SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______)
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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 toss.240.14a-12
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, 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):
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[ ] 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:
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(4) Date Filed:
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HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
3750 INVESTMENT LANE, SUITE #5
WEST PALM BEACH, FLORIDA 33404
2002 ANNUAL MEETING OF SHAREHOLDERS
May 21, 2002
Dear Shareholder:
You are cordially invited to attend the 2002 Annual Meeting of Shareholders
of Health & Nutrition Systems International, Inc. We will hold the meeting on
Monday, June 24, 2002, at 9:00 a.m., Eastern Time, at the Hilton Hotel, 150
Australian Avenue, West Palm Beach, Florida 33406.
Enclosed you will find a notice setting forth the business expected to come
before the meeting, the Proxy Statement, a form of proxy and a copy of our 2001
Annual Report. At this year's meeting, the agenda includes election of the
members of our Board of Directors and a proposal to ratify the appointment of
our independent auditors. Our Board of Directors recommends that you vote FOR
the election of the members of our Board of Directors and FOR the ratification
of the appointment of our independent auditors.
Your vote is very important to us. We hope you will be able to attend the
meeting and vote your shares in person. But, whatever your plans, we ask that
after you read the Proxy Statement, you please complete, sign and date the
enclosed proxy card and promptly return it in the envelope provided so that your
shares will be represented at the meeting.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Christopher Tisi
--------------------
Christopher Tisi
President, Chief Executive Officer and Interim
Chairman of the Board
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
3750 INVESTMENT LANE, SUITE #5
WEST PALM BEACH, FLORIDA 33404
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MONDAY, JUNE 24, 2002
The annual meeting of Shareholders of Health & Nutrition Systems
International, Inc. (the "Company") will be held at 9:00 a.m., Eastern Time, on
Monday, June 24, 2002, at the Hilton Hotel, 150 Australian Avenue, West Palm
Beach, Florida for the following purposes:
o To elect four (4) directors to hold office until the annual
meeting of shareholders in 2003 and until their respective
successors are duly elected and qualified;
o To ratify the selection of Daszkal Bolton LLP as our
independent auditors for the year ending December 31, 2002;
and
o To transact such other business properly brought before the
shareholders at the meeting.
This notice, together with the accompanying proxy statement and
enclosed proxy card, will be mailed to shareholders on or about May 21, 2002.
The board of directors has set the close of business on April 29, 2002
as the record date of the meeting. Shareholders of record at the close of
business on April 29, 2002 will be entitled to notice of and to vote at the
annual meeting or any adjournment or continuation of the meeting. Each share of
common stock is entitled to one vote. The proxy card provided with the Proxy
Statement indicates the number of shares of the Company's common stock that you
own and are entitled to vote. A list of shareholders will be available for
inspection at the meeting.
All shareholders are cordially invited to attend the annual meeting.
By Order of the Board of Directors,
/s/ Mona Lalla
--------------
Mona Lalla, Assistant Secretary
West Palm Beach, Florida
May 21, 2002
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
MARK, DATE AND SIGN YOUR PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
2
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
--------------------------------------------------------
2002 ANNUAL MEETING OF SHAREHOLDERS
JUNE 24, 2002
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PROXY STATEMENT
DATED MAY 21, 2002
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GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because
the Company's board of directors is soliciting your proxy to vote at the 2002
Annual Meeting of Shareholders. This proxy statement summarizes the information
you need to know to vote at the annual meeting on June 24, 2002, and at any
adjournment or postponement of the meeting, for the purposes indicated in the
accompanying Notice of 2002 Annual Meeting of Shareholders. However, you do not
need to attend the annual meeting to vote your shares. Instead, you may simply
complete, sign and return the enclosed proxy card. This proxy statement and the
accompanying form of proxy will be mailed to shareholders on or about May 21,
2002. The annual report which accompanies the proxy materials is not to be
regarded as proxy soliciting material.
Who can vote?
You can vote your shares of common stock if our records show that you
owned the shares at the close of business on April 29, 2002. A total of
3,632,813 shares of common stock can vote at the annual meeting. You get one
vote for each share of common stock you own. The enclosed proxy card shows the
number of shares you can vote.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each
proposal to be considered at the annual meeting. Sign and date the proxy card
and mail it back to us in the enclosed envelope. The proxyholders named on the
proxy card will vote your shares as you instruct. If you sign and return the
proxy card but do not vote on a proposal, the proxyholders will vote for you on
that proposal. Unless you instruct otherwise, the proxyholders will vote FOR
each of the four director nominees; and FOR the ratification of Daszkal Bolton
LLP as our independent auditors; and according to their best judgment with
regard to any other proposals to be considered at the annual meeting.
What if other matters come up at the annual meeting?
The matters described in this proxy statement are the only matters we
know will be voted on at the annual meeting. If other matters are properly
presented at the meeting, the proxyholders will vote your shares as they see
fit.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your
vote either by giving our corporate secretary a written notice revoking your
proxy card or by signing, dating and returning to us a new proxy card. We will
honor the proxy card with the latest date.
Can I vote in person at the annual meeting rather than by completing the proxy
card?
Although we encourage you to complete and return the proxy card to
ensure that your vote is counted, you can attend the annual meeting and vote
your shares in person.
What do I do if my shares are held in "street name"?
If your shares are held in the name of your broker or other nominee,
that party should give you instructions for voting your shares.
How are votes counted?
We will hold the annual meeting if holders of a majority of the shares
of common stock entitled to vote either sign and return their proxy cards or
attend the meeting. If you sign and return your proxy card, your shares will be
counted to determine whether we have a quorum even if you abstain or fail to
vote on any of the proposals listed on the proxy card.
Who will count the votes?
Florida Atlantic Stock Transfer Company, HNS's transfer agent, will
tabulate the returned proxy votes by mail and the independent inspector of the
election will tabulate the votes at the meeting. The inspector of elections will
treat shares represented by properly signed and returned proxies that reflect
abstentions from voting as shares that are present and entitled to vote for
purposes of determining the presence of a quorum on all matters.
If your shares are held in the name of a broker or nominee, and you do
not tell the broker or nominee how to vote your shares (so-called "broker
non-votes"), the nominee can vote them as he sees fit only on matters that are
deemed to be routine, and not on any other proposal. If a broker indicates on
the proxy that he does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be voted on that matter.
However, the inspector of elections will treat "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum.
Who pays for this proxy solicitation?
We do. In addition to sending you these materials, some of our
employees may contact you by telephone, by mail, or in person. None of these
employees will receive any extra compensation for doing this. We may request
persons holding shares in their names for others to forward soliciting materials
to our principals to obtain authorization for the execution of proxies, and we
will reimburse such persons for their expenses in so doing.
None of the actions to be voted upon at the 2002 Annual Meeting of
Shareholders shall create either appraisal rights or dissenters' rights under
the Florida Business Corporation Act.
You are requested, regardless of the number of shares you hold, to sign
the proxy and return it promptly in the enclosed envelope.
2
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINATIONS. At the annual meeting, we will nominate the persons named
in this proxy statement as directors. Although we don't know of any reason why
one of these nominees might not be able to serve, the board of directors will
propose a substitute nominee if any nominee is not available for election. The
proxies will then be voted for such other person as the board of directors may
recommend, unless the board of directors reduces the number of directors. All of
the nominees are currently members of the board of directors of Health &
Nutrition Systems International, Inc.
GENERAL INFORMATION ABOUT THE NOMINEES. Pursuant to our bylaws, our
board of directors may be composed of not less than one but no more than nine
directors. We are nominating four directors to serve until our next annual
meeting. Set forth below is certain information concerning the nominees for
election as directors. The ages listed for the nominees are as of April 26,
2002. Our directors and executive officer are:
Name Age Position/Office
---- --- ---------------
Christopher Tisi 32 Interim Chairman of the Board, President and
Chief Executive Officer
Ted Alflen 55 Director
Daryl Green 41 Director
Steve Pomerantz 45 Director
The business experience of our executive officer and directors is set
forth below:
Christopher Tisi has been our Chief Executive Officer and Interim
Chairman of the Board since December 2001. Mr. Tisi has been our President and
Secretary since November 2000, and was our Chief Operating Officer from December
1999 until November 2000. From March 1998 until December 1999, Mr. Tisi was our
Vice President of Sales and Marketing. From 1994 to March 1998, Mr. Tisi was our
Vice President of Training.
Ted Alflen has been one of our directors since October 2000. In March
1991, Mr. Alflen founded TCCD International Inc. and served as President from
1991 to present. TCCD manufactures and markets crystal deodorants. TCCD recently
acquired Real Natural Products and the Moistic brand of all natural lip balms.
Mr. Alflen has been in sales and marketing for over 29 years.
Darryl Green has been one of our directors since August 10, 2001. Mr.
Green has been an independent business consultant in the nutrition industry from
June 2001 until present. He was the Vice President of retail sales of General
Nutrition Centers from June 1999 until June 2001. He held the position of Vice
President of retail operations for the Southeastern United States for GNC from
January 1996 until June 1999, and was the Director of Operations for the GNC NY
City Designated Market Area from January 1993 until January 1996.
Steve Pomerantz has been one of our directors since 1994. From November
2000 to December 2001, Mr. Pomerantz was our Chairman of the Board and
Treasurer, and he held the office of Chief Executive Officer from March 1998
until December 2001. He was our President from March 1998 until November 2000.
From 1995 to March 1998, Mr. Pomerantz was our Vice President of Finance and
Chief Operating Officer. Presently, Mr. Pomerantz is pursuing his own business
interests.
Each director holds his office until the next annual meeting of the
shareholders unless he resigns or is removed. There is no family relationship
between any of the executive officers and directors. The Board elects officers
and their terms of office are, except to the extent governed by an employment
contract, at the discretion of the Board.
VOTE REQUIRED. Under the Florida Business Corporation Act, directors
are elected by a plurality of the votes cast by the shares entitled to vote for
the respective nominees. Proxies that are marked "Withhold Authority" and broker
non-votes, if any, will not affect the outcome of the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" ALL NOMINEES FOR DIRECTOR.
3
MEETINGS OF THE BOARD OF DIRECTORS. During the year 2001, the board of
directors held eight (8) meetings and each of the directors attended at least 75
percent of the aggregate number of meetings of the board of directors and
committees (if any) on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS. Information regarding the
functions of the Board's committees, their present membership and the number of
meetings held by each committee during the 2001 fiscal year is described below.
AUDIT COMMITTEE - MEETINGS (4)
Function Members
-------------------------------------------------------------------- ---------------------
o Recommends independent auditors Steven Pomerantz
o Reviews internal financial information William A. Husa (1)
o Reviews report of audit and management letter
o Participates in the determination of the adequacy of the
internal accounting control
o Reviews the results of audits with the independent auditors
o Oversees quarterly and yearly reporting
o Responsible for policies, procedures and other matters
relating to business integrity, ethics and conflicts of
interests
-------------
(1) On March 31, 2002, William A. Husa resigned as a member of the Board of
Directors and all of its committees.
Mr. Pomerantz, acting as a committee of one, performed the functions
described above until June 11, 2001 Mr. Husa joined as a member of the audit
committee on June 11, 2001 and together they submitted the report indicated
below. Mr. Pomerantz would not be considered "independent" under the definition
in the standards of the NASDAQ, but Mr. Husa would be considered independent.
However, we are not subject to the NASDAQ requirement of independent audit
committee members. The Board of Directors has not adopted a charter for the
Audit Committee.
COMPENSATION COMMITTEE - MEETINGS (2)
Function Members
-------------------------------------------------------------------- ------------------------------
o Review and approve compensation and benefits plans Theodore Alflen(1)
o Establish and approve compensation of officers William A. Husa (Chair) (1)(2)
-------------
(1) On June 11, 2001, William A. Husa (Chair) and Theodore Alflen were
elected to serve as members of the Compensation Committee.
(2) On March 31, 2002, William A. Husa resigned as a member of the Board of
Directors and all of its committees thereof.
The Compensation Committee met twice during 2002 as a part of our
regular Board meetings.
STOCK OPTION COMMITTEE - MEETINGS (NONE)*
Function Members
-------------------------------------------------------------------- --------------------
o Administers stock option plans Steven Pomerantz
-------------
* We did not issue stock options during our 2001 fiscal year.
4
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process
on behalf of the board of directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling our oversight responsibilities as the Audit
Committee, we have reviewed and discussed the audited financial statements in
the annual report with the other members of management including a discussion of
the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements. The Committee held four meetings during fiscal year 2001.
Acting as a committee, we reviewed and discussed with the independent
auditors, who are responsible for expressing an opinion on the conformity of
those financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee by SAS 61 (codification on Statements on Auditing Standards,
AU 380). In addition, we have discussed with the independent auditors the
auditors' independence from management and the Company, and have received the
written disclosures and the letter from the independent auditors required by the
Independence Standards Board No. 1 and have considered the compatibility of
nonaudit services with the auditors' independence.
We discussed with the Company's independent auditors the overall scope
and plans for their audit. We met with the independent auditors to discuss the
results of their examination, their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, we
recommended to the board of directors (and the board has approved) that the
audited financial statements be included in the Company's annual report on Form
10-KSB for the year ended December 31, 2001 for filing with the Securities and
Exchange Commission. The Committee and the board have also recommended, subject
to shareholder approval, the selection of the Company's independent auditors for
the year ending December 31, 2002.
AUDIT COMMITTEE
Steven Pomerantz
William A. Husa (resigned)
5
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The table below shows, as of April 26, 2002, the number of shares of
our common stock beneficially owned by
o each person whom we know beneficially owns more than 5% of the
common stock,
o each director and nominee for director,
o each executive officer included in the Summary Compensation
Table, and
o all executive officers and directors as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF SHARES AND NATURE OF PERCENT OF CLASS (3)
---------------------------------------- ------------------------------- --------------------
BENEFICIAL OWNERSHIP (2)
Christopher Tisi 819,088(4)(5) 21.6%
Steve Pomerantz 401,829(5) 10.9%
Ted Alflen 4,250(5) *
Darryl Green - -
J.C. Herbert Bryant, III 266,534(6) 7.3%
8390 Currency Drive, #5
West Palm Beach, FL 33404
Tony D'Amato 308502(4) 8.5%
1526 Michigan Avenue, #1
Miami Beach, FL
Anthony and Renate Dell'Aquila 205,000(6) 5.6%
15377 Whispering Willow Dr.
Wellington, FL 33414
Napoleon and Tania Paz 214,300(6) 5.9%
51 Seabreeze Ave.
Delray Beach, FL 33483
EAI Partners, Inc. 275,000(7) 7.6%
1900 Corporate Blvd., #305-W
Boca Raton, FL 33431
All executive officers and directors as a 1,225,167(8) 31.9%
group (4 persons)
-----------------------------
* Less than 1%
(1) The address of the executive officer and each director is c/o the Company,
3750 Investment Lane, Suite 5, West Palm Beach, FL 33404.
(2) Unless otherwise noted, all persons named in the table have sole voting and
dispositive power with respect to all shares of common stock beneficially
owned by them.
(3) Based upon 3,632,813 outstanding shares as of April 26, 2002, and, with
respect to each holder of options exercisable, or notes convertible, within
60 days of April 26, 2002, the shares issuable under such instruments.
(4) In 2000, Tony D'Amato ("D'Amato") executed and delivered to Chris Tisi
("Tisi") and the Company a Shareholders' Agreement pursuant to which
D'Amato granted to Tisi an irrevocable proxy (the "Irrevocable Proxy")
authorizing Tisi to vote shares of the Company beneficially owned by
D'Amato as of that date and any shares of the Company acquired by D'Amato
thereafter. The Irrevocable Proxy had a two-year term. On January 31, 2001,
Tisi relinquished his right to vote pursuant to the Irrevocable Proxy with
respect to 125,000 shares beneficially owned by D'Amato as of that date. As
disclosed in the 13D dated April 29, 2002 filed by Steve Pomerantz
("Pomerantz"), Tisi and D'Amato, on April 24, 2002, D'Amato executed and
delivered to Tisi a First Amendment to the Shareholders' Agreement (the
"First Amendment") pursuant to which D'Amato extended the term of the
6
Shareholders' Agreement and the Irrevocable Proxy for an additional
two-year period. In addition, Tisi and Pomerantz have entered into an oral
understanding that each will vote the shares of common stock beneficially
owned by him (or, in the case of Tisi, as to which he has voting power)
together as a group, but only for the following purposes: (i) in favor of
the same person or persons to be nominated and elected to serve on the
board of directors to fill any vacancies on the board, if and as such
vacancies may arise from time to time (whether such vacancy occurs by
removal, resignation or an increase in the size of the board of directors)
at any time prior to our 2002 annual meeting of stockholders, or any
adjournment thereof, and (ii) in favor of the same person or persons to be
nominated and elected as the slate of nominees, and elected, to the board
of directors to be voted upon by the shareholders at our 2002 annual
meeting of shareholders, or any adjournment thereof. Accordingly, Tisi has
sole voting power of 819,088 shares and sole dispositive power of 416,788
shares, and D'Amato has sole voting power of 125,000 shares and sole
dispositive power of 308,502 shares.
(5) Share ownership of the following persons includes shares subject to
immediately exercisable options or options exercisable within 60 days of
April 26, 2002, as follows: for Mr. Pomerantz - 50,000 shares; for Mr. Tisi
- 152,000 shares; and for Mr. Alflen - 1,250.
(6) The share amounts of Bryant, Anthony and Renate Dell'Aquila and
Napoleon Paz are based upon the disclosures made by each of them in
their respective Schedule 13Ds filed with the Securities and Exchange
Commission on or about June 27, 2001. Mr. and Mrs. Dell'Aquila share
voting and dispositive power.
(7) Based upon EAI Partners, Inc.'s receipt of 275,000 shares of our common
stock in connection with the settlement of litigation adverse to the
Company, we believe that EAI Partners, Inc. is a beneficial owner of this
amount.
(8) Includes an aggregate of 203,250 shares subject to immediately exercisable
options or options exercisable within 60 days of April 26, 2002 held by
executive officers and directors as a group.
SECTION 16(A) - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(e) of the Securities Exchange Act of 1934
during the fiscal year ended December 31, 2001, we are not aware of any person
that failed to file on a timely basis, as disclosed in the aforementioned forms,
reports required by Section 16(a) of the Exchange Act during the fiscal year
ended December 31, 2001, other than the unintentional failure by our former
director, Bill Husa, to timely file one Form 4 reporting one transaction.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the years ended December 31, 2001 and December 31, 2000, we sold
$63,881 and $163,969 respectively of products to KMS-Thin Tab, an entity we
believe is controlled by J.C. Herbert Bryant III, a beneficial owner of greater
than five percent of our stock. These sales were on terms no more favorable than
those given to unaffiliated third parties in arms-length transactions.
On January 12, 2002, we repaid a $100,000 loan from SunTrust Bank which
was collateralized by a certificate of deposit in the principal amount of
$100,000 pledged by Steve Pomerantz, our former Chief Executive Officer and
Chairman of the Board. Accordingly, on that date, the collateral was released.
On January 15, 2002, we obtained another short-term loan from SunTrust Bank in
the amount of $23,400. This loan is collateralized by a certificate of deposit
in the amount of $23,400 owned by Steve Pomerantz. The loan is due on July 15,
2002 and is payable in monthly installments of $4,167.
On March 15, 2002, we entered into a factoring agreement with LSQ
Funding Group, L.C. ("LSQ"). The term of this agreement is one year, and the
maximum amount of receivables we may factor is $750,000. In connection with the
LSQ Factoring Agreement, Chris Tisi, our President, Chief Executive Officer and
Interim Chairman of the Board was required to deliver a personal indemnity
agreement to LSQ. Mr. Tisi's responsibility under the indemnity agreement only
extends to invoices purchased by LSQ throughout the term of his employment.
7
LEGAL PROCEEDINGS
J.C. HERBERT BRYANT, III AND KMS-THIN TAB 100, INC.
The Company is currently involved in the following litigation adverse
to J.C. Herbert Bryant, III ("Bryant") and KMS-Thin Tab 100, Inc. ("KMS"), a
company which HNS believes is majority owned and controlled by Bryant. Bryant is
a former Chief Financial Officer, Secretary and Treasurer of the Company and was
a director of the Company until the third quarter of 1999. In addition, based
upon his Schedule 13D filed with the Securities and Exchange Commission on June
28, 2001, Bryant is the beneficial owner of approximately 7.3% of the
outstanding common stock of the Company.
In July 2000, the Company sued KMS and Bryant in the United States
District Court for the Southern District of Florida for trademark infringement,
unfair competition, cyberpiracy under the Anti-Cybersquatting Consumer
Protection Act of 1999, and breach of his fiduciary duties as a director of the
Company. The Company alleges that Bryant, while a director of the Company,
registered, in his own name or in the name of his company, KMS, certain domain
names which employ the Company's principal trademarks, "CarbCutter(R)" and "Thin
Tab." The Company alleges that Bryant's continued use of the domain names and
related websites is causing irreparable harm to the Company and to the goodwill
of the trademarks. The Company alleges that Bryant breached his duty as an
officer and director of the Company by usurping corporate opportunities and
corporate property interests by registering the domain names while he was an
officer or director and retaining those names for his own use and benefit while
an officer and director and thereafter. Bryant counterclaimed alleging, among
other things, breach of a distribution agreement with the Company. In December
2000, Bryant's claims (and the breach of duty claim by the Company) were
dismissed for lack of subject matter jurisdiction. Discovery and mediation in
this case has been completed and the trial is tentatively scheduled for May
2002. The Company has filed its Motion for Summary Judgment seeking injunctive
relief and an order of transfer for the domain names.
In December 2000, Bryant caused KMS to sue the Company and three of its
officers and directors, Christopher Tisi, Anthony Musso (Mr. Musso has
subsequently resigned as Director) and Steven Pomerantz in state court (the
Fifteenth Judicial Circuit of Florida in and for Palm Beach County) alleging the
same claims that were dismissed by the federal court earlier that month. KMS
alleges that HNS breached a distribution agreement with KMS by selling HNS
products (both directly and through distributors) in the area south of Orlando,
Florida, which, according to KMS, and subject to certain exceptions, is its
exclusive distribution territory. KMS also alleges that Tisi, Pomerantz and
Musso tortiously interfered with the agreement between HNS and KMS by causing
HNS to breach its contract with KMS and that Tisi, Pomerantz and Musso conspired
among themselves and with unnamed others to interfere with the agreement. No
formal discovery has yet been done on the merits, if any, of KMS's claims.
Although the Company believes that Bryant's claims are wholly without merit, at
this early state of the litigation, management cannot assess the likely outcome
of the litigation or whether the outcome will materially impact the Company's
financial condition or results of operations.
The Company intends to vigorously prosecute its action against Bryant
and KMS and to vigorously defend the actions against it by Bryant and KMS.
8
COMPENSATION OF MANAGEMENT
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended December 1999, 2000
and 2001 received by each of our chief executive officer and our other executive
officers whose total annual salary and bonus exceeded $100,000 during fiscal
year 2001 (each a "Named Officer" and collectively the "Named Officers"). No
other executive officers were paid salary and bonus compensation by us which
exceeded $100,000 during 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES ALL OTHER
------------------ SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($) ($)(2) OPTIONS(#)(3) ($)
-------- ---- ------ --- ------ -------------- ---
Christopher Tisi 2001 133,281 7,524 - - -
President, Chief 2000 $100,000 18,169 - 102,000 -
Executive Officer and 1999 61,000 4,047 - - -
Secretary(4)
Steve Pomerantz 2001 114,321 3,762 - - 50,000(5)
(4) 2000 100,000 11,642 - 50,000 -
1999 13,356 1,022 - - -
--------------------
(1) Payment of $23,443 of Steve Pomertanz's 2001 salary and $32,578 of Chris
Tisi's 2001 salary was deferred in 2001 and will be paid during 2002 in
twelve equal monthly installments.
(2) The Named Officers did not receive any other annual compensation not
categorized as salary or bonus except for perquisites and other personal
benefits which in the aggregate did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for such Named Officer.
(3) In 2000, Mr. Pomerantz was granted options under our 1998 Stock Option Plan
for the purchase of 50,000 shares of common stock. Such options were
granted at the then current market value of the shares. The options granted
vested immediately on the date of grant. Also in 2000, Mr. Tisi was granted
options under our 1998 Stock Option Plan for the purchase of 102,000 shares
of common stock. Such options were granted at the then current market value
of the shares. The options granted vested immediately on the date of grant.
(4) Mr. Pomerantz resigned as Chief Executive Officer, Treasurer and
Chairman of the Board on December 14, 2001, and Mr. Tisi assumed the
position of Chief Executive Officer, Secretary and Interim Chairman of
the Board on December 14, 2001. Mr. Tisi has served as President since
October 1, 2000.
(5) Paid to Mr. Pomertanz as severance pursuant to the terms of his Severance
Agreement effective as of January 1, 2002, $18,750 of which was to be paid
to third parties in connection with settlement of litigation.
STOCK OPTION GRANTS
No stock options were granted to the Named Officers during fiscal year
2001 under our 1998 Stock Option Plan or otherwise. We do not currently have
(and have not previously had) any plan pursuant to which any stock appreciation
rights may be granted.
9
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth information relating to the number and
value of options held on December 31, 2001 by each of the Named Officers. No
options to purchase common stock were exercised by either of our Named Officers
during the year ended December 31, 2001.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2001
AND FISCAL YEAR-END OPTION VALUES
Shares Value Number of Securities Underlying Value of Unexercised In-the-
Acquired on Realized Unexercised Money Options at
Name Exercise (#) ($) Options at Dec. 31, 2001 (#) Dec. 31, 2001 ($)(1)
---- ------------ --- ---------------------------- --------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Christopher Tisi - - 102,000(2) -
President, Chief
Executive Officer
and Secretary
Steve Pomerantz - - 50,000(2) -
(1) The last sales price of our common stock on the NASDAQ National Market
System on December 31, 2001, which was $0.10 per share, and the exercise
price of the options of both Mr. Tisi and Mr. Pomerantz are $0.50 per
share. Accordingly, the options are not in-the-money.
(2) Options granted under our 1998 Stock Option Plan.
COMPENSATION OF DIRECTORS
During 2001, we paid to each of our non-employee directors meeting fees
of $500 for each board meeting they attended and for each committee meeting they
attended (if held separately from a board meeting). Pursuant to the terms of our
1998 Stock Option Plan, grants of stock options for the purchase of our common
shares may be made to each of our directors. We did not grant any options to our
directors during 2001.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective January 1, 2002, we entered into a new employment agreement with
Chris Tisi, our Chief Executive Officer, President, Secretary and Interim
Chairman of the Board. The agreement provides for a base salary of $140,000
($18,750 of which will be used to pay certain amounts owing to third parties in
connection with the settlement of litigation) as well as bonuses which are
contingent upon increases in revenue over prior periods and net income results.
The agreement provides that bonuses will be determined quarterly with 33% of
such bonuses to be paid quarterly and the balance to be paid at year-end
depending on the maintenance of previously achieved performance levels. The
agreement also provides for an annual grant of 50,000 stock options under our
1998 Stock Option Plan. The options will have a four-year term and will be
vested 100% on the date of grant. The agreement also provides for the payment of
an amount equal to the lesser of (i) $275,000 or (ii) the maximum "golden
parachute" payment permitted to be deducted by us under the federal tax law in
the event Mr. Tisi is terminated after a change of control. An amendment to the
agreement provides that $32,578 of Mr. Tisi's salary for 2001 which was not paid
to him during 2001 will be paid in 2002 in twelve equal monthly installments.
Effective January 1, 2002, we entered into a severance agreement with Steve
Pomerantz, our former Chairman of the Board, Chief Executive Officer, and
Treasurer. The agreement provides for a severance payment of $50,000 to be paid
over the next year ($18,750 of which will be used to pay certain amounts owing
to third parties in connection with the settlement of litigation). An amendment
to the agreement provides that $23,443 of Mr. Pomerantz's salary for 2001 which
was not paid to him during 2001 will be paid in 2002 in twelve equal monthly
installments.
In light of the fact that Mr. Pomerantz has in the past personally
guaranteed certain obligations of the Company to third parties (the "Guaranteed
Obligations"), the severance agreement provides that on the earlier to occur of
(i) a Change in Control, or (ii) December 31, 2002, we will provide substitute
collateral for the Guaranteed Obligations in exchange for a release from Mr.
Pomerantz from any and all personal liability on the Guaranteed Obligations. If
we are unable to provide substitute collateral within the agreed time, we are
required to repay the Guaranteed Obligations in full within thirty (30) days
thereafter. We are also obligated to repay any outstanding principal and accrued
but unpaid interest under a bank loan to us by no later than the earlier to
occur of (i) July 1, 2002 and (ii) a Change of Control.
10
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT
OF DASZKAL BOLTON LLP
AS INDEPENDENT AUDITORS
Daszkal Bolton LLP ("DB") were selected by the Board of Directors as
our independent auditors effective June 11, 2001. We are submitting our
selection of independent auditors for ratification at the Annual Meeting.
A representative of DB is expected to be present at the Annual Meeting
and will be available to respond to appropriate questions from shareholders.
Our By-laws do not require that the shareholders ratify the selection
of DB as our independent auditors. We are doing so because we believe it is a
matter of good corporate practice. If the shareholders do not ratify the
selection, the Board of Directors will reconsider whether or not to retain DB,
but may retain such independent auditors. Even if the selection is ratified, the
Board of Directors in their discretion may change the appointment at any time
during the year if they determine that such a change would be in the best
interest of Health & Nutrition Systems International, Inc. and its shareholders.
We retained as our independent auditors the firm DB to replace the firm
of Buthner & Kahle, CPAs, P.A. ("B&K") who were dismissed as our auditors,
effective July 12, 2000. This decision was approved by the Board of Directors at
a meeting held on July 12, 2000. The reports of B&K on our financial statements
for the past two years did not contain an adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of our financial statements for each of
the two fiscal years ended December 31, 1998 and December 31, 1999, and in the
subsequent unaudited interim period ended March 31, 2000, there were no
disagreements with B&K on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of B&K would have caused B&K to make reference to
the subject matter in their report. We requested B&K to furnish it a letter
addressed to the Commission stating whether it agrees with the above statements.
A copy of B&K's letter dated September 6, 2000, has been filed as an exhibit to
our Form 8-K dated September 6, 2000.
The Securities and Exchange Commission's final Rule on Auditor
Independence requires that the Company make the following disclosures regarding
the amount of fees billed by its independent auditors and the nature of the work
for which these fees were billed:
Audit Fees: Aggregate fees billed for DB's audit of the Company's
annual financial statements for the year ended December 31,
2001 and for its reviews of the financial statements included
in the Company's Forms 10-QSB for the fiscal year ended
December 31, 2001 totaled $35,500.
Financial Information Systems Design and Implementation Fees: No fees
were incurred or billed for any financial information systems
design and implementation services rendered by DB for the
fiscal year ended December 31, 2001.
All Other Fees: Aggregate fees billed for all other services
rendered by DB for the fiscal year ended December 31, 2001
totaled $16,809.
The Audit Committee has determined that all services rendered under "All Other
Fees" have had no impact on our auditor's independence.
VOTE REQUIRED. Pursuant to the Florida Business Corporation Act,
Proposal 2 will be approved if the number of votes cast in favor of the Proposal
exceeds the number of votes cast against the Proposal. Abstentions and broker
non-votes will have no effect on the outcome.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THIS PROPOSAL 2.
11
REPORT TO SHAREHOLDERS
A COPY OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 2001, AND ANY AMENDMENTS THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
FURNISHED WITHOUT CHARGE TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO US AT 3750
INVESTMENT LANE, SUITE #5, WEST PALM BEACH, FLORIDA, ATTENTION: CHRISTOPHER
TISI, PRESIDENT, CHIEF EXECUTIVE OFFICER AND INTERIM CHAIRMAN OF THE BOARD.
SHAREHOLDER PROPOSALS
A shareholder proposal submitted for inclusion in the proxy statement
and form of proxy for our annual meeting of shareholders to be held in 2003 must
be received by us before February 25, 2003. Notice of a shareholder's proposal
submitted for consideration at the annual meeting of shareholders, which is not
submitted for inclusion in our proxy statement, will be considered untimely on
March 27, 2003, and the persons named in the proxies solicited for the 2003
Annual Meeting of Shareholders may exercise discretionary voting power with
respect to any such proposal. Proposals or notices should be sent to our
executive offices at 3750 Investment Lane, Suite 5, West Palm Beach, Florida
33407, Attention: Corporate Secretary.
OTHER MATTERS
The board of directors does not intend to present, and has no knowledge
that others will present, any other business at the annual meeting. If, however,
any other matters are properly brought before the annual meeting, it is intended
that the persons named in the enclosed proxy will vote the shares represented
thereby in accordance with their best judgment.
Kindly date, sign and return the enclosed proxy card.
By Order of the Board of Directors
/s/ Christopher Tisi
---------------------------------------------------
Christopher Tisi
Interim Chairman of the Board, CEO, and President
12
HEALTH & NUNUTRITION SYSTEMS INTERNATIONAL, INC.
STHIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
The undersigned, a holder of common stock of HEALTH & NUTRITION SYSTEMS
INTERNATIONAL, INC., hereby constitutes and appoints CHRISTOPHER TISI and STEVE
POMERANTZ, and each of them acting individually, as the attorney and proxy of
the undersigned, with full power of substitution, for and in the name and stead
of the undersigned, to attend the Annual Meeting of Shareholders of the Company
to be held on Monday, June 24, 2002 at 9:00 a.m., at the Hilton Hotel, 150
Australian Avenue, West Palm Beach, Florida, and any adjournment of postponement
thereof, and thereat to vote all shares of HNS's Common Stock which the
undersigned would be entitled to vote if personally present, as follows:
(Please sign and date on reverse side)
Annual Meeting of Shareholders
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
June 24, 2002
Please Detach and Mail in the Envelope Provided
A |X| Please mark your vote as in this example.
1. ELECTION OF DIRECTORS.
VOTE FOR EACH OF THE NOMINEES LISTED
AT RIGHT WITHHOLD AUTHORITY FOR ALL NOMINEES NOMINEES FOR ELECTION AS DIRECTORS:
[ ] [ ] Steven A. Pomerantz
Christopher Tisi
Ted Alflen
Darryl Green
INSTRUCTIONS:
To withhold authority to vote for any individual nominee, write that Nominee's
name on the line provided below:
2. Ratification of Daszkal Bolton LLP as independent certified public
accountants for the year ending December 31, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS ON ALL MATTERS TO BE
CONSIDERED AT THE MEETING.
The undersigned hereby acknowledges receipt of the notice of annual
meeting and proxy statement of Health & Nutrition Systems International, Inc.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
Signature _________________________________________
Signature _________________________________________ Dated: _____________, 2002.
IF SHARES HELD JOINTLY
NOTE: Please mark, date and sign exactly as your name appears on this proxy
card. When shares are held jointly, both holders should sign. When
signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If the holder is a corporation or
partnership, the full corporate or partnership name should be signed by
a duly authorized officer.