<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
---------------------------------------------------
Commission File Number 1-9972
---------------------------------------------------
Hooper Holmes, Inc.
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 22-1659359
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
170 Mt. Airy Road, Basking Ridge, N.J. 07920
- ------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 766-5000
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------- ---------------------------
Common Stock ($0.04 Par Value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
- -----------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sales price of February 28, 1997 the aggregate market value
of the voting stock held by non affiliates of Registrant was $98,842,000.
The number of shares outstanding of the Registrant's common stock, $.04 par
value was 6,794,121 at February 28, 1997.
Certain information contained in the Company's 1996 Annual Report to
Shareholders and its Proxy Statement in connection with its 1997 Annual Meeting
of Shareholders is incorporated by reference into Parts I, II and III of this
Form 10-K.
<PAGE>
FORM 10K
--------
PART 1
------
ITEM 1. Business
- -------
General
The Company was founded in 1899 to provide business information reports to
the insurance industry. During its first 70 years, the Company established a
nationwide network of branch offices through which it successfully developed
relationships with most of the leading insurance companies in the United States.
In the early 1970's, to meet the increasingly sophisticated needs of its
insurance industry clients, the Company began using nurses and other skilled
professionals to provide physical examinations and health profiles for persons
applying for life and health insurance. By the early 1980's, the Company had
developed an extensive branch office network and had gained experience in
providing health-related services. These factors, coupled with favorable
demographic and health care cost containment trends, led the Company to expand
into the health care field by providing home health care services to
individuals, and nurses and other personnel for supplemental staffing to health
care facilities. To focus on its growing health information examination services
and health care operations, the Company sold most of its original business
information operation in 1988, sold its direct marketing services business in
1992, and sold the majority of its facilities for servicing medically
fragile-children in 1994. In 1995, the Company sold its Nurse's House Call home
healthcare segment and, as part of that transaction, acquired a major competitor
in the health information segment, American Service Bureau, Inc., d/b/a ASB
Meditest ("ASB Meditest") of Framingham, Mass.
Today, the Company is nationally recognized as the largest provider of
health information services through a network of nearly 200 branch offices in 50
states. Through its health information alternate site operations the Company
provides 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 companies.
Business Strategy
Management believes that the Company is well positioned to continue to
capitalize on several favorable trends currently affecting the health
information, alternate site industry.
The health information alternate site services business which provides
specialty underwriting information services to the country's life and health
insurance industry, continues to show trends which indicate an increase in life
and health insurance underwriting volume, stricter underwriting standards for
life and health insurance and a basic consolidation of health information
companies serving the industry.
The Company's commitment to automation has placed it in the position of
being the leading nationwide automated provider of health information services.
Development of electronic exam technology via laptops has led to the
introduction of our "Teledex" automated exam and application services which we
find has been widely accepted as a solution to many of our clients' needs for
accurate and timely health information. The formulation in 1996 of our
partnerships with new clients utilizing direct response to sell policies are
examples of strides recently made as a result of our investments in technology
in the past 3 years. It is management's objective to expand the Company's
capabilities to provide additional database services to the insurance industry
as they face new challenges in their changing market.
Over the past several years, the Company's health information services have
grown through internal development of branch offices and acquisitions of
strategically located similar businesses. The acquisition of
- 2 -
<PAGE>
ASB Meditest in 1995 ratifies management's intentions to continue to expand its
health information services business through internal growth and strategic
acquisitions.
The Company's ongoing strategy is to combine these positive industry
trends, increased market presence, entrance into related markets and our
superior technology to become the leading health information services provider
in the life and health insurance industry.
Health Information Services
Industry Overview
Management believes that continued growth in the health information
business results from an increase in the number of medical and paramedical
examinations ordered and from additional testing procedures and new services
required by insurance companies. Additionally, several important trends in the
insurance industry point to increased demand for the Company's health
information services:
Stricter Underwriting Standards. Many life and health insurance companies
continue to lower the thresholds of insurance coverage requiring pre-insurance
examinations, due in part to growing concern over substance abuse, AIDS and
other illnesses and the improved ability to identify AIDS and other life-
threatening diseases through laboratory testing. As technological advances
enable home detection of additional risks, the Company anticipates an increased
demand for such procedures as part of the examination process.
Consolidation. To improve quality control and reduce administrative costs,
life and health insurance companies are reducing the number of health
information providers approved for use by local agents. Management believes that
the Company has benefited and will continue to benefit from these consolidation
efforts because of its reputation for providing prompt, high quality service and
its well established relationships with most of the major insurance companies at
both national and local levels. The acquisition of ASB Meditest in 1995 and its
resources has further enhanced both our abilities and standing among our client
base.
Restructuring. Costs and competitive pressures are forcing many of our
clients in the life and health industry to change their methods of doing
business. Procedures for completing applications, processing and even the
underwriting of risks are being outsourced from what were traditionally in-house
operations to more efficient, cost effective third parties. This area is our
fastest growing segment of new services.
The Company believes that it is well positioned to capitalize on these
trends for several reasons. The Company's network of highly automated branch
offices enables it to provide services nationwide in all urban and rural
locations. On-site branch office management is accountable for local operations
which enhances the Company's ability to establish and maintain relationships
with local insurance agents. The 1993 acquisition of Lifedata Medical Services,
Inc., a company with a large number of rural examiners, enhanced this long term
objective. The 1995 acquisition of ASB Meditest added additional locations
rounding our total nationwide to 200, which were consolidated during 1996. Also,
the Company is committed to providing superior quality service and has
established and implemented a strict set of quality assurance standards. Because
the Company owns the majority of its branch offices and does not rely on
franchisees to provide medical and paramedical examinations, it is able to
maintain consistent enforcement of these Company-wide standards. Finally, the
Company provides accurate and complete examination results to insurance clients,
in most cases within three to five days of receiving the initial request for an
examination. The Company's ability to process examinations rapidly is due, in
part, to the proximity of its branch offices to the homes and workplaces of
insurance applicants, ongoing improvements in data processing and management
information systems, and the use of medically trained personnel who promptly
evaluate insurance applicants and efficiently process examination results. The
Company has increased resources in its quality assurance review system in an
effort to make the quality of its health information services among the best in
the life and health insurance industry.
- 3 -
<PAGE>
Services
Portamedic(R) -- Medical and Paramedical Examinations
Management believes that the Company is the leader of four leading national
providers of medical and paramedical examinations for applicants seeking
insurance coverage from life and health insurers. Examinations are provided
nationwide under the Portamedic trade name through nearly 200 branch locations
in 50 states. During 1996, The Company performed over 2.3 million 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 and part-
time employees, and contract personnel to perform examinations, including
registered nurses, licensed practical nurses, physicians, and medical and
paramedical technicians. The Company's examiners provide examinations at the
request of insurance agents at times and locations convenient to applicants,
including the applicants' home or place of business. Each office is automated
via a computer network using Novell networking software. The application
software is written and maintained by in-house personnel. The Company acquired
27 "contract affiliates" with the acquisition of ASB Meditest and have now
consolidated down to 17, which the Company feels complements its own branch
network in many geographical areas.
Since almost all of the Company's examiners are nurses and other 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 urine specimens. In addition, examiners
increasingly perform more sophisticated procedures requested by insurance
underwriters, including electro-cardiograms, lung capacity measurements and
blood sample collections which are sent to independent laboratories for testing
for AIDS and other life-threatening diseases. Both written and electronic
reports of examination results are provided to insurance clients typically
within three to five days of the initial request for an examination.
Prudential Insurance Company of America continues to be a major customer
but due to overall revenue growth, fell below 10% of revenues for 1996 and 1995.
In 1994, Prudential provided 12% of total revenues.
Infolink(TM) Services Group
Under the Infolink name, the Company offers comprehensive life and health
inspection reports and Attending Physician Statements to its insurance clients.
During 1996, the Company provided over 409,000 Infolink reports. The ASB
Meditest acquisition had a substantial complimentary operation in Chicago and we
have focused new product development in this Chicago office. These reports,
available in varying degrees of detail pursuant to a 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, 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 and is obtained,
with the insurance applicant's consent, from notes and records maintained by the
physician responsible for administering treatment. Our new Teledex service
offers sophisticated electronically produced exams to our clients and was
developed for what we see as a natural fit with the trends for "smart
underwriting" (electronic) now emerging within the life and health insurance
industry. Management expects that Infolink reports will become increasingly
important to insurance underwriters as insurance companies continue to tighten
underwriting standards.
The Company is a leader in applying computerized technology to provide
health information to the life and health industry. In 1995, the Company
developed an automated pen-based laptop computer that permits the immediate
input of data into the Company's computer network by examiners at the
examination site. This same
- 4 -
<PAGE>
technology was utilized in the development of our Teledex services which we feel
will both replace and enhance the laptop technology initiated by the Company.
Management intends to continue to integrate computer technology into its health
information services business to provide additional data needed by insurance
companies to make underwriting decisions. In 1995, we added the ability to
complete and transmit ECG's in the same fashion.
From time to time, the Company performs other services such as wellness
health screening 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.
Total Company revenues follow:
<TABLE>
<CAPTION>
-- 1996 -- --1995 --
% of % of
Amount Total Revenues Amount Total Revenue
------ -------------- ------ -------------
<S> <C> <C> <C> <C>
Portamedic $140.4 89.9% $100.4 90.2%
Infolink 15.9 10.1% 10.9 9.8%
--------- --------- --------- ---------
$156.3 100.0% $111.3 100.0%
</TABLE>
Quality Assurance and Training
The quality and reputation of personnel and operations are critical to the
continued success of the Company's business. Management believes that its
insurance clients view the Company as a leader in terms of overall quality of
services. The Company's commitment to the highest quality standards is supported
by its quality assurance and training program.
In 1995 the Company completed the ability to monitor all health services
via an automated statistical quality control program. As a result of this
advanced capability, it has greater control over the quality of services
performed and as a result, 1996 was a year of unequaled quality performance. At
the branch office level, local management is accountable for maintaining quality
controls. In each branch office, examiners receive training in proper
examination procedures and reporting requirements. Quality assurance specialists
monitor examiner's performance through detailed analyses of examinations,
provide examiners with periodic evaluations and conduct regular audits of branch
office quality controls to assist examiners and branch managers in continually
improving the quality of services performed.
At the corporate headquarters level, quality assurance personnel use a
comprehensive management information system to compile and review Company-wide
information regarding the accuracy and timeliness of examinations and reports.
These personnel regularly evaluate the Company's examination procedures and
communicate with insurance company clients to address any specific evaluation
results and, where appropriate, suggest revisions to improve the format of
clients' examination procedures and reports.
Marketing and Sales
The Company markets Portamedic and Infolink health information services on
a national level through seven full-time sales representatives who call on
senior underwriting executives at the home offices of insurance companies. The
Company serves approximately 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. In 1996, the Company
launched its Healthdex services which provide a variety of services to the
wellness and pharmaceutical sectors outside our core markets. We have begun
further initiatives in this product line, which we feel will have a substantial
impact on our new service offerings in 1997.
- 5 -
<PAGE>
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 quickly ascertain the status of each service 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 instantly and regularly
monitor 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. Management believes that
the Company is the sole provider within the industry to offer this improved
service. 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.
Competition
The health information business is highly competitive, and certain of the
Company's competitors in this business have greater resources than the Company,
and offer services not offered by the Company or offer similar services at
prices lower than those charged by the Company.
Management believes that the Company is the leader of four firms operating
nationally to provide health information services to insurance companies. A
large, though decreasing 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. Most recently, technological capabilities
have taken the forefront in our clients needs. The Company, through its
nationwide branch office network and highly qualified examiners, provides
accurate and reliable health information reports at competitive prices to its
insurance clients promptly, and generally within three to five days of receiving
a request for an examination.
Personnel
At December 31, 1996, the Company employed approximately 980 full-time and
720 part-time employees, none of whom is represented by a collective bargaining
agreement. The Company also contracts with over 10,000 medically trained
examiners. The Company's ability to recruit skilled personnel is essential to
its continued growth and success. Management attributes the Company's success in
recruiting skilled personnel in its health information business to the flexible
work schedules and varied work assignments it offers to its examiners.
Management believes that these factors will enable the Company to continue to
attract and retain qualified personnel.
Regulation
Various aspects of the Company's business are regulated by the federal
government and the states in which the Company currently operates. The Company's
discontinued Nurse's House Call business was regulated by both the federal and
state governments. See also Item 3, Legal Proceedings.
Although the Company has been able to comply with applicable regulations to
date, there can be no assurance that it will continue to be able to comply with
specific requirements of certain states. States periodically change the
regulations and licensing requirements that apply to the Company. If such
changes occur, or if the Company expands its operations into new jurisdictions
or services, there can be no assurance that the Company will be able to comply
with regulations and licensing requirements, although the Company will be
required to do so before providing service.
- 6 -
<PAGE>
Management is not aware of any pending federal or state environmental laws
or regulations that would have a material adverse effect on the Company's
business or competitive position or that would require material capital
expenditures on the part of the Company to effect compliance.
Insurance and Litigation
The Company's health-information business involves a minimal risk of
liability. To date, claims made against the Company arising in the course of
providing health information services have not resulted in any material
liability to the Company. The Company carries liability insurance in coverage
amounts that management believes are customary in its business and sufficient to
cover most claims. There can be no assurance, however, that such coverage will
be sufficient to cover claims made against the Company, that adequate insurance
coverage will continue to be available to the Company in the future, or that
insurance coverage will be available on terms favorable to the Company. The
Company's insurance coverage includes occurrence-based medical professional
liability insurance and claims-made non-medical professional liability
insurance, a property insurance policy, a general liability policy, and an
umbrella insurance policy.
The Company is a party to a number of legal actions arising in the ordinary
course of business, none of which, in management's view, will have a material
adverse effect on the Company.
ITEM 2. Properties
- -------
The Company owns a five-building complex located at 170 Mt. Airy Road,
Basking Ridge, New Jersey. Of approximately 53,000 total square feet of office
space, the Company maintains its operations in approximately 41,000 square feet
and the balance is leased or available for lease to several tenants. Management
believes that this arrangement provides for the Company's foreseeable expansion
needs.
The Company leases its branch offices under a number of operating leases
with varying terms and expirations. See Note 6 to the Company's Consolidated
Financial Statements.
ITEM 3. Legal Proceedings
- -------
None
ITEM 4. Submission of Matters to a Vote of Security Holders
- -------
No matters were submitted to a vote of securities holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
- -------
Matters
The common equity and related shareholder information presented under the
caption "Quarterly Common Stock Price Ranges and Dividends" and "Shareholder
Information -- Stock Listing" is incorporated by reference from the Company's
1996 Annual Report to Shareholders which is Exhibit 13 to this report. As of
February 28, 1997, there were 659 shareholders of record.
- 7 -
<PAGE>
ITEM 6. Selected Financial Data
- -------
The financial data included under the caption "Selected Financial Data" is
incorporated by reference from the Company's 1996 Annual Report to Shareholders
which is Exhibit 13 to this report.
ITEM 7. Management Discussion and Analysis of Financial Condition and Results
- -------
of Operations
The discussion included under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" is included in the
Company's 1996 Annual Report to Shareholders which is Exhibit 13 to this report.
ITEM 8. Financial Statements and Supplementary Data
- -------
Financial statements and supplementary data are included in the Company's
1996 Annual Report to Shareholders which is Exhibit 13 to this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
- -------
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
- --------
Information contained under the captions "Nominees for Directors",
"Directors Continuing in Office" and "Executive Officers" in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 27,
1997 is incorporated herein by reference.
ITEM 11. Executive Compensation
- --------
Information contained under the captions "Compensation of Executive
Officers," "Compensation of Directors", "Option Grants in Last Fiscal Year",
"Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values", "Report of the Executive Compensation Committee" and "Employment
Contracts and Change-in-Control Arrangements" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 27, 1997 is
incorporated herein by reference.
ITEM12. Security Ownership of Certain Beneficial Owners and Management
- -------
Information contained under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the
Annual Meeting of shareholders to be held on May 27, 1997 is incorporated herein
by reference.
ITEM 13. Certain Relationships and Related Transactions
- --------
Information contained under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 27, 1997 is incorporated herein by reference.
- 8 -
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------
(a) (1) The following financial statements and independent auditors'
report are included in the
Registrant's 1996 Annual Report to Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets --
December 31, 1996 and 1995
Consolidated Statements of Operations --
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows --
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) The following financial statement schedules and auditors' report are
submitted herewith:
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts --
Years ended December 31, 1996, 1995 and 1994
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial
statements or notes thereto.
(3) Exhibits included herein
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C> <C>
3.1 Restated Articles of Incorporation of --
Hooper Holmes, Inc., as amended (1)
3.2 Bylaws of Hooper Holmes, Inc., as amended
4.1 Amended and Restated Rights Plan Agreement --
between Hooper Holmes, Inc. and Midlantic
National Bank (2)
10.1 Mortgage and Mortgage Modification Agreement --
between Hooper Holmes, Inc. and First Fidelity
Bank, N.A., New Jersey (3)
</TABLE>
_______________________
(1) Incorporated by reference to Exhibit 3.1 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(2) Incorporated by reference to Exhibit 4(a) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1991.
(3) Incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C> <C>
10.2 Amended Employee Retention Agreement by and between --
Hooper Holmes, Inc., and James M. McNamee (5)
10.3 Form of Indemnification Agreement (6) --
10.4 Hooper Holmes, Inc. Nonqualified Stock --
Option Plan (7)
10.5 First Amendment to Hooper Holmes, Inc. --
Nonqualified Stock Option Plan (8)
10.6 CEO Stock Award & Bonus Plan, 1990 - 1994 (9) --
10.7 Hooper Holmes, Inc. 1992 Stock Option Plan --
as amended (10)
10.8 Employee Stock Purchase Plan (1993) of Hooper --
Holmes, Inc. (11)
10.9 Hooper Holmes, Inc. 1994 Stock Option Plan (12) --
10.10 Credit Agreement between Hooper Holmes, Inc.
and First Union National Bank.
10.11 Agreement of Acquisition between Hooper Holmes, Inc. --
and Olsten Corporation (13)
10.12 Escrow Agreement between Hooper Holmes, Inc. --
and Olsten Corporation (14)
10.13 Accounts Receivable Collection Agreement between --
Hooper Holmes, Inc. and Olsten Corporation (15)
10.14 Employee Retention Agreement by and between Hooper
Holmes, Inc. and Executive Officers of Hooper Holmes, Inc.
13 Annual Report to security holders
21 Subsidiaries of Hooper Holmes, Inc.
23 Consent of KPMG Peat Marwick LLP
24 Power of attorney
27 Financial Data Schedule
</TABLE>
_____________________
(5) Incorporated by reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.
(6) Incorporated by reference to Exhibit 10.4 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.
(7) Incorporated by reference to Exhibit 10.5 of the Company's Annual
Report on Form 10-K or the fiscal quarter ended December 31, 1990.
(8) Incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(9) Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.
(10) Incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(11) Incorporated by reference to Exhibit 10.12 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(12) Incorporated by reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(13) Incorporated by reference to Exhibit A Company's Proxy Statement for
the Special Meeting of Shareholders held on September 29, 1995.
(14) Incorporated by reference to Exhibit C to the Company's Proxy
Statement for the Special Meeting of Shareholders held on
September 29, 1995.
(15) Incorporated by reference to Exhibit B to the Company's Proxy
Statement for the Special Meeting of Shareholders held on
September 29, 1995.
Reports on Form 8-K
No report on Form 8-K has been filed during the fourth quarter of
1996.
- 10 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOOPER HOLMES, INC.
(Registrant)
/s/ James M. McNamee
------------------------------------------
By:James M. McNamee
President & CEO
Date: March 28, 1997
--------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: March 28, 1997
--------------------
/s/ James M. McNamee
- ------------------------------------------------
James M. McNamee Director
President & CEO
Date: March 28, 1997
--------------------
- ------------------------------------------------
*Benjamin A. Currier Director
Date: March 28, 1997
--------------------
- ------------------------------------------------
*Quentin J. Kennedy Director
Date: March 28, 1997
--------------------
- ------------------------------------------------
*Kenneth R. Rossano Director
Date: March 28, 1997
--------------------
- ------------------------------------------------
Elaine L. LaMonica Director
Date: March 28, 1997
--------------------
- ------------------------------------------------
*John E. Nolan, Jr. Director
Date: March 28, 1997
--------------------
- ------------------------------------------------
*G. Earle Wight Director
Date: March 28, 1997
--------------------
/s/ Fred Lash
- ------------------------------------------------
Fred Lash Senior V.P., Treasurer
and Chief Financial
and Accounting Officer
*James M. McNamee, by signing his name hereto, does hereby sign this report for
the persons before whose printed name and asterisk appears, pursuant to the
power of attorney duly executed by such person and filed as Exhibit 24 hereto
with the Securities and Exchange Commission.
/s/ James M. McNamee
---------------------------------------------
James M. McNamee
- 11 -
<PAGE>
HOOPER HOLMES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995, 1996
<TABLE>
<CAPTION>
-- Additions --
Balance At Charged To Charged To Balance At
Beginning Of Cost And Other End Of
Description Year Expenses Accounts Deductions(1) Year
- --------------------------------- ---------------- ------------ ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for Doubtful Accounts $257,910 $ 76,000 -- $176,024 $157,886
Year ended December 31, 1995
Allowance for Doubtful Accounts $157,886 $320,979 -- $ 12,844 $466,021
Year ended December 31, 1996
Allowance for Doubtful Accounts $466,021 $380,000 -- $112,224 $733,797
</TABLE>
________________________________
(1) Adjustment of uncollectible accounts, net of recoveries and credits.
<PAGE>
Revised October, 1996
INDEX
-----
BY-LAWS
-------
HOOPER HOLMES, INC.
------------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - SHAREHOLDERS........................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS............................... 4
ARTICLE III - DIRECTORS.............................................. 9
ARTICLE IV - OFFICERS............................................... 13
ARTICLE V - CAPITAL STOCK.......................................... 14
ARTICLE VI - SIGNATURES AND ENDORSEMENTS............................ 14
ARTICLE VII - CORPORATE SEAL......................................... 14
ARTICLE VIII - FISCAL YEAR............................................ 15
ARTICLE IX - AMENDMENTS............................................. 15
ARTICLE X - INDEMNIFICATION........................................ 16
</TABLE>
<PAGE>
BY-LAWS
-------
OF
--
HOOPER HOLMES, INC.
-------------------
(A New York Corporation)
ARTICLE I
SHAREHOLDERS
------------
Section 1.1 CERTIFICATES. The interest of each shareholder of the
corporation shall be evidenced by certificates for shares of stock in such form
not inconsistent with the Certificate of Incorporation and the Business
Corporation Law as the Board of Directors may from time to time prescribe.
Upon compliance with any provisions restricting the transferability of shares
that may be set forth in the Certificate of Incorporation, these By-Laws, or
any written agreement in respect thereof, the shares of stock of the
corporation shall be transferable on the books of the corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof
of the authenticity of the signature as the corporation or its agents may
reasonably require.
The certificates of shares shall be signed by the Chairman of the Board, if
any, or the President or a Vice-President and by the Secretary or an Assistant
<PAGE>
-2-
Secretary or the Treasurer or an Assistant Treasurer, and sealed with the
seal of the corporation. Such seal may be a facsimile, engraved or printed.
Where any such certificate is signed by a transfer agent or a transfer clerk
and by a registrar, the signatures of the Chairman of the Board, if any, or the
President, Vice-President, Secretary, Assistant Secretary, Treasurer or
Assistant Treasurer upon such certificate may be facsimiles, engraved, or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such before
certificate is issued, it may be issued by the corporation with the same effect
as if such officer had not ceased to be such at the time of its issue.
No certificate representing shares shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
corporation, if the Board of Directors shall so require, of a bond of indemnity
in such amount upon such terms and secured by such surety as the Board of
Directors may in its discretion require.
Section 1.2. FRACTIONAL SHARE INTERESTS. The corporation may issue
---------------------------
certificates for fractions of a share where necessary to effect transactions
authorized by
<PAGE>
-3-
the Business Corporation Law, which shall entitle the holder, in proportion
to his fractional holdings, to exercise voting rights as set forth in the
Certificate of Incorporation, receive dividends and participate in liquidating
distributions; or it may pay in cash the fair value of fractions of a share as
of the time when those entitled to receive such fractions are determined; or it
may issue scrip in registered or bearer form over the manual or facsimile
signature of an officer of the corporation or of its agent, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder
to any rights of a shareholder except as therein provided.
Section 1.3. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining
-----------------------------
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of
any rights, or for the purpose of any other action, the directors may fix, in
advance, a date as the record date for any such determination of shareholders.
Such date shall not be more than fifty (50) days nor less than ten (10) days
before the date of such meeting, nor more than fifty (50)
<PAGE>
-4-
days prior to any other action. If no record date is fixed, the record date
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if no notice is given, the day
on which the meeting is held; the record date for determining shareholders for
any purpose other than that specified in the preceding clause shall be at the
close of business on the day on which the resolution of the directors relating
thereto is adopted. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided
in this paragraph, such determination shall apply to any adjournment thereof,
unless the directors fix a new record date under this paragraph for the
adjourned meeting.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 2.1. TIME AND PLACE. The annual meeting of the shareholders for
---------------
the election of directors and all special meetings of shareholders for any
purpose may be held at such time and place, within or without the State of New
York, as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2.2. ANNUAL MEETING. The annual meeting of
---------------
<PAGE>
-5-
shareholders of the corporation shall be held during the month of May in
each year on such date and at such hour as the directors shall specify, at
which the shareholders shall elect a Board of Directors and transact such other
business as may properly be brought before the meeting.
Section 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may
-----------------
be called by the President or the Board of Directors, and shall be called by
the President or Secretary at the request in writing of any one or more
shareholders owning at least one-third of the common stock of the corporation,
issued and outstanding, and entitled to vote, or by the holders of such lesser
percentage of said common stock as is authorized by the Business Corporation
Law, for the purposes therein expressly contained.
Section 2.4. RIGHT TO VOTE. At all meetings of shareholders, the right of
--------------
any shareholder to vote shall be governed and determined by the provisions of
the Certificate of Incorporation.
Section 2.5. NOTICE OF MEETING. Written notice of the place, date and
------------------
hour of annual and special meetings shall be given personally or by mail to
each shareholder entitled to vote thereat, not less than ten (10) nor more than
fifty (50) days prior to the meeting. Notice of a special meeting shall state
the purpose or purposes for
<PAGE>
-6-
which it is called and shall specify the person or persons calling the
meeting by whom or at whose direction such notice is being issued. No notice
of an adjourned meeting of shareholders need be given unless expressly required
by statute. All meetings of the shareholders may be held without notice and
without the lapse of any period of time, if at any time before or after such
action be completed such requirements be waived in writing by the person or
persons entitled to said notice or entitled to participate in the action to be
taken or by his attorney thereunto authorized.
2.6. QUORUM. Except as otherwise provided by law or the Certificate of
-------
Incorporation, the holders of record of a majority of the common shares of the
corporation, issued and outstanding, and entitled to vote thereat, present in
person or by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at all meetings of the shareholders. If a quorum shall
not be present at the time fixed for any meeting, the holders of a majority of
such shares so present or so represented may adjourn the meeting from time to
time, without further notice.
2.7. PRESIDING OFFICERS. Meetings of the shareholders shall be presided
-------------------
over by one of the following officers in the order of seniority and if
<PAGE>
-7-
present: the Chairman of the Board, the Vice Chairman, if any, the
President, a Vice President, or if none of these is present, by a Chairman to
be chosen at the meeting. The Secretary of the Corporation, or in his absence,
an Assistant Secretary, shall act as Secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present, the meeting shall choose
any person present to act as Secretary of the meeting.
Section 2.8. VOTING. Every shareholder entitled to vote at any meeting
-------
may so vote in person or by proxy and shall be entitled to one vote for each
share of common stock of the corporation held by him of record at the time of
the closing of the transfer books or on the record date fixed as hereinbefore
provided or if the transfer books are not closed and no such record date shall
have been fixed, then at the date of such meeting. At all elections of
directors the voting may, but need not be, by ballot and a plurality of the
votes cast thereat shall elect. Any other action shall be decided by a
majority of the votes cast except where the Business Corporation Law
specifically requires a larger proportion.
Section 2.9. PROXIES. Every proxy shall be in writing executed by the
--------
Shareholder giving the proxy or his duly authorized attorney. No proxy shall
be valid after the expiration of eleven (11) months from its date,
<PAGE>
-8-
unless a longer period is provided for in the proxy. Unless and until
voted, every proxy shall be revocable at the pleasure of the person who
executed it or of his legal representatives or assigns, except in those cases
where an irrevocable proxy permitted by law has been given.
Section 2.10. INSPECTORS OF ELECTION. The directors, in advance of any
-----------------------
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding
at the meeting may, and, on the request of any shareholder, shall appoint one
or more inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of common stock of the corporation
outstanding, the shares thereof represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots,
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and
<PAGE>
-9-
tabulate all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
shareholders. On request of the person presiding at the meeting or any
shareholder, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
Section 2.11. SHAREHOLDER ACTION WITHOUT MEETING. Whenever shareholders
-----------------------------------
are required or permitted to take any action by vote, such action may be taken
without a meeting on written consent or dissent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
ARTICLE III
DIRECTORS
---------
Section 3.1. FUNCTIONS, QUALIFICATIONS AND NUMBER.
-------------------------------------
The property and business of the corporation shall be managed by its Board
of Directors. Each director shall be at least twenty-one (21) years of age. A
director need not be a shareholder, a citizen of the United States, or a
resident of the State of New York. The number of directors constituting the
entire Board shall be at least three (3) but not more than nine (9). Subject
to the foregoing limitation, such number may be fixed from time
<PAGE>
-10-
to time by action of the directors or of the shareholders, or, if the number
is not so fixed, the number shall be three (3). The number of directors may be
increased or decreased by action of directors or shareholders, provided that
any action of the directors to effect such increase or decrease shall require
the vote of a majority of the entire Board. No decrease shall shorten the term
of any incumbent director. The phrase "entire board" refers to the total
number of directors which the corporation would have if there were no vacancies.
Section 3.2 ELECTION AND TENURE. Effective as of the annual meeting of
--------------------
shareholders in 1990, the Board of Directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of one
class expiring each year. The term of office of directors of the first class
shall expire at the annual meeting of shareholders in 1991, the term of office
of the second class at the annual meeting of shareholders in 1992 and the term
of office of the third class at the annual meeting of shareholders in 1993. At
each annual meeting of shareholders subsequent to 1990, successors to directors
of the class whose terms then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders after their
election. Each director shall hold office until his
<PAGE>
-11-
successor is elected or qualified, or until his earlier resignation or
removal. Newly created directorships and any vacancies on the Board of
Directors, including vacancies resulting from the removal of directors with or
without cause, may be filled by the majority vote of all of the directors then
in office, although less than a quorum.
Section 3.3. MEETINGS OF THE BOARD. Regular and special meetings of the
----------------------
Board of Directors shall be held at such time and place, either within or
without the State of New York, as shall be fixed by the Board. Special
meetings may be held at any time upon the call of the President or any director
by oral, telegraphic or written notice duly served on or sent or mailed to each
director not less than five (5) days before such meeting. A meeting of the
Board of Directors may be held without notice immediately after the annual
meeting of shareholders at the same place at which such meeting is held.
Notice need not be given of regular meetings of the Board of Directors held at
times fixed by resolution of the Board of Directors. Meetings may be held at
any time without notice if all the directors are present, or if at any time
before or after the meeting those not present waive notice of the meeting in
writing. Any action required or permitted to be taken by the Board may be
<PAGE>
-12-
taken without a meeting if all members of the Board consent in writing to
the adoption of a resolution authorizing the action. Any one or more members
of the Board may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Section 3.4. QUORUM AND ACTION. A majority of the entire Board shall
------------------
constitute a quorum except when vacancy prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided such
majority shall constitute at least one-third of the entire Board. A majority of
the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, the
vote of a majority of the directors present at the time of the vote, if a
quorum is present at such time, shall be the act of the Board. Each director
present shall have one vote. The Chairman of the Board, if any, and if
present, shall preside at all meetings. Otherwise, the Vice Chairman, the
President, if present, or any director chosen by the Board, shall preside.
Section 3.5. REMOVAL OF DIRECTORS. Any or all of the directors may be
---------------------
removed for cause or without cause by the shareholders. One or more of the
directors may be removed
<PAGE>
-13-
for cause by the Board of Directors.
Section 3.6. COMMITTEES. By resolution adopted by a majority of the
-----------
entire Board of Directors, the Directors may designate from their number, three
or more directors to constitute an Executive Committee and other committees,
each of which, to the extent provided in the resolution designating it, shall
have the authority of the Board of Directors with the exception of any
authority the delegation of which is prohibited by Section 712 of the Business
Corporation Laws.
ARTICLE IV
OFFICERS
--------
The directors, initially and at their first meeting each year following the
meeting of shareholders at which they were elected, may elect or appoint a
Chairman of the Board of Directors and a Vice Chairman, and shall elect a
President, one or more Vice Presidents, a Secretary and a Treasurer, and such
other officers as they may determine. The President may but need not be a
director. Any two or more offices may be held by the same person except the
offices of President and Secretary. Unless otherwise provided in the
resolution of election or appointment, each officer shall hold office until the
meeting of the Board of Directors following the next annual meeting of
<PAGE>
-14-
shareholders and until his successor has been elected and qualified.
Officers shall have such powers and duties as generally pertain to their
respective offices and as defined in the resolution appointing them. Any
officer may resign by written notice to the Corporation and may be removed for
cause or without cause by the Board of Directors.
ARTICLE V
CAPITAL STOCK
-------------
The total number of shares which the corporation shall henceforth have is
20,000,000 to be common at a par value of $0.04 each.
ARTICLE VI
SIGNATURES AND ENDORSEMENTS
---------------------------
All checks or other orders for the payment of money and all notes or other
instruments evidencing indebtedness of the corporation shall be signed on its
behalf by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE VII
CORPORATE SEAL
--------------
The corporate seal, if any, shall be in such form as the Board of Directors
shall prescribe.
<PAGE>
-15-
ARTICLE VIII
FISCAL YEAR
-----------
The fiscal year of the corporation shall begin on the first day of January
in each year and shall end on the 31st day of December next following, unless
otherwise determined by the Board of Directors.
ARTICLE IX
AMENDMENTS
----------
Except as otherwise provided in the Certificate of Incorporation, these
By-Laws may be amended or repealed, and new By-Laws may be adopted by vote of
the shareholders entitled at the time to vote for the election of directors.
By-Laws may also be amended, repealed or adopted by resolution adopted by a
majority of the entire Board of Directors at any regular or special meeting;
provided, however, that any By-law or amendment to the By-laws so adopted by
the Board of Directors may be amended or repealed, and any By-law so repealed
by the Board may be reinstated, by vote of the shareholders entitled to vote
thereon as hereinabove provided, in which case the Board shall not thereafter
take action with respect to the By-laws which is inconsistent with the action
so taken by such shareholders. If any By-law regulating an impending election
of directors is adopted, amended or repealed by the Board, there shall be set
forth in the notice of the next meeting of shareholders for the
<PAGE>
-16-
election of directors the By-law so adopted, amended or repealed, together with
a concise statement of the changes made.
ARTICLE X
INDEMNIFICATION
---------------
The Corporation shall (a) indemnify any person made a party to an action by
or in the right of the Corporation to procure a judgment in its favor, by
reason of the fact that he, his testator or intestate, is or was a director or
officer of the Corporation, against the reasonable expenses, including
attorneys' fees actually and necessarily incurred by him in connection with the
defense of such action, and/or with any appeal therein, and (b) indemnify any
person made, or threatened to be made, a party to any action or proceeding,
other than one by or in the right of the Corporation to procure a judgment in
its favor, whether civil or criminal, by reason of the fact that he, his
testator or intestate is or was a director or officer of the Corporation or
served any other corporation or any partnership, joint venture, trust, employee
benefit plan, or other enterprise in any capacity at the request of the
Corporation, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred as a result of such action or proceeding, or any appeal
<PAGE>
-17-
therein, in each case to the fullest extent permissible under Sections 721
through 726 of the New York Business Corporation Law or the indemnification
provisions of any successor statute.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000
CREDIT AGREEMENT
dated as of December 19, 1996
by and among
HOOPER HOLMES, INC.
as Borrower,
THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF
as Lenders,
AND
FIRST UNION NATIONAL BANK
as Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION...................... 1
1.01 Definitions............................................... 1
1.02 Principles of Construction................................ 13
SECTION 2. AMOUNT AND TERMS OF CREDIT...................................... 13
2.01 Revolving Credit.......................................... 13
2.02 Revolving Credit Payment and Maturity; Extension of
Maturity.................................................. 14
2.03 Procedure for Revolving Credit Loan Borrowings............ 14
2.04 Reduction of Commitment................................... 15
2.05 Interest.................................................. 16
2.06 Conversions and Continuations............................. 16
2.07 Letters of Credit......................................... 17
2.08 Letter of Credit Requests................................. 17
2.09 Letter of Credit Participations........................... 17
2.10 Agreement to Repay Letter of Credit Drawings.............. 19
2.11 Indemnification; Nature of Agent's Duties................. 20
2.12 Increased Costs; Illegality; Capital Adequacy; Funding
Losses.................................................... 21
2.13 Computation............................................... 23
SECTION 3. FEES............................................................ 23
3.01 Upfront Fee............................................... 23
3.02 Commitment Fee............................................ 24
3.03 Letter of Credit Fee...................................... 24
3.04 Letter of Credit Processing Fee........................... 24
SECTION 4. PREPAYMENTS AND PAYMENTS GENERALLY.............................. 24
4.01 Voluntary Prepayments..................................... 24
4.02 Mandatory Prepayments..................................... 24
4.03 Application of Mandatory Prepayments...................... 25
4.04 General Provisions as to Payments......................... 25
4.05 Net Payments.............................................. 25
4.06 Debiting of Account....................................... 26
i
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
SECTION 5. CONDITIONS...................................................... 26
5.01 Documents Required for Initial Advance.................... 26
5.02 Requirements for Any Advance and Issuance of Letter
of Credit................................................. 29
SECTION 6. REPRESENTATIONS AND WARRANTIES.................................. 29
6.01 Organization; Authority................................... 29
6.02 Use of Proceeds; Margin Regulation........................ 30
6.03 Specific Financial Statements............................. 30
6.04 Burdensome Agreements..................................... 30
6.05 Suits..................................................... 31
6.06 Defaults.................................................. 31
6.07 ERISA..................................................... 31
6.08 Tax Returns and Taxes..................................... 31
6.09 Compliance with Statutes, etc............................. 31
6.10 Environmental Compliance.................................. 32
6.11 No Notification of Dumping of Hazardous Substances........ 32
6.12 No Authorizations or Approvals............................ 32
6.13 Not an Investment Company................................. 32
6.14 Subsidiaries.............................................. 32
6.15 Intellectual Property, etc................................ 32
6.16 Labor Matters............................................. 32
6.17 Assets and Properties..................................... 32
6.18 Insurance................................................. 33
6.19 True and Complete Disclosure.............................. 33
SECTION 7. AFFIRMATIVE COVENANTS........................................... 33
7.01 Payment of Indebtedness................................... 33
7.02 Payment of Taxes, Etc..................................... 33
7.03 Reporting Requirements.................................... 34
7.04 Compliance Certificate.................................... 35
7.05 Notice of Certain Events.................................. 35
7.06 Preservation of Property; Insurance....................... 35
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
7.07 Conduct of Business and Maintenance of Existence.......... 35
7.08 Operation of Properties................................... 35
7.09 Access to Properties, Books and Records................... 35
7.10 Keeping of Records and Books of Account................... 36
7.11 ERISA Compliance.......................................... 36
7.12 Environmental Liens....................................... 36
7.13 Removal of Hazardous Substances........................... 36
7.14 Further Assurances........................................ 37
SECTION 8. NEGATIVE COVENANTS.............................................. 37
8.01 Incur Indebtedness........................................ 37
8.02 Negative Pledge........................................... 37
8.03 Sale of Assets; Liquidation; Merger; Acquisitions......... 38
8.04 Nature of Business........................................ 39
8.05 Dividends, Stock Redemption, Etc.......................... 39
8.06 Accounts.................................................. 39
8.07 Sale-Leaseback Transactions............................... 39
8.08 Prepayment of Other Indebtedness.......................... 40
8.09 Investments............................................... 40
8.10 Loans and Advance Generally............................... 40
8.11 Loans and Advances to Officers............................ 40
8.12 Create Subsidiaries....................................... 40
8.13 Hazardous Substances...................................... 40
8.14 Consolidated Tangible Net Worth........................... 40
8.15 Consolidated Debt Service Coverage Ratio.................. 41
8.16 Consolidated Funded Debt to Cash Flow Ratio............... 41
8.17 Use of Proceeds........................................... 41
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.................................. 41
9.01 Events of Default......................................... 41
9.02 Right of Set-off.......................................... 44
9.03 Sharing of Payments, Etc.................................. 45
9.04 Turnover of Property held by Affiliate.................... 45
9.05 Remedies Cumulative; No Waiver............................ 45
iii
<PAGE>
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
SECTION 10. THE AGENT...................................................... 46
10.01 Appointment.............................................. 46
10.02 Delegation of Duties..................................... 46
10.03 Exculpatory Provisions................................... 46
10.04 Reliance by Agent........................................ 46
10.05 Notice of Default........................................ 47
10.06 Non-Reliance on Agent and Other Lenders.................. 47
10.07 Indemnification.......................................... 48
10.08 Agent in Its Individual Capacity......................... 48
10.09 Successor Agent.......................................... 48
SECTION 11. MISCELLANEOUS.................................................. 48
11.01 Notices.................................................. 49
11.02 Costs and Expenses....................................... 49
11.03 Payment Due on a Day Other Than a Business Day........... 49
11.04 Governing Law............................................ 49
11.05 Counterparts; Integration................................ 49
11.06 Amendment or Waiver...................................... 50
11.07 Successors and Assigns................................... 50
11.08 Participations and Assignments........................... 50
11.09 Severability............................................. 51
11.10 Consent to Jurisdiction and Service of Process........... 51
11.11 Confidentiality.......................................... 52
11.12 Indemnification.......................................... 52
11.13 Inconsistencies.......................................... 53
11.14 Headings................................................. 53
11.15 Exhibits and Annexes..................................... 53
11.16 Judicial Proceeding; Waivers............................. 53
EXHIBIT A FORM OF REVOLVING CREDIT NOTE
EXHIBIT B FORM OF NOTICE OF BORROWING
EXHIBIT C FORM OF LETTER OF CREDIT REQUEST
EXHIBIT D FORM OF SUBSIDIARY GUARANTY AGREEMENT
EXHIBIT E COMPLIANCE CERTIFICATE OF BORROWER
ANNEX I BORROWER INFORMATION
ANNEX II EXISTING LETTERS OF CREDIT
ANNEX III PROVISIONS FOR ALTERNATIVE DISPUTE RESOLUTION
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of this 19th day of December, 1996,
by and among HOOPER HOLMES, INC. (the Borrower), the LENDERS listed on the
signature pages hereof and FIRST UNION NATIONAL BANK, as Agent.
WHEREAS, the Borrower has certain credit accommodations available to
it pursuant to that certain Credit Agreement, dated as of November 20, 1995, by
and among the Borrower, the Agent (then known as First Fidelity Bank, National
Association) and the lender parties thereto (as amended from time to time, the
Existing Credit Agreement) and desires to modify and replace said
accommodations, and refinance outstanding balances thereunder, with the credit
facilities provided herein; and
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Lenders are willing to make available to the Borrower the credit
facilities provided herein to replace such existing credit accommodations; and
WHEREAS, for administrative convenience and to properly reflect (i)
the replacement of the credit accommodations provided under the Existing Credit
Agreement with the credit facilities herein provided and (ii) the relationship
and obligations of the Lenders as to one another with respect to such credit
facilities, the outstanding balances of all "Revolving Credit Loans" under the
Existing Credit Agreement shall be refinanced as Revolving Credit Loans
hereunder and any "Letters of Credit" issued under the Existing Credit Agreement
and outstanding as of the date hereof, shall be deemed to have been issued
hereunder in accordance with Section 2.07(b) hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION.
------------------------------------------
1.01 Definitions. Unless the context requires otherwise, the
-----------
following terms used throughout this Agreement shall have the meanings assigned
to such terms below (such meanings to be equally applicable to both the singular
and plural number of the terms defined):
Affiliate shall mean, as applied to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, that Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and
-1-
<PAGE>
"under common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to vote ten percent (10%) or more of the
securities or other ownership interests having voting power for the election of
directors (or other persons performing similar functions) of such Person or
otherwise to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or by contract
or otherwise.
Agent shall mean First Union National Bank, in its capacity as agent
for the Lenders hereunder, and its successors in such capacity.
Agreement shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
Applicable Margin shall mean (A) with respect to Prime Rate Loans,
minus 50 basis points (-.50%) and (B) with respect to LIBOR Loans, plus 150
basis points (1.50%); provided, however, that from and after the first day of
any Applicable Margin Adjustment Period to and including the last day of such
Applicable Margin Adjustment Period, the Applicable Margin shall be equal to the
percentages determined by reference to the Consolidated Funded Debt to Cash Flow
Ratio of the Borrower for the Test Period last ended, as follows:
<TABLE>
<CAPTION>
If Such Ratio Is: Applicable Margin for Applicable Margin for
- ---------------- --------------------- ---------------------
Prime Rate Loans LIBOR Loans
---------------- -----------
<S> <C> <C>
Equal to or less than minus 25 basis plus 175 basis points (1.75%)
2.50:1.00 but points (-.25%)
greater than 1.75:1.00
Equal to or less than minus 50 basis plus 150 basis points (1.50%)
1.75:1.00 but greater points (-.50%)
than 1.35:1.00
Equal to or less than minus 100 basis plus 100 basis points (1.00%)
1.35:1.00 but greater points (-1.00%)
than 1.00 to 1.00
Equal to or less minus 125 basis points plus 75 basis points (.75%)
than 0.99:1.00 (-1.25%)
</TABLE>
Notwithstanding the foregoing, at all times during which there exists a Default
or Event of Default, the Applicable Margin (A) with respect to Prime Rate Loans,
shall be zero and (B) with respect to LIBOR Loans, shall be 200 basis points
(2.00%).
Applicable Margin Adjustment Period shall mean the period commencing
April 1, 1997 and ending June 30, 1997, and each calendar quarter occurring
thereafter.
-2-
<PAGE>
Approved Subordinated Indebtedness shall mean Indebtedness of the
Borrower that (i) is subordinated on terms and conditions approved in writing by
the Lenders and (ii) does not constitute Guaranteed Indebtedness of the Borrower
or any Subsidiary or Affiliate of the Borrower.
Availability shall mean, at any particular time, the amount by which
the Maximum Available Credit Amount at such time exceeds the Credit Obligations
at such time.
Business Day shall mean any day other than a Saturday, Sunday, or a
day on which the Agent and the Lenders are authorized or obligated by law or
executive order to be closed.
Capital Expenditures shall mean, with respect to any Person, without
duplication and for any period, the aggregate value attributed in accordance
with GAAP, to acquisitions during such period by such Person of any asset,
tangible or intangible, or replacements or substitutions therefor or additions
thereto which such Person treated as a non-current asset on such Person's
financial statements, including, without limitation, (y) the acquisition or
construction of assets having a useful life of more than one year, and (z)
assets acquired during such period in connection with Capitalized Leases.
Capitalized Lease shall mean any lease with respect to which the
obligation to pay rent or other amounts constitutes Capitalized Lease
Obligations.
Capitalized Lease Obligations shall mean obligations to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
real and/or personal property which obligations are required to be classified
and accounted for as capital leases on a balance sheet in accordance with GAAP.
Closing Date shall mean the date on which all of the conditions set
forth in Section 5.01 hereof have been fulfilled.
Code shall mean the Internal Revenue Code of 1986, as amended.
Consolidated shall mean an accounting presentation which includes any
consolidated Subsidiary of the Borrower.
Consolidated Debt Service Ratio shall mean the ratio of (A) the
Borrower's net income as determined in accordance with clause (B) of the
definition of Consolidated Funded Debt to Cash Flow Ratio plus amounts (without
duplication) deducted therefrom in determining net income for the relevant Test
Period in respect of interest expense, tax expense, but less unfinanced Capital
Expenditures to (B) the aggregate amount of the Indebtedness of the Borrower of
the type described in Clause (A) of the definition of Consolidated Funded Debt
to Cash Flow Ratio plus all cash and non-cash interest (including, without
limitation, capitalized interest) accrued and/or payable during the
-3-
<PAGE>
relevant Test Period on or in connection with any Indebtedness of the Borrower
of any type, in each case determined for the relevant Test Period on a
Consolidated basis in accordance with GAAP, consistently applied.
Consolidated Funded Debt to Cash Flow Ratio shall mean the ratio of
(A) the aggregate amount of the Indebtedness of the Borrower which by its terms
or by the terms of any instrument or agreement relating thereto, matures or
which is otherwise payable, one year or more from, or is directly or indirectly
renewable or extendible at the option of the obligor in respect thereof to a
date one year or more from, the date of the creation thereof, and any current
maturities of any such Indebtedness (including, without limitation, all of the
Credit Obligations hereunder and Capital Lease Obligations of the Borrower) to
(B) the Borrower's net income (excluding non-cash extraordinary items or non-
cash post-tax non-operating earnings adjustments) plus depreciation plus
amortization, in each case determined for the relevant Test Period on a
Consolidated basis in accordance with GAAP, consistently applied.
Credit Commitment shall mean, with respect to each Lender, the amount
set forth opposite such Lender's name under the heading Credit Commitment on the
signature pages hereof which is such Lender's Pro Rata Share of the Maximum
Available Credit Amount that such Lender has agreed to advance hereunder, as the
same may be (i) reduced from time to time pursuant to Section 2.04 hereof or
(ii) adjusted from time to time as a result of assignments to and from the
Lenders pursuant to Section 11.08 hereof.
Credit Documents shall mean this Agreement, each of the Revolving
Credit Notes, each Subsidiary Guaranty, each Notice of Borrowing, each Letter of
Credit Request and all other credit accommodations, notes, loan agreements,
guaranties, security agreements, mortgages, instruments, pledge agreements,
assignments, acceptance agreements, commitments, facilities, reimbursement
agreements and any other agreements and documents, now or hereafter existing,
creating, evidencing, guarantying, securing or relating to any or all of the
Obligations, together with all amendments, supplements, modifications, renewals,
or extensions thereof.
Credit Obligations shall mean, at any particular time, the sum of (A)
the aggregate principal amount of the outstanding Revolving Credit Loans and (B)
the Letter of Credit Outstandings.
Default shall mean any event, act or condition which, with notice or
the lapse of time, or both, would constitute an Event of Default.
Drawings shall have the meaning assigned to such term in Section
2.10(b) hereof.
Dumping shall mean the releasing, spilling, emptying, pouring,
emitting, dumping or discharging of any hazardous substance into, or otherwise
permitting to exist any hazardous substance in, the environment.
-4-
<PAGE>
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement, and to any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
ERISA Affiliate shall mean any person (as defined in Section 3(9) of
ERISA) which together with the Borrower or any of its Subsidiaries would be
deemed to be a "single employer" within the meaning of Section 414 of the Code.
Event of Default shall have the meaning assigned to such term in
Section 9 hereof.
Existing Credit Agreement shall have the meaning assigned to such term
in the Recitals hereof.
Existing Letter of Credit shall have the meaning assigned to such term
in Section 2.07(b) hereof.
Facility shall mean either of the two (2) facilities established under
this Agreement, i.e., the Revolving Credit Facility and the Letter of Credit
Facility.
FASB shall mean the officially released written statements of the
Financial Accounting Standards Board in general usage from time to time in the
accounting profession in the United States.
Federal Funds Rate shall mean, for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published by the Federal Reserve
Bank of New York on the Business Day next preceding such day for amounts in
immediately available funds comparable to the principal amount of the relevant
indebtedness or, if such rate is not so published for any day for which the next
preceding day is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three (3) Federal Funds brokers of
recognized standing selected by the Agent.
First Fidelity Term Loan Agreement shall mean that certain Term Loan
Agreement, dated December 31, 1992, by and between the Borrower and First Union
National Bank (then known as First Fidelity Bank, National Association), as
amended from time to time.
Funding Losses shall have the meaning assigned to such term in Section
2.12(c) hereof.
-5-
<PAGE>
GAAP shall mean generally accepted accounting principles in effect
from time to time in the United States.
Guaranteed Indebtedness shall mean, as to any Person, all Indebtedness
of the type referred to in clauses (i) through (ix) of the definition of
Indebtedness in this Agreement guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether or not such
property is received or such services are rendered), or (iv) otherwise to assure
a creditor against loss.
Guarantor shall mean Health Care.
Health Care shall mean Hooper Holmes Health Care, Inc., a New Jersey
corporation and a wholly owned subsidiary of the Borrower.
Indebtedness shall mean, as to any Person (i) all indebtedness of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes, or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, (iv) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property, (v)
all Capitalized Lease Obligations of such Person, (vi) all obligations,
contingent or otherwise, of such Person under acceptances, letters of credit or
similar facilities, (vii) all obligations of such Person to purchase, redeem,
retire, defease or otherwise acquire for value any capital stock of such person
or any warrants, rights or options to acquire such capital stock, valued, in the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (viii) all
obligations of such Person in respect of interest rate swap agreements, currency
swap agreements and other similar agreements designed to hedge against
fluctuations in interest rates or foreign exchange rates, (ix) all obligations
of production payments from property operated by or on behalf of such Person and
other similar arrangements with respect to natural resources, (x) all Guaranteed
Indebtedness of such Person, and (xi) all Indebtedness of the type referred to
in clauses (i) through (x) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contracts
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
-6-
<PAGE>
Interest Period shall mean with respect to any LIBOR Loan:
(i) initially, the period commencing on the borrowing or conversion date,
as the case may be, with respect to such LIBOR Loan and ending one
(1), two (2) or three (3) months thereafter, as selected by the
Borrower in its Notice of Borrowing delivered pursuant to Section
2.03(a) hereof, or in its notice of conversion delivered pursuant to
Section 2.06(a) hereof, as the case may be, given with respect
thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Loan and ending one
(1), two (2) or three (3) months thereafter, as selected by the
Borrower in its notice of continuance delivered pursuant to Section
2.06(b) hereof, with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a LIBOR Loan would otherwise end
on a day that is not a LIBOR Business Day, such Interest Period shall
be extended to the next succeeding LIBOR Business Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end
on the immediately preceding LIBOR Business Day; and
(ii) any Interest Period pertaining to a LIBOR Loan that begins on the last
LIBOR Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last LIBOR Business Day of a
calendar month.
Lender shall mean each Lender listed on the signature page hereto,
each assignee which becomes a Lender pursuant to Section 11.08 hereof, and their
respective successors and assigns.
Letter of Credit shall mean each standby letter of credit issued
pursuant to Section 2.07 hereof.
Letter of Credit Facility shall have the meaning assigned to such term
in Section 2.07 hereof.
Letter of Credit Fee shall have the meaning assigned to such term in
Section 3.03 hereof.
Letter of Credit Outstandings shall mean, at any time, the sum of,
without duplication (i) the aggregate Stated Amount of all outstanding Letters
of Credit; (ii) the aggregate
-7-
<PAGE>
amount of all Unpaid Drawings in respect of all Letters of Credit; and (iii) the
Stated Amount of all Letters of Credit requested pursuant to Section 2.08 hereof
but not yet issued.
Letter of Credit Processing Fees shall have the meaning assigned to
such term in Section 3.04 hereof.
Letter of Credit Request shall have the meaning assigned to such term
in Section 2.08 hereof.
Letter of Credit Sublimit shall mean Four Million Dollars
($4,000,000); provided, however, that in no event shall the Letter of Credit
Sublimit be at any time greater than the Maximum Available Credit Amount.
LIBOR Business Day shall mean any Business Day on which dealing in the
London interbank market may be carried on by commercial banks in London,
England.
LIBOR Loan shall mean any Loan that bears interest at a rate of
interest based upon the LIBOR Rate.
LIBOR Rate shall mean, with respect to each day during each Interest
Period pertaining to a LIBOR Loan, the per annum rate (rounded to the next
higher 1/100 of 1%) for deposits in United States dollars for a period equal to
the relevant Interest Period as reported on the Telerate Page 3750 as of 11:00
a.m. (London time), on the day that is two (2) LIBOR Business Days prior to the
commencement of such Interest Period (or if not so reported, then as determined
by the Agent from another recognized source for London interbank market
quotations), adjusted for reserves by dividing that rate by 1.00 minus the LIBOR
Reserve.
LIBOR Reserve shall mean the maximum percentage reserve requirements
(rounded to the next higher 1/100 of 1% and expressed as a decimal) of the Agent
(including, without limitation, basic, supplemental, marginal and emergency
reserves), in effect on any day during the relevant Interest Period under
Regulation D with respect to eurocurrency funding currently referred to as
"Eurocurrency liabilities" in Regulation D.
Lien shall mean any mortgage, pledge, security interest, encumbrance,
lien or other form of charge or preferential arrangement of any kind (including,
without limitation, any agreement to give any of the foregoing, any conditional
sale or other title retention or any lease in the nature thereof).
Loan shall mean each and every Revolving Credit Loan made by any
Lender hereunder. For purposes of this Agreement, the continuation or conversion
of a Prime Rate Loan or LIBOR Loan shall not constitute the making of a new
Loan.
-8-
<PAGE>
Maximum Available Credit Amount shall mean Twenty Million Dollars
($20,000,000), less any reduction to said Maximum Revolving Credit Amount
pursuant to Section 2.04 hereof.
Multi-employer Plan shall mean a Plan which is a multi-employer plan
as defined in Section 4001(a)(3) of ERISA.
Natural Resources shall mean each and all of the atmosphere, air,
waters, earth, land, minerals, flora, fauna, fish, shellfish, wildlife, biota,
and/or other natural resources.
Notice of Borrowing shall have the meaning assigned to such term in
Section 2.03(a) hereof.
Obligations shall mean any and all obligations and indebtedness of
every kind and description of the Borrower owed to the Agent, the Lenders or any
Affiliate of the Agent or any Lender (including, without limitation, the Credit
Obligations, any interest accrued thereon and any other amount due hereunder),
whether primary or secondary, direct or indirect, absolute or contingent, sole,
joint or several, secured or unsecured, due or to become due, contractual or
tortious, arising by operation of law or otherwise, or now or hereafter
existing, whether incurred by the Borrower, including, without limitation,
principal, interest and fees, including, without limitation, late fees and
expenses, including, without limitation, attorneys' fees and costs and/or
allocated fees and costs of any Lender's in-house legal counsel.
Obligor shall mean the Borrower, each Guarantor, and every other
maker, endorser, guarantor or surety of or for the Obligations.
Payment Office shall mean the office identified as such below the
signature of the Agent and the Lenders on the signature pages hereto, or such
other office as such parties may designate in writing to the other parties
hereto.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, and any entity succeeding to any or
all of its functions under ERISA.
Permitted Investments shall mean (i) readily marketable direct
obligations of the Government of the United States of America or any agency or
instrumentality thereof or any full faith and credit obligations of the United
States Government or obligations guaranteed by the United States Government and
its agencies maturing within one (1) year of purchase, (ii) repurchase
agreements having a duration of not more than sixty (60) days that are
collateralized by full faith and credit obligations of the United States
Government or obligations guaranteed by the United States Government and its
agencies, (iii) interests in investment companies registered under the
Investment Company Act of 1940, as amended (or in a separate portfolio of such
an investment company), that invest primarily in full faith and credit
obligations of the United States Government or obligations
-9-
<PAGE>
guaranteed by the United States Government and its agencies and repurchase
agreements collateralized by such obligations, (iv) time deposits with any
office located in the United States of the Lenders or any other bank or trust
company which is organized under the laws of the United States and has combined
capital, surplus and undivided profits of not less than $500,000,000 or with any
bank which is organized other than under the laws of the United States (x) the
commercial paper of which is rated at least A-1+ by Standard & Poor's
Corporation (S&P) and P-1 by Moody's Investors Service, Inc. (Moody's) (or, if
such commercial paper is rated only by S&P, at least A-1+ by S&P, or if such
commercial paper is rated only by Moody's, at least P-1 by Moody's) or (y) the
long term senior debt of which is rated at least AA by S&P and Aa2 by Moody's
(or, if such debt is rated only by S&P, at least AA by S&P, or if such debt is
rated only by Moody's, at least Aa2 by Moody's), (v) commercial paper having a
maturity of not more than one year from the date of such investment and rated at
least A-1 by S&P and P-1 by Moody's (or, if such commercial paper is rated only
by S&P, at least A-1 by S&P or, if such commercial paper is rated only by
Moody's, at least P-1 by Moody's), (vi) instruments held for collection in the
ordinary course of business, (vii) any equity or debt securities or other form
of debt instrument obtained in settlement of debts previously contracted, (viii)
any equity or debt securities obtained by the Borrower in connection with any
acquisition permitted pursuant to clause (B) of Section 8.03 hereof, and (ix)
any equity or debt securities held by the Borrower as of the Closing Date that
are listed on Annex I hereto and any distributions of securities made in respect
thereof.
Permitted L/C Obligation shall mean, as to any Letter of Credit,
obligations (i) in connection with the Borrower's "Liberty Mutual" worker's
compensation self-insurance program; (ii) to support Indebtedness supported by
the Existing Letters of Credit; and (iii) to support any other obligation of the
Borrower acceptable to the Agent and the Required Lenders, in their sole
discretion.
Permitted Liens shall mean those Liens permitted to exist pursuant to
Section 8.02 hereof.
Person shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
Plan shall mean any employee benefit plan which is subject to ERISA
and which covers the employees or former employees of the Borrower, any of its
Subsidiaries or an ERISA Affiliate, under which the Borrower, any of its
Subsidiaries or an ERISA Affiliate has any obligation or liability or under
which the Borrower, any of its Subsidiaries or an ERISA Affiliate has made
contributions within the preceding five years. References herein to a Plan shall
include any Multiemployer Plan.
Prime Rate shall mean the per annum rate of interest established by
the Agent as its reference rate in making loans, and does not reflect the rate
of interest charged to any particular borrower or class of borrowers. The
Borrower acknowledges that the Prime Rate is not tied to any external index or
rate of interest and that the rate of interest charged hereunder shall change
-10-
<PAGE>
automatically and immediately as of the date of any change in the Prime Rate,
without notice to the Borrower.
Prime Rate Loan shall mean any Loan that bears interest at a rate of
interest based upon the Prime Rate.
Pro Rata Share shall mean, with respect to each of the Facilities for
each Lender at any time, the percentage obtained by dividing such Lender's
Credit Commitment by the Maximum Available Credit Amount (in each case, as
adjusted from time to time in accordance with the provisions of this Agreement).
Regulation D shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
Required Lenders shall mean Lenders holding more than sixty-six and
two/thirds percent (66.67%) of the aggregate of all the Credit Commitments of
the Lenders, or, if the Credit Commitments have been terminated, the Lenders
holding more than sixty-six and two/thirds percent (66.67%) of such Credit
Commitments immediately prior to such termination.
Revolving Credit Expiration Date shall mean January 2, 2000, as the same
may be extended for an additional one (1) year period in accordance with Section
2.02 hereof.
Revolving Credit Facility shall have the meaning assigned to such term
in Section 2.01 hereof.
Revolving Credit Loans shall have the meaning assigned to such term in
Section 2.01 hereof.
Revolving Credit Notes shall have the meaning assigned to such term in
Section 2.01 hereof.
Revolving Credit Period shall mean the period from and including the
Closing Date to but excluding the Revolving Credit Expiration Date or such
earlier date on which the Lenders' obligation to make Revolving Credit Loans
shall have terminated as provided herein.
SEC shall mean the Securities and Exchange Commission or any
governmental entity which may be substituted therefor.
Stated Amount shall mean, as to any Letter of Credit, the maximum amount
available to be drawn thereunder, determined without regard to whether any
conditions to drawing could then be met.
-11-
<PAGE>
Subsidiary shall mean, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned or controlled by such
Person, one or more of the other Subsidiaries of such Person or any combination
thereof.
Subsidiary Guaranty shall mean that certain Guaranty Agreement, dated
even date herewith, provided by Health Care in favor of the Agent for the
ratable benefit of the Lenders, substantially in the form of Exhibit D hereto.
Tangible Net Worth shall mean, at any time:
(a) the total assets of the Borrower which would be shown as
assets on a consolidated balance sheet of the Borrower and its
Subsidiaries as of such time prepared in accordance with GAAP,
consistently applied, after subtracting therefrom the aggregate amount
of any capitalized research and development costs, capitalized interest,
debt discount and expense, goodwill, patents, trademarks, copyrights,
franchises, licenses, amounts owing from officers, directors,
shareholders, principals, partners, or other Affiliates of the Borrower
and any investments in any Affiliate of any of the foregoing, and such
other assets as are properly classified as "intangible assets"
determined in accordance with GAAP, consistently applied,
minus
(b) the total liabilities of the Borrower which would be shown
as liabilities on a consolidated balance sheet of the Borrower and its
Subsidiaries as of such time, prepared in accordance with GAAP,
consistently applied;
provided, however, that for purposes of the foregoing determination of Tangible
Net Worth, increases thereto from stock offering and FASB changes shall not be
included.
Telerate Page 3750 shall mean the display designated as "Page 3750" on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying London interbank offered rates of
major banks).
Test Period shall mean, with respect to any applicable determination
under this Agreement, a period of twelve (12) consecutive months (taken as one
accounting period) and ending on the last day of the fiscal quarter of the
Borrower then last ended.
Type shall mean any type of Loan determined with respect to its interest
option applicable thereto, i.e., a Prime Rate Loan or LIBOR Loan.
-12-
<PAGE>
Unpaid Drawing shall have the meaning assigned to such term in Section
2.10 hereof.
1.02 Principles of Construction.
---------------------------
(a) References. All references to sections, schedules and
exhibits are to sections, schedules and exhibits in or to this Agreement unless
otherwise specified. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
(b) Accounting Terms. All accounting terms not specifically
defined herein or in any exhibit hereto shall be construed in accordance with
GAAP in conformity with those principles used in the preparation of the
financial statements referred to in Section 7.03 of this Agreement. Any non-cash
accrual accounting charges or gains arising from the adoption of FASB rulings
not yet fully adopted by the Borrower and the Guarantors shall not be included
in the definitions of said accounting terms, and therefore shall be excluded for
the purposes of financial covenant calculations required pursuant to Sections
8.14, 8.15 and 8.16 hereof.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
---------------------------
2.01 Revolving Credit. Subject to the terms and conditions herein set
----------------
forth and in reliance upon representations and warranties set forth herein and
in the other Credit Documents, each Lender severally agrees to make available to
the Borrower a revolving credit facility (the Revolving Credit Facility),
pursuant to which each Lender shall make advances (each a Revolving Credit Loan)
to the Borrower from time to time during the Revolving Credit Period, in an
amount not to exceed such Lender's Pro Rata Share of the Availability. All
Revolving Credit Loans comprising the same advance under this Agreement shall be
made by the Lenders simultaneously and proportionately to their then respective
Pro Rata Shares, it being understood that no Lender shall be responsible for any
failure by another Lender to perform its obligations to make a Revolving Credit
Loan hereunder nor shall the Credit Commitment of any Lender be increased or
decreased as a result of any such failure. The Revolving Credit Loans
outstanding under the Revolving Credit Facility shall be evidenced by Revolving
Credit Notes issued to each of the Lenders, substantially in the form of Exhibit
A hereto (each a Revolving Credit Note), with blanks appropriately completed in
conformity herewith. Subject to Section 2.03(c) hereof, the Revolving Credit
Loans shall from time to time be (i) LIBOR Loans, (ii) Prime Rate Loans, or
(iii) a combination thereof, as determined by the Borrower in accordance with
Sections 2.03 and 2.06 hereof, provided that no Revolving Credit Loan shall be
made as a LIBOR Loan after the day that is one (1) month prior to the Revolving
Credit Expiration Date. Subject to the provisions of this Agreement, the
Borrower from time to time may borrow, repay and reborrow Loans made hereunder
at any time during the Revolving Credit Period.
2.02 Revolving Credit Payment and Maturity; Extension of Maturity.
-------------------------------------------------------------
Subject to the immediately succeeding sentences of this Section 2.02, the
aggregate unpaid principal amount of the Revolving Credit Loans, all accrued but
unpaid interest thereon, and any and all fees payable
-13-
<PAGE>
hereunder, shall mature and be due and payable on the Revolving Credit
Expiration Date. The Revolving Credit Expiration Date may be extended for an
additional one (1) year period upon the written request of the Borrower to the
Agent and the Lenders made at least six (6) months prior (but not more than nine
(9) months prior) to the then Revolving Credit Expiration Date. Such notice
shall be accompanied by a certificate of the chief financial officer of the
Borrower stating that no Default or Event of Default has occurred and is then
continuing and that the representations and warranties contained herein and in
the other Credit Documents are true and correct in all material respects on such
date. Neither the Agent nor any Lender shall be obligated to grant any
extensions pursuant to this Section 2.02 and any such extension shall be in the
sole and absolute discretion of each of them, but the Agent and each Lender
agrees to reply to any such request within a reasonable period of time.
2.03 Procedure for Revolving Credit Loan Borrowings.
----------------------------------------------
(a) Notice of Borrowing. Whenever the Borrower desires to incur
Revolving Credit Loans, the Borrower shall deliver a Notice of Borrowing (or
provide telephonic notice thereof, promptly confirmed in writing) to the Agent
(i) in the case of a LIBOR Loan, no later than 11:00 a.m. (prevailing Eastern
Standard Time) on the date that is at least two (2) LIBOR Business Days prior to
the date of the proposed Loan and (ii) in the case of a Prime Rate Loan, no
later than 10:00 a.m. (prevailing Eastern Standard Time) on the date of the
proposed Loan. Each such Notice of Borrowing (a Notice of Borrowing) shall be
substantially in the form of Exhibit B hereto and shall be irrevocable and shall
specify (i) the principal amount of the proposed Revolving Credit Loan, (ii) the
amount of the Availability as of the date of the funding of the proposed
Revolving Credit Loan, (iii) the date of funding of the proposed Revolving
Credit Loan, (iv) the Type of Revolving Credit Loan proposed, and (v) in the
case of a proposed Revolving Credit Loan in the form of a LIBOR Loan, the
desired Interest Period. The Agent shall promptly give each Lender written
notice (or telephonic notice promptly confirmed in writing) of each proposed
Revolving Credit Loan, of such Lender's Pro Rata Share thereof and of the other
matters covered by the Notice of Borrowing. Without in any way limiting the
obligation of the Borrower to confirm in writing any notice it may give
hereunder by telephone, the Agent may act prior to receipt of written
confirmation, without liability, upon the basis of such telephonic notice
believed by the Agent in good faith to be from the chief financial officer of
the Borrower, or from any other person designated in writing to the Agent by the
chief financial officer of the Borrower as a person entitled to give telephonic
notices under this Agreement on behalf of the Borrower. In each such case, the
Borrower hereby waives the right to dispute the Agent's record of the terms of
any such telephonic notice.
(b) Disbursement of Funds. No later than 2:00 p.m. (prevailing Eastern
Standard Time) on the date of each such Loan, each Lender will make available
its Pro Rata Share of such Revolving Credit Loan requested to be made on such
date in immediately available funds to the Agent at its Payment Office and the
Agent shall make such funds available to the Borrower by depositing such funds
into the Borrower's account at the Agent's Payment Office. Unless the Agent
shall have been notified by any Lender prior to the date of any such Revolving
Credit Loan that such Lender does not intend to make available to the Agent its
Pro Rata Share of such Revolving Credit Loan, the Agent may assume that such
Lender has made such amount available to the Agent on the
-14-
<PAGE>
date of such Revolving Credit Loan and the Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Borrower such Pro Rata Share of such Revolving Credit
Loan. If such Pro Rata Share is not in fact made available to the Agent by such
Lender and the Agent has made available the same to the Borrower, the Agent
shall be entitled to recover such amount from such Lender. If such Lender does
not pay such amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Borrower, and the Borrower shall immediately pay such amount
to the Agent. The Agent shall also be entitled to recover from such Lender or
the Borrower, as the case may be, interest on such amount in respect of each day
from the date such amount was made available by the Agent to the Borrower to the
date such amount is recovered by the Agent, at a rate per annum equal to (x) if
paid by such Lender, the Federal Funds Rate or (y) if paid by the Borrower, the
then applicable rate of interest, calculated in accordance with Section 2.13
hereof, for the respective Revolving Credit Loans. Nothing in this Section
2.03(b) shall be deemed to relieve any Lender from its obligation to fulfill its
Credit Commitment hereunder or to prejudice any rights which the Borrower may
have against any Lender as a result of any default by such Lender hereunder.
(c) Minimum Advance and Type Limitation. Each Revolving Credit Loan
requested hereunder shall be in an amount equal to $500,000 or any whole
multiple thereof, except that any Revolving Credit Loan may be in the aggregate
amount of the Availability. At no single time during the Revolving Credit Period
shall there be any more than five (5) LIBOR Loans outstanding under the
Revolving Credit Facility.
2.04 Reduction of Commitment. The Borrower shall have the right, upon
-----------------------
not less than three (3) Business Days' prior written notice to the Agent (which
the Agent shall promptly transmit to the Lenders), to reduce all or part of the
Maximum Available Credit Amount, such reduction to be permanent and irrevocable
upon delivery of said notice. Any partial reduction of the Maximum Available
Credit Amount shall be in a minimum amount equal to $500,000 or any whole
multiple thereof and shall reduce each Lender's Credit Commitment
proportionately in accordance with its Pro Rata Share.
2.05 Interest.
--------
(a) Interest Rates. Prior to an Event of Default (i) each LIBOR
Loan shall bear interest for each day during each Interest Period applicable
thereto at a per annum rate equal to the LIBOR Rate plus the Applicable Margin
and (ii) each Prime Rate Loan shall bear interest at a per annum rate equal to
the Prime Rate minus the Applicable Margin in effect from time to time. Upon and
following an Event of Default each Loan shall bear interest at the Default Rate,
as such term is defined in the Revolving Credit Notes.
(b) Interest Accrual and Payment Date. Interest on each Loan
shall accrue from and including the date of the advance of funds with respect to
such Loan or the first day of the relevant Interest Period to but excluding the
date of repayment thereof or the expiration of the Interest Period and shall be
payable in arrears (i) in the case of a Prime Rate Loan, on the last day of
-15-
<PAGE>
each calendar month and (ii) in the case of a LIBOR Loan on the last day of the
Interest Period with respect thereto.
(c) Agent's Determination. The Agent shall determine each
interest rate applicable to the Loans hereunder. The Agent shall give prompt
written notice to the Borrower and the Lenders of each rate of interest so
determined (and, in respect of the Prime Rate, any change thereof); provided,
however that the failure of the Agent to give such notice shall in no way affect
the validity or applicability of any such determination or change. The Agent's
determinations under this Section 2.05(c) shall be conclusive and binding,
absent manifest error.
2.06 Conversions and Continuations.
-----------------------------
(a) Conversions. Subject to Section 2.03(c) hereof, the Borrower
may elect from time to time to convert any Loan to any other Type of Loan by
delivering to the Agent an irrevocable notice (or by providing telephonic notice
promptly confirmed in writing) of such election (A) in the case of a conversion
to a Prime Rate Loan, at least one (1) Business Day prior to the expiration of
the then current Interest Period with respect to the LIBOR Loan to be converted
or (B) in the case of a conversion to a LIBOR Loan, at least two (2) LIBOR
Business Days prior to the proposed commencement of the Interest Period of the
LIBOR Loans as so converted. Any notice delivered pursuant to this Section
2.06(a) with respect to a conversion to a LIBOR Loan shall also specify the
desired Interest Period for the Loan as so converted. No Loan may be converted
pursuant to this Section 2.06(a) hereof (i) at any time during which an Event of
Default has occurred and is continuing, (ii) if, after giving effect to such
conversion, Section 2.03(c) hereof is violated, or (iii) if, in case of a
conversion to a LIBOR Loan, such conversion were to be effective at any time
after a date that is one (1) month prior to the Revolving Credit Expiration
Date. The Agent shall give each Lender notice as promptly as practicable of any
such proposed conversion affecting any of its Loans.
(b) Continuance of LIBOR Loan. The Borrower may elect to
continue any LIBOR Loan as such upon the expiration of the then current Interest
Period with respect thereto by delivering to the Agent an irrevocable notice (or
by providing telephone notice thereof, promptly confirmed in writing) of such
election, at least two (2) LIBOR Business Days prior to the expiration of the
then current Interest Period with respect thereto. Such notice shall also
specify the desired Interest Period for the Loan so continued. No continuance
shall be permitted under this Section 2.06(b), (i) at any time during which an
Event of Default has occurred and is continuing or (ii) if the effective date
(i.e., the value date) of such continuance were to occur after a date that is
one (1) month prior to the Revolving Credit Expiration Date. The Agent shall
give each Lender notice as promptly as practicable of any such proposed
continuance affecting any of its Revolving Credit Loans.
(c) Automatic Conversion to Prime Rate. If the Borrower fails to
notify the Agent of the conversion or continuance of any LIBOR Loan within the
time specified in this Section 2.06, or is otherwise not permitted to convert or
continue any LIBOR Loan pursuant to said Section, then any such Loan shall
automatically convert to a Prime Rate Loan on the last day of the then expiring
applicable Interest Period.
-16-
<PAGE>
2.07 Letters of Credit.
-----------------
(a) Issuance of Letters of Credit. Subject to and upon the terms
herein set forth and in reliance upon the representations and warranties herein
set forth and in the other Credit Documents, the Borrower at any time and from
time to time on or after the Closing Date and prior to the Revolving Credit
Expiration Date, may request that the Agent issue, for the account of the
Borrower and in support of any Permitted L/C Obligation, an irrevocable standby
letter of credit or letters of credit in such form as may be approved by the
Agent (the Letter of Credit Facility). Notwithstanding the foregoing (i) no
Letter of Credit shall be issued in a Stated Amount which (x) when added to the
Letter of Credit Outstandings at such time would exceed the Letter of Credit
Sublimit, or (y) when added to the sum of the aggregate principal amount of the
Credit Obligations then outstanding would exceed the Availability; (ii) each
Letter of Credit shall, unless otherwise agreed to by the Agent and the Required
Lenders, have an expiration date occurring no later than one (1) year after the
date of issuance thereof, and in no event occurring later than the Business Day
next preceding the Revolving Credit Expiration Date; (iii) each Letter of Credit
shall be denominated in U.S. dollars; and (iv) no Letter of Credit shall be
issued by the Agent after it has received a notice in writing from the Required
Lenders or the Borrower that one or more of the conditions specified in Section
5.02 hereof are not then satisfied.
(b) Existing Letter of Credit. Annex II hereto contains a
description of all letters of credit issued pursuant to the Existing Credit
Agreement and outstanding on the Closing Date. Each such letter of credit,
including any extension or renewal thereof (each, as amended from time to time
in accordance with the terms thereof and hereof, an Existing Letter of Credit)
shall constitute a Letter of Credit for all purposes of this Agreement, issued,
for purposes of Section 2.07(a), on the Closing Date.
2.08 Letter of Credit Requests. Whenever the Borrower desires that a
-------------------------
Letter of Credit be issued for its account, it shall give the Agent at least
five (5) Business Days' notice (or such lesser number of days as may be agreed
to by the Agent and the Required Lenders). Each notice shall be executed by the
Borrower and shall be in the form of Exhibit C hereto (each a Letter of Credit
Request). The Agent shall promptly transmit copies of each Letter of Credit
Request to each Lender. Each Letter of Credit Request shall be accompanied by a
completed and executed "Letter of Credit Application" (or an amendment to any
then effective application) in the form furnished by the Agent to the Borrower
from time to time. The terms of each such application are incorporated herein to
the extent not inconsistent herewith.
2.09 Letter of Credit Participations.
--------------------------------
(a) Participations. Immediately upon the issuance by the Agent
--------------
of any Letter of Credit, the Agent shall be deemed to have sold and transferred
to each other Lender (each such other Lender, in such capacity under this
Section 2.09, a L/C Participant), and each such L/C Participant shall be deemed
irrevocably and unconditionally to have purchased and received from the
-17-
<PAGE>
Agent, without recourse or warranty, an undivided interest and risk and income
participation (each a L/C Participation), to the extent of such L/C
Participant's Pro Rata Share, in such Letter of Credit, each substitute letter
of credit, each drawing made thereunder and the obligations of the Borrower
under this Agreement with respect thereto, and any security thereof or guaranty
pertaining thereto (although Letter of Credit Fees will be paid directly to the
Agent for the ratable account of the L/C Participants as provided in Section
3.03 and the L/C Participants shall have no right to receive any portion of any
Letter of Credit Processing Fees). Upon any change in the Credit Commitments of
the Lenders pursuant to Section 11.08 hereof, it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be
an automatic adjustment to the L/C Participations pursuant to this Section 2.09
to reflect the new Pro Rata Shares of the assignor and assignee Lender.
(b) Agent's Obligations. In determining whether to pay under any
Letter of Credit, the Agent shall have no obligation relative to the L/C
Participants or the Borrower other than to confirm that any documents required
to be delivered under such Letter of Credit have been delivered and that they
appear to comply on their face with the requirements of such Letter of Credit.
Any action taken or omitted to be taken by the Agent under or in connection with
any Letter of Credit issued by it, if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for the Agent any resulting
liability.
(c) Payments Upon Drawing. In the event that the Agent makes any
payment under any Letter of Credit issued by it and the Borrower shall not have
reimbursed such amount in full to the Agent pursuant to Section 2.10(a), the
Agent shall promptly notify each L/C Participant of such failure, and each L/C
Participant shall promptly and unconditionally pay to the Agent the amount of
such L/C Participant's Pro Rata Share of such unreimbursed payment in
immediately available funds. If the Agent so notifies, prior to 11:00 A.M.
(prevailing Eastern Standard Time) on any Business Day, any L/C Participant
required to fund a payment under a Letter of Credit, shall make available to the
Agent such L/C Participant's Pro Rata Share of the amount of such payment on
such Business Day in same day funds. If and to the extent such L/C Participant
shall not have so made its Pro Rata Share of the amount of such payment
available to the Agent, such L/C Participant agrees to pay to the Agent,
forthwith on demand, such amount, together with interest thereon for each day
from such date until the date such amount is paid to the Agent at the Federal
Funds Rate. The failure of any L/C Participant to make available to the Agent
its Pro Rata Share of any payment under any Letter of Credit shall not relieve
any other L/C Participant of its obligation hereunder to make available to the
Agent its Pro Rata Share of any payment under any Letter of Credit on the date
required, as specified above, but no L/C Participant shall be responsible for
the failure of any other L/C Participant to make available to the Agent such
other L/C Participant's Pro Rata Share of any such payment.
(d) L/C Participants' Duties Absolute. The obligations of the
L/C Participants to make payments to the Agent with respect to Letters of Credit
shall be irrevocable and not subject to counterclaim, set-off or other defense
or any other qualification or exception whatsoever
-18-
<PAGE>
and shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), the Agent, any Lender, or
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower
and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents;
(v) the occurrence of any Default or Event of Default; or
(vi) the failure of any condition precedent set forth in Section
5.02 hereof to have been satisfied at the time of the issuance of any
Letter of Credit unless the Agent shall have received a notice in
writing to such effect from such Lender hereof prior to the issuance of
such Letter of Credit.
2.10 Agreement to Repay Letter of Credit Drawings.
--------------------------------------------
(a) Borrower's Obligation to Pay Drawings. The Borrower hereby
agrees to reimburse the Agent, by making payment to the Agent in immediately
available funds, for any payment or disbursement made by the Agent under any
Letter of Credit issued by it (each such amount so paid until reimbursed, an
Unpaid Drawing) immediately after, and in any event on the date of, notice given
by the Agent to the Borrower of such payment (which notice the Agent hereby
agrees to give promptly after the making of any payment or disbursement under a
Letter of Credit), with interest on the amount so paid or disbursed by the
Agent, to the extent not reimbursed prior to 1:00 P.M. (prevailing Eastern
Standard Time) on the date of such payment or disbursement, from and including
the date paid or disbursed to but excluding the date the Agent is reimbursed
therefor, at a rate per annum which shall be the Prime Rate as in effect from
time to time (plus an additional 300 basis points (3.00%) per annum, if not
reimbursed by the second (2nd) Business Day following any such notice of payment
or disbursement), such interest to be payable on demand.
-19-
<PAGE>
(b) Borrower's Obligations Absolute. The Borrower's obligations
under this Section 2.10 to reimburse the Agent with respect to Unpaid Drawings
(including, in each case, interest thereon) issued by it shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Borrower or any other Person may
have or have had against the Agent or any Lender, including, without limitation,
any defense based upon the failure of any drawing under a Letter of Credit (each
a Drawing) to conform to the terms of the Letter of Credit or any non-
application or misapplication by the beneficiary of the proceeds of such
Drawing; provided, that the Borrower shall not be obligated to reimburse the
Agent for any wrongful payment made by the Agent under a Letter of Credit as a
result of acts or omissions constituting willful misconduct or gross negligence
on the part of the Agent.
2.11 Indemnification; Nature of Agent's Duties.
-----------------------------------------
(a) Indemnification Generally. The Borrower hereby agrees to
protect, indemnify, pay and save the Agent harmless from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) that the Agent may incur or be subject to
as a consequence, direct or indirect, of (i) the issuance of any Letter of
Credit or (ii) the failure of the Agent to honor a Drawing under a Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental authority (all
such actions or omissions, herein called Government Acts).
(b) Allocation of Risk. As between the Borrower and the Agent,
the Borrower shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Agent shall not be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for
and issuance of any Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may prove to
be invalid or ineffective for any reason; (iii) for failure of the beneficiary
of a Letter of Credit to comply fully with conditions required in order to draw
upon a Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a Drawing under a Letter of Credit or of the proceeds thereof; and (vii)
for any consequences arising from causes beyond the control of the Agent,
including, without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of any of the Agent's rights or powers
hereunder.
(c) Scope of Agent's Duties. In furtherance and extension and
not in limitation of the specific provisions hereinabove set forth, any action
taken or omitted by the Agent under or in connection with any Letter of Credit
or the related drawing certificates, if taken or omitted in good faith, shall
not put the Agent under any resulting liability to the Borrower. The Agent shall
-20-
<PAGE>
not, in any way, be liable for any failure by it or anyone else to pay any
Drawing under any Letter of Credit as a result of any Government Acts or
any other cause beyond the control of the Agent.
(d) No Limitation as to Reimbursement. Nothing in this
Section 2.11 is intended to limit the reimbursement obligation of the
Borrower contained in Section 2.10 hereof. The obligations of the Borrower
under this Section 2.11 shall survive the termination of this Agreement. No
act or omissions of any current or prior beneficiary of a Letter of Credit
shall in any way affect or impair the rights of the Agent to enforce any
right, power or benefit under this Agreement.
(e) Limitation of Indemnification. Notwithstanding
anything to the contrary contained in this Section 2.11, (i) the Borrower
shall have no obligation to indemnify the Agent in respect of any liability
incurred by the Agent arising solely out of the gross negligence or willful
misconduct of the Agent, as determined by a court of competent jurisdiction
and (ii) the Borrower shall have a claim against the Agent and the Agent
shall be liable to the Borrower to the extent, but only to the extent, of
any direct, as opposed to consequential, damages suffered by the Borrower
which the Borrower proves were caused by (x) the Agent's willful misconduct
or gross negligence in determining whether the documents presented under a
Letter of Credit complied with the terms of such Letter of Credit or (y)
the Agent's willful or grossly negligent failure to pay under a Letter of
Credit after presentation to it of a drawing certificate and any other
documents strictly complying with the terms and conditions of such Letter
of Credit.
2.12 Increased Costs; Illegality; Capital Adequacy; Funding
------------------------------------------------------
Losses.
------
(a) Increased Costs and Illegality. In the event that (x)
in the case of clause (i) below, the Agent, and (y) in the case of clauses
(ii) and (iii) below, any Lender, shall have determined (which
determination in either case shall, absent manifest error, be final and
conclusive and binding upon all parties hereto):
(i) on any date for determining the LIBOR Rate for any
Interest Period that, by reason of any changes arising
on or after the date of this Agreement affecting the
relevant capital market, (x) adequate and fair means do
not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of LIBOR
Rate or (y) such means will not adequately and fairly
reflect the cost to the Lenders of funding LIBOR Loans
for the relevant Interest Periods; or
(ii) at any time, that such Lender shall incur increased
costs or reductions in the amounts received or
receivable hereunder with respect to any LIBOR Loans
because of (x) any change since the date of this
Agreement in any applicable law, governmental rule,
regulation, guideline or order (or in the
interpretation or administration thereof and including
the introduction of any new law or governmental rule,
regulation, guideline or order) (such as, for example,
but not limited to,
-21-
<PAGE>
in the case of a LIBOR Loan, a change in official
reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent
included in the computation of the LIBOR Rate) and/or
(y) other circumstances affecting the relevant capital
market; or
(iii) at any time, that the making or continuance of any
LIBOR Loan has become unlawful by compliance by such
Lender in good faith with any law, governmental rule,
regulation, guideline or order (or would conflict with
any such governmental rule, regulation, guideline or
order not having the force of law even though the
failure to comply therewith would not be unlawful), or
has become impracticable as a result of a contingency
occurring after the date of this Agreement which
materially and adversely affects the relevant capital
market;
then, and in any such event, the Lender so affected (or the Agent, in the case
of clause (i) above) shall on such date give notice to the Borrower (and the
other Lenders and/or the Agent, as the case may be) of such determination.
Thereafter (x) in the case of clause (i) above, LIBOR Loans shall no longer be
available until such time as the Agent notifies the Borrower and the Lenders
that the circumstances giving rise to such notice by the Agent no longer exist,
and any Notice of Borrowing delivered pursuant to Section 2.03(a) hereof or
notice of conversion or continuance delivered pursuant to Section 2.06 hereof
with respect to a LIBOR Loan shall be deemed rescinded by the Borrower, (y) in
the case of clause (ii) above, the Borrower shall pay to such Lender, upon
written demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Lender in its sole discretion shall determine) as shall be required to
compensate such Lender for such increased costs or reductions in amounts
receivable hereunder (a written notice as to the additional amounts owed to such
Lender, showing in reasonable detail the basis for the calculation thereof,
submitted to the Borrower by such Lender shall, absent manifest error, be final
and conclusive and binding upon all parties hereto) and (z) in the case of
clause (iii) above, LIBOR Loans shall no longer be available until such time as
such Lender notifies the Borrower that the circumstances giving rise to such
notice no longer exist, any Notice of Borrowing delivered pursuant to Section
2.03(a) hereof or notice of conversion or continuance delivered pursuant to
Section 2.06 hereof with respect to LIBOR Loans shall be deemed rescinded by the
Borrower, and any LIBOR Loans that are then outstanding shall be automatically
converted to Prime Rate Loans; provided, however that if such Lender, in its
sole discretion, determines that such circumstances can only be alleviated by
repayment of such Loans, then, upon demand, the Borrower shall repay in full
such Loans, together with accrued but unpaid interest thereon.
(b) Capital Adequacy. If after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by a Lender or
its parent with any request or directive made or adopted after the date hereof
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has
-22-
<PAGE>
or would have the effect of reducing the rate of return on such Lender's or its
parent's capital or assets as a consequence of such Lender's commitments or
obligations hereunder to a level below that which such Lender or its parent
could have achieved but for such adoption, effectiveness, change or compliance
(taking into consideration such Lender's or its parent's policies with respect
to capital adequacy), then from time to time, upon demand, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or its parent for such reduction. Such Lender, upon determining in good
faith that any additional amounts will be payable pursuant to this Section 2.12,
will give prompt written notice thereof to the Borrower, which notice shall set
forth in reasonable detail the basis of the calculation of such additional
amounts, although the failure to give any such notice shall not release or
diminish any of the Borrower's obligations to pay additional amounts pursuant to
this Section 2.12 upon receipt of such notice.
(c) Funding Losses. The Borrower shall compensate each Lender,
upon its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses and liabilities,
including, without limitation, any loss, expense or liability incurred by reason
of the liquidation or reemployment of deposits or other funds required by such
Lender to fund its LIBOR Loans (all such losses Funding Losses) which such
Lender may sustain: (x) if for any reason an advance of, or conversion from or
into, LIBOR Loans does not occur on a date specified therefor in a Notice of
Borrowing or notice of conversion given pursuant to Section 2.06(a) or (b), as
the case may be, (whether or not withdrawn by the Borrower or deemed withdrawn
pursuant to Section 2.12(a)); (y) if any repayment (including any prepayment
made pursuant to Section 4.01 or 4.02) or conversion of any of its LIBOR Loans
occurs on a date which is not the last day of an Interest Period with respect
thereto; or (z) as a consequence of (i) any other default by the Borrower to
repay its Loans when required by the terms of this Agreement or any Note held by
such Lender or (ii) any prepayment or conversion made pursuant to Section
2.12(a). The amount of compensation available to any Lender pursuant to this
Section 2.12(c) shall be determined based on the assumption that such Lender has
funded the entire amount of the relevant LIBOR Loan through match funding
obtained in the London interbank market.
2.13 Computation. Interest and any fees or compensation based upon a
-----------
per annum rate shall be calculated on the basis of a 360 day year for the actual
number of days elapsed.
SECTION 3. FEES.
----
3.01 Upfront Fees. The Borrower shall pay, or have paid, to the
------------
Agent on or before the Closing Date a one-time facility upfront fee in an amount
equal to twelve and one-half (12 1/2) basis points (.125%) of the Maximum
Available Credit Amount as of the Closing Date. On the Closing Date, the Agent
shall disburse such fees to the Lenders based on their respective Pro Rata
Shares. The Borrower acknowledges that such fees are a liquidated damages amount
and, together with the amounts payable pursuant to Section 5.01(c) hereof,
constitute reasonable compensation to the Agent and the Lenders for their
expenses and services in connection with the arrangement of their respective
Credit Commitments and the negotiations and preparation of this Agreement and
the other Credit Documents.
-23-
<PAGE>
3.02 Commitment Fee. The Borrower shall pay to the Agent for the
--------------
ratable account of the Lenders based on their respective Pro Rata Shares,
quarterly in arrears, a commitment fee for the period from and including the
Closing Date until the Revolving Credit Expiration Date, computed at a rate
equal to 25 basis points (.25%) per annum of the average daily amount of the
Availability. Such fee shall be payable commencing on March 31, 1997 (for the
period commencing on the Closing Date and ending on said March 31, 1997), and
continuing quarterly on the last Business Day of each March, June, September and
December occurring thereafter.
3.03 Letter of Credit Fee. The Borrower shall pay to the Agent for
--------------------
the ratable account of the Lenders based on their respective Pro Rata Shares,
quarterly in advance, a fee in respect of the Letters of Credit (the Letter of
Credit Fee) computed at a rate equal to 100 basis points (1.00%) per annum of
the aggregate Stated Amount of the Letters of Credit outstanding as of the first
day of each January, April, July and October. Such fee shall be payable
commencing on January 2, 1997 and continuing quarterly on the first Business Day
of each January, April, July and October occurring thereafter. For the avoidance
of doubt, the foregoing calculation of the Letter of Credit Fee may be
calculated in accordance with the following formula:
A (multiplied by) .01 (multiplied by) N
-----
360
; with A equal to the aggregated Stated Amount of the Letters of Credit
outstanding as of the first day of the relevant payment period and N equal to
the actual number of days elapsed during the period commencing on said first day
and ending on the last day of the relevant payment period.
3.04 Letter of Credit Processing Fee. The Borrower shall pay to the
-------------------------------
Agent for its sole account, upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit, such amounts as shall at the time of such
issuance, drawing or amendment be the administrative charge which the Agent
customarily charges for such issuances of, drawings under or amendments of,
letters of credit issued by it (Letter of Credit Processing Fees).
SECTION 4. PREPAYMENTS AND PAYMENTS GENERALLY.
----------------------------------
4.01 Voluntary Prepayments. The Borrower may prepay any Loan, in
---------------------
whole or in part, without premium or penalty (except as provided in Section
2.12(c) hereof) upon at least three (3) Business Days' irrevocable notice to
each Lender (or one (1) Business Day's irrevocable notice in the case of a
prepayment of a Prime Rate Loan), specifying the date and the amount of the
prepayment and whether such prepayment is in respect of LIBOR Loans, Prime Rate
Loans or a combination thereof; provided, that any such prepayment shall include
all accrued but unpaid interest in respect of the Loans being prepaid. The
principal portion of any partial prepayment shall be in an amount equal to
$500,000 or any whole multiple thereof.
4.02 Mandatory Prepayments. Immediately upon the Credit Obligations
---------------------
exceeding the Maximum Available Credit Amount, the Borrower shall make, or cause
to be made, a
-24-
<PAGE>
mandatory prepayment of the Credit Obligations in an amount equal to such
excess, together with accrued but unpaid interest thereon. Without limiting the
foregoing, immediately upon the Letter of Credit Outstandings exceeding the
Letter of Credit Sublimit, the Borrower shall make, or cause to be made, payment
to the Agent in the amount of such excess to be held as cash collateral (on
terms and conditions established by the Agent and reasonably acceptable to the
Borrower) to secure such Letter of Credit Outstandings in excess of the Letter
of Credit Sublimit. Provided that no Default or Event of Default has occurred
and is then continuing, such cash collateral shall be released by the Agent (on
behalf of the Lenders) if and when the Letter of Credit Outstandings have been
reduced to an amount equal to or less than the Letter of Credit Sublimit then in
effect.
4.03 Application of Mandatory Prepayments. Any prepayment
------------------------------------
received pursuant to Section 4.02 hereof shall be applied first to reduce
amounts owing in respect of any Prime Rate Loans and second to reduce amounts
owing in respect of any LIBOR Loans (provided that, if there is more than one
outstanding LIBOR Loan, then amounts owing in respect of the LIBOR Loans with
the Interest Period ending on the date that is the least number of days from the
date of such prepayment shall be reduced first before reduction of amounts owing
in respect of other LIBOR Loans). Within the order of priority set forth above,
the amount of any prepayment received hereunder shall be applied to the Loans
first to reduce amounts owing in respect of accrued but unpaid interest on the
Loans being prepaid and second to reduce amounts owing in respect of outstanding
principal of such loans. If by operation of the provisions set forth above or
any other reason, payment of principal in respect of a LIBOR Loan is received
(from any source) on a date other than the last day of the Interest Period
pertaining to such Loan, including, without limitation, due to acceleration of
said amount following the occurrence of an Event of Default, then the Borrower
shall pay to each Lender an additional amount equal to the applicable Funding
Losses. Such Funding Losses shall be payable on demand by such affected Lender.
4.04 General Provisions as to Payments. The Borrower shall make
---------------------------------
each payment of principal of, and interest on, the Loans and of fees due
hereunder, not later than 2:00 p.m. (prevailing Eastern Standard Time) on the
date when due, in immediately available funds to the Agent at its Payment
Office. Provided that the Agent receives such payments by such time, the Agent
will distribute to each Lender on the same day its Pro Rata Share of each such
payment received by the Agent.
4.05 Net Payments. All payments made by the Borrower hereunder
------------
shall be made without setoff or counterclaim. All such payments shall be made
free and clear of and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature, now or hereafter imposed by any jurisdiction or by any
department, agency, state or other political subdivision or taxing authority
thereof or therein (but excluding any tax imposed on or measured by the net
income of a Lender pursuant to the laws of the jurisdiction in which the
principal office or Payment Office of such Lender is located or under the laws
of any political subdivision or taxing authority of any such jurisdiction in
which the principal office or Payment Office of such Lender is located) and all
interest, penalties, or similar liabilities with respect thereto (collectively,
Taxes). If any Taxes are so levied or imposed, the Borrower agrees to pay the
full
-25-
<PAGE>
amount of such Taxes, and such additional amounts as may be necessary so that
every net payment of amounts due hereunder, after withholding or deduction for
or on account of any Taxes, will not be less than the amounts provided for
herein. The Borrower shall furnish to the Agent, within thirty (30) days after
the date the payment of any Taxes is due pursuant to applicable law, certified
copies of tax receipts evidencing such payment by the Borrower. The Borrower
shall indemnify and hold harmless each Lender and reimburse each Lender upon the
written request of such Lender setting forth the basis for requesting such
amount, for the amount of any Taxes so levied or imposed and paid by such
Lender.
In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made by the Borrower or the Agent
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Credit Document.
4.06 Debiting of Account. If so requested by the Agent, the Borrower
-------------------
shall maintain a demand deposit account (a DDA Account) at the Agent, and the
Agent may, and the Borrower hereby authorizes the Agent to, debit any such DDA
Account or such other account and/or certificate of deposit maintained by the
Borrower with the Agent for the amount of any payment, as and when such payment
becomes due hereunder, whether such payment is for accrued interest, principal
or expense, even if debiting any such account or certificate of deposit results
in a loss or reduction of interest to the Borrower or the imposition of a
penalty applicable to the early withdrawal of time deposits. Such authorization
shall not affect the Borrower's obligation to pay when due all amounts payable
hereunder, whether or not there are sufficient funds in any accounts of the
Borrower. The foregoing rights of the Agent to debit the Borrower's accounts
shall be in addition to, and not in limitation of, any rights of set-off which
the Agent may have hereunder or under any Credit Document. Nothing in this
Section 4.06 or otherwise in this Agreement shall be interpreted to obligate the
Agent to so debit, or set-off against, any account of the Borrower maintained
with the Agent to satisfy any of the Obligations of the Borrower, such right to
so debit and/or set-off to be exercised by the Agent in its sole and absolute
discretion.
SECTION 5. CONDITIONS.
----------
5.01 Documents Required for Initial Advance. The obligation of each
--------------------------------------
Lender to make the initial advances under the Revolving Credit Facility
requested on the Closing Date is subject to the satisfaction of all of the
following conditions precedent:
(a) Certain Documents. The Agent shall have received on or before the
Closing Date all of the following, each in form and substance satisfactory to
each of the Lenders and in such quantities as the Agent shall reasonably
request:
(i) the following Credit Documents, each duly executed and delivered
by the parties thereto:
-26-
<PAGE>
(A) this Agreement;
(B) the Notes; and
(C) the Subsidiary Guaranty;
(ii) a Notice of Borrowing requesting the initial advance hereunder in an
amount at least sufficient to pay in full the "Revolving Credit Loans"
outstanding under the Existing Credit Agreement and such other amounts
(without duplicating) owing to PNC Bank (as successor in interest to
Midlantic Bank, N.A.) under the Existing Credit Agreement as set forth
on its pay-off letter with respect thereto previously submitted to the
Agent, and evidence of the termination of the "Credit Commitments" the
Existing Credit Agreement;
(iii) pre-closing UCC lien search report and tax lien and judgment search
reports with respect to the Borrower and the Guarantors, in all
appropriate jurisdictions;
(iv) evidence of termination of all UCC-1 financing statements filed in
connection with the perfection of security interest in favor of the
"Agent" pursuant to the Existing Credit Agreement;
(v) an incumbency certificate of an appropriate officer of the Borrower
certifying, as of the Closing Date, the names, titles and true
signatures of the officers certified to execute the Credit Documents,
and the names, titles and true signatures of such officers of the
Borrower authorized to deliver Notices of Borrowing and Letter of
Credit Requests on behalf of the Borrower;
(vi) a favorable New Jersey and New York law opinion of outside counsel to
the Borrower and the Guarantors addressed to the Agent and the Lenders
to the effect that the Credit Documents have been duly authorized and
executed and are enforceable against the Borrower and the Guarantors in
accordance with their respective terms, and as to such other matters
reasonably requested by the Agent and the Lenders;
(vii) a secretary's certificate for each of the Borrower and the Guarantors,
to which are attached certified copies of (x) the respective articles
of incorporation of the Borrower and the Guarantors and all amendments
thereto, certified by an appropriate corporate officer, (y) the
respective By-Laws of the Borrower and the Guarantors and all
amendments thereto, and (z) appropriate resolutions and shareholder
consents authorizing the transactions herein contemplated;
-27-
<PAGE>
(viii) a certificate from the chief financial officer of the Borrower dated
the Closing Date to the effect that as of such date (i) no Default or
Event of Default has occurred or is continuing, (ii) since September
30, 1996, there has been no material adverse change in the business,
financial condition or operations of the Borrower and (iii) each of
the representations and warranties of the Borrower contained in this
Agreement are true in all material respects;
(ix) good standing certificates issued by the appropriate official of the
state in which the Borrower and the Guarantors are incorporated; and
such good standing certificates issued by the appropriate official of
each of the states in which the Borrower and the Guarantors are
qualified as foreign corporations as the Lenders shall require;
(x) certificates of insurance evidencing the existence and full force and
effect of the insurance described in Section 6.18 hereof;
(xi) a letter from the certified public accountants for the Borrower and
Health Care consenting to the reliance by the Agent and the Lenders
upon the financial statements of the Borrower and Health Care;
(xii) an update in form and substance satisfactory to the Agent regarding
matters pertaining to the civil investigative demand served upon the
Borrower by the United States Department of Justice on April 4, 1995,
and evidence that the Borrower has adequately reserved for any
exposure resulting from said investigation;
(xiii) execution and delivery of documentation in form and substance
satisfactory to First Union National Bank that the representations,
warranties and covenants set forth herein have been incorporated by
reference into the First Fidelity Term Loan Agreement; and
(xiv) such other documents as the Lenders may reasonably require, including,
without limitation, other agreements, instruments, or indentures to
which any Obligor is a party, including, without limitation, financing
statements, proofs, opinions, guaranties and other written assurances.
(b) Settlement of Fees Under Existing Credit Agreement. The Borrower shall
have paid to the agent under the Existing Credit Agreement for the ratable
account of the lenders thereunder, the fees payable pursuant to Section 3.02 and
3.04 of the Existing Credit Agreement that have accrued through the date
immediately preceding the Closing Date.
(c) Fees and Expenses. The Borrower shall have paid (or otherwise
satisfied to the satisfaction of the Agent and the Lenders) to the Agent and/or
the Lenders, as the case may be, all
-28-
<PAGE>
fees hereunder that are expenses due and payable on or prior to the Closing
Date, including, without limitation, fees and expenses incurred by the Agent and
Lenders related to the preparation, negotiation and closing of the transaction
contemplated herein that have been requested by such parties pursuant to
invoices submitted to the Borrower on or prior to the Closing Date.
5.02 Requirements for Any Advance and Issuance of Letter of Credit.
-------------------------------------------------------------
The obligation of the Lenders to make any Revolving Credit Loans and the
obligation of the Agent to issue any Letter of Credit, in each case subsequent
to the Closing Date, is subject to satisfaction of the following conditions:
(i) the representations and warranties contained in Section 6 hereof
are true and correct on and as of the date of funding of each
such Loan or date of issuance of such Letter of Credit, as the
case may be;
(ii) no Default or Event of Default has occurred and is continuing;
(iii) there has been no material adverse change in the Borrower's or
any other Obligor's condition, financial or otherwise, since the
date of this Agreement; and
(iv) all of the Credit Documents remain in full force and effect.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
------------------------------
In order to induce the Lenders to enter into this Agreement, the
Borrower represents and warrants with respect to itself and, to the extent
applicable, each of its Subsidiaries, and agrees that each such representation
and warranty shall be deemed to be restated at the time of funding of each Loan
and at the time of issuance of each Letter of Credit, that:
6.01 Organization; Authority. The Borrower and the Guarantor is a
-----------------------
corporation, duly organized, validly existing and in good standing under the
laws of the state of its incorporation, is duly qualified as a foreign
corporation and is in good standing under the laws of each jurisdiction in which
it is required to be qualified because of the business it conducts or the
property it owns, and has the necessary power and authority to enter into and
perform its obligations under the Credit Documents. The execution and
performance of the Credit Documents have been duly authorized by all necessary
and appropriate corporate proceedings on the part of the Borrower and the
Guarantor, and, upon their execution and delivery, they will be valid, binding,
and enforceable in accordance with their terms; the execution and performance of
the Credit Documents will not violate any orders, laws or regulations applicable
to any such Obligor, any of their respective organizational documents, or any
instruments, indentures or agreements (including any provisions pertaining to
subordinated debt) to which they are a party or by which any such Obligor or any
of their respective properties are bound; and all consents, approvals, licenses,
franchises, patents, trademarks and other general intangibles
-29-
<PAGE>
required in connection with this Agreement, the other Credit Documents or the
operation of any such Obligor's business have been obtained and are in full
force and effect. All of the issued and outstanding stock of the Borrower and
the Guarantor has been validly issued and fully paid and is non-assessable. The
Borrower's Subsidiary is duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its organization and is duly qualified as
a foreign corporation and is in good standing under the laws of each
jurisdiction in which it is required to be qualified because of the business it
conducts or the property it owns.
6.02 Use of Proceeds; Margin Regulation. The proceeds of the
----------------------------------
Revolving Credit Loans shall be used only for the following purposes: (i) to
repay all amounts outstanding under the Existing Credit Agreement, (ii) to
finance the Borrower's accounts receivable, purchase equipment, make Capital
Expenditures permitted hereunder, (iii) in connection with acquisitions
permitted pursuant to Section 8.03, or (iv) in connection with the Borrower's
other working capital needs. The Letters of Credit shall be used solely to
support Permitted L/C Obligations. The Borrower is not engaged in the business
of extending credit for the purpose of buying or carrying "margin stock" (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System). Neither the making of any Loan, the issuance of any Letter of
Credit, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
6.03 Specific Financial Statements.
-----------------------------
(i) The consolidated financial statements of the Borrower as of
December 31, 1995, audited by KPMG Peat Marwick and the six (6)
and nine (9) month statements as of June 30, 1996 and September
30, 1996, respectively, prepared by management, copies of which
have heretofore been provided to the Agent, present fairly the
financial condition of the Borrower and Health Care, as
applicable, as of such dates and the results of operations for
the periods then ended. All such financial statements, including
the related schedules and notes thereto, have been prepared in
accordance with GAAP, consistently applied.
(ii) There has been no material adverse change in the financial
condition of the Borrower and Health Care or any Subsidiary or
Affiliate of the Borrowers or Health Care since September 30,
1996.
(iii) Except as reflected in the financial statements referred to in
clause (i) of this Section 6.03, the Borrower and Health Care
have no material liabilities, absolute or contingent.
6.04 Burdensome Agreements. Neither the Borrower nor the Guarantor is
---------------------
a party to any indenture, loan or credit agreement or any other agreement,
contract or instrument, or subject to any certificate of incorporation, by-law,
or corporate restriction, which may reasonably be expected to
-30-
<PAGE>
have an adverse affect on its corporate activities, properties, assets,
operations or conditions, financial or otherwise, or on its ability to carry out
its obligations under the Credit Documents.
6.05 Suits. Except as disclosed on Annex I hereto, there are no
-----
actions, suits, proceedings, or claims pending or, to the best knowledge of the
Borrower, threatened against the Borrower or its Subsidiaries, or any of their
property that, if determined adversely, are reasonably likely to have a material
adverse effect on the business, properties, assets, operations, financial
condition or prospects of the Borrower, or its Subsidiaries, taken as a whole.
6.06 Defaults. Except as disclosed on Annex I hereto, neither
--------
the Borrower nor any of its Subsidiaries is in default under any agreement to
which it is a party or by which it or any of its property is bound, or under any
indenture or instrument evidencing any Indebtedness, and neither the execution
of, nor performance under, the Credit Documents will create a default or any
Lien or encumbrance under any such agreement, indenture or instrument other than
Liens or encumbrances in favor of the Lenders.
6.07 ERISA. Each Plan is in substantial compliance with ERISA and
-----
the applicable provisions of the Code and there does not exist with respect to
any such Plan an "accumulated funding deficiency" (as such term is defined in
ERISA). No material liability to the PBGC has been incurred by the Borrower
with respect to any such Plan and no "Reportable Event" under ERISA has
occurred. Neither the Borrower nor any of its Subsidiaries has actual or
anticipated liability under Section 4971 of the Code (relating to tax on failure
to meet the minimum funding standard of Section 412 of the Code) with respect to
any Multiemployer Plan. No proceedings have been instituted to terminate any
Plan and no condition exists which presents a material risk to the Borrower or
any of its Subsidiaries of incurring a liability to or on account of any Plan
pursuant to the provisions of ERISA or the applicable provisions of the Code.
6.08 Tax Returns and Taxes. Each of the Borrower and its Subsidiaries
---------------------
has filed all federal, state and local tax returns required to be filed and has
paid all taxes, assessments and governmental charges and levies thereon,
including interest and penalties, except where the same are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
set aside, and no liens for taxes have been filed and no claims are being
assessed by a governmental authority with respect to any taxes. The charges,
accruals and reserves on the books of the Borrower or its Subsidiaries, as the
case may be, with respect to taxes or other governmental charges are adequate.
6.09 Compliance with Statutes, etc. Each of the Borrower and its
------------------------------
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including, without limitation, applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as would not, in the aggregate, have a
material adverse effect on the business, operations, property, assets or
financial condition of the Borrower or of the Borrower and its Subsidiaries
taken as a whole.
-31-
<PAGE>
6.10 Environmental Compliance. To the best of the Borrower's
------------------------
knowledge, after due inquiry and investigation, no Lien has attached to any
revenues or any real or personal property owned by the Borrower or any of its
Subsidiaries in any jurisdiction, arising from an intentional or unintentional
action or omission of the Borrower or any of its Subsidiaries or any previous
owner and/or operator of said real property, resulting from the Dumping of
hazardous substances or wastes into the atmosphere or waters or onto lands.
6.11 No Notification of Dumping of Hazardous Substances. Neither the
--------------------------------------------------
Borrower nor any of its Subsidiaries has received a summons, citation,
directive, letter, or other communication, written or oral, from any
jurisdiction, or political sub-division or any agency or instrumentality
thereof, concerning any intentional or unintentional action or omission on the
part of the Borrower or any of its Subsidiaries arising from the Dumping of
hazardous substances into the atmosphere or waters, or onto the lands in any
jurisdiction.
6.12 No Authorizations or Approvals. No authorization or approval or
------------------------------
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower of this Agreement and the other Credit Documents.
6.13 Not an Investment Company. The Borrower is not an "investment
-------------------------
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
6.14 Subsidiaries. Annex I hereto lists each Subsidiary of the
------------
Borrower (and the direct or indirect ownership interest of the Borrower
therein), in each case existing on the Closing Date. Neither the Borrower nor
any of its Subsidiaries has any interests in any Person other than as set forth
in said Annex I. No such Subsidiary has any Subsidiaries.
6.15 Intellectual Property, etc. The Borrower and each of its
--------------------------
Subsidiaries have obtained all material patents, trademarks, servicemarks, trade
names, copyrights, technology, processes, licenses and other rights
(Intellectual Property), free from any burdensome restrictions, that are
necessary for the operation of their respective businesses as presently
conducted and as proposed to be conducted. No claim has been asserted or
threatened questioning the use of such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim.
6.16 Labor Matters. Except as disclosed on Annex I, neither the
-------------
Borrower nor any of its Subsidiaries is a party to a labor contract. There are
no strikes, lockouts or other disputes relating to any collective bargaining or
similar agreement to which the Borrower or any of its Subsidiaries is a party.
6.17 Assets and Properties. The Borrower and its Subsidiaries have
---------------------
good and marketable title to all of their respective assets and properties
(tangible and intangible) and all such
-32-
<PAGE>
assets and properties are free and clear of all Liens (except Permitted Liens).
Substantially all of the assets and properties owned by, leased to or used by
the Borrower or its Subsidiaries are in adequate operating condition and repair,
ordinary wear and tear excepted, are free and clear of any known defects except
such defects as do not substantially increase with the continued use thereof in
the conduct of normal operation, and such assets are able to serve the function
for which they are currently being used, except in each case where the failure
of such asset or property to meet such requirements would not have or is not
expected to have a material adverse effect on the operations of the Borrower or
its Subsidiaries, taken as a whole.
6.18 Insurance. Annex I hereto lists all material insurance contracts
---------
and binders of the Borrower and its Subsidiaries which are currently in full
force and effect. Such contracts and binders provide coverages which are usual
and customary in the business of the Borrower and its Subsidiaries as to amount
and scope. If requested by the Agent, each such insurance contract and binder
shall contain standard lender's endorsement and loss payee endorsements in favor
of the Agent, on behalf of the Lenders, and be subject to cancellation or
reduction in coverage only upon thirty (30) days' prior written notice thereof
to the Agent.
6.19 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) heretofore or contemporaneously furnished by the Borrower to the Agent
or any of the Lenders for the purposes of or in connection with this Agreement
or any transactions contemplated herein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of such
Persons in writing to any Lender will be, true and accurate in all material
respects on the date as of which such information is dated or certified and does
not omit to state any fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which such
information was provided.
SECTION 7. AFFIRMATIVE COVENANTS.
---------------------
The Borrower covenants and agrees that for so long as there are any
outstanding Obligations hereunder, or the Agent or the Lenders shall have any
obligation hereunder, the Borrower shall (and, as applicable, shall cause each
of its Subsidiaries (including the Guarantors) to):
7.01 Payment of Indebtedness. Pay the Credit Obligations in
-----------------------
accordance with their respective terms and pay and perform its other
Indebtedness and obligations in accordance with their terms.
7.02 Payment of Taxes, Etc. Pay and discharge all taxes, assessments
---------------------
and governmental charges or levies imposed upon it, or upon its properties,
prior to the date on which penalties attach thereto, provided, however, that the
Borrower and its Subsidiaries shall not be required to pay or discharge such
tax, assessment, governmental charge or levy if the validity, amount or
applicability thereof is being contested by the Borrower or such Subsidiaries in
good faith, by appropriate proceedings and with diligence and continuity (and
for which adequate reserves therefor are maintained on the books of the Borrower
or such Subsidiaries, as the case may be).
-33-
<PAGE>
7.03 Reporting Requirements. Furnish to the Agent and the Lenders:
(i) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year of the Borrower and the
Guarantor, an annual audit report for the Borrower and the
Guarantor, including, but not limited to, the balance sheet of
the Borrower and the Guarantor as of the end of such fiscal year
and the statements of operations and cash flows of the Borrower
and the Guarantor for such fiscal year, setting forth in
comparative form the corresponding figures for the preceding
fiscal year, prepared in accordance with GAAP, consistently
applied, all in reasonable detail and prepared on a Consolidated
and consolidating basis and in each case duly certified by
independent certified public accountants of recognized standing
acceptable to the Agent. At the same time as the annual report is
so provided to the Agent and the Lenders, the Borrower shall also
provide to the Agent and the Lenders its Annual Report on
Form 10-KSB (or successor form) prescribed by the SEC for such
fiscal year; and
(ii) as soon as available and in any event within sixty (60) days
after the end of the first three quarters of each fiscal year of
the Borrower and the Guarantor, management prepared Consolidated
and consolidating financial statements including, but not limited
to, a balance sheet, income statement and cash flow statement
prepared in accordance with GAAP, consistently applied, in form
and substance satisfactory to the Agent for the quarter and the
period commencing at the end of the previous fiscal year and
ending with the end of such quarter. In addition, at the times of
delivery to the Agent and the Lenders of such quarterly reports,
the Borrower shall also deliver to the Agent and the Lenders its
Quarterly Report on Form 10-QSB (or successor form) prescribed by
the SEC for such fiscal year; and
(iii) promptly after filing, copies of any and all public disclosures
of the Borrower whether to the SEC or otherwise, including but
not limited to any reports on Form 8-K (or successor form)
prescribed by the SEC, and any proxy and registration statements;
and
(iv) within six (6) months after the end of the Borrower's fiscal
year, a management letter prepared by the independent certified
public accountants of the Borrower; and
(v) such other information as may be reasonably requested by the
Agent and any Lender respecting the condition or operations,
financial or otherwise, of the Borrower and the Subsidiaries and
their respective businesses.
-34-
<PAGE>
7.04 Compliance Certificate. Furnish to the Agent and the Lenders,
----------------------
together with each set of financial statements described in clauses (i) and (ii)
of Section 7.03 hereof, a compliance certificate, substantially in the form of
Exhibit E hereto, signed by the Borrower's chief financial officer, certifying
that: (i) all representations and warranties set forth in this Agreement and in
any other Credit Document are true and correct as of the date thereof; (ii) none
of the covenants in this Agreement or in any other Credit Document has been
breached; (iii) no Default or Event of Default under this Agreement or under any
other Credit Document has occurred and is continuing; and (iv) the computation
of the financial covenants set forth in Sections 8.14, 8.15 and 8.16 hereof,
together with the calculation of each significant component thereof necessary to
determine compliance with such covenants.
7.05 Notice of Certain Events. Promptly give written notice to the
------------------------
Agent and the Lenders of: (i) the occurrence of any Default or Event of Default;
(ii) the commencement of any proceeding (administrative or otherwise) or
litigation which, if adversely determined, would materially and adversely affect
its financial condition or ability to conduct business; and (iii) the formation
of any Subsidiary of the Borrower after the date of this Agreement, which notice
shall be accompanied by the resolution of the Board of Directors of such
Subsidiary authorizing such Subsidiary to execute a guaranty of the Obligations,
satisfactory in form and substance to the Lenders, together with such guaranty
duly executed by such Subsidiary.
7.06 Preservation of Property; Insurance. Keep and maintain all of its
-----------------------------------
properties and assets in good order and repair; maintain all insurance coverages
described in Section 6.18 hereof and such other extended coverage, general
liability, hazard, malpractice, business interruption and property insurance in
amounts deemed satisfactory to the Agent and as is customary for businesses
similar to the Borrower's business and deliver to the Agent certificates of all
such insurance in effect; and cause all such policies to contain a standard
lender's endorsement and loss payee endorsements in favor of the Agent, on
behalf of the Lenders, and to be subject to cancellation or reduction in
coverage only upon thirty (30) days' prior written notice thereof to the Agent.
7.07 Conduct of Business and Maintenance of Existence. Continue to
------------------------------------------------
engage in business of the same general type as now conducted and preserve, renew
and keep in full force and effect its corporate existence and rights, privileges
and franchises necessary or desirable in the normal conduct of business and
which are material to the Borrower and each of its Subsidiaries.
7.08 Operation of Properties. Conduct its business and operate its
-----------------------
properties, in compliance with all applicable orders, rules and regulations
promulgated by the jurisdictions and agencies thereof where such business is
conducted and where such properties are located, and duly file or cause to be
filed such reports and/or information as may be required or appropriate under
applicable orders, regulations or law.
7.09 Access to Properties, Books and Records. Upon reasonable notice,
---------------------------------------
at any reasonable time and from time to time, permit the Agent's and/or the
Lenders' representatives and/or agents full and complete access to any or all of
the Borrower's and its Subsidiaries' properties and
-35-
<PAGE>
financial records, to make extracts from and/or audit such records, and to
examine and discuss the Borrower's properties, business, finances and affairs
with the Borrower's officers and outside accountants.
7.10 Keeping of Records and Books of Account. Keep adequate records
---------------------------------------
and books of account reflecting all its financial transactions.
7.11 ERISA Compliance. Comply with all the applicable provisions of
----------------
ERISA now or hereafter in effect with respect to each of its Plans and notify
the Lenders of the following events, as soon as possible and in any event within
ten (10) days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any "Reportable Event" (as defined in ERISA) with respect to any
Plan; (ii) the occurrence of a "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) with respect to any Plan, (iii) the
institution of proceedings or the taking or expected taking of any other action
by the PBGC or the Borrower or any ERISA Affiliate to terminate or withdraw or
partially withdraw from any Plan and, with respect to a Multiemployer Plan, the
"Reorganization" or "Insolvency" of such Plans (as such terms are defined in
ERISA); (iv) the failure of the Borrower or any ERISA Affiliate to make a
required installment under Section 412 (m) of the Code or any other payment
required under Section 412 of the Code on or before the due date or (v) the
adoption of an amendment with respect to a Plan so that the Borrower or any
ERISA Affiliate is required to provide security to such Plan under Section
401(a)(29) of the Code, and in addition to such notice, deliver to the Lenders a
certificate signed by the chief financial officer of the Borrower or of the
respective ERISA Affiliate describing what action the Borrower or the respective
ERISA Affiliate proposes to take with respect thereto and when known, any action
taken or threatened by the Internal Revenue Service or the PBGC, together with a
copy of any notice to the PBGC or the Internal Revenue Service or any notice
delivered by the PBGC or the Internal Revenue Service.
7.12 Environmental Liens. In the event that there shall be filed a
-------------------
Lien against any property of the Borrower by any jurisdiction, political sub-
division, agency or instrumentality thereof arising from an intentional or
unintentional act or omission of the Borrower, resulting in the Dumping of
hazardous substances or wastes into the atmosphere or waters or onto lands then,
within thirty (30) days from the date that the Borrower is given notice that the
Lien has been placed against such property, or within such shorter period of
time in the event that such jurisdiction, political sub-division, agency, or
instrumentality thereof has commenced steps to cause such property to be sold
pursuant to the Lien, either (i) pay the claim and remove the Lien from the
applicable property or (ii) furnish such jurisdiction, political subdivision,
agency or instrumentality thereof that imposed the Lien with one of the
following: (a) a bond satisfactory to such jurisdiction, political sub-division,
agency, or instrumentality thereof that imposed the Lien in the amount of the
claim out of which the Lien arises, (b) a cash deposit in the amount of the
claim out of which the Lien arises, or (c) other security reasonably
satisfactory to such jurisdiction, political sub-division, agency, or
instrumentality thereof in an amount sufficient to discharge the claim out of
which the Lien arises.
7.13 Removal of Hazardous Substances. Should the Borrower cause or
-------------------------------
permit any intentional or unintentional act or omission resulting in the Dumping
of hazardous substances or
-36-
<PAGE>
wastes into the atmosphere or waters or onto the lands resulting in damage to
the Natural Resources without having obtained a permit issued by the appropriate
governmental authorities, promptly remediate said damage in accordance with all
applicable federal, state, and local orders, statutes, laws, ordinances, rules
and regulations.
7.14 Further Assurances. Do, execute, acknowledge and deliver or cause
------------------
to be done, executed, acknowledged and delivered all such further instruments,
acts, deeds, and assurances as may be reasonably requested by the Agent or the
Lenders for the purpose of carrying out the provisions and intent of the Credit
Documents.
SECTION 8. NEGATIVE COVENANTS.
------------------
For so long as any Obligations are outstanding, or the Lenders shall
have any obligation hereunder, the Borrower shall not (and shall not, as
applicable, permit any of its Subsidiaries (including the Guarantor) to):
8.01 Incur Indebtedness. Incur, create, assume, or permit to exist any
------------------
Indebtedness, except:
(a) Indebtedness of the Borrower owing to the Lenders and the Agent
under this Agreement and the Notes;
(b) Indebtedness existing on the Closing Date that is listed on Annex
I hereto and any renewals, extensions or refinancings of the same, provided that
the principal amount of such Indebtedness at the time of such renewal, extension
or refinancing is not increased in connection therewith;
(c) Approved Subordinated Indebtedness;
(d) Indebtedness in respect of normal trade debt arising in the
ordinary course of business which does not significantly exceed the levels of
such debt historically incurred by the Borrower or its Subsidiary, as the case
may be;
(e) Indebtedness secured by Liens permitted by Section 8.02(f); and
(f) Indebtedness that constitutes Guaranteed Indebtedness of the
Borrower that has been incurred by the Borrower solely by virtue of the
Borrower's endorsement of checks or drafts negotiated in the ordinary course of
the Borrower's business.
8.02 Negative Pledge. Create, permit to exist, or suffer the creation
---------------
of, any Lien, on any of its properties or assets (real or personal, tangible or
intangible), except:
(a) Liens existing on the Closing Date that are listed on Annex I
hereto;
-37-
<PAGE>
(b) Liens for taxes, assessments or governmental charges or levies to
the extent not required to be paid by Section 7.02 hereof;
(c) Liens imposed by law, such as materialmen's, mechanics',
carriers, workmen's, and repairmen's Liens and other similar Liens arising in
the ordinary course of business securing obligations which are not overdue for a
period of more than thirty (30) days;
(d) pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation or to secure public or statutory
obligations of the Borrower;
(e) Certain de minimus Liens with respect to the assets and
properties acquired in acquisitions permitted pursuant to Section 8.03 hereof
which were existing upon such assets or properties prior to the relevant
permitted acquisitions;
(f) Liens for finance leases of equipment leased by the Borrower or
any of its Subsidiaries, which do not constitute Capitalized Leases or purchase
money Liens upon or in property acquired or held by the Borrower or any of its
Subsidiaries in the ordinary course of business to secure the purchase price of
such property or to secure Indebtedness incurred solely for the purpose of
financing the acquisition of any such property to be subject to such Liens, or
Liens existing on any such property at the time of the leasing, acquisition, or
extensions, renewals or replacements of any of the foregoing for the same or a
lesser amount, provided that no such Lien shall extend to or cover any property
other than the property being leased or acquired and no such extension, renewal
or replacement shall extend to or cover any property not theretofore subject to
the Lien being extended, renewed or replaced, and provided, further, that (i)
the aggregate principal amount of the Indebtedness at any one time outstanding
secured by Liens permitted pursuant to this clause (g) shall not exceed $250,000
at any one time outstanding and (ii) any such Indebtedness shall not otherwise
be prohibited by the terms of this Agreement; and
(g) the replacement, extension or renewal of any Lien permitted by
clauses (a) through (f) above upon or in the same property theretofore subject
thereto or the replacement, extension or renewal (without increase of principal
amount) of the Indebtedness secured thereby.
8.03 Sale of Assets; Liquidation; Merger; Acquisitions. Convey, lease,
-------------------------------------------------
sell, transfer or assign any assets or properties presently owned or hereafter
acquired except dispositions of inventory in the ordinary course of business for
value received and such other dispositions of assets and properties that are not
material to the business or operations of the Borrower or any of its
Subsidiaries, if such asset or property is replaced with reasonable promptness
or is otherwise obsolete; liquidate or discontinue its normal operations with
intent to liquidate; enter into any merger or consolidation; or acquire all or
substantially all of the assets, stock or other equity interests of another
entity. Notwithstanding the foregoing, (A) any of the Borrower's Subsidiaries
may merge with or be consolidated into the Borrower and the Borrower's
Subsidiaries may merge with or be consolidated into other Subsidiaries of the
Borrower, in each case upon not less than sixty (60) days' prior written
-38-
<PAGE>
notice to the Agent and the Lenders and on terms reasonably acceptable to the
Agent and the Required Lenders and (B) upon twenty (20) days' prior written
notice to the Agent and the Lenders, the Borrower may from time to time acquire
(by stock or asset acquisitions) other business entities that are engaged in
businesses related or complimentary to the business of the Borrower, as
presently conducted; if, and only if, the aggregate cash and non-cash
consideration paid or exchanged by the Borrower in all such acquisitions does
not exceed (A) $3,000,000 in any consecutive twelve (12) month period or (B)
$5,000,000 at any time while the Obligations are outstanding or the Lenders have
any obligations hereunder. For purpose of determining the consideration paid or
exchanged in any such acquisition, such consideration shall include the amount
of any liability (direct or contingent) assumed by the Borrower in connection
with any such acquisition.
8.04 Nature of Business. Engage (directly or indirectly) in any
------------------
business other than the business in which it is generally engaged on the Closing
Date or any other business that is related or complimentary thereto.
8.05 Dividends, Stock Redemption, Etc. Declare or make any dividend
--------------------------------
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any shares of any class of stock of the Borrower, or
purchase, redeem, or otherwise acquire for value (or permit any Subsidiary to do
so) any shares of any class of stock of the Borrower or any warrants, rights or
options to acquire any such shares, now or hereafter outstanding; except that
(A) if as at the relevant ex-dividend date, the Borrower's Consolidated Tangible
Net Worth is less than $20,000,000, the Borrower may declare and pay quarterly
cash dividends in respect of its capital stock or expend in connection with the
redemption, retirement or purchase of its common stock an amount not to exceed
thirty percent (30%) of its quarterly average net income (determined in
accordance with clause (B) of the definition of Consolidated Funded Debt to Cash
Flow Ratio and exclusively from continued operations) for the four (4) quarters
immediately preceding the relevant ex-dividend date and (B) if as at the
relevant ex-dividend date, the Borrower's Consolidated Tangible Net Worth is
greater than $20,000,000, the Borrower may declare and pay quarterly cash
dividends in respect of its capital stock or expend in connection the
redemption, retirement or purchase of its common stock an amount not to exceed
forty percent (40%) of its quarterly average net income (determined pursuant to
clause (B) hereof); provided, however, that if immediately after giving effect
to any such proposed dividend payment or stock redemption, a Default or Event of
Default would exist, then no such dividend payment or stock redemption shall be
permitted hereunder. Anything to the contrary in this Section 8.05
notwithstanding, the Borrower shall be permitted to distribute additional shares
of its capital stock in respect of any issued and outstanding shares of its
capital stock in connection with stock splits effected by the Borrower from time
to time.
8.06 Accounts. Sell, assign, transfer or dispose of any of its
--------
accounts or notes receivable, with or without recourse, except to the Agent or
the Lenders.
8.07 Sale-Leaseback Transactions. Enter into any sale-leaseback
---------------------------
transaction or any transaction howsoever termed which would have the same or
substantially the same result or effect as a sale-leaseback.
-39-
<PAGE>
8.08 Prepayment of Other Indebtedness. Prepay any Indebtedness not
--------------------------------
required to be prepaid in excess of $250,000 in the aggregate in any period of
twelve (12) consecutive months, except to the Lenders or any Affiliate of any of
the Lenders, or cause or permit to be accelerated any amounts on any outstanding
Indebtedness now existing or hereafter arising.
8.09 Investments. Purchase or make any investment in the stock,
-----------
securities or evidences of indebtedness of (other than as permitted pursuant to
Sections 8.10 and 8.11 hereof), or make capital contributions to, or other forms
of investments in, any Person except Permitted Investments.
8.10 Loans and Advances Generally. Other than as permitted pursuant
----------------------------
to Section 8.11 hereof, loan or make advances, or other forms of extensions of
credit, to any Subsidiary or Affiliate of the Borrower, or any other Person
(other than as permitted under Section 8.9 hereof); provided however, that the
Borrower may make such loans, advances and other forms of extension of credit to
such parties in the ordinary course of business at arm's length and on
commercially reasonable terms.
8.11 Loans and Advances to Officers. Loan or make advances, or other
------------------------------
forms of extensions of credit, to any officer, director or shareholder of the
Borrower or any Subsidiary or to any Affiliate of any of the foregoing other
than at arm's length and/or commercially reasonable terms or which in the
aggregate for all such loans and advances do not exceed $1,000,000 outstanding
at any time.
8.12 Create Subsidiaries. Create, permit to exist, or invest or
-------------------
otherwise participate in any Subsidiaries or any partnership, joint venture or
other enterprise (other than the Subsidiaries and Persons listed in Annex I
hereto).
8.13 Hazardous Substances. Cause or permit to exist a Dumping of
--------------------
hazardous substances or wastes into the atmosphere or waters or onto lands
resulting in damage to the Natural Resources unless the Dumping is pursuant to
and in compliance with the conditions of a permit issued by the appropriate
federal, state, or local governmental authorities.
8.14 Consolidated Tangible Net Worth. Permit its Consolidated
-------------------------------
Tangible Net Worth at any time during the periods specified below to be less
than the amount set forth opposite such period:
Measuring Period Minimum Tangible Net Worth
---------------- --------------------------
Closing Date through
December 30, 1996 $ 7,500,000
December 31, 1996 through
-40-
<PAGE>
December 30, 1997 $10,000,000
December 31, 1997 through
December 30, 1998 $11,000,000
December 31, 1998 through
December 30, 1999 $12,000,000;
and for each fiscal year thereafter, an amount equal to the sum of $1,000,000
plus the minimum Tangible Net Worth required hereunder during the immediately
preceding fiscal year, in all cases measured no less frequently than quarterly.
8.15 Consolidated Debt Service Coverage Ratio. Permit its Consolidated
----------------------------------------
Debt Service Coverage Ratio to be at any time less than 2.00 to 1.00, measured
on a quarterly basis for the relevant Test Period.
8.16 Consolidated Funded Debt to Cash Flow Ratio. Permit its
-------------------------------------------
Consolidated Funded Debt to Cash Flow Ratio to exceed at any time 2.5 to 1.00,
measured on a quarterly basis for the relevant Test Period.
8.17 Use of Proceeds. Use the proceeds of the Revolving Credit Loans,
---------------
and the Letters of Credit, for any purpose other than the purposes set forth in
Section 6.02 hereof.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
9.01 Events of Default. Upon the occurrence of any of the following
-----------------
events (each an Event of Default):
(i) Payment Default. The Borrower shall (a) default in the payment
when due of any principal of the Loans or Unpaid Drawings or (b)
default in the payment of interest on the Loans or any other
amounts owing hereunder, under the Notes or under any other
Credit Document, and such default shall continue for a period of
five (5) or more days;
(ii) Negative Covenant Breach. The Borrower shall default in the due
performance or observance by it of any term, covenant or
agreement contained in Section 8 hereof;
(iii) Other Covenant Breaches. The Borrower shall default in the due
performance or observance of any term, covenant or agreement
(other than those referred to in clauses (i) and (ii) above)
contained in this Agreement, the Notes or any other Credit
Document, and such default shall continue unremedied for a period
of at least ten (10) days after the earlier to occur of (a)
-41-
<PAGE>
the date the Borrower obtains actual knowledge of such default or
(b) the date notice of such default is given to the Borrower by
the Agent;
(iv) Default Under Other Agreements. (a) The Borrower or any of its
Subsidiaries shall default in any payment with respect to any
Indebtedness beyond the period of grace, if any, provided in the
instrument or agreement under which such Indebtedness was created
or default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto,
or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee
or agent on behalf of such holder or holders) to cause
(determined without regard to whether any notice or lapse of time
is required), any such Indebtedness to become due prior to its
stated maturity; (b) any such Indebtedness shall be declared to
be due and payable, or required to be prepaid as a mandatory
prepayment, prior to the stated maturity thereof; or (c) without
limiting the generality of the foregoing, the occurrence of an
"Event of Default" (as defined therein) under the First Fidelity
Term Loan Agreement;
(v) Voluntary Bankruptcy. The Borrower or any of its Subsidiaries
commences any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under the United States Bankruptcy Code
or under any similar foreign, federal, state, or local statute,
or any dissolution or liquidation proceeding, or makes a general
assignment for the benefit of creditors, or takes any action for
the purpose of effecting any of the foregoing;
(vi) Involuntary Bankruptcy. Any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under the United States
Bankruptcy Code or under similar foreign, federal, state or local
statute, or any dissolution or liquidation proceeding, is
involuntarily commenced against or in respect of the Borrower or
any of its Subsidiaries or an order for relief is entered in any
such proceeding and is not dismissed within sixty (60) days;
(vii) Appointment of Receiver. The appointment, or the filing of a
petition seeking the appointment, of a custodian, receiver,
trustee, or liquidator for the Borrower or any of its
Subsidiaries or any of their respective properties or the taking
of possession of any part of such property at the instance of any
governmental authority;
(viii) Insolvency. The Borrower or the Guarantor becomes insolvent
(however defined), is generally not paying its debts as they
become due, or has suspended transaction of its usual business;
-42-
<PAGE>
(ix) Reorganization. The dissolution, merger, consolidation, or
reorganization of the Borrower or any of its Subsidiary (other
than as expressly permitted under Section 8.03 hereof);
(x) Action in Furtherance of Certain Defaults. The Borrower or any of
its Subsidiaries has taken any corporate action for the purpose
of effecting any of the events described in clauses (v), (vii) or
(ix) above;
(xi) Material Misstatement. Any statement, representation or warranty
made in or pursuant to this Agreement or any other Credit
Document or to induce the Lenders to enter into this Agreement or
to enter into the transactions referred to in this Agreement
shall prove to be untrue or misleading in any material respect;
(xii) Material Adverse Change. The occurrence of a material adverse
change in the financial condition of the Borrower or any of its
Subsidiaries or the occurrence of any event which, in the sole
opinion of the Lenders, impairs the financial responsibility of
the Borrower or any of its Subsidiaries;
(xiii) Entry of Judgment. The entry or issuance of judgments, orders,
decrees or fines against the Borrower or any of its Subsidiaries
which, in the aggregate, involve liabilities in excess of the sum
of $100,000 (the discharge of which is not the obligation of any
insurance company) and any such judgments or orders involving
liabilities in excess of said sum shall have continued unbonded
or unsatisfied and without stay of execution or agreement between
the parties thereon for a period of thirty (30) days after the
entry or issuance of such judgment; or
(xiv) Transfer of Assets. The Borrower or any of its Subsidiaries
transfers or sells all or substantially all of their respective
assets, without the prior written consent of the Lenders;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing the Agent shall, upon the written request of
the Required Lenders, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent or any Lender to
enforce its claim against the Borrower, except as otherwise specifically
provided for in this Agreement (provided that, if an Event of Default specified
in clause (v), (vi), (vii) or (viii) above shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare all of the Credit
Commitments terminated, whereupon the Credit Commitment of each Lender shall
forthwith terminate immediately and any fees theretofore accrued shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any
-43-
<PAGE>
accrued interest in respect of all Credit Obligations and all other Obligations
owing hereunder to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower; (iii) terminate any Letter of Credit
which may be terminated in accordance with its terms; and (iv) direct the
Borrower to pay (and the Borrower agrees that upon receipt of such notice, or
upon the occurrence of an Event of Default as specified in clause (v) (vi),
(vii) or (viii) above, it will pay) to the Agent such additional amounts of cash
to be held as cash collateral for the Borrower's reimbursement obligations for
Drawings that may subsequently occur under any Letter of Credit then
outstanding, equal to the Stated Amount of all such Letters of Credit.
Notwithstanding anything contained in the foregoing paragraph,
if at any time within sixty (60) days after an acceleration of the Loans
pursuant to the preceding paragraph, the Borrower shall pay all arrears of
interest and all payments on account of principal which shall have become due
otherwise than by acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in the Credit
Documents) and all Events of Default (other than non-payment of the principal of
and accrued interest on the Loans, in each case which is due and payable solely
by virtue of acceleration) shall be remedied or waived to the satisfaction of
the Lenders, then the Lenders, by written notice to the Borrower, may at their
option rescind and annul the acceleration and its consequences; but such action
shall not affect any subsequent Event of Default or impair any right consequent
thereon. The provisions of this paragraph are intended merely to bind the
Lenders to a decision which may be made at the election of the Lenders and are
not intended to benefit the Borrower and do not grant the Borrower the right to
require the Lenders to rescind or annul any acceleration hereunder, even if the
conditions set forth herein are met. Without limiting the generality of the
remedies available to the Lenders pursuant to the Credit Documents or by law
following an Event of Default, (y) the rate of interest on the principal portion
of the Obligations incurred hereunder shall be increased to a rate equal to the
lesser of: (i) the highest rate of interest set forth in the Credit Documents,
or (ii) the highest rate of interest allowed by law, such rate of interest to
apply to such Obligations upon and after an Event of Default, maturity, whether
by acceleration or otherwise, and the entry of a judgment in favor of the
Lenders with respect to any or all of such Obligations and (z) the Letter of
Credit Fee shall be increased to 300 basis points (3.00%) at all times during
which an Event of Default continues to exist.
9.02 Right of Set-off. If any of the Obligations shall be due and
----------------
payable or any one or more Events of Default shall have occurred, whether or not
any Lender shall have made demand under any Credit Document and regardless of
the adequacy of any collateral or other form of security for the Obligations or
other means of obtaining repayment of the Obligations, each Lender shall have
the right, without notice to the Borrower or any other Obligor, and is
specifically authorized hereby to set-off against and apply to the then unpaid
balance of the Obligations any items or funds of the Borrower and/or any Obligor
held by each Lender or any Affiliate of such Lender, any and all deposits
(whether general or special, time or demand, matured or unmatured) or any other
property of the Borrower and/or any Obligor, including, without limitation,
securities and/or certificates of deposit, now or hereafter maintained by the
Borrower and/or any Obligor for its or their own account with any Lender or any
Affiliate thereof, and any other indebtedness at any time held or owing by the
Lender or
-44-
<PAGE>
any Affiliate to or for the credit or the account of the Borrower and/or any
Obligor, even if effecting such set-off results in a loss or reduction of
interest or the imposition of a penalty applicable to the early withdrawal of
time deposits. For such purpose, each Lender shall have, and the Borrower hereby
grants to each Lender, a first Lien on and security interest in such deposits,
property, funds and accounts and the proceeds thereof.
9.03 Sharing of Payments, Etc. If any Lender shall obtain any payment
------------------------
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans made by it in excess of its Pro Rata Share
of payments on account of the Loans obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the Loans
made by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them, provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's Pro Rata Share according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 9.03 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation. The
foregoing shall in no way obligate any Lender to seek payment in respect of the
Obligations of the Borrower hereunder through such Lender's right of set-off or
otherwise at any time, or in any particular order relative to such other rights
or remedies such Lender may possess, in a manner that prejudices or impairs (as
determined in such Lender's sole discretion) any other right or remedy such
Lender may possess to enforce claims against the Borrower in respect of
Obligations of the Borrower hereunder or such other Obligations of the Borrower
owed to such Lender.
9.04 Turnover of Property held by Affiliate. The Borrower further
--------------------------------------
authorizes each Affiliate of any Lender, upon and following the occurrence of an
Event of Default, at the request of the Lender so affiliated, and without notice
to the Borrower, to turn over to such Lender any property of the Borrower,
including, without limitation, funds and securities, held by such Affiliate for
the Borrower's account and to debit, for the benefit of such Lender, any deposit
account maintained by the Borrower with such Affiliate (even if such deposit
account is not then due or there results a loss or reduction of interest or the
imposition of a penalty in accordance with law applicable to the early
withdrawal of time deposits), in the amount requested by such Lender up to the
amount of the Obligations, and to pay or transfer such amount or property to
such Lender for application to the Obligations.
9.05 Remedies Cumulative; No Waiver. The rights, powers and remedies
------------------------------
of the Agent and the Lenders provided in this Agreement and any of the Credit
Documents are cumulative and not exclusive of any right, power or remedy
provided by law or equity. No failure or delay on the part of the Agent or the
Lenders in the exercise of any right, power or remedy shall operate as a waiver
-45-
<PAGE>
thereof, nor shall any single or partial exercise preclude any other or further
exercise thereof, or the exercise of any other right, power or remedy.
SECTION 10. THE AGENT.
---------
10.01 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints First Union National Bank as the Agent of such Lender under this
Agreement, and each such Lender irrevocably authorizes First Union National
Bank, as the Agent for such Lender, to take such action on its behalf under the
provisions of this Agreement and to exercise such powers and perform such duties
as are expressly delegated to the Agent by the terms of this Agreement and the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Agent shall not have any duties or responsibilities, except
those expressly set forth herein, or any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Agent.
10.02 Delegation of Duties. The Agent may execute any of its duties
--------------------
under this Agreement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys in-fact selected by it with reasonable care.
10.03 Exculpatory Provisions. Neither the Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Credit Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Credit Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Credit Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other Credit
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Credit
Document, or to inspect the property, books or records of the Borrower.
10.04 Reliance by Agent. The Agent shall be entitled to rely, and shall
-----------------
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it in
good faith to be genuine and correct and to have been signed, sent or made by
the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes
-46-
<PAGE>
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the Notes and the other Credit Documents in accordance with a
request of the Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes. Without limiting the generality of the foregoing, no Lender shall
have any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting hereunder or under any Credit Documents in
accordance with the instructions of the Lenders.
10.05 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Event of Default hereunder unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Lenders. The Agent shall take such action
with respect to such Event of Default as shall be reasonably directed by the
Lenders; provided that unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as it
shall deem advisable in the best interests of the Lenders.
10.06 Non-Reliance on Agent and Other Lenders. Each Lender expressly
---------------------------------------
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
-47-
<PAGE>
10.07 Indemnification. The Lenders agree to indemnify the Agent in its
---------------
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
Pro Rata Shares from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any of the other Credit Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. If, however, the Agent shall
have been reimbursed by the Borrower in respect of any amounts previously paid
to the Agent by the Lenders pursuant to this Section 10.07, then the Agent shall
pay to the Lenders their Pro Rata Shares of such duplicative reimbursement. The
agreements in this subsection shall survive the payment of the Notes and all
other amounts payable hereunder.
10.08 Agent in Its Individual Capacity. The Agent and its Affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower as though the Agent were not the Agent hereunder and
under the other Credit Documents. With respect to its Loans made or renewed by
it and any Note issued to it, the Agent shall have the same rights and powers
under this Agreement and the other Credit Documents as any Lender and may
exercise the same as though it were not the Agent, and the terms Lender and
Lenders shall include the Agent in its individual capacity.
10.09 Successor Agent. The Agent may resign as Agent upon ten (10)
---------------
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement, then the Lenders shall appoint from among the Lenders a successor
agent for the Lenders, which successor agent shall be approved by the Borrower.
If a successor Agent shall not have been so appointed within said ten (10) day
period, the Borrower shall appoint from among the Lenders a successor agent for
the Lenders. Any such successor agent shall succeed to the rights, powers and
duties of the Agent, and the term Agent shall mean such successor agent
effective upon its appointment, and the former Agent's rights, powers and duties
as Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement or any holders
of the Notes. After any retiring Agent's resignation as Agent, the provisions of
this Section 10 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was the Agent under this Agreement.
SECTION 11. MISCELLANEOUS.
-------------
11.01 Notices. Unless otherwise expressly stated notices and
-------
communications under this Agreement and the other Credit Documents shall be in
writing and shall be delivered by either (i) hand-delivery, (ii) first class
mail (postage prepaid), (iii) reliable overnight commercial courier (charges
-48-
<PAGE>
prepaid), or (iv) telecopy, to the addresses and telecopy numbers listed in this
Agreement. Notice by telecopy shall be deemed to have been delivered and
received when sent. Notice by overnight courier shall be deemed to have been
delivered and received on the date scheduled for delivery. Notice by mail shall
be deemed to have been delivered and received three (3) calendar days after the
date first deposited in the United States mail. Notice by hand delivery shall be
deemed to have been delivered and received upon delivery. A party may change its
address and/or telecopier number by delivering written notice to the other
parties as specified herein.
11.02 Costs and Expenses. Whether or not the transactions contemplated
------------------
by the Credit Documents are fully consummated, the Borrower shall promptly pay
(or reimburse, as the Agent and/or any of the Lenders, as the case may be, may
elect) all costs and expenses which the Agent or the Lenders have incurred or
may hereafter incur in connection with the negotiation, preparation,
reproduction, interpretation, perfection, monitoring, administration and
enforcement of the Credit Documents, the collection of all amounts due under the
Credit Documents, and all amendments, modifications, consents or waivers, if
any, to the Credit Documents. Such costs and expenses shall include, without
limitation, the fees and disbursements of counsel to the Agent and/or any of the
Lenders (including the Agent's in-house counsel), the costs of appraisals, costs
of environmental studies, searches of public records, costs of filing and
recording documents with public offices, internal and/or external audit and/or
examination fees and costs, stamp, excise and other taxes and costs and expenses
incurred by the Agent or any of the Lenders, and the fees of the accountants,
consultants or other professionals engaged by the Agent or the Lenders in
connection with the transactions contemplated in this Agreement and the other
Credit Documents. Without limiting the generality of the foregoing, the Borrower
shall reimburse the Agent for the costs and expenses of Shanley & Fisher, P.C.,
counsel to the Agent, for services rendered in consideration with the
preparation and negotiation of the Credit Documents and matters related thereto.
Such reimbursement shall be payable within ten (10) days after presentation to
the Borrower of an invoice itemizing such costs and expenses. The Borrower's
reimbursement obligations under this paragraph shall survive any termination of
the Credit Documents.
11.03 Payment Due on a Day Other Than a Business Day. If any payment
----------------------------------------------
due or action to be taken under this Agreement or any Credit Document falls due
or is required to be taken on a day that is not a Business Day, such payment or
action shall be made or taken on the next succeeding Business Day and such
extended time shall be included in the computation of interest.
11.04 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the substantive laws of the State of New Jersey without
reference to conflict of laws principles.
11.05 Counterparts; Integration. This Agreement may be signed in any
-------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were on the same instrument. This
Agreement and the other Credit Documents constitute the sole agreement of the
parties with respect to the subject matter hereof and thereof and supersede all
oral negotiations and prior writings with respect to the subject matter hereof
and thereof.
-49-
<PAGE>
11.06 Amendment or Waiver. Neither this Agreement nor any other Credit
-------------------
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Required Lenders; provided, that no such change, waiver, discharge
or termination shall, without the consent of each Lender, (i) extend the final
maturity of any Loan or Note, or any portion thereof, or reduce the rate or
extend the time of payment of interest (other than as a result of waiving the
applicability of any post-default increase in interest rates) thereon or fees
payable hereunder or reduce the principal amount thereof, or increase the Credit
Commitment of any Lender over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Credit Commitment shall not constitute a change in the terms of
the Credit Commitment of any Lender), (ii) release all or substantially all of
collateral at such time securing the Obligations hereunder (except as expressly
provided in such instruments pertaining to such collateral), (iii) the release
of the Guaranty or any other guaranty at any time supporting the Obligations,
(iv) amend, modify or waive any provision of this Section, or Section 2.12,
2.13, 4.05, 9.01, 9.02, 9.03, 11.02, 11.08 or 11.11; (v) reduce any percentage
specified in, or otherwise modify, the definition of Required Lenders; (vi)
alter or amend any provision hereof expressly requiring the consent of all of
the Lenders; or (vii) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under this Agreement. No provision of Section
10 may be amended without the consent of the Agent. The provisions of Sections
2.07, 2.08, 2.09, 2.10 and 2.11 shall not be amended or modified in any way that
adversely affects the Agent with respect to its obligation to issue Letters of
Credit, without the Agent's consent.
11.07 Successors and Assigns. This Agreement (i) shall be binding upon
----------------------
the Borrower, the Agent and the Lenders and their successors and permitted
assigns, and (ii) shall inure to the benefit of the Borrower, the Agent and the
Lenders and their respective successors and permitted assigns; provided,
however, that the Borrower may not assign its rights hereunder or any interest
herein without the prior written consent of the Lenders, and any such assignment
or attempted assignment by the Borrower shall be void and of no effect with
respect to the Lenders.
11.08 Participations and Assignments. The Borrower hereby acknowledges
------------------------------
and agrees that each Lender may at any time: (I) grant participations in all or
any portion of its rights and obligations hereunder (including, without
limitation, its obligation to make advances hereunder in accordance with its
Credit Commitment) or under its Revolving Credit Note (collectively,
Participations) to any other lending office or to any other bank, lending
institution or other entity which has the requisite sophistication to evaluate
the merits and risks of investments in Participations (each a Participant);
provided, however, that: (i) all amounts payable by the Borrower hereunder shall
be determined as if such Lender had not granted such Participation, such Lender
(A) shall retain the sole right and responsibility to enforce the obligations of
the Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provisions of this Agreement; and (B)
shall not in any event be relieved from its obligations to make advances
hereunder in accordance with its Credit Commitment; provided, however, that such
Lender may agree with the Participant that such Lender will not agree to any
modification, amendment or waiver of this Agreement without the consent of the
Participant if such amendment, modification or waiver would
-50-
<PAGE>
reduce the principal of or rate of interest on the Credit Obligations so
participated or postpone the date fixed for any payment of principal of or
interest on such Credit Obligations; and (II) assign up to one hundred percent
(100%) of its rights and obligations hereunder (including, without limitation,
its obligation to make advances hereunder in accordance with its Credit
Commitment) or under its Revolving Credit Note; provided, however, that, except
with respect to assignments between and among Lenders which are parties to this
Agreement (as to which the conditions in clauses (i) through (iii) below shall
not be applicable) prior to such assignment: (i) it has obtained the prior
written consent of the Agent (which consent shall not be unreasonably withheld);
(ii) the amount assigned shall be an amount equal to $2,000,000 or multiples of
$1,000,000 in excess thereof; and (iii) such Lender has paid to the Agent a
transfer fee of $2,500. Notwithstanding anything in this Section 11.08 to the
contrary, each Lender may sell or assign, in whole or in part, any or all of its
interest in the Credit Obligations (without the consent of any Person or any
other restriction) to (i) any Affiliate of such Lender, (ii) any Federal Reserve
Bank in connection with a pledge of said interest as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve
System, and (iii) any Person at any time after an Event of Default. The holder
of any sale, assignment or Participation permitted pursuant to this Section
11.08, if the applicable agreement between the relevant Lender and such holder
so provides, (i) shall be entitled to all of the rights, obligations and
benefits of a Lender hereunder and (ii) shall be deemed to hold and may exercise
the rights of set-off or banker's lien with respect to any and all obligations
of such holder to the Borrower, in each case as fully as though the Borrower
were directly indebted to such holder. The Borrower authorizes each Lender to
provide information concerning the Borrower to any prospective purchaser,
assignee or participant. The information provided may include, but is not
limited to, amounts, terms, balances, payment history, and any financial or
other information about the Borrower. The Borrower agrees to indemnify, defend,
and release any Lender that has so disclosed such information, and hold such
Lender harmless, at the Borrower's cost and expense, from and against any and
all lawsuits, claims, actions, proceedings, or suits against such Lender arising
out of or relating to such Lender's reporting or disclosure of such information.
11.09 Severability. The illegality or unenforceability of any
------------
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder. In lieu of any illegal or unenforceable provision in this Agreement,
there shall be added automatically as a part of this Agreement a legal and
enforceable provision as similar in terms to such illegal or unenforceable
provision as may be possible.
11.10 Consent to Jurisdiction and Service of Process. The Borrower
----------------------------------------------
irrevocably appoints each and every senior vice president (or higher ranking
officer) of the Borrower as its attorneys upon whom may be served, by regular or
certified mail at the address set forth in this Agreement, any notice, process
or pleading in any action or proceeding against it arising out of or in
connection with this Agreement or any of the other Credit Documents. The
Borrower hereby consents that any action or proceeding against it may be
commenced and maintained in any court within the State of New Jersey or in the
United States District Court for the District of New Jersey by service of
process on any such officer. The Borrower and Guarantor further agree that such
courts of the State
-51-
<PAGE>
of New Jersey and the United States District Court for the District of New
Jersey shall have jurisdiction with respect to the subject matter hereof and the
person of the Borrower and all collateral for the Obligations. Notwithstanding
the foregoing, the Borrower agrees that any action brought by the Borrower shall
be commenced and maintained only in a court in the federal judicial district or
county in which the Agent has its principal place of business in New Jersey.
11.11 Confidentiality. Each Lender shall hold, and shall cause its
---------------
Participants and prospective Participants, if any, to agree to hold, all non-
public information obtained pursuant to the requirements of any Credit Document
which has been identified as such by the Borrower in accordance with its
customary procedure for handling confidential information of such nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by any bona fide assignee, transferee or
participant or as legally required or reasonably requested by any governmental
agency or representative thereof or pursuant to legal process.
11.12 Indemnification.
---------------
(a) The Borrower agrees to indemnify the Agent and each Lender, their
respective Affiliates and each of their respective directors, officers, agents
and employees (each an Indemnitee) and hold each Indemnitee harmless from and
against any and all liabilities, losses, damages, costs and expenses of any
kind, including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of this Agreement, the other Credit Documents or any actual or
proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
(b) Without limiting the generality of the foregoing, the Borrower
shall indemnify, defend and hold harmless each Indemnitee with respect to any
and all claims, expenses, demands, losses, costs, fines or liabilities of any
kind (including, without limitation, those involving death, personal injury or
property damage and including reasonable attorneys fees and costs) arising from
or in any way related to any hazardous materials or a dangerous environmental
condition within, on, from, related to or affecting any real property owned or
occupied by the Borrower including, without limitation, any and all claims that
may arise as a result of an intentional or unintentional act or omission of the
Borrower, any previous owner and/or operator of real property owned or occupied
by the Borrower that resulted in the Dumping of hazardous substances or wastes
into the atmosphere or waters or onto the lands and that resulted in damage to
the Natural Resources or to any persons or property.
(c) If, after receipt of any payment of all or any part of the
Obligations, any Lender is compelled or agrees, for settlement purposes, to
surrender such payment to any person or entity for any reason (including,
without limitation, a determination that such payment is void or voidable as a
preference or fraudulent conveyance, an impermissible set-off, or a diversion of
trust funds), then this
-52-
<PAGE>
Agreement and the other Credit Documents shall continue in full force and
effect, and the Borrower shall be liable for, and shall indemnify, defend and
hold harmless such Lender with respect to, the full amount so surrendered.
(d) The provisions of this subsection shall survive the termination of
this Agreement and the other Credit Documents and shall be and remain effective
notwithstanding the payment of the Obligations, the release of any security
interest, lien or encumbrance securing the Obligations or any other action which
the Lenders may have taken in reliance upon their receipt of such payment. Any
action by the Lenders shall be deemed to have been conditioned upon any payment
of the Obligations having become final and irrevocable.
11.13 Inconsistencies. The Credit Documents are intended to be
---------------
consistent. However, in the event of any inconsistencies between this Agreement
and any of the other Credit Documents, the terms of this Agreement shall govern,
but such inconsistency shall not otherwise affect the validity or enforceability
of such inconsistent Credit Document.
11.14 Headings. The headings of sections and paragraphs have been
--------
included herein for convenience only and shall not be considered in interpreting
this Agreement.
11.15 Exhibits and Annexes. The Exhibits and Annexes attached hereto
--------------------
and the provisions thereof, are incorporated herein.
11.16 Judicial Proceeding; Waivers.
----------------------------
(i) EACH PARTY TO THIS AGREEMENT AGREES THAT ANY SUIT, ACTION OR
PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY ANY PARTY HERETO OR ANY SUCCESSOR OR ASSIGN OF
ANY PARTY, ON OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND
NOT BY A JURY. IN THE EVENT THAT THE FOREGOING WAIVER OF JURY
TRIAL BY THE BORROWER IS DETERMINED TO BE INVALID OR
UNENFORCEABLE AS A MATTER OF LAW, THE BORROWER, THE AGENT AND
THE LENDERS AGREE THAT THE PROVISIONS OF ANNEX III TO THIS
AGREEMENT SHALL GOVERN AS TO THE MATTERS SET FORTH THEREIN.
(ii) EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. FURTHER, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO
CLAIM OR
-53-
<PAGE>
RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
(iii) THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE
LENDERS WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS
SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
-54-
<PAGE>
IN WITNESS WHEREOF, the parties by themselves or their duly authorized
representatives have executed this Agreement the day and year first above
written.
WITNESS OR ATTEST: HOOPER HOLMES, INC.
By: /s/ Robert William Jarrett By: /s/ Fred Lash
------------------------------ -----------------------------
Name:Robert William Jarrett Name:Fred Lash
Title:Secretary Title:S.V.P./CFO & Treas.
Address:170 Mt. Airy Road Address: 170 Mt. Airy Road
------------------------- Basking Ridge, NJ 07920
Basking Ridge, NJ 07920 Attn: Fred Lash
------------------------- Senior Vice President,
Chief Financial Officer
and Treasurer
Telecopier No.: (908) 953-6304
FIRST UNION NATIONAL BANK,
Individually and as Agent
Credit Commitment: By: /s/ Richard F. Neuman
$12,000,000.00 -------------------------
Name: Richard F. Neuman
Title: Senior Vice President
Address: 550 Broad Street
Newark, New Jersey 07102
Attn: Robert Slater,
Senior Vice President
Telecopier No.: (201) 565-3908
with a copy to:
1889 Highway #27, NO2701
Edison, New Jersey 08817
Attn: Richard F. Neuman
Telecopier No.: (908) 985-4651
Payment Office:
Address: 1889 Highway #27, NO2701
Edison, NJ 08817
Telecopier No.: (908) 985-4651
-55-
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
Credit Commitment: By:/s/William J. Whelan, Jr.
$4,000,000.00 ------------------------------
Name: William J. Whelan, Jr.
Title: Senior Manager
Address: 40 Water Street
Boston, MA 02109
Attn: Victoria Evans,
Administration Office
Telecopier No.: (617) 589-3178
Payment Office:
Address: 40 Water Street
Boston, MA 02109
Telecopier No.: (617) 589-3178
FLEET BANK, N.A.
Credit Commitment: By:/s/ Jill C. Malone
$4,000,000.00 ------------------------------
Name: Jill C. Malone
Title: Vice President
Address: 1125 Route 22W
Bridgewater, NJ 08816
Attn: Jill C. Malone
Telecopier No.: (908) 253-4118
Payment Office:
Address: 1125 Route 22W
Bridgewater, NJ 08816
Attn: Jill C. Malone
Telecopier No.: (908) 253-4118
Total Credit Commitment:
$20,000,000
-56-
<PAGE>
EMPLOYEE RETENTION AGREEMENT
AGREEMENT by and between Hooper Holmes, Inc., a New
York corporation (the "Company"), and (the
--------------
"Employee"), dated as of the day of , 199 .
---- ------------- --
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat, or occurrence of a Change in Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by a pending or threatened Change in Control,
to encourage the Employee's full attention and dedication to the Company
currently and in the event of any threatened or pending Change in Control,
and to provide the Employee with compensation arrangements upon a Change in
Control which provide the Employee with individual financial security and
which are competitive with those of other corporations and, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) Effective Date. The "Effective Date" shall be the first date
--------------
during the "Change in Control Period" (as defined in Section 1(b)) on which a
Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Employee's employment with the Company is terminated
prior to the date on which a Change in Control occurs, and it is reasonably
demonstrated that such termination (1) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control or (2)
otherwise arose in connection with or anticipation of a Change in Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination.
(b) Change in Control Period. The "Change in Control Period" is the
------------------------
period commencing on the date hereof and ending on the second anniversary of
such date; provided, however, that commencing on the date one year after the
-------- -------
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof is hereinafter referred to as the "Renewal Date"),
the Change in Control Period shall be automatically extended so as to terminate
two years from such Renewal Date, unless at least 60 days prior to the Renewal
Date
<PAGE>
the Company shall give notice to the Employee that the Change in Control Period
shall not be so extended.
(c) Change in Control. A "Change in Control" shall occur or be deemed
-----------------
to have occurred only if any of the following events occur (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportion as their ownership of stock of
the Company, or the John J. King Trust or the Trustees of the John J. King
Trust) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities (other than as a result of acquisitions of such
securities from the Company); (ii) individuals who, as of the date hereof,
constitute the Board (as of the date hereof the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided that any person
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders-was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act relating to
the election of the Directors of the Company) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 20% of the combined voting
power of the Company' s then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially ail
of the Company's assets.
2. Employment period. The Company hereby agrees to continue the
-----------------
Employee in its employ, and, subject to Section 4(c), the Employee hereby agrees
to remain in the employ of the
-2-
<PAGE>
Company, for the period commencing on the Effective Date and ending on the
second anniversary of such date (the "Employment Period").
3. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Employees position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Effective Date and (B)
the Employee's services shall be performed at the location where the Employee
was employed immediately preceding the Effective Date or any office or location
less than 25 miles from such location and less than 10 miles in commuting
distance further than the Employee's commuting distance to the location at which
the Employee performed such services prior to the Change in Control.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Employee is entitled, the Employee
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Employee hereunder, to use the
Employee's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Employee to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Employee's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Employee prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Employee's
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the
-----------
Employee shall receive a base salary ("Base Salary") payable no less frequently
than semimonthly at a monthly rate at least equal to the highest monthly base
salary paid or payable to the Employee by the Company during the twelve-month
period immediately preceding the month in which the Effective Date
-3-
<PAGE>
occurs. During the Employment Period, the Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Base Salary shall not serve to limit or
reduce any other obligation to the Employee under this Agreement. Base Salary
shall not be reduced after any such increase and the term Base Salary as
utilized in this Agreement shall refer to Base Salary as so increased. As used
in this Agreement, the term "affiliated companies". Shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Base Salary, the Employee shall
------------
be awarded, for each fiscal year ending during the Employment Period, an annual
bonus (an "Annual Bonus") in cash at least equal to the greater of the
guaranteed bonus to which the Employee is entitled under any contractual
arrangements between the Employee and the Company as of the date hereof or the
highest bonus which the Employee received during the three (3) years preceding
the Effective Date.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
period, in addition to Base Salary and Annual Bonus payable as hereinabove
provided, the Employee shall be entitled to participate in the Company provided
SERP benefit, all other incentive, savings and retirement plans, practices,
policies and programs applicable to other key employees of the Company and its
subsidiaries (including the Company's employee benefit plans, in each case
providing benefits which are the economic equivalent to those in effect or as
subsequently amended). Such plans, practices, policies and programs, in the
aggregate, shall provide the Employee with compensation, benefits and reward
opportunities at least as favorable as the most favorable of such compensation
benefits and reward opportunities provided by the Company for the Employee under
such plans, practices, policies and programs as in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee, as provided at any time during the Employment period with respect
to other key employees of the Company.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Employee and/or the Employee's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs), at least as
-4-
<PAGE>
favorable as the most favorable of such plans, practices, policies and programs
in effect at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee and/or the Employee's
family, as in effect at any time during the Employment Period with respect to
other key employees of the Company.
(v) Expenses. During the Employment period, the Employee shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in accordance with the most favorable policies, practices and
procedures of the Company in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee,
as in effect at any time during the Employment period with respect to other key
employees of the Company.
(vi) Fringe Benefits. During the Employment Period, the Employee
---------------
shall be entitled to fringe benefits and perquisites in accordance with the most
favorable plans, practices, programs and policies of the Company in effect at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Employee, as in effect at any time during the
Employment period with respect to other key employees of the Company .
(vii) Office and Support Staff. During the Employment period, the
------------------------
Employee shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Employee by
the Company at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Employee, as provided at any time
during the Employment period with respect to other key employees of the Company.
(viii) Vacation. During the Employment period, the Employee shall be
--------
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company as in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee, as in effect at any time during the Employment Period with respect to
other key employees of the Company.
(ix) Indemnity Agreement. During the Employment Period, the Company
-------------------
shall keep in full force and effect and shall not purport to amend or terminate
the indemnity agreement between the Employee and the Company in the form
attached as Exhibit A hereto.
-5-
<PAGE>
4. Termination.
-----------
(a) Death or Disability. This Agreement shall terminate
-------------------
automatically upon the Employee's death during the Employment Period. If during
the Employment Period, as a result of incapacity due to physical or mental
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Employee or the Employee's
legal representative, the Employee shall have been absent from the full-time
performance of the Employee's duties with the Company for six (6) consecutive
months and, within thirty (30) days after written notice of termination is given
to the Employee, the Employee shall not have returned to the full-time
performance of the Employee's duties, the Employee's employment may be
terminated for "Disability". Any termination for Disability under this Agreement
shall not affect any rights the Employee may otherwise have under the Company's
Long-Term Disability Plan. If the Company determines in good faith that the
Disability of the Employee has occurred (pursuant to the definition of
"Disability" set forth above), it may give to the Employee written notice of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with the Company shall terminate effective on the 3Oth day after
receipt of such notice by the Employee (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Employee shall not
have returned to full-time performance of the Employee's duties.
(b) Cause. The Company may terminate the Employee's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" shall mean termination (A) upon the Employee's willful and continued
failure to substantially perform the Employee's duties with the Company (other
than any such failure resulting from the Employee's incapacity due to physical
or mental illness or any such actual or anticipated failure after the issuance
of a Notice of Termination by the Employee, provided that a written demand for
substantial performance has been delivered to the Employee by the Company
specifically identifying the manner in which the Company believes that the
Employee has not substantially performed the Employee's duties and the Employee
has not cured such failure within 30 days after such demand, or (B) by reason of
the Employee's willful engaging in conduct which is demonstrably and materially
injurious to the Company, or (C) the Employee's willful violation of any
material provision of any confidentiality, nondisclosure, non-competition or
similar agreement entered into by the employee in connection with the Employee's
employment by the Company. For purposes of this paragraph, no act or failure to
act on the Employee's part shall be deemed "willful" unless done or omitted to
be done by the Employee not in good faith and without reasonable belief that the
Employee's action or omission was in the best interest of the Company.
-6-
<PAGE>
(c) Termination by Employee. The Employee may terminate his
-----------------------
employment with the Company (i) in the event of a breach of this Agreement by
the Company, or (ii) during the Window Period for any reason. For purposes of
this Agreement, the term "Window Period" shall mean the thirty (30) day period
immediately following the nine (9) month anniversary of the Effective Date.
(d) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Employee for any reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination for the Employee's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen (15) days after
the giving of such notice).
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided, however, that (i) if the Employee's employment is
-----------------
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Employee of such
termination and (ii) if the Employee's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Employee or the Disability Effective Date, as the case may be.
5. Obligations of the Company Upon Termination.
-------------------------------------------
(a) Death. If, during the Employment Period, the Employee's
-----
employment is terminated by reason of the Employee's death, this Agreement shall
terminate without further obligations to the Employee's legal representatives
under this Agreement, other than those obligations accrued or earned and vested
(if applicable) by the Employee as of the Date of Termination, including, for
this purpose (i) the Employee's full Base Salary through the Date of Termination
at the rate in effect on the Date of Termination or; if higher, at the highest
rate in effect at any time from the 90-day period preceding the Effective Date
through the Date of Termination (the "Highest Base Salary"), (ii) the product of
the Annual Bonus paid to the Employee for the last full fiscal year and a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(iii) any compensation previously deferred by the Employee (together with any
accrued interest thereon) and not yet paid by the Company and
- 7 -
<PAGE>
any accrued vacation pay not yet paid by the Company (such amounts specified in
clauses (i), (il) and (iii) are hereinafter referred to as "Accrued
Obligations"). All such Accrued Obligations shall be paid to the Employee's
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. Anything in this Agreement to the contrary
notwithstanding, the Employee's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company to surviving
families of employees of the Company under such plans, programs, practices and
policies relating to family death benefits, if any, in accordance with the most
favorable plans, programs, practices and policies of the Company in effect at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Employee and/or the Employee's family, as in effect at
any time during the Employment Period with respect to other key employees of the
Company and their families.
(b) Disability. If, during the Employment Period, the Employee's
----------
employment is terminated by reason of the Employee's Disability, this Agreement
shall terminate without further obligations to the Employee, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including for this purpose, all Accrued Obligations.
All such Accrued Obligations shall be paid to the Employee in a lump sum in cash
within 30 days of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the Disability
Effective Date to receive disability and other benefits at least equal to the
most favorable of those provided by the Company to disabled employees and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, in accordance with the most favorable plans,
programs, practices and policies of the Company in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee and/or the Employee's family, as in effect at any time during the
Employment period with respect to other key employees of the Company and their
families.
(c) Cause. If, during the Employment Period, the Employee's
-----
employment shall be terminated for Cause, this Agreement shall terminate without
further obligations to the Employee other than the obligation to pay to the
Employee the Highest Base Salary through the Date of Termination plus the amount
of any accrued vacation pay and any compensation previously deferred by the
Employee (together with accrued interest thereon).
(d) Other Than for Cause Death or Disability. If, during the
----------------------------------------
Employment period, the Company shall terminate the Employee's employment other
than for Cause, Disability, or death, or if the Employee shall terminate his
employment for any reason:
-8-
<PAGE>
(i) the Company shall pay to the Employee in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. to the extent not theretofore paid, the Employee's
Highest Base Salary through the Date of Termination; and
B. the product of (x) the Annual Bonus paid or payable to
the Employee for the last full fiscal year (if any)
ending during the Employment Period or, if higher, the
Annual Bonus paid to the Employee for the last full
fiscal year prior to the Effective Date (as applicable,
the "Recent Bonus") and (y) a fraction, the numerator of
which is the number of days in the current fiscal year
through the Date of Termination and the denominator of
which is 365; and
C. the product of (x) two and (y) the sum of
(i) the Highest Base Salary and (ii) the Recent Bonus;
and
D. in the case of compensation previously deferred by the
Employee, all amounts previously deferred (together with
any accrued interest thereon) and not yet paid by the
Company, and any accrued vacation pay not yet paid by the
Company; and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice, or policy may provide, the
Company shall continue benefits to the Employee and/or the Employee's family at
least equal to those which would have been provided to them in accordance with
the plans, programs, practices and policies described in Section 3 (b) (iv) of
this Agreement if the Employee's employment had not been terminated, including
medical and dental insurance and life insurance, in accordance with the most
favorable plans, practices, programs or policies of the Company during the 90-
day period immediately preceding the Effective Date or, if more favorable to the
Employee, as in effect at any time during the Employment Period with respect to
other key employees and their families and for purposes of eligibility for
retiree benefits pursuant to such plans, practices, programs and policies the
Employee shall be considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such period.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices,
provided by the Company
-9-
<PAGE>
or any of its subsidiaries and for which the Employee may qualify, nor shall
anything herein limit or otherwise affect such rights as the Employee may have
under any stock option or other agreements with the Company or any of its
subsidiaries. Amounts which are vested benefits or which the Employee is
otherwise entitled to receive under any plan, policy, practice or program of the
Company or any of its subsidiaries at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program.
7. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment, defense
or other claim, right or action which the Company may have against the Employee
or others. In no event shall the Employee be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Employee under any of the provisions of this Agreement.
8. Enforcement of Rights.
---------------------
(a) The parties shall endeavor to resolve any dispute arising
out of, or relating to, this agreement by mediation under the CPR Mediation
Procedure for Business Disputes. Unless the parties agree otherwise, the
mediator will be selected from the CPR Panel of Neutrals with notification to
CPR. Any controversy or claim arising out of or relating to this contract or the
breach, termination or validity thereof, which remains unresolved 45 days after
appointment of a mediator, shall be settled by arbitration by a sole arbitrator
in accordance with the CPR Nonadministered Arbitration Rules, and judgment upon
the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof.
(b) The Company shall pay to the Employee all legal fees and
expenses incurred by the Employee as a result of any dispute under this
Agreement (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce any right
or benefit provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") to any payment or benefit
provided hereunder).
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment (including any "parachute
payment" within the meaning of Section 280G(b) (2) of the Code) or distribution
by the Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this
-10-
<PAGE>
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred by the
Employee with respect to such excise tax (such excise tax, together with any
such interest and penalties are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment under this Agreement (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by KPMG Peat Marwick LLP, or such other public accounting firm chosen by
the Audit Committee of the Board as the Company's independent accountants, (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Employee within fifteen business days of the Date of
Termination, if applicable, or such earlier time as is requested by the Company.
The initial Gross-Up Payment, if any, as determined pursuant to this Section
9(b), shall be paid to the Employee within five days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall furnish the Employee with an
opinion that failure to report the Excise Tax on the Employee's applicable
federal income tax return would not result in the imposition of an accuracy-
related penalty under Section 6662 of the Code or any other penalty. Any
determination by the Accounting Firm shall be binding upon the Company and the
Employee. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Employee thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Employee. All fees and expenses of the Accounting Firm shall be paid by the
Company.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the GrossUp Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Employee
knows of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is
-11-
<PAGE>
requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which the Employee gives
such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Employee in writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, for any Excise Tax or income or
employment tax, including interest and penalties with respect thereto, imposed
as a result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Employee to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Employee agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Employee to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to the Employee, on an interest-free
basis and shall indemnify and hold the Employee harmless, on an after-tax basis,
from any Excise Tax or income or employment tax, including interest or penalties
with respect thereto, imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder
-12-
<PAGE>
and the Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Employee of an amount advanced by
the Company pursuant to Section 9(c), the Employee becomes entitled to receive
any refund with respect to such claim, the Employee shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Employee
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Employee shall not be entitled to any refund with respect to
such claim and the Company does not notify the Employee in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Employee shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries, and their
respective businesses, which shall have been obtained by the Employee during the
Employee's employment by the Company or any of its subsidiaries and which shall
not be or become public knowledge (other than by acts by the Employee or his
representatives in violation of this Agreement). After termination of the
Employee's employment with the Company, the Employee shall not, without the
prior written consent of the Company, or as may otherwise be required by law,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Employee under this
Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Employee and without the
prior written consent of the Company shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
-13-
<PAGE>
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
-------------------
-------------------
-------------------
-------------------
If to the Company:
------------------
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, N.J. 07920
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) 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-
<PAGE>
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Employee's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the Company
and the Employee with respect to the subject matter hereof and the Employee
waives any severance benefits (but not pension benefits) that he might
otherwise be entitled to under the Company's severance plan or policy and
agrees that from and after the Effective Date that this Agreement supersedes
the agreements specified on Schedule A hereto.
(g) Nothing herein shall constitute a promise of employment other
than as results from a Change in Control and the Employee and the Company
acknowledge that, except as provided by any other agreement between the Employee
and the Company, the employment of the Employee by the Company is "at will",
and, prior to the Effective Date, may be terminated by either the Employee or
the Company at any time. Upon a termination of the Employee's employment or upon
the Employee's ceasing to be an officer of the Company, in each case, prior
to the Effective Date, the Employee shall have no further rights under this
Agreement.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant
to the authorization form its Board of Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
---------------------------------
Attest: HOOPER HOLMES, INC.
By: By:
--------------------------- ---------------------------------
Secretary
-15-
<PAGE>
[LOGO OF HOOPER HOLMES APPEARS HERE]
providing alternate-site health
information
[PHOTOGRAPH APPEARS HERE]
1996 Annual Report
to shareholders
Examiner on location
<PAGE>
Hooper
Holmes
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
(dollars in thousands except per share data) 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 156,254 $ 111,313 $ 92,534
Operating income 8,576 4,059 3,803
Income from continuing operations 4,086 1,667 1,480
Income (loss) from discontinued operations -- (14,716) 1,184
Net income (loss) $ 4,086 ($13,049) $ 2,664
Earnings per share from continuing operations $ .61 $ .25 $ .22
Earnings per share from discontinued operations -- ($2.19) $ .18
Net earnings per share $ .61 ($1.94) $ .40
Cash dividends per share $ .06 $ .06 $ .30
Weighted average number of shares outstanding 6,727,719 6,707,128 6,706,713
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
On the cover,
Pamela Goldberg
Miami, Florida
<PAGE>
Hooper Holmes Inc. is the nation's leading provider of
- --------------------------------------------------------------
alternate-site
health information.
health information
Hooper Holmes Inc. is the nation's leading provider of
alternate-site health Information. Serving all 50 states,
the Company's network of experienced medical professionals
conducts physical examinations, testing and personal health
interviews, primarily for the life and health insurance
industry. Information gathered in these activities is used
by insurance underwriters to assess risks and make informed
decisions.
Hooper Holmes' customers include most of the
nation's major life and health insurers, and the
Company performed approximately 2.7 million tests on
insurance applicants in 1996 under its trade name
Portamedic. The Company offers the industry's widest
geographic coverage and up-to-date technology to
ensure timely, accurate delivery of health
information. Hooper Holmes' mission is to be
recognized as a quality service provider that meets
the needs of its customers, employees, and
shareholders. We pride ourselves on anticipating new
challenges that face our clients and finding
solutions to help them adapt to change.
Hooper Holmes' common stock trades on the
American Stock Exchange under the symbol "HH." The
Company is headquartered in Basking Ridge, New
Jersey.
<PAGE>
1996 annual report to shareholders
- -----------------------------------------------------
Hooper Holmes
To Our Shareholders
A year ago, we said that Hooper Holmes was committed to using our position as
the undisputed industry leader as a platform to support stronger growth and
profitability. We are pleased to report that in 1996 we delivered on that
commitment.
In a year of many achievements, we wish to highlight two that illustrate the
strength and growth potential of this Company. First, our focused efforts to
significantly reduce our bank debt has made our balance sheet stronger than it
has been in years. Second, the successful integration of ASB Meditest into the
operations of Portamedic expanded the breadth of our integrated nationwide
network, which continues to be supported by the most advanced information
technology in the industry. In short, the strong financial and operating
performance we recorded in 1996 validates Hooper Holmes' targeted efforts to
establish and maintain its position as the dominant provider of alternate-site
health information services.
FINANCIAL REVIEW
In 1996, Hooper Holmes reported record revenue and earnings. Income from
continuing operations for the year ended December 31, 1996, more than doubled to
$4.1 million, or $0.61 per share, from $1.7 million, or $0.25 per share, for
1995. We also reported a similarly dramatic increase in operating income, which
grew to $8.6 million in 1996 from $4.1 million a year earlier. Revenues rose 40%
to $156.3 million, compared to $111.3 million in 1995. The increases are largely
attributable to the ASB Meditest acquisition, which closed at the end of the
third quarter of 1995.
During 1996, operating margins improved to 5.5% for the year. This improvement
results from a combination of a comprehensive review of incoming ASB business
and the resultant changes and continued control over field expenses.
The ASB Meditest acquisition and related sale of our healthcare business
produced another benefit to the Company in 1996. With the receipt of an income
tax refund related to the transaction, along with the full release of the
escrowed purchase price upon the collection of accounts receivables, we reduced
our bank debt by $28.8 million to $6.3 million by year-end 1996. The significant
reduction in debt has strengthened our balance sheet. Our working capital
remains strong at 1.8:1, and our long-term debt-to-equity ratio improved to .14
from .79 one year ago.
REVIEW OF OPERATIONS
Our mandate in 1996 was to integrate ASB Meditest's operations into the
Portamedic network, which we successfully completed in the second quarter 1996.
The combination has made Portamedic the undisputed market leader in providing
alternate-site health information to the country's largest life and health
insurers. During 1996, we increased our share of the market from 20% to 25%.
The expanded network has enabled the Company to achieve greater efficiencies.
Since the acquisition in September 1995, we closed over 40 offices and
identified millions in cost savings.
During 1996, we also made notable progress pursuing our strategic objective of
leveraging our existing distribution network and information infrastructure.
Early in the year, Hooper Holmes entered into its first agreement with a leading
financial services
Page 2
<PAGE>
[PHOTO OF JAMES M. MCNAMEE APPEARS HERE]
company engaged in the direct-response marketing of insurance products. The
outsourcing relationship, which builds on our health information testing
expertise and advanced information systems, supplies a new source of revenue to
the Company while enabling our customer to reduce its cost base.
In another significant development, we entered into a strategic marketing
agreement with Policy Management Systems Corporation (PMSC) in early 1997.
Through our partnership, users of PMSC's software-supported life insurance
underwriting services will have access to Portamedic's network of 7,000
examiners who perform medical examinations for life insurance applicants.
In 1996, we were saddened by the loss of Frederick D. "Ted" King, our Chairman,
who passed away in July. Ted joined the Company in 1949, was elected President
in 1996 and began serving as Chairman in 1973. His accomplishments were many.
Ted will be remembered for his steady leadership and counsel over the years, for
which the Company will forever be thankful.
OUTLOOK
As we enter into a new year, our core business, Portamedic, is strong and
growing. The integration of our operations has made us a larger, more efficient
and a more focused company--an attractive array of attributes to issuers under
continuing pressure to reduce their costs and minimize their underwriting risk.
With our stronger balance sheet, we have even greater resources and flexibility
to pursue opportunities to build on our demonstrated success as a leading health
information services provider. For example, we are optimistic that our ability
to cost-effectively support the direct marketing of insurance products will
lead to new outsourcing agreements.
Our recently formed Healthdex services group represents a highly focused effort
to utilize Hooper Holmes' historical strength as an alternate-site medical data
and information gatherer to enter new markets. Among the new development
initiatives the group is exploring are support of pharmaceutical clinical
trials, as well as providing data on covered participants in health maintenance
organizations and other risk-bearing managed care plans.
The transformation of Hooper Holmes over the past year has been dramatic. We
couldn't have done it without the dedication and hard work of our employees. We
offer our thanks and appreciation to them, as well as our customers and
shareholders. We look forward to an exciting year ahead.
/s/ James M. McNamee
-----------------------------------------
James M. McNamee
President and Chief Executive Officer
Page 3
<PAGE>
1996 annual report to shareholders
- --------------------------------------------------------------------------------
Hooper Holmes is the largest provider of alternate-site health information...
- --------------------------------------------------------------------------------
we have a nationwide, integrated network,
Pat Hernandez
San Antonio, Texas
[PICTURE APPEARS HERE]
For more than 25 years, Hooper Holmes has been a leading provider of
alternate-site health information services. Each month, the Company's network
of approximately 7,000 experienced medical professionals conduct more than
225,000 medical examinations, tests, personal health interviews and other
services for the life and health insurance industry. We maintain close
relationships with 48 of the top 50 life and health insurance companies as well
as a broad base of local and regional insurance agents. With an estimated 25%
share of the market, Hooper Holmes dominates the business.
The scope of the Company's network of people and technology are unmatched in the
industry. We are able to provide a wide array of mobile paramedical services
ranging from taking personal history reports to basic physical examinations to
electrocardiograms. Within 24 hours of a request a physician, RN, LPN, ECG
technician or other medical professional will be dispatched to perform the
required service in any county in any state. Orders may be placed by phone,
fax, electronic mail , or via the Internet's World Wide Web.
In addition, many of our customers in the insurance industry receive financial
and health history information via Infolink, our automated reporting system. By
eliminating paper from key steps in the applications and underwriting process,
we are able to help our customers reduce costs, speed turnaround time, and
devote more resources to selling.
Hooper Holmes continues to be well positioned to benefit from the ongoing
pressure on our clients to obtain the timely and cost-effective delivery of
accurate health information. We are committed to enhancing our reputation for
high-quality service, leading-edge technology and the industry's best turnaround
time.
Page 4
<PAGE>
accomodates well over 200,000 requests for service each month
----------------------------------------------------------------
Hooper Holmes maintains strong links with customers
- --------------------------------------------------------------------------------
we apply advanced i n f o r m a t i o n technology.
Bernard Jacobs
New York, New York
-------------------------------------
[PHOTOGRAPH OF BERNARD JACOBS APPEARS HERE]
a d v a n c e d c a p a b i l i t i e s
To maintain strong links among our customers, branches and corporate offices,
Hooper Holmes has developed an advanced information processing infrastructure.
This enables us to deliver timely, accurate health information -- when and where
it is needed -- the definition of quality in our business. The Company
recognizes that as the needs of our customers change, we must continue to make
investments in technology to create further efficiencies in application
processing and insurance underwriting and to support our anticipated entry into
additional markets.
As a result, in late 1996, Hooper Holmes began a restructuring program to more
fully integrate the three key components of our information technology
infrastructure -- MIS, our centralized management information reporting system
that ties together branches and the corporate offices; the Client Services
group, which fulfills the multiple information needs of our customers; and
Infolink, the channel that delivers financial and health information reports
electronically to customers. One key change is organizational; beginning in the
second quarter of 1997, the three divisions will function as a single entity
which allows service delivery to be coordinated and more responsive to the many
changes taking place in the industry. That capability will become increasingly
important as Hooper Holmes seeks to leverage its information infrastructure to
pursue new business opportunities.
The success of alternate-site health information is built upon convenience. We
recognize that shifting needs and new technologies are constantly redefining
convenience. As a result, we remain committed to strengthening the links among
our systems and our people.
PAGE 5
<PAGE>
the nation's leading provider of alternative site health information
- --------------------------------------------------------------------------------
We are leveraging our information infrastructure
- --------------------------------------------------------------------------------
to pursue profitable g r o w t h in a changing industry
[PHOTO OF JIM NOVAK APPEARS HERE]
Chicago, Illinois
----------------------------------------
In recent years, the insurance industry has been undergoing tremendous change,
as mutual fund companies, banks and other financial services firms have, to
varying degrees, begun to offer insurance products to their customers. As
insurers face intensifying competition, they are under pressure to develop
distribution channels that reduce costs while providing high-quality service.
These pressures have led many companies to seek cost-effective solutions from
companies like Hooper Holmes. We are aggressively pursuing opportunities that
will streamline the application and underwriting process and leverage the power
of our state-of-the art information infrastructure.
In 1996, Hooper Holmes formed preferred relationships with leading marketers
that offer direct response life insurance sales. A major financial services
firm, for example, will use Hooper Holmes' online, nationwide network for
applications processing, ordering alternative-site tests, and reporting
information to underwriters.
The Company has also formed strategic alliances with major providers of
back-office systems and "smart" underwriting software. We will continue to
pursue other arrangements that make it easier for insurers using leading
software packages to order services through Portamedic or other points of access
to Hooper Holmes' electronic network.
Another key development in 1996 was the formation of Healthdex, a marketing arm
that is exploring new opportunities that are anciliary to our core business but
can utilize our existing network of branches and production personnel. We plan
to invest considerable resources in this initiative to enable us to enter
markets outside of our core business.
Page 6
<PAGE>
accommodates well over 200,000 requests for service each month
---------------------------------------------------------------------
Hooper Holmes
In our business, accuracy and timeliness are critical...
- ---------------------------------------------------------------------
we have unyielding Quality standards.
[PHOTO OF LISA CLOUD APPEARS HERE]
Lisa Cloud
Seattle Washington
-----------------------
a c c u r a c y
Hooper Holmes recognizes the critical importance of accuracy,
confidentiality and timeliness in health information. As a result,
quality is monitored daily for each region and every branch location.
Our sophisticated reporting and control mechanisms enable us to pinpoint
the performance of individual examiners, branches, or entire geographic
areas. Hooper Holmes also maintains its exclusive physician data base, a
process by which credentials of all physicians who provide services
through the Company have their credentials verified.
The Company's commitment to quality is recognized in objective studies
that are regularly supplied to us by our leading customers in the life
and health insurance industry. We are proud of our reputation for
quality and are committed to finding ways to sustain and enhance our
ability to gather and communicate high-quality health information. We
are especially proud of our hard working and dedicated employees, as
well as our network of physicians, nurses, technicians and other
medically trained personnel who we believe are key factors in our
success.
PAGE 7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Results of Operations
1996 Compared to 1995
Total revenues for 1996 increased 40.4% to $156.3 million from $111.3 million
for 1995. This growth results from a 36% unit increase in the number of
paramedical examinations performed and a 25% increase in inspection and
attending physician statement units. The overall increase stems from revenue
growth in existing offices, the acquisition of ASB Meditest in September 1995,
and the result of market share gains.
The Company's cost of operations in 1996 totaled $118.0 million compared to
$85.9 million for 1995. Cost of operations as a percentage of revenues totaled
75.5% for 1996 versus 77.2% for 1995. The dollar increase was primarily due to
higher direct costs and branch operating expenses, partly due to the ASB
Meditest acquisition. As a percentage of revenues, the decrease is due to
ongoing efforts to reach the optimum number of branches, control branch
operating expenses, and the efficiencies realized from the integration of ASB
Meditest.
Selling, general and administrative expenses increased to $29.7 million for
1996 from $21.3 million for 1995. The increase of $8.4 million is attributed to
the additional corporate staffing functions and increased depreciation and
amortization expense as a result of the ASB Meditest acquisition in September
1995.
Accordingly, the Company's operating income for 1996 increased to $8.6
million versus $4.1 million for 1995, and as a percentage of revenues, increased
to 5.5% for 1996 compared to 3.6% for 1995.
The company reduced long term debt by $28.8 million during 1996 and
therefore interest expense decreased in 1996 compared to 1995 by $.3 million.
Other income items in 1996 were primarily due to interest earned on the escrowed
funds that were part of the Nurses House Call transaction in September 1995 and
was approximately the same amount as in 1995.
As a result of the foregoing, net income from continuing operations in 1996
totaled $4.1 million or $0.61 per share compared to $1.7 million or $0.25 per
share for 1995. The 1995 net loss from discontinued operations totaled $14.7
million, or $2.19 per share.
Inflation did not have a significant effect on the Company's operations in
1996.
1995 Compared to 1994
Total revenues for 1995 increased 20.3% to $111.3 million from $92.5 million for
1994. This growth results from a 19% unit increase in the number of paramedical
examinations performed and a 26% increase in inspection and attending physician
statement units. Of the overall increase, approximately 14% reflects new revenue
provided in the fourth quarter by the acquisition of ASB Meditest and 6% stems
from revenue growth of the existing offices. Management believes this latter
increase is the result of market share gains, partially offset by pricing
pressures and volume discounting. In 1995, the Company discontinued its
healthcare operations including its occupational health operations. See Note 2
to the consolidated financial statements for information related to discontinued
operations. The results reported herein are representative of the Company's
continuing operations.
The Company's cost of operations in 1995 totaled $85.9 million compared to
$70.7 million for 1994. Cost of operations as a percentage of revenues totaled
77.2% for 1995 versus 76.4% for 1994. This increase was primarily due to
competitive pricing pressures in the marketplace and higher branch operating
expenses, partly due to the ASB Meditest acquisition. The Company believes that
additional branch operating savings will be realized as planned consolidations
of the ASB Meditest acquisition are completed.
Selling, general and administrative expenses ("SG&A") increased to $21.3
million for 1995 from $18.1 million for 1994. The increase of $3.2 million is
largely attributed to SG&A expenses related to ASB Meditest's corporate
functions which were duplicative of existing company SG&A.
The Company believes that as the integration of ASB Meditest continues,
additional cost savings may be realized.
Accordingly, the Company's operating income for 1995 increased to $4.1
million versus $3.8 million for 1994, and, as a percentage of revenues,
decreased to 3.6% for 1995 compared to 4.1% for 1994.
Interest expense increased in 1995 over 1994 due to higher amounts borrowed,
but this increase was offset by certain other income items. See Note 3 to the
consolidated financial statements.
As a result of the foregoing, net income from continuing operations in 1995
totaled $1.7 million or $0.25 per share compared to $1.5 million or $0.22 per
share for 1994. The 1995 net loss from discontinued operations totaled $14.7
million, or $2.19 per share, compared to a net income of $1.2 million, or $0.18
per share for the prior year.
The net loss for 1995 was $13.0 million compared to net income of $2.7
million for 1994. The net loss in 1995 includes a $14.7 million, or $2.19 per
share, net loss from discontinued operations. See Note 2 to the consolidated
financial statements.
In the second quarter of 1995, the Company discontinued its Nurse's House
Call healthcare business and entered into a contract to sell this business. In
the fourth quarter of 1995, the Company discontinued its occupational health
business recently acquired as part of ASB Meditest which primarily consisted of
Page 8
<PAGE>
Management's Discussion and Analysis of Financial Conditions and Results of
Operations
- --------------------------------------------------------------------------------
drug testing and immunizations. These disposals are in connection with the
Company's strategy to focus on its core business of providing health information
services.
Inflation did not have a significant effect on the Company's operations in
1995.
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's bank credit facility. In late 1995, the Company sold its Nurse's House
Call division, and as part of that transaction, $15 million of the purchase
price was placed in escrow to be released to the Company to the extent that
certain accounts receivable sold as part of the transaction were collected.
These funds were received in 1996 in their entirety and were principally
utilized to reduce the Company's bank debt.
For the year ended December 31, 1996, the net cash provided by operating
activities of continuing operations was $16.3 million as compared to $5.6
million in 1995. The significant sources were income from continuing operations
of $4.1 million, $5.1 million of depreciation and amortization, $6.5 million of
accounts receivable reduction and $8.0 million of tax refunds, which were
partially offset by a decrease in liabilities of approximately $8.3 million.
The Company replaced its $40 million revolving credit facility with a $20
million, three year revolving facility in December 1996. The revolver loan will
accrue interest at either the bank's base rate or at LIBOR, as adjusted, at the
option of the Company. At December 31, 1996, the Company had $4 million in
revolver borrowings. The mortgage loan balance of $2.3 million is scheduled to
be fully paid by January 1998. Capital expenditures for 1997 are anticipated to
be less than $2.0 million. While the Company always considers acquisitions or
growth opportunities, it has no specific commitments or contracts at this time.
Management believes that the combination of cash and cash equivalents, other
working capital sources, and borrowings under the Company's credit facility
along with anticipated cash flows from continuing operations, will provide
sufficient capital resources for the foreseeable future.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share
("EPS"), which is effective as of December 31, 1997. This standard changes the
way companies compute EPS to require all companies to show "basic" and
"dilutive" EPS and is to be retroactively applied, including each 1997 interim
quarter.
- --------------------------------------------------------------------------------
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements which involve
risks and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
Page 9
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------------------------------
December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,936,447 $ 1,065,464
Accounts receivable - trade (Note 4) 17,035,255 21,974,398
Accounts receivable - other 1,095,772 2,387,010
Escrow funds (Note 3) -- 15,000,000
Refundable taxes 1,230,198 9,264,734
Other current assets 3,474,226 4,716,328
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 25,771,898 54,407,934
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (Notes 5 and 6) 19,196,013 18,270,355
Less: Accumulated depreciation and amortization 9,712,650 7,423,190
- ------------------------------------------------------------------------------------------------------------------------
9,483,363 10,847,165
- ------------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of $2,600,613 in 1996
and $1,742,563 in 1995) (Note 3) 15,948,735 16,601,785
- ------------------------------------------------------------------------------------------------------------------------
Intangible assets (net of accumulated amortization of $3,170,077 in 1996
and $1,365,526 in 1995) (Note 3) 9,394,485 11,088,036
- ------------------------------------------------------------------------------------------------------------------------
Other assets 697,185 1,052,175
- ------------------------------------------------------------------------------------------------------------------------
$ 61,295,666 $ 93,997,095
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,030,000 $ 8,800,000
Accounts payable 6,168,864 10,677,452
Accrued expenses:
Insurance benefits 1,536,315 1,018,517
Salaries, wages and fees 1,264,739 596,886
Payroll and other taxes 167,013 740,678
Income taxes payable 334,879 --
Discontinued operations (Note 2) 1,287,700 4,380,023
Other 2,175,651 3,408,067
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,965,161 29,621,623
- ------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities (Note 6) 5,250,000 26,250,000
Deferred income taxes (Note 9) 4,361,049 4,993,459
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 7 and 8)
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (Note 11):
Common stock, par value $.04 per share; authorized 20,000,000
shares, issued 6,791,459 in 1996 and 6,744,422 in 1995 271,658 269,777
Additional paid-in capital 24,645,945 24,080,988
Retained earnings 12,820,355 9,138,401
- ------------------------------------------------------------------------------------------------------------------------
37,737,958 33,489,166
Less: Treasury stock, 1,683 shares in 1996 and
32,308 shares in 1995, at cost 18,502 357,153
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 37,719,456 33,132,013
- ------------------------------------------------------------------------------------------------------------------------
$ 61,295,666 $ 93,997,095
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 10
<PAGE>
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $156,253,763 $111,313,005 $ 92,533,685
Cost of operations 117,959,274 85,933,510 70,677,574
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 38,294,489 25,379,495 21,856,111
Selling, general and administrative expenses 29,718,867 21,320,852 18,053,281
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 8,575,622 4,058,643 3,802,830
- ---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (1,394,038) (1,673,548) (994,208)
Interest income 348,153 262,247 21,682
Other income (Note 3) 328,035 383,793 --
- ---------------------------------------------------------------------------------------------------------------------------
(717,850) (1,027,508) (972,526)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,857,772 3,031,135 2,830,304
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes (Note 9) 3,772,000 1,364,161 1,350,272
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 4,085,772 1,666,974 1,480,032
- ---------------------------------------------------------------------------------------------------------------------------
Discontinued operations (Note 2):
Income (loss) from operations, net of taxes -- (4,389,559) 1,183,488
Loss on disposal, net of taxes -- (10,326,068) --
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations -- (14,715,627) 1,183,488
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,085,772 $ (13,048,653) $ 2,663,520
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share (Note 10):
Weighted average number of shares 6,727,719 6,707,128 6,706,713
Income from continuing operations $ 0.61 $ 0.25 $ .22
Income (loss) from discontinued operations -- (2.19) .18
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.61 $ (1.94) $ .40
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 11
<PAGE>
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional
Number of Paid-in Retained Treasury
Years ended December 31, 1994, 1995 and 1996 Shares Amount Capital Earnings Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 6,744,422 $269,777 $24,143,059 $21,938,247 $(434,711) $45,916,372
Net income 2,663,520 2,663,520
Cash dividends ($.30 per share) (2,012,397) (2,012,397)
Exercise of stock options (28,649) 67,370 38,721
Purchase of treasury stock (103,808) (103,808)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 6,744,422 269,777 24,114,410 22,589,370 (471,149) 46,502,408
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss (13,048,653) (13,048,653)
Cash dividends ($.06 per share) (402,316) (402,316)
Exercise of stock options (16,728) 55,959 39,231
Issuance of stock award (16,694) 58,037 41,343
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 6,744,422 269,777 24,080,988 9,138,401 (357,153) 33,132,013
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 4,085,772 4,085,772
Cash dividends ($.06 per share) (403,818) (403,818)
Issuance of stock award 2,405 29,470 31,875
Exercise of stock options 47,037 1,881 349,300 309,181 660,362
Exercised stock options tax benefit 213,252 213,252
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,791,459 $271,658 $24,645,945 $12,820,355 $(18,502) $37,719,456
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 4,085,772 $ 1,666,974 $ 1,480,032
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization 5,071,692 2,469,116 1,316,040
Provision for bad debt expense 380,000 320,979 76,000
Deferred tax (benefit) expense (467,448) 362,000 (67,000)
Issuance of stock awards 31,875 41,343 --
Loss on sale of fixed assets 58,313 14,429 37,619
Change in assets and liabilities, net of effect from
acquisitions/dispositions of businesses:
Accounts receivable 6,456,636 (328,030) 39,192
Other current assets 1,038,631 (646,540) (968,992)
Income tax receivable 8,004,039 (1,269,570) --
Accounts payable and accrued expenses (8,347,222) 2,999,731 254,376
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities
of continuing operations 16,312,288 5,630,432 2,167,267
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities
of discontinued operations -- (3,265,830) (13,367,913)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 16,312,288 2,364,602 (11,200,646)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds including escrow funds from dispositions 15,000,000 12,449,646 --
Business acquisitions (37,500) -- (23,000)
Capital expenditures, net of disposals (1,103,601) (857,126) (872,726)
Net investing activities of discontinued operations -- (797,475) 307,559
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 13,858,899 10,795,045 (588,167)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long term debt 19,000,000 43,500,000 21,326,942
Principal payments on long term debt (47,770,000) (56,926,942) (4,350,000)
Payment of note -- -- (3,000,000)
Proceeds related to the exercise of stock options 873,614 39,231 38,721
Treasury stock acquired -- -- (103,808)
Dividends paid (403,818) (402,316) (2,012,397)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (28,300,204) (13,790,027) 11,899,458
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,870,983 (630,380) 110,645
Cash and cash equivalents at beginning of year 1,065,464 1,695,844 1,585,199
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,936,447 $ 1,065,464 $ 1,695,844
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,668,018 $ 1,446,753 $ 904,034
Income taxes $ 1,955,316 $ 1,238,356 $ 2,899,520
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 -- Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Hooper Holmes,
Inc. and its wholly-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions are eliminated in consolidation.
Description of the Business
The Company provides alternate-site health information. The Company's network of
experienced medical professionals conduct physical examinations, testing, and
personal health interviews, primarily for the life and health insurance
industry. Information gathered in these activities is used by insurance
underwriters to assess risks and make informed decisions. The Company is subject
to certain risks and uncertainties as a result of changes that could occur in
the life and health insurance industry's underwritng requirements and standards,
and in the Company's customer base.
Use of Estimates
The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect reported amounts and disclosures in
these financial statements. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of less
than ninety days to be cash equivalents.
Long-Lived Assets
Long-lived assets consist of property, plant and equipment, goodwill, and
identifiable intangibles.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
using the straight line method over the assets estimated useful life. The cost
of maintenance and repairs is charged to income as incurred. Significant
renewals and betterments are capitalized.
Goodwill and Intangibles
Goodwill and intangible assets are being amortized using the straight line
method over lives ranging from 10-25 years and 1-15 years, respectively.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. In accordance with SFAS No. 121,
the Company reviews long-lived assets for impairment whenever events or changes
in business circumstances occur that indicate that the carrying amount of the
assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows. Adoption of SFAS
No. 121 did not have a material impact on the Company's consolidated financial
position, operating results or cash flows.
Revenues
Revenues from services rendered are recognized when services are performed.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Concentration of Credit Risk
The Company's accounts receivable is due primarily from insurance companies.
Prudential Insurance Company of America continues as a major customer but due to
overall revenue growth, fell below 10% of total revenues for 1996 and 1995. In
1994, Prudential provided revenues of $11.0 million.
Fair Value of Financial Instruments
The carrying value of long-term debt approximates its fair value due to the
variable interest rate and short interest rate reset period. For all other
financial instruments, their carrying value approximates fair value, due to the
short maturity of these instruments.
Employee Stock Options
Employee stock options are granted with an exercise price equal to the market
price and, therefore, compensation expense is not recognized on the issuance of
employee stock options. Effective January 1, 1996, the Company adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
For the fair value of the employee stock options issued, see Note 11.
PAGE 14
<PAGE>
Advertising
Costs related to space in publications are expensed the first time the
advertising occurs. Advertising expense was approximately $285,000, $318,000,
and $230,000 in 1996, 1995, and 1994, respectively.
Basis of Presentation
Certain reclassifications have been made to the prior years' financial
information to conform with the current year presentation.
Note 2 -- Discontinued Operations
In 1995, the Company transferred substantially all of the assets and business of
its Nurse's House Call health care division (the "NHC division") to Olsten
Corporation, (the "NHC Transaction"), pursuant to an Agreement of Acquisition
between the Company and Olsten, dated May 26, 1995. The transaction closed
September 29, 1995 subject to the final adjustment of the cash portion of the
purchase price as discussed below. Pursuant to the Acquisition Agreement, Olsten
transferred to the Company all of the issued and outstanding capital stock ("ASB
Meditest Stock") of American Service Bureau, Inc., 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"), $27.3 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 and assumed certain
specified liabilities of approximately $5.1 million relating to the NHC
Division. Included in accounts receivable other for 1995, are amounts due from
Olsten for liabilities paid by the Company on Olsten's behalf.
Net sales for the NHC Division for the period ended September 29, 1995 were
$117.2 million, and for the years ending December 1994 and 1993 were $159.3
million and $106.8 million, respectively.
Earnings (loss) from operations of such business, for the period ending
September 29, 1995, were $(4.1) million, and for the years ending December 31,
1994 and 1993 were $1.2 million and $.9 million, respectively, and are net of
taxes (benefits) of $(2.2) million for the period ending September 29, 1995, and
$1.1 million and $.7 million for the years ended December 31, 1994, and 1993,
respectively. Interest expense was allocated to discontinued operations based on
the increase in debt required to fund the NHC Division's accounts receivable
growth. Interest expense allocated to the NHC Division was approximately $1.9
million, $1.7 million, and $.3 million in 1995, 1994, and 1993, respectively.
The Company has recorded a loss in the amount of $10.3 million, net of tax
benefits of $7.6 million, on the disposal of the NHC Division. The Company
recorded a provision for certain costs related to the disposal including the
transaction loss, severance and other expenses, transaction fees, and accounts
receivable collection fees.
Consistent with the Company's decision to discontinue its healthcare
business, the Company, in the 4th quarter of 1995, also discontinued the
operations of its Occupational Health segment acquired as part of the ASB
Meditest acquisition, and has reflected in its discontinued operations, a loss,
net of taxes of $.3 million. In October 1995, the Company sold the Drug Screen
portion of its Occupational Health segment for $.7 million in cash, and a $.5
million, one year promissory note, which was paid in full in 1996. The assets
consisted primarily of computer equipment and software and customer lists. There
was no gain or loss to be recognized on this transaction. The Company concluded
its seasonal flu vaccination commitments late in 1995, and has not continued
this business.
The 1995 and 1994 figures exclude amounts for discontinued operations from
captions applicable to continuing operations.
Note 3 -- Acquisitions and Dispositions
On September 29, 1995, in connection with the NHC Transaction the Company
acquired all of the outstanding common stock of ASB Meditest, a national health
information services company. As a result of an independent valuation appraisal,
the Company has recorded goodwill of approximately $12.3 million, and intangible
assets in the amount of $10.8 million, comprised of assembled work force $2.3
million, contractor network $2.4 million, referral base $4.1 million, and a non
competition agreement valued at $2.0 million. These amounts are all being
amortized over their useful lives.
The NHC transaction called for a portion of the purchase price to be
placed in escrow until collections of the trade receivables of NHC sold to
Olsten were reduced to below $30.0 million. At that point the escrow funds were
to be released dollar for dollar until the balance is reduced to $15.0 million.
In 1996, the Company has received all $15 million of the escrowed funds.
The acquisition discussed above has been accounted for using the purchase
method of accounting and the purchase price of the acquisition has been assigned
to the net assets based on the fair value of such assets and liabilities at the
date of acquisition. The consolidated financial statements include the results
of operations of ASB Meditest from September 29, 1995.
In 1992 the Company sold its Direct Marketing business and received cash and
a six year promissory note. The Company determined that the gain on this
transaction should be recognized as note payments are received. During 1996, the
Company received $324,000 which is included in other income.
The following unaudited pro forma information has been prepared as if the
1995 acquisition of ASB Meditest had occurred on January 1, 1994, and excludes
the NHC Division. This pro forma information does not purport to be an
indication of the results that actually would have been obtained if the
operations had been combined during the periods.
PAGE 15
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Revenues $170,296 $174,380
- ----------------------------------------------------------------------------
Net income $ 4 $ 743
- ----------------------------------------------------------------------------
Earnings per share $ .00 $ .11
- ----------------------------------------------------------------------------
</TABLE>
Note 4 -- Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts in the amount
of $733,797 and $466,021 in 1996 and 1995, respectively.
Note 5 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, Useful Life
1996 1995 In Years
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and
improvements $ 571,314 $ 570,116 10 - 20
- ------------------------------------------------------------------------------
Building and
improvements 3,841,703 3,744,552 10 - 45
- ------------------------------------------------------------------------------
Furniture,
fixtures and
equipment 14,782,996 13,955,687 3 - 10
- ------------------------------------------------------------------------------
$19,196,013 $18,270,355
- ------------------------------------------------------------------------------
</TABLE>
Note 6 -- Long Term Debt
<TABLE>
<CAPTION>
Long term debt, excluding current portion:
(millions) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
1995 Revolving loan, due January 1998 $ 0.0 $ 24.0
Mortgage, due January 1998 1.3 2.3
1996 Revolving loan, due January 2000 4.0 0.0
- ----------------------------------------------------------------------------
$ 5.3 $ 26.3
- ----------------------------------------------------------------------------
</TABLE>
The 1995 revolving loan was refinanced in December 1996 with a $20.0 million
three year revolving loan. The 1996 revolving loan accrues interest at the
bank's base rate minus 1/4% to 1 1/4% or LIBOR plus 3/4% to 1 3/4%, at the
election of the Company. The interest rate at December 31, 1996 was 7.75% and
the maximum available credit amount was $20.0 million. Also, commitment fees of
1/4% of the unused credit are charged and the loan is unsecured. Dividend
payments are limited to maximum quarterly amounts of 30% to 40% of average
quarterly net incomes. At December 31, 1995 the interest rate on the 1995
revolving loan was 8.1%. The mortgage loan is composed of two components. One
accrues interest at 6.9% and the other at 5.65%.
The Company has entered into a one year renewable Letter of Credit to the
benefit of an insurance company relating to workers' compensation insurance. At
December 31, 1996 the amount was $2.9 million.
Note 7 -- Commitments and Contingencies
The Company leases branch field offices under a number of operating leases which
expire in various years through 2001. These leases generally contain renewal
options and require the Company to pay all executory costs (such as property
taxes, maintenance and insurance). The Company also leases telephone, computer
and other miscellaneous equipment which are classified as operating leases and
expire in the years 1997 through 2001. The following is a schedule of future
minimum lease payments for operating leases (with initial or remaining terms in
excess of one year) as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------------------------------------------------------------
<S> <C>
1997 $ 5,552,273
1998 3,198,047
1999 1,537,935
2000 243,709
2001 6,476
- ------------------------------------------------------------------------------
Total minimum lease payments $10,538,440
- ------------------------------------------------------------------------------
</TABLE>
Rental expenses under operating leases were $6,053,129, $3,908,709 and
$3,740,373 in 1996, 1995 and 1994, respectively.
In 1990, the Company entered into an employment retention contract with the
President for a two year period from the date a change in control occurs as
further defined in the contract and in 1996 with the remaining executive
officers of the Company.
Note 8 -- Litigation
The Company is a party to a number of legal actions arising in the ordinary
course of its business. In the opinion of management, the Company has adequate
legal defense and/or insurance coverage respecting each of these actions and
does not believe their ultimate disposition will materially affect the Company's
results of operations or financial position.
Note 9 -- Income Taxes
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
United States Federal:
Current $ 2,948 $ 699 $1,077
Deferred (354) 362 (67)
State and local:
Current 1,292 303 340
Deferred (114) -- --
- -----------------------------------------------------------------------------
$ 3,772 $1,364 $1,350
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
The following reconciles the "statutory" federal income tax rates to the
effective income tax rates:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected"
tax expense 34 % 34 % 34 %
Increase (reduction) in tax
expense resulting from:
State tax, net of federal
income tax benefit 5 6 7
Non-tax deductible,
amortization of goodwill 10 7 5
Other (1) (2) 2
- -------------------------------------------------------------------------------
Effective income tax rates 48 % 45 % 48 %
- -------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Discontinued operation accruals $ 541 $ 933
Receivable allowance 308 196
Intangible assets 165 191
Net operating loss carry forwards -- 365
Acquisition bases adjustment
accounts receivable 665 875
Insurance benefits 572 --
Other 261 117
- -------------------------------------------------------------------------------
2,512 2,677
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (833) (975)
Acquisition bases adjustment
primarily intangibles (4,017) (4,692)
Other (185) --
- -------------------------------------------------------------------------------
(5,035) (5,667)
- -------------------------------------------------------------------------------
Net deferred tax liability $ (2,523) $ (2,990)
- -------------------------------------------------------------------------------
</TABLE>
Deferred tax assets (liabilities) are reflected in the consolidated balance
sheets at December 31, 1996 as follows: other current assets $1,838,000 and
deferred income taxes (noncurrent) $(4,361,000) and at December 31, 1995, other
current assets $2,003,000 and deferred income taxes (noncurrent) $(4,993,000).
No valuation allowance has been provided on deferred tax assets since
management believes that it is more likely than not that such assets will be
realized through the reversal of existing deferred tax liabilities and future
taxable income.
The principal components of the deferred tax provision in 1996 and 1995
include differences between financial and tax reporting for depreciation,
amortization, and allowance for accounts receivable.
Note 10 -- Earnings (Loss) Per Share
Earnings (loss) per share of common stock have been computed based on the
weighted average number of shares outstanding. No effect has been given in the
calculation for common stock equivalents since the equivalents are either not
materially dilutive to earnings per share or are antidilutive to loss per share.
Note 11 -- Capital Stock
Stockholder Rights Plan -- On January 23, 1990, the Board of Directors adopted a
Stockholder Rights Plan, which was amended and restated on May 10, 1991 and
further amended on July 12, 1995. The Board declared a dividend of one Common
Share Right for each outstanding share of Common Stock distributable on April 2,
1990. Such rights only become exercisable ten business days after (a) the
Company or a person or group announces that such person or group (other than
certain specified persons, such as the Company, any wholly-owned subsidiary,
employee benefit plans of the Company and persons who held at least 20% of the
Common Stock when the Rights Plan was adopted, until the occurrence of certain
events, or as the result of an acquisition of shares by the Company) has
acquired beneficial ownership of 20% or more of the Company's Common Stock or
(b) the commencement of a tender offer by a person or group to acquire 30% or
more of the Company's Common Stock (such date, the "Separation Date"). Upon the
Separation Date, each right shall constitute the right to purchase one share of
Common Stock of the Company for $24.00, subject to adjustment. After (x) the
announcement of the acquisition by a person or group of 20% or more of the
Company's Common Stock (other than in a tender offer for all shares which has
been approved by the Board of Directors), or (y) the Company enters into or
consummates a merger or other similar business transaction, or a sale of more
than 50% of the assets or earning power, each right shall be adjusted to
constitute the right to purchase that number of shares of Common Stock of the
Company or capital stock of the acquiring company, as the case may be, having an
aggregate market price on the date of such announcement of the acquisition or
such consummation or occurrence of the transaction equal to twice the exercise
price of $24.00, also subject to adjustment. The rights may be redeemed for
$0.05 per right at any time until the tenth day following public announcement
that a 20% position has been acquired. The rights will expire on March 16, 2000,
unless sooner redeemed.
Page 17
<PAGE>
Stock Purchase Plan -- In 1993, the shareholders approved the 1993 Employee
Stock Purchase Plan which provides for granting of purchase rights to all
full-time employees, as defined, of up to 250,000 shares. This plan terminates
on December 31, 1998. The plan provides for the purchase of shares on the date
one year from the grant date. During the year after the grant date, up to 10% of
an employee's compensation is withheld for their purchase. An employee can
cancel their purchase any time during the year, without penalty. The purchase
price is 95% of the closing common stock price on the grant date. In April 1996,
the Company made a grant, of approximately 37,000 shares, and the aggregate
purchase price will be approximately $334,000. No other grants have been made
under this plan.
Stock Awards -- The Company's president is entitled to receive stock awards
based on the attainment of performance goals established for any given year. For
the years ended December 31, 1996, 1995 and 1994, awards of 2,500, 6,000 (paid
in cash at its fair value at the time of grant), and 5,250 (shares issued in
1995), respectively, have been granted.
Stock Option Plan -- The Company's stockholders approved stock option plans
totaling 300,000 and 500,000 shares, respectively, in 1988 and 1992, and 500,000
shares in 1994, which provide that options may be granted to management. Options
are granted at market value on the dates of the grants and are exercisable as
follows: 25% after two years and 25% on each of three anniversary dates
thereafter, and terminate after 10 years.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Under Option
------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance January 1, 1994 158,688 606,438 $ 12.56
Authorized 500,000 -- ---
Granted (141,000) 141,000 11.88
Exercised -- (5,813) 6.66
Cancelled 76,700 (76,700) 13.12
- -------------------------------------------------------------------------------
Balance December 31, 1994 594,388 664,925 12.40
Granted (359,850) 359,850 7.95
Exercised -- (5,062) 7.75
Cancelled 111,413 (111,413) 10.74
- -------------------------------------------------------------------------------
Balance December 31, 1995 345,951 908,300 10.87
Granted -- -- --
Exercised -- (75,162) 8.79
Cancelled 7,050 (7,050) 9.99
- -------------------------------------------------------------------------------
Balance December 31, 1996 353,001 826,088 $ 11.07
- -------------------------------------------------------------------------------
</TABLE>
The weighted average fair value per option at the date of grant for
options granted during 1995 was $4.67. The fair value was estimated using the
Black-Scholes option pricing model, modified for dividends and based on weighted
average dividend yield of .48%, risk-free interest rate of 6.65%, expected stock
price volatility of 37.46%, and an expected term until exercise of 10 years.
There were no option grants in 1996.
Pro forma net income (loss) and earnings (loss) per share reflecting
approximate compensation cost for the fair value of stock options awarded in
1995 is as follows:
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss):
As reported $ 4,086 $ (13,049)
Pro forma 3,846 (13,165)
Earnings (loss) per share:
As reported .61 (1.94)
Pro forma .57 (1.96)
- -------------------------------------------------------------------------------
</TABLE>
The pro forma effects on net income (loss) and earnings (loss) per share
for 1996 and 1995 may not be representative of the pro forma effects in future
years since compensation cost is allocated on a straight-line basis over the
vesting periods of the grants, which extends beyond the reported years.
The following table summarizes information concerning options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range ofOutstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96Term (Years) Priceat 12/31/96Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.50 -$ 8.38 345,100 7.9 $ 7.80 41,750 $ 6.75
11.88 - 14.94 480,988 5.8 13.41 271,219 13.53
- ------------------------------------------------------------------------------
</TABLE>
On January 28, 1997, the Board of Directors granted 174,000 stock options
to certain employees. These options were granted under the 1994 stock option
plan with an exercise price that equalled the fair market value of the stock at
the date of grant.
Note 12 -- 401k Savings and Retirement Plan
This plan is available to all employees with at least one year
of service of greater than 1,000 hours of employment, and is administered by
Lincoln National Life Insurance Co. The Company matches up to 25% of the first
10% of employee salary contributions. The Company's payments for 1996, 1995, and
1994, were $228,000, $137,000, and $123,000, respectively.
<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, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Short Hills, New Jersey
February 20, 1997
<TABLE>
<CAPTION>
For the years ended December 31,
(dollars in thousands except per share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 156,254 $ 111,313 $ 92,534 $ 80,600 $ 68,931
Operating income 8,576 4,059 3,803 5,020 4,548
Interest expense 1,394 1,674 994 237 144
Income from continuing operations 4,086 1,667 1,480 2,739 2,779
Income (loss) from discontinued operations (2) -- (14,716) 1,184 867 2,099
Net income (loss) 4,086 (13,049) 2,664 3,606 4,878
Earnings from continuing operations per share 0.61 0.25 0.22 0.41 0.42
Earnings (loss) from discontinued
operations per share (2) -- (2.19) 0.18 0.13 0.31
Earnings (loss) per share (1) 0.61 (1.94) 0.40 0.54 0.73
Cash dividends per share (1) $ 0.06 $ 0.06 $ 0.30 $ 0.30 $ 0.25
Weighted average number of shares outstanding (1) 6,727,719 6,707,128 6,706,713 6,714,061 6,717,667
- --------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 11,807 $ 24,786 $ 6,407 $ 4,024 $ 9,861
Total assets 61,296 93,997 103,172 88,355 52,754
Current maturities of long term debt 1,030 8,800 2,150 1,550 0
Long-term debt, less current maturities 5,250 26,250 46,327 29,950 3,000
Total long-term debt 6,280 35,050 48,477 31,500 3,000
Stockholders' equity $ 37,719 $ 33,132 $ 46,502 $ 45,916 $ 44,384
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to reflect a 3 for 2 stock split effective February 28, 1992.
(2) See Note 2 to the consolidated financial statements.
Page 19
<PAGE>
Quarterly Common Stock Price Ranges and Dividends
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
High Low High Low
Quarter Bid Bid Dividend Bid Bid Dividend
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 9 9/16 8 1/16 .01 10 3/4 6 1/2 .03
Second 13 7/8 8 1/4 .01 10 1/2 7 5/8 .01
Third 15 3/8 10 5/8 .02 10 6 3/4 .01
Fourth 18 1/2 14 1/2 .02 9 7/8 7 3/4 .01
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarterly Financial Data (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data)
Per share of common stock
--------------------------------------
Income from Loss from Income from Loss from
Gross continuing discontinued Net continuing discontinued Net
Quarter (1) Revenues profit operations operations(1) income (loss) operations operations income (loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Fourth $ 39,922 $ 9,924 $ 1,494 $ -- $ 1,494 $0.22 $ -- $ 0.22
Third 37,907 9,276 1,101 -- 1,101 0.17 -- 0.17
Second 39,814 9,897 946 -- 946 0.14 -- 0.14
First 38,611 9,197 545 -- 545 0.08 -- 0.08
- -----------------------------------------------------------------------------------------------------------------------------------
Total $156,254 $ 38,294 $4,086 $ -- $ 4,086 $0.61 $ -- $0.61
- -----------------------------------------------------------------------------------------------------------------------------------
1995
Fourth $ 39,736 $ 8,136 $ 421 $ (338) $ 83 $0.06 $(0.05) $ 0.01
Third 23,184 5,287 394 (720) (326) 0.06 (0.11) (0.05)
Second 24,396 5,940 446 (13,310) (12,864) 0.07 (1.98) (1.91)
First 23,997 6,016 406 (348) 58 0.06 (0.05) 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Total $111,313 $ 25,379 $1,667 $(14,716) $ (13,049) $0.25 $(2.19) $(1.94)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During 1995, the second quarter consists of after tax charges of $10.3
million for the loss on the disposal of the NHC division and $3.0 million
of operating loss. The third quarter consists of an after tax charge of $.7
million for additional NHC division operating losses. The fourth quarter
charge of $.3 million, net of tax, relates to discontinuance of the
Occupational Health segment acquired as part of the ASB Meditest
acquisition. See Note 2 to the Consolidated Financial Statements
Page 20
==================================================
<PAGE>
Directors and Officers
- --------------------------------------------------------------------------------
Directors
Benjamin A. Currier
Senior Vice President,
Security Life of Denver Ins. Co.
Quentin J. Kennedy
Executive Vice President,
Secretary and Director
Federal Paper Board Company
Retired
Elaine L. LaMonica
Professor
Department of Nursing Education
Teachers College
Colombia University
James M. McNamee
Chairman, President, and
Chief Executive Officer
John E. Nolan, Jr.
Partner
Steptoe & Johnson
Kenneth R. Rossano
Senior Vice President
Cassidy & Associates
G. Earle Wight
Senior Vice President
Officers
James M. McNamee
Chairman, President, and
Chief Executive Officer
Paul W. Kolacki
Executive Vice President
and Chief Operating Officer
Robert William Jewett
Senior Vice President,
General Counsel and Secretary
Fred Lash
Senior Vice President,
Chief Financial Officer
and Treasurer
G. Earle Wight
Senior Vice President
Francis A. Stiner
Vice President
Stock Listing
The Company's common stock
is traded on the American Stock
Exchange (AMEX) under the
symbol "HH."
Form 10-K
Holders of the Company's common
stock may obtain, without charge, a
copy of the Hooper Holmes, Inc.
Annual Report on Form 10-K as filed
with the Securities and Exchange
Commission upon request.
Address inquiries to:
Secretary
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, NJ 07920
Independent Certified
Public Accounts
KPMG Peat Marwick LLP
Short Hills, NJ
Transfer Agents & Registrar
First City Transfer Company
Iselin, NJ
Annual Meeting
May 27, 1997
at the American Stock Exchange
New York, NY
<PAGE>
Hooper Holmes, Inc.
- ------------------------
Corporate Headquarters
170 Mount Airy Road
Basking Ridge, NJ 07920
(908) 766-5000
BACK COVER
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF HOOPER HOLMES, INC.
-----------------------------------
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION D/B/A
---- ---------------------- -----
<S> <C> <C>
Hooper Holmes
Health Care, Inc. New Jersey Nurse's House Call
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Hooper Holmes, Inc.
We consent to incorporation by reference in the registration statements (No. 33-
53086 and No. 333-04785) on Form S-8 of Hooper Holmes, Inc. of our reports dated
February 20, 1997, relating to the consolidated balance sheets of Hooper Holmes,
Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows and
related schedule for each of the years in the three-year period ended December
31, 1996, which reports appear in the December 31, 1996 annual report on Form
10-K of Hooper Holmes, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 28, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hooper Holmes, Inc.
Under date of February 20, 1997, we reported on the consolidated balance sheets
of Hooper Holmes, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996 as contained in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are included in the annual report on
Form 10-K for the year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as of December 31, 1996, 1995, and 1994, and for the years
then ended. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 20,1997
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K
and any subsequent amendment thereto,
and any and all other amendments or
documents related thereto which any of
said attorneys in fact, in his discretion,
may deem necessary or proper; and
2. to perform every other act which any of
said attorneys in fact, in his discretion,
may deem necessary or appropriate in
connection with such Annual Report or
any amendments thereto.
DATED: March 24, 1997
----------------------------
/s/ Benjamin A. Currier
-----------------------------------
Benjamin A. Currier
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K
and any subsequent amendment thereto,
and any and all other amendments or
documents related thereto which any of
said attorneys in fact, in his discretion,
may deem necessary or proper; and
2. to perform every other act which any of
said attorneys in fact, in his discretion,
may deem necessary or appropriate in
connection with such Annual Report or
any amendments thereto.
DATED: March 25, 1997
----------------------------
/s/ G. Earle Wight
-----------------------------------
G. Earle Wight
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K
and any subsequent amendment thereto,
and any and all other amendments or
documents related thereto which any of
said attorneys in fact, in his discretion,
may deem necessary or proper; and
2. to perform every other act which any of
said attorneys in fact, in his discretion,
may deem necessary or appropriate in
connection with such Annual Report or
any amendments thereto.
DATED: March 18, 1997
----------------------------
/s/ Kenneth R. Rossano
-----------------------------------
Kenneth R. Rossano
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K
and any subsequent amendment thereto,
and any and all other amendments or
documents related thereto which any of
said attorneys in fact, in his discretion,
may deem necessary or proper; and
2. to perform every other act which any of
said attorneys in fact, in his discretion,
may deem necessary or appropriate in
connection with such Annual Report or
any amendments thereto.
DATED: March 20, 1997
----------------------------
/s/ John E. Nolan, Jr.
-----------------------------------
John E. Nolan, Jr.
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Director of Hooper Holmes, Inc., a New York corporation (the
"Company"), which proposes to file a Form 10-K Annual Report pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorney in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K
and any subsequent amendment thereto,
and any and all other amendments or
documents related thereto which any of
said attorneys in fact, in his discretion,
may deem necessary or proper; and
2. to perform every other act which any of
said attorneys in fact, in his discretion,
may deem necessary or appropriate in
connection with such Annual Report or
any amendments thereto.
DATED: March 20, 1997
----------------------------
/s/ Quentin J. Kennedy
-----------------------------------
Quentin J. Kennedy
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF
DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,936,447
<SECURITIES> 0
<RECEIVABLES> 17,769,052
<ALLOWANCES> 733,797
<INVENTORY> 0
<CURRENT-ASSETS> 25,771,898
<PP&E> 19,196,013
<DEPRECIATION> 9,712,650
<TOTAL-ASSETS> 61,295,666
<CURRENT-LIABILITIES> 13,965,161
<BONDS> 5,250,000
271,658
0
<COMMON> 0
<OTHER-SE> 37,447,798
<TOTAL-LIABILITY-AND-EQUITY> 61,295,666
<SALES> 156,253,763
<TOTAL-REVENUES> 156,253,763
<CGS> 117,959,274
<TOTAL-COSTS> 117,959,274
<OTHER-EXPENSES> 29,718,867
<LOSS-PROVISION> 380,000
<INTEREST-EXPENSE> 1,394,038
<INCOME-PRETAX> 7,857,772
<INCOME-TAX> 3,772,000
<INCOME-CONTINUING> 4,085,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,085,772
<EPS-PRIMARY> .61
<EPS-DILUTED> 0
</TABLE>
