<PAGE>
As filed with the Securities and Exchange Commission on January 26, 2000
Registration No. 333-94729
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
to
Form S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
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 Identification No.)
incorporation or organization)
170 Mt. Airy Road
Basking Ridge, New Jersey 07920
(908) 766-5000
(Address, including zip code, and telephone number of Principal Executive
Offices)
---------------
Robert William Jewett, Esq.
170 Mt. Airy Road
Basking Ridge, NJ 07920
(908) 766-5000
(Name, address and telephone number of Agent for Service)
With a Copy to:
Terence P. Quinn, Esq. Nick H. Varsam, Esq.
Steptoe & Johnson LLP Bryan Cave LLP
1330 Connecticut Avenue NW One Metropolitan Square, Suite 3600
Washington, DC 20036 St. Louis, MO 63102-2750
(202) 429-8167 (314) 259-2000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with the dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statements for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
of the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 26, 2000
3,000,000 Shares
[LOGO] HOOPER HOLMES(TM)
Common Stock
-----------
We are offering 3,000,000 shares. Our common stock is listed on the American
Stock Exchange under the symbol "HH." On January 25, 2000, the last reported
sale price of our common stock on the American Stock Exchange was $21.375 per
share.
-----------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 7.
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PRICE $ PER SHARE
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Hooper Holmes..................... $ $
</TABLE>
We and the selling stockholders have granted the underwriters the right to
purchase up to 450,000 additional shares of common stock to cover over-
allotments. The underwriters expect to deliver the shares to purchasers on or
about , 2000.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
-----------
A.G. Edwards & Sons, Inc.
Dain Rauscher Wessels
The Robinson-Humphrey Company
SG Cowen
Prospectus dated , 2000
<PAGE>
A map of the United
States showing the
location of our branch
offices and contract
affiliate offices is
pictured here with the
following caption:
"Our network of over 300
branch and contract
affiliate offices
throughout the nation
provides accessibility
for customers and
convenience for
insurance applicants."
Another picture of an
examiner walking out the
door of a Hooper Holmes
office is pictured here
with the caption:
"Our mobile examiner visits the applicant's location."
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our common stock. You should carefully read the entire
prospectus, including the documents incorporated by reference into it,
particularly the section entitled "Risk Factors" and the consolidated
financial statements and notes to the consolidated financial statements. In
this prospectus, "Hooper Holmes," "we," "us," and "our" refer to Hooper
Holmes, Inc., including its divisions and subsidiaries. Unless we specify
otherwise, all information in this prospectus assumes that the underwriters do
not exercise their over-allotment option and all share data in this prospectus
has been adjusted to reflect two-for-one stock splits effective August 22,
1997 and January 8, 1999.
Our Business
Hooper Holmes is the nation's leading provider of health information
services to the life insurance industry. Through our paramedical and medical
examinations, personal health interviews and record collection, and laboratory
testing, we provide information about life insurance applicants to life
insurance companies to help them evaluate the risks associated with
underwriting policies. We provide our services through our network of over
8,700 registered nurses, licensed practical nurses, physicians, phlebotomists
and medical and EKG technicians. 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.
The scope of our services that any of our customers may request typically
depends upon the age of the life insurance applicant and the amount of the
life insurance policy for which he or she applies. We conduct paramedical
examinations, which may include the collection of an applicant's medical
history, age, height, weight, blood pressure, and pulse, and may also include
blood, urine and saliva samples, and a resting electrocardiogram, or "EKG". We
usually perform paramedical examinations at the applicant's home or office.
For older applicants or higher face amounts, we may also conduct a medical
examination of the applicant, which may include a complete physical
examination performed by a physician, a stress EKG and a chest x-ray. To
supplement an examination or, in some cases, in lieu of an examination, we
obtain applicant information through personal health interviews and record
collection. Through our majority-owned Heritage Labs subsidiary, we also offer
our customers laboratory testing of any blood, urine or saliva samples that we
collect during an examination.
We believe that the following competitive strengths have helped us achieve
our industry-leading position:
. the geographic coverage of our network, and the proximity of our branch
offices to the homes and workplaces of applicants and insurance agents
and brokers;
. our electronic connectivity with customers;
. our ability to provide timely examination and information services; and
. our comprehensive quality assurance program.
Our Industry
Management estimates that the life insurance industry spent approximately
$770 million on health information services in 1998. The life insurance
industry is currently experiencing a number of trends that may affect our
industry which include:
. Growth in alternate distribution channels, including the Internet. A
variety of new providers and marketers of life insurance, as well as
traditional insurance companies, are increasingly marketing
3
<PAGE>
life insurance products through channels other than an insurance agent
or broker, including the Internet, direct mail and mass media. We
believe these new distribution channels are likely to create greater
demand for services from health information services companies,
particularly those with a national network and advanced automation
systems.
. The use of fewer approved health information service providers. We
believe that insurance companies are gradually reducing the number of
approved health information service providers, which also benefits
companies that have a national network and can meet insurers'
technology, timing and quality needs.
. Favorable insurance-applicant trends. We believe that, as a result of
increasing average insurance policy size and average applicant age, life
insurance companies are requiring more examinations and other
information services to assess the risks of their insurance applicants.
Our Growth Strategy
Our growth strategy is to enhance our industry leadership position by
capitalizing on 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;
. increasing our focus on alternate distribution channels;
. leveraging our national network;
. continuing to pursue strategic acquisitions; and
. expanding into related lines of business.
Recent Developments
As of November 1, 1999, we purchased substantially all of the assets of
Paramedical Services of America, Inc., which we refer to as "PSA", the Atlanta-
based paramedical examination subsidiary of Pediatric Services of America,
Inc., for a purchase price of approximately $80 million in cash. We financed
this acquisition with a $65 million term loan and approximately $15 million in
existing cash. We expect this acquisition to position us to better serve our
customers through improved responsiveness and more complete geographic
coverage. We also expect it to enhance our marketing and new customer
opportunities and create significant operating efficiencies.
As of December 31, 1999, we have substantially completed our planned branch
office closings and consolidations, and contract affiliate terminations, and
have added approximately 30 branch offices and 60 contract affiliates to our
network. PSA generated approximately $83 million in revenue for the fiscal year
ended September 30, 1999. Assuming the acquisition, branch office closings and
consolidations, and contract affiliate terminations had been completed on
October 1, 1998, we believe approximately $21 million of PSA's reported $83
million in revenue for fiscal year 1999 would not have been achieved. For a
more complete description of PSA, see "Unaudited Pro Forma Condensed
Consolidated Financial Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- PSA Acquisition."
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered:
By Hooper Holmes................. 3,000,000 shares
Common stock outstanding
after the offering (1).............. 32,091,194 shares
Use of proceeds by Hooper Holmes..... Repay a portion of our acquisition indebtedness, fund
possible strategic acquisitions, provide working capital
and for general
corporate purposes.
American Stock Exchange symbol....... HH
Current annual dividend rate......... $.06 per share
Cash dividends paid since............ 1978
</TABLE>
- --------
(1) Based on shares outstanding as of December 31, 1999. Does not include
4,870,350 shares of common stock reserved for issuance upon exercise of
options outstanding as of December 31, 1999. If the underwriters exercise
their over-allotment option, we may issue up to an additional 435,000
shares of common stock, 62,500 of which will be issued upon exercise of
options held by a selling stockholder. See "Principal and Selling
Stockholders."
----------------
Our principal executive offices are located at 170 Mt. Airy Road, Basking
Ridge, New Jersey 07920, and our telephone number is (908) 766-5000.
- --------
Portamedic(R), Healthdex(R) and Teledex(R) are registered U.S. Service Marks of
Hooper Holmes, and we have applied to register "Infolink" as a U.S. Service
Mark and the Hooper Holmes logo as a U.S. Trademark.
5
<PAGE>
Summary Historical and Pro Forma Financial Data
(in thousands, except per share data)
The following financial data should be read in conjunction with, and are
qualified by reference to, "Selected Consolidated Financial and Operating
Data," "Unaudited Pro Forma Condensed Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine months ended September 30,
(Unaudited) Years ended December 31,
--------------------------------- ------------------------------------------
1999 1998
Pro Forma as Actual Pro Forma as Actual
Adjusted for ----------------- Adjusted for --------------------------
Offering (1)(2) 1999 1998 Offering (1)(2) 1998 1997 1996
--------------- -------- -------- --------------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Revenues................ $223,513 $161,241 $137,063 $275,319 $185,210 $165,353 $156,254
Gross profit............ 65,915 50,058 41,871 79,288 55,949 46,160 38,294
Operating income........ 22,101 25,236 18,522 22,765 25,592 16,344 8,576
Interest income
(expense), net......... (579) 719 522 (966) 765 127 (1,046)
Income before income
taxes.................. 21,667 26,100 18,902 21,711 26,269 16,891 7,858
Income from continuing
operations............. 12,134 14,561 10,117 11,724 14,185 8,770 4,086
Net income.............. $ 12,134 $ 14,561 $ 10,117 $ 11,724 $ 12,700 $ 8,770 $ 4,086
Earnings per share --
basic................. $ .38 $ .51 $ .36 $ .38 $ .45 $ .32 $ .15
Earnings per share --
diluted............... $ .36 $ .48 $ .34 $ .36 $ .43 $ .31 $ .15
Cash dividends per
share.................. $ .038 $ .025 $ .036 $ .026 $ .015
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
(Unaudited)
--------------------------------------
Pro Forma as
Adjusted for
Actual Pro Forma (1) Offering (1)(2)
-------- ------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 40,547 $ 25,517 $ 35,525
Working capital........................ 55,175 49,054 59,062
Total assets........................... 101,566 170,930 180,938
Long-term debt, less current
maturities............................ -- 65,000 15,000
Stockholders' equity................... 83,632 83,632 143,640
</TABLE>
- --------
(1) As adjusted to give pro forma effect to our acquisition of PSA and our
borrowings under our senior credit facility as if they occurred on January
1, 1998 for purposes of the statement of income data and on September 30,
1999 for purposes of the balance sheet data.
(2) The same pro forma basis as described in (1) above, as further adjusted to
give effect to this offering and our use of the estimated net proceeds at
an assumed offering price of $21.375 per share. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before purchasing our common stock.
We may not achieve the anticipated benefits from the PSA acquisition.
We will need to successfully integrate the personnel, locations and
operations of PSA, which may be difficult and time consuming, to achieve the
anticipated efficiencies and other benefits we expect to realize from this
acquisition. Several factors may adversely affect our ability to integrate PSA
into our business, including:
. lack of retention of a sufficient number of contract affiliates,
independent contractors and employees to meet our anticipated revenue
goals with this acquisition;
. difficulty consolidating PSA's financial, operational and administrative
functions; and
. diversion of management's time and attention from our existing
operations.
We believe that we have made significant progress toward achieving this
integration. However, we cannot be certain that we will be able to integrate
the PSA business, or that we will achieve the anticipated benefits from the
acquisition.
We are dependent on the trends and other developments affecting the life
insurance industry.
We currently derive nearly all of our revenues from life insurance
companies. Our business is largely dependent on demographic, economic and other
trends that affect consumers' demand for life insurance policies which, in
turn, drives life insurance companies' demand for our services. We face the
risk that demand for our services could decrease for the following reasons:
. The number of applications for life insurance might decrease. We have
no control over many factors that may affect the demand for life
insurance. In recent years, the life insurance industry has experienced
a decline in the number of insurance policies sold, though the total
amount of insurance coverage has increased. Among other developments, a
downturn in the economy and changes in laws and regulations affecting
the life insurance industry could adversely affect insurance policy
sales and also reduce the demand for our services. If Congress proposes
legislation that would make life insurance products taxable or would
impose estate taxes on life insurance proceeds, the demand and
applications for life insurance might significantly decrease. If fewer
people apply for life insurance policies, our business could be
substantially harmed.
. Even if the number of applications does not decrease, the percentage of
applications for which life insurance companies require our services
might decrease. We cannot predict how the percentage of applications for
which our customers require health information services, or the types of
services that they require, might change in the future. Life insurance
companies might change their criteria for determining which, if any, of
our services they require. This might include the introduction of new
products, shifting consumer preferences, improvements in risk management
procedures or advancements in laboratory testing technologies. If life
insurance companies significantly limit the types of applications for
which our services will be requested, our business could be
substantially harmed.
Our growth strategy depends in part on the continued growth of alternate
distribution channels, which may not achieve broad acceptance by our current or
prospective customers.
Our growth will depend in part upon the increased use of the Internet and
other alternate distribution channels by our customers to sell their life
insurance products. Rapid growth in the use of these distribution channels is a
recent phenomenon, and it may not continue, or these channels may ultimately be
discontinued or replaced. This might limit any growth in the number of
applications for life insurance policies, which could substantially harm our
business.
7
<PAGE>
We face the risk of losing our insurance company customers as a result of not
having long-term or exclusive contracts with them.
Our relationships with most of our customers are not covered by formal
written agreements, and we have exclusive relationships with only a small
number of our customers. Many of them use two or more providers of health
information services. This means that our customers are able to quickly shift
more of their business to our competitors who have existing relationships with
them, or to negotiate more aggressively based on price. With the recent trend
of consolidation in the insurance industry, losing any one customer would be a
greater risk to our business. In the event this consolidation continues and our
current or prospective customers are acquired, the resulting entity might not
choose to use our services. This process may accelerate with the recent passage
of the financial services overhaul legislation, which allows banks and
securities firms to sell life insurance. Our ability to retain these insurance
companies as customers will depend on our continued ability to serve their
needs and distinguish ourselves from our competitors.
We face the risk of increased competition from existing competitors and
potential new industry entrants who might acquire other providers or develop
their own online networks.
The market for providing health information services to life insurance
companies is becoming increasingly competitive. Our industry is highly
fragmented and may present opportunities for existing or new competitors to
grow through acquisitions and expand their services for life insurance
companies. Nationwide, we compete primarily with Examination Management
Services, Inc. and American Para Professional Systems. We also compete with a
significant number of regional and local firms that provide examination and
other health information services. Through our Heritage Labs subsidiary, we
also compete with laboratory testing companies, any of which might expand their
services to include paramedical and medical examinations and other information
services for life insurance customers to whom they now provide laboratory
testing services.
We also face the risk of increased competition from existing or future
competitors who may develop their own online networks to target life insurance
companies, particularly through alternate distribution channels. Our ability to
retain our customers will largely depend on our continued ability to
distinguish ourselves from our competitors, particularly with regard to our
technological capabilities and network infrastructure.
Loss of key management could adversely affect our business.
Our continued success is materially dependent upon our key management team,
including James M. McNamee, our Chairman, President and Chief Executive
Officer, none of whom has an employment agreement with us. In the event of a
loss of one or more of our executive officers, our inability to successfully
recruit and retain additional highly skilled and experienced management, or to
successfully train and promote existing personnel to serve in a managerial
capacity, could substantially harm our business.
Paul W. Kolacki, our Executive Vice President and Chief Operating Officer,
plans to retire on March 31, 2000. Mario Cavezza, an employee for 31 years and
our Senior Vice President, Northern Region Manager for the past three years,
has been appointed Senior Vice President and General Manager of Branch and
Affiliate Operations effective April 1, 2000. He will assume the overall field
operating responsibilities upon Mr. Kolacki's retirement. Mr. McNamee will
assume Mr. Kolacki's remaining responsibilities. Although we anticipate a
successful transition, our management changes could disrupt our business.
We face the risk that federal or state regulators will require us to classify
our independent contractors as employees, which would subject us to liability
for taxes and increased personnel costs.
We classify most of our examiners as independent contractors rather than
employees. As such they are responsible for their own employment taxes and
workers' compensation. This is a common practice in our industry and is based
upon our interpretation of the Internal Revenue Code, the rules and regulations
thereunder, and the publicly available interpretations of the Code.
8
<PAGE>
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. We cannot
assure you that we will prevail in these pending cases, that we will not be
subject to similar claims in other states in the future, or that we will not be
subject to material liability on these matters in the future.
In the event that the Internal Revenue Code, rules and regulations under the
Code, interpretations of the Code or state or local rules and regulations are
amended or otherwise require us to classify our independent contractors as
employees, we would incur increased personnel costs. Further, if we did not
classify these individuals as employees, and we were required to do so, we
could be subject to a material liability for failure to withhold and pay
employee-related taxes. This could substantially harm our business.
Changes in government regulations may require us to change the way we do
business.
The states in which we operate, and, to a lesser extent, the federal
government, regulate some aspects of our business and our personnel. For
example, we are subject to regulations governing the examination services we
provide, including needle disposal and specimen testing procedures. These
regulations are continually updated and revised. We believe that we are
operating our business substantially in compliance with the regulations and
licensing requirements that are material to our business. However, as we expand
the scope of our services and we realize the impact of any growth of alternate
distribution channels, we might be required to comply with regulations
traditionally limited to insurance companies, including agent licensing
requirements. We are not able to predict what additional federal or state
enforcement, legislative or regulatory initiatives may be undertaken in the
future relating to our business, or what effect these initiatives might have on
us.
We need to continually enhance and expand our technology and network
infrastructure to accommodate the changing demands of our current and
prospective customers.
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 also need to
continue to adapt to the technological needs of insurance companies who begin
to rely more on alternate distribution channels, including the Internet, to
sell their products and outsource more of the administrative, non-medical
functions traditionally performed "in-house." We may be unsuccessful in these
efforts or we may be unable to accurately project the rate or timing of
increases in the volume of traffic through our website or direct electronic
links with our customers. Our failure to implement timely enhancements to our
automated systems could substantially harm our business.
The Year 2000 computer software problem could impair the computer programs and
systems upon which we depend.
We rely on computer applications to provide our insurance company customers
the status of our paramedical examinations, as well as to manage and monitor
our accounting, sales, development and administrative functions. In addition,
our customers, suppliers and service providers are reliant upon computer
applications, some of which may fail as a result of the recent change in
century. These failures could affect the interactions of these third parties
with us. While we have not experienced any Year 2000 problems to date and we do
not believe our computer systems, applications or embedded technologies
currently in use will fail to accommodate the change in century, it is possible
that we or our technology could be substantially harmed by it. Failure of our
software, hardware or embedded technology or that of our customers, suppliers
or services providers could substantially harm our business. For a more
detailed discussion of Year 2000 readiness issues, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance."
9
<PAGE>
If we are unable to safeguard the security and privacy of applicants' and
insurance companies' confidential data, our business may be harmed.
A significant factor that affects our business success is the secure
transmission of personally identifiable health and other personal information
of life insurance policy applicants, often over public networks. Advances in
computer capabilities or other developments could result in a compromise or
breach of the security measures we use to protect applicants' and insurance
companies' confidential information. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations. If any compromise or breach of security were
to occur, it could harm our reputation and expose us to liability. This could
reduce demand for our services, increase the cost of doing business, result in
litigation costs, or otherwise harm our business. We may be required to make
significant expenditures to protect against security breaches or to alleviate
problems caused by any breaches. To date, we have experienced no breaches in
our network security.
10
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$60.0 million, or $67.8 million if the underwriters exercise their over-
allotment option in full, including approximately $210,000 from the exercise of
options by a selling stockholder. We base these estimates on an assumed public
offering price of $21.375 per share. We have deducted estimated underwriting
discounts and commissions and offering expenses payable by us. We will not
receive any of the proceeds from the sale of common stock by the selling
stockholders.
The principal purpose of this offering is to repay $50 million of the $65
million term loan we incurred in connection with our acquisition of PSA. This
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 interest rate on the term loan is
either the prime rate minus 1/2% to plus 1/4% or LIBOR plus 3/4% to 1 3/4%,
depending on the ratio of our consolidated funded debt (as defined in the
senior credit facility) to our earnings before interest, taxes, depreciation
and amortization, or "EBITDA." Interest is currently payable at an effective
interest rate of 7.535%. See "Description of the Senior Credit Facility."
Other uses of proceeds include:
. funding for possible strategic acquisitions;
. working capital; and
. general corporate purposes.
We currently have no agreements or understandings to make any material
future acquisition. Until we use the net proceeds of this offering for the
above purposes, we intend to invest them in short-term, government securities
and other investment-grade, interest-bearing securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the American Stock Exchange under the symbol
"HH." The following table sets forth the range of high and low sale prices for
the common stock as reported on the American Stock Exchange for the quarters
indicated.
<TABLE>
<CAPTION>
Price Range
----------------
High Low
------- --------
<S> <C> <C>
Fiscal Year Ended December 31, 1997
First Quarter............................................... $ 4.531 $ 3.844
Second Quarter.............................................. 6.000 4.094
Third Quarter............................................... 7.219 4.906
Fourth Quarter.............................................. 8.063 6.000
Fiscal Year Ended December 31, 1998
First Quarter............................................... $11.063 $ 6.250
Second Quarter.............................................. 13.063 10.000
Third Quarter............................................... 12.000 7.719
Fourth Quarter.............................................. 15.188 8.875
Fiscal Year Ended December 31, 1999
First Quarter............................................... $16.750 $ 11.750
Second Quarter.............................................. 22.000 14.250
Third Quarter............................................... 26.125 17.500
Fourth Quarter.............................................. 27.500 22.125
Fiscal Year Ended December 31, 2000
First Quarter (through January 25, 2000).................... $26.125 $ 19.500
</TABLE>
On January 25, 2000, the last reported sale price of the common stock on the
American Stock Exchange was $21.375 per share. As of such date, there were
approximately 880 holders of record of the common stock.
DIVIDEND POLICY
Holders of common stock may receive dividends that are declared by our board
of directors. We have paid regular quarterly cash dividends on our common stock
since 1978. Assuming no event of default under our senior credit facility would
exist after payment, we can pay quarterly cash dividends not to exceed 40
percent of our quarterly average net income for the preceding four calendar
quarters. We presently intend to pay regular quarterly cash dividends in the
future, assuming our earnings and financial condition and other factors permit
us to do so prudently.
12
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited capitalization as of September
30, 1999, on:
. an actual basis;
. a pro forma basis as adjusted to give effect to our acquisition of PSA
and the related debt financing; and
. the same pro forma basis as further adjusted to reflect the sale of
3,000,000 shares of our common stock in this offering and the receipt of
the estimated $60.0 million in net proceeds from this offering, at an
assumed offering price of $21.375 per share, after deducting estimated
underwriting discounts and commissions and other offering expenses
payable by us.
This table should be read in conjunction with "Selected Consolidated Financial
and Operating Data", "Unaudited Pro Forma Condensed Consolidated Financial
Information" and our consolidated financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
(in thousands, except share data)
(Unaudited)
--------------------------------------
Acquisition
Pro Forma as
Acquisition Adjusted for
Actual Pro Forma Offering
---------- ------------ -------------
<S> <C> <C> <C>
Cash and cash equivalents................ $ 40,547 $ 25,517 $ 35,525
========== =========== ===========
Long-term debt, less current maturities.. $ -- $ 65,000 $ 15,000
---------- ----------- -----------
Stockholders' equity:
Common stock, par value $.04 per share;
authorized 240,000,000 shares, issued
29,180,426 shares actual and pro forma
and 32,180,426 shares pro forma as
adjusted for this offering (1)........ 1,167 1,167 1,287
Additional paid-in capital............. 37,335 37,335 97,223
Retained earnings...................... 46,103 46,103 46,103
---------- ----------- -----------
84,605 84,605 144,613
Less: treasury stock at cost, 104,332
shares ............................... 973 973 973
---------- ----------- -----------
Total stockholders' equity............... 83,632 83,632 143,640
---------- ----------- -----------
Total capitalization................. $ 83,632 $ 148,632 $ 158,640
========== =========== ===========
</TABLE>
- --------
(1) The number of shares of our common stock to be outstanding after the
offering does not take into account 15,100 shares of our common stock
issued from September 30, 1999 to December 31, 1999 upon exercise of
options, and 4,870,350 shares issuable upon exercise of outstanding options
having a weighted average exercise price of $7.535 per share as of December
31, 1999.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share data)
The following selected consolidated financial data of Hooper Holmes should
be read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this prospectus. The statement of income data for the years ended December 31,
1998, 1997 and 1996 and the balance sheet data as of December 31, 1998 and 1997
are derived from the audited consolidated financial statements included
elsewhere in this prospectus, which have been audited by KPMG LLP, independent
certified public accountants. The financial data set forth below as of December
31, 1996, 1995 and 1994 and for the years ended December 31, 1995 and 1994 are
derived from our audited consolidated financial statements which were also
audited by KPMG LLP but are not included or incorporated by reference in this
prospectus. The statement of income data for the nine-month periods ended
September 30, 1999 and 1998 and the balance sheet data as of September 30, 1999
are derived from our unaudited consolidated financial statements included
elsewhere in this prospectus. In our opinion, our unaudited consolidated
financial statements have been prepared on a basis consistent with our audited
consolidated financial statements and reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations and financial position as of the end of and for such
periods. Results for the nine months ended September 30, 1999 are not
necessarily indicative of results that may be expected for the entire year.
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- -------
(Unaudited)
Statement of Income Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $161,241 $137,063 $185,210 $165,353 $156,254 $111,313 $92,534
Cost of operations ..... 111,183 95,192 129,261 119,193 117,959 85,934 70,678
-------- -------- -------- -------- -------- -------- -------
Gross profit........... 50,058 41,871 55,949 46,160 38,295 25,379 21,856
Selling, general and
administrative
expenses............... 24,822 23,349 30,357 29,816 29,719 21,320 18,053
-------- -------- -------- -------- -------- -------- -------
Operating income....... 25,236 18,522 25,592 16,344 8,576 4,059 3,803
Other income (expense):
Interest expense....... (30) -- (3) (168) (1,394) (1,674) (994)
Interest income........ 749 522 768 295 348 262 21
Other income, net...... 145 (142) (88) 420 328 384 --
-------- -------- -------- -------- -------- -------- -------
Income before income
taxes.................. 26,100 18,902 26,269 16,891 7,858 3,031 2,830
Income taxes............ 11,539 8,785 12,084 8,121 3,772 1,364 1,350
-------- -------- -------- -------- -------- -------- -------
Income from continuing
operations............. 14,561 10,117 14,185 8,770 4,086 1,667 1,480
Discontinued operations:
Income (loss) from
operations, net of
taxes................. -- -- -- -- -- (4,390) 1,184
Loss on disposal, net
of taxes.............. -- -- (1,485) -- -- (10,326) --
-------- -------- -------- -------- -------- -------- -------
Net income (loss)....... $ 14,561 $ 10,117 $ 12,700 $ 8,770 $ 4,086 $(13,049) $ 2,664
======== ======== ======== ======== ======== ======== =======
Earnings (loss) per
share--basic:
Income from continuing
operations............ $ .51 $ .36 $ .50 $ .32 $ .15 $ .06 $ .06
Discontinued
operations--net of
taxes................. -- -- (.05) -- -- (.55) .04
-------- -------- -------- -------- -------- -------- -------
Net income (loss)...... $ .51 $ .36 $ .45 $ .32 $ .15 $ (.49) $ .10
======== ======== ======== ======== ======== ======== =======
Earnings (loss) per
share--diluted:
Income from continuing
operations............ $ .48 $ .34 $ .48 $ .31 $ .15 $ .06 $ .06
Discontinued
operations--net of
taxes................. -- -- (.05) -- -- (.55) .04
-------- -------- -------- -------- -------- -------- -------
Net income (loss)...... $ .48 $ .34 $ .43 $ .31 $ .15 $ (.49) $ .10
======== ======== ======== ======== ======== ======== =======
Weighted average
shares--basic.......... 28,678 28,096 28,121 27,537 26,911 26,829 26,827
Weighted average
shares--diluted........ 30,642 29,783 29,860 28,564 27,244 26,905 26,916
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA -- (Continued)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
----------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
Selected Operating Data
(Unaudited):
<S> <C> <C> <C> <C> <C> <C> <C>
Portamedic
examinations........... 1,999 1,863 2,515 2,323 2,281 1,678 1,479
Infolink reports........ 260 223 303 337 409 327 266
<CAPTION>
September 30, December 31,
----------------- --------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(Unaudited)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 40,547 $24,728 $29,752 $13,159 $ 2,936 $ 1,065 $ 1,696
Working capital......... 55,175 32,604 33,476 20,381 11,807 24,786 6,407
Total assets............ 101,566 76,695 85,016 65,941 61,296 93,997 103,172
Long-term debt, less
current maturities..... -- -- -- -- 5,250 26,250 46,327
Stockholders' equity.... 83,632 59,176 62,294 48,519 37,719 33,132 46,502
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following presents certain unaudited pro forma condensed consolidated
financial information of Hooper Holmes for the periods as indicated. The
unaudited pro forma condensed consolidated financial information gives effect
to the PSA acquisition which occurred on November 1, 1999, the related bank
debt financing, as well as this offering and the use of the net proceeds, as if
such transactions had occurred on January 1, 1998 for purposes of the pro forma
statements of income for the year ended December 31, 1998 and the nine-month
period ended September 30, 1999, and on September 30, 1999 for purposes of the
pro forma balance sheet as of September 30, 1999. The pro forma financial
information was prepared using the assumptions described below and in the
related notes thereto.
The unaudited pro forma condensed consolidated financial information
reflects pro forma adjustments that are based upon available information and
certain assumptions that we believe are reasonable. The pro forma financial
information does not purport to represent our results of operations or
financial position that would have resulted had the transactions to which pro
forma effect is given been consummated as of the dates or for the periods
indicated. In preparing the pro forma financial information, we believe we have
utilized reasonable methods to conform the basis of presentation. The pro forma
financial statements have not been adjusted for certain cost savings that we
may realize in connection with the integration of PSA.
For purposes of the unaudited pro forma condensed consolidated statements of
income, our historical statement of income for the year ended December 31, 1998
was combined with PSA's historical statement of operations for the fiscal year
ended September 30, 1998. In addition, our historical statement of income for
the nine-month period ended September 30, 1999 was combined with PSA's
historical statement of operations for the same period.
The unaudited pro forma financial statements and accompanying notes should
be read in conjunction with the historical financial statements of Hooper
Holmes and PSA and with other financial information pertaining to the Company
including "Use of Proceeds," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
or incorporated by reference in this prospectus.
Overview of Acquisition and Financing
We acquired the assets of PSA as of November 1, 1999. We accounted for this
acquisition using the purchase method of accounting. Accordingly, the excess of
the purchase price over the fair value of identifiable net tangible and
intangible assets acquired, representing goodwill, is included as an intangible
asset. The consideration and allocation of the purchase price are summarized
below (dollars in thousands):
<TABLE>
<S> <C>
Purchase Price Consideration:
Proceeds from term loan........................................... $65,000
Cash.............................................................. 15,030
Liability assumed (vacation accrual).............................. 529
Accrued expenses, including certain PSA facility exit costs and
certain legal, accounting and other acquisition costs............ 3,834
-------
$84,393
=======
Allocation of Purchase Price:
Accounts receivable............................................... $12,726
Other assets...................................................... 546
Property, plant and equipment (1)................................. 1,496
Intangible assets (2)............................................. 11,600
Goodwill.......................................................... 58,025
-------
$84,393
=======
</TABLE>
16
<PAGE>
- --------
(1) Property, plant and equipment excludes the historical net asset value of
certain capitalized software which is not going to be utilized by Hooper
Holmes to conduct on-going operations of the business.
(2) Intangible assets include the following components (dollars in thousands):
<TABLE>
<S> <C>
Customer base....................................................... $ 4,600
Contract affiliate network.......................................... 3,200
Covenant not to compete............................................. 2,600
Assembled workforce................................................. 1,200
-------
$11,600
=======
</TABLE>
On October 29, 1999, we entered into a $100 million Amended and Restated
Revolving Credit and Term Loan Agreement with a group of bank lenders. This
senior credit facility consists of a $65 million, six-year term loan, and a $35
million, three-year revolving loan. We used the $65 million term loan solely in
connection with the purchase of the assets. 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. We have 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 1 3/4%, depending on the
ratio of our consolidated funded debt (as defined in the senior credit
facility) to our earnings before interest, taxes, depreciation and
amortization. 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. Approximately
$50 million of the net proceeds of this offering will be used to repay a
portion of the term loan.
Prior to completing the PSA acquisition, we expected to close and
consolidate a number of branch offices and terminate a number of PSA's contract
affiliates. We were also aware that some of PSA's contract affiliates had
either terminated their relationships with PSA or planned not to continue as
our contract affiliates after the acquisition was completed. As an incentive to
those PSA contract affiliates which we want to retain, cash bonuses, partially
funded from amounts escrowed at closing, have been offered to those who remain
with us until June 1, 2000. We have substantially completed our planned branch
office closings and consolidations, and contract affiliate terminations, which
has resulted in the addition of approximately 30 branch offices and 60 contract
affiliates to our network, which is consistent with our expectations at the
time of the acquisition. Assuming the acquisition, branch office closings and
consolidations, and contract affiliate terminations had been completed on
October 1, 1998, we believe approximately $21 million of PSA's reported $83
million in revenue for fiscal year 1999 would not have been achieved.
Immediately upon closing, we began implementing a detailed integration plan,
which, in addition to branch office closings and consolidations, and contract
affiliate terminations described above, includes the following key tasks
relating to the PSA business:
. consolidating and relocating branch office personnel;
. reducing selling, general and administrative expenses, including
terminating PSA sales personnel;
. updating system hardware and software;
. transferring billing and collection systems; and
. implementing our quality assurance program.
We believe that our integration efforts will improve the operating margin of
the PSA business, which has historically been significantly less than ours. No
adjustments for either the revenue decrease described above or the results of
these tasks have been reflected in these pro forma statements of income.
17
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
----------------------------------------------------------------------
Historical
-----------------
Acquisition Offering
Hooper Pro Forma Acquisition Pro Forma Pro Forma
Holmes PSA Adjustments Pro Forma Adjustments Consolidated
-------- ------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $161,241 $62,272 $ -- $223,513 $ -- $223,513
Cost of operations...... 111,183 46,415 -- 157,598 -- 157,598
-------- ------- ------- -------- ------ --------
Gross profit.......... 50,058 15,857 -- 65,915 -- 65,915
-------- ------- ------- -------- ------ --------
Selling, general and
administrative
expenses............... 24,822 18,060 3,007 (1) 43,814 -- 43,814
(675)(2)
(1,400)(3)
-------- ------- ------- -------- ------ --------
Operating income
(loss)............... 25,236 (2,203) (932) 22,101 -- 22,101
-------- ------- ------- -------- ------ --------
Other income (expense)
Interest expense...... (30) (1,571) (3,673)(4) (3,703) 2,826(7) (877)
1,571 (5)
Interest income....... 749 -- (451)(4) 298 -- 298
Other income, net..... 145 -- -- 145 -- 145
-------- ------- ------- -------- ------ --------
864 (1,571) (2,553) (3,260) 2,826 (434)
-------- ------- ------- -------- ------ --------
Income (loss) before
income taxes......... 26,100 (3,774) (3,485) 18,841 2,826 21,667
Income taxes (benefit).. 11,539 (1,424) (1,825)(6) 8,290 1,243(8) 9,533
-------- ------- ------- -------- ------ --------
Income (loss) from
continuing
operations........... $ 14,561 $(2,350) $(1,660) $ 10,551 $1,583 $ 12,134
======== ======= ======= ======== ====== ========
Income per share from
continuing operations:
Basic................. $ .51 $ .37 $ .38
Diluted............... $ .48 $ .34 $ .36
======== ======== ========
Weighted average number
of shares:
Basic................. 28,678 28,678 3,000(9) 31,678
Diluted............... 30,642 30,642 3,000(9) 33,642
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Income.
18
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
----------------------------------------------------------------------
Historical
-----------------
Acquisition Offering
Hooper Pro Forma Acquisition Pro Forma Pro Forma
Holmes PSA (a) Adjustments Pro Forma Adjustments Consolidated
-------- ------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $185,210 $90,109 $ -- $275,319 $ -- $275,319
Cost of operations...... 129,261 66,770 -- 196,031 -- 196,031
-------- ------- ------- -------- ------ --------
Gross profit.......... 55,949 23,339 -- 79,288 -- 79,288
-------- ------- ------- -------- ------ --------
Selling, general and
administrative
expenses............... 30,357 24,007 4,009 (1) 56,523 -- 56,523
(375)(2)
(1,475)(3)
-------- ------- ------- -------- ------ --------
Operating income
(loss)............... 25,592 (668) (2,159) 22,765 -- 22,765
-------- ------- ------- -------- ------ --------
Other income (expense)
Interest expense...... (3) (1,226) (4,898)(4) (4,901) 3,768(7) (1,133)
1,226 (5)
Interest income....... 768 -- (601)(4) 167 -- 167
Other income, net..... (88) -- -- (88) -- (88)
-------- ------- ------- -------- ------ --------
677 (1,226) (4,273) (4,822) 3,768 (1,054)
-------- ------- ------- -------- ------ --------
Income (loss) before
income taxes......... 26,269 (1,894) (6,432) 17,943 3,768 21,711
Income taxes (benefit).. 12,084 (667) (3,163)(6) 8,254 1,733(8) 9,987
-------- ------- ------- -------- ------ --------
Income (loss) from
continuing
operations........... $ 14,185 $(1,227) $(3,269) $ 9,689 $2,035 $ 11,724
======== ======= ======= ======== ====== ========
Income per share from
continuing operations:
Basic................. $ .50 $ .34 $ .38
Diluted............... $ .48 $ .32 $ .36
======== ======== ========
Weighted average number
of shares:
Basic................. 28,121 28,121 3,000(9) 31,121
Diluted............... 29,860 29,860 3,000(9) 32,860
</TABLE>
- --------
(a) The audited historical statement of operations data for the year ended
September 30, 1998 has been adjusted to reflect an estimate of the results
of operations of the PMI business, acquired by PSA through a "purchase" in
December 1997, for the three-month period ended December 1997. Also
included was an adjustment for additional goodwill amortization of $250 and
interest expense of $302.
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income.
19
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
debit (credit)
(in thousands)
<S> <C> <C>
Acquisition Adjustments:
(1) Adjustments to amortization expense
for the excess cost over fair value
of net assets acquired and other
intangible assets. Excess costs over
fair value of net assets acquired
(goodwill) and other intangible
assets are being amortized on a
straight-line basis over their
estimated useful lives which is 25
years for goodwill, and 5 to 9 years
for other intangible assets.......... $ 3,007 $ 4,009
(2) Adjustments to eliminate certain cost
allocations included in the PSA
historical financial results from its
parent company for services that will
be provided directly by Hooper Holmes
current personnel (primarily parent
company corporate salary expense and
certain information system consulting
costs for a system that will not be
utilized by us). As such, allocations
are not reasonable to be included in
pro forma combined results........... $ (675) $ (375)
(3) Adjustments to exclude depreciation
and amortization expense recorded for
PSA for property, plant and equipment
and goodwill not acquired by us...... $ (1,400) $ (1,475)
(4) Adjustments to eliminate certain
historical interest income on cash
balances used to fund the acquisition
(4% investment rate assumed) and to
reflect pro forma interest expense on
the term loan at an interest rate of
7.535%, consistent with the interest
rate currently in effect. A .125%
increase or decrease in LIBOR would
have resulted in a $61 and $81
adjustment to interest expense for
the nine-month period ended September
30, 1999 and the year ended December
31, 1998, respectively.
Reduced interest income.............. $ 451 $ 601
Additional interest expense.......... $ 3,673 $ 4,898
(5) Adjustment to eliminate interest
expense allocated to PSA in its
historical audited financial
statements from its parent on cash
utilized by PSA on a 1997
acquisition.......................... $ (1,571) $ (1,226)
(6) Represents the income tax effect on
increased interest expense,
additional amortization and other
adjustments, as well as combining the
historical results of PSA with Hooper
Holmes. The combined effective income
tax rates of approximately 44% and
46%, for the nine-month period ended
September 30, 1999 and the year ended
December 31, 1998, are consistent
with our historical rate as the
amortization of goodwill and other
pro forma adjustments will be
deductible for income tax purposes... $ (1,825) $ (3,163)
Offering Adjustments:
(7) Adjustment to eliminate interest
expense on $50 million of term debt
assumed to be repaid from a portion
of the net proceeds of the offering
contemplated herein. No interest
income has been assumed on the
additional offering proceeds. ....... $(2,826) $(3,768)
(8) Represents the income tax effect on
the interest expense adjustment. The
combined effective income tax rate is
expected to be consistent with that
of Hooper's historical rate.......... $(1,243) $(1,733)
(9) To adjust outstanding weighted
average shares for the effect of the
sale and issuance of 3.0 million
common shares contemplated herein.
</TABLE>
20
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------------------------------------------------
Historical Pro Forma Adjustments
---------------- --------------------------- Offering
Hooper Purchase Acquisition Pro Forma Pro Forma
Holmes PSA Elimination (1) Adjustments Pro Forma Adjustment (8) Consolidated
-------- ------- --------------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 40,547 $ 362 $ (362) $(15,030)(2) $ 25,517 $ 10,008 $ 35,525
Accounts receivable.... 23,719 12,726 -- -- 36,445 -- 36,445
Other current assets... 6,627 3,042 (2,495) -- 7,174 -- 7,174
-------- ------- -------- -------- -------- -------- --------
Total current assets... 70,893 16,130 (2,857) (15,030) 69,136 10,008 79,144
Net property, plant and
equipment.............. 8,195 5,025 (3,529)(3) 9,691 -- 9,691
Goodwill, net........... 15,913 22,173 (22,173) 58,025 (4) 73,938 -- 73,938
Intangible assets, net.. 5,621 -- -- 11,600 (5) 17,221 -- 17,221
Other assets............ 944 -- -- -- 944 -- 944
-------- ------- -------- -------- -------- -------- --------
Total assets........... $101,566 $43,328 $(25,030) $ 51,066 $170,930 $ 10,008 $180,938
======== ======= ======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Note payable........... $ 450 $ -- $ -- $ -- $ 450 $ -- $ 450
Accounts payable....... 7,242 1,094 (1,094) -- 7,242 -- 7,242
Accrued expenses....... 8,026 5,876 (5,346) 3,834 (6) 12,390 -- 12,390
-------- ------- -------- -------- -------- -------- --------
Total current
liabilities........... 15,718 6,970 (6,440) 3,834 20,082 -- 20,082
Deferred income taxes... 2,013 774 (774) -- 2,013 -- 2,013
Minority interest....... 203 -- -- -- 203 -- 203
Long-term debt, less
current maturities..... -- -- -- 65,000 (2) 65,000 (50,000) 15,000
-------- ------- -------- -------- -------- -------- --------
Total liabilities...... 17,934 7,744 (7,214) 68,834 87,298 (50,000) 37,298
Total stockholders'
equity................. 83,632 35,584 (17,816) (17,768)(7) 83,632 60,008 143,640
-------- ------- -------- -------- -------- -------- --------
Total liabilities and
stockholders' equity.. $101,566 $43,328 $(25,030) $ 51,066 $170,930 $ 10,008 $180,938
======== ======= ======== ======== ======== ======== ========
</TABLE>
- --------
Acquisition Adjustments:
(1) To eliminate all assets and liabilities of PSA not purchased by Hooper
Holmes.
(2) To record cash paid of $15,030 and debt incurred of $65,000 to fund the
acquisition of PSA. Deferred financing costs relating to such borrowings
were immaterial.
(3) To adjust property, plant and equipment to fair market value.
(4) To record acquired goodwill.
(5) To record acquired intangible assets. These adjustments are based on the
results of third-party appraisals already completed and the results of
other analyses. We do not expect changes to these estimates based on our
final analysis to be material.
(6) To accrue certain PSA facility exit costs and certain other legal,
accounting, and other acquisition costs.
(7) To eliminate historical PSA equity.
Offering Adjustment:
(8) To reflect estimated proceeds from the sale of 3.0 million shares of our
common stock in this offering at an assumed offering price of $21.375 per
share, less estimated expenses of the offering and the utilization of $50
million to repay term debt incurred to finance the PSA acquisition.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Hooper Holmes was founded in 1899 to provide business information reports to
the insurance industry. In recent years, we have:
. successfully developed relationships with the leading life insurance
companies in the United States;
. established an extensive branch office network staffed with experienced,
medically trained personnel; and
. gained significant experience in providing health information services
to the life insurance industry.
In 1980, we entered the home healthcare field. In September 1995, we sold
our home healthcare business and related health care facilities which had
unaudited revenues of approximately $159.3 million and unaudited income from
operations of approximately $1.1 million in 1994. In connection with this sale,
we acquired American Service Bureau, Inc., also known as ASB Meditest, a major
competitor in the health information services business, which had approximately
$81.8 in revenues in 1994. In December 1998, we acquired a 55% interest in
Heritage Labs International LLC, a clinical reference laboratory servicing the
life insurance industry.
As of November 1, 1999, we purchased the assets and business of PSA for a
purchase price of approximately $80 million. We accounted for the acquisition
using the purchase method of accounting and have allocated the purchase price
to the net assets acquired, based upon the fair value of the acquired assets
and assumed liabilities as of November 1, 1999.
Revenue and Cost Recognition
Revenues and costs of services rendered, including paramedical and medical
examinations, personal health interviews and record collections, and laboratory
testing, are recognized when services are performed. Cost of operations include
primarily direct examiner fees, physicians' fees, branch office costs,
laboratory testing kits, and operating costs of Heritage Labs. Selling, general
and administrative expenses include primarily home office costs such as
management information systems, employee benefits, depreciation, amortization,
and senior executive, regional management and national sales costs.
Results of Operations
The following table sets forth for the periods indicated the percentage of
revenues of certain line items included in our statement of income data:
<TABLE>
<CAPTION>
Nine months
ended
September 30, Years ended December 31,
-------------- ----------------------------
1999 1998 1998 1997 1996
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations............. 69.0 69.5 69.8 72.1 75.5
------ ------ -------- -------- --------
Gross profit................. 31.0 30.5 30.2 27.9 24.5
Selling, general and
administrative expenses....... 15.3 17.0 16.4 18.0 19.0
------ ------ -------- -------- --------
Operating income............. 15.7% 13.5% 13.8% 9.9% 5.5%
</TABLE>
22
<PAGE>
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Revenues for the nine months ended September 30, 1999 increased 17.6% to
$161.2 million from $137.1 million for the nine months ended September 30,
1998. This growth resulted from a 7.3% increase in the number of Portamedic
examinations performed to 1,999,000 from 1,863,000, a 16.6% increase in
Infolink reports to 260,000 from 223,000, an increase in the services
performed per examination, along with a modest price increase and the addition
of Heritage Labs revenues. The increase in Infolink reports resulted from
management reemphasizing branch generation of Infolink reports.
Our cost of operations for the nine months ended September 30, 1999 totaled
$111.2 million, compared to $95.2 million for the nine months ended September
30, 1998. Cost of operations as a percentage of revenues decreased from 69.5%
for the nine months ended September 30, 1998 to 69.0% for the nine months
ended September 30, 1999. This decrease was due to declining direct production
costs and branch operating costs as a percentage of revenues.
Selling, general and administrative expenses totaled $24.8 million as
compared to $23.3 million for the nine months ended September 30, 1999 and
1998, respectively, and as a percentage of revenues totaled 15.3% compared to
17.0%. As a percentage of revenues, the decrease was due to ongoing efforts to
closely monitor and control corporate level expenses.
Accordingly, our operating income improved to $25.2 million from $18.5
million and as a percentage of revenues increased to 15.7% from 13.5% for the
nine months ended September 30, 1999, and 1998, respectively.
We had no revolving loan borrowings as of September 30, 1999. Interest
income increased to $.7 million due to a higher average invested funds amount
of $35.4 million for 1999 over $21.0 million for 1998.
The effective tax rates were 44.2% and 46.5% for the nine-month periods
ended September 30, 1999 and 1998, respectively. The decrease was the result
of increased profitability, which lessened the impact of nondeductible
goodwill amortization.
As a result of the foregoing, net income and net income per share for the
nine months ended September 30, 1999 were $14.6 million or $.48 per share, on
a diluted basis, versus $10.1 million or $.34 per share for the nine months
ended September 30, 1998.
Inflation did not have a significant effect on our operations in the nine
months ended September 30, 1999.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
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.
Our 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.
23
<PAGE>
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 46.0% and 48.1% for 1998 and 1997,
respectively. The decrease was the result of increased profitability, which
lessened the impact of non-tax deductible amortization of goodwill.
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.
Inflation did not have a significant effect on our operations in 1998.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Revenues for 1997 increased 5.8% to $165.4 million from $156.3 million for
1996. This growth resulted from a 1.8% increase in the number of Portamedic
examinations performed to 2,323,000 from 2,281,000, and a modest price increase
and was offset by a 17.6% decrease in Infolink reports to 337,000 from 409,000.
The decrease in Infolink reports resulted from a management decision to reduce
the volume of the less profitable portions of this business.
Our cost of operations in 1997 totaled $119.2 million compared to $118.0
million for 1996. Cost of operations as a percentage of revenues decreased from
75.5% for 1996 to 72.1% for 1997. This decrease was due to declining direct
production costs and branch operating costs as a percentage of revenues.
Selling, general and administrative expenses totaled $29.8 million as
compared to $29.7 million for the years ended December 31, 1997 and 1996,
respectively, and as a percentage of revenues, totaled 18.0% compared to 19.0%.
As a percentage of revenues, the decrease was due to a success in controlling
personnel and related corporate expenses.
Accordingly, our operating income improved to $16.3 million from $8.6
million and as a percentage of revenues increased to 9.9% from 5.5% for 1997
and 1996, respectively.
Interest expense decreased in 1997 to $.2 million compared to $1.4 million
in 1996 due to our average debt decreasing from $16.4 million to $2.0 million.
Other income items in 1997 were primarily interest earned on invested funds and
certain deferred payments received from the sale of our Direct Marketing
business in 1992.
The effective tax rate for 1997 was 48.1% and the effective tax rate for
1996 was 48.0%.
As a result of the foregoing, net income in 1997 totaled $8.8 million or
$.31 per diluted share compared to $4.1 million or $.15 per diluted share for
1996.
Inflation did not have a significant effect on our operations in 1997.
Liquidity and Financial Resources
Our primary sources of cash are internally generated funds and our senior
credit facility.
24
<PAGE>
Net cash provided by operating activities for the nine months ended
September 30, 1999 was $10.7 million compared to $13.8 million for nine months
ended September 30, 1998. The significant sources were net income of $14.6
million and $3.2 million of depreciation and amortization, and were offset by
an increase in accounts receivable of $6.3 million. The increase in accounts
receivable was due primarily to revenue growth of $24.2 million during the nine
months ended September 30, 1999. Days sales outstanding was 43 days at
September 30, 1999, compared to 41 days at the end of the third quarter 1998.
Our current ratio as of the end of September 1999 was 4.5 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 in 1999, and
we currently have no material commitments for capital expenditures. Dividends
paid in February, May, August and November 1999 were $.0125 per share.
We had no borrowings against our previous revolving loan facility at
September 30, 1999 and as of that date, a total amount of $18.6 million was
available under the revolver and $1.4 million was committed to outstanding
letters of credit. The note payable of $450,000 is an obligation of our
majority-owned subsidiary. On October 29, 1999, we replaced our previous
revolving loan facility and entered into a credit agreement 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 to EBITDA ratio. Interest is currently 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 November 1, 1999, we
borrowed the entire amount of the term loan to finance a portion of the
purchase price of PSA. The remainder of the approximately $80 million purchase
price was financed with existing cash of approximately $15 million. There are
no borrowings against the revolving loan. See "Description of the Senior Credit
Facility."
Management believes that, after this offering, the combination of 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.
PSA Acquisition
At the time we acquired PSA, it maintained approximately 110 branch offices,
90 contract affiliates and 3,000 examiners who did not also perform
examinations for us. Prior to completing the PSA acquisition, we expected to
close and consolidate a number of branch offices and terminate a number of
PSA's contract affiliates. We were also aware that some of PSA's contract
affiliates had either terminated their relationships with PSA or planned not to
continue as our contract affiliates after the acquisition was completed. As an
incentive to those PSA contract affiliates which we want to retain, cash
bonuses, partially funded from amounts escrowed at closing, have been offered
to those who remain with us until June 1, 2000. We have substantially completed
our planned branch office closings and consolidations, and contract affiliate
terminations, which has resulted in the addition of approximately 30 branch
offices and 60 contract affiliates to our network, which is consistent with our
expectations at the time of the acquisition. Assuming the acquisition, branch
office closings and consolidations, and contract affiliate terminations had
been completed on October 1, 1998, we believe approximately $21 million of
PSA's reported $83 million in revenue for fiscal year 1999 would not have been
achieved.
Immediately upon closing, we began implementing a detailed integration plan,
which, in addition to branch office closings and consolidations, and contract
affiliate terminations described above, includes the following key tasks
relating to the PSA business:
. consolidating and relocating branch office personnel;
. reducing selling, general and administrative expenses, including
terminating PSA sales personnel;
. updating system hardware and software;
25
<PAGE>
. transferring billing and collection systems;
. implementing our quality assurance program; and
. marketing to newly acquired customers.
We believe that our integration efforts will improve the operating margin of
the PSA business, which has historically been significantly less than ours.
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 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. We do not expect the adoption of this
Statement to have a material impact on our consolidated financial statements.
Year 2000 Compliance
We recognize the need to insure that our operations and relationships with
our customers, suppliers and other third parties will not be adversely impacted
by the Year 2000 software issue. Our Year 2000 compliance efforts were
completed and we have experienced no problems to date with our internal
automated systems as a result of Year 2000. In or before 1999, many of our
critical suppliers and vendors indicated that they were, or would be, Year 2000
compliant during 1999. We have not experienced, and are not aware of, any Year
2000 problems affecting our critical suppliers and vendors. We cannot guarantee
that our efforts will prevent a material adverse impact on our results of
operations, financial condition or cash flow that might result from the failure
of any key third party systems to accommodate the Year 2000 problem. If our
systems or those of key third parties are not fully Year 2000 functional, we
estimate that up to a one-month disruption in operations could occur. Such a
disruption could result in delays in providing services and in issuing billings
to customers. These consequences could have a material adverse impact on our
consolidated results of operations, financial condition and cash flows if we
are unable to substantially conduct our business in the ordinary course. We
believe our efforts to address the Year 2000 issue will minimize possible
negative consequences to Hooper Holmes.
Quantitative and Qualitative Disclosures About Market Risk
Our holdings of financial instruments are comprised of cash equivalents,
primarily funds with municipal securities and government obligations. We do not
invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. We seek reasonable assuredness of the safety
of principal and market liquidity by investing in municipal and government
securities while at the same time seeking to achieve a favorable rate of
return. Our market risk exposure consists principally of exposure to changes in
interest rates. We are also exposed to other fluctuations in interest rates,
primarily as a result of the financing entered into on October 29, 1999 to fund
the PSA acquisition. We do not use derivative instruments or hedging to manage
our exposures. As our debt has adjustable interest rates (currently at 7.535%)
and was issued in October 1999, its fair value approximates its carrying value.
The term loan of $65 million requires interest payments only during the first
18 months, five principal payments each on April 30, 2001 through 2005 and a
final payment of $15 million on January 31, 2006.
26
<PAGE>
INDUSTRY BACKGROUND
Industry Overview
The health information services industry provides outsourced health and
other information about applicants for life insurance policies to help
insurance companies evaluate the risks associated with underwriting these
policies. The services provided by this industry include:
. paramedical and medical examinations;
. personal health interviews and record collection; and
. laboratory testing.
Management believes that virtually all U.S. life insurance companies currently
outsource these services. According to A.M. Best, U.S. life insurance companies
spent approximately $600 million on examinations and approximately $70 million
on personal health interviews and record collection in 1998. Additionally,
management believes that insurance companies spent over $100 million in 1998
for laboratory testing.
The demand for these services primarily depends upon:
. the number of applications for life insurance;
. the percentage of applications for which any health information services
are required; and
. the types of services that insurance companies require in the
application process.
Insurance companies generally require more examinations and other services for
higher face amount life insurance applications and for older applicants. We are
not aware of any published data on the number of life insurance applications.
While the American Council of Life Insurance estimates that approximately 11.56
million individual insurance policies were issued in 1998, a decrease of 3.8%
from approximately 12.02 million sold in 1996, the aggregate face amount of
individual life insurance policies purchased increased 21.1% to $1.32 trillion
from $1.09 trillion during the same time period.
Paramedical and Medical Examinations
A paramedical examination may include any of the following:
. the collection of an insurance applicant's medical history, age, height,
weight, blood pressure, and pulse;
. blood, urine and saliva collection; and
. resting EKG.
Registered nurses, licensed practical nurses, physicians, phlebotomists and
medical and EKG technicians may perform paramedical examinations. These
examinations often are performed in the applicant's home or office and may take
approximately 30 minutes to complete. A medical examination may include a
complete physical examination performed by a physician, as well as a stress EKG
and chest x-ray.
Each insurance company issues its own examination requirements. Generally,
the older the applicant and the larger the policy amount, the more likely an
examination will be required, the more likely a physician must perform the
examination and the more types of procedures that must be performed. Other
determining factors might also include the lifestyle and medical history of the
applicant.
Personal Health Interviews and Record Collection
Personal health interviews and record collection provide information about
the applicant's medical and employment history, financial status, lifestyle and
other personal information. This information is primarily obtained from
telephone interviews with the applicant, his or her employer, and his or her
business and personal associates. An attending physician statement, providing
details of an applicant's medical history, may also be requested. These
statements are obtained from the applicant's physician, clinic or hospital
medical records. Insurance companies typically use this information either as a
substitute for a paramedical or medical
27
<PAGE>
examination in relatively small face-amount policies or as a complement to an
examination in the case of relatively large face-amount policies.
Laboratory Testing
If urine, blood or saliva samples are collected during an examination, they
are delivered to a laboratory selected by the insurance company. These samples
are screened for various illnesses and substances, such as HIV, cholesterol,
nicotine and triglycerides. Most of this testing is performed by independent
laboratories, although some health information service providers have their own
in-house laboratories. Most insurance companies work with only one or two
laboratories.
Industry Trends
The life insurance industry is experiencing a number of key trends that we
believe will affect our business.
Alternate Distribution Channels
New distribution channels have emerged as alternatives to traditional
insurance agent and broker sales. As a result of reduced regulation imposed
upon the financial services industry and the growth of Internet-based commerce,
a variety of entities have begun marketing life insurance in recent years,
including commercial banks, credit card companies, securities firms, direct
marketers and online insurance benefits companies. These entities, as well as
traditional insurance companies, are increasingly using a variety of marketing
techniques that include the Internet, direct mail, mass media and
telemarketing. In particular, a number of Internet sites now allow applicants
to solicit quotes and apply for life insurance policies online. We believe the
number of applications per policy issued will increase due to a simplified
shopping and application process.
Alternate distribution channels allow sellers of insurance to sell policies
without face-to-face contact with the applicant. Companies using these channels
have been outsourcing services not traditionally included in a paramedical or
medical examination. Since the examination process requires face-to-face
contact with applicants, health information service providers are now
performing more routine, administrative tasks of the application process.
Reduction of Approved Health Information Service Providers
To improve quality control and reduce administrative costs, life insurance
companies are reducing the number of approved health information service
providers. This trend is strengthened by the decrease in the number of life
insurance companies in the United States, which has declined 33% from 1988 to
1998 according to the American Council of Life Insurance. As a result, we
expect insurance companies will increasingly emphasize geographic coverage and
automation when choosing health information service providers. Geographic
coverage and automation are particularly important for entities using alternate
distribution channels as such insurers often serve applicants nationwide. We
believe these trends will benefit providers that offer a national network and
meet insurers' technological and quality needs.
Favorable Insurance Applicant Trends
The following statistics from the American Council of Life Insurance
indicate favorable trends for our industry:
. from 1996 to 1998, the average newly purchased individual life insurance
policy grew 26% from $90,606 to $114,601;
. in 1987, 27% of life insurance policies purchased were greater or equal
to $100,000 in face amount; in 1997, 43% were within this range; and
. in 1987, purchasers of life insurance over age 35 accounted for 53% of
the total face amount and 40% of the number of policies purchased; in
1997, they accounted for 60% and 46%, respectively.
28
<PAGE>
BUSINESS
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 8,700
registered nurses, licensed practical nurses, physicians, phlebotomists and
medical and EKG technicians, of which approximately 1,300 are employees and
7,400 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 aspects of their business with us electronically, such as placing
examination orders, monitoring order status, communicating with our customer
service and branch locations, and receiving results of personal health
interviews. From January through November 1999, we received approximately
39% 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 nine months ended September 30, 1999, alternate
distribution channel customers accounted for approximately $27 million or
17% of our revenues, up approximately 59% from $17 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, a provider of 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.
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<PAGE>
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 2.0 million exams in the nine months ended September 30, 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.
<TABLE>
<C> <S> <C> <C> <C> <C>
Age of Applicant
-----------------------------------------------------------
<CAPTION>
18-40 41-50 51-60 61-70
<C> <S> <C> <C> <C> <C>
$100,000 Urine, Blood Paramedical, Paramedical, Paramedical,
and under Urine, Blood Urine, Blood Urine, Blood,
Resting EKG
-----------------------------------------------------------
$100,001- Paramedical, Paramedical, Paramedical, Paramedical,
$350,000 Urine, Blood Urine, Blood Urine, Blood, Urine, Blood,
Resting EKG Resting EKG
-----------------------------------------------------------
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
-----------------------------------------------------------
$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
-----------------------------------------------------------
$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
</TABLE>
30
<PAGE>
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. During the first three quarters of 1999, we provided approximately
260,000 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, gathering 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
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<PAGE>
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 their personnel and must meet the same quality assurance standards of our
branches, including necessary credentialing of their 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
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.
32
<PAGE>
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 10% of our
alternate distribution channel orders were placed through the Internet during
the third 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.
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
33
<PAGE>
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:
. 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
7,400 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.
34
<PAGE>
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 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.
Description of Property
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.
35
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the directors and executive officers of
Hooper Holmes are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
James M. McNamee 54 Chairman of the Board, President and Chief
Executive Officer
Paul W. Kolacki 57 Executive Vice President and Chief Operating
Officer
Fred Lash 54 Senior Vice President, Chief Financial Officer and
Treasurer
Robert William Jewett 47 Senior Vice President, General Counsel and
Secretary
G. Earle Wight 66 Senior Vice President and Director
Benjamin A. Currier 66 Director
Quentin J. Kennedy 66 Director
John E. Nolan 72 Director
Elaine L. Rigolosi 55 Director
Kenneth R. Rossano 65 Director
</TABLE>
James M. McNamee. Mr. McNamee, age 54, has served as Chairman of the Board
of Directors of Hooper Holmes since 1996 and as our President and Chief
Executive Officer since 1984. He has been an employee of Hooper Holmes since
1968, an officer since 1979 and a director since 1984. Mr. McNamee is a member
of our Executive Committee and our Nominating Committee.
Paul W. Kolacki. Mr. Kolacki, age 57, has served as Executive Vice
President and Chief Operating Officer of Hooper Holmes since 1998. He has been
Executive Vice President of our Portamedic Health Information Services
Division since 1991, and has been an employee of Hooper Holmes since 1964. Mr.
Kolacki has recently announced his retirement effective March 31, 2000. It is
anticipated that he will continue to serve the Company as a consultant
following his retirement.
Fred Lash. Mr. Lash, age 54, has served as Senior Vice President of Hooper
Holmes since 1993, as Chief Financial Officer since 1989 and as Treasurer
since 1987. Mr. Lash was previously employed by Wallace and Tiernan Division
of Pennwalt Corporation as Manager of Accounting, and then as Financial
Manager of the Division from 1972-1987, and served in the U.S. Air Force from
1968-1972.
Robert William Jewett. Mr. Jewett, age 47, has served as Senior Vice
President and General Counsel of Hooper Holmes since 1991 and as Secretary
since 1983. He has been an employee of Hooper Holmes since 1981. Prior to
joining Hooper Holmes, Mr. Jewett served as a corporate attorney at The
Hanover Insurance Company from 1979-1981, and as an associate at the law firm
of Reardon & Reardon from 1978-1979.
G. Earle Wight. Mr. Wight, age 66, has served as Senior Vice President of
Hooper Holmes since 1985 and has been a director since 1966. He joined Hooper
Holmes as an inspector in 1952, and has been performing various sales and
marketing functions since then. Mr. Wight is a member of our Nominating
Committee.
Benjamin A. Currier. Mr. Currier, age 66, was Senior Vice President of
Operations for Security Life of Denver Insurance Company, a subsidiary of
ING/Barings, in Denver, Colorado prior to his retirement in 1997. Mr. Currier
was Vice President, Allstate Life Insurance Company from 1978 to 1995. He has
been a director of Hooper Holmes since 1996, and is a member of our Audit
Committee and the Executive Compensation Committee.
Quentin J. Kennedy. Mr. Kennedy, age 66, was Executive Vice President,
Secretary, Treasurer and Director of Federal Paper Board Company in Montvale,
New Jersey until his retirement in 1996. He had served in various executive
positions with Federal Paper Board since 1960. Mr. Kennedy has been a director
of Hooper Holmes since 1991. He is a member of our Executive Committee and our
Executive Compensation Committee.
36
<PAGE>
John E. Nolan. Mr. Nolan, age 72, is a partner in the law firm of Steptoe &
Johnson LLP, Washington, D.C. and has been engaged in the practice of law since
1956. He has been a director of Hooper Holmes since 1971, and is a member of
our Audit Committee and the Executive Committee. Mr. Nolan also serves on the
Board of Directors of Iomega Corporation.
Elaine L. Rigolosi. Dr. Rigolosi, Ed.D, J.D., age 55, is Professor,
Department of Organization and Leadership, Teachers College, Columbia
University. She has been associated with Columbia University since 1976, and
has maintained a private consulting practice in management for health care
organizations since 1974. Dr. Rigolosi has been a director of Hooper Holmes
since 1989, and is a member of our Audit Committee and our Executive
Compensation Committee.
Kenneth R. Rossano. Mr. Rossano, age 65, is a private investor. From 1992 to
1999, he was Senior Vice President of Cassidy & Associates in Boston,
Massachusetts. From 1991 to 1992, he was Vice President, Development,
Massachusetts Higher Education Assistance Corporation in Boston, Massachusetts.
He has been a director of Hooper Holmes since 1967, and is a member of our
Executive Committee and our Nominating Committee. Mr. Rossano is also a
director of Psy-Ed Corporation and QuickBuy, Inc.
Messrs. Wight and Rossano are brothers-in-law.
Upon Mr. Kolacki's retirement, overall field operating responsibilities will
be assumed by Mr. Mario Cavezza as Senior Vice President and General Manager of
Branch and Affiliate Operations effective April 1, 2000. Mr. Cavezza, age 52,
has been Senior Vice President and Regional Manager of the Northern Region
since 1997, and has been in various field supervisory positions since 1977. He
has been an employee of Hooper Holmes since 1968.
37
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables provide certain information with respect to the
beneficial ownership of our common stock as of December 31, 1999, both before
and after giving effect to the sale of shares of common stock in this offering,
excluding over-allotment options, if any, for the following:
. all of Hooper Holmes' directors and executive officers;
. all directors and executive officers of Hooper Holmes as a group; and
. all those known by us to be beneficial owners of more than 5% of our
common stock.
The table below has been prepared on the assumption that the underwriters do
not exercise their over-allotment option in full or in part. If the
underwriters exercise their over-allotment option in full, then a trust for
which Mr. McNamee, our Chairman, President and Chief Executive Officer, is the
trustee will sell 15,000 shares, and Mr. Kolacki, our Executive Vice President
and Chief Operating Officer, will exercise options to obtain 62,500 shares to
sell in the offering.
<TABLE>
<CAPTION>
Name of Number of Shares Percentage Owned Percentage Owned
Beneficial Owner Beneficially Owned (1) Before Offering After Offering
- ---------------- ---------------------- ---------------- ----------------
<S> <C> <C> <C>
James M. McNamee........ 1,714,908(2) 5.63% 5.13%
Kenneth R. Rossano...... 696,376(3) 2.39% 2.17%
G. Earle Wight.......... 500,124(4) 1.72% 1.56%
Fred Lash............... 208,068(5) * *
Paul W. Kolacki......... 196,948(6) * *
John E. Nolan........... 80,000(7) * *
Quentin J. Kennedy...... 74,000(7) * *
Elaine L. Rigolosi...... 54,200(8) * *
Robert William Jewett... 49,200(9) * *
Benjamin A. Currier..... 30,760(10) * *
All executive officers
and directors
as a group (10
persons)............... 3,604,584(11) 11.58% 10.56%
Lord Abbett & Company... 1,737,000 5.97% 5.41%
</TABLE>
- --------
* Less than 1%
(1) Includes shares, if any, held by or for a spouse or minor children or as
a trustee. Unless otherwise indicated, the director or 5% stockholder
possesses sole investment and voting power in respect of these shares.
(2) Includes 249,604 shares held by Mr. McNamee and his spouse Patricia as
joint tenants, 52,240 shares held by Mr. McNamee's spouse, Patricia, and
7,064 shares held by Mr. McNamee's spouse Patricia as custodian for Sean
McNamee, their minor child. Also includes 36,000 shares held by the Trust
under the will of Eileen Rooney FBO Kevin Rooney, of which Mr. McNamee is
Trustee with sole voting and dispositive power. Also includes 1,367,000
shares underlying options that are currently exercisable or which will
become exercisable within 60 days. Assuming the over-allotment option is
exercised in full, the Trust will sell 15,000 of these shares, and Mr.
McNamee will beneficially own 1,699,908 shares, or 5.02% after the
offering.
(3) Includes 256,726 shares held by Mr. Rossano's spouse, Cynthia, and
338,602 shares held by The Cynthia W. Rossano 1991 Trust, of which Mr.
and Mrs. Rossano are trustees with sole voting and dispositive power.
Also includes 60,000 shares underlying options that are currently
exercisable or which will become exercisable within 60 days.
38
<PAGE>
(4) Includes 304,172 shares held by the Lucile K. Wight Trust, of which Mr.
Wight is trustee with sole voting and dispositive power, and 177,180
shares held by 874367 Ontario, Inc., a corporation of which Mr. Wight and
his spouse Sonia are sole shareholders.
(5) Includes 1,200 shares held by Mr. Lash and his spouse, Suzanne, as joint
tenants. Also includes 199,200 shares underlying options that are
currently exercisable or which will become exercisable within 60 days.
(6) Includes 1,600 shares held by Mr. Kolacki and his spouse, Sandra, as
joint tenants. Also includes 184,000 shares underlying options that are
currently exercisable or which will become exercisable within 60 days.
Assuming exercise of the over-allotment option in full, Mr. Kolacki will
exercise options for 62,500 shares to sell in this offering and will
beneficially own 134,448 shares after the offering.
(7) Includes 60,000 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(8) Includes 1,800 shares held by Ms. Rigolosi's spouse, Robert. Also
includes 50,000 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(9) Includes 48,700 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(10) Includes 20,000 shares underlying options that are currently exercisable
or which will become exercisable within 60 days.
(11) Includes shares owned individually by each officer and director in the
group as well as shares indirectly owned by such persons as trustee of
various trusts; however, where more than one officer or director is a
trustee of the same trust, the total number of shares owned by such trust
is counted only once in determining the amount owned by all officers and
directors as a group. Also includes 2,048,900 shares underlying options
that are currently exercisable or which will become exercisable within 60
days.
39
<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITY
On October 29, 1999, we entered into a $100 million Amended and Restated
Revolving Credit and Term Loan Agreement with a group of bank lenders, with
First Union National Bank serving as the lead arranger and administrative
agent.
The $65 million term loan was used solely 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 term
loan also requires a mandatory prepayment equal to 33% of the net cash proceeds
from public or private sales of our equity or debt securities. The $35 million
revolving loan matures on October 31, 2002. We have not borrowed any funds
under the 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 1 3/4%, depending on the
ratio of our consolidated funded debt (as defined in the senior credit
facility) to our earnings before interest, taxes, depreciation and
amortization. Interest is currently 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.
The loan agreement contains customary affirmative and negative covenants,
including limitations on indebtedness, liens, investments, dividends, stock
repurchases and other specified transactions and payments. These covenants also
include a specified minimum interest coverage ratio, a maximum ratio of total
debt to EBITDA, as defined in the senior credit facility, and a minimum fixed
charge coverage ratio.
The loan agreement also specifies various customary events of default
including nonpayment of principal, interest or fees, violation of covenants,
incorrectness of representations and warranties and events such as a change of
control or bankruptcy.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among
Hooper Holmes, the selling stockholders and the representatives on behalf of
the underwriters, the underwriters have agreed severally to purchase from
Hooper Holmes the following number of shares of common stock at the offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc..............................................
Dain Rauscher Incorporated............................................
The Robinson-Humphrey Company, LLC....................................
SG Cowen Securities Corporation.......................................
---------
Total............................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all such shares of the common stock if any of such shares are
purchased. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby (other than those covered by the over-allotment
option described below) if any are taken.
The representatives of the underwriters have advised Hooper Holmes that they
propose to offer such shares of common stock to the public at the offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession not in excess of $ per share. The underwriters
may allow, and such dealers may re-allow, a concession not in excess of $
per share to certain other dealers. After the offering, the offering price and
other selling terms may be changed by the underwriters.
Pursuant to the underwriting agreement, Hooper Holmes and the selling
stockholders have granted to the underwriters an option, exercisable for thirty
(30) days after the date of this prospectus, to purchase up to 450,000
additional shares of common stock at the offering price, less the underwriting
discounts and commissions set forth on the cover page of this prospectus,
solely to cover over-allotments.
To the extent that the underwriters exercise such option, the underwriters
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such underwriter's name in the preceding table bears to the total number of
shares in such table, and Hooper Holmes and the selling stockholders will be
obligated, pursuant to the option, to sell such shares, on a pro rata basis, to
the underwriters.
Hooper Holmes and each of its directors and executive officers, the related
interests of such directors and executive officers and the selling stockholders
have agreed not to sell or otherwise dispose of any shares of common stock for
a period of 90 days after the date of this prospectus without the prior written
consent of A.G. Edwards & Sons, Inc. A.G. Edwards may, in its sole discretion,
allow any of these parties to dispose of common stock or other securities prior
to the expiration of such 90-day period. There are, however, no agreements
between A.G. Edwards and these parties that would allow them to do so as of the
date of this prospectus.
41
<PAGE>
The following table summarizes the discounts and commissions that Hooper
Holmes and, if the over-allotment option is exercised, the selling
stockholders will pay to the underwriters in the offering. These amounts
assume both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by Paid by Selling
Hooper Holmes Stockholders
----------------- -----------------
No Full No Full
Exercise Exercise Exercise Exercise
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share................................... $ $ $ -- $
Total....................................... $ $ $ -- $
</TABLE>
Hooper Holmes expects to incur expenses of approximately $750,000 in
connection with this offering.
Hooper Holmes and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act.
Until the distribution of the common stock is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the common stock. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize,
maintain or otherwise affect the price of the common stock.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell a greater aggregate number of
shares of common stock than is set forth on the cover page of this prospectus,
the underwriters may reduce the short position by purchasing shares of common
stock in the open market. This is known as a "syndicate covering transaction".
The underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
The underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase common stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the common stock, it may reclaim the amount of the selling concession
from the selling group members who sold those shares of common stock as part
of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither Hooper Holmes nor the representatives make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the common stock. In
addition, neither Hooper Holmes nor the representatives make any
representation that the underwriters will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
Each of A.G. Edwards & Sons, Inc. and Dain Rauscher Incorporated has
provided, and may in the future provide, financial advisory and investment
banking services to Hooper Holmes from time to time.
42
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for us by Steptoe & Johnson LLP, Washington, D.C., and for the underwriters by
Bryan Cave LLP, St. Louis, Missouri. Mr. John E. Nolan, a director of the
Company, is a member of the law firm of Steptoe & Johnson LLP, which performs
legal services for us.
EXPERTS
The consolidated financial statements of Hooper Holmes, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The statement of
direct revenues and direct operating expenses for the paramedical exam business
of ChoicePoint Inc. for the year ended December 31, 1997, incorporated by
reference in this prospectus, have been so included from our current report on
Form 8-K/A filed with the SEC on January 14, 2000 in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon authority of said firm as experts in accounting and
auditing.
The financial statements of PSA appearing in Hooper Holmes Inc.'s Current
Report on Form 8-K/A filed with the SEC on January 14, 2000, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements which involve risks and
uncertainties. Such forward looking statements include:
. our belief that we will successfully integrate PSA's business;
. our belief that trends in the life insurance industry will positively
affect our business;
. our belief that our branch network and technological infrastructure will
enable us to significantly increase the volume of our services with only
a marginal increase in our branch operating costs;
. our belief that we will be able to continue to attract and retain
qualified personnel;
. our belief that the ultimate disposition of the legal actions pending
against us will not materially affect our consolidated results of
operations or financial position;
. how we will pursue our growth strategy;
. our dividend policy; and
. other statements preceded by, followed by or that include the words
"believe," "expect," "intend," "anticipate," "potential," "may," "will,"
"estimate," "goal," "plan" and other similar expressions.
We claim the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995 for the
foregoing statements. The following important factors, in
43
<PAGE>
addition to those discussed elsewhere in this prospectus, could affect our
future results and could cause those results to differ materially from those
expressed in the forward looking statements:
. our ability to successfully integrate the assets we purchased from PSA;
. the uncertainty of future profits;
. the uncertainty of insurance applicants' acceptance of alternate
distribution channels;
. our lack of long-term and exclusive contracts with our customers;
. obsolescence of our computer systems;
. a decrease in the number of life insurance applications;
. our dependence on the life insurance industry;
. changes in pricing by the life insurance industry;
. competition in the health information services industry;
. our ability to safeguard confidential data of our customers and life
insurance applicants;
. risks associated with compliance with applicable federal and state laws,
including those concerning independent contractors and employees;
. risks associated with technological change;
. our dependence on key personnel and successful management transition;
. risks associated with intellectual property and proprietary technology;
and
. other risks described in "Risk Factors."
WHERE YOU CAN FIND MORE INFORMATION
We file periodic reports, proxy statements and other information with the
Securities and Exchange Commission. With respect to this offering of common
stock, we have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933. This prospectus is one part of that registration
statement. You may read and copy the registration statement and the reports,
proxy statements and other information concerning Hooper Holmes at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. You can obtain information about the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
site that contains reports, proxy and information statements, and other
information that companies, such as Hooper Holmes, file electronically with the
SEC. The address of this Internet site is: http://www.sec.gov.
We will furnish without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon written or oral request, a
copy of any and all of the information that has been incorporated by reference
in this prospectus, except for exhibits to the information incorporated by
reference unless those exhibits are specifically incorporated by reference
herein. You can request this information by writing or calling us at: 170 Mt.
Airy Road, Basking Ridge, New Jersey 07920; telephone (908) 766-5000,
Attention: Robert William Jewett, Secretary, Hooper Holmes, Inc.
44
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered part of this prospectus, and information that we file later with the
SEC will automatically update and supersede the information in this prospectus.
The following documents, previously filed by us with the SEC (File No. 1-9972)
pursuant to the Exchange Act, are hereby incorporated by reference:
(1) Our Annual Report on Form 10-K for the year ended December 31, 1998.
(2) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, andSeptember 30, 1999.
(3) Our Current Report on Form 8-K filed with the SEC on September 17,
1999.
(4) Our Current Report on Form 8-K filed with the SEC on November 12, 1999.
(5) An amendment to our Current Report on Form 8-K/A filed with the SEC on
January 14, 2000.
(6) The description of our common stock contained in the Registration
Statement on Form 8-A filed by us with the SEC on July 1, 1988, as updated
in our Prospectus dated September 19, 1991, together with all amendments or
reports filed for the purpose of updating such description.
In addition, all documents filed by us with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the filing of a post-effective amendment which
indicates that all of the shares offered hereby have been sold or which
deregisters all shares remaining unsold shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be supplemented, modified
or superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein supplements, modifies or
supersedes such statement. Any such statement so supplemented, modified or
superseded shall not be deemed to constitute a part of this prospectus.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Audited Consolidated Financial Statements
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997......... F-3
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997
and 1996............................................................ F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996............................................. F-6
Notes to Consolidated Financial Statements........................... F-7-F-14
Unaudited Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 1999.................. F-15
Consolidated Statements of Income for the nine months ended September
30, 1999 and 1998................................................... F-16
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998......................................... F-17
Notes to Unaudited Consolidated Financial Statements................. F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hooper Holmes, Inc.
We have audited the accompanying consolidated balance sheets of Hooper
Holmes, Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Short Hills, New Jersey /s/ KPMG LLP
February 18, 1999
F-2
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $29,752,361 $13,159,431
Accounts receivable................................... 18,145,856 18,520,347
Other current assets.................................. 5,396,202 2,481,818
----------- -----------
Total current assets................................ 53,294,419 34,161,596
----------- -----------
Property, plant and equipment......................... 22,487,225 20,498,119
Less: Accumulated depreciation and amortization....... 14,166,163 12,050,903
----------- -----------
8,321,062 8,447,216
----------- -----------
Goodwill (net of accumulated amortization of
$4,243,606 in 1998 and $3,460,240 in 1997)........... 16,398,245 15,089,108
----------- -----------
Intangible assets (net of accumulated amortization of
$5,714,039 in 1998 and $4,053,440 in 1997)........... 6,728,112 7,647,711
----------- -----------
Other assets.......................................... 274,547 595,486
----------- -----------
$85,016,385 $65,941,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable.......................................... $ 450,000 $ --
Accounts payable...................................... 6,606,518 5,577,158
Accrued expenses:
Insurance benefits................................... 1,662,747 1,969,403
Salaries, wages and fees............................. 2,356,582 1,935,277
Payroll and other taxes.............................. 204,893 170,152
Income taxes payable................................. 3,315,758 610,487
Discontinued operations.............................. 2,845,007 573,970
Other................................................ 2,377,001 2,944,248
----------- -----------
Total current liabilities........................... 19,818,506 13,780,695
----------- -----------
Deferred income taxes................................. 2,518,487 3,641,051
Minority interest..................................... 385,441 --
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.04 per share; authorized
80,000,000 shares, issued 28,379,964 in 1998 and
13,939,115 in 1997.................................. 1,135,198 557,565
Additional paid-in capital............................ 29,515,099 27,079,265
Retained earnings..................................... 32,616,294 20,901,043
----------- -----------
63,266,591 48,537,873
Less: Treasury stock at cost, 104,332 shares in 1998
and 6,732 shares in 1997............................. 972,640 18,502
----------- -----------
Total stockholders' equity.......................... 62,293,951 48,519,371
----------- -----------
$85,016,385 $65,941,117
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................ $185,209,776 $165,352,706 $156,253,763
Cost of operations.................. 129,261,234 119,193,062 117,959,274
------------ ------------ ------------
Gross profit...................... 55,948,542 46,159,644 38,294,489
Selling, general and administrative
expenses........................... 30,356,166 29,815,579 29,718,867
------------ ------------ ------------
Operating income................... 25,592,376 16,344,065 8,575,622
Other income (expense):
Interest expense................... (3,391) (168,266) (1,394,038)
Interest income.................... 768,476 295,765 348,153
Other income, net.................. (88,171) 419,899 328,035
------------ ------------ ------------
676,914 547,398 (717,850)
Income before income taxes.......... 26,269,290 16,891,463 7,857,772
------------ ------------ ------------
Income taxes....................... 12,084,000 8,121,000 3,772,000
------------ ------------ ------------
Income from continuing operations.. 14,185,290 8,770,463 4,085,772
------------ ------------ ------------
Discontinued operations
Loss on disposal, net of taxes..... (1,485,000) -- --
------------ ------------ ------------
Net income........................ $ 12,700,290 $ 8,770,463 $ 4,085,772
============ ============ ============
Earnings per share -- basic:
Income from continuing operations.. $ .50 $ .32 $ .15
Discontinued operations -- net of
taxes............................. (.05) -- --
------------ ------------ ------------
Net income........................ $ .45 $ .32 $ .15
============ ============ ============
Earnings per share -- diluted:
Income from continuing operations.. $ .48 $ .31 $ .15
Discontinued operations -- net of
taxes............................. (.05) -- --
------------ ------------ ------------
Net income........................ $ .43 $ .31 $ .15
============ ============ ============
Weighted average shares -- basic.... 28,120,685 27,536,668 26,910,876
Weighted average shares -- diluted.. 29,859,710 28,564,132 27,243,802
</TABLE>
Per share calculations are adjusted to reflect the two-for-one stock splits
effective August 22, 1997 and January 8, 1999.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997 and 1998
<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,
1995................... 6,744,422 $ 269,777 $24,080,988 $ 9,138,401 $(357,153) $33,132,013
---------- ---------- ----------- ----------- --------- -----------
Net income.............. 4,085,772 4,085,772
Cash dividends ($.015
per share)............. (403,818) (403,818)
Issuance of stock
award.................. 2,405 29,470 31,875
Exercise of stock
options................ 47,037 1,881 349,300 309,181 660,362
Exercised stock option
tax benefit............ 213,252 213,252
---------- ---------- ----------- ----------- --------- -----------
Balance, December 31,
1996................... 6,791,459 271,658 24,645,945 12,820,355 (18,502) 37,719,456
---------- ---------- ----------- ----------- --------- -----------
Net income.............. 8,770,463 8,770,463
Cash dividends ($.026
per share)............. (689,775) (689,775)
Exercise of stock
options................ 190,806 7,632 1,745,782 1,753,414
Exercised stock option
tax benefit............ 665,569 665,569
Issuance of shares for
employee stock purchase
plan................... 33,268 1,331 298,913 300,244
Two-for-one stock split
effective August 22,
1997................... 6,923,582 276,944 (276,944) --
---------- ---------- ----------- ----------- --------- -----------
Balance, December 31,
1997................... 13,939,115 557,565 27,079,265 20,901,043 (18,502) 48,519,371
---------- ---------- ----------- ----------- --------- -----------
Net income.............. 12,700,290 12,700,290
Cash dividends ($.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
========== ========== =========== =========== ========= ===========
</TABLE>
Per share amounts are adjusted to reflect the two-for-one stock splits
effective August 22, 1997 and January 8, 1999.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $12,700,290 $ 8,770,463 $ 4,085,772
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss on disposal.................... 1,485,000 -- --
Depreciation and amortization....... 4,704,540 5,022,569 5,071,692
Provision for bad debt expense...... 130,000 480,000 380,000
Deferred tax expense (benefit)...... (2,804,000) 105,478 (467,448)
Issuance of stock awards............ 38,250 -- 31,875
Loss on sale of fixed assets........ 67,237 61,448 58,313
Change in assets and liabilities, net
of effect from acquisitions of
businesses:
Accounts receivable................. 715,604 (869,320) 6,456,636
Other assets........................ (566,046) 2,324,305 1,038,631
Income tax receivable............... -- -- 8,004,039
Accounts payable and accrued
expenses........................... 5,138,185 685,627 (8,347,222)
----------- ----------- ------------
Net cash provided by operating
activities......................... 21,609,060 16,580,570 16,312,288
----------- ----------- ------------
Cash flows from investing activities:
Net proceeds including escrow funds
from dispositions.................. -- -- 15,000,000
Business acquisitions, net of cash
acquired........................... (2,820,352) -- (37,500)
Capital expenditures, net of
disposals.......................... (1,833,818) (1,441,469) (1,103,601)
----------- ----------- ------------
Net cash (used in) provided by
investing activities............... (4,654,170) (1,441,469) 13,858,899
----------- ----------- ------------
Cash flows from financing activities:
Issuance of long-term debt.......... -- -- 19,000,000
Principal payments on long-term
debt............................... -- (6,280,000) (47,770,000)
Proceeds from employee stock
purchase plan...................... 324,248 300,244 --
Proceeds related to the exercise of
stock options...................... 1,252,969 1,753,414 873,614
Treasury stock acquired............. (954,138) -- --
Dividends paid...................... (985,039) (689,775) (403,818)
----------- ----------- ------------
Net cash used in financing
activities......................... (361,960) (4,916,117) (28,300,204)
----------- ----------- ------------
Net increase in cash and cash
equivalents........................ 16,592,930 10,222,984 1,870,983
Cash and cash equivalents at
beginning of year.................. 13,159,431 2,936,447 1,065,464
----------- ----------- ------------
Cash and cash equivalents at end of
year............................... $29,752,361 $13,159,431 $ 2,936,447
=========== =========== ============
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest............................ $ -- $ 179,318 $ 1,668,018
Income taxes........................ $11,573,729 $ 7,740,392 $ 1,955,316
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<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 insurance
industry. The Company's network of experienced medical professionals conduct
physical examinations, testing, and personal health interviews, primarily for
the life 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 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 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. The Company assesses the recoverability
of long-lived assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows.
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 by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. Common
stock equivalents (1,739,025, 1,027,464 and 332,926 for 1998, 1997 and 1996,
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").
F-7
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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, at December 31, 1998 and 1997, their carrying
value approximates fair value due to the short maturity of these instruments.
Employee Stock Options
Employee non-qualified stock options are granted with an exercise price
equal to the market price and, therefore, compensation expense is not
recognized on the issuance of employee stock options.
Advertising
Costs related to space in publications are expensed the first time the
advertising occurs. Advertising expense was approximately $149,000, $161,000,
and $285,000 in 1998, 1997, and 1996, respectively.
Reclassification
Certain 1997 amounts were reclassified to conform with the 1998
presentation.
Note 2 -- Discontinued Operations
In 1995, the Company transferred substantially all of the assets and
business of its Nurse's House Call health care division (the "NHC Division") to
Olsten Corporation, (the "NHC Transaction"), pursuant to an Agreement of
Acquisition between the Company and Olsten, dated May 26, 1995. The transaction
closed September 29, 1995. 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.
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.
F-8
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3 -- Acquisitions and Dispositions
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 date of purchase. The results of
operations for 1998 or 1997 would not be materially different if these
acquisitions had occurred on January 1, 1997.
Note 4 -- Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts in the
amount of $1,091,499 and $872,114 in 1998 and 1997, respectively.
Note 5 -- Property, Plant and Equipment
Property, Plant and Equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, December 31, Useful Life
1998 1997 In Years
------------ ------------ -----------
<S> <C> <C> <C>
Land and improvements................. $ 591,213 $ 591,213 10-20
Building and improvements............. 4,550,903 4,231,689 10-45
Furniture, fixtures and equipment..... 17,345,109 15,675,217 3-10
------------ ------------
$ 22,487,225 $ 20,498,119
============ ============
</TABLE>
Note 6 -- Long Term Debt
The Company's revolving loan facility is a $20.0 million revolving loan
which expires on January 2, 2000, with a one year renewable Company option. The
revolving loan accrues interest at the bank's base rate minus 1/4% to 1 1/4% or
LIBOR plus 3/4% to 1 3/4%, at the election of the Company. The interest rate at
December 31, 1998 was 7.75% and the maximum available credit amount was $18.5
million. Such amounts could be withdrawn if an event of default as defined
occurs. Also, commitment fees of 1/4% of the unused credit are charged and the
loan is unsecured. Dividend payments are limited to maximum quarterly amounts
of 30% to 40% of average quarterly net incomes. As of December 31, 1998, there
were no borrowings against the revolver loan.
The Company has entered into a one year renewable Letter of Credit to the
benefit of an insurance company relating to workers' compensation insurance. At
December 31, 1998, the amount was $1.5 million.
F-9
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The note payable of $450,000 is an obligation of our majority owned
subsidiary. The interest rate at December 31, 1998 was 8.75%. 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 2003. These leases generally contain
renewal options and require the Company to pay all executory costs (such as
property taxes, maintenance and insurance). The Company also leases telephone,
computer and other miscellaneous equipment. These leases expire in various
years through 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, 1998:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999.......................................................... $ 7,345,267
2000.......................................................... 5,711,096
2001.......................................................... 3,071,076
2002.......................................................... 73,944
2003.......................................................... 10,160
-----------
Total minimum lease payments.................................... $16,211,543
===========
</TABLE>
Rental expenses under operating leases were $6,498,217, $5,789,786 and
$6,053,129 in 1998, 1997 and 1996, 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:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(in thousands)
<S> <C> <C> <C>
Federal:
Current........................................... $11,693 $6,741 $2,948
Deferred.......................................... (1,277) (380) (354)
------- ------ ------
State and local:
Current........................................... 1,930 1,275 1,292
Deferred.......................................... (262) 485 (114)
------- ------ ------
$12,084 $8,121 $3,772
======= ====== ======
</TABLE>
F-10
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following reconciles the "statutory" federal income tax rates to the
effective income tax rates:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense............................... 35% 35% 34%
Increase (reduction) in tax expense resulting from:
State tax, net of federal benefit........................... 8 7 5
Non-tax deductible amortization of goodwill................. 1 5 10
Other......................................................... 2 1 (1)
Effective income tax rates.................................... 46% 48% 48%
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Discontinued operation accruals......................... $ 1,227 $ 241
Receivable allowance.................................... 471 366
Intangible assets....................................... 219 207
Insurance benefits...................................... 717 754
Other................................................... 735 119
------- -------
3,369 1,687
------- -------
Deferred tax liabilities:
Accumulated depreciation................................ (637) (973)
Acquisition bases adjustment primarily intangibles...... (2,556) (3,342)
------- -------
(3,193) (4,315)
------- -------
Net deferred tax asset (liability): $ 176 $(2,628)
======= =======
</TABLE>
Deferred tax assets (liabilities) are reflected in the consolidated balance
sheets at December 31, 1998 as follows: other current assets $2,694,000 and
deferred income taxes (noncurrent) $(2,518,000) and at December 31, 1997, other
current assets $1,013,000 and deferred income taxes (noncurrent) $(3,641,000).
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 1998 and 1997
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.
F-11
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
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 $.05 per right at any time until the tenth day following public
announcement that a 20% position has been acquired. The rights will expire on
March 16, 2000, unless sooner redeemed.
Stock Purchase Plan -- In 1993, the shareholders approved the 1993 Employee
Stock Purchase Plan which provided for granting of purchase rights to all full-
time employees, as defined, of up to 1,000,000 shares. This plan terminated on
December 31, 1998. 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. An employee can cancel
their purchase 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 and
April 1998, the Company distributed 66,536 shares, and 80,904 shares,
respectively, under the April 1996 and April 1997 grants, and the aggregate
purchase price was $300,244, and $324,248, respectively. In April 1998, the
Company made a grant of approximately 71,000 shares, and the aggregate purchase
price is approximately $579,000.
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, 1998, 1997 and 1996, awards of
5,000, 4,000 and 10,000 shares, respectively, have been granted.
Stock Option Plan -- The Company's stockholders approved stock option plans
totaling 1,200,000 and 2,000,000 shares in 1988 and 1992, respectively, and
2,000,000 and 1,200,000 shares in 1994 and 1997, respectively, which provide
that options may be granted to management. Options are granted at market value
on the dates of the grants and are exercisable as follows: 25% after two years
and 25% on each of three anniversary dates thereafter, and terminate after 10
years.
F-12
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 will become immediately exercisable in 1999, if two performance related
conditions are met: (a) the Company's earnings per share are at least $.35 for
the year ended December 31, 1998, and (b) the Company's closing stock price is
at least $7.50 per share for any consecutive 30 day period during the six
months ended June 30, 1999. These conditions have been met.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Under Option
-----------------------------------------
Shares Weighted
Available for Average Exercise
Grant Shares Price Per Share
------------- --------- ----------------
<S> <C> <C> <C>
Balance January 1, 1996 1,365,004 3,652,000 $2.72
Granted........................ -- -- --
Exercised...................... -- (300,648) 2.20
Cancelled...................... 28,200 (28,200) 2.50
---------- --------- -----
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
========== ========= =====
The weighted average fair value per stock option granted was $5.96 for the
1998 options, $2.36 for the 1997 options, and no options were granted in 1996.
The Company estimated the fair values using the Black-Scholes option pricing
model, modified for dividends and using the following assumptions:
<CAPTION>
1998 1997 1996
------------- --------- ----------------
<S> <C> <C> <C>
Expected dividend yield.......... .34% .37% --
Risk-free interest rate.......... 4.75% 6.13% --
Expected stock price volatility.. 41.90% 39.01% --
Expected term until exercise
(years)......................... 9 9 --
</TABLE>
F-13
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company does not record compensation expense for stock option grants.
The following table summarizes results as if the Company had recorded
compensation expense for the 1998, 1997, and 1996 option grants:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(thousands of
dollars, except per
share data)
<S> <C> <C> <C>
Net income:
As reported......................................... $12,700 $8,770 $4,086
Pro forma........................................... 11,552 8,066 3,864
Basic earnings per share:
As reported......................................... $ .45 $ .32 $ .15
Pro forma........................................... $ .41 $ .29 $ .14
Diluted earnings per share:
As reported......................................... $ .43 $ .31 $ .15
Pro forma........................................... $ .39 $ .28 $ .14
======= ====== ======
</TABLE>
The pro forma effects on net income and earnings per share for 1998, 1997,
and 1996 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, 1998:
<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 12/31/98 Term (Years) Price at 12/31/98 Price
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.94-$3.50 1,999,250 4.9 $ 2.49 1,272,300 $2.69
4.06-4.22 1,913,500 7.4 4.09 317,500 3.74
6.44-13.38 1,192,200 9.6 10.53 -- --
</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 1998, 1997, and 1996, were $300,000,
$251,000, and $228,000, respectively.
F-14
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September
30, 1999
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 40,547,401
Accounts receivable, net.......................................... 23,719,228
Other current assets.............................................. 6,626,153
------------
Total current assets............................................. 70,892,782
Property, plant and equipment:
Land and land improvements........................................ 618,972
Building.......................................................... 4,497,789
Furniture, fixtures and equipment................................. 18,216,421
Leasehold improvements............................................ 319,323
------------
Total property, plant and equipment.............................. 23,652,505
Less: Accumulated depreciation and amortization.................. 15,457,649
------------
Net property, plant and equipment................................ 8,194,856
Goodwill, net...................................................... 15,912,310
Intangible assets, net............................................. 5,621,295
Other assets....................................................... 944,329
------------
$101,565,572
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable...................................................... $ 450,000
Accounts payable.................................................. 7,242,071
Accrued expenses:
Insurance benefits............................................... 1,225,138
Salaries, wages and fees......................................... 1,221,358
Payroll and other taxes.......................................... 246,780
Income taxes payable............................................. 2,386,658
Discontinued operations.......................................... 1,577,633
Other............................................................ 1,368,252
------------
Total current liabilities........................................ 15,717,890
Deferred income taxes.............................................. 2,012,602
Minority interest.................................................. 202,761
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.04 per share; authorized 240,000,000
shares issued 29,180,426 in 1999................................. 1,167,217
Additional paid-in capital........................................ 37,334,444
Retained earnings................................................. 46,103,298
------------
84,604,959
Less: Treasury stock at cost, 104,332 shares in 1999 ............. 972,640
------------
Total stockholders' equity....................................... 83,632,319
------------
$101,565,572
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-15
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues............................................ $161,241,344 $137,062,694
Cost of operations.................................. 111,183,059 95,192,090
------------ ------------
Gross profit...................................... 50,058,285 41,870,604
Selling, general and administrative expenses........ 24,821,945 23,348,308
------------ ------------
Operating income................................... 25,236,340 18,522,296
Other income (expense):
Interest expense................................... (29,947) --
Interest income.................................... 748,719 522,278
Other.............................................. 145,363 (142,667)
------------ ------------
864,135 379,611
------------ ------------
Income before income taxes.......................... 26,100,475 18,901,907
Income taxes....................................... 11,539,000 8,785,000
------------ ------------
Net income........................................ $ 14,561,475 $ 10,116,907
============ ============
Net income per common share:
Basic.............................................. $ .51 $ .36
Diluted............................................ $ .48 $ .34
============ ============
Weighted average number of shares: (1)
Basic.............................................. 28,678,459 28,095,907
Diluted............................................ 30,641,601 29,783,122
</TABLE>
- --------
(1) Adjusted to reflect a two-for-one stock split effective January 8, 1999.
See accompanying notes to unaudited consolidated financial statements.
F-16
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $14,561,475 $10,116,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 3,228,746 3,697,390
Provision for bad debt expense...................... -- 360,000
Minority interest................................... (182,680) --
Deferred tax benefit................................ (505,885) (505,885)
Issuance of stock awards............................ 64,050 38,250
Loss on sale of fixed assets........................ -- 44,924
Change in assets and liabilities:
Accounts receivable................................. (6,278,378) (1,227,378)
Other assets........................................ (1,130,073) (243,227)
Accounts payable and accrued expenses............... 926,792 1,527,391
----------- -----------
Net cash provided by operating activities............ 10,684,047 13,808,372
----------- -----------
Cash flows from investing activities:
Business acquisition, net of cash acquired........... (384,197) (765,747)
Capital expenditures................................. (1,197,652) (1,067,257)
----------- -----------
Net cash used in investing activities................ (1,581,849) (1,833,004)
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Cash flows from financing activities:
Issuance of long term debt........................... 100,000 --
Principal payments on long term debt................. (100,000) --
Proceeds from employee stock purchase plan........... 551,718 324,248
Proceeds related to the exercise of stock options.... 2,215,595 926,277
Treasury stock acquired.............................. -- (954,138)
Dividends paid....................................... (1,074,471) (703,296)
----------- -----------
Net cash provided by financing activities............ 1,692,842 (406,909)
----------- -----------
Net increase in cash and cash equivalents............. 10,795,040 11,568,459
Cash and cash equivalents at beginning of year........ 29,752,361 13,159,431
----------- -----------
Cash and cash equivalents at end of period............ $40,547,401 $24,727,890
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest............................................. $ 29,947 $ --
Income taxes......................................... $ 8,525,170 $ 5,284,879
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-17
<PAGE>
HOOPER HOLMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note 1: Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto included elsewhere in this prospectus.
The results of operations for the nine month period ended September 30, 1999
are not necessarily indicative of the results to be expected for the full year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information.
Note 2: Earnings Per Common Share
"Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. Common
stock equivalents (1,963,142 and 1,711,705 for September 30, 1999 and 1998,
respectively) are shares assumed to be issued if outstanding stock options were
exercised. All appropriate share and per share amounts have been restated for
the January 8, 1999 stock split.
Note 3: Capital Stock
The Company declared a two-for-one stock split in the form of a 100% stock
dividend to all stockholders effective January 8, 1999.
The net tax benefit derived from the exercise of stock options was $5.0
million for the nine months ended September 30, 1999.
Note 4: Subsequent Events
On November 1, 1999, the Company purchased certain assets of Paramedical
Services of America, Inc., (PSA), a national health information services
subsidiary of Pediatric Services of America, Inc., headquartered in Atlanta,
Georgia.
The purchase price was approximately $80 million and was financed with
existing cash of approximately $15 million and bank borrowings of $65 million.
The acquisition will be accounted for using the purchase method of accounting.
The purchase price will be assigned to the net assets based on the fair value
of such assets and liabilities at the date of acquisition.
On October 29, 1999, the Company replaced its three-year $20 million
revolving loan facility and entered into a credit agreement 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 rates up to prime plus
1/4% or Libor plus 1 3/4%, depending on the Company's Consolidated Funded Debt
to EBITDA Ratio (as such term is defined in the loan agreement). Interest
payments only are due against the term loan for the first eighteen months. On
November 1, 1999, in conjunction with the PSA acquisition, the Company borrowed
the entire amount of the term loan. There are no borrowings against the
revolver loan.
F-18
<PAGE>
This page contains the following photos:
1. An examiner performing an examination with the caption: "With the
acquisition of PSA, our Portamedic examiners perform over 300,000
examinations per month."
2. An employee working in the laboratory with the caption: "Heritage Labs was
acquired in 1998 to better serve our customers in testing blood, saliva and
urine samples."
3. A stethoscope with no caption.
4. An employee wearing headphones sitting at a computer terminal with the
caption: "Customer service centers support customer needs, assist in
document completion and secure records."
5. A laptop computer showing a page from our Web site with the caption: "Our
Portamedic Web site allows Internet ordering and information exchange."
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of common stock
means that information contained in this prospectus is correct after the date
of this prospectus. This prospectus is not an offer to sell or solicitation of
an offer to buy these shares of common stock in any circumstances under which
the offer or solicitation is unlawful.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Selected Consolidated Financial and Operating Data....................... 14
Unaudited Pro Forma Condensed Consolidated Financial Information......... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Industry Background...................................................... 27
Business................................................................. 29
Directors and Executive Officers......................................... 36
Principal and Selling Stockholders....................................... 38
Description of the Senior Credit Facility................................ 40
Underwriting............................................................. 41
Legal Matters............................................................ 43
Experts.................................................................. 43
Forward Looking Statements............................................... 43
Where You Can Find More Information...................................... 44
Information Incorporated by Reference.................................... 45
Index to Financial Statements ........................................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 Shares
[LOGO] HOOPER HOLMES(TM)
Common Stock
----------------
PROSPECTUS
----------------
A.G. Edwards & Sons, Inc.
Dain Rauscher Wessels
The Robinson-Humphrey Company
SG Cowen
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Registration fee.................................................. $21,006
NASD filing fee................................................... 8,457
Legal fees........................................................ *
Accounting fees................................................... *
Printing.......................................................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be completed by amendment
Item 15. Indemnification of Directors and Officers
Sections 722 and 723 of the General Business Corporation Law of the State of
New York grant corporations the power to indemnify their directors and officers
in accordance with the provisions therein set forth.
Article X of the by-laws of the registrant provides as follows:
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.
The Company has entered into indemnity agreements with certain of its
executive officers and directors. Each such Indemnity Agreement provides for
indemnification except as otherwise provided by New York law, against (i) in
the case of third party Proceedings (as defined in the Agreements), all
Expenses (as defined in such Agreements, and including attorneys fees),
judgments, fines and penalties actually and reasonably incurred in connection
with the defense or settlement of a Proceeding, and (ii) in the case of a
Proceeding by or in the right of the Company, amounts paid in settlement and
all Expenses actually and reasonably incurred in connection with the defense or
settlement of a Proceeding, in either case on account of service as an officer
or director of the Company, or, at the request of the Company, as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (as defined in the Agreements). The Company's
obligations under each Agreement continue in force even though the officer
and/or director may have ceased to be an officer or director and inure to the
benefit of the heirs and personal representatives of the officer and/or
director. However, the Agreements provide that such officer and/or director is
not entitled to indemnity unless (i) with respect to third party Proceedings,
the officer and/or director acted in good faith, for a purpose which
II-1
<PAGE>
he reasonably believed to be in, or in the case of service for any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, not opposed to, the best interests of the Company and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful, and (ii) with respect to Proceedings by or in the
right of the Company, the officer and/or director acted in good faith, for a
purpose which he reasonably believed to be in, or in the case of service for
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interest of the Company, except
that in no case shall indemnification be made in this case in respect of (1) a
threatened action or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company, unless and only to the extent that the
court in which the action was brought (or, if no action was brought, any court
of competent jurisdiction) determines upon application that, in view of all the
circumstances of the case, the officer and/or director is fairly and reasonably
entitled to indemnity for such portion of the settlement amount and expenses as
the court deems proper. In any case, to the extent an officer and/or director
is successful on the merits or otherwise in the defense of any Proceeding or in
the defense of any claim, issue or matter therein (including the dismissal of
an action without prejudice) shall be indemnified against all Expenses incurred
in connection therewith.
Item 16. Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Asset Purchase Agreement (incorporated by reference to Exhibit 99.2 of
the Company's Current Report on Form 8-K filed on September 17, 1999)
2.2 Amendment to Asset Purchase Agreement (incorporated by reference to
Exhibit 2.2 of the Company's Current Report on Form 8-K filed on
November 12, 1999)
4.1 Amended and Restated Revolving Credit and Term Loan Agreement
(incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q
for the quarter ended September 30, 1999)
*5.1 Opinion of Steptoe & Johnson LLP
*23.1 Consent of Steptoe & Johnson LLP (included in Exhibit 5.1).
23.2 Consent of KPMG LLP
**23.3 Consent of Ernst & Young LLP
**24.1 Powers of Attorney (contained on the signature page)
</TABLE>
- --------
*To be filed by amendment
**Previously filed
Item 17. Undertakings
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
2. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
3. For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE>
Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Basking Ridge, state of New Jersey, on January
26, 2000.
Hooper Holmes, Inc.
/s/ James M. McNamee
By: ______________________________
James M. McNamee
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James M. McNamee Chairman of the Board, January 26, 2000
___________________________________________ President and Chief
James M. McNamee Executive Officer
/s/ Fred Lash Senior Vice President, January 26, 2000
___________________________________________ Chief Accounting and
Fred Lash Financial Officer
/s/ G. Earle Wight* Senior Vice President and January 26, 2000
___________________________________________ Director
G. Earle Wight
/s/ Benjamin A. Currier* Director January 26, 2000
___________________________________________
Benjamin A. Currier
/s/ John E. Nolan* Director January 26, 2000
___________________________________________
John E. Nolan
Director
___________________________________________
Kenneth R. Rossano
/s/ Quentin J. Kennedy* Director January 26, 2000
___________________________________________
Quentin J. Kennedy
Director
___________________________________________
Elaine L. Rigolosi
</TABLE>
/s/ James M. McNamee
*By: ________________________
James M. McNamee
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
2.1 Asset Purchase Agreement (incorporated by reference to Exhibit
99.2 of the Company's Current Report on Form 8-K filed on
September 17, 1999)
2.2 Amendment to Asset Purchase Agreement (incorporated by reference
to Exhibit 2.2 of the Company's Current Report on Form 8-K filed
on November 12, 1999)
4.1 Amended and Restated Revolving Credit and Term Loan Agreement
(incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ended September 30, 1999)
* 5.1 Opinion of Steptoe & Johnson LLP
*23.1 Consent of Steptoe & Johnson LLP (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
**23.3 Consent of Ernst & Young LLP
**24.1 Powers of Attorney (included on signature page)
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
<PAGE>
Exhibit 1.1
CONFIDENTIAL
3,450,000 Shares
Common Stock
($0.04 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________________, 2000
A.G. Edwards & Sons, Inc.
Dain Rauscher Incorporated
The Robinson-Humphrey Company, LLC
SG Cowen Securities Corporation
As Representatives of the Several Underwriters
c/o A.G. Edwards & Sons, Inc.
One North Jefferson Avenue
St. Louis, Missouri 63103
The undersigned, Hooper Holmes, Inc., a New York corporation (the
"Company"), and the persons listed on Schedule I hereto (the "Selling
Shareholders"), hereby address you as the representatives (the
"Representatives") of each of the persons, firms and corporations listed on
Schedule II hereto (collectively, the "Underwriters") and hereby confirm their
agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell to
the Underwriters Three Million (3,000,000) shares of its Common Stock, par value
$0.04 per share, (the "Firm Shares"). Solely for the purpose of covering over-
allotments in the sale of the Firm Shares, each of the Company and the Selling
Shareholders proposes to grant to the Underwriters the right to purchase up to
an additional Four Hundred Fifty Thousand (450,000) shares of Common Stock (the
"Option Shares"), as provided in Section 3 of this Agreement. The Firm Shares
and the Option Shares are herein sometimes referred to as the "Shares" and are
more fully described in the Prospectus hereinafter defined.
2. Purchase, Sale and Delivery of Firm Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters under the terms hereof the Firm Shares, and each such Underwriter
agrees, severally and not jointly, to purchase
<PAGE>
from the Company, pro rata, at a purchase price of $___ per share, the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto.
The Company will deliver definitive certificates (for purposes herein,
"definitive certificates" will include any electronic format equivalent
reasonably acceptable to the Representatives) for the Firm Shares at the office
of A.G. Edwards & Sons, Inc., One North Jefferson Avenue, St. Louis, Missouri
63103 ("Edwards' Office"), or such other place as you and the Company may
mutually agree upon, for the accounts of the Underwriters against payment to the
Company of the purchase price for the Firm Shares sold by them to the several
Underwriters by wire transfer of funds payable to the order of the Company, and
delivered to One North Jefferson Avenue, St. Louis, Missouri 63103, or at such
other place as may be agreed upon between you and the Company (the "Place of
Closing"), at 9:00 a.m., St. Louis time, on ____________, 2000, or at such other
time and date not later than five full business days thereafter as you and the
Company may agree, such time and date of payment and delivery being herein
called the "Closing Date."
The certificates for the Firm Shares so to be delivered will be made
available to you for inspection at Edwards' Office (or such other place as you
and the Company may mutually agree upon) at least one full business day prior to
the Closing Date and will be in such names and denominations as you may request
at least forty-eight hours prior to the Closing Date.
It is understood that an Underwriter, individually, may (but shall not
be obligated to) make payment on behalf of the other Underwriters whose funds
shall not have been received prior to the Closing Date for Shares to be
purchased by such Underwriter. Any such payment by an Underwriter shall not
relieve the other Underwriters of any of their obligations hereunder.
It is understood that the Underwriters propose to offer the Shares to
the public upon the terms and conditions set forth in the Registration Statement
hereinafter defined.
3. Purchase, Sale and Delivery of the Option Shares. The Company and
the Selling Shareholders hereby grant options to the Underwriters to purchase
from them, on a pro rata basis, up to Four Hundred Fifty Thousand (450,000)
Option Shares on the same terms and conditions as the Firm Shares; provided,
however, that such options may be exercised only for the purpose of covering any
over-allotments which may be made by them in the sale of the Firm Shares. No
Option Shares shall be sold or delivered unless the Firm Shares previously have
been, or simultaneously are, sold and delivered. Each Selling Shareholder shall
sell up to that number of Option Shares set forth opposite the name of such
Selling Shareholder on Schedule I hereto.
The options are exercisable on behalf of the several Underwriters by
you, as Representatives, at any time, and from time to time, before the
expiration of 30 days from the
2
<PAGE>
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next day thereunder when the American Stock Exchange is open for
trading), for the purchase of all or part of the Option Shares covered thereby,
by notice given by you to the Company and the Selling Shareholders in the manner
provided in Section 13 hereof, setting forth the number of Option Shares as to
which the Underwriters are exercising the options, and the date of delivery of
said Option Shares, which date shall not be more than five business days after
such notice unless otherwise agreed to by the parties. You may terminate the
options at any time, as to any unexercised portion thereof, by giving written
notice to the Company and the Selling Shareholders to such effect.
You, as Representatives, shall make such allocation of the Option
Shares among the Underwriters as may be required to eliminate purchases of
fractional Shares.
Delivery of the Option Shares with respect to which the options shall
have been exercised shall be made to or upon your order at Edwards' Office (or
at such other place as you and the Company may mutually agree upon), against
payment by you of the per share purchase price to the Company and the Selling
Shareholders by wire transfer of funds. Such payment and delivery shall be made
at 9:00 a.m., St. Louis time, on the date designated in the notice given by you
as above provided for (which may be the same as the Closing Date), unless some
other date and time are agreed upon, which date and time of payment and delivery
are called the "Option Closing Date." The certificates for the Option Shares so
to be delivered will be made available to you for inspection at Edwards' Office
at least one full business day prior to the Option Closing Date and will be in
such names and denominations as you may request at least forty-eight hours prior
to the Option Closing Date. On the Option Closing Date, the Company shall
provide the Underwriters such representations, warranties, agreements, opinions,
letters, certificates and covenants with respect to the Option Shares as are
required to be delivered on the Closing Date with respect to the Firm Shares.
4. Representations, Warranties and Agreements of the Company and the
Selling Shareholders. (a) The Company represents and warrants to and agrees
with each Underwriter that:
(i) A registration statement on Form S-3 (Registration No. 333-
94729) with respect to the Shares, including a preliminary prospectus, and
such amendments to such registration statement as may have been required to
the date of this Agreement, has been carefully prepared by the Company
pursuant to and in conformity with the requirements of the Securities Act
of 1933, as amended (the "1933 Act"), and the rules and regulations
thereunder (the "1933 Act Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") and has been filed with the SEC under the
1933 Act. The Company meets the requirements for use of Form S-3 under the
1933 Act. Copies of such registration statement, including any amendments
thereto, each related preliminary
3
<PAGE>
prospectus (meeting the requirements of Rule 430 or 430A of the 1933 Act
Rules and Regulations) contained therein, and the exhibits, financial
statements and schedules thereto have heretofore been delivered by the
Company to you. If such registration statement has not become effective
under the 1933 Act, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the Company with
the SEC. If such registration statement has become effective under the 1933
Act, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the 1933 Act Rules and
Regulations will be filed promptly by the Company with the SEC in
accordance with Rule 424(b) of the 1933 Act Rules and Regulations. The term
"Registration Statement" as used herein means the registration statement as
amended at the time it becomes effective under the 1933 Act (the "Effective
Date"), including financial statements and all exhibits and all documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act and, if applicable, the information deemed to be included by Rule
430A of the 1933 Act Rules and Regulations. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to such
registration statement will be filed and must be declared effective before
the offering of Shares may commence, the term "Registration Statement" as
used herein means the registration statement as amended by said post-
effective amendment. If an abbreviated registration statement is prepared
and filed with the SEC in accordance with Rule 462(b) under the 1933 Act
(an "Abbreviated Registration Statement"), the term "Registration
Statement" as used in this Agreement includes the Abbreviated Registration
Statement. The term "Prospectus" as used herein means (i) the prospectus as
first filed with the SEC pursuant to Rule 424(b) of the 1933 Act Rules and
Regulations, or (ii) if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective Date or
(iii) if a Term Sheet or Abbreviated Term Sheet (as such terms are defined
in Rule 434(b) and 434(c), respectively, of the 1933 Act Rules and
Regulations) is filed with the SEC pursuant to Rule 424(b)(7) of the 1933
Act Rules and Regulations, the Term Sheet or Abbreviated Term Sheet and the
last Preliminary Prospectus filed with the SEC prior to the time the
Registration Statement became effective, taken together, including, in each
case, the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act. The term "Preliminary Prospectus" as used
herein shall mean a preliminary prospectus as contemplated by Rule 430 or
430A of the 1933 Act Rules and Regulations included at any time in the
Registration Statement. For purposes of this Agreement, the words "amend,"
"amendment," "amended," "supplement" or "supplemented" with respect to the
Registration Statement or the Prospectus shall mean amendments or
supplements to the Registration Statement or the Prospectus, as the case
may be, as well as documents filed after the date of this Agreement and
prior to the completion of the distribution of the Shares and incorporated
by reference therein as described above.
4
<PAGE>
(ii) Neither the SEC nor any state or other jurisdiction or other
regulatory body has issued, and neither is, to the knowledge of the
Company, threatening to issue, any stop order under the 1933 Act or other
order suspending the effectiveness of the Registration Statement (as
amended or supplemented) or preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending the qualification or
registration of the Shares for offering or sale in any jurisdiction nor
instituted or, to the knowledge of the Company, threatened to institute
proceedings for any such purpose. Each Preliminary Prospectus at its date
of issue, the Registration Statement and the Prospectus and any amendments
or supplements thereto contain or will contain, as the case may be, all
statements which are required to be stated therein by, and in all material
respects conform or will conform, as the case may be, to the requirements
of, the 1933 Act and the 1933 Act Rules and Regulations. Neither the
Registration Statement nor any amendment thereto, as of the applicable
effective date, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein, not misleading, and neither any Preliminary Prospectus, the
Prospectus nor any supplement thereto contains or will contain, as the case
may be, any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company relating to the Underwriters by or on behalf of
the Underwriters expressly for use in the preparation thereof (as provided
in Section 14 hereof). There is no contract or document required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time they were
filed with the SEC, complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the rules and regulations adopted by the SEC thereunder (the "1934 Act
Rules and Regulations"). Any future documents incorporated by reference so
filed, when they are filed, will comply in all material respects with the
requirements of the 1934 Act and the 1934 Act Rules and Regulations; no
such incorporated document contained or will contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and,
when read together and with the other information in the Prospectus, at the
time the Registration Statement became effective and at the Closing Date,
each such incorporated document did not or will not, as the case may be,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
5
<PAGE>
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and by
general principles of equity (the "Exceptions").
(iv) The Company and its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of
the states or other jurisdictions in which they are incorporated, with full
power and authority (corporate and other) to own, lease and operate their
properties and conduct their businesses as described in the Prospectus and,
with respect to the Company, to execute and deliver, and perform the
Company's obligations under, this Agreement; the Company and its
subsidiaries are duly qualified to do business as foreign corporations in
good standing in each state or other jurisdiction in which their ownership
or leasing of property or conduct of business legally requires such
qualification, except where the failure to be so qualified, individually or
in the aggregate, would not have a Material Adverse Effect. The term
"Material Adverse Effect" as used herein means any material adverse effect
on the condition (financial or other), net worth, business, affairs,
management, prospects, results of operations or cash flow of the Company
and its subsidiaries, taken as a whole.
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree. Otherwise than as set forth
in the Prospectus and, since the respective dates as of which information
is given in the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries taken as a whole, otherwise than as set forth
in the Prospectus.
(vi) The issuance and sale of the Shares and the execution,
delivery and performance by the Company of this Agreement, and the
consummation of the transactions herein contemplated, will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any properties or assets of the
Company or any of its subsidiaries under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company
or any of its
6
<PAGE>
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the properties or assets of the Company or any
of its subsidiaries is subject, except to such extent as, individually or
in the aggregate, does not have a Material Adverse Effect, nor will such
action result in any violation of the provisions of the Company's
certificate of incorporation or bylaws or any statute, rule, regulation or
other law, or any order or judgment, of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the execution, delivery and performance of
this Agreement, the issuance and sale of the Shares or the consummation of
the transactions contemplated hereby, except such as have been, or will be
prior to the Closing Date, obtained under the 1933 Act or as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or blue sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters.
(vii) The Company has duly and validly authorized capital stock
as set forth in the Prospectus; all outstanding shares of Common Stock of
the Company and the Shares conform, or when issued will conform, to the
description thereof in the Prospectus and have been, or, when issued and
paid for in the manner described herein will be, duly authorized, validly
issued, fully paid and non-assessable; and the issuance of the Shares to be
purchased from the Company hereunder is not subject to preemptive or other
similar rights, or any restriction upon the voting or transfer thereof
pursuant to applicable law or the Company's certificate of incorporation,
by-laws or governing documents or any agreement to which the Company or any
of its subsidiaries is a party or by which any of them may be bound. All
corporate action required to be taken by the Company for the authorization,
issuance and sale of the Shares has been duly and validly taken. Except as
disclosed in the Prospectus, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments of
sale or rights related to or entitling any person to purchase or otherwise
to acquire any shares of, or any security convertible into or exchangeable
or exercisable for, the capital stock of, or other ownership interest in,
the Company. The outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company free and clear of any
mortgage, pledge, lien, encumbrance, charge or adverse claim and are not
the subject of any agreement or understanding with any person and were not
issued in violation of any preemptive or similar rights; and there are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or instruments related to or entitling any
person to purchase or otherwise acquire any shares of, or any security
convertible into or exchangeable or exercisable for, the capital stock of,
or other ownership interest in any of the subsidiaries.
7
<PAGE>
(viii) The statements set forth or incorporated by reference in
the Prospectus describing the Shares and this Agreement, insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair.
(ix) Each of the Company and its subsidiaries is in possession
of and is operating in compliance with all franchises, grants,
authorizations, licenses, certificates, permits, easements, consents,
orders and approvals ("Permits") from all state, federal, foreign and other
regulatory authorities, and has satisfied the requirements imposed by
regulatory bodies, administrative agencies or other governmental bodies,
agencies or officials, that are required for the Company and its
subsidiaries lawfully to own, lease and operate their properties and
conduct their businesses as described in the Prospectus, and, each of the
Company and its subsidiaries is conducting its business in compliance with
all of the laws, rules and regulations of each jurisdiction in which it
conducts its business, in each case with such exceptions, individually or
in the aggregate, as would not have a Material Adverse Effect; each of the
Company and its subsidiaries has filed all notices, reports, documents or
other information ("Notices") required to be filed under applicable laws,
rules and regulations, in each case, with such exceptions, individually or
in the aggregate, as would not have a Material Adverse Effect; and, except
as otherwise specifically described in the Prospectus, neither the Company
nor any of its subsidiaries has received any notification from any court or
governmental body, authority or agency, relating to the revocation or
modification of any such Permit or, to the effect that any additional
authorization, approval, order, consent, license, certificate, permit,
registration or qualification ("Approvals") from such regulatory authority
is needed to be obtained by any of them, in any case where it could be
reasonably expected that obtaining such Approvals or the failure to obtain
such Approvals, individually or in the aggregate, would have a Material
Adverse Effect.
(x) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and paid all
taxes shown as due thereon; all such tax returns are complete and correct
in all material respects; all tax liabilities are adequately provided for
on the books of the Company and its subsidiaries except to such extent as
would not have a Material Adverse Effect; the Company and its subsidiaries
have made all necessary payroll tax payments and are current and up-to-
date; and the Company and its subsidiaries have no knowledge of any tax
proceeding or action pending or threatened against the Company or its
subsidiaries which, individually or in the aggregate, might have a Material
Adverse Effect.
(xi) Except as described in the Prospectus, the Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent licenses, trademarks, service marks and trade
names necessary to conduct the business now
8
<PAGE>
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent licenses, trademarks, service
marks or trade names which, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect.
(xii) The Company and its subsidiaries have good and marketable
title in fee simple to all items of real property and good and marketable
title to all personal property owned by them, in each case free and clear
of all liens, encumbrances, restrictions and defects except such as are
described in the Prospectus or do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property; and any property held under lease or sublease by the Company
or any of its subsidiaries is held under valid, subsisting and enforceable
leases or subleases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and neither the Company nor any of its
subsidiaries has any notice or knowledge of any material claim of any sort
which has been, or may be, asserted by anyone adverse to the Company's or
any of its subsidiaries rights as lessee or sublessee under any lease or
sublease described above, or affecting or questioning the Company's or any
of its subsidiaries' rights to the continued possession of the leased or
subleased premises under any such lease or sublease in conflict with the
terms thereof.
(xiii) Except as described in the Prospectus, there is no
factual basis for any action, suit or other proceeding involving the
Company or any of its subsidiaries or any of their material assets for any
failure of the Company or any of its subsidiaries, or any predecessor
thereof, to comply with any requirements of federal, state or local
regulation relating to air, water, solid waste management, hazardous or
toxic substances, or the protection of health or the environment. Except
as described in the Prospectus, none of the property owned or leased by the
Company or any of its subsidiaries is contaminated with any waste or
hazardous substances, and neither the Company nor any of its subsidiaries
may be deemed an "owner or operator" of a "facility" or "vessel" which
owns, possesses, transports, generates or disposes of a "hazardous
substance" as those terms are defined in (S)9601 of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S)9601 et seq.
------
(xiv) No labor disturbance exists with the employees of the
Company or any of its subsidiaries or is imminent which, individually or in
the aggregate, would have a Material Adverse Effect. None of the employees
of the Company or any of its subsidiaries is represented by a union and, to
the best knowledge of the Company and its subsidiaries, no union organizing
activities are taking place. Neither the Company nor any of its
subsidiaries has violated any federal, state or local law or foreign law
relating to
9
<PAGE>
discrimination in hiring, promotion or pay of employees, nor any applicable
wage or hour laws, or the rules and regulations thereunder, or analogous
foreign laws and regulations, which might, individually or in the
aggregate, result in a Material Adverse Effect.
(xv) The Company and its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company and its
subsidiaries would have any liability; the Company and its subsidiaries
have not incurred and do not expect to incur liability under (i) Title IV
of ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company or any of its
subsidiaries would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects,
and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(xvi) The Company and its subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate for its business,
including, but not limited to, directors' and officers' insurance,
insurance covering real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. Neither the Company nor any of its
subsidiaries has been refused any insurance coverage sought or applied for,
and the Company has no reason to believe that it and its subsidiaries will
not be able to renew their existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(xvii) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in default or
violation with respect to its certificate of incorporation or by-laws.
Neither the Company nor any of its subsidiaries is, or with the giving of
notice or lapse of time or both would be, in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the properties or assets of the Company or any
of its subsidiaries is subject, or in violation of any statutes, laws,
ordinances or governmental rules or regulations or any orders or decrees to
which it is subject, including, without limitation, Section 13 of the 1934
Act, which
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default or violation, individually or in the aggregate, would have a
Material Adverse Effect. Neither the Company nor any of its subsidiaries
has, at any time during the past five years, (A) made any unlawful
contributions to any candidate for any political office, or failed fully to
disclose any contribution in violation of law, or (B) made any payment to
any state, federal or foreign government official, or other person charged
with similar public or quasi-public duty (other than payment required or
permitted by applicable law).
(xviii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect or which would materially and adversely
affect the consummation of the transactions contemplated hereby or which is
required to be disclosed in the Prospectus; to the best of the Company's
knowledge, no such proceedings are threatened or contemplated.
(xix) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company," as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended (the "1935
Act").
(xx) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended (the "1940 Act").
(xxi) KPMG LLP, the accounting firm which has certified the
financial statements of the Company filed with or incorporated by reference
in and as a part of the Registration Statement, and Ernst & Young LLP, the
accounting firm which has certified the financial statements of Paramedical
Services of America, Inc. filed with or incorporated by reference in and as
a part of the Registration Statement, are independent public accounting
firms within the meaning of the 1933 Act and the 1933 Act Rules and
Regulations. The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that: (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(3) access to assets is permitted only in accordance with management's
general or specific authorization; and (4) the recorded accounts for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect thereto.
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The consolidated financial statements and schedules of the Company,
including the notes thereto, filed with (or incorporated by reference) and
as a part of the Registration Statement or Prospectus, are accurate in all
material respects and present fairly the financial condition of the Company
and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and changes in financial position and
consolidated statements of cash flow for the respective periods covered
thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved except as
otherwise disclosed therein. All adjustments necessary for a fair
presentation of results for such periods have been made. The selected
financial data included or incorporated by reference in the Registration
Statement and Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited financial
statements. Any operating or other statistical data included or
incorporated by reference in the Registration Statement and Prospectus
comply in all material respects with the 1933 Act and the 1933 Act Rules
and Regulations and present fairly the information shown therein. The pro
forma financial statements (including the notes thereto) and the other pro
forma financial information included in the Prospectus (A) comply as to
form in all material respects with the applicable requirements of
Regulation S-X for Form S-3 promulgated under the 1934 Act, as amended, and
(B) have been properly computed on the bases described therein; the
assumptions used in the preparation of the pro forma financial data and
other pro forma financial information included in the Prospectus are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions or circumstances referred to therein;
(xxii) Except as disclosed in the Prospectus, no holder of any
security of the Company has any right to require registration of shares of
Common Stock or any other security of the Company because of the filing of
the Registration Statement or the consummation of the transactions
contemplated hereby, and, except as disclosed in the Prospectus, no person
has the right to require registration under the 1933 Act of any shares of
Common Stock or other securities of the Company. No person has the right,
contractual or otherwise, to cause the Company to permit such person to
underwrite the sale of any of the Shares. Except for this Agreement, there
are no contracts, agreements or understandings between the Company or any
of its subsidiaries and any person that would give rise to a valid claim
against the Company, its subsidiaries or any Underwriter for a brokerage
commission, finder's fee or like payment in connection with the issuance,
purchase and sale of the Shares.
(xxiii) The Company has not distributed and, prior to the later
to occur of (i) the Closing Date or the Option Closing Date, if any, and
(ii) completion of the distribution of the Shares, will not distribute any
offering material in connection with the offering and
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sale of the Shares other than the Registration Statement, the Preliminary
Prospectus or the Prospectus.
(xxiv) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Company's Common Stock, and the Company is not aware of any such action
taken or to be taken by affiliates of the Company.
(b) Each Selling Shareholder severally represents and warrants to and
agrees with each Underwriter and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by it of this Agreement, and the
Custody Agreement and Power of Attorney (as defined herein) and the sale
and delivery of the Shares to be sold by such Selling Shareholder hereunder
and thereunder have been given and are in full force and effect on the date
hereof and will be in full force and effect on the Option Closing Date, if
any. This Agreement and the Custody Agreement and Power of Attorney have
been duly authorized, executed and delivered by or on behalf of such
Selling Shareholder and are the valid and legally binding obligations of
such Selling Shareholder enforceable in accordance with their terms except
as enforceability may be limited by the Exceptions.
(ii) Such Selling Shareholder has, and on the Option Closing
Date, if any, will have good, valid and marketable title to the Shares to
be sold by such Selling Shareholder, free and clear of all liens,
mortgages, pledges, encumbrances, claims, equities and security interests
whatsoever, including any restriction on transfer other than pursuant to
this Agreement and the Custody Agreement and Power of Attorney referred to
herein, and now has, and on the Option Closing Date, if any, will have,
full right, power and authority, and any approval required by law, to enter
into this Agreement and the Custody Agreement and Power of Attorney and to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder.
(iii) Upon delivery of and payment for such Shares hereunder,
the several Underwriters will acquire good, valid and marketable title to
such Shares to be sold by such Selling Shareholder hereunder, free and
clear of all liens, mortgages, pledges, encumbrances, claims, equities and
security interests whatsoever.
(iv) The execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney by such Selling
Shareholder, and the consummation by such Selling Shareholder of the
transactions contemplated herein and therein will not conflict with or
result in a breach or violation of any the terms or
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<PAGE>
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of such Selling Shareholder under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Selling Shareholder is a party or by which it is bound or to which any of
the properties or assets of such Selling Shareholder is subject (or any
certificate or articles of incorporation or bylaws, partnership agreement,
trust document or articles of association of such Selling Shareholder, as
applicable), or any order or decree, or statute, law, ordinance, rule or
regulation applicable to such Selling Shareholder of any court or of any
governmental agency, authority or body having jurisdiction over such
Selling Shareholder or its properties or assets.
(v) Such Selling Shareholder does not have any knowledge or
any reason to believe that the Registration Statement or the Prospectus (or
any amendment or supplement thereto) contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
representations and warranties of such Selling Shareholder in the Custody
Agreement and Power of Attorney are, and on the Option Closing Date, if
any, will be true and correct.
(vi) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be reasonably
expected to cause or result in stabilization or manipulation of the price
of the Common Stock, and such Selling Shareholder is not aware of any such
action taken or to be taken by affiliates of such Selling Shareholder.
(vii) When the Registration Statement becomes effective and at
all times subsequent thereto, such information in the Registration
Statement and Prospectus and any amendments or supplements thereto as
specifically relates to such Selling Shareholder will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading.
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Shareholder hereunder have been placed in
the custody of ____________ (the "Custodian") under a Custody Agreement and
Power of Attorney (the "Custody Agreement and Power of Attorney"), duly
executed and delivered by such Selling Shareholder, with the Custodian
having the authority to deliver the Shares to be sold by such Selling
Shareholder hereunder, and such Selling Shareholder has duly executed and
delivered the Custody Agreement and Power of Attorney appointing
____________ and ____________ as such Selling Shareholder's agents and
attorneys-in-fact (the "Attorneys-in-Fact") with the Attorneys-in-Fact
having authority to execute and deliver this
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<PAGE>
Agreement on behalf of such Selling Shareholder, to determine the purchase
price to be paid by the Underwriters to the Selling Shareholders as
provided in Section 2, to authorize the delivery of the Shares to be sold
by it hereunder and otherwise to act on behalf of such Selling Shareholder
in connection with the transactions contemplated by this Agreement and such
Custody Agreement.
(ix) The Shares represented by the certificates held in
custody for such Selling Shareholder under the Custody Agreement and Power
of Attorney are subject to the interests of the Underwriters hereunder, and
the arrangements made by such Selling Shareholder for such custody, and the
appointment by such Selling Shareholder of the Custodian and of the
Attorneys-in-Fact under the Custody Agreement and Power of Attorney, are,
except as specifically provided therein, irrevocable.
(x) The obligations of such Selling Shareholder hereunder and
under the Custody Agreement and Power of Attorney shall not be terminated
by any Selling Shareholder or operation of law, whether by the death or
incapacity of any individual Selling Shareholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or, in the case of a partnership,
corporation or other entity, upon any dissolution, winding up, distribution
of assets or other event affecting the legal existence of such Selling
Shareholder, or by the occurrence of any other event; and if any individual
Selling Shareholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or if
any such partnership, corporation or other entity should dissolve, wind up
or distribute assets or any other event affecting the legal existence of
such Selling Shareholder should occur, or if any other such event should
occur before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of each Selling
Shareholder in accordance with the terms and conditions of this Agreement
and of the Custody Agreement; and actions taken by the Custodian or by the
Attorneys-in-Fact pursuant to the Custody Agreement and Power of Attorney
shall be as valid as if such death, incapacity, termination, dissolution,
winding up, distribution of assets or other event had not occurred,
regardless of whether or not the Custodian or Attorneys-in-Fact, or any of
them, shall have received notice of such death, incapacity, termination,
dissolution, winding up, distribution of assets or other event.
(xi) Such Selling Shareholder is not prompted to sell shares
of Common Stock by any information concerning the Company or any of its
subsidiaries which is not included in the Registration Statement.
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
and any certificate signed by or on behalf of
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<PAGE>
the Selling Shareholders as such and delivered to you or to counsel for the
Underwriters shall be deemed a representation and warranty by the Selling
Shareholders to each Underwriter as to the matters covered thereby.
5. Additional Covenants. The Company and, where expressly indicated,
the Selling Shareholders covenant and agree with the several Underwriters that:
(a) The Company will timely transmit copies of the Prospectus, and any
amendments or supplements thereto, or a Term Sheet or Abbreviated Term Sheet, as
applicable, to the SEC for filing pursuant to Rule 424(b) of the 1933 Act Rules
and Regulations.
(b) The Company will deliver to each of the Representatives, and to
counsel for the Underwriters (i) a signed copy of the Registration Statement as
originally filed, including copies of exhibits thereto (other than any exhibits
incorporated by reference, therein), of any amendments and supplements to the
Registration Statement (including all documents incorporated by reference
therein) and (ii) a signed copy of each consent and certificate included or
incorporated by reference in, or filed as an exhibit to, the Registration
Statement as so amended or supplemented; the Company will deliver to the
Underwriters through the Representatives as soon as practicable after the date
of this Agreement as many copies of the Prospectus (including all documents
incorporated by reference therein) as the Representatives may reasonably request
for the purposes contemplated by the 1933 Act; if the Registration Statement is
not effective under the 1933 Act, the Company will use its best efforts to cause
the Registration Statement to become effective as promptly as possible, and it
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement has become effective; the Company will promptly
advise the Representatives of any request of the SEC for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, and of the issuance by the SEC or any state or other jurisdiction
or other regulatory body of any stop order under the 1933 Act or other order
suspending the effectiveness of the Registration Statement (as amended or
supplemented) or preventing or suspending the use of any Preliminary Prospectus
or the Prospectus or suspending the qualification or registration of the Shares
for offering or sale in any jurisdiction, and of the institution or threat of
any proceedings therefor, of which the Company shall have received notice or
otherwise have knowledge prior to the completion of the distribution of the
Shares; and the Company will use its best efforts to prevent the issuance of any
such stop order or other order and, if issued, to secure the prompt removal
thereof.
(c) The Company will not file any amendment or supplement to the
Registration Statement, the Prospectus (or any other prospectus relating to the
Shares filed pursuant to Rule 424(b) of the 1933 Act Rules and Regulations that
differs from the Prospectus as filed pursuant to such Rule 424(b)) and will not
file any document under the 1934 Act before the termination of the offering of
the Shares by the Underwriters if the document would be deemed
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<PAGE>
to be incorporated by reference into the Registration Statement or the
Prospectus, of which the Underwriters shall not previously have been advised and
furnished with a copy or to which the Underwriters shall have reasonably
objected or which is not in compliance with the 1933 Act Rules and Regulations;
and the Company will promptly notify you after it shall have received notice
thereof of the time when any amendment to the Registration Statement becomes
effective or when any supplement to the Prospectus has been filed.
(d) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will comply, at its own expense, with all requirements imposed by the
1933 Act and the 1933 Act Rules and Regulations, as now and hereafter amended,
and by the rules and regulations of the SEC thereunder, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealing in
the Shares during such period in accordance with the provisions hereof and as
contemplated by the Prospectus.
(e) If, during the period when a prospectus relating to any of the
Shares is required to be delivered under the 1933 Act by any Underwriter or
dealer, (i) any event relating to or affecting the Company or of which the
Company shall be advised in writing by the Representatives shall occur as a
result of which, in the opinion of the Company or the Representatives, the
Prospectus as then amended or supplemented would include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or (ii) it shall be necessary to amend or supplement the
Registration Statement or the Prospectus to comply with the 1933 Act, the 1933
Act Rules and Regulations, the 1934 Act or the 1934 Act Rules and Regulations,
the Company will forthwith at its expense prepare and file with the SEC, and
furnish to the Representatives a reasonable number of copies of, such amendment
or supplement or other filing that will correct such statement or omission or
effect such compliance.
(f) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will furnish such proper information as may be lawfully required and
otherwise cooperate in qualifying the Shares for offer and sale under the
securities or blue sky laws of such jurisdictions as the Representatives may
reasonably designate and will file and make in each year such statements or
reports as are or may be reasonably required by the laws of such jurisdictions;
provided, however, that the Company shall not be required to qualify as a
foreign corporation and shall not be required to qualify as a dealer in
securities or to file a general consent to service of process under the laws of
any jurisdiction.
(g) In accordance with Section 11(a) of the 1933 Act and Rule 158 of
the 1933 Act Rules and Regulations, the Company will make generally available to
its security holders and to holders of the Shares, as soon as practicable, an
earning statement (which need not be audited) in
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<PAGE>
reasonable detail covering the 12 months beginning not later than the first day
of the month next succeeding the month in which occurred the effective date
(within the meaning of Rule 158) of the Registration Statement.
(h) During the period when a prospectus relating to any of the Shares
is required to be delivered under the 1933 Act by any Underwriter or dealer, the
Company will file promptly all documents required to be filed with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act. The Company
will furnish to its security holders annual reports containing financial
statements audited by independent public accountants and quarterly reports
containing financial statements and financial information which may be
unaudited. The Company will, for a period of five years from the Closing Date,
deliver to the Underwriters at their principal executive offices a reasonable
number of copies of annual reports, quarterly reports, current reports and
copies of all other documents, reports and information furnished by the Company
to its shareholders or filed with any securities exchange or market pursuant to
the requirements of such exchange or market or with the SEC pursuant to the 1933
Act or the 1934 Act. The Company will deliver to the Underwriters similar
reports with respect to any significant subsidiaries, as that term is defined in
the 1933 Act Rules and Regulations, which are not consolidated in the Company's
financial statements. Any report, document or other information required to be
furnished under this paragraph (h) shall be furnished as soon as practicable
after such report, document or information becomes available.
(i) During the period beginning from the date of this Agreement and
continuing to and including the earlier of (i) the termination of trading
restrictions on the Shares, as determined by the Underwriters, and (ii) 30 days
after the Closing Date, the Company will not, without the prior written consent
of the Representatives, offer for sale, sell or enter into any agreement to
sell, or otherwise dispose of, any equity securities of the Company, except for
the Shares and the issuance of its Common Stock in connection with the exercise
of options or warrants or the conversion of Preferred Stock.
(j) The Company will apply the proceeds from the sale of the Shares as
set forth in the description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of Item 504 of
Regulation S-K.
(k) The Company will promptly provide you with copies of all
correspondence to and from, and all documents issued to and by, the SEC in
connection with the registration of the Shares under the 1933 Act or relating to
any documents incorporated by reference into the Registration Statement or the
Prospectus.
(l) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim consolidated financial statements of the Company
and its subsidiaries for any periods
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subsequent to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(m) Prior to the Closing Date (and, if applicable, the Option Closing
Date), neither the Company nor any Selling Shareholder will issue any press
releases or other communications directly or indirectly and none of them will
hold any press conferences with respect to the Company or any of its
subsidiaries, the financial condition, results of operations, business,
properties, assets or liabilities of the Company or any of its subsidiaries, or
the offering of the Shares, without your prior written consent.
(n) The Company will use its best efforts to obtain approval for, and
maintain the listing of the Shares on the American Stock Exchange.
(o) The Company will cause its directors and officers, the Selling
Shareholders and each holder of 5% of shares of Common Stock or securities
convertible into or exercisable or exchangeable for, shares of Common Stock, to
furnish to you, on or prior to the date of this Agreement, a letter or letters,
in form and substance satisfactory to counsel for the Underwriters, pursuant to
which each such person shall agree not to, and the Company will not, directly or
indirectly, offer for sale, contract to sell, sell, distribute, grant any
option, right or warrant to purchase, pledge, hypothecate or otherwise dispose
of any shares of Common Stock, any securities convertible into, or exercisable
or exchangeable for, Common Stock or any other rights to acquire such shares,
for a period of ninety (90) days from the Effective Date, without the prior
written consent of A.G. Edwards & Sons, Inc., except for the Shares sold
hereunder and except for sales of shares of Common Stock to the Company's
employees pursuant to the exercise of options outstanding on the date hereof
under the Company's stock option plans.
(p) The Company and its subsidiaries will maintain and keep accurate
books and records reflecting their assets and maintain internal accounting
controls which provide reasonable assurance that (1) transactions are executed
in accordance with management's authorization, (2) transactions are recorded as
necessary to permit the preparation of the Company's consolidated financial
statements and to maintain accountability for the assets of the Company and its
subsidiaries, (3) access to the assets of the Company and its subsidiaries is
permitted only in accordance with management's authorization, and (4) the
recorded accounts of the assets of the Company and its subsidiaries are compared
with existing assets at reasonable intervals.
(q) During any period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, the Company will promptly file all
documents required to be filed with the SEC pursuant to Sections 13, 14 or 15(d)
of the 1934 Act.
(r) If the Company elects to rely on Rule 462(b) under the 1933 Act,
the Company shall both file an Abbreviated Registration Statement with the SEC
in compliance with Rule 462(b)
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and pay the applicable fees in accordance with Rule 111 of the 1933 Act by the
earlier of (i) 9:00 p.m., St. Louis time, on the date of this Agreement, and
(ii) the time that confirmations are given or sent, as specified by Rule
462(b)(2).
(s) If at any time during the 90-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(t) Each of the Selling
Shareholders severally agrees with the several Underwriters as follows:
(i) Such Selling Shareholder will cooperate to the extent necessary
to cause the Registration Statement or any post-effective amendment thereto
to become effective at the earliest possible time.
(ii) Such Selling Shareholder will pay all Federal and other taxes,
if any, on the transfer or sale of the Shares being sold by the Selling
Shareholder to the Underwriters.
(iii) Such Selling Shareholder will do or perform all things required
to be done or performed by the Selling Shareholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all
conditions precedent to the delivery of the Shares pursuant to this
Agreement.
(iv) For a period of ninety (90) days from the Effective Date, the
Selling Shareholders will not directly or indirectly offer for sale,
contract to sell, sell, distribute, grant any option, right or warrant to
purchase, pledge, hypothecate or otherwise dispose of any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable
for, Common Stock or rights to acquire such shares, without the prior
written consent of A.G. Edwards & Sons, Inc., except for the Shares sold
hereunder.
(v) Except as stated in this Agreement and in the Preliminary
Prospectus and the Prospectus, such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result
20
<PAGE>
in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(vi) Such Selling Shareholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(d) hereof, of any change in the Company's
condition (financial or other), net worth, business, affairs, management,
prospects, results of operations or cash flow or of any change in
information relating to such Selling Shareholder or the Company or any new
information relating to the Company or relating to any matter stated in the
Prospectus or any amendment or supplement thereto which comes to the
attention of such Selling Shareholder that suggests that any statement made
in the Registration Statement or the Prospectus (as then amended or
supplemented, if amended or supplemented) is or may be untrue in any
material respect or that the Registration Statement or Prospectus (as then
amended or supplemented, if amended or supplemented) omits or may omit to
state a material fact or a fact necessary to be stated therein in order to
make the statements therein not misleading in any material respect, or of
the necessity to amend or supplement the Prospectus (as then amended or
supplemented, if amended or supplemented) in order to comply with the 1933
Act or any other law.
6. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase and pay for the Shares, as provided herein,
shall be subject to the accuracy, as of the date hereof and as of the Closing
Date (and, if applicable, the Option Closing Date), of the representations and
warranties of the Company and the Selling Shareholders contained herein, to the
performance by the Company and the Selling Shareholders of their covenants and
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 1:00 p.m., St. Louis time, on
the date hereof, or, with your consent, at a later date and time, not later than
10:00 a.m., St. Louis time, on the first business day following the date hereof,
or at such later date and time as may be approved by the Representatives; if the
Company has elected to rely on Rule 462(b) under the 1933 Act, the Abbreviated
Registration Statement shall have become effective not later than the earlier
of (x) 10:00 p.m. St. Louis time, on the date hereof, or (y) at such later date
and time as may be approved by the Representatives. All filings required by
Rule 424 and Rule 430A of the 1933 Act Rules and Regulations shall have been
made. No stop order suspending the effectiveness of the Registration Statement,
as amended from time to time, shall have been issued and no proceeding for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened or contemplated by the SEC, and any request of the SEC
for additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Underwriters.
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(b) No Underwriter shall have advised the Company on or prior to the
Closing Date (and, if applicable, the Option Closing Date), that the
Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the opinion of counsel to the
Underwriters, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing Date),
you shall have received the opinion of Steptoe & Johnson LLP, counsel for the
Company, addressed to you and dated the Closing Date (and, if applicable, the
Option Closing Date), to the effect that:
(i) The Registration Statement and all post-effective amendments
thereto and the Abbreviated Registration Statement, if any, have become
effective under the 1933 Act; any required filing of the Prospectus or any
supplement thereto pursuant to Rule 424(b) or otherwise has been made in
the manner and within the time period required thereby; and, to the
knowledge of such counsel after due inquiry, no stop or other order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act or under the securities laws of any
jurisdiction.
(ii) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (including any document incorporated by
reference into the Prospectus), as of their respective effective or issue
date, comply as to form and appear on their face to be appropriately
responsive in all material respects to the requirements of Form S-3 under
the 1933 Act and the applicable 1933 Act Rules and Regulations (except that
such counsel need express no opinion as to the financial statements or
other financial data); the conditions for use of Form S-3 have been
satisfied; and, as of the date they were filed with the SEC, the documents
incorporated by reference in the Prospectus appear on their face to comply
as to form and be appropriately responsive in all material respects with
the requirements of the 1934 Act and the applicable 1934 Act Rules and
Regulations (except that such counsel need express no opinion as to the
financial statements or other financial data).
(iii) The descriptions in the Registration Statement and
Prospectus of statutes, laws, ordinances, rules, regulations, legal or
governmental proceedings, contracts and other documents are accurate and
fairly present the information required to be shown under the 1933 Act and
the 1933 Act Rules and Regulations.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms except as enforceability
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may be limited by the Exceptions and except to the extent the
enforceability of the indemnification and contribution provisions of
Section 7 of the Agreement may be limited by public policy considerations
as expressed in the 1933 Act as construed by courts of competent
jurisdiction.
(v) The Company and its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the laws of
the states or other jurisdictions in which they are incorporated, with full
power and authority (corporate and other) to own, lease and operate their
properties and conduct their businesses as described in the Prospectus and,
with respect to the Company, to execute and deliver, and perform the
Company's obligations under, this Agreement; the Company and its
subsidiaries are duly qualified to do business as foreign corporations in
good standing in each state or other jurisdiction in which their ownership
or leasing of property or conduct of business legally requires such
qualification, except where the failure to be so qualified, individually or
in the aggregate, would not have a Material Adverse Effect.
(vi) The entities listed on Exhibit A are the only subsidiaries,
direct or indirect, of the Company. The Company owns, directly or
indirectly through other subsidiaries, the percentage indicated on Exhibit
A of the outstanding shares of capital stock or other securities evidencing
equity ownership of such subsidiaries, and all such securities have been
duly authorized and validly issued, are fully paid and non-assessable and,
to the knowledge of such counsel, are owned by the Company free and clear
of any mortgage, pledge, lien, encumbrance, charge or adverse claim and are
not the subject of any agreement or understanding with any person, and were
not issued in violation of any preemptive or similar rights; and, to the
knowledge of such counsel, except as disclosed in the Prospectus, there are
no outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale, or instruments related to or entitling any
person to purchase or otherwise acquire any shares of, or any security
convertible into or exercisable or exchangeable for, any such shares of
capital stock or other ownership interest of any of such subsidiaries.
(vii) The issuance and sale of the Shares and the execution,
delivery and performance by the Company of this Agreement, and the
consummation of the transactions herein contemplated, will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any properties or assets of the
Company or any of its subsidiaries under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to such
counsel after due inquiry to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or
to which any of the properties or assets of the Company or any of its
subsidiaries is subject, except to such extent as, individually or in the
aggregate,
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does not have a Material Adverse Effect, nor will such action result in any
violation of the provisions of the Company's certificate of incorporation
or bylaws or any statute, rule, regulation or other law, or any order or
judgment known to such counsel after due inquiry, of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties.
(viii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required in connection with the execution, delivery and performance of this
Agreement, and the issuance and sale of the Shares or the consummation of
the transactions contemplated hereby, except such as may be required under
the 1933 Act or the 1933 Act Rules and Regulations and have been obtained,
or as may be required by the NASD or under state securities or blue sky
laws in connection with the purchase and distribution of the Shares by the
Underwriters. Each of the Company and its subsidiaries has filed all
Notices pursuant to, and has obtained all Approvals required to be obtained
under, and has otherwise complied with all requirements of, all applicable
laws and regulations in connection with the issuance and sale of the
Shares, in each case with such exceptions, individually or in the
aggregate, as would not affect the validity of the Shares, their issuance
or the transactions contemplated hereby or have a Material Adverse Effect;
and no such Notices or Approvals are required to be filed or obtained by
the Company or any of its subsidiaries in connection with the execution,
delivery and performance of this Agreement, the issuance and sale of the
Shares or the transactions contemplated hereby, in each case with such
exceptions, individually or in the aggregate, as would not affect the
validity of the Shares, their issuance or the transactions contemplated
hereby or have a Material Adverse Effect.
(ix) To the knowledge of such counsel after due inquiry and
other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries taken as a whole; and, to the knowledge of
such counsel after due inquiry and other than as set forth in the
Prospectus, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(x) The Company has duly and validly authorized capital stock as set
forth under the caption "Capitalization" in the Prospectus; all outstanding
shares of Common Stock of the Company and the Shares conform, or when
issued will conform, as to legal matters to the description thereof in the
Prospectus and have been duly authorized, validly issued, fully paid and
non-assessable; and the Shares to be sold by the Company have
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been duly authorized and, when delivered and paid for in accordance with
this Agreement, will be validly issued, fully paid and non-assessable. All
corporate action required to be taken by the Company for the authorization,
issue and sale of the Shares has been duly and validly taken. The Shares
are duly authorized for trading, subject to official notice of issuance and
evidence of satisfactory distribution, on the American Stock Exchange. The
form of specimen certificate representing the Shares filed as an exhibit to
the Registration Statement is in valid and sufficient form. The issuance of
the Shares to be purchased from the Company hereunder is not subject to
preemptive or other similar rights, or any restriction upon the voting or
transfer thereof pursuant to applicable law or the certificate of
incorporation, bylaws or governing documents of the Company or any
agreement to which the Company or any of its subsidiaries is a party or by
which any of them may be bound; and, to such counsel's knowledge, except as
described in the Prospectus, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments of
sale or rights related to or entitling any person to purchase or otherwise
acquire any shares of, or any security convertible into or exercisable or
exchangeable for, the capital stock of, or other ownership interest in, the
Company.
(xi) To the knowledge of such counsel after due inquiry, the Company
and each of its subsidiaries hold all licenses, certificates, permits and
approvals from all state, federal and other regulatory authorities, and
have satisfied in all material respects the requirements imposed by
regulatory bodies, administrative agencies or other governmental bodies,
agencies or officials, that are required for the Company and its
subsidiaries lawfully to own, lease and operate its properties and conduct
its business as described in the Prospectus, and, to the knowledge of such
counsel after due inquiry, each of the Company and its subsidiaries is
conducting its business in compliance in all material respects with all of
the laws, rules and regulations of each jurisdiction in which it conducts
its business.
(xii) The statements made in the Prospectus under the captions "Risk
Factors," "Dividend Policy," "Business," "Description of Credit Facility,"
and Item 15 of Part II of the Registration Statement, and in the Company's
Annual Report on Form 10-K of the year ended December 31, [1998][1999]
under Item 11, "Executive Compensation" and Item 13, "Certain Relationships
and Related Transactions," to the extent that they constitute summaries of
documents referred to therein or matters of law or legal conclusions, have
been reviewed by such counsel and are accurate summaries and fairly present
the information disclosed therein.
(xiii) Neither the Company nor any of its subsidiaries is, or with
the giving of notice or lapse of time or both would be, in default or
violation with respect to its certificate of incorporation or by-laws. To
the knowledge of such counsel after due
25
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inquiry, neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties or assets of the
Company or any of its subsidiaries is subject, or in violation of any
statutes, laws, ordinances or governmental rules or regulations or any
orders or decrees to which it is subject, including, without limitation,
Section 13 of the 1934 Act, and neither the Company nor any of its
subsidiaries has failed to obtain any other license, permit, franchise,
easement, consent, or other governmental authorization necessary to the
ownership, leasing and operation of its properties or to the conduct of its
business, which default, violation or failure, individually or in the
aggregate, would have a Material Adverse Effect.
(xiv) To the knowledge of such counsel after due inquiry, (A) there
are no material (individually, or in the aggregate) legal, governmental or
regulatory proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or of which the business or properties of the
Company or any of its subsidiaries is the subject which are not disclosed
in the Registration Statement and Prospectus, (B) there are no contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or filed as required, and
(C) there are no statutes, ordinances, laws, rules or regulations required
to be described in the Registration Statement or Prospectus which are not
described as required.
(xv) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company"
or of a "subsidiary company," as such terms are defined in the 1935 Act.
(xvi) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
(xvii) All the shares of capital stock of the Company issued since
1991 were issued and sold in compliance with all applicable federal and
state securities laws.
(xviii) To the knowledge of such counsel after due inquiry and except
as disclosed in the Prospectus, no holder of any security of the Company
has any right to require registration of shares of Common Stock or any
other security of the Company because of the filing of the Registration
Statement or the consummation of the
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transactions contemplated hereby and, except as disclosed in the
Prospectus, no person has the right to require registration under the 1933
Act of any shares of Common Stock or other securities of the Company.
Such counsel shall confirm that during the preparation of the Registration
Statement and Prospectus, such counsel participated in conferences with the
Representatives and their counsel and with officers and representatives of the
Company and its independent accountants, at which conferences the contents of
the Registration Statement and the Prospectus (including all documents filed
under the 1934 Act and deemed incorporated by reference therein) were discussed,
reviewed and revised. On the basis of the information which was developed in
the course thereof, considered in light of such counsel's understanding of
applicable law and the experience gained by such counsel through their practice
thereunder, without such counsel assuming responsibility for the accuracy and
completeness of such statements except to the extent expressly provided above,
such counsel shall confirm that nothing came to their attention that would lead
them to believe that either the Registration Statement (including any document
filed under the 1934 Act and deemed incorporated by reference therein), as of
the Effective Date, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or the Prospectus or any amendment or supplement thereto
(including any document filed under the 1934 Act and deemed incorporated by
reference therein) as of its respective issue date and as of the Closing Date,
or, if applicable, the Option Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (other
than the financial statements or other financial data as to which such counsel
need express no opinion).
In rendering the foregoing opinion, such counsel may rely, (1) as to
matters involving laws of any jurisdiction other than New York or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Bryan Cave LLP, and (2) as to all matters of fact, upon
certificates and written statements of the executive officers of, and
accountants for, the Company, provided, in either case, that such counsel shall
state in their opinion that they and the Underwriters are justified in relying
thereon.
(d) On the Option Closing Date, if applicable, you shall have received the
opinion of [Steptoe & Johnson LLP], counsel to the Selling Shareholders,
addressed to you and dated the Option Closing Date, to the effect that:
(i) The Custody Agreement and Power of Attorney has been duly executed
and delivered by such Selling Shareholders and constitutes a legal, valid
and binding agreement of such Selling Shareholders enforceable in
accordance with its terms.
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(ii) This Agreement has been duly authorized, executed and delivered
on behalf of the Selling Shareholders, and is a legal, valid and binding
obligation of the Selling Shareholders. The execution and delivery of this
Agreement and the Custody Agreement and Power of Attorney by such Selling
Shareholders, the consummation by such Selling Shareholders of the
transactions contemplated herein and therein and the fulfillment by such
Selling Shareholders of the terms hereof and thereof will not result in a
breach or violation of any terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the properties or assets of such Selling
Shareholders under any bond, debenture, note or other evidence of
indebtedness or any indenture, mortgage, deed of trust, sale and leaseback
arrangement, joint venture or any other agreement or instrument to which
any such Selling Shareholder is a party, or by which it is bound or to
which any of the properties or assets of any such Selling Shareholder is
subject (or any certificate or articles of incorporation or bylaws,
partnership agreement, trust document or articles of association of any
such Selling Shareholder, as applicable), or any order or decree, or
statute, law, ordinance, rule or regulation applicable to any such Selling
Shareholder of any court or of any governmental agency, authority or body
having jurisdiction over any such Selling Shareholder or its properties.
(iii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by the
1933 Act, the NASD and state securities and Blue Sky Laws) to sell, assign,
transfer and deliver the Shares to be sold by such Selling Shareholder.
(iv) No consent, approval, authorization or order of any court, or
governmental agency or body is required for consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by each Selling Shareholder hereunder except such as may be
required under the 1933 Act or the 1933 Act Rules and Regulations or as may
be required by the NASD or under state securities laws.
(v) Each Selling Shareholder has good, valid and marketable title to
the Shares being sold by such Selling Shareholder hereunder, free and clear
of all liens, mortgages, pledges, encumbrances, claims, equities and
security interests whatsoever, including any restriction on transfer other
than pursuant to this Agreement and the Custody Agreement and Power of
Attorney, and has transferred to the Underwriters good, valid and
marketable title to the Shares being sold by such Selling Shareholder on
the Option Closing Date, free and clear of all liens, mortgages, pledges,
encumbrances, claims, equities and security interests whatsoever, including
any restriction or transfer other than pursuant to this Agreement and the
Custody Agreement and Power of Attorney.
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In rendering the foregoing opinion, such counsel may rely, (1) as to
matters involving laws of any jurisdiction other than New York or the United
States, upon opinions addressed to the Underwriters of other counsel
satisfactory to them and Bryan Cave LLP, and (2) as to all matters of fact, upon
certificates and written statements of the Selling Shareholders, provided, in
either case, that such counsel shall state in their opinion that they and the
Underwriters are justified in relying thereon.
(e) You shall have received on the Closing Date (and, if applicable, the
Option Closing Date), from Bryan Cave, LLP, counsel to the Underwriters, such
opinion or opinions, dated the Closing Date (and, if applicable, the Option
Closing Date) with respect to such matters as you may reasonably require; and
the Company shall have furnished to such counsel such documents as they
reasonably request for the purposes of enabling them to review or pass on the
matters referred to in this Section 6 and in order to evidence the accuracy,
completeness and satisfaction of the representations, warranties and conditions
herein contained.
(f) You shall have received at or prior to the Closing Date from Bryan Cave
LLP a memorandum or memoranda, in form and substance satisfactory to you, with
respect to the qualification for offering and sale by the Underwriters of the
Shares under state securities or Blue Sky laws of such jurisdictions as the
Underwriters may have designated to the Company.
(g) On the business day immediately preceding the date of this Agreement
and on the Closing Date (and, if applicable, the Option Closing Date), you shall
have received from each of KPMG LLP and Ernst & Young LLP, a letter or letters,
dated the date of this Agreement and the Closing Date (and, if applicable, the
Option Closing Date), respectively, in form and substance satisfactory to you,
confirming that they are independent public accountants with respect to the
Company within the meaning of the 1933 Act and the published Rules and
Regulations, and stating to the effect set forth in Schedule III hereto.
(h) Except as contemplated in the Prospectus, (i) neither the Company nor
any of its subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by reference in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree; and (ii) subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its subsidiaries
shall have incurred any liability or obligation, direct or contingent, or
entered into any transactions, and there shall not have been any change in the
capital stock or short-term or long-term debt of the Company and its
subsidiaries or any change, or any development involving or which might
reasonably be expected to involve a prospective change in the condition
(financial or other), net worth, business, affairs, management, prospects,
results of operations or cash flow of the Company or its subsidiaries, the
effect of which, in any such case described in clause (i) or (ii), is in your
reasonable judgment so material or adverse as
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to make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered on such Closing Date (and, if
applicable, the Option Closing Date) on the terms and in the manner contemplated
in the Prospectus.
(i) There shall not have occurred any of the following: (i) a suspension
or material limitation in trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or The Nasdaq National Market or the
establishing on such exchanges or market by the SEC or by such exchanges or
markets of minimum or maximum prices which are not in force and effect on the
date hereof; (ii) a suspension or material limitation in trading in the
Company's securities on the American Stock Exchange or the establishing on such
exchange by the SEC or by such exchange of minimum or maximum prices which are
not in force and effect on the date hereof; (iii) a general moratorium on
commercial banking activities declared by either federal or any state
authorities; (iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency or war,
which in your judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares in the manner contemplated in the
Prospectus; or (v) any calamity or crisis, change in national, international or
world affairs, act of God, change in the international or domestic markets, or
change in the existing financial, political or economic conditions in the United
States or elsewhere, which in your judgment makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares in
the manner contemplated in the Prospectus.
(j) You shall have received certificates, dated the Closing Date (and, if
applicable, the Option Closing Date) and signed by the President and by the
Chief Financial Officer of the Company, in their capacities as such, stating
that:
(i) the condition set forth in Section 6(a) has been fully satisfied;
(ii) they have carefully examined the Registration Statement and the
Prospectus as amended or supplemented and all documents incorporated by
reference therein and nothing has come to their attention that would lead
them to believe that either the Registration Statement or the Prospectus,
or any amendment or supplement thereto or any documents incorporated by
reference therein as of their respective effective, issue or filing dates,
contained, and the Prospectus as amended or supplemented and all documents
incorporated by reference therein when read together with the documents
incorporated by reference therein, at such Closing Date, contains any
untrue statement of a material fact, or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
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(iii) since the Effective Date, there has occurred no event required
to be set forth in an amendment or supplement to the Registration Statement
or the Prospectus which has not been so set forth and there has been no
document required to be filed under the 1934 Act and the 1934 Act Rules and
Regulations that upon such filing would be deemed to be incorporated by
reference into the Prospectus that has not been so filed;
(iv) all representations and warranties made herein by the Company
are true and correct at such Closing Date, with the same effect as if made
on and as of such Closing Date, and all agreements herein to be performed
or complied with by the Company on or prior to such Closing Date have been
duly performed and complied with by the Company;
(v) neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree;
(vi) except as disclosed in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, other than in the ordinary course of business, or entered into
any transactions not in the ordinary course of business, which in either
case are material to the Company or such subsidiary; and there has not been
any change in the capital stock or material increase in the short-term debt
or long-term debt of the Company or any of its subsidiaries or any material
adverse change or any development involving or which may reasonably be
expected to involve a prospective material adverse change, in the condition
(financial or other), net worth, business, affairs, management, prospects,
results of operations or cash flow of the Company and its subsidiaries
taken as a whole; and there has been no dividend or distribution of any
kind, paid or made by the Company on any class of its capital stock;
(vii) there has not been any change or decrease specified in
paragraph (iii)(E) of the letter or letters delivered to the Underwriters
referred to in Section 6(g) above, except those changes and decreases that
are disclosed therein; and
(viii) covering such other matters as you may reasonably request.
(k) You shall have received certificates, dated the Option Closing Date, if
applicable, signed by each of the Selling Shareholders, stating that (i) all
representations and warranties made herein by such Selling Shareholder are true
and correct at the Option Closing Date, with
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the same effect as if made on and as of such Closing Date, and all agreements
herein to be performed or complied with by such Selling Shareholder on or prior
to such Closing Date have been duly performed or complied with by such Selling
Shareholder and (ii) covering such other matters as you may reasonably request.
(l) The Company and the Selling Shareholders shall not have failed,
refused, or been unable, at or prior to the Closing Date (and, if applicable,
the Option Closing Date) to have performed any agreement on their part to be
performed or any of the conditions herein contained and required to be performed
or satisfied by them at or prior to such Closing Date.
(m) The Company and the Selling Shareholders shall have furnished to you at
the Closing Date (and, if applicable, the Option Closing Date) such further
information, opinions, certificates, letters and documents as you may have
reasonably requested.
(n) The Shares shall have been approved for trading upon official notice of
issuance on the American Stock Exchange.
(o) You shall have received duly and validly executed letter agreements
referred to in Section 5(o) hereof.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and to Bryan Cave LLP, counsel for the several Underwriters.
The Company and the Selling Shareholders will furnish you with such signed and
conformed copies of such opinions, certificates, letters and documents as you
may request.
If any of the conditions specified above in this Section 6 shall not have
been satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you on notice to the Company and the Selling Shareholders.
7. Indemnification and Contribution. (a) The Company and each of the
Selling Shareholders, jointly and severally, will indemnify and hold harmless
each Underwriter for and against any losses, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the 1933 Act or
otherwise, insofar as such losses, damages or liabilities (or actions or claims
in respect thereof) arise out of or are based upon (i) an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the Prospectus or any other prospectus
relating to the Shares, or any amendment or supplement thereto, or in any blue
sky application or other document executed by the Company or based on any
information furnished in writing by the Company, filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the securities
laws
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thereof (the "Blue Sky Application"), or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses incurred by such Underwriter in connection with
investigating, preparing, pursuing or defending against or appearing as a third
party witness in connection with any such loss, damage, liability or action or
claim, including, without limitation, any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to the indemnified party, as such expenses are
incurred (including such losses, damages, liabilities or expenses to the extent
of the aggregate amount paid in settlement of any such action or claim, provided
that (subject to Section 7(d) hereof) any such settlement is effected with the
written consent of the Company); provided, however, that the Company and the
Selling Shareholders shall not be liable in any such case to the extent, but
only to the extent, that any such loss, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement,
the Prospectus or any other prospectus relating to the Shares, or any such
amendment or supplement, in reliance upon and in conformity with written
information relating to the Underwriter furnished to the Company by you or by
any Underwriter through you, expressly for use in the preparation thereof (as
provided in Section 14 hereof); and provided further, that the liability of a
Selling Shareholder pursuant to this Section 7(a) shall not exceed the product
of the number of Shares sold by such Selling Shareholder and the public offering
prices per share of the Shares set forth in the Prospectus.
(b) Each Selling Shareholder will indemnify and hold harmless each
Underwriter for and against any losses, damages or liabilities to which the
Company may become subject, under the 1933 Act or otherwise, insofar as such
losses, damages or liabilities (or actions or claims in respect thereof) arise
out of or are based upon (i) an untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus, the Registration
Statement, the Prospectus or any other prospectus relating to the Shares, or any
amendment or supplement thereto, or any Blue Sky Application, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement, the Prospectus or any other
prospectus relating to the Shares, or any such amendment or supplement, or any
Blue Sky Application, in reliance upon and in conformity with written
information furnished to the Company or any Underwriter by such Selling
Shareholder specifically for use in the preparation thereof, and will reimburse
each Underwriter for any legal or other expenses incurred by such Underwriter in
connection with investigating, preparing, pursuing or defending against or
appearing as a third party witness in connection with any such loss, damage,
liability or action or claim, including, without limitation, any investigation
or proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to the indemnified party,
as such expenses
33
<PAGE>
are incurred (including such losses, damages, liabilities or expenses to the
extent of the aggregate amount paid in settlement of any such action or claim,
provided that (subject to Section 7(d) hereof) any such settlement is effected
with the written consent of such Selling Shareholder)..
(c) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company and each Selling Shareholder for and against any losses,
damages or liabilities to which the Company may become subject, under the 1933
Act or otherwise, insofar as such losses, damages or liabilities (or actions or
claims in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the Prospectus or any other prospectus
relating to the Shares, or any amendment or supplement thereto, or any Blue Sky
Application, or arise out of are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement, the Prospectus or any other prospectus relating to the Shares, or any
such amendment or supplement, or any Blue Sky Application, in reliance upon and
in conformity with written information relating to the Underwriter furnished to
the Company by you or by any Underwriter through you, expressly for use in the
preparation thereof (as provided in Section 14 hereof), and will reimburse the
Company or any such Selling Shareholder for any legal or other expenses incurred
by the Company or any such Selling Shareholder, as the case may be, in
connection with investigating or defending any such action or claim as such
expenses are incurred (including such losses, damages, liabilities or expenses
to the extent of the aggregate amount paid in settlement of any such action or
claim, provided that (subject to Section 7(d) hereof) any such settlement is
effected with the written consent of the Underwriters).
(d) Promptly after receipt by an indemnified party under Section 7(a), 7(b)
or 7(c) hereof of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under Section 7(a), 7(b) or 7(c) hereof, notify each such indemnifying
party in writing of the commencement thereof, but the failure so to notify such
indemnifying party shall not relieve such indemnifying party from any liability
except to the extent that it has been prejudiced in any material respect by such
failure or from any liability that it may have to any such indemnified party
otherwise than under Section 7(a), 7(b) or 7(c) hereof. In case any such action
shall be brought against any such indemnified party and it shall notify each
indemnifying party of the commencement thereof, each such indemnifying party
shall be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party under Section 7(a), 7(b) or 7(c)
hereof similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the consent
of such indemnified party, be counsel to such indemnifying party), and, after
notice from such indemnifying party to such indemnified party of its election so
to assume the defense thereof, such indemnifying party shall not be liable to
such indemnified
34
<PAGE>
party under Section 7(a), 7(b) or 7(c) hereof for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ its
own counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party at the expense of the indemnifying party has been
authorized by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel that there may be a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense, or
certain aspects of the defense, of such action (in which case the indemnifying
party shall not have the right to direct the defense of such action with respect
to those matters or aspects of the defense on which a conflict exists or may
exist on behalf of the indemnified party) or (iii) the indemnifying party shall
not in fact have employed counsel reasonably satisfactory to such indemnified
party to assume the defense of such action, in any of which events such fees and
expenses to the extent applicable shall be borne, and shall be paid as incurred,
by the indemnifying party. If at any time such indemnified party shall have
requested such indemnifying party under Section 7(a), 7(b) or 7(c) hereof to
reimburse such indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a), 7(b) or 7(c) hereof effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of such request for reimbursement, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request for reimbursement prior to the date of such
settlement. No such indemnifying party shall, without the written consent of
such indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not such indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (A)
includes an unconditional release of such indemnified party from all liability
arising out of such action or claim and (B) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any such indemnified party. In no event shall such indemnifying parties be
liable for the fees and expenses of more than one counsel, including any local
counsel, for all such indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
(e) If the indemnification provided for in this Section 7 is unavailable to
or insufficient to indemnify or hold harmless an indemnified party under Section
7(a), 7(b) or 7(c) hereof in respect of any losses, damages or liabilities (or
actions or claims in respect thereof) referred to therein, then each
indemnifying party under Section 7(a), 7(b) or 7(c) hereof shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
damages or liabilities (or actions or claims in respect thereof) in such
proportion as is appropriate
35
<PAGE>
to reflect the relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under Section 7(d) hereof and such
indemnifying party was prejudiced in a material respect by such failure, then
each such indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault, as applicable, of the
Company and the Selling Shareholders, on the one hand, and the Underwriters, on
the other hand, in connection with the statements or omissions that resulted in
such losses, damages or liabilities (or actions or claims in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by, as applicable, the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from such offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault, as applicable, of the Company or the Selling Shareholders, on
the one hand, and the Underwriters, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholders, on
the one hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7(e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to above in this Section 7(e). The amount paid or payable by such an
indemnified party as a result of the losses, damages or liabilities (or actions
or claims in respect thereof) referred to above in this Section 7(e) shall be
deemed to include any legal or other expenses incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Underwriters in this Section 7(e) to
contribute are several in proportion to their respective underwriting
obligations with respect to the Shares and not joint.
(f) The obligations of the Company and the Selling Shareholders under this
Section 7 shall be in addition to any liability that the Company and the Selling
Shareholders may otherwise
36
<PAGE>
have and shall extend, upon the same terms and conditions, to each officer,
director, employee, agent or other representative and to each person, if any,
who controls any Underwriter within the meaning of the 1933 Act; and the
obligations of the Underwriters under this Section 7 shall be in addition to any
liability that the respective Underwriters may otherwise have and shall extend,
upon the same terms and conditions, to each officer and director of the Company
who signed the Registration Statement and to each person, if any, who controls
the Company within the meaning of the 1933 Act and to each person, if any, who
controls the Selling Shareholders within the meaning of the 1933 Act.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including, without limitation, the
provisions of this Section 7, and are fully informed regarding such provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, and any
supplement or amendment thereof, as required by the 1933 Act.
8. Representations and Agreements to Survive Delivery. The respective
representations, warranties, agreements and statements of the Company, the
Selling Shareholders and the Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain operative and in full force and effect regardless of any investigation
(or any statement as to the results thereof) made by or on behalf of any
Underwriter or any controlling person of any Underwriter, the Company or any of
its officers, directors or any controlling persons or the Selling Shareholders,
and shall survive delivery of and payment for the Shares hereunder.
9. Substitution of Underwriters. (a) If any Underwriter shall default in
its obligation to purchase the Shares which it has agreed to purchase hereunder,
you may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six (36)
hours after such default by any Underwriter you do not arrange for the purchase
of such Shares, then the Company and the Selling Shareholders shall be entitled
to a further period of thirty-six (36) hours within which to procure another
party or parties reasonably satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you notify
the Company and the Selling Shareholders that you have so arranged for the
purchase of such Shares, or the Company and the Selling Shareholders notify you
that they have so arranged for the purchase of such Shares, you or the Company
and the Selling Shareholders shall have the right to postpone the Closing Date
for a period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration
37
<PAGE>
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any persons substituted
under this Section 9 with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the aggregate
number of Shares which remains unpurchased does not exceed one-eleventh of the
total Shares to be sold on the Closing Date, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the Shares which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters made by you and the Company
and the Selling Shareholders as provided in subsection (a) above, the number of
Shares which remains unpurchased exceeds one-eleventh of the total Shares to be
sold on the Closing Date, or if the Company and the Selling Shareholders shall
not exercise the right described in subsection (b) above to require the non-
defaulting Underwriters to purchase Shares of the defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Option Closing Date,
the obligations of the Underwriters to purchase and of the Company and the
Selling Shareholders to sell the Option Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
and the Selling Shareholders except for the expenses to be borne by the Company
and the Selling Shareholders and the Underwriters as provided in Section 11
hereof and the indemnity and contribution agreements in Section 7 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. Effective Date and Termination. (a) This Agreement shall become
effective at 1:00 p.m., St. Louis time, on the first business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first release the Shares for offering to the public; provided, however, that the
provisions of Section 7 and 11 shall at all times be effective. For the
purposes of this Section 10(a), the Shares shall be deemed to have been released
to the public upon release by you of the publication of a newspaper
advertisement relating to the Shares or upon release of telegrams, facsimile
transmissions or letters offering the Shares for sale to securities dealers,
whichever shall first occur.
38
<PAGE>
(b) This Agreement may be terminated by you at any time before it becomes
effective in accordance with Section 10(a) by notice to the Company and the
Selling Shareholders; provided, however, that the provisions of this Section 10
and of Section 7 and Section 11 hereof shall at all times be effective. In the
event of any termination of this Agreement pursuant to Section 9 or this Section
10(b) hereof, the Company and the Selling Shareholders shall not then be under
any liability to any Underwriter except as provided in Section 7 or Section 11
hereof.
(c) This Agreement may be terminated by you at any time at or prior to the
Closing Date by notice to the Company and the Selling Shareholders if any
condition specified in Section 6 hereof shall not have been satisfied on or
prior to the Closing Date. Any such termination shall be without liability of
any party to any other party except as provided in Sections 7 and 11 hereof.
(d) This Agreement also may be terminated by you, by notice to the Company
and the Selling Shareholders, as to any obligation of the Underwriters to
purchase the Option Shares, if any condition specified in Section 6 hereof shall
not have been satisfied at or prior to the Option Closing Date or as provided in
Section 9 of this Agreement.
If you terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), you shall notify the Company and the Selling Shareholders by telephone or
telegram, confirmed by letter.
11. Costs and Expenses. The Company, whether or not the transactions
contemplated hereby are consummated or this Agreement is prevented from becoming
effective under Section 10 hereof or is terminated, will bear and pay the costs
and expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) all expenses (including stock
transfer taxes) incurred in connection with the delivery to the several
Underwriters of the Shares, the filing fees of the SEC, the fees and expenses of
the Company's counsel and accountants, (b) the preparation, printing, filing,
delivery and shipping of the Registration Statement, each Preliminary
Prospectus, the Prospectus and any amendments or supplements thereto (except as
otherwise expressly provided in Section 5(d) hereof) and the printing, delivery
and shipping of this Agreement and other underwriting documents, including the
Agreement Among Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney and Blue Sky Memoranda, and any
instruments or documents related to any of the foregoing, (c) the furnishing of
copies of such documents (except as otherwise expressly provided in Section 5(d)
hereof) to the Underwriters, (d) the registration or qualification of the Shares
for offering and sale under the securities laws of the various states and other
jurisdictions, including the fees and disbursements of counsel to the
Underwriters relating to such registration or qualification and in connection
with preparing any Blue Sky Memoranda or related analysis, (e) the filing fees
of the NASD (if any) and fees and disbursements of counsel to the Underwriters
relating to any review of the offering by the NASD, (f) all printing and
engraving costs related to preparation of the certificates for the
39
<PAGE>
Shares, including transfer agent and registrar fees, (g) all fees and expenses
relating to the authorization of the Shares for trading on the American Stock
Exchange, (h) all travel expenses, including air fare and accommodation
expenses, of representatives of the Company in connection with the offering of
the Shares, and (i) all of the other costs and expenses incident to the
performance by the Company of the registration and offering of the Shares;
provided however, that each Selling Shareholder, whether or not the transactions
contemplated hereby are consummated or this Agreement is prevented from becoming
effective under Section 10 hereof or is terminated, will pay or cause to be paid
all costs and expenses incident to the performance of such Selling Shareholder's
obligations hereunder which are not otherwise specifically provided for in this
Section; including (x) any fees and expenses of counsel for such Selling
Shareholder, (y) such Selling Shareholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the Custodian, and (z) all expenses
(including stock transfer taxes) incident to the sale and delivery of the Shares
to be sold by such Selling Shareholder to the Underwriters hereunder; and
provided further, that the Underwriters will bear and pay the fees and expenses
of the Underwriters' counsel (except as provided in this Section 11), the
Underwriters' out-of-pocket expenses, and any advertising costs and expenses
incurred by the Underwriters incident to the public offering of the Shares.
If this Agreement is terminated by you in accordance with the provisions of
Section 10(c), the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the fees and disbursements of counsel to the
Underwriters.
12. Default of Selling Shareholders. Failure or refusal by any of the
Selling Shareholders to sell and deliver on the Closing Date the Shares agreed
to be sold and delivered by such Selling Shareholder shall in no manner relieve
the other Selling Shareholders or the Company of their respective obligations
under this Agreement. If any Selling Shareholder should fail or refuse to sell
and deliver his Shares, the remaining Selling Shareholders shall have the right
hereby granted to increase, pro rata or otherwise, the number of Shares to be
sold by them hereunder to the total number of shares to be sold by all Selling
Shareholders as set forth in Schedule I. If the remaining Selling Shareholders
do not fully exercise the right to increase the number of Shares to be sold by
them, the Underwriters, at your option, will have the right to elect to purchase
or not to purchase the Shares to be sold by the Company and the remaining
Selling Shareholders. In the event the Underwriters purchase the Shares of the
Company and such other Selling Shareholders pursuant to this Section 12, the
Closing Date shall be postponed for a period of not more than seven days in
order that the Registration Statement and Prospectus or other documents may be
amended or supplemented to the extent necessary under the provisions of the 1933
Act and the 1933 Act Rules and Regulations or under the securities laws of any
jurisdiction. If the Underwriters determine not to purchase the Shares of the
Company and the other Selling Shareholders, if any, this Agreement shall
terminate and neither the Company nor the Underwriters nor any other Selling
Shareholder shall be under any obligation under this Agreement except as
provided in Section 7 hereof and except for the obligation of the Company
40
<PAGE>
to pay for such expenses as are set forth in Section 11 hereof. Nothing herein
shall relieve a defaulting Selling Shareholder from liability for his default or
from liability under Section 7 hereof or for expenses imposed by this Agreement
upon such Selling Shareholder.
13. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o A.G. Edwards & Sons, Inc. at One North Jefferson
Avenue, St. Louis, Missouri 63103, Attention: Paul F. Pautler, Director of
Corporate Finance, facsimile number (314) 955-7110, with copies to Howard
Posner, Senior Vice President, facsimile number (314) 955-7110 and Douglas L.
Kelly, Director of Law & Compliance, facsimile number (314) 955-7110, or if sent
to the Company shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed to the Company at Hooper Holmes, Inc., 170 Mount Airy
Road, Basking Ridge, New Jersey 07920, Attention: General Counsel, facsimile
number (908) 953-6304, or if sent to any Selling Shareholder shall be mailed,
delivered, sent by facsimile transmission or telegraphed and confirmed to such
Selling Shareholder, c/o the Attorney-in-Fact at the Company's address. Notice
to any Underwriter pursuant to Section 7 shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to such Underwriter's
address as it appears in the Underwriters' Questionnaire furnished in connection
with the offering of the Shares or as otherwise furnished to the Company and the
Selling Shareholders.
14. Information Furnished by Underwriters. The statements set forth in
(i) the cover page of the Prospectus with respect to delivery of the shares to
purchasers and (ii) the statements in the first, third, eighth, ninth, tenth and
twelfth paragraphs under the caption "Underwriting" in the Prospectus constitute
the only information furnished by or on behalf of the Underwriters through you
as such information is referred to in Section 4(a)(ii) and Section 7 hereof.
15. Parties. This Agreement shall inure to the benefit of and be binding
upon the Underwriters, the Company, the Selling Shareholders and, to the extent
provided in Sections 7 and 8, the officers and directors of the Company and each
person who controls the Company, any Selling Shareholder or any Underwriter and
their respective heirs, executors, administrators, successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, corporation or other entity any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person,
corporation or other entity. No purchaser of any of the Shares from any
Underwriter shall be construed a successor or assign by reason merely of such
purchase.
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<PAGE>
In all dealings hereunder, you shall act on behalf of each of the several
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of the Underwriters, made or
given by you jointly or by A.G. Edwards & Sons, Inc. on behalf of you as the
representatives, as if the same shall have been made or given in writing by the
Underwriters; and in all dealings with any Selling Shareholders hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Shareholder made or given by any
or all of the Attorneys-in-Fact for such Selling Shareholder.
16. Counterparts. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
17. Pronouns. Whenever a pronoun of any gender or number is used herein,
it shall, where appropriate, be deemed to include any other gender and number.
18. Time of Essence. Time shall be of the essence of this Agreement.
19. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Missouri, without giving effect to the
choice of law or conflict of laws principles thereof.
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<PAGE>
If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the Underwriters.
Hooper Holmes, Inc.
By: __________________________
Title: ________________________
Selling Shareholders Named in Schedule I hereto
By:__________________________
Attorney-in-Fact
Accepted in St. Louis,
Missouri as of the date
first above written, on
behalf of ourselves and each
of the several Underwriters
named in Schedule II hereto.
A.G. Edwards & Sons, Inc.
Dain Rauscher Incorporated
The Robinson-Humphrey Company, LLC
SG Cowen Securities Corporation
As Representatives of the Several
Underwriters named on Schedule II hereto
By: A.G. EDWARDS & SONS, INC.
By: ___________________________
Title: __________________________
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Option Shares
to be Sold
Selling Shareholders (if Option Fully Exercised)
- --------------------------------------------------------------- ------------------------------
<S> <C>
Paul W. Kolacki 62,500
Trust under the will of Eileen Rooney FBO Kevin Rooney 15,000
------
Total 77,500
------
</TABLE>
44
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number
Number of Option Shares
of Firm Shares to be Purchased
Name to be Purchased (if Option Fully Exercised)
- ------------------------------------ --------------- ---------------------------
<S> <C> <C>
A.G. Edwards & Sons, Inc.
--------------- ---------------------------
Dain Rauscher Incorporated
--------------- ---------------------------
The Robinson-Humphrey Company, LLC
--------------- ---------------------------
SG Cowen Securities Corporation
--------------- ---------------------------
Total 3,000,000 450,000
</TABLE>
45
<PAGE>
SCHEDULE III
Pursuant to Section 6(g) of the Underwriting Agreement, each of KPMG
LLP and Ernst & Young LLP shall furnish letters to the Underwriters to the
effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the 1933 Act and the
applicable Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable,
prospective financial statements and/or pro forma financial information
examined) by them and included or incorporated by reference in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and
the applicable Rules and Regulations with respect to registration
statements on Form S-3; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants (the "AICPA") of the unaudited consolidated
interim financial statements, selected financial data, pro forma financial
information, prospective financial statements and/or condensed financial
statements derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports thereon,
copies of which have been furnished to the Representatives of the
Underwriters (the "Representatives").
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form10-K for such fiscal years.
(iv) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(v) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited
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financial statements and other information referred to below, performing
the procedures specified by the AICPA for a review of interim financial
information as discussed in SAS No. 71, Interim Financial Information, on
the latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) any material modifications should be made to the
unaudited statements of consolidated income, statements of
consolidated financial position and statements of consolidated cash
flows included or incorporated by reference in the Prospectus for them
to be in conformity with generally accepted accounting principles, or
the unaudited statements of consolidated income, statements of
consolidated financial position and statements of consolidated cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act and the related published Rules and Regulations thereunder;
(B) any other unaudited income statement data and balance
sheet items included or incorporated by reference in the Prospectus do
not agree with the corresponding items in the unaudited consolidated
financial statements from which such data and items were derived, and
any such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding amounts
in the audited consolidated financial statements included or
incorporated by reference in the Prospectus;
(C) the unaudited financial statements which were not
included or incorporated by reference in the Prospectus but from which
were derived any unaudited condensed financial statements referred to
in Clause (A) and any unaudited income statement data and balance
sheet items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the basis
for the audited consolidated financial statements included or
incorporated by reference in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements;
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(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated working capital, net current assets or net assets, or any
changes in any other items specified by the Representatives, in each
case as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter;
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to
the specified date referred to in Clause (E) there were any decreases
in consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or any changes in any other
items specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except in
each case for changes, decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in such
letter.
(vi) In addition to the audit referred to in their report(s) included
or incorporated by reference in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraph (v) above, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries for the
periods covered by their reports and any interim or other periods since the
latest period covered by their reports, which appear or are incorporated by
reference in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement, specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
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EXHIBIT A
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Hooper Holmes, Inc. Subsidiaries
49
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Hooper Holmes, Inc.
We consent to the use of our report included herein on the Hooper Holmes,
Inc. consolidated financial statements and to the use of our report
incorporated by reference herein on the paramedical exam business of Choice
Point Inc. statement of direct revenues and direct operating expenses and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Short Hills, New Jersey
January 26, 2000
