<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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: [_] Confidential, for use of the
Commission Only (as permitted by
[_] Preliminary Proxy Statement
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOOPER HOLMES, 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):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or Item 22(a)(2)
of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
- -------------------------------------
[X] 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:
- -------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
HOOPER HOLMES, INC.
170 MT. AIRY ROAD
BASKING RIDGE, NEW JERSEY 07920
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Hooper Holmes, Inc., to be held on September 29, 1995, at the American Stock
Exchange, 86 Trinity Place, New York, New York.
The meeting will be held in the Board of Governors Room on the 13th floor
and will begin promptly at 10:00 a.m.
The Notice of Special Meeting and Proxy Statement which follow describe the
transaction being submitted to shareholders for approval.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted, particularly since the approval of
the transaction described in the accompanying Proxy Statement contemplates the
sale of approximately sixty-eight percent (68%) of the Company's total assets
and requires the affirmative vote of the holders of sixty-six and two-thirds
percent (66 2/3%) of the Company's issued and outstanding common stock.
ACCORDINGLY, EVEN IF YOU EXPECT TO BE PERSONALLY PRESENT AT THE MEETING,
PLEASE BE SURE THAT THE ENCLOSED PROXY IS PROPERLY COMPLETED, DATED, SIGNED
AND RETURNED WITHOUT DELAY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. Telephonic proxies will not be permitted.
IF YOU HAVE ANY QUESTIONS CONCERNING THIS PROPOSED TRANSACTION OR RELATING
TO THE EXECUTION AND RETURN OF THE ENCLOSED PROXY, PLEASE CALL (TOLL-FREE)
1-800-957-7699.
On behalf of the Officers and Directors of Hooper Holmes, Inc., I wish to
thank you for your interest in the Company and I hope that you will be able to
attend our meeting.
Thank you,
James M. McNamee
President and Chief Executive
Officer
August 30, 1995
<PAGE>
HOOPER HOLMES, INC.
170 MT. AIRY ROAD
BASKING RIDGE, NEW JERSEY 07920
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 29, 1995
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
Shareholders of Hooper Holmes, Inc., a New York corporation (the "Company"),
will be held on September 29, 1995 at 10:00 a.m. local time, at the American
Stock Exchange, 86 Trinity Place, New York, New York, for the following
purposes:
1. To consider and vote upon a proposal to approve the sale, transfer and
assignment of substantially all of the assets and business of the
Company's health care division (the "NHC Division") to Olsten
Corporation, a Delaware corporation ("Olsten"), or an affiliate thereof,
in return for all of the outstanding stock of American Service Bureau,
Inc., cash and certain other consideration as more fully described in
the accompanying Proxy Statement, pursuant to an agreement of
acquisition between the Company and Olsten dated as of the 26th day of
May, 1995 (the "Acquisition Agreement").
2. To transact such other business as may properly come before the Special
Meeting and any adjournment thereof.
Holders of record of the Company's common stock, par value $.04 per share
(the "Common Stock"), as of the close of business on August 25, 1995, the
record date fixed by the Board of Directors for such purpose (the "Record
Date"), are entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof.
Holders of record of the Common Stock are entitled to dissent from the NHC
Transaction and to receive payment of the "fair value" of their shares if they
comply with certain procedures specified in New York Business Corporation Law
Section 623 ("Section 623"). For a more complete discussion thereof, see "The
NHC Transaction--Appraisal Rights" and the full text of Section 623, a copy of
which is attached to this Proxy Statement as Exhibit E and incorporated herein
by reference.
The Board of Directors recommends that the above proposal be approved. It is
hoped that you will agree with the recommendations of the Board of Directors
and Management, and that you will vote "FOR" the above proposal.
IMPORTANT
---------
APPROVAL OF THE TRANSACTION DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE COMPANY'S
ISSUED AND OUTSTANDING COMMON STOCK. ACCORDINGLY, EVEN IF YOU EXPECT TO BE
PERSONALLY PRESENT AT THE MEETING, PLEASE BE SURE THAT THE ENCLOSED PROXY IS
PROPERLY COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Robert William Jewett James M. McNamee
Secretary President and Chief Executive Officer
- ------------------------------------- -------------------------------------
Dated: August 30, 1995
<PAGE>
HOOPER HOLMES, INC.
170 MT. AIRY ROAD
BASKING RIDGE, NEW JERSEY 07920
908-766-5000
----------------
PROXY STATEMENT
----------------
INTRODUCTION
This Proxy Statement relates to the proposed sale, transfer and assignment
of substantially all of the assets and business (the "NHC Assets") of the
health care division (the "NHC Division") of Hooper Holmes, Inc., a New York
corporation (the "Company"), to Olsten Corporation, a Delaware corporation
("Olsten"), or an affiliate thereof (the "NHC Transaction"), pursuant to an
Agreement of Acquisition between the Company and Olsten, dated as of the 26th
day of May, 1995 (the "Acquisition Agreement"). The NHC Division consists of
the assets and business of the Company and its wholly-owned subsidiary Hooper
Holmes Health Care, Inc. which are utilized principally in (a) providing
comprehensive home health care services, including, without limitation,
skilled and unskilled home health care services, pharmaceutical and ancillary
services and products, (b) providing private duty nursing services in
institutional settings; (c) providing supplemental staffing services to or on
behalf of health care facilities, providers and payors, and (d) operating six
pharmacies. The NHC Division includes the assets and business of Nurse's House
Call (R).
The Acquisition Agreement provides that as consideration for the sale of the
NHC Assets, Olsten will transfer, assign and deliver to the Company all of the
issued and outstanding capital stock ("ASB Meditest Stock") of American
Service Bureau, Inc., an Illinois corporation engaged in the business of
providing paramedical examinations and related services to the life and health
insurance industries under the name ASB Meditest ("ASB Meditest"), pay the
Company Thirty-Four Million Five Hundred Thousand Dollars ($34,500,000) in
cash, as adjusted to reflect changes in the NHC Division Net Asset Amount (as
defined below) between November 30, 1994 and the Closing Date, and in the ASB
Meditest Net Asset Amount between December 31, 1994 and the Closing Date
("Cash Portion of the Purchase Price"), and assume certain specified
liabilities relating to the NHC Division. If the Closing had taken place on
June 30, 1995, the Cash Portion of the Purchase Price would have been $30.0
million after making this adjustment, and the liabilities to be assumed by
Olsten would have been approximately $4.5 million. The Purchase Price was
determined through arm's-length negotiation between the officers and financial
advisors of Olsten and those of the Company. For a more extensive discussion
of the mechanics of and reasons for the adjustment in the Cash Portion of the
Purchase Price, see "The Acquisition Agreement--Cash Purchase Price
Adjustment."
The enclosed proxy is solicited by the Board of Directors of the Company for
use at the Special Meeting of Shareholders to be held on September 29, 1995 to
consider and vote upon the approval of the NHC Transaction.
This Proxy Statement was first sent to shareholders on or about the date
stated in the accompanying Notice of Special Meeting of Shareholders.
Only shareholders of record as of the Record Date are entitled to vote at
the meeting and any adjournments thereof. As of that date, 6,707,052 shares of
Common Stock of the Company were issued and outstanding. Each share
outstanding as of the record date will be entitled to one vote, and
shareholders may vote in person or by proxy. Execution of a proxy will not in
any way affect a shareholder's right to attend the meeting and vote in person.
Any shareholder giving a proxy has the right to revoke it at any time before
it is voted by providing written notice to the Secretary of the Company or by
submitting another proxy bearing a later date. In addition, shareholders
attending the meeting may revoke their proxies at any time prior to the time
such proxies are exercised.
The presence in person or by proxy of the holders of a majority of the votes
entitled to be cast at the meeting will constitute a quorum. Broker non-votes,
abstentions and withhold-authority votes all count for the purpose of
determining a quorum. Under the laws of the State of New York, the affirmative
vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the
Company's Common Stock issued and outstanding on the Record Date is required
to authorize the NHC Transaction. Abstentions and broker non-votes will be
included in the calculation for purposes of determining whether the NHC
Transaction has been approved and will have the effect of "no" votes. All
properly executed proxies returned in time to be cast at the meeting will be
voted as specified. If no contrary instruction is indicated, they will be
voted FOR the approval of the NHC Transaction.
The mailing address and telephone number of the Company's principal
executive offices are: Hooper Holmes, Inc., 170 Mt. Airy Road, Basking Ridge,
New Jersey 07920, (908) 766-5000. The mailing address and telephone number of
Olsten's principal executive offices are: Olsten Corporation, Olsten Kimberly
QualityCare, 175 Broad Hollow Road, Melville, New York 11747-8905, (516) 844-
7800. The mailing address and telephone number of ASB Meditest's principal
executive offices are: ASB Meditest, 492 Old Connecticut Path, Framingham,
Massachusetts 01701, (508) 935-3700.
<PAGE>
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in
this Proxy Statement, and if given or made, such information or
representations should not be relied upon as having been authorized. All
information regarding ASB Meditest in this Proxy Statement has been supplied
by Olsten, and all information regarding the Company has been supplied by the
Company.
The Company and Olsten are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, are required to file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional offices of the SEC: Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511; and Suite 1300, 7 World Trade Center, New York,
New York 10048. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's Common Stock is listed and traded on the
American Stock Exchange (the "AMEX") and Olsten Common Stock is listed and
traded on the New York Stock Exchange (the "NYSE"). Reports, proxy statements
and other information concerning the Company may be inspected at the offices
of the AMEX, 86 Trinity Place, New York, New York 10006, and reports, proxy
statements and other information concerning Olsten may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates certain documents by reference which are
not presented herein or delivered herewith. These documents are available upon
request from Robert William Jewett, Secretary, Hooper Holmes, Inc., 170 Mt.
Airy Road, Basking Ridge, New Jersey 07920, telephone number (908) 766-5000.
In order to ensure timely delivery of these documents, any request should be
made by September 15, 1995.
The Company hereby undertakes to provide, without charge, to each person,
including any beneficial owner of the Company's Common Stock, to whom a copy
of this Proxy Statement has been delivered, upon the written or oral request
of any such person, a copy of any and all of the documents referred to below
which have been or may be incorporated herein by reference, other than
exhibits to such documents, unless such exhibits are specifically incorporated
herein by reference. Requests for such documents should be directed to the
person indicated in the immediately preceding paragraph.
The following documents, which have been filed with the SEC pursuant to the
Exchange Act, are hereby incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1994;
(b) The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1995;
(c) The Company's Quarterly Report on Form 10-Q for the period ended June
30, 1995;
(d) The information set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Consolidated Balance Sheets," "Consolidated Statements of Income,"
"Consolidated Statements of Shareholders' Equity," "Consolidated Statements
of Cash Flows," "Notes to Consolidated Financial Statements," "Independent
Auditors' Report," "Selected Financial Data," "Quarterly Common Stock Price
Ranges and Dividends" and "Quarterly Financial Data (Unaudited)" in the
Company's 1994 Annual Report to Shareholders.
This Proxy Statement is accompanied by a copy of the Company's 1994 Annual
Report to Shareholders. Information set forth under the captions "Financial
Highlights," "The Company," "Letter to Shareholders," "Home Healthcare,"
"Health Information" and "Directors and Officers" in the Company's 1994 Annual
Report to Shareholders is not part of this Proxy Statement.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 4
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION.................... 14
MARKET PRICE DATA......................................................... 19
THE SPECIAL MEETING....................................................... 20
Purpose of the Meeting.................................................. 20
Date, Time and Place; Record Date....................................... 20
Voting Rights........................................................... 20
Security Ownership of Certain Persons................................... 20
THE NHC TRANSACTION....................................................... 21
Background of the NHC Transaction....................................... 21
Recommendation of the Board of Directors; Reasons for, Effects of and
Alternatives to the NHC Transaction.................................... 23
Risks of the NHC Transaction............................................ 28
Opinion of the Financial Advisor........................................ 30
Interests of Certain Persons in the NHC Transaction..................... 37
General Description of the NHC Transaction.............................. 37
Closing; Effective Time................................................. 38
Accounting Treatment.................................................... 38
Income Tax Consequences of the NHC Transaction.......................... 38
Regulatory Approvals.................................................... 38
Appraisal Rights........................................................ 39
Effect of the Approval of the NHC Transaction on the Company's Share-
holders................................................................ 40
Cash Proceeds of the NHC Transaction.................................... 40
Civil Investigative Demand.............................................. 41
THE ACQUISITION AGREEMENT................................................. 42
The NHC Transaction..................................................... 42
Cash Purchase Price Adjustment.......................................... 42
Escrow Agreement and Accounts Receivable Collection Agreement........... 45
Specified Liabilities Assumed by Olsten................................. 45
Representations and Warranties.......................................... 46
Certain Covenants....................................................... 46
Indemnification Provisions.............................................. 47
No Solicitations of Other Transactions.................................. 48
Expenses and Termination Fee............................................ 48
Insurance............................................................... 49
Conditions to the NHC Transaction....................................... 49
Termination............................................................. 49
HOOPER HOLMES, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS........... 51
DESCRIPTION OF THE NHC DIVISION........................................... 59
DESCRIPTION OF THE HEALTH INFORMATION SERVICES DIVISION................... 61
DESCRIPTION OF ASB MEDITEST............................................... 64
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 66
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING......................... 68
SOLICITATION OF PROXIES................................................... 69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
EXHIBIT A--AGREEMENT OF ACQUISITION..................................... A-1
EXHIBIT B--ACCOUNTS RECEIVABLE COLLECTION AGREEMENT..................... B-1
EXHIBIT C--FORM OF ESCROW AGREEMENT..................................... C-1
EXHIBIT D--OPINION OF BEAR STEARNS...................................... D-1
EXHIBIT E--SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW......... E-1
</TABLE>
3
<PAGE>
SUMMARY
The following is a brief summary of information contained elsewhere in this
Proxy Statement. This summary is not a complete statement of all information,
facts or materials to be voted on at the Special Meeting. This summary should
only be read in conjunction with, and is qualified in its entirety by reference
to, the more detailed information contained in this Proxy Statement and the
Exhibits hereto. Unless otherwise defined, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Proxy
Statement. Shareholders are urged to review carefully this Proxy Statement and
the Exhibits hereto in their entirety.
THE NHC TRANSACTION......... This Proxy Statement relates to the proposed
sale, transfer and assignment of substantially
all of the assets and business (the "NHC
Assets") of the health care division (the "NHC
Division") of Hooper Holmes, Inc., a New York
corporation (the "Company"), to Olsten
Corporation, a Delaware corporation ("Olsten"),
or an affiliate thereof (the "NHC Transaction"),
pursuant to an Agreement of Acquisition between
the Company and Olsten, dated as of the 26th day
of May, 1995 (the "Acquisition Agreement"). The
NHC Division consists of the assets and business
of the Company and its wholly-owned subsidiary
Hooper Holmes Health Care, Inc. which are
utilized principally in (a) providing
comprehensive home health care services,
including, without limitation, skilled and
unskilled home health care services,
pharmaceutical and ancillary services and
products, (b) providing private duty nursing
services in institutional settings, (c)
providing supplemental staffing services to or
on behalf of health care facilities, providers
and payors, and (d) operating six pharmacies.
The NHC Division includes the assets and
business of Nurse's House Call(R) and accounted
for approximately sixty-eight percent (68%) of
the Company's assets at June 30, 1995 and
approximately sixty-two percent (62%) of its
revenues during the six months ended June 30,
1995. The Acquisition Agreement provides that as
consideration for the sale of the NHC Assets,
Olsten will transfer, assign and deliver to the
Company all of the issued and outstanding
capital stock ("ASB Meditest Stock") of American
Service Bureau, Inc., an Illinois corporation
engaged in the business of providing paramedical
examinations and related services to the life
and health insurance industries under the name
ASB Meditest ("ASB Meditest"), pay the Company
Thirty-Four Million Five Hundred Thousand
Dollars ($34,500,000) in cash, as adjusted to
reflect changes in the NHC Division Net Asset
Amount (as defined below) between November 30,
1994 and the Closing Date, and in the ASB
Meditest Net Asset Amount between December 31,
1994 and the Closing Date ("Cash Portion of the
Purchase Price"), and assume certain specified
liabilities relating to the NHC Division. If the
Closing had taken place on June 30, 1995, the
Cash Portion of the Purchase Price would have
been $30.0 million after making this adjustment,
and the liabilities to be assumed by Olsten
would have been approximately $4.5 million.
However, the actual
4
<PAGE>
amount of cash to be received by the Company as
a result of the NHC Transaction will not be
finally ascertained until after the Closing
Date, but this fact is not determinative of
whether the NHC Transaction will be consummated.
The Purchase Price was determined through arm's-
length negotiation between the officers and
financial advisors of Olsten and those of the
Company. See "The NHC Transaction," "The NHC
Transaction--Risks of the NHC Transaction," "The
Acquisition Agreement--Cash Purchase Price
Adjustment," "The Acquisition Agreement--Escrow
Agreement and Accounts Receivable Collection
Agreement" and "Description of ASB Meditest."
ESCROW AGREEMENT AND
ACCOUNTS RECEIVABLE
COLLECTION AGREEMENT.....
The Acquisition Agreement provides for $15
million of the Cash Portion of the Purchase
Price ("Escrowed Funds") to be delivered into an
escrow account and disbursed to the Company only
as the accounts receivable of the NHC Division
(the "Receivables"), which are being acquired by
Olsten pursuant to the NHC Transaction, are
collected by a Company-Olsten joint Collection
Team ("Collection Team") pursuant to an Accounts
Receivable Collection Agreement, a copy of which
is attached hereto as Exhibit B, and an Escrow
Agreement to be executed at Closing, the form of
which is attached hereto as Exhibit C. Under the
Accounts Receivable Collection Agreement, the
Company will not receive any of the Escrowed
Funds until the outstanding balance of the
Receivables has been reduced to $30 million.
Thereafter for a period of eighteen months after
the Closing Date (the "Collection Period") the
Company is entitled to receive one dollar for
each additional dollar of Receivables collected
until $15 million of Receivables are collected.
Accordingly, the Company will not receive all of
the $15 million portion of the purchase price to
be delivered into the escrow account unless and
until all but the last $15 million of
Receivables owed by the NHC Division on the
Closing Date are collected within the Collection
Period. Olsten is entitled to retain any
collections received after the end of the
Collection Period. The Company is entitled to
receive all interest earned on the Escrowed
Funds. As of June 30, 1995, the NHC Division had
Receivables of approximately $53 million. See
"The Acquisition Agreement--Escrow Agreement and
Accounts Receivable Collection Agreement."
THE COMPANIES
Hooper Holmes, Inc........ The Company is a nationally recognized provider
of health information and home health care
services through a network of 233 branch offices
in 49 states. Through its Health Information
Services Division, the Company provides services
to the life and health insurance industries
under the trade names "Portamedic" and
"Infolink." These services include providing
medical and paramedical examinations (which
typically involve taking a medical history,
recording physical information and obtaining
specimens) and related services to life and
health insurance
5
<PAGE>
companies. See "Description of the Health
Information Services Division." The NHC Division
offers home health care for individuals and a
variety of complementary services to hospitals,
nursing homes and other institutions under the
trade name "Nurse's House Call." The assets and
business of this division are proposed to be
sold to Olsten pursuant to the Acquisition
Agreement. See "Description of the NHC
Division."
Olsten Corporation........ Olsten operates through subsidiaries principally
under the trade names "Olsten Kimberly
QualityCare" and "Olsten Staffing Services" and
engages in and derives substantially all its
revenues from two industry segments, Health Care
Services and Staffing Services. Olsten
furnishes, through offices operated or licensed
by it and its subsidiaries or pursuant to
franchises granted by Olsten, health care
personnel in home, health care facility and
business settings and temporary personnel to
business, industry and government. Olsten also
provides management services for hospital-based
home health agencies and owns all of the
outstanding ASB Meditest Stock.
American Service Bureau, American Service Bureau, Inc., a wholly-owned
Inc. .................... subsidiary of Olsten, operates under the name
ASB Meditest. ASB Meditest provides on-site
diagnostic and paramedical examination services
for insurance, corporate and government clients
through 104 offices across the United States.
See "Description of ASB Meditest."
THE SPECIAL MEETING.........
At the Special Meeting of Shareholders of the
Company and any adjournment thereof (the
"Special Meeting"), the shareholders of the
Company will be asked to consider and vote upon
(i) the approval of the NHC Transaction and (ii)
such other matters as may properly come before
the Special Meeting. The Special Meeting is
scheduled to be held at 10:00 a.m., local time,
on September 29, 1995 at the American Stock
Exchange, 86 Trinity Place, New York, New York.
The Board of Directors of the Company has fixed
the close of business on August 25, 1995 as the
Record Date for the determination of holders of
Common Stock entitled to notice of and to vote
at the Special Meeting. See "Special Meeting."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE NHC TRANSACTION AND RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS VOTE "FOR" APPROVAL OF
IT. SEE "THE NHC TRANSACTION--BACKGROUND OF THE
NHC TRANSACTION," "THE NHC TRANSACTION--
RECOMMENDATION OF THE BOARD OF DIRECTORS;
REASONS FOR, EFFECTS OF AND ALTERNATIVES TO THE
NHC TRANSACTION" AND "THE NHC TRANSACTION--RISKS
OF THE NHC TRANSACTION."
REQUIRED VOTE............... The Board of Directors has fixed August 25, 1995
as the Record Date for determining holders of
Common Stock entitled to receive
6
<PAGE>
notice of and to vote at the Special Meeting. As
of the Record Date, there were 6,707,052 shares
of Common Stock outstanding and entitled to
vote. Each holder of record of Common Stock on
the Record Date is entitled to cast one vote per
share. The NHC Transaction will not be
consummated without the affirmative vote of the
holders of sixty-six and two-thirds percent (66
2/3%) of the Common Stock issued and outstanding
on the Record Date. This is because under the
New York Business Corporation Law, the sale of
the NHC Division, which at June 30, 1995,
constituted approximately sixty-eight percent
(68%) of the Company's total assets, might be
deemed to be a sale of "substantially all" of
the assets of the Company, not in the "usual or
regular course of business." Abstentions and
broker non-votes will be included in the
calculation for purposes of determining whether
the NHC Transaction has been approved and will
have the effect of "no" votes. See "The Special
Meeting--Date, Time and Place; Record Date,"
"The Special Meeting--Voting Rights," "The
Special Meeting--Security Ownership of Certain
Persons" and "Stock Ownership of Certain
Beneficial Owners and Management."
SECURITY OWNERSHIP OF
CERTAIN PERSONS............
As of June 1, 1995, the Company's directors,
executive officers and their affiliates and
associates, as a group, may be deemed to own
beneficially 21.95% of the outstanding shares of
the Company's common stock ("Common Stock").
Frederick D. King and Kenneth R. Rossano,
Trustees Under the Will of John J. King (the
"Trustees"), beneficially own 9.65% of the
outstanding shares of Common Stock. Each of the
directors and executive officers of the Company
has advised the Company that he or she intends
to vote or direct the vote of all the
outstanding shares of the Common Stock which he
or she owns in his or her individual capacity in
favor of the NHC Transaction. See "The Special
Meeting--Voting Rights," "The Special Meeting--
Security Ownership of Certain Persons" and
"Stock Ownership of Certain Beneficial Owners
and Management."
RECOMMENDATION OF THE BOARD
OF DIRECTORS; REASONS FOR,
EFFECTS OF AND
ALTERNATIVES TO THE NHC
TRANSACTION................
The directors of the Company believe that the
terms of the NHC Transaction as set forth in the
Acquisition Agreement are fair to, and in the
best interests of, the Company and its
shareholders. Accordingly, the Company's Board
has unanimously approved the NHC Transaction and
recommends its approval by the Company's
shareholders. The Company's Board believes that
the NHC Transaction offers the Company a number
of advantages, including eliminating a business
segment that has incurred segmented operating
losses in the past two fiscal years and during
the first six months of 1995, enabling the
Company to reduce its debt substantially and
increasing the Company's presence in the
7
<PAGE>
health information services market. The Board of
Directors believes that the Company will be able
to run its combined ASB Meditest/Portamedic
business profitably by eliminating certain
duplicative branch offices and excess personnel.
In making its decision to go forward with the
NHC Transaction, the Board of Directors
considered, among other factors set forth more
fully below, certain alternative strategies,
information and projections relating to the
financial condition of the NHC Division and ASB
Meditest (on a historical and pro forma basis),
the potential efficiencies and savings to be
achieved by the NHC Transaction, the effects of
the NHC Transaction on the Company, the terms of
the Acquisition Agreement and related agreements
and the analyses and opinion of its financial
advisor, Bear, Stearns & Co. Inc. ("Bear
Stearns"). See "The NHC Transaction--Background
of the NHC Transaction," "The NHC Transaction--
Recommendation of the Board of Directors;
Reasons for, Effects of and Alternatives to the
NHC Transaction," "The NHC Transaction--Opinion
of the Financial Advisor" and "The NHC
Transaction--Risks of the NHC Transaction."
RISKS OF THE NHC There are a number of risks relating to the NHC
TRANSACTION................ Transaction as summarized below. For a more
complete discussion of these risk factors, see
"The NHC Transaction--Risks of the NHC
Transaction."
(i) The NHC Transaction leaves the Company
with only one line of business, its
health information services business.
(ii) The Company, Olsten and ASB Meditest
have been named as defendants in an
action brought by Concorde, Inc.
("Concorde") seeking to enjoin the
Company from acquiring the drug and
alcohol testing business of ASB Meditest
on grounds that to do so would result in
the Company's breach of a covenant not
to compete with Concorde. Although
management of the Company believes it
has valid defenses to, and intends to
vigorously defend, this action, if the
action is successful, the Company may be
precluded from continuing ASB Meditest's
drug and alcohol testing activities upon
consummation of the NHC Transaction.
During 1994 and the first six months of
1995, ASB Meditest's drug and alcohol
testing activities accounted for
approximately $3.8 million (4.6%) and
$3.2 million (7.9%), respectively, of
ASB Meditest's gross revenues. In any
event, management believes that the loss
of these revenues would not have a
material adverse effect on the
operations of the Company following the
consummation of the NHC Transaction.
(iii) It is possible that some of the
Company's insurance company customers,
who are also customers of ASB Meditest,
will place some of the business
currently conducted by the Company or
ASB Meditest with other providers of
such health information services.
8
<PAGE>
(iv) The Company--Olsten joint Collection
Team may fail to reduce the outstanding
balance of Receivables, (which are being
acquired by Olsten pursuant to the NHC
Transaction), to below $15 million
within the eighteen-month Collection
Period. In that event, the Company may
not receive part or all of the $15
million portion of its purchase price
placed in escrow. See "The Acquisition
Agreement--Escrow Agreement and Accounts
Receivable Collection Agreement" and
"The NHC Transaction--Cash Proceeds of
the NHC Transaction."
(v) The amount of cash to be received by the
Company at the Closing cannot be
predicted since such amount is subject to
adjustment. See "The Acquisition
Agreement--Cash Purchase Price
Adjustment."
(vi) The sale of the NHC Division will result
in an estimated pre-tax loss to the
Company of $17.9 million (approximately
$10.3 million after tax). See "Hooper
Holmes, Inc. Summary Consolidated
Financial Data Note 4."
(vii) The indemnification provisions of the
Acquisition Agreement permit Olsten to
recover all costs, expenses and
liabilities incurred by Olsten in
connection with the Civil Investigative
Demand made on the Company by the
Department of Justice. See "The NHC
Transaction--Civil Investigative
Demand" and "The Acquisition
Agreement--Indemnification Provisions."
(viii) Certain of the Company's Independent
Agents whose contracts are not being
assumed by Olsten have asserted claims
against the Company.
(ix) The expected benefits of a combination
of ASB Meditest with the Company's
Health Information Services Division may
not be achieved.
(x) Bear Stearns Fairness Opinion, dated as
of the date of this Proxy Statement, will
not be updated to the Closing Date.
(xi) Management's projections, upon which the
Bear Stearns Fairness Opinion was based,
may not be achieved.
(xii) Unforeseen problems may restrict the
Company's ability to make ASB Meditest
profitable.
INTERESTS OF CERTAIN
PERSONS IN THE NHC
TRANSACTION................
Certain of ASB Meditest's executive officers and
other employees are entitled, if their
employment is terminated following the NHC
Transaction, to receive severance benefits from
ASB Meditest. Olsten has agreed to reimburse the
Company for certain of these severance benefits.
See "The NHC Transaction--Interests of Certain
Persons in the NHC Transaction" and "EXHIBIT A--
The Acquisition Agreement, (S) 7.19."
9
<PAGE>
OPINION OF THE FINANCIAL
ADVISOR.................... Bear, Stearns & Co. Inc. ("Bear Stearns") has
delivered its written opinion to the Board of
Directors, dated as of the date of this Proxy
Statement, to the effect that, as of the date of
such opinion and based upon and subject to
certain matters as stated therein, the NHC
Transaction is fair, from a financial point of
view, to the shareholders of the Company. The
full text of the opinion of Bear Stearns, which
sets forth the procedures followed, assumptions
made, matters considered and limitations of the
review by Bear Stearns, is attached as Exhibit D
to this Proxy Statement and should be read
carefully in its entirety. See "The NHC
Transaction--Background of the NHC Transaction,"
"The NHC Transaction--Opinion of the Financial
Advisor" and Exhibit D hereto.
CONDITIONS TO THE NHC
TRANSACTION; TERMINATION
OF THE ACQUISITION
AGREEMENT..................
In addition to the approval of the NHC
Transaction by the shareholders of the Company,
the consummation of the NHC Transaction is
subject to the satisfaction or waiver of certain
other conditions, including, among others, that
there be no pending or threatened litigation
before or by any administrative or governmental
authority to restrain or prohibit or obtain
damages or other relief with respect to the
Acquisition Agreement or the consummation of the
transactions contemplated thereby or as a result
of which, in the reasonable judgment of Olsten,
Olsten could be deprived of any material
benefits of such transactions; the consent of
the Company's banks to the termination of
certain liens and encumbrances on, and security
interests in, the NHC Assets; and the
termination or expiration of the waiting period
or periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR
Act"). The Company made the
required filings under the HSR Act on June 12,
1995, and the waiting period was terminated on
June 20, 1995. In addition, the Acquisition
Agreement may be terminated in certain events.
If the NHC Transaction is not approved, the
Company will consider certain alternative
strategies, including (i) actively soliciting
other buyers for the NHC Division, (ii)
maintaining the status quo and continuing to
attempt to make the NHC Division profitable by
closing a substantial number of underperforming
branches and seeking business not requiring
typical health care support costs, and/or (iii)
acquiring ASB Meditest in a separate
transaction. However, there is no assurance
that, given the intense competition currently
existing in the home health care business, the
Company will be able to operate the NHC Division
profitably. There is also no assurance that
another buyer could be found for the NHC
Division on terms equal to or better than those
of the NHC Transaction. Finally, if the Company
does not sell the NHC Division, it probably
would not be able to finance the acquisition of
ASB Meditest even if such company would be
available on terms acceptable to the Company.
See "The Acquisition Agreement--Conditions to
the NHC Transaction," "The
10
<PAGE>
Acquisition Agreement--Termination" and "The NHC
Transaction--Recommendation of the Board of
Directors; Reasons for, Effects of and
Alternatives to the NHC Transaction."
CERTAIN COVENANTS........... The Acquisition Agreement provides that the
Company will make certain transition services
available to Olsten for up to twelve months
after the Closing and will take certain other
actions to assist Olsten after the Closing. See
"The Acquisition Agreement--Certain Covenants."
NONCOMPETE AGREEMENTS ...... The Company has agreed that it will not for a
period of five years after Closing engage in the
business of performing any of the services
currently performed by the NHC Division anywhere
within the United States, and Olsten has agreed
not to engage in the business of performing
paramedical examinations and related services to
the life and health insurance industries
anywhere in the United States for a similar
period. See "The Acquisition Agreement--Certain
Covenants."
CIVIL INVESTIGATIVE DEMAND.. The Company was served with a Civil Investigative
Demand ("CID") by the United States Department
of Justice ("DOJ") on April 4, 1995. The CID
relates to an investigation by DOJ of
"allegations that Hooper Holmes, Inc.'s Nurse's
House Call division, and specifically its
Columbus, Ohio office, falsified records and
submitted false claims for reimbursement under
Medicare and/or Medicaid." The CID requires the
Company to provide documents and answers to
interrogatories to the DOJ. The Company is
cooperating with the DOJ to resolve this matter.
This investigation is not related to the NHC
Transaction (although it concerns billings of
the NHC Division) and under the terms of the
Acquisition Agreement, the Company has
indemnified Olsten against all loss, expense or
liability, if any, related to this
investigation. The Acquisition Agreement
provides for termination at any time prior to
Closing by Olsten if Olsten reasonably
determines that the nature or scope of, or
remedies sought with respect to, the CID or any
other Investigation (as defined in the
Acquisition Agreement) has or might reasonably
be expected to have a material adverse effect on
the NHC Assets or NHC Division business; Olsten
becomes aware of any facts, circumstances or
developments with respect to the CID or any
other Investigation which could reasonably be
expected to materially and adversely impact
Olsten's operation and conduct of the NHC
Business; or any proceeding is initiated by a
governmental authority based upon or related to
substantially similar circumstances as those of
the CID or any other Investigation. See "The NHC
Transaction--Civil Investigative Demand," "The
Acquisition Agreement--Indemnification
Provisions," and "The Acquisition Agreement--
Termination."
11
<PAGE>
INDEMNIFICATION PROVISIONS.. In the Acquisition Agreement, the Company and
Olsten have agreed that they will indemnify and
hold each other harmless from certain
liabilities, obligations and claims relating to
the NHC Transaction, including but not limited
to breaches of the terms of the Acquisition
Agreement. In addition, the Company has agreed
to indemnify and hold harmless Olsten from all
losses or liabilities related to (a) any
Investigation or Proceeding, including, but not
limited to, the CID, (b) liabilities of the
Company not expressly assumed by Olsten, (c) any
violation, or alleged violation, of any state's
bulk sales or transfers act (related to the
transactions contemplated by the Acquisition
Agreement), and (d) the liabilities of ASB
Meditest reflected on the ASB Meditest Closing
Statement. See "The Acquisition Agreement--
Indemnification Provisions," "EXHIBIT A--The
Acquisition Agreement, (S) 12" and "The NHC
Transaction--Civil Investigative Demand."
TERMINATION FEE............. The Company will pay Olsten a fee equal to
$3,750,000 (the "Termination Fee") in the event
that the Company receives from any person other
than Olsten or its Affiliates an offer with
respect to an Acquisition Proposal (as defined
below) and the Company's Board of Directors
terminates the Acquisition Agreement after
receipt of a written opinion from its outside
counsel that to cause the Company to proceed
with the NHC Transaction in light of the receipt
of such offer would violate the Board of
Directors' fiduciary duties to the Company's
shareholders. This Termination Fee shall also be
payable to Olsten in the event Olsten terminates
the Acquisition Agreement as a result of the
occurrence of either of the following events:
(i) if the Company's Board of Directors shall
have withdrawn or materially modified its
approval or recommendation of the Acquisition
Agreement for any reason, or (ii) if the NHC
Transaction shall not have been approved by a
requisite vote of the Company's shareholders in
circumstances where (a) an offer or proposal to
effect an Acquisition Proposal with or for the
Company or its subsidiaries has been publicly
announced or (b) any person or group, as defined
in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"),
other than Olsten or any of its Affiliates,
shall have become a beneficial owner (as defined
in Rule 13d-3 promulgated under the Exchange
Act) of at least 15% of the outstanding shares
of the Common Stock, or any person or group
shall have commenced, or shall have publicly
announced its intention to commence, a tender or
exchange offer for at least 25% of the
outstanding shares of the Company's Common Stock
unless at least five days prior to the latest
scheduled date for the Special Meeting, such
person or group publicly announces its
withdrawal of such offer or intention not to
commence such tender or exchange offer (or
transaction having similar purpose or effect).
Moreover, the Company would be required to pay
Olsten the Termination Fee in the event that
either party terminates the
12
<PAGE>
Acquisition Agreement for failure to consummate
the NHC Transaction on or before October 31,
1995 and within one year after such termination
the Company effects or enters into an agreement
to effect a merger or other business combination
involving the Company or the NHC Division or any
of the Company's subsidiaries or any proposal or
offer to acquire any equity interest in, or a
material portion of the assets of the Company
(including any capital stock of any of its
subsidiaries) other than the transactions
contemplated by the Acquisition Agreement. See
"The Acquisition Agreement--Expenses and
Termination Fee" and "The Acquisition
Agreement--No Solicitation of Other
Transactions."
ACCOUNTING TREATMENT........
The sale of the NHC Assets included in the NHC
Transaction will be accounted for as a sale of
certain assets and a transfer of certain
liabilities. The consideration (which includes
the ASB Meditest Stock) received by the Company
less the book value of the assets sold will
result in a loss. The estimated loss is included
in the discontinued operations charge recorded
by the Company during the second quarter of
1995. The assets and liabilities of ASB Meditest
will be recorded using the purchase method of
accounting. See "The NHC Transaction--Accounting
Treatment" and "The NHC Transaction--Income Tax
Consequences of the NHC Transaction."
APPRAISAL RIGHTS............
Holders of the Common Stock are entitled to
dissenters' appraisal rights under the New York
Business Corporation Law, subject to and by
complying with Section 623 thereof, which sets
forth the procedures to enforce the
shareholder's right to receive payment for
shares. See "The NHC Transaction--Appraisal
Rights."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE NHC
TRANSACTION................
The NHC Transaction will be a taxable transaction
for federal and state income tax purposes. The
Company expects to recognize a pre-tax loss of
approximately $17.9 million and a net loss of
approximately $10.3 million with respect to such
Transaction. The NHC Transaction will not result
in any direct federal or state income tax
consequences to the shareholders of the Company,
except for those who perfect their rights as
dissenting shareholders. See "The NHC
Transaction--Certain Federal Income Tax
Consequences of the NHC Transaction" and "The
NHC Transaction--Appraisal Rights."
13
<PAGE>
SUMMARY HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION
The following tables present summary reclassified historical financial data
of the Company (see Note 2) and historical ASB Meditest and summary pro forma
financial data after giving effect to the NHC Transaction. Each of the
Company's and ASB Meditest's fiscal years ends on December 31st. The summary
data as of the end of and for the first six months of 1995 and 1994 have been
derived from unaudited financial statements and, in the opinion of the
Company's and ASB Meditest's respective managements, include all adjustments
consisting of only normal recurring adjustments necessary for a fair
presentation of the results of operations for such interim periods.
The summary pro forma financial data have been derived from or prepared
consistently with the unaudited pro forma consolidated financial statements
included herein. The pro forma data are presented for illustrative purposes
only and are not necessarily indicative of the financial position or operating
results that would have occurred or that will occur upon consummation of the
NHC Transaction. The following summary financial data should be read in
conjunction with such historical and pro forma consolidated financial
statements and notes thereto incorporated by reference or included herein. See
"Incorporation of Certain Documents by Reference" and "Hooper Holmes, Inc. Pro
Forma Consolidated Financial Statements."
14
<PAGE>
HOOPER HOLMES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA(2)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995(3)(4)
------- ------- ------- ------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $53,879 $61,585 $68,931 $80,600 $ 92,534 $ 45,678 $ 48,393
Operating income........ 3,561 4,079 4,548 5,020 3,803 2,110 2,109
Interest expense........ 332 319 144 237 994 261 747
Income (loss) from
continuing operations.. 1,916 2,159 2,779 2,739 1,480 1,055 852
Income from discontinued
operations............. 1,065 1,427 2,099 867 1,184 576 (13,658)
Net income (loss)....... 2,981 3,586 4,878 3,606 2,664 1,631 (12,806)
Earnings from continuing
operations per
share(1)............... 0.42 0.42 0.42 0.41 0.22 0.16 0.13
Earnings (loss) from
discontinued operations
per share(1)........... 0.23 0.28 0.31 0.13 0.18 0.08 (2.03)
Earnings (loss) per
share(1)............... 0.65 0.70 0.73 0.54 0.40 0.24 (1.90)
Cash dividends per
share(1)............... 0.23 0.24 0.25 0.30 0.30 0.15 0.04
Weighted average number
of shares
outstanding(1)......... 4,580 5,141 6,718 6,714 6,707 6,710 6,705
BALANCE SHEET DATA:
Working capital......... $ 7,793 $15,720 $ 9,861 $ 4,024 $ 6,407 $ 5,152 $ 4,340
Total assets............ 31,480 48,962 52,754 88,355 103,172 101,071 96,339
Current maturities of
long-term debt......... 190 93 0 1,550 2,150 2,050 2,800
Long-term debt, less
current maturities..... 9,972 3,078 3,000 29,950 46,327 44,400 43,127
Total long-term debt.... 10,162 3,171 3,000 31,500 48,477 46,450 45,927
Total shareholders'
equity................. 18,835 41,160 44,384 45,916 46,502 46,557 33,470
</TABLE>
- --------
(1) Adjusted to reflect a 3 for 2 stock split effective February 28, 1992.
(2) Based on management's decision during the second quarter of 1995 to cease
operating in the health care industry, the Company has entered into an
agreement to sell the NHC Division. Such proposed sale is subject to
shareholder approval. The Company has accounted for the NHC Division as a
discontinued operation in the second quarter of 1995. Accordingly, the
summary consolidated financial data presented herein has been reclassified
to conform with discontinued operations presentation.
Certain corporate selling, general and administrative costs which were
previously allocated to the NHC Division have been reclassified to the
continuing operations as these costs may continue to be incurred by the
Company after the disposition of the NHC Division. Prior to reclassifying
the NHC Division as a discontinued operation, the NHC Division incurred
segmented operating losses for the years ended December 31, 1993 and 1994 of
$1.5 million and $.95 million, respectively.
(3) Net sales of the Company's discontinued operation (the "NHC Division") for
the six months ended June 30, 1995 were $79.7 million, compared to $79.1
million for the six months ended June 30, 1994. Sales of the NHC Division
for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 were
$54.3, $70.3, $85.9, $106.8, and $159.3 million, respectively.
In the six months ended June 30, 1995, the Company has taken an after tax
operating charge totaling $3.3 million pertaining to the discontinued
operations. This charge relates to losses of the NHC Division in the second
quarter and other aspects of the NHC Division.
The loss on disposal of $10.3 million (net of tax benefits of $7.6 million)
includes a provision of $0.9 million for operating losses during the phase
out period.
The net assets of discontinued operations consist primarily of accounts
receivable, fixed assets, goodwill and intangibles, net of its related
accounts payable and other accrued expenses.
15
<PAGE>
(4) The charge taken in the second quarter of 1995, net of tax, for the
discontinued operation loss on disposal of the NHC Division was $10.3
million based on information available at that time. Such amount is
calculated as follows (in thousands):
<TABLE>
<S> <C> <C>
Proceeds from sale of NHC:
Estimated fair value of ASB Meditest................... $30,000
Estimated cash to be received.......................... 29,768
-------
59,768
Basis in NHC net assets.................................. 71,993
Transaction costs........................................ 4,796
-------
76,789
--------
Loss on disposal......................................... (17,021)
Provision for operating losses on discontinued operations
during phase out period................................. (877)
--------
(17,898)
Estimated pro forma tax rate............................. 42.3%
Tax benefits on loss on disposal......................... 7,572
--------
Net loss on disposal of discontinued operations.......... $(10,326)
========
</TABLE>
Additionally, the Company had losses from operations of the NHC Division
through June 30, 1995 of $3.3 million.
16
<PAGE>
AMERICAN SERVICE BUREAU, INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue................. $66,490 $73,052 $81,910 $85,163 $81,846 $41,106 $41,014
Operating income (loss). 4,690 1,498 1,026 1,995 (612) 565 (883)
Interest expense........ 2,285 2,315 2,298 2,067 58 18 16
Net income (loss)....... 209 (2,287) (2,624) (1,865) (2,444) (493) (1,723)
BALANCE SHEET DATA:
Working capital......... $ 6,976 $ 6,627 $ 8,173 $10,650 $ 9,456 $ 9,623 $11,339
Total assets............ 34,680 39,661 40,375 37,515 43,245 39,314 44,148
Long-term payable to
affiliated companies... 6,598 11,892 16,441 16,708 24,530 19,127 28,446
Total shareholders'
equity................. 20,801 18,514 15,890 14,025 11,581 13,629 9,858
</TABLE>
17
<PAGE>
HOOPER HOLMES, INC.
SUMMARY PRO FORMA FINANCIAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, AND AS OF JUNE 30,
1994 1995
------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................... $174,380 $89,407
Operating income........................... 2,222 713
Interest expense........................... 1,052 763
Income from continuing operations.......... 743 76
Earnings from continuing operations per
share..................................... .11 .01
Cash dividends per share................... .30 .04
Weighted average number of shares
outstanding............................... 6,707 6,705
BALANCE SHEET DATA:
Working capital............................ $29,423
Total assets............................... 93,197
Current maturities of long-term debt....... 2,800
Long-term debt, less current maturities.... 30,085
Total long-term debt....................... 32,885
Total shareholders' equity................. 33,470
Book value per share(2).................... 4.99
</TABLE>
CERTAIN COMPARATIVE INFORMATION:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Book value per common share at June 30, 1995.............. $4.99 $4.99
Earnings from continuing operations per share for the year
ended
December 31, 1994........................................ .22 .11
Earnings from continuing operations per share for the six
months ended June 30, 1995............................... .13 .01
Cash dividend per share for the year ended December 31,
1994..................................................... .30 .30
Cash dividend per share for the six months ended June 30,
1995..................................................... .04 .04
</TABLE>
- --------
(1) See "Pro Forma Consolidated Financial Statements--Unaudited."
(2) Book value per share is based on outstanding shares at June 30, 1995
(6,707,052 shares).
18
<PAGE>
MARKET PRICE DATA
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol HH. The common stock of ASB Meditest ("ASB Meditest Stock")
is wholly owned by Olsten and does not have a public trading market. The table
below sets forth, for the calendar quarters indicated, the reported high and
low sale prices of the Company's Common Stock as reported on the AMEX, based
on published financial sources.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1993
First Quarter................................................ 18 1/8 14 1/2
Second Quarter............................................... 15 5/8 13 7/8
Third Quarter................................................ 14 3/8 9
Fourth Quarter............................................... 14 7/8 11 3/4
Fiscal Year 1994
First Quarter................................................ 14 3/4 11 1/8
Second Quarter............................................... 13 5/8 11 5/8
Third Quarter................................................ 11 7 5/8
Fourth Quarter............................................... 8 3/8 5 3/4
Fiscal Year 1995
First Quarter................................................ 10 3/4 6 1/2
Second Quarter............................................... 10 1/2 7 5/8
Third Quarter (through August 29, 1995)...................... 8 1/2 6 3/4
</TABLE>
The Company paid quarterly dividends on the Company's Common Stock in each
of fiscal 1993 and fiscal 1994 of $.075 per share. The Company paid a
quarterly dividend of $.03 per share for the first quarter 1995, $.01 per
share for the second quarter 1995, and $.01 per share for the third quarter
1995.
ASB Meditest has paid no dividends on the ASB Meditest Stock since prior to
January 1, 1993.
On May 26, 1995, the trading day immediately prior to the public
announcement of the NHC Transaction, the closing price of a share of the
Company's Common Stock on the AMEX was $7 7/8.
On August 29, 1995 (the last practicable date prior to the mailing of this
Proxy Statement), the closing price of a share of the Company's Common Stock
on the AMEX was $7 1/4.
19
<PAGE>
THE SPECIAL MEETING
PURPOSE OF THE MEETING
At the Special Meeting and any adjournment thereof, the holders of the
Company's Common Stock eligible to vote will be asked to consider and vote
upon (i) the approval of the NHC Transaction and (ii) such other matters as
may properly come before the Special Meeting and any adjournment thereof.
DATE, TIME AND PLACE; RECORD DATE
The Special Meeting is scheduled to be held on September 29, 1995 at 10:00
a.m. local time, at the American Stock Exchange, 86 Trinity Place, New York,
New York. The Board of Directors has fixed August 25, 1995 as the Record Date
for determining holders of Common Stock entitled to receive notice of and to
vote at the Special Meeting. As of the Record Date, there were 6,707,052
shares of Common Stock outstanding and entitled to vote.
VOTING RIGHTS
Each holder of record of Common Stock on the Record Date is entitled to cast
one vote per share, exercisable in person or by properly executed proxy, with
respect to the approval of the NHC Transaction and any other matter to be
submitted to a vote of shareholders at the Special Meeting.
The presence in person or by proxy of the holders of a majority of the votes
entitled to be cast at the meeting will constitute a quorum. Broker non-votes,
abstentions and withhold-authority votes all count for the purpose of
determining a quorum. The affirmative vote of the holders of sixty-six and
two-thirds percent (66 2/3%) of the Common Stock issued and outstanding on the
Record Date is required to authorize the NHC Transaction since Section 909(a)
of the New York Business Corporation Law ("BCL (S) 909(a)") provides that a
sale of substantially all the assets of a corporation, not in the usual or
regular course of business, requires the approval of the holders of two-thirds
of all outstanding shares entitled to vote. As of June 30, 1995, the assets of
the NHC Division constituted approximately sixty-eight percent (68%) of the
Company's total assets. In addition, the Company derived approximately sixty-
two percent (62%) of its revenues from the NHC Division for the six months
ended June 30, 1995. Thus, the sale of the NHC Division may be deemed to
constitute a sale of substantially all of the assets of the Company not in the
usual or regular course of business under BCL (S) 909(a). In addition, the
Acquisition Agreement requires, as a condition to Closing, that the NHC
Transaction receive shareholder approval. Abstentions and broker non-votes
will be included in the calculation for purposes of determining whether the
NHC Transaction has been approved and will have the effect of "no" votes.
All properly executed proxies returned in time to be cast at the meeting,
and not duly and timely revoked, will be voted at the Special Meeting in
accordance with the choices marked thereon by the shareholders. Unless a
contrary choice is marked, the shares will be voted FOR approval of the NHC
Transaction.
Any shareholder who executes and returns a proxy card may revoke such proxy
at any time before it is voted by (i) filing a notice of such revocation or a
later dated proxy with Robert William Jewett, Secretary, Hooper Holmes, Inc.
at 170 Mt. Airy Road, Basking Ridge, New Jersey 07920 or (ii) appearing in
person and voting at the Special Meeting. Attendance at the Special Meeting
will not in and of itself constitute revocation of a proxy.
SECURITY OWNERSHIP OF CERTAIN PERSONS
As of June 1, 1995, the Company's directors, executive officers and their
affiliates and associates as a group may be deemed to own beneficially 21.95%
of the outstanding shares of the Common Stock. Each of the directors and
officers of the Company has advised the Company that he or she intends to vote
or direct the vote of all the outstanding shares of the Common Stock which he
or she owns in his or her individual capacity in favor of the NHC Transaction.
See "Stock Ownership of Certain Beneficial Owners and Management."
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THE NHC TRANSACTION
The following is a brief summary of certain aspects of the NHC Transaction.
This summary does not purport to be complete and is qualified in its entirety
by reference to the Acquisition Agreement, a copy of which is attached to this
Proxy Statement as Exhibit A and is incorporated herein by reference.
BACKGROUND OF THE NHC TRANSACTION
In the process of formulating its business and financial plans, the Board of
Directors and senior management of the Company regularly examine the Company's
long-term prospects in light of general economic, regulatory and business
conditions, management's forecasts for the business segments in which the
Company is engaged, and opportunities which present themselves for
acquisitions, dispositions or joint ventures to further the Company's
strategic objectives. In this regard, in late March and early April 1993,
senior management of the Company, in order to enhance its Health Information
Services Division, had discussions with Lifetime Corporation ("Lifetime")
concerning the possible acquisition of ASB Meditest, then a subsidiary of
Lifetime.
During the 1970's, the Company and ASB Meditest were among the first
companies to provide services to the life and health insurance industry. In
1993, they were two of the five leading nationwide providers of paramedical
examinations for applicants seeking insurance coverage from life and health
insurers. Senior management believed that the combination of the two companies
would add additional branch offices, strengthen the Company's existing branch
network and provide greater geographical coverage to insurance customers.
However, in May 1993, Olsten agreed to acquire Lifetime, including ASB
Meditest. The Company continued to be interested in acquiring ASB Meditest.
In October, 1993, the Company made the largest acquisition in its history,
acquiring a substantial portion of the assets of Norrell Health Care, Inc.
("Norrell"), to expand its NHC Division. During 1994, this acquisition
strained the Company's financial, systems and personnel resources. It resulted
in a large increase in accounts receivable which necessitated an extensive
increase in outstanding bank debt. In late 1994, senior management concluded
that although the integration of Norrell had been progressing satisfactorily,
future NHC Division profitability growth would require an ongoing commitment
of financial and managerial resources which would impede the performance of
the higher-margin Health Information Services Division.
Accordingly, in late 1994, the Company began to explore the possibility of
selling the NHC Division, in addition to its continuing interest in acquiring
ASB Meditest. In connection with this decision, the Company interviewed five
investment banking firms and selected Bear, Stearns & Co. Inc. ("Bear
Stearns") as its financial advisor. In the opinion of senior management, Bear
Stearns had the greatest experience both in the health care area and in
advising companies with respect to enhancing shareholder value, including
bringing about the type of transactions being considered by the Company. The
Company and Bear Stearns entered into a letter agreement dated February 2,
1995.
In January, 1995, the NHC Division continued to deteriorate and it sustained
a segmented operating loss of $0.5 million. During early February, senior
officers of the Company met, and participated in telephone conversations, with
Bear Stearns to provide financial information on the NHC Division, including
initial projections for 1995 (which were updated from time to time by the
Company and communicated to Bear Stearns as 1995 monthly actual results became
available). Following those discussions, Bear Stearns provided senior
management a preliminary range of values for the NHC Division and for ASB
Meditest.
During February 1995, Bear Stearns and senior management held preliminary
discussions with senior management of Olsten and Olsten's financial advisor,
Smith Barney Inc. ("Smith Barney"). On the basis of these preliminary
discussions, senior management of Olsten expressed an interest in negotiating
an agreement to acquire the NHC Division in a swap transaction for the issued
and outstanding stock of ASB Meditest plus a cash payment to be negotiated
following the conduct of certain due diligence procedures.
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On February 15, 1995, senior officers of the Company and Olsten and their
respective advisors met to discuss preliminary due diligence information
primarily related to the NHC Division. They discussed, among other things,
sales and earnings trends and market share information, organizational
structures, and the treatment of employees not necessary to the acquiring
entity.
On February 23, 1995, senior officers of the Company, Olsten and ASB
Meditest and their respective advisors met at Bear Stearns' offices, primarily
to discuss ASB Meditest. They discussed sales and earnings trends and market
share information concerning ASB Meditest.
On March 7, 1995, Bear Stearns made a presentation to the Company's
Executive Committee of the Board of Directors regarding the valuation of the
NHC Division and ASB Meditest. Bear Stearns reviewed with the Executive
Committee certain preliminary analyses it performed regarding the valuation of
the NHC Division on both a stand alone basis and from the point of view of a
strategic buyer, i.e., a buyer already engaged in the home health care
business, such as Olsten, or a related business. Bear Stearns also reviewed
and discussed certain analyses regarding the valuation of ASB Meditest on a
stand alone basis and from the point of view of a strategic buyer such as the
Company. The presentation also included (i) an analysis of certain financial
and stock price data of selected publicly traded companies which were deemed
to be comparable to ASB Meditest and the NHC Division, (ii) an analysis of
certain financial and purchase price data of selected target companies in
merger and acquisition transactions which were deemed to be comparable to the
NHC Transaction and (iii) a discounted cash flow analysis for each of the NHC
Division and ASB Meditest. Thereafter, senior management brought the Committee
up to date on the negotiations. Following the meeting, there was a telephone
conference call between senior officers of the Company and Olsten and their
respective advisors to continue negotiations over valuation and the size of
the cash payment.
On March 15, 1995, senior officers of the Company and Olsten and their
respective advisors met at Smith Barney's offices to discuss the valuation
ranges of the NHC Division and ASB Meditest and cash payment issues. Following
this meeting, there were a number of telephone negotiations focusing on
valuation issues and the size of the cash payment and Olsten's desire for an
escrow agreement. These negotiations continued in a number of telephone calls
between either senior officers or the respective investment bankers during the
remainder of March. In addition, due diligence investigations were conducted
on behalf of both Olsten and the Company.
On March 25, 1995, Olsten provided a draft of a proposed agreement of
acquisition to the Company. On March 30, senior officers of the Company and
Olsten met in New Jersey to discuss organization matters, quality assurance
programs and other due diligence issues.
On March 31, 1995, Bear Stearns and the Company's senior management and its
legal advisors discussed the proposed transaction at a meeting of the
Company's Board of Directors. Bear Stearns presented and discussed updated
analyses of the same financial information provided to the Executive Committee
of the Board of Directors on March 7, 1995. In addition, Bear Stearns reviewed
certain analyses it performed to examine the pro forma impact on the Company
of (i) a sale of the NHC Division and (ii) the NHC Transaction. Following the
Board of Directors meeting, further negotiation of the transaction terms,
including the size of the cash payment and the terms of the escrow agreement,
took place between the officers and financial advisors of the Company and
those of Olsten.
On April 3, 1995, the Company's and Olsten's legal advisors met at Olsten's
offices and engaged in further negotiations regarding the proposed swap
transaction, with a view toward finalizing the terms of the proposed agreement
of acquisition within a relatively short period of time.
On April 4, 1995, the United States Department of Justice (the "DOJ") served
a Civil Investigative Demand ("CID") on the Company. The CID relates to an
investigation by the DOJ of "allegations that Hooper Holmes, Inc.'s Nurse's
House Call division, and specifically its Columbus, Ohio office, falsified
records and submitted false claims for reimbursement under Medicare and/or
Medicaid." The CID requires the Company to provide documents and answers to
interrogatories to the DOJ. After receipt of the CID, the Company and Olsten
suspended further negotiations pending a review of the nature and scope of
matters covered by the CID; however,
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the Company and Olsten periodically discussed the progress of the DOJ
investigation. See "The NHC Transaction--Civil Investigative Demand."
On May 2, 1995 the Company issued a press release announcing, among other
things, that it had retained Bear Stearns to assist the Company in evaluating
and pursuing various alternatives with respect to the NHC Division, including
the possible sale of the NHC Division.
Between May 1, 1995 and May 5, 1995, representatives of Olsten performed
additional due diligence procedures related to the CID matters, particularly
with respect to the Columbus office of the NHC Division. Shortly thereafter,
senior officers of Olsten and the Company and their respective financial and
legal advisors participated in further negotiations concerning the terms of
the proposed transaction, including selling the assets rather than the stock
of Hooper Holmes Healthcare, Inc., establishing an additional escrow for CID
matters, and extending indemnification and termination provisions to Olsten
for CID related costs and expenses. On May 12, 1995, Olsten furnished the
Company with a revised draft acquisition agreement.
On May 22, 1995, senior officers of Olsten and the Company and their legal
advisors met at the offices of Steptoe & Johnson, in Washington, D.C. to
attempt to finalize the terms of the proposed transaction. At that meeting,
the parties agreed (i) that there would be no additional escrow for CID
related costs and expenses, (ii) to exclude the Columbus assets of the NHC
Division from the transaction and (iii) that the Company would indemnify
Olsten for CID related costs and expenses. Following this meeting, there were
additional telephonic negotiations between members of senior management of
Olsten and the Company to finalize the terms of the proposed transaction. See
"The Acquisition Agreement--Indemnification Provisions."
On May 26, 1995, the Company's Board of Directors met to review the terms of
the Acquisition Agreement. Members of the Company's senior management and its
financial and legal advisors made detailed presentations concerning all
material aspects of the NHC Transaction. Bear Stearns reviewed and discussed
with the Board of Directors various updated analyses it performed regarding
the valuation of the NHC Division and ASB Meditest on both a stand alone basis
and from the point of view of a strategic buyer. Bear Stearns also reviewed
and discussed its updated analyses of (i) certain financial and stock price
data of selected publicly traded companies which were deemed to be comparable
to ASB Meditest and the NHC Division, (ii) certain financial and purchase
price data of selected target companies in merger and acquisition transactions
which were deemed to be comparable to the NHC Transaction and (iii) the pro
forma impact on the Company of the NHC Transaction. Bear Stearns also reviewed
with the Board of Directors its final estimate of ranges of values for each of
ASB Meditest and the NHC Division (see "The NHC Transaction--Opinion of the
Financial Advisor") and, at the request of the Board of Directors, gave its
oral opinion that the NHC Transaction was fair, from a financial point of
view, to the shareholders of the Company. The Board then approved the NHC
Transaction, the Acquisition Agreement, and the Accounts Receivable Collection
Agreement. Following this meeting, the Company and Olsten executed the
definitive Acquisition Agreement and the Accounts Receivable Collection
Agreement.
In negotiating the Purchase Price for the NHC Division, senior management
asked Bear Stearns to develop a range of values for both the NHC Division and
ASB Meditest. As discussed under the caption "The NHC Transaction--Opinion of
the Financial Advisor," Bear Stearns determined that an appropriate range of
values for ASB Meditest was $25 million to $35 million and that an appropriate
range of values for the NHC Division was $50 million to $65 million. Senior
management of the Company sought to negotiate a cash payment from Olsten which
would be consistent with these respective ranges of values. The parties never
reached an agreement upon valuation for either of the NHC Division or ASB
Meditest; instead they focused on negotiating the Cash Portion of the Purchase
Price. Based on the recommendation of its senior officers and the advice of
its financial advisor, and following arm's-length negotiation between senior
management of the Company and senior management of Olsten, the Board of
Directors determined that the agreed upon consideration would be the stock of
ASB Meditest and $34.5 million in cash, as adjusted to reflect changes in
relative net asset values as described under the caption "The Acquisition
Agreement--Cash Purchase Price Adjustment." The proposed consideration was
discussed by the Board of Directors at its meeting on March 31, 1995 and again
at its meeting on May 26, 1995. At these meetings the Board of Directors gave
significant weight to the range of values placed on ASB
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Meditest and the NHC Division by Bear Stearns. The manner in which Bear
Stearns determined the range of values for ASB Meditest and for the NHC
Division is set out below under the caption "The NHC Transaction--Opinion of
the Financial Advisor."
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR, EFFECTS OF AND
ALTERNATIVES TO AND RISKS OF THE NHC TRANSACTION
The Company's Board of Directors (the "Board of Directors") believes that
the terms of the NHC Transaction are fair to, and in the best interests of,
the Company and its shareholders. Accordingly, the Board of Directors has
unanimously approved the NHC Transaction and recommends approval of the NHC
Transaction by the shareholders for the following reasons.
Reasons for the NHC Transaction
First, the NHC Transaction would eliminate a business segment that incurred
segmented operating losses of approximately $1.5 million in 1993, $.95 million
in 1994 and is continuing to suffer losses in 1995.
Second, the cash consideration included in the NHC Transaction will enable
the Company to substantially reduce much of the debt incurred in the
acquisition of Norrell Health Care, Inc., thereby reducing interest expense on
an ongoing basis and strengthening the Company's balance sheet. If the Closing
had taken place on June 30, 1995, the Company would have received cash
consideration of approximately $30.0 million (of which $15 million would have
been placed in escrow), enabling it to immediately reduce its debt by $13.0
million, and by an additional $15 million as the NHC Division accounts
receivable as of the Closing Date are collected by a Company-Olsten Collection
Team. See "The Acquisition Agreement--Escrow Agreement and Accounts Receivable
Collection Agreement."
Third, the acquisition of ASB Meditest, a leading provider of health
information services, will immediately increase the Company's presence in the
health information services market. For the two fiscal years ended December
31, 1993 and 1994, the Company's Health Information Services Division had
segmented operating profits of approximately $8.3 million and $8.0 million,
respectively, on gross revenues of $80.6 million and $92.5 million,
respectively. Although ASB Meditest incurred pre-tax losses of $2.2 million in
1993 and $3.4 million in 1994, its gross revenues for such periods were,
respectively, $85.2 million and $81.8 million. Acquiring ASB Meditest will
give the Company approximately 200 health information service branch offices
after consolidating certain of the ASB Meditest and Company branch offices.
The Company currently has approximately 186 health information service branch
offices. With a strengthened branch network, the Company will be able to
provide greater geographical coverage to its customers.
Fourth, the Board of Directors believes that significant cost savings can be
achieved by combining the operations of ASB Meditest and the Company's
existing Health Information Services Division. Upon consummation of the NHC
transaction, ASB Meditest will not be required to pay Olsten management fees
and
royalty fees which in 1994 and in the six months ended June 30, 1995,
aggregated to approximately $2.9 million and $1.4 million, respectively. In
addition, senior management believes that up to 60 branch offices can be
consolidated following consummation of the NHC Transaction with resultant
annual savings estimated at up to $4.0 million. Senior management also
believes that following the consummation of the NHC Transaction estimated cost
savings of up to $3.0 million per year may be achieved by eliminating certain
managerial and management information system personnel who will not be needed
to operate the combined business. The potential savings resulting from
consolidation of branch offices and elimination of duplicative personnel are
not reflected in the Pro Forma statements set forth in this Proxy Statement,
since there can be no assurance that these savings can be achieved. Moreover,
even if these savings are achieved, there can be no assurance that other costs
will not be significantly greater following consummation of the transaction.
Effects of the NHC Transaction
The consummation of the NHC Transaction will result in the sale by the
Company of the NHC Division. As of June 30, 1995, the NHC Division accounted
for approximately sixty-eight percent (68%) of the assets of
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the Company; for the six months ended on June 30, 1995, the NHC Division
accounted for approximately sixty-two percent (62%) of the Company's revenues.
After the Closing Date the Company will no longer be in the home health care
business and its sole business activity will be providing health information
services (see "Description of the Health Information Services Division").
Although senior management believes that the Company's Health Information
Services Division's operating profits will be enhanced by the sale of the NHC
Division and the acquisition of ASB Meditest (see "Reasons for the NHC
Transaction" above), the costs of the NHC Transaction, including costs of the
solicitation, are estimated at approximately $5.9 million pre-tax and $3.6
million after tax. In total, the Company will incur a pre-tax loss of
approximately $17.9 million and a net loss of approximately $10.3 million with
respect to the NHC Transaction. At the time that the Board of Directors
approved the NHC Transaction, it was aware that such transaction would result
in a loss, although the magnitude of such loss had not then been fully
determined.
Alternatives to the NHC Transaction
Before reaching its conclusion to go forward with the NHC Transaction, the
Board of Directors considered disposing of the NHC Division in a separate
transaction, but concluded that the NHC Transaction was a better opportunity
for the shareholders because it enables the Company to acquire ASB Meditest in
exchange for the NHC Division. The Board of Directors also considered the
possibility of maintaining the status quo and continuing to attempt to make
the NHC Division profitable by closing a substantial number of underperforming
branch offices of the NHC Division and seeking business not requiring typical
health care support costs. However, senior management believed that the NHC
Division did not have the revenue volume and profits sufficient to service the
existing debt attributable to such business. The Company did not solicit any
bidders for the NHC Division other than Olsten because senior management
believed that (i) Olsten would be one of the most logical buyers of the NHC
Division, (ii) ASB Meditest, an Olsten subsidiary, would complement the
Company's Health Information Services Division, and (iii) the NHC Transaction
presented a unique opportunity for the Company both to sell an unprofitable
division and to substantially increase the revenues of its Health Information
Services Division by acquiring ASB Meditest in the same transaction. Moreover,
the Company's public announcement on May 2, 1995 that it had retained Bear
Stearns to assist the Company in evaluating and pursuing various alternatives
with respect to the Nurse's House Call Division, including the possible sale
of the Division, had attracted no serious bidders. Finally, Bear Stearns
advised the Board of Directors that, in its opinion, the NHC Transaction was
fair, from a financial point of view, to the Company's shareholders.
If the NHC Transaction is not consummated, the Company will be required to
either continue operating the NHC Division or attempt to locate another buyer
for the NHC Division. There can be no assurance that the NHC Division will not
continue to incur operating losses. There is also no assurance that the
Company would be able to find another buyer for the NHC Division or that if a
buyer is located that the terms of any sale of the NHC Division would be equal
to or better than the terms available in the NHC Transaction.
If the NHC Transaction is not consummated, and the NHC Division is not
otherwise sold at an early date, the Company will be required to refinance its
long term debt. The Company currently is a party to a credit agreement with
three banks that includes a $20 million term loan, due on October 31, 2000,
which requires escalating quarterly amortization payments and a $30 million
revolving loan due on January 2, 1997, with an extension option of one year.
As of June 30, 1995, the Company had available unused credit under these
agreements of approximately $3.7 million. Although the Company's senior
management believes that the Company will be able to refinance this existing
Credit Agreement if the Company does not sell the NHC Division pursuant to the
NHC Transaction or otherwise, there is no assurance that the Company will be
able to do so on terms favorable to the Company.
Management of the Company believes that the acquisition of ASB Meditest
would permit the Company to spread the costs of its Health Information
Services Division over a significantly larger book of business since ASB
Meditest revenues in 1994 aggregated approximately $82 million vs.
approximately $93 million of revenues generated in 1994 by the Company's
Health Information Services Division. If the NHC Transaction is not
consummated, the Company may not be able to acquire ASB Meditest or any other
company engaged in the Health Information Services business on terms
acceptable to the Company. Unless the Company sells the NHC
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Division, in all likelihood, it would not be able to obtain the financing
necessary to acquire ASB Meditest, even if ASB Meditest could be acquired on
terms deemed to be favorable by the Company.
Factors Considered by the Board of Directors in Making Its Recommendations
In making its determination that the NHC Transaction is fair to the
Company's shareholders, the Board of Directors considered the following
factors:
(i) the opinion of Bear Stearns described below under "The NHC
Transaction--Opinion of the Financial Advisor" and set forth as Exhibit D,
to the effect that the NHC Transaction is fair, from a financial point of
view, to the Company's shareholders;
(ii) the various analyses and other information presented to the Board of
Directors by Bear Stearns, including the analyses described under the
captions "The NHC Transaction--Background of the NHC Transaction" and "The
NHC Transaction--Opinion of the Financial Advisor" ;
(iii) information concerning the financial performance, condition,
business operations and prospects of each of the NHC Division, the Health
Information Services Division and ASB Meditest, including information set
forth in (a) the Company's 1994 Annual Report to Shareholders (incorporated
herein by reference), (b) the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1995 (incorporated herein by reference) and (c)
American Service Bureau, Inc. historical audited financial statements;
(iv) historical market, price and trading information with respect to the
Company's Common Stock, as set forth in the Company's 1994 Annual Report to
Shareholders (incorporated herein by reference);
(v) the strategic benefits the Company might gain through the NHC
Transaction (as set forth above under "Reasons for the NHC Transaction"),
particularly (a) the ability to generate certain operating synergies and
cost savings by acquiring ASB Meditest and combining its operations with
the operations of the Company's Health Information Services Division, and
(b) the ability to divest the NHC Assets of the NHC Division which were not
performing to a level desired by the senior management of the Company, at
what the Board believed to be a fair price;
(vi) the potential positive pro forma impact of the NHC Transaction on
the Company's earnings per share (as set forth below) based on historical
audited financial statements of the Company and ASB Meditest and financial
forecasts of both the NHC Division and ASB Meditest, prepared by the
Company and ASB Meditest, respectively, and reviewed by Bear Stearns;
(vii) the terms and conditions of the Acquisition Agreement, the Escrow
Agreement and the Accounts Receivable Collection Agreement; and
(viii) the possible alternatives to the NHC Transaction described above.
Each of the factors cited above was considered by the Board of Directors at
one or more of the meetings described under "The NHC Transaction--Background
of the NHC Transaction." The consideration of factors (iii), (iv), (v), (vi),
(vii) and (viii) involved primarily discussions among the Board of Directors
and its legal and financial advisors, and was based upon information and
advice received by the Board of Directors with respect to each factor from
senior management of the Company and the Company's legal and financial
advisors, as well as the Board's own knowledge about the matters involved in
the NHC Transaction. The consideration of factors (i) and (ii) involved
detailed reviews by the Board of Directors of factual, financial and numerical
information and analyses presented to the Board by Bear Stearns as described
under "The NHC Transaction--Background of the NHC Transaction" and "The NHC
Transaction--Opinion of the Financial Advisor." With respect to factor (ii),
the Board of Directors noted particularly that the analyses of Bear Stearns
indicated: (a) subject to certain adjustments and assumptions (including the
assumption that the NHC Transaction would have been effective on or about
January 1, 1995), a potential increase in pro forma net income to the Company
of $4.7 million ($0.69 per share), $5.0 million ($0.74 per share), and $5.2
million ($0.77 per share) for the years ending December 31, 1995, 1996 and
1997, respectively; and (b) an implied valuation range for the NHC Division of
$50 million to $65 million, and that, according to Bear Stearns' analyses, the
total consideration to be received by the Company exceeded this range. Based
upon these considerations, the Board of Directors concluded that
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factors (i), (ii), (iii), (iv), (v), (vi) and (viii) were favorable as to the
fairness of the NHC Transaction and factor (vii), while having both positive
and negative implications, was on the whole favorable.
Although the Board considered the projected pro forma net revenue increases
referred to in the immediately preceding paragraph in determining that the NHC
Transaction was fair to the Company's shareholders, these projections are
based on assumptions regarding certain cost savings reflecting the combination
of ASB Meditest with the Company's Health Information Services Division. These
projected cost savings are subject to timing of implementation (e.g., they are
based on an assumption that the NHC Transaction would have been effective on
or about January 1, 1995) and other significant business, economic and
competitive uncertainties, contingencies and risks, all of which are difficult
to quantify and many of which are beyond the control of the Company.
Accordingly, because of the delay in closing the NHC Transaction, the Company
believes that any potential cost savings will be minimal in 1995. Also, there
can be no assurance that these cost savings will, in fact, be realized at any
time. AS THERE IS UNCERTAINTY TO WHETHER THE RESULTS CONTEMPLATED BY THE
FOREGOING INCREMENTAL NET INCOME PROJECTIONS WILL BE REALIZED, SHAREHOLDERS
SHOULD NOT BASE THEIR DECISION AS TO WHETHER TO VOTE FOR THE NHC TRANSACTION
ON THESE INCREMENTAL NET INCOME PROJECTIONS. Moreover, the Company undertakes
no obligation to further update, revise or modify these financial projections
after the date of this Proxy Statement.
Members of the Board of Directors were generally aware of the risks outlined
below under the caption "The NHC Transaction--Risks of the NHC Transaction,"
other than claims of Concorde, Inc. and those of the independent agents which
were first made subsequent to the public announcement by the Company of the
NHC Transaction. However, the Board of Directors did not consider and discuss
each such risk in determining to make its recommendation to the shareholders.
Nonetheless, the Board of Directors believes that the potential advantages to
the Company of the NHC Transaction far outweigh the risks related to the NHC
Transaction.
In reaching its determination that the NHC Transaction is fair to the
Company's shareholders, the Board of Directors considered solely the interests
of such shareholders and did not consider the interests of other parties or of
officers or directors of either the Company or ASB Meditest. See "The NHC
Transaction--Interests of Certain Persons in the NHC Transaction."
In view of the wide variety of factors considered in connection with its
evaluation of the NHC Transaction, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determinations.
Under the terms of the Acquisition Agreement, the Company has agreed not to
solicit any proposal or offer for a merger or other business combination
involving the Company, the NHC Business or any of the Company's subsidiaries
or any proposal or offer to acquire any equity interest in, or material
portion of the assets of the Company or its subsidiaries other than the
transactions contemplated by the Acquisition Agreement. The Board of Directors
had and reviewed copies of the Acquisition Agreement containing this provision
prior to its approval of the NHC Transaction and considered it as one of the
many terms of the Acquisition Agreement in making its recommendation that the
NHC Transaction was fair to, and in the best interest of, the Company's
shareholders.
On May 26, 1995, prior to approval of the NHC Transaction by the Board of
Directors and at the Board's request, Bear Stearns rendered its oral opinion
that the NHC Transaction was fair, from a financial point of view, to the
shareholders of the Company as of that date. Bear Stearns has also delivered
its written opinion, dated as of the date of this Proxy Statement, to the same
effect. It is not contemplated that Bear Stearns will further update its
opinion. The Acquisition Agreement provides that certain conditions be
satisfied as a condition to the Company's obligation to consummate the NHC
Transaction, including a requirement that certain representations and
warranties made by Olsten be true and correct at and as of the Closing and
that there be no material adverse change in the condition (financial or
otherwise), business properties, assets or prospects of ASB Meditest.
Accordingly, the Board of Directors did not give any particular consideration
to either changing circumstances between the date of the Bear Stearns Opinion
and the date of the consummation of the NHC Transaction or to the fact that
the Bear Stearns Opinion would not be updated to the Closing Date. See "The
NHC Transaction--Risks of the NHC Transaction."
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THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE NHC TRANSACTION AND
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE NHC TRANSACTION.
RISKS OF THE NHC TRANSACTION
Shareholders of the Company should consider the following risk factors in
determining whether to vote for the NHC Transaction.
The Company will be left with only one line of business. The NHC Division
constitutes approximately sixty-eight percent (68%) of the Company's assets as
of June 30, 1995 and accounted for approximately sixty-two (62%) of the
Company's revenues for the six month period ended June 30, 1995. The sale of
the NHC Division will leave the Company with only its Health Information
Services Division and will result in a change in the Company's primary
business activities from home health care to health information services. The
Company's future success and financial performance will be totally dependent
on the Company's ability to meet the needs of its health information services
customers. See "Description of the Health Information Services Division."
Although the Company's Health Information Services Division currently is
operating profitably (see "Hooper Holmes, Inc. Summary Consolidated Financial
Data"), ASB Meditest had pre-tax net losses of approximately $2.2 million,
$3.4 million and $2.3 million, during the two years ended December 31, 1994
and the six months ended June 30, 1995, respectively. Accordingly, there is no
assurance that the combination of ASB Meditest and the Company's Health
Information Services Division will operate profitably.
The Company may be precluded from acquiring or operating ASB Meditest's drug
and alcohol testing business. On August 22, 1994, Concorde, Inc. ("Concorde")
filed an action in the Superior Court for Burlington County, New Jersey,
seeking to enjoin the Company from purchasing or acquiring from Olsten and/or
ASB Meditest any assets or any portion of any business that would result in
the Company competing with Concorde's substance abuse testing business in the
United States and asking for compensatory and punitive damages in unstated
amounts and costs. A hearing on plaintiff's motion to enjoin the Company has
been set for September 15, 1995, and the Company has agreed not to close the
NHC Transaction until after that date. Approximately $3.8 million (4.6%) and
$3.2 million (7.9%), respectively, of ASB Meditest's revenues in 1994 and the
first six months of 1995 were derived from its drug and alcohol testing
activities. On or about January 31, 1994, in conjunction with the sale of
certain assets and business pertaining to occupational health services and
urine specimen collection drug testing to Concorde for $25,000, the Company
entered into a noncompetition agreement with Concorde whereby it agreed,
subject to certain exceptions, not to directly or indirectly engage in any
business or enterprise similar to or in competition with the business of
Concorde within the United States for a period of four (4) years from the date
of such agreement, without Concorde's prior consent. Concorde has indicated
that it believes ASB Meditest's drug and alcohol testing activities are
directly competitive with Concord's business and has refused its consent for
the Company to engage in such activities as currently conducted by ASB
Meditest. Management believes the Company has defenses to these allegations
and that the Company intends to vigorously defend this case. However, if the
plaintiff is successful, upon acquiring ASB Meditest, the Company may not be
able to continue the drug and alcohol testing activities currently conducted
by ASB Meditest. In any event, management believes that the loss of these
revenues would not have a material adverse effect on the operations of the
Company following the consummation of the NHC Transaction.
Probable loss of business from customers common to both the Company and ASB
Meditest. The Company and ASB Meditest are two of the largest companies
currently engaged in the health information services business. Insurance
company customers frequently use two or three different providers of these
services, and accordingly to the extent that ASB Meditest and the Company
currently both serve the same insurance company customers, it is possible that
such customers will place some of the business currently being placed with ASB
Meditest and the Company with another provider. The incremental income
projections of Bear Stearns referred to under the caption "The NHC
Transaction--Opinion of the Financial Advisor" assumed a loss of fifteen
percent (15%) of ASB Meditest's revenues as a result of the NHC Transaction.
However, the actual loss may be greater than this estimate.
Possible loss of all or part of Escrowed Funds. The Company may lose all of
the $15 million portion of the purchase price ("Escrowed Funds") if the
Company-Olsten joint Collection Team ("Collection Team") fails
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to reduce the outstanding balance of Receivables (which are being acquired by
Olsten pursuant to the NHC Transaction) to below $30 million within 18 months
after the Closing Date ("Collection Period"), although Management believes
such a prospect is remote. The Company will lose a portion of the Escrowed
Funds if the Collection Team fails to reduce the outstanding Receivables
balance to $15 million within the Collection Period. As of June 30, 1995, the
NHC Division had Receivables of approximately $53 million. See "The
Acquisition Agreement--Escrow Agreement and Accounts Receivable Collection
Agreement."
Amount of cash to be received will not be certain until after the Closing
Date. The actual amount of cash to be obtained in the NHC Transaction is not
certain because the cash portion of the purchase price is subject to
adjustment depending upon the amount of NHC assets and the amount of ASB
Meditest assets at the Closing Date. The Company intends to use the cash
proceeds of the NHC Transaction to reduce its total debt which aggregated
approximately $45.9 million as of June 30, 1995. To the extent it receives
less cash than the $34.5 million contemplated by the Acquisition Agreement, it
will have less to apply to the payment of its debt.
The NHC Transaction will result in a substantial loss to the Company. The
NHC Transaction will result in an estimated pre-tax loss to the Company of
approximately $17.9 million (approximately $10.3 million after tax). The
Company recorded this charge in the second quarter of 1995 and its net worth
at June 30, 1995 reflects this charge.
Civil Investigative Demand. The Acquisition Agreement provides that Olsten
is entitled to be indemnified against costs, expenses and liabilities incurred
by it in connection with the Civil Investigation Demand made against the
Company by the United States Department of Justice. See "The NHC Transaction--
Civil Investigative Demand" and "The Acquisition Agreement--Indemnification
Provisions." Accordingly, Olsten may not be required to close the NHC
Transaction notwithstanding the substantial expense incurred by the Company in
negotiating the Acquisition Agreement, obtaining shareholder approval and
preparing for the Closing. Hence there can be no assurance that the terms of
the NHC Transaction can be satisfied by the Company.
Agent Claims. Eight of the NHC Division's branch offices are operated by
independent agents. The contracts between the Company and six of these
independent agents are not proposed to be assigned to Olsten in connection
with the NHC Transaction. These six independent agents accounted for
approximately $7.9 million of the Company's gross revenues in 1994 and
approximately $3.7 million in the first six months of 1995. The Company has
had negotiations with each of these six independent agents in an attempt to
amicably terminate their agreements with the Company. Two of these agents have
instituted lawsuits against the Company although one lawsuit, which was filed
in 1994 in the U.S. District Court for the Western District of Michigan prior
to the negotiation and announcement of the NHC Transaction, was dismissed
without prejudice, and the other has been settled. Each of the other four
independent agents whose contracts will not be assumed by Olsten has also
indicated to the Company that he or she may pursue claims against the Company.
These claims may not be resolved prior to the Closing Date of the NHC
Transaction. The Company has no way of predicting the outcome of these claims
or the cost to the Company which will be incurred in responding to them.
The expected benefits of a combination of ASB Meditest with the Company's
Health Information Services Division may not be achieved. The Company proposes
to acquire ASB Meditest because, among other reasons, it is in the same
business as the Company's Health Information Services business and the
Company's senior management believes that substantial cost savings can be
achieved in operating ASB Meditest as part of the Company. See "The NHC
Transaction--Recommendation of the Board of Directors; Reasons for, Effects of
and Alternatives to the NHC Transaction." However, no assurance can be given
that such cost savings will in fact be achieved.
No update of the Bear Stearns Fairness Opinion. The Company has received an
opinion from its financial advisor, Bear Stearns, dated as of the date of this
Proxy Statement to the effect that the NHC Transaction was fair from a
financial point of view to the shareholders of the Company as of such date.
The Company's obligation to close the NHC Transaction is not conditioned on
the receipt of an updated fairness opinion. The Company does not intend to
obtain, and Bear Stearns has no obligation to provide, an update of such
fairness opinion as of
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the Closing Date, which is expected to be on or shortly after the date of the
Special Meeting of shareholders, assuming the necessary approval of the
shareholders is obtained. Although the Company's senior management believes
that the Acquisition Agreement contains covenants that protect the Company
against materially adverse events which may occur between the date of the
Proxy Statement and the Closing Date, it is possible that such an event might
occur during such period. It is also possible that the Company would be
legally required to close the NHC Transaction notwithstanding the occurrence
of such an event.
Management's projections may not be achieved. The Bear Stearns Fairness
Opinion relies in part on financial projections prepared by the management of
the Company as to the Company and financial projections prepared by Olsten as
to ASB Meditest. See "The NHC Transaction--Opinion of the Financial Advisor."
These projections are based on certain assumptions which are subject to
significant business, economic and competitive uncertainties, contingencies
and risks, all of which are difficult to quantify and many of which are beyond
the control of the Company. Thus, there can be no assurance that these
projections will, in fact, be realized.
Unforeseen problems may restrict the Company's ability to make ASB Meditest
profitable. As in any acquisition or merger of two businesses, significant and
material problems and expenses not immediately apparent may surface after the
consummation of the NHC Transaction and integration of ASB Meditest with the
Company's Health Information Services Business. Accordingly, no assurance can
be given that the cost savings expected to result from operating ASB Meditest
as part of the Company's Health Information Division summarized under the
caption "The NHC Transaction--Recommendation of the Board of Directors;
Reasons for, Effects of and Alternatives to the NHC Transaction" will be
achieved or that the Company will operate profitably after the consummation of
the NHC Transaction.
OPINION OF THE FINANCIAL ADVISOR
The Board of Directors retained Bear Stearns in a letter agreement dated
February 2, 1995 to act as its financial advisor and to render an opinion to
the Board of Directors as to the fairness of the NHC Transaction, from a
financial point of view, to the shareholders of the Company. On May 26, 1995,
at the request of the Company, Bear Stearns rendered its oral opinion to the
Board of Directors that the NHC Transaction was fair, from a financial point
of view, to the shareholders of the Company as of the date thereof. Bear
Stearns subsequently issued its written opinion to the Board of Directors
which has been updated to the date of this Proxy Statement (the "Bear Stearns
Opinion").
THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS EXHIBIT D TO THIS
PROXY STATEMENT. THE COMPANY'S SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE
BEAR STEARNS OPINION IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY STATEMENT
FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY BEAR
STEARNS.
The Bear Stearns Opinion addresses only the fairness of the NHC Transaction,
from a financial point of view, to the shareholders of the Company and does
not constitute a recommendation to any shareholder of the Company as to how
such shareholder should vote with respect to the approval of the NHC
Transaction. The summary of the Bear Stearns Opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
Although Bear Stearns evaluated the financial terms of the NHC Transaction
and participated in discussions concerning the consideration to be paid, Bear
Stearns did not recommend the specific consideration to be paid in the NHC
Transaction. The consideration to be received by the Company as a result of
the NHC Transaction was determined by negotiations between the Company and
Olsten after consultation by each of such parties with their respective
financial advisors. In connection with rendering its opinion, Bear Stearns,
among other things: (i) reviewed this Proxy Statement, including the
Acquisition Agreement; (ii) reviewed the Company's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended
December 31, 1992 through 1994, and its Quarterly Reports on Form 10-Q for the
periods ended March 31, 1995 and June 30, 1995; (iii) reviewed certain
operating and financial information, including financial projections, provided
to Bear Stearns by the Company's management relating to the NHC Division's
business and prospects; (iv) met with certain
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members of the Company's senior management to discuss the NHC Division's
operations, historical financial statements and future prospects; (v) visited
the Company's facilities in Basking Ridge, New Jersey; (vi) reviewed Olsten's
Annual Reports to Shareholders and Annual Reports on Form 10-K for the fiscal
years ended December 31, 1992 through 1994, and its Quarterly Reports on Form
10-Q for the periods ended March 31, 1995 and June 30, 1995; (vii) reviewed
certain operating and financial information, including financial projections,
provided to Bear Stearns by the managements of Olsten and ASB Meditest
relating to ASB Meditest's business and prospects; (viii) met with certain
members of the senior managements of Olsten and ASB Meditest to discuss ASB
Meditest's operations, historical financial statements and future prospects;
(ix) visited ASB Meditest's headquarters in Framingham, Massachusetts; (x)
reviewed publicly available financial data and stock market performance data
of companies which were deemed generally comparable to the NHC Division and
ASB Meditest; (xi) reviewed the terms of recent acquisitions of companies
which were deemed generally comparable to the NHC Division and ASB Meditest
and (xii) conducted such other studies, analyses, inquiries and investigations
as it deemed appropriate.
Bear Stearns relied upon, and assumed without independent verification, (i)
the accuracy and completeness of all of the financial and other information
provided to it by the Company and Olsten for purposes of its opinion, and (ii)
the reasonableness of the assumptions made by the managements of the Company
and Olsten with respect to projected financial results of the NHC Division and
ASB Meditest, respectively, and potential synergies (consisting primarily of
cost savings) which could be achieved by each of the respective acquirers upon
consummation of the NHC Transaction. In addition, Bear Stearns did not make or
seek to obtain appraisals of the NHC Division's or ASB Meditest's assets or
liabilities in rendering its opinion. Bear Stearns further relied upon the
assurances of the managements of the Company and Olsten that they are unaware
of any facts that would make the information provided to Bear Stearns
incomplete or misleading. The Bear Stearns Opinion is also necessarily based
upon the market, economic and other conditions as in effect on, and the
information made available to it as of, the date of the opinion.
In addition to its review of the results of the financial analyses described
below, Bear Stearns held conversations with the management of the Company
concerning the strategic implications of the NHC Transaction. Accordingly,
Bear Stearns assumed, based upon such conversations, that the Company might
gain several strategic benefits through the NHC Transaction, including (i) the
ability to generate certain operating synergies and cost savings by acquiring
ASB Meditest and combining its operations with the operations of the Company's
Health Information Services Division and (ii) the ability to divest the NHC
Assets of the NHC Division which were not performing to a level desired by the
senior management of the Company.
In connection with its opinion, Bear Stearns performed analyses to assess
(i) the pro forma effect of the NHC Transaction on the Company's earnings per
share, (ii) the value of the consideration to be received in the NHC
Transaction (the capital stock of ASB Meditest plus $34.5 million in cash, as
adjusted to reflect changes in the NHC Division Net Asset Amount between
November 30, 1994 and the Closing Date, and in the ASB Meditest Net Asset
Amount between December 31, 1994 and the Closing Date) for the NHC Assets and
(iii) the value of the NHC Assets of the NHC Division. Bear Stearns' analysis
of the value of the consideration to be received by the Company for the NHC
Division utilized several methodologies to determine the valuation range for
the capital stock of ASB Meditest and the NHC Assets of the NHC Division,
including: (i) an analysis of certain financial and stock price data of
selected publicly traded companies which were deemed to be comparable to ASB
Meditest and the NHC Division, (ii) an analysis of certain financial and
purchase price data of selected target companies in merger and acquisition
transactions which were deemed to be comparable to the NHC Transaction and
(iii) a discounted cash flow analysis.
The following is a brief summary of certain of the financial analyses used
by Bear Stearns in connection with providing its opinion to the Board of
Directors of the Company.
Pro Forma Analysis. Bear Stearns analyzed the pro forma effects of the NHC
Transaction upon the earnings per share of the Company. The pro forma analysis
compared the projected financial results of the Company assuming it did not
consummate the NHC Transaction with the pro forma projected financial results
for the Company assuming it consummated the NHC Transaction. The projected
financial results for the Company and for the NHC Division used in the
analysis were prepared internally by the management of the
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Company. The projected financial results for ASB Meditest were prepared
internally by the managements of ASB Meditest and Olsten. In addition, the pro
forma analysis performed by Bear Stearns reflected certain assumptions made by
Bear Stearns and by the Company, some of which may be beyond the control of
the Company and which may not reflect what actually occurs upon the
consummation of the NHC Transaction. The pro forma analysis assumed that upon
consummation of the NHC Transaction (i) the Company would eliminate the
earnings contribution (or earnings deficit) of the NHC Division, (ii) the
Company would realize the earnings contribution of ASB Meditest, (iii) the
Company would realize savings in interest expense assuming it used the net
proceeds of the cash received in the NHC Transaction to reduce its outstanding
debt balance, and (iv) the Company would be able to generate certain cost
savings by combining the operations of ASB Meditest with the operations of the
Company's Health Information Services Division. Such analysis did not take
into account the potential impact of the timing of the implementation of such
adjustments on the Company's earnings. In general, the pro forma analysis
examined the ongoing impact of such adjustments on an annual basis as if the
NHC Transaction had been consummated on January 1, 1995. In addition, the pro
forma analysis did not factor in the potential cost of implementation of any
of the adjustments referenced above.
Giving effect to the adjustments described above, as well as the assumptions
incorporated in the pro forma analysis, Bear Stearns noted that the pro forma
analysis indicated that the aggregate annual impact of the adjustments could
potentially result in incremental net income to the Company of $4.7 million,
$5.0 million and $5.2 million for the years ending December 31, 1995, 1996 and
1997, respectively. On a per share basis, the annual impact of such
adjustments could potentially increase earnings per share of the Company by
$0.69, $0.74 and $0.77 for the years ending December 31, 1995, 1996 and 1997,
respectively. The pro forma analysis included certain assumptions regarding
certain cost savings reflecting the combination of ASB Meditest with the
Company's Health Information Services Division (see "The NHC Transaction--
Recommendations of the Board of Directors; Reasons for, Effects of and
Alternatives to the NHC Transaction") and the timing of the implementation of
such cost savings which may or may not reflect the actual cost savings
achieved by the Company upon the consummation of the NHC Transaction. Bear
Stearns noted, based upon the pro forma analysis, that the NHC Transaction
could potentially have a substantial positive impact on the Company's earnings
per share.
Based upon the pro forma analysis, Bear Stearns concluded that the NHC
Transaction was fair, from a financial point of view, to the shareholders of
the Company.
Going Concern Value of ASB Meditest. Bear Stearns performed a valuation
analysis of ASB Meditest based upon the methodologies summarized below. The
valuation analysis of ASB Meditest was based upon projected financial results
for ASB Meditest prepared internally by the managements of Olsten and ASB
Meditest, and reflected certain assumptions made by the Company regarding ASB
Meditest's projected financial results and certain cost savings which could be
achieved by combining the operations of ASB Meditest with the operations of
the Company.
Going Concern Value of ASB Meditest--Analysis of Selected Publicly Traded
-------------------------------------------------------------------------
Companies. Bear Stearns performed an analysis of selected publicly traded
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companies which it deemed to have businesses that were similar to the business
of ASB Meditest. Although Bear Stearns believes there are no public companies
which have businesses that are directly comparable to the business of ASB
Meditest (the four largest competitors in the insurance testing industry are
either private companies or divisions of large public companies with multiple
lines of business), Bear Stearns reviewed a group of companies that provide,
among other services, home health care services, including: Olsten, Lincare
Holdings Inc., Coram Healthcare Corporation, Inc., Homedco Group, Inc., Abbey
Healthcare Group, Inc., Interim Services, Inc., RoTech Medical Corporation,
American HomePatient Inc., Career Horizons, Inc., and Staff Builders, Inc. In
its review of the companies referenced above, Bear Stearns focused
specifically upon the companies within this group that provided home nursing
services, namely Olsten; Interim Services, Inc.; Career Horizons, Inc. and
Staff Builders, Inc. (the "Comparable Companies"). Bear Stearns deemed the
home health care companies to incorporate business fundamentals which were
similar to the business fundamentals of the insurance testing business,
including the health care orientation, growth prospects and a high level of
labor involved in the delivery of the service. For each of the Comparable
Companies, Bear Stearns examined certain publicly available financial data,
including net revenue, gross margin, selling, general
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and administrative expenses, contribution margin, earnings before interest and
taxes ("EBIT"), EBIT margin, net income, earnings per share and net income
margin. Bear Stearns examined the balance sheet items of each of the
Comparable Companies and published earnings forecasts and the trading
performance of the various companies' common stock. In addition, Bear Stearns
calculated the ratio of the market price (as of May 25, 1995) of the stock to
the projected earnings per share for calendar year 1995 of each Comparable
Company and the ratio of the enterprise value (the total market value of the
common stock outstanding plus the Company's total debt at par less cash and
cash equivalents) to the latest twelve months' ("LTM") net revenue and to the
LTM EBIT of each Comparable Company. Bear Stearns noted that the harmonic mean
(Harmonic mean is a statistical term used to calculate the average of ratios
in which price is the numerator (e.g., enterprise value/EBIT or
price/earnings). Bear Stearns believes that the harmonic mean usually
represents the best and most reliable average of such ratios because the
effect of the harmonic mean is to give equal weight to equal dollar
investments in the securities whose ratios are being averaged. By way of
comparison, an arithmetic mean gives greater weight to higher ratios, which is
why it may yield an inappropriate result.) of the ratios of the stock price to
projected earnings per share for the calendar year 1995 of the Comparable
Companies was 15.2x and that the range of ratios was from 13.8x to 17.2x. The
harmonic mean of the ratios of the enterprise value to LTM net revenue of the
Comparable Companies was 0.42x and the range of ratios was from 0.30x to
0.56x. The harmonic mean of the ratios of the enterprise value to LTM EBIT of
the Comparable Companies was 10.8x and the range of ratios was from 9.9x to
11.4x.
The ratios referenced above were used by Bear Stearns to impute a range of
values for ASB Meditest. Based upon the harmonic mean and the range of ratios
of the stock price to projected earnings per share for calendar year 1995 of
the Comparable Companies, the imputed value of ASB Meditest was $40 million,
and the imputed range of values of ASB Meditest was $36 million to $45
million. Based upon the harmonic mean and the range of ratios of the
enterprise value to LTM net revenue of the Comparable Companies, the imputed
value of ASB Meditest was $34 million, and the imputed range of values of ASB
Meditest was $25 million to $46 million. Based upon the ratios of the
enterprise value to LTM EBIT of the Comparable Companies, the imputed values
of ASB Meditest were not meaningful, as ASB Meditest recorded an operating
loss for its latest historical period.
Going Concern Value of ASB Meditest--Analysis of Selected Merger and
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Acquisition Transactions. Bear Stearns performed an analysis of selected
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precedent merger and acquisition transactions in the home health care industry
including (target company/acquiring company): In Home Health, Inc./Manor Care,
Inc.; Lincare Holdings Inc./Coram Healthcare Corporation, Inc.; Abbey
Healthcare Group, Inc./Homedco Group, Inc.; Caremark International Inc.'s home
health care business/Coram Healthcare Corporation, Inc.; HMSS, Inc./Coram
Healthcare Corporation, Inc.; Home Nutritional Services, Inc./W.R. Grace &
Co., Inc.; Curaflex Health Services, Inc., HealthInfusion, Inc. and Medysis,
Inc./T(2) Medical, Inc.; Critical Care America, Inc./Caremark International
Inc.; Total Pharmaceutical Care, Inc./Abbey Healthcare Group, Inc.; Lifetime
Corporation/Olsten; Home Intensive Care Inc./W.R. Grace & Co., Inc.; The IV
Clinic, Inc./Quantum Health Resources, Inc.; Clinical Homecare, Ltd./Curaflex
Health Services, Inc.; Total Home Care, Inc./Curaflex Health Services, Inc.;
Critical Care America, Inc./Medical Care International, Inc.; Glasrock Home
Health Care Inc./Homedco Group, Inc.; CareLink Corp./Tokos Medical
Corporation; TeamCare, Inc./Critical Care America, Inc.; Medical Research
Management, Inc./Tokos Medical Corporation; Care Plus, Inc./New England
Critical Care, Inc.; Upjohn Healthcare Services, Inc./Olsten; Mentor Clinical
Care, Inc./Lifetime Corporation; HMSS, Inc./Secomerica, Inc.; ASB Meditest,
Inc./Lifetime Corporation; Quality Care, Inc./Lifetime Corporation and
Caremark International Inc./Baxter Travenol Laboratories, Inc. In its review
of the transactions referenced above, Bear Stearns focused specifically upon
the following transaction within this group (the "Precedent NHC
Transactions"), namely. The following transactions were reviewed in Bear
Stearns' analysis (target company/acquiring company) (the "Precedent NHC
Transactions"): In Home Health, Inc./Manor Care, Inc.; Caremark International
Inc.'s home health care business/Coram Healthcare Group, Inc.; Critical Care
America, Inc. (a subsidiary of Medical Care International, Inc.)/Caremark
International Inc.; and Lifetime Corporation/Olsten Corporation. For each of
the target companies involved in the Precedent NHC Transactions, Bear Stearns
examined certain publicly available financial data, including net revenue,
gross margin, selling, general and administrative expenses, contribution
margin, EBIT, EBIT margin, net income, earnings per share and net income
margin. Bear Stearns examined the balance sheet items of each of the target
companies involved in the Precedent NHC Transactions and published
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earnings forecasts and the trading performance of the various target
companies' common stock. In addition, Bear Stearns calculated the ratio of the
purchase price of the target company in relation to the target company's LTM
and projected net income (for the next calendar year) and the ratio of the
transaction value (the total purchase price of the equity plus the target
company's total debt at par less cash and cash equivalents) of each target
company to its LTM net revenue and LTM EBIT. Bear Stearns noted that the
harmonic mean of the ratios of the purchase price of the equity to LTM net
income of the target companies in the Precedent NHC Transactions was 20.0x and
that the range of ratios was from 12.7x to 46.1x. The harmonic mean of the
ratios of the purchase price of the equity to projected net income of the
target companies in the Precedent NHC Transactions was 20.1x and the range of
ratios was from 18.6x to 22.4x. The harmonic mean of the ratios of the
transaction value to LTM net revenue of the target companies in the Precedent
NHC Transactions was 0.56x and the range of ratios was from 0.47x to 0.75x.
The harmonic mean of the transaction value to LTM EBIT of the target companies
in the Precedent NHC Transactions was 11.8x and the range of ratios was from
5.6x to 41.6x.
The ratios referenced above were used by Bear Stearns to impute a range of
values for ASB Meditest. Based upon the ratios of the purchase price to LTM
net income of the target companies in the Precedent NHC Transactions, the
imputed values of ASB Meditest were not meaningful, as ASB Meditest recorded a
loss for its latest historical period. Based upon the harmonic mean and the
range of ratios of the purchase price to projected earnings per share of the
target companies in the Precedent NHC Transactions, the imputed value of ASB
Meditest was $52 million and the imputed range of values of ASB Meditest was
$48 million to $58 million. Based upon the harmonic mean and the range of
ratios of the transaction value to LTM net revenue of the target companies in
the Precedent NHC Transactions, the imputed value of ASB Meditest was $46
million and the imputed range of values of ASB Meditest was $39 million to $62
million. Based upon the ratios of the transaction value to LTM EBIT of the
target companies in the Precedent NHC Transactions, the imputed values of ASB
Meditest were not meaningful, as ASB Meditest recorded an operating loss for
its latest historical period.
Going Concern Value of ASB Meditest--Discounted Cash Flow Analysis. Bear
-------------------------------------------------------------------
Stearns performed a discounted cash flow analysis of ASB Meditest using
projected financial results for ASB Meditest prepared internally by the
managements of Olsten and ASB Meditest, which financial results reflected
certain assumptions made by the management of the Company regarding ASB
Meditest's projected results and certain cost savings which could be achieved
by combining the operations of ASB Meditest with the operations of the
Company. The analysis included certain assumptions including a range of price-
to-earnings ratios in the terminal year of the projection period of 16.0x to
20.0x and a range of discount rates of 15% to 20%. Based upon the discounted
cash flow analysis, the imputed range of values of ASB Meditest was $14
million to $18 million.
Valuation of Consideration to be Received for the NHC Division. In assessing
the value of the consideration to be received by the Company in the NHC
Transaction for the NHC Assets of the NHC Division, which comprises the
capital stock of ASB Meditest plus $34.5 million in cash, as adjusted to
reflect changes in the NHC Division Net Asset Amount (as defined below)
between November 30, 1994 and the Closing Date, and in the ASB Meditest Net
Asset Amount between December 31, 1994 and the Closing Date. Bear Stearns
concluded that an appropriate range of values for ASB Meditest was $25 million
to $35 million. Bear Stearns noted that while this range of values was below
the mean values imputed in the valuation analyses it had performed (except for
the discounted cash flow analysis), it believed that ASB Meditest should be
accorded a range of values at the lower end of the imputed range of values,
as, among other things, ASB Meditest recorded an operating loss for its latest
historical period. Based upon the range of the values of ASB Meditest, the
imputed range of values of the consideration to be received by the Company for
the NHC Assets of the NHC Division was approximately $60 million to $70
million.
Going Concern Value of the NHC Division. Bear Stearns performed a valuation
analysis of the NHC Division based upon the methodologies summarized below.
The valuation analysis of the NHC Division was based upon projected financial
results for the NHC Division prepared internally by the management of the
Company.
Going Concern Value of the NHC Division--Analysis of Publicly Traded
--------------------------------------------------------------------
Companies. Bear Stearns performed an analysis of the Comparable Companies in
- ---------
which it examined certain publicly available financial
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data, including net revenue, gross margin, selling, general and administrative
expenses, contribution margin, EBIT, EBIT margin, net income, earnings per
share and net income margin. Bear Stearns examined the balance sheet items of
each of the Comparable Companies and published earnings forecasts and the
trading performance of the various companies' common stock. In addition, Bear
Stearns calculated the ratio of the market price (as of May 25, 1995) of the
stock to the projected earnings per share for calendar year 1995 of each
Comparable Company and the ratio of the enterprise value (the total market
value of the common stock outstanding plus the company's total debt at par
less cash and cash equivalents) to the LTM net revenue and to the LTM EBIT of
each Comparable Company. Bear Stearns noted that the harmonic mean of the
ratios of the stock price to projected earnings per share for the calendar
year 1995 of the Comparable Companies was 15.2x and that the range of ratios
was from 13.8x to 17.2x. The harmonic mean of the ratios of the enterprise
value to LTM net revenue of the Comparable Companies was 0.42x and the range
of ratios was from 0.30x to 0.56x. The harmonic mean of the ratios of the
enterprise value to LTM EBIT of the Comparable Companies was 10.8x and the
range of ratios was from 9.9x to 11.4x.
The ratios referenced above were used by Bear Stearns to impute a range of
values for the NHC Division. Based upon the ratios of the stock price to
projected earnings per share for calendar year 1995 of the Comparable
Companies, the imputed values of the NHC Division were not meaningful, as the
NHC Division recorded a loss in its latest historical period. Based upon the
mean and the range of ratios of the enterprise value to LTM net revenue of the
Comparable Companies, the imputed value of the NHC Division was $65 million,
and the imputed range of values of the NHC Division was $47 million to $87
million. Based upon the ratios of the enterprise value to LTM EBIT of the
Comparable Companies, the imputed values of the NHC Division were not
meaningful, as the NHC Division recorded an operating loss in its latest
historical period.
Going Concern Value of the NHC Division--Analysis of Selected Merger and
------------------------------------------------------------------------
Acquisition Transactions. Bear Stearns performed an analysis of the Precedent
- -------------------------
NHC Transactions. For each of the target companies involved in the Precedent
NHC Transactions, Bear Stearns examined certain publicly available financial
data, including net revenue, gross margin, selling, general and administrative
expenses, contribution margin, EBIT, EBIT margin, net income, earnings per
share and net income margin. Bear Stearns examined the balance sheet items of
each of the target companies involved in the Precedent NHC Transactions and
published earnings forecasts and the trading performance of the various target
companies' common stock. In addition, Bear Stearns calculated the ratio of the
purchase price of the target company in relation to the target company's LTM
and projected net income (for the next calendar year) and the ratio of the
transaction value (the total purchase price of the equity plus the target
company's total debt at par less cash and cash equivalents) of each target
company to its LTM net revenue and LTM EBIT. Bear Stearns noted that the
harmonic mean of the ratios of the purchase price of the equity to LTM net
income of the target companies in the Precedent NHC Transactions was 20.0x and
that the range of ratios was from 12.7x to 46.1x. The harmonic mean of the
ratios of the purchase price of the equity to projected net income of the
target companies in the Precedent NHC Transactions was 20.1x and the range of
ratios was from 18.6x to 22.4x. The harmonic mean of the ratios of the
transaction value to LTM net revenue of the target companies in the Precedent
NHC Transactions was 0.56x and the range of ratios was from 0.47x to 0.75x.
The harmonic mean of the transaction value to LTM EBIT of the target companies
in the Precedent NHC Transactions was 11.8x and the range of ratios was from
5.6x to 41.6x.
The ratios referenced above were used by Bear Stearns to impute a range of
values for the NHC Division. Based upon the ratios of the purchase price to
LTM net income of the target companies in the Precedent NHC Transactions, the
imputed values of the NHC Division were not meaningful, as the NHC Division
recorded a loss in its latest historical period. Based upon the ratios of the
purchase price to projected net income of the target companies in the
Precedent NHC Transactions, the imputed values of the NHC Division were not
meaningful, as the NHC Division was not projected to record a material level
of earnings. Based upon the mean and the range of ratios of the transaction
value to LTM net revenue of the target companies in the Precedent NHC
Transactions, the imputed value of the NHC Division was $87 million, and the
imputed range of values of the NHC Division was $73 million to $116 million.
Based upon the ratios of the transaction value to LTM EBIT of the target
companies in the Precedent NHC Transactions, the imputed values of the NHC
Division were not meaningful, as the NHC Division recorded an operating loss
in its latest historical period.
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Going Concern Value of the NHC Division--Discounted Cash Flow Analysis. Bear
-----------------------------------------------------------------------
Stearns performed a discounted cash flow analysis of the NHC Division using
projected financial results for the NHC Division prepared internally by the
management of the Company and provided to Bear Stearns. The analysis included
certain assumptions including a range of price-to-earnings ratios in the
terminal year of the projection period of 18.0x to 22.0x and a range of
discount rates of 12.5% to 17.5%. Based upon the discounted cash flow
analysis, the imputed range of values of the NHC Division was $6 million to $7
million.
Valuation of the NHC Division. Bear Stearns noted that the NHC Division
reported an operating loss for its latest historical period and was not
projected to earn a material level of earnings in the current fiscal period.
Based upon the NHC Division's historical and projected operating results,
among other things, Bear Stearns concluded that the values of the NHC Division
imputed in its valuation analyses by the ratios of the enterprise and
transaction values to LTM net revenue was high in relation to its assessment
of the appropriate range values of the NHC Division; Bear Stearns believed
that an appropriate range of values of the NHC Division was $50 million to $65
million. Bear Stearns noted further that the imputed range of values of the
consideration to be received by the Company in the NHC Transaction for the NHC
Division, approximately $60 million to $70 million, was greater than the range
of values of the NHC Division. Bear Stearns concluded that the NHC Transaction
was fair, from a financial point of view, to the shareholders of the Company.
In determining that the NHC Transaction was fair, from a financial point of
view, to the stockholders of the Company, Bear Stearns performed the analyses
discussed above to determine the pro forma impact of the NHC Transaction on
the Company and to determine the valuation of the capital stock of ASB
Meditest and the NHC Division. In concluding that the NHC Transaction was
fair, from a financial point of view, to the shareholders of the Company, Bear
Stearns noted that the pro forma impact of the NHC Transaction would have a
potential positive impact on the Company's earnings per share since the
Company (i) would realize the potential earnings contribution of the ASB
Meditest operations after giving effect to cost savings which the Company
believes can be realized by combining the operations of ASB Meditest with the
operations of the Company's Health Information Services Division, (ii) would
realize savings in interest expense assuming it used the net proceeds of the
cash received in the NHC Transaction to reduce its outstanding debt balance
and (iii) would eliminate the potential operating loss of the NHC Division. In
concluding that the NHC Transaction was fair, from a financial point of view,
to the shareholders of the Company, Bear Stearns also noted that the range of
values of the capital stock of ASB Meditest, when added to the $34.5 million
in cash, as adjusted to reflect changes in the NHC Division Net Asset Amount
between November 30, 1994 and the Closing Date, and in the ASB Net Asset
Amount between December 31, 1994 and the Closing Date, to be received by the
Company in the NHC Transaction, exceeded the range of values of the NHC
Division. Based upon this analysis, Bear Stearns concluded that the range of
values of the consideration to be received by the Company in the NHC
Transaction exceeded the range of values of the NHC Division.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Bear Stearns Opinion. In arriving at its opinion, Bear
Stearns considered the results of such analyses but did not ascribe particular
weight to any one analysis. The analyses were prepared solely for the purposes
of providing its opinion as to the fairness of the NHC Transaction, from a
financial point of view, to the shareholders of the Company and do not purport
to be appraisals or necessarily reflect the price at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, Bear Stearns did not, in arriving at its fairness opinion, evaluate
alternatives to the NHC Transaction. As described above, Bear Stearns Opinion
and presentation to the Board of Directors was one of many factors taken into
consideration by the Board of Directors in making its determination to approve
the Acquisition Agreement. The foregoing summary does not purport to be a
complete description of the analyses performed by Bear Stearns.
The Board of Directors retained Bear Stearns to act as its financial advisor
based upon its qualifications, experience and expertise. Bear Stearns, as part
of its investment banking business, is engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, negotiated
underwritings, private
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placements and valuations for corporate and other purposes. In the ordinary
course of business, Bear Stearns may actively trade the equity securities of
the Company for its own accounts and for the accounts of customers and,
accordingly, may, at any time, hold a long or short position in such
securities.
Pursuant to a letter agreement, dated February 2, 1995, the Company agreed
to pay Bear Stearns a fee of $300,000 upon the rendering of its fairness
opinion relating to the NHC Transaction. The Company also agreed to pay Bear
Stearns, upon consummation of the NHC Transaction, a fee equal to 2% of the
consideration to be received for the assets and liabilities of the NHC
Division, less the $300,000 paid to Bear Stearns upon the rendering of its
fairness opinion. The Company also agreed to reimburse Bear Stearns for its
reasonable out-of-pocket expenses and to indemnify Bear Stearns and certain
related persons against certain liabilities in connection with the engagement
of Bear Stearns, including certain liabilities under federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE NHC TRANSACTION
Pursuant to individual severance agreements, certain of ASB Meditest's
executive officers and other employees are entitled, if their employment is
terminated following the NHC Transaction, to receive severance benefits from
ASB Meditest. Pursuant to the Acquisition Agreement, Olsten has agreed to
reimburse the Company for (i) any and all severance benefits required to be
paid to one executive officer of ASB Meditest, and (ii) all severance
benefits, except for one month's salary required to be paid to six other
executive officers and key employees of ASB Meditest, if such persons are
terminated within ninety days following Closing (or 50% of such severance
benefits if such persons are terminated following the 90th day after Closing).
Except for these benefits, the Company is not aware of any benefit, direct or
indirect, to be received by any officer, director, or affiliate of the
Company, Olsten or ASB Meditest as a result of the NHC Transaction, other than
as a shareholder on a pro rata basis with other shareholders of the Company.
The Company is not aware of any conflicts of interest among any officer,
director, or affiliate of the Company, Olsten or ASB Meditest and their
respective shareholders arising as a result of the NHC Transaction. Except for
the Acquisition Agreement (and schedules thereto), the Accounts Receivable
Collection Agreement, the Escrow Agreement and the discussions and
negotiations among the Company, ASB Meditest and Olsten referred to under the
caption "The NHC Transaction--Background of the NHC Transaction" above, the
Company is not aware of any past, present or proposed material contracts,
arrangements, understandings, relationships, negotiations or transactions
during the periods for which financial statements are presented or
incorporated by reference herein between Olsten, ASB Meditest or their
respective affiliates and the Company or its affiliates. See "EXHIBIT A--The
Acquisition Agreement, (S) 7.19."
GENERAL DESCRIPTION OF THE NHC TRANSACTION
As of the Effective Time (See "Closing; Effective Time" below), Olsten
agrees to purchase or acquire from the Company substantially all of the assets
and business (the "NHC Assets") of the NHC Division. The NHC Division consists
of the assets and business of the Company and its wholly-owned subsidiary
Hooper Holmes Health Care, Inc. which are utilized principally in (a)
providing comprehensive home health care services, including, without
limitation, skilled and unskilled home health care services, pharmaceutical
and ancillary services and products, (b) providing private duty nursing
services in institutional settings, (c) providing supplemental staffing
services to or on behalf of health care facilities, providers and payors, and
(d) operating six pharmacies. The NHC Division includes the assets and
business of Nurse's House Call(R). See "Description of the NHC Division."
The Acquisition Agreement provides that as consideration for the sale of the
NHC Assets, Olsten will transfer, assign and deliver to the Company all of the
issued and outstanding capital stock ("ASB Meditest Stock") of American
Service Bureau, Inc., an Illinois corporation engaged in the business of
providing paramedical examinations and related services to the life and health
insurance industries (referred to herein as "ASB Meditest"), pay the Company
Thirty-Four Million Five Hundred Thousand Dollars ($34,500,000) in cash, as
adjusted to reflect changes in the NHC Division Net Asset Amount (as defined
below) between November 30, 1994 and the Closing Date, and in the ASB Meditest
Net Asset Amount between December 31, 1994 and the Closing Date ("Cash Portion
of the Purchase Price"), and assume certain specified liabilities relating to
the NHC Division. If the Closing had taken place on June 30, 1995, the Cash
Portion of the Purchase Price would have
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been $30.0 million after making this adjustment, and the liabilities to be
assumed by Olsten would have been approximately $4.5 million. The Company
intends to operate ASB Meditest as part of its health information services
business and does not intend to distribute the stock of ASB Meditest. The
Purchase Price was determined through arm's-length negotiation between the
officers and financial advisors of Olsten and those of the Company.
The Acquisition Agreement also provides for $15 million of the Cash Portion
of the Purchase Price to be delivered into an escrow account and disbursed to
the Company only as the accounts receivable of the NHC Division (the
"Receivables") which are being acquired by Olsten pursuant to the NHC
Transaction are collected pursuant to an Accounts Receivable Collection
Agreement, a copy of which is attached hereto as Exhibit B, and an Escrow
Agreement to be executed at Closing, the form of which is attached hereto as
Exhibit C. See "The NHC Transaction," "The Acquisition Agreement--Cash
Purchase Price Adjustment," "The Acquisition Agreement--Escrow Agreement and
Accounts Receivable Collection Agreement" and "Description of ASB Meditest."
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Acquisition Agreement
will take place at 10:00 a.m. on a date (the "Closing Date") to be specified
by the parties, which shall be no later than the second business day
immediately following the date on which the last of the regulatory approvals
and other conditions set forth in the Acquisition Agreement is satisfied or
waived, or at such other time as the Company and Olsten agree. The Effective
Time for the transactions contemplated by the Acquisition Agreement shall be
at 11:59 p.m. on the Closing Date (the "Effective Time").
ACCOUNTING TREATMENT
The sale of the NHC Assets included in the NHC Transaction will be accounted
for as a sale of certain assets and a transfer of certain liabilities. The
consideration (which includes the ASB Meditest Stock) received by the Company
less the book value of the assets sold will result in a loss. The estimated
loss is included in the discontinued operations charge recorded by the Company
during the second quarter of 1995. The assets and liabilities of ASB Meditest
will be recorded using the purchase method of accounting.
The Company expects that representatives of its principal accountants, KPMG
Peat Marwick LLP, will be present at the Special Meeting, will have the
opportunity to make a statement regarding the matters described in this Proxy
Statement if they desire to do so and will be available to respond to
reasonable and appropriate questions.
INCOME TAX CONSEQUENCES OF THE NHC TRANSACTION
The NHC Transaction will be a taxable transaction for federal and state
income tax purposes. The Company expects to recognize a pre-tax loss in the
approximate amount of $17.9 million ($10.3 million after tax) with respect to
such Transaction. The NHC Transaction will not result in any direct federal or
state income tax consequences to the shareholders of the Company, except for
those who perfect their rights as dissenting shareholders. See "The NHC
Transaction--Appraisal Rights."
REGULATORY APPROVALS
The NHC Transaction is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations thereunder, which provide that certain transactions may not be
consummated until required information and materials have been furnished to
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") and certain waiting periods have
been terminated or expired. On June 12, 1995, the Company filed the required
information and materials with the Antitrust Division and the FTC, and the
waiting period was terminated June 20, 1995.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the NHC Transaction. Moreover, the
expiration of the HSR Act waiting period does not preclude the Antitrust
Division, the FTC or state antitrust authorities from challenging the NHC
Transaction on antitrust
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grounds. Accordingly, at any time before or after the consummation of the NHC
Transaction, any of the Antitrust Division, the FTC or state antitrust
authorities could take such action under the antitrust laws as they deem
necessary or desirable in the public interest, or certain other private
persons could take action under the antitrust laws, including seeking to
enjoin the NHC Transaction.
APPRAISAL RIGHTS
Holders of the Common Stock who object to the NHC Transaction and who
exercise appraisal rights in connection with the NHC Transaction under New
York Business Corporation Law Section 623 will be entitled to receive payment
of the "fair value" of their shares. The shares of Common Stock with respect
to which Dissenting Shareholders have perfected their demand for appraisal
rights in accordance with Section 623 and have not effectively withdrawn or
lost such rights, are referred to in this Proxy Statement as "Dissenting
Shares."
THE FOLLOWING SUMMARY OF THE PROVISIONS OF SECTION 623 IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SECTION 623, A COPY OF WHICH IS ATTACHED TO THIS
PROXY STATEMENT AS EXHIBIT E AND INCORPORATED HEREIN BY REFERENCE.
Under Section 623 a holder electing to exercise appraisal rights must, prior
to the vote concerning the NHC Transaction at the Special Meeting, perfect his
or her appraisal rights by filing with the Company written objection to the
NHC Transaction. A proxy or vote against the NHC Transaction will not
constitute a demand for appraisal. A shareholder electing to take such action
must do so by a separate written objection to the action to be taken as
provided in Section 623. Such shareholder who elects to exercise appraisal
rights should mail or deliver his or her written objection to Robert William
Jewett, Secretary, Hooper Holmes, Inc. at 170 Mt. Airy Road, Basking Ridge,
New Jersey 07920. The objection must include a notice of such shareholder's
election to dissent, his name and residence address, the number of shares held
and a demand for payment of the fair value of his shares if the NHC
Transaction is consummated. Within ten days after the date on which the
shareholders' vote authorizing the NHC Transaction is taken (the date such
vote is taken is referred to herein as the "Authorization Date"), the Company
must provide notice to all shareholders who have complied with Section 623 and
have not voted for approval of the NHC Transaction that the NHC Transaction
has been approved. Only a holder of record of shares of Common Stock (or his
or her duly appointed representative) is entitled to assert appraisal rights
for the shares registered in that shareholder's name.
A shareholder may not dissent as to less than all of the shares, as to which
he or she has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
At the time of filing the demand for appraisal or within one month
thereafter, the holder of Common Stock must submit the certificates
representing his shares to the Company or its transfer agent, which will note
thereon that a notice of election has been filed and will return the
certificates to the holder or other person who submitted them on the holder's
behalf.
If the Company fails to make a written offer by registered mail to each
shareholder who has filed a demand for appraisal to pay for his or her shares
at a specified price which the Company considers to be their fair value within
fifteen days after the expiration of the period within which shareholders may
file their notices of election to dissent, or within fifteen days after the
NHC Transaction is consummated, whichever is later (but in no case later than
ninety days from the Authorization Date), or if any dissenting shareholder or
shareholders fail to agree with the price to be paid for their shares within
the period of thirty days thereafter, the Company shall, within twenty days
after the expiration of whichever is applicable of the two periods just
mentioned, institute a special proceeding in the supreme court in the judicial
district for New York, New York, to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If the Company fails
to institute such proceeding within such period of twenty days, a dissenting
shareholder may institute such proceeding for the same purpose within thirty
days after the expiration of such twenty day period. If such proceeding is not
instituted within such
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thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, otherwise directs.
If such a proceeding is instituted in a timely manner, at a hearing on such
proceeding the Court is required to determine the holders of Dissenting Shares
entitled to appraisal rights and to determine the "fair value" of the
Dissenting Shares, together with a fair rate of interest, if any, to be paid
upon the value of the Dissenting Shares. In determining such "fair value," the
Court is required to take into account all relevant factors. In determining
the fair value of interest, the Court may consider the rate of interest which
the Company would have had to pay to borrow money during the pendency of the
proceeding. Each party to the proceeding will bear its own costs and expenses,
including legal fees. The Court may, in its discretion, order that all or a
portion of the expenses incurred by dissenting shareholders be charged against
the Company under certain circumstances.
A holder of Common Stock will effectively lose his or her right to appraisal
if he or she votes for the approval of the NHC Transaction, or if no demand
for appraisal is filed on or before the Authorization Date, or if the holder
delivers to the Company a written withdrawal of such holder's demand for an
appraisal and an acceptance of the NHC Transaction, except that any such
attempt to withdraw made more than sixty days after the date on which the NHC
Transaction is consummated requires the written consent of the Company.
For federal income tax purposes, a dissenting shareholder who receives
payment for its shares upon exercise of his, her or its dissenter's rights may
recognize capital gain or loss thereon measured by the difference between the
basis for its shares and the amount of payment received. Due to the individual
nature of tax consequences, each dissenting shareholder is urged to consult
with his, her or its own tax advisor as to the particular tax consequences to
such shareholder of dissenting from the NHC Transaction, including the effect
and applicability of federal, state, local and foreign tax laws.
EFFECT OF THE APPROVAL OF THE NHC TRANSACTION ON THE COMPANY'S SHAREHOLDERS
If the NHC Transaction is consummated, the shareholders of the Company will
retain their equity interest in the Company. The consummation of the NHC
transaction will not result in any changes in the rights of the Company's
shareholders.
CASH PROCEEDS OF THE NHC TRANSACTION
The Acquisition Agreement provides that the Company will receive Thirty-Four
Million Five Hundred Thousand Dollars ($34,500,000) in cash proceeds at the
closing of the NHC Transaction, as adjusted to reflect changes in the NHC
Division Net Asset Amount (as defined below) between November 30, 1994 and the
Closing Date, and in the ASB Meditest Net Asset Amount between December 31,
1994 and the Closing Date ("Cash Portion of the Purchase Price"). If the
Closing had taken place on June 30, 1995, the Cash Portion of the Purchase
Price would have been $30.0 million after making this adjustment, and the
liabilities to be assumed by Olsten would have been approximately $4.5
million. The Purchase Price was determined through arm's-length negotiation
between the officers and financial advisors of Olsten and those of the
Company.
The Acquisition Agreement provides for $15 million of the Cash Portion of
the Purchase Price to be delivered into an escrow account and disbursed to the
Company only as the accounts receivable of the NHC Division (the
"Receivables") which are being acquired by Olsten pursuant to the NHC
Transaction are collected pursuant to an Accounts Receivable Collection
Agreement, a copy of which is attached hereto as Exhibit B and an Escrow
Agreement to be executed at Closing, the form of which is attached hereto as
Exhibit C. The Company entered into these agreements at Olsten's request to
facilitate and assist in the collection of accounts receivable acquired by
Olsten pursuant to the NHC Transaction. While it is possible that the Company
would not recover any or all of the $15 million to be deposited into the
escrow account ("Escrowed Funds"), senior management believes that either
possibility is remote because of the terms of the Accounts Receivable
Collection Agreement and the Company's past receivables collection experience.
Pursuant to the Accounts Receivable Collection Agreement, for eighteen months
following the Closing Date ("Collection Period"), the Company will receive
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one dollar (up to a maximum $15 million) for each dollar of Receivables
collected by a Company-Olsten joint Collection Team ("Collection Team") after
the outstanding balance of Receivables has been reduced to $30 million,
together with all interest earned thereon. Thus, in order for the Company to
lose all of the Escrowed Funds, the Collection Team would have to fail to
reduce the outstanding Receivables balance to below $30 million. In order for
the Company to lose any of the escrow funds, the Collection Team will have to
fail to reduce the outstanding Receivables balance to below $15 million. As of
June 30, 1995, the NHC Division had Receivables of approximately $53 million.
For the years ended December 31, 1992, 1993 and 1994, and the six months
ended June 30, 1995, the Company had accounts receivable reserves of
approximately $1.1 million, $1.9 million, $2.8 million and $3.1 million,
respectively, which senior management deemed sufficient to provide for any
uncollectible accounts receivable balances, based on its review of specific
accounts, aging of receivables, and past collection history. Historically, for
the years ended December 31, 1992, 1993 and 1994, and the six months ended
June 30, 1995, the Company experienced accounts receivable write-offs, net of
recoveries, of approximately $0.4 million, $0.6 million, $0.8 million, and
$0.3 million, respectively. Additionally, the accounts receivable are recorded
net of any contractual allowances. See "The NHC Transaction," "The Acquisition
Agreement--Cash Purchase Price Adjustment," "The Acquisition Agreement--Escrow
Agreement and Accounts Receivable Collection Agreement" and "Description of
ASB Meditest."
CIVIL INVESTIGATIVE DEMAND
The Company was served with a Civil Investigative Demand ("CID") by the
United States Department of Justice (the "DOJ") on April 4, 1995. The CID
relates to an investigation by the DOJ of "allegations that Hooper Holmes,
Inc.'s Nurse's House Call division, and specifically its Columbus, Ohio
office, falsified records and submitted false claims for reimbursement under
Medicare and/or Medicaid." The CID requires the Company to provide documents
and answers to interrogatories to the DOJ. The Company is cooperating with the
DOJ to resolve this matter. This investigation is not related to the NHC
Transaction (although it concerns billings of the NHC Division) and under the
terms of the Acquisition Agreement, the Company has indemnified Olsten against
all loss, expense or liability, if any, related to this investigation. The
Acquisition Agreement provides for termination at any time prior to Closing by
Olsten if Olsten reasonably determines that the nature or scope of, or
remedies sought with respect to, the CID or any other Investigation (as
defined in the Acquisition Agreement) has or might reasonably be expected to
have a material adverse effect on the NHC Assets or NHC Division business;
Olsten becomes aware of any facts, circumstances or developments with respect
to the CID or any other Investigation which could reasonably be expected to
materially and adversely impact Olsten's operation and conduct of the NHC
Business; or any proceeding is initiated by a governmental authority based
upon or related to substantially similar circumstances as those of the CID or
any other Investigation. See "The Acquisition Agreement--Indemnification
Provisions," "The Acquisition Agreement--Termination" and "EXHIBIT A--The
Acquisition Agreement, (S) 5.09."
41
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THE ACQUISITION AGREEMENT
The following is a brief summary of certain provisions of the Acquisition
Agreement. This summary does not purport to be complete and is qualified in
its entirety by reference to the Acquisition Agreement, a copy of which is
attached to this Proxy Statement as Exhibit A and is incorporated herein by
reference.
THE NHC TRANSACTION
As of the Effective Time, Olsten agrees to purchase or acquire from the
Company substantially all of the assets and business of the NHC Division. The
NHC Division consists of the assets and business of the Company and its
wholly-owned subsidiary Hooper Holmes Health Care, Inc. which are utilized
principally in (a) providing comprehensive home health care services,
including, without limitation, skilled and unskilled home health care
services, pharmaceutical and ancillary services and products, (b) providing
private duty nursing services in institutional settings, (c) providing
supplemental staffing services to or on behalf of health care facilities,
providers and payors, and (d) operating six pharmacies. The NHC Division
includes the assets and business of Nurse's House Call (R). See "Description
of the NHC Division."
The Acquisition Agreement provides that as consideration for the sale of the
NHC Assets, Olsten will transfer, assign and deliver to the Company all of the
issued and outstanding capital stock ("ASB Meditest Stock") of American
Service Bureau, Inc., an Illinois corporation engaged in the business of
providing paramedical examinations and related services to the life and health
insurance industries (referred to herein as ("ASB Meditest"), pay the Company
Thirty-Four Million Five Hundred Thousand Dollars ($34,500,000) in cash, as
adjusted to reflect changes in the NHC Division Net Asset Amount (as defined
below) between November 30, 1994 and the Closing Date, and in the ASB Meditest
Net Asset Amount between December 31, 1994 and the Closing Date ("Cash Portion
of the Purchase Price"), and assume certain specified liabilities relating to
the NHC Division. If the Closing had taken place on June 30, 1995, the Cash
Portion of the Purchase Price would have been $30.0 million after making this
adjustment, and the liabilities to be assumed by Olsten would have been
approximately $4.5 million. Immediately prior to the transfer of ASB Meditest
Stock, Olsten will forgive all intercompany liabilities and obligations owed
by ASB Meditest to Olsten, and those amounts forgiven shall be deemed to
constitute a capital contribution to ASB Meditest. The Purchase Price was
determined through arm's-length negotiation between the officers and financial
advisors of Olsten and those of the Company.
The Acquisition Agreement also provides for $15 million of the Cash Portion
of the Purchase Price to be delivered into an escrow account and disbursed to
the Company only as the accounts receivable of the NHC Division (the
"Receivables") which are being acquired by Olsten pursuant to the NHC
Transaction are collected pursuant to an Accounts Receivable Collection
Agreement, a copy of which is attached hereto as Exhibit B and an Escrow
Agreement to be executed at Closing, the form of which is attached hereto as
Exhibit C. See "The Acquisition Agreement--Cash Purchase Price Adjustment,"
"The Acquisition Agreement--Escrow Agreement and Accounts Receivable
Collection Agreement" and "Description of ASB Meditest."
CASH PURCHASE PRICE ADJUSTMENT
The Acquisition Agreement provides for an adjustment in the Cash Portion of
the Purchase Price: (i)(x) upward by the amount by which the amount equal to
the NHC Division Net Asset Amount (as defined below) on the Closing Date
exceeds $75,125,000 (the NHC Division Net Asset Amount as of November 30,
1994) or (y) downward by the amount by which the amount equal to the NHC
Division Net Asset Amount on the Closing Date is less than $75,125,000; and
(ii)(x) upward by the amount by which the amount equal to the ASB Meditest Net
Asset Amount on the Closing Date is less than $35,649,000 (the ASB Meditest
Net Asset Amount as of December 31, 1994), and (y) downward by the amount by
which the amount equal to the ASB Meditest Net Asset Amount on the Closing
Date exceeds $35,649,000. The NHC Division Net Asset Amount and the ASB
Meditest Net Asset Amount shall be the amounts for (i) the NHC Division and
(ii) ASB Meditest, respectively, equal to their respective (x) total assets
(defined as accounts receivable net of allowance for doubtful accounts,
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plus other current assets, plus property, plant and equipment net of
depreciation, plus intangibles net of amortization, plus other assets) minus
(y) total current liabilities (defined as normal trade accounts payable, plus
accrued or withheld payroll and related taxes, plus other miscellaneous
current liabilities incurred in the normal course of business) calculated as
of a given date. See "EXHIBIT A--The Acquisition Agreement, (S)3.03."
When the parties negotiated the terms of the NHC Transaction, they used
financial statements of the NHC Division as of November 30, 1994 and of ASB
Meditest as of December 31, 1994 (each such date a "Benchmark Date"). They
determined the $34.5 million Cash Portion of the Purchase Price with reference
to the respective asset values of ASB Meditest and the NHC Division on
December 31, 1994 and November 30, 1994, respectively. However, since a
company's assets and liabilities change over time, the parties determined that
the Cash Portion of the Purchase price should be adjusted to reflect increases
and decreases in the net assets of the two companies between their respective
Benchmark Dates and the Closing Date. Thus, if the net book value of the
assets of ASB Meditest is less on the Closing Date than on December 31, 1994,
the Company would not be required to pay for the amount of the shortfall. If
the net book value of the ASB Meditest assets at the Closing Date is greater
than it was on December 31, 1994, the Cash Portion of the Purchase Price would
be reduced by the amount of such excess. Likewise, if the net book value of
the assets of the NHC Division to be conveyed to Olsten on the Closing Date is
greater than it was on November 30, 1994, the Cash Portion of the Purchase
Price would be increased by the amount of such excess. If the net book value
of such assets is less on the Closing Date than on November 30, 1994, the Cash
Portion of the Purchase Price would be reduced by this amount. Accordingly,
the Cash Purchase Price adjustment is designed to ensure that both the Company
and Olsten pay for the net assets they actually receive at Closing.
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Set out below is a table showing the assets and liabilities of each of the
NHC Division and ASB Meditest which are the subject of the Acquisition
Agreement as of their Benchmark Dates and as of June 30, 1995. This table
shows the changes in each category of assets and liabilities between the
respective Benchmark Dates and June 30, 1995. It reflects that since the net
book value of ASB Meditest's assets has increased by $1.4 million and the net
book value of the NHC Division's assets has decreased by $3.1 million, the
Cash Portion of the Purchase Price would have decreased by an aggregate of
$4.5 million had the Closing taken place on June 30, 1995. It also reflects
that the reason the Cash Portion of the Purchase Price would have been reduced
is because the Company would have received ASB Meditest assets with a book
value of $1.4 million greater than the book value of ASB Meditest's assets on
December 31, 1994 and would have conveyed to Olsten assets having a net book
value of $3.1 million less than the net assets of the NHC Division at November
30, 1994.
CALCULATION OF CASH PURCHASE PRICE ADJUSTMENT
ASSUMING A CLOSING DATE OF JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
ASB MEDITEST THE NHC DIVISION
---------------- ----------------
12/31/94 6/30/95 11/30/94 6/30/95
-------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents.................. $ 0 $ 0 $ 0 $ 0
Accounts receivable...................... 13,259 14,060 55,314 52,605
Prepaid expenses......................... 2,137 1,200 977 637
------- ------- ------- -------
Total current assets..................... 15,396 15,260 56,291 53,242
Net property, plant & equipment............ 7,654 8,188 1,677 2,067
Cost in excess of net assets of acquired
companies and intangible assets........... 19,733 19,444 21,285 20,368
Other Assets............................... 0 0 1,575 795
------- ------- ------- -------
$42,783 $42,892 $80,828 $76,472
======= ======= ======= =======
LIABILITIES
Current liabilities........................ $ 6,402 $ 5,177 $ 5,703 $ 4,479
Other liabilities.......................... 732 667 0 0
------- ------- ------- -------
$ 7,134 $ 5,844 $ 5,703 $ 4,479
======= ======= ======= =======
Net asset value............................ 35,649 37,048 75,125 71,993
------- ------- ------- -------
Increase/(decrease) of cash received....... $(1,399) $(3,132)
======= =======
</TABLE>
<TABLE>
<S> <C>
Cash Portion of the Purchase Price..................................... $34,500
Cash Purchase Price Adjustment......................................... (4,531)
-------
Cash Portion of Purchase Price (Adjusted).............................. $29,969
=======
</TABLE>
The foregoing table indicates that as of November 30, 1994, approximately
thirty-two percent (32%) of the assets being sold to Olsten by the Company
represents prepaid expenses, property, plant and equipment, and goodwill (cost
in excess of net assets of acquired companies) and intangibles. These assets
are not expected to change materially between the Benchmark Date and the
Closing. The remaining sixty-eight percent (68%) are Receivables. To the
extent that the Company collects its Receivables prior to the Closing, it has
received the cash for them and it is entitled to less cash from Olsten.
Pursuant to the adjustment, the Cash Portion of the Purchase Price would be
reduced by the amount that the NHC Division Receivables at Closing are less
than those that existed on November 30, 1994. Similarly, if the NHC Division
generates more Receivables than existed on the Benchmark Date, the Company has
more assets to sell and Olsten would be required to pay for those additional
Receivables. The adjustment works in the same fashion for ASB Meditest.
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<PAGE>
Receivables which are not collected by the Company-Olsten joint Collection
Team pursuant to the Accounts Receivable Collection Agreement and Escrow
Agreement are exclusively governed by those agreements and do not enter into
the calculation of the Purchase Price adjustment. See "The Acquisition
Agreement--Escrow Agreement and Accounts Receivable Collection Agreement."
ESCROW AGREEMENT AND ACCOUNTS RECEIVABLE COLLECTION AGREEMENT
The Acquisition Agreement provides for $15 million of the Cash Portion of
the Purchase Price to be delivered into an escrow account and disbursed to the
Company only as the accounts receivable of the NHC Division (the
"Receivables") which are being acquired by Olsten pursuant to the NHC
Transaction are collected pursuant to an Accounts Receivable Collection
Agreement, a copy of which is attached hereto as Exhibit B, and an Escrow
Agreement to be executed at Closing, the form of which is attached hereto as
Exhibit C. Under the Accounts Receivable Collection Agreement, the Company
will receive one dollar of Escrowed Funds (up to the $15 million escrow
amount) for each dollar of Receivables collected after the outstanding balance
of Receivables has been reduced to $30 million (the first $15 million of
collections of Receivables after the outstanding balance of Receivables has
been reduced to $30 million are defined as "Second Level Collections"),
together with all interest earned on such Escrowed Funds since the Closing
Date (the "Escrow Interest"), and Olsten will retain for its own account 100%
of the actual collections. In addition, Olsten will pay to the Company an
amount equal to 50% of: (x) an amount in cash equal to the interest which
would have accrued during the same period on the principal amount of Escrowed
Funds released to the Company (had interest accrued thereon at a rate equal to
0.25% less than the prime rate of interest as published from time to time by
First Fidelity Bank, N.A.) less (y) the amount of Escrow Interest. As soon as
practicable after the last day of the twelfth month following the Closing Date
("Escrow Release Date"), Olsten has the right to instruct the escrow agent to
release to Olsten any remaining principal amount of the Escrowed Funds and to
the Company any interest earned thereon since the Closing Date which has not
previously been disbursed. After the release of any remaining principal amount
of the Escrowed Funds to Olsten and until the last day of the eighteenth month
following the Closing Date (the entire eighteen-month period referred to as
the "Collection Period"), Olsten must remit to the Company 100% of any Second
Level Collections made after the Escrow Release Date (until the Company has
received an aggregate of $15 million including any principal amount of
Escrowed Funds received by it) plus 50% of the first $3 million of the
Receivables collected after the outstanding balance of Receivables has been
reduced to $15 million. Olsten is entitled to retain all collections received
after the end of the Collection Period. As of June 30, 1995, the NHC Division
had Receivables of approximately $53 million.
As of execution of the Acquisition Agreement, collections will be
administered for the duration of the Collection Period by a Company-Olsten
joint "Collection Team" headed by an Olsten designee. All costs and expenses
of collection during the Collection Period, including salaries of the members
of the Collection Team, will be borne equally by the Company and Olsten.
SPECIFIED LIABILITIES ASSUMED BY OLSTEN
Under the terms of the Acquisition Agreement, Olsten is not assuming any
liabilities of the Company or the NHC Division of whatever kind and nature
except for those specifically assumed ("Specified Liabilities"). The Specified
Liabilities which Olsten is assuming comprise approximately $4.5 million of
the Company's total recorded liabilities of approximately $67.3 million as of
June 30, 1995, and include: (i) the NHC Division's current liabilities
(defined as normal trade accounts payable, plus accrued compensation, plus
accrued or withheld payroll and related taxes, plus other miscellaneous
current liabilities incurred in the normal course of business) existing on the
Closing Date to the extent specifically set forth or reserved against on the
NHC Division Closing Statement and (ii) obligations to be performed and
fulfilled by the Company accruing or arising after Closing and relating solely
to the NHC Division, under certain lawful and enforceable executory contracts,
agreements, leases, commitments and undertakings of the NHC Division to be
specifically assumed by Olsten.
The liabilities not being assumed by Olsten and therefore being retained by
the Company totaled approximately $62.8 million as of June 30, 1995. The
principal liabilities not being assumed by Olsten include:
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<PAGE>
long-term debt, income taxes payable, accounts payable (related to the Health
Information Services Division and corporate headquarters), and accrued
expenses of insurance benefits, salaries, wages, payroll and other taxes. See
"EXHIBIT A--The Acquisition Agreement, Schedule 1.03" for a complete
description of the liabilities not being assumed by Olsten.
REPRESENTATIONS AND WARRANTIES
The Acquisition Agreement contains various representations and warranties by
each of the Company and Olsten relating to, among other things, (i) each of
their and certain of their respective subsidiaries' organization and similar
corporate matters, (ii) authorization, execution, delivery, performance and
enforceability of the Acquisition Agreement and related matters, (iii) the
existence of good title to and condition of certain assets, including
receivables of the NHC Division and ASB Meditest, respectively, (iv) the
absence of conflicts, breaches of or defaults under any lien, security
interest or other encumbrance on assets, (v) any required consents, waivers or
approvals, (vi) the completeness and accuracy of the Company's and ASB
Meditest's financial statements, respectively, (vii) the absence of certain
material events, changes or effects, (viii) disclosure of litigation,
investigations, and proceedings, (ix) compliance with material contracts,
leases, commitments, and laws, (x) compliance with all environmental laws,
(xi) contracts and property rights, including effectiveness and enforceability
of material contracts, (xii) licenses, permits and authorizations, (xiii)
retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (xiv) employee
representation by labor unions or employee involvement in any other
organizational activity, (xv) authority to use all patents and trademarks,
(xvi) real estate ownership, (xvii) insurance and worker's compensation
coverages and claims, (xviii) taxes, (xix) conflicts of interests, (xx)
absence of other agreements, (xxi) relationships with third parties, (xxii)
absence of unlawful payments, (xxiii) absence of misrepresentations, and
(xxiv) in the case of the Company, Medicare participation and accreditation,
and compliance with securities laws.
CERTAIN COVENANTS
Pursuant to the Acquisition Agreement, during the period from the date of
the execution of the Acquisition Agreement until the Effective Time, the
Company and Olsten have each agreed, (with respect to the NHC Division in the
case of the Company and ASB Meditest in the case of Olsten) that unless the
other party agrees in writing, it will: (i) conduct its business in the
ordinary course and in a manner consistent with past practice, (ii) not
institute a new and material marketing campaign or materially change its
collection practices, (iii) maintain its established advertising and promotion
campaigns, (iv) not (other than pursuant to certain written agreements) engage
in any transactions with affiliates (as the term is defined in federal
securities laws) except in the ordinary course of business and consistent with
past practice, (v) maintain all certificates of need, licenses, provider
numbers, permits, etc. that are required to carry on the business, (vi) not
increase the salary, wages, bonus, or other compensation to employees,
directors, officers, contractors or other representatives of the business
except in the ordinary course, (vii) not make any capital expenditures,
additions, or improvements over $25,000 without the written consent of the
other party, (viii) maintain books and accounts, (ix) maintain all insurance
policies, bonds, letters of credit, and similar instruments, (x) not take any
action that would cause the representations and warranties made by such party
not to be true, correct and complete as of the Effective Time, (xi) take all
reasonable steps to fulfill the conditions precedent to consummate the NHC
Transaction and related transactions, (xii) subject to any applicable
privileges, afford to the other party access to its respective officers,
properties and information as the other party may reasonably request, (xiii)
make all normal and customary repairs, (xiv) advise the other party of any
material loss, theft, casualty or condemnation exceeding $25,000, (xv) use
reasonable efforts to cause employees and agents to make their services
available to the other party, and (xvi) file such filings with the appropriate
governmental authority as are required to comply with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act").
In addition, the Company has agreed that it will: (i) make transition
services available to Olsten as may reasonably be required by Olsten for the
conduct of the NHC Division after the Closing for a period of up to twelve
months after Closing, (ii) after Closing use reasonable efforts to cause its
licensees and/or franchisees to
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<PAGE>
amend their existing agreements with the Company or enter into substantially
similar agreements with Olsten, (iii) prepare and file the final Medicare cost
reports for all providers and the home office, and (iv) subject to any
applicable privileges, including the attorney-client and work product
privileges, advise Olsten of all actions taken or developments occurring with
respect to any Investigation and provide Olsten with copies of all documents
received by the Company from or delivered to any governmental or
administrative agency by the Company with respect to any Investigation.
For a period of five years from the Effective Time, the Company has agreed
that it will not directly or indirectly: (i) engage in the business of
performing any of the services currently performed by the NHC Division ("NHC
Division Services") anywhere within the United States (the "NHC Division
Market"), (ii) influence or attempt to influence any client or potential
client of Olsten or any of its Affiliates in the NHC Division Market to
purchase, acquire or contract for any NHC Division Services other than from
Olsten or its Affiliates, or (iii) affiliate with any business or firm that is
in competition with Olsten or its Affiliates in the NHC Division Market for
the purpose of providing NHC Division Services. Olsten has agreed that for a
period of five years from the Effective Time, neither Olsten nor any of its
Affiliates will: (i) engage in the business of performing paramedical
examinations and related services to the life and health insurance industries
("ASB Meditest Services") anywhere within the United States (the "ASB Meditest
Market"), (ii) influence or attempt to influence any client or potential
client of the Company or any of its Affiliates in the ASB Meditest Market to
purchase, acquire or contract for any ASB Meditest Services other than from
the Company or its Affiliates, or (iii) affiliate with any business or firm
that is in competition with the Company or any of its Affiliates in the ASB
Meditest Market, for the purpose of providing ASB Meditest Services.
INDEMNIFICATION PROVISIONS
Pursuant to the Acquisition Agreement, the Company and Olsten have agreed
that they will each indemnify and hold the other harmless from any and all
liabilities, obligations, claims, damages, costs and expenses that in any way
relate to the transactions contemplated in the Acquisition Agreement
(including, without limitation, all court costs and reasonable attorneys'
fees) exceeding Twenty-Five Thousand Dollars ($25,000) in the aggregate,
(other than certain specified liabilities), which either party may suffer or
incur as a result of or substantially relating to: (a) the breach or
inaccuracy of any of the representations, warranties, covenants, or
agreements, (b) any lawsuit, claim, or proceeding of any nature relating to
(i) either party or its Affiliates, its respective business or assets, and
arising out of any act or omission of either party occurring prior to the
Effective Time or arising out of any facts or circumstances that existed at or
prior to the Effective Time, or (ii) arising out of any act or omission of
either party occurring after the Effective Time except to the extent such
lawsuits, claims, or proceedings result from the party's own negligent or
willful acts or omissions; (c) any income or other tax assessed against either
party or its Affiliates arising out of, or resulting from, the transactions
contemplated by the Acquisition Agreement (except as otherwise expressly
provided in the Acquisition Agreement), or arising out of or resulting from
the operations, transactions or activities of either party or (d) any wages,
salaries, bonuses, commissions, rebates, expenses, benefits, and compensation,
fees, and other liabilities, obligations, claims, of any nature due or payable
at any time whatsoever to any director, officer, employee, contractor, agent,
or representative of (i) either party, including, without limitation, any of
such persons terminated by either party or any of its Affiliates at or prior
to the Effective Time and (ii) any of such persons hired by either party as of
the Effective Time, in connection with their services to or employment by
either party or any of its Affiliates prior to the Closing, including, without
limitation, any liabilities, obligations, or claims, with respect to, vacation
or vacation pay, sick leave or sick pay, workers' compensation, unemployment
compensation, or under any profit-sharing, pension, stock option, severance,
retirement, bonus, deferred compensation, group life and health insurance, or
other Employee Benefit Plan, or under any trust, agreement, or arrangement of
any nature.
In addition, the Company has agreed to indemnify and hold harmless Olsten
from any and all liabilities, obligations, claims, damages, costs and expenses
related to (a) any Investigation or Proceeding, including court costs and
reasonable attorneys' and accountants' fees, allocated overhead,
transportation or travel expenses, and storage and duplicating costs, incurred
in connection with any internal document review or document production,
attendance at meetings and negotiations with respect to any Investigations or
Proceedings, (b) any liabilities or
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<PAGE>
obligations of the Company not expressly assumed by Olsten pursuant to the
Acquisition Agreement, (c) any violation, or alleged violation, of any state's
bulk sales or transfers act (related to the transactions contemplated by the
Acquisition Agreement), and (d) the liabilities of ASB Meditest reflected on
the ASB Meditest Closing Statement.
NO SOLICITATION OF OTHER TRANSACTIONS
The Acquisition Agreement provides that the Company will not, nor will it
authorize or permit any of its officers, directors, employees, investment
bankers, financial advisors, attorneys, accountants or other representatives
to (i) solicit or otherwise encourage any inquiries or the making of any
proposal or offer for a merger or other business combination involving the
Company or any proposal or offer to acquire an equity interest in, or a
material portion of the assets of, the Company (an "Acquisition Proposal") or
(ii) except as otherwise provided below, engage in negotiations concerning,
provide any nonpublic information to, or have any discussions with, any person
relating to any Acquisition Proposal. The Board of Directors may, without
violating any of its covenants under the Acquisition Agreement (i) take and
disclose to its shareholders a position contemplated by Rule 14e-2 promulgated
under the Exchange Act, or based upon advice of its outside counsel, make such
other disclosures to its shareholders as may be required by law, (ii)
withdraw, modify or change its recommendations to shareholders with respect to
the transactions contemplated by the Acquisition Agreement or (iii) take,
authorize or permit any action or actions in response to or in connection with
any Acquisition Proposal, or permit disclosure of confidential information to,
or engage in discussions or negotiations with, a potential acquirer if, based
upon the written opinion of its outside counsel, the failure to do so would
violate its fiduciary duties to the holders of the Common Stock under
applicable law. The Company must immediately notify Olsten of any
negotiations, requests for nonpublic information or discussions with respect
to an Acquisition Proposal, and keep Olsten fully informed of the status and
details of any such Acquisition Proposal or request.
EXPENSES AND TERMINATION FEE
Except as set forth in the Acquisition Agreement, the Acquisition Agreement
provides that, whether or not the NHC Transaction and related transactions are
consummated, each party will bear its own attorneys', accountants', auditors',
or other fees, costs, and expenses incurred in connection with the
negotiation, execution, and performance of the Acquisition Agreement or any of
the transactions contemplated thereby.
The Acquisition Agreement also provides that the Company will pay to Olsten
a fee (the "Termination Fee") in immediately available funds equal to $
3,750,000 promptly, but in no event later than two business days, after any
termination of the Acquisition Agreement (x) by Olsten as a result of the
occurrence of any Trigger Event (as defined below) or (y) by the Company, if
the Company receives from any person other than Olsten or its Affiliates an
offer with respect to an Acquisition Proposal and the Board of Directors so
terminates after receipt of a written opinion from its outside counsel that to
cause the Company to proceed with the transactions contemplated by the
Acquisition Agreement, in light of the receipt of such offer, would violate
the Board of Directors' fiduciary duties to the Company's shareholders. A
"Trigger Event" shall have occurred if: (i) the Board of Directors of the
Company withdraws or materially modifies its approval or recommendation of the
Acquisition Agreement for any reason; or (ii) the NHC Transaction is not
approved by any requisite vote of the Company's shareholders in circumstances
where (a) an offer or proposal to effect an Acquisition Proposal (as defined
in the Acquisition Agreement) with or for the Company has been publicly
announced or (b) any person or group (as defined in Section 13(d) (3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
Olsten or any of its Affiliates) becomes a beneficial owner (as defined in
Rule 13d-3 promulgated under the Exchange Act) of at least 15% of the
outstanding shares of the Common Stock, or any person or group shall have
commenced, or shall have publicly announced its intention to commence, a
tender or exchange offer for at least 25% of the outstanding shares of the
Common Stock unless at least five days prior to the latest scheduled date for
the Special Meeting, such person or group publicly announces its withdrawal of
such offer or intention not to commence such tender or exchange offer (or
transaction having similar purpose or effect).
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The Company will also be required to pay the Termination Fee in the event
that the Acquisition Agreement is terminated by either party because Closing
has not occurred by October 31, 1995 and within one year after such
termination the Company enters into a transaction to effect a merger or other
business combination involving the Company or the NHC Division or accepts a
proposal or offer to acquire any equity interest in, or material portion of,
the assets of the Company other than the transactions contemplated by the
Acquisition Agreement.
INSURANCE
The Acquisition Agreement provides that for a period of five years after the
Effective Time, each party shall maintain, at its sole expense, professional
errors and omissions insurance or tail insurance, with such coverage of at
least $1,000,000 per occurrence, for acts and omissions of the party relating
to the operation of the NHC Division with respect to the Company and ASB
Meditest with respect to Olsten on and prior to the Effective Time.
CONDITIONS TO THE NHC TRANSACTION
The respective obligations of the Company and Olsten under the Acquisition
Agreement are subject to the satisfaction at or prior to the Closing of a
number of conditions, including among others (i) the NHC Transaction shall
have been approved by the requisite number of shareholders of the Company,
(ii) all representations and warranties of the other party contained in the
Acquisition Agreement shall be true and correct at and as of the Closing with
the same effect as though such representations and warranties were made at and
as of the Closing, (iii) the other party shall have performed and complied
with all the covenants and agreements and satisfied all of the conditions
required by the Acquisition Agreement to be performed, complied with, or
satisfied by them at or prior to the Closing, (iv) there shall be no pending
or threatened litigation in any court or any proceeding before or by any
administrative or governmental authority to restrain or prohibit or obtain
damages or other relief with respect to the Acquisition Agreement or the
consummation of the transactions contemplated thereby or as a result of which,
in the reasonable judgment of the other party, such party could be deprived of
any of the material benefits of the transactions contemplated thereby, (v) the
Company and ASB Meditest shall have obtained all permits, licenses, approvals
and other authorizations necessary to be obtained by the Company or ASB
Meditest, as the case may be, in order to be permitted to use the NHC Assets
and ASB Meditest assets, (vi) there shall not have occurred any material
adverse change in the condition (financial or otherwise), business properties,
assets, or prospects of the other party and each party shall have received a
certificate to the foregoing effect from both the President or any Vice
President and Chief Financial Officer of the other party, (vii) the waiting
period or periods with respect to the Transactions shall have expired or been
terminated under the HSR Act, (viii) the Company shall have furnished to
Olsten acknowledgments, in form and substance satisfactory to Olsten, from the
holders of indebtedness of the Company that arrangements have been made with
the holders of such indebtedness so that neither the Company nor its assets
shall be affected by such indebtedness after the Closing.
TERMINATION
The Acquisition Agreement provides for termination as follows: (i) at any
time prior to the Closing, by mutual written consent of the Board of Directors
of Olsten and the Board of Directors of the Company, (ii) by either party if a
condition to its performance shall not be satisfied or waived in writing at
the Closing, provided however, that neither party shall be allowed to exercise
such a right of termination if the event giving rise to the termination right
is due to the material and willful breach of the Acquisition Agreement by the
party seeking to terminate, (iii) by either party if a final, non-appealable
judgment has been entered against it or its respective Affiliates restraining,
prohibiting, declaring illegal or awarding substantial damages in connection
with the Transactions, (iv) by either party, at any time on or prior to the
earlier of (x) July 15, 1995 or (y) the twentieth (20th) business day
following the date on which the other party delivers the amended Schedules to
the Acquisition Agreement to the terminating party, in the event that the
terminating party reasonably believes that the amended Schedules are
materially adversely different from those delivered at execution of the
Acquisition Agreement; (v) by either party, if the Closing does not occur on
or before October 31, 1995, (vi) by Olsten, if a
49
<PAGE>
Trigger Event occurs, (vii) by the Company, if the Company receives from any
person other than Olsten or its Affiliates an offer with respect to an
Acquisition Proposal and the Board of Directors so terminates after receipt of
a written opinion from its outside counsel that to cause the Company to
proceed with the transactions contemplated by the Acquisition Agreement, in
light of the receipt of such offer, would violate the Board of Directors'
fiduciary duties to the Company's shareholders, (viii) by either party if any
required approval of the shareholders of the Company shall not have been
obtained by reason of a failure to obtain the required vote at the Special
Meeting, or (ix) by Olsten, if Olsten reasonably determines that the nature or
scope of, or remedies sought with respect to, any Investigation has or might
reasonably be expected to have a material adverse effect on the NHC Assets or
NHC Division business; Olsten becomes aware of any facts, circumstances or
developments with respect to an Investigation which could reasonably be
expected to materially and adversely impact Olsten's operation and conduct of
the NHC Business; or any proceeding is initiated by a governmental authority
based upon or related to substantially similar circumstances as those of any
Investigation.
In the event of termination of the Acquisition Agreement by either party as
described above, there will be no liability or obligation on the part of
either the Company or Olsten to the other pursuant to the Acquisition
Agreement, except that in certain circumstances the Company would be required
to pay Olsten a Termination Fee of $3,750,000 as set forth in the Acquisition
Agreement. See "The Acquisition Agreement--Expenses and Termination Fee."
50
<PAGE>
HOOPER HOLMES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma financial statements as of June 30, 1995, for the
year ended December 31, 1994 and the six-month period ended June 30, 1995 are
unaudited. The unaudited Pro Forma Consolidated Balance Sheet at June 30, 1995
was prepared as if the acquisition of the NHC Division by Olsten from the
Company in exchange for cash and the ASB Meditest Stock (the "NHC
Transaction") was effective at June 30, 1995. The unaudited Pro Forma
Consolidated Statements of Income for the year ended December 31, 1994 and the
six-month period ended June 30, 1995 were prepared as if the NHC Transaction
was effective as of January 1, 1994. The unaudited pro forma statements do not
purport to represent what the Company's financial position or results of
operations would actually have been if the NHC Transaction had in fact
occurred on such dates or to project the Company's financial position or
results of operations as of any future date or for any future period. Amounts
allocated to the acquired assets and liabilities of ASB Meditest will be based
upon the estimated fair values at the Closing Date. The allocation of the
purchase price in the accompanying unaudited pro forma financial statements is
based on estimates and is subject to revision based on the value of ASB
Meditest's assets and liabilities at the Closing Date. The estimates will be
adjusted to reflect facts and circumstances as of the Closing Date. In the
opinion of the Company's management, such adjustments, if any, are not
expected to be material.
Historical Consolidated Financial Statements of the Company for 1994 are
incorporated by reference elsewhere herein. The unaudited condensed
consolidated financial statements of the Company as of and for the six month
period ended June 30, 1995 are included elsewhere herein. In addition,
historical financial statements of ASB Meditest are included elsewhere herein.
The unaudited pro forma financial statements show how the acquisition might
have affected the historical financial statements if the NHC Transaction had
been consummated at an earlier time and show the possible scope of the change
to the historical financial position and results of operations caused by the
NHC Transaction. The adjustments are intended to reflect the impact of three
categories of events; (i) addition of the ASB Meditest operating results; (ii)
ASB Meditest adjustments resulting from its new operating structure as part of
the Company; and (iii) the changes in account balances and accounting basis
(primarily valuation of assets and reduction of debt) of the Company that will
result from accounting for the acquisition in accordance with purchase
accounting and subsequent repayment of debt.
51
<PAGE>
HOOPER HOLMES, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
GIVING EFFECT FOR THE ASB MEDITEST ACQUISITION AND NHC DIVISION DISPOSITION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------------------
HOOPER ASB
HOLMES, INC. MEDITEST SUBTOTAL ASB MEDITEST
1/1/94- 1/1/94- 1/1/94- HISTORICAL OTHER HOOPER HOLMES, INC.
12/31/94 (15) 12/31/94 12/31/94 ADJUSTMENTS ADJUSTMENTS AFTER ADJUSTMENTS
------------- ----------- ------------ --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $92,533,685 $81,846,000 $174,379,685 $ 0 $ 0 $174,379,685
Cost of operations...... 70,677,574 46,028,000 116,705,574 (9) 18,096,000 0 134,801,574
----------- ----------- ------------ --------------- -------------- ------------
Gross profit........... 21,856,111 35,818,000 57,674,111 (18,096,000) 0 39,578,111
----------- ----------- ------------ --------------- -------------- ------------
Selling, general and ad-
ministrative........... 16,736,230 34,826,000 51,562,230 (9) (18,096,000) 0 33,466,230
Amortization and depre-
ciation................ 1,317,051 1,604,000 2,921,051 (10) (897,000) (12) 1,865,583 3,889,634
Allocation of corporate
expenses............... 0 2,868,000 2,868,000 (11) (2,868,000) 0 0
----------- ----------- ------------ --------------- -------------- ------------
Total selling, general
and administrative..... 18,053,281 39,298,000 57,351,281 (21,861,000) 1,865,583 37,355,864
----------- ----------- ------------ --------------- -------------- ------------
Operating income
(loss)................ 3,802,830 (3,480,000) 322,830 3,765,000 (1,865,583) 2,222,247
----------- ----------- ------------ --------------- -------------- ------------
Other income (expense):
Interest expense....... (994,208) (58,000) (1,052,208) 0 0 (1,052,208)
Interest income........ 21,682 0 21,682 0 0 21,682
Other income........... 0 159,000 159,000 0 0 159,000
----------- ----------- ------------ --------------- -------------- ------------
(972,526) 101,000 (871,526) 0 0 (871,526)
----------- ----------- ------------ --------------- -------------- ------------
Income (loss) before
taxes................. 2,830,304 (3,379,000) (548,696) 3,765,000 (1,865,583) 1,350,721
Income tax expense (ben-
efit).................. 1,350,272 (935,000) 415,272 (13) 1,041,810 (13) (849,258) 607,824
----------- ----------- ------------ --------------- -------------- ------------
Income (loss) from con-
tinuing operations.... $ 1,480,032 $(2,444,000) $ (963,968) $ 2,723,190 $ (1,016,325) $ 742,897
=========== =========== ============ =============== ============== ============
Earnings from continuing
operations per share:
Weighted average number
of shares............. 6,706,713 6,706,713
Income from continuing
operations............ $ 0.22 $ (14) 0.11
=========== ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
statements.
52
<PAGE>
HOOPER HOLMES, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
GIVING EFFECT FOR THE ASB MEDITEST ACQUISITION AND NHC DIVISION DISPOSITION
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------------------------
HOOPER ASB
HOLMES, INC. MEDITEST SUBTOTAL ASB MEDITEST
1/1/95- 1/1/95- 1/1/95- HISTORICAL OTHER HOOPER HOLMES, INC.
6/30/95 6/30/95 6/30/95 ADJUSTMENTS ADJUSTMENTS AFTER ADJUSTMENTS
------------ ----------- ----------- -------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $48,393,054 $41,014,422 $89,407,476 $ 0 $ 0 $89,407,476
Cost of operations...... 36,437,112 23,016,220 59,453,332 (9) 8,552,493 0 68,005,825
----------- ----------- ----------- -------------- ------------- -----------
Gross profit........... 11,955,942 17,998,202 29,954,144 (8,552,493) 0 21,401,651
----------- ----------- ----------- -------------- ------------- -----------
Selling, general and
administrative.......... 9,086,088 17,492,186 26,578,274 (9) (8,552,493) 0 18,025,781
Amortization and
depreciation............ 761,201 1,388,544 2,149,745 (10) (420,000) (12) 932,792 2,662,537
Allocation of corporate
expenses................ 0 1,436,511 1,436,511 (11)(1,436,511) 0 0
----------- ----------- ----------- -------------- ------------- -----------
Total selling, general
and administrative...... 9,847,289 20,317,241 30,164,530 (10,409,004) 932,792 20,688,318
----------- ----------- ----------- -------------- ------------- -----------
Operating income
(loss)................. 2,108,653 (2,319,039) (210,386) 1,856,511 (932,792) 713,333
----------- ----------- ----------- -------------- ------------- -----------
Other income (expense):
Interest expense....... (746,625) (16,032) (762,657) 0 0 (762,657)
Interest income........ 187,219 0 187,219 0 0 187,219
----------- ----------- ----------- -------------- ------------- -----------
(559,406) (16,032) (575,438) 0 0 (575,438)
----------- ----------- ----------- -------------- ------------- -----------
Income (loss) before
taxes.................. 1,549,247 (2,335,071) (785,824) 1,856,511 (932,792) 137,895
Income tax expense
(benefit)............... 697,161 (612,375) 84,786 (13) 486,872 (13) (509,605) 62,053
----------- ----------- ----------- -------------- ------------- -----------
Income (loss) from
continuing operations.. $ 852,086 $(1,722,696) $ (870,610) $ 1,369,639 $ (423,187) $ 75,842
=========== =========== =========== ============== ============= ===========
Earnings from continuing
operations per share:
Weighted average number
of shares.............. 6,704,790 6,704,790
Income from continuing
operations............. $ 0.13 $(14) 0.01
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
statements.
53
<PAGE>
HOOPER HOLMES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
GIVING EFFECT FOR THE ASB MEDITEST ACQUISITION AND NHC DIVISION DISPOSITION
AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
HOOPER ASB
HOLMES, INC. MEDITEST CASH PROCEEDS
AS OF 6/30/95 AS OF 6/30/95 ADJUSTMENTS
------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash
equivalents..... $ 0 $ 1,256,000 $(8) 29,969,092
Accounts receiv-
able............ 13,220,972 14,060,000 0
Prepaid ex-
penses.......... 1,645,723 1,200,000 0
Refundable and
deferred income
taxes........... 9,215,575 0 0
Escrow funds.... 0 0 0
----------- ----------- ---------------
Total current
assets.......... 24,082,270 16,516,000 29,969,092
----------- ----------- ---------------
Net property,
plant & equip-
ment............. 6,219,968 8,188,000 0
----------- ----------- ---------------
Cost in excess of
net assets of
acquired
companies........ 3,970,333 19,444,000 0
Intangibles as-
sets............. 180,868 0 0
Other assets..... 2,117,596 0 0
Net assets --
discontinued op-
erations......... 59,768,092 0 (8) (59,768,092)
----------- ----------- ---------------
$96,339,127 $44,148,000 $ (29,799,000)
=========== =========== ===============
LIABILITIES &
STOCKHOLDERS'
EQUITY
Current Liabili-
ties:
Current maturi-
ties of long
term debt....... $ 2,800,000 $ 0 $ 0
Accounts pay-
able............ 4,495,919 5,177,000 0
Accrued ex-
penses:
Insurance bene-
fits............ 101,915 0 0
Salaries and
wages........... 92,952 0 0
Payroll and
other taxes..... 354,988 0 0
Discontinued op-
erations........ 8,957,941 0 0
Other........... 2,938,789 0 0
----------- ----------- ---------------
Total current
liabilities..... 19,742,504 5,177,000 0
----------- ----------- ---------------
Long term debt
less current ma-
turities......... 43,126,942 0 0
Other liabili-
ties............. 0 667,000 0
Deferred income
taxes............ 0 0 0
Parent company
investment....... 0 28,446,000 0
----------- ----------- ---------------
STOCKHOLDERS' EQ-
UITY:
Common stock.... 269,777 5,000 0
Additional paid-
in capital...... 24,097,717 20,726,000 0
Retained earn-
ings (deficit).. 9,515,299 (10,873,000) 0
----------- ----------- ---------------
33,882,793 9,858,000 0
----------- ----------- ---------------
Less: Treasury
stock........... 413,112 0 0
----------- ----------- ---------------
Total stockhold-
ers' equity..... 33,469,681 9,858,000 0
----------- ----------- ---------------
$96,339,127 $44,148,000 $ 0
=========== =========== ===============
<CAPTION>
PRO FORMA
---------------------------------------------------------------------
ASB MEDITEST
SUBTOTAL HISTORICAL OTHER HOOPER HOLMES, INC.
AS OF 6/30/95 ADJUSTMENTS ADJUSTMENTS AFTER ADJUSTMENTS
-------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash
equivalents..... $ 31,225,092 $(2) (1,256,000) $(6) (29,969,092) $ 0
Accounts receiv-
able............ 27,280,972 0 0 27,280,972
Prepaid ex-
penses.......... 2,845,723 0 0 2,845,723
Refundable and
deferred income
taxes........... 9,215,575 0 0 9,215,575
Escrow funds.... 0 0 (5) 15,000,000 15,000,000
-------------- ---------------- ----------------- -------------------
Total current
assets.......... 70,567,362 (1,256,000) (14,969,092) 54,342,270
-------------- ---------------- ----------------- -------------------
Net property,
plant & equip-
ment............. 14,407,968 0 (4) (1,789,000) 12,618,968
-------------- ---------------- ----------------- -------------------
Cost in excess of
net assets of
acquired
companies........ 23,414,333 (1) (19,444,000) (4) 9,166,660 13,136,993
Intangibles as-
sets............. 180,868 0 (4) 10,800,000 10,980,868
Other assets..... 2,117,596 0 0 2,117,596
Net assets --
discontinued op-
erations......... 0 0 0 0
-------------- ---------------- ----------------- -------------------
$110,688,127 $ (20,700,000) $ 3,208,568 $93,196,695
============== ================ ================= ===================
LIABILITIES &
STOCKHOLDERS'
EQUITY
Current Liabili-
ties:
Current maturi-
ties of long
term debt....... $ 2,800,000 $ 0 $ 0 $ 2,800,000
Accounts pay-
able............ 9,672,919 0 0 9,672,919
Accrued ex-
penses:
Insurance bene-
fits............ 101,915 0 0 101,915
Salaries and
wages........... 92,952 0 0 92,952
Payroll and
other taxes..... 354,988 0 0 354,988
Discontinued op-
erations........ 8,957,941 0 0 8,957,941
Other........... 2,938,789 0 0 2,938,789
-------------- ---------------- ----------------- -------------------
Total current
liabilities..... 24,919,504 0 0 24,919,504
-------------- ---------------- ----------------- -------------------
Long term debt
less current ma-
turities......... 43,126,942 0 (6) (13,041,932) 30,085,010
Other liabili-
ties............. 667,000 0 0 667,000
Deferred income
taxes............ 0 0 (7) 4,055,500 4,055,500
Parent company
investment....... 28,446,000 (2) (28,446,000) 0 0
-------------- ---------------- ----------------- -------------------
STOCKHOLDERS' EQ-
UITY:
Common stock.... 274,777 (3) (5,000) 0 269,777
Additional paid-
in capital...... 44,823,717 (3) (20,726,000) 0 24,097,717
Retained earn-
ings (deficit).. (1,357,701) (3) 10,873,000 0 9,515,299
-------------- ---------------- ----------------- -------------------
43,740,793 (9,858,000) 0 33,882,793
-------------- ---------------- ----------------- -------------------
Less: Treasury
stock........... 413,112 0 0 413,112
-------------- ---------------- ----------------- -------------------
Total stockhold-
ers' equity..... 43,327,681 (9,858,000) 0 33,469,681
-------------- ---------------- ----------------- -------------------
$140,487,127 $ (38,304,000) $ (8,986,432) $93,196,695
============== ================ ================= ===================
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
statements.
54
<PAGE>
HOOPER HOLMES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial statements give
effect to the acquisition of the NHC Division by Olsten in exchange for $34.5
million in cash and ASB Meditest. The $34.5 million in cash to be received by
the Company is subject to either a downward or upward adjustment based on the
deviation of the net asset values of ASB Meditest and the NHC Division from
set amounts contained in the Acquisition Agreement. Additionally, $15 million
of the $34.5 million will be held in escrow after the Closing Date. The $15
million held in escrow is subject to collection of certain of the NHC
Division's accounts receivable. The escrow funds will be fully released once
the NHC Division's accounts receivable fall below $15 million outstanding. See
"The Acquisition Agreement--Cash Purchase Price Adjustment" and "The
Acquisition Agreement--Escrow Agreement and Accounts Receivable Collection
Agreement." The pro forma financial statements assume that $30.0 million in
cash (adjusted based on June 30, 1995 net asset values) will be received by
the Company.
The acquisition of ASB Meditest by the Company will be accounted for using
the purchase method of accounting. Accordingly, assets and liabilities
acquired will be recorded at historical cost adjusted by the amount of the
excess purchase price (estimated fair value of ASB Meditest). The excess
purchase price will be allocated to the ASB Meditest assets and liabilities
based on their estimated fair value on the Closing Date. For accounting
purposes, the NHC Division is reported as a discontinued operation as of June
30, 1995, and therefore, income from continuing operations of the Company for
the year ended December 31, 1994 and the six months ended June 30, 1995
exclude the results of the NHC Division.
For purposes of the pro forma financial statements, it is assumed that the
Company will receive the $30.0 million in cash and the fair value of ASB
Meditest is assumed to be $30 million based on an independent valuation of ASB
Meditest.
The estimated fair value of assets and liabilities is calculated as follows
(in thousands):
<TABLE>
<S> <C> <C>
Estimated fair value of ASB Meditest....................... $30,000
Direct transaction costs................................... 1,100
-------
Purchase Price........................................... 31,100
Assets & Liabilities:
Accounts receivable...................................... 14,060
Prepaid expense & other assets........................... 1,200
Fixed assets (net)....................................... 6,600
Covenant not to compete.................................. 2,000
Referral base............................................ 4,100
Assembled workforce...................................... 2,300
Contractor network....................................... 2,400
Accounts payable......................................... (5,177)
Other current liabilities................................ (827)
Other liabilities........................................ (667)
Deferred income taxes.................................... (4,056)
-------
NET ASSETS PURCHASED................................... 21,933
-------
EXCESS PURCHASE PRICE.................................. $ 9,167
=======
</TABLE>
The fair values of ASB Meditest's assets and liabilities are based on
estimates at this time and are subject to revision based on the value of ASB
Meditest's assets and liabilities on the Closing Date. The estimates will be
adjusted to reflect facts and circumstances as of the Closing Date. In the
opinion of the Company's management such adjustments, if any, are not expected
to be material.
55
<PAGE>
PRO FORMA ADJUSTMENTS:
Following are the pro forma adjustments and key assumptions made, as of the
period referenced, to reflect the transactions to:
1) Eliminate ASB Meditest's historical cost in excess of acquired companies.
2) Eliminate ASB Meditest's parent company investment (payable) and cash
balance which pursuant to the Acquisition Agreement has been forgiven and
excluded, respectively.
3) Eliminate ASB Meditest's historical equity accounts.
4) Record the fair value of ASB Meditest's assets and liabilities and the
allocation of the excess purchase price to ASB Meditest's assets and
liabilities, as detailed in the table above.
5) Record the $15 million held in escrow.
6) Record a reduction of debt utilizing the proceeds received on the Closing
Date of approximately $13.0 million ($30.0 less $15.0 escrow funds and
approximately $2.0 million used to pay estimated direct transaction costs
of $1.1 million and unreimbursed severance costs and lease buy-outs on the
acquired business of $0.9 million).
7) Record deferred tax liability related to the difference between the
assigned book value to ASB Meditest by the Company and the tax bases.
8) Record the cash proceeds to be received by the Company, and the
disposition of Net Assets--Discontinued Operations.
9) The Company has reclassified this amount to conform with its Statement of
Income presentation.
10) Eliminate ASB Meditest historical amortization for cost in excess of
acquired companies.
11) Eliminate ASB historical corporate expense allocation. In the estimation
of the Company, functions associated with these costs will no longer be
applicable or will be performed by the Company with no anticipated
incremental costs. Pursuant to paragraph 6.17 "Intangible Rights" of the
Acquisition Agreement, the Company will and have conveyed to it, the right
to use the "ASB Meditest" trade name. All royalty fees associated with the
use of this name will cease. These amounts are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
12/31/94 06/30/95
---------- ----------
<S> <C> <C>
Management Fees...................................... $ 830 $ 415
Royalty Fees......................................... 2,038 1,022
------ ------
Total................................................ $2,868 $1,437
====== ======
</TABLE>
12) Adjust for increased amortization expense associated with the acquired
intangible assets and the excess purchase price paid by the Company for
ASB Meditest. The detailed pro forma amortization expense is calculated as
follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED YEARLY SIX MONTHS
ESTIMATED USEFUL AMORTIZATION AMORTIZATION
INTANGIBLES FMV LIFE (YEARS) EXPENSE EXPENSE
----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assembled work force...... $ 2,300 6 $ 383 $192
Covenant not to compete... 2,000 5 400 200
Contractor network........ 2,400 7 343 172
Referral base............. 4,100 11 373 186
------- ------ ----
Subtotal.................. 10,800 1,499 750
Excess purchase price..... 9,166 25 367 183
------- ------ ----
Total..................... $19,966 $1,866 $933
======= ====== ====
</TABLE>
56
<PAGE>
13) Record the tax effect associated with the pro forma adjustments. These
amounts are based on producing a pro forma estimated effective tax rate of
45% after the acquisition and disposition by the Company. These amounts
when summed with the historical amounts produce a 45% effective tax rate.
14) For year ended December 31, 1994 and the six months ended June 30, 1995,
the assumed exercise of certain outstanding stock options have not been
included in the calculation of unaudited pro forma earnings per share as
they do not cause a material dilutive effect. As a result, unaudited pro
forma primary and fully diluted earnings per share are the same.
15) Reclassified based on discontinued operations presentation. See
"Supplemental Information Note 1."
57
<PAGE>
SUPPLEMENTAL INFORMATION(1)
The following table is for informational purposes and is not covered by the
Independent Auditors' Report. The following Consolidated Statements of Income
for Hooper Holmes, Inc. represent their historical results giving effect to
the inclusion of the NHC Division as a discontinued operation. Such format
requires exclusion of certain amounts relating to the NHC Division for
discontinued operations from captions applicable to continuing operations. The
loss on disposal has been recorded in the Second Quarter of 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------------- ENDED
1992 1993 1994 JUNE 30, 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................. $68,931,281 $80,600,398 $92,533,685 $ 48,393,054
Cost of operations........ 52,426,951 60,799,945 70,677,574 36,437,112
----------- ----------- ----------- ------------
Gross profit............ 16,504,330 19,800,453 21,856,111 11,955,942
----------- ----------- ----------- ------------
Selling, general and
administrative expenses.. 11,956,184 14,780,902 18,053,281 9,847,289
----------- ----------- ----------- ------------
Operating income........ 4,548,146 5,019,551 3,802,830 2,108,653
----------- ----------- ----------- ------------
Other income (expense):
Interest expense........ (143,539) (237,420) (994,208) (746,625)
Interest income......... 133,887 65,151 21,682 187,219
Other................... 291,743 0 0 0
----------- ----------- ----------- ------------
282,091 (172,269) (972,526) (559,406)
----------- ----------- ----------- ------------
Income before income
taxes.................. 4,830,237 4,847,282 2,830,304 1,549,247
Income taxes.............. 2,051,087 2,108,045 1,350,272 697,161
----------- ----------- ----------- ------------
Income from continuing
operations............. 2,779,150 2,739,237 1,480,032 852,086
----------- ----------- ----------- ------------
Discontinued operations:
Income (loss) from
operations, net of
taxes.................. 2,098,724 866,654 1,183,488 (3,331,864)
Loss on disposal, net of
taxes.................. 0 0 0 (10,326,068)
----------- ----------- ----------- ------------
Income (loss) from
discontinued
operations............. 2,098,724 866,654 1,183,488 (13,657,932)
----------- ----------- ----------- ------------
Net income.............. $ 4,877,874 $ 3,605,891 $ 2,663,520 $(12,805,846)
=========== =========== =========== ============
Earnings per share:
Weighted average number
of shares.............. 6,717,667 6,714,061 6,706,713 6,704,790
Income from continuing
operations........... $ 0.42 $ 0.41 $ 0.22 $ 0.13
Income (loss) from
discontinued
operations........... 0.31 0.13 0.18 (2.03)
----------- ----------- ----------- ------------
Net income............ $ 0.73 $ 0.54 $ 0.40 $ (1.90)
=========== =========== =========== ============
</TABLE>
Net sales of the NHC Division for the years ended December 31, 1992, 1993,
1994 and the six months ended June 30, 1995 were $85,877,229, $106,831,787,
$159,255,788 and $79,681,644 respectively. Income (loss) from operations from
such business for the years end December 31, 1992, 1993, 1994 and the six
months ended June 30, 1995 are net of taxes (benefit) of $1,548,913, $666,955,
$1,079,728, and $(797,161) respectively.
(1) Based on management's decision during the second quarter of 1995 to cease
operating in the health care industry, the Company has entered into a sale
agreement to sell the NHC Division. Such proposed sale is subject to
shareholder approval. The Company has accounted for the NHC Division as a
discontinued operation in the second quarter of 1995. Accordingly, the
supplemental information herein has been reclassified to conform with
discontinued operations presentation.
Certain corporate selling, general and administrative costs which were
previously allocated to the NHC Division have been reclassified to the
continuing operations as these costs may continue to be incurred by the
Company after the disposition of the NHC Division.
58
<PAGE>
DESCRIPTION OF THE NHC DIVISION
NURSE'S HOUSE CALL
Through its current network of 107 branch offices in 28 states, the NHC
Division, under the name Nurse's House Call, offers a broad range of home
health care services on a long and short-term basis, including 24 hour per
day, seven day per week skilled nursing services and homemaker and companion
services. Nurse's House Call provides home health care services through a pool
of over 1,000 full-time and over 20,000 part-time registered nurses, licensed
practical nurses, home companions and other caregivers. Nurse's House Call
also contracts with licensed physical, speech and occupational therapists to
provide these services to its patients when appropriate.
The Nurse's House Call health care providers perform a broad range of
services including monitoring life support systems, administering injections,
changing dressings, preparing meals and providing other homemaker services.
Additionally, Nurse's House Call offers more highly skilled services such as
intravenous administration of drugs, nutrients and other solutions and
specialized pediatric care.
Each Nurse's House Call branch office is staffed by an Administrator, a
Director of Nursing, one or more health care coordinators and teams of nurses
and other caregivers. The Administrator is responsible for the administrative
functions of the office as well as having local sales and marketing
responsibilities. The Director of Nursing is responsible for ensuring that the
plan of care prescribed by a patient's physician is fully complied with and
delivered within the cost guidelines established by reimbursement sources. The
Director of Nursing also periodically visits patients' homes to assess the
level of care provided and address any issues that might arise as services are
delivered to the patient.
Health care coordinators are responsible for obtaining clearance from
private health insurance carriers or from other reimbursement sources to
determine the level of reimbursement coverage available for the patient
services requested. They also assign a specific caregiver or team of
caregivers who are responsible for providing treatment to the patient.
Typically, patient services are provided by teams of caregivers in order to
promote continuity of care and to encourage the development of relationships
between caregivers, patients and their families. A registered nurse assigned
to a case prepares progress reports which are included in the patient's charts
and sent periodically to the patient's physician and, if requested, to the
referral source.
OTHER HEALTH CARE SERVICES
The NHC Division provides supplemental staffing of skilled and non-skilled
medical personnel to hospitals, nursing homes, industrial facilities, mental
institutions and other health care institutions. An institution usually
requests supplemental staffing on an interim basis to augment its own
staffing. At times, however, the NHC Division's health care personnel may make
up the entire nursing staff of an institution such as a correctional facility.
The demand for supplemental staffing services arises predominately from
emergencies, vacations and other periodic fluctuations in the number of
patients and types of skills required at health care institutions. To better
control employee costs, institutions rely on temporary staffing to accommodate
these fluctuations. If hospitals experience sharp declines in profitability,
however, administrators may determine to reduce the amounts spent for
supplemental staffing which is viewed as a variable cost. The supply of
supplemental nurses is affected to a large degree by overall economic
conditions. During strong economic periods, many nurses are increasingly
attracted to the flexibility and variety of work assignments offered by
supplemental staffing positions. In periods of lower household income and high
unemployment, many nurses tend to seek permanent positions to supplement
family income.
In general, health care institutions do not have exclusive arrangements with
any one provider of supplemental personnel, but typically utilize the services
of several different entities. Management believes that
59
<PAGE>
institutions select supplemental health care staff providers based on
proximity of location and the ability to consistently provide staff with a
variety of skills for assignments of varying duration.
NHC DIVISION REVENUES
The NHC Division provided $159.3 million or 63% of the Company's total
revenue in 1994, broken down as follows:
<TABLE>
<CAPTION>
(MILLIONS) % OF TOTAL REVENUE
---------- ------------------
<S> <C> <C>
Home Health Care............................... $144.7 58%
Supplemental Staffing.......................... 14.6 5%
</TABLE>
HEALTH CARE REIMBURSEMENT
The NHC Division's home health care revenues are paid by commercial
insurance carriers and individuals (commonly referred to as "private payors");
Medicare and Medicaid; and other sources including federal and state
governments, hospices, medical centers and health maintenance organizations.
Medicare reimbursement accounts for approximately 27% of the Company's home
health care revenues.
Medicare, Medicaid and other government-sponsored reimbursement sources are
typically referred to as "certified payors." Medicare is a federally funded
insurance program for persons 65 years of age or older and persons with
certain disabilities regardless of age. Each branch office that provides
health care services for Medicare-eligible claimants must obtain home health
agency certification from the Health Care Financing Administration. The NHC
Division has 67 offices located in Ohio, Michigan, Illinois, Florida, Indiana,
Iowa, Colorado, California, Utah, Nevada, Arizona, Oklahoma, Maine,
Pennsylvania, Massachusetts, Missouri, Maryland, Texas, Virginia, West
Virginia and Washington that are certified to provide services covered by
Medicare. Medicaid provides insurance for certain financially or medically
needy persons, regardless of age and is funded jointly by federal, state and
local governments. Certain states have funded additional programs to pay for
health care services provided to qualified low income persons.
During 1994, the proportion of the NHC Division's home health care revenues
reimbursed by certified sources decreased over previous years as a result of
the acquisition of mostly non-certified business as part of the Norrell
acquisition.
MARKETING AND SALES
The core of the health care marketing effort involves the branch
administrator calling on potential business referral sources in the medical
and paramedical support community. Branch administrators and local nursing
personnel establish and maintain relationships with private physicians, and
with medical professionals, patient discharge planners and other staff at
hospitals, nursing homes and other health care institutions who generate
referrals for the NHC Division's health care branch offices. The NHC Division
markets its health care services to national insurance companies and health
maintenance organizations. The NHC Division also advertises in local
newspapers and telephone directories, and participates in health fairs and
other community events.
HEALTH CARE REGULATION
The Health Care Financing Administration ("HCFA") regulates Medicare
certification and related reimbursement procedures of the NHC Division's home
health care branch offices. HCFA also regulates the provision of care by
nurses as well as home health aides. The NHC Division must comply with a
number of requirements to obtain and maintain its Medicare certifications.
Each state establishes varying requirements with respect to the licensure of
home health care service providers, and an increasing number of states require
licensure. The NHC Division has obtained licenses in those states where it is
required to do so. Intravenous administration of drugs or other solutions,
commonly known as
60
<PAGE>
home infusion therapy services, is generally subject to state pharmacy and
home health care licensing requirements. In states where the NHC Division
provides home infusion therapy services, it has obtained appropriate licenses
or conducts its business in a manner that does not require licensure.
Certain states have enacted Certificate of Need legislation which requires a
home health care provider to demonstrate to the appropriate regulatory
authority that the need exists for the provider's services within that
geographical region. In states where such requirements are in effect, the HCFA
will grant Medicare certification only to providers that have obtained a
Certificate of Need. Of the 28 states in which the NHC Division provides home
health care services, eight have established Certificate of Need requirements.
The NHC Division has not elected to pursue Medicare certification in these
eight states; nevertheless, the NHC Division is able to provide services in
these states for reimbursement by private payors.
CIVIL INVESTIGATIVE DEMAND
The Company was served with a Civil Investigative Demand ("CID") by the
United States Department of Justice (the "DOJ") on April 4, 1995. See "The NHC
Transaction--Civil Investigative Demand."
HEALTH CARE COMPETITION
The home health care and supplemental health care staffing business is
highly fragmented, with no one entity dominating the market. Management
believes that the principal competitive factors in this business are proximity
of location, quality and diversity of services, strength of referral
relationships and price.
DESCRIPTION OF THE HEALTH INFORMATION SERVICES DIVISION
PORTAMEDIC (R)--MEDICAL AND PARAMEDICAL EXAMINATIONS
The Company's Health Information Services Division, under the trade name
Portamedic, provides medical and paramedical examinations for applicants
seeking insurance coverage from life and health insurers through 128 branch
offices in 49 states. During 1994, the Company performed over 1,479,000
paramedical examinations, covering all 50 states, Guam and Puerto Rico.
Each branch office is staffed with a branch manager, who is responsible for
local business development and general oversight of the local health
information operation, and a support staff who are responsible for
coordinating examination and reporting procedures. Each branch office
typically uses full-time, part-time and contract personnel to perform
examinations, including registered nurses, licensed practical nurses,
physicians, medical and paramedical technicians. Portamedic's examiners
provide examinations at the request of insurance agents at times and locations
convenient to applicants, including the applicants' homes or places of
business. Each office is automated via a personal computer network using
Novell networking software. The application software is written and maintained
by in-house personnel.
Because almost all of Portamedic's examiners are medically trained
professionals, the Company is able to provide its clients with a full range of
medical and paramedical examination services. These services primarily involve
recording an applicant's medical history, height and weight, measuring blood
pressure and collecting and testing urine specimens. In addition, examiners
increasingly perform more sophisticated procedures requested by insurance
underwriters, including electrocardiograms, lung capacity measurements and
blood sample collections which are sent to independent laboratories for
testing for AIDS and other life-threatening diseases. Written reports of
examination results are provided to insurance clients typically within three
to five days of the initial request for an examination.
INFOLINK SERVICES GROUP
Under the Infolink name, the Company's Health Information Services Division
offers comprehensive life and health inspection reports and Attending
Physician Statements to its insurance clients. During 1994, the
61
<PAGE>
Company provided over 266,000 Infolink reports. These reports, available in
varying degrees of detail pursuant to the client's request, assist insurance
underwriters in developing a more comprehensive profile of an insurance
applicant. A life and health inspection report includes information relating
to an insurance applicant's lifestyle, employment history and financial
status.
A member of the branch office staff prepares the Infolink report primarily
based upon telephone interviews with the applicant, his or her employer and
his or her business and personal associates and electronically transmits the
report to the insurance underwriter. An Attending Physician Statement provides
details of an applicant's medical history which is obtained, with the
insurance applicant's consent, from notes and records maintained by the
physician responsible for administering treatment.
From time to time, the Company performs other health information services
such as occupational health screening and substance abuse testing for
corporations and other organizations outside of the insurance industry. These
other services presently do not constitute a significant portion of the
Company's health information business.
HEALTH INFORMATION SERVICES DIVISION REVENUES
Health information services accounted for $92.5 million or 37% of the
Company's total revenue for 1994 as follows:
<TABLE>
<CAPTION>
(MILLIONS) % OF TOTAL REVENUE
---------- ------------------
<S> <C> <C>
Portamedic..................................... $83.3 33%
Infolink....................................... 9.2 4%
</TABLE>
HEALTH INFORMATION SERVICES MARKETING
The Company markets Portamedic and Infolink health information services on a
national level through eight full-time sales representatives who call on
senior underwriting executives at the home offices of insurance companies.
This Division serves some 900 active life and health underwriting clients,
including their extensive network of agency, district and brokerage offices.
National sales representatives promote the Company's consistently high quality
of service and rapid response time to examination requests and are responsible
for maintaining the Company's position on each insurance company's approved
list of examination providers. The Company regularly attends and occasionally
sponsors client conferences to provide national sales representatives with
opportunities to further develop key relationships.
At the local level, branch managers and, in certain offices, additional
marketing personnel market the Company's services directly to the local
insurance agents and local managers who have the authority to select
examination providers from the list approved by the insurance companies' home
offices. These local marketing efforts highlight the quality of the Company's
examiners and the speed and accuracy of its services, including the ability of
each branch to ascertain quickly the status of each examination request
through the Company's automated branch management information system.
The Company has developed a comprehensive automated branch management
information system which is now "on-line" in all branch offices. A key benefit
of the system is that it permits each branch office to monitor instantly and
regularly the status of a particular examination request, which results in
more responsive client service. The Company has been making its "status"
information available to its clients on a dial-in electronic basis. The system
also enables personnel at the Company's corporate headquarters to compile
Company-wide information regarding quality assurance standards as well as
other administrative and accounting information.
One of the Company's customers, Prudential Insurance Company of America,
accounted for 12%, 15% and 16% of the Company's health information services
revenues (or 4%, 6% and 7% of its total revenues) for 1994, 1993 and 1992,
respectively. Accordingly, the loss of this customer could have a material
adverse effect on the Company's business.
62
<PAGE>
HEALTH INFORMATION SERVICES COMPETITION
Management believes that the Company is one of four firms operating
nationally to provide health information services to insurance companies. A
large number of regional and local firms also offer these services. In
management's opinion, the principal competitive factors in the health
information services market are speed of response, delivery of complete and
accurate information, and price. The Health Information Services Division,
through its nationwide branch office network and highly qualified examiners,
seeks to provide accurate and reliable health information reports at
competitive prices to its insurance clients promptly, generally, within three
to five days of receiving a request for an examination.
63
<PAGE>
DESCRIPTION OF ASB MEDITEST
BUSINESS DESCRIPTION
A wholly-owned subsidiary of Olsten, American Service Bureau, Inc. operates
under the name ASB Meditest. Headquartered in Framingham, Massachusetts, ASB
Meditest provides health information and occupational health services,
including drug testing, physical exams, blood specimen collection,
immunizations, cholesterol screenings and various health management programs
to insurance companies and private and government employers.
ASB Meditest is composed of two divisions: the Insurance Services Division
and the Occupational Health Services Division. The Insurance Services Division
provides medical and paramedical exams, physician exams, inspection reports
and Attending Physician Statements (APS). ASB Meditest's medical and
paramedical examinations involve taking an insurance applicant's medical
history, performing various examinations, collecting specimens, and providing
the information and examination results to insurance underwriter clients.
Through APSs and inspections, ASB Meditest assists insurance underwriters in
developing a more comprehensive profile of an insurance applicant.
The Occupational Health Services Division provides mobile, on-site and in-
office drug testing, physical exam services, immunizations, vaccinations, and
other health management programs for business and government. The bulk of ASB
Meditest's Occupational Health Services business consists of four services--
Drug and Alcohol Testing, Health Promotions/Wellness, Physical Exams, and
Immunizations.
ASB Meditest's Drug and Alcohol Testing services include pre-employment,
post-accident, random, reasonable suspicion, and rehab testing/periodic
testing for various substances. Such drug testing is usually performed by
trained and certified collectors in conjunction with laboratories and/or with
medical review officers for employers. ASB Meditest also provides random
selection and program management services as well as total turnkey programs.
ASB Meditest's Health Promotions/Wellness services are generally provided in
conjunction with another provider to bring together a full spectrum of
wellness services for an employer. These services are performed by trained
medical teams at the client site. Typically, ASB Meditest measures an
employee's height and weight, draws a blood specimen, and has the employee
complete a questionnaire. The lab results from the blood draw and the
questionnaire responses are used to develop an individual's Health Risk
Appraisal.
ASB Meditest manages Physical Exam programs for employers, providing a
variety of different types of physical exams including: general pre-employment
exams, required DOT exams, and required OSHA exams. ASB Meditest also performs
Immunizations on a mobile basis, serving corporate clients, and works in
conjunction with several national pharmacy chains and other large retail
customers to conduct flu shot clinics for the public.
In 1994, $72.8 million of ASB Meditest's revenues came from the Insurance
Services Division and $9 million came from the Occupational Health Services
Division.
ASB Meditest has 104 office locations across the United States, including
Alaska, Hawaii, Puerto Rico, and Guam. More than 4,700 examiners and 1,000
physicians provide both in-office and on-site services. ASB Meditest uses
full-time, part-time and contract personnel to perform these services.
CUSTOMERS
ASB Meditest numbers among its customers approximately 1,300 life and health
insurance companies in the United States. No one customer has accounted for
more than ten percent of ASB Meditest's revenues in any of the last three
fiscal years.
64
<PAGE>
DESCRIPTION OF PROPERTY
ASB Meditest's headquarters is located in Framingham, Massachusetts. ASB
Meditest leases 27,000 square feet of office space in this location; the lease
expires in 1996. ASB Meditest has 104 offices in 48 states. All such offices
are maintained on three to five year leases, except those maintained by
independent contractors.
COMPETITION
See "Description of the Health Information Services Division--Competition"
for a description of competition in the health information services industry.
The occupational health services market is composed of a diverse set of
competitors, including large corporations, hospitals, orthopedic doctors,
physical therapists, occupational medicine physicians and therapists,
chiropractors, health fitness operators and hospital/physical therapist joint
ventures.
65
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 1, 1995 (December 31, 1994 in the
case of J.P. Morgan & Co., Incorporated, Kopp Investment Advisors, Inc.,
Nicholas Company, Inc. and Dimensional Fund Advisors), the beneficial
ownership of the Company's issued and outstanding Common Stock (on the basis
of 6,707,052 shares outstanding), including the stock ownership of each person
who, to the Company's knowledge, owns over 5% of the Company's outstanding
Common Stock, each of the directors of the Company, certain of the Company's
executive officers and the directors and officers of the Company as a group,
and the percentage which the shares owned constitute of the total shares
outstanding.
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT & NATURE OF BENEFICIAL (BASED ON NUMBER OF
NAME, POSITION & ADDRESS OWNERSHIP OF SHARES OUTSTANDING ON
OF BENEFICIAL OWNERS COMMON STOCK(1) 6/1/95)
- ------------------------ ----------------------------- ---------------------
<S> <C> <C>
Frederick D. King and
Kenneth R. Rossano,
Trustees Under the Will
of John J. King........ 647,550 9.65%
c/o Kenneth R. Rossano,
Trustee
63 Hundreds Circle
Wellesley Hills, MA
02181
J.P. Morgan & Co., 604,600(2) 9.01%
Incorporated...........
60 Wall Street
New York, NY 10260
Kopp Investment 532,061(3) 7.93%
Advisors, Inc. ........
6600 France Ave.,
South,
Suite 672
Edina, MN 55435
Nicholas Company, Inc. . 513,900(4) 7.66%
700 North Water Street
Milwaukee, WI 53202
Dimensional Fund 360,850(5) 5.38%
Advisors...............
1299 Ocean Avenue
Santa Monica, CA 90401
DIRECTORS
Frederick D. King....... 798,358(6) 11.90%
6 Cross Street
Newport, RI 02840
G. Earle Wight.......... 244,138(7) 3.64%
59 Oriole Road
Toronto, Ontario, CAN
M4V 2E9
John E. Nolan, Jr. ..... 5,000 .07%
1330 Connecticut
Avenue, N.W.
Washington, D.C. 20036
Kenneth R. Rossano...... 790,701(8) 11.79%
63 Hundreds Circle
Wellesley Hills, MA
02181
Anne King Sullivan...... 71,555(9) 1.07%
RR #2, Box 349
Peterborough, NH 03458
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS
AMOUNT & NATURE OF BENEFICIAL (BASED ON NUMBER OF
NAME, POSITION & ADDRESS OWNERSHIP OF SHARES OUTSTANDING ON
OF BENEFICIAL OWNERS COMMON STOCK(1) 6/1/95)
- ------------------------ ----------------------------- ---------------------
<S> <C> <C>
James M. McNamee........ 149,819(10) 2.23%
34 Buckley Hill Road
Morristown, NJ 07960
Quentin J. Kennedy ..... 1,500 .02%
22 Old Smith Road
Tenafly, NJ 07670
Elaine L. La Monica..... 600 .01%
245 E. 63rd Street,
Apt. 1914
New York, NY 10021
OTHER MOST HIGHLY PAID
EXECUTIVE OFFICERS
Paul W. Kolacki......... 16,837(11) .25%
923 Manchester Drive
Somerville, NJ 08876
Fred Lash............... 19,892(12) .30%
14 Mirador Court
Denville, NJ 07834
Robert William Jewett... 13,677(13) .20%
71 Wexford Way
Basking Ridge, NJ 07920
All officers and 1,472,259(14) 21.95%
directors as a group
(13 total).............
</TABLE>
- --------
(1) Includes shares, if any, held by or for a spouse or minor children or as
a trustee. Unless otherwise indicated, the director or 5% stockholder
possesses sole investment and voting power in respect of these shares.
(2) J.P. Morgan & Co., Incorporated ("J.P. Morgan"), a parent holding
company, filed a statement on Schedule 13G disclosing that on December
31, 1994 it beneficially owned 604,600 shares of Common Stock of the
Company, representing approximately 9.0% of the Common Stock. Such shares
are owned by various individual and institutional investors for which
J.P. Morgan is empowered to direct investments and/or sole power to vote
the Common Stock. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, J.P. Morgan is deemed to be a beneficial
owner of such securities. In the Schedule 13G, J.P. Morgan certifies that
the shares of Common Stock were not acquired for the purpose of, and do
not have the effect of, changing or influencing the control of the
Company and were not acquired in connection with, or as a participant in,
any transaction having such purpose or effect.
(3) Kopp Investment Advisors, Inc. ("Kopp"), a registered investment advisor,
filed a statement on Schedule 13G dated February 10, 1995, disclosing
that on December 31, 1994, it beneficially owned 532,061 shares of Common
Stock of the Company, representing approximately 7.9% of the Common
Stock. Such shares are owned by various individual and institutional
investors for which Kopp serves as investment advisor with power to
direct investments and/or sole power to vote the Common Stock. In the
Schedule 13G, Kopp certifies that the shares of Common Stock were not
acquired for the purpose of, and do not have the effect of, changing or
influencing the control of the Company and were not acquired in
connection with, or as a participant in, any transaction having such
purpose of effect.
(4) Nicholas Company, Inc. ("Nicholas") a registered investment advisor,
filed a statement on Schedule 13G dated February 3, 1995, disclosing that
on December 31, 1994, it beneficially owned 513,900 shares of Common
Stock of the Company, representing approximately 7.7% of the Common
Stock. Such shares are owned by various individual and institutional
investors for which Nicholas serves as investment advisor, with power to
direct investments and sole dispositive power. For purposes of the
reporting requirements of
67
<PAGE>
the Securities Exchange Act of 1934, Nicholas is deemed to be a beneficial
owner of such securities. In Schedule 13G, Nicholas certifies that the
shares of Common Stock were not acquired for the purpose of, and do not
have the effect of, changing or influencing the control of the Company and
were not acquired in connection with, or as a participant, any transaction
having such purpose or effect.
(5) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, filed a statement on Schedule 13G dated January 30, 1995,
disclosing that on December 31, 1994, it beneficially owned 360,850
shares of Common Stock of the Company, representing approximately 5.4% of
the Common Stock. Such shares are held in portfolios of DFA Investment
Trust Company, a Delaware Business Trust, or the DFA Group Trust and DFA
Participator Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager. In
Schedule 13G, Dimensional certifies the shares of Common Stock were not
acquired for the purpose of, and do not have the effect of, changing or
influencing the control of the Company and were not acquired in
connection with, or as a participant, any transaction having such purpose
or effect.
(6) Includes 647,550 shares held by the John J. King Trust of which Mr. King
is a co-trustee with shared voting and dispositive power, and 280 shares
held by Mr. King's spouse, Natalie.
(7) Includes 189,843 shares held by the Lucille K. Wight Trust, of which Mr.
Wight is trustee with sole voting and dispositive power, and 44,295
shares held by 874367 Ontario, Inc., a corporation of which Mr. Wight and
his spouse Sonia are sole shareholders.
(8) Includes 132,889 shares held by Mr. Rossano's spouse, Cynthia, and
647,550 shares held by the John J. King Trust, of which Mr. Rossano is a
co-trustee with shared voting and dispositive power.
(9) Includes 71,405 shares held by the Anne K. Sullivan Trust, of which Mrs.
Sullivan is co-trustee but has sole voting and dispositive power, and 150
shares held by Mrs. Sullivan's spouse, Donald.
(10) Includes 27,387 shares held by Mr. McNamee and his spouse Patricia as
joint tenants, 450 shares held by Mr. McNamee's spouse, Patricia, 700
shares held by Mr. McNamee's spouse Patricia as custodian for Ryan
NcNamee, their child, and 450 shares held by Mr. McNamee's spouse
Patricia as custodian for Sean McNamee, their minor child. Also includes
84,750 shares currently issuable upon the exercise of options.
(11) Includes 400 shares held by Mr. Kolacki and his spouse, Sandra, as joint
tenants. Also includes 15,500 shares currently issuable upon the exercise
of options.
(12) Includes 300 shares held by Mr. Lash and his spouse, Suzanne, as joint
tenants. Also includes 19,375 shares currently issuable upon the exercise
of options.
(13) Includes 12,625 shares currently issuable upon the exercise of options.
(14) Includes shares owned individually by each officer and director in the
group as well as shares indirectly owned by such persons as trustees of
various trusts; however, where more than one officer or director is a
trustee of the same trust, the total number of shares owned by such trust
is counted only once in determining the amount owned by all officers and
directors as a group. Also includes 139,900 shares currently issuable
upon the exercise of options.
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Proposals of shareholders intended for inclusion in the Proxy Statement for
the Annual Meeting of Shareholders to be held in 1996, must be received at the
Company's executive offices not later than December 19, 1995. Proponents
should submit their proposals by Certified Mail--Return Receipt Requested.
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<PAGE>
SOLICITATION OF PROXIES
The solicitation of proxies will be made primarily by mail. Proxies may also
be solicited personally and by telephone or telegraph by regular employees of
the Company, without any additional remuneration and at minimal cost. The
Company has also retained the services of D.F. King & Co., Inc., New York, New
York and Solakian & Associates, Inc., Flemington, New Jersey to solicit
proxies on behalf of the Company. The fee to be paid by the Company for such
services is not expected to exceed $33,000. The cost of soliciting the proxies
will be borne by the Company.
BY ORDER OF THE BOARD OF DIRECTORS
OF HOOPER HOLMES, INC.
Robert William Jewett
Secretary
August 30, 1995
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOOPER HOLMES, INC. CONSOLIDATED BALANCE SHEETS........................... F-2
HOOPER HOLMES, INC. CONSOLIDATED STATEMENTS OF INCOME..................... F-3
HOOPER HOLMES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS................. F-4
HOOPER HOLMES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............ F-5
HOOPER HOLMES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION....................................... F-7
AMERICAN SERVICE BUREAU, INC. BALANCE SHEETS.............................. F-9
AMERICAN SERVICE BUREAU, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED
DEFICIT.................................................................. F-10
AMERICAN SERVICE BUREAU, INC. STATEMENTS OF CASH FLOWS.................... F-11
AMERICAN SERVICE BUREAU, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION............................. F-12
REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-13
REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-14
AMERICAN SERVICE BUREAU, INC. BALANCE SHEETS.............................. F-15
AMERICAN SERVICE BUREAU, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED
DEFICIT.................................................................. F-16
AMERICAN SERVICE BUREAU, INC. STATEMENTS OF CASH FLOWS.................... F-17
AMERICAN SERVICE BUREAU, INC. NOTES TO FINANCIAL STATEMENTS............... F-18
AMERICAN SERVICE BUREAU, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ F-24
</TABLE>
F-1
<PAGE>
HOOPER HOLMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/94 06/30/95
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents.............................. $ 1,695,844 $ --
Accounts Receivable.................................. 12,706,513 13,220,972
Prepaid Expenses..................................... 2,347,383 1,645,723
Deferred/refundable taxes............................ -- 9,215,575
------------ -----------
Total Current Assets............................. 16,749,740 24,082,270
Property, Plant and Equipment
Land and Land Improvements........................... 567,947 570,116
Building............................................. 3,432,655 3,438,634
Furniture, Fixtures & Equipment...................... 8,179,498 8,766,783
Leasehold Improvements............................... 110,726 118,676
------------ -----------
Total Property, Plant & Equipment.................... 12,290,826 12,894,209
Less Accumulated Depreciation........................ 6,027,686 6,674,241
------------ -----------
Net Property, Plant & Equipment.................. 6,263,140 6,219,968
Costs in Excess of Net Assets of Acquired Companies.... 4,283,384 3,970,333
Intangible Assets...................................... 197,284 180,868
Other Assets........................................... 1,632,763 2,117,596
Net Assets--discontinued operations (Note 3)........... 74,045,993 59,768,092
------------ -----------
Total Assets..................................... $103,172,304 $96,339,127
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long Term Debt................. $ 2,150,000 $ 2,800,000
Accounts Payable..................................... 5,043,424 4,495,919
Accrued Expenses:
Insurance Benefits................................. 117,717 101,915
Salaries, Wages and Fees........................... 522,181 92,952
Payroll and Other Taxes............................ 422,392 354,988
Income Taxes Payable............................... 450,518 --
Discontinued Operations............................ -- 8,957,941
Other.............................................. 1,636,722 2,938,789
------------ -----------
Total Current Liabilities........................ 10,342,954 19,742,504
Long Term Debt, Less Current Maturities................ 46,326,942 43,126,942
Shareholders' Equity:
Common Stock......................................... 269,777 269,777
Additional Paid in Capital........................... 24,114,410 24,097,717
Retained Earnings.................................... 22,589,370 9,515,299
------------ -----------
46,973,557 33,882,793
Less: Treasury Stock................................. 471,149 413,112
------------ -----------
Total Shareholders' Equity......................... 46,502,408 33,469,681
------------ -----------
Total Liabilities & Shareholders' Equity......... $103,172,304 $96,339,127
============ ===========
</TABLE>
See Notes to Hooper Holmes, Inc. Consolidated Financial Statements (Unaudited).
F-2
<PAGE>
HOOPER HOLMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------
1994 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $45,677,792 $ 48,393,054
Cost of operations.................................. 34,990,360 36,437,112
----------- ------------
Gross profit........................................ 10,687,432 11,955,942
Selling, general and administrative expenses........ 8,576,949 9,847,289
----------- ------------
Operating income.................................... 2,110,483 2,108,653
Other income (expense):
Interest expense.................................. (261,310) (746,625)
Interest Income................................... 18,061 187,219
Other............................................. -- --
----------- ------------
(243,249) (559,406)
----------- ------------
Income before income taxes........................ 1,867,234 1,549,247
Income taxes........................................ 812,699 697,161
----------- ------------
Income from continuing operations................. 1,054,535 852,086
----------- ------------
Discontinued Operations: (Note 3)
Income (loss) from operations, net of taxes....... 576,512 (3,331,864)
Loss on Disposal, net of taxes.................... -- (10,326,068)
----------- ------------
Income (loss) from discontinued operations........ 576,512 (13,657,932)
----------- ------------
Net income (loss)................................... $ 1,631,047 $(12,805,846)
=========== ============
Earnings (loss) per share:
Weighted average number of shares................. 6,709,628 6,704,790
Income from continuing operations................. 0.16 0.13
Income (loss) from discontinued operations........ 0.08 (2.03)
----------- ------------
Net income (loss)................................. $ 0.24 $ (1.90)
=========== ============
</TABLE>
See Notes to Hooper Holmes, Inc. Consolidated Financial Statements (Unaudited).
F-3
<PAGE>
HOOPER HOLMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------
1994 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations................. $ 1,054,535 $ 852,086
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization................... 618,289 922,767
Provision for bad debt expense.................. 40,883 47,500
Change in assets and liabilities:
Accounts receivable........................... (566,889) (561,959)
Prepaid expenses and other assets............. (1,608,624) 216,827
Deferred/refundable taxes..................... 0 (9,215,575)
Accrued expenses--discontinued operations..... 0 8,957,941
Accounts payable and accrued expenses......... 125,879 (208,393)
------------ -----------
Net cash provided by (used in) operating
activities of continuing operations.............. (335,927) 1,011,194
Net cash provided by (used in) operating
activities of discontinued operations............ (11,422,893) 921,121
------------ -----------
Net cash provided by (used in) operating
activities....................................... (11,758,820) 1,932,315
------------ -----------
Cash flows from investing activities:
Capital expenditures, net of disposals............ (627,363) (550,127)
Net investing activities of discontinued
operations....................................... (158,106) (301,152)
------------ -----------
Net cash used in investing activities............. (785,469) (851,279)
------------ -----------
Cash flows from financing activities:
Issuance of long term debt........................ 15,500,000 6,000,000
Principal payments on long term debt.............. (550,000) (8,550,000)
Payment of note................................... (3,000,000) 0
Proceeds from exercise of stock options........... 15,472 0
Issuance of stock awards.......................... 0 41,344
Dividends paid.................................... (1,006,382) (268,224)
------------ -----------
Net cash (used in) provided by financing
activities....................................... 10,959,090 (2,776,880)
------------ -----------
Net (decrease) in cash and cash equivalents......... (1,585,199) (1,695,844)
Cash and cash equivalents at beginning of year...... 1,585,199 1,695,844
------------ -----------
Cash and cash equivalents at end of period.......... $ 0 $ 0
============ ===========
</TABLE>
See Notes to Hooper Holmes, Inc. Consolidated Financial Statements (Unaudited).
F-4
<PAGE>
HOOPER HOLMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited unless otherwise
indicated; however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of operations for the six month period ended June 30, 1995 are
not necessarily indicative of the results to be expected for the full year.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for additional information.
NOTE 2: EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the respective
periods as outlined in Part 1.
NOTE 3: DISCONTINUED OPERATIONS
The Company has entered into an agreement that relates to the proposed sale,
transfer and assignment of substantially all of the assets and business of the
health care division of Hooper Holmes, Inc. a New York corporation, to Olsten
Corporation, a Delaware corporation, or an affiliate thereof (the "NHC
Transaction"), pursuant to an Agreement of Acquisition ("Acquisition
Agreement") between the Company and Olsten, dated as of the 26th day of May,
1995. the NHC Division consists of the assets and business of the Company and
its wholly-owned subsidiary Hooper Holmes Health Care, Inc. which are utilized
principally in (a) providing comprehensive home health care services,
including, without limitation, skilled and unskilled home health care
services, pharmaceutical and ancillary services and products, (b) providing
private duty nursing services in institutional settings, (c) providing
supplemental staffing services to or on behalf of health care facilities,
providers and payors, and (d) operating six pharmacies. The NHC Division
includes the assets and business of Nurse's House Call.
The Acquisition Agreement provides that as consideration for the sale of the
NHC Assets, Olsten will transfer, assign and deliver to the Company all of the
issued and outstanding capital stock of American Service Bureau, Inc., an
Illinois corporation engaged in the business of providing paramedical
examinations and related services to the life and health insurance industries
under the name ASB Meditest, pay the Company Thirty-Four Million Five Hundred
Thousand Dollars ($34,500,000) in cash as adjusted to reflect changes in the
NHC Division Net Asset Amount between November 30, 1994 and the Closing Date,
and in the ASB Meditest Net Asset Amount between December 31, 1994 and the
Closing Date and assume certain specified liabilities relating to the NHC
Division. If the Closing had taken place on June 30, 1995, the Cash Portion of
the Purchase Price would have been $30.0 million after making this adjustment.
The Purchase Price was determined through arm's-length negotiation between the
officers and financial advisors of Olsten and those of the Company.
Based on management's decision during the second quarter of 1995 to cease
operating in the health care industry, the Company has entered into a sale
agreement to sell the NHC Division. Such proposed sale is subject to
shareholder approval. The Company has accounted for the NHC Division as a
discontinued operation in the second quarter of 1995. Accordingly, the
accompanying consolidated financial statements have been reclassified to
conform with the discontinued operations presentation.
Net sales of the Company's discontinued operation (the "NHC Division") for
the six months ended June 30, 1995 were $79.7 million compared to $79.1
million for the six months ended June 30, 1994.
F-5
<PAGE>
HOOPER HOLMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the second quarter ended June 30, 1995, the Company has taken an after
tax operating charge totaling $3.0 million pertaining to the discontinued
operations. This charge relates to losses of the NHC Division in the second
quarter and other aspects of the NHC Division.
The loss on disposal of $10.3 million (net of tax benefits of $7.6 million)
includes a provision of $.9 million for operating losses during the phase out
period.
Earnings (loss), from discontinued operations for the six months ended June
30, 1995 and 1994 are net of taxes (benefits) of $(0.8) million and $0.4
million, respectively. The net assets of discontinued operations consist
primarily of accounts receivable, fixed assets, goodwill and intangibles, net
of its related accounts payable and other accrued expenses.
F-6
<PAGE>
HOOPER HOLMES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
Six months ended June 30, 1995 compared to six months ended June 30, 1994
Revenues from continuing operations for the first six months ended June 30,
1995 were $48,393,000 compared to $45,678,000 for the six months ended June
30, 1994, an increase of 5.9%. The growth in Health Information Services
revenue is primarily due to internal growth, resulting in part to increased
utilization of our premium priced services for the first six months of 1995
compared to the first six months of 1994.
The Company's direct cost of operations from continuing operations for the
six months ended June 30, 1995 decreased to 75.3%, as a percentage of
revenues, compared to 76.6% for the same period in 1994. This improvement
resulted from the review, in 1994, of unprofitable operations of the
businesses acquired during late 1993, which resulted in the closing of nine
(9) offices, and the elimination of certain contractor revenue sources with
less than acceptable margins.
Selling, general and administrative (SG&A) expenses increased as a
percentage of revenues, to 20.3% from 18.8% for the first six months of 1995
compared to the first six months of 1994. This increase is primarily the
result of additional sales and marketing expenses and data processing
resources required to maintain and grow Health Information Services as the
premier and preferred provider of examination services. Additionally, overall
general corporate expenses have increased.
The Company's operating profit for the six months ended June 30, 1995,
decreased slightly as a percentage of revenue to 4.4% from 4.6% as a result of
the above increase in SG&A. Interest expense for the six months ended June
1995 was up nearly $0.5 million as a result of higher interest rates and
higher net borrowings. The increase in interest expense was partially offset
by the $0.2 million increase in interest income. This increase is due
primarily to a deferred gain recognized on the partial payment of the fully
reserved note receivable resulting from the sale of our Direct Marketing
operation in 1992.
Earnings per share from continuing operations, for the six months ended June
1995 was $.13 per share versus $.16 per share for the six months ended June
1994. Average shares outstanding for the respective periods were 6,704,790 and
6,709,628, respectively.
FINANCIAL CONDITION
The Company's primary sources of cash are the Company's bank credit facility
and internally generated funds. As of June 30, 1995, the Company had total
outstanding debt of $45.9 million, compared to $48.5 million as of December
31, 1994.
The Company's current ratio, as of June 30, 1995 was 1.2 to 1. The Company
closed the first six months of 1995 with $4.3 million in working capital.
The assets and liabilities classified as "Net Assets--Discontinued
Operation" are those net assets expected to be sold to Olsten in return for
the stock of American Service Bureau, Inc. and a substantial cash payment. Had
the closing occurred on June 30, 1995, the cash payment would have been $30.0
million. The cash payment will be utilized to ultimately pay down the
Company's outstanding long term debt. It is anticipated that the Company's
bank credit facility, cash flows from operations and cash payment from the
sale of the NHC Division to Olsten will provide sufficient capital resources
over the next twelve months. It is anticipated that the sale transaction,
improved cash flows and a revised bank debt arrangement will provide longer
term liquidity.
F-7
<PAGE>
Due to the current performance of the NHC Division, and in the event that
the NHC Transaction is not consummated, the Company would be required to
renegotiate its debt financing arrangements or obtain other sources of debt
financing. While management expects this would be available, there is no
assurance that the financing could be obtained on terms favorable to the
Company.
Following the sale of the NHC Division and the acquisition of ASB Meditest
business, the Company's business will be primarily health information
services. Historically, Health Information Services has experienced lower
accounts receivable days sales outstanding (DSO's) than the DSO of the NHC
Division. Management believes that if this trend continues it should further
strengthen the balance sheet, and provide increased liquidity.
Inflation has not nor will it have a material impact on the Company results
nor have there been any material commitments for capital expenditures.
F-8
<PAGE>
AMERICAN SERVICE BUREAU, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/94 6/30/95
---------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash................................................. $ -- $ 1,256
Accounts receivable, less allowance for doubtful
accounts of $571 and $522, respectively............. 13,259 14,060
Prepaids & other assets.............................. 1,879 1,200
Deferred tax asset................................... 720 --
---------- -----------
Total current assets............................. 15,858 16,516
Fixed assets, net.................................... 7,654 8,188
Intangibles, principally goodwill, net of accumulated
amortization of $3,658 and $4,078, respectively..... 19,733 19,444
---------- -----------
TOTAL ASSETS..................................... $43,245 $ 44,148
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses................ $ 6,402 $ 5,177
Other liabilities.................................... 732 311
Deferred taxes....................................... -- 356
Payable to affiliated companies...................... 24,530 28,446
Stockholders' equity:
Common stock, $5 par value, 1,000 shares autho-
rized, issued and outstanding..................... 5 5
Additional paid-in capital......................... 20,726 20,726
Accumulated deficit................................ (9,150) (10,873)
---------- -----------
Total stockholders' equity....................... 11,581 9,858
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $43,245 $ 44,148
========== ===========
</TABLE>
F-9
<PAGE>
AMERICAN SERVICE BUREAU, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
1994 1995
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenues and services............................. $41,106 $ 41,014
Operating costs and expenses
Direct cost of services............................. 22,980 23,016
Selling, general & administrative expenses.......... 16,427 17,492
Amortization and depreciation....................... 1,134 1,389
---------- -----------
40,541 41,897
---------- -----------
Operating income (loss)............................... 565 (883)
Other expenses:
Interest expense.................................... 18 16
Management and royalty fees......................... 1,029 1,436
---------- -----------
1,047 1,452
---------- -----------
Loss before income taxes.............................. (482) (2,335)
Income tax (provision) benefit ....................... (11) 612
---------- -----------
Net loss.............................................. (493) (1,723)
Retained deficit beginning of period.................. (6,609) (9,150)
---------- -----------
Retained deficit end of period........................ $(7,102) $ (10,873)
========== ===========
</TABLE>
F-10
<PAGE>
AMERICAN SERVICE BUREAU, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
1994 1995
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net Loss........................................... $ (493) $ (1,723)
Adjustments to reconcile net loss to net cash used
in operating activities:
Deferred income taxes............................ 160 --
Depreciation and Amortization.................... 1,158 1,456
Provision for uncollectible accounts............. 181 154
Changes in assets and liabilities:
Accounts receivable............................ 79 (955)
Prepaid assets................................. 874 1,399
Accounts payable and accrued expenses.......... (395) (1,225)
Payable to affiliates.......................... 2,419 (684)
Other, net..................................... (2,283) (29)
----------- -----------
Net cash provided by (used in) operating
activities........................................ 1,700 (1,607)
Cash flows from investing activities:
Investment in fixed assets......................... (1,424) (1,538)
Business acquisitions.............................. (186) (199)
----------- -----------
Net cash used in investing activities.............. (1,610) (1,737)
Cash flows from financing activities:
Advances from the parent company................... -- 4,600
----------- -----------
Net cash provided by financing activities.......... -- 4,600
----------- -----------
Net (decrease) increase in cash...................... 90 1,256
Cash, beginning of period............................ 1,607 --
----------- -----------
Cash, end of period.................................. $ 1,697 $ 1,256
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 5 $ 5
Cash paid during the period for income taxes....... 38 17
</TABLE>
F-11
<PAGE>
AMERICAN SERVICE BUREAU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FIRST SIX MONTHS OF 1995 COMPARED TO FIRST SIX MONTHS OF 1994
Total revenues for the first six months of 1995 were $41.0 million compared
to $41.1 million for the first six months of 1994. The slight decrease in
revenue was the net effect of a decrease in exam business of $1.5 million and
an increase $1.4 million in occupational health services.
The decrease in the exam business is attributable to the loss of one exam
business customer and a decrease in the number of life insurance policies
tested. On the other hand, the increase in the occupational health services
revenues is attributable to the introduction of a breath alcohol testing
service. This new service has resulted in sales to new significant customers
who also purchased other occupational health services.
ASB Meditest's costs of operation in the first six months of 1995 remained
at $23.0 million. In addition, direct costs as a percent of revenue remained
constant as a result of higher margins related to the breath alcohol testing
services being offset by continued discounting pressure.
Selling, general and administrative (SG&A) expenses and depreciation and
amortization increased to $18.9 million from $17.6 million in the first six
months of 1994. The increase in SG&A is primarily related to the cost of the
MIS conversion.
ASB Meditest reported an operating loss for the first six months of 1995 of
$883,000 as compared to operating income of $565,000 for the first six months
of 1994. The operating loss was the result of the increase in SG&A expenses.
The net loss of $1.7 million was the result of the operating loss and higher
management and royalty fees for the parent company.
FIRST SIX MONTHS OF 1995
Liquidity and Financial Resources
ASB Meditest's historical primary sources of cash are internally generated
funds and the Company's parent, Olsten Corporation.
For 1994 and the first six months of 1995, Olsten provided $10.9 million,
and $8.1 million of the funds were used for one-time projects that have now
been halted. Accordingly, management presently does not anticipate the need
for any significant amounts of cash infusion from external sources.
Net cash used in operating activities was $1.6 million during the first six
months of 1995. The use of cash was the result of an operating loss of
$883,000. The operating loss was the result of an increase of expenses related
to the MIS conversion. The MIS conversion has been halted and SG&A expenses
will decrease during the remainder of 1995.
Cash used in investigating activities was $1.7 million during the first six
months of 1995. Most of the investments were for the aforementioned MIS
conversion.
Cash provided by financing activities was $4.6 million during the first six
months of 1995. All of the financing proceeds were advances from Olsten.
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of American Service Bureau, Inc.:
We have audited the accompanying balance sheets of American Service Bureau,
Inc., (a wholly-owned subsidiary of Olsten Corporation) as of December 31,
1993 and 1994, and the related statements of operations and accumulated
deficit, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with general accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Service Bureau,
Inc. as of December 31, 1993 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Notes 2 and 7 to the financial statements, the Company
changed its method of accounting for income tax and post retirement benefits
in 1993.
Coopers & Lybrand L.L.P.
Melville, New York
March 3, 1995
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
American Service Bureau, Inc.
In our opinion, the accompanying statements of operations and accumulated
deficit and of cash flows for the year ended December 31, 1992 present fairly,
in all material respects, the results of operations and cash flows of American
Service Bureau, Inc. (the "Company") for the year ended December 31, 1992, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the financial statements of
American Service Bureau, Inc. for any period subsequent to December 31, 1992.
The Company is a member of a group of affiliated companies and, as disclosed
in the financial statements, has certain transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of these transactions are not the same as those that would result from
transactions among wholly unrelated parties.
PRICE WATERHOUSE LLP
BOSTON, MASSACHUSETTS
February 19, 1993, except as to Note 1,
which is as of December 30, 1994
F-14
<PAGE>
AMERICAN SERVICE BUREAU, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash................................................. $ 1,607 $ --
Accounts receivable, less allowance for doubtful
accounts of $514 and $571, respectively............. 11,942 13,259
Prepaid and other assets............................. 1,283 1,879
Deferred tax asset (Note 6).......................... 704 720
----------- -----------
Total current assets............................. 15,536 15,858
Fixed assets, net (Note 3)........................... 1,908 7,654
Intangibles, principally goodwill, net of accumulated
amortization of $3,040 and $3,658, respectively..... 20,071 19,733
----------- -----------
Total current assets............................. $ 37,515 $ 43,245
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accounts payable and accrued expenses (Note 4)....... $ 4,886 $ 6,402
----------- -----------
Total current liabilities........................ 4,886 6,402
Other liabilities (Notes 5 and 6).................... 1,896 732
Payable to affiliated companies (Note 8)............. 16,708 24,530
Commitments and contingencies (Note 9)
Stockholder's equity (Note 1):
Common stock, $5 par value, 1,000 shares
authorized, issued and outstanding................ 5 5
Additional paid-in capital........................... 20,726 20,726
Accumulated deficit.................................. (6,706) (9,150)
----------- -----------
Total stockholder's equity....................... 14,025 11,581
----------- -----------
Total liabilities and stockholder's equity....... $ 37,515 $ 43,245
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
AMERICAN SERVICE BUREAU, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1992 1993 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net revenues from services.......................... $81,910 $85,163 $81,846
Operating costs and expenses:
Direct cost of services........................... 46,653 47,199 46,028
Selling, general and administrative expenses...... 31,783 30,819 34,826
Amortization and depreciation..................... 1,648 1,812 1,604
Merger and integration............................ -- 3,338 --
Restructuring charge.............................. 800 -- --
------- ------- -------
1,026 1,995 (612)
Other (income) expenses:
Interest expense (Note 8)......................... 2,298 2,067 58
Settlement of early retiree medical benefit
obligation (Note 7).............................. (159)
Management and royalty fees (Note 8).............. 2,330 2,098 2,868
------- ------- -------
Loss before income taxes........................ (3,602) (2,170) (3,379)
Income tax benefit (Note 6)......................... 978 557 935
------- ------- -------
Net loss before cumulative effect of changes in
accounting principles............................ (2,624) (1,613) (2,444)
Cumulative effect of changes in accounting
principles:
Early retiree medical benefits, net of tax of
$62,000 (Note 7)................................. -- 114 --
Income taxes (Note 6)............................. -- 138 --
------- ------- -------
Net loss........................................ (2,624) (1,865) (2,444)
Accumulated deficit, beginning of year.............. (2,217) (4,841) (6,706)
------- ------- -------
Accumulated deficit, end of year.................... $(4,841) $(6,706) $(9,150)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
AMERICAN SERVICE BUREAU, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1992 1993 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(2,624) $(1,865) $(2,444)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred income taxes........................... -- (704) (16)
Depreciation and amortization................... 1,648 1,544 1,604
Asset write-downs............................... -- 3,292 --
Provision for uncollectible accounts............ 677 346 546
Changes in assets and liabilities:
Accounts receivable........................... (1,491) (81) (1,863)
Prepaid assets................................ 82 238 (596)
Receivable due from Parent.................... 427 -- --
Accounts payable and accrued expenses......... (731) (607) 1,740
Payable to affiliates......................... 4,549 1,063 918
Other liabilities............................. (340) (660) (1,164)
------- ------- -------
Net cash provided by (used in) operating ac-
tivities................................... 2,197 2,566 (1,275)
------- ------- -------
Cash flows from investing activities:
Investment in fixed assets........................ (1,833) (839) (6,532)
Business acquisitions............................. (281) (730) (704)
------- ------- -------
Net cash used in investing activities....... (2,114) (1,569) (7,236)
------- ------- -------
Cash flows from financing activities:
(Repayment to) advances from the parent company... (105) 595 6,904
------- ------- -------
Net cash (used in) provided by financing ac-
tivities................................... (105) 595 6,904
------- ------- -------
Net (decrease) increase in cash..................... (22) 1,592 (1,607)
Cash, beginning of period........................... 37 15 1,607
------- ------- -------
Cash, end of period................................. $ 15 $ 1,607 $ --
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............ $ 20 $ 13 $ 13
Cash paid during the year for income taxes........ 38 17 38
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
American Service Bureau, Inc., doing business as ASB Meditest ("ASB
Meditest"), is a nationwide provider of paramedical examinations and
investigative services to life and health insurance companies. In addition,
through its Occupational Health Services division, ASB Meditest provides
mobile drug and health screening services to government and industry.
ASB Meditest was formed when Lifetime Corporation ("Lifetime") acquired all
of the outstanding shares of American Service Bureau, Inc. ("ASB") on August
25, 1989 for approximately $24.6 million, and merged ASB's operations with
Meditest ("Meditest"), a division of Kimberly Services, Inc., which was also a
wholly-owned subsidiary of Lifetime.
On July 30, 1993, following approval by the shareholders of both companies,
Lifetime merged into Olsten Corporation ("Olsten").
In connection with the aforementioned event, ASB Meditest recorded a merger
and integration charge of $3.3 million consisting of asset writedowns of $3.0
million and severance of approximately $.3 million as allocated to it by
Olsten. In 1992, ASB Meditest recorded a non-recurring charge of $800,000
related to restructuring its operations. The restructuring plan was part of a
Lifetime consolidated restructuring plan. The $800,000 charge includes
severance costs, marketing research and lease terminations.
The statements include allocations of certain parent company charges which
are material in amount. The aforementioned statements may not necessarily be
indicative of the results of operations had ASB Meditest functioned as a
stand-alone entity. (See Note 8.)
2. SUMMARY OF ACCOUNTING POLICIES:
Cash Equivalents
ASB Meditest considers all investments with original maturities of three
months or less to be cash equivalents.
Fixed Assets
Computer software is stated at cost, less accumulated amortization.
Amortization is provided using the straight-line method over an estimated
useful life of seven years.
Furniture, fixtures and leasehold improvements are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over estimated useful lives of five to seven years, or lease terms, if
shorter.
Maintenance and repairs are charged to expense as incurred; betterments are
capitalized. Upon disposal, the cost and related accumulated depreciation are
removed from the respective accounts and any resulting gain or loss is
included in income.
Goodwill
Goodwill resulting from Lifetime's acquisition of ASB is being amortized
over forty years on a straight-line basis. Goodwill resulting from the
acquisition of several smaller paramedical businesses is being amortized on a
straight-line basis over three to twenty years. The Company periodically
evaluates the realizability of goodwill based upon projected undiscounted cash
flows.
F-18
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Effective January 1, 1993, ASB Meditest adopted the provisions of SFAS No.
109 which changed the method of computing deferred income taxes to a liability
approach. Under the liability method, deferred income taxes are determined
based on temporary differences between the financial statement and tax bases
of assets and liabilities, using enacted tax rates in effect during the years
in which the differences are expected to reverse and on available tax credits
and carryforwards. Prior to January 1, 1993, ASB Meditest accounted for income
taxes in accordance with Accounting Principal Board Opinion No. 11,
"Accounting for Income Taxes" ("APB 11"). APB 11 required that deferred income
taxes be provided for timing differences between financial and income tax
reporting, which include different methods of amortization and the
deductibility of certain expenses in different periods for financial reporting
and income tax purposes.
The provision for income taxes is calculated on a separate company basis in
accordance with the tax sharing agreement between ASB Meditest and its parent
company. The taxable income of ASB Meditest is included in the consolidated
federal income tax returns of the parent company. The parent company allocates
any benefit for net operating losses to ASB Meditest.
During 1992, ASB Meditest settled all current and deferred federal income
tax obligations to the parent company in accordance with the tax sharing
agreement.
3. FIXED ASSETS:
Fixed Assets include (in thousands):
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Furniture, fixtures and equipment............................. $3,221 $7,651
Software...................................................... 279 2,169
Leasehold improvements........................................ 78 289
------ ------
3,578 10,109
Less accumulated depreciation and amortization (including
software amortization of $38,000 and $89,000, respectively).. 1,670 2,455
------ ------
$1,908 $7,654
====== ======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses are comprised of (in thousands):
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Accounts payable.............................................. $1,874 $4,398
Accrued compensation and related taxes........................ 1,683 1,673
Other accruals, including current portion of payables to
special contractors
(Note 5)..................................................... 1,329 331
------ ------
$4,886 $6,402
====== ======
</TABLE>
5. OTHER LIABILITIES:
Since 1986, ASB Meditest has acquired several small paramedical businesses
(special contractors). The long-term liabilities related to these acquisitions
total approximately $342,000 and $103,000 as of December 31, 1993 and 1994,
respectively, and are classified within other liabilities.
F-19
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INCOME TAXES:
As discussed in Note 2, ASB Meditest adopted SFAS 109 in 1993. SFAS 109
requires the recognition of deferred tax assets and liabilities for the future
tax consequences attributable to the differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. The adoption of SFAS 109 resulted in a reduction of goodwill of
$260,000 with a corresponding adjustment to long-term deferred taxes and a
cumulative effect charge of $138,000 at January 1, 1993. As permitted by SFAS
109, the prior years' financial statements were not restated.
Income tax expense (benefit) is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ----- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $(1,314) $ 218 $(1,475)
State............................................ 34 40 40
------- ----- -------
(1,280) 258 (1,435)
------- ----- -------
Deferred:
Federal.......................................... 302 (815) 500
State............................................ -- -- --
------- ----- -------
302 (815) 500
------- ----- -------
Income tax benefit before cumulative effect of
accounting changes................................ $ (978) $(557) $ (935)
======= ===== =======
</TABLE>
Significant components of deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1994
---- -----
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts............................. $180 $ 200
Self-insurance reserve...................................... 90 140
Deferred compensation....................................... 70 122
Provisions deductible for tax purposes in different periods. 364 258
---- -----
704 720
---- -----
Long-term deferred tax liabilities (included in other
liabilities):
Provisions deductible for tax purposes in different periods (63) 12
Capitalized software........................................ (591)
---- -----
(63) (579)
---- -----
Net deferred tax asset.................................... $641 $ 141
==== =====
</TABLE>
A reconciliation of income tax benefit to that computed using the Federal
statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
------- ----- -------
<S> <C> <C> <C>
Statutory Federal income tax benefit............... $(1,225) $(765) $(1,183)
State income taxes, net of Federal benefit......... 22 26 26
Goodwill amortization.............................. 230 290 310
Other.............................................. (5) (108) (88)
------- ----- -------
$ (978) $(557) $ (935)
======= ===== =======
</TABLE>
F-20
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS:
Employee Savings and Protection Plan
ASB Meditest provides a defined contribution plan, the Employee Savings and
Protection Plan (the "Plan"), for all full-time salaried employees. Currently,
subject to the limitations of the Internal Revenue Code, each eligible
employee can contribute from 1% to 18% of compensation to the Plan. For the
Plan years ended December 31, 1992 and 1993, eligible employees could
contribute from 1% to 23% of compensation to the Plan. ASB Meditest matches
25% of the first 6% of an employee's annual compensation. In 1992, 1993 and
1994, ASB Meditest made contributions of $45,000, $66,000 and $63,000,
respectively.
Executive Voluntary Deferred Compensation Plan
Effective January 1, 1992, ASB Meditest established a non-qualified defined
contribution plan. Under the provisions of the Executive Voluntary Deferred
Compensation Plan (the "Executive Plan"), officers of ASB Meditest are
immediately eligible to contribute up to 23% of their annual salary. For the
Plan years ended December 31, 1993 and 1992, officers were required to have
one year of service prior to eligibility. ASB Meditest matches 25% of the
first 6% of contributions. Benefits under the Executive Plan are to be paid
from the general funds of ASB Meditest. Pension expense related to the
Executive Plan totaled approximately $16,000, $17,000 and $53,000 in 1992,
1993 and 1994, respectively.
Supplemental Retirement Benefits
In connection with the retirement of two officers in 1979, ASB Meditest
agreed to provide aggregate monthly payments of $1,175 for the remainder of
the former officers' lives. The long-term portion of this liability amounted
to approximately $63,000 and $49,000 at December 31, 1993 and 1994,
respectively, and is classified within other liabilities.
Postretirement Benefits
Under ASB Meditest's employment policy, ASB Meditest provided certain
medical benefits until the age of 65 to certain early retirees. Effective
January 1, 1993, ASB Meditest adopted Statement of Financial Accounting
Standards No. 106, "Employers Accounting For Postretirement Benefits Other
Than Pensions." In applying this pronouncement, ASB Meditest immediately
recognized an accumulated postretirement benefit obligation of approximately
$114,000 on an after-tax basis. Also, effective February 1, 1993, ASB Meditest
amended the policy to eliminate such benefits for future retirees. ASB
Meditest's previous practice was to recognize these costs as benefits were
paid.
In November 1994, ASB Meditest elected to terminate the benefits, effective
February 1995. Accordingly, ASB Meditest recognized a pre-tax settlement gain
of approximately $159,000.
Vacation Policy
In 1992, ASB Meditest's vacation policy was changed to require that vacation
be used within the calendar year in which it is earned. This change in policy
decreased operating costs and expenses by approximately $300,000.
F-21
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTIES:
The payable to affiliated companies comprises the following (in thousands):
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Working capital advances and accumulated charges from the
parent company........................................... $15,466 $23,200
Payable to Olsten Kimberly Quality Care, a subsidiary of
the parent company....................................... 954 997
Receivable from Quality Managed Care, a subsidiary of the
parent company........................................... (32) (183)
Payable to Olsten Service Corp., a subsidiary of the
parent company........................................... 320 516
------- -------
$16,708 $24,530
======= =======
</TABLE>
ASB Meditest and its affiliates do not have formal agreements regarding the
scheduled repayment of intercompany balances. However, it is the intention of
ASB Meditest and its affiliates that the intercompany balances will not be
settled in the near term. With the exception of the $21 million advance
related to the acquisition of ASB, Lifetime and its affiliates did not assess
any interest charges on ASB Meditest. Interest charges related to the $21
million advance were approximately $2.3 million and $2.0 million in 1992 and
1993, respectively. The aforementioned debt was prepaid by Olsten in the
latter half of 1993.
The parent company provides administrative and operational support to ASB
Meditest for which a management fee is charged. Management fees totaled
approximately $1.1 million in 1992, and $830,000 in 1993 and 1994.
ASB Meditest uses various trademarks in its operations, including "ASB
Meditest" and "Meditest" both of which are owned by Olsten Service Corp., a
wholly-owned subsidiary of the parent company. Royalties related to the use of
these trademarks were $1.2 million, $1.3 million, and $2 million in 1992, 1993
and 1994, respectively.
9. COMMITMENTS AND CONTINGENCIES:
ASB Meditest has entered into various employment agreements with certain
officers and key employees which expire at varying dates through 1997. ASB
Meditest's obligations under these agreements are approximately $559,000 in
1995, $147,000 in 1996 and $80,000 in 1997.
ASB Meditest leases its offices and certain equipment under noncancelable
operating leases which expire through 2000. Most of the office leases provide
for additional payments based on increased operating costs of the lessor and
escalation clauses. Rent expense charged to operations relating to these
leases for the years ended December 31, 1992, 1993 and 1994 was $2.5 million,
$3.1 million and $3.3 million, respectively. Future minimum rental payments
required under these operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year Ended December 31,
1995........................................................ $2,843
1996........................................................ 1,896
1997........................................................ 891
1998........................................................ 478
1999........................................................ 251
Thereafter.................................................. 20
</TABLE>
ASB Meditest is subject to lawsuits arising in the normal course of
business. In the opinion of management, the outcome of these matters will not
have a material adverse effect on the Company's financial position or results
of operations.
F-22
<PAGE>
AMERICAN SERVICE BUREAU, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
At the time of the acquisition by Lifetime in 1989, ASB Meditest was a party
to a lawsuit brought by the U.S. Government. One of ASB Meditest's
subsidiaries, Bodimetric Health Services, Inc. (BHSI) (dormant at the time of
the acquisition), previously provided home health services from 1980 through
1986 and sought reimbursement for those services from the Medicare program.
The government alleged that the amount of reimbursement received by BHSI was
in excess of the amount to which it was entitled. As the claim was known at
the time of the acquisition a reserve of approximately $537,000 was provided
for at the purchase date in 1989. In April 1993, the Government and ASB
Meditest settled the lawsuit, the terms of which required ASB Meditest to pay
$203,000 as full satisfaction of the U.S. Government's claim. This settlement
and the $334,000 of income generated as a result of reversing the excess
reserve, were recorded in 1993.
10. CONCENTRATION OF CREDIT RISK:
ASB Meditest derives in excess of 89% of its revenues from providing
paramedical and investigative services to health and life insurance companies.
Although ASB Meditest is directly affected by the well-being of the life and
health insurance industry, management does not believe significant credit risk
exists at December 31, 1994.
F-23
<PAGE>
AMERICAN SERVICE BUREAU, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
1994 Compared to 1993
Total revenues for 1994 declined to $81.8 million from $85.2 million for
1993. This 4.0% decrease results primarily from the examination business.
Revenues for the exam business reached $72.8 million in 1994, a decrease of
$5.4 million from 1993. The decrease in the exam business was attributable to
the cancellation of two contractor agreements and a decrease in exams
performed for Prudential Insurance Company. The two contractors were
terminated due to quality issues and resulted in a decrease in revenue of $1.9
million. During 1994 the Prudential Insurance Company issued fewer life
insurance policies resulting in a decrease of $1.9 million of exam business.
This decrease in exam business was offset by an increase of $2.1 million in
occupational health services, primarily attributable to market share gains in
wellness programs and immunization clinics.
ASB Meditest's cost of operations in 1994 decreased 2.5% to $46.0 million
from $47.2 million for 1993. The increase of occupational health services as a
percentage of total revenues, from 8% to 11% caused this less than
proportional decrease in cost of operations. Additionally, pricing pressures
in both the examination and occupational health areas explains the slightly
higher percentage increase in cost of operations than in revenues.
Selling, general and administrative (SG&A) expenses and depreciation and
amortization increased to $36.4 million from $32.6 million in 1993. During
1994 ASB Meditest began a complete overhaul of its operating and computer
system. The cost of implementing the new operating system was approximately
$1.4 million. In addition, ASB Meditest began a conversion from its existing
outdated service bureau to a state-of-the-art client service network. The cost
of the MIS conversion was $1.2 million.
ASB Meditest reported an operating loss for 1994 of $.6 million, as compared
to an operating income of $2.0 million for 1993. The increase in SG&A with a
decline in revenue resulted in this operating income decline. The net loss of
$2.4 million in 1994, was up from a $1.9 million net loss for 1993. Most of
the net loss increase from 1993 resulted from the revenue loss.
Liquidity and Financial Resources
ASB Meditest's historical primary sources of cash are internally generated
funds and ASB Meditest's parent, Olsten Corporation.
For 1994 and the first quarter of 1995, Olsten provided $9.6 million, and
$7.9 million of the funds were used for one-time projects that have been
completed. Accordingly, management presently does not anticipate the need for
any significant amounts of cash infusion from external sources.
Cash used in operating activities was $1.3 million during 1994. This use of
cash was the net result of an operating loss and an increase in accounts
receivable being offset by an increase in accounts payable and accrued
expenses.
The operating loss was the result of a decrease in revenue and an increase
in SG&A expenses. These charges are discussed in the results of operations
section of the management discussion and analysis. The company believes that
the investments made in 1994 will increase revenue in 1995. In addition, upon
completion of the MIS conversion, SG&E expenses will decrease.
ASB Meditest's accounts receivable balance increased during 1994. Due to the
receivable increase, ASB Meditest experienced a negative cash flow of $1.9
million. The receivables increase was due to the increase in occupational
health services revenue and an increase in the days sales outstanding for the
exam business. The occupational health services product line increased from 8%
to 11% of the Company's total revenues in 1995. OHS revenue historically has a
larger days sales outstanding and has some late fall seasonality.
F-24
<PAGE>
The exam business has had an increase in days sales outstanding. This is
related to customers delaying the timing of their payments. None of the delays
in payments are related to uncollectible receivables.
Accounts payable and accrued expenses increased $1.7 million during 1994.
The increase was attributable to 1994 hardware and software purchases which
were paid in 1995.
Cash used in investing activities was $7.2 million during 1994. During 1994,
ASB Meditest began a complete conversion of their MIS capabilities and on
January 1, 1995 launched a new breath alcohol product line. These two
initiatives resulted in hardware and software purchases totaling $5.8 million.
Cash provided by financing activities was $6.9 million during 1994. All of
the financing proceeds were advances from Olsten.
1993 Compared to 1992
Total revenues for 1993 increased to $85.2 million from $81.9 million for
1992. This 4.0% increase results from both examination and occupational health
segments.
Examination service revenues reached $78.3 million in 1993, an increase of
$1.7 million. The increase was throughout all examination product lines and in
keeping with the growth of the exam market.
Occupational health services produced revenues of $6.9 million, an increase
of nearly 33% from $5.3 million in 1992. The increase was the result of market
share gains in all product lines.
ASB Meditest's cost of operations in 1993 increased 1.2% to $47.2 million
from $46.7 million for 1992. During 1993 ASB Meditest focused on growing its
higher margin services which resulted in a lower direct cost percentage.
Selling, general and administrative (SG&A) expenses and depreciation and
amortization decreased to $32.6 million from $33.4 million. The decrease was
the result of strong cost controls implemented during 1993.
ASB Meditest reported an operating income of $2.0 million as compared to
$1.0 million for 1992. The increase in revenue and the decrease in SG&A was
offset by merger and integration costs related to the acquisition of ASB
Meditest's parent company by Olsten Corporation.
Liquidity and Financial Resources
ASB Meditest's historical primary sources of cash are internally generated
funds and its parents, Olsten Corporation and Lifetime Corporation. The 1993
net loss was the result of a non-cash write down of certain assets as a result
of the merger of Lifetime and Olsten. Therefore, the operating activities
increased the cash flow of ASB Meditest by $2.6 million.
F-25
<PAGE>
EXHIBIT A
AGREEMENT OF ACQUISITION
BY AND AMONG
OLSTEN CORPORATION
HOOPER HOLMES, INC.
AND
HOOPER HOLMES HEALTH CARE, INC.
MAY 26, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
AGREEMENT OF ACQUISITION................................................. A-1
1. PURCHASE AND SALE OF NHC BUSINESS AND NHC ASSETS.................... A-1
1.01 NHC Assets Transferred......................................... A-1
1.02 Excluded NHC Assets............................................ A-2
1.03 Specified Liabilities.......................................... A-2
1.04 Licenses....................................................... A-2
2. PURCHASE AND SALE OF ASB............................................ A-3
2.01 ASB Shares Transferred......................................... A-3
3. CONSIDERATION; ADJUSTMENTS TO CONSIDERATION; PAYMENT OF
CONSIDERATION...................................................... A-3
3.01 Consideration.................................................. A-3
3.02 Prorations of Certain Expenses................................. A-3
3.03 Adjustments to Cash Price...................................... A-3
3.04 Allocation of Purchase Price................................... A-5
4. CLOSING............................................................. A-5
4.01 Time and Place................................................. A-5
4.02 Transfer of NHC Assets and ASB Shares.......................... A-5
4.03 Employment and Contractor Arrangements......................... A-5
4.04 Sales Taxes on Transfer........................................ A-6
4.05 Delivery of Instruments........................................ A-6
5. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF HH AND HHHC........... A-6
5.01 Organization, Standing and Qualification....................... A-6
5.02 Authority...................................................... A-6
5.03 Subsidiaries................................................... A-6
5.04 Title, Condition and Scope of NHC Assets; Receivables.......... A-6
5.05 No Violation................................................... A-7
5.06 Governmental Consents.......................................... A-7
5.07 Financial Statements........................................... A-7
5.08 Absence of Material Adverse Change............................. A-8
5.09 Litigation; Investigations..................................... A-8
5.10 Compliance..................................................... A-9
5.11 Environmental Compliance....................................... A-9
5.12 Certain Contracts and Property Rights.......................... A-10
5.13 Licenses, Permits and Authorizations........................... A-11
5.14 Employee and Independent Contractors........................... A-11
5.15 Employee Benefit Plans......................................... A-11
5.16 Labor Matters.................................................. A-12
5.17 Intangible Rights.............................................. A-12
5.18 Real Estate and Improvements................................... A-13
5.19 Insurance, Unemployment and Worker's Compensation.............. A-13
5.20 Taxes.......................................................... A-13
5.21 Conflicts of Interests......................................... A-13
5.22 No Other Agreements............................................ A-14
5.23 Relationships.................................................. A-14
5.24 Medicare Participation/Accreditation........................... A-14
5.25 Certain Payments............................................... A-14
5.26 Purchase for Investment........................................ A-15
5.27 No Misrepresentations.......................................... A-15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF OLSTEN............. A-15
6.01 Organization, Standing and Qualification.................... A-15
6.02 Authority................................................... A-15
6.03 The ASB Shares; ASB Subsidiaries............................ A-15
6.04 Title, Condition and Scope of ASB's Assets; Receivables..... A-16
6.05 No Violation................................................ A-16
6.06 Governmental Consents....................................... A-16
6.07 Financial Statements........................................ A-16
6.08 Absence of Material Adverse Change.......................... A-17
6.09 Litigation; Investigations.................................. A-17
6.10 Compliance.................................................. A-17
6.11 Environmental Compliance.................................... A-18
6.12 Certain Contracts and Property Rights....................... A-18
6.13 Licenses, Permits and Authorizations........................ A-19
6.14 Employee and Independent Contractors........................ A-19
6.15 Employee Benefit Plans...................................... A-19
6.16 Labor Matters............................................... A-19
6.17 Intangible Rights........................................... A-20
6.18 Real Estate and Improvements................................ A-20
6.19 Insurance, Unemployment and Worker's Compensation........... A-20
6.20 Taxes....................................................... A-21
6.21 Conflicts of Interests...................................... A-21
6.22 No Other Agreements......................................... A-21
6.23 Relationships............................................... A-21
6.24 Certain Payments............................................ A-21
6.25 No Misrepresentations....................................... A-21
7. COVENANTS OF SELLER.............................................. A-21
7.01 Conduct of Subject Business................................. A-22
7.02 Cooperation................................................. A-22
7.03 Certain Acts................................................ A-22
7.04 Access and Information...................................... A-22
7.05 Repair and Casualty......................................... A-22
7.06 Obligation to Maintain Insurance............................ A-23
7.07 Employees................................................... A-23
7.08 HSR Act Filing.............................................. A-23
7.09 Acquisition Proposals....................................... A-24
7.10 Transition Services......................................... A-24
7.11 Franchisees, Licensees, Joint Ventures and Other Third
Parties.................................................... A-24
7.12 Medicare Cost Reports....................................... A-24
7.13 HH Proxy Statement and Shareholders Meeting................. A-24
7.14 Pre-Closing Financial Statements............................ A-24
7.15 Amendments to Schedules..................................... A-25
7.16 HH Stockholder Rights Plan.................................. A-25
7.17 Investigations.............................................. A-25
7.18 Certain Tax Returns of ASB.................................. A-26
7.19 Certain ASB Employment Matters.............................. A-26
7.20 ASB Intercompany Obligations................................ A-27
7.21 Certain Assets and Liabilities.............................. A-27
8. COVENANTS OF BUYER............................................... A-27
8.01 Cooperation................................................. A-27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.02 Certain Acts.................................................... A-27
8.03 HSR Act Filing.................................................. A-27
9. CONDITIONS TO OBLIGATIONS............................................ A-27
9.01 Representations and Warranties True; Conditions Satisfied....... A-27
9.02 Litigation...................................................... A-28
9.03 Permits and Licenses............................................ A-28
9.04 No Material Adverse Changes..................................... A-28
9.05 Expiration of HSR Act Waiting Period............................ A-28
9.06 Liens........................................................... A-28
9.07 Stockholder Approval............................................ A-28
10. [INTENTIONALLY LEFT BLANK]........................................... A-28
11. COVENANTS NOT TO COMPETE AND NOT TO DISPARAGE........................ A-28
11.01 Terms of Covenants............................................. A-28
11.02 Consideration.................................................. A-29
11.03 Remedies; Curtailment.......................................... A-29
11.04 Limited License to Use Tradename, Service Marks and Logos...... A-29
12. INDEMNIFICATION...................................................... A-29
12.01 Olsten's Right to Indemnification.............................. A-29
12.02 HH's Right to Indemnification.................................. A-30
12.03 Notice......................................................... A-30
12.04 Third-Party Claims............................................. A-31
13. TERMINATION.......................................................... A-31
13.01 Events of Termination.......................................... A-31
13.02 Limitation on Right to Terminate............................... A-32
13.03 Rights Upon Termination........................................ A-32
14. MISCELLANEOUS........................................................ A-32
14.01 Notices........................................................ A-32
14.02 [Intentionally Omitted]........................................ A-33
14.03 Survival....................................................... A-33
14.04 Further Assurances............................................. A-33
14.05 Publicity...................................................... A-33
14.06 Fees and Expenses.............................................. A-33
14.07 Brokers........................................................ A-34
14.08 Counterparts................................................... A-34
14.09 Agreement Binding; Assignment; No Third Party Beneficiaries.... A-34
14.10 Entire Agreement............................................... A-34
14.11 Schedules...................................................... A-34
14.12 Governing Law.................................................. A-35
14.13 Severability................................................... A-35
14.14 Definition of Knowledge........................................ A-35
14.15 Arbitration.................................................... A-35
14.16 Continuing Obligations of Olsten and Hooper.................... A-35
</TABLE>
iii
<PAGE>
AGREEMENT OF ACQUISITION
AGREEMENT OF ACQUISITION (this "Agreement") made and entered into as of the
---------
26th day of May, 1995, by and among OLSTEN CORPORATION, a Delaware corporation
("Olsten"), HOOPER HOLMES, INC., a New York corporation ("HH") and HOOPER
------ --
HOLMES HEALTH CARE, INC., a New Jersey corporation ("HHHC" and together with
----
HH, "Hooper").
------
WITNESSETH:
WHEREAS, HH, through its Nurses House Call Division ("NHC") and through
HHHC, its wholly owned subsidiary, is engaged in providing (a) comprehensive
home health care services, including, without limitation, skilled and
unskilled home health care services, pharmaceutical and ancillary services and
products; (b) private duty nursing services in institutional settings; and (c)
supplemental staffing services to or on behalf of health care facilities,
providers and payors; and operates certain pharmacy operations (all of the
foregoing, whether conducted by HH or HHHC, collectively, the "NHC Business");
------------
WHEREAS, HH and HHHC each desire to sell, transfer and assign to Olsten and
Olsten desires to purchase from HH and HHHC substantially all of HH's and
HHHC's respective assets and properties principally relating to the NHC
Business as a going concern, and Olsten is willing to assume the Specified
Liabilities (as defined in Section 1.03 hereof), for the consideration and
upon the terms and conditions hereinafter set forth;
WHEREAS, Olsten owns all of the issued and outstanding capital stock ("ASB
---
Shares") of American Service Bureau, Inc. ("ASB"), an Illinois corporation
- ------ ---
engaged in the business of providing paramedical examinations and related
services to the life and health insurance industries; and
WHEREAS, Olsten desires to sell, transfer and assign to HH and HH desires to
purchase from Olsten, the ASB Shares, upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants, agreements, representations and warranties contained herein, the
parties hereto agree as follows:
1. PURCHASE AND SALE OF NHC BUSINESS AND NHC ASSETS.
1.01 NHC Assets Transferred. Subject to the terms and conditions of this
Agreement, HH and HHHC each agree to sell, convey, transfer, assign, and
deliver to Olsten, and Olsten agrees to purchase or acquire from HH or HHHC,
as the case may be, at the Effective Time (as such term is defined in Section
4.01 hereof), the properties, assets, and rights of every nature, kind, and
description, tangible and intangible (including goodwill), whether real,
personal, or mixed, whether accrued, contingent, or otherwise and whether now
existing or hereinafter acquired prior to the Closing (other than the Excluded
NHC Assets, as defined below) (x) principally relating to or (y) used or held
for use by HH, HHHC or any of their Affiliates in connection with and
reasonably necessary for the operation of the NHC Business, as the same may
exist on the Closing Date (collectively, the "NHC Assets"), including, without
----------
limitation, all those items in the following categories that conform to the
definition of "NHC Assets":
(a) all improvements, fixtures, furniture, equipment, software, vehicles,
materials, office and other usable supplies, and similar operating property
at the NHC Branches (as defined below); and selected assets in the HH home
office as set forth on Schedule 1.01(a) hereof;
-------------
(b) except for those referred to on Schedule 1.03(b) hereto, all rights
of Hooper under all contracts, arrangements, and agreements, including,
without limitation, those set forth on Schedule 5.12 hereof;
-------------
(c) goodwill, fictitious names, and non-competition covenants running in
favor of Hooper, including, without limitation, those set forth on Schedule
--------
1.01(c) hereof;
-------
(d) sales data, client lists and records, referral lists and records,
advertising matter, price lists, correspondence, mailing lists,
distribution lists, sales and promotional materials and records, personnel
A-1
<PAGE>
records, and all of the medical and administrative libraries, documents,
catalogs, files, books and records of Hooper;
(e) all leases and leasehold rights, including all security deposits and
prepaid rents thereunder, and all easements and uses which benefit such
property, all as set forth on Schedule 5.12(b) hereof (the premises covered
----------------
by such leases are sometimes hereinafter referred to as an "NHC Branch" or
----------
collectively as the "NHC Branches");
------------
(f) to the extent their transfer is permitted by law and is requested by
Olsten prior to the Closing Date, any or all Medicare, Medicaid, and other
provider numbers (including, without limitation, any and all waivers of any
requirements pertaining to such provider numbers) (collectively, "Provider
--------
Numbers") and, to the extent their transfer is permitted by law, all
-------
certificates of need and other governmental licenses, permits,
authorizations, approvals, license applications, and certifications
necessary to operate and conduct the NHC Business (including, without
limitation, any and all waivers of any requirements pertaining to such
certificates of need, licenses, permits, authorizations, and certificates);
(g) Hooper's telephone numbers utilized in the NHC Branches;
(h) inventory consisting of pharmaceutical, pharmacy supplies and medical
equipment and supplies to patients, wherever located;
(i) trademarks, servicemarks, trade names, brand names, logos,
copyrights, inventions and trade secrets, and interest thereunder and
applications therefor, including those described on Schedule 1.01(i);
----------------
(j) notes and accounts receivable, prepaid insurance and other prepaid
expenses; and
(k) original medical records for current patients on the Closing Date.
The NHC Assets shall be conveyed free and clear of all liabilities, liens,
and encumbrances, excepting only "Specified Liabilities" (as defined in
Section 1.03).
As used in this Agreement, the term "Affiliate" means, as to the respective
---------
entity, any person or entity that directly or indirectly controls, is
controlled by, or is under common control with, the entity in question; and
the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of an entity
whether through ownership of voting securities, by contract or otherwise. The
term "Affiliate" shall not include employees of any entity, other than
supervisory, managerial and executive employees of such entity.
1.02 Excluded NHC Assets. Schedule 1.02(a) contains a list of those assets
----------------
which are included within the definition of NHC Assets, but which HH or HHHC
will retain and not transfer and which Olsten will not purchase or acquire
(the "Excluded NHC Assets").
-------------------
1.03 Specified Liabilities. In connection with the purchase and sale of the
NHC Assets, Olsten shall assume only those liabilities and obligations of HH
or HHHC set forth in subsection (a) on Schedule 1.03 hereto (the "Specified
------------- ---------
Liabilities") and no other debts, liabilities, or obligations of HH or HHHC
- -----------
whatsoever. Except for the Specified Liabilities, HH and HHHC shall pay all of
their respective debts, obligations, and liabilities which are in any way
related to the NHC Assets or the NHC Business on or before the respective due
dates thereof. After the Closing Date, Olsten shall pay the Specified
Liabilities on or before the respective due dates thereof.
1.04 Licenses. At Olsten's option, in addition to the above-referenced NHC
Assets, at the Closing, HH, HHHC and Olsten will enter into an agreement (the
"License Pending Management Services Agreements") pursuant to which, to the
extent necessary to comply with applicable laws and regulations, Olsten shall
receive that benefit of, and shall indemnify HH and HHHC as appropriate in
connection with, any operations with respect to which, as of the Closing Date,
Olsten shall not have received any required governmental approvals or licenses
necessary for Olsten to operate any part of the NHC Business. Such agreement
shall remain in effect until the earlier of (x) the first anniversary of the
Closing Date or (y) such time as Olsten has obtained such approvals and
A-2
<PAGE>
licenses. The License Pending Management Services Agreement shall be in such
form and have such terms as Olsten, HH and HHHC shall agree upon in good
faith.
2. PURCHASE AND SALE OF ASB
2.01 ASB Shares Transferred. Subject to the terms and conditions of this
Agreement, Olsten agrees to sell, convey, transfer, assign and deliver to HH,
and HH agrees to purchase and acquire from Olsten, at the Effective Time, the
ASB Shares.
3. CONSIDERATION; ADJUSTMENTS TO CONSIDERATION; PAYMENT OF CONSIDERATION.
3.01 Consideration. In full consideration (the "Consideration") of the
-------------
purchase of the NHC Assets, Olsten shall, at the Closing:
(a) deliver to HH, on behalf of both HH and HHHC to be allocated between
them as they determine (subject to Section 3.4 hereof), an aggregate amount
of Thirty-Four Million Five Hundred Thousand Dollars ($34,500,000) ("Cash
----
Purchase Price"), adjusted by the Closing Date Adjustment (as defined in
--------------
Section 3.03(a) below); provided, however, that Fifteen Million Dollars
($15,000,000) of the Cash Purchase Price will be deposited into an escrow
account established by the parties hereto pursuant to the terms of the
Escrow Agreement (as defined in Section 4.05(c) hereto); and
(b) deliver to HH (i) certificates representing the ASB Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, and (ii)
the minutes books and other corporate records of ASB.
3.02 Prorations of Certain Expenses. Within 60 days after the Effective
Time, Olsten and HH will prorate as of the Closing Date and determine the
amount due to each for prepaid rent, utilities, taxes and similar items.
Olsten or HH, as the case may be, shall immediately pay all sums due the other
party for the total due for such prorations of expenses.
3.03 Adjustments to Cash Purchase Price.
(a) Closing Date Adjustment. At the Closing, the Cash Purchase Price shall
be adjusted: (i)(x) upward by the amount by which the NHC Preliminary Net
Asset Amount (as hereinafter defined) reflected on the most recent NHC Pre-
Closing Balance Sheet (as defined in Section 7.14 hereof) available as of the
Closing Date exceeds $75,125,000 or (y) downward by the amount by which the
NHC Preliminary Net Asset Amount reflected on such NHC Pre-Closing Balance
Sheet is less than $75,125,000; and (ii) upward by the amount by which the ASB
Preliminary Net Asset Amount (as hereinafter defined) reflected on the most
recent ASB Pre-Closing Balance Sheet (as defined in Section 7.14 hereof)
available as of the Closing Date is less than $35,649,000 or (y) downward by
the amount by which the ASB Preliminary Net Asset Amount reflected on such ASB
Pre-Closing Balance Sheet is greater than $35,649,000. The net amount of the
foregoing adjustments is referred to herein as the "Closing Date Adjustment."
The "NHC Preliminary Net Asset Amount" shall be an amount equal to the net
--------------------------------
assets of the NHC Business as of the date of the NHC Pre-Closing Balance Sheet
used for the purpose of making such computation computed in the same manner as
the NHC Net Asset Amount (as hereinafter defined) shall be computed in
accordance with Section 3.03(c) below. The "ASB Preliminary Net Asset Amount"
--------------------------------
shall be an amount equal to the net assets of ASB as of the date of the ASB
Pre-Closing Balance Sheet used for the purpose of making such computation
computed in the same manner as the ASB Net Asset Amount (as hereinafter
defined) shall be computed in accordance with Section 3.03(c) below. At the
Closing, HH and Olsten shall each execute and deliver a written acknowledgment
of the amount of NHC Preliminary Net Asset Amount and the ASB Preliminary Net
Asset Amount.
(b) Closing Statements. As promptly as practicable after the Closing Date,
but in any event not later than 60 days following Closing, (i) HH will deliver
to Olsten a statement (the "NHC Closing Statement") setting forth the amount
---------------------
of net assets of the NHC Business ("NHC Net Asset Amount") computed in
--------------------
accordance with
A-3
<PAGE>
subsection (c) of this Section; and (ii) Olsten will deliver to HH a statement
(the "ASB Closing Statement") setting forth the amount of net assets of ASB
("ASB Net Asset Amount") computed in accordance with subsection (c) of this
--------------------
Section.
(c) Net Asset Amounts. The NHC Net Asset Amount and the ASB Net Asset Amount
shall be the amounts for (i) the NHC Business and (ii) for ASB, respectively,
equal to their respective (x) total assets (defined as accounts receivable net
of allowance for doubtful accounts, plus other current assets, plus property,
plant and equipment net of depreciation, plus intangibles net of amortization,
plus other assets) minus (y) total current liabilities (defined as normal
trade accounts payable, plus accrued compensation, plus accrued or withheld
payroll and related taxes, plus other miscellaneous current liabilities
incurred in the normal course of business), all as of the Closing Date, and
(except as set forth in Schedule 3.03(c)) calculated in accordance with
----------------
generally accepted accounting principles and prepared on a consistent basis
with the November 30, 1994 NHC Unaudited Balance Sheets or the December 31,
1994 ASB Unaudited Balance Sheet, as the case may be.
(d) Notice of Disagreements. If Olsten disagrees with HH's calculation of
NHC Net Asset Amount or HH disagrees with Olsten's calculation of ASB Net
Asset Amount (the "Disagreeing Party"), it may, within 20 days after delivery
-----------------
of the documents referred to in Section 3.03(b), deliver a notice to the other
party disagreeing with such calculation and setting forth the Disagreeing
Party's calculation of such amount. Any such notice of disagreement shall
specify those items or amounts as to which the Disagreeing Party disagrees and
the Disagreeing Party shall be deemed to have agreed with all other items and
amounts contained in the respective Closing Statement and the calculation of
NHC Net Asset Amount or ASB Net Asset Amount, as the case may be.
(e) Settling Disagreements. If a notice of disagreement shall be duly
delivered pursuant to Section 3.03(d), the parties shall, during the 15 days
following such delivery, use their best efforts to reach agreement on the
disputed items or amounts in order to determine, as may be required, the
amount of NHC Net Asset Amount or ASB Net Asset Amount, as the case may be,
which amount shall not be less than the amount thereof shown in the
calculation delivered pursuant to Section 3.03(b) nor more than the amount
thereof shown in the calculation delivered pursuant to Section 3.03(d). If,
during such period, the parties are unable to reach such agreement, they shall
promptly thereafter cause Arthur Anderson & Co. or other independent
accountants of nationally recognized standing reasonably satisfactory to both
parties (who shall not have any material relationship with either party),
promptly to review this Agreement and the disputed items or amounts for the
purpose of calculating the NHC Net Asset Amount or ASB Net Asset Amount, as
the case may be. In making such calculation, such independent accountants
shall consider only those items or amounts in the respective Closing Statement
or the calculation of NHC Net Asset Amount or ASB Net Asset Amount, as the
case may be, as to which the Disagreeing Party has disagreed. Such independent
accountants shall deliver to HH and Olsten, as promptly as practicable, a
report setting forth such calculation. Such report shall be final and binding
upon the parties hereto. The cost of such review and report shall be borne
equally by HH and Olsten.
(f) Cooperation. The parties hereto agree that they will, and HH will cause
ASB to, cooperate and assist in the preparation of, the respective Closing
Statements and the calculation of the NHC Net Asset Amount and the ASB Net
Asset Amount, as the case may be, and in the conduct of the reviews
contemplated in this Section 3.03, including without limitation the making
available to the extent necessary of books, records, work papers and
personnel.
(g) Payment. (i) Within ten days after determination of the NHC Net Asset
Amount by notice pursuant to Section 3.03(b) without objection as provided in
Section 3.03(d), or by written agreement between HH and Olsten or action of
the accountant as provided in Section 3.03(e), an adjusting payment or
payments shall be made in accordance with this Section. If the NHC Net Asset
Amount is less than the NHC Preliminary Net Asset Amount, then HH shall pay to
Olsten in cash an amount equal to the amount by which the NHC Preliminary Net
Asset Amount exceeds the NHC Net Asset Amount. If the NHC Net Asset Amount is
more than the NHC Preliminary Net Asset Amount, then Olsten shall pay to HH in
cash an amount equal to the amount by which the NHC Net Asset Amount exceeds
the NHC Preliminary Net Asset Amount.
A-4
<PAGE>
(ii) Within ten days after determination of the ASB Net Asset Amount by
notice pursuant to Section 3.03(b) without objection as provided in Section
3.03(d), or by written agreement between HH and Olsten or action of the
accountant as provided in Section 3.03(e), an adjusting payment or payments
shall be made in accordance with this Section. If the ASB Net Asset Amount is
less than the ASB Preliminary Net Asset Amount, then Olsten shall pay to HH in
cash an amount equal to the amount by which the ASB Preliminary Net Asset
Amount exceeds the ASB Net Asset Amount. If the ASB Net Asset Amount is more
than the ASB Preliminary Net Asset Amount, then HH shall pay to Olsten in cash
an amount equal to the amount by which the ASB Net Asset Amount exceeds the
ASB Preliminary Net Asset Amount.
(iii) Notwithstanding the foregoing, in the event that the amounts, if any,
payable pursuant to clauses (i) and (ii) above are determined at the same
time, all amounts payable by Olsten pursuant to clauses (i) and (ii) above, if
any, on the one hand, and all amounts payable by HH to Olsten pursuant to
clauses (i) and (ii) above, if any, on the other hand, shall be netted against
one another, and either HH or Olsten, as the case may be, shall make a single
payment to the other party. If any such payment exceeds $10,000, interest
shall be paid on the excess over $10,000 for the period from the date of the
Closing to and until the date such payment is made, at the rate of one percent
in excess of the prime rate of the Chase Manhattan Bank, N.A. in New York, New
York.
3.04 Allocation of Purchase Price. HH, HHHC and Olsten agree to allocate the
consideration in a manner mutually agreed to by Olsten and HH following the
Closing Date. HH, HHHC and Olsten will report such allocations to all taxing
authorities that require any of them to report such allocations.
4. CLOSING.
4.01 Time and Place. The closing of the transactions under this Agreement
(the "Closing") shall take place at 10:00 a.m. local time on a date to be
-------
specified by the parties, which shall be no later than the second business day
after the latest to occur of the conditions set forth in Article 9 having been
fulfilled or waived in accordance with this Agreement or on such other date
agreed upon in writing by HH and Olsten (the "Closing Date") at the offices of
------------
Olsten or its counsel, as Olsten shall determine. Notwithstanding the Closing
Date, the effective time for the transfer of NHC Assets and ASB Shares and the
other transactions described herein shall be at 11:59 p.m. on the Closing Date
(the "Effective Time").
--------------
4.02 Transfer of NHC Assets and ASB Shares. At the Closing, HH and HHHC
shall deliver to Olsten the HH Documents (as such term is defined in Section
4.05(a) hereof), including, without limitation, the transfer documents with
respect to the NHC Assets, and Olsten shall deliver to HH the Olsten Documents
(as such term is defined in Section 4.05(b) hereof). At and after the Closing,
and without further consideration, Hooper and Olsten shall execute and deliver
to the other party such further instruments as such other party may reasonably
request in order to more effectively transfer to such other party title to and
possession of the NHC Assets or the ASB Shares, as the case may be, and all
rights with respect thereto.
4.03 Employment and Contractor Arrangements. Olsten shall offer employment
to all NHC Branch level employees as well as all of the NHC Branch active
assignment employees on such terms and conditions as Olsten, in its sole
discretion, determines is reasonable. Olsten also shall be entitled to offer
employment, as of the Closing Date, to any one or more of Hooper's other
employees, agents, and contractors utilized in the NHC Business (other than
the employees, agents or contractors of HH's Portamedic Division, clerical
employees located in HH's corporate offices or other employees located at HH's
corporate offices whose services are not reasonably necessary for the
operation of the NHC Business as currently conducted), upon such terms and
conditions as are acceptable to Olsten; provided, however, that Olsten shall:
(i) provide HH with written notice in the event Olsten offers employment to
any such employee, agent or contractor as of the Closing Date; and (ii) not
offer employment to any other employees, agents or contractors of HH for a
period of 60 days following the Closing Date. Nothing contained in this
Section 4.03 shall in any way limit Olsten's rights or ability to deal with
any such employee in any manner it may determine, including, without
limitation, the right to terminate the employment of any such employee.
A-5
<PAGE>
4.04 Sales Taxes on Transfer. All sales and other transfer or excise taxes
imposed in connection with the transfer of the NHC Assets or the ASB Shares
shall be borne 50% by Olsten and 50% by HH and HHHC, as determined between
them.
4.05 Delivery of Instruments. Without limiting anything contained in Section
4.02 hereof:
(a) At the Closing, HH or HHHC, as the case may be, shall execute and
deliver to Olsten, or will cause to be delivered to Olsten, all of the
agreements and instruments listed on Schedule 4.05(a) hereto (all such
agreements and instruments, together with the Accounts Receivable
Collection Agreement, dated as of the date hereof, among Olsten, HH and
HHHC (the "Receivables Agreement"), and the Escrow Agreement (as defined
---------------------
below), collectively, are referred to herein as the "HH Documents").
------------
(b) At the Closing, Olsten will execute and deliver to HH and HHHC, or
will cause to be delivered to HH and HHHC, all of the agreements and
instruments listed on Schedule 4.05(b) hereto (all such agreements and
instruments, together with the Receivables Agreement and the Escrow
Agreement, collectively, are referred to herein as the "Olsten Documents").
----------------
(c) At the Closing, each of Olsten and HH shall execute and deliver the
Escrow Agreement in the form of Exhibit 4.05(c) hereto (the "Escrow
------
Agreement").
---------
5. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF HH AND HHHC. HH and HHHC
hereby, jointly and severally, represent, warrant and covenant to Olsten as
follows as of the date hereof and at the Effective Time:
5.01 Organization, Standing and Qualification. HH and HHHC are corporations
duly organized, validly existing, and in good standing under the laws of the
State of New York and New Jersey, respectively. HH and HHHC each has full
power and authority to own or lease its properties and to conduct its business
as presently conducted. Except where such failure to do so would not have a
material adverse effect on the NHC Assets or the NHC Business, HH and HHHC
each is duly authorized, qualified, registered, and licensed to do business
and is in good standing as a foreign corporation in each of the respective
jurisdictions listed on Schedule 5.01 hereof, which are the only jurisdictions
-------------
where the nature of its activities conducted in connection with the NHC
Business or the character of the properties owned, leased or operated by it in
connection with the NHC Business require such qualification, licensing, or
domestication.
5.02 Authority. HH and HHHC have all requisite power and authority to
execute and enter into this Agreement and all HH Documents and to perform its
obligations hereunder and thereunder, subject to any consents from third
parties required by law or by any contract of HH or HHHC or constituting part
of the NHC Assets. Except for the requisite vote of the shareholders of HH
described on Schedule 5.02, the execution, delivery, and performance by HH and
-------------
HHHC of this Agreement and the other HH Documents to which either HH or HHHC
is a party, have been duly authorized by all necessary action, corporate and
otherwise, and this Agreement has been duly executed and delivered and is, and
the other HH Documents to which either HH or HHHC is a party, shall be, when
executed and delivered by HH or HHHC, as the case may be, the legal, valid and
binding agreements of HH or HHHC, as the case may be, enforceable against HH
or HHHC, as the case may be, in accordance with their respective terms, except
for Limitations on Enforceability (as defined in Section 5.12 hereof).
5.03 Subsidiaries. Except for the ownership by HH of the capital stock of
HHHC, neither HH nor HHHC has any direct or indirect wholly or partially owned
subsidiaries or owns any capital stock or other securities of, or any
proprietary interest in, any corporation, partnership, joint venture or other
business entity related to or through which any part of the NHC Business is
operated.
5.04 Title, Condition and Scope of NHC Assets; Receivables.
(a) Hooper has good title to the NHC Assets, free and clear of all
liabilities, obligations, liens, claims, encumbrances, and contingencies of
any kind, except for (a) liens for taxes not yet due and payable; and (b)
liens described on Schedule 5.04 ("NHC Permitted Liens").
------------- -------------------
A-6
<PAGE>
(b) Hooper's offices, improvements, fixtures, furniture, and equipment and
other personal property which constitute any of the NHC Assets are in
condition and repair sufficient for the operation of the NHC Business.
Hooper's pharmaceutical products and supplies and medical equipment and
supplies which constitute any of the NHC Assets are in good condition and are
fit for their intended purpose. The NHC Assets and the Excluded NHC Assets
constitute all of Hooper's assets and properties of every kind and description
utilized in any manner in connection with the NHC Business. Except as set
forth in Schedule 5.04, the NHC Assets include all assets and personnel that
-------------
HH, HHHC or any of their Affiliates owns and that Olsten needs to operate the
NHC Business as a going concern.
(c) All accounts receivable of the NHC Business, other than accounts
receivable that were generated by the activities of the NHC Columbus Ohio
office (the "Columbus Office"), have arisen in the ordinary course of business
---------------
and have been collected or are collectible in the aggregate recorded amounts
thereof less (a) with respect to accounts receivable reflected in the HH
Audited Balance Sheet and the NHC Unaudited Balance Sheets (as defined in
Section 5.07), the applicable reserves in respect thereof reflected in such
balance sheets and (b) with respect to accounts receivable arising subsequent
to the NHC Balance Sheet Date and outstanding as of the Closing Date, reserves
not in excess of the amount reflected on the NHC Closing Statement.
5.05 No Violation. Except as set forth on Schedule 5.05, Schedule 5.06 or
Schedule 5.12 hereto, neither the execution and delivery of this Agreement and
the other HH Documents nor the consummation of the transactions contemplated
hereby or thereby, including, without limitation, the transfer of the NHC
Assets to Olsten and the purchase by HH of the ASB Shares (a) conflicts with,
constitutes a breach of any term or provision of, constitutes a default under,
or results in the creation of, any lien, security interest, charge, or
encumbrance upon any of the NHC Assets pursuant to, or gives any third party
the right to accelerate any obligation under, any charter provision, bylaw,
agreement, indenture, deed of trust, instrument, order, law, or regulation to
which HH or HHHC is a party or by which HH or HHHC, or any of the NHC Assets
is in any way bound or affected, or (b) will (with the giving of notice or the
lapse of time, or both), conflict with, constitute a breach of any term or
provision of, constitute a default under, or result in the creation of, any
lien, security interest, charge, or encumbrance upon any of the NHC Assets
pursuant to, or give any third party the right to accelerate any obligation
affecting any of the NHC Assets under, any charter provision, bylaw,
agreement, indenture, deed of trust, instrument, order, law or regulation to
which HH or HHHC is a party or by which HH, HHHC or any of the NHC Assets is
in any way bound or affected. Without limiting the foregoing, prior to the
execution and delivery of this Agreement and the Receivables Agreement by HH
and HHHC, First Fidelity Bank, N.A. (the "Bank") provided HH and HHHC with all
consents and waivers required under or pursuant to that certain Loan Agreement
by and between the Bank and HH, dated November 3, 1993, as amended, for the
execution and delivery by HH and HHHC of this Agreement and all of the HH
Documents and the consummation by HH and HHHC of the transactions contemplated
hereby and thereby.
5.06 Governmental Consents. Except as set forth in Schedule 5.06 hereof, no
-------------
material consent, approval, order, or authorization of, notice to, or
registration, qualification, or designation, declaration, or filing with, any
governmental authority is required on the part of HH or HHHC in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5.07 Financial Statements.
(a) Attached hereto as Schedule 5.07 is a copy of the consolidated financial
-------------
statements of HH and its subsidiaries audited by KPMG Peat Marwick LLP,
certified public accountants, and unaudited financial statements of the NHC
Business and the NHC Assets (collectively, the "financial statements"), each
--------------------
of which when read together with the respective notes to the financial
statements are (except as specified on Schedule 5.07 hereof) true, correct,
-------------
and complete and present accurately the financial condition and results of
respective operations of HH, HHHC and the NHC Business as of the dates thereof
and for the periods indicated. Except as specified on Schedule 5.07 hereof,
-------------
and except that the unaudited financial statements do not contain notes and do
not reflect cash on hand or intercompany indebtedness, the financial
statements have been prepared from the
A-7
<PAGE>
books and records of HH and HHHC in accordance with generally accepted
accounting principles applied on a consistent basis for the periods stated and
consist of:
The consolidated balance sheet of HH and its subsidiaries (the "HH Audited
----------
Balance Sheet") as at December 31, 1994 and unaudited balance sheets of the
- -------------
NHC Business and the NHC Assets (the "NHC Unaudited Balance Sheet") as at
---------------------------
November 30, 1994 (the "NHC Balance Sheet Date"); and
----------------------
Audited related statement of income for the twelve month period ended
December 31, 1994 of HH, and unaudited related statements of revenue and
certain expenses for the NHC Business for the eleven-month period ended
November 30, 1994. Such financial statements do not contain any material items
of special or nonrecurring income or any other income not earned in the
ordinary course of business except as specified therein.
(b) Except as specifically set forth in Schedule 5.07 hereof or any other
-------------
Schedule to this Agreement, neither HHHC nor HH with respect to the NHC
Business, has any debts, liabilities or obligations of any nature, whether
accrued, absolute, contingent, due or to become due, known or unknown, and
there is no basis for the assertion against HHHC or HH with respect to the NHC
Business of any debt, liability or obligation, except:
(i) to the extent set forth on or reserved against in the HH Audited
Balance Sheet or the NHC Unaudited Balance Sheets; and
(ii) normal and usual current liabilities incurred, and normal and usual
obligations under agreements entered into in the ordinary course of
business since the NHC Balance Sheet Date.
5.08 Absence of Material Adverse Change. Since November 30, 1994 and except
as disclosed in Schedule 5.08 hereof, there has not been: (a) any material
-------------
adverse change in the financial condition, results of operations, business,
prospects, assets, or liabilities (contingent or otherwise) of the NHC
Business or with respect to the manner in which HH or HHHC, as the case may
be, conducts the NHC Business or operations; (b) any increase in salary,
wages, bonus, commission, or other compensation to any officers, employees, or
agents of HHHC or of HH utilized in the NHC Business whom Olsten shall or has
a right to offer employment to in accordance with Section 4.03 hereof, in each
case, other than in the ordinary course of business consistent with past
practice; (c) any pending or threatened labor dispute or other labor problem
relating to any employees of HHHC or HH utilized in the NHC Business; (d) any
default or termination (including, without limitation, any event that with the
giving of notice or lapse of time, or both, would cause a default or
termination), or threatened default or termination, under, or material
amendment to, any material agreement, arrangement, contract, lease, license,
permit, or certificate relating to the NHC Business or any of the NHC Assets;
(e) any material theft, damage, destruction, casualty, loss condemnation, or
eminent domain proceeding affecting any of the NHC Assets, whether or not
covered by insurance (for purposes of this subsection only, materiality is
defined as a loss in excess of $10,000 in any one incident or $50,000 in the
aggregate); (f) any sale, assignment, or transfer of a material portion of
assets of the NHC Business except in the ordinary course of business and
consistent with past practices; (g) any material waiver by HHHC or HH of any
rights related to HHHC or HH in the conduct of business of the NHC Business or
any of the NHC Assets; (h) any other transactions, agreements, contracts or
commitments entered into by HHHC or HH affecting any of the NHC Assets, except
in the ordinary course of business and consistent with past practices; (i) any
agreement or understanding to do, or resulting in any of the foregoing; (j)
any problems which may have a material adverse effect on the relationship
between HHHC or HH and any of the employees, agents, contractors, vendors,
suppliers, payors, intermediaries, or clients of the NHC Business, except in
the ordinary course of business; or (k) except as disclosed on Schedule 5.09
hereto, any developments with respect to any Investigation or Proceeding which
could reasonably be expected to (x) have a material adverse effect on the
financial condition, results of operation, business, prospects, assets or
liabilities (whether contingent or otherwise) of the NHC Business or (y)
materially limit or restrict or materially and adversely impact on Olsten's
operation and conduct of the NHC Business or the NHC Assets from and after the
Effective Time.
5.09 Litigation; Investigations. Except as set forth in Schedule 5.09 hereto
-------------
(which shall include the parties' names, case number, and court where
pending), there are no pending, and (except for customer
A-8
<PAGE>
complaints arising in the ordinary course of the NHC Business consistent with
past practice which, individually or in the aggregate, will not have a
material adverse effect on the NHC Business) neither HHHC nor HH has any
knowledge of any threatened, lawsuits, administrative proceedings, reviews, or
investigations by any person or governmental or administrative authority or
agency against or relating to HH, HHHC, the NHC Business or any of the NHC
Assets or to which any of the NHC Assets is subject (any such administrative
proceedings, reviews or investigations referred to herein, collectively as
"Proceedings"), and neither HHHC nor HH has any knowledge of any facts or
-----------
conditions that are reasonably likely to result in any Proceeding or any
material adverse judgment or liability affecting the NHC Assets or the
operations of the NHC Business. Except as set forth in Schedule 5.09 hereof,
-------------
neither HHHC nor HH is subject to any judgment, order, writ, injunction, or
decree relating to HHHC or any of the NHC Assets or the business or operations
of HHHC or the NHC Business. Except to the extent Excludable (as hereinafter
defined), HH has delivered to Olsten true and correct copies of all documents
received from or correspondence delivered to any governmental or
administrative authority or agency and has delivered to Olsten or provided
Olsten with access to true and correct copies of all other documents related
to any administrative proceeding, review or investigation by any governmental
or administrative authority or agency referred to on Schedule 5.09
(collectively, "Investigations"), including, without limitation, any and all
investigative demands, subpoenas and correspondence related thereto. As used
in this Agreement, "Excludable" shall mean that a document, correspondence,
communication or information related to an Investigation is, in the good faith
opinion of HH's outside legal counsel, subject to the attorney-client and/or
work product privileges.
5.10 Compliance. Except as disclosed on Schedule 5.10 hereunder, HHHC and HH
-------------
has each performed all obligations to be performed by it under all material
contracts, leases, and commitments which are included in or materially affect
the NHC Assets and there is not, under any such contract, lease, or
commitment, any existing material default or event of default, or event that,
with notice or lapse of time, or both, would constitute a material default or
event of default thereunder. HH's and HHHC's operation of the NHC Branches and
the NHC Business is currently materially complying with and has at all times
materially complied with, and the NHC Assets, their use, operation, and
maintenance thereof, materially comply with and have at all times materially
complied with, and neither the NHC Branches nor any of the NHC Assets nor the
use, operation, or maintenance thereof, are, individually or in the aggregate,
in material default under or in material violation of, or materially
contravene, any applicable statute, law, ordinance, decree, order, rule or
regulation of any federal, state or local, foreign or domestic governmental
authority, including, without limitation, any applicable tax, health, fraud,
false claims, environmental or employment statute, law, ordinance, decree,
order, rule or regulation and there are no pending claims which have been
filed against HH, HHHC or any of their Affiliates alleging a violation of any
such statute, law, ordinance, decree, order, rule or regulation which related
to the NHC Business in any material respect. Except as set forth on Schedule
5.10, no notice has been received by HH, HHHC or any of their Affiliates with
respect to a violation or investigation of any possible violation of any such
legal requirement.
5.11 Environmental Compliance. None of the NHC Branches is, as a result of
any actions, operations, or activities of HHHC or HH or any officer,
Affiliate, agent, employee, or contractor of HHHC or HH on any federal or
state "Superfund" list or, to the knowledge of HHHC or HH, has ever been the
site of any activity that would violate any Environmental Laws. To the
knowledge of HHHC and HH, none of the NHC Branches is, as a result of actions,
operations, or activities of persons other than those described in the
preceding sentence, on any federal or state "Superfund" list or has even been
the site of any activity that would violate any Environmental Laws. Without
limiting the generality of the preceding two sentences, each of the NHC
Branches has at all times while leased or operated by HHHC or HH (and, to the
knowledge of HHHC and HH has at all other times), been in compliance with all
Environmental Laws governing or in any way relating to the generation,
handling, manufacturing, treatment, storage, use, transportation, spillage,
leakage, dumping, discharge or disposal (whether legal or illegal, accidental
or intentional) (collectively referred to as "discharge") of any Hazardous
---------
Materials, as described below, except where the failure to comply with
Environmental Laws would not have a material adverse effect on Olsten, the NHC
Business or the NHC Assets. Neither HHHC, HH nor any of its Affiliates has
permitted or has knowledge of the discharge of Hazardous Materials on or about
the NHC Branches. No past or present activity of HH or HHHC has caused or is
likely to cause the violation of any Environmental Law with
A-9
<PAGE>
respect to any of the NHC Branches, which is likely to have a materially
adverse effect on Olsten, the NHC Business or the NHC Assets.
For purposes of this Agreement, "Hazardous Materials" shall mean any
-------------------
hazardous or toxic substances, materials, or wastes, including, without
limitation, those substances, materials, and wastes listed in the U.S.
Department of Transportation Hazardous Materials Table (49 C.F.R. (S) 172.101)
or by the U.S. Environmental Protection Agency as "hazardous substances" (40
C.F.R. Part 302) and amendments thereto, designated or listed as a "hazardous
substance" pursuant to the Clean Water Act, 33 U.S.C. (S) 1251 et seq. or
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. (S) 9601 et seq., defined as a "hazardous waste"
pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et
seq., or any material, waste, or substance which is regulated under federal,
state or local law or regulation, including, those pertaining to: (i)
petroleum; (ii) asbestos; (iii) polychlorinated biphenyls, or (iv)
biohazardous waste (all of the above being collectively referred to as
"Environmental Laws").
------------------
5.12 Certain Contracts and Property Rights. Schedule 5.12 to this Agreement
-------------
contains true, correct, and complete lists of the written (and an accurate and
complete description of any oral) agreements, contracts, leases, instruments,
arrangements, commitments, and property rights of the types listed in
subsections (a) through (i) below (and all amendments, supplements, and
modifications thereto) to which HHHC is a party or to which HH or any of its
Affiliates is a party relating to the NHC Business or by which any of the NHC
Assets is in any way bound or affected, except to the extent that such
contracts do not principally relate to the NHC Business and are not reasonably
necessary for the operation of the NHC Business as currently conducted. Prior
to the Closing, HH shall make available to Olsten the originals, or correct
and complete copies of executed documents which conform to the originals if
the originals thereof are not available, of all agreements, contracts, leases,
instruments, arrangements, commitments, and property rights referred to on
Schedule 5.12.
(a) all agreements or arrangements for HH or HHHC to provide any service,
product or supply to clients or customers which, during any one or more of
the last three fiscal years, resulted in, or by their terms provide for, an
annualized revenue of $50,000.00 or more; provided, however, that in the
case of agreements with individuals for services to one natural person, the
form of agreement used by HH or HHHC is attached hereto but the individual
agreements are not required to be scheduled unless the terms of any such
agreement contains material variations from the attached form (Schedule
--------
5.12(a));
-------
(b) all real estate leases (Schedule 5.12(b));
----------------
(c) all equipment leases by their terms involving aggregate annualized
payments of $25,000 or more and having a remaining term of six months or
more (the "NHC Equipment Leases") (Schedule 5.12(c));
-------------------- ----------------
(d) all agreements with any agent, licensee, franchisee or distributor of
HH or HHHC which cannot be terminated upon 30 days notice without cause and
without penalty to HH or HHHC (Schedule 5.12(d));
----------------
(e) all loan and credit agreements, indentures, security agreements,
guaranties, and liens, encumbrances, and pledges, conditional sale or title
retention agreement, or equipment obligation, to which HHHC is a party or
(except NHC Permitted Liens), relating to the NHC Business or the NHC
Assets (Schedule 5.12(e));
----------------
(f) all agreements or arrangements with respect to the purchase or
receipt by HH or HHHC of any services, products, inventories or supplies
which (1) during any one or more of the last three fiscal years involved,
or by their terms involves, payments by HH or HHHC of $10,000 or more and
have a remaining term of six months or more, or (2) payments to a referral
source; or (3) data processing programs, software or source codes utilized
in connection with the NHC Business or the NHC Assets other than
commercially available, off-the-shelf software (Schedule 5.12(f));
----------------
(g) all agreements or arrangements relating to promotional activities of
the NHC Business (Schedule 5.12(g));
----------------
(h) all partnership, joint venture, joint operating or similar agreements
and any contracts or commitments providing for payments based in any manner
on the revenues or profits of HHHC or the NHC Business or the NHC Assets
(Schedule 5.12(h)); and
----------------
A-10
<PAGE>
(i) all other agreements or arrangements (other than those of the type
described above) that (1) during any one or more of the last three fiscal
years involved, or by their terms involve, payments or receipts of HH or
HHHC of $10,000 or more and have a remaining term of six months or more, or
(2) prohibition or restriction of competition or solicitation of clients,
or (3) otherwise materially affects the condition (financial or other),
assets, business or prospects of HHHC, the NHC Business or the NHC Assets
(Schedule 5.12(i)).
----------------
All of such agreements, contracts, leases, instruments, arrangements,
commitments, and property rights referred to in this Section above, or in any
of the Schedules pursuant to this Agreement are, as to HH, valid, binding and
in full force and effect and enforceable by HH in all material respects in
accordance with their respective terms and conditions, except to the extent
that the same may be limited by insolvency, bankruptcy, reorganization,
moratorium, or similar laws affecting the enforcement of creditors' rights
generally, or by general principles of equity (collectively called
"Limitations on Enforceability"), and to the knowledge of HH, there is no
-----------------------------
existing material default thereunder or breach thereof or condition which,
with notice, the lapse of time, or both, might constitute such a material
default by any party thereto. There has been no termination or threatened
termination or notice of default under any material agreement, contract,
lease, instrument, arrangement, commitment, or property right described in
this Section 5.12. None of the rights of HH or HHHC thereunder will be
impaired by the consummation of the transactions contemplated by this
Agreement, and all of such rights will be enforceable by Olsten after the
Closing without the consent or agreement of any other person or entity, except
consents and agreements specifically listed in Schedules 5.06 or 5.12 hereto.
----------------------
5.13 Licenses, Permits and Authorizations. HH and HHHC each holds the
respective certificates of need, governmental licenses, provider numbers,
permits, and authorizations described in Schedule 5.13 hereto. Such
-------------
certificates of need, licenses, provider numbers, permits, and authorizations
have not been suspended or revoked and there are no proceedings or actions
pending or, to the knowledge of HH, threatened, to materially and adversely
modify or restrict, or to revoke any of such licenses, permits, or
authorizations. To the extent requested by Olsten and permitted by law, HH and
HHHC shall each execute and deliver to Olsten assignment documents for all
such certificates of need, governmental licenses, provider numbers, permits
and authorizations.
5.14 Employee and Independent Contractors. Schedule 5.14 hereto contains a
-------------
true, correct and complete listing of all of the NHC Branch level employees,
agents, and contractors and all other employees (other than assignment
employees and employees located at HH's corporate headquarters) of the NHC
Business as of the most recent date practicable, as well as a computerized
listing of all assignment employees of the NHC Business who received a
paycheck from HH and/or HHHC on the most recent date practicable. For the NHC
Branch level employees and the other employees of the NHC Business (excluding
all assignment employees and employees located at HH's corporate
headquarters), Schedule 5.14 also includes their current positions, their
-------------
dates of hire or contract by HH, and current salaries, as of the most recent
date practicable. Schedule 5.14 also sets forth which of these employees are
-------------
enrolled in HH's health insurance plan and designates whether such employees
are employees of HH, HHHC or both.
5.15 Employee Benefit Plans. Schedule 5.15 lists each pension, retirement,
-------------
profit-sharing, deferred compensation, bonus, stock option or other incentive
plan, or other employee benefit program arrangement, agreement, or
understanding, or medical, dental, vision, or other health plan, or life
insurance or disability plan, or any other employee benefit plan, whether
written or oral, including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") ("Employee Benefit Plans"), to which HH or HHHC
----- ----------------------
contributes or is a party or is bound or under which it may have liability and
under which employees or former employees of HHHC or the NHC Business (or
their beneficiaries) are eligible to participate or derive a benefit.
HH and HHHC expressly warrant that Olsten shall not be subject to any
liability resulting from the termination by HH or HHHC of any employee of HH
or HHHC or termination of any profit-sharing, pension, stock option,
severance, retirement, bonus, deferred compensation, group life and health
insurance, or other Employee Benefit Plan, trust, agreement, or similar
arrangement with respect to any of HH's or HHHC's
A-11
<PAGE>
employees, whether or not legally binding, and Olsten shall not be responsible
for any liability whatsoever under any of HH's or HHHC's health plan, trust,
agreement or arrangement, including, without limitation, any obligation to
provide health continuation coverage (which continuation coverage shall be
provided by HH or HHHC). Neither HH nor HHHC contributes to or has an
obligation to contribute to any defined benefit plan within the meaning of
Section 3(35) of ERISA or any multiemployer plan within the meaning of Section
3(37) or 4001(3) of ERISA, on behalf of any of the employees of HH or HHHC. HH
and HHHC each has been, and is now, in material compliance with all applicable
laws and regulations with respect to such Employee Benefit Plans. With respect
to any Employee Benefit Plans (whether or not terminated) maintained or
contributed to by any entity under common control with HH or HHHC, determined
under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as
amended ("IRC"), no event has occurred and no condition exists, which could,
on or after the Closing, subject HH, HHHC or Olsten or any of its Affiliates,
directly or indirectly (through an indemnification agreement or otherwise), to
any liability, including, without limitation, any liability under sections
412, 4971 or 4980B of the IRC or Title IV of ERISA.
HH and HHHC expressly warrant that Olsten shall not be liable for any
accrued vacation or sick leave benefits or pay with respect to any employees,
officers, agents, or contractors of HH or HHHC. Within 15 days after the
Closing Date, HH and HHHC shall pay their employees, officers, agents, or
contractors who are terminated by HH in accordance with the terms of this
Agreement for any earned and accrued but unpaid vacation benefits and sick
leave benefits.
5.16 Labor Matters. HHHC has, and as to the NHC Branch level employees and
other employees of the NHC Business HH has, no collective bargaining, union,
or similar labor agreements, or other arrangements with any employees or group
of employees, labor union, or employee representatives. Neither HH nor HHHC
has any knowledge of any organizing effort currently being made or threatened
by or on behalf of any labor union or other group with respect to the above-
referenced employees. There are no organized labor controversies, work
stoppages or slowdowns pending or, to the knowledge of HH and HHHC, threatened
against HHHC or with respect to the NHC Business. Except as set forth on
Schedule 5.16 hereof, there is no written or, to the knowledge of HH and HHHC,
- -------------
oral contract with any of the NHC Branch level employees that cannot be
terminated at will and without liability to HHHC or HH.
As to NHC Business and the NHC Branch level employees, HH and HHHC each has
substantially complied with all applicable laws and regulations relating to
employment and labor.
As to NHC Business employees, except as set forth in Schedule 5.09 hereto,
-------------
there are no pending or, to the knowledge of HH and HHHC, threatened,
lawsuits, administrative proceedings, reviews, or investigations by any person
or governmental authority against HH or HHHC with respect to any violation or
alleged violation of any applicable federal, state or local laws, rules, or
regulations: (a) prohibiting discrimination on any basis, including, without
limitation, on the basis of race, color, religion, sex, disability, national
origin, or age; or (b) relating to employment or labor, including, without
limitation, those related to immigration, wages, hours, or collective
bargaining; and neither HH nor HHHC has any knowledge of any facts or
conditions concerning such types of matters that are reasonably likely to
result in any material adverse judgment or liability affecting the NHC Assets
or the NHC Business.
5.17 Intangible Rights. The Licenses outlined in Section 1.04 hereof and the
licenses, permits, and authorizations set forth in Schedule 5.13, and the
-------------
names, marks, rights and logos set forth in Schedule 1.01(i) constitute all of
----------------
the intangible rights utilized in or necessary for the conduct of the NHC
Business, as currently conducted (collectively, the "NHC Intangible Rights").
---------------------
All of the registrations and applications of the NHC Intangible Rights are in
HH's name, and HH owns and it or its agents have the sole right to use the
same in the geographic areas in which they are currently being used in respect
of services with which they are currently being used, and none of such items,
or the use thereof, infringes on the rights of any person or entity. To the
knowledge of HH and HHHC, no individual or entity has any property rights or
claims to have any property rights that infringe upon the NHC Intangible
Rights.
A-12
<PAGE>
5.18 Real Estate and Improvements. HHHC does not own or purport to own and
has never owned real property. Neither HH nor any of its Affiliates owns,
purports to own or has ever owned real property used in the NHC Business
(other than HH's corporate offices) and the NHC Assets do not include any
owned real property. The location, construction, occupancy, operation, and use
of any improvements attached to or placed, erected, constructed, or developed
as a portion of the NHC Branches do not materially violate any applicable
statute, law, ordinance, decree, order, rule, regulation, policy, or
determination of any federal, state, local or other governmental authority of
any board of fire underwriters (or other body exercising similar functions),
or any restrictive covenant or deed restriction affecting any portion of such
property, including, without limitation, any applicable zoning ordinances and
building codes, flood disaster laws, and health and environmental laws, rules
and regulations.
HHHC and HH each has the right to quiet enjoyment of all real property
leased in connection with the NHC Business for the full term of each
respective lease and has all easements and rights of ingress and egress
necessary for utilities and services and for all operations of the NHC
Business.
5.19 Insurance, Unemployment and Worker's Compensation.
(a) HH maintains, and for the past five years has maintained, the listed
insurance coverages exceeding the minimum limits set forth below with
insurance companies HH believes to be financially sound:
<TABLE>
<CAPTION>
COVERAGES MINIMUM LIMITS ($)
--------- ------------------
<S> <C>
Property, Fire & Casualty Value of Property
Workmen's Compensation Statutory
Errors and Omissions (including medical malpractice) 1,000,000
General Liability 1,000,000
Umbrella Liability 5,000,000
</TABLE>
(b) Schedule 5.19 contains a true, correct, and complete listing of all
-------------
pending unemployment claims and worker's compensation claims relating to
employees of the NHC Business as well as all unemployment claims filed by any
employees of HHHC or HH or any of their Affiliates utilized in the NHC
Business for the period since January 1, 1994, and worker's compensation
claims filed by any such employees of or utilized in the NHC Business for
calendar year 1993 and the disposition thereof, and HHHC's and HH's (with
respect to the NHC Business) current unemployment and workers' compensation
rates.
5.20 Taxes. Within the times and in the manner prescribed by law, HHHC and
HH, with respect to the NHC Assets and the NHC Business, have filed all
federal, state and local tax returns required to have been filed by HHHC and
HH, and HH and HHHC have paid all taxes, assessments, and penalties when due
and payable. At the Effective Time, except for the NHC Permitted Liens and
liens created by the transactions contemplated by this Agreement, there will
be no valid federal, state, or local tax liens or liability (including,
without limitation, liens for sales taxes or personal property taxes) which
are not paid, against any of the NHC Assets nor will there be any overdue
federal, state, or local taxes which in any way affect the NHC Assets or the
NHC Business. As they relate to the NHC Assets and the NHC Business, HH shall
pay, when due, all federal, state, and local taxes attributable to periods
ending on and prior to the Effective Time and HHHC's and HH's operations on
and prior to the Effective Time. HH and HHHC each has made all payments and
withholdings of taxes and other sums as required by appropriate governmental
authorities and has withheld and paid to the appropriate governmental
authorities, or is holding for payment not yet due to such authorities, and
will pay when due, all amounts required to be withheld from employees of HHHC
or HH or any of their Affiliates in the NHC Business and is not liable for any
arrearages of wages, taxes, penalties or other sums for failure to comply with
any laws, rules, or regulations relating to the foregoing.
5.21 Conflicts of Interests. Except as set forth on Schedule 5.21 hereof,
-------------
neither HH, HHHC, nor any of their Affiliates owns, directly or indirectly, an
interest in any corporation (other than as a stockholder of 1% or less of a
publicly traded company's securities), partnership, firm, association, or
other entity that is a competitor,
A-13
<PAGE>
customer, supplier, or landlord of HHHC or HH with respect to the NHC Business
or the NHC Assets or that otherwise has business dealings with HHHC or HH with
respect to the NHC Business or the NHC Assets.
5.22 No Other Agreements. Except in the ordinary course of business and
consistent with past practices, neither HHHC nor HH has entered into any
agreement, commitment, or understanding with any other person with respect to
the sale, transfer, lease, or other disposition of all or any portion of the
NHC Assets or the NHC Business. HH and HHHC have informed Olsten of the
identities of all persons with whom HH or HHHC has negotiated or held
discussions with respect to any Acquisition Proposal (as defined in Section
7.09 hereto) and the identities of all persons with whom HH or HHHC has
entered into confidentiality agreements with respect thereto.
5.23 Relationships. Except as set forth on Schedule 5.23 hereof, HH and HHHC
-------------
each has good relationships with the NHC Business' vendors, suppliers, payors,
intermediaries, clients, employees, contractors, and agents; provided,
however, problems in the relationships with HH's or HHHC's vendors, suppliers,
payors, intermediaries, clients, employees, contractors, and agents which
individually or collectively do not or would not after the Closing have a
materially adverse effect on the NHC Business are not required to be listed on
Schedule 5.23 hereof.
- -------------
5.24 Medicare Participation/Accreditation.
(a) Schedule 5.24 describes the NHC Branches which are qualified for
-------------
participation in the Medicare and/or Medicaid programs, have current and valid
provider contracts with the Medicare and/or Medicaid programs, are in
compliance with the conditions of participation in such programs in all
material respects and have received all approvals or qualifications necessary
for reimbursement. Except as provided in Schedule 5.24, the NHC Branches are
-------------
duly accredited by the Joint Commission on Accreditation of Healthcare
Organizations. The NHC Branches presently have the Medicare and Medicaid
certified provider numbers described on Schedule 5.24 hereto (collectively,
-------------
the "Provider Numbers").
(b) HH has delivered to or shall deliver to Olsten as soon as it becomes
available (with respect to 1994) complete and correct copies of Medicare cost
reports of the NHC Business for fiscal years ended in 1993 and 1994 and each
of such cost reports has been or shall be duly filed on a timely basis. Such
cost reports are accurate and complete in all material respects and have been
prepared in accordance with methodologies accepted and approved by the
Medicare fiscal intermediary for the certified NHC Branches. Schedule 5.24
-------------
hereto indicates which of such cost reports have been audited and finally
settled, the status of such cost reports which have not been audited and
finally settled and a brief description of any proposed or pending audit
adjustments, disallowances, appeals of disallowances and any and all other
unresolved claims or disputes in respect of such cost reports. Except as
provided in Schedule 5.24, and to the best knowledge of HH and HHHC, there are
-------------
no facts or circumstances which may reasonably be expected to give rise to any
disallowance under any such cost reports.
5.25 Certain Payments. Neither HHHC, HH nor any of their Affiliates, nor
anyone acting on behalf of any of them, is making or receiving any Sensitive
Payments (as hereinafter defined) pertaining to the NHC Business or any of the
NHC Assets, and no such person has maintained any unrecorded cash or noncash
assets out of which any Sensitive Payments might be made. As used herein,
Sensitive Payments means, whether or not unlawful, (i) payments to or from
governmental officials or employees, (ii) commercial bribes or kick-backs
(including, without limitation, any payment or consideration to any physician
or other referral source), (iii) amounts paid with an understanding that
rebates or refunds will be made in contravention of the laws of any applicable
jurisdiction, either directly or through a third party, (iv) political
contributions and (v) payments or commitments (whether made in the form of
commissions, payments of fees for goods or services received, or otherwise)
made with the understanding or under circumstances which would indicate that
all or part thereof is to be paid by the recipient to government officials or
employees or as a commercial bribe, influence payment or kick-back.
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<PAGE>
5.26 Purchase for Investment. HH is purchasing the ASB Shares for investment
for its own account and not with a view to, or for sale in connection with,
any distribution thereof. Any such distribution which may occur after the
Closing shall either be registered under the Securities Act of 1933, or
pursuant to an available exemption.
5.27 No Misrepresentations. The representations, warranties, and statements
made by HH or HHHC in or pursuant to this Agreement and the Schedules hereto
are true, complete, and correct in all material respects. None of such
representations, warranties, or statements contains any untrue statements of a
material fact or omits to state any material fact necessary to make any such
representation, warranty, or statement, under the circumstances in which it
was or will be made, not misleading.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF OLSTEN. Olsten hereby
represents, warrants and covenants to HH as follows as of the date hereof and
at the Effective Time:
6.01 Organization, Standing and Qualification. Olsten and ASB are
corporations duly organized, validly existing, and in good standing under the
laws of the States of Delaware and Illinois, respectively. Olsten and ASB each
has full power and authority to own or lease its properties and to conduct its
business as presently conducted. Except where such failure to do so would not
have a material adverse effect on ASB's assets or business, ASB is duly
authorized, qualified, registered, and licensed to do business and is in good
standing as a foreign corporation in each of the jurisdictions listed on
Schedule 6.01 hereof, which are the only jurisdictions where the nature of its
- -------------
activities or the character of the properties owned, leased or operated by it
require such qualification, licensing, or domestication. ASB has delivered to
HH true and complete copies of its Articles of Incorporation and Bylaws, as
amended and in effect.
6.02 Authority. Olsten has all requisite power and authority to execute and
enter into this Agreement and all Olsten Documents and to perform its
obligations hereunder and thereunder, subject to any consents from third
parties required by law or by any contract of ASB or Olsten. The execution,
delivery, and performance by Olsten of this Agreement and the other Olsten
Documents have been duly authorized by all necessary action, corporate and
otherwise, and this Agreement has been duly executed and delivered and is, and
the other Olsten Documents shall be, when executed and delivered by Olsten,
the legal, valid and binding agreements of Olsten, enforceable against Olsten
in accordance with their respective terms, except for Limitations on
Enforceability (as defined in Section 5.12 hereof).
6.03 The ASB Shares; ASB Subsidiaries.
(a) The authorized capital stock of ASB consists of 1000 shares of common
stock, par value $5.00 per share, of which 1000 shares are issued and
outstanding, all of which outstanding shares are owned beneficially and of
record by Olsten, free and clear of all liens. All of the ASB Shares have been
duly authorized and validly issued and are fully paid and non-assessable.
Except as set forth in Schedule 6.03, there are no outstanding options,
-------------
warrants, conversion, preemptive or other rights or other agreements of any
kind (other than this Agreement) for the purchase or acquisition from, or the
sale or issuance by, Olsten or ASB of any shares of capital stock of ASB.
(b) (i) Schedule 6.03 lists all of the subsidiaries of ASB (each an "ASB
---
Subsidiary" and collectively the "ASB Subsidiaries") and shows for each: its
- ---------- ----------------
name; the jurisdiction of its incorporation; its authorized and outstanding
shares of capital stock of each class; the shareholders thereof; and the total
number of shares owned by each shareholder. Except as otherwise set forth in
Schedule 6.03, (A) all of such outstanding shares of capital stock of each ASB
- -------------
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, are owned by the shareholder or shareholders indicated in the
Schedule 6.03, and are owned free and clear of all liens, and (B) there are no
- -------------
outstanding options, warrants, conversion, preemptive or other rights or other
agreements of any kind (other than this Agreement) for the purchase or
acquisition from, or the sale or issuance by ASB or Subsidiary of any shares
of capital stock of any ASB Subsidiary.
A-15
<PAGE>
6.04 Title, Condition and Scope of ASB's Assets; Receivables.
(a) ASB has good title to its assets, free and clear of all liabilities,
obligations, liens, claims, encumbrances, and contingencies of any kind,
except for (i) liens for taxes not yet due and payable; and (ii) liens
described on Schedule 6.04 ("ASB Permitted Liens").
------------- -------------------
(b) ASB's offices, improvements, fixtures, furniture, and equipment and
other personal property are in condition and repair sufficient for the
operation of its business. Except as set forth on Schedule 6.04, ASB's assets
-------------
include everything that ASB, Olsten or any of their Affiliates owns and that
HH needs to operate ASB's business as a going concern.
(c) All accounts receivable of ASB have arisen in the ordinary course of
business and have been collected or are collectible in the aggregate recorded
amounts thereof less (a) with respect to accounts receivable reflected in the
ASB Audited Balance Sheet and the ASB Unaudited Balance Sheets (as defined in
Section 6.07), the applicable reserves in respect thereof reflected in such
balance sheets and (b) with respect to accounts receivable arising subsequent
to the ASB Balance Sheet Date and outstanding as of the Closing Date, reserves
not in excess of the amount reflected on the ASB Closing Statement.
6.05 No Violation. Except as set forth on Schedule 6.06 or Schedule 6.12
hereto, neither the execution and delivery of this Agreement and the other
Olsten Documents nor the consummation of the transactions contemplated hereby
or thereby, including, without limitation, the transfer of the ASB Shares to
HH and the purchase by Olsten of the NHC Business and the NHC Assets (a)
conflicts with, constitutes a breach of any term or provision of, constitutes
a default under, or results in the creation of, any lien, security interest,
charge, or encumbrance upon the ASB Shares pursuant to, or gives any third
party the right to accelerate any obligation under, any charter provision,
bylaw, agreement, indenture, deed of trust, instrument, order, law, or
regulation to which Olsten or ASB is a party or by which Olsten or ASB is in
any way bound or affected, or (b) will (with the giving of notice or the lapse
of time, or both), conflict with, constitute a breach of any term or provision
of, constitute a default under, or result in the creation of, any lien,
security interest, charge, or encumbrance upon ASB's assets pursuant to, or
give any third party the right to accelerate any obligation affecting ASB's
assets under, any charter provision, bylaw, agreement, indenture, deed of
trust, instrument, order, law or regulation to which Olsten or ASB is a party
or by which Olsten or ASB or any of ASB's assets is in any way bound or
affected.
6.06 Governmental Consents. Except as set forth in Schedule 6.06 hereof, no
-------------
material consent, approval, order, or authorization of, notice to, or
registration, qualification, or designation, declaration, or filing with, any
governmental authority is required on the part of Olsten or ASB in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
6.07 Financial Statements.
(a) Attached hereto as Schedule 6.07 is a copy of the audited and unaudited
-------------
financial statements of ASB, each of which when read together with the
respective notes to the financial statements are true, correct, and complete
and present accurately the financial condition and results of operations of
ASB as of the dates thereof and for the periods indicated. The financial
statements have been prepared from the books and records of ASB in accordance
with generally accepted accounting principles applied on a consistent basis
for the periods stated and consist of:
The audited Balance sheets of ASB (the "ASB Audited Balance Sheet") as
-------------------------
at December 31, 1994 and the unaudited balance sheets of ASB (the "ASB
---
Unaudited Balance Sheet") as at January 1, 1995 (the "ASB Balance Sheet
----------------------- -----------------
Date"); and audited related statement of income for the twelve month
----
period ended December 31, 1994, and unaudited related statements of
revenue and certain expenses for the year ended January 1, 1995. Such
financial statements do not contain any material items of special or
nonrecurring income or any other income not earned in the ordinary
course of business except as specified therein.
A-16
<PAGE>
(b) Except as specifically set forth in Schedule 6.07 hereof or any other
-------------
schedule to this Agreement, neither ASB nor any of the ASB Subsidiaries has
any debts, liabilities or obligations of any nature, whether accrued,
absolute, contingent, due or to become due, known or unknown, and there is no
basis for the assertion against ASB or any ASB Subsidiary of any debt,
liability or obligation, except:
(i) to the extent set forth on or reserved against in the ASB Audited
Balance Sheets or the ASB Unaudited Balance Sheets; and
(ii) normal and usual current liabilities incurred, and normal and usual
obligations under agreements entered into, in the ordinary course of
business since the ASB Balance Sheet Date.
6.08 Absence of Material Adverse Change. Since December 31, 1994 and except
as disclosed in Schedule 6.08 hereof, there has not been: (a) any material
-------------
adverse change in the financial condition, results of operations, business,
prospects, assets, or liabilities (contingent or otherwise) of ASB or with
respect to the manner in which ASB conducts its business or operations; (b)
any increase in salary, wages, bonus, commission, or other compensation to any
of ASB's Branch level officers, employees, or agents in each case, other than
in the ordinary course of business consistent with past practice; (c) any
pending or threatened labor dispute or other labor problem relating to any
employees of ASB; (d) any default or termination (including, without
limitation, any event that with the giving of notice or lapse of time, or
both, would cause a default or termination), or threatened default or
termination, under or material amendment to, any material agreement,
arrangement, contract, lease, license, permit, or certificate relating to
ASB's business or assets; (e) any material theft, damage, destruction,
casualty, loss condemnation, or eminent domain proceeding affecting any of the
ASB's assets, whether or not covered by insurance (for purposes of this
subsection only, materiality is defined as a loss in excess of $10,000 in any
one incident or $50,000 in the aggregate); (f) any sale, assignment, or
transfer of a material portion of ASB's assets except in the ordinary course
of business and consistent with past practices; (g) any material waiver by ASB
of any rights related to the conduct of ASB's business or any of its assets;
(h) any other transactions, agreements, contracts or commitments entered into
by ASB affecting any of its assets, except in the ordinary course of business
and consistent with past practices; (i) any agreement or understanding to do,
or resulting in any of the foregoing; or (j) any problems which may have a
material adverse effect on the relationship between ASB and any of its
employees, agents, contractors, vendors, suppliers, payors, intermediaries, or
clients, except in the ordinary course of business.
6.09 Litigation; Investigations. Except as set forth in Schedule 6.09 hereto
-------------
(which shall include the parties' names, case number, and court where
pending), there are no pending, and (except for customer complaints arising in
the ordinary course of ASB's business consistent with past practice which,
individually or in the aggregate, will not have a material adverse effect on
ASB's business) Olsten has no knowledge of any threatened, lawsuits,
administrative proceedings, reviews, or investigations by any person or
governmental or administrative authority or agency against or relating to ASB
or any of its assets or to which any of its assets is subject (any such
administrative proceeding, review or investigation referred to herein,
collectively, as "ASB Proceedings"), and Olsten has no knowledge of any facts
or conditions that are reasonably likely to result in any ASB Proceeding or
material adverse judgment or liability affecting ASB's assets or the
operations. Except as set forth in Schedule 6.09 hereof, ASB is not subject to
-------------
any judgment, order, writ, injunction, or decree relating to any of its
assets, business or operations.
6.10 Compliance. Except as disclosed on Schedule 6.10 hereunder, ASB has
-------------
performed all obligations to be performed by it under all material contracts,
leases, and commitments to which it is a party and there is not under any such
contract, lease, or commitment, any existing material default or event of
default, or event that, with notice or lapse of time, or both, would
constitute a material default or event of default thereunder. ASB's operation
of the ASB Branches and its business is currently materially complying with
and has at all times materially complied with, and ASB's assets, their use,
operation, and maintenance thereof, materially comply with and have at all
times materially complied with, and neither the ASB Branches nor any of its
assets nor the use, operation, or maintenance thereof, are, individually or in
the aggregate, in material default under or in material violation of, or
materially contravene, any applicable statute, law, ordinance, decree, order,
rule or regulation of any federal, state, local, domestic or foreign,
governmental authority, including, without limitation,
A-17
<PAGE>
any applicable tax, health, environmental or employment statute, law,
ordinance, decree, order, rule or regulation and there are no pending claims
which have been filed against ASB or any of its Affiliates alleging a
violation of any such statute, law, ordinance, decree, order, rule or
regulation which related to ASB in any material respect. Except as set forth
on Schedule 6.10 no notice has been received by ASB, Olsten or any of their
Affiliates, with respect to a violation or investigation of any possible
violations of any such legal requirement.
6.11 Environmental Compliance. None of the premises covered by the leases
described on Schedule 6.12(b) (the "ASB Branches") is, as a result of any
---------------- ------------
actions, operations, or activities of ASB or any officer, Affiliate, agent,
employee, or contractor of ASB, on any federal or state "Superfund" list or,
to the knowledge of Olsten has ever been the site of any activity that would
violate any Environmental Laws. To the knowledge of Olsten, none of the ASB
Branches is, as a result of actions, operations, or activities of persons
other than those described in the preceding sentence, on any federal or state
"Superfund" list or has even been the site of any activity that would violate
any Environmental Laws. Without limiting the generality of the preceding two
sentences, each of the ASB Branches has at all times while leased or operated
by ASB (and, to the knowledge of Olsten has at all other times), been in
compliance with all Environmental Laws governing or in any way relating to the
generation, handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal (whether legal or illegal,
accidental or intentional) (collectively referred to as "discharge") of any
---------
Hazardous Materials, as described below, except where the failure to comply
with Environmental Laws would not have a material adverse effect on HH or ASB.
Neither ASB nor any of its Affiliates has permitted or has knowledge of the
discharge of Hazardous Materials on or about the ASB Branches. No past or
present activity of ASB has or is likely to cause the violation of any
Environmental Law with respect to any of the ASB Branches, which is likely to
have a materially adverse effect on HH or ASB.
6.12 Certain Contracts and Property Rights. Schedule 6.12 to this Agreement
-------------
contains true, correct, and complete lists of the written (and an accurate and
complete description of any oral) agreements, contracts, leases, instruments,
arrangements, commitments, and property rights of the types listed in
subsections (a) through (i) below (and all amendments, supplements, and
modifications thereto) to which ASB is a party or by which any of its assets
is in any way bound or affected. Prior to the Closing, Olsten shall make
available to HH the originals, or correct and complete copies of executed
documents which conform to the originals if the originals thereof are not
available, of all agreements, contracts, leases, instruments, arrangements,
commitments, and property rights of ASB referred to on Schedule 6.12.
(a) all agreements or arrangements for ASB to provide any service,
product or supply to clients or customers which, during any one or more of
the last three fiscal years, resulted in, or by their terms provide for, an
annualized revenue of $50,000.00 or more; provided, however, that in the
case of agreements with individuals for services to one natural person, the
form of agreement used by ASB is attached hereto but the individual
agreements are not required to be scheduled unless the terms of such
agreements contain material variations from the attached form (Schedule
--------
6.12(a));
-------
(b) all real estate leases (Schedule 6.12(b));
----------------
(c) all equipment leases by their terms involving aggregate annualized
payments of $25,000 or more and having a remaining term of six months or
more (the "ASB Equipment Leases") (Schedule 6.12(c));
---------------- ----------------
(d) all agreements with any agent, franchisee or distributor of ASB which
cannot be terminated upon 30 days notice without cause and without penalty
to ASB (Schedule 6.12(d));
----------------
(e) all loan and credit agreements, indentures, security agreements,
guaranties, and liens, encumbrances, and pledges, conditional sale or title
retention agreement, or equipment obligation (except ASB Permitted Liens),
to which ASB is a party or relating to business or assets (Schedule
--------
6.12(e));
-------
(f) all agreements or arrangements with respect to the purchase or
receipt by ASB of any services, products, inventories or supplies which (i)
during any one or more of the last three fiscal years involved, or by their
terms involves, payments by ASB of $10,000 or more and have a remaining
term of six months or more, or (ii) payments to a referral source; or (iii)
data processing programs, software or source codes
A-18
<PAGE>
utilized by ASB in connection with its business or the assets other than
commercially available off-the-shelf software (Schedule 6.12(f));
----------------
(g) all agreements or arrangements relating to promotional activities of
ASB (Schedule 6.12(g));
----------------
(h) all partnership, joint venture, joint operating or similar agreements
and any contracts or commitments providing for payments based in any manner
on the revenues or profits of ASB (Schedule 6.12(h)); and
----------------
(i) all other agreements or arrangements (other than those of the type
described above) that (1) during any one or more of the last three fiscal
years involved, or by their terms involve, payments or receipts of ASB of
$10,000 or more and have a remaining term of six months or more, or (2)
prohibition or restriction of competition or solicitation of clients, or
(3) otherwise materially affects the condition (financial or other),
assets, business or prospects of ASB or its business or assets (Schedule
--------
6.12(i)).
-------
All of such agreements, contracts, leases, instruments, arrangements,
commitments, and property rights referred to in this Section above, or in any
of the Schedules pursuant to this Agreement are, as to ASB, valid, binding and
in full force and effect and enforceable by ASB in all material respects in
accordance with their respective terms and conditions, except to the extent
that the same may be limited by "Limitations on Enforceability", and to the
knowledge of Olsten, there is no existing material default thereunder or
breach thereof or condition which, with notice, the lapse of time, or both,
might constitute such a material default by any party thereto. There has been
no termination or threatened termination or notice of default under any
material agreement, contract, lease, instrument, arrangement, commitment, or
property right described in this Section 6.12. None of the rights of ASB
thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement, and all of such rights will be enforceable by
ASB after the Closing without the consent or agreement of any other person or
entity, except consents and agreements specifically listed in Schedules 6.06
--------------
or 6.12 hereto.
- -------
6.13 Licenses, Permits and Authorizations. ASB holds the certificates of
need, governmental licenses, provider numbers, permits, and authorizations
described in Schedule 6.13 hereto. Such certificates of need, licenses,
-------------
provider numbers, permits, and authorizations have not been suspended or
revoked and there are no proceedings or actions pending or, to the knowledge
of Olsten, threatened, to materially and adversely modify or restrict, or to
revoke any of such licenses, permits, or authorizations.
6.14 Employee and Independent Contractors. Schedule 6.14 hereto contains a
-------------
true, correct and complete listing of all of the employees, agents, and
contractors of ASB as of the most recent date practicable. Schedule 6.14 also
-------------
includes their current positions, their dates of hire or contract by ASB, and
current salaries, as of the most recent date practicable. Schedule 6.14 also
-------------
sets forth which of these employees are enrolled in ASB's health insurance
plan.
6.15 Employee Benefit Plans. Schedule 6.15 lists each Employee Benefit Plan
-------------
to which ASB contributes or is a party or is bound or under which it may have
liability and under which employees or former employees of ASB (or their
beneficiaries) are eligible to participate or derive a benefit. ASB does not
contribute to or have an obligation to contribute to any defined benefit plan
within the meaning of Section 3(35) of ERISA or any multiemployer plan within
the meaning of Section 3(37) or 4001(3) of ERISA, on behalf of any of the
employees of ASB. ASB has been, and is now, in material compliance with all
applicable laws and regulations with respect to such Employee Benefits Plans.
With respect to any Employee Benefit Plan (whether or not terminated)
maintained or contributed to by any entity under common control with ASB,
determined under Section 414(b), (c), (m) or (o) of the IRC, no event has
occurred and no conditions exists which could, on or after the Closing,
subject HH, HHHC, ASB, Olsten or any of its Affiliates, directly or indirectly
(through an indemnification agreement or otherwise) to any liability,
including, without limitation, any liability under Sections 412, 4971 or 4980B
of the IRC or Title IV of ERISA.
6.16 Labor Matters. ASB has no collective bargaining, union, or similar
labor agreements, or other arrangements with any employees or group of
employees, labor union, or employee representatives. Olsten does not have any
knowledge of any organizing effort currently being made or threatened by or on
behalf of any labor
A-19
<PAGE>
union or other group with respect to the above-referenced employees. There are
no organized labor controversies, work stoppages or slowdowns pending or, to
the knowledge of Olsten, threatened against ASB. Except as set forth on
Schedule 6.16 hereof, there is no written or, to the knowledge of Olsten, oral
- -------------
contract with any of ASB's employees that cannot be terminated at will and
without liability to ASB.
ASB has substantially complied with all applicable laws and regulations
relating to employment and labor.
As to ASB employees, except as set forth in Schedule 6.9 hereto, there are
------------
no pending or, to the knowledge of Olsten, threatened lawsuits, administrative
proceedings, reviews, or investigations by any person or governmental
authority against ASB with respect to any violation or alleged violation of
any applicable federal, state or local laws, rules, or regulations: (a)
prohibiting discrimination on any basis, including, without limitation, on the
basis of race, color, religion, sex, disability, national origin, or age; or
(b) relating to employment or labor, including, without limitation, those
related to immigration, wages, hours, or collective bargaining; and Olsten has
no knowledge of any facts or conditions concerning such types of matters that
are reasonably likely to result in any material adverse judgment or liability
affecting ASB.
6.17 Intangible Rights. The licenses, permits, and authorizations and the
names, marks, rights and logos set forth in Schedule 6.17 constitute all of
-------------
the intangible rights utilized in or necessary for the conduct of ASB
business, as currently conducted (collectively, the "ASB Intangible Rights").
---------------------
All of the registrations and applications of the ASB Intangible Rights are in
ASB's name, and ASB owns or shall own at the Effective Time and it or its
agents or shall at the Effective Time have the sole right to use the same in
the geographic areas in which they are currently being used in respect of
services with which they are currently being used, and none of such items, or
the use thereof, infringes on the rights of any person or entity. To the
knowledge of Olsten, no individual or entity has any property rights or claims
to have any property rights that infringe upon the ASB Intangible Rights.
6.18 Real Estate and Improvements. Neither ASB nor any of its Affiliates (to
the extent used in ASB's business) owns, purports to own or has ever owned
real property used in its business and its assets do not include any owned
real property. The location, construction, occupancy, operation, and use of
any improvements attached to or placed, erected, constructed, or developed as
a portion of the ASB Branches do not materially violate any applicable
statute, law, ordinance, decree, order, rule, regulation, policy, or
determination of any federal, state, local or other governmental authority of
any board of fire underwriters (or other body exercising similar functions),
or any restrictive covenant or deed restriction affecting any portion of such
property, including, without limitation, any applicable zoning ordinances and
building codes, flood disaster laws, and health and environmental laws, rules
and regulations.
ASB has the right to quiet enjoyment of all real property leased in
connection with its business for the full term of each respective lease and
has all easements and rights of ingress and egress necessary for utilities and
services and for all operations of its business.
6.19 Insurance, Unemployment and Worker's Compensation.
(a) ASB maintains, and for the past five years has maintained, the listed
insurance coverages exceeding the minimum limits set forth below with
insurance companies ASB believes to be financially sound:
<TABLE>
<CAPTION>
COVERAGES MINIMUM LIMITS ($)
--------- ------------------
<S> <C>
Property, Fire & Casualty Value of Property
Workmen's Compensation Statutory
Errors and Omissions (including medical malpractice) 1,000,000
General Liability 1,000,000
Umbrella Liability 10,000,000
</TABLE>
(b) Schedule 6.19 contains a true, correct, and complete listing of all
-------------
pending unemployment claims and worker's compensation claims relating to
employees of ASB as well as all unemployment claims filed by any
A-20
<PAGE>
employees of ASB for the period since January 1, 1994, and worker's
compensation claims filed by any such employees for calendar year 1993 and the
disposition thereof, and ASB's current unemployment and worker's compensation
rates.
6.20 Taxes. Within the times and in the manner prescribed by law, ASB, has
filed all federal, state and local tax returns required to have been filed by
it, and ASB has paid all taxes, assessments, and penalties when due and
payable. At the Effective Time, except for the ASB Permitted Liens and liens
created by the transactions contemplated by this Agreement, there will be no
valid federal, state, or local tax liens or liability (including, without
limitation, liens for sales taxes or personal property taxes) which are not
paid, against any of ASB's assets nor will there be any overdue federal,
state, or local taxes which in any way affect ASB's assets or business. ASB
shall pay, when due, all federal, state, and local taxes attributable to
periods ending on and prior to the Effective Time. ASB has made all payments
and withholdings of taxes and other sums as required by appropriate
governmental authorities and has withheld and paid to the appropriate
governmental authorities, or is holding for payment not yet due to such
authorities, and will pay when due, all amounts required to be withheld from
employees of ASB and is not liable for any arrearages of wages, taxes,
penalties or other sums for failure to comply with any laws, rules, or
regulations relating to the foregoing.
6.21 Conflicts of Interests. Except as set forth on Schedule 6.21 hereof,
-------------
neither ASB nor any of its Affiliates owns, directly or indirectly, an
interest in any corporation (other than as a stockholder of 1% or less of a
publicly traded company's securities), partnership, firm, association, or
other entity that is a competitor, customer, supplier, or landlord of ASB or
that otherwise has business dealings with ASB.
6.22 No Other Agreements. Except in the ordinary course of business and
consistent with past practices, ASB has not entered into any agreement,
commitment, or understanding with any other person with respect to the sale,
transfer, lease, or other disposition of all or any portion of its assets or
business.
6.23 Relationships. Except as set forth on Schedule 6.23 hereof, ASB has
-------------
good relationships with its vendors, suppliers, payors, intermediaries,
clients, employees, contractors, and agents; provided, however, problems in
the relationships with ASB's vendors, suppliers, payors, intermediaries,
clients, employees, contractors, and agents which individually or collectively
do not or would not after the Closing have a materially adverse effect on its
business are not required to be listed on Schedule 6.23 hereof.
-------------
6.24 Certain Payments. Neither ASB nor anyone acting on behalf of ASB is
making or receiving any Sensitive Payments, and no such person has maintained
any unrecorded cash or noncash assets out of which any Sensitive Payments
might be made.
6.25 No Misrepresentations. The representations, warranties, and statements
made by Olsten in or pursuant to this Agreement and the Exhibits and Schedules
hereto are true, complete, and correct in all material respects. None of such
representations, warranties, or statements contains any untrue statements of a
material fact or omits to state any material fact necessary to make any such
representation, warranty, or statement, under the circumstances in which it
was or will be made, not misleading.
7. COVENANTS OF SELLER. For the purposes of Articles 7, 8, 9, and 11 of this
Agreement, "Subject Business" shall mean (a) the NHC Business and the NHC
----------------
Assets with respect to covenants of and actions to be taken by HH or HHHC, and
(b) ASB's business and assets with respect to covenants of and actions to be
taken by Olsten; "Seller" shall mean (a) HH or HHHC, as applicable, with
------
respect to the NHC Business and the NHC Assets and (b) Olsten with respect to
ASB's business and assets; and "party," when referring to HH, shall include
HHHC.
Hooper and Olsten each individually covenants and agrees as to Sections 7.01
through 7.08 and Section 7.14 and 7.15, and Hooper covenants and agrees as to
Sections 7.09 through 7.13, 7.16 and 7.17 as follows (all of which covenants
and agreements shall be conditions to the other party's obligations
hereunder):
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<PAGE>
7.01 Conduct of Subject Business. From the date of execution of this
Agreement to the Effective Time, Seller shall, unless Buyer agrees in writing,
with respect to the Subject Business: (a) operate in the ordinary course and
in accordance with its current methods of transacting business and shall use
its best efforts to preserve the goodwill of the Subject Business and the
goodwill of clients, suppliers, employees, agents, contractors, governmental
authorities, intermediaries, and others having business dealings with the
Subject Business, consistent with past practices and in the ordinary course of
business; (b) not institute a new and material marketing campaign or
materially change its collection practices regarding the Subject Business; (c)
maintain its established advertising and promotion campaigns, and Seller shall
not, other than pursuant to written agreements listed in the Schedules hereto
and provided to the other party, engage in any transactions with Affiliates,
except in the ordinary course of business and consistent with past practices;
(d) maintain all certificates of need, licenses, provider numbers, permits,
certificates, qualifications, authorizations, and registrations that are
required for Seller to carry on the Subject Business in accordance with
Section 7.01(a) above; (e) except for increases in the ordinary course of
business consistent with past practices, not increase the salary, wages,
bonus, commission, fees, or other compensation of any director, officer,
employee, contractor, agent, or representative of the Subject Business (f) not
make or commit to make any capital expenditures, capital additions, or capital
improvements exceeding $25,000 without the prior written approval of the other
party; (g) maintain books of account and records in the usual, regular and
ordinary manner and consistent with past practices; and (h) maintain all
insurance policies and surety bonds, letters of credit, guaranties and similar
instruments and commitments now in place for the benefit of the Subject
Business.
7.02 Cooperation. Prior to the Effective Time, except for conduct exercised
in good faith and in the ordinary course of business, Seller shall not take
any action that would cause the conditions upon the obligations of the parties
to effect the transactions contemplated hereby not to be fulfilled, including,
without limitation, taking or causing to be taken any action that would cause
the representations and warranties made by such party herein not to be true,
correct and complete as of the Effective Time.
7.03 Certain Acts. Prior to the Closing, Seller shall take all reasonable
steps (including, without limitation, the payment of any reasonable fees and
expenses related thereto) that are within its power to cause to be fulfilled
the conditions precedent to the other party's obligations to consummate the
transactions contemplated hereby that are dependent on the actions of Seller
with respect to the Subject Business, including without limitation, obtaining
the consents of any third party or governmental authority, necessary or
desirable to consummate the transactions contemplated hereby.
7.04 Access to Information. Except to the extent Excludable, prior to the
Effective Time, Seller shall permit the authorized representatives of the
other party to have reasonable access to Seller's officers, employees,
contractors, agents, payors, intermediaries, assets, and properties, and all
books, records, and documents of or relating to the Subject Business
(including without limitation a review of those items referred to on the
Schedules to the Agreement) on reasonable notice during normal business hours
and shall make available for inspection or copying by the other party such
information, financial records, and other documents with respect to the
Subject Business as the other party shall reasonably request. Except to the
extent Excludable, Seller shall permit the other party access to Seller's
accountants, auditors, clients, and suppliers for consultation or verification
of any information obtained by the other party and shall use its best efforts
to cause such persons or entities to cooperate with the other party in such
consultation and in verifying such information. In the exercise of its rights
under this Section, the other party shall not unreasonably interfere with the
operations of Seller, the conduct of Subject Business, or the relationship
with Seller's or the Subject Business' customers or employees.
7.05 Repair and Casualty. Prior to the Effective Time:
(a) Consistent with past practices, Seller shall make all normal and
customary repairs to its equipment, assets, and facilities that are utilized
by the Subject Business.
(b) If Seller shall become aware of any material loss, theft, casualty, or
condemnation exceeding $25,000 which affects the Subject Business, Seller
shall promptly advise the other party of such loss, theft, casualty, or
condemnation, as the case may be.
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<PAGE>
(c) If any of the assets of the Subject Business having a market value of
$25,000 or more are lost or stolen or suffer any damage or destruction or are
subject to a condemnation or eminent domain proceeding or order, Seller shall
commence and thereafter diligently pursue the repair, replacement or
reconstruction of such assets. If such repair, replacement or reconstruction
is not completed prior to the Closing and the failure to complete same is
material to Seller, the Subject Business, its assets, or the use, operation,
or maintenance thereof, the other party may elect either to terminate this
Agreement or to proceed with the Closing. If the other party elects to proceed
with the Closing (or if the failure to complete such repair, replacement, or
reconstruction is immaterial to Seller, the Subject Business or the use,
operation, or maintenance thereof, or if any of the assets of the Subject
Business having a market value of $25,000 or more or less are lost or stolen
or suffer any damage or destruction or are subject to a condemnation or
eminent domain proceeding or order after the Closing, but before the Effective
Time) Seller shall, at the Closing or as soon thereafter as is practicable,
assign and transfer to the other party, without any additional consideration
therefor: (1) all insurance proceeds to which Seller is entitled pursuant to
any applicable contract, agreement, policy, or instrument relating to such
lost, stolen, damaged, or destroyed assets, but excluding any proceeds for
loss of business or business interruption; and (2) all condemnation proceeds
to which the Seller is entitled with respect to such condemnation.
Notwithstanding anything to the contrary in this Agreement, either (A) the
Cash Purchase Price shall be (x) reduced by the amount, after subtracting all
insurance and condemnation proceeds received by Olsten pursuant to clauses (1)
and (2) above, necessary to pay for the repair, replacement, or restoration of
any such NHC Assets (which NHC Assets shall be valued at full replacement
cost), or (y) increased by the amount, after subtracting all insurance and
condemnation proceeds received by HH pursuant to clauses (1) and (2) above,
necessary to pay for the repair, replacement, or restoration of any of ASB's
assets (which assets shall be valued at full replacement cost); or (B) Seller
shall pay such amount to the other party at the Closing in immediately
available United States funds.
(d) Seller shall not compromise, adjust, or otherwise settle any property
damage claim made that relates to any of the assets of the Subject Business
and that exceeds $25,000 without the other party's prior written approval.
(e) Seller shall consult with the other party regarding any condemnation or
eminent domain proceedings affecting any of the assets of the Subject Business
in excess of $25,000 and shall not settle, compromise or otherwise terminate
same without the other party's prior written approval.
7.06 Obligation to Maintain Insurance. Unless Seller's insurance is
occurrence-based insurance, for five (5) years after the Effective Time,
Seller shall maintain, at the sole expense of Seller, professional errors and
omissions insurance or tail insurance, with such coverage of at least
$1,000,000 per occurrence, for acts and omissions of Seller relating to the
operation of the Subject Business on and prior to the Effective Time.
7.07 Employees. Seller shall use reasonable efforts to cause the employees
and agents of the Subject Business to make available their employment services
to the other party. For one (1) year after the Effective Time, Seller shall
not, and will not permit any of its Affiliates to hire, contract with, or
employ any former employee of Seller that the other party or any of its
Affiliates employs or offers employment to as of the Effective Time. For two
(2) years after the Effective Time, Seller shall not, and will not permit any
of its Affiliates to, initiate contact for the purpose of soliciting for
employment, any former employee of Seller that the other party employs or
offers employment to as of the Effective Time. The provisions of this Section
shall not apply in the event of responses to general advertisements.
7.08 HSR Act Filing. Seller, in consultation and cooperation with the other
party, will file as promptly as practicable after the date hereof, with the
Federal Trade Commission and the United States Department of Justice, such
filings and documents, with respect to the transactions under this Agreement,
as are required to comply with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR Act"). The cost of all filing fees (which shall
not include legal fees) for the HSR filings shall be borne equally by HH and
Olsten.
A-23
<PAGE>
7.09 Acquisition Proposals. Hooper will not, nor will it authorize or permit
any of its officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants or other representatives to (i) solicit or
otherwise encourage any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal, or agree to or endorse any Acquisition Proposal or (ii) except to
the extent permitted by the last sentence of this Section, engage in
negotiations concerning, provide any nonpublic information to, or have any
discussions with, any person relating to any Acquisition Proposal. HH will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. HH shall immediately notify Olsten of any
negotiations, requests for nonpublic information or discussions with respect
to an Acquisition Proposal and will keep Olsten fully informed of the status
and details of any such Acquisition Proposal, indication or request. As used
in this Agreement, "Acquisition Proposal" means any proposal or offer for a
--------------------
merger or other business combination involving HH or the NHC Business or any
of HH's subsidiaries or any proposal or offer to acquire any equity interest
in, or a material portion of the assets of HH, (including any capital stock of
any of its subsidiaries) other than the transactions contemplated by this
Agreement (a "Business Combination"). Notwithstanding any other provision of
--------------------
this Agreement, nothing contained in this Agreement shall prohibit HH or its
Board of Directors (i) from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2 promulgated under the Exchange Act, or
from making such other disclosures to its stockholders, as based upon advice
of its outside counsel, may be required by law, (ii) from withdrawing,
modifying or changing its recommendations to HH's stockholders with respect to
the transactions contemplated by this Agreement or (iii) from taking,
authorizing or permitting any action or actions in response to or in
connection with any Acquisition Proposal, or any action contemplated by clause
(ii) of the first sentence of this Section, if, based upon the written opinion
of its outside counsel, the failure to do so would violate its fiduciary
duties to the holders of HH's common stock under applicable law.
7.10 Transition Services. HH agrees to make available to Olsten, at charges
equal to HH's cost, such services as may be reasonably required by Olsten for
the conduct of the NHC Business after the Closing and for purposes of
assisting Olsten in the transition of ownership of the NHC Business for a
period of up to 12 months after Closing, including, without limitation,
payroll, billing, accounts receivable and general accounting systems, and the
services of certain employees to be retained by HH and previously identified
by HH and Olsten. The terms and conditions of such services shall be
determined by mutual agreement.
7.11 Franchisees, Licensees, Joint Ventures and Other Third Parties. HH
will, following the Closing, use its reasonable efforts to cause the parties
identified as licensees or franchisees in Schedule 5.12(d) to amend their
----------------
existing agreements with HH or to enter into agreements with Olsten on terms
substantially the same as those currently maintained by Olsten with similar
third parties.
7.12 Medicare Cost Reports. Within forty-five (45) days after the Closing
Date, HH shall prepare and file a final cost report with Medicare with respect
to its or HHHC's ownership and operation of the Medicare certified NHC
Branches through the Closing Date. Upon receipt by HH or HHHC of any
reimbursements made by Medicare related to the operations of the NHC Branches
(other than the Columbus Office) prior to the Effective Time to the extent
reflected on the NHC Closing Statement or related to the ownership or
operation of the NHC Branches from and after the Closing Date, HH will, within
ten (10) business days of receipt of such reimbursement, pay to Olsten an
amount equal to such reimbursement.
7.13 HH Proxy Statement and Shareholders Meeting. As soon as practicable
after the date hereof, HH shall file with the Securities and Exchange
Commission a proxy statement (the "Proxy Statement") relating to a special
meeting of its shareholders to be called for the purpose of voting on the sale
of the NHC Business and the NHC Assets contemplated by this Agreement, which
meeting shall be held as soon as practicable. HH shall use its best efforts to
hold such meeting not later than September 30, 1995. HH agrees that the Proxy
Statement shall contain disclosure regarding the existence and the general
nature of any Investigation.
7.14 Pre-Closing Financial Statements. Seller shall deliver to the other
party balance sheets and statements of income for the Subject Business
relating to each monthly period ending after the NHC Balance
A-24
<PAGE>
Sheet Date or the ASB Balance Sheet Date, as the case may be, and prior to the
Closing Date (except any such period ending less than 30 days prior to the
Closing Date). Each such financial statement (each a "NHC Pre-Closing Balance
-----------------------
Sheet" and a "ASB Pre-Closing Balance Sheet," respectively) shall present
- ----- -----------------------------
accurately the financial condition and results of the Subject Business as of
the dates thereof and for the periods indicated, and shall be prepared from
the books and records of the Subject Business in accordance with the generally
accepted accounting principles (except as specified in Schedule 5.07 or
-------------
Schedule 6.07) and on a basis consistent with the NHC Unaudited Balance Sheets
- -------------
or the ASB Unaudited Balance Sheets, as the case may be.
7.15 Amendments to Schedules. On or prior to June 30, 1995, each of Hooper
and Olsten shall amend its Schedules contained in Articles 5 and 6 of this
Agreement, respectively (and deliver such amended Schedules to the other party
hereto) by making such additions to or deletions from the Schedules delivered
by such party as are necessary to reflect those matters occurring prior to
June 30, 1995.
7.16 HH Stockholder Rights Plan. If the transactions contemplated by this
Agreement would result in any rights arising under HH's Stockholder Rights
Plan, HH shall amend such plan so that no such rights shall arise in
connection with such transactions.
7.17 Investigations. (a) From and after the date hereof, except to the
extent Excludable, HH shall promptly: (i) advise Olsten of all actions taken
or developments occurring with respect to any Investigation (as defined in
Section 5.09 hereof), including, without limitation, any modification to or
expansion of the nature or scope of any Investigation; and (ii) provide to
Olsten copies of all documents, including, without limitation, all subpoenas,
demands, document requests, interrogatories and the like, received by HH or
any of its Affiliates from or correspondence delivered to any governmental or
administrative agency with respect to any Investigation. From and after the
Effective Date, except to the extent Excludable, each party shall provide the
other party with reasonable cooperation with respect to any Investigation.
(b) If at any time prior to the Effective Time, HH or HHHC becomes aware of
any facts, circumstances or developments with respect to an Investigation
which could reasonably be expected to prevent the representations or
warranties contained in Section 5.08(k) or Section 5.09 hereof from being true
and correct as of such time, HH and HHHC shall, to the extent not Excludable,
provide Olsten with notice thereof in such reasonable specificity as shall
permit Olsten to determine the existence and nature of such facts
circumstances or developments.
(c) In the event that, following the Effective Time, HH or HHHC becomes
aware of any facts, circumstances or developments with respect to an
Investigation which could reasonably be expected to materially limit or
restrict or materially and adversely impact on Olsten's operation and conduct
of the NHC Business from and after the Effective Time and the documents,
correspondence, communication or information with respect to such facts,
circumstances or developments are Excludable, HH shall: (i) provide Olsten
with notice of the existence thereof in such specificity as will not cause HH
or HHHC to waive the attorney-client and/or work product privileges with
respect thereto; and (ii) enter into mutually acceptable arrangements in order
to permit HH or HHHC to disclose such facts, circumstances or developments
without causing HH or HHHC to waive the attorney-client and/or work product
privileges with respect thereto, including, without limitation, entering into
a joint defense agreement or jointly retaining independent legal counsel.
(d) In the event that, following the Effective Time, HH or HHHC intends to
take any action with respect to any Investigation which could reasonably be
expected to materially limit or restrict or materially and adversely impact
Olsten's operation and conduct of the NHC Business from and after the
Effective Time, including, without limitation, entering into any settlement,
compromise, consent decree or the like with any government agency with respect
to such Investigation, HH and HHHC shall, prior to taking any such action: (i)
provide Olsten with notice thereof and consult with Olsten regarding the
possible effect of such action by HH or HHHC on Olsten's operation and conduct
of the NHC Business from and after the Effective Time; and (ii) in good faith,
consider and take Olsten's comments, concerns and suggestions into account
prior to taking any such action.
A-25
<PAGE>
(e) Nothing contained in this Agreement shall, or shall be construed to,
transfer control of any applicable privilege (including, without limitation,
the attorney-client and/or work product privileges) of HH principally related
to the operation of the NHC Business prior to the Closing Date.
(f) Following the Closing, Olsten may, without any responsibility to HH or
HHHC hereunder, provide any investigative authority with any cooperation
Olsten believes is reasonably appropriate in connection with any Investigation
or Proceeding, including, without limitation, responding to document requests,
subpoenas, interrogatories and the like; provided, however, that (x) to the
extent practicable, Olsten shall provide HH with notice thereof and an
opportunity to seek a protective order or other appropriate relief with
respect to the provision of information by Olsten with respect to the
Investigation in an appropriate forum and (y) Olsten shall use its best
efforts to comply with its obligations under Sections 7.17(a), 12.04 and 14.16
hereof.
7.18 Certain Tax Returns of ASB. (a) Olsten shall cause ASB to be included
in the consolidated federal Income Tax Returns that include Olsten for all
periods for which ASB is required to be so included, including but not limited
to the period from and including January 1, 1995 to and including the Closing
Date, and in any other required state or local consolidated, affiliated,
combined, unitary or other similar group Income Tax Returns that include
Olsten or any affiliate of Olsten, for all Pre-Closing Periods for which ASB
is required to be so included. HH shall cause ASB to prepare and deliver to
Olsten, on a timely basis, all information necessary in Olsten's judgment to
prepare all Income Tax Returns required to be prepared and filed or caused to
be prepared and filed by Olsten hereunder.
(b) Any Income Taxes with respect to ASB that relate to a tax period
beginning before the Closing Date and ending after the Closing Date (an
"Overlap Period") shall be allocated between Olsten and HH as determined from
the books and records of ASB during the portion of such period ending on the
Closing Date and the portion of such period beginning on the date following
the Closing Date, and based on accounting methods, elections and conventions
then in effect and which are consistent with past Tax accounting practices
except to the extent HH and Olsten mutually agree in writing to a change of
said methods, elections, conventions or practices. HH shall cause ASB to file
any Income Tax Returns for any Overlap Period and pay, or cause to be paid,
when due any Income Taxes shown as due on any such Returns. Olsten shall pay
HH its share of any income taxes (to the extent Olsten is liable therefore in
accordance with this paragraph (b) and to the extent not already paid by
Olsten or ASB) due pursuant to the filing of any such Returns under the
provisions of this paragraph (b). HH shall pay to Olsten, the amount, if any,
by which Olsten's calculated share of Overlap Period Income Taxes is less than
the amounts already paid by Olsten or ASB.
7.19 Certain ASB Employment Matters. (a) After the Closing Date, Olsten
agrees to reimburse HH for any amount paid by ASB to the employee listed on
Schedule 7.19(a) hereto pursuant to the letter agreement between ASB and such
employee dated April 14, 1995 regarding the change of control of ASB, which
amount shall be paid by Olsten within five (5) days following notice by HH to
Olsten that ASB has terminated such employee.
(b) In the event that any of the employees listed on Schedule 7.19(b) hereto
(each a "Covered Employee") is terminated by ASB within ninety (90) days
----------------
following the Closing Date, Olsten shall reimburse HH the amount, if any, by
which (i) the amount paid by ASB to the Covered Employee pursuant to the
letter agreement between ASB and such employee dated April 14, 1995 regarding
the change of control of ASB (the "Covered Employee Letter") exceeds (ii) one
-----------------------
month's base salary of such Covered Employee (assuming for such purpose a base
salary at the rate paid by ASB to such Covered Employee immediately prior to
the Closing Date), which amount shall be paid by Olsten within five (5) days
following notice by HH to Olsten that ASB has terminated such Covered
Employee.
(c) In the event that any Covered Employee is terminated by ASB following
the 90th day following the Closing Date, Olsten shall reimburse HH an amount
equal to 50% of the amount, if any, paid by ASB to such Covered Employee
pursuant to applicable Covered Employee Letter, if any.
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<PAGE>
(d) Notwithstanding the foregoing, in no event shall Olsten be required to
reimburse HH for any amount pursuant to paragraphs (b) or (c) above in excess
of amounts that would have been payable by Olsten pursuant thereto if the base
salary paid by ASB to a Covered Employee at the time of the termination of
such Covered Employee's employment with ASB was the same as such Covered
Employee's base salary immediately prior to the Closing Date.
(e) HH agrees to provide Olsten with prior notice of its intention to
terminate the employment of any Covered Employee. At Olsten's option,
following the Closing and at the time of the termination of the employment of
any Covered Employee, Olsten shall have the right to negotiate with such
Covered Employee regarding the amount payable by ASB to such Covered Employee
pursuant to the applicable Covered Employee Letter.
7.20 ASB Intercompany Obligations. Olsten agrees that, immediately prior to
the Closing, Olsten shall forgive all intercompany liabilities and obligations
owed by ASB to Olsten as of the Closing Date, which amounts so forgiven shall
be deemed to constitute a capital contribution to ASB.
7.21 Certain Assets and Liabilities. At Olsten's option, at the Closing,
Olsten may exclude from the NHC Assets the agreement listed on Schedule 7.21
hereto and may exclude from the Specified Liabilities any liability related to
such agreement, including, without limitation, any lawsuit related thereto.
8. COVENANTS OF BUYER. For the purposes of Articles 8, 9, and 11 of this
Agreement, "Buyer" shall mean (a) Olsten with respect to the NHC Business and
-----
the NHC Assets, and (b) HH with respect to ASB's business and assets and the
ASB Shares. Buyer covenants and agrees as follows (which covenants and
agreements shall be conditions to Seller's obligations hereunder):
8.01 Cooperation. Prior to the Effective Time, except for conduct exercised
in good faith and in the ordinary course of business, Buyer shall not take any
action that would cause the conditions upon the obligations of the parties to
effect the transactions contemplated hereby not to be fulfilled, including
without limitation, taking or causing to be taken, any action that would cause
the representations and warranties made by Buyer herein not to be true,
correct, and complete as of the Effective Time.
8.02 Certain Acts. Prior to the Closing, Buyer shall take all reasonable
steps (including, without limitation, the payment of any reasonable fees and
expenses related thereto) that are within its power to cause to be fulfilled
the conditions precedent to the other party's obligations to consummate the
transactions contemplated hereby that are dependent upon the actions of Buyer.
8.03 HSR Act Filing. Buyer, in consultation and cooperation with the other
party, will file as promptly as practicable after the date hereof with the
Federal Trade Commission and the United States Department of Justice such
filings and documents, with respect to the transactions under this Agreement,
as are required to comply with the HSR Act. The cost of all filing fees (which
shall not include legal fees) for the HSR filings shall be borne equally by HH
and Olsten.
9. CONDITIONS TO OBLIGATIONS. The obligations of each party under this
Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions, but compliance with any of such conditions may be waived
by Buyer in writing.
9.01 Representations and Warranties True; Conditions Satisfied. All
representations and warranties of the other party contained in this Agreement
and the Schedules hereto (as such Schedules have been amended or modified (in
accordance with Section 7.15 hereof)) shall be true and correct at and as of
the Closing with the same effect as though such representations and warranties
were made at and as of the Closing; the other party shall have performed and
complied with all the covenants and agreements and satisfied all of the
conditions required by this Agreement to be performed, complied with, or
satisfied by them at or prior to the Closing; and Buyer shall have received a
certificate to the foregoing effect from both the President or any Vice
President and the Chief Financial Officer of the other party.
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<PAGE>
9.02 Litigation. There shall be no pending or threatened litigation in any
court or any proceeding before or by any administrative or governmental
authority to restrain or prohibit or obtain damages or other relief with
respect to this Agreement or the consummation of the transactions contemplated
hereby or as a result of which, in the reasonable judgment of Buyer, Buyer
could be deprived of any of the material benefits of the transactions
contemplated hereby.
9.03 Permits and Licenses. Buyer shall have obtained all permits, licenses,
approvals and other authorizations necessary to be obtained by Buyer in order
to be permitted to use the assets of the Subject Business purchased from
Seller in Buyer's operations and to operate the Subject Business, except to
the extent that failure to obtain such permits, licenses, approvals or
authorizations would not have a material adverse effect on Buyer's ability to
use such assets or operate the Subject Business in a manner substantially
consistent with the manner in which the Subject Business was operated by the
Seller.
9.04 No Material Adverse Changes. Since the date of this Agreement, there
shall not have occurred any material adverse change in the condition
(financial or otherwise), business properties, assets, or prospects of the
Subject Business and Buyer shall have received a certificate to the foregoing
effect from both the President or any Vice President and Chief Financial
Officer of Seller, or ASB in the case of ASB.
9.05 Expiration of HSR Act Waiting Period. The waiting period or periods
with respect to the transactions contemplated hereby shall have expired or
been terminated under the HSR Act.
9.06 Liens. Olsten shall have received evidence, reasonably satisfactory to
Olsten, that all liens, mortgages, claims, encumbrances charges on and
security interests in the NHC Assets, including, without limitation, the lien
on such assets in favor of the Bank, other than Permitted Liens, shall have
been released, terminated and discharged.
9.07 Stockholder Approval. The sale of the NHC Business and the NHC Assets
contemplated hereby shall have been approved by the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of HH's common
stock.
10. [INTENTIONALLY LEFT BLANK]
11. COVENANTS NOT TO COMPETE AND NOT TO DISPARAGE.
11.01 Terms of Covenants. Seller hereby covenants, as follows:
(a) Noncompetition. (i) For a period of five years following the Effective
Time, neither HH, HHHC nor any of their Affiliates, directly or indirectly, on
its own behalf or on behalf of any competitor of Olsten or any of its
Affiliates shall: (1) engage, whether as owner, partner, stockholder (except
as a stockholder of 5% or less of a publicly traded company's securities),
joint venturer, manager, investor, employee, contractor, or otherwise, in the
business of performing any of the services currently performed by the NHC
Business ("NHC Services") anywhere within the United States of America (the
------------
"NHC Market"); (2) influence or attempt to influence any client or potential
----------
client of Olsten or any of its Affiliates in the NHC Market to purchase,
acquire, or contract for any NHC Services other than from Olsten or its
Affiliates; or (3) affiliate with any business or firm that is in competition
with Olsten or any of its Affiliates in the NHC Market, for the purpose of
providing NHC Services hereunder.
(ii) For a period of five years following the Effective Time, neither Olsten
nor any of its Affiliates, directly or indirectly, on its own behalf or on
behalf of any competitor of HH or any of its Affiliates shall: (1) engage,
whether as owner, partner, stockholder (except as a stockholder of 5% or less
of a publicly traded company's securities), joint venturer, manager, investor,
employee, contractor, or otherwise, in the business of performing paramedical
examinations and related services to the life and health insurance industries
("ASB Services") anywhere within the United States of America (the "ASB
------------ ---
Market"); (2) influence or attempt to influence any client or potential client
- ------
of HH or any of its Affiliates in the ASB Market to purchase, acquire, or
contract for any ASB Services other than from HH or its Affiliates; or (3)
affiliate with any business or firm that is in
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<PAGE>
competition with HH or any of its Affiliates in the ASB Market, for the
purpose of providing ASB Services hereunder.
(b) Non-Disparagement. At no time shall any of the executive officers of
Seller disparage Buyer. At no time shall any of the executive officers of
Buyer disparage Seller.
11.02 Consideration. Buyer acknowledges that the benefits to be derived by
it from payment of the consideration to be received hereunder constitutes full
and adequate consideration for its covenants set forth in Section 11.01 above.
11.03 Remedies; Curtailment. In the event of a violation of the covenants
set forth in Section 11.01 above, Buyer shall be entitled to injunctive relief
against the party that committed the violation in addition to any other legal
or equitable remedies that may be available, and without the necessity of
proving monetary damages. If any portion of the covenants in Section 11.01 is
deemed invalid in part or in whole, it shall be curtailed, whether as to time,
area covered, or otherwise, as and to the extent required for its validity
under applicable law and, as so curtailed, shall be enforceable.
Seller acknowledges that this Article 11 and the obligations of Sellers
hereunder were a material inducement and condition to Buyer's entering into
this Agreement and performing the transactions contemplated hereby.
11.04 Limited License to Use Tradename, Service Marks and Logos. HH hereby
grants to Olsten, and Olsten shall have, for the period of up to one (1) year
commencing on the Closing Date, the non-exclusive right and license to use
HH's tradename, service marks and logos as shown on Schedule 11.04 ("Marks")
--------------
within the NHC Market, in connection with the operation of the NHC Branches
during such period. HH expressly reserves the sole and exclusive ownership of
the Marks covered by this Section. On the termination of one (1) year from the
Closing Date, Olsten shall discontinue use of such Marks. From and after the
Closing Date, neither HH nor HHHC shall use the name "Nurses House Call" or
any variation thereof or any marks or logos related thereto.
12. INDEMNIFICATION.
12.01 Olsten's Right to Indemnification. HH and HHHC, jointly and severally,
shall indemnify and hold Olsten and its Affiliates harmless from any and all
liabilities, obligations, claims, damages, costs, and expenses (including,
without limitation, all court costs and reasonable attorneys' fees and
disbursements) (excluding those associated with the collection of accounts
receivable in accordance with the provisions of the Receivables Agreement)
(collectively, "Losses") exceeding Twenty Five Thousand Dollars ($25,000) in
the aggregate, other than the Specified Liabilities, which Olsten and its
Affiliates may suffer or incur arising out of or relating to: (a) the breach
or inaccuracy of any of the representations, warranties, covenants, or
agreements made by HH or HHHC herein (except that with respect to the
representations and warranties contained in Section 5.04(c), HH's
responsibilities shall be subject to and in accordance with the Escrow
Agreement and the Accounts Receivable Collection Agreement attached hereto as
Exhibit 12.01; (b) any Investigation or Proceeding (for which purpose (and
without otherwise limiting the definition of Losses) Losses shall specifically
include, without limitation, all court costs and reasonable attorneys' fees
and disbursements, and all reasonable accountants' fees, salaries or wages of
employees, allocated overhead, transportation or travel expenses and storage
and duplicating costs, all such costs and expenses incurred in connection with
any internal document review or any document production, attendance at
meetings and negotiations with respect to any such Investigations or
Proceedings); (c) any lawsuit, claim, or proceeding of any nature (i) relating
to HHHC, HH or any of their Affiliates, the NHC Business or the NHC Assets and
arising out of any act or omission of HHHC, HH or their Affiliates occurring
prior to the Effective Time or arising out of any facts or circumstances that
existed at or prior to the Effective Time, or (ii) relating to ASB and arising
out of any act or omission of HH, HHHC or any of their Affiliates occurring
after the Effective Time, except to the extent such lawsuits, claims, or
proceedings result from Olsten's own negligent or willful acts or omissions;
(d) any income or other tax assessed against HHHC, HH or its Affiliates
arising out of, or resulting from, the sale of the NHC Assets or the purchase
of ASB hereunder (except as otherwise
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<PAGE>
expressly provided herein), or arising out of or resulting from the
operations, transactions or activities of HHHC, HH, or the NHC Business prior
to the Effective Time, or of ASB or its Affiliates after the Effective Time,
or any income derived by HHHC, HH or the NHC Business prior to the Effective
Time, or by ASB after the Effective Time; (e) any wages, salaries, bonuses,
commissions, rebates, expenses, benefits, and compensation, fees, and other
liabilities, obligations, claims, of any nature (including, without
limitation, vacation or vacation pay, sick leave or sick pay, worker's
compensation, unemployment compensation, or liabilities under any profit-
sharing, pension, stock option, severance, retirement, bonus, deferred
compensation, group life and health insurance, or other Employee Benefit Plan,
or under any trust, agreement, or arrangement) due or payable at any time
whatsoever to any director, officer, employee, contractor, agent, or
representative of (i) HHHC, HH or the NHC Business, including, without
limitation, any of such persons terminated by HHHC, HH or any of their
Affiliates at or prior to the Effective Time and any of such persons hired by
Olsten as of the Effective Time, in connection with their services to or
employment by HHHC, HH or any of their Affiliates prior to the Closing, or
(ii) HH, HHHC or ASB, including without limitation any of such persons
terminated by Olsten or ASB at or prior to the Effective Time who were hired
by HH, HHHC or ASB as of the Effective Time, in connection with their services
to or employment by HH, HHHC or ASB after the Effective Time; in either case,
(f) any other liabilities or obligations of HH or any of its Affiliates not
expressly assumed by Olsten pursuant to this Agreement; (g) any violation, or
alleged violation, of any state's bulk sales or transfers act related to the
transactions contemplated herein; and (h) the liabilities of ASB reflected on
the ASB Closing Statement.
12.02 HH's Right to Indemnification. Olsten agrees to indemnify and hold HH
and HHHC harmless from any and all Losses exceeding Twenty Five Thousand
Dollars ($25,000), that HH or HHHC may suffer or incur arising out of or
relating to: (a) the breach or inaccuracy of any of the representations,
warranties, covenants, or agreements made by Olsten herein; (b) any lawsuit,
claim, or proceeding of any nature (i) relating to the NHC Business or the NHC
Assets and arising out of any act or omission of Olsten, occurring after the
Effective Time or arising out of any facts or circumstances that existed at or
after the Effective Time, except to the extent such lawsuits, claims, or
proceedings result from HH's, HHHC's or any of their Affiliates' own negligent
or willful acts or omissions, or (ii) relating to ASB or any of its Affiliates
and arising out of any act or omission of Olsten or its Affiliates occurring
prior to the Effective Time or arising out of any facts or circumstances that
existed at or prior to the Effective Time; (c) the Specified Liabilities; (d)
any income or other tax assessed against Olsten arising out of, or resulting
from, the sale of the ASB Shares or the purchase of the NHC Business or the
NHC Assets hereunder (except as otherwise expressly provided herein), or
arising out of or resulting from the operations of Olsten after the Effective
Time, any transaction or activity of Olsten after the Effective Time, or any
income derived by Olsten after the Effective Time; (e) any wages, salaries,
bonuses, commissions, rebates, expenses, benefits, and compensation, fees, and
other liabilities, obligations, claims, of any nature (including, without
limitation, vacation or vacation pay, sick leave or sick pay, worker's
compensation, unemployment compensation, or under any profit-sharing, pension,
stock option, severance, retirement, bonus, deferred compensation, group life
and health insurance, or other Employee Benefit Plan, or under any trust,
agreement, or arrangement) due or payable at any time whatsoever to any
director, officer, employee, contractor, agent, or representative of Olsten,
including, without limitation, any of such persons terminated by HH at or
prior to the Effective Time who were hired by Olsten as of the Effective Time,
in connection with their services to or employment by Olsten after the
Effective Time, accrued after the Effective Time.
12.03 Notice. The party seeking indemnification hereunder ("Indemnitee")
----------
shall promptly, and within 15 days after notice to it (notice to Indemnitee
with respect to third-party claims being the filing of any legal action,
receipt of any claim in writing, or similar form of actual notice) of any
claim as to which it asserts a right to indemnification, notify the party or
parties from whom indemnification is sought ("Indemnitor") of such claim.
----------
Indemnitee shall set forth in each such notice the section of this Agreement
under which the indemnification is claimed, factual support and information
regarding the claim, and the amount of such claim. Indemnitor shall have the
right to object to all or any part of the claim by providing notice to
Indemnitees within 15 days of the receipt thereof. If Indemnitor does not
respond within 15 days of receipt of the notice, then such claim shall
constitute final and binding acceptance of the claim. If Indemnitor objects to
all or any part of a claim and Indemnitee does not agree with Indemnitor's
objection, then the claim shall be arbitrated as contemplated in Section 14.15
hereof.
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Once a claim has been accepted, whether for failure to object, through
negotiation or mediation, Indemnitee shall bill Indemnitor for any such claims
no more frequently than on a monthly basis, and Indemnitor shall promptly pay
Indemnitee upon receipt of any such bill. The failure of Indemnitee to give
such notice under this Section shall not relieve Indemnitor from any liability
that it may have pursuant to this Agreement except to the extent the failure
to give such notice within such time shall have been prejudicial to it, and in
no event shall the failure to give such notice relieve Indemnitor from any
liability it may have other than pursuant to this Agreement. Except for a
claim made under Sections 4.04, 5.04(a), 5.09, 5.10, 5.11, 5.15, 5.20, 5.24,
5.25, 6.03, 6.04(a), 6.09, 6.10, 6.11, 6.15, 6.20, 7.06, 7.10, 7.12, 7.17,
7.18, 7.19, 11.01, 11.03, Article 12, 14.01, 14.02, 14.03, 14.04, 14.06,
14.07, 14.12, 14.14, 14.15 or 14.16 hereof, which notice may be given at any
time during the statutory period, the notice of any other claim must be given
to the Indemnitor prior to the second anniversary of the Closing Date or the
indemnities in Section 12.01 and Section 12.02 shall cease.
12.04 Third-Party Claims. If any claim for indemnification by Indemnitee
arises out of a claim for monetary damages by a person other than Indemnitee,
Indemnitor may, by written notice to Indemnitee, undertake to conduct any
proceedings or negotiations in connection therewith or necessary to defend
Indemnitee and take all other steps or proceedings to settle or defeat any
such claims or to employ counsel to contest any such claims; provided,
however, that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense of such claims, and Indemnitee shall have the right to
participate, at its own expense, in such defense, but control of such
litigation and settlement shall remain exclusively with Indemnitor. Indemnitee
shall provide all reasonable cooperation in connection with any such defense
by Indemnitor. Counsel and auditor fees, filing fees, and court fees in all
proceedings, contests, or lawsuits with respect to any such claim or asserted
liability shall be borne by Indemnitor. Notwithstanding the foregoing (and
without limiting Section 7.17 hereof), if the claim to indemnification relates
to (i) any Investigation or Proceeding and any governmental or administrative
authority or agency has asserted, brought or commenced any claim, charge,
audit, complaint, action, suit, proceeding, hearing, investigation, claim or
demand against Olsten or any of its Affiliates in connection therewith or (ii)
with respect to any other claim to indemnification with respect to which
Indemnitor does not elect to undertake the defense thereof, by written notice
to Indemnitor, Indemnitee shall be entitled to control such litigation and
settlement and shall be entitled to indemnity with respect thereto pursuant to
the terms of this Article 12. To the extent that Indemnitor undertakes the
defense of such claim by written notice to Indemnitee and diligently pursues
such defense at its expense, Indemnitee shall be entitled to indemnification
hereunder only to the extent that such defense is unsuccessful as determined
by a final judgment of a court of competent jurisdiction, or by written
acknowledgement of the parties.
13. TERMINATION.
13.01 Events of Termination. This Agreement and the transactions
contemplated hereby may be terminated and abandoned:
(a) at any time prior to the Closing by mutual written consent of the
Board of Directors of Olsten and the Board of Directors of HH;
(b) subject to Section 13.02 below, by either party if a condition to its
performance hereunder shall not be satisfied or waived in writing at the
Closing;
(c) by either party if a final, non-appealable judgment has been entered
against it or its respective Affiliates restraining, prohibiting, declaring
illegal or awarding substantial damages in connection with the transactions
contemplated hereby;
(d) by either party at any time on or prior to the earlier of (i) July
15, 1995 or (ii) the twentieth (20th) business day following the date on
which the other party delivers amended Schedules to the terminating party
in accordance with Section 7.15 hereto, in either case, in the event that
the terminating party reasonably determines that the amended Schedules,
individually or in the aggregate, are materially adversely different from
those delivered upon the execution of this Agreement.
(e) by either party, if the Closing does not occur on or before October
31, 1995;
(f) by Olsten, if a Trigger Event (as defined in Section 14.06) shall
have occurred;
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<PAGE>
(g) by HH if HH or HHHC receives from any person other than Olsten or its
Affiliates an offer with respect to an Acquisition Proposal and the Board
of Directors of HH so terminates after receipt of a written opinion from
its outside counsel that to cause HH to proceed with the transactions
contemplated hereby in light of the receipt of such offer, would violate
the Board of Directors' fiduciary duties to HH's stockholders;
(h) by either party if any required approval of the stockholders of HH
shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders of at
any adjournment thereof; or
(i) by either party at any time on or prior to the twentieth (20th)
business day following the day of this Agreement in the event that such
party reasonably determines that it is not satisfied with the results of
its due diligence investigation of the Subject Business; or
(j) by Olsten in the event that: (i) Olsten reasonably determines that
the nature or scope of, or remedies sought with respect to, any
Investigation has or might reasonably be expected to have a material
adverse effect on the NHC Business or the NHC Assets; (ii) Olsten becomes
aware of any facts, circumstances or developments with respect to an
Investigation which could reasonably be expected to materially limit or
restrict or materially and adversely impact Olsten's operation and conduct
of the NHC Business from and after the Effective Time; or (iii) any
Proceeding is initiated by any governmental or administrative agency or
authority based upon or related to substantially similar facts,
circumstances or substance as those of any Investigation.
13.02 Limitation on Right to Terminate. A party shall not be allowed to
exercise any right of termination pursuant to Section 13.01(b) above if the
event giving rise to the termination right shall be due to the material and
willful breach of this Agreement by such party seeking to terminate this
Agreement to perform or observe in any material respect any of the covenants
or agreements set forth herein to be performed or observed by such party.
13.03 Rights Upon Termination. If this Agreement is terminated as permitted
under this Article 13, such termination shall be without liability of or to
any party to this Agreement (except pursuant to this Article 13 and to
Sections 14.02, 14.06 and 14.07, which shall survive such termination). In any
such event, except as otherwise expressly provided in this Agreement, all
parties hereto shall thereupon be relieved of all further obligations to each
other hereunder.
14. MISCELLANEOUS.
14.01 Notices. All notices that are required or may be given pursuant to the
terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and delivered personally or by registered or
certified mail, postage prepaid, to the parties at the following addresses (or
to such other address as any party shall provide to the other parties in
writing):
If to Olsten:
Olsten Kimberly QualityCare
175 Broad Hollow Road
Melville, New York 11747-8905
Attention: Robert A. Fusco, President
With copies to:
Nancy F. Lanis, Esq.,
Vice President & Assistant General Counsel
Olsten Kimberly QualityCare
175 Broad Hollow Road
Melville, New York 11747-8905
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<PAGE>
If to HH:
Hooper Holmes, Inc.
170 Mount Airy Road
Basking Ridge, New Jersey 07920
Attention: Fred Lash, Senior Vice President,
Chief Financial Officer and Treasurer
With copies to:
Terence P. Quinn, Esq.
Steptoe & Johnson
1330 Connecticut Avenue NW Suite 400
Washington, D. C. 20005
Any notice or demand to be given or that may be given hereunder shall be
deemed to have been given: (a) five (5) days after mailing, if such notice or
demand is deposited in the United States Mail, certified, return receipt
requested, with proper postage affixed thereto; (b) upon the first business
day after depositing any such notice or demand with Federal Express, Express
Mail or other expedited mail or package delivery service guaranteeing delivery
no later than the next business day, or (c) the date of hand delivery to the
appropriate address as herein provided if a receipted copy is retained upon
delivery.
Any party hereto may change the address provided hereinabove or the person
to whose attention such notice is to be given by notice in writing to the
other parties in the manner provided in this Section.
14.02 [Intentionally Omitted]
14.03 Survival. Except for the statements, representations, warranties,
indemnities, covenants, and agreements contained in Sections 4.04, 5.04(a),
5.09, 5.10, 5.11, 5.15, 5.20, 5.24, 5.25, 6.03, 6.04(a), 6.09, 6.10, 7.06,
7.10, 7.12, 7.17, 7.18, 7.19, 11.01, 11.03, Article 12, 14.01, 14.02, 14.03,
14.04, 14.06, 14.07, 14.12, 14.14, 14.15 and 14.16 hereof, which shall survive
the Closing for the statutory period, the remaining statements,
representations, warranties, indemnities, covenants, and agreements contained
in this Agreement shall survive the Closing but shall expire on the second
anniversary of the Effective Time.
14.04 Further Assurances. Each party hereto agrees to execute any and all
documents and to perform such other acts as may be necessary or expedient to
further the purposes of this Agreement and the transactions contemplated
hereby, including without limitation, those documents and acts required in, or
to obtain consents referred to in, Sections 5.06, 5.12, 9.03 and 14.16 hereof.
14.05 Publicity. HH and Olsten shall cooperate with each other in the
development and distribution of all news releases and other public disclosures
relating to the transactions contemplated hereby. Neither HH nor Olsten shall
issue or make, or cause to be issued or made, any press release or
announcement concerning the transactions contemplated hereby without the
advance review and opportunity to comment upon the form and substance thereof
by the other party hereto, unless otherwise required by law or by the rules
and regulations of the New York or American Stock Exchanges.
14.06 Fees and Expenses.
(a) Except as otherwise stated herein, each of the parties hereto shall,
whether or not the transactions contemplated hereby are consummated, bear its
own attorneys', accountants', auditors', or other fees, costs, and expenses
incurred in connection with the negotiation, execution, and performance of
this Agreement or any of the transactions contemplated hereunder.
(b) HH agrees to pay Olsten a fee in immediately available funds equal to
$3,750,000 promptly, but in no event later than two business days, after any
termination of this Agreement (x) by Olsten as permitted under Section
13.01(f), as a result of the occurrence of any of the events set forth in
clause (i) and (ii) of this Section 14.06(b) (each such event, a "Trigger
-------
Event") or (y) by HH, pursuant to Section 13.01(g):
- -----
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(i) The Board of Directors of HH shall have withdrawn or materially
modified its approval or recommendation of this Agreement for any reason;
or
(ii) This sale of the NHC Business and the NHC Assets contemplated by
this Agreement shall not have been approved by any requisite vote of HH
stockholders in circumstances where (a) an offer or proposal to effect an
Acquisition Proposal with or for HH or any of its subsidiaries has been
publicly announced or (b) any person or group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") ("Group") (other than Olsten or any of its Affiliates) shall have
-----
become a beneficial owner (as defined in Rule 13d-3 promulgated under the
Exchange Act) of at least 15% of the outstanding shares of HH Common Stock
(a "Beneficial Owner"), or any person or group shall have commenced, or
shall have publicly announced its intention to commence, a tender or
exchange offer for at least 25% of the outstanding shares of HH's common
stock unless at least five days prior to the latest scheduled date for HH's
meeting of stockholders at which the transactions contemplated by this
Agreement will be voted upon, such person or Group publicly announces its
withdrawal of such offer or intention not to commence such tender or
exchange offer (or transaction having similar purpose or effect).
(c) In the event that this Agreement is terminated pursuant to Section
13.01(e) and, within one year after such termination, HH or HHHC effects or
enters into an agreement to effect a Business Combination (as defined in
Section 7.09), then HH shall pay to Olsten promptly, but in no event later
than two (2) business days after the earlier of (x) the consummation of, or
(y) the execution of any agreement relating to, such Business Combination,
$3,750,000 in immediately available funds.
14.07 Brokers. Each party ("Representing Party") represents to the other
party that it has not incurred and will not incur any liability for brokerage
fees or agents' commissions in connection with this Agreement and the
transactions contemplated hereby, except with respect to Bear Stearns by HH
and Smith Barney by Olsten, and agrees that it will indemnify and hold the
other party harmless against any claim for such fees or commissions incurred
by such other party, based on any agreement or arrangement made by or on
behalf of the Representing Party. HH shall be solely liable for any fees and
expenses relating to Bear Stearns and Olsten shall be solely liable for any
fees and expenses relating to Smith Barney.
14.08 Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
shall constitute one and the same instrument.
14.09 Agreement Binding; Assignment; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned or delegated by either
party without the prior written consent of the other party. Any assignment or
delegation made in violation of this Agreement shall be null and void. Olsten
may assign this Agreement and/or any of its rights and obligations hereunder
and under the Olsten Documents to a wholly-owned subsidiary or subsidiaries
prior to the Closing; provided, however, that such assignment shall not
release Olsten with respect to the representations, warranties, covenants or
indemnifications of Olsten in this Agreement and Olsten shall guaranty the
subsidiary's obligations under this Agreement. This Agreement is not intended
to confer upon any person, other than the parties hereto and their successors
and permitted assigns, any rights or remedies hereunder.
14.10 Entire Agreement. This Agreement and the related documents contained
as Schedules hereto or expressly referenced herein contained the entire
understanding of the parties relating to the subject matter contained herein
and supersede all prior written or oral and all contemporaneous oral
agreements and understandings relating to the subject matter hereof. This
Agreement cannot be modified, amended, or terminated except in writing signed
by the party against whom enforcement is sought.
14.11 Schedules. All Schedules to this Agreement are incorporated herein by
reference and made a part hereof for all purposes.
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14.12 Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York, without
giving effect to any conflict of laws rule or principle that might require the
application of the laws of another jurisdiction.
14.13 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
14.14 Definition of Knowledge. As used in this Agreement, the term
"knowledge" means the knowledge of supervisory, managerial, and executive
---------
employees have or should have after making due inquiry and exercising due
diligence with respect thereto.
14.15 Arbitration. Except to the extent a party hereto seeks specific
performance, injunctive relief or any other form of equitable remedies, any
controversy or claim relating to or arising out of this Agreement or the
breach thereof shall be settled by arbitration in New York, New York or in the
States of New Jersey or New York, in accordance with the then current rules of
the American Arbitration Association. Any demand for arbitration must be made
within thirty (30) days of the discovery of such claim by the claiming party,
and the party who does not initiate the arbitration shall select the
arbitration site. The parties shall select one arbitrator to hear the
controversy. If the parties are unable to agree on an arbitrator, HH and
Olsten shall each select one arbitrator and the two arbitrators shall select a
third arbitrator who shall hear the controversy. Any judgment upon an award
rendered by the arbitrator shall bear interest at six percent (6%) per annum
from the date such claim arose through the date paid, shall be binding upon
the parties and may be entered in any court having jurisdiction thereof. The
expenses of the arbitration and the reasonable expenses of the prevailing
party shall be borne by the party losing the arbitration.
14.16 Continuing Obligations of Olsten and Hooper. Olsten and Hooper each
agree to (i) retain the books and records of or relating to the NHC Business,
NHC Assets and ASB, including without limitation all patient, personnel,
client, tax and accounting records ("Records"), whether in hard copy or
-------
computer storage system, for a minimum of six (6) years commencing on the
Effective Time, (ii) except to the extent Excludable, provide access to the
Records in their respective possession or control to the other party at all
reasonable times for business purposes, (iii) not destroy or otherwise dispose
of the Records without giving notice to the other, (iv) except to the extent
Excludable, cooperate in providing personnel for interviews, testimony and
consultation, documentary evidence, and records reasonably requested by the
other for audits, investigations, proceedings or litigation with third
parties, (v) remit to the other within seven (7) days any money they receive
that belongs to the other whether representing payment for services provided
by the other, return of deposits, or otherwise and (vi) assist the other party
in obtaining, and diligently work toward obtaining, all of the assignments and
consents as either party shall request. In the event and for so long as any
party actively is contesting or defending against any charge, audit,
complaint, action, suit, proceeding, hearing, investigation, claim or demand
identified on Schedule 5.09 or in connection with (i) any transaction
contemplated under this Agreement or (ii) any other fact, circumstance,
situation, condition, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving the NHC Business or ASB,
the other party shall, to the extent not Excludable, cooperate with the
contesting or defending party and its counsel in the contest or defense and
make available its personnel, retain and not destroy or otherwise dispose of
and provide such access to its books and records, including, without
limitation, computer records, as may be relevant to or necessary in connection
with the contest or defense, in each case, at the sole cost and expense of the
contesting or defending party (except to the extent the contesting or
defending party is entitled to indemnification under Article 12 hereof).
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
Hooper Holmes, Inc.
By: /s/ Fred Lash
Its: Senior Vice President
Hooper Holmes Health Care, Inc.
By: /s/ Fred Lash
Its: Senior Vice President
Olsten Corporation
By: /s/ William Costantini
Its: Senior Vice President
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<PAGE>
SCHEDULE 1.03
SPECIFIED LIABILITIES
Defined terms and references to Sections shall have the respective meanings
assigned to such terms, or correspond to such sections, of the Agreement of
Acquisition to which this schedule relates.
(a) Specified Liabilities are (i) liabilities of HH or HHHC relating solely
to the NHC Business existing at the Effective Time to the extent specifically
set forth or reserved against on the NHC Closing Statement and (ii)
obligations to be performed and fulfilled by HH or HHHC accruing or arising
after the Closing and relating solely to the NHC Business, under lawful and
enforceable executory contracts, agreements, leases, commitments and
undertakings listed or described on Schedule 5.12 (collectively, "Contracts");
-------------
(b) Notwithstanding anything to the contrary in the paragraph (a) above,
Olsten is not assuming any other liabilities or obligations of whatever kind
---
and nature including without limitation any of the following:
(i) indebtedness or other obligations or guarantees of HH or HHHC or any
of their Affiliates, including, without limitation, current liabilities and
short-term and long-term indebtedness;
(ii) liabilities or obligations of HH or HHHC or any of their Affiliates
in respect of periods prior to and including Closing Date arising under the
terms of the Medicare, Medicaid, Blue Cross or other third party payor
programs, including, without limitation, any claim, penalty or sanction
relating to any claim for overpayment;
(iii) any liability arising pursuant to the Medicare, Medicaid, Blue
Cross or any other third party payor program as a result of the effect on
operations of the consummation of the transactions contemplated herein,
including, without limitation, recapture of previously reimbursed expenses;
(iv) federal, state or local tax liabilities or obligations of HH or HHHC
or any of its Affiliates in respect of periods on, prior to or following
the Closing Date or resulting from the consummation of the transactions
contemplated herein, including, without limitation, any income tax, any
franchise tax, any tax recapture, any sales and/or use tax, and state and
local recording fees and taxes which may arise upon the consummation of the
transactions contemplated herein and any FICA, FUTA, workers' compensation
and any and all other taxes or amounts due and payable as a result of the
exercise by HH or HHHC or any of their Affiliates employees of such
employees' right to vacation, sick leave and holiday benefits accrued while
in the employ of HH, HHHC or such Affiliate;
(v) obligation or liability for any and all claims by or on behalf of any
of HH's, HHHC's or their Affiliate's employees relating to periods prior to
Closing, including, without limitation, obligation or liability for any
EEOC claim, wage and hour claim, unemployment compensation claim or
workers' compensation claim, and liability for all employee wages and
benefits, including, without limitation, accrued vacation, sick leave,
severance and holiday pay to the extent such may apply, if at all, under
HH's or HHHC's existing personnel policies ("Accrued PTO") and taxes or
other liability related thereto in respect of any HH's, HHHC's (or their
Affiliates') employees.
(vi) liability or obligation arising out of or in connection with any (a)
Employee Benefit Plan irrespective of whether any such employee benefit
plan is excluded in whole or in part from the provisions of ERISA, or (b)
personnel policy, stock option plan, collective bargaining agreement, bonus
plan or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy, or agreement, deferred compensation agreement
or arrangement, executive compensation or supplemental income arrangement,
employment agreement and each other employee benefit plan, agreement,
arrangement, program, practice, or understanding that is not described in
the preceding Clause (a), including, without limitation, any obligations,
liabilities penalties, or sanctions arising under ERISA or any other
federal law, or any taxes, interest, penalties, or sanctions arising under
the Internal Revenue Code of 1986, as amended ("Code"), or under applicable
state or local tax laws;
(vii) liabilities or obligations arising as a result of any breach by HH,
HHHC or any of their Affiliates at any time of any contract or commitment
that is not assumed by Olsten;
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(viii) liabilities or obligations arising out of any breach by HH, HHHC
or any of their Affiliates prior to Closing of any Contract;
(ix) any liability arising out of or in connection with claims for any
acts, omissions and medical malpractice relating to the ownership or
operations of the NHC Business or the NHC Assets which occurred prior to
Closing;
(x) contracts and agreements between HH, HHHC and one or more of their
Affiliates not specifically assumed by Olsten;
(xi) any debt, obligation, expense or liability of HH, HHHC or any of
their Affiliates arising out of or incurred solely as a result of any
transaction of HH, HHHC or such Affiliate occurring after Closing or for
any violation by HH, HHHC or any of their Affiliates of any law, regulation
or ordinance at any time;
(xii) liabilities against which HH, HHHC or any of their Affiliates is
insured or otherwise indemnified except to the extent, if any, which the
benefits of such insurance policies and rights to indemnification are
transferred to Olsten;
(xiii) obligations of HH, HHHC or their Affiliates under Contracts the
performance or fulfillment of which by the HH, HHHC or Olsten would be
unlawful under applicable laws, rules or regulations and liabilities or
obligations under any Contracts arising from breaches thereof or defaults
thereunder by HH, HHHC or their Affiliates;
(xiv) obligations of HH, HHHC or its Affiliates under Contracts assigned
to Olsten at the Closing with respect to which required third party
consents to assignment have not been obtained, except to the extent, if
any, that Olsten receives the benefits of such Contracts pursuant to
Section 1.01; and
(xv) any liability of HH referred to in Section 14.06;
(xvi) liabilities and obligations relating exclusively to any Excluded
Asset, and liabilities for premiums, charges or adjustments in connection
with insurance policies not transferred to Olsten hereunder;
(xvii) liabilities and obligations arising from any breach, or from any
fact or transaction involving a breach, of a covenant, agreement,
representation or warranty contained in the Agreement or in any HH Document
or arising from, out of, or in connection with, the transactions
contemplated by the Agreement or any HH Document; and
(xix) liabilities and obligations arising from or in any way related to
any Investigation.
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<PAGE>
SCHEDULE 4.05(a)
HH DOCUMENTS
Documents relating to the sale of the NHC Business and the NHC Assets. At
the Closing and unless otherwise waived in writing by Olsten, HH and HHHC
shall deliver to Olsten the following:
1. Assignments, fully executed by HH and HHHC in form acceptable to
Olsten assigning to Olsten leasehold interests to any real property which
is a leasehold estate, in each case subject only to the Permitted Liens;
2. A General Bill of Sale and Assignment, fully executed by HH, conveying
to Olsten good and marketable title to all tangible assets which are a part
of the NHC Assets and valid title to all tangible assets which are part of
the NHC Assets, free and clear of all liabilities, claims, liens, security
interests and restrictions other than the Specified Liabilities and
Permitted Liens;
3. An Assignment of Leases and Contracts, fully executed by HH and HHHC,
conveying to Olsten HH's and HHHC's interests in the Contracts;
4. Estoppel certificates, in form and substance satisfactory to Olsten,
executed by each landlord of any of the Real Property constituting a
leasehold estate, among other things consenting to the assignment of the
lease to Olsten and stating that there are no uncured defaults under such
lease;
5. Copies of resolutions duly adopted by the board of directors and
shareholders of HH and HHHC, respectively, authorizing and approving HH's
and HHHC's respective performance of the transactions contemplated hereby
and the execution and delivery of this Agreement and the documents
described herein, certified as true and of full force as of Closing, by the
appropriate officers of HH and HHHC;
6. Certificates of incumbency for the respective officers of HH and HHHC
executing this Agreement or making certifications for Closing dated as of
Closing;
7. Certificates of existence and good standing of each of HH and HHHC
from their respective states of incorporation, dated the most recent
practical date prior to Closing;
8. To the extent requested by Olsten, the License Pending Management
Agreement; and
9. Such other instruments and documents as are reasonably necessary to
satisfy the conditions precedent to Olsten's obligations hereunder.
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<PAGE>
EXHIBIT B
ACCOUNTS RECEIVABLE COLLECTION AGREEMENT
ACCOUNTS RECEIVABLE COLLECTION AGREEMENT (the "Agreement"), dated as of May
26, 1995, by and among OLSTEN CORPORATION, a Delaware corporation ("Olsten"),
HOOPER HOLMES, INC., a New York corporation ("HH") and HOOPER HOLMES HEALTH
CARE, INC., a New Jersey corporation ("HHHC").
WITNESSETH:
WHEREAS, Olsten, HH and HHHC are parties to an Agreement of Acquisition (the
"Acquisition Agreement") dated May , 1995, pursuant to which, among other
things, Olsten has agreed, subject to the terms and conditions set forth in
the Agreement, to purchase from HH and HHHC substantially all of the assets
and properties owned by either HH or HHHC relating to the NHC Business (as
defined in the Agreement) as a going concern, including, without limitation,
the accounts receivable of the NHC Business;
WHEREAS, Olsten, HH and HHHC wish to establish certain procedures with
respect to the collection of certain of the accounts receivable of the NHC
Business; and
WHEREAS, in order to induce Olsten to enter into the Acquisition Agreement,
HH and HHHC have agreed to execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants, agreements, representations and warranties contained herein, the
parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, all capitalized terms
used in this Agreement shall have the meanings ascribed to them in the
Acquisition Agreement.
2. List of Receivables; Establishment of Collection Team; Collection
Procedures. (a) For purposes of this Agreement, the terms "Receivable" and
"Receivables" refer to the general ledger balance of all accounts receivable
purchased by Olsten from HH and HHHC (whether or not billed) which relate to
services performed by the NHC Business on or prior to the Closing Date;
provided, however, that: (i) in the event that the Provider Numbers are
transferred to Olsten at the Closing, the Receivables shall include all
reimbursements due to HH or HHHC from Medicare and Medicaid with respect HH's
or HHHC's ownership of Medicare or Medicaid certified NHC Branches through the
Closing Date which are reflected on the NHC Closing Statement (collectively,
"Medicare Receivables"); or (ii) in the event that the Provider Numbers are
not transferred to Olsten at the Closing, the Receivables shall include the
amount to be paid by HH to Olsten pursuant to Section 7.12 of the Acquisition
Agreement as a result of the collection by HH or HHHC of any Medicare
Receivables from and after the Closing Date. On the Closing Date, HH and HHHC
shall attach as Schedule A hereto a true, complete and correct accounts
receivable aging list of all Receivables (the "Receivables List") as of the
most recent period for which a Receivables List is available. The Receivables
List will include the amount of such Receivable, the name and address of the
account debtor and the date of any invoice or invoices relating to such
Receivable. HH and HHHC agree to amend Schedule A as soon as practicable but
not later than fifteen business days after the Closing Date to reflect
Receivables, as actually in existence on the Closing Date.
(b) Promptly following the execution and delivery of this Agreement, Olsten
and HH will assemble a team of employees (the "Preliminary Collection Team")
which will, as promptly as practicable following the date hereof: (i) perform
a needs assessment of and determine the scope and responsibility of a
permanent collection team (the "Permanent Collection Team") to be appointed by
the Preliminary Collection Team upon the Closing Date; (ii) establish
procedures for the improvement of collection of the accounts receivable of HH
(with respect to the NHC Business) and HHHC (the "Pre-Closing Receivables")
prior to the Closing Date and for the collection of the Receivables by the
Permanent Collection Team following the Closing Date (the "Collection
Procedures"); (iii) to the extent requested by HH and HHHC and agreed to by
Olsten, assist HH and HHHC in
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the collection of the Pre-Closing Receivables prior to the Closing Date; and
(iv) at Olsten's option, implement reasonable steps in order to speed up the
collection of the Pre-Closing Receivables prior to Closing. Unless otherwise
agreed to by Olsten, HH and HHHC, the Preliminary Collection Team will consist
of four members, two of whom shall be appointed by Olsten and two of whom
shall be appointed by HH and reasonably satisfactory to Olsten. The supervisor
of the Preliminary Collection Team shall be one of the members designated by
Olsten and the deputy supervisor of the Preliminary Collection Team shall be
one of the members designated by HH. In the event of a dispute among the
members of the Preliminary Collection Team, the decision of the supervisor
shall govern. Without the prior consent of Olsten and HH, the number of
members of the Preliminary Collection Team shall not be reduced prior to the
Closing Date. All costs and expenses of or incurred by the Preliminary
Collection Team, including, without limitation, salaries of the members of the
Preliminary Collection Team, shall be shared 50% by Olsten and 50% by HH and
HHHC.
(c) Prior to the Closing Date, the Preliminary Collection Team shall
establish the Permanent Collection Team which will coordinate and monitor the
collection of all Receivables during the period commencing on the Closing Date
and ending on the last day of the 18th calendar month following the Closing
Date (the "Collection Period"). Unless otherwise mutually agreed to by Olsten
and HH, the Permanent Collection Team will consist of such number of members
as shall be determined by the Preliminary Collection Team (provided that such
number shall be an even number and any dispute among the members of the
Preliminary Collection Team regarding the number of members of the Permanent
Collection Team shall resolved by the mutual agreement of the supervisor and
the deputy supervisor of the Preliminary Collection Team), half of whom shall
be appointed by Olsten and half of whom shall be appointed by HH and shall be
reasonably satisfactory to Olsten. The supervisor of the Permanent Collection
Team shall be one of the members designated by Olsten and the deputy
supervisor of the Permanent Collection Team shall be one of the members
designated by HH. Without the prior consent of Olsten and HH, the number of
members of the Permanent Collection Team shall not be reduced prior to the end
of the Collection Period. All costs and expenses of or incurred by the
Permanent Collection Team, Olsten, HH or HHHC during the Collection Period in
connection with the collection of the Receivables, including, without
limitation, salaries of the members of the Permanent Collection Team, shall be
shared 50% by Olsten and 50% by HH and HHHC.
(d) From and after the Closing, the Permanent Collection Team shall attempt
to collect the Receivables in accordance with the Collection Procedures. In
the event of any dispute between the parties regarding the interpretation of
any provision of the Collection Procedures, the interpretation of the
supervisor of the Permanent Collection Team shall govern. Without limiting the
foregoing, Olsten, HH and HHHC agree that the Permanent Collection Team shall
use such efforts and take such actions as are not less than the efforts and
actions customarily taken, and as are consistent with the prevailing standards
in, the home health care services business for the collection of accounts
receivable; provided, however, that, without Olsten's prior written consent
(which consent may not be unreasonably withheld) no party shall institute or
pursue litigation in any action, suit or proceeding, whether administrative,
civil or criminal, against any account debtor of any Receivable.
(e) From and after the Closing Date, HH and HHHC (i) shall instruct all
account debtors of any Receivables to forward all checks or other forms of
payment on account of any Receivable (each, a "Payment") to a lockbox to be
established by the Permanent Collection Team solely for the purpose of
facilitating the recording and reporting of Payments as provided herein, (ii)
shall promptly deliver to such lockbox all Payments received by HH or HHHC and
(iii) in the event that the Provider Numbers are not transferred to Olsten at
the Closing, shall promptly deliver to the lockbox all amounts payable by HH
to Olsten pursuant to Section 7.12 of the Acquisition Agreement. At Olsten's
request, HH or HHHC shall endorse over to Olsten, without recourse, any
Payment received by Olsten or by HH or HHHC which names HH or HHHC as the
payee thereof. Olsten shall have the right and authority to endorse, without
recourse, any Payment received by Olsten or by HH or HHHC on account of any
Receivables. During the Collection Period, Olsten shall report the receipt by
Olsten of any Payments to the Permanent Collection Team no less frequently
than monthly. Subject only to Section 4 hereof, Olsten shall be entitled to
withdraw from the lockbox and/or retain for its own account all amounts
received by Olsten or by HH or HHHC on account of any Receivables. If HH, HHHC
or Olsten receives any Payment which relates both
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to services performed by HH or HHHC prior to the Closing Date and by Olsten on
or after the Closing Date, HH, HHHC and Olsten shall use reasonable efforts to
determine the portion of such Payment which relates to services performed by
HH or HHHC and the portion which relates to services provided by Olsten and HH
and HHHC agree that any portion of such payment which relates to services
provided by Olsten shall not be subject to the provisions of Section 4.
3. Receivables Escrow. Anything contained in the Acquisition Agreement to
the contrary notwithstanding, in lieu of delivery to HH or HHHC in accordance
with Section 3.01(a) of the Acquisition Agreement, on the Closing Date, Olsten
shall deposit $15,000,000 of the Cash Purchase Price (the "Escrowed Funds")
with First Fidelity Bank, N.A., as escrow agent (the "Escrow Agent") pursuant
to the Escrow Agreement. The Escrow Agent will maintain interest bearing
escrow accounts (collectively, the "Escrow Account") in which it shall deposit
the Escrowed Funds.
4. Allocation of Collections; Release of Escrowed Funds. (a) Within ten days
following the last day of each calendar month during the Collection Period,
the Permanent Collection Team shall deliver to each of Olsten and HH a written
report (a "Collection Report") showing in reasonable detail: (i) the
Receivables that were collected during the immediately preceding calendar
month; (ii) the aggregate amount of all Receivables collected since the
Closing Date and (iii) the amount of Receivables that remained outstanding as
of the end of such calendar month.
(b) HH, HHHC and Olsten agree that: (i) Olsten shall be entitled to retain
for its own account 100% of any First Level Collections, and no Escrowed Funds
shall be released on account of First Level Collections; (ii) (x) until the
Escrow Release Date (as defined in Section 4(d) below), Olsten shall be
entitled to retain for its own account 100% of any Second Level Collections,
and HH (for its own account and for the account of HHHC) shall be entitled to
receive out of the Escrowed Funds, in accordance with Section 4(c) hereof, an
amount equal to 100% of any Second Level Collections or (y) after the Escrow
Release Date and until the end of the Collection Period, Olsten shall remit to
HH (for the account of HH and HHHC) 100% of any Second Level Collections in
accordance with Section 4(e) hereof; (iii) until the end of the Collection
Period, Olsten shall remit to HH (for the account of HH and HHHC) 50% of any
Third Level Collections and Olsten shall be entitled to retain for its own
account the remaining amount of such Third Level Collections in accordance
with Section 4(e) below; and (iv) Olsten shall be entitled to retain for its
own account, 100% of any Remaining Collections.
For purposes of this Agreement: (w) "First Level Collections" means all
collections of Receivables since the Closing Date (as shown on the most recent
Collection Report) until the outstanding balance of Receivables has been
reduced to $30 million; (x) "Second Level Collections" means the first $15
million of collections of Receivables since the Closing Date (as shown on the
most recent Collection Report) in excess of First Level Collections; (y)
"Third Level Collections" means the first $3 million of collections of
Receivables since the Closing Date (as shown on the most recent Collection
Report) in excess of Second Level Collections and (z) "Remaining Collections"
means all collections of Receivables since the Closing Date (as shown on the
most recent Collections Report) in excess of Third Level Collections. Olsten
may in its discretion write-off any Receivable as not collectible, but such
write-offs shall not be taken into account in determining the level of
remaining Receivables or the amount of collections; provided, however, that no
such write-off shall in any way limit or alter the Permanent Collection Team's
obligations or responsibility for collecting any Receivable in accordance with
Section 2(d) hereof.
(c) Until the Escrow Release Date, within five days after delivery of any
Collection Report which shows that there have been any Second Level
Collections during the immediately preceding calendar month: (i) Olsten, HH
and HHHC shall jointly instruct the Escrow Agent to release to HH the amount
(if any) of Escrowed Funds equal to the amount of Second Level Collections
during the applicable calendar month, together with all interest earned on
such Escrowed Funds in the Escrow Account since the Closing Date (the "Escrow
Interest") and (ii) Olsten shall pay to HH an amount equal to 50% of: (x) an
amount in cash equal to the interest which would have accrued during the same
period on the principal amount of Escrowed Funds so released had interest
accrued
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thereon at a rate equal to 0.25% less than the prime rate of interest as
published from time to time by First Fidelity Bank, N.A., New Jersey less (y)
the amount of Escrow Interest.
(d) As soon as practicable after delivery of the Collection Report in
respect of the 12th month of the Collection Period (the last day of the 12th
month of the Collection Period is referred to herein as the "Escrow Release
Date"), and the application of Escrow Funds with respect to the collections
reflected in such Collection Report in accordance with the foregoing
provisions of the Section 4, Olsten shall have the right to instruct the
Escrow Agent to release to: (i) Olsten any remaining principal amount of the
Escrowed Funds; and (ii) HH any interest earned thereon since the Closing Date
and not theretofore distributed.
(e) Olsten shall pay all amounts due and payable by it to HH pursuant to
Section 4(b)(ii)(y) or 4(b)(iii), within ten days after delivery of any
Collection Report which shows that there have been any Second Level
Collections or Third Level Collections during the immediately preceding
calendar month.
(f) Olsten shall have no obligation to HH or HHHC with respect to any
Receivable collected from and after the last day of the Collection Period.
(g) Anything contained in this Agreement to the contrary notwithstanding,
without limiting any other rights Olsten may have, Olsten shall have the right
to offset against any amount payable by Olsten to HH hereunder or payable out
of the Escrow Account to HH in accordance with the terms hereof, any amount
payable by HH or HHHC to Olsten pursuant to Section 3.03 of the Acquisition
Agreement which has not been paid within ten (10) days following demand by
Olsten for payment therefor and Olsten shall have the right to instruct the
Escrow Agent to release funds from the Escrow Account to Olsten on account
thereof. In the event that any amount is released from the Escrow Account to
Olsten pursuant to this paragraph (g), HH shall be obligated to deposit into
the Escrow Account an amount equal to the amount so released.
5. Notices. All notices, requests, demands, waivers, consents, approvals or
other communications hereunder shall be given in the manner set forth in the
Acquisition Agreement.
6. Assignment. Olsten, HH and HHHC may assign their rights under this
Agreement to the same extent they are permitted to assign their rights and
obligations under the Acquisition Agreement.
7. Binding Nature. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
8. Governing Law. This Agreement shall be governed by and interpreted under
the laws of the State of New York applicable to contracts made and performed
therein without giving effect to the principles of conflict of laws thereof.
9. Amendment; Waiver. No amendment, modification or waiver of the provisions
of this Agreement shall be effective unless in a writing executed by the party
against whom such amendment or modification is sought to be enforced (or in
the case of a waiver by the party waiving one or more of its rights
hereunder).
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but
collectively all of such counterparts shall constitute one and the same
agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
Hooper Holmes, Inc.
/s/ Fred Lash
By: _________________________________
Senior Vice President
Hooper Holmes Health Care, Inc.
/s/ Fred Lash
By: _________________________________
Senior Vice President
Olsten Corporation
/s/ William Costantini
By: _________________________________
Senior Vice President
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EXHIBIT C
EXHIBIT 4.05(c)
ESCROW AGREEMENT
ESCROW AGREEMENT ("Agreement"), dated as of , 1995, by and among OLSTEN
CORPORATION, a Delaware corporation ("Olsten"), HOOPER HOLMES, INC., a New
York corporation ("HH"), and , a (the "Escrow Agent").
WITNESSETH:
WHEREAS, Olsten, HH and Hooper Holmes Health Care, Inc. ("HHHC") are parties
to an Agreement of Acquisition (the "Acquisition Agreement") dated May ,
1995, pursuant to which, among other things, Olsten has agreed, subject to the
terms and conditions set forth in the Acquisition Agreement, to purchase from
HH and HHHC substantially all of the assets and properties relating to the NHC
Business (as defined in the Acquisition Agreement) as a going concern,
including, without limitation, the accounts receivable of HH and HHHC which
relate to services performed by the NHC Business prior to the Closing Date
(the "Receivables");
WHEREAS, Olsten, HH and HHHC are also parties to an Accounts Receivable
Collection Agreement dated as of May , 1995 (the "Receivables Agreement")
which, among other things, establishes certain rights and procedures with
respect to the collection of the Receivables and the escrow of a portion of
the cash purchase price contemplated by the Acquisition Agreement; and
WHEREAS, as a condition to the execution and delivery of the Acquisition
Agreement, Olsten and HH have agreed to execute and deliver this Escrow
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Appointment of Escrow Agent. HH and Olsten hereby appoint the Escrow
Agent as their agent to hold and to release or transfer the Escrowed Funds (as
hereinafter defined) and interest thereon, on the terms and conditions
hereinafter set forth, and the Escrow Agent hereby accepts such appointment.
By execution of this Agreement, HH and Olsten expressly authorize the Escrow
Agent to, and the Escrow Agent agrees to, take the actions contemplated herein
in accordance with the provisions of this Agreement.
2. Deposit. Simultaneously with the execution and delivery of this
Agreement, Olsten is depositing into the Escrow Account (as hereinafter
defined), in immediately available funds, by certified check or by wire
transfer, $15,000,000 (the "Escrowed Funds"). Schedule A also sets forth HH's
and Olsten's respective employer identification numbers.
3. Escrow Account. The Escrow Agent has established a separate account
described on Schedule B hereto (the "Escrow Account"), which is an interest
bearing escrow account maintained by Escrow Agent, into which the Escrowed
Funds have been deposited. The Escrow Account is and shall remain in the name,
and under the sole control, of the Escrow Agent. The Escrowed Funds, together
with all interest accrued thereon, are referred to herein collectively as the
"Funds". Interest on the Funds shall be reported by the parties hereto as
being the income of HH for all income tax purposes.
4. Distribution. (a) If the Escrow Agent receives a notice from Olsten (a
"Requesting Party") requesting the Escrow Agent to release any of the Funds (a
"Release Notice"), the Escrow Agent shall deliver a copy of the Release
Notice, as the case may be, to the non-requesting parties and to
[the Supervisor of the Collection Team] within ten days after the Escrow
Agent's receipt thereof. If the Escrow Agent has not received, within ten days
following the Escrow Agent's delivery of the Release Notice to the non-
requesting party, a written notice from the non-requesting party that such
party objects to the release of Funds in accordance with the Release Notice
(an "Objection Notice"), the Escrow Agent shall promptly release such
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amount of Funds in accordance with the Release Notice. The Escrow Agent shall
distribute Funds pursuant to this Section 4(a) by check or wire transfer in
accordance with the wire instructions set forth on Schedule A hereto.
(b) If the Escrow Agent receives any Objection Notice within the period
provided for in Section 4(a), the Escrow Agent shall not release any Funds to
the extent the release of such portion of the Funds is objected to in the
Objection Notice unless the Escrow Agent is instructed to do so: (i) by
written instructions signed by HH and by Olsten; or (ii) by a final, binding,
non-appealable order or judgment of a court of competent jurisdiction. The
Escrow Agent may release the portion of the Funds, the release of which is not
objected to in the Objection Notice, in accordance with Section 4(a).
(c) Notwithstanding anything in this Agreement to the contrary, the Escrow
Agent shall not surrender or deliver any Funds to any person other than in
accordance with this Agreement, unless the Escrow Agent is instructed to do
so: (i) by written instructions signed by HH and by Olsten or (ii) by a final,
binding, non-appealable order or judgment of a court of competent
jurisdiction.
5. Termination of Escrow. All Funds in the Escrow Account shall be released
by the Escrow Agent in accordance with Section 4 hereof.
6. Duties and Obligations. It is agreed that the duties and obligations of
the Escrow Agent are those herein specifically provided and no other. The
Escrow Agent shall not have any liability under, or duty to inquire into, the
terms and provisions of any agreement, other than this Agreement. The Escrow
Agent's duties are ministerial in nature and the Escrow Agent shall not incur
any liability whatsoever so long as it has acted in good faith, except for
willful misconduct or gross negligence.
The Escrow Agent may consult with counsel of its choice, and shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission or supersession
of this Agreement unless the same shall be in writing and signed by both all
of HH and Olsten and, if its duties as Escrow Agent hereunder are affected
thereby, unless it shall have given its prior written consent thereto.
In the event that the Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive instructions, claims or demands from any
party hereto which, in its opinion, conflict with any of the provisions of
this Agreement, it shall be entitled to refrain from taking any action and its
sole obligation shall be to keep all Funds then held by it in the Escrow
Account pursuant to this Agreement until it shall be directed otherwise: (i)
by written instructions signed by all of HH and by Olsten; or (ii) by a final,
binding, non-appealable order or judgment of a court of competent
jurisdiction.
The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for.
The Escrow Agent shall not have any responsibility for the genuineness or
validity of any document or other item deposited with it or any liability for
action in accordance with any written instructions or certificates given to it
hereunder (including, without limitation, the Payment Notice or any Objection
Notice) and reasonably believed by it to be signed by the proper parties.
The Escrow Agent shall not be required to institute legal proceedings of any
kind and shall not be required to initiate or defend any legal proceedings
which may be instituted against it in respect of the subject matter of these
instructions. If it does elect to act, it will do so only if it is indemnified
against the reasonable cost and expense of such defense or initiation.
Nothing contained in this Agreement will limit or restrict the Escrow Agent
from rendering legal services to any party to this Agreement.
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7. Resignation. The Escrow Agent may at any time resign hereunder by giving
written notice of its resignation to HH, HHHC and Olsten at the addresses set
forth in Section 9 hereof, at least ten days prior to the date specified for
such resignation to take effect, and, upon the effective date of such
resignation, all Funds then held the by Escrow Agent hereunder shall be
delivered by it to such person as may be designated in writing by both HH and
Olsten, whereupon all of Escrow Agent's obligations hereunder shall cease and
terminate. If no such person shall have been designated by such date, all
obligations of Escrow Agent hereunder shall nevertheless cease and terminate
except that Escrow Agent's sole responsibility thereafter shall be to keep all
the Funds then held by it in the Escrow Account and to deliver the same to a
person designated in writing by all of HH, HHHC and Olsten or in accordance
with the directions of a final, binding, non-appealable order or judgment of a
court of competent jurisdiction.
8. Indemnification. HH and Olsten agree to indemnify, defend and hold the
Escrow Agent harmless from and against any and all loss, damage, tax,
liability and expense that may be incurred by the Escrow Agent arising out of
or in connection with its acceptance of appointment as Escrow Agent hereunder,
except as caused by its gross negligence or willful misconduct, including,
without limitation, the legal costs and expenses of defending itself against
any claim or liability in connection with its performance hereunder.
9. Expenses. All fees and expenses of the Escrow Agent shall be shared 50%
by HH and 50% by Olsten. HH and Olsten acknowledge that their obligations
under this Section 8 are joint and several. Any expenses incurred by HH or
Olsten in connection with this Agreement shall be borne by the party incurring
the expense. If there arises a dispute concerning a party's entitlement to
some or all of the Funds, the prevailing party shall be entitled to recover
its reasonable costs (including attorneys' fees) incurred in connection with
such dispute.
10. Notices. All notices, requests, demands, waivers, consents, approvals or
other communications to any party hereunder shall be in writing and shall be
deemed to have been duly given if: (i) delivered personally to such party; or
(ii) sent to such party by telegram or telecopy, with a copy sent on the same
day for overnight delivery by Federal Express to the following addresses:
If to HH, to:
Hooper Holmes, Inc.
170 Mount Airy Road
Basking Ridge, New Jersey 07920
Attention: Fred Lash, Chief Financial Officer and Treasurer
With copies (which will not constitute notice) to:
Steptoe & Johnson
1330 Connecticut Avenue
Washington, D.C. 20036-1795
Attention: Terence P. Quinn, Esq.
If to Olsten, to:
Olsten Kimberly QualityCare
175 Broad Hollow Road
Melville, New York 11747-8905
Attention: Robert A. Fusco, President
With copies (which will not constitute notice) to:
Nancy F. Lanis, Esq.
Vice President & Assistant General Counsel
Olsten Kimberly QualityCare
175 Broad Hollow Road
Melville, New York 11747-8905
If to Escrow Agent, to it at:
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or to such other address as the addressee may have specified in notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communications will be deemed to have been given as
of the date so delivered, telegraphed or telecopied.
11. Assignment. HH, HHHC and Olsten may assign their rights under this
Agreement to the same extent they are permitted to assign their rights and
obligations under the Acquisition Agreement.
12. Binding Nature. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
13. Governing Law. This Agreement shall be governed by and interpreted under
the laws of the State of New York applicable to contracts made and performed
therein without giving effect to the principles of conflict of laws thereof.
14. Amendment; Waiver. No amendment, modification or waiver of the
provisions of this Agreement shall be effective unless in a writing executed
by the party against whom such amendment or modification is sought to be
enforced (or in the case of a waiver by the party waiving one or more of its
rights hereunder).
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but
collectively all of such counterparts shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
Hooper Holmes, Inc.
By: _________________________________
Olsten Corporation
By: _________________________________
[Escrow Agent]
By: _________________________________
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EXHIBIT D
OPINION OF BEAR STEARNS
August 30, 1995
Board of Directors
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, NJ 07920
Dear Sirs:
We understand that Hooper Holmes, Inc. ("Hooper") and Olsten Corporation
("Olsten") have entered into an Agreement of Acquisition dated May 26, 1995
("Acquisition Agreement"), pursuant to which Hooper would sell substantially
all of the assets and transfer certain liabilities of NHC ("the NHC
Division"), Hooper's home health care business, to Olsten in exchange for all
the capital stock of American Service Bureau, Inc. (referred to herein as "ASB
Meditest"), Olsten's health information business, plus $34.5 million in cash,
as adjusted to reflect changes in the NHC Division Net Asset Amount between
November 30, 1994 and the Closing Date, and in the ASB Meditest Net Asset
Amount between December 31, 1994 and the Closing Date (the "NHC Transaction").
You have provided us with the Proxy Statement, which includes the Acquisition
Agreement, in substantially the form to be sent to the shareholders of Hooper
(the "Proxy Statement").
You have asked us to render our opinion as to whether the NHC Transaction is
fair, from a financial point of view, to the shareholders of Hooper.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Hooper's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1992 through 1994, and
its Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and
June 30, 1995;
3. reviewed certain operating and financial information, including
financial projections, provided to us by the management of Hooper relating
to the NHC Division;
4. met with certain members of Hooper's senior management to discuss the
NHC Division's operations, historical financial statements and future
prospects;
5. visited Hooper's facilities in Basking Ridge, New Jersey;
6. reviewed Olsten's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1992 through 1994, and
its Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and
June 30, 1995;
7. reviewed certain operating and financial information, including
financial projections, provided to us by the managements of Olsten and ASB
Meditest relating to ASB Meditest;
8. met with certain members of the senior management of Olsten and ASB
Meditest to discuss ASB's operations, historical financial statements and
future prospects;
9. visited ASB Meditest's facilities in Framingham, Massachusetts;
10. reviewed certain publicly available financial data and stock market
performance data of companies which we deemed generally comparable to the
NHC Division and ASB Meditest;
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11. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to the NHC Transaction; and
12. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
Hooper and Olsten. With respect to the NHC Division's and ASB Meditest's
projected financial results, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Hooper and Olsten as to the expected future
performance of the NHC Division and ASB Meditest, respectively. We have not
assumed any responsibility for the information or projections provided to us
and we have further relied upon the assurances of the managements of the NHC
Division and ASB Meditest that they are unaware of any facts that would make
the information or projections provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets of the NHC Division and ASB Meditest. Our opinion is
necessarily based on economic, market and other conditions, and the
information made available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the NHC Transaction is fair,
from a financial point of view, to the shareholders of Hooper.
We have acted as financial advisor to Hooper in connection with the NHC
Transaction and will receive a fee for such services, payment of a significant
portion of which is contingent upon the consummation of the NHC Transaction.
Very truly yours,
Bear, Stearns & Co. Inc.
By: _________________________________
Managing Director
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EXHIBIT E
SECTION 623 OF THE
NEW YORK BUSINESS CORPORATION LAW
APPRAISAL RIGHTS
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he
dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or an outline of the material features thereof
under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
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(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares
at a specified price which the corporation considers to be their fair value.
Such offer shall be accompanied by a statement setting forth the aggregate
number of shares with respect to which notices of election to dissent have
been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the
certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is
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a foreign corporation without an office in this state, such proceeding
shall be brought in the county where the office of the domestic
corporation, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious
or otherwise not in good faith. In making any determination as provided in
clause (A), the court
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may consider the dollar amount or the percentage, or both, by which the
fair value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is
not liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
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HOOPER HOLMES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR SPECIAL MEETING SEPTEMBER 29, 1995
The undersigned hereby constitutes and appoints James M. McNamee and Robert
William Jewett and each of them, the true and lawful attorneys, agents, and
proxies of the undersigned, with full power of substitution, to vote all the
shares of Common Stock of Hooper Holmes, Inc. standing in the name of the
undersigned at the close of business on August 25, 1995, at the Special Meeting
of Shareholders to be held on September 29, 1995 and all adjournments thereof,
with all powers that the undersigned would possess if personally present.
(Change of address)
--------------------------------------
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P R O X Y
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
9156
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
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FOR AGAINST ABSTAIN
1. Approval of the sale, transfer and [_] [_] [_]
assignment of substantially all of
the assets and business of the
Company's health care division to
Olsten Corporation or an affiliate
thereof.
2. In their discretion, upon other
matters as may properly come before
the meeting or adjournments thereof.
SIGNATURE(S)_____________________________ DATE _________________________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please sign full title as such.
The signer revokes all proxies heretofore given by the signer to vote at said
meeting or any adjournments thereof.
<PAGE>
INDEPENDENT
AUDITORS' REPORT
The Board of Directors and Stockholders
Hooper Holmes, Inc.
We have audited the accompanying consolidated balance sheets of Hooper
Holmes, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hooper
Holmes, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 27, 1995
