10)
years from February 25, 1995 and may be terminated prior thereto by Board
action, and no Options shall be granted after such termination. Options
outstanding upon termination of the Plan may continue to be exercised in
accordance with their terms.
ARTICLE 13. MISCELLANEOUS
13.1 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Minnesota
without regard to the conflict of laws provisions of any jurisdictions. All
parties agree to submit to the jurisdiction of the state and federal courts of
Minnesota with respect to matters relating to the Plan and agree not to raise or
assert the defense that such forum is not convenient for such party.
13.2 Gender and Number. Except when otherwise indicated by the context,
reference to the masculine gender in the Plan shall include, when used, the
feminine gender and any term used in the singular shall also include the plural.
- 12 -
13.3 Construction. Wherever possible, each provision of this Plan shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Plan shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Plan.
13.4 Successors and Assigns. This Plan shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company's obligations under the
Plan.
13.5 Survival of Provisions. The rights, remedies, agreements, obligations
and covenants contained in or made pursuant to the Plan, any agreement
evidencing an Incentive Award and any other notices or agreements in connection
therewith, including, without limitation, any notice of exercise of an Option,
shall survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.
- 13 -