<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HOOPER HOLMES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO] HOOPER HOLMES/TM/
1899-1999 [GRAPHIC] 100 Years and Growing
HOOPER HOLMES, INC.
170 Mt. Airy Road
Basking Ridge, New Jersey 07920
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Hooper Holmes, Inc., to be held on Tuesday, May 25, 1999 at 11:00 a.m. local
time, at the Company's headquarters, 170 Mt. Airy Road, Basking Ridge, New
Jersey.
The Notice of Annual Meeting and Proxy Statement which follow describe
the business to be conducted at the meeting. There will also be a brief report
on the current status of our business.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the Notice of Annual
Meeting and Proxy Statement, please complete, sign, date and return your proxy
in the envelope provided.
On behalf of the Officers and Directors of Hooper Holmes, Inc., I wish
to thank you for your interest in the Company. I hope that you will be able to
attend our Meeting and join us in celebrating the Company's 100th Anniversary.
For the Board of Directors,
/s/ James M. McNamee
James M. McNamee
Chairman, President and Chief Executive Officer
April 15, 1999
<PAGE>
HOOPER HOLMES, INC.
170 Mt. Airy Road
Basking Ridge, New Jersey 07920
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held May 25, 1999
-------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting") of
Shareholders of Hooper Holmes, Inc., a New York corporation (the "Company"),
will be held on Tuesday, May 25, 1999 at 11:00 a.m. local time, at the Company's
headquarters, 170 Mt. Airy Road, Basking Ridge, New Jersey, for the following
purposes:
1. To elect directors.
2. To consider and act upon a proposal to amend the Certificate of
Incorporation to increase the amount of authorized Common Stock, par
value $.04 per share, from 80,000,000 shares to 240,000,000 shares.
3. To consider and act upon a proposal to approve the 1999 Stock Option
Plan.
4. To ratify the selection of the firm of KPMG LLP as auditors for the 1999
fiscal year.
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
Holders of record of the Company's common stock, par value $.04 per
share (the "Common Stock"), as of the close of business on April 7, 1999, the
record date fixed by the Board of Directors for such purpose (the "Record
Date"), are entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Robert William Jewett
Robert William Jewett
Secretary
April 15, 1999
- ------------------------------------------------------------------------------
Please sign the enclosed proxy and return it promptly in the envelope enclosed
which requires no postage if mailed in the United States.
- ------------------------------------------------------------------------------
<PAGE>
HOOPER HOLMES, INC.
170 Mt. Airy Road
Basking Ridge, New Jersey 07920
---------------
PROXY STATEMENT
---------------
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors of Hooper
Holmes, Inc., (the "Company") for use at the Annual Meeting of Shareholders to
be held on May 25, 1999.
An Annual Report to Shareholders containing the financial statements for
the fiscal year ended December 31, 1998 is enclosed herewith. This proxy
statement and form of proxy were first sent to shareholders on or about the date
stated in the accompanying Notice of Annual Meeting of Shareholders.
Only shareholders of record as of the Record Date are entitled to vote
at the meeting and any adjournments thereof. As of that date,_______ shares
of Common Stock of the Company were issued and outstanding. Each share
outstanding as of the record date will be entitled to one vote, and shareholders
may vote in person or by proxy. Execution of a proxy will not in any way affect
a shareholder's right to attend the meeting and vote in person. Any shareholder
giving a proxy has the right to revoke it at any time before it is voted by
providing written notice to the Secretary of the Company or by submitting
another proxy bearing a later date. In addition, shareholders attending the
meeting may revoke their proxies at any time prior to the time such proxies are
exercised.
The presence in person or by proxy of the holders of a majority of the
votes entitled to be cast at the meeting will constitute a quorum. Abstentions
and withhold-authority votes all count for the purpose of determining a quorum,
but broker non-votes do not. Directors who receive a plurality of the votes cast
at the meeting will be elected. The 1999 Stock Option Plan and the selection of
auditors will be approved if a majority of the votes cast at the meeting are in
favor. Votes cast for directors, the 1999 Stock Option Plan and auditors include
votes for or against, but do not include broker non-votes, abstentions or
withheld-authority votes.
The Amendment to the Company's Certificate of Incorporation will be
approved if a majority of all outstanding shares entitled to vote are cast in
favor of approval. For this purpose, broker non-votes and abstentions have the
same effect as a vote against.
All properly executed proxies returned in time to be cast at the
meeting, if no contrary instruction is indicated, will be voted FOR the election
of all directors nominated herein, FOR approval of the Amendment to the
Certificate of Incorporation, FOR approval of the 1999 Stock Option Plan and FOR
the ratification of the auditors.
The solicitation of proxies will be made primarily by mail. Proxies may
also be solicited personally and by telephone or telegraph by regular employees
of the Company, without any additional remuneration and at minimal cost. The
Company has also retained the services of Corporate Investor Communications,
Inc., Carlstadt, New Jersey to solicit proxies on behalf of the Company. The fee
to be paid by the Company for such services is not expected to exceed $10,000.
The cost of soliciting the proxies will be borne by the Company.
1
<PAGE>
ITEM 1--ELECTION OF DIRECTORS
The Board of Directors consists of nine members divided into three
classes of three members each. There are currently two vacancies on the Board,
which were created by the death of Frederick D. King and the retirement of Anne
King Sullivan in 1996. (Their terms were scheduled to expire at the 1999 Annual
Meeting.) At each Annual Meeting of Shareholders, one class of directors is
elected to serve for a three-year term or until their successors are elected and
have qualified. The class of directors to be elected at this Annual Meeting will
serve until the 2002 Annual Meeting.
Any shareholder submitting a proxy has the right to withhold authority
to vote for any individual nominee to the Board of Directors by writing that
nominee's name in the space provided on the proxy. Shares represented by all
proxies received by the Company and not so marked as to withhold authority to
vote for any individual director or for all directors nominated will be voted
FOR the election of the nominees named below. The Company knows of no reason why
any such nominee should be unable to serve, but in the event that any nominee
shall be unavailable or unable to serve as a director, the proxy holders will
vote for substitute nominees in the exercise of their best judgment, but may not
vote for more than two persons.
Nominees for Directors (Term expires 2002)
The nominees for directors and further information with respect to each
nominee are set forth below.
Benjamin A. Currier
Mr. Currier, age 65, was Senior Vice President of Operations for
Security Life of Denver Insurance Company, a subsidiary of ING/Barings, in
Denver, Colorado prior to his retirement in 1997. Mr. Currier was Vice
President, Allstate Life Insurance Company from 1978 to 1995. He has been a
director of the Company since 1996, and is a member of the Audit Committee and
the Executive Compensation Committee.
Elaine L. Rigolosi
Dr. Rigolosi, Ed.D, J.D., age 54, is Professor, Department of
Organization and Leadership, Teachers College, Columbia University. She has been
associated with Columbia University since 1976, and has maintained a private
consulting practice in management for health care organizations since 1974. Dr.
Rigolosi has been a director of the Company since 1989, and is a member of the
Audit Committee and the Executive Compensation Committee. Dr. Rigolosi is
currently serving as a director whose term expires at the Annual Meeting in
2000. She has submitted her resignation from that class of directors, effective
only upon her election to the class of directors whose term expires at the
Annual Meeting in 2002.
Directors Continuing in Office
The directors whose terms expire at the Annual Meetings in 2000 and 2001
and further information with respect to each continuing director are set forth
below.
John E. Nolan
Mr. Nolan, age 71, is a partner in the law firm of Steptoe & Johnson,
LLP, Washington, D.C. and has been engaged in the practice of law since 1956. He
has been a director of the Company since 1971, and is a member of the Audit
Committee and the Executive Committee. Mr. Nolan also serves on the Board of
Directors of Iomega Corporation. (Term expires at the Annual Meeting in 2000.)
2
<PAGE>
Quentin J. Kennedy
Mr. Kennedy, age 65, was Executive Vice President, Secretary, Treasurer
and Director of Federal Paper Board Company in Montvale, New Jersey until his
retirement in 1996. He had served in various executive positions with Federal
Paper Board since 1960. Mr. Kennedy has been a director of the Company since
1991. He is a member of the Executive Committee and the Executive Compensation
Committee. (Term expires at the Annual Meeting in 2000.)
James M. McNamee
Mr. McNamee, age 54, has served as Chairman of the Board of Directors of
the Company since 1996 and as President and Chief Executive Officer of the
Company since 1984. He has been an employee of the Company since 1968, an
officer since 1979 and a director since 1984. Mr. McNamee is a member of the
Executive Committee and the Nominating Committee. (Term expires at the Annual
Meeting in 2001.)
Kenneth R. Rossano
Mr. Rossano, age 64, is Senior Vice President, Cassidy & Associates in
Boston, Massachusetts. From 1991 to 1992, he was Vice President, Development,
Massachusetts Higher Education Assistance Corporation in Boston, Massachusetts.
He has been a director of the Company since 1967, and is a member of the
Executive Committee and the Nominating Committee. Mr. Rossano is also a director
of Psy-Ed Corporation, Quick Buy, Inc. and A+ America, Inc. (Term expires at the
Annual Meeting in 2001.)
G. Earle Wight
Mr. Wight, age 65, has served as Senior Vice President of the Company
since 1985 and has been a director of the Company since 1966. Mr. Wight is a
member of the Nominating Committee. (Term expires at the Annual Meeting in
2001.)
3
<PAGE>
Certain Relationships and Related Transactions
Messrs. Wight and Rossano are brothers-in-law.
On July 7, 1992 and September 23, 1993 the Company made loans to Mr.
James M. McNamee, Chairman of the Board, President, CEO and a director, in the
amount of $49,341 and $45,023 respectively, which were due and payable in 36
months from the date of the loan and subsequently extended 24 and 12 months,
respectively, for the purpose of paying taxes due on stock compensation. The
maximum amount outstanding in 1998 was $8,108. Interest was accrued at the rates
of 4.8% and 3.6% respectively and interest and principal were repaid through
payroll deductions. As of March 31, 1998, both loans were extinguished.
Mr. John E. Nolan, a director of the Company, is a partner in the law
firm of Steptoe & Johnson LLP, which performs legal services for the Company.
Compensation of Directors
Each outside director of the Company will receive an annual fee of
$12,000 in 1999 plus a $500 fee for each committee meeting attended. In
accordance with the 1997 Director Option Plan, each outside director received
stock options to purchase 100,000 shares of common stock pursuant to the Plan.
Directors who are employees of the Company do not receive stock options pursuant
to the Plan nor do they receive director fees. Directors are also reimbursed for
out-of-pocket expenses incurred in attending Board and committee meetings.
In June, 1990, the Company entered into supplemental indemnity
agreements with its executive officers and directors. The indemnity agreements
require the Company to indemnify such person for all expenses actually and
reasonably incurred in defending or settling an action to which such person is a
party or threatened to be made a party or is otherwise involved because of his
or her status as an officer or director of the Company. If the action is brought
by or in the right of the Company, the indemnification must be made only if such
person acted in good faith, for a purpose reasonably believed to be in the best
interest of the Company (or, in the case of service to another entity, not
opposed to the interest of the Company).
Committees of the Board
The Board of Directors has an Audit Committee, an Executive Committee, a
Nominating Committee and an Executive Compensation Committee.
The Audit Committee acts as principal liaison between the Board of
Directors and the independent auditors employed by the Company and reviews the
annual financial statements and the Company's internal accounting systems and
controls. The Committee also recommends to the Board of Directors the selection
of independent auditors to be employed by the Company.
The Executive Committee exercises the authority of the Board of
Directors in certain corporate matters between meetings and exercises specific
powers and authority as may from time to time be lawfully delegated to it by the
Board of Directors.
The Nominating Committee nominates individuals for election or
reelection to the Board of Directors. It will consider nominations recommended
by shareholders who submit written recommendations to the Nominating Committee
in care of the Secretary of the Company.
4
<PAGE>
The Executive Compensation Committee, among other matters, annually
reviews and determines the compensation of the Chief Executive Officer of the
Company and, upon his recommendation, the compensation of the other elected
officers and senior management of the Company and annually reviews and
recommends to the Board of Directors the compensation and allowances for the
Company's outside directors. The Committee also prepares a report to
shareholders (enclosed in this Proxy Statement) which discusses the Company's
compensation policies for the executive officers, the Committee's bases for
determining the compensation of the Chief Executive Officer for the past fiscal
year, and the relationship between compensation and the Company's performance
for the past fiscal year. The Executive Compensation Committee also administers
the 1987 Nonqualified Stock Option Plan, the 1992 Stock Option Plan; the 1994
Stock Option Plan, the 1997 Stock Option Plan, the 1997 Director Option Plan,
and if approved by the shareholders, the 1999 Stock Option Plan and determines
the amount and terms of the options granted under the plans. The Committee also
administers the 1993 Employee Stock Purchase Plan.
The Board of Directors held four regular meetings and one special
meeting during the fiscal year ended December 31, 1998. The Audit Committee met
three times, the Executive Committee met once, the Executive Compensation
Committee met four times, and the Nominating Committee did not meet in 1998. All
directors attended at least 75% of the total number of meetings of the Board of
Directors and the committees to which they belong.
Compensation Committee Interlocks and Insider Participation
For 1998, Dr. Elaine L. Rigolosi and Messrs. Quentin J. Kennedy and
Benjamin A. Currier served on the Executive Compensation Committee.
Executive Officers
Set forth below are the executive officers of the Company who are not
Directors. Executive officers serve at the pleasure of the Board of Directors.
Information is not included in this Proxy Statement for that portion of any
period for which information is required during which any executive officer did
not hold such position.
Robert William Jewett
Mr. Jewett, age 46, has served as Senior Vice President and General
Counsel of the Company since 1991 and as Secretary since 1983. He has been an
employee of the Company since 1981.
Paul Kolacki
Mr. Kolacki, age 56, has served as Executive Vice President and Chief
Operating Officer of the Company since 1998. He was Executive Vice President and
Chief Operating Officer of the Company's Portamedic Health Information Services
Division from 1991 to 1998, and has been an employee of the Company since 1964.
Fred Lash
Mr. Lash, age 53, has served as Senior Vice President of the Company
since 1993, as Chief Financial Officer since 1989 and as Treasurer since 1987.
Francis A. Stiner
Mr. Stiner, age 65, has served as Vice President, Administrative Group
of the Company since 1990 and has been an employee of the Company since 1959.
5
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 12, 1999, the beneficial
ownership of the Company's issued and outstanding Common Stock (on the basis of
28,314,182 shares outstanding), including the stock ownership of each person
who, to the Company's knowledge, owns over 5% of the Company's outstanding
Common Stock, each of the directors of the Company, each executive officer named
in the Summary Compensation Table which follows, and the directors and officers
of the Company as a group, and the percentage which the shares owned constitute
of the total shares outstanding.
<TABLE>
<CAPTION>
Amount & Nature Percent of Class
of Beneficial (based on # of
Name and Position Ownership of shares outstanding
of Beneficial Owners Common Stock (1) 2/12/99)
-------------------- ---------------- ------------------
<S> <C> <C>
Directors
- ---------
G. Earle Wight 600,124(2) 2.11%
Kenneth R. Rossano 716,376(3) 2.53%
James M. McNamee 1,601,908(4) 5.65%
Quentin J. Kennedy 34,000(5) .12%
Elaine L. Rigolosi 24,200(6) .08%
Benjamin A. Currier 30,760(5) .10%
John E. Nolan 40,000(5) .14%
Other Most Highly Paid Executive Officers
- -----------------------------------------
Paul Kolacki 198,948(7) .70%
Fred Lash 214,768(8) .75%
Robert William Jewett 51,508(9) .18%
All officers and directors as a group (11 total) 3,563,620(10) 12.58%
</TABLE>
- ----------------
(1) Includes shares, if any, held by or for a spouse or minor children or as
a trustee. Unless otherwise indicated, the director or 5% stockholder
possesses sole investment and voting power in respect of these shares.
(2) Includes 404,172 shares held by the Lucile K. Wight Trust, of which Mr.
Wight is trustee with sole voting and dispositive power, and 177,180
shares held by 874367 Ontario, Inc., a corporation of which Mr. Wight
and his spouse Sonia are sole shareholders.
(3) Includes 256,726 shares held by Mr. Rossano's spouse, Cynthia, and
398,602 shares held by The Cynthia W. Rossano 1991 Trust, of which Mr.
and Mrs. Rossano are trustees with sole voting and dispositive power.
Also includes 20,000 shares underlying options that are currently
exercisable or which will become exercisable within 60 days.
6
<PAGE>
(4) Includes 244,604 shares held by Mr. McNamee and his spouse Patricia as
joint tenants, 52,240 shares held by Mr. McNamee's spouse, Patricia,
7,064 shares held by Mr. McNamee's spouse Patricia as custodian for Sean
McNamee, their minor child, and 36,000 shares held by the Trust under
the will of Eileen Rooney FBO Kevin Rooney, of which Mr. McNamee is
Trustee with sole voting and dispositive power. Also includes 1,262,000
shares underlying options that are currently exercisable or which will
become exercisable within 60 days.
(5) Includes 20,000 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(6) Includes 1,800 shares held by Ms. Rigolosi's spouse, Robert. Also
includes 20,000 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(7) Includes 1,600 shares held by Mr. Kolacki and his spouse, Sandra, as
joint tenants. Also includes 188,000 shares underlying options that are
currently exercisable or which will become exercisable within 60 days.
(8) Includes 1,200 shares held by Mr. Lash and his spouse, Suzanne, as joint
tenants. Also includes 207,900 shares underlying options that are
currently exercisable or which will become exercisable within 60 days.
(9) Includes 51,300 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(10) Includes shares owned individually by each officer and director in the
group as well as shares indirectly owned by such persons as trustee of
various trusts; however, where more than one officer or director is a
trustee of the same trust, the total number of shares owned by such
trust is counted only once in determining the amount owned by all
officers and directors as a group. Also includes 1,855,900 shares
underlying options that are currently exercisable or which will become
exercisable within 60 days.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors of the Company and persons who beneficially own more than
ten percent of the Company's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and the
American Stock Exchange. Based solely on a review of reports and written
representations furnished to the Company, the Company believes that all Section
16(a) filing requirements applicable to its executive officers, directors and
shareholders were complied with, except for one Form 4 reporting the purchase of
stock which was filed late by Mr. Benjamin A. Currier, one Form 4 reporting a
bona fide gift of stock which was filed late by Mr. James M. McNamee.
7
<PAGE>
Compensation of Executive Officers
The following table provides certain summary information concerning
compensation paid or accrued for the last three complete fiscal years to or on
behalf of the Company's Chief Executive Officer and the three other most highly
paid executive officers of the Company whose total annual salary and bonus
exceeded $100,000 in 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------
Long term compensation
----------------------
Annual compensation Awards Payouts
------------------- ---------- -------
Securities
Name and underlying LTIP All other
principal Salary Bonus options payouts compensation
position Year ($)(1) ($)(2) (#)(3) ($)(4) ($)(5)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James M. McNamee 1998 408,000 430,580 140,000 584,136 62,932
Chairman, President and 1997 358,000 283,910 560,000 283,124 62,827
Chief Executive Officer 1996 276,500 42,000 0 0 63,244
Paul Kolacki 1998 210,000 100,000 70,000 -- 43,845
Executive Vice President 1997 192,500 80,000 88,000 -- 44,135
and Chief Operating Officer 1996 172,500 75,000 0 -- 43,419
Fred Lash 1998 176,500 70,000 50,000 -- 24,210
Senior Vice President, 1997 170,500 55,000 80,000 -- 24,105
Chief Financial Officer 1996 155,000 55,000 0 -- 24,055
and Treasurer
Robert William Jewett 1998 142,083 25,000 30,000 -- 14,121
Senior Vice President, 1997 133,400 20,000 32,000 -- 14,118
General Counsel and Secretary 1996 127,006 17,500 0 -- 13,598
- ------------
</TABLE>
(1) Includes directors fees paid to Mr. McNamee in 1996.
(2) For Mr. McNamee, includes stock awards with a fair market value of
$230,580 and $133,910 in 1998 and 1997 respectively. Perquisites fall
below the thresholds required for disclosure and, accordingly, have been
omitted.
(3) Includes the effect of two for one stock splits in 1997 and 1999.
(4) Represents the fair market value of the stock bonus awarded to Mr.
McNamee under the CEO Compensation Plan, which provides the potential
for annual stock bonuses.
(5) The amounts disclosed in this column include:
(a) Company contributions of the following amounts in 1998, 1997,
and 1996 respectively, under the Company's Salary Reduction
Plan, a defined contribution plan on behalf of Mr. McNamee
($2,480, $2,375 and $2,792), Mr. Kolacki ($2,500, $2,375 and
$2,665), Mr. Lash ($2,480, $2,375 and $2,325) and Mr. Jewett
($2,378, $2,208 and $1,855).
(b) Payment by the Company in 1998, 1997 and 1996 of premiums on
whole-life insurance policies in the following annual amounts
for Mr. McNamee ($55,877 per year), Mr. Kolacki ($41,470 per
year), Mr. Lash ($21,730 per year) and Mr. Jewett ($11,743 per
year).
(c) Payment by the Company in 1998, 1997 and 1996 of premiums on a
disability insurance policy for Mr. McNamee of $4,575 per year.
8
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------
Individual grants
- ----------------------------------------------------------------------------
Number of % of total
securities underlying options granted Grant date
options to employees in Exercise Expiration present
Name granted (#)(1) fiscal year price ($/Sh) date value ($)(4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James M. McNamee
Chairman, President and 60,000 (2) 5.0% $7.375 2/2008 246,000
Chief Executive Officer 80,000 (3) 6.6% $13.375 12/2008 616,000
Paul Kolacki
Executive Vice President 30,000 (2) 2.5% $7.375 2/2008 123,000
and Chief Operating 40,000 (3) 3.3% $13.375 12/2008 308,000
Officer
Fred Lash
Senior Vice President, 20,000 (2) 1.7% $7.375 2/2008 82,000
Chief Financial Officer 30,000 (3) 2.5% $13.375 12/2008 231,000
and Treasurer
Robert William Jewett
Senior Vice President, 10,000 (2) 0.8% $7.375 2/2008 41,000
General Counsel and 20,000 (3) 1.7% $13.375 12/2008 154,000
Secretary
</TABLE>
(1) The 1997 Stock Option Plan grants become exercisable commencing 24
months after grant date and 25% become exercisable on each successive
anniversary of that date, with full vesting occurring on the fourth
anniversary date. The options terminate upon termination of employment
for any reason other than death, disability or retirement. Further, to
be eligible to exercise the options, an optionee must remain in the
employment of the Company for a period of 24 months from the date of
grant (or retirement, if earlier). Options that are not fully vested and
exercisable as of the date the optionee terminates employment because of
death, disability or retirement, or as of the date of an actual or
threatened change in control of the Company, become vested and
exercisable in full on such date. Similarly, the vesting of options may
be accelerated in connection with certain mergers, consolidations, sales
or transfers by the Company of substantially all of its assets.
(2) These options were granted under the 1997 Stock Option Plan on February
6, 1998.
(3) These options were granted under the 1997 Stock Option Plan on December
21, 1998.
9
<PAGE>
(4) The values shown were calculated using the Black-Scholes option pricing
model and are presented solely for the purposes of comparative
disclosure in accordance with certain regulations of the SEC. The Black-
Scholes model is a mathematical formula widely used to value traded
stock price volatility and dividend yield. The actual value that an
executive officer may realize, if any, depends on the amount by which
the stock price at the time of exercise exceeds the exercise price (fair
market value of the stock at the time of the grant). There is no
assurance that the value realized by an executive officer will be at or
near the value estimated by the Black-Scholes model. In calculating the
grant date present values set forth the table, the Company used the
following assumptions: (a) expected volatility of 41.90%; (b) discount
rate of 4.75%; (c) dividend yield of .34%; and (d) exercise at the end
of 9 year period from the date of grant. No adjustments have been made
for non-transferability or risk of forfeiture.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides certain information on options exercised in
1998 and the value of certain unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
- -----------------------------------------------------------------------------------------------
Value of
Number of securities unexercised
underlying in-the-money
unexercised options options at
at FY-end (#)(2) FY-end ($)(3)
Shares
acquired Value Exercisable/ Exercisable/
Name on exercise(#) realized ($)(1) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James M. McNamee -- -- 862,000/740,000 9,776,000/6,939,375
Paul Kolacki 44,000 $421,638 148,000/236,000 1,736,440/2,141,750
Fred Lash 30,000 $256,188 176,100/193,100 2,023,396/1,790,534
Robert William Jewett 21,600 $201,278 30,400/97,600 380,481/868,194
</TABLE>
(1) Amount represents the difference between the exercise price and the fair
market value on the date of exercise, multiplied by the number of
options exercised.
(2) Includes the effect of a two for one stock split of the Company's Common
Stock in 1997 and 1999.
(3) Amount represents the difference between the exercise price and the fair
market value on December 31, 1998 ($14.50), multiplied by the number of
options exercisable and unexercisable.
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<PAGE>
Report of the Executive Compensation Committee
The report of the Executive Compensation Committee below shall not be
deemed to be filed under, or incorporated by reference into any filing
under, the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates
this Report by reference.
The Company's Executive Compensation Committee for 1998 was comprised of
three directors who are not present or former employees of the Company. The
Committee establishes compensation policies for the CEO and other executive
officers and administers the Company's programs for cash compensation and stock
awards, bonuses and options.
Essentially, the Committee believes that executive compensation should
be largely determined by management's performance in the shareholders'
interests. This usually means earnings. Sustained growth in earnings will
ultimately be reflected in increased shareholder value and positioning the
Company for future growth in revenues and earnings is an important management
function.
The Committee believes that employee stock ownership effectively aligns
employees with the interests of stockholders and looks to stock options to
provide an opportunity for employee stock ownership. The Committee further
believes that compensation is important to attract talented individuals to the
Company, to retain them and to provide incentive. In addition, the CEO is
entitled to stock awards and stock bonuses (or cash payments in lieu of stock
awards or stock bonuses) under the CEO Plan that has been in effect. Each year
the Committee reviews and determines the compensation of other executive
officers. In furtherance of the Company's policy to provide incentives and to
reward performance, compensation is based on specific criteria developed through
the company's experience, including attainment of revenue and expense
objectives, planning and organizational development and personal leadership. The
weight accorded each of these factors is within the Committee's discretion and
may depend on the Company's performance during the year.
The following information regarding stock options and stock awards is
presented after giving effect to two for one stock splits effected on August
22, 1997 and January 8, 1999.
For 1998, Mr. McNamee was awarded a cash bonus of $200,000 in
recognition of the Company's outstanding performance. He had received a cash
bonus of $150,000 for 1997. Stock awards for the CEO have been based on
continuing satisfactory performance measured against management objectives
established by the Board. These objectives include corporate growth and
development, profitability, total return to shareholders and management team
development. For 1998, the CEO received a stock award of 18,000 shares. The CEO
had received a stock award of 14,000 shares for 1997. Stock bonuses for the CEO
are based on sustained increases in earnings per share. For 1998, the CEO
received a stock bonus of 45,600 shares. He had received a stock bonus of 29,600
shares in 1997. No stock bonus was awarded to the CEO for 1995 or 1996. In
addition, on February 6, 1998 and December 21, 1998, Mr. McNamee was awarded
options to purchase 60,000 and 80,000 shares, respectively, of common stock
pursuant to the 1997 Option Plan. These options become exercisable 25% after two
years and 25% each year thereafter, at an exercise price of $7.375 and $13.375
per share, respectively.
For 1996 through 1998 the Committee developed a CEO Compensation Plan
continuing the stock awards and stock bonuses that were features of the earlier
Plan. In addition, the 1996-98 Plan, in order to provide incentive for the
Company to achieve earnings and share price goals over the life of the Plan,
provided for a special 400,000 share option (100,000 shares pre-split) for the
CEO, which was granted in 1997. This option is a variation of the Company's
regular options that become exercisable 20% during the first year and an
additional 20% each of the next four years. It provides, however, that the
entire 400,000 share option (100,000 shares pre-split) may be exercised if the
Company's earnings exceed $.35 a share ($1.40 a share pre-split) for 1998 and
the stock price is at or above $7.50 per share ($30 per share pre-split) for
11
<PAGE>
any period of thirty consecutive days in the first six months of 1999. The
option price is $4.28 per share ($17.125 per share pre-split), the fair market
value on April 9, 1997, the date the option was approved by the Board. This
option was submitted to shareholders and approved at the 1997 annual meeting.
Section 162(m) of the Internal Revenue Code, enacted in 1993 and
effective for taxable years beginning after January 1, 1994, generally limits to
$1 million per individual per year the federal income tax deduction for
compensation paid by a publicly-held company to certain executive officers.
Compensation that qualifies as performance-based compensation for purposes of
this section is not subject to the $1 million deduction limitation. The
Executive Compensation Committee will continue to evaluate this provision but
presently intends to qualify compensation as performance-based to the extent
feasible and in the best interest of the Company.
EXECUTIVE COMPENSATION COMMITTEE
Quentin J. Kennedy, Chairman
Elaine L. Rigolosi
Benjamin A. Currier
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<PAGE>
Stock Price Performance Graph
The Stock Price Performance Graph below shall not be deemed to be filed
under, or incorporated by reference into any filing under, the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this Graph by reference.
The following graph compares the cumulative total shareholder return
(assuming dividends are reinvested) on the Company's Common Stock for the last
five years with the cumulative total return (assuming dividends are reinvested)
of the Standard & Poor's 500 Stock Index and the Russell 2000 Index. In prior
years, the Company used a peer group index consisting of Mediq, Inc. and Policy
Management Systems Corporation. However, the stock of Mediq, Inc. has not traded
since May 29, 1998 and Policy Management Systems Corporation sold its Life
Information services business segment in May 1998. The Russell 2000 Index was
selected because it represents companies with similar market capitalization to
the Company. The shareholder return shown on this graph is not necessarily
indicative of future performance.
--------------------------------------------------------
Comparison of Five-Year Cumulative Total Return
Hooper Holmes, Inc., S&P 500 Index and Russell 2000 Index
---------------------------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period Hooper S&P 500 Russell 2000
(Fiscal year covered) Holmes, Inc. Index Index
- --------------------- ------------ ------- ------------
<S> <C> <C> <C>
BASE $100.00 $100.00 $100.00
FYE 1994 $ 57.26 $ 98.46 $ 96.82
FYE 1995 $ 72.11 $132.05 $122.19
FYE 1996 $154.73 $158.80 $140.23
FYE 1997 $260.26 $208.05 $169.00
FYE 1998 $519.54 $263.57 $163.18
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1993
ASSUMES DIVIDEND REINVEST
FISCAL YEAR ENDING DECEMBER 31, 1998
13
<PAGE>
Employment Contracts and Change-in-Control Arrangements
In 1990, the Company entered into an employee retention agreement, as
amended (the "Agreement") with Mr. McNamee entitling him to certain benefits if
his employment is terminated within two years of a "change of control", as
defined in the Agreement. Following a change of control, Mr. McNamee is entitled
to retain the same position, duties and compensation as he had prior to the
change of control for a period of two years after the date of the change of
control. After a change in control has occurred, if Mr. McNamee's employment is
terminated by the Company or by Mr. McNamee within two years of the date of the
change of control (other than as a result of his death, disability or for cause,
as defined in the Agreement), Mr. McNamee is entitled to receive a lump sum
payment in cash equal to the aggregate of (a) to the extent unpaid, his highest
base salary through the date of termination (as defined in the Agreement), (b) a
pro rata portion of his recent bonus (as defined in the Agreement, generally to
be the highest annual guaranteed bonus to which he was entitled during the last
two full fiscal years prior to the date of the change of control), (c) twice the
sum of his highest base salary and recent bonus, and (d) all amounts of
compensation previously deferred (with accrued interest thereon) and unpaid and
any accrued vacation pay not yet paid by the Company. In addition, he will be
entitled to receive during the two year period after the change of control, all
benefits payable to him (or his family) under welfare benefit programs (such as
medical, dental, disability and life insurance programs) equivalent to those
most favorable immediately preceding the date of the change of control. In the
event that Mr. McNamee would be subject to an excise tax, then he should be
entitled to receive an additional payment such that after Mr. McNamee pays such
excise taxes, including any excise tax imposed on any portion of such additional
payment, Mr. McNamee will retain additional payments equal to the excise taxes
imposed.
In 1996, the Company entered into employee retention agreements
("Agreement") with the Executive Officers of the Company (exclusive of Mr.
McNamee), entitling them to certain benefits if their employment is terminated
within two years of a change in control, as defined in the Agreement. Following
a change in control, each Executive Officer is entitled to retain the same
position, duties and compensation as he had prior to the change of control for a
period of two years after the date of the change in control. After a change in
control has occurred, if the Executive Officer's employment is terminated by the
Company or by the Executive Officer within two years of the date of the change
in control (other than as a result of his death, disability or for cause as
defined in the Agreement), the Executive Officer is entitled to receive a lump
sum payment in cash equal to the aggregate of (a) to the extent unpaid, his
highest base salary through the date of termination (as defined in the
Agreement), (b) a pro rata portion of his recent bonus (as defined in the
Agreement, generally to be the highest guaranteed bonus to which he was entitled
during the last three full fiscal years prior to the date of the change of
control), (c) twice the sum of his highest base salary and recent bonus, and (d)
all amounts of compensation previously deferred (with accrued interest thereon)
and unpaid and any accrued vacation pay not yet paid by the Company. In
addition, the Executive Officer will be entitled to receive during the two year
period after the change in control, all benefits payable to him (or his family)
under welfare benefit programs (such as medical, dental, disability and life
insurance programs) equivalent to those most favorable immediately preceding the
date of the change in control. In the event that the Executive Officer would be
subject to an excise tax, then he should be entitled to receive an additional
payment such that after the Executive Officer pays such excise taxes, excluding
any excise tax imposed on any portion of such additional payment, he will retain
additional payments equal to the excise taxes imposed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IDENTIFIED
HEREIN.
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<PAGE>
ITEM 2--AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Proposed Amendment
At the Annual Meeting, the shareholders are being requested to approve
an amendment to the Company's Certificate of Incorporation for the purpose of
increasing the total number of shares of Common Stock the Company is authorized
to issue. The Company's current Amended Certificate of Incorporation (the
"Certificate") authorizes the Company to issue 80,000,000 shares of Common
Stock. On January 26, 1999, the Board of Directors authorized an amendment to
the Certificate to increase the authorized number of shares of Common Stock to
240,000,000 shares.
Reasons for the Amendment
On January 8, 1999, the Company effected a 2-for-1 stock split that
resulted in the issuance of one additional share of Common Stock for every share
of Common Stock outstanding. The Company utilized 17,189,000 shares of Common
Stock in order to effect that stock split. Immediately following the stock
split, approximately 46,909,000 shares of Common Stock were authorized but
unissued (and unreserved), 28,311,000 shares were issued and outstanding,
4,675,000 shares were reserved for issuance upon exercise of outstanding
options, and 105,000 shares were reserved for issuance upon exercise of
outstanding options which may in the future be granted pursuant to the Company's
stock option plans. In addition, pursuant to the Company's Stockholder Rights
Plan adopted in 1990, (as amended), the Board of Directors declared a dividend
in April of 1990 of one Common Share Right for each outstanding share of Common
Stock distributable on April 2, 1990. If the increase in authorized shares is
approved, there will be approximately 207,000,000 authorized but unissued (and
unreserved) shares available for future utilization.
The principal purpose of the proposed amendment to the Certificate is to
authorize additional shares of Common Stock which will be available in the event
the Board of Directors determines that it is necessary or appropriate to raise
additional capital through the sale of securities, to grant options or other
stock incentives to the Company's employees, to acquire another company or its
business or assets, to seek to establish a strategic relationship with a
corporate partner or to permit a future stock dividend or stock split. The
additional shares will also be available in the event Common Share Rights are
exercised pursuant to the Stockholder Rights Plan. The increase in the
authorized shares of capital stock is not being proposed because of any specific
contemplated acquisition, nor does the Company have any present plans to raise
additional capital or to split its Common Stock or declare a stock dividend. The
Board of Directors believes that having the authority to issue additional shares
of Common Stock will avoid the possibility delay and expense of calling a
special meeting of shareholders for this purpose at or near the time the Company
may have a use for such shares.
This amendment is not being proposed as a means of preventing a change
in control or takeover of the Company. However, the Board of Directors could
issue the additional shares to dilute the stock ownership and voting power of
persons seeking to obtain control of the Company, and the additional authorized
shares could be issued to purchasers who would support the Board of Directors in
opposing a takeover proposal. The existence of the additional authorized shares
could have the effect of defeating or discouraging proposals for the acquisition
of the Company which some or a majority of shareholders might deem advantageous.
No shareholder is entitled to any preemptive rights with respect to the
Company's Common Stock. If the amendment is approved by shareholders, no further
vote of the shareholders will be required prior to the Company's issuance of
Common Stock in accordance with the Company's Certificate of Incorporation, as
amended, except as may be required by applicable law. Although the increase in
authorized shares of Common Stock will not itself be dilutive to current
shareholders, any issuance of such Common Stock may dilute the then current
ownership percentage of shareholders.
15
<PAGE>
Text of Amendment
Under the proposed amendment, Article Fourth of the Certificate of
Incorporation would be amended as follows:
"FOURTH: The aggregate number of shares which the corporation shall have
the authority to issue is 240,000,000 shares, all of which shall be
designated common shares with a par value of $0.04 each."
If the proposed amendment is approved, the Company intends to file the
amendment to the Certificate of Incorporation with the Secretary of State of New
York as soon as is reasonably practicable after such approval is obtained.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
ITEM 3--PROPOSAL FOR APPROVAL OF THE 1999 STOCK OPTION PLAN
The Executive Compensation Committee recommended that the Company
establish a new stock option plan and the Board approved resolutions adopting
the Hooper Holmes, Inc. 1999 Stock Option Plan (the "1999 Plan"), subject to
approval by the Company's shareholders. The purpose of the 1999 Plan is to
reward key managers and employees for 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
exert their best efforts on behalf of the Company, and to encourage such
employees to secure or increase their stock ownership in the Company.
General
The 1999 Plan provides for the grant of stock options and/or stock
appreciation rights as incentives and rewards to key managers and employees for
their efforts on behalf of the Company. The maximum number of shares of Common
Stock of the Company that may be issued under the 1999 Plan is one million
(1,000,000) shares, subject to proportionate adjustment to prevent substantial
dilution or enlargement of rights in the event that a stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination,
exchange of shares, or any similar change affects the Common Stock. In such
events, shares subject to outstanding options and stock appreciation rights (and
the price per share of such shares) also will be proportionately adjusted. No
option or stock appreciation right may be granted under the 1999 Plan after the
expiration of ten (10) years from the date the 1999 Plan was adopted by the
Board. On _________, 1999 the closing price of the Company's Common Stock was
$______________ per share.
Administration
The 1999 Plan will be administered by the Executive Compensation
Committee of the Board of Directors (or other committee that satisfies the
requirements for non-employee directors set forth in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended) (the "Committee"). The
Committee, after consultation with the Company's Chief Executive Officer, will
determine, among other matters, (1) the individuals who qualify as key managers
and employees for eligibility, (2) the type of grant, if any, each such employee
will receive, (3) the number of shares subject to each option and/or stock
appreciation right, (4) the time and manner of exercise, and (5) the duration of
the exercise period. The Committee also will have the authority to interpret the
1999 Plan, prescribe, amend, and rescind any rules and
16
<PAGE>
regulations necessary or appropriate for its administration, and make such other
determinations under, and interpretations of, the 1999 Plan, and take such other
action, as it deems necessary or advisable.
Eligibility
Present and future key managers and employees of the Company (or its
subsidiaries) are eligible to receive awards under the 1999 Plan. After
consultation with the Company's Chief Executive Officer, the Committee will have
the authority to determine who is a key manager or employee. Currently,
approximately 300 employees would be eligible to participate in the 1999 Plan.
Upon notice to a key manager or employee of the Committee's decision to
grant an option and/or stock appreciation right to him/her, that employee will
receive the option and/or stock appreciation right granted only if the employee
enters into an Option or Stock Appreciation Right Agreement within thirty (30)
days after receiving the notice. The employee must agree in the Option or Stock
Appreciation Right Agreement to remain in the employ of the Company for a period
of twenty-four (24) months from the date of the grant (or earlier retirement),
and unless otherwise provided, the employee may not exercise the options and/or
stock appreciation rights until after such period, or until the employee's
earlier retirement, death, total disability or an actual or threatened change in
control of the Company. Options and stock appreciation rights are not
transferable other than by will or by the laws of descent and distribution.
Terms and Conditions of Grants of Options
The Committee will designate whether an option is an incentive stock
option (and therefore subject to certain specific limitations necessary to
receive tax treatment as such under the Internal Revenue Code of 1986, as
amended (the "Code")) or a nonqualified stock option, the exercise date or dates
of the option, and the option period. The purchase price of shares subject to an
incentive stock option or nonqualified stock option, will be no less than 100%
(110% in the case of incentive stock options granted to holders of more than 10%
of the Company's voting stock) of the fair market value of a share of Common
Stock on the grant date. The option price of the shares must be paid to the
Company at the time of exercise either in cash or in such other consideration as
the Committee deems appropriate, including Common Stock equal in fair market
value to the option price, whether previously owned or a portion of the shares
being acquired upon exercise. The option period, including any extensions that
may be granted in the Committee's discretion, may not exceed ten (10) years from
the date of the grant (or five years in the case of incentive stock options
granted to holders of more than 10% of the Company's voting stock). Options not
yet fully vested will become vested and exercisable in full in the event of
death, total disability, or retirement of the participant or if there is an
actual or threatened change in control of the Company. Under the 1999 Plan, an
employee's total disability, retirement or termination of employment for any
other reason except death may result in a reduction of the option period
initially established by the Committee. The aggregate fair market value of the
shares of Common Stock with respect to which incentive stock options may be
granted under the 1999 Plan and any other plan maintained by the Company cannot
exceed $100,000 for shares which became exercisable for the first time by an
Optionee during any calendar year.
The Committee may also provide for the automatic grant of a new option
(a "Reload option") and may designate it as an incentive stock option or a
nonqualified stock option. The Reload option may be granted automatically to a
participant when he exercises an 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 will be for the
number of shares delivered upon the employee's exercise of an option, will be
exercisable only in the event shares purchased upon exercise of the original
option are held for the holding period specified in the Option Agreement, and
will terminate in the event such shares are sold prior to the expiration of the
holding period. The purchase price of shares subject to each Reload option will
be no less than the fair market value on the date of the Reload option grant.
17
<PAGE>
The Board or the Committee may authorize financial assistance for the
purpose of providing funds for the purchase of Common Stock pursuant to the
exercise of an option granted under the 1999 Plan, however, the amount of
financial assistance may not exceed ninety percent (90%) of the purchase price.
The recipient of the financial assistance must provide a negotiable promissory
note for the amount, payable to the Company or its order, of not more than five
years in term, with an interest rate to be fixed by the Committee of not less
than the applicable federal rate (as defined in the Code), and must pledge the
shares purchased as security.
Terms and Conditions of Stock Appreciation Rights
The Committee may grant stock appreciation rights covering the same
shares (or a lesser number of shares) of Common Stock that are covered by an
option or shares that are not covered by an option. A stock appreciation right
that is related to an option (in which case the exercise of one automatically
cancels the right to exercise all or a portion of the other) generally will be
subject to the same terms and conditions as the related option and will entitle
the holder to surrender the related unexercised option and to receive an amount
equal to the excess of the fair market value of one share of Common Stock on the
exercise date over the option price times the number of shares covered by the
surrendered option. A stock appreciation right granted independently of any
option will be exercisable at such times and under circumstances as determined
by the Committee, however, it shall be exercisable no later than ten (10) years
after the date of grant. A stock appreciation right granted independently will
entitle the holder to receive an amount equal to the excess of the fair market
value of one share of Common Stock on the exercise date over the price per share
stated in the stock appreciation right (which price will be no less than 100% of
the fair market value of a share of Common Stock on the grant date) times the
number of shares covered by the stock appreciation right. The Committee will
determine at the time of the grant whether payment upon exercise will be made in
cash, in shares of Common Stock, or partly in cash and partly in shares. After
consultation with the Company's Chief Executive Officer, the Committee may
approve or deny a request to exercise a stock appreciation right.
Amendment and Termination
The Board may amend the 1999 Plan as it may deem advisable, provided,
however, that no amendment will be effective without prior shareholder approval
if the amendment would (a) materially increase the number of securities which
may be issued under the 1999 Plan to Insider Participants; or (b) materially
modify the requirements as to eligibility for participation in the 1999 Plan to
add a class of Insider Participants. Certain other amendments may also require
shareholder approval. The Board may terminate the 1999 Plan at any time. No
amendment or termination of the 1999 Plan will alter or impair any rights or
obligations under any option or stock appreciation right previously granted
without the participant's consent.
1999 Plan Benefits
Because grants under the 1999 Plan are entirely discretionary, the
Company cannot determine the number of options and/or stock appreciation rights
that will be granted to participants in the future or that would have been
granted to participants in 1998 if the 1999 Plan had been in effect.
Federal Income Tax Treatment of Awards
Nonqualified Stock Options and Stock Appreciation Rights: A recipient
--------------------------------------------------------
will not realize taxable income at the time a nonqualified stock option or stock
appreciation right is granted and no deduction will be allowed for the Company
at that time. Upon exercise, the recipient will generally realize ordinary
income (i) in the case of the exercise of a nonqualified stock option, in an
amount equal to the difference between the fair market value of the shares at
the time of exercise and the option price, and (ii) in the case of the
18
<PAGE>
exercise of a stock appreciation right, in an amount equal to the cash or the
fair market value of the shares received pursuant to the exercise. Tax
withholding is required on such income or the Company must otherwise ensure that
the amount of required withholding is remitted by the recipient to the Company.
The Company normally will be entitled to a deduction at the same time and in the
same amount as the employee is considered to have realized as ordinary income in
connection with the exercise.
If an Optionee exercises a nonqualified stock option by surrendering
Common Stock already owned by the optionee with a fair market value equal to all
or a portion of the exercise price, the optionee will not recognize any gain or
loss upon the surrender of already-owned shares of Common Stock for an equal
number of new shares of Common Stock. The basis and holding period of the old
shares is carried over to an equal number of new shares.
Section 83(c)(3) of the Internal Revenue Code provides that a recipient
who is subject to potential liability under Section 16(b) will recognize income
on the exercise date in accordance with the rules described above, if the option
or stock appreciation right was issued at least six months before such date.
However, an argument can be made, based upon the Code and regulations, that if
an Insider Participant has made, or could make, other purchases of Company stock
within six months before or after the exercise date of a nonqualified stock
option or a stock appreciation right that is exercisable for cash or Common
Stock, taxation will be deferred until six months after the exercise date,
unless the recipient has made a timely election under Section 83(b) of the Code
to be taxed as of the date of exercise. At the time the recipient recognizes
ordinary income, the Company will be entitled to a tax deduction in an amount
equal to the amount of ordinary income recognized by the recipient, subject to
proper withholding.
Upon the sale of stock acquired upon the exercise of a nonqualified
stock option or stock appreciation right, the seller will realize a capital gain
or loss equal to the difference between the amount realized on such disposition
and the employee's basis for the shares. The employee's basis will equal the
fair market value of the shares acquired upon the exercise as of the date such
shares were includible in income, unless such shares were acquired with
previously owned shares. In such event the employee's basis will equal the basis
of an equal number of the previously owned shares.
Incentive Stock Options: An optionee will not realize taxable income at
-----------------------
the time an incentive stock option is granted or exercised, however, if an
incentive stock option is exercised more than three months following the
optionee's termination of employment for any reason except death or disability
(a disqualifying exercise), the optionee will recognize ordinary income in an
amount equal to the difference between the fair market value of the shares on
the date of exercise and the option exercise price. Although an optionee will
not realize ordinary income upon his or her exercise of an incentive stock
option, the excess of the fair market value of the Common Stock acquired at the
time of exercise over the option price may constitute an adjustment in computing
alternative minimum taxable income under Section 56 of the Code and, thus, may
result in the imposition of the "alternative minimum tax" pursuant to Section 55
of the Code on the optionee. If an optionee exercises an incentive stock option
by surrendering Common Stock, the same results as discussed above with respect
to nonqualified stock options will apply.
When Common Stock covered by an incentive stock option is sold, the
optionee will be taxed on the difference between the sale price and the original
option price. If the optionee has held the stock for at least one year after
exercise of the incentive stock option and two years after the date the
incentive stock option was granted, the gain, if any, will be treated as capital
gains. If an optionee sells stock covered by an incentive stock option in a
disqualifying disposition, i.e. within one year after the exercise of the
incentive stock option or within two years after the grant of the incentive
stock option, the optionee will recognize ordinary income in the year of the
disposition on the difference between the option price and the lesser of the
fair market value of the stock on the date of exercise and the sale price of the
stock. The optionee's basis in the shares sold is the amount recognized as
ordinary income upon the exercise of an incentive stock option added to the
option exercise price.
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<PAGE>
The Company generally is not entitled to a deduction as a result of the
grant or exercise of an incentive stock option. However, if the optionee
recognizes ordinary income as a result of a disqualifying exercise or
disposition, the Company is entitled to a deduction of an equivalent amount in
the taxable year of the Company in which the disqualifying disposition or
exercise occurs.
Change of Control
The 1999 Plan provides that, in the event of certain changes in
ownership or control of the Company, the right to exercise options otherwise
subject to a vesting schedule may be accelerated. In the event such acceleration
occurs and depending upon the individual circumstances of the recipient, certain
amounts with respect to such options may constitute "excess parachute payments"
under the "golden parachute" provisions of the Code.
Pursuant to these provisions, a recipient will be subject to a 20%
excise tax on any "excess parachute payments" and the Company will be denied any
deduction with respect to such payment.
Code Section 162(m)
Effective January 1, 1994, Section 162(m) of the Code generally limits
to $1 million per individual per year the corporate deduction for compensation
paid to the Company's Chief Executive Officer and certain other officers of the
Company whose compensation is required to be reported in the Summary
Compensation Table. Under Section 162(m) of the Code, compensation attributable
to options and stock appreciation rights that satisfy certain criteria is
considered performance-based compensation and as such is excluded from the
compensation taken into account for purposes of the $1 million compensation
deduction limitation. The requirements for performance-based compensation, as
applied to options and stock appreciation rights, include disclosure to
shareholders of the class of employees who are eligible to receive such
compensation, the maximum number of shares for which grants may be made to any
employee and the exercise price of the grants. As set forth above, grants may be
made under the 1999 Plan to key managers, and the exercise price for such grants
must be no less than 100% of the fair market value of a share of Common Stock on
the grant date. The options and stock appreciation rights granted under the 1999
Plan also are intended to satisfy the other requirements for performance-based
compensation under Section 162(m) of the Code and, accordingly, the Company
expects to be entitled to a deduction for any ordinary income that is realized
by any employee with respect to options and stock appreciation rights granted
under the 1999 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1999
PLAN.
20
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ITEM 4--RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of KPMG LLP, independent
public accountants, to serve as auditors for the fiscal year ending December 31,
1999, subject to ratification by the shareholders. This firm (and its
predecessors) has served as the Company's auditors since 1980.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THIS
SELECTION.
If the appointment is not approved, the Board will select other
independent accountants. It is expected that a member of the firm of KPMG LLP
will be present at the Annual Meeting, will have an opportunity to make a
statement if so desired, and will be available to respond to appropriate
questions.
Shareholder Proposals for the 2000 Annual Meeting
Proposals of shareholder intended for inclusion in the Proxy Statement
for the Annual Meeting of Shareholders to be held in 2000, must be received at
the Company's executive offices not later than December 17, 1999. Proponents
should submit their proposals by Certified Mail--Return Receipt Requested.
A shareholder who wishes to make a proposal at the 2000 Annual Meeting
of Shareholders without including the proposal in the Company's proxy statement
must notify the Company of such proposal by March 1, 2000. If a shareholder
fails to give notice by this date, the proxy solicited by the Company for use in
connection with the 2000 Annual Meeting will confer discretionary authority on
the persons named as proxies to vote in their discretion on such proposal
without any discussion in the proxy statement of either the proposal or how the
proxies intend to exercise their voting discretion.
Other Matters
The Company is not aware of any business which will be presented at the
1999 Annual Meeting of Shareholders other than those matters set forth in the
accompanying Notice of Annual Meeting of Shareholders. If any other matters are
properly presented at the 1999 Annual Meeting for action, it is intended that
the persons named in the accompanying proxy and acting thereunder will vote in
accordance with their best judgment on such matters.
Solicitation of Proxies
The solicitation of proxies will be made primarily by mail. Proxies may
also be solicited personally and by telephone or telegraph by regular employees
of the Company, without any additional remuneration and at minimal cost. The
Company has also retained the services of Corporate Investor Communications,
Inc., Carlstadt, New Jersey, to solicit proxies on behalf of the Company. The
fee to be paid by the Company for such services is not expected to exceed
$10,000. The cost of soliciting proxies will be borne by the Company.
BY ORDER OF THE BOARD OF DIRECTORS
HOOPER HOLMES, INC.
/s/ Robert William Jewett
Robert William Jewett
Secretary
April 15, 1999
21
<PAGE>
[X] (Please mark your) votes as in this example.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR election of
directors, and FOR proposals 2, 3 and 4.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Election of Directors and FOR
proposals 2, 3 and 4.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Nominees:
Directors: [_] [_] Benjamin A, Currier
Elaine L. Rigolosi
For, except vote withheld from the following nominee(s):
-----------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of
Amendment to [_] [_] [_]
Certificate of
Incorporation.
FOR AGAINST ABSTAIN
3. Approval of 1999
Stock Option Plan. [_] [_] [_]
FOR AGAINST ABSTAIN
4. Approval of
Independent [_] [_] [_]
Auditors.
5. In their discretion, upon other matters as may properly come before the
meeting or any adjournment(s) thereof.
SIGNATURE(S) _______________________________________________ DATE _____________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
<PAGE>
HOOPER HOLMES, INC.
Proxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting, May 25, 1999
The undersigned hereby constitutes and appoints James M. McNamee and
P Robert William Jewett and each of them, the true and lawful attorneys,
R agents and proxies of the undersigned, with full power of substitution,
O to vote with respect to all the shares of Common Stock of Hooper Holmes,
X Inc., standing in the name of the undersigned at the close of business
Y on April 7, 1999, at the Annual Meeting of Shareholders and all
adjournments thereof, with all powers that the undersigned would possess
if personally present.
(Change of address)
---------------------------
---------------------------
---------------------------
---------------------------
You are encouraged to specify your choice by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any box if you wish to vote in accordance
with the Board of Directors' recommendations. The Proxy Committee cannot vote
your shares unless you sign and return this card.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
