<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, 1997
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Commission File Number 1-9972
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Hooper Holmes, Inc.
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(Exact name of Registrant as specified in its charter)
New York 22-1659359
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
170 Mt. Airy Road, Basking Ridge, N.J. 07920
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 766-5000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock ($0.04 Par Value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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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
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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 27, 1998 the aggregate market value
of the voting stock held by non affiliates of Registrant was $262,161,500.
The number of shares outstanding of the Registrant's common stock, $.04 par
value was 13,981,949 at February 27, 1998.
Certain information contained in the Company's 1997 Annual Report to
Shareholders and its Proxy Statement in connection with its 1998 Annual Meeting
of Shareholders is incorporated by reference into Parts I, II and III of this
Form 10-K.
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FORM 10K
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PART 1
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ITEM 1. Business
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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 over 200 branch offices in 50
states. Through its alternate site health information 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 alternate site
health information industry.
The alternate site health information 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. These
services have been widely accepted as a solution to many clients' needs for
accurate and timely health information. The formation in 1996 and 1997 of
partnerships with new clients which utilize direct response to sell policies,
exemplify the result of our investment in technology in the past three years. As
more insurance is being sold to applicants through direct response where there
is no agent to gather the pertinent underwriting information, the need for
"Teledex" becomes more critical. Consequently, the value of our direct contact
services to assess risk classification increases in this agentless environment,
thereby increasing the demand. It is management's objective to expand the
Company's capabilities to provide additional database services to the insurance
industry as it faces new challenges in its 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
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ASB Meditest in 1995 underscored management's intention 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
have been lowering the thresholds of insurance coverage requiring pre-insurance
examinations, due in part to growing concern over substance abuse, AIDS and
other illnesses and to 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 has further
enhanced both our ability 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 is a rapidly
growing area of new services.
Nontraditional distribution outlets. Consolidation in the banking,
investment banking and securities industries have resulted in the defacto
formation of new life insurance distribution channels. Commercial banks, large
discount brokerage businesses and investment houses are all combining with a
primary focus of offering financial products for retirement and estate planning,
which frequently include life insurance policies, through these recently
developed channels.
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 over 200. 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 most 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
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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.
Services
Portamedic(R) -- Medical and Paramedical Examinations
Management believes that the Company is the leader of the five largest
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 over 200 branch
locations in 50 states. During 1997, 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 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 has 17 "contract affiliates"
from the acquisition of ASB Meditest, 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.
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 1997, the Company provided over 337,000 Infolink reports, a decrease from
1996. This volume decrease was due to the Company selectively eliminating
marginally profitable business. The ASB Meditest acquisition provided 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 emerg-
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ing 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 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:
--1997-- --1996--
% of % of
Amount Total Revenues Amount Total Revenue
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Portamedic $150.9 91.2% $140.4 89.9%
Infolink 14.5 8.8% 15.9 10.1%
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$165.4 100.0% $156.3 100.0%
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 and 1997 were years 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,
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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 began new
initiatives in this product line, which we felt would have a substantial impact
on our new service offerings in 1997. This initiative has been slow in realizing
meaningful revenues, but the company still expects a significant contribution in
future periods.
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.
The industry consists of five major competitors. One of the competitors was
part of a spin-off in 1997, and then sold by the new company to a home
healthcare company providing pediatric homecare services.
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, 1997, the Company employed approximately 1020 full-time and
715 part-time employees, none of whom is represented by a collective bargaining
agreement. The Company also contracts with over 8,700 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.
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Regulation
Various aspects of the Company's business are regulated by the federal
government and the states in which the Company currently operates.
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.
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
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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 7 to the Company's Consolidated
Financial Statements.
ITEM 3. Legal Proceedings
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None
ITEM 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of securities holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
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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
1997 Annual Report to Shareholders which is Exhibit 13 to this report. As of
February 27, 1998, there were 833 shareholders of record.
ITEM 6. Selected Financial Data
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The financial data included under the caption "Selected Financial Data" is
incorporated by reference from the Company's 1997 Annual Report to Shareholders
which is Exhibit 13 to this report.
ITEM 7. Management Discussion and Analysis of Financial Condition and Results
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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 1997 Annual Report to Shareholders which is Exhibit 13 to this report.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
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None
ITEM 8. Financial Statements and Supplementary Data
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Financial statements and supplementary data are included in the Company's
1997 Annual Report to Shareholders which is Exhibit 13 to this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
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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 19, 1998 is
incorporated herein by reference.
ITEM 11. Executive Compensation
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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 19, 1998 is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
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Information contained under the caption "Stock Ownership of Certain
Beneficial Owners and
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Management" in the Company's Proxy Statement for the Annual Meeting of
shareholders to be held on May 19, 1998 is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
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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 19, 1998 is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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(a) (1) The following financial statements and independent auditors'
report are included in the Registrant's 1997 Annual Report to
Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets --
December 31, 1997 and 1996
Consolidated Statements of Operations --
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows --
Years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) 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
EXHIBIT PAGE
3.1 Restated Articles of Incorporation of --
Hooper Holmes, Inc., as amended (1)
3.2 Bylaws of Hooper Holmes, Inc., as amended (2) --
4.1 Amended and Restated Rights Plan Agreement --
between Hooper Holmes, Inc. and Midlantic
National Bank (3)
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(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 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(3) 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.
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EXHIBIT PAGE
10.1 Amended Employee Retention Agreement by and between --
Hooper Holmes, Inc., and James M. McNamee (4)
10.2 Form of Indemnification Agreement (5) --
10.3 Hooper Holmes, Inc. Nonqualified Stock --
Option Plan (6)
10.4 First Amendment to Hooper Holmes, Inc. --
Nonqualified Stock Option Plan (7)
10.5 Hooper Holmes, Inc. 1992 Stock Option Plan --
as amended (8)
10.6 Employee Stock Purchase Plan (1993) of Hooper --
Holmes, Inc. (9)
10.7 Hooper Holmes, Inc. 1994 Stock Option Plan (10) --
10.8 Credit Agreement between Hooper Holmes, Inc. --
and First Union National Bank. (11)
10.9 CEO Stock Option Agreement (12) --
10.10 1997 Stock Option Plan
10.11 1997 Director Option Plan
10.12 Employee Retention Agreement by and between Hooper --
Holmes, Inc. and Executive Officers of Hooper Holmes,
Inc. (13)
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
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(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) Incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
(12) Incorporated by reference to Attachment to the Company's Proxy
Statement for the Annual Meeting of Shareholders held on May 27,
1997.
(13) Incorporated by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
Reports on Form 8-K
No report on Form 8-K has been filed during the fourth quarter of
1997.
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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 30, 1998
---------------------------------
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:
/s/ James M. McNamee Date: March 30, 1998
- ------------------------------------------------- ------------------------
James M. McNamee Director
President & CEO
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*Benjamin A. Currier Director
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*Quentin J. Kennedy Director
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*Kenneth R. Rossano Director
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*Elaine La Monica Rigolosi Director
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*John E. Nolan Director
Date: March 30, 1998
- ------------------------------------------------- ------------------------
*G. Earle Wight Director
/s/ Fred Lash Date: March 30, 1998
- ------------------------------------------------- ------------------------
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
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Exhibit 10.10
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HOOPER HOLMES, INC.
1997 STOCK OPTION PLAN
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TABLE OF CONTENTS
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Page
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ARTICLE 1. DEFINITIONS............................................... 1
1.1 Beneficiary........................................ 1
1.2 Board.............................................. 1
1.3 Code............................................... 1
1.4 Committee.......................................... 1
1.5 Common Stock....................................... 1
1.6 Company............................................ 1
1.7 Effective Date..................................... 1
1.8 Employee........................................... 1
1.9 Employment Period.................................. 1
1.10 Exchange Act....................................... 1
1.11 Fair Market Value.................................. 1
1.12 Grantee............................................ 2
1.13 Incentive Stock Option............................. 2
1.14 Insider Participant................................ 2
1.15 Noninsider Participant............................. 2
1.16 Nonqualified Option................................ 2
1.17 Option............................................. 2
1.18 Option Agreement................................... 3
1.19 Optionee........................................... 3
1.20 Option Price....................................... 3
1.21 Plan............................................... 3
1.22 Reload Option...................................... 3
1.23 Retirement......................................... 3
1.24 Rule 16b-3......................................... 3
1.25 Stock Appreciation Right........................... 3
1.26 Stock Appreciation Right Agreement................. 3
1.27 Subsidiary......................................... 4
1.28 Total Disability................................... 4
ARTICLE 2 PURPOSE................................................... 4
2.1 Purpose............................................ 4
2.2 Effective Date..................................... 5
ARTICLE3 ELIGIBILITY............................................... 5
3.1 Persons Eligible................................... 5
3.2 Notice............................................. 5
3.3 Grant Contingent Upon Written Agreement............ 5
ARTICLE 4 COMMON STOCK COVERED BY THE PLAN
4.1 Maximum Number of Shares........................... 6
- ii -
<PAGE>
4.2 Source of Shares....................................... 6
4.3 Adjustments to Number of Shares........................ 6
ARTICLE 5 TERMS AND CONDITIONS OF OPTIONS................................ 7
5.1 Option Price........................................... 7
5.2 Date of Option Grant................................... 7
5.3 Exercise of Option..................................... 8
5.4 Sales of Stock Underlying Options...................... 8
5.5 Option Period.......................................... 8
5.6 Accelerated Vesting in the Event of Death,
Disability, Retirement, Change in Control or
Other Transactions..................................... 8
5.7 Exercise in the Event of Death, Disability,
Retirement, or Termination of Employment............... 10
5.8 Payment of Option Price................................ 11
5.9 Reload Options......................................... 11
5.10 Additional Terms Applicable to Incentive Stock Options. 12
ARTICLE6 STOCK APPRECIATION RIGHTS...................................... 15
6.1 General................................................ 15
6.2 Exercise and Payments.................................. 15
6.3 Restrictions........................................... 16
ARTICLE 7 LOANS.......................................................... 18
7.1 Loans.................................................. 18
7.2 Promissory Note........................................ 19
7.3 Pledge................................................. 19
ARTICLE 8 DESIGNATION.................................................... 19
8.1 Designation and Change of Designation.................. 19
8.2 Absence of Valid Designation........................... 20
ARTICLE 9 ADMINISTRATION OF THE PLAN..................................... 20
9.1 Committee.............................................. 20
9.2 Powers of Committee.................................... 20
9.3 Action by Committee.................................... 21
9.4 Grant of Option and/or Stock Appreciation Right........ 21
9.5 Indemnification........................................ 21
9.6 Reliance............................................... 22
9.7 Agents................................................. 22
ARTICLE 10 AMENDMENT AND TERMINATION...................................... 23
10.1 Amendment.............................................. 23
10.2 Termination............................................ 23
10.3 Periodic Review of the Plan............................ 23
- iii -
<PAGE>
ARTICLE 11 MISCELLANEOUS PROVISIONS....................................... 23
11.1 No Rights as Shareholder............................... 23
11.2 No Rights to Continued Employment...................... 24
11.3 Compliance with Other Laws and Regulations............. 24
11.4 Payments to Person Other Than Employee................. 24
11.5 Use of Proceeds........................................ 25
11.6 No Right to Options and Stock Appreciation Rights...... 25
11.7 Withholding............................................ 25
11.8 Nontransferability..................................... 25
11.9 Investment Representation.............................. 26
11.10 No Right, Title, or Interest in Company's Assets....... 26
11.11 Headings............................................... 26
11.12 Governing Law.......................................... 27
11.13 Pronouns............................................... 27
- iv -
<PAGE>
ARTICLE 1. DEFINITIONS
-----------
1.1 Beneficiary shall mean the individual or entity designated in
-----------
accordance with Article 8 of the Plan to receive any amounts payable under the
Plan upon the death of an Optionee or Grantee.
1.2 Board shall mean the Board of Directors of the Company.
-----
1.3 Code shall mean the Internal Revenue Code of 1986 as amended.
----
1.4 Committee shall mean those individuals who are appointed by the Board
---------
to administer the Plan in accordance with the provisions of Article 9 of the
Plan, or if no Committee is appointed, then the Board shall constitute the
Committee.
1.5 Common Stock shall mean the common stock of the Company.
------------
1.6 Company shall mean Hooper Holmes, Inc., its Subsidiaries and their
-------
successors and assigns.
1.7 Effective Date shall have the meaning ascribed to such term in Section
--------------
2.2 of the Plan.
1.8 Employee shall mean a person employed by the Company.
--------
1.9 Employment Period shall have the meaning ascribed to such term in
-----------------
Section 3.3 of the Plan.
1.10 Exchange Act shall mean the Securities Exchange Act of 1934, as
------------
amended.
1.11 Fair Market Value shall mean, as applied to a specific date, the
-----------------
closing price for the Common Stock on such date as reported on the principal
stock exchange upon which the Company's Common Stock is listed, or if the Common
Stock is not listed on any stock exchange,
<PAGE>
then the closing price on the National Association of Securities Dealers
Automated Quotation Service ("NASDAQ"); or if the Common Stock is not listed on
NASDAQ, then the mean between the most recent bid and asked prices on any other
recognized trading market or if no Common Stock was traded on the relevant date,
on the next preceding day on which Common Stock was so traded. If no such market
exists, then the Committee shall determine in good faith the fair market value
of the Common Stock.
1.12 Grantee shall mean an Employee to whom a Stock Appreciation Right has
-------
been granted under this Plan.
1.13 Incentive Stock Option shall mean any Option granted under this Plan
----------------------
which the Committee intends (at the time it is granted) to be an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.14 Insider Participant shall mean any Employee who is selected by the
-------------------
Committee to receive options and/or Stock Appreciation Rights under the Plan and
who is subject to the requirements of Section 16(a) of the Exchange Act, and the
rules and regulations thereunder.
1.15 Noninsider Participant shall mean any person who is selected by the
----------------------
Committee to receive options and/or Stock Appreciation Rights under the Plan who
is not an Insider Participant.
1.16 Nonqualified Option shall mean any Option granted under this Plan
-------------------
which is not an Incentive Stock Option.
1.17 Option shall mean the right of an Optionee selected pursuant to
------
Section 9.4 of the Plan, to purchase Common Stock in accordance with the
provisions of this Plan.
- 2 -
<PAGE>
1.18 Option Agreement shall mean the agreement evidencing the grant of an
----------------
Option entered into between the Optionee and the Company pursuant to Section 3.3
of the Plan.
1.19 Optionee shall mean any Employee who satisfies the eligibility
--------
requirements of Article 3 of the Plan and who is selected by the Committee to
receive an Option under the Plan.
1.20 Option Price shall mean the price per share of Common Stock to be paid
------------
by an Optionee upon exercise of an Option, as stated in the Option Agreement.
1.21 Plan shall mean the Hooper Holmes, Inc. 1997 Stock Option Plan and any
----
amendments thereto.
1.22 Reload Option shall have the meaning ascribed to such term in Section
-------------
5.9.
1.23 Retirement shall mean a termination of employment, for reasons other
----------
than Total Disability or death, upon or following an Optionee's or Grantee's
attainment of age fifty-five (55) and completion of at least ten (10) years of
service with the Company, or at such earlier time as the Committee may
determine.
1.24 Rule 16b-3 shall mean Rule 16b-3 of the General Rules and Regulations
----------
under the Exchange Act or any successor act then in effect.
1.25 Stock Appreciation Right shall mean a right to receive a payment from
------------------------
the Company, granted in the discretion of the Committee in accordance with
Article 6.
1.26 Stock Appreciation Right Agreement shall mean the agreement evidencing
----------------------------------
the grant of a Stock Appreciation Right entered into between the Grantee and the
Company pursuant to Section 3.3 of the Plan.
- 3 -
<PAGE>
1.27 Subsidiary shall mean any subsidiary of the Company which meets
----------
the definition of a "subsidiary corporation" set forth in Section 424(f) of the
Code, at the time of granting of the Option or Stock Appreciation Right in
question.
1.28 Total Disability shall mean the complete and permanent inability by
----------------
reason of illness or accident to perform the duties of the occupation at which
an Optionee or Grantee was employed by the Company when such disability
commenced. The Committee in its sole discretion shall determine based on the
aforementioned standard whether an Optionee or Grantee is totally disabled. All
determinations as to the date and extent of disability of any Optionee or
Grantee shall be made by the Committee, upon the basis of such evidence,
including independent medical reports and data, as the Committee deems necessary
and desirable, and all such determinations of the Committee shall be final.
Notwithstanding the foregoing, for purposes of Sections 5.7 (a) and 5.10 (d),
the impairment shall also meet the definition of permanent and total disability
set forth in Section 22(e) of the Code.
ARTICLE 2. PURPOSE
-------
2.1 Purpose. The purpose of this Plan is to reward key managers and
-------
Employees for exerting their best efforts on behalf of the Company, to induce
such Employees to remain in the employ of the Company, to attract talented
individuals to join the Company, to motivate such Employees to continue to exert
their best efforts on behalf of the Company, and to encourage such Employees to
secure or increase on reasonable terms their stock ownership in the Company
through the grant of Options and Stock Appreciation Rights. The Board believes
the Plan will promote the continuity of management and provide increased
incentive and personal interest in the welfare of the Company by those who are
primarily responsible for shaping and carrying out the long-range plans of the
Company and securing its continued growth and financial success.
- 4 -
<PAGE>
2.2 Effective Date. The Plan shall become effective on March 20, 1997,
--------------
provided that, with respect to Incentive Stock Options, the Plan is approved by
the stockholders of the Company within twelve (12) months after the date of such
adoption. No Option or Stock Appreciation Right shall be granted after the
expiration of ten (10) years from the date the Plan was adopted by the Board.
ARTICLE 3. ELIGIBILITY
-----------
3.1 Persons Eligible. An Option and/or Stock Appreciation Right may be
----------------
granted under the Plan by the Committee only to a present or future key manager
or Employee of the Company. The Committee shall determine, in its sole
discretion, who is a key manager or Employee and its decision shall be final,
binding and conclusive.
3.2 Notice. Within thirty (30) days from the date of the decision by the
------
Committee to grant an Option and/or Stock Appreciation Right to an Employee
pursuant to Section 9.4 of the Plan, the Committee shall provide such individual
with written notice of such decision.
3.3 Grant Contingent Upon Written Agreement. An Employee shall be granted
---------------------------------------
the Option and/or Stock Appreciation Right only if he enters into an Option or
Stock Appreciation Right Agreement with the Company within thirty (30) days
after the date upon which he receives the notice required by Section 3.2 of the
Plan. The Option or Stock Appreciation Right Agreement shall provide that he
will remain in the employment of the Company for a period of at least
twenty-four (24) months from the date on which the Option and/or Stock
Appreciation Right is granted under the Plan (the "Employment Period"), or until
his earlier Retirement, and at such compensation as the Company shall reasonably
determine from time to time. Unless the Option or Stock Appreciation Right
Agreement provides otherwise, the Option and/or Stock Appreciation Right shall
not be exercisable prior to the completion of the Employment Period. An Option
Agreement shall specify whether the Option
- 5 -
<PAGE>
is a Nonqualified Option or an Incentive Stock Option and shall also contain the
terms and conditions set forth in Article 5 of the Plan. A Stock Appreciation
Right Agreement shall specify whether the Stock Appreciation Right is related to
the exercise of an option (such that the exercise of one automatically cancels
the right to exercise all or a portion of the other) or is granted independently
of any Option (such that the exercise of one does not cancel the right to
exercise all or a portion of the other) and shall also contain the terms and
conditions set forth in Article 6 of the Plan.
ARTICLE 4. COMMON STOCK COVERED BY THE PLAN
--------------------------------
4.1 Maximum Number of Shares. The maximum number of shares of Common Stock
------------------------
which may be issued pursuant to the exercise of Options and Stock Appreciation
Rights granted under this Plan is three hundred thousand (300,000), subject to
the adjustments provided in Section 4.3 of the Plan. The aggregate number of
shares of Common Stock subject to Options or Stock Appreciation Rights that may
be granted to any individual during any calendar year shall not exceed thousand
_______________ (00.000).
4.2 Source of Shares. Shares of authorized but previously unissued
----------------
Common Stock, Common Stock held in the treasury of the Company, or Common Stock
purchased on the open market by the Company (at such time or times and in such
manner as the Company may determine) will be reserved for issue upon the
exercise of the Options and Stock Appreciation Rights granted under this Plan
subject to Section 4.3 of the Plan. If any Option or Stock Appreciation Right
granted under the Plan shall terminate or expire, without having been exercised
in full, or be canceled as to any shares, new Options and Stock Appreciation
Rights may thereafter be granted covering such shares.
4.3 Adjustment to Number of Shares. In the event (a) any stock dividend,
------------------------------
recapitalization, reorganization, merger, consolidation, split-up, combination,
or exchange of
- 6 -
<PAGE>
shares results in any change in Common Stock; or (b) any other similar change
affects the Common Stock, the number and kind of shares which thereafter may be
covered by an Option or Stock Appreciation Right granted under the Plan and the
number and kind of shares subject to outstanding Option and Stock Appreciation
Right Agreements and the price per share of such shares shall be proportionately
adjusted by the Committee to prevent substantial dilution or enlargement of the
rights granted to, or available for, Optionees and Grantees in the Plan.
ARTICLE 5. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Each Option granted under the Plan shall be subject to the following
express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate as evidenced in the Option Agreement.
5.1 Option Price.
------------
(a) Incentive Stock Options. The price per share of Common
-----------------------
Stock subject to an Incentive Stock Option shall be no less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the date
such Incentive Stock Option is granted, except as provided in Section 5.10(c)
below.
(b) Nonqualified Options. The price per share of Common Stock
--------------------
subject to a Nonqualified Option shall be no less than one hundred percent
(100%) of the Fair Market Value of the Common Stock on the date such
Nonqualified Option is granted.
5.2 Date of Option Grant. An Option shall be deemed to be granted on the
--------------------
date the Committee acts to grant the Option provided that the Optionee enters
into an Option Agreement within the period specified in Section 3.3.
- 7 -
<PAGE>
5.3 Exercise of Option. The Committee, in its sole discretion, may provide
------------------
that an entire Option or any portion of an Option, may not be exercised until
completion of the Employment Period and thereafter only on or following such
date or dates specified in the Option Agreement. An Option shall be exercised by
(a) written notice to the Committee of the intent to exercise the Option with
respect to a specified number of shares of Common Stock and (b) payment for such
shares as specified in Section 5.8 of the Plan.
5.4 Sales of Stock Underlying Options. Notwithstanding anything in the Plan
---------------------------------
to the contrary, except in the case of sales by an executor or administrator of
the estate of a deceased Insider Participant, shares of Common Stock acquired
through the exercise of an Option granted hereunder to an Insider Participant
may not be disposed of until a date at least six months after the date of the
grant of such option as specified in the Option Agreement, unless such
disposition would not otherwise result in liability under Section 16(b) of the
Exchange Act.
5.5 Option Period. Each Option Agreement shall specify the period during
-------------
which the Option may be exercised and shall provide that the Option shall expire
at the end of such period. The Committee may, in its sole discretion, extend
such period. However, in no event shall such period, including any extensions,
exceed ten years from the date of grant. Subject to Section 5.7 of the Plan, the
Option may be exercised by the Optionee only while he remains employed by the
Company.
5.6 Accelerated Vesting in the Event of Death, Disability, Retirement,
-----------------------------------------------------------------
Control or Other Transactions.
- -----------------------------
(a) Unless specifically stated otherwise in the Option Agreement, an
Option granted under this Plan that is not fully vested and exercisable as of
the date the Optionee terminates his employment with the Company because of his
death, Total Disability, or Retirement shall become vested and exercisable in
full on such date.
- 8 -
<PAGE>
(b) Unless specifically stated otherwise in the Option Agreement, all
outstanding Options will become vested and exercisable immediately in the event
there is an actual or threatened change in control of the Company.
(1) Change in Control. A "change in control of the Company" is
-----------------
defined as a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, whether or not the Company in fact is required to comply with
Regulation I4A thereunder; provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes, after the
Effective Date, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the combined voting power of the Company's then
outstanding securities, (ii) during any period of twenty-four consecutive months
during the term of an Option or Stock Appreciation Right, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination for election
by the Company's stockholders, of each director who was not a director at the
date of grant has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period, or (iii) upon the first purchase of the Company's Common Stock
pursuant to a tender or exchange offer (other than a tender or exchange offer
made by the Company).
(2) Threatened Change in Control. A "threatened change in
----------------------------
control of the Company" is defined as any set of circumstances which in the
opinion of the Board, as expressed through a resolution, poses a real,
substantial and immediate possibility of leading to a change in control of the
Company as defined in clause (1.) above.
- 9 -
<PAGE>
(c) If, in connection with any merger, consolidation, sale or
transfer by the Company of substantially all its assets, any Option or Stock
Appreciation Right is not to be assumed by the surviving corporation or the
purchaser, then the Committee, in its sole discretion, may advance the date of
termination of such Option or Stock Appreciation Right, and the date on which
such option or Stock Appreciation Right or any portion of such Option or Stock
Appreciation Right, not then exercisable, may be exercised. However, such date
shall be not more than fifteen days prior to such merger, consolidation, sale or
transfer.
5.7 Exercise in the Event of Death, Disability, Retirement, or Termination
----------------------------------------------------------------------
of Employment.
- -------------
(a) Death, Disability and Retirement. If an Optionee dies (i)
--------------------------------
while an Employee of the Company or (ii) within three months after termination
of his employment with the Company because of a Total Disability, his Options
may be exercised by his beneficiary at any time, or from time to time, but not
later than the expiration date specified in the Option Agreement in accordance
with Section 5.5 of the Plan or two years after the Optionee's death, whichever
is earlier. If an Optionee's employment with the Company terminates due to Total
Disability and such Optionee has not died within three months following the
Optionee's termination of employment, the Optionee may exercise his Options at
any time, or from time to time, but not later than the expiration date specified
in the Option Agreement in accordance with Section 5.5 of the Plan or twelve
months after termination of employment, whichever is earlier. If an Optionee's
employment terminates by reason of his Retirement all rights to exercise his
Option shall terminate no later than the expiration date specified in the Option
Agreement in accordance with Section 5.5 of the Plan or twelve months after
termination of employment or on such other date determined by the Committee,
whichever is earlier.
(b) Termination of Employment. If an Optionee's employment
-------------------------
terminates voluntarily or involuntarily for any reason other than death, Total
Disability or Retirement, all
- 10 -
<PAGE>
rights to exercise his Options shall terminate no later than the expiration date
specified in the Option Agreement in accordance with Section 5.5 of the Plan or
thirty days from the date of such termination of employment, whichever is
earlier, unless the Committee decides that such Option shall terminate on the
date of such termination of employment.
5.8 Payment of Option Price. Each Option Agreement shall provide that the
-----------------------
Option Price of the shares subject to an Option shall be paid to the Company at
the time of exercise either in cash or in such other consideration as the
Committee deems appropriate, including, but not limited to, (a) Common Stock
already owned by the Optionee having a total fair market value equal to the
Option Price, or (b) a combination of cash and Common Stock having a total fair
market value equal to the Option Price.
5.9 Reload Options. The Committee, in its sole discretion, may provide in
--------------
the Option Agreement for the automatic award of a new Option (a "Reload Option")
in the event an Optionee exercises his original Option, in whole or in part, by
surrendering previously acquired shares of Common Stock or a portion of the
shares being acquired upon exercise of the Option. Any such Reload Option shall
be for a number of shares of Common Stock equal to the number of surrendered
shares, shall become exercisable only in the event the shares purchased with the
original Option are held for a minimum period of time established by the
Committee and set forth in the Option Agreement, and shall be subject to such
other terms and conditions as provided in this Section 5.9 and as the Committee
may otherwise determine. The Option Price of a Reload Option shall be no less
than the Fair Market Value on the date of grant of the Reload Option. If the
shares of Common Stock which are issued upon exercise of the original Option are
sold prior to the expiration of the minimum period established by the Committee,
then the Reload option shall immediately terminate and the Optionee shall have
no further rights with respect to that Reload Option. The Option Agreement shall
state whether any Reload Options
- 11 -
<PAGE>
that may be issued under such Option Agreement shall be Incentive Stock Options
or Nonqualified Options.
5.10 Additional Terms Applicable to Incentive Stock Options. All Options
------------------------------------------------------
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 5.1-5.9 above, to those contained in this Section
5.10.
(a) Special Limitation on Incentive Stock Option Grants.
---------------------------------------------------
Notwithstanding any contrary provisions contained elsewhere in this Plan, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock (and stock of a Subsidiary) with respect to
which Incentive Stock Options granted under this Plan and stock Options that
satisfy the requirements of Section 422 of the Code granted under any other
stock option plan or plans maintained by the Company (or any Subsidiary) are
exercisable for the first time by an Optionee during any calendar year shall not
exceed $100,000 for such year. The foregoing limitation shall not take into
account stock Options which, by their terms, provide that they shall not be
treated as Incentive Stock Options.
(b) Special Limitation on Incentive Stock Option Treatment.
------------------------------------------------------
(1) In General. To the extent that, as a result of the rules described in
----------
Section 5.6 or otherwise, the aggregate Fair Market Value of Common Stock with
respect to which Incentive Stock Options granted to an Optionee are exercisable
for the first time during any calendar year exceeds $100,000, such Options shall
not be treated as Incentive Stock Options or otherwise as stock Options which
satisfy the requirements of Section 422 of the Code.
(2) Ordering Rule. Clause (1) shall be applied by
-------------
taking Incentive Stock Options into account in the order that they were granted.
- 12 -
<PAGE>
(3) Allocation Rule. To the extent that the Fair Market Value of Common
---------------
Stock for which the Optionee has been granted an Incentive Stock Option causes
the aggregate Fair Market Value of all Common Stock with respect to which the
Optionee has been granted Incentive Stock Options exercisable for the first time
during any calendar year to exceed $100,000, such Option shall be treated as not
qualifying as an Incentive Stock Option, and, unless the Company designates
which Common Stock acquired by such Option is to be treated as stock acquired
pursuant to the exercise of an Incentive Stock Option by issuing a separate
certificate (or certificates) for such stock and identifying such certificate
(or certificates) as Incentive Stock Option stock in its stock transfer records,
an equal proportion of each share of Common Stock acquired pursuant to such
Option shall be treated as if acquired pursuant to the exercise of an Option
that does not satisfy the requirements of Section 422 of the Code.
(4) Special Definitions. For purposes of this subsection (b), Stock Options
-------------------
granted to an Optionee under any other stock option plan or plans maintained by
the Company (or any subsidiary) that satisfy the requirements of Section 422 of
the Code shall be included within the term Incentive Stock Options, stock of a
Subsidiary shall be included within the term Common Stock, and Options which, by
their terms, provide that they shall not be treated as Incentive Stock Options
shall not be taken into account.
(c) Limits on Ten Percent Shareholders. The price at which
----------------------------------
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to shareholders of the
Company or any Subsidiary, shall be no less than one hundred and ten percent
(110%) of the Fair Market Value of a share of the Common Stock of the Company at
the time of grant, and such Incentive Stock Option shall by its terms not be
exercisable after the
- 13 -
<PAGE>
earlier of the date determined under Section 5.5 or the expiration of five (5)
years from the date such Incentive Stock Option is granted.
(d) Federal Income Tax Treatment. A share of Common Stock
----------------------------
transferred to an Optionee pursuant to his exercise of an Incentive Stock Option
shall not be treated as a share transferred pursuant to the exercise of an
Incentive Stock Option for federal income tax purposes unless (i) no disposition
of such share is made by the Optionee within two (2) years from the date of the
granting of the Incentive Stock Option nor within one (1) year after the
transfer of such share to the Optionee, and (ii) at all times during the period
beginning on the date of the granting of the Incentive Stock Option and ending
on the day three (3) months before the date of exercise of the Incentive Stock
Option, the optionee was an employee of either the Company, a parent of the
Company or any Subsidiary. The employment requirement of Section 5.10(d)(ii)
shall be expanded to twenty-four (24) months if the Optionee's employment ceases
as a result of death and shall be expanded to twelve (12) months if the
Optionee's employment ceases as a result of a Total Disability, and Section
5.10(d)(i) shall not apply to an Incentive Stock Option exercised after the
death of the Optionee.
(e) Notice of Disposition; Withholding; Escrow. An Optionee
------------------------------------------
shall immediately notify the Company in writing of any sale, transfer,
assignment or other disposition (or action constituting a disqualifying
disposition within the meaning of Section 421 of the Code) of any shares of
Common Stock acquired through exercise of an Incentive Stock Option, within two
(2) years after the grant of such Incentive Stock Option or within one (1) year
after the acquisition of such shares, setting forth the date and manner of
disposition, the number of shares disposed of, and the price at which such
shares were disposed of. The Company or any Subsidiary shall be entitled to
withhold from any compensation or other payments then or thereafter due to the
Optionee such amounts as may be necessary to satisfy any withholding
requirements of federal or state law or regulation and, further, to collect from
the Optionee any
- 14 -
<PAGE>
additional amounts which may be required for such purpose. The Committee may, in
its discretion, require shares of Common Stock acquired by an Optionee upon
exercise of an Incentive Stock Option to be held in an escrow arrangement for
the purpose of enabling compliance with the provisions of this Section 5.10(e).
ARTICLE 6. STOCK APPRECIATION RIGHTS
-------------------------
6.1 General. The Committee may grant Stock Appreciation Rights to any
-------
individual who satisfies the eligibility requirements of Article 3 of the Plan.
The Committee may grant Stock Appreciation Rights that cover (a) the same shares
of Common Stock that are covered by an Option granted to an Optionee (or such
lesser number of shares of Common Stock as the Committee may determine), or (b)
shares of Common Stock that are not covered by an Option. Stock Appreciation
Rights that are related to an Option granted under the Plan (such that the
exercise of one automatically cancels the right to exercise all or a portion of
the other) may be granted either at the time of the grant of such Option or at
any time thereafter during the term of the Option and shall, except as provided
in Section 6.3 hereof, be subject to the same terms and conditions as the
related Option and such further terms and conditions not inconsistent with the
Plan as shall from time to time be determined by the Committee. Any Stock
Appreciation Right granted under the Plan that is granted independently of any
Option (such that the exercise of one does not cancel the right to exercise all
or a portion of the other) shall be exercisable at such time and under such
circumstances as set forth in the grant of the, Stock Appreciation Right, but in
no event shall any Stock Appreciation Right be exercisable later than the 10th
anniversary of the date of its grant.
6.2 Exercise and Payments.
---------------------
(a) Each Stock Appreciation Right that is related to any
Option shall entitle the holder of the related Option to surrender to the
Company unexercised the related
- 15 -
<PAGE>
Option, or any portion thereof, and to receive from the Company in exchange
therefore an amount equal to the excess of the Fair Market Value of one share of
Common Stock on the date the right is exercised over the Option Price times the
number of shares covered by the Option, or portion thereof, which is
surrendered.
(b) Upon exercise in whole or in part of a Stock Appreciation
Right that is granted independently of any Option, the holder thereof shall be
entitled to receive from the Company an amount equal to the excess of the Fair
Market Value of one share of Common Stock on the date the right is exercised
over the price per share stated in the grant of the Stock Appreciation Right
times the number of shares covered by the Stock Appreciation Right, or portion
thereof, which is exercised. The price per share stated in the grant of the
Stock Appreciation Right shall be no less than one hundred percent (100%) of the
Fair Market Value of the Common Stock on the date such Stock Appreciation Right
is granted.
(c) The grant of a Stock Appreciation Right shall state
whether payment upon exercise shall be made solely in cash, in shares of Common
Stock valued at Fair Market Value as of the date the right is exercised, or
partly in shares and partly in cash, in the discretion of the Committee.
(d) Subject to Sections 6.1, 6.2(c) and 6.3, Stock
Appreciation Rights may be exercised from time to time upon actual receipt by
the Company of written notice stating the number of shares of Common Stock with
respect to which the Stock Appreciation Right is being exercised. The value of
any fractional shares shall be paid in cash.
6.3 Restrictions
------------
(a) Subject to Sections 3.3, 6.1 and 6.2(c), each Stock
Appreciation Right shall be exercisable at such time or times that any Option to
which it relates shall be exercisable or at such other times as the Committee
may determine in the grant of the right: provided,
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<PAGE>
however, unless specifically stated otherwise in the Stock Appreciation Right
Agreement, upon the occurrence of an actual or threatened change in control of
the Company, as defined in Section 5.6(b)(1) or (2) or in the event of the
termination of the Grantee's employment by the Company as a result of the
Grantee's death, Total Disability or Retirement, all Stock Appreciation Rights,
to the extent not then fully exercisable, shall become immediately exercisable
in full.
(b) The Committee in its sole discretion may approve or deny
in whole or in part a request to exercise a Stock Appreciation Right. Denial or
approval of such request shall not require a subsequent request to be similarly
treated by the Committee.
(c) If an Optionee is granted a Stock Appreciation Right that
is related to an Option, the right of an Optionee to exercise the Stock
Appreciation Right shall be canceled if and to the extent the related Option is
exercised. To the extent that a Stock Appreciation Right is exercised, a related
Option shall be deemed to have been surrendered. The number of shares of Common
Stock as to which the related Option was forfeited shall not become available
for use under the Plan.
(d) A holder of a Stock Appreciation Right shall have none of
the rights of a stockholder unless and until shares of Common Stock are issued
to him pursuant to his exercise of such right.
(e) Notwithstanding any other Plan provisions to the contrary
in the event a Stock Appreciation Right is granted together with an Incentive
Stock Option such that the exercise of one affects the right to exercise the
other, the Stock Appreciation Right shall satisfy the following requirements:
(i) the Stock Appreciation Right shall expire no
later than the related Incentive Stock Option:
- 17 -
<PAGE>
(ii) the Stock Appreciation Right shall be exercisable for no
more than one hundred percent (100%) of the difference between the Option Price
of the related Incentive Stock Option and the Fair Market Value of the Common
Stock, subject to the Incentive Stock Option at the time the Stock Appreciation
Right is exercised;
(iii) the Stock Appreciation Right shall be transferable only
when the related Incentive Stock Option is transferable, and under the same
conditions:
(iv) the Stock Appreciation Right may be exercised only when
the related Incentive Stock Option is eligible to be exercised; and
(v) the Stock Appreciation Right may be exercised only when
the Fair Market Value of the Common Stock subject to the related Incentive Stock
Option exceeds the Option Price.
ARTICLE 7. LOANS
-----
7.1 Loans. The Board or Committee may cause the Company to give or
-----
arrange for financial assistance, in accordance with Section 7.2 of the Plan, to
an Optionee or Beneficiary, for the purpose of providing funds for the purchase
of Common Stock pursuant to the exercise of an Option granted under the Plan.
Such a loan shall be made if in the judgment of the Board or the Committee, such
assistance may reasonably be expected to be in the best interests of the
Company, shall be consistent with the certificate of incorporation and bylaws of
the Company and applicable laws, and will permit the Common Stock to be fully
paid and nonassessable when issued. The Board or Committee may not grant funds
pursuant to this Section 7.1 in excess of ninety percent (90%) of the purchase
price of the Common Stock. The amount of the funds granted to the Optionee or
Beneficiary shall be determined in the Board's or the Committee's sole
discretion.
- 18 -
<PAGE>
7.2 Promissory Note. Upon the grant of financial assistance to an
---------------
Optionee or Beneficiary pursuant to Section 7.1 of the Plan, the Optionee or
Beneficiary shall execute and deliver to the Company, or to any third party
which the Company may designate, a negotiable promissory note or notes for such
amount. The note shall be payable to the Company or its order, and payable in
installments at such times and in such amounts as determined by the Committee,
with the term of such note not to exceed five (5) years, and with interest on
the unpaid balance at such rate as shall be fixed by the Committee (but not less
than the applicable federal rate, as defined in the Code, compounded
semiannually), payable with each installment. Upon delivery of the note to the
Company, the Common Stock certificates shall be issued and delivered to the
Optionee, or to his Beneficiary.
7.3 Pledge. The shares shall be pledged under an instrument or
------
instruments approved by the Committee, with the Company, or with any third party
which the Company may designate, as security until payment for such shares is
made in full or such shares are sold, canceled or forfeited upon default. During
the period of such pledge, the Optionee or Beneficiary shall have all rights of
ownership including, but not limited to, the right to vote such shares and
receive dividends thereon, subject to the security interest of the pledgee.
ARTICLE 8. DESIGNATION
-----------
8.1 Designation and Change of Designation. Each Optionee shall file with
-------------------------------------
the Committee a written designation of one or more persons as the Beneficiary
who shall be entitled to receive the amount, if any, payable under the Plan upon
his death. An Optionee may, from time to time, revoke or change his Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation. or
- 19 -
<PAGE>
change or revocation thereof, shall be effective unless received by the
Committee prior to the Optionee's death. and in no event shall it be effective
as of any date prior to such receipt.
8.2 Absence Of Valid Designation. If no such Beneficiary designation is
----------------------------
in effect at the time of an Optionee's death, or if no designated Beneficiary
survives the Optionee, or if such designation conflicts with law, the Optionee's
estate shall be deemed to have been designated his Beneficiary and shall receive
the payment of the amount, if any, payable under the Plan upon his death. If the
Committee is in doubt as to the right of any person to receive such amount, the
Committee may retain such amount, without liability for any interest thereon,
until the rights thereto are determined, or the Committee may pay such amount
into any court of appropriate jurisdiction and such payment shall be a complete
discharge of the liability of the Plan and the Company.
ARTICLE 9. ADMINISTRATION OF THE PLAN
--------------------------
9.1 Committee. The Plan shall be administered by a Committee, consisting
---------
of at least the minimum number of members required in order for the Plan to
satisfy the requirements of Rule 16b-3 promulgated under the Exchange Act and
Section 162(m) of the Code. Each member of the Committee shall be both a "non-
employee director" within the meaning of Rule 16b-3 and an "outside director"
within the meaning of Section 162(m). Any vacancy occurring in the membership of
the Committee shall be filled by appointment by the Board.
9.2 Powers of Committee. The Committee may interpret the Plan, prescribe,
-------------------
amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations under, and
interpretations of the Plan, and take such other action, as it deems necessary
or advisable. Any interpretation, determination or other action made or taken by
the Committee shall be final, binding and conclusive upon all parties.
- 20 -
<PAGE>
9.3 Action by Committee. A majority of the members of the Committee shall
-------------------
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by all of the members shall be fully as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee shall also
have express authority to hold Committee meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other.
9.4 Grant of Option and/or Stock Appreciation Right. Subject to the
-----------------------------------------------
Provisions of the Plan, and after consultation with the Chief Executive officer
of the Company, the Committee shall (a) determine and designate from time to
time those Employees to whom Options and or Stock Appreciation Rights are to be
granted; (b) authorize the grant of Nonqualified Options. Incentive Stock
Options, and/or Stock Appreciation Rights; (c) determine the number of shares
subject to each Option and/or Stock Appreciation Right; and (d) determine the
time or times when and the manner in which each Option and Stock Appreciation
Right shall be exercisable and the duration of the exercise period. In making
these determinations, the Committee may take into account the nature of the
service rendered by respective Employees, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant.
The Committee may, in its discretion, treat all or any portion of any
period during which a Optionee is on military, or on an approved, leave of
absence from the Company as a period of employment of such Optionee by the
Company, for purposes of accrual of his rights under his Options and/or Stock
Appreciation Rights.
9.5 Indemnification. Current and past members of the Board or Committee
---------------
shall be indemnified and held harmless by the Company against and from any and
all loss, cost,
- 21 -
<PAGE>
liability or expense that may be imposed upon or reasonably incurred by such
member in connection with or resulting from any claim, action, suit or
proceeding to which such member may be or become a party or in which such member
may be or become involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by such member in
settlement thereof (with the Company's written approval) or paid by such member
in satisfaction of a judgment in any such action, suit or proceeding, except a
judgment in favor of the Company based upon a finding of such member's lack of
good faith. Indemnification pursuant to this provision is subject to the
condition that, upon the institution of any claim, action, suit or proceeding
against such member, such member shall in writing give the Company an
opportunity, at its own expense, to handle and defend the same before such
member undertakes to handle and defend it on such member's behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which such
member may be entitled as matter of law or otherwise, or any power that the
Company may have to indemnify or hold such member harmless.
9.6 Reliance. Each member of the Board or of the Committee, and each
--------
officer and Employee of the Company, shall be fully justified in relying or
acting in good faith upon any information furnished in connection with the
administration of the Plan by any appropriate person or persons. In no event
shall any current or past member of the Board or Committee, or an officer or
Employee of the Company, be held liable for any determination made or other
action taken or any omission to act in reliance upon any such information, or
for any action (including the furnishing of information) taken or any failure to
act, if in good faith.
9.7 Agents. In administering the Plan, the Committee may employ, with
------
the approval of the Chief Executive Officer of the Company, accountants and
counsel (who may be the independent auditors and outside counsel for the
Company) and other persons to assist or render advice to it, all at the expense
of the Company.
- 22 -
<PAGE>
ARTICLE 10. AMENDMENT AND TERMINATION
-------------------------
10.1 Amendment. The Committee from time to time and without further
---------
approval of the stockholders, may amend the Plan in such respects as the
Committee may deem advisable; provided, however, that no amendment shall become
effective without prior approval of the stockholders which would (a) materially
increase the number of securities which may be issued under the Plan to Insider
Participants or (b) materially modify the requirements as to eligibility for
participation in the Plan to add a class of Insider Participants; provided,
further, that any increase in the number of shares available under the Plan for
grant as Incentive Stock Options and any change in the designation of the group
of employees eligible to receive Incentive Stock Options under the Plan shall be
subject to shareholder approval in accordance with Section 422 of the Code. No
amendment shall, without the Optionee's or Grantee's (or Beneficiary's) consent,
alter or impair any of the rights or obligations under any Option or Stock
Appreciation Right, previously granted to him under the Plan.
10.2 Termination. The Board, without further approval of the stockholders,
-----------
may terminate the Plan at any time, but no termination shall, without the
Optionee's or Grantee's (or Beneficiary's) consent, alter or impair any of the
rights under any Option or Stock Appreciation Right, previously granted to him
under the Plan.
10.3 Periodic Review of Plan. In order to assure the continued
-----------------------
realization of the purposes of the Plan, the Board and the Committee shall
periodically review the Plan.
ARTICLE 11. MISCELLANEOUS PROVISIONS
------------------------
11.1 No Rights as Shareholder. No Optionee, Grantee, or Beneficiary shall
------------------------
have any rights as a shareholder with respect to any shares of Common Stock
subject to his Option or
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<PAGE>
Stock Appreciation Right, prior to the date of issuance to him of a certificate
or certificates for such shares.
11.2 No Rights to Continued Employment. The Plan and any Option or Stock
---------------------------------
Appreciation Right granted under the Plan shall not confer upon any Optionee or
Grantee any right with respect to continued employment by the Company, nor shall
they interfere in any way with the right of the Company, or the right of the
Optionee, to terminate the employment of the Optionee or Grantee at any time.
11.3 Compliance with Other Laws and Regulations. The Plan, the grant and
------------------------------------------
exercise of Options or Stock Appreciation Rights thereunder, and the obligation
of the Company to sell and deliver shares hereunder, shall be subject to all
applicable federal and state laws, rules, and regulations and to such approvals
as may be required by any government or regulatory agency. The Company shall not
be required to issue or deliver any certificates for shares of Common Stock
prior to (a) the obtaining of any approval or ruling from the Securities and
Exchange Commission, the Internal Revenue Service or any other governmental
agency which the Company, in its sole discretion, shall determine to be
necessary or advisable, (b) the listing of such shares on any stock exchange on
which the Common Stock may then be listed, and (c) the completion of any
registration or qualification of such shares under any federal or state law, or
any rule or regulation of any government body which the Company shall, in its
sole discretion, determine to be necessary or advisable. In making such a
determination, the Committee shall rely upon an opinion of counsel for the
Company.
11.4 Payments to Person Other Than Employee. If the Committee shall find
--------------------------------------
that any person to whom any amount is payable under the Plan is unable to care
for his affairs because of illness or accident, or because he is a minor, then
any payment due him (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the Company,
be paid to his spouse, a child, a relative, an institution maintaining or
- 24 -
<PAGE>
having custody of such person, or any other person deemed by the Committee to be
a proper recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the liability of the Committee and
the Company therefor.
11.5 Use of Proceeds. Proceeds from the sale of Common Stock under shall
---------------
be added to the general funds of the Company.
11.6 No Right to Options and Stock Appreciation Rights. The adoption of
-------------------------------------------------
this Plan shall not be deemed to give any Employee any right to be granted an
Option or Stock Appreciation Right, except to the extent and upon such terms and
conditions as may be determined by the Committee.
11.7 Withholding. The Company shall not issue or transfer shares of Common
-----------
Stock to an Optionee, Grantee, or Beneficiary upon the exercise of an Option or
Stock Appreciation Right until the Optionee, Grantee, or Beneficiary pays the
Company, either in cash, or in such other consideration as the Committee deems
appropriate, the amount necessary to satisfy the Company's obligation to
withhold federal, state or local income or other taxes incurred with respect to
the exercise of such Option or Stock Appreciation Right. Such other
consideration may include, but not limited to, (a) Common Stock already owned by
the Optionee, Grantee or Beneficiary or (b) a combination of cash and Common
Stock. The Company shall determine the amount of such withholding liability and
its decision shall be final, binding and conclusive upon the parties. The
Company shall be entitled to withhold from any compensation or other payments
then or thereafter due to an Employee such amounts as may be necessary to
satisfy any tax withholding requirements.
11.8 Nontransferability. Options and Stock Appreciation Rights granted
------------------
under the Plan shall not be transferable other than by will or by the Laws of
descent and distribution; provided, however, that the designation of a
Beneficiary pursuant to Article 8 shall not constitute
- 25 -
<PAGE>
a transfer. During the lifetime of the Optionee or Grantee, an Option or Stock
Appreciation Right shall be exercisable only by such Optionee or Grantee.
11.9 Investment Representation. Each Option and Stock Appreciation Right
-------------------------
Agreement shall provide that, upon demand by the Committee, the Optionee or
Grantee (or his Beneficiary) shall deliver to the Committee at the time an
Option or Stock Appreciation Right, or any portion of an Option or Stock
Appreciation Right, is exercised, a written representation that the shares to be
acquired upon such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof and/or that Optionee or Grantee will
comply with such restrictions as may be necessary to satisfy the requirements of
the federal or state securities law Delivery of the representation required by
this section shall be a condition precedent to the right of the Optionee,
Grantee, or Beneficiary to purchase any shares of Common stock under this Plan.
11.10 No Right, Title, or Interest in Company's Assets. An Optionee or
------------------------------------------------
Grantee shall have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind. Or a
fiduciary relationship between the Company and any Optionee, Grantee, or any
other person. To the extent that any person acquires a right to receive payments
from the Company under this Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts.
11.11 Headings. Any headings preceding the text of the sections of this
--------
Plan are inserted for convenience of reference only, and shall neither
constitute a part of this Plan nor affect its meaning, construction, or effect.
- 26 -
<PAGE>
11.12 Governing Law. All rights under this Plan shall be governed by
-------------
and construed in accordance with the laws of New York.
11.13 Pronouns. The use of the masculine gender shall be extended to
--------
include the feminine gender wherever appropriate.
- 27 -
<PAGE>
EXHIBIT 10.11
HOOPER HOLMES, INC.
1997 DIRECTOR OPTION PLAN
1. PURPOSE
The purpose of this 1997 Director Option Plan (the "Plan") of Hooper
Holmes, Inc. (the "Company") is to encourage ownership in the Company by
nonemployee directors of the Company whose continued services are considered
essential to the Company's continued progress and thus to provide them with a
further incentive to continue as directors of the Company.
2. ADMINISTRATION
The Board of Directors, or a Committee (the "Committee") consisting of
three or more directors who are both "outside directors" of the Company (as that
term is defined in (S) 162(m) of the Internal Revenue Code of 1986, as amended
to date and as it may be amended from time to time (the "Code")) and
"non-employee directors" of the Company (as that term is defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended), shall
supervise and administer the Plan. Grants of stock options under the Plan and
the amount and nature of the awards to be granted shall be automatic in
accordance with Section 5. However, all questions of interpretation of the Plan
or of any options issued under it shall be determined by the Board of Directors
or the Committee and such determination shall be final and binding upon all
persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan
shall be one hundred fifty thousand (150,000) shares of the Company's Common
Stock, subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options
not entitled to tax treatment under Section 422A of the Code.
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under this Plan shall be evidenced by a written
agreement in such form as the Board of Directors or Committee shall from time to
time approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grants. Each person who is a nonemployee member of the Board
of Directors of the Company on, or who first becomes a nonemployee member of the
Board of Directors of the Company from and after, the date of adoption of this
Plan by the Board of Directors (the "Plan Adoption Date") shall be granted an
option to purchase 25,000 shares of Common Stock under the Plan. Options shall
be granted to all persons who are nonemployee directors on the date of adoption
of the Plan within thirty (30) days of the Plan Adoption Date, and each person
who first becomes a nonemployee director after the Plan Adoption Date on the
date that he is first elected to serve as such a director.
<PAGE>
(b) Option Exercise Price: The option exercise price for each option
granted under the Plan shall equal the closing price of the Company's Common
Stock on the American Stock Exchange on the date of grant of such option.
(c) Options Non-Transferable. Each option granted under the Plan by its
terms shall not be transferable by the optionee otherwise than by will, or by
the laws of descent and distribution, and shall be exercised during the lifetime
of the optionee only by him. No option or interest therein may be transferred,
assigned, pledged or hypothecated by the optionee during his lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(d) Period of Options. No option shall be exercisable after the
expiration of ten (10) years from the date upon which such option is granted.
Each option shall be subject to termination before its date of expiration as
hereinafter provided.
(e) Exercise of Options. Options shall become exercisable in five equal
annual installments, commencing one year from the date of grant, provided the
holder of such option continues to serve as a director of the Company. Options
may be exercised only by written notice to the Company at its principal office
accompanied by payment in cash of the full consideration for the shares as to
which they are exercised.
(f) Exercise by Representative Following Death of Director. A director,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation) including his legal representative, who,
by reason of his death, shall acquire the right to exercise all or a portion of
the option. If the person or persons so designated wish to exercise any portion
of the option, they must do so within the term of the option as provided herein.
Any exercise by a representative shall be subject to the provisions of the Plan.
6. ASSIGNMENTS
The rights and benefits under the Plan may not be assigned except for
the designation of a beneficiary as provided in Section 5.
7. TIME FOR GRANTING OPTIONS
All options for shares subject to the Plan shall be granted, if at all,
not later than ten (10) years after the approval of the Plan by the Company's
stockholders.
8. LIMITATION OF RIGHTS
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time, or at any
particular rate of compensation.
(b) No Stockholders' Rights for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
9. CHANGES IN COMMON STOCK
(a) If the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock, or other
-2-
<PAGE>
securities, an appropriate and proportionate adjustment shall be made in (i) the
maximum number and kind of shares reserved for issuance under the Plan, and (ii)
the number and kind of shares or other securities subject to then outstanding
options under this Plan and (iii) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. No fractional shares will be
issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into or
with another corporation (in which consolidation or merger the stockholders of
the Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company is acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or any affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidation unless exercised by the optionee
within a specified number of days following the date of such notice.
10. AMENDMENT OF THE PLAN
The Board of Directors or Committee may suspend or discontinue the Plan
or revise or amend it in any respect whatsoever; provided, however, that without
approval of the stockholders of the Company no revision or amendment shall
change the number of shares subject to the Plan (except as provided in Section
9), change the designation of the class of directors eligible to receive
options, or materially increase the benefits accruing to participants under the
Plan and further provided that the provisions of the Plan contained in
paragraphs (a) and (b) of Section 5 may not be amended more than once every six
months other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
11. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of New York.
-3-
<PAGE>
Hooper Holmes, Inc.
1997 Annual Report to Shareholders
[PICTURE OF UPWARD RIGHT MOVING ARROW APPEARS HERE]
Financial Results for 1997 are....
<PAGE>
Financial Contents
Management's Discussion and Analysis 15
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
Independent Auditor's Report 27
Selected Financial Data 28
Quarterly Common Stock Price Ranges and Dividends 29
Quarterly Financial Data 29
Directors and Officers 30
14
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Directors and Officers
Directors
Benjamin A. Currier
Retired. Formerly
Senior Vice President,
Security Life of Denver Ins. Co. --
ING/Barrings
Quentin J. Kennedy
Retired. Formerly
Executive Vice President,
Secretary and Director
Federal Paper Board Company
Elaine La Monica Rigolosi
Professor of Education
Department of Organization
and Leadership
Teachers College
Columbia University
James M. McNamee
Chairman, President, and
Chief Executive Officer
John E. Nolan
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 19, 1998
at the American Stock Exchange
New York, NY
30
<PAGE>
Hooper Holmes, Inc.
Corporate Headquarters
170 Mount Airy Road
Basking Ridge, NJ 07920
(908) 766-5000
<PAGE>
About the Company
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 2.3 million tests on insurance
applicants in 1997 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' today, is
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.
"off the charts"
Contents
Financial Highlights 2
Key Strategic Highlights 3
Letter to Shareholders 4
Review 6
Review of Operations 10
Financial Contents 14
1
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Years ended December 31,
(dollars in thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 165,353 $ 156,254 $ 111,313
Operating income 16,344 8,576 4,059
Income from continuing operations 8,770 4,086 1,667
Loss from discontinued operations -- -- (14,716)
Net income (loss) 8,770 4,086 (13,049)
Earnings per share -- basic
Continuing operations .64 .30 .12
Discontinued operations -- -- (1.10)
Net Income (loss) .64 .30 (.98)
Earnings per share -- diluted
Continuing operations .61 .30 .12
Discontinued operations -- -- (1.09)
Net income (loss) $ .61 $ .30 $ (.97)
Cash dividend per share $ .05 $ .03 $ .03
Weighted average number of shares -- basic 13,768,334 13,455,438 13,414,256
Weighted average number of shares -- diluted 14,282,066 13,621,901 13,452,357
- ---------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Key Strategic Highlights
. In 1997, Hooper Holmes generated record revenues and earnings. In addition,
the Company's market capitalization grew over 72% to $203 million.
. Hooper Holmes successfully leveraged its branch network and infrastructure to
generate strong incremental revenues with only a minimal increase in costs.
. Hooper Holmes' Portamedic division performed approximately 2.3 million
examinations on insurance applicants in 1997, up 2% from a year earlier.
. The Company's strong cash flow throughout the year enabled it to eliminate
its long-term debt.
. Hooper Holmes announced two agreements in 1997 that strengthen its position
in delivering alternate-site health information to direct response providers of
life insurance products.
Gross Profit
[LINE GRAPH APPEARS HERE]
(dollars in millions)
YEAR GROSS PROFIT
- ---- ------------
1995 $ 25.4
1996 $ 38.3
1997 $ 46.2
Operating Income
[LINE GRAPH APPEARS HERE]
(dollars in millions)
YEAR OPERATING INCOME
- ---- ----------------
1995 $ 4.1
1996 $ 8.6
1997 $ 16.3
Income Per Share
[LINE GRAPH APPEARS HERE]
(diluted-continuing operations)
YEAR INCOME PER SHARE
- ---- ----------------
1995 $ .12
1996 $ .30
1997 $ .61
<PAGE>
To Our Shareholders
Nineteen ninety-seven was a great year for Hooper Holmes and its shareholders.
During 1997, we achieved or exceeded virtually all of our corporate goals. The
steps we have taken over the past two years to restructure the Company and focus
on building upon our position as the dominant provider of alternate-site health
information services continue to produce positive results. With record financial
performance and solid operating achievements, our performance in 1997 was "off
the charts." Our accomplishments have also been recognized by the market, as our
market capitalization grew over 72% to $203 million at the end of 1997 compared
to year-end 1996.
In 1997, we again demonstrated our ability to leverage our branch network and
technology infrastructure to generate strong incremental revenues with only a
minimal increase in our costs. Revenues grew at a rate that exceeds industry
trends for the year. Through the effective introduction of new automated
processes, we have actually reduced costs in some areas of our business. As
a result, we expanded our gross profit margin significantly -- a strong
indicator of our excellent corporate health. Importantly, we remain confident
that the network we have put in place for our core Portamedic and Infolink
services can continue to absorb new business without a corresponding material
increase in costs, while at the same time, investing in new technology to meet
the demand of newly-emerging distribution systems of life insurance products.
Record Financial Results
In 1997, we reported record revenues and earnings. Net income for the year ended
December 31, 1997 more than doubled to $8.8 million versus $4.1 million for
1996. Split-adjusted earnings per share, reflecting a two-for-one stock split
effective last August, more than doubled as well, rising to $0.61, compared to
$0.30 reported in 1996. Revenues grew to $165.4 million for the year, the
highest in this business in the Company's history. The improvement in our
operating margin was dramatic, with gross profit margins rising three full
percentage points to 28%.
Selling, general and administrative expenses (SG&A) as a percentage of sales
fell to 18%, a full percentage point decline from 1996. In the fourth quarter of
1997, the SG&A figure fell still further, to 16%, demonstrating our continued
focus on cost containment.
As we begin 1998, Hooper Holmes has a balance sheet that is rock solid. During
1997, we continued to use our growing cash flow to pay down debt, and we ended
the year free of long-term debt. As we move forward, this balance sheet strength
provides us with a significant ability to pursue strategic initiatives, such as
the Healthdex Division, that we believe will drive internal growth over the
longer term. Our strong capital position will also allow us to take advantage of
accretive acquisition opportunities that would complement our current business
and be additive to our margins.
1997: A Year of Accomplishments
Our strategy of targeting opportunities in an emerging segment of the life
insurance industry was also successful. Two of our newer clients are a large
discount securities broker and a major money-center bank. Revenue from these
non-traditional insurance vendors has grown rapidly over the last two years. We
see continued growth opportunities to examine potential policyholders on behalf
of the banks, brokers, mutual fund companies and credit card marketers that are
increasingly seeking to build their presence in the life insurance business
requiring not only examinations, but additional services that only a personal
contact with an applicant can accomplish.
Two new partnerships illustrate another way the Company intends to grow. Early
last year, we announced a strategic marketing agreement with the PMSI subsidiary
of Policy Management Systems Corporation (PMSC), under which users of PMSI's
4
<PAGE>
[PHOTO OF JAMES M. MCNAMEE APPEARS HERE]
software-supported "smart" underwriting services gain easy access to our
Portamedic operation of 8,700 examiners. As anticipated, this new method of
ordering services is bringing in new clients and increasing the amount of
existing client business.
In January 1998, we announced a new pact with Ohio National Financial Services.
Ohio National has selected Portamedic as its exclusive provider of alternate-
site health information when the insurer markets its products on-line via
Quicken's InsureMarket Web site. We believe Hooper Holmes is strongly positioned
to benefit from the growing direct distribution of life insurance products over
the Internet, this initiative being only one example.
We are making effective use of technology in other ways as well. Over the past
18 months, we undertook a comprehensive program to upgrade the speed and memory
of our computer systems and introduce software to better manage work flows. The
upgraded software tracks the skills, training and equipment possessed by each
examiner, while simultaneously assessing his or her work load. This effort to
give the right assignment to the right person (at the right time) has
significantly increased our efficiency, as well as our ability to serve our
clients.
The benefits of our ongoing investment in systems is reflected in our
exceptional 1997 financial results. In addition, we believe that our technology
provides Hooper Holmes a competitive advantage that will help us remain the
industry leader.
The Future Looks Bright
Many key factors continue to make us optimistic about the future.
. Insurance policy applications appear to be growing and, as the Baby Boomers
age and enter the prime insurance-buying years, the industry should see
additional annual gains.
. New channels of distribution are emerging, creating additional opportunities.
. Total life insurance premium income is on the increase, pointing to the
possibility of higher policy face value and higher age of applicants. Both
factors should drive examination and testing needs.
. The national trend toward outsourcing is intensifying and the Company is
well-positioned to benefit in both the insurance business and our new effort to
examine and test patients who participate in clinical trials of prescription
drugs.
As we enter 1998, we have a great deal about which to be encouraged. We expect
our profitability to continue outpacing our growth in revenues, as we further
leverage our nationwide branch network and technology infrastructure. We have
strong relationships with most of the leading insurance providers, and have
demonstrated our ability to form innovative relationships with other financial
services companies.
In closing, we want to thank our employees for extraordinary work that led to
another outstanding year. We also thank our customers and shareholders for their
loyalty, and we hope to reward both of them in the exciting year ahead.
/s/ James M. McNamee
James M. McNamee
Chairman, President, and Chief Executive Officer
5
<PAGE>
[PHOTO APPEARS HERE]
Portamedic and Infolink gather and deliver information
Our job begins when Portamedic is contacted by one of our Leading Customers:
Allstate Life
Continental Life
First Colony Life
Kemper Life
Lincoln Benefit Life
Metropolitan Life
New York Life
Northwestern Mutual
Prudential Iinsurance
State Farm Insurance
Transamerica
[PHOTO APPEARS HERE]
portamedic contacted...
receives application information from insurance source
The only company serving virtually every insurance firm in the United States
[PHOTO APPEARS HERE]
portamedic sets appointment...
normally within 24 - 30 hours
Interviews and examinations are tailored to insurance company criteria
6
<PAGE>
[PHOTO OF APPEARS HERE]
portamedic visits applicant...
within 24-30 hours
Pertinent information as well as specimens are gathered onsite by a well trained
and experienced examiner
[PHOTO APPEARS HERE]
portamedic delivers exams...
immediately upon completion of the examination visit
The industry's most automated branch operating system is employed to speed the
information to the client
[PHOTO APPEARS HERE]
7
<PAGE>
Portamedic and Infolink gather and deliver information
[PHOTO APPEARS HERE]
Infolink contacted...
Request is received via Fax, Computer or Phone
Requests can also be automatically ordered via the paramedical examination
process
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Infolink applicant interview...
Professional telephone interviewers assure thorough responses to all questions
Reflexive questions develop underwriting details
8
<PAGE>
[PHOTO APPEARS HERE]
Infolink report generated ...
A customized report is generated to the specifications of the individual client
Specific areas of concern can be highlighted for the underwriter
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
Infolink report received
The report will be received by the underwriting department within hours of
completion
Our system delivers the information when and where it is needed
9
<PAGE>
Review of Operations
The Industry Leader
Hooper Holmes is one of the largest providers of health information services
to the life and health insurance underwriting industry. The trained
professionals in our Portamedic division -- registered nurses, licensed nurse
practitioners, physicians and medical and paramedical technicians -- visit
insurance applicants in all 50 states, giving a variety of medical tests ranging
from the basic to the sophisticated (from blood pressure monitoring to
electrocardiograms) and taking specimens for laboratory analysis. Our people
make millions of house calls, and office calls, every year.
With a market share of approximately 25%, we are the leading company in this
$750 million industry and we have strong relationships with 48 of the top 50
life and health insurance companies in the United States. We also work with
regional companies and independent insurance agents. One advantage of having
such a broad base of clients is that no one customer accounts for more than 10%
of our total revenues. We perform more than 2.3 million examinations every year,
or more than 10,000 examinations every working day.
Top insurers rely on us for four basic reasons.
. Unmatched scope. Our size means that our professionals can quickly get
wherever they need to be. Portamedic has 200 offices throughout the country and
retains 8,700 medical examiners on a full-time, part-time or contract basis. Our
examiners are within easy driving distance of the vast majority of the U.S.
population.
. Speed. Insurance companies, and, in particular, insurance agents, know that
the quicker they can get an applicant approved, the better their chances
of concluding a sale. Our superior time service supports that process.
No one in our industry works faster. We usually make an appointment with an
applicant within 24 hours and then perform interviews and testing within three
to four days. Specimens are then sent immediately to an independent lab for
analysis.
10
<PAGE>
. Automation. We have invested heavily to create the most automated branch
network and operating system in the industry. Reports are faxed or
sent via overnight courier to our clients as required. Results of our ECG
(electrocardiogram) tests can be electronically transmitted to clients on-line.
Our Infolink Services Group offers customers another information-gathering
option. It is typically relied upon when the cost of an in-person visit is not
justified by the policy amount or when an underwriter concludes that
supplemental information is required. In such instances, we electronically send
clients occupational and employment information, a physical and medical history
and attending physician statements. Underwriting departments receive complete
reports in 24 hours. The automated transmission helps eliminate paper from key
steps in the application and underwriting process, thus allowing our customers
to reduce costs, slash turnaround time, and devote more of their energy to
selling rather than paper-shuffling.
. Quality. We audit our employees and laboratory facilities carefully to make
sure that we are providing clients with the best possible service. We verify the
credentials of every examiner. Our goal is not to be the cheapest provider in
the business, but to be the best-and the most accurate. Maintaining the highest
quality standards is the best way we know of to retain customers and win new
ones.
Independent client research reveals that Hooper Holmes' commitment to
quality is widely recognized in the insurance industry. We are willing to
continue spending time and resources to ensure that we maintain the highest
quality standards in our field.
11
<PAGE>
Opportunities For Growth
We expect to enjoy strong, steady growth for the foreseeable future. The reason
for our optimism? The predominate trends affecting our business all suggest that
the wind is at our back, as long as we remain focused on the needs of our
clients, both long-standing and new.
Demographics. We are well-positioned to benefit from the aging of the huge Baby
Boomer generation. Most insurance buyers range in age from the late 30s to the
late 50s. A baby boomer now turns 50 years old every eight seconds, so the
number of prime insurance buying candidates should increase greatly in the next
decade. In 1996, there were 73.6 million Americans aged 35 to 54; by 2005, that
figure will jump to 84.7 million.
The boom in financial services. It is not the sheer number of Baby Boomers that
matters most. More important is the fact that they are becoming increasingly
concerned with providing financial security for their loved ones as they grow
older.
That trend is expected to reflect in new sales. Based upon current industry
estimates, the number of policies being applied for and sold should increase by
a few percentage points over future years.
Industry consolidation. The rapid consolidation occurring in the insurance
industry is another positive development for the company. Large insurance
companies with customers across the U.S. can benefit from the truly national
coverage we provide. At the same time, Hooper Holmes' services can be one way
for regional and independent agents to remain competitive. Our network of people
and technology is designed to meet the needs of insurance companies of any size.
Outsourcing. Increasingly, insurers are outsourcing some administrative,
marketing, and underwriting functions. Those that currently rely on their own
personnel to perform many processing and administrative functions, may soon
realize, as so many of their competitors have, that it is more cost-efficient
and timely to outsource these functions to companies such as Hooper Holmes.
12
<PAGE>
New market participants. Non-traditional insurers are now selling millions of
dollars of life insurance. In recent years, banks, brokers, mutual fund
companies and credit card issuers have flocked to the market, and many have done
quite well. Some of these entrants have been described as "virtual" insurance
companies because they outsource nearly every service they provide. Several are
already using our services. We believe more will in the years to come.
New business initiatives. We expect to boost our revenues by strengthening
relationships with our best customers; increasing our use of the Internet as a
service and marketing tool; making smart acquisitions in our field; and turning
our new Healthdex unit into a success. Healthdex was created to serve major
pharmaceutical and medical device companies, which are increasingly turning to
outsourcers to handle many clinical trial functions. Annual outsourcing in this
industry currently totals $2.5 billion per year and is expected to grow at a 20-
25% rate over the next five years. We are convinced that we can save drug
companies money on clinical trials in two ways -- by keeping patients in trials
until conclusion and by allowing the trials to be done faster.
The Ability To Execute
Having a favorable operating environment is not enough, however. Ultimately, our
continued success will depend on the dedication and skill of our people
and our ability to execute our growth strategies.
Our management team is focused on enhancing the performance of our core
Portamedic and Infolink Services Group while continuing to identify ways
to further leverage our substantial technology infrastructure. Hooper Holmes has
built a reputation for being both the leader and the innovator in service
and technology. We will do everything possible to maintain, and enhance, that
position.
13
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Management's Discussion and Analysis
Results of Operations
1997 Compared to 1996
Total revenues for 1997 increased 5.8% to $165.4 million from $156.3 million for
1996. This increase results from unit growth in the number of paramedical
examinations performed, price appreciation per unit of service, and is
consistent with the Company's efforts to increase market share.
The Company's cost of operations in 1997 totaled $119.2 million compared to
$118.0 million for 1996. Cost of operations as a percentage of revenues totaled
72.1% for 1997 versus 75.5% for 1996. As a percentage of revenues, the decrease
is due to ongoing efforts to control branch operating expenses, despite
increased revenue growth, and the efficiencies realized due to continued branch
automation initiatives.
Selling, general and administrative (SG&A) expenses were $29.8 million for 1997
compared to $29.7 million for 1996. As a percentage of revenues, SG&A expenses
decreased to 18.0% for 1997 from 19.0% for 1996, which is due to management's
efforts to control corporate expenses.
Accordingly, the Company's operating income for 1997 increased to $16.3 million
versus $8.6 million for 1996, and as a percentage of revenues, increased to 9.9%
for 1997 compared to 5.5% for 1996.
During 1997, the company reduced long-term debt by $6.3 million and therefore
interest expense decreased in 1997 to $.2 million compared to $1.4 million in
1996. Other income items in 1997 were primarily interest earned on invested
funds and certain deferred payments received from the sale of the Company's
Direct Marketing business in 1992.
As a result of the foregoing, net income in 1997 totaled $8.8 million or $0.61
per diluted share compared to $4.1 million or $0.30 per diluted share for 1996.
Inflation did not have a significant effect on the Company's operations in 1997.
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 were
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 $0.30 per diluted share compared to $1.7 million or
$0.12 per diluted share for 1995. The 1995 net loss from discontinued operations
totaled $14.7 million, or $1.10 per diluted share.
Inflation did not have a significant effect on the Company's operations in 1996.
15
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Management's Discussion and Analysis
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's bank credit facility.
For the year ended December 31, 1997, the net cash provided by operating
activities was $16.6 million as compared to $16.3 million in 1996. The
significant sources were income from continuing operations of $8.8 million, $5.0
million of depreciation and amortization, $1.2 million of tax refunds, and a
$1.1 million decrease in other current assets, which were partially offset by an
increase in accounts receivable of $.9 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, 1997, the Company had no long-term
borrowings. Capital expenditures for 1998 are anticipated to be less than $2.0
million.
Management believes that the combination of cash and cash equivalents, other
working capital sources, and available borrowings under the Company's credit
facility, along with anticipated cash flows from continuing operations, will
provide sufficient capital resources for the foreseeable future.
On January 27, 1998, the Board of Directors approved a Stock Repurchase Program,
which authorizes management to purchase shares of the Company's common stock at
prevailing market prices. The purchases shall not, in the aggregate exceed the
lesser of 100,000 shares or $1,500,000 in any calendar year.
On February 24, 1998, the stockholders approved a proposal to increase the
authorized number of common shares from 20 million to 80 million.
Safe Harbor Statement under the Private Securities Litigation Act
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.
Year 2000 Computer Systems Compliance
Many older computer software programs refer to years in terms of their final two
digits only. Such programs may interpret the year 2000 to mean some other year
or not interpret it at all. If not corrected, those programs could cause
date-related transaction failures.
A Year 2000 Select Committee was developed to address this issue. Information
services personnel have been focused on this issue for two years. Assessment of
both Company and client information systems continues and can affect a broad
number of areas. Systems critical to our business which have been identified as
non-Year 2000 compliant are being corrected through programming modifications.
In addition, the team is looking at Year 2000 readiness from other aspects of
our business, including customer software interface, vendor interface, and home
office process equipment. Outside companies such as vendors, major customers,
service suppliers, communications providers and banks are being asked to verify
their Year 2000 readiness. We expect these projects to be successfully completed
during 1998 and 1999.
External and internal costs specifically associated with modifying internal use
software for Year 2000 compliance are expensed as incurred and not considered
material. Such costs do not include normal system upgrades and replacements.
Based on our current plans and efforts to date, we expect that there will be no
material adverse effect on our operations and future costs to be incurred are
not considered to be material. There is no guarantee, however, that all problems
will be foreseen and corrected.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income, which becomes effective for the 1998 financial statements. SFAS No. 130
requires disclosure of comprehensive income, which consists of all changes in
equity from nonshareholder sources. The adoption of the statement will be
limited to the form and content of our disclosures and will not affect our
results. Currently the Company does not have any comprehensive income type
items.
16
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13,159,431 $ 2,936,447
Accounts receivable -- trade 18,011,490 17,035,255
Accounts receivable -- other 508,857 1,095,772
Refundable taxes 23,535 1,230,198
Other current assets 2,458,283 3,474,226
- -------------------------------------------------------------------------------------------------------------------
Total current assets 34,161,596 25,771,898
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 20,498,119 19,196,013
Less: Accumulated depreciation and amortization 12,050,903 9,712,650
- -------------------------------------------------------------------------------------------------------------------
8,447,216 9,483,363
- -------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of $3,460,240 in 1997
and $2,600,613 in 1996) 15,089,108 15,948,735
- -------------------------------------------------------------------------------------------------------------------
Intangible assets (net of accumulated amortization of $4,916,851 in 1997
and $3,170,077 in 1996) 7,647,711 9,394,485
- -------------------------------------------------------------------------------------------------------------------
Other assets 595,486 697,185
- -------------------------------------------------------------------------------------------------------------------
$ 65,941,117 $ 61,295,666
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ -- $ 1,030,000
Accounts payable 5,577,158 6,168,864
Accrued expenses:
Insurance benefits 1,969,403 1,536,315
Salaries, wages and fees 1,935,277 1,264,739
Payroll and other taxes 170,152 167,013
Income taxes payable 610,487 334,879
Discontinued operations 573,970 1,287,700
Other 2,944,248 2,175,651
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,780,695 13,965,161
- -------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities -- 5,250,000
Deferred income taxes 3,641,051 4,361,049
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.04 per share; authorized 20,000,000
shares, issued 13,939,115 in 1997 and 13,582,918 in 1996 557,565 271,658
Additional paid-in capital 27,079,265 24,645,945
Retained earnings 20,901,043 12,820,355
- -------------------------------------------------------------------------------------------------------------------
48,537,873 37,737,958
Less: Treasury stock, 3,366 shares in 1997 and 1996 18,502 18,502
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 48,519,371 37,719,456
- -------------------------------------------------------------------------------------------------------------------
$ 65,941,117 $ 61,295,666
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</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $165,352,706 $156,253,763 $111,313,005
Cost of operations 119,193,062 117,959,274 85,933,510
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 46,159,644 38,294,489 25,379,495
Selling, general and administrative expenses 29,815,579 29,718,867 21,320,852
- -----------------------------------------------------------------------------------------------------------------------------
Operating income 16,344,065 8,575,622 4,058,643
Other income (expense):
Interest expense (168,266) (1,394,038) (1,673,548)
Interest income 295,765 348,153 262,247
Other income 419,899 328,035 383,793
- -----------------------------------------------------------------------------------------------------------------------------
547,398 (717,850) (1,027,508)
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 16,891,463 7,857,772 3,031,135
- -----------------------------------------------------------------------------------------------------------------------------
Income taxes 8,121,000 3,772,000 1,364,161
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 8,770,463 4,085,772 1,666,974
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued operations
Loss from operations, net of taxes -- -- (4,389,559)
Loss on disposal, net of taxes -- -- (10,326,068)
- -----------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations -- -- (14,715,627)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 8,770,463 $ 4,085,772 $(13,048,653)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share - basic:
Income from continuing operations $ .64 $ 0.30 $ 0.12
Discontinued operations - net of taxes -- -- (1.10)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .64 $ 0.30 $ (.98)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share - diluted:
Income from continuing operations $ .61 $ 0.30 $ 0.12
Discontinued operations - net of taxes -- -- (1.09)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .61 $ 0.30 $ (.97)
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares - basic 13,768,334 13,455,438 13,414,256
Weighted average shares - diluted 14,282,066 13,621,901 13,452,357
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective August 22, 1997
See accompanying notes to consolidated financial statements.
18
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------ Additional
Years ended December 31, 1995, 1996 Number of Paid-in Retained Treasury
and 1997 Shares Amount Capital Earnings Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 6,744,422 $269,777 $24,114,410 $22,589,370 $(471,149) $46,502,408
Net loss (13,048,653) (13,048,653)
Cash dividends ($.03 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 ($.03 per share) (403,818) (403,818)
Issuance of stock award 2,405 29,470 31,875
Exercise of stock options 47,037 1,881 349,300 309,181 660,362
Exercised stock options tax benefit 213,252 213,252
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,791,459 271,658 24,645,945 12,820,355 (18,502) 37,719,456
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 8,770,463 8,770,463
Cash dividends ($.05 per share) (689,775) (689,775)
Exercise of stock options 190,806 7,632 1,745,782 1,753,414
Exercised stock option tax benefit 665,569 665,569
Issuance of shares for employee
stock purchase plan 33,268 1,331 298,913 300,244
Two-for-one stock split effective
August 22, 1997 6,923,582 276,944 (276,944) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,939,115 $557,565 $27,079,265 $20,901,043 $ (18,502) $48,519,371
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective August 22, 1997
See accompanying notes to consolidated financial statements.
19
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 8,770,463 $ 4,085,772 $ 1,666,974
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 5,022,569 5,071,692 2,469,116
Provision for bad debt expense 480,000 380,000 320,979
Deferred tax expense (benefit) 105,478 (467,448) 362,000
Issuance of stock awards -- 31,875 41,343
Loss on sale of fixed assets 61,448 58,313 14,429
Change in assets and liabilities, net of effect from
acquisitions/dispositions of businesses:
Accounts receivable (869,320) 6,456,636 (328,030)
Other assets 1,117,642 1,038,631 (646,540)
Income tax receivable 1,206,663 8,004,039 (1,269,570)
Accounts payable and accrued expenses 685,627 (8,347,222) 2,999,731
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of continuing operations 16,580,570 16,312,288 5,630,432
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities of discontinued operations -- -- (3,265,830)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,580,570 16,312,288 2,364,602
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds including escrow funds from dispositions -- 15,000,000 12,449,646
Business acquisitions -- (37,500) --
Capital expenditures, net of disposals (1,441,469) (1,103,601) (857,126)
Net investing activities of discontinued operations -- -- (797,475)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,441,469) 13,858,899 10,795,045
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt -- 19,000,000 43,500,000
Principal payments on long-term debt (6,280,000) 47,770,000) (56,926,942)
Proceeds from employee stock purchase plan 300,244 -- --
Proceeds related to the exercise of stock options 1,753,414 873,614 39,231
Dividends paid (689,775) (403,818) (402,316)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,916,117) (28,300,204) (13,790,027)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,222,984 1,870,983 (630,380)
Cash and cash equivalents at beginning of year 2,936,447 1,065,464 1,695,844
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $13,159,431 $ 2,936,447 $ 1,065,464
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest 179,318 $ 1,668,018 $ 1,446,753
Income taxes $ 7,740,392 $ 1,955,316 $ 1,238,356
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
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 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 intangible assets are being amortized using the straight line
method over lives ranging from 10-25 years and 1-15 years, respectively.
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.
Earnings Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
became effective in 1997, requires presentation of two calculations of earnings
per common share. "Basic" earnings per common share equals net income divided by
weighted average common shares outstanding during the period. "Diluted" earnings
per common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. Common stock
equivalents are shares assumed to be issued if outstanding stock options were
exercised.The Company has restated all prior period amounts to reflect these
calculations.All prior period amounts have also been restated for the 1997 stock
split (see note 10 "Capital Stock").
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 are due primarily from insurance companies. No
one customer accounts for more than 10% of revenues.
Fair Value of Financial Instruments
The carrying value of long-term debt at December 31, 1996 approximates its fair
value due to the variable interest rate and short interest rate reset period.
For all other financial instruments, at December 31, 1997 and 1996, their
carrying value approximates fair value due to the short maturity of these
instruments.
Employee Stock Options
Employee non-qualified 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.
21
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Advertising
Costs related to space in publications are expensed the first time the
advertising occurs. Advertising expense was approximately $161,000, $285,000,
and $318,000 in 1997, 1996, and 1995, respectively.
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 of
American Service Bureau, Inc., which is 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, and in the
ASB Meditest Net Asset Amount between December 31, 1994 through the Closing Date
and assumed certain specified liabilities of approximately $5.1 million relating
to the NHC Division.
Net sales for the NHC Division for the period ended September 29, 1995 were
$117.2 million. Loss from operations of such business, for the period ending
September 29, 1995, was $4.1 million, and is net of tax benefits of $2.2
million. 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.
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 $1.2 million. The Company concluded its seasonal
flu vaccination commitments late in 1995, and has not continued this business.
The 1995 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 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 1997 and
1996, the Company received $291,000 and $324,000, respectively.Such amounts are
included in other income.The note was fully paid in 1997.
Note 4 -- Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts in the amount
of $812,114 and $733,797 in 1997 and 1996, respectively.
Note 5 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:
- --------------------------------------------------------------------------------
Estimated
December 31, December 31, Useful Life
1997 1996 In Years
- --------------------------------------------------------------------------------
Land and
improvements $ 591,213 $ 571,314 10 - 20
- --------------------------------------------------------------------------------
Building and
improvements 4,231,689 3,841,703 10 - 45
- --------------------------------------------------------------------------------
Furniture, fixtures
and equipment 15,675,217 14,782,996 3 - 10
- --------------------------------------------------------------------------------
$20,498,119 $19,196,013
- --------------------------------------------------------------------------------
Note 6 -- Long-Term Debt
Long term debt, excluding the current portion, was $5.3 million at December 31,
1996, and consisted of a $1.3 million mortgage, due January 1998, and a $4.0
million revolving loan due January 2000.
22
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The revolving loan is a $20.0 million three year revolving loan. The 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, 1997 was 8.5% and the maximum available credit amount was $17.7 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. As of December 31, 1997, there are no
borrowings against the revolver loan.
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, 1997, the amount was $2.3 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. These leases expire in various years 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, 1997:
- --------------------------------------------------------------------------------
Year Ending December 31,
- --------------------------------------------------------------------------------
1998 $4,509,161
1999 2,937,951
2000 1,295,673
2001 73,086
- --------------------------------------------------------------------------------
Total minimum lease payments $8,815,871
- --------------------------------------------------------------------------------
Rental expenses under operating leases were $5,789,786, $6,053,129 and
$3,908,709 in 1997, 1996 and 1995, respectively.
In 1990, the Company entered into an employment retention contract with its
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:
- --------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
United States Federal:
Current $ 6,741 $2,948 $ 699
Deferred (380) (354) 362
- --------------------------------------------------------------------------------
State and local:
Current 1,275 1,292 303
Deferred 485 (114) --
- --------------------------------------------------------------------------------
$ 8,121 $3,772 $ 1,364
- --------------------------------------------------------------------------------
The following reconciles the "statutory" federal income tax rates to the
effective income tax rates:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Computed "expected"
tax expense 35% 34% 34%
- --------------------------------------------------------------------------------
Increase (reduction) in tax
expense resulting from:
State tax, net of federal
benefit 7 5 6
Non-tax deductible
amortization of goodwill 5 10 7
Other 1 (1) (2)
- --------------------------------------------------------------------------------
Effective income tax rates 48% 48% 45%
- --------------------------------------------------------------------------------
23
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1997 and 1996 are as follows:
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Discontinued operation accruals $ 241 $ 541
Receivable allowance 366 308
Intangible assets 207 165
Acquisition bases adjustment
accounts receivable -- 665
Insurance benefits 754 572
Other 119 261
- --------------------------------------------------------------------------------
1,687 2,512
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (973) (833)
Acquisition bases adjustment
primarily intangibles (3,342) (4,017)
Other -- (185)
- --------------------------------------------------------------------------------
(4,315) (5,035)
- --------------------------------------------------------------------------------
Net deferred tax liability $(2,628) $(2,523)
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are reflected in the consolidated balance
sheets at December 31, 1997 as follows: other current assets $1,013,000 and
deferred income taxes (noncurrent) $(3,641,000) and at December 31, 1996, other
current assets $1,838,000 and deferred income taxes (noncurrent) $(4,361,000).
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 1997 and 1996 include
differences between financial and tax reporting for depreciation and
amortization.
Note 10 -- Capital Stock
Stock Split and Authorized Shares -- Effective August 22, 1997, the Company
declared a stock split in the form of a 100% stock dividend to all stockholders,
which was distributed on September 5, 1997. The stock split resulted in an
additional 6,923,582 shares of common stock of which 1,683 were shares of
Treasury Stock. All share and per share amounts have been retroactively restated
for this event.
Stock Repurchase Program -- On January 27, 1998, the Board of Directors approved
a Stock Repurchase Program, which authorizes management to purchase shares of
the Company's common stock at prevailing market prices. The purchases shall not
in the aggregate exceed the lesser of 100,000 shares or $1,500,000 in any
calendar year.
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 $12.00, 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 $12.00, 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
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 500,000 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 1997,
the Company distributed 33,268 shares under the April 1996 grant, and the
aggregate purchase price was $300,244. In April 1997, the Company made a grant
of approximately 42,000 shares, and the aggregate purchase price will be
approximately $337,000.
24
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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, 1997, 1996 and 1995, awards of 21,800, 2,500 and
6,000 (paid in cash at its fair value at the time of grant) shares,
respectively, have been granted. Additionally, the Company's Chairman is
entitled to a stock award in 1998 based on a performance related formula.
Stock Option Plan -- The Company's stockholders approved stock option plans
totaling 600,000 and 1,000,000 shares, in 1988 and 1992, respectively, and
1,000,000 and 600,000 shares in 1994 and 1997, respectively, 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.
In May, 1997, the Company's stockholders approved the 1997 Director Stock Option
Plan for 300,000 shares, which provides 50,000 options to non-employee
Directors. The options were granted at market value on the date of the grant,
and are exercisable in five equal annual installments beginning on the first
anniversary of the date of the grant. The Company currently has five
non-employee directors.
Also in May 1997, the Company's stockholders approved the CEO Stock Option
Agreement, which provides 200,000 shares to the Chief Executive Officer, at an
exercise price equal to the fair value at the date of grant. The options vest
40,000 shares annually for five years. Any unvested options will become
immediately exercisable if two performance related conditions are met: (a) the
Company's earnings per share are at least $.70 for the year ended December 31,
1998, and (b) the Company's closing stock price is at least $15 per share for
any consecutive 30 day period during the six months ended June 30, 1999.
The following table summarizes stock option activity:
- --------------------------------------------------------------------------------
Under Option
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
- --------------------------------------------------------------------------------
Balance January 1, 1995 1,179,376 1,339,250 $ 6.20
Granted (729,700) 729,700 3.92
Exercised -- (10,124) 3.88
Cancelled 232,826 (232,826) 5.14
- --------------------------------------------------------------------------------
Balance December 31, 1995 682,502 1,826,000 5.44
Granted -- -- --
Exercised -- (150,324) 4.39
Cancelled 14,100 (14,100) 4.99
- --------------------------------------------------------------------------------
Balance December 31, 1996 696,602 1,661,576 5.54
Authorized 1,100,000 -- --
Granted (798,000) 798,000 8.38
Exercised -- (289,661) 6.05
Cancelled -- -- --
- --------------------------------------------------------------------------------
Balance December 31, 1997 998,602 2,169,915 $ 6.51
- --------------------------------------------------------------------------------
25
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The weighted average fair value per stock option granted was $4.73 for the 1997
options, no options were granted in 1996, and $4.67 for those granted in 1995.
The Company estimated the fair values using the Black-Scholes option pricing
model, modified for dividends and using the following assumptions:
1997 1996 1995
- --------------------------------------------------------------------------------
Expected dividend yield .37% -- .48%
Risk-free interest rate 6.13% -- 6.65%
Expected stock price volatility 39.01% -- 37.46%
Expected term until exercise (years) 9 -- 10
- --------------------------------------------------------------------------------
The Company does not record compensation expense for stock option grants. The
following table summarizes results as if the Company had recorded compensation
expense for the 1997, 1996, and 1995 option grants:
(millions of dollars, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported $8,770 $4,086 $(13,049)
Pro forma 8,066 3,864 (13,165)
Basic earnings (loss) per share:
As reported $ .64 $ .30 $ (.97)
Pro forma .59 .29 (.98)
Diluted earnings (loss) per share:
As reported $ .61 $ .30 $ (.97)
Pro forma .56 .28 (.98)
- --------------------------------------------------------------------------------
The pro forma effects on net income (loss) and earnings (loss) per share for
1997, 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 extend beyond the reported years.
The following table summarizes information concerning options outstanding at
December 31, 1997:
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Term (Years) Price at 12/31/97 Price
- --------------------------------------------------------------------------------
$ 2.75 -$ 4.19 622,825 7.1 $ 3.97 160,300 $ 3.95
5.94 - 6.50 791,490 6.8 6.08 328,490 6.28
7.00 - 8.75 755,600 7.5 8.06 241,700 7.25
- --------------------------------------------------------------------------------
On February 6, 1998, the Board of Directors granted 211,000 stock options to
certain employees. These options were granted under the 1997 stock option plan
with an exercise price that equalled the fair market value of the stock at the
date of grant.
Note 11 -- 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 Merrill Lynch.
The Company matches up to 25% of the first 10% of employee salary contributions.
The Company's payments for 1997, 1996, and 1995, were $251,000, $228,000, and
$137,000, respectively.
26
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Short Hills, New Jersey
February 19, 1998
27
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31,
(dollars in thousands except per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 165,353 $ 156,254 $ 111,313 $ 92,534 $ 80,600
Operating income 16,344 8,576 4,059 3,803 5,020
Interest expense 168 1,394 1,674 994 237
Income from continuing operations 8,770 4,086 1,667 1,480 2,739
Income (loss) from discontinued operations (1) -- -- (14,716) 1,184 867
Net income (loss) 8,770 4,086 (13,049) 2,664 3,606
Earnings per share-basic:
Income from continuing operations .64 0.30 0.12 0.11 0.20
Discontinued operations (1) -- -- (1.10) 0.09 0.06
Net income (loss) .64 0.30 (.98) 0.20 0.26
Earnings per share-diluted:
Income from continuing operations .61 0.30 0.12 0.11 0.20
Discontinued operations (1) -- -- (1.09) 0.09 0.06
Net income (loss) $ .61 0.30 $ (.97) $ 0.20 $ 0.26
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ 0.05 $ 0.03 $ 0.03 $ 0.15 $ 0.15
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares-basic 13,768,334 13,455,438 13,414,256 13,413,426 13,428,122
Weighted average number of shares-diluted 14,282,066 13,621,901 13,452,357 13,457,791 13,520,868
- -------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 20,381 $ 11,807 $ 24,786 $ 6,407 $ 4,024
Total assets 65,941 61,296 93,997 103,172 88,355
Current maturities of long-term debt -- 1,030 8,800 2,150 1,550
Long-term debt, less current maturities -- 5,250 26,250 46,327 29,950
Total long-term debt -- 6,280 35,050 48,477 31,500
Stockholders' equity $ 48,519 $ 37,719 $ 33,132 $ 46,502 $ 45,916
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two-for-one stock split
effective August 22, 1997.
(1) See Note 2 to the consolidated financial statements.
28
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
Quarterly Common Stock Price Ranges and Dividends
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
High Low High Low
Quarter Bid Bid Dividend Bid Bid Dividend
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 8 13/16 7 3/4 .01 4 25/32 4 1/32 .005
Second 11 5/8 8 3/16 .01 6 15/16 4 1/8 .005
Third 13 11/16 11 1/16 .015 7 11/16 5 5/16 .01
Fourth 15 7/8 12 13/16 .015 9 1/4 7 1/4 .01
============================================================================================================================
</TABLE>
Quarterly Financial Data (Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Per share of common stock
-----------------------------------
Gross Net
Quarter Revenues profit income (loss) Basic Diluted
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Fourth $ 42,539 $ 11,883 $ 2,851 $ 21 $ .19
Third 40,701 11,544 2,280 .17 .16
Second 41,399 11,666 2,115 .15 .15
First 40,714 11,067 1,524 .11 .11
- ---------------------------------------------------------------------------------------------------------------------------
Total $165,353 $ 46,160 $ 8,770 $ .64 $ .61
- ---------------------------------------------------------------------------------------------------------------------------
1996
Fourth $ 39,922 $ 9,924 $ 1,494 $ .11 $ .11
Third 37,907 9,276 1,101 .08 .08
Second 39,814 9,897 946 .07 .07
First 38,611 9,197 545 .04 .04
- ---------------------------------------------------------------------------------------------------------------------------
Total $156,254 $ 38,294 $ 4,086 $ .30 $ .30
===========================================================================================================================
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective August 22, 1997
29
<PAGE>
EXHIBIT 21
SUBSIDIARIES OR HOOPER HOLMES, INC.
-----------------------------------
NAME STATE OF INCORPORATION D/B/A
---- ---------------------- -----
Hooper Holmes
Health Care, Inc. New Jersey Nurse's House Call
<PAGE>
EXHIBIT 23
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
report dated February 19, 1998, relating to the consolidated balance sheets of
Hooper Holmes, Inc. and subsidiaries as of December 31, 1997 and 1996 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, 1997,
which report appears in the December 31, 1997 annual report on Form 10-K of
Hooper Holmes, Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 30, 1998
<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, 1997, 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 30, 1998
/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, 1997, 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 30, 1998
/s/ John E. Nolan
------------------------------
John E. Nolan
<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, 1997, 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 30, 1998
/s/ Quentin J. Kennedy
------------------------------
Quentin J. Kennedy
<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, 1997, 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 30, 1998
/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, 1997, 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 30, 1998
/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, 1997, 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 30, 1998
/s/ Elaine La Monica Rigolosi
------------------------------
Elaine La Monica Rigolosi
<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, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,159,431
<SECURITIES> 0
<RECEIVABLES> 18,883,604
<ALLOWANCES> 872,114
<INVENTORY> 0
<CURRENT-ASSETS> 34,161,596
<PP&E> 20,498,119
<DEPRECIATION> 12,050,903
<TOTAL-ASSETS> 65,941,117
<CURRENT-LIABILITIES> 13,780,695
<BONDS> 0
0
0
<COMMON> 557,565
<OTHER-SE> 47,961,806
<TOTAL-LIABILITY-AND-EQUITY> 65,941,117
<SALES> 165,352,706
<TOTAL-REVENUES> 165,352,706
<CGS> 119,193,062
<TOTAL-COSTS> 119,193,062
<OTHER-EXPENSES> 29,815,579
<LOSS-PROVISION> 480,000
<INTEREST-EXPENSE> 168,266
<INCOME-PRETAX> 16,891,463
<INCOME-TAX> 8,121,000
<INCOME-CONTINUING> 8,770,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,770,463
<EPS-PRIMARY> .64
<EPS-DILUTED> .61
</TABLE>
<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>
<RESTATED>
<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> .30<F1>
<EPS-DILUTED> .30<F1>
<FN>
<F1>ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTIVE AUGUST 22, 1997, AND
THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS
PER SHARE", WHICH BECAME EFFECTIVE IN 1997.
</FN>
</TABLE>
<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, 1995 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,065,464
<SECURITIES> 0
<RECEIVABLES> 24,827,429
<ALLOWANCES> 446,021
<INVENTORY> 0
<CURRENT-ASSETS> 54,407,934
<PP&E> 18,270,355
<DEPRECIATION> 7,423,190
<TOTAL-ASSETS> 93,997,095
<CURRENT-LIABILITIES> 29,621,623
<BONDS> 26,250,000
269,777
0
<COMMON> 0
<OTHER-SE> 32,862,236
<TOTAL-LIABILITY-AND-EQUITY> 93,997,095
<SALES> 111,313,005
<TOTAL-REVENUES> 111,313,005
<CGS> 85,933,510
<TOTAL-COSTS> 85,933,510
<OTHER-EXPENSES> 21,320,852
<LOSS-PROVISION> 320,979
<INTEREST-EXPENSE> 1,673,548
<INCOME-PRETAX> 3,031,135
<INCOME-TAX> 1,364,161
<INCOME-CONTINUING> 1,666,974
<DISCONTINUED> (14,715,627)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,048,653)
<EPS-PRIMARY> .98<F1>
<EPS-DILUTED> .97<F1>
<FN>
<F1>ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTIVE AUGUST 22, 1997,
AND THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE", WHICH BECAME EFFECTIVE IN 1997
</FN>
</TABLE>
