<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999.
Commission file number: 1-9972
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HOOPER HOLMES, INC.
(Exact name of Registrant as specified in its charter)
New York 22-1659359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 Mt. Airy Road
Basking Ridge, NJ 07920
(Address of principal executive offices) (Zip Code)
Area Code (908) 766-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock ($.04 par value) American Stock Exchange
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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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. [X]
As of February 29, 2000, there were 32,867,394 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of these shares on
the American Stock Exchange, was $ 957,300,083 based on 31,131,710 shares. For
the purposes of the foregoing calculation only, all directors and executive
officers of the Registrant have been deemed affiliates.
Certain information contained in the Company's 1999 Annual Report to
Shareholders and its Proxy Statement in connection with its 2000 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
Hooper Holmes is the nation's leading provider of health information services
to the life insurance industry. We provide paramedical and medical examinations,
personal health interviews and record collection, and laboratory testing, which
help life insurance companies evaluate the risks associated with underwriting
policies. We serve our customers through our network of over 9,000 registered
nurses, licensed practical nurses, physicians, phlebotomists and medical and EKG
technicians, of which approximately 1,300 are employees and 7,700 are active
independent contractors. We operate through approximately 230 branch offices and
75 contract affiliate offices located in 50 states, Guam and Puerto Rico. We
have over 700 life insurance company customers, including the 50 largest in the
United States.
Growth Strategy
Our growth strategy is to enhance our industry leadership position by
capitalizing on the industry trends and providing the most comprehensive array
of health information services to the life insurance industry. We will pursue
this strategy by:
. Continuing our commitment to industry leadership through automation.
Insurance companies and insurance agents are demanding faster, more
user-friendly services. In response, we have made a substantial investment
in technology and we believe we have the most automated branch network and
operating system in the industry. Today, customers can handle several
examination orders, monitoring order status, communicating with our
customer service and branch locations, and receiving results of personal
health interviews. For 1999, we received approximately 40% of all orders
electronically. We intend to continue investing in the latest technology to
further enhance our services and provide expanded electronic access over
the Internet.
. Increasing our focus on alternate distribution channels. Alternate
distribution channels represent a rapidly growing segment of the life
insurance industry. For the year 1999, alternate distribution channel
customers accounted for approximately $41 million or 18% of our gross
Portamedic revenues, up approximately 72% from $24 million for the same
period in 1998. We believe that our geographic coverage and level of
automation position us to provide the level of support that alternate
distribution channels require. We have aggressively pursued sales to
entities using these channels and are currently establishing alliances that
in many cases have resulted in exclusive relationships with them.
. Leveraging our national branch network. Our national branch network
provides us with a broad geographical coverage capable of providing local
service for insurance companies, agents and brokers across the entire
United States. This coverage positions us to become the preferred provider
of health information services to a consolidating life insurance industry.
We believe that our branch network and technological infrastructure enable
us to significantly increase the volume of our services with only a
marginal increase in our branch operating costs.
. Continuing to pursue strategic acquisitions. We intend to continue pursuing
strategic acquisitions that complement existing services and leverage our
existing capabilities. Two recent acquisitions have increased our market
share and enhanced our service offerings: PSA, the second largest provider
of medical and paramedical examinations in the U.S., in November 1999 and
Heritage Labs International LLC, a provider of
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laboratory testing services for life insurers, in December 1998.
. Expanding into related lines of business. We are exploring means to enter
new lines of business which leverage our existing branch network, service
capabilities or customer base. For example, we continue to develop services
for pharmaceutical companies engaged in the clinical trials process,
including specimen collection and data management. We also intend to
explore adding other services, including offerings for the long-term care
insurance market and workers' compensation case management.
Services
Portamedic -- Paramedical and Medical Examinations
We perform paramedical and medical examinations of insurance policy
applicants under the Portamedic trade name and provide the results to insurance
companies, agents and other non-traditional insurance marketers in connection
with issuance of primarily life insurance policies. We are the leading
paramedical and medical examination company in the U.S., having performed
approximately 2.9 million exams in the twelve months ended December 31, 1999.
Since an insurance applicant may reconsider his or her purchase in the time
it takes to deliver examination results, our system is designed to timely
deliver applicant information to the insurance company. We strive to schedule an
appointment within 24 to 30 hours of receiving the request and to complete the
entire examination process in three to five days, unless the applicant desires a
later appointment. Our examiners perform examinations at times and locations
convenient to applicants, primarily at the applicant's home or place of
business.
Since almost all of our examiners are nurses and other medically trained
professionals, we are able to provide our customers with a full range of
paramedical and medical examinations. Our examiners also perform other ancillary
services including helping applicants understand and complete forms and
obtaining consent signatures. In addition, we have dedicated customer service
employees in Chicago, who help complete applications based on telephone
interviews with applicants, and additional customer service employees located in
service centers in Minneapolis, Dallas and Kansas City, who provide general
customer service support.
Each insurance company has separate guidelines for determining whether an
examination is required and the type of services required. The following chart
illustrates what a typical insurance company's guidelines might look like for
determining the types of examinations and samples collected when our services
are required. Our computer system contains more than 1,600 of these charts for
various insurance companies.
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<TABLE>
<CAPTION>
Age of Applicant
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18-40 41-50 51-60 61-70
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<S> <C> <C> <C> <C>
$100,000 Urine, Blood Paramedical, Paramedical, Paramedical,
and under Urine, Blood Urine, Blood Urine, Blood,
Resting EKG
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$100,001- Paramedical Paramedical, Paramedical, Paramedical,
$350,000 Urine, Blood Urine, Blood Urine, Blood, Urine, Blood,
Resting EKG Resting EKG
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Policy $350,001- Paramedical, Paramedical, Paramedical, Medical Exam,
Amount $500,000 Urine, Blood Urine, Blood Urine, Blood, Urine, Blood,
Resting EKG Stress EKG Stress EKG
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$500,001- Paramedical, Paramedical, Medical Exam, Medical Exam,
$1,000,000 Urine, Blood Urine, Blood, Urine, Blood, Urine, Blood,
Resting EKG Stress EKG Stress EKG
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$1,000,001 Paramedical, Medical Exam, Medical Exam, Medical Exam,
and up Urine, Blood, Urine, Blood, Urine, Blood, Urine, Blood,
Resting EKG Stress EKG Stress EKG Stress EKG
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</TABLE>
Infolink Services Group -- Personal Health Interviews and Medical Record
Collection
Under the Infolink name, we offer personal health interviews and medical
record collection, including attending physician statements, to our customers.
Infolink reports are completed through highly automated, centrally located
offices. In 1999, we provided approximately 350,000 Infolink reports.
Infolink reports can be ordered electronically, by fax or by phone.
Approximately 50 full-time employees prepare all of the Infolink reports ordered
by our customers from call centers in Austin, Texas; Philadelphia, Pennsylvania;
and Louisville, Kentucky. These employees interview the applicant, his or her
employer, and his or her business and personal associates. The report is then
electronically transmitted or faxed to the insurance underwriter at its request.
Our information systems allow us to tailor reports for each client's needs and
reduce paperwork and turnaround time for our clients. We strive to deliver our
Infolink reports back to the insurance company within two to three days from the
time of request.
In addition, life insurance companies may also require attending physician
statements. In such cases, either a branch office or our central attending
physician statement office in Chicago will contact the applicant's physician,
clinic or hospital to request medical records, send a written request with
payment and follow-up to confirm delivery of the information.
Heritage Labs
In December 1998, we acquired a 55% interest in Heritage Labs, a laboratory
providing testing services for the life insurance industry. Heritage Labs
processes lab tests both for our customers and third-party health information
service providers. This acquisition has enabled us to internalize the laboratory
testing process and to offer our life insurance customers a one-stop source for
their health information service needs. Combined with our existing automation,
we believe Heritage Labs allows us to provide a seamless service of processing,
gath-
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ering and testing health information for our life insurance customers.
Insurance companies determine which laboratory will process the samples
collected from their respective applicants. Since December 1998, we have added
over 85 new customers for our Heritage Labs testing services bringing the total
number of customers to over 130. The number of samples tested in December 1999
doubled to approximately 33,500 from 16,600 in December 1998.
Other Services
Under the Healthdex tradename, we are developing services for pharmaceutical
and biotechnology companies. Our goal is to leverage our health information
expertise and branch network to provide outsourced information services to
support clinical trials and data analysis. Currently our business in this area
consists of performing chart review and monitoring clinical trials processes.
Chart review entails collecting patient information from physician records and
transmitting it to customers in formats requested by them. Clinical trials
monitoring entails verifying investigator credentials and site locations, as
well as assuring that proper informed consent processes are followed. In
addition, we perform some ancillary services such as occupational health
screening and substance abuse testing for corporations and other organizations
outside of the insurance industry.
Our Network
We believe our network of branch offices and contract affiliates is the most
extensive in our industry. We can provide an examination to any applicant in any
location in the United States.
Our branch managers are responsible for the supervision of the local health
information operations. Support staff coordinate examinations and reporting
procedures and perform quality assurance functions. Branch sales personnel
perform marketing and sales activities. Each branch office is automated with
direct electronic connections to our home office in Basking Ridge, New Jersey.
Orders are received by both branch offices and our corporate home office. Those
orders received by our home office are electronically processed and routed to
the appropriate branch. The branch office is responsible for scheduling the
examination and assigning an examiner. The status of the examination is entered
into the branch office system, then is retrieved and processed by the home
office and made available to the customer. Once examination results are
complete, they are faxed or mailed directly to the customer.
We have 75 independent contract affiliates, 60 of which we added in the
acquisition of PSA. Contract affiliates perform many of the same functions as
our branch offices, but are independently owned and operated. Our contract
affiliates provide our Portamedic services in assigned geographical areas
throughout the United States and receive orders directly from our customers.
Three of our contract affiliates have exclusive rights to provide examination
services in areas that are not served by our branch offices. Each contract
affiliate is responsible for compensating, training, hiring and supervising all
of its personnel and must meet the same quality assurance standards of our
branches, including necessary credentialing of its examiners. Our contract
affiliates use a version of our system software that allows them to bill
customers and obtain examination status reports.
Our Automation Systems
As technology continues to advance the underwriting process, life insurance
companies are demanding timely delivery of information from health information
service providers. Our automation systems are designed to meet these demands by
providing the following benefits.
Electronic Networking Capabilities Between Branch Offices
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We have developed a comprehensive, automated management information system,
designed by our field personnel, that is now online in all branch offices. The
system connects each branch and the home office, allowing us to send and receive
orders, schedule examinations, and instantly and regularly monitor examination
request status. The system enables personnel at our corporate headquarters to
compile company-wide information regarding quality assurance standards, in
addition to administrative, accounting and other management information.
Direct Electronic Links with our Customers
Many of our customers communicate with us electronically through our Win
Remote APS Paramedical Inspection Data (R.A.P.I.D.) system. Customers
electronically place orders with us and receive personal interview reports
through this system, reducing the turnaround time and cost associated with each
order.
We provide additional automation services to our customers through our
Teledex service. Teledex is an automated service providing applicant information
to our insurance customers on an expedited basis. When an insurance customer
transmits an order through Teledex, a staff member pulls up a customer-specific
underwriting questionnaire on his or her computer terminal and begins collecting
applicant information, which includes a telephone interview with the applicant.
Teledex has over 1,600 different, customer-specific underwriting questionnaires
in its system, which enables us to provide customized reports for each customer
in a matter of hours. This process is valuable to our customers because it
allows them to begin the underwriting process upon receipt of our Teledex
report, rather than waiting for an examiner to perform the examination, collect
the data and then return the report and examination results. Teledex
additionally receives and handles orders for attending physician statements.
These customer links are designed to reduce paperwork, turnaround time and
the chance that the insurance applicant will reconsider his or her buying
decision by the time results are gathered.
Internet-based Ordering and Monitoring
In addition to accessing Win R.A.P.I.D., customers can conduct business with
us online through the Internet. Our online service enables customers to place
orders and instantly and regularly monitor the status of a particular
examination request. The benefits of this service to the customer are faster
processing, 24-hour access, and easy order tracking. Customers gain access to
our Portamedic Web site using a secure password. The status of exams is updated
at the close of each business day and made available to the customer at the
beginning of the next business day. The Internet has improved our customer
service and has also lowered our processing costs by reducing the human
interaction in the ordering process. This service is intended to complement
telephone contact between our branches and insurance customers, and it provides
an additional level of service that many of our customers desire. Management
believes that we are the only health information services provider to offer this
online service. Non-traditional insurance marketers, who employ a direct
response approach to selling insurance products, particularly depend upon our
ability to expedite their requests for service. Approximately 14% of our
alternate distribution channel orders were placed through the Internet during
the fourth quarter of 1999.
Quality Assurance Program
The quality and reputation of personnel and operations are critical to the
continued success of our business. Our successful implementation of quality
assurance depends on our ability to recognize problems and solve them within a
relatively short time period. To help do this, we employ a statistical quality
control program, which allows us to monitor quality at many different levels of
operation.
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At the branch office level, quality assurance specialists monitor examiner
performance. Each examiner undergoes periodic evaluations to provide feedback
and ensure that any recurring mistakes are remedied. Specialists also conduct
regular audits of branch office quality controls to assist branch managers in
improving their performance and the quality of services examiners perform.
At the corporate headquarters level, quality assurance specialists monitor
examiner performance twice each year through detailed statistical analyses of
examination accuracy and reporting methodology. A quality assurance log created
monthly by the corporate office tracks errors and problems with examinations and
examiners, including lab errors, omissions on forms and misdirected transmission
of results. The quality assurance specialists regularly evaluate examination
procedures and consult with our insurance customers to address any specific
problems and, where appropriate, suggest revisions to improve examination
procedures and reports.
We hire and contract with properly trained, experienced examiners. In
addition, we have developed a database of over 1,000 credentialed physicians who
are approved to perform medical examinations for our customers.
Sales and Marketing
We market 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. Two of these
sales representatives call exclusively on entities that distribute through
alternate distribution channels. We serve approximately 700 life insurance
companies, including their extensive network of agency, district, and brokerage
offices. National sales representatives promote our consistently high quality of
service and rapid response time to examination requests and are responsible for
maintaining our position on each insurance company's approved list of
examination providers. We regularly attend and occasionally sponsor customer
conferences to provide national sales representatives with opportunities to
further develop key relationships.
At the local level, branch managers, and in certain offices, additional
marketing personnel, market our services directly to the local insurance agents
and 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 our examiners and the speed and accuracy of our
services, including the ability of each branch to quickly ascertain the status
of each service request through our automated branch management information
system.
Competition
Management believes that we are the largest of the three national firms that
focus primarily on providing paramedical and medical examinations, personal
interviews and record collection to the life insurance industry. Our two largest
competitors are Examination Management Services, Inc. and American Para
Professional Systems. A significant number of regional and local firms also
compete in our industry. Through our Heritage Labs subsidiary we also compete
with laboratory testing providers, who typically do not provide other health
information services such as paramedical and medical examinations, personal
interviews and record collection.
Although we have exclusive relationships with a small number of our
customers, companies traditionally use two or more health information services
providers. This means we face direct competition from our competitors who have
existing relationships with many of our customers. Our ability to retain
customers will depend on our continued ability to serve their needs and
distinguish ourselves from our competitors. In management's opinion, the
principal competitive factors in our market are:
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. quality of service and examinations;
. timeliness of examination process and communication of results;
. geographic breadth of coverage;
. automation and connectivity between health information providers and
insurers; and
. price.
More recently, technological capabilities have become much more important to
meeting our customers' needs. We are continually enhancing and expanding our
technology and network infrastructure to accommodate our customers' changing
needs, including the electronic ordering of our services and online status
checks. We are also adapting to the technological needs of insurance companies
which are beginning to rely more on alternate distribution channels, including
the Internet, to sell their products.
Service Marks and Trademarks
We have registered several service marks, including "Portamedic(R),
"Healthdex(R)" and "Teledex(R)," and have filed applications to register
"Infolink" and the Hooper Holmes logo with the United States Patent and
Trademark Office. Our rights to these marks will continue as long as we comply
with the usage, renewal filing and other legal requirements relating to the
renewal of service marks. We also have a non-exclusive license to use the name
"PSA" solely in connection with the business we acquired from PSA, for one year
after the closing. We intend to use the "PSA" name to facilitate the integration
of PSA's business into ours.
Personnel
With the acquisition of PSA, we employ approximately 1,500 full-time and
1,500 part-time employees, including 1,300 examiners, none of whom is
represented by a collective bargaining agreement. We also contract with over
7,700 medically trained examiners, and utilize the services of 75 contract
affiliates. We hire and contract with properly trained, experienced and, when
required, licensed or certified examiners. Our ability to recruit skilled
personnel is essential to our continued growth and success. Management
attributes our success in recruiting skilled personnel in our health information
services business to the flexible work schedules and varied work assignments we
offer our examiners. Management believes that these factors will enable us to
continue to attract and retain qualified personnel.
Government Regulation
Certain aspects of our business are regulated by the states in which we
operate and, to a lesser extent, by the federal government. In addition to
licensing and certification requirements for our examiners, we are subject to
regulations governing various aspects of our services, including needle disposal
and specimen handling procedures, and licensing and FDA requirements governing
Heritage Labs and our examination kits. Management is not aware of any pending
federal or state environmental laws or regulations that would have a material
adverse effect on our business or competitive position or that would require
material capital expenditures on our part to effect compliance.
Insurance and Legal Proceedings
Claims made against us arising in the course of providing health information
services have not resulted in any
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material liability to date. We carry liability insurance in coverage amounts
that we believe is customary in our business. There can be no assurance,
however, that such coverage will be sufficient to cover claims made against us,
that adequate insurance coverage will continue to be available to us, or that
insurance coverage will be available on favorable terms. Our 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.
We are a party to a number of legal actions arising in the ordinary course of
business. In the opinion of management, we have adequate legal defense and/or
insurance coverage respecting each of these actions and do not believe their
ultimate disposition will materially affect our consolidated results of
operations or financial position.
In the past, some state agencies have claimed that we improperly classified
our examiners as independent contractors for purposes of state unemployment tax
laws and that we were therefore liable for arrears of taxes, or for penalties
for failure to comply with these laws. We have recently received an adverse
determination in California on an unemployment tax issue and are currently
appealing that decision. Other similar state claims are also pending or have
been resolved. We have prevailed in four of these states, and we have re-
classified our independent contractors as employees in two states. We also
recently settled with another state and intend to remit unemployment taxes for
certain types of independent contractors in that state. These adverse
determinations have not had a material adverse effect on our business.
ITEM 2. Properties
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We own a five-building complex located at 170 Mt. Airy Road, Basking Ridge,
New Jersey. Of approximately 53,000 total square feet of office space, we
maintain our operations in approximately 43,500 square feet and the balance is
leased or available for lease to several tenants. Management believes that this
arrangement provides for our foreseeable expansion needs.
We lease our field offices under a number of operating leases with varying
terms and expirations.
ITEM 3. Legal Proceedings
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Information contained in Note 8 to the Company's consolidated financial
statements contained in the annual report to shareholders is incorporated herein
by reference.
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.
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
1999 Annual Report to Shareholders which is Exhibit 13 to this report. As of
February 11, 2000, there were 880 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 1999 Annual Report to
Shareholders which is Exhibit 13 to this report.
ITEM 7. Management Discussion and Analysis of Financial Condition and Results of
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Operations
The discussion included under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations", which is
incorporated by reference to the Company's 1999 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 1999 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 23, 2000 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 23, 2000 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 Management" in the Company's Proxy Statement for the
Annual Meeting of shareholders to be held on May 23, 2000 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 23, 2000 is incorporated herein by reference.
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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 1999 Annual Report to Shareholders.
Independent Auditors' Report
Consolidated Balance Sheets--
December 31, 1999 and 1998
Consolidated Statements of Income--
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows --
Years ended December 31, 1999, 1998 and 1997
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 Certificate of Incorporation of --
Hooper Holmes, Inc., as amended (1)
3.2 Certificate of Amendment of the Certificate of
Incorporation of Hooper Holmes, Inc.
3.3 Bylaws of Hooper Holmes, Inc., as amended
4.1 Amended and Restated Rights Agreement --
between Hooper Holmes, Inc. and Midlantic
National Bank (2)
4.2 Amendment Number 2 to the Amended and Restated
Rights Agreement between Hooper Holmes, Inc. and
First City Transfer Company as successor to
Midlantic National Bank.
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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 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 (3)
10.2 Form of Indemnification Agreement (4) --
10.3 Hooper Holmes, Inc. Nonqualified Stock --
Option Plan (5)
10.4 First Amendment to Hooper Holmes, Inc. --
Nonqualified Stock Option Plan (6)
10.5 Hooper Holmes, Inc. 1992 Stock Option Plan --
as amended (7)
10.6 Employee Stock Purchase Plan (1993) of Hooper
Holmes, Inc., as amended
10.7 Hooper Holmes, Inc. 1994 Stock Option Plan (8) --
10.8 Amended and Restated Revolving Credit and Term Loan --
Agreement between Hooper Holmes, Inc. and First Union
National Bank and Fleet Bank, N.A. (9)
10.9 CEO Stock Option Agreement (10) --
10.10 1997 Stock Option Plan (11) --
10.11 1997 Director Option Plan (12) --
10.12 Employee Retention Agreement by and between Hooper --
Holmes, Inc. and Executive Officers of Hooper Holmes, Inc. (13)
10.13 1999 Stock Option Plan
13 Annual Report to security holders
21 Subsidiaries of Hooper Holmes, Inc. (none)
23 Consent of KPMG LLP
24 Power of attorney
27 Financial Data Schedule
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(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q for
the quarter ended September 30, 1999.
(10) Incorporated by reference to Attachment to the Company's Proxy Statement
for the Annual Meeting of Shareholders held on May 27, 1997.
(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, 1997.
(12) Incorporated by reference to Exhibit 10.11 of Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 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
Report on Form 8-K filed on November 12, 1999, reporting the acquisition of
substantially all of the assets of Paramedical Services of America, Inc.,
and subsequently amended by Form 8-K/A filed on January 14, 2000 reporting
the financial statements of the Paramedical Services of America, Inc.
business acquired.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOOPER HOLMES, INC.
(Registrant)
/s/ JAMES M. McNAMEE
----------------------------
By: James M. McNamee
President & CEO
Date: March 30, 2000
-----------------------
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:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JAMES M. McNAMEE Date: March 30, 2000
- ------------------------------------------------ -------------------------
James M. McNamee Director
President & CEO
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*Benjamin A. Currier Director
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*Quentin J. Kennedy Director
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*Kenneth R. Rossano Director
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*Elaine Rigolosi Director
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*John E. Nolan Director
Date: March 30, 2000
- ------------------------------------------------ -------------------------
*G. Earle Wight Director
/s/ FRED LASH Date: March 30, 2000
- ------------------------------------------------ -------------------------
Fred Lash Senior V.P., Treasurer
and Chief Financial
and Accounting Officer
</TABLE>
*James M. McNamee, by signing his name hereto, does hereby sign this report for
the persons before whose printed name an 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
-13-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
HOOPER HOLMES, INC.
-------------------
Under Section 805
of the
Business Corporation Law
------------------------
The undersigned, being the President and the Secretary of Hooper
Holmes, Inc., a New York corporation, do hereby certify and set forth the
following pursuant to Section 805 of the Business Corporation Law of the State
of New York:
FIRST: The name of the corporation is HOOPER HOLMES, INC. (the
"corporation"). The name under which the corporation was formed is THE HOOPER
HOLMES INFORMATION BUREAU.
SECOND: The certificate of incorporation of the corporation was filed
by the Department of State on March 7, 1906.
THIRD: The subject matter of the provision of the certificate of
incorporation which is to be amended is to increase the aggregate number of
common shares which the corporation shall have authority to issue from
80,000,000 shares, par value $0.04 per share, to 240,000,000 shares, par value
$0.04 per share.
Article Fourth of the certificate of incorporation of the corporation
is hereby amended to read 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.
FOURTH: This amendment to the certificate of incorporation of the
corporation was authorized by vote of the Board of Directors followed by the
affirmative vote of the holders of a majority of all outstanding shares entitled
to vote thereon at a meeting of the shareholders of this corporation duly called
and held on May 25, 1999, a quorum being present.
<PAGE>
-2-
IN WITNESS WHEREOF, the undersigned have subscribed this document on
the 2nd day of August, 1999 and do hereby affirm, under the penalties of
perjury, that the statements contained herein have been examined by us and are
true and correct.
/s/ James M. McNamee
---------------------------------
James M. McNamee
Chairman, President and Chief
Executive Officer
/s/ Robert William Jewett
---------------------------------
Robert William Jewett
Secretary
<PAGE>
STATE OF NEW JERSEY )
) ss:
COUNTY OF SOMERSET )
Robert William Jewett, being duly sworn, deposes and says that he is
the Secretary of Hooper Holmes, Inc., the corporation named in the foregoing
Certificate of Amendment of the Certificate of Incorporation; that he has read
and signed the same in such capacity; and that the statements contained therein
are true to his own knowledge.
/s/ Robert William Jewett
---------------------------------
Robert William Jewett
Subscribed and sworn to before me this
____ day of ________, 1999
________________________________
Notary Public
________________________________
Print Name
My Commission expires __________
<PAGE>
Revised July, 1999
INDEX
BY-LAWS
HOOPER HOLMES, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - SHAREHOLDERS............................................. 2
ARTICLE II - MEETINGS OF SHAREHOLDERS................................. 3
ARTICLE III - DIRECTORS................................................ 6
ARTICLE IV - OFFICERS................................................. 8
ARTICLE V - CAPITAL STOCK............................................ 8
ARTICLE VI - SIGNATURES AND ENDORSEMENTS.............................. 8
ARTICLE VII - CORPORATE SEAL........................................... 8
ARTICLE VIII - FISCAL YEAR.............................................. 8
ARTICLE IX - AMENDMENTS............................................... 9
ARTICLE X - INDEMNIFICATION.......................................... 9
</TABLE>
<PAGE>
BY-LAWS
OF
HOOPER HOLMES, INC.
(A New York Corporation)
ARTICLE I
SHAREHOLDERS
Section 1.1 CERTIFICATES. The interest of each shareholder of the
corporation shall be evidenced by certificates for shares of stock in such form
not inconsistent with the Certificate of Incorporation and the Business
Corporation Law as the Board of Directors may from time to time prescribe. Upon
compliance with any provisions restricting the transferability of shares that
may be set forth in the Certificate of Incorporation, these By-Laws, or any
written agreement in respect thereof, the shares of stock of the corporation
shall be transferable on the books of the corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the corporation or its agents may reasonably require. The
certificates of shares shall be signed by the Chairman of the Board, if any, or
the President or a Vice-President and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer, and sealed with the seal of the
corporation. Such seal may be a facsimile, engraved or printed. Where any such
certificate is signed by a transfer agent or a transfer clerk and by a
registrar, the signatures of the Chairman of the Board, if any, or the
President, Vice-President, Secretary, Assistant Secretary, Treasurer or
Assistant Treasurer upon such certificate may be facsimiles, engraved, or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such before
certificate is issued, it may be issued by the corporation with the same effect
as if such officer had not ceased to be such at the time of its issue.
No certificate representing shares shall be issued in place of any
certificate alleged to have been lost, destroyed or stolen, except on production
of such evidence of such loss, destruction or theft and on delivery to the
corporation, if the Board of Directors shall so require, of a bond of indemnity
in such amount upon such terms and secured by such surety as the Board of
Directors may in its discretion require.
2
<PAGE>
Section 1.2. FRACTIONAL SHARE INTERESTS. The corporation may issue
certificates for fractions of a share where necessary to effect transactions
authorized by the Business Corporation Law, which shall entitle the holder, in
proportion to his fractional holdings, to exercise voting rights as set forth in
the Certificate of Incorporation, receive dividends and participate in
liquidating distributions; or it may pay in cash the fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined; or it may issue scrip in registered or bearer form over the manual
or facsimile signature of an officer of the corporation or of its agent,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a shareholder except as therein provided.
Section 1.3. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining
the shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or to express consent to or dissent from any
proposal without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of any rights, or
for the purpose of any other action, the directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty (50) days nor less than ten (10) days before the date of
such meeting, nor more than fifty (50) days prior to any other action. If no
record date is fixed, the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held; the record date
for determining shareholders for any purpose other than that specified in the
preceding clause shall be at the close of business on the day on which the
resolution of the directors relating thereto is adopted. When a determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof, unless the directors fix a new record
date under this paragraph for the adjourned meeting.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1. TIME AND PLACE. The annual meeting of the shareholders for
the election of directors and all special meetings of shareholders for any
purpose may be held at such time and place, within or without the State of New
York, as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
3
<PAGE>
Section 2.2. ANNUAL MEETING. The annual meeting of shareholders of the
corporation shall be held during the month of May in each year on such date and
at such hour as the directors shall specify, at which the shareholders shall
elect a Board of Directors and transact such other business as may properly be
brought before the meeting.
Section 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President or the Board of Directors, and shall be called by the
President or Secretary at the request in writing of any one or more shareholders
owning at least one-third of the common stock of the corporation, issued and
outstanding, and entitled to vote, or by the holders of such lesser percentage
of said common stock as is authorized by the Business Corporation Law, for the
purposes therein expressly contained.
Section 2.4. RIGHT TO VOTE. At all meetings of shareholders, the right of
any shareholder to vote shall be governed and determined by the provisions of
the Certificate of Incorporation.
Section 2.5. NOTICE OF MEETING. Written notice of the place, date and hour
of annual and special meetings shall be given personally or by mail to each
shareholder entitled to vote thereat, not less than ten (10) nor more than fifty
(50) days prior to the meeting. Notice of a special meeting shall state the
purpose or purposes for which it is called and shall specify the person or
persons calling the meeting by whom or at whose direction such notice is being
issued. No notice of an adjourned meeting of shareholders need be given unless
expressly required by statute. All meetings of the shareholders may be held
without notice and without the lapse of any period of time, if at any time
before or after such action be completed such requirements be waived in writing
by the person or persons entitled to said notice or entitled to participate in
the action to be taken or by his attorney thereunto authorized.
Section 2.6. QUORUM. Except as otherwise provided by law or the
Certificate of Incorporation, the holders of record of a majority of the common
shares of the corporation, issued and outstanding, and entitled to vote thereat,
present in person or by proxy, shall be necessary to and shall constitute a
quorum for the transaction of business at all meetings of the shareholders. If a
quorum shall not be present at the time fixed for any meeting, the holders of a
majority of such shares so present or so represented may adjourn the meeting
from time to time, without further notice.
4
<PAGE>
Section 2.7. PRESIDING OFFICERS. Meetings of the shareholders shall be
presided over by one of the following officers in the order of seniority and if
present: the Chairman of the Board, the Vice Chairman, if any, the President, a
Vice President, or if none of these is present, by a Chairman to be chosen at
the meeting. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as Secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present, the meeting shall choose any person
present to act as Secretary of the meeting.
Section 2.8. VOTING. Every shareholder entitled to vote at any meeting may
so vote in person or by proxy and shall be entitled to one vote for each share
of common stock of the corporation held by him of record at the time of the
closing of the transfer books or on the record date fixed as hereinbefore
provided or if the transfer books are not closed and no such record date shall
have been fixed, then at the date of such meeting. At all elections of directors
the voting may, but need not be, by ballot and a plurality of the votes cast
thereat shall elect. Any other action shall be decided by a majority of the
votes cast except where the Business Corporation Law specifically requires a
larger proportion.
Section 2.9. PROXIES. Every proxy shall be in writing executed by the
Shareholder giving the proxy or his duly authorized attorney. No proxy shall be
valid after the expiration of eleven (11) months from its date, unless a longer
period is provided for in the proxy. Unless and until voted, every proxy shall
be revocable at the pleasure of the person who executed it or of his legal
representatives or assigns, except in those cases where an irrevocable proxy
permitted by law has been given.
Section 2.10. INSPECTORS OF ELECTION. The directors, in advance of any
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed, the person presiding at
the meeting may, and, on the request of any shareholder, shall appoint one or
more inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of common stock of the corporation
outstanding, the shares thereof represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the
5
<PAGE>
result, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the person presiding at the meeting
or any shareholder, the inspectors shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them.
Section 2.11. SHAREHOLDER ACTION WITHOUT MEETING. Whenever shareholders
are required or permitted to take any action by vote, such action may be taken
without a meeting on written consent or dissent, setting forth the action so
taken, signed by the holders of all outstanding shares entitled to vote thereon.
ARTICLE III
DIRECTORS
Section 3.1. FUNCTIONS, QUALIFICATIONS AND NUMBER. The property and
business of the corporation shall be managed by its Board of Directors. Each
director shall be at least twenty-one (21) years of age. A director need not be
a shareholder, a citizen of the United States, or a resident of the State of New
York. The number of directors constituting the entire Board shall be at least
three (3) but not more than nine (9). Subject to the foregoing limitation, such
number may be fixed from time to time by action of the directors or of the
shareholders, or, if the number is not so fixed, the number shall be three (3).
The number of directors may be increased or decreased by action of directors or
shareholders, provided that any action of the directors to effect such increase
or decrease shall require the vote of a majority of the entire Board. No
decrease shall shorten the term of any incumbent director. The phrase "entire
board" refers to the total number of directors which the corporation would have
if there were no vacancies.
Section 3.2 ELECTION AND TENURE. Effective as of the annual meeting of
shareholders in 1990, the Board of Directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of one
class expiring each year. The term of office of directors of the first class
shall expire at the annual meeting of shareholders in 1991, the term of office
of the second class at the annual meeting of shareholders in 1992 and the term
of office of the third class at the annual meeting of shareholders in 1993. At
each annual meeting of shareholders subsequent to 1990, successors to directors
of the class whose terms then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders after their
election. Each director shall hold office until his successor is elected or
qualified, or until his earlier resignation or removal. Newly created
directorships and any vacancies on the Board of Directors, including vacancies
resulting from the removal of directors with or without cause, may be filled by
the majority vote of all
6
<PAGE>
of the directors then in office, although less than a quorum.
Section 3.3. MEETINGS OF THE BOARD. Regular and special meetings of the
Board of Directors shall be held at such time and place, either within or
without the State of New York, as shall be fixed by the Board. Special meetings
may be held at any time upon the call of the President or any director by oral,
telegraphic or written notice duly served on or sent or mailed to each director
not less than five (5) days before such meeting. A meeting of the Board of
Directors may be held without notice immediately after the annual meeting of
shareholders at the same place at which such meeting is held. Notice need not be
given of regular meetings of the Board of Directors held at times fixed by
resolution of the Board of Directors. Meetings may be held at any time without
notice if all the directors are present, or if at any time before or after the
meeting those not present waive notice of the meeting in writing. Any action
required or permitted to be taken by the Board may be taken without a meeting if
all members of the Board consent in writing to the adoption of a resolution
authorizing the action. Any one or more members of the Board may participate in
a meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time.
Section 3.4. QUORUM AND ACTION. A majority of the entire Board shall
constitute a quorum except when vacancy prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided such
majority shall constitute at least one-third of the entire Board. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place. Except as herein otherwise provided, the vote of a
majority of the directors present at the time of the vote, if a quorum is
present at such time, shall be the act of the Board. Each director present shall
have one vote. The Chairman of the Board, if any, and if present, shall preside
at all meetings. Otherwise, the Vice Chairman, the President, if present, or any
director chosen by the Board, shall preside.
Section 3.5. REMOVAL OF DIRECTORS. Any or all of the directors may be
removed for cause or without cause by the shareholders. One or more of the
directors may be removed for cause by the Board of Directors.
Section 3.6. COMMITTEES. By resolution adopted by a majority of the entire
Board of Directors, the Directors may designate from their number, three or more
directors to constitute an Executive Committee and other committees, each of
which, to the extent provided in the resolution designating it, shall have the
authority of the Board of Directors with the exception of any authority the
7
<PAGE>
delegation of which is prohibited by Section 712 of the Business Corporation
Laws.
ARTICLE IV
OFFICERS
The directors, initially and at their first meeting each year following the
meeting of shareholders at which they were elected, may elect or appoint a
Chairman of the Board of Directors and a Vice Chairman, and shall elect a
President, one or more Vice Presidents, a Secretary and a Treasurer, and such
other officers as they may determine. The President may but need not be a
director. Any two or more offices may be held by the same person except the
offices of President and Secretary. Unless otherwise provided in the resolution
of election or appointment, each officer shall hold office until the meeting of
the Board of Directors following the next annual meeting of shareholders and
until his successor has been elected and qualified. Officers shall have such
powers and duties as generally pertain to their respective offices and as
defined in the resolution appointing them. Any officer may resign by written
notice to the Corporation and may be removed for cause or without cause by the
Board of Directors.
ARTICLE V
CAPITAL STOCK
The total number of shares which the corporation shall henceforth have is
240,000,000 to be common at a par value of $0.04 each.
ARTICLE VI
SIGNATURES AND ENDORSEMENTS
All checks or other orders for the payment of money and all notes or other
instruments evidencing indebtedness of the corporation shall be signed on its
behalf by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE VII
CORPORATE SEAL
The corporate seal, if any, shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
in each year and shall end on the 31st day of December next following, unless
otherwise determined by the Board of Directors.
8
<PAGE>
ARTICLE IX
AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation, these By-
Laws may be amended or repealed, and new By-Laws may be adopted by vote of the
shareholders entitled at the time to vote for the election of directors. By-Laws
may also be amended, repealed or adopted by resolution adopted by a majority of
the entire Board of Directors at any regular or special meeting; provided,
however, that any By-law or amendment to the By-laws so adopted by the Board of
Directors may be amended or repealed, and any By-law so repealed by the Board
may be reinstated, by vote of the shareholders entitled to vote thereon as
hereinabove provided, in which case the Board shall not thereafter take action
with respect to the By-laws which is inconsistent with the action so taken by
such shareholders. If any By-law regulating an impending election of directors
is adopted, amended or repealed by the Board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the By-
law so adopted, amended or repealed, together with a concise statement of the
changes made.
ARTICLE X
INDEMNIFICATION
The Corporation shall (a) indemnify any person made a party to an action by
or in the right of the Corporation to procure a judgment in its favor, by reason
of the fact that he, his testator or intestate, is or was a director or officer
of the Corporation, against the reasonable expenses, including attorneys' fees
actually and necessarily incurred by him in connection with the defense of such
action, and/or with any appeal therein, and (b) indemnify any person made, or
threatened to be made, a party to any action or proceeding, other than one by or
in the right of the Corporation to procure a judgment in its favor, whether
civil or criminal, by reason of the fact that he, his testator or intestate is
or was a director or officer of the Corporation or served any other corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise in any capacity at the request of the Corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, in each case to the fullest extent
permissible under Sections 721 through 726 of the New York Business Corporation
Law or the indemnification provisions of any successor statute.
9
<PAGE>
AMENDMENT NUMBER 2
dated March 14, 2000
to the
AMENDED AND RESTATED RIGHTS AGREEMENT
(Dated March 16, 1990, as amended and restated
on May 10, 1991 and as further amended
on July 12, 1995)
Between
HOOPER HOLMES, INC.
and
FIRST CITY TRANSFER COMPANY
as Rights Agent
<PAGE>
AMENDMENT NUMBER 2 dated March 14, 2000, to the AMENDED AND RESTATED RIGHTS
AGREEMENT, (amended May 10, 1991 and July 12, 1995, and dated as of March 16,
1990), between Hooper Holmes, Inc., a New York corporation (the "Company") and
First City Transfer Company, as successor to Midlantic Bank, NA and Midlantic
National Bank, as Rights Agent (the "Rights Agent", which term shall include any
successor Rights Agent hereunder), (the "Rights Agreement").
WHEREAS, the Company and the Rights Agent have entered into the Rights
Agreement dated as of March 16, 1990;
WHEREAS, the Rights Agreement has a stated expiration date of March 16,
2000; and
WHEREAS, the Board of Directors of the Company believes that it is in the
interest of the Company and its shareholders that the Rights Agreement be
continued beyond the expiration date for a period of time not to exceed three
(3) months, to allow the Board of Directors time to determine whether it is in
the interest of the Company and its shareholders to adopt a new Rights
Agreement; and
WHEREAS, the Company believes that the Board of Directors has both the
power and discretion to amend the Rights Agreement to extend the expiration date
and the Board of Directors has duly authorized Management to enter into this
Agreement;
NOW, THEREFORE, in consideration of the premises and respective agreements
set forth herein, the parties hereby agree to amend Article I, Section 1.1(i) to
delete the present subsection (i) in its entirety and to
<PAGE>
substitute in lieu thereof the following:
(i) "Expiration Time" shall mean the earlier of (i) the Redemption Time or
(ii) the close of business on June 16, 2000.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Number 2
to the Amended and Restated Rights Agreement, as amended, to be duly executed as
of this 14/th/ day of March, 2000.
HOOPER HOLMES, INC.
By /s/ Robert William Jewett
---------------------------------
Robert William Jewett
Senior VP, General Counsel & Secretary
FIRST CITY TRANSFER COMPANY
By /s/ Kathleen M. Zaleske
---------------------------------
Kathleen M. Zaleske
Assistant Vice President
-2-
<PAGE>
Stock Purchase Plan (1993)
of
Hooper Holmes, Inc.
(as Amended)
<PAGE>
This document constitutes part of a prospectus covering securities that
have been registered under the Securities Act of 1933.
Stock Purchase Plan (1993)
of
Hooper Holmes, Inc.
(as Amended)
1. Purpose of the Plan:
The purpose of the Stock Purchase Plan (1993) as amended (the "Plan") is to
provide employment incentive and to encourage stock ownership by employees of
Hooper Holmes, Inc. (hereinafter called the "Corporation") and employees of
certain of its subsidiaries in order to increase their proprietary interest in
the Corporation's success. The Plan is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"), and to comply with
the requirements of 17 CFR 240.16b-3 ("Rule 16b-3") for exemptive relief under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
2. Administration of the Plan:
The Plan shall be administered by a committee of the Board of Directors
appointed for such purpose (the "Committee"), provided that, no member of the
Committee shall have (a) been granted or awarded equity securities pursuant to
the Plan or any other plan of the Corporation or any of its affiliates (except
as may be otherwise permitted under Rule 16b-3(c)(2)(i), or successor rule, to
continue to be deemed as a disinterested person) during the one-year period
prior to appointment to the Committee or (b) failed to wave the right, if any,
to participate in the Plan. The Committee shall have full power and authority to
construe and interpret the Plan and may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. Decisions of the
Committee shall be final, conclusive and binding upon all parties, including the
Corporation, its stockholders and its employees.
The Committee may determine from time to time in its sole discretion that
the Corporation shall offer to enter into agreements hereunder ("Agreements")
with all the eligible employees, provided, however, that it shall be under no
obligation to do so.
3. Participation in the Plan:
The individuals who shall be eligible to receive grants of purchase rights
under the Plan shall be all the employees of the Corporation or of any
subsidiary of the Corporation designated by the Committee as a Participating
Subsidiary in the Plan, except employees who, on the date as of which purchase
rights are granted under the Plan (the "Grant Date" in respect of each purchase
right), have less than one year of continuous employment with the Corporation
and/or a Participating Subsidiary immediately prior thereto; provided, however,
that an Agreement will be entered into with an employee of a Participating
Subsidiary only if such Agreement will, under the applicable provisions of the
Code as then in effect, qualify for the same tax treatment as would be accorded
if such employee was then an employee of the Corporation; and further provided,
that no individual shall be eligible to enter into an Agreement under the Plan
if immediately thereafter and after giving effect thereto, the aggregate value
or voting power of all shares of stock of the Corporation and any Subsidiary (as
defined below) then owned by such individual, either directly or indirectly,
within the meaning of the applicable sections of the Code and including all
shares of stock with respect to which such individual holds options, would equal
or exceed in the aggregate 5% of the total value or combined voting power of all
classes of stock of any corporation in an unbroken chain of corporations
beginning with the Corporation (including the Corporation), in which each
corporation other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations of such chain (all corporations other
than the Corporation in such chain herein called
1
<PAGE>
"Subsidiaries" or individually a "Subsidiary"). Notwithstanding the foregoing,
no individual shall be permitted or denied participation in the plan contrary to
the requirements of Section 423 (or successor section) of the Code and the
regulations thereunder,
For purposes of determining whether or not an employee of the Corporation
or a Participating Subsidiary has met the one year employment requirement set
forth above, employment by a corporation all or substantially all of the assets
of which have been acquired by the Corporation or a Participating Subsidiary or
employment by a corporation which has been merged with or into the Corporation
or a participating Subsidiary shall be considered as employment by the
Corporation or a Participating Subsidiary.
4. Stock:
The stock subject to the Agreements shall be, in the discretion of the
Committee, either authorized but unissued shares of the common stock of the
Corporation ("Common Stock") or shares of Common Stock held in the treasury of
the Corporation or any Subsidiary, including shares purchased in the open market
or otherwise. Subject to adjustment in accordance with the provisions of Section
6(i) hereof, the total number of shares of Common Stock which may be sold under
the Plan shall not exceed in the aggregate 250,000 shares.
In the event that any Agreement for any reason expires or is terminated and
the shares of Common Stock which are the subject thereof are not purchased, such
unpurchased shares of Common Stock may again be subject to Agreements.
5. Number of Shares Which an Employee May Purchase:
From time to time, the Committee shall announce an offering of Common Stock
pursuant to the Plan and terms and conditions under which eligible employees may
enter into Agreements for the purchase of the Common Stock so offered. Each
Agreement shall provide that an employee may elect to purchase pursuant to the
terms of the Agreement a number of shares of Common Stock determined by the
Committee but in no event greater than the number of shares of Common Stock with
a fair market value (determined as provided in Section 6(b)) on the Grant Date,
equal to 10% of the employee's aggregate compensation, as reported for such
employee on form W-2 for the previous calendar year by the Corporation, the
Participating Subsidiaries or any corporation, the employment by which pursuant
to Section 3 hereof, will be considered to be employment by the Corporation or a
Participating Subsidiary. In the event employees enter into Agreements to
purchase more than the maximum number of shares to be offered, the number of
shares subject to the Agreements shall be reduced proportionately.
Notwithstanding the foregoing provisions of the Plan no individual may
elect to purchase under Agreements in any single calendar year, a number of
shares of Common Stock which, together with all other shares in the Corporation
and Subsidiaries which the employee may be entitled to purchase in such year
pursuant to an Agreement and under any other employee stock purchase plan, as
defined in Section 423 of the Code, has an aggregate fair market value (measured
in each case on the Grant Date) in excess of $25,000.
6. Terms and Conditions of Agreements:
(a) General:
The Agreements shall be in such form as the Committee shall from time to
time approve, and shall contain such terms and conditions as the Committee shall
prescribe not inconsistent with the Plan.
(b) Purchase Price:
2
<PAGE>
The purchase price per share shall be 95% of the fair market value of a
share of Common Stock based on the closing price as reported on the American
Stock Exchange on the Grant Date.
(c) Payment of Purchase Price:
Each Agreement shall prescribe the method or methods pursuant to which the
purchase price of shares shall be paid by the employee. Funds received or held
by the Corporation or any Participating Subsidiary shall be deposited into a
segregated custodial account controlled by the Corporation. Upon final payment
of the purchase price, or upon termination of an employee's Agreement, interest
will be paid to the employee on his payments under the Plan. Interest so paid
will be in an amount equal to the pro rata amount that the Corporation realizes
by investing and reinvesting all of the deposits in the custodial account in
short term interest bearing accounts, certificates of deposit, U.S. government
securities, money market funds, or other similar investments; provided, however,
that the Corporation shall not be liable for the failure to maximize the yield
on any such investment.
(d) Term of Agreements:
Each Agreement shall be dated as of the Grant Date and shall have a stated
term of 13 months from such date.
(e) Date on which Shares Must be Purchased:
Each Agreement shall provide that, subject to earlier termination pursuant
to Section 6(g) hereof, any shares to be purchased thereunder must be purchased
on the last day (hereinafter called the "Purchase Date") of the stated term of
the Agreement.
(f) Employee's Purchase Directions:
Each Agreement shall provide that the employee on the Purchase Date shall
purchase all of the shares covered by such Agreement unless the employee shall,
to the extent and in the manner permitted by the Agreement, notify the Secretary
of the Corporation, or such other persons specified in the Agreement, that the
employee does not desire to purchase such shares.
(g) Termination by Employee of his Agreement:
An employee who has entered into an Agreement may, to the extent permitted
by the Agreement, terminate the employee's Agreement in its entirety by written
notice of such termination delivered in the manner and within the time period
set forth in the Agreement to the Secretary of the Corporation, or to such other
person or persons as may be specified in the employee's Agreement. If there are
any funds, including interest (determined in accordance with Section 6(c)
hereof), then on deposit pursuant to the Agreement, such funds shall be paid to
the employee.
(h) Termination of Employment and Change in Control:
Each Agreement shall specify the applicable rules in respect of the effect
of the death, retirement or other termination of employment of the employee and
the effect, if any, of a change in control of the Corporation.
(i) Adjustments:
In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock, or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the
3
<PAGE>
Plan, then the Committee shall, in its sole discretion, and in such manner as
the Committee may deem equitable and consistent with the requirements of the New
York Business Corporation Law, Section 423 of the Code and Rule 16b-3 (or any
successor law, section or rule thereof), adjust any or all of (1) the number and
kind of shares which thereafter may be made the subject of Agreements under the
Plan, (2) the number and kind of shares subject to outstanding Agreements and
(3) the purchase price with respect to any of the foregoing and/or, if deemed
appropriate, make provision for a cash payment to a person who has an
outstanding Agreement provided, however, that the number of shares subject to
any Agreement shall always be a whole number.
(j) Assignability:
No rights hereunder shall be assignable or transferable except by will or
by the laws of descent and distribution. During the lifetime of an employee who
is a party to an Agreement, the shares which are covered by such Agreement may
be purchased only by the employee.
(k) Employee's Agreement:
If, at the time of the execution of an Agreement for the purchase of shares
under the Plan, in the opinion of counsel for the Corporation, it is necessary
or desirable, in order to comply with any applicable laws or regulations
relating to the sale of securities, that the employee purchasing such shares
shall agree that such employee will purchase such shares for investment and not
with any present intention to resell the same, the employee will, upon the
request of the Corporation, execute and deliver to the Corporation an agreement
to such effect. The Corporation may also require that a legend setting forth
such investment intention be stamped or otherwise written on the certificates
for shares purchased pursuant to the Plan.
(1) Rights as a Shareholder:
An employee who is a party to an Agreement shall have no rights as a
shareholder with respect to shares covered by such Agreement until the date of
the issuance of the shares to the employee. No adjustment will be made for
dividends or other rights for which the record date is prior to the date of such
issuance.
7. Term of Plan:
The plan shall be subject to approval by stockholders in accordance with
the New York Business Corporation Law, Section 423 of the Code, and any
agreements entered into prior to such approval shall terminate immediately prior
to the Purchase Date if such approval has not yet been attained. No Agreement
shall be entered into after December 31, 2003.
8. Amendments:
The Board of Directors may from time to time alter, amend, suspend, or
terminate the Plan or alter, amend, suspend or terminate any and all Agreements;
provided, however, that no such action of the Board of Directors may, without
the approval of the shareholders, make any amendment for which shareholder
approval is necessary to comply with any tax or regulatory requirement,
including for this purpose any approval requirement which is a prerequisite for
exemptive relief under Section 16(b) of the Securities Exchange Act.
9. Application of Funds:
The proceeds received by the Corporation from the sale of Common Stock
pursuant to an Agreement shall be used for general corporate purposes.
4
<PAGE>
10. No Obligation to Purchase Shares:
Entering into an Agreement shall impose no obligation upon an employee to
purchase any shares covered by such Agreement, except as expressly set forth in
the Agreement.
11. Automatic Termination:
Except as otherwise determined by the Committee, each Agreement will
automatically terminate if on the last business day before the Purchase Date the
closing price for Common Stock as reported on the American Stock Exchange is 10%
or more below the purchase price.
12. Governing Law:
This Plan and all Agreements shall be construed in accordance with and
governed by the law of the State of New York, without giving effect to any
conflict of laws rule or principle that might require the application of the law
of another jurisdiction.
5
<PAGE>
HOOPER HOLMES, INC.
1999 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................... 2
1.12 Grantee............................................. 2
1.13 Incentive Stock Option.............................. 2
1.14 Insider Participant................................. 2
1.15 Noninsider Participant.............................. 2
1.16 Nonqualified Option................................. 3
1.17 Option.............................................. 3
1.18 Option Agreement.................................... 3
1.19 Optionee............................................ 3
1.20 Option Price........................................ 3
</TABLE>
<PAGE>
<TABLE>
<S> <C>
1.21 Plan................................................ 3
1.22 Reload Option....................................... 3
1.23 Retirement.......................................... 3
1.24 Rule 16b-3.......................................... 3
1.25 Stock Appreciation Right............................ 4
1.26 Stock Appreciation Right Agreement.................. 4
1.27 Subsidiary.......................................... 4
1.28 Total Disability.................................... 4
ARTICLE 2 PURPOSE.................................................... 4
2.1 Purpose............................................. 4
2.2 Effective Date...................................... 5
ARTICLE 3 ELIGIBILITY................................................ 5
3.1 Persons Eligible.................................... 5
3.2 Notice.............................................. 5
3.3 Grant Contingent Upon Written Agreement............. 6
ARTICLE 4 COMMON STOCK COVERED BY THE PLAN........................... 6
4.1 Maximum Number of Shares............................ 6
4.2 Source of Shares.................................... 6
4.3 Adjustment to Number of Shares...................... 6
ARTICLE 5 TERMS AND CONDITIONS OF OPTIONS............................ 6
5.1 Option Price........................................ 7
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.2 Date of Option Grant................................ 7
5.3 Exercise of Option.................................. 7
5.4 Sales of Stock Underlying Options................... 7
5.5 Option Period....................................... 9
5.6 Accelerated Vesting in the Event of Death,
Disability, Retirement, Change in Control or Other
Transactions........................................ 9
5.7 Exercise in the Event of Death, Disability,
Retirement, or Termination of Employment............ 11
5.8 Payment of Option Price............................. 12
5.9 Reload Options...................................... 12
5.10 Additional Terms Applicable to Incentive Stock
Options............................................. 13
ARTICLE 6 STOCK APPRECIATION RIGHTS.................................. 16
6.1 General............................................. 16
6.2 Exercise and Payments............................... 17
6.3 Restrictions........................................ 18
ARTICLE 7 LOANS...................................................... 20
7.1 Loans............................................... 20
7.2 Promissory Note..................................... 20
7.3 Pledge.............................................. 21
ARTICLE 8 DESIGNATION................................................ 21
8.1 Designation and Change of Designation............... 21
8.2 Absence Of Valid Designation........................ 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 9 ADMINISTRATION OF THE PLAN................................. 22
9.1 Committee........................................... 22
9.2 Powers of Committee................................. 22
9.3 Action by Committee................................. 22
9.4 Grant of Option and/or Stock Appreciation Right..... 23
9.5 Indemnification..................................... 23
9.6 Reliance............................................ 24
9.7 Agents.............................................. 24
ARTICLE 10 AMENDMENT AND TERMINATION..................................
10.1 Amendment........................................... 25
10.2 Termination......................................... 25
10.3 Periodic Review of Plan............................ 25
ARTICLE 11 MISCELLANEOUS PROVISIONS................................... 26
11.1 No Rights as Shareholder............................ 26
11.2 No Rights to Continued Employment................... 26
11.3 Compliance with Other Laws and Regulations.......... 26
11.4 Payments to Person Other Than Employee.............. 27
11.5 Use of Proceeds..................................... 27
11.6 No Right to Options and Stock Appreciation Rights... 27
11.7 Withholding......................................... 27
11.8 Nontransferability.................................. 28
11.9 Investment Representation........................... 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.10 No Right, Title, or Interest in Company's Assets.... 29
11.11 Headings............................................ 29
11.12 Governing Law....................................... 29
11.13 Pronouns............................................ 29
</TABLE>
<PAGE>
ARTICLE I
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
<PAGE>
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, 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.
2
<PAGE>
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.
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. 1999 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.
3
<PAGE>
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.
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 II
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
4
<PAGE>
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.
2.2 Effective Date. The Plan shall become effective on January 26, 1999,
--------------
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 III
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.
5
<PAGE>
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 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 IV
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 one million (1,000,000), subject
to the adjustments provided in Section 4.3 of the Plan.
6
<PAGE>
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 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 V
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.
------------
7
<PAGE>
(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.
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.
8
<PAGE>
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,
Change in 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.
(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 14A 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
9
<PAGE>
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.
(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.
10
<PAGE>
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. 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 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.
11
<PAGE>
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 that may be issued under such Option Agreement
shall be Incentive Stock Options or Nonqualified Options.
12
<PAGE>
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.
13
<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
14
<PAGE>
time of grant, such Incentive Stock Option shall by its terms not be exercisable
after the 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 waived if
the Optionee's employment ceases as a result of death and the three month
employment requirement of Section 5.10(d)(ii) shall be expanded to twelve (12)
months if the Optionee's employment ceases as a result of a Total Disability.
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
15
<PAGE>
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 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 VI
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
16
<PAGE>
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 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.
17
<PAGE>
(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, 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.
18
<PAGE>
(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:
(1) the Stock Appreciation Right shall expire no later than the
related Incentive Stock Option;
(2) 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;
(3) the Stock Appreciation Right shall be transferable only when
the related Incentive Stock Option is transferable, and under the same
conditions;
(4) the Stock Appreciation Right may be exercised only when the
related Incentive Stock Option is eligible to be exercised; and
(5) 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.
19
<PAGE>
ARTICLE VII
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.
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.
20
<PAGE>
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 VIII
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
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
21
<PAGE>
jurisdiction and such payment shall be a complete discharge of the liability of
the Plan and the Company.
ARTICLE IX
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.
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.
22
<PAGE>
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.
For purposes of accrual of an Optionee's rights under his or her
Options and/or Stock Appreciation Rights, any period not exceeding 90 days
during which an Optionee is on military leave of absence from the Company, or a
longer period if such Optionee's reemployment is guaranteed by contract, will be
treated as a period of employment of such Optionee. Unless an Optionee's
reemployment is guaranteed by contract, beginning with the 91/st/ day, the
Committee shall have the discretion to treat all or any portion of any period in
excess of 90 days during which an Optionee is on military leave of absence as a
period of employment of such Optionee by the Company. The Committee may also,
in its discretion, treat all or any portion of any period during which an
Optionee is on an approved leave of absence from the Company as a period of
employment of such Optionee by the Company.
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, liability
23
<PAGE>
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
24
<PAGE>
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.
ARTICLE X
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.
25
<PAGE>
ARTICLE XI
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 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,
26
<PAGE>
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 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 this
---------------
Plan 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
27
<PAGE>
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 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.
28
<PAGE>
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.
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.
29
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
(dollars in thousands except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $237,068 $ 185,210 $ 165,353
Operating income 36,535 25,592 16,344
Income from continuing operations 20,793 14,185 8,770
Loss from discontinued operations -- (1,485) --
Net income 20,793 12,700 8,770
Earnings per share -- basic
Continuing operations .72 .50 .32
Discontinued operations -- (.05) --
Net income .72 .45 .32
Earnings per share -- diluted
Continuing operations .68 .48) .31
Discontinued operations -- (.05) --
Net income .68 $ .43 $ .31
Cash dividend per share .05 $ .04 $ .03
Weighted average number of shares -- basic 28,780,282 28,120,685 27,536,668
Weighted average number of shares -- diluted 30,766,779 29,859,710 28,564,132
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share and share amounts have been adjusted to reflect a two for one stock
split effective January 8, 1999.
Revenues Operating Income Earnings Per Share
Dollars in Millions Dollars in Millions (From continuing operations)
Dollars
[GRAPH] [GRAPH] [GRAPH]
1999 Annual Report 1
<PAGE>
"Our long-standing reputation and financial "strength create opportunities for
us that "we believe are unequaled in our industry."
To Our Shareholders:
Hooper Holmes reaffirmed its position in 1999 as the Leader in
Technology-Delivered Health Information to the life insurance industry. Our
progress was substantial and across the board. We generated strong financial
results, including record revenues, operating earnings and operating margins. We
completed a major acquisition that has expanded our geographical reach and
strengthened our sales and marketing base. In addition, our efforts to target
alternative distribution channels continued to be rewarded: By the fourth
quarter of 1999, non-traditional channels represented 19% of total revenues, up
dramatically from 14% in the year ago period.
Our financial and operating results demonstrate this Company's continued ability
to leverage its branch network and technology infrastructure. At Hooper Holmes,
we take great pride in delivering results that spur further growth and maximize
value for shareholders. We have also been gratified by the market's recognition
of the Company's achievements. Hooper Holmes' market capitalization at the end
of the year was nearly twice the value at the beginning -- a claim we are
pleased to make for the second year in a row.
Strong Financial Performance
The year 1999 marked the beginning of Hooper Holmes' second century as a
business. We completed our first year in our new century even stronger than we
finished the last. Revenue increased 28 percent to $237.1 million from $185.2
million in 1998. Operating income grew 43 percent to $36.5 million from $25.6
million a year ago. Operating margins for the year expanded a full 160 basis
points to 15.4% from 13.8% in 1998.
Net income from continuing operations rose 47 percent to $20.8 million from
$14.2 million in 1998. Earnings increased 42 percent to $0.68 per diluted share,
based on 30,766,779 diluted shares outstanding, from $0.48 per diluted share,
based on 29,859,710 diluted shares outstanding, excluding a 1998 after-tax
charge associated with a prior divestiture.
These strong financial results reflect an increase in overall unit volume,
a growing number of tests and services being performed per exam and
contributions from the acquisitions of Heritage Labs, which was completed in
December 1998, and Paramedical Services of America (PSA), which closed on
November 1, 1999.
Extending Our Reach
Atlanta-based PSA, which we acquired from Pediatric Services of America,
expanded our capabilities to provide outsourced health information for the life
and health insurance industries on a nationwide basis. With this acquisition,
Hooper Holmes not only increased its customer base, but also its ability to
serve the companies' customers through increased automation, improved
responsiveness and more complete geographic coverage. In addition, we broadened
our marketing and new customer opportunities and created significant operating
synergies.
2 Hooper Holmes, Inc.
<PAGE>
[PHOTO]
James M. McNamee
Chairman, President and
Chief Executive Officer
To begin to realize the full benefits from this acquisition, Hooper Holmes
moved swiftly to integrate PSA. By the end of 1999, we had assessed the
administrative overlap of the PSA and Hooper Holmes offices and fully integrated
34 of PSA's more than 100 branches. The remaining PSA offices were merged into
existing Hooper Holmes locations. The entire process was completed by the end of
January 2000.
The Year Ahead
As we begin a new year, there are a number of trends in the life insurance
industry that we believe will benefit Hooper Holmes. First, there is a growing
trend among providers and marketers of life insurance, as well as traditional
insurance companies, to market their products through the Internet, direct mail
and the mass media. These alternative distribution channels (ADCs) have been
contributing progressively larger amounts to our revenues. Second, we believe
that insurance companies are gradually reducing the number of approved health
information service providers to include only those companies with a national
network that can meet insurers' technology, timing and quality needs. As the
leader in technology-delivered health information, Hooper Holmes is incomparably
well positioned to benefit from this. Third, as a result of the increasing size
of the average insurance policy and the rising age of the average applicant, we
believe that life insurers are requiring more examinations and other additional
information services to assess the risks of their insurance applicants.
We have strategically positioned ourselves to capitalize on all of these
industry trends. Our Company is using the most advanced automation technology to
provide the most comprehensive array of health information services to the life
insurance industry. We are also focused on increasing our efforts to expand
business with ADCs; leveraging our national network; continuing to pursue
strategic acquisitions; and expanding into related lines of business. Our
long-standing reputation and financial strength create opportunities for us that
we believe are unequaled in our industry.
Hooper Holmes pursues these strategies with a strong balance sheet.
Total stockholders' equity was up 44 percent to $89.7 million in 1999 from $62.3
million for 1998. In addition, our successful secondary offering of common
stock, which was completed in February 2000, has enabled us to repay
approximately $50 million of the $65 million in debt we incurred in connection
with the acquisition of PSA. In short, we continue to have the resources and
flexibility that have been the hallmarks of this Company.
Hooper Holmes has been able to achieve these outstanding results because of
the hard work and dedication of its employees, the business we receive from our
growing base of customers, and the support and confidence of our investors and
the financial community. We thank you all for your contributions to our success
and look forward to sharing more good news with you throughout 2000.
/s/ James M. McNamee
James M. McNamee
Chairman, President and Chief Executive Officer
1999 Annual Report 3
<PAGE>
By using the most innovative technologies, Hooper Holmes is able to maintain a
strong competitive edge and offer its customers the most efficient and
convenient service in the industry.
[PHOTO]
Income from continuing operations rose
47% to $20.8 million in 1999 up from $14.2 million in 1998.
4 Hooper Holmes, Inc.
<PAGE>
Technology Fueling Growth
"Our enthusiastic acceptance and pioneering "use of technology is a vital
component of "our growth and financial success."
Hooper Holmes has long been a leader in the health information services
business. Our leadership is reflected not only in terms of market share, but
also in how we have embraced technology. Our enthusiastic acceptance and
pioneering use of technology is a vital com-ponent of our growth and financial
success and has resulted in Hooper Holmes having the most automated branch
network and operating system in the industry. As a result, Hooper Holmes is
uniquely positioned to realize the benefits from the growth of the Internet and
the proliferation of alternative distribution channels (ADCs).
One of the technologies that has enabled us to significantly improve the
speed and efficiency of our service and the transparency of our exam results is
the Internet. In 1999, Hooper Holmes expanded its Portamedic website,
portamedic.com, to allow insurance companies to place orders and schedule
medical exams by Portamedic professionals for underwriting policies, monitor
order status and communicate client information quickly and securely. Our
website enhances our ability to serve both our existing agent-based business and
alternative distribution networks for life and health insurance. Moreover, it
enables us to further leverage our technology infrastructure and branch network
without compromising our high level of service. The success of our website is
illustrated by the dramatic increase in its use. Electronic ordering rose to 40%
of all orders in 1999.
Net Income
(from continuing operations)
Dollars in Millions
[GRAPH]
Transforming an Industry
The Internet is truly transforming the insurance industry -- not only in terms
of automation but also in terms of marketing. It has created an environment
in which insurers and brokers can efficiently and effectively reach consumers
directly. By making it easier for consumers to shop for and compare policies,
the Internet has revitalized policy sales in the insurance industry in a way
that is very beneficial to Hooper Holmes. We believe that as the success of
these marketing methods continues to unfold, the industry will become more
reliant on outsourcing for required services.
Hooper Holmes, while not an e-business per se, is in the enviable position
of having an infrastructure, production capabilities and network that are
ideally suited for ADCs, including the Internet. In fact, we are the leader in
the new ADC market. It is instructive to compare our operating model and
position with those of many emerging e-business companies. Those
business-to-business (B2B) and business-to-consumer (B2C) companies have been
able to establish a web presence -- but must make substantial investments to
attract customers, forge relationships with industry leaders and build an
infrastructure to deliver their products and services.
1999 Annual Report 5
<PAGE>
With a network of 8,700 examiners and 230 branch offices, Portamedic is able to
schedule a medical exam within 24 hours anywhere in the country.
[PHOTO]
117%
Total assets rose 117% to $184.5 million
in 1999 up from $85.0 million in 1998.
6 Hooper Holmes, Inc.
<PAGE>
Operations Review
"The Internet has revitalized policy sales in "the insurance industry in a way
that is very "beneficial to Hooper Holmes."
Hooper Holmes, in contrast, already possesses an established national
network that is second to none. And we already enjoy strong relationships
with all of the top 50 life and health insurance companies in the U.S. Indeed,
even before the Internet revolution, our Company had the infrastructure in place
to cost-effectively schedule and conduct exams nationwide. Alternative
distribution channels (ADC), including the Internet, has just made it easier and
less expensive to do so. For 1999 ADC-generated insurance applications accounted
for almost 19% of our total revenues, compared with 14% for 1998.
Leveraging the Network
Another way in which we utilize technology to help our customers gather health
information is by leveraging our infrastructure to provide ancillary services
for policies that are too small to warrant an in-person visit and for very large
policies in which the underwriter has requested additional information. Hooper
Holmes' Infolink system enables us to electronically send clients their
applicants' employment information, physical and medical histories and attending
physician statements. Our Teledex system supplies the above information, plus
highlights of a phone interview with the applicant.
One of the goals of our acquisition strategy is to broaden our core
business by achieving new technological niches that will enable us to expand our
service offerings both within the industry and in related areas, such as
monitoring clinical trials for drug companies. This will give us the opportunity
to win new customers, generate more revenue per customer and further improve our
margins.
One example of how we are executing this strategy is our recent acquisition
of the exclusive rights to a suite of software known as "TEAM 96" and "TEAM" for
our Portamedic division. This reliable, tested case-management and billing
software product will be used by our current contract affiliates, many of whom
have already used it in the past. In addition, the proprietary software can be
used to attract new affiliates to Portamedic.
Hooper Holmes sees a bounty of opportunities in its future to further
leverage its established technologies and expand into related areas by acquiring
new technologies. Our mission to offer our customers the most useful and
innovative services has always been and will continue to be the best way for us
to continue to provide our shareholders with optimal growth.
Growth By Acquisition
Hooper Holmes has been able to expand its service offerings, technology and
client base by acquiring companies that complement its core business. Our most
recent addition, Paramedical Services of America (PSA), acquired
during the fourth quarter of 1999, has enabled us to provide more complete
1999 Annual Report 7
<PAGE>
Strategic acquisitions have enabled Hooper Holmes to offer complimentary
services, such as laboratory testing. It also allows us to attract more new
customers, build more significant relationships with our existing customers and
enhance our margin growth.
[PHOTO]
42%
Earnings per share rose 42% to $.68
in 1999 up from $.48 in 1998.
8 Hooper Holmes, Inc.
<PAGE>
Operations Review
"Hooper Holmes will continue to pursue "acquisitions that fit our strategic
profile "in terms of leveraging our invested capital, "strong customer
relationships and "operations infrastructure."
geographic coverage to better serve our existing customers, and has enhanced our
overall sales and marketing base to reach prospective new customers. Following
the consolidation of this acquisition, Hooper Holmes added 34 branch offices and
about 3,000 production examiners throughout the U.S., giving us a total of over
230 offices and more than 8,700 examiners. By rapidly completing the assessment
and integration of PSA's offices, we are maximizing the immediate benefits of
the acquisition. This was a very important strategic move and is a shining
example of our ongoing efforts to enhance our competitive edge.
Heritage Labs, in which we acquired a majority share in 1998, generated
$6.4 million in revenue for 1999, which was right in line with our expectations.
We expect to nearly double Heritage's revenues this year by increasing the
number of units it processes electronically through Portamedic and by
introducing Portamedic Select, a new product that will bundle Heritage's blood-,
urine- and saliva-testing services under one umbrella. Portamedic Select is
designed to enable Hooper Holmes to benefit from an operating standpoint and
allow our customers to benefit from a pricing standpoint.
Hooper Holmes will continue to pursue acquisitions that fit our strategic
profile in terms of leveraging our invested capital, strong customer
relationships and operations infrastructure. We remain committed to a
disciplined approach to acquisitions that emphasizes both strategic and
financial benefits.
Working Capital
Dollars in Millions
[GRAPH]
Favorable Industry Trends
Consolidation of the insurance industry continued in 1999, and Hooper Holmes is
continuing to reap the benefits. Although there are now fewer companies in the
industry, they are larger. And bigger insurers tend to prefer working with a
limited number of vendors to meet their health information needs. Because of our
national network and sophisticated technology, we are their best choice.
As the Baby-Boomer generation ages, our prime demographic group is
continuing to increase. This ongoing trend results in a greater number of people
in their late 30s to late 50s - the most common age for insurance purchasers.
Moreover, the age of the applicants, combined with the types of policies they
are choosing, is continuing to result in the purchase of more expensive
policies. With the age or dollar threshold that triggers a paramedical exam
trending downward, along with the increase in the popularity of outsourcing,
Hooper Holmes is being presented with more service opportunities than ever
before in many areas.
1999 Annual Report 9
<PAGE>
The employees at Hooper Holmes keep our Company strong and keep our growth
strategy securely on track.
[PHOTO]
44%
Stockholders' Equity rose 44% to
$89.7 million in 1999 up from
$62.3 million in 1998.
10 Hooper Holmes, Inc.
<PAGE>
Operations Review
"Insurers, large and small, are looking to "work with a single vendor. Because
of "our national network and sophisticated "technology, we are their best
choice."
Employees that Care About Delivering Quality
A company is only as good as its people and, for Hooper Holmes, that's a very
positive thing. Our people are dedicated, hard working and committed to
delivering the very best service possible. They take great pride in their work,
and we take great pride in them. Our experienced field managers have been
especially effective at building and maintaining solid relationships with our
clients, which enables our Company to continue to expand its strong position in
the industry.
To keep our people motivated and reward them for their efforts on behalf
of Hooper Holmes, we provide a generous incentive plan for all eligible
employees throughout the organization. It is our way of recognizing their
invaluable contribution to our success.
Ready for the Future
To build on its many successes and achievements, Hooper Holmes remains focused
on executing a growth strategy that has served this Company and its shareholders
well. The key elements are:
. Continuing our commitment to industry leadership through automation.
In 1999, we received 40% of all orders electronically. We intend to continue to
invest in technology to further enhance our services and provide greater access
over the Internet.
. Increasing our focus on alternate distribution channels. We are committed to
aggressively pursuing sales to companies using these channels.
. Leveraging our national branch network. The combination of our extensive
branch network and technology infrastructure positions us to continue to
increase business volumes with marginal increases in branch operating expenses.
. Continuing to pursue strategic acquisitions. Our acquisitions of PSA and
Heritage Labs represent the kind of complementary acquisitions we will continue
to explore.
. Expanding into related lines of business. There are a number of business lines
that could potentially leverage our branch network, services capabilities or
customer base. We continue to look at services for the long-term care insurance
market and workers' compensation case management. We will continue to explore
opportunities that make strategic sense.
1999 Annual Report 11
Stockholder's Equity
Dollars in Millions
[GRAPH]
<PAGE>
Nationwide Network
With an extensive network of more than 230 branch offices, Hooper Holmes is
always within close proximity to potential insurance applicants throughout the
United States. Our recent acquisition of PSA both increased our branch office
network and the total number of our field examiners. The Company is
headquartered in Basking Ridge, NJ.
[MAP]
Cash Flow "Hooper Holmes has Cash Flow EPS
(from continuing operations) generated increasing (from continuing operations)
Dollars in Millions free cash flows Dollars
as a result of our
[GRAPH] continued exceptional [GRAPH]
performance."
12 Hooper Holmes, Inc.
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Financial Contents
Management's Discussion and Analysis 14
- --------------------------------------------------------------------------------
Consolidated Balance Sheets 17
- --------------------------------------------------------------------------------
Consolidated Statements of Income 18
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity 19
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows 20
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 21
- --------------------------------------------------------------------------------
Independent Auditors' Report 30
- --------------------------------------------------------------------------------
Selected Financial Data 31
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Ranges and Dividends 32
- --------------------------------------------------------------------------------
Quarterly Financial Data 32
13
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Results of Operations
1999 Compared to 1998
Total revenues for 1999 increased 28% to $237.1 million from $185.2 million for
1998. This growth resulted from a 16% increase in the number of paramedical
examinations performed to 2,917,000 from 2,515,000, the acquisition of
Paramedical Services of America, Inc. (PSA) on November 1, 1999 (see Note 3 of
the consolidated financial statements), an increase in services performed per
examination, an increase in the number of Infolink reports to 350,000 from
303,000, and a modest price increase. The increase in Infolink reports resulted
from management reemphasizing branch generation of Infolink reports.
The Company's cost of operations in 1999 totaled $164.0 million compared to
$129.3 million for 1998. Cost of operations as a percentage of revenues totaled
69.2% for 1999 versus 69.8% for 1998. As a percentage of revenues, the decrease
is due to ongoing efforts to control branch operating expenses, despite
increased revenue growth and slightly lower direct production costs.
Selling, general and administrative (SG&A) expenses were $36.6 million for 1999
compared to $30.4 million for 1998. As a percentage of revenues, SG&A expenses
decreased to 15.4% for 1999 from 16.4% for 1998, which is due to management's
continued efforts to control corporate expenses.
Accordingly, the Company's operating income for 1999 increased to $36.5 million
versus $25.6 million for 1998, and as a percentage of revenues, increased to
15.4% for 1999 compared to 13.8% for 1998.
Other income items in 1999 were primarily interest earned on invested funds, the
average balance of which was $35.1 million in 1999 over $22.7 million for 1998,
and interest expense increased in 1999 to $.9 million, as a result of borrowings
against the Company's term loan, used to finance the acquisition of PSA.
The effective tax rate was 44% and 46% for 1999 and 1998, respectively. The
decrease is the result of increased profitability which lessened the impact of
non-tax deductible amortization of goodwill from a 1995 acquisition.
As a result of the foregoing, net income from continuing operations in 1999
totaled $20.8 million or $0.68 per diluted share compared to $14.2 million or
$.48 for 1998.
Inflation did not have a significant effect on the Company's operations in 1999.
1998 Compared to 1997
Revenues for 1998 increased 12.0% to $185.2 million from $165.4 million for
1997. This growth resulted from an 8.3% increase in the number of Portamedic
examinations performed to 2,515,000 from 2,323,000, an increase in the services
performed per examination, and a modest price increase and was offset by a 10.1%
decrease in Infolink reports to 303,000 from 337,000. The decrease in Infolink
reports resulted from a management decision to reduce the volume of the less
profitable portions of this business.
14
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The Company's cost of operations in 1998 totaled $129.3 million compared to
$119.2 million for 1997. Cost of operations as a percentage of revenues
decreased from 72.1% for 1997 versus 69.8% for 1998. This decrease was due to
declining direct production costs and branch operating costs as a percentage of
revenues.
Selling, general and administrative expenses totaled $30.4 million as compared
to $29.8 million for 1998 and 1997, respectively, and as a percentage of
revenues totaled 16.4% as compared to 18.0%. As a percentage of revenues, this
reduction was the result of management's continued success in controlling
personnel and related corporate expenses.
Accordingly, our operating income improved to $25.6 million from $16.3 million,
and as a percentage of revenues, increased to 13.8% from 9.9% for 1998 and 1997,
respectively.
Other income items in 1998 were primarily interest earned on invested funds, the
average balance of which was $22.7 million for 1998 over $8.2 million for 1997.
The effective tax rates were 46% and 48% for 1998 and 1997, respectively. The
decrease was the result of increased profitability, which lessened the impact of
non-tax deductible amortization of goodwill from a 1995 acquisition.
As a result of the foregoing, net income from continuing operations in 1998
totaled $14.2 million or $.48 per diluted share, compared to $8.8 million or
$.31 for 1997.
The net loss from discontinued operations totaled $1.5 million or $.05 per
diluted share in 1998. The charge evolved from residual workers' compensation
charges and certain reimbursement issues associated with the divestiture of
Nurse's House Call in 1995. Net income for 1998 totaled $12.7 million or $.43
per diluted share, compared to $8.8 million or $.31 per diluted share for 1997.
Net income in 1998 included a $1.5 million, or $.05 per share charge from
discontinued operations, as previously noted.
As a result of the foregoing, net income in 1998 totaled $12.7 million or $0.43
per diluted share compared to $8.8 million or $0.31 per diluted share for 1997.
Inflation did not have a significant effect on the Company's operations in 1998.
Liquidity and Financial Resources
The Company's primary sources of cash are internally generated funds and the
Company's senior credit facility.
On February 29, 2000, the Company successfully completed a 3,675,000 share
offering of common stock, at an offering price of $25.125 per share and provided
net proceeds of approximately $87 million to the Company.
On October 29, 1999, the Company replaced its previous revolving loan facility
and entered into a senior credit facility with three banks that included a $65
million, six-year term loan, and a $35 million dollar, three-year revolving
loan. The loans bear interest at either the prime rate minus 1/2% to plus 1/4%
or LIBOR plus 3/4% to 1 3/4%, depending on our consolidated funded debt, as
defined, to our earnings before interest, taxes, depreciation and amortization
or "EBITDA" ratio. As of December 31, 1999, interest was payable at an effective
interest rate of 7.535% per annum. No principal payments are due on the term
loan for the first eighteen months. As of December 31, 1999, we borrowed the
entire amount of the term loan to finance a portion of the purchase price of
PSA. There are no borrowings against the revolving
15
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
loan. In conjunction with the February 29, 2000 secondary stock offering, the
Company repaid $50 million against the term loan.
For the year ended December 31, 1999, the net cash provided by operating
activities was $30.9 million as compared to $21.6 million in 1998. The
significant sources were net income of $20.8 million, $5.3 million of
depreciation and amortization, $11.1 million increase in accounts payable and
accrued expenses which were offset by an increase in accounts receivable of $6.0
million. The increase in accounts receivable was due to a 28% increase in
revenue for the year ended December 1999. Days sales outstanding "DSO" was 54.5
days at December 31, 1999, compared to 32.7 days at December 31, 1998. The
increase in DSO is driven by the increased revenue growth in the fourth quarter
1999. DSO for the 61 day period ending December 31, 1999, was 39.7 days, a more
representative level.
Our current ratio as of December 1999 was 3.0 to 1, compared to 2.7 to 1 at
December 31, 1998. Also, inflation has not had, nor is it expected to have, a
material impact on our consolidated financial results, and we currently have no
material commitments for capital expenditures. Quarterly dividends paid in 1999
were $.0125 per share.
Management believes that the combination of current cash and cash equivalents,
other working capital sources, and available borrowings under our senior credit
facility, along with anticipated cash flows from continuing operations, will
provide sufficient capital resources to satisfy both our short-term and
foreseeable long-term needs.
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
Our internal business critical systems and applications were updated for Year
2000 compliance. We did not experience any problems with our internal business
critical systems and applications nor are we aware of any continuing Year 2000
problems affecting our critical vendors or customers.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards (SFAS) No. 133. Accounting for Derivative
Instruments and Hedging Activities, which, as amended, becomes effective for our
financial statements beginning January 1, 2001. SFAS No. 133 requires a company
to recognize all derivative instruments as assets or liabilities in its balance
sheet and measure them at fair value. The Company does not expect the adoption
of this Statement to have a material impact on its consolidated financial
statements.
16
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 41,363,019 $ 29,752,361
Accounts receivable 36,836,412 18,145,856
Other current assets 5,233,884 5,396,202
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 83,433,315 53,294,419
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 26,465,947 22,487,225
Less: Accumulated depreciation and amortization 16,075,132 14,166,163
- ---------------------------------------------------------------------------------------------------------------------------
10,390,815 8,321,062
- ---------------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of
$5,483,514 in 1999 and $4,243,606 in 1998) 73,276,965 16,398,245
- ---------------------------------------------------------------------------------------------------------------------------
Intangible assets (net of accumulated amortization of
$7,658,860 in 1999 and $5,714,039 in 1998) 16,523,290 6,728,112
- ---------------------------------------------------------------------------------------------------------------------------
Other assets 846,943 274,547
- ---------------------------------------------------------------------------------------------------------------------------
$ 184,471,328 $ 85,016,385
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 142,953 $ 450,000
Accounts payable 11,543,665 6,606,518
Accrued expenses:
Insurance benefits 1,559,552 1,662,747
Salaries, wages and fees 3,209,031 2,356,582
Payroll and other taxes 357,029 204,893
Income taxes payable 5,033,946 3,315,758
Discontinued operations 293,736 2,845,007
Other 5,217,684 2,377,001
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 27,357,596 19,818,506
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities 65,307,047 0
Deferred income taxes 1,911,027 2,518,487
Minority interest 203,962 385,441
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000 shares,
issued 29,195,526 in 1999 and 28,379,964 in 1998 1,167,821 1,135,198
Additional paid-in capital 37,524,913 29,515,099
Retained earnings 51,971,602 32,616,294
- ---------------------------------------------------------------------------------------------------------------------------
90,664,336 63,266,591
Less: Treasury stock at cost, 104,332 shares 972,640 972,640
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 89,691,696 62,293,951
- ---------------------------------------------------------------------------------------------------------------------------
$ 184,471,328 $ 85,016,385
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $237,068,057 $185,209,776 $165,352,706
Cost of operations 163,958,380 129,261,234 119,193,062
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 73,109,677 55,948,542 46,159,644
Selling, general and administrative expenses 36,574,333 30,356,166 29,815,579
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 36,535,344 25,592,376 16,344,065
- ---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (859,555) (3,391) (168,266)
Interest income 1,106,901 768,476 295,765
Other income, net 249,567 (88,171) 419,899
- ---------------------------------------------------------------------------------------------------------------------------
496,913 676,914 547,398
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 37,032,257 26,269,290 16,891,463
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes 16,239,000 12,084,000 8,121,000
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 20,793,257 14,185,290 8,770,463
- ---------------------------------------------------------------------------------------------------------------------------
Discontinued operations
Loss on disposal, net of taxes -- (1,485,000) --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 20,793,257 $ 12,700,290 $ 8,770,463
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per share -- basic:
Income from continuing operations $ .72 $ .50 $ .32
Discontinued operations-- net of taxes -- (.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ .72 $ .45 $ .32
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per share -- diluted:
Income from continuing operations $ .68 $ .48 $ .31
Discontinued operations-- net of taxes -- (.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ .68 $ .43 $ .31
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average shares -- basic 28,780,282 28,120,685 27,536,668
Weighted average shares -- diluted 30,766,779 29,859,710 28,564,132
===========================================================================================================================
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
See accompanying notes to consolidated financial statements.
18
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1998 and 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,791,459 $ 271,658 $24,645,945 $12,820,355 $ (18,502) $37,719,456
- ---------------------------------------------------------------------------------------------------------------------------
Net income 8,770,463 8,770,463
Cash dividends ($.026 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
- ---------------------------------------------------------------------------------------------------------------------------
Net income 12,700,290 12,700,290
Cash dividends ($.036 per share) (985,039) (985,039)
Issuance of stock award 2,000 80 38,170 38,250
Exercise of stock options 208,415 8,336 1,244,633 1,252,969
Exercised stock option tax benefit 1,398,000 1,398,000
Issuance of shares for employee
stock purchase plan 40,452 1,618 322,630 324,248
Purchase of treasury stock (954,138) (954,138)
Two for one stock split effective
January 8, 1999 14,189,982 567,599 (567,599) --
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 28,379,964 1,135,198 29,515,099 32,616,294 (972,640) 62,293,951
- ---------------------------------------------------------------------------------------------------------------------------
Net income 20,793,257 20,793,257
Cash dividends ($.050 per share) (1,437,949) (1,437,949)
Issuance of stock award 5,000 200 63,850 64,050
Exercise of stock options 742,500 29,700 2,226,969 2,256,669
Exercised stock option tax benefit 5,170,000 5,170,000
Issuance of shares for employee
stock purchase plan 68,062 2,723 548,995 551,718
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 29,195,526 $1,167,821 $37,524,913 $51,971,602 $(972,640) $89,691,696
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share amounts are adjusted to reflect a two for one stock split effective
January 8, 1999.
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
-------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,793,257 $ 12,700,290 $ 8,770,463
Adjustments to reconcile net income
to net cash provided by operating activities:
Loss on disposal -- 1,485,000 --
Depreciation and amortization 5,317,466 4,704,540 5,022,569
Provision for bad debt expense -- 130,000 480,000
Deferred tax expense (benefit) 390,773 (2,804,000) 105,478
Issuance of stock awards 64,050 38,250 --
Loss on sale of fixed assets 46,037 67,237 61,448
Change in assets and liabilities, net of effect
from acquisitions of businesses:
Accounts receivable (5,964,107) 715,604 (869,320)
Other assets (815,693) (566,046) 2,324,305
Income tax receivable 7,408 -- --
Accounts payable and accrued expenses 11,064,431 5,138,185 685,627
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,903,622 21,609,060 16,580,570
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (82,949,063) (2,820,352) --
Capital expenditures, net of disposals (2,714,339) (1,833,818) (1,441,469)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (85,663,402) (4,654,170) (1,441,469)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of long-term debt 65,100,000 -- --
Principal payments on long-term debt (100,000) -- (6,280,000)
Proceeds from employee stock purchase plan 551,718 324,248 300,244
Proceeds related to the exercise of stock options 2,256,669 1,252,969 1,753,414
Treasury stock acquired -- (954,138) --
Dividends paid (1,437,949) (985,039) (689,775)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in (provided by) financing activities 66,370,438 (361,960) (4,916,117)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 11,610,658 16,592,930 10,222,984
Cash and cash equivalents at beginning of year 29,752,361 13,159,431 2,936,447
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 41,363,019 $ 29,752,361 $13,159,431
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 70,473 $ -- $ 179,318
Income taxes $ 8,787,418 $ 9,140,543 $ 6,151,472
===========================================================================================================================
</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 majority owned subsidiaries (the "Company"). All significant
intercompany balances and transactions are eliminated in consolidation.
Description of the Business
The Company provides health information services to the life and health
insurance industry. 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
underwriting 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 consolidated 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.
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. Impairments are recognized when the
expected future undiscounted cash flows derived from such assets are less than
their carrying value. For such cases, losses are recognized for the difference
between the fair value and the carrying amount. The Company considers various
valuation factors, principally discounted cash flows, to assess the fair values
of long-lived assets.
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.
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
21
<PAGE>
Hooper Holmes Inc. and Subsidiaries
- --------------------------------------------------------------------------------
by the sum of weighted average common shares outstanding during the period plus
common stock equivalents.Common stock equivalents (1,986,497, 1,739,025 and
1,027,464 for 1999, 1998 and 1997, respectively) are shares assumed to be issued
if outstanding stock options were exercised. All appropriate share and per share
period amounts have also been restated for the January 8, 1999 and August 22,
1997 stock splits (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
For all financial instruments, except the long-term debt, at December 31, 1999
and 1998, their carrying value approximates fair value due to the short maturity
of these instruments. For long-term debt, the carrying value approximates fair
value due to the interest rate being set in November 1999.
Employee Stock Options
Employee non-qualified stock options are granted with an exercise price equal to
the market price at the date of grant, and therefore, compensation expense is
not recognized on the issuance of employee stock options.
Advertising
Costs related to space in publications are expensed the first time the
advertising occurs. Advertising expense was approximately $288,000, $149,000,
and $161,000 in 1999, 1998, and 1997, 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. Pursuant to the Acquisition Agreement, Olsten transferred to
the Company all of the issued and outstanding capital stock of American Service
Bureau, Inc., which was 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"), approximately $27.3 million in
cash, and assumed certain specified liabilities of approximately $5.1 million
relating to the NHC Division.
22
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
In 1995, the Company 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. During the fourth quarter of 1998, the Company
recorded an additional after tax charge of $1.5 million, net of a tax benefit of
$1.3 million. The charge resulted from residual worker's compensation charges
and certain reimbursement issues associated with the NHC Division.
- -------------------------------------------------------------------------------
Note 3 --
Acquisitions and
Dispositions
As of November 1, 1999, the Company purchased substantially all of the assets of
Paramedical Services of America, Inc., ("PSA"), an Atlanta based subsidiary of
Pediatric Services of America, Inc. The purchase price was approximately $80
million, and was financed with a $65 million term loan (see note 6) and
approximately $15 million in existing cash. As a result of an independent
appraisal, the Company has recorded costs in excess of net assets acquired of
approximately $58 million, and intangible assets in the amount of $11.6 million,
comprised of customer base $4.6 million, affiliate network $3.2 million,
assembled workforce $1.2 million, and a non-competition agreement valued at $2.6
million. The amounts are being amortized over their estimated useful lives of 25
years for costs in excess of net assets acquired, and between 5 to 9 years for
the remaining intangibles.
The liabilities assumed in the PSA acquisition included approximately $3.8
million for certain PSA facility exit costs and certain legal, accounting and
other acquisition costs. At December 31, 1999, the Company had closed 55
branches of PSA and had paid the majority of the other acquisition costs. The
remaining accrued amounts which total $1.4 million, which are included in other
accrued expenses on the accompanying December 31, 1999 consolidated balance
sheet, represent remaining costs for certain severance and office and equipment
leases for closed PSA branches which will be paid in 2000.
On August 12, 1998, the Company acquired specific assets of a health
information services company. The purchase price was $750,000. Cost in excess of
net assets acquired of approximately $597,000 is being amortized over 15 years.
Additionally, a non-competition agreement was entered into in the amount of
$150,000, and is being amortized over 5 years.
On November 30, 1998, the Company acquired a 55% ownership interest in
Heritage Labs International LLC, a national provider of laboratory testing
services, primarily to life and health insurance companies.The purchase price
was approximately $1.8 million. Cost in excess of net assets acquired of
approximately $1.4 million is being amortized over 15 years. Additionally, a
non-competition agreement was entered into in the amount of $.2 million, and is
being amortized over 3 years.
The acquisitions discussed above have been accounted for using the purchase
method of accounting and the purchase price of the acquisitions 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 from the respective dates of purchase. The
following unaudited pro forma information has been prepared as if the 1999
acquisition of PSA had occurred on January 1, 1998 and does not include cost
savings expected from the transactions. The unaudited pro forma financial
information does not purport to represent our consolidated results of operations
or financial position that would have been achieved had the transactions to
which pro forma effect is given been consumated as of the dates or for the
periods indicated.
23
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
(in thousands, except per share amounts) 1999 1998
- --------------------------------------------------------------------------------
Revenues $ 299,340 $ 275,319
Net income 15,842 9,689
Earnings per share - Diluted .51 .32
- --------------------------------------------------------------------------------
The 1998 acquisitions were not included herein as the results of operations of
the businesses acquired were not material.
- --------------------------------------------------------------------------------
Note 4 --
Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts in the amount
of $1,092,071 and $1,091,499 in 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
Note 5 --
Property, Plant
and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, Useful Life
1999 1998 In Years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 618,972 $ 591,213 10 - 20
- ---------------------------------------------------------------------------------------------------
Building and improvements 4,826,966 4,550,903 10 - 45
- ---------------------------------------------------------------------------------------------------
Furniture, fixtures and equipment 21,020,009 17,345,109 3 - 10
- ---------------------------------------------------------------------------------------------------
$26,465,947 $22,487,225
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Note 6 --
Long Term Debt
On October 29, 1999, the Company entered into a $100 million Amended and
Restated Revolving Credit and Term Loan Agreement with three banks. This senior
credit facility consists of a $65 million, six-year term loan, and a $35
million, three-year revolving loan. The $65 million term loan was used in
connection with the purchase of the assets of PSA. The term loan requires
interest payments only during the first 18 months, five principal payments of
$10 million each on April 30, 2001 through 2005, and a final payment of $15
million on January 31, 2006. The Company has not borrowed under the $35 million
revolving loan.
Both the term loan and the revolving loan bear interest at either the prime
rate minus 1/2% to plus 1/4% or LIBOR plus 3/4% to 13/4%, depending on the ratio
of our consolidated funded debt, as defined, to earnings before interest, taxes,
depreciation and amortization, or "EBITDA". Interest is payable on the term loan
at an effective annual interest rate of 7.535% for the period from November 4,
1999 through February 4, 2000.We can prepay either loan without penalty at any
time. Also, commitment fees up to 1/4% of the unused revolving loan are charged,
and the agreement contains certain financial covenants related to dividends,
fixed charge coverage and funded debt to EBITDA ratio.
The note payable of $450,000 is an obligation of our majority owned
subsidiary. The interest rate at December 31, 1999 was 9.5%. The note matures on
January 1, 2003 and monthly principal payments start February 2000.
- --------------------------------------------------------------------------------
Note 7 --
Commitments and
Contingencies
The Company leases branch field offices under a number of operating leases which
expire in various years through 2004. 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
24
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
in various years through 2002. 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, 1999:
Year Ending December 31,
2000 $ 9,453,801
2001 6,419,593
2002 2,414,608
2003 1,199,820
2004 539,070
- --------------------------------------------------------------------------------
Total minimum lease payments $ 20,026,892
- --------------------------------------------------------------------------------
Rental expenses under operating leases were $10,768,315, $8,633,036 and
$8,510,183 in 1999, 1998 and 1997, respectively.
The Company has employment retention contracts with certain executive
officers of the Company for a two year period from the date a change in control
occurs as further defined in the contracts.
- --------------------------------------------------------------------------------
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
consolidated results of operations or financial position.
- --------------------------------------------------------------------------------
Note 9 --
Income Taxes
Income tax expense is comprised of the following:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Federal:
Current $ 13,603 $ 11,693 $ 6,741
Deferred 285 (1,277) (380)
- --------------------------------------------------------------------------------
State and local:
Current 2,245 1,930 1,275
Deferred 106 (262) 485
- --------------------------------------------------------------------------------
$ 16,239 $ 12,084 $ 8,121
- --------------------------------------------------------------------------------
The following reconciles the "statutory" federal income tax rates to the
effective income tax rates:
1999 1998 1997
- -------------------------------------------------------------------------------
Computed "expected" tax expense 35% 35% 35%
- -------------------------------------------------------------------------------
Increase (reduction) in tax expense resulting from:
State tax, net of federal benefit 8 7 7
Non-tax deductible amortization of goodwill 1 2 5
Other -- 2 1
- -------------------------------------------------------------------------------
Effective income tax rates 44% 46% 48%
- -------------------------------------------------------------------------------
25
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1999 and 1998 are as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Acquisition reserve $ 592 --
Discontinued operation accruals 123 $ 1,227
Receivable allowance 459 471
Intangible assets 234 219
Insurance benefits 655 717
Other 263 735
- --------------------------------------------------------------------------------
2,326 3,369
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (681) (637)
Acquisition bases adjustment
primarily intangibles (1,860) (2,556)
(2,541) (3,193)
- --------------------------------------------------------------------------------
Net deferred tax (liability) asset: $ (215) $ 176
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are reflected in the consolidated balance
sheets at December 31, 1999 as follows: other current assets $1,696,000 and
deferred income taxes (noncurrent) $(1,911,000) and at December 31, 1998, other
current assets $2,694,000 and deferred income taxes (noncurrent) $(2,518,000).
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 1999 and 1998
include differences between financial and tax reporting for depreciation and
amortization.
- --------------------------------------------------------------------------------
Note 10--
Capital Stock
Stock Split and Authorized Shares -- Effective August 22, 1997 and January 8,
1999, the Company declared two for one stock splits in the form of 100% stock
dividends to all stockholders, which were distributed on September 5, 1997, and
January 29, 1999, respectively. The stock splits resulted in additional shares
of 6,923,582 shares and 14,189,982 shares of common stock, respectively, of
which, 1,683 shares and 52,166 shares, respectively, were shares of treasury
stock. All share and per share amounts have been retroactively restated for
these events. On February 24, 1998, the stockholders approved a proposal to
increase the authorized number of common shares from 20 million to 80 million.
On May 25, 1999, the stockholders approved a proposal to increase the authorized
number of common shares from 80 million to 240 million.
Stock Offering -- The Company completed a secondary common stock offering of
3,675,000 shares on February 29, 2000. The offering price was $25.125 and
provided approximately $87 million in net proceeds to the Company.
26
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Stock Repurchase Program -- On January 27, 1998, the Board of Directors approved
a Stock Repurchase Program, which authorized management to purchase shares of
the Company's common stock at prevailing market prices.During 1998, the Company
purchased 97,600 shares of its common stock at an aggregate price of $954,138.
No purchases occurred in 1999.
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 $6.00, 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 $6.00, 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 were extended by the Board of
Directors and will expire on June 16, 2000, unless sooner redeemed.
Stock Purchase Plan -- In 1993, the shareholders approved the 1993 Employee
Stock Purchase Plan which provided for granting of purchase rights to all
full-time employees, as defined, of up to 1,000,000 shares. The plan provided
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 was withheld
for their purchase. Employees can cancel their purchases any time during the
year, without penalty. The purchase price was 95% of the closing common stock
price on the grant date. In April 1997, April 1998, and April 1999, the Company
distributed 66,536, 80,904 and 68,062 shares, respectively, under the April
1996, April 1997 and April 1998 grants, and the aggregate purchase price was
$300,244, $324,248 and $551,718, respectively. In April 1999, the Company made a
grant of approximately 60,000 shares, and the aggregate purchase price was
approximately $718,000.
Stock Awards -- The Company's Chairman and 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, 1999, 1998 and 1997, awards of
5,000, 5,000 and 4,000 shares, respectively, have been granted.
27
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- -------------------------------------------------------------------------------
Stock Option Plans -- The Company's stockholders approved stock option plans
totaling 1,000,000 shares in 1999, 1,200,000 shares in 1998 and 1997, and
2,000,000 shares in 1994 and 1992, and 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 600,000 shares, which provides 100,000 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 options to acquire 400,000 shares to the Chief
Executive Officer, at an exercise price equal to the fair value at the date of
grant.The options vest 80,000 shares annually for five years. Any unvested
options became immediately exercisable in 1999, because the two performance
related conditions were met: (a) the Company's earnings per share were at least
$.35 for the year ended December 31, 1998, and (b) the Company's closing stock
price was at least $7.50 per share for any consecutive 30 day period during the
six months ended June 30, 1999. These conditions were met, and such options are
vested.
The following table summarizes stock option activity:
Under Option
- -------------------------------------------------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
- --------------------------------------------------------------------------------
Balance, December 31, 1996 1,393,204 3,323,152 2.77
Authorized 2,200,000 -- --
Granted (1,596,000) 1,596,000 4.17
Exercised -- (579,322) 3.03
- --------------------------------------------------------------------------------
Balance, December 31, 1997 1,997,204 4,339,830 3.25
Granted (1,210,800) 1,210,800 10.47
Exercised -- (416,830) 3.01
Cancelled 28,850 (28,850) 5.04
- --------------------------------------------------------------------------------
Balance, December 31, 1998 815,254 5,104,950 4.97
Granted (542,500) 542,500 25.75
Exercised -- (742,500) 3.04
Cancelled 34,600 (34,600) 11.17
- --------------------------------------------------------------------------------
Balance, December 31, 1999 307,354 4,870,350 $ 7.53
- --------------------------------------------------------------------------------
28
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The weighted average fair value per stock option granted was $15.78 for the 1999
options, $5.96 for the 1998 options, and $2.36 in 1997. The Company estimated
the fair values using the Black-Scholes option pricing model, modified for
dividends and using the following assumptions:
1999 1998 1997
- --------------------------------------------------------------------------------
Expected dividend yield .26% .34% .37%
Risk-free interest rate 6.00% 4.75% 6.13%
Expected stock price volatility 40.98% 41.90% 39.01%
Expected term until exercise (years) 10 9 9
- --------------------------------------------------------------------------------
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 option grants:
(thousands of dollars, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income:
As reported $20,793 $12,700 $8,770
Pro forma 18,919 11,552 8,066
Basic earnings per share:
As reported $ .72 $ .45 $ .32
Pro forma .66 .41 .29
Diluted earnings per share:
As reported $ .68 $ .43 $ .31
Pro forma .61 .39 .28
- --------------------------------------------------------------------------------
The pro forma effects on net income and earnings per share for 1999, 1998, and
1997 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, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Term (Years) Price at 12/31/99 Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.94 - 3.50 1,528,950 3.8 2.50 1,222,788 2.63
4.06 - 4.22 1,651,500 6.7 4.13 454,500 4.03
6.44 -13.38 1,147,400 8.6 10.53 -- 8.08
25.75 542,500 10.0 25.75 -- 25.75
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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 1999, 1998, and 1997, were $345,000, $300,000, and
$251,000, respectively.
29
<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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1999. 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 as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Short Hills, New Jersey
February 29, 2000
30
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------------------------------
(dollars in thousands except per share data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues $ 237,068 $ 185,210 $ 165,353 $ 156,254 $ 111,313
Operating income 36,535 25,592 16,344 8,576 4,059
Interest expense 860 3 168 1,394 1,674
Income from continuing operations 20,793 14,185 8,770 4,086 1,667
Loss from discontinued operations (1) -- (1,485) -- -- (14,716)
Net income (loss) 20,793 12,700 8,770 4,086 (13,049)
Earnings per share -- basic:
Income from continuing operations .72 .50 .32 .15 .06
Discontinued operations (1) -- (.05) -- -- (.55)
Net income (loss) .72 .45 .32 .15 (.49)
Earnings per share -- diluted:
Income from continuing operations .68 .48 .31 .15 .06
Discontinued operations (1) -- (.05) -- -- (.55)
Net income (loss) $ .68 $ .43 $ .31 $ .15 $ (.49)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ .05 $ .036 $ .026 $ .015 $ .015
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average shares-- basic 28,780,282 28,120,685 27,536,668 26,910,876 26,828,512
Weighted average shares--diluted 30,766,779 29,859,710 28,564,132 27,243,802 26,904,714
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (as of December 31):
Working capital $ 56,076 $ 33,476 $ 20,381 $ 11,807 $ 24,786
Total assets 184,471 85,016 65,941 61,296 93,997
Current maturities of long-term debt 143 450 -- 1,030 8,800
Long-term debt, less current maturities 65,307 -- -- 5,250 26,250
Total long-term debt 65,450 450 -- 6,280 35,050
Stockholders' equity $ 89,692 $ 62,294 $ 48,519 $ 37,719 $ 33,132
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
(1) See note 2 to the consolidated financial statements.
31
<PAGE>
Hooper Holmes, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Quarterly Common Stock Price Ranges and Dividends
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------- ---------------------------------------------
Quarter High Low Dividend High Low Dividend
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 16 9/16 12 3/8 .0125 10 11/16 6 7/16 .008
Second 21 5/8 15 .0125 12 29/32 10 3/32 .008
Third 25 5/8 18 5/16 .0125 11 15/16 8 .01
Fourth 27 3/8 22 1/4 .0125 14 15/16 9 3/8 .01
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjusted to reflect a two for one stock split effective January 8, 1999.
Quarterly Financial Data (Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Per Share of Common Stock
Income from Net Income
Gross Continuing -------------------------
Quarter Revenues profit Operations Net Income Basic Diluted
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Fourth $ 75,827 $ 23,052 $ 6,232 $ 6,232 $ .21 $ .20
Third 53,830 16,077 4,989 4,989 .17 .16
Second 54,472 16,932 4,821 4,821 .17 .16
First 52,939 17,049 4,751 4,751 .17 .16
- ---------------------------------------------------------------------------------------------------------------------------
Total $237,068 $ 73,110 $ 20,793 $ 20,793 $ .72 $ .68
- ---------------------------------------------------------------------------------------------------------------------------
1998
Fourth $ 48,147 $ 14,078 $ 4,068 $ 2,583(1) $ 0.09(1) $ 0.09(1)
Third 45,383 13,623 3,538 3,538 0.13 0.12
Second 45,569 13,750 3,390 3,390 0.12 0.11
First 46,111 14,498 3,189 3,189 0.11 0.11
- ---------------------------------------------------------------------------------------------------------------------------
Total $185,210 $ 55,949 $ 14,185 $ 12,700 $ 0.45 $ 0.43
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share calculations are adjusted to reflect a two for one stock split
effective January 8, 1999.
(1) Net income and earnings per share include a charge for discontinued
operations, net of tax of $1.5 million or $.05 per share.See note 2 to the
Consolidated Financial Statements.
32
<PAGE>
Directors and Officers
Directors
BENJAMIN A. CURRIER
Retired. Formerly
Senior Vice President,
Security Life of Denver Ins. Co. --
ING/Barings
QUENTIN J. KENNEDY
Retired. Formerly
Executive Vice President,
Secretary and Director
Federal Paper Board Company
ELAINE L. 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
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 inquires to:
Secretary
Hooper Holmes, Inc.
170 Mt. Airy Road
Basking Ridge, NJ07920
Independent Certified
Public Accountants
KPMG LLP
Short Hills, NJ
Transfer Agents &Registrar
First City Transfer Company
Iselin, NJ
Annual Meeting
May 23, 2000
at the Company's Headquarters
170 Mt. Airy Road
Basking Ridge, NJ
<PAGE>
Hooper Holmes, Inc.
Corporate Headquarters
170 Mt. Airy Road
Basking Ridge, NJ 07920
(908) 766-5000
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Hooper Holmes, Inc.
We consent to incorporation by reference in the registration statements on Form
S-3 (No. 333-94729 and No. 333-30998) and on Form S-8 (No. 333-57771, No. 33-
53086 and No. 333-04785) of Hooper Holmes, Inc. of our report dated February 29,
2000, relating to the consolidated balance sheets of Hooper Holmes, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1999, which report appears in the
December 31, 1999, annual report on Form 10-K of Hooper Holmes, Inc.
KPMG LLP
Short Hills, New Jersey
March 30, 2000
<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, 1999, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent
amendment thereto, and any and all other amendments or documents
related thereto which any of said attorneys in fact, in his
discretion, may deem necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in
his discretion, may deem necessary or appropriate in connection
with such Annual Report or any amendments thereto.
DATED: March 24, 2000
/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, 1999, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent
amendment thereto, and any and all other amendments or documents
related thereto which any of said attorneys in fact, in his
discretion, may deem necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in
his discretion, may deem necessary or appropriate in connection
with such Annual Report or any amendments thereto.
DATED: March 24, 2000
/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, 1999, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent
amendment thereto, and any and all other amendments or documents
related thereto which any of said attorneys in fact, in his
discretion, may deem necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in
his discretion, may deem necessary or appropriate in connection
with such Annual Report or any amendments thereto.
DATED: March 24, 2000
/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, 1999, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent
amendment thereto, and any and all other amendments or documents
related thereto which any of said attorneys in fact, in his
discretion, may deem necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in
his discretion, may deem necessary or appropriate in connection
with such Annual Report or any amendments thereto.
DATED: March 24, 2000
/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, 1999, hereby appoints James M. McNamee and Robert William Jewett,
or either of them, his attorneys in fact, and hereby grants to him, for him and
in his name as such Director, full power and authority as his agent or agents
and in his place and stead:
1. to sign such Annual Report on Form 10-K and any subsequent
amendment thereto, and any and all other amendments or documents
related thereto which any of said attorneys in fact, in his
discretion, may deem necessary or proper; and
2. to perform every other act which any of said attorneys in fact, in
his discretion, may deem necessary or appropriate in connection
with such Annual Report or any amendments thereto.
DATED: March 24, 2000
/s/ Benjamin A. Currier
------------------------
Benjamin A. Currier
<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, 1999 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 41,363,019
<SECURITIES> 0
<RECEIVABLES> 37,950,347
<ALLOWANCES> 1,113,935
<INVENTORY> 277,070
<CURRENT-ASSETS> 83,433,315
<PP&E> 26,465,947
<DEPRECIATION> 16,075,132
<TOTAL-ASSETS> 184,471,328
<CURRENT-LIABILITIES> 27,357,596
<BONDS> 0
0
0
<COMMON> 1,167,821
<OTHER-SE> 88,523,875
<TOTAL-LIABILITY-AND-EQUITY> 184,471,328
<SALES> 237,068,057
<TOTAL-REVENUES> 237,068,057
<CGS> 163,958,380
<TOTAL-COSTS> 163,958,380
<OTHER-EXPENSES> 36,574,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 859,555
<INCOME-PRETAX> 37,032,257
<INCOME-TAX> 16,239,000
<INCOME-CONTINUING> 20,793,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,793,257
<EPS-BASIC> .72
<EPS-DILUTED> .68
</TABLE>
