form10-q.htm

0000741815-08-000062.txt : 20080808 0000741815-08-000062.hdr.sgml : 20080808 20080808165913 ACCESSION NUMBER: 0000741815-08-000062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080808 DATE AS OF CHANGE: 20080808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOOPER HOLMES INC CENTRAL INDEX KEY: 0000741815 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 221659359 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09972 FILM NUMBER: 081003258 BUSINESS ADDRESS: STREET 1: 170 MT AIRY ROAD CITY: BASKING RIDGE STATE: NJ ZIP: 07920 BUSINESS PHONE: 9087665000 MAIL ADDRESS: STREET 1: 170 MT AIRY ROAD CITY: BASKING RIDGE STATE: NJ ZIP: 07920 10-Q 1 form10-q.htm FORM 10-Q form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

for the quarterly period ended June 30, 2008

o Transition Report pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

for the transition period from to

__________________

Commission File Number 001-09972

HOOPER HOLMES, INC.

(Exact name of registrant as specified in its charter)

New York	22-1659359
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

170 Mt. Airy Road, Basking Ridge, NJ	07920
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code (908) 766-5000

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated

filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act.

Large Accelerated Filer o

Accelerated Filer ý

Non-accelerated Filer o

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No ý

The number of shares outstanding of the Registrant’s common stock as of July 31, 2008 were:

Common Stock, $.04 par value – 68,674,587 shares

HOOPER HOLMES, INC. AND SUBSIDIARIES

INDEX

			Page No.
PART I -	Financial Information (unaudited)

	ITEM 1 -	Financial Statements

		Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	1

		Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007	2

		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007	3

		Notes to Unaudited Consolidated Financial Statements	4-15

	ITEM 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations	16-29

	ITEM 3 –	Quantitative and Qualitative Disclosures About Market Risk	29

	ITEM 4 –	Controls and Procedures	329

PART II –	Other Information

	ITEM 1 –	Legal Proceedings	30

	ITEM 1A –	Risk Factors	31

	ITEM 2 –	Unregistered Sales of Equity Securities and Use of Proceeds	31

	ITEM 3 -	Defaults upon Senior Securities	31

	ITEM 4 –	Submission of Matters to a Vote of Security Holders	32

	ITEM 5 –	Other Information	32

	ITEM 6 –	Exhibits	32

		Signatures	33

Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share data)


	June 30, 2008			December 31, 2007
ASSETS (Note 9)
Current assets:
Cash and cash equivalents	$	10,251		$	10,580
Accounts receivable, net		29,929			26,386
Inventories		2,599			2,548
Income tax receivable		531			518
Other current assets		2,279			2,083
Assets of subsidiary held for sale		-			6,326
Total current assets		45,589			48,441
Property, plant and equipment at cost		44,116			42,190
Less: Accumulated depreciation and amortization		29,080			28,107
Property, plant and equipment, net		15,036			14,083

Intangible assets, net		1,821			2,361
Other assets		997			1,053
Total assets	$	63,443		$	65,938

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,489		$	6,976
Accrued expenses		13,149			14,879
Liabilities of subsidiary held for sale		-			1,736
Total current liabilities		21,638			23,591
Other long-term liabilities		288			438
Commitments and Contingencies (Note 10)

Stockholders’ Equity:
Common stock, par value $.04 per share; authorized 240,000,000 shares, issued 68,683,982 and 68,643,982 shares as of June 30, 2008 and December 31, 2007, respectively		2,747			2,746
Additional paid-in capital		146,162			146,103
Accumulated deficit		(107,321	)		(106,869	)

Less: Treasury stock, at cost; 9,395 shares as of June 30, 2008 and December 31, 2007		(71	)		(71	)
Total stockholders’ equity		41,517			41,909
Total liabilities and stockholders' equity	$	63,443		$	65,938

See accompanying notes to consolidated financial statements.

Consolidated Statements of Operations

(unaudited)

(In thousands, except share and per share data)

	Three Months ended June 30,						Six Months ended June 30,
	2008			2007			2008			2007
Revenues	$	51,217		$	53,357		$	103,596		$	107,826
Cost of operations		38,150			41,105			76,218			82,570
Gross profit		13,067			12,252			27,378			25,256
Selling, general and administrative expenses		13,476			13,574			27,102			28,016
Restructuring and other charges		-			732			1,653			1,245
Operating loss from continuing operations		(409	)		(2,054	)		(1,377	)		(4,005	)
Other income (expense):
Interest expense		-			(56	)		-			(76	)
Interest income		42			-			116			20
Other expense, net		(88	)		(72	)		(184	)		(197	)
		(46	)		(128	)		(68	)		(253	)
Loss from continuing operations before income taxes		(455	)		(2,182	)		(1,445	)		(4,258	)

Income tax provision (benefit)		-			9			(40	)		56

Loss from continuing operations		(455	)		(2,191	)		(1,405	)		(4,314	)

Discontinued operations:
Income from discontinued operations, net of income taxes		321			326			673			772
Gain on sale of subsidiaries		280			-			280			-
		601			326			953			772
Net income (loss)	$	146		$	(1,865	)	$	(452	)	$	(3,542	)
Earnings (loss) per share:
Continuing operations
Basic	$	(0.01	)	$	(0.03	)	$	(0.02	)	$	(0.06	)
Diluted		(0.01	)		(0.03	)		(0.02	)		(0.06	)
Discontinued operations
Basic	$	0.01			-		$	0.01		$	0.01
Diluted		0.01			-			0.01			0.01
Net income (loss) per share
Basic		-		$	(0.03	)	$	(0.01	)	$	(0.05	)
Diluted		-			(0.03	)		(0.01	)		(0.05	)

Weighted average number of shares:
Basic		68,647,774			68,565,935			68,641,180			68,315,176
Diluted		68,647,774			68,565,935			68,641,180			68,315,176

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Six months ended June 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(452	)	$	(3,542	)
Income from discontinued operations, net of taxes		953			772
Loss from continuing operations		(1,405	)		(4,314	)
Adjustments to reconcile loss from continuing operations to net cash
used in operating activities of continuing operations:
Depreciation		1,619			1,496
Amortization		540			607
Provision for bad debt expense		77			34
Share-based compensation expense & employee stock purchase program		60			541
Loss on disposal of fixed assets		46			50
Change in assets and liabilities, net of effect
from dispositions of businesses:
Accounts receivable		(3,620	)		(5,731	)
Inventories		(51	)		(132	)
Other assets		360			(268	)
Income tax receivable		(13	)		45
Accounts payable, accrued expenses and other long-term liabilities		(1,633	)		(2,668	)
N N et cash used in operating activities of continuing operations		(4,020	)		(10,340	)
Net cash provided by operating activities of discontinued operations		1,458			1,936
Net cash used in operating activities		(2,562	)		(8,404	)

Cash flows from investing activities:
Capital expenditures		(2,812	)		(1,826	)
N Net cash used in investing activities of continuing operations		(2,812	)		(1,826	)
N Net cash provided by (used in) investing activities of discontinued operations		5,045			(362	)
Net cash provided by (used in) investing activities		2,233			(2,188	)

Cash flows from financing activities:
Borrowings under revolving credit facility		-			5,000
Payments under revolving credit facility		-			(2,000	)
Proceeds related to the exercise of stock options		-			1,625
Net cash provided by financing activities of continuing operations		-			4,625
Net cash provided by financing activities of discontinued operations		-			-
Net cash provided by financing activities		-			4,625
Effect of exchange rate changes on cash from discontinued operations		-			(62	)

Net decrease in cash and cash equivalents		(329	)		(6,029	)
Cash and cash equivalents at beginning of period		10,580			6,667
Cash and cash equivalents at end of period	$	10,251		$	638

Supplemental disclosure of non-cash investing activities:
Fixed assets vouchered but not paid	$	458		$	619
Receipt of note on sale of subsidiary		500			-
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		-			54
Income taxes	$	21		$	4

See accompanying notes to consolidated financial statements.

HOOPER HOLMES, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2008

(in thousands, except share data, unless otherwise noted)

Note 1: Basis of Presentation

a) The unaudited interim consolidated financial statements of Hooper Holmes, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2007 annual report on Form 10-K.

Financial statements prepared in accordance with U.S. GAAP require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and other disclosures. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of the Company’s management, necessary for a fair statement of results for the interim periods presented.

The results of operations for the three and six three month periods ended June 30, 2008 are not necessarily indicative of the results to be expected for any other interim period or the full year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

b) On June 30, 2008, the Company sold substantially all of the assets and liabilities of its Claims Evaluation Division (“CED”). CED met the definition of a “component of an entity” and therefore has been accounted for as discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Accordingly, the assets and liabilities of the CED have been reported as Assets and Liabilities of subsidiary held for sale in the December 31, 2007 consolidated balance sheet. The operating results and cash flows are segregated and reported as discontinued operations in the accompanying consolidated statements of operations and cash flows for all periods presented.

Effective upon the sale of CED, the Company now operates within one reportable operating segment.

On October 9, 2007, the Company completed the sale of its U.K. subsidiary, Medicals Direct Group (“MDG”). MDG met the definition of a “component of an entity” and therefore has been accounted for as discontinued operations in accordance with SFAS 144. Accordingly, the operating results and cash flows of MDG have been segregated and are reported as discontinued operations in the accompanying consolidated statements of operations and cash flows for all periods presented.

All corresponding footnotes reflect the discontinued operations presentation. See Note 5 for additional information on the sale of CED and MDG.

c) Certain reclassifications have been made to the prior year’s consolidated financial statements in order to conform to the current year’s presentation.

Note 2:

Liquidity

As of June 30, 2008, the Company had $10.3 million of cash and cash equivalents and no borrowings outstanding under its revolving credit facility. Significant transactions affecting the Company’s cash flows for the six month period ended June 30, 2008 include the following:

·	restructuring payments related to employee severance and branch office closure costs totaling $1.2 million;

·	payment of legal settlement with an insurance client of $0.5 million;

·	unclaimed property payment of $1.4 million;

·	final payment towards the California lawsuit settlement (See Note 11) of $0.5 million;

·	payment of fees to an outside consultant related to cost saving opportunities identified in the Company’s 2006 strategic review, totaling $1.0 million, and a $1.3 million payment related to the early termination of an agreement with this same outside consultant, and

·	receipt of $5.1 million of cash received in connection with the sale of the CED.

The Company’s net cash used in operating activities of continuing operations for the six months ended June 30, 2008 was $4.0 million. If operating losses continue, the Company may be required to reduce cash reserves, increase borrowings, reduce capital spending or further restructure operations. As discussed in Note 10, although the Company has an available borrowing base of $25 million under its revolving credit facility as of June 30, 2008, there is only $15 million of borrowing capacity under the credit facility before a financial covenant goes into effect. The financial covenant requires the Company to maintain a fixed charge coverage ratio (as defined in the Loan and Security Agreement with respect to the credit facility), on a trailing 12-month basis, of no less than 1:1. It is possible that, if the Company continues to experience losses from operations, its borrowing capacity would be limited to $15 million and the Company’s liquidity adversely affected.

Furthermore, if the Company defaults, in any material respect in the performance of any covenant contained in the revolving credit facility or an event occurs or circumstance exists that has a material adverse effect on the Company’s business, operations, results of operations, properties, assets, liabilities, condition (financial or otherwise), or prospects, or on the Company’s ability to perform its obligations under the revolving credit facility, and such default or event or circumstance is not cured, Citicapital Commercial Corporation (“Citicapital”) may be able to accelerate the maturity of the Company’s then outstanding obligations. However, as noted above, as of June 30, 2008, the Company has no borrowings outstanding under its revolving credit facility.

Based on the Company’s anticipated level of future operations, existing cash and cash equivalents and borrowing capability under its credit agreement with CitiCapital, the Company believes it has sufficient funds to meet its cash needs through June 30, 2009.

Note 3:

Earnings Per Share

“Basic” earnings (loss) per share equals net income (loss) divided by the weighted average common shares outstanding during the period. “Diluted” earnings (loss) per share equals net income (loss) divided by the sum of the weighted average common shares outstanding during the period plus dilutive common stock equivalents.

The Company’s net income (loss) and weighted average shares outstanding used for computing diluted earnings (loss) per share for continuing operations and discontinued operations were the same as that used for computing basic earnings (loss) per share for the three and six month periods ended June 30, 2008 and 2007 because the inclusion of common stock equivalents to the calculation of earnings (loss) per share for continuing operations would be antidilutive. Outstanding stock options to purchase 5,180,400 and 3,509,900 shares of common stock were excluded from the calculation of diluted earnings per share for the three and six month periods ended June 30, 2008 and 2007, respectively, because their exercise prices exceeded the average market price of the Company’s common stock for such periods and therefore were antidilutive.

Note 4: Share-Based Compensation

Stock Option and Stock Award Plans — On May 29, 2008, the Company’s shareholders approved the 2008 Omnibus Employee Incentive Plan (the “2008 Plan”) providing for the grant of stock options, stock appreciation rights, restricted stock and performance shares. The 2008 Plan provides for the issuance of an aggregate total of 5,000,000 shares. As of June 30, 2008, no awards have been granted under the 2008 Plan.

Prior to the 2008 Plan, the Company’s stockholders approved stock option plans providing for the grant of options exercisable for up to 4,000,000 shares of common stock in 1992 and 1994, 2,400,000 shares in 1997, 2,000,000 shares in 1999 and 3,000,000 shares in 2002. Upon the adoption of the 2008 Plan, no further awards will be granted under these stock option plans.

In general, options are granted at fair value on the date of grant and are exercisable as follows: 25% after two years and 25% on each of the next three anniversary dates thereafter, with contract lives of 10 years from the date of grant.

During the three month periods ended June 30, 2008 and 2007, options granted totaled 100,000 shares, and 75,000 shares, respectively. No stock options were granted during the three month periods ended March 31, 2008 and 2007. The fair value of the stock options granted during the three month periods ended June 30, 2008 and 2007 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	2008			2007
Expected life (years)		5.91			5.92
Expected volatility		46.93	%		46.72	%
Expected dividend yield		0	%		0	%
Risk-free interest rate		4.62	%		4.56	%
Weighted average fair value of options
granted during the period	$	0.37		$	2.20

The expected life of options granted is derived from the Company’s historical experience and represents the period of time that options granted are expected to be outstanding. Expected volatility is based on the Company’s long-term historical volatility. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. SFAS No. 123 revised 2004 “Share-Based Payment” (“SFAS 123R”) specifies that initial accruals be based on the estimated number of instruments for which the requisite service is expected to be rendered. Therefore, the Company is required to incorporate the probability of pre-vesting forfeitures in determining the number of vested options. The forfeiture rate is based on the historical forfeiture experience.

The following table summarizes stock option activity for the six month period ended June 30, 2008:


	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding Balance, December 31, 2007		5,694,300	$	5.34
Granted		100,000		0.73
Exercised		-		-
Expired		(323,900)		4.06
Forfeitures		(190,000)		3.19
Outstanding Balance, June 30, 2008		5,280,400	$	5.41		5.3	$	27
Options exercisable, June 30, 2008		3,387,900	$	6.90		3.4	$	-

Stock Awards — On April 25, 2007, the Company’s shareholders approved the 2007 Non-Employee Director Restricted Stock Plan (the “2007 Plan”), which provides for the automatic grant, on an annual basis for 10 years, of shares of the Company’s stock. The total number of shares that may be awarded under the 2007 Plan is 600,000. Effective June 1, 2007, each non-employee member of the Board other than the non-executive chair received 5,000 shares and the non-executive chair received 10,000 shares of the Company’s stock with such shares vesting immediately upon issuance. The shares awarded under the 2007 Plan are “restricted securities”, as defined in SEC Rule 144 under the Securities Act of 1933, as amended. In addition, the terms of the awards specify that the shares may not be sold or transferred by the recipient until the director ceases to serve on the Board and, if at that time the director has not served on the Board for at least four years, on the fourth anniversary of the date the director first became a Board member. During the six month periods ended June 30, 2008 and 2007, shares awarded under the 2007 Plan totaled 40,000 and 45,000, respectively. No shares were awarded during the three month periods ended March 31, 2008 and 2007. The fair value of the stock awards granted during the three and six month periods ended June 30, 2008 and 2007 was based on the grant date fair value. All stock awards were subject to the above contractual restrictions and the transfer restrictions under applicable securities laws as of June 30, 2008.

Stock Purchase Plan — In 2003, the Company’s shareholders approved the 2004 Employee Stock Purchase Plan, which provides for granting of purchase rights for up to 2,000,000 shares of Company stock to eligible employees of the Company. The plan provides employees with the opportunity to purchase shares on the date 13 months from the grant date (“the purchase date”) at a purchase price equal to 95% of the closing price of the Company’s common stock on the American Stock Exchange on the grant date. During the period between the grant date and the purchase date, up to 10% of a participating employee’s compensation, not to exceed $25,000, is withheld to fund the purchase of shares under the plan. Employees can cancel their purchases at any time during the period without penalty. In February 2007, purchase rights for 79,725 shares were granted with an aggregate fair value of $0.1 million, based on the Black-Scholes option pricing model. The February 2007 plan terminated in March 2008 in accordance with the plan’s automatic termination provision. In February 2008, purchase rights for 250,000 shares were granted with an aggregate fair value of $0.1 million, based on the Black-Scholes option pricing model. The February 2008 plan will conclude in March 2009.

The Company recorded $0.05 million and $0.06 million of compensation cost in selling, general and administrative expenses for the three and six month periods ended June 30, 2008, respectively, and $0.4 million and $0.5 million for the three and six month periods ended June 30, 2007, respectively, related to share-based compensation and the Stock Purchase Plan. In connection with the resignation of the former CEO, the Company reversed previously recorded share-based compensation expense totaling $0.1 million during the six month period ended June 30, 2008. The reversal was recorded in restructuring and other charges (See Note 8).

No stock options were exercised during the three and six month periods ended June 30, 2008 and 2007. Options exercisable for a total of 55,000 shares of common stock vested during the six month period ended June 30, 2008. The fair value of options that vested during the six month period ended June 30, 2008 was $0.09 million. As of June 30, 2008, there was approximately $1.1 million of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over 3.5 years.

Note 5: Discontinued Operations

On June 30, 2008, the Company sold substantially all of the assets and liabilities of its CED operating segment for $5.6 million and received cash payments totaling $5.1 million and a $0.5 million note receivable due in six equal monthly installments beginning July 31, 2008. In connection with the sale of the CED, the Company has been released as the primary obligor for certain lease obligations acquired but remains secondarily liable in the event the buyer defaults. The guarantee is provided for the term of the lease, which expires in July 2015. The Company has recorded $0.2 million, representing the fair value of the guarantee obligation, which is recorded in gain on sale of subsidiaries of discontinued operations in the accompanying statements of operations for the three and six months ended June 30, 2008. The maximum potential amount of future payments under the guarantee is $0.8 million. The Company recognized a net gain on the sale of CED of approximately $1.1 million in the accompanying consolidated statements of operations for the three and six months ended June 30, 2008.The sale of CED resulted in a tax loss however, no tax benefit was recorded as the Company concluded that it would not be able to realize any tax benefit resulting from the loss.

CED was composed of operations in New York State, known as D & D Associates, Allegiance Health and Medimax, and operations in Michigan, known as the Michigan Evaluation Group. Each of the New York State operations and the Michigan operation were sold to separate third parties, with both transactions closing on June 30, 2008. The Company’s decision to sell CED was based on several factors, including CED's limited ability to significantly contribute to the long-term specific goals of the Company. The Company does not expect to have any significant continuing involvement, continuing cash flows or revenues from CED subsequent to the date of sale.

The following summarizes the operating results of CED which are reported in discontinued operations in the accompanying consolidated statements of operations:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2008		2007		2008			2007
Revenues	$	6,362	$	7,417	$	13,079		$	15,323
Pre-tax income	$	321	$	357	$	672		$	919
Income tax expense (benefit)	$	-	$	31	$	(1	)	$	79

The assets and liabilities of CED are presented separately under the captions “Assets of subsidiary held for sale” and “Liabilities of subsidiary held for sale,” respectively, in the accompanying consolidated balance sheet as of December 31, 2007, and consist of the following:

(in thousands)	December 31, 2007
Assets of subsidiary held for sale:
Accounts receivable, net	$	3,348
Other current assets		263
Property, plant, and equipment, net		809
Intangible assets, net		1,892
Other assets		14
Total	$	6,326

Liabilities of subsidiary held for sale:
Accounts payable	$	1,481
Accrued expenses		255
Total	$	1,736

On May 30, 2007, the Company committed to a plan to sell MDG, the Company’s subsidiary in the United Kingdom. The Company’s decision to sell MDG was based on several factors, including MDG’s limited ability to significantly contribute to the long-term specific goals of the Company. The Company does not expect to have any significant continuing involvement, continuing cash flows or revenues from MDG subsequent to the date of sale.

On October 9, 2007, the Company completed the sale of MDG for $15.3 million and received a cash payment of $12.8 million net of closing adjustments of $1.2 million. In addition, the Company incurred $1.0 million of expenses related to the sale. Additional payments to be received include $0.5 million within nine months of the closing and $0.7 million within 24 months of the closing. The Company recognized a net gain on the sale of approximately $9.2 million, inclusive of $1.4 million of MDG foreign currency translation gains, which was reported in discontinued operations for the year ended December 31, 2007. The sale of MDG resulted in a tax loss however, no tax benefit was recorded as the Company concluded that it would not be able to realize any tax benefit resulting from the loss.

MDG was previously included within the Company’s Health Information Division (HID). The following summarizes the operating results of MDG which are reported in discontinued operations in the accompanying consolidated statements of operations.

	Three months ended June 30,			Six months ended June 30,
(in thousands)	2007			2007
Revenues	$	9,614		$	19,318
Pre-tax loss	$	(4	)	$	(94	)
Income tax benefit	$	4		$	26

During the second quarter of 2008, additional information became available to the Company relating to certain tax obligations of MDG that the Company retained in connection with the sale. Based on this information the Company revised its initial estimate and recorded an additional liability totaling $0.8 million during the three months ended June 30, 2008. The $0.8 million charge is recorded in gain on sale of subsidiaries of discontinued operations in the accompanying consolidated statement of operations.

Note 6: Intangibles

The following table presents certain information regarding the Company’s intangible assets as of June 30, 2008 and December 31, 2007. All identifiable intangible assets are being amortized over their useful lives, as indicated below, with no residual values.

	Weighted
	Average		Gross
	Useful Life		Carrying		Accumulated		Net
(in thousands)	(years)		Amount		Amortization		Balance
At June 30, 2008
Non-Competition agreements		4.7	$	8,738	$	8,725	$	13
Customer relationships		9.7		12,502		10,838		1,664
Trademarks and tradenames		15.7		487		343		144
			$	21,727	$	19,906	$	1,821
At December 31, 2007
Non-Competition agreements		4.7	$	8,738	$	8,652	$	86
Customer relationships		9.7		12,502		10,384		2,118
Trademarks and tradenames		15.7		487		330		157

			$	21,727	$	19,366	$	2,361

The aggregate intangible amortization expense for the six months ended June 30, 2008 and 2007 was approximately $0.5 million and $0.6 million, respectively. Assuming no additional change in the gross carrying amount of intangible assets, the estimated intangible amortization expense for fiscal year 2008 is $0.9 million and for fiscal years 2009 to 2012 is $0.4 million, $0.4 million, $0.3 million, and $0.2 million, respectively.

Note 7: Inventories

Inventory, which consists of finished goods and component inventory, is stated at the lower of average cost or market using the first-in first-out (FIFO) inventory method. Included in inventories at June 30, 2008 and December 31, 2007 are $1.5 million and $1.6 million of finished goods and $1.1 million and $0.9 million of components, respectively.

Note 8: Restructuring and Other Charges

During the three and six month periods ended June 30, 2008, the Company recorded restructuring and other charges totaling $0 million and $1.7 million, respectively. The restructuring charges consisted primarily of severance related to the resignation of the former CEO ($0.4 million), branch office closure costs ($0.3 million) and employee severance costs ($0.1 million), recorded primarily as a result of further reorganization in the Portamedic business. Other charges consist of an early termination fee related to an agreement with the outside consultant utilized in the Company’s 2006 strategic review and totaled $0.9 million which was paid in the first quarter of 2008.

Following is a summary of the 2008 restructuring as of June 30, 2008:


(In millions)	2008					Balance at
	Charges		Payments			June 30, 2008
Severance	$	0.5	$	(0.3	)	$	0.2
Lease Obligations		0.3		(0.2	)		0.1
Total	$	0.8	$	(0.5	)	$	0.3

During the year ended December 31, 2007, the Company recorded restructuring and other charges totaling $4.7 million. The restructuring charges consisted primarily of branch office closure costs ($1.6 million) and employee severance costs ($1.3 million), recorded primarily as a result of the reorganization in the Portamedic business. Other charges consist of the write off of business application software ($0.8 million) and legal settlements with an insurance company client and a software supplier ($1.0 million) which were paid during the six months ended June 30, 2008.

Following is a summary of the 2007 restructuring as of June 30, 2008:


(In millions)	Balance at		2008			Balance at
	December 31, 2007		Payments			June 30, 2008
Severance	$	0.5	$	(0.2	)	$	0.3
Lease Obligations		1.0		(0.4	)		0.6
Total	$	1.5	$	(0.6	)	$	0.9

During the year ended December 31, 2005, the Company recorded restructuring and other charges of $6.6 million, which included employee severance packages totaling $4.6 million, branch office closures costs of $0.6 million and the write off of certain purchased business application software totaling $1.4 million.

Following is a summary of the 2005 restructuring as of June 30, 2008:

(In millions)		Balance at December 31, 2007				2008 Payments				Balance at June 30, 2008
Severance\Lease Obligations		$	0.3			$	(0.1	)		$	0.2

At June 30, 2008, $1.2 million of restructuring charges are recorded in accrued expenses in the accompanying consolidated balance sheet. Cash payments related to the above described restructuring charges are expected to be completed within the next twelve months, except for certain long-term severance payments and branch office closure costs of $0.2 million, which are recorded in other long-term liabilities as of June 30, 2008.

Note 9 — Revolving Credit Facility

On October 10, 2006, the Company entered into a three year Loan and Security Agreement (the “Loan and Security Agreement”) with CitiCapital Commercial Corporation (“CitiCapital”). The Loan and Security Agreement expires on October 10, 2009.

The Loan and Security Agreement provides the Company with a senior secured revolving credit facility, the proceeds of which are to be used for general working capital purposes. Under the terms of the Loan and Security Agreement, the lender has agreed to make revolving credit loans to the Company in an aggregate principal at any one time outstanding which, when combined with the aggregate undrawn amount of all unexpired letters of credit, does not exceed:

(i)

90% of “Eligible Receivables” (as that term is defined in the Loan and Security Agreement) of the Company and the Company’s subsidiaries providing guarantees of the indebtedness under the facility; plus

(ii)

65% of the fair market value of the Company’s corporate headquarters located in Basking Ridge, New Jersey –

CitiCapital, in its sole discretion based upon its reasonable credit judgment, may (A) establish and change reserves required against Eligible Receivables, (B) change the advance rate against Eligible Receivables or the fair market value of the Company’s corporate headquarters, and (C) impose additional restrictions to the standards of eligibility for Eligible Receivables, any of which could reduce the aggregate amount of indebtedness that may be incurred under the revolving credit facility.

Borrowings of revolving credit loans shall take the form of either LIBOR rate advances or base rate advances, with the applicable interest rate being the LIBOR rate plus 1.75% or the rate of interest publicly announced from time to time by Citibank, N.A. as its base rate, respectively. Interest is payable monthly in arrears. The form of the revolving credit loans is at the Company’s option, subject to certain conditions set forth in the Loan and Security Agreement.

The Company is also obligated to pay, on a monthly basis in arrears, an unused line fee (commitment fee) equal to 0.375% per annum on the difference between the maximum amount of the revolving credit facility and the average daily aggregate outstanding amount of revolving credit loans and unexpired letters of credit during the preceding month. The Company incurred commitment fees of $0.05 million and $0.04 million for the six month periods ended June 30, 2008 and 2007, respectively.

The revolving credit loans are payable in full, together with all accrued and unpaid interest, on the earlier of October 10, 2009 or the date of termination of the loan commitments, termination being one of the actions CitiCapital may take upon the occurrence of an event of default. The Company may prepay any revolving credit loan, in whole or in part. The Company may also terminate the Loan and Security Agreement, provided that on the date of such termination all of its obligations are paid in full. The Company will be required to pay an early termination fee equal to $0.1 million if the termination occurs prior to the second anniversary of the date of the parties’ execution of the Loan and Security Agreement; no fee is payable if the termination occurs after the second anniversary or if the revolving credit facility is replaced by a credit facility from CitCapital or any of its affiliates.

As security for the Company’s payment and other obligations under the Loan and Security Agreement, the Company has granted to CitiCapital a lien on and security interest in all of the Company’s property, including its receivables (which, together with the receivables of the subsidiary guarantors that become Eligible Receivables, are subject to a lockbox account arrangement), equipment, inventory and real estate owned and used by the Company as its corporate headquarters. In addition, the obligations are secured under the terms of security agreements and guarantees provided by the subsidiary guarantors. Guarantees have been provided by all of the Company’s direct subsidiaries.

The Loan and Security Agreement contains covenants that, among other things, restrict the Company’s ability, and that of its subsidiaries, to:

·	pay any dividends or distributions on, or purchase, redeem or retire any shares of any class of its capital stock or other equity interests;

·	incur additional indebtedness;

·	create liens on its assets; and

·	enter into transactions with any of its affiliates on other than an arm’s-length or no less favorable basis.

The Loan and Security Agreement contains a covenant that restricts the Company’s ability, and that of its subsidiaries, to sell or otherwise dispose of any of its assets other than in the ordinary course of business. In contemplation of the Company’s plans to sell CED (see Note 5), the Company obtained a waiver of this event of default from CitiCapital.

The Loan and Security Agreement also contains a financial covenant, which goes into effect when the difference between (i) the lesser of (A) the borrowing base (that is, the aggregate of the amounts described in (i) and (ii) above) and (B) the maximum amount of the revolving credit facility, and (ii) the sum of the aggregate outstanding amount of the revolving credit loans and face amount of letters of credit, is less than $10 million. At that time, the Company must maintain a fixed charge coverage ratio (as defined in the Loan and Security Agreement), on a trailing 12-month basis, of no less than 1:1. Based on the Company’s available borrowing base as of June 30, 2008 of $25 million, the Company has $15 million of borrowing capacity under the Revolving Credit facility before the financial covenant goes into effect.

The failure of the Company or any subsidiary guarantor to comply with any of the covenants, or the breach of any of its or their representations and warranties, contained in the Loan and Security Agreement constitutes an event of default under the agreement. In addition, the Loan and Security Agreement provides that “Events of Default” include the occurrence of any event or condition that, in CitiCapital’s judgment, could reasonably be expected to have a material adverse effect on the Company.

The Loan and Security Agreement contains a covenant stating that an event of default shall occur should James D. Calver cease to be Chief Executive Officer of the Company. As a result of Mr. Calver’s resignation from the Company on February 5, 2008, the Company was in default of this covenant. The Company has obtained a waiver of this event of default from CitiCapital.

Note 10: Commitments and Contingencies

In the third quarter of 2007, the Company became aware that it did not file with the SEC a registration statement on Form S-8 to register the shares of its common stock issuable under either the Hooper Holmes, Inc. 2002 Stock Option Plan (the "2002 Stock Option Plan") or the Hooper Holmes, Inc. Stock Purchase Plan (2004) (the "2004 Employee Stock Purchase Plan") at the time such plans were approved by the Company’s shareholders in May 2002 and May 2003, respectively. To address this oversight, in 2007 the Company filed with the SEC a registration statement on Form S-8 (the "Registration Statement") covering shares that remain issuable under these plans.

The terms of the 2002 Stock Option Plan provide that a total of 3,000,000 shares of common stock may be issued in connection with grants under the plan. To date, options exercisable for an aggregate of 2,197,900 shares have been granted under the plan and are currently outstanding. The options granted under the 2002 Stock Option Plan were granted to employees of the Company, primarily members of the Company’s senior management. Option exercises occurred in May 2007 (45,000 shares purchased at an exercise price of $3.46 per share) and between June 2003 and January 2004 (3,200 shares purchased at an exercise price of $6.18 per share). The Company believes that the acquisition of the shares upon exercise of these options was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”).

The terms of the 2004 Employee Stock Purchase Plan provide that a total of 2,000,000 shares of common stock may be issued under the plan. To date, participants in the plan have purchased an aggregate of 81,508 shares under the plan at a per share purchase price of $2.70. The aggregate purchase price of these shares was approximately $220,000. Such shares were issued in March 2007.

The issuances of shares upon exercise of purchase rights granted under the 2004 Employee Stock Purchase Plan, which occurred prior to the filing of the Registration Statement, may not have been exempt from registration under the Securities Act and applicable state securities laws and regulations. As a result, the Company may have potential liability to those employees (and, in some cases, now former employees) to whom the Company issued its shares upon the exercise of purchase rights granted under the plan. The Company may also have potential liability with respect to shares issued under the 2002 Stock Option Plan if the acquisition of shares under the plan is not exempt from registration under Section 4(2) of the Securities Act. However, based on the number of shares at issue and taking into consideration the current price of the Company’s common stock, as reported on the American Stock Exchange, the Company believes that its current potential liability for rescission claims is not material to its consolidated financial condition, results of operations or cash flows.

On July 11, 2003, the Company received a determination from the Internal Revenue Service that one individual the Company contracted with as an independent contractor, should have been classified as an employee in 2002. This ruling also applies to any other individuals engaged by the Company under similar circumstances. The ruling stated that the Company may not be subject to adverse consequences as the Company may be entitled to relief under applicable tax laws (Section 530 of the Revenue Act of 1978). Management believes that the Company qualifies for relief under Section 530. To date, the Company has not received any further communication from the Internal Revenue Service.

In the past, some state agencies have claimed that the Company improperly classified its examiners as independent contractors for purposes of state unemployment tax laws and that the Company was therefore liable for taxes in arrears, or for penalties for failure to comply with their interpretation of the laws. The Company received an adverse determination in the State of California, and as a result, converted its independent contractors to employees. There are no assurances that the Company will not be subject to similar claims in other states in the future.

Note 11 — Litigation

On January 25, 2005 Sylvia Gayed, one of the Company’s examiners in California, filed a class-action lawsuit against the Company in the Superior Court of California, Los Angeles County, alleging violations of California’s wage and hour laws. The complaint alleged that the Company failed to pay overtime wages, provide meal and rest periods and reimbursement for expenses incurred by examiners in performing examinations. The Company currently employs approximately 400 examiners in California and have employed in excess of 1,400 examiners in California over the past 60 months. Following a mediation on December 6, 2006, the parties reached a settlement, pursuant to which the Company agreed to pay the sum of $1.2 million to the class members in full settlement of this lawsuit. The court granted final approval of the settlement on July 16, 2007. Payment of $0.7 million was made on October 3, 2007, and the balance of the settlement was paid in March 2008.

In 2006, a life insurance company client informed the Company that, after investigation, it determined that certain life insurance policies that it issued were procured by fraudulent means employed by insurance applicants, the client’s agents, the Company’s sub-contracted examiners, and others. On December 14, 2007, the client filed a Demand for Arbitration, in which it alleged damages in excess of $5.0 million. The Company believes it had strong defenses to the client’s claim, but in order to avoid the time and expense of litigation, and to preserve a valuable client relationship, the Company agreed to pay the client $0.5 million. The Company made this payment in May 2008.

On February 28, 2008, a physician, John McGee, M.D., filed suit in the United States District Court for the Eastern District of New York in which he alleged, among other things, that an insurance company and CED (see Note 5), along with other named plaintiffs, violated various laws, including the Racketeer Influenced Corrupt Organization Act, in connection with the arranging of independent medical examinations. The Company believes the plaintiff’s claims are without merit and is defending itself vigorously in this matter. The Company, through its subsidiary, Hooper Evaluations, Inc. has retained liability for this litigation following the sale of substantially all of the assets and liabilities of the CED.

On April 3, 2008 Gregory Sundahl and Jesse Sundahl, individually and on behalf of all others similarly situated, filed suit in the United States District Court for the Eastern District of New York in which they alleged, among other things, that an insurance company and the CED (see Note 5), along with other named plaintiffs, violated various laws, including the Racketeer Influenced Corrupt Organization Act, in connection with the arranging of independent medical examinations. The Company has yet to receive formal service in connection with this matter. The Company believes the plaintiff’s claims are without merit and intends to defend itself vigorously in this matter. The Company, through its subsidiary, Hooper Evaluations, Inc. has retained liability for this litigation following the sale of substantially all of the assets and liabilities of the CED.

The Company is a party to a number of other legal actions arising in the ordinary course of its business. In the opinion of management, the Company has substantial legal defenses and/or insurance coverage with respect to all of its pending legal actions. Accordingly, none of these actions is expected to have a material adverse effect on the Company’s liquidity, its consolidated results of operations or its consolidated financial position.

Note 12: Income Taxes

For the three month period ended June 30, 2008, the Company recorded $0.00 million in income taxes compared to a state tax expense of $0.01 million for the three month period ended June 30, 2007. For the six month period ended June 30, 2008 the Company recorded a tax benefit $0.04 million compared to tax expense of $0.06 million for the six month period ended June 30, 2007.

The tax benefit recorded in the six month periods ended June 30, 2008 reflects a refund of certain state income taxes. The tax expense recorded in the three and six month periods ended June 30, 2007 reflected certain minimum state tax liabilities that the Company incurred. No federal tax benefit was recorded relating to the current year losses, as the Company continues to believe that a full valuation allowance is required on its net deferred tax assets.

No amounts were recorded for unrecognized tax benefits or for the payment of interest or penalties during the three and six month periods ended June 30, 2008 and 2007.

In July 2008, the Company received notification from the Internal Revenue Service (the “IRS”) that it had completed its audits of the Company’s tax returns for the years 2001 through 2006 with no adjustments. State income tax returns for the year 2003 and forward are subject to examination.

Note 13: Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurement. SFAS 157 was effective as of the beginning of the Company’s 2008 fiscal year, except for certain provisions which have been deferred until 2009. The impact of the adoption of SFAS 157 was not material to the Company’s consolidated financial statements and the adoption of the items deferred until fiscal 2009 is not expected to be material.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in an acquiree, and the recognition and measurement of goodwill acquired in a business combination or a gain from a bargain purchase. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”), which establishes accounting and reporting standards that require the noncontrolling interest to be identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. SFAS 160 will also require that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be identified and presented on the face of the consolidated statement of income. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 160 to have a material impact on its consolidated financial statements.

In June 2008, the FASB issued FASB FSP EITF 03-6-1, ‘‘Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities’’ (FSP EITF 03-6-1). The FSP addresses whether awards granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share using the two-class method under SFAS No. 128, Earnings per Share. The FSP requires unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents to be treated as a separate class of securities in calculating earnings per share. FSP EITF 03-6-1 will be effective beginning January 1, 2009 and will be retrospectively applied to all prior periods presented. The Company currently is evaluating the impact of the adoption of the FSP on earnings per share.

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including, but not limited to, statements about our plans, strategies and prospects. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “could,” “potential,” “continue” and variations of these words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our management’s current expectations, estimates and projections. We cannot assure you that we will achieve our plans, intentions or expectations. Certain important factors could cause actual results to differ materially from the forward-looking statements we make in this annual report. Representative examples of these factors include:

·	customer concerns about our financial health stemming from the decline in our operating results and stock price, which may result in the loss of certain customers or a portion of their business;

·	concerns about our financial health prompting prospective customers not to engage us, or make it far more challenging for us to compete for their business;

·	our anticipated negative cash flow from operations limiting our ability to make the desired level of investment in our businesses.

The section of the Company’s 2007 annual report entitled “Risk Factors” discusses these and other important risks that may affect our business, results of operations, cash flows and financial condition. The factors listed above and the factors described in the “Risk Factors” section and similar discussion in our other filings with the Securities and Exchange Commission (“SEC”) are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. Investors should consider these factors before deciding to make or maintain an investment in our securities. The forward-looking statements included in this quarterly report are based on information available to us as of the date of this report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

Effective upon the sale of our Claims Evaluation Division (CED) on June 30, 2008, (see Sale of the Claims Evaluation Division below), Hooper Holmes, Inc. and its subsidiaries currently engage in businesses that are managed as one division: the Health Information Division.

Our Health Information Division (HID) consists of the following businesses:

·	Portamedic – performs paramedical and medical examinations of individuals seeking insurance coverage, mainly life insurance;

·	Infolink – conducts telephone interviews of individuals seeking life insurance coverage, and retrieves the medical records of such individuals, to gather much of the medical information needed in connection with the application process;

·	Health & Wellness – established in 2007, conducts wellness screenings for health management companies, including wellness companies, disease management organizations and health plans;

·	Heritage Labs – performs tests of blood, urine and/or oral fluid specimens, primarily generated in connection with the paramedical exams and wellness screenings performed by our Portamedic and Health & Wellness business units, and assembles and sells specimen collection kits; and

·	Underwriting Solutions – is an insurance services organization which provides underwriting services to the insurance industry on an outsourced basis, without the mortality and morbidity risks.

Our Portamedic paramedical examination business accounted for 69.6% and 69.4% of revenues for the three months ended June 30, 2008 and 2007, respectively, and 69.6% and 70.4% of revenues for the six month periods ended June 30, 2008 and 2007, respectively.

Highlights for the Three and Six Month Periods Ended June 30, 2008

Financial Results for the Three Month Period Ended June 30, 2008

For the three months ended June 30, 2008, consolidated revenues totaled $51.2 million, a 4.0% decline from the corresponding prior year period. The Company’s gross profit totaled $13.1 million, or 25.5% for the second quarter of 2008, which represents a significant improvement over our gross profit of 23.0% for the second quarter of 2007. SG&A expenses were $13.5 million in the second quarter of 2008 compared to $13.6 million in the second quarter of 2007. For the second quarter of 2008, we incurred a loss from continuing operations of $0.5 million, $(0.01) per share, compared to a loss from continuing operations of $2.2 million, or $(0.03) per share in the second quarter of 2007. Our loss from continuing operations for the second quarter of 2007 included restructuring and other charges totaling $0.7 million, consisting primarily of severance costs. There were no restructuring and other charges recorded in the second quarter of 2008.

Financial Results for the Six Month Period Ended June 30, 2008

For the six months ended June 30, 2008, consolidated revenues totaled $103.6 million, a 3.9% decline from the corresponding prior year period. The Company’s gross profit totaled $27.4 million, or 26.4% for the six month period ended June 30, 2008, which represents a significant improvement over our gross profit of 23.4% for the six month period ended June 30, 2007. SG&A expenses were $27.1 million in the six month period ended June 30, 2008, a decline of $0.9 million, or 3.3%, in comparison to the six month period ended June 30, 2007. For the six month period ended June 30, 2008, we incurred a loss from continuing operations of $1.4 million, $(0.02) per share, compared to a loss from continuing operations of $4.3 million, or $(0.06) per share in the six month period ended June 30, 2007. Our loss from continuing operations for the six month period ended June 30, 2008 included restructuring and other charges totaling $1.7 million, consisting primarily of severance related to the resignation of the previous CEO, charges related to the early termination of an agreement with outside consultants utilized in the Company’s 2006 strategic review and restructuring charges related to office closures and severance. The loss from continuing operations for the six month period ended June 30, 2007 included $1.2 million of restructuring charges pertaining to office closures and employee severance costs.

Sale of the Claims Evaluation Division

CED was composed of operations in New York State, known as D & D Associates, Allegiance Health and Medimax, and operations in Michigan, known as the Michigan Evaluation Group. The New York State operations and the Michigan operations were sold to separate third parties with both transactions closing on June 30, 2008. Our decision to sell CED was based on several factors, including CED's limited ability to significantly contribute to our long-term specific goals. We do not expect to have any significant continuing involvement, continuing cash flows or revenues from CED subsequent to the date of sale.

Portamedic/Infolink

In the quarter ended June 30, 2008, Portamedic revenues decreased 4% in comparison to the prior year period. This represents an improvement from the 6% year-over-year revenue decline that Portamedic experienced in the first quarter of 2008. We continue to believe that achieving acceptable profitability levels will require top-line revenue growth, including the reversal of past revenue declines experienced in our core Portamedic business. We have approvals from over 90% of the insurance carriers in the marketplace, and yet the number of paramedical examinations we complete on life insurance applicants continues to decline in our Portamedic business unit. The rate of decline in the number of paramedical examinations completed by our Portamedic business was 10% in the second quarter of 2008 in comparison to the second quarter of the prior year. This represents a slight decrease from the 11% decline experienced by Portamedic in the first quarter of 2008. We must achieve greater success in turning carrier approvals into unit sales at the local agent, corporate and brokerage levels. During the first quarter of 2008, we began taking steps to strengthen our local sales force: we are hiring more sales representatives, streamlining our sales tracking systems, improving sales training, and focusing sales incentives on increases in paramedical exams completed (i.e. unit goals). In our Portamedic business unit, we will continue to take advantage of cost saving opportunities as they arise, but our focus in 2008 continues to be on increasing profitable revenue.

There were approximately nine million applications for life insurance submitted in the United States in 2007. As a result, notwithstanding the rate of decline in applications submitted; we believe that the market continues to offer attractive opportunities to a company that can sell its services effectively and distinguish itself from its competitors.

We are taking the following steps to strengthen our sales and distinguish ourselves from our competitors:

·	We have introduced our Mature Assessment service, which enables insurance carriers to make better underwriting decisions on older applicants.

We have begun to introduce a new quality/imaging platform for all paramedical exam reports on a trial basis. This platform will allow our third-party vendor to review the accuracy and legibility of examination reports. This new imaging platform, which we plan to extend throughout Portamedic, is expected to provide a higher quality of service to our customers.

In January 2008, we introduced a revised fee payment system for our examiners. We now pay examiners’ fees according to a set payment schedule for each service an examiner provides. Previously, examiners were paid a percentage of the dollar amount of the fees we billed to insurance carriers. As this new payment system makes it easier for examiners to predict their income (fixed vs. variable), we expect it to improve examiner retention and productivity.

We expect to continue to expand managed scheduling across the Portamedic business. Currently, many of our examiners schedule their own appointments with applicants, and it may take 6 to 7 days to schedule an examination. In those markets where we have introduced managed scheduling on a pilot basis, we have reduced the time required to schedule an examination to as little as 3 to 4 days.

For the remainder of 2008, market conditions are expected to remain difficult for Portamedic. Although the number of paramedical examinations Portamedic performs continues to decline, we believe that we are the market leader in the industry. We also believe that the steps we are taking to improve our selling ability and the quality of our services will enable us to stabilize the decline experienced in the last several years.

However, our focus throughout 2008 will be on increasing profitable revenue. We have a small number of accounts where it actually costs us more than we charge to deliver our services. While we will try to renegotiate these contracts, we may in some cases terminate the account when the applicable contractual obligations expire. This effort to eliminate unprofitable revenue may increase the rate of decline in the number of paramedical examinations Portamedic completes each year.

Heritage Labs

Heritage Labs’ business consists principally of performing tests of blood, urine and/or oral fluid specimens; and the assembly and sale of kits used in the collection and transportation of such specimens to its lab facility. In the second quarter of 2008, approximately 63% of Heritage’s revenue came from lab testing and 37% came from the sale of specimen kits.

Since much of Heritage’s revenue originates from paramedical exam companies (including Portamedic), Heritage is affected by the same negative market trends affecting Portamedic, namely the decline in the number of life insurance applications. In response, Heritage has taken the following steps to expand its market share and increase revenues:

Heritage is strengthening its sales force. During the second quarter of 2008, Heritage hired an individual with significant experience in the life insurance industry to a newly-created position of VP of Sales. In addition, Heritage has hired a Medical Director to better serve our clients with lab and mortality related issues.

·	We have added incentives for Portamedic sales representatives to sell Heritage Labs’ services.

·	Heritage continues to expand its kit assembly business. Heritage is an FDA-registered Class I and Class II medical device assembler. Of the three laboratories providing testing services to the insurance industry –only Heritage is licensed to assemble kits.

In early 2008, Heritage began to market a line of self-collected finger stick test kits under the trade name “Appraise”. These kits test hemoglobin A1c. The hemoglobin A1c test is particularly important for diabetics, who must constantly monitor their hemoglobin A1c levels. Revenues for the six months ended June 30, 2008 were less than $0.1 million, but are expected to increase in the second half of 2008. We are currently in discussions with several discount retailers and national drugstore chains to offer these test kits in their stores.

Looking ahead in 2008, one major challenge for Heritage Labs is the loss of a significant customer who transferred their lab testing services to a different company’s lab. The customer expressed no dissatisfaction with Heritage in terms of quality or service. As a result of this loss of revenue, Heritage’s annual revenues are expected to decline by approximately $4.0 million, beginning in May 2008.

Hooper Holmes Underwriting Solutions (HHUS)

Our Underwriting Solutions business provides underwriting services (including full underwriting, simplified issue underwriting, trial application analysis and telephone interviewing services), retrieves and summarizes attending physicians’ statements (APSs), retrieves prescription histories, and performs underwriting audits.

In 2008, HHUS has continued to migrate away from their past reliance on one major customer. Although revenues were down 14% (or $1.0 million) for the six month period ended June 30, 2008 in comparison to the prior year period, revenues from new HHUS customers approximated $1.2 million for the six month period ended June 30, 2008. HHUS currently provides underwriting services to 55 companies. For the remainder of 2008, replacing this lost revenue will remain a challenge, along with the previously noted declining number of applications for life insurance. In response, not only is HHUS making efforts to expand its existing lines of business, it is also seeking to expand its role in the rapidly growing life settlements market. HHUS’s role in the life settlements market is to assist the life settlement brokers and providers by gathering medical-related information on the policyholder and assigning a life expectancy rating. At present, HHUS is a small player in this market. We are seeking to obtain a life settlement license in the State of Florida, which we see as being important to the growth of our life settlements business. However, HHUS is facing various regulatory challenges in connection with the application, stemming from it being part of a publicly-traded company. HHUS is currently working with the State of Florida to resolve these issues.

Health & Wellness (H&W)

Our Health and Wellness business completed approximately 25,000 and 14,000 health screenings for the three month periods ended June 30, 2008 and 2007, respectively, and 64,000 and 23,000 for the six month periods ended June 30, 2008 and 2007, respectively. We currently provide our services to approximately 20 health management companies. H&W’s services include event scheduling, provision and fulfillment of all supplies (e.g., examination kits, blood pressure cuffs, stadiometers, scales, centrifuges, lab coats, bandages, etc.) at screening events, event management, biometric screenings (height, weight, BMI, hip, waist, neck, pulse, blood pressure) and blood draws via venipuncture or fingerstick, lab testing, participant and aggregate reporting, data processing and data transmission. Heritage Labs does all of the testing on the samples we collect at health and wellness screenings.

Through a strategic partnership, H&W is also able to provide the BioSignia “Know Your Numberâ” suite of reporting services. Know Your Number includes an online health risk assessment, participant report, physician report, participant letter with interventional recommendations, and an aggregate report with interventional recommendations.

According to the Boston Consulting Group, in a report entitled “Realizing the Promise of Disease Management,” issued in February 2006, the disease management/health and wellness market could be approximately $500 million by 2010. We believe that we are well-positioned to capture a significant share of that market. However, the success of H&W will depend in part upon the proven success of disease management and health and wellness initiatives. If the return on investment in these initiatives is not sufficiently high, our Health and Wellness business may not reach its full potential. Notwithstanding, in 2008 we believe we are well positioned to capitalize on this opportunity given our Company’s unique set of assets, including our own lab (Heritage), systems and personnel and access to our network of paramedical examiners.

Key Financial and Other Metrics Monitored by Management

In our periodic reports filed with the SEC, we provide certain financial information and metrics about our businesses and information that our management uses in evaluating our performance and financial condition. Our objective in providing this information is to help our shareholders and investors generally understand our overall performance and assess the profitability of our businesses and our prospects for future net cash flows. We monitor the following metrics:

the number of paramedical examinations performed by Portamedic;

the average revenue per paramedical examination;

time service performance, from examination order to completion;

the MIB Life Index data which represents an indicator of the level of life insurance application activity;

the number of tele-interviewing/underwriting reports we generate;

the number of specimens tested by our Heritage Labs subsidiary;

the average revenue per specimen tested;

budget to actual financial performance at the branch level as well as in the aggregate; and

customer and product line profitability.

Results of Operations

On June 30, 2008, we sold substantially all of the assets and liabilities of our Claims Evaluation Division (“CED”). In October 2007, we completed the sale of our United Kingdom based subsidiary, Medicals Direct Group (MDG). Except where specific discussions of the CED and MDG are made, our discussion of our results of operations and financial condition excludes the CED and MDG for all periods presented. The CED and MDG have been presented as discontinued operations in the accompanying consolidated financial statements. Effective upon the sale of the CED, we now operate within one reportable operating segment. See Note 5 to our consolidated financial statements included in this quarterly report for additional information.

Comparative Discussion and Analysis of Results of Operations for the three and six months ended June 30, 2008 and 2007, respectively

The table below sets forth certain consolidated statements of operations and other data for the periods indicated. Revenues for Portamedic and Heritage Labs for the three and six month periods ended June 30, 2007 have been reduced by the amount of Health and Wellness revenues contained therein, to conform to the 2008 presentation.

Revenues by Component Businesses

(in thousands)	For the Three Months Ended June 30,							For the Six Months Ended June 30,
	2008		2007		% Change			2008		2007		% Change

Portamedic	$	35,657	$	37,043		-3.7	%	$	72,149	$	75,917		-5.0	%
Infolink		6,863		7,590		-9.6	%		13,483		14,499		-7.0	%
Heritage Labs		4,163		4,471		-6.9	%		8,619		8,963		-3.8	%
Health and Wellness		1,337		945		41.4	%		3,223		1,341		140.4	%
Underwriting Solutions		3,197		3,308		-3.4	%		6,122		7,106		-13.9	%
Total	$	51,217	$	53,357		-4.0	%	$	103,596	$	107,826		-3.9	%

Revenues

Consolidated revenues for the three month period ended June 30, 2008 were $51.2 million, a decline of $2.1 million or 4.0% from the corresponding period of the prior year. For the six month period ended June 30, 2008, our consolidated revenues were $103.6 million compared to $107.8 million in the corresponding period of the prior year, a decrease of $4.2 million or 3.9%.

Portamedic

Portamedic revenues declined 3.7% for the three month period ended June 30, 2008 compared to the same period of the prior year. For the six month period ended June 30, 2008, revenues decreased to $72.1 million compared to $75.9 million for the same period of the prior year, or 5.0%. The decline in Portamedic revenues for the three and six month periods ended June 30, 2008, compared to the same period of the prior year reflected a combination of:

fewer paramedical examinations performed in the second quarter (469,000 in 2008 vs. 520,000 in 2007) and in the six month period ended June 30, (952,000 in 2008 vs. 1,064,000 in 2007); which was partially offset by;

higher average revenue per paramedical examination in the second quarter ($79.79 in 2008 vs. $76.57 in 2007) and in the six month period ended June 30, ($79.54 in 2008 vs. $75.65 in 2007).

We attribute the reduction in the number of paramedical examinations performed in the three and six month periods ended June 30, 2008 to the continued decline in life insurance application activity in the United States (as reported by the MIB Life Index) and therefore the need for fewer paramedical examinations. In addition to the decline in the number of exams resulting from a decrease in life insurance application activity, our revenue also declined due to the consolidation/closing of certain Portamedic offices due to profitability considerations. A significant amount of Portamedic volume is derived from local agents and brokers, which has been negatively impacted by the elimination of certain offices. The increase in the average revenue per paramedical exam is primarily attributable to the rate increase for our services instituted on January 1, 2008.

Infolink

Our Infolink business, tele-underwriting/interviewing and attending physician statement (“APS”) retrieval, the latter representing the larger of the two Infolink revenue components, decreased 9.6% to $6.9 million for the three month period ended June 30, 2008 compared to the same period of the prior year. For the six month period ended June 30, 2008, Infolink revenues decreased to $13.5 million from $14.5 million in the same period of the prior year, or 7.0%. The decrease in revenues is primarily due to a decrease in the number of APS units attributable from the overall decline in life insurance application activity. We are in the process of evaluating the APS workflow and pricing structure which should allow us to operate more efficiently and generate more profitable revenues.

Heritage Labs

Heritage Labs’ revenues for the three month period ended June 30, 2008 were $4.2 million, a decrease of $0.3 million, or 6.9% compared to the same period of the prior year. For the six month period ended June 30, 2008, revenues decreased to $8.6 million compared to $9.0 million for the same period of the prior year, or 3.8%.

Although Heritage Labs tested fewer specimens in the second quarter of 2008 compared to the same period in the prior year (175,000 vs. 191,000), and in the first six months of 2008 compared to 2007 (367,000 vs. 386,000), respectively, Heritage’s average revenue per specimen tested increased in the second quarter of 2008 and the first half of 2008 ($16.38 vs. $16.15 and $16.63 vs. $16.00), respectively. The reduced demand for Heritage Labs’ services from insurance companies is primarily attributable to a reduction in the number of paramedical examinations completed by the Company’s Portamedic business unit. Approximately 80-85% of total specimens tested by Heritage originate from a Portamedic paramedical exam or a Health and Wellness encounter. In addition, as previously disclosed, revenues were reduced in the second quarter of 2008 due to the loss of a significant customer who completed the transfer of their lab services to a different company’s lab during the quarter. The increased average revenue per specimen is primarily due to a change of business mix, with a greater emphasis on more complex testing.

Heritage Labs currently operates at approximately 65% of capacity. We continue to explore business opportunities, including specimen collection kit assembly and additional opportunities in the wellness and disease management markets, to utilize the additional capacity of our laboratory.

Health and Wellness

Health and Wellness (H&W) revenues for the three month periods ended June 30, 2008 and 2007 totaled $1.3 million and $0.9 million, respectively. For the six month periods ended June 30, 2008 and 2007, revenues totaled $3.2 million and $1.3 million, respectively. Our H&W business, established in 2007, completed approximately 25,000 health screenings in the second quarter of 2008, compared to approximately 14,000 completed in the comparable period of 2007. For the first six month periods ending June 30, 2008 and 2007, our H&W business completed approximately 64,000 and 23,000 health screenings, respectively.

Underwriting Solutions

Underwriting Solutions revenues declined 3.4% in the three month period ended June 30, 2008 to $3.2 million compared to the same period in the prior year. For the six month period ended June 30, 2008, revenues decreased $1.0 million, or 13.9% to $6.1 million from the corresponding period of the prior year. The decrease is primarily due to reduced revenue from one major client of approximately $0.5 million and $2.0 million for the three and six month periods ended June 30, 2008, respectively. This client decided that in order to mitigate its risk in utilizing Underwriting Solutions as its sole outsourced underwriter, the client expanded its underwriter supplier network. This loss of revenue was partially offset by increased revenue from new customers, as Underwriting Solutions aggressively pursued these new opportunities.

Cost of Operations

Our consolidated cost of operations amounted to $38.2 million for the second quarter of 2008, compared to $41.1 million for the three months ended June 30, 2007. For the six month period ended June 30, 2008, cost of operations was $76.2 million compared to $82.6 million for the six month period ended June 30, 2007. The following table shows the cost of operations as a percentage of revenues for certain of our component businesses:

(in thousands)	For the three months ended June 30,										For the six months ended June 30,
			As a % of					As a % of					As a % of					As a % of
	2008		Revenues			2007		Revenues			2008		Revenues			2007		Revenues
Portamedic/ Infolink/ H&W	$	33,389		76.1	%	$	35,396		77.7	%	$	66,583		74.9	%	$	70,991		77.4	%
Heritage		2,682		64.4	%		2,894		64.7	%		5,413		62.8	%		5,845		65.2	%
Underwriting Solutions		2,079		65.0	%		2,815		85.1	%		4,222		69.0	%		5,734		80.7	%
Total	$	38,150		74.5	%	$	41,105		77.0	%	$	76,218		73.5	%	$	82,570		76.6	%

The decrease in the cost of operations in dollars and as a percentage of revenues for the three and six month periods ended June 30, 2008 compared to the corresponding periods of the prior year is primarily attributable to:

reduced branch operating expenses resulting from branch staff reductions and the consolidation of Portamedic branch offices during 2007;

· higher average revenue per Portamedic examination;

· a lower cost of operations percentage pertaining to our Health & Wellness services, established in 2007, and

staffing reductions in our Underwriting Solutions business resulting from a decline in revenues.

We completed a strategic review in 2006 which resulted in detailed plans to implement expense management initiatives identified during the review. Many of these initiatives were successful in reducing our cost of operations for the three and six month periods ended June 30, 2008, such as our efforts to better align operating costs with branch office volumes while eliminating geographic overlap among our branch offices.

Selling, General and Administrative Expenses

(in thousands)	For the three months ended June 30,				(Decrease)			For the six months ended June 30,				(Decrease)
	2008		2007		2008 vs.2007			2008		2007		2008 vs.2007
Selling, general and administrative expenses	$	13,476	$	13,574	$	(98	)	$	27,102	$	28,016	$	(914	)

Consolidated selling, general and administrative (SG&A) expenses for the three month period ended June 30, 2008 and six month period ended June 30, 2008 decreased from the same periods of the prior year. As previously described, we completed a strategic review in September 2006 which included detailed implementation plans to reduce SG&A expenses. The implementation is substantially complete and has reduced our SG&A expenses.

SG&A as a percentage of revenues totaled 26.3% and 25.4% for the three month periods ended June 30, 2008 and 2007, respectively, and 26.2% and 26.0% for the six months ended June 30, 2008 and 2007, respectively. SG&A expenses decreased $0.1 million to $13.5 million for the three months ended June 30, 2008 compared to $13.6 million in the same period last year. For the six month period ended June 30, 2008, SG&A expenses decreased to $27.1 million compared to $28.0 in the same period of the prior year. The decrease in SG&A for the three and six month periods ended June 30, 2008 compared to the same periods of the prior year was primarily due to:

reduced health insurance costs resulting from a reduction in headcount and fewer employees participating in the Company’s health benefit plan totaling $1.0 million; and $1.7 million, respectively;

reduced audit and business tax fees totaling $0.3 million and $0.5 million, respectively;

reduced intangible asset amortization expense of approximately $0.1 million and $0.2 million, respectively, resulting from the Company’s intangible impairment charge recorded in the third quarter of 2007; and

reduced Regional and Area managerial salaries and related expenses totaling $0.1 million and $0.4 million, respectively.

The decreases listed above were partially offset by the following:

increased costs associated with the growth in Company’s Health and Wellness business totaling $0.4 million and $0.7 million, respectively;

· increased incentive compensation expense totaling $0.7 million and $0.7 million, respectively.

increased outside legal costs totaling $0.1 million and $0.2 million, respectively; and

increased field examiner recruiting costs related to the Company’s efforts to attract more examiners and executive recruiting costs totaling $0.1 million and $0.4 million, respectively;

Restructuring and Other Charges

For the six month period ended June 30, 2008, we recorded restructuring and other charges of approximately $1.7 million. The charges are attributable to:

·	first quarter 2008 restructuring charges for employee severance and office closures totaling $0.4 million;

·	first quarter 2008 charges related to the early termination of an agreement with the outside consultant utilized in the Company’s 2006 strategic review totaling $0.9 million, and

·	first quarter 2008 severance charges related to the resignation of the former CEO of $0.4 million.

There were no restructuring and other charges recorded during the three month period ended June 30, 2008.

For the three and six month periods ended June 30, 2007, we recorded restructuring and other charges of approximately $0.7 million and $1.2 million, respectively. The charges are primarily attributable to restructuring charges for employee severance and branch office closures.

Operating Loss from Continuing Operations

Our consolidated operating loss from continuing operations for the three month period ended June 30, 2008 was $(0.4) million, or (0.8%) of consolidated revenues compared to a consolidated operating loss from continuing operations for the three month period ended June 30, 2007 of $(2.1) million, or (3.9%) of consolidated revenues. For the six month period ended June 30, 2008, the consolidated operating loss from continuing operations was $(1.4) million, or (1.3%) of consolidated revenues compared to an operating loss from continuing operations for the six month period ended June 30, 2007 of $(4.0) million or (3.7%) of consolidated revenues.

Income Taxes

For the three month period ended June 30, 2008, we recorded $0.00 million in income taxes compared to a state tax expense of $0.01 million for the three month period ended June 30, 2007, and a tax benefit of $0.04 million for the six month period ended June 30, 2008 compared to a tax expense of $0.06 million for the six month period ended June 30, 2007.

The tax benefit recorded in the six month period ended June 30, 2008 includes a tax benefit resulting from the refund of certain state income taxes. The tax expense recorded in the three and six month periods ended June 30, 2007 reflects certain minimum state tax liabilities that we incur. No federal tax benefit was recorded relating to the current year losses, as we continue to believe that a full valuation allowance is required on our net deferred tax assets.

Loss from continuing operations

Loss from continuing operations for the three month period ended June 30, 2008 was $(0.5) million or $(0.01) per share compared to $(2.2) million or $(0.03) per share in the same period of the prior year. Loss from continuing operations for the six month period ended June 30, 2008 was $(1.4) million or $(0.02) per share compared to $(4.3) million or $(0.06) per share, in the same period of the prior year.

Discontinued Operations

On June 30, 2008, we sold substantially all of the assets and liabilities of our Claims Evaluation Division (CED) operating segment for $5.6 million and received cash payments totaling $5.1 million and a $0.5 million note receivable due in six equal monthly installments beginning July 31, 2008. In connection with the sale of the CED, we have been released as the primary obligor for certain lease obligations acquired but remain secondarily liable in the event the buyer defaults. The guarantee is provided for the term of the lease, which expires in July 2015. We have recorded $0.2 million, representing the fair value of the guarantee obligation, which is recorded in gain on sale of subsidiaries of discontinued operations in the accompanying statements of operations for the three and six months ended June 30, 2008. The maximum potential amount of future payments under the guarantee is $0.8 million. We recognized a net gain on the sale of the CED of approximately $1.1 million in the accompanying consolidated statements of operations for the three and six months ended June 30, 2008. The sale of CED resulted in a tax loss however, no tax benefit was recorded as we concluded that we would not be able to realize any tax benefit resulting from the loss.

During the second quarter of 2008, additional information became available to us relating to certain tax obligations of MDG that we retained in connection with the sale. Based on this information we revised our initial estimate and recorded an additional liability totaling $0.8 million during the three months ended June 30, 2008. The $0.8 million charge is recorded in gain on sale of subsidiaries of discontinued operations in the accompanying consolidated statement of operations.

Income from discontinued operations for the three and six month periods ended June 30, 2007 also includes the results of MDG which was sold in October 2007.

Net income (loss)

Net income for the three month period ended June 30, 2008 was $0.1 million or $0.00 per share compared to a net loss of $(1.9) million or $(0.03) per share for the same period of the prior year. The net loss for the six month period ended June 30, 2008 was $(0.5) million or $(0.01) per share compared to a net loss of $(3.5) million or $(0.05) per share for the same period of the prior year.

Liquidity and Financial Resources

Our primary sources of liquidity are our holdings of cash and cash equivalents and our $25 million revolving credit agreement with CitiCapital Commercial Corporation. At June 30, 2008 and December 31, 2007, our working capital was $24.1 million and $24.8 million, respectively and we had no borrowings outstanding under our revolving credit agreement. Our current ratio as of June 30, 2008 and December 31, 2007 was 2.1 to 1. Significant transactions affecting the Company’s cash flows for the six month period ended June 30, 2008 include the following:

·	restructuring payments related to employee severance and branch office closure costs totaling $1.2 million;

·	payment of legal settlement with an insurance client of $0.5 million;

·	unclaimed property payment of $1.4 million;

·	final payment towards the California lawsuit settlement (See Note 11) of $0.5 million;

·	payment of fees to an outside consultant related to cost saving opportunities identified in the Company’s 2006 strategic review, totaling $1.0 million, and a $1.3 million payment related to the early termination of an agreement with this same outside consultant, and

·	receipt of $5.1 million of cash received in connection with the sale of CED.

Our net cash used in operating activities of continuing operations for the six month period ended June 30, 2008 was $4.0 million. If operating losses continue, we may be required to reduce cash reserves, increase borrowings, reduce capital spending or further restructure our operations. As of June 30, 2008, our cash and cash equivalents approximated $10.3 million. As discussed in Note 9 to our consolidated financial statements included in this quarterly report, although we have an available borrowing base of $25.0 million under our revolving credit facility as of June 30, 2008, there is only $15.0 million of borrowing capacity under the credit facility before a financial covenant goes into effect. The financial covenant requires us to maintain a fixed charge coverage ratio (as defined in the Loan and Security Agreement with respect to the credit facility), on a trailing 12-month basis, of no less than 1:1. It is possible that, if we continue to experience losses from operations, our borrowing capacity would be limited to $15.0 million and our liquidity adversely affected.

Furthermore, if we default, in any material respect in the performance of any covenant contained in the revolving credit facility or an event occurs or circumstance exists that has a material adverse effect on our business, operations, results of operations, properties, assets, liabilities, condition (financial or otherwise), or prospects, or on our ability to perform our obligations under the revolving credit facility, and such default or event or circumstance is not cured, CitiCapital may be able to accelerate the maturity of our then outstanding obligations. However, as noted above, as of June 30, 2008, we have no borrowings outstanding under our revolving credit facility. Based on our anticipated level of future operations, existing cash and cash equivalents and borrowing capability under our credit agreement with CitiCapital, we believe we have sufficient funds to meet our cash needs through June 30, 2009.

Cash Flows from Operating Activities

For the six month period ended June 30, 2008 and 2007, net cash used in operating activities of continuing operations was $4.0 million and $10.3 million, respectively.

The net cash used in operating activities of continuing operations for the six month period ended June 30, 2008 of $4.0 million reflects a loss of $1.4 million from continuing operations, and includes a non-cash charge of $2.2 million of depreciation and amortization. Changes in working capital items included:

an increase in accounts receivable of $3.6 million, primarily due to a reduction in Portamedic cash collections during the first six months of 2008, a trend we historically experience. Consolidated days sales outstanding (DSO), measured on a rolling 90-day basis was 53 days at June 30, 2008, compared to 46 days at December 31, 2007; and

a decrease in accounts payable and accrued expenses of $1.6 million.

The net cash used in operating activities of continuing operations for the six months ended June 30, 2007 of $10.3 million reflects a loss from continuing operations of $4.3 million, and includes a non-cash charge of $2.1 million in depreciation and amortization. Changes in working capital items included:

an increase in accounts receivable of $5.7 million, primarily due to a reduction in Portamedic cash collections during the first six months of 2007. Consolidated days sales outstanding (DSO), measured on a rolling 90-day basis was 55 days at June 30, 2007 compared to 45 days at December 31, 2006, and

a decrease in accounts payable and accrued expenses of $2.7 million,

Cash Flows used in Investing Activities

For the six month periods ended June 30, 2008 and 2007, we used approximately $2.8 million and $1.8 million, respectively in net cash for investing activities of continuing operations for capital expenditures. Net cash provided by investing activities of discontinued operations for the six month period ended June 30, 2008, principally relates to the $5.1 million of cash received from the sale of the CED.

Cash Flows used in Financing Activities

There were no financing activities for the six month period ended June 30, 2008. For the six months ended June 30, 2007, cash provided by financing activities of continuing operations was $4.6 million and related to proceeds received from the exercise of stock options of $1.6 million and net borrowings under our revolving credit facility of $3.0 million. The net borrowing was used to fund short-term working capital needs.

Our Credit Facility

On October 10, 2006, we entered into a three year Loan and Security Agreement, which replaced our amended and restated revolving credit facility dated as of October 29, 1999. The agreement provides us with a senior secured revolving credit facility, the proceeds of which are to be used for general working capital purposes. Under the terms of the Loan and Security Agreement, the lenders have agreed to make revolving credit loans to us in an aggregate principal amount at any one time outstanding which, when combined with the aggregate undrawn amount of all unexpired letters of credit, does not exceed:

(i)

90% of “Eligible Receivables” (as that term is defined in the loan and security agreement) of the Company and the Company’s subsidiaries providing guarantees of the indebtedness under the facility; plus

(ii)

65% of the fair market value of our corporate headquarters located in Basking Ridge, New Jersey

provided that in no event can the aggregate amount of the revolving credit loans and letters of credit outstanding at any time exceed $25 million. The maximum aggregate face amount of letters of credit that may be outstanding at any time may not exceed $1 million. Our available borrowing base at June 30, 2008 was $25.0 million. We had no borrowings outstanding under our facility as of June 30, 2008. CitiCapital, in its sole discretion based upon its reasonable credit judgment, may (A) establish and change reserves required against Eligible Receivables, (B) change the advance rate against Eligible Receivables or the fair market value of our corporate headquarters, and (C) impose additional restrictions to the standards of eligibility for Eligible Receivables, any of which could reduce the aggregate amount of indebtedness that may be incurred under the revolving credit facility. In addition, the Loan and Security Agreement provides that “Events of Default” include the occurrence of any event or condition that, in CitiCapital’s judgment, could reasonably be expected to have a material adverse effect on us. See Note 9, Revolving Credit Facility, included in this report on Form 10-Q for additional information.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Share Repurchases

We did not purchase any shares of our common stock during the three and six month periods ended June 30, 2008 and 2007. Under the terms of the Loan and Security Agreement, we are precluded from purchasing any shares of our common stock.

Dividends

We are precluded from declaring or making any dividend payments or other distributions of assets with respect to any class of our equity securities under the terms of the Loan and Security Agreement.

Contractual Obligations

As of June 30, 2008, we have $0.9 million of employment contract related payments due.

Inflation

Inflation has not had, nor is it expected to have, a material impact on our consolidated financial results.

Critical Accounting Policies

There were no changes to our critical accounting policies during the three and six month periods ended June 30, 2008. Such policies are described in our 2007 annual report on Form 10-K.

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to interest rate risk primarily through its borrowing activities, which are described in Note 9 to the unaudited interim consolidated financial statements included in this quarterly report. The Company’s credit facility is based on variable rates and is therefore subject to interest rate fluctuations. Accordingly, our interest expense will vary as a result of interest rate changes and the level of any outstanding borrowings. As of June 30, 2008, there were no borrowings outstanding.

Based on the Company’s market risk sensitive instruments outstanding at June 30, 2008, the Company has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations or cash flows as of such date.

ITEM 4

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, with the assistance of our disclosure committee, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2008. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2008, the Company’s disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

On June 30, 2008, the Company sold its Claims Evaluation Division (CED). See Note 5 included in this report on Form 10-Q for additional information.

Other than as described above, there have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2008 and subsequent to the Evaluation Date that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – Other Information

ITEM 1

Legal Proceedings

On January 25, 2005 Sylvia Gayed, one of the Company’s examiners in California, filed a class-action lawsuit against the Company in the Superior Court of California, Los Angeles County, alleging violations of California’s wage and hour laws. The complaint alleged that the Company failed to pay overtime wages, provide meal and rest periods and reimbursement for expenses incurred by examiners in performing examinations. We currently employ approximately 400 examiners in California and have employed in excess of 1,400 examiners in California over the past 60 months. Following a mediation on December 6, 2006, the parties reached a settlement, pursuant to which the Company agreed to pay the sum of $1.2 million to the class members in full settlement of this lawsuit. The court granted final approval of the settlement on July 16, 2007. Payment of $0.7 million was made on October 3, 2007, and the balance of the settlement was paid in March 2008.

In 2006, a life insurance company client informed the Company that, after investigation, it determined that certain life insurance policies that it issued were procured by fraudulent means employed by insurance applicants, the client’s agents, the Company’s sub-contracted examiners and others. On December 14, 2007, the client filed a Demand for Arbitration, in which it alleged damages in excess of $5.0 million. The Company believes it had strong defenses to the client’s claim, but in order to avoid the time and expense of litigation, and to preserve a valuable client relationship, the Company agreed to pay the client $0.5 million. The Company made this payment in May 2008.

On February 28, 2008, a physician, John McGee, M.D., filed suit in the United States District Court for the Eastern District of New York in which he alleged, among other things, that an insurance company and the CED (see Note 5), along with other named plaintiffs, violated various laws, including the Racketeer Influenced Corrupt Organization Act, in connection with the arranging of independent medical examinations. The Company believes the plaintiff’s claims are without merit and is defending itself vigorously in this matter. The Company, through its subsidiary, Hooper Evaluations, Inc., has retained liability for this litigation following the sale of substantially all of the assets and liabilities of the CED.

On April 3, 2008 Gregory Sundahl and Jesse Sundahl, individually and on behalf of all others similarly situated, filed suit in the United States District Court for the Eastern District of New York in which they alleged, among other things, that an insurance company and the CED (see Note 5), along with other named plaintiffs, violated various laws, including the Racketeer Influenced Corrupt Organization Act, in connection with the arranging of independent medical examinations. The Company has yet to receive formal service in connection with this matter. The Company believes the plaintiff’s claims are without merit and intends to defend itself vigorously in this matter. The Company, through its subsidiary, Hooper Evaluations, Inc., has retained liability for this litigation following the sale of substantially all of the assets and liabilities of the CED.

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 substantial legal defenses and/or insurance coverage with respect to all of its pending legal actions. Accordingly, none of these actions is expected to have a material adverse effect on the Company’s liquidity, or its consolidated financial position.

ITEM 1A

Risk Factors

Readers should carefully consider, in connection with the other information in this Form 10-Q, the risk factors disclosed in Item 1A. “Risk Factors” in our 2007 annual report on Form 10-K.

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

In the third quarter of 2007, the Company became aware that it did not file with the SEC a registration statement on Form S-8 to register the shares of its common stock issuable under either the Hooper Holmes, Inc. 2002 Stock Option Plan (the “2002 Stock Option Plan”) or the Hooper Holmes, Inc. Stock Purchase Plan (2004) (the “2004 Employee Stock Purchase Plan”) at the time such plans were approved by the Company’s shareholders in May 2002 and May 2003, respectively. To address this oversight, in 2007, the Company filed with the SEC a registration statement on Form S-8 (the “Registration Statement”) covering shares that remain issuable under these plans.

The issuances of shares upon exercise of purchase rights granted under the 2004 Employee Stock Purchase Plan, which occurred prior to the filing of the Registration Statement, may not have been exempt from registration under the Securities Act and applicable state securities laws and regulations. As a result, the Company may have potential liability to those employees (and, in some cases, now former employees) to whom the Company issued its shares upon the exercise of purchase rights granted under the plans. The Company may also have potential liability with respect to shares issued under the 2002 Stock Option Plan if the acquisition of shares under the plan is not exempt from registration under Section 4(2) of the Securities Act. However, based on the number of shares at issue and taking into consideration the current price of the Company’s common stock, as reported on the American Stock Exchange, the Company believes that its current potential liability for rescission claims is not material to its consolidated financial condition, results of operations or cash flows.

ITEM 3

Defaults Upon Senior Securities

None

ITEM 4

Submission of Matters to a Vote of Security Holders

At the Company’s annual meeting of shareholders on May 29, 2008, the Company’s shareholders elected Benjamin A. Currier, John W. Remshard, and Elaine L. Rigolosi to serve as directors until the 2011 annual meeting; ratified the selection of KPMG LLP to serve as the Company’s independent registered public accounting firm for 2008; and approved the Hooper Holmes, Inc. 2008 Omnibus Employee Incentive Plan.

The chart below names each director nominated for election by the shareholders at the 2008 annual meeting, the number of votes cast for or withheld, and the number of broker non-votes and abstentions, with respect to each such person:

Nominee	For	Votes Cast Against	Withheld	Broker Non-votes	Abstained
Benjamin A. Currier	51,096,572	-	13,449,442	-	-
John W. Remshard	51,445,451	-	13,100,563	-	-
Elaine L. Rigolosi	51,101,153	-	13,444,861	-	-

The names of the directors whose terms of office continued after the 2008 annual meeting are as follows:

Roy H. Bubbs

Leslie Hudson

Quentin J. Kennedy

Roy E. Lowrance

Kenneth R. Rossano

With respect to the ratification of KPMG LLP as independent registered public accounting firm, the number of votes cast was 62,798,396 for, 1,723,641 against, 23,977 abstained and 0 broker non-votes.

With respect to the approval of the Hooper Holmes, Inc. 2008 Omnibus Employee Incentive Plan, the number of votes cast was 41,726,434 for, 13,014,860 against, 924,588 abstained, and 0 broker non-votes.

ITEM 5

Other Information

None

ITEM 6

Exhibits

Exhibit No.		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

32.3		Copies of Asset Purchase Agreements with respect to the sale of the Claims Evaluation Division.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Hooper Holmes, Inc.

Dated: August 8, 2008

		By: /s/ Roy H. Bubbs
		Roy H. Bubbs
		Chief Executive Officer and President



		By: /s/ Michael J. Shea
		Michael J. Shea
		Senior Vice President and Chief Financial Officer

EX-31.1 2 exhibit31-1.htm EXHIBIT 31.1 CERTIFICATION OF CEO exhibit31-1.htm

EXHIBIT 31.1 CERTIFICATIONS

I, Roy H. Bubbs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hooper Holmes Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Roy H. Bubbs

---------------------------------------------

Roy H. Bubbs

Chief Executive Officer and President

August 8, 2008

EX-31.2 3 exhibit31-2.htm EXHIBIT 31.2 CERTIFICATION OF CFO exhibit31-2.htm

EXHIBIT 31.2 CERTIFICATIONS

I, Michael J. Shea, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hooper Holmes Inc.;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael J. Shea

---------------------------------------------

Michael J. Shea

Senior Vice-President, and Chief Financial and Accounting Officer

August 8, 2008

EX-32.1 4 exhibit32-1.htm EXHIBIT 32.1 CERTIFICATION OF CEO SECTION 1350 exhibit32-1.htm

EXHIBIT 32.1 CERTIFICATIONS

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Roy H. Bubbs, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Hooper Holmes, Inc., on Form 10-Q for the quarter ended June 30, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hooper Holmes, Inc.

Dated: August 8, 2008

/s/ Roy H. Bubbs

__________________________

Roy H. Bubbs

Chief Executive Officer and President

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liability of Section 18 of the Exchange Act. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

A signed original of this written statement required by Section 906 has been provided to Hooper Holmes, Inc. and will be retained by Hooper Holmes, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 5 exhibit32-2.htm EXHIBIT 32.2 CERTIFICATION OF CFO SECTION 1350 exhibit32-2.htm

EXHIBIT 32.2 CERTIFICATIONS

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Shea, Senior Vice-President and Chief Financial and Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Hooper Holmes, Inc., on Form 10-Q for the quarter ended June 30, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hooper Holmes, Inc.

Dated: August 8, 2008

/s/ Michael J. Shea

__________________________

Michael J. Shea

Senior Vice President and Chief Financial and Accounting Officer

EX-32.3 6 exhibit32-3.htm EXHIBIT 32.3 COPIES OF ASSET PURCHASE AGREEMENTS - SALE OF CLAIMS EVALUATION DIVISION exhibit32-3.htm

EXHIBIT 32.3 COPIES OF ASSET PURCHASE AGREEMENTS WITH RESPECT TO THE SALE OF THE CLAIMS EVALUATION DIVISON

June 30, 2008

J&P Michigan Evaluation Group, Inc.

26400 Lahser Road

Southfield, MI 48034

Attention: Mr. Phillip Lewis, President

Dear Mr. Lewis:

This letter, when countersigned by you, will constitute a definitive asset purchase agreement between Hooper Evaluations, Inc., a New York corporation (“Seller”), and J&P Michigan Evaluation Group, Inc., a Michigan corporation (“Buyer”).

1.	Sale and Purchase of Assets; Purchase Price; Liabilities; Closing

a. Sale and Purchase. Seller shall sell to Buyer, and Buyer shall purchase from Seller, all of Seller’s assets relating to its independent medical evaluation business known as “Michigan Evaluation Group” (the “Business”), including, without limitation, all medical equipment and other tangible personal property, including leased property, located at Suite 200, 26400 Lahser Road, Southfield MI 48034 (the “Premises”); all accounts receivable; all authorizations, permits, licenses, and registrations of Seller; all trade secrets, service marks (other than the names “Hooper Holmes” and “Hooper Evaluations”), and intangible assets, including, without limitation, internet addresses and registrations; the name “Michigan Evaluation Group, Inc.” and any related assumed names, all customer lists and physicians lists; all telecopy and telephone numbers at the Premises; all files, books and records, invoices, sales and other data; the goodwill of the Business; the lease with respect to the Premises; and all agreements and contracts related to the Business (the “Acquired Assets”). All cash balances with respect to the Business as of the close of business on June 30, 2008 shall belong to Seller and be excluded from the Acquired Assets. Cash accruing after June 30, 2008, including, without limitation, proceeds from the collection of accounts receivable, shall belong to Buyer and be deemed part of the Acquired Assets.

b. Purchase Price. As full consideration for the aforementioned assets, Buyer shall pay to Seller $125,000 by wire transfer of immediately available funds on the Closing Date (as hereinafter defined) and shall deliver a promissory note for $500,000 bearing interest at a rate of 0% per annum, which shall be payable in six equal installments of $83,333.33 commencing on the last business day of the month following the Closing Date and continuing thereafter on the last business day of the five succeeding months. On the Closing Date, the promissory note shall be guaranteed by John V. Welsh and Philip Lewis in form acceptable to Seller.

c. Assumed and Retained Liabilities. On the Closing Date Buyer assumes all outstanding liabilities of Seller arising in the ordinary course of the Business prior to June 30, 2008 (the “Assumed Liabilities”); provided, however that all debts, obligations, and liabilities of the Seller or its affiliates, including, without limitation, amounts due to Miller, Canfield, Paddock & Stone, P.L.C., arising out of or related to the pending matter of Hooper Evaluations v. Liberatore et al, United States District Court for the Eastern District of Michigan Case No. NO5:08-cv-11617 (the “Litigation”) shall remain the sole responsibility of and shall be retained, paid, performed and discharged solely by Seller, as and when due. The debts, obligations, and liabilities of Seller (i) arising out of or related to the Litigation and (ii) not arising in the ordinary course of the Business, if any, shall be referred to as the “Retained Liabilities.” The Retained Liabilities shall be the only liabilities retained by Seller with respect to the Business.

d. Closing. The closing of the transactions contemplated by this agreement is taking place simultaneously with the execution hereof. The date of the closing shall sometimes be referred to as the “Closing Date.”

e. Reimbursement of Seller for July 2008 Lease Payment. Seller shall make the lease payment with respect to the Premises for the month of July, 2008 on or before July 1, 2008, on behalf of Buyer and, on the Closing Date, Buyer shall pay to Seller $10,600, to reimburse Seller for such expense.

2.	Seller’s Representations, Warranties and Covenants

a. Organization & Authority; Authorization; Consents. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has the full power and authority to enter into and perform its obligations under this agreement and to carry on the Business as it is currently being conducted. The execution, delivery and performance of this agreement by Seller have been duly authorized by all requisite action of Seller. The execution, delivery and performance of this agreement by the Company will not (i) conflict with Seller’s organizational documents, (ii) constitute a violation of any agreement, law or regulation to which Seller may be bound, or (iii) result in the creation of any lien or encumbrance on any of the Acquired Assets. The Company has registered to do business in the State of Michigan, and such registration is in good standing.

b. Title to Acquired Assets. Seller has, and at the closing Buyer will receive, valid title to all of the Acquired Assets, free and clear of any claim, lien or encumbrance, except for the lien, if any, of taxes not yet due and payable.

c. Taxes. Seller has timely filed all federal, state and other tax returns with respect to the Business required by law to be filed by it and has paid all taxes reflected on such returns. Each such tax return is true and correct in all material respects. There are no claims pending or, to the best of Seller’s knowledge, threatened against Seller for past due taxes with respect to the Business. All taxes with respect to the Business that are or were required by law to be withheld or collected by Seller have been duly withheld or collected and paid to the proper taxing authority.

d. Litigation; Compliance with Law. There is no litigation, proceeding or governmental investigation pending, and there is no order, injunction or decree outstanding against, or relating to Seller with respect to the Business or any of the assets being sold to Buyer pursuant to this agreement other than the Litigation and the matter of

Grose v. Hooper Holmes, et al., Ingham County Circuit Court case no. 07-000436-nm-c30. . To the best of Seller’s knowledge, Seller is not in violation of any applicable law, regulation, or any other requirement of any governmental body or court relating to the Business, and no notice has been received by Seller alleging any such violation.

e. Brokers. Seller has not employed any broker or finder in connection with the transactions contemplated by this agreement.

f. Seller represents that it has paid all account payables arising in the ordinary course of the Business prior to the Closing Date in a manner consistent with its past practices with regard to the timing of paying such payables.

3. Buyer’s Representations and Warranties

a. Organization & Authority; Authorization; Consents. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan and has the full power and authority to enter into and perform its obligations under this agreement. The execution, delivery and performance of this agreement by Buyer have been duly authorized by all requisite action of Buyer. The execution, delivery and performance of this agreement by Buyer will not (i) conflict with Buyer’s organizational documents, or (ii) constitute a violation of any agreement, law or regulation to which Buyer may be bound.

b. Brokers. Buyer has not employed any broker or finder in connection with the transactions contemplated by this agreement.

4.	Further Agreements of the Parties

a. Covenants Against Competition and Solicitation. To accord to Buyer the full value of its purchase, for a period of two years after the Closing Date neither Seller, its parent-company, Hooper Holmes, Inc. (“HHI”), nor any affiliate thereof, shall, directly or indirectly, engage (as an owner, consultant, or employee), or be interested in any business or entity that engages, on its or his own behalf or on behalf of any third party, in the independent medical evaluation business anywhere in the State of Michigan.

For a period of two years after the Closing Date, neither Seller, HHI nor any affiliate thereof shall, directly or indirectly, employ or solicit for employment or consulting, on its own behalf or on behalf of any other person or entity, or otherwise encourage the resignation of, any person who is then, or at any time within the immediately preceding twelve (12) months has been, an employee of the Business.

Seller and HHI acknowledge that the remedy at law for breach of the provisions of this section 4 a. will be inadequate and that, in addition to any other remedy Buyer may have, it shall be entitled to an injunction restraining any breach or threatened breach, without any bond or other security being required and without the necessity of showing actual damages. If any court construes any covenant in this section 4 a. to be unenforceable in any respect, the court may reduce the duration or area to the extent necessary so that the provision is enforceable, and the provision, as reduced, shall then be enforceable.

b. Indemnification. Each party shall indemnify the other against any loss, cost or expense (including, without limitation, reasonable attorneys’ fees) incurred by such other party in connection with the indemnifying party’s breach of any of its representations and warranties in this agreement. In addition, Seller shall indemnify Buyer against any loss cost or expense (including, without limitation, reasonable attorneys’ fees) incurred by Buyer in connection with any third-party claim related to matters that occurred prior to the Closing Date, except with respect to any such claims of which John V. Welsh or Phillip A. Lewis had actual knowledge prior to the Closing Date. Each party’s indemnification obligations shall (i) survive until the one-year anniversary of the Closing Date and (ii) be capped at $100,000. In addition, Seller’s obligation to indemnify Buyer for pre-closing matters other than Retained Liabilities shall be subject to a basket of $25,000.

c. Access. For a period of two years after the Closing Date, each party shall provide the other party with commercially reasonable access during normal business hours to its books, records and other information relating to the Business to the extent that they relate to the condition or operation of the Business prior to the closing and are requested by the party to prepare its tax returns, to respond to third party claims, or for any other legitimate purpose specified in writing. Each party shall have the right, at its own expense, to make copies of any such books and records.

d. Further Assurances. At any time and from time to time after the Closing Date each party shall, without further consideration, execute and deliver to the other such other instruments of transfer and assumption and shall take such other commercially reasonable action as the other may reasonably request to carry out the transactions contemplated by this agreement.

5. Closing Deliveries.

a. Seller shall deliver the following at Closing:

(1) Bill of Sale. Seller shall have delivered to Buyer (i) a bill of sale with warranty of title for all Acquired Assets to be transferred Seller hereunder, (ii) assignments of the Premises leases and any other leased Acquired Assets; and (iii) any other documents necessary or desirable in the opinion of Buyer’s counsel in connection with the transfer, which documents shall warrant title to Buyer and shall in all respects be in such form as may be reasonably required by Buyer or its counsel.

(2) Termination of Noncompetition. Seller shall have terminated, in a form suitable to Buyer, all rights of the Seller under the Employment Agreements or Noncompetition Agreement executed by Phillip A. Lewis and John V. Welsh dated as of April 30, 2004.

(3) Notices and Consents. Any notices required to be given to third- parties as to the assignment of any of the Acquired Assets to Buyer, and such third-party consents as must be obtained prior to the assignment of any of the Acquired Assets to Buyer.

(4) Assignment of Settlement Agreement. Seller shall have delivered an assignment, in form acceptable to Buyer, which assigns to Buyer all of Seller’s rights under the Settlement Agreement with respect to the Litigation by and among Hopper Evaluations, Inc., Lillian M. Liberatore, Glen M. Scheerer, Sean-Michael Liberatore, Grant Hyatt, M.D. and Michigan Comprehensive Medical Evaluations, PLLC, dated June 23, 2008 (the “Settlement Agreement”), provided, however, that Seller shall retain the right to receive the monetary payments set forth in Sections 1 and 5 of the Settlement Agreement.

b. The Buyer shall deliver the following at Closing:

(1) Purchase Price. The portion of the Purchase Price which is due and payable to the Seller under the terms of this Agreement at Closing, which shall be payable at Closing by wire transfer in immediately available funds to an account of Seller or another party designated by Seller to receive such funds.

(2) Resignation of Welsh and Lewis. The resignation of John V. Welsh and Phillip A. Lewis, in form acceptable to Seller, as employees and officers of the Seller. Seller shall pay all amounts due to John V. Welsh and Phillip A. Lewis as employees to the Closing Date, together with all accrued vacation or similar pay, on Seller’s first regularly scheduled payroll date following the Closing Date.

(3) Promissory Note. A promissory note in a form reasonably acceptable to the Seller evidencing the obligation of the Buyer to pay the deferred portion of the Purchase Price set forth in Section 1(b) herein together with the Guaranty of such promissory note by John V. Welsh and Philip Lewis.

6. Employees. As a condition precedent to Buyer’s obligation to pay the Purchase Price, Seller shall have terminated all employees of the Business. Buyer shall have no obligation to hire any employees of Seller, provided, however, that Buyer shall be free to negotiate with and hire any of such employees.

7. Confidential Information. Seller recognizes and acknowledges that it has certain confidential and proprietary information and trade secrets of the Business including, without limitation, customer information, pricing information, financial plans, business plans, business concepts, supplier information, know-how and intellectual property and materials related thereto (the “Confidential Information”). Seller agrees that it will not, directly or indirectly, take commercial or proprietary advantage of or profit from any Confidential Information, other than through its existing operations in the states of New York and New Jersey or disclose Confidential Information to any Person (other than Buyer) for any reason or purpose whatsoever, except as is required to be disclosed by law; provided, that the party required to make such disclosure shall provide to Buyer prompt notice of any such disclosure and shall use commercially reasonable efforts to limit the extent of such disclosure.

8. Transition Services; Use of Software. Seller and Buyer agree to cooperate and exchange information in order to facilitate a transition of the Business to Buyer. For a period of three months following the Closing Date, Seller shall, without additional consideration, provide information and technical support with respect to software systems and other programs used in connection with the Business or with respect to the transition from such systems to other systems or programs used by the Buyer.

9. Treatment of Litigation and Proceeds. The Seller shall have the right, at its cost and expense, to pursue the Litigation and, subject to the consent of the Buyer, which consent will not be unreasonably withheld, to settle or dismiss the Litigation issued manner as Seller may reasonably determine. Provided, however, that Buyer may elect to assume, at its cost and expense, and upon written notice to the Seller, the prosecution of the Litigation at any time prior to entry of an order of dismissal or execution of a settlement agreement, at which time Seller shall assign its interest in the Litigation to the Buyer. Seller shall have the right to retain any monetary awards received by the Plaintiff pursuant to Sections 1 and 5 of the Settlement Agreement, without regard to whether such amounts are received by Plaintiff on or before June 30, 2008.

10. Lease Agreement for Premises. Pursuant to this agreement, Seller has assigned its rights and obligations under the lease agreement with respect to the Premises (the “Lease”) to Buyer. Consent of the landlord is required with respect to such assignment. Such consent has been sought by Seller; however, as of the Closing Date, such consent has not yet been obtained. Following the Closing Date, Seller shall use its best efforts to secure consent of the landlord with respect to assignment of the Lease to Buyer. Until the time that such consent is obtained, Seller agrees that it will timely make any rent payments due under the Lease, and Buyer shall reimburse Seller for any such amounts paid within 5 days notice of any such payment from Seller. Following the Closing Date, Buyer agrees to perform all of Seller’s obligations under the Lease.

11. Miscellaneous

a. Entire Agreement. This agreement contains, and is intended as, a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters, and cannot be changed or terminated orally. Except as specifically set forth in this agreement, there are no representations or warranties by any party in connection with the transactions contemplated by this agreement. This agreement may not be assigned without the consent of the other party hereto, and subject to such proviso, it shall be binding upon and inure to the benefit of the parties hereto and their respective permitted assigns and successors.

b. Governing Law. This agreement shall be governed by and construed in accordance with the law of the State of Michigan, without regard to conflicts of laws principles.

c. Dispute Resolution. Any disputes under this Agreement shall be resolved amicably between or among the parties in dispute and failing same, shall be submitted to any court having jurisdiction of such matters located in Oakland County, Michigan or the Eastern District of Michigan and the parties hereby waive any claim that such court does not have personal jurisdiction over it or that such court is an inconvenient forum.

d. Counterparts. The parties may execute this agreement in counterparts, including facsimile counterparts, and on separate counterparts, but all such counterparts shall constitute the same instrument.

e. Expenses of Transaction. Each party shall pay its own expenses incident to the preparation for carrying this Agreement into effect and consummating the transaction hereby contemplated.

Please countersign the enclosed copy of this agreement on behalf of the Company and individually, as indicated below.

Very truly yours,

Hooper Evaluations, Inc.

By: _______________________

Name: William F. Kracklauer

Title: Senior Vice President,

General Counsel

Acknowledged and Agreed:

J&P Michigan Evaluation Group, Inc.

By: ___________________________

Phillip Lewis, President

Hooper Holmes, Inc. hereby agrees to the provisions of Section 4 a. of this agreement.

Hooper Holmes, Inc.

By: ____________________

Name: William F. Kracklauer

Title: Senior Vice President,

General Counsel

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (“Agreement”) is dated as of June 30, 2008, by and among Hooper Evaluations, Inc., a New York corporation (“Seller”); Hooper Holmes, Inc., a New York corporation (“Shareholder”); and DDA Management Services, LLC, a New York limited liability company (“Buyer”).

Seller is engaged in the business of facilitating independent medical evaluations and related services as conducted by Seller in the State of New York and commonly known as “D&D Associates”, “Allegiance Health” and/or “Medimax”, including, without limitation, such business as was formerly conducted by Allegiance Administrative Corporation, Allegiance Health, Inc., File Solutions, Inc., Medimax, Inc. and Allegiance Health Services, LLC, each of which entities has been merged with and into Seller (collectively, “Business”).

Shareholder owns all of the issued and outstanding shares of capital stock of Seller.

Seller desires to sell and Buyer desires to purchase substantially all of the assets used by Seller in the operation of the Business upon the terms and subject to the conditions set forth in this Agreement.

The parties, intending to be legally bound, agree as follows.

ARTICLE I

PURCHASE AND SALE OF ASSETS

1.1 Purchase and Sale of Assets. At the Closing (defined below), Buyer will purchase from Seller and Seller will sell, transfer, assign, convey, and deliver to Buyer all of Seller's right, title and interest in and to all of the assets owned by or leased or licensed to Seller and used or held for use by Seller in the conduct of the Business, excepting only the Excluded Assets (collectively, “Purchased Assets”). Without limiting the generality of the foregoing, the Purchased Assets shall include all of Seller's right, title and interest in, to and under:

(a) all machinery, furniture, fixtures, equipment, computer hardware, supplies, repair and replacement parts and other tangible personal property, including, without limitation, those items listed on Schedule 1.1(a);

(b) the real property leases and other contracts, agreements, commitments, leases, subleases, licenses, sublicenses and similar arrangements listed on Schedule 1.1(b);

(c) all licenses, permits, registrations, authorizations, and similar rights required to carry on the Business in the ordinary course, including, without limitation, those items listed on Schedule 1.1(c);

(d) all intellectual, industrial and proprietary rights, including without limitation (i) all design and use rights to all circuit boards, software, and system architecture, (ii) all telephone and facsimile numbers and e-mail addresses used in the Business, (iii) all inventions, (iv) all granted patents for inventions and any reissues thereof, if any, (v) all copyrights, whether registered or unregistered, (vi) all designs and industrial designs, (vii) all trademarks, trade names, all variations thereof, and any word, symbol, icon, logo or other indicia of origin adopted or used in connection with any product made or service provided in the Business, whether registered or unregistered, and rights to prevent unfair trading, (viii) all trade secrets, confidential information, know-how and processes, (ix) all applications and registrations for all of the foregoing, (x) all licenses, including sub-licenses, or other rights to use intellectual, industrial or proprietary rights of third parties including, without limitation, any customer of the Business, (xi) all Internet addresses, web sites and other Business addresses; and (xii) all licenses, including sub-licenses granted to third parties to use any of the foregoing;

(e) all deposits, prepaid taxes and other prepaid expenses;

(f) all billed and unbilled trade accounts receivable, an aging of which, current as of May 31, 2008, is listed on Schedule 1.1(f), and other rights to payment from customers of Seller and the full benefit of all security for such accounts or rights to payment, and any claim, remedy or other right related to any of the foregoing (“Accounts Receivable”);

(g) the goodwill of the Business, including, without limiting the generality of the foregoing, Seller’s rights to the names “D&D Associates”, “Allegiance Health” and “Medimax”, all other names under which Seller has conducted or now does conduct business, and all variations thereof, the exclusive right of Buyer to represent itself as carrying on the Business in continuation of and in succession to Seller, and all records of sales, customer lists, physician lists and supplier lists of Seller; and

(h) all personnel records, inspection records, accounting records, and all other records, books, documents and data bases in the possession or under the control of Seller relating to the Business, the Purchased Assets, the Assumed Liabilities, and those employees of Seller who subsequent to the Closing are employed by Buyer.

1.2 Excluded Assets. Notwithstanding the foregoing, the Purchased Assets specifically do not include (a) Seller’s cash and cash equivalents on hand as of the Closing, (b) Seller’s rights to the names “Hooper Holmes” and “Hooper Evaluations,” (c) those assets owned by or leased or licensed to Seller and used or held for use by Seller exclusively in the conduct of Seller’s “Michigan Evaluation Group” business, (d) Seller’s tax returns and related work papers with respect to the Business for taxable periods ending on or prior to the Closing Date, and (e) the specific items listed on Schedule 1.2.

1.3 Assumed Liabilities. At the Closing, Buyer shall assume the following liabilities and obligations of Seller related to the Business (“Assumed Liabilities”):

(a) all trade accounts payable that arise from the ordinary course conduct of the Business and relate to the period prior to the Closing, an aging of which, current as of May 31, 2008, is listed on Schedule 1.3(a) (“Accounts Payable”); and

(b) all liabilities and obligations of Seller first arising after and related to the period following the Closing under those contracts assigned to Buyer as part of the Purchased Assets.

1.4 Excluded Liabilities. Except for the Assumed Liabilities, Buyer shall not be liable or obligated for any of Seller’s past, present or future liabilities or obligations and nothing in this Agreement shall be construed in any manner to constitute an assumption by Buyer of any such liability or obligation of Seller. Seller shall retain and pay and perform when due all of its liabilities and obligations other than the Assumed Liabilities, whether known or unknown, asserted or unasserted, absolute, accrued contingent or otherwise, and whether due or to become due (collectively, “Excluded Liabilities”). Without limiting the generality of the foregoing, Excluded Liabilities shall include, without limitation, all liabilities and obligations of Seller with respect to taxes for periods prior to the Closing Date, Seller’s employment of any of Seller’s employees or their termination by Seller whether prior to or after the Closing Date (as more particularly described in Sections 5.8 and 5.9), any Action pending or threatened as of the Closing Date or arising out of or relating to matters or events occurring prior to the Closing Date, and all other claims arising out of or relating to matters or events occurring prior to the Closing Date.

1.5 Purchase Price. The aggregate consideration for the Purchased Assets and the non-competition and non-solicitation agreements set forth in Article VII shall be (U.S.) $5,000,000 (“Purchase Price”). The Purchase Price shall be paid by Buyer to Seller in cash at the Closing.

1.6 Allocation of Purchase Price. Seller and Buyer agree to allocate the Purchase Price among the Purchased Assets and the non-competition and non-solicitation provisions for all purposes, including financial accounting and tax purposes, in accordance with the allocation set forth on Schedule 1.6 (“Allocation”). Seller and Buyer shall cooperate in good faith in the joint preparation of IRS Form 8594 on a basis consistent with the agreed-upon Allocation. Each party shall notify the other party if it receives notice that any taxing authority proposes any allocation of the Purchase Price that is different from the agreed-upon Allocation.

ARTICLE II

CLOSING AND CLOSING DATE

2.1 Closing. The closing of the transactions contemplated by this Agreement (“Closing”) shall take place effective as of 11:59 P.M. (EST) on the date of this Agreement (“Closing Date”).

2.2 Closing Deliverables. In addition to any other deliveries required by the parties under this Agreement, at or prior to the Closing, Seller shall execute and deliver, or cause to be executed and delivered, to Buyer the following, in form reasonably acceptable to Buyer:

(a) such bills of sale, assignments and other instruments of transfer as Buyer may reasonably require to vest in Buyer as of the Closing Date good, valid and marketable title to all of the Purchased Assets, free and clear of any security interest, pledge, mortgage, lien, charge, restriction, or other encumbrance (“Liens”);

(b) consents to assignment from each of the third parties listed on Schedule 2.2(b);

(c) an estoppel certificate from the landlord of each of (i) the Buffalo, New York leased real property, (ii) the Garden City, New York leased real property, and (iii) the Franklin Square, New York leased real property; and

(d) the employment agreements for each employee of the Business listed on Schedule 2.2(d).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer that the statements contained in this Article are correct and complete.

3.1 Organization of Seller. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York and has full power to carry on its business as now being conducted. Seller is duly authorized to conduct business as a foreign corporation and is in good standing in each jurisdiction in which the property owned, leased or operated by Seller, or the nature of the business conducted by Seller makes such qualification necessary.

3.2 Authorization. Each of Seller and Shareholder has full power and authority to execute and deliver this Agreement and all other agreements and documents to be executed and delivered by it in connection with the consummation of the transactions contemplated hereby and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Seller and Shareholder, enforceable in accordance with its terms.

3.3 Noncontravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the compliance with the terms of this Agreement do not and will not: (a) conflict with or result in any breach of any provision of the terms of the Articles of Incorporation or Bylaws of Seller, (b) conflict with, constitute a default under, result in a breach of or require notice to or the consent of any third party under any contract, agreement, commitment, note, license or other instrument to which Seller is a party or by which it or any of its property may be bound; (c) result in the creation of any Lien upon or any person obtaining the right to acquire any properties, assets or rights of Seller; (d) violate or conflict with any law, ordinance, code, rule, regulation, decree, order or ruling of any court or governmental authority, to which Seller or any of its property is subject; or (e) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority.

3.4 Financial Statements. Schedule 3.4 contains true and complete copies of the following financial statements (collectively, “Financial Statements”): (a) the statements of income of the Business for the fiscal years ended December 31, 2006 and December 31, 2007 (“Most Recent Fiscal Year End”), and (b) the statements of income of the Business (“Most Recent Financial Statements”) as of and for the period beginning January 1, 2008 and ending on the last day of the calendar month immediately preceding the Closing Date (“Most Recent Fiscal Month End”). All Financial Statements are in accordance with the books and records of Seller, and such books and records of Seller are true and complete. Each of the statements of income included within the Financial Statements fairly presents the results of operations of the Business as of its date. All Financial Statements have been prepared in conformity with U.S. GAAP, consistently applied. Since the date of the Most Recent Financial Statements, there has not been any material adverse change in the financial or operating condition of the Business.

3.5 Undisclosed Liabilities. The Business has no liabilities or obligations except for the liabilities and obligations (a) reflected or reserved for on the Most Recent Financial Statements or (b) that have arisen since the date of the Most Recent Fiscal Month End in the ordinary course of business. Seller knows of no circumstance, condition, event or arrangement that could hereafter give rise to any other liabilities or obligations of Seller with respect to the Business, or any successor to the Business.

3.6 Title, Condition and Sufficiency of the Purchased Assets.

(a) Seller has, and at the Closing, Buyer will receive, good, valid and marketable title to all of the Purchased Assets, free and clear of all Liens.

(b) All of the Purchased Assets are in operating condition, subject only to ordinary wear and tear. All of the tangible Purchased Assets have been maintained in the ordinary course of business in accordance with industry standards.

(c) The Purchased Assets constitute all of the assets, rights and properties used or held for use by Seller in connection with the Business and necessary for the conduct of the Business as presently conducted.

(d) There are no corporations, partnerships, joint ventures, limited liability companies or other entities other than Seller in which Seller or Shareholder, directly or indirectly, has an interest and which owns any of the Purchased Assets or through which any part of the Business is conducted.

3.7 Contracts. Schedule 1.1(b) sets forth a true and complete list of all real property leases and other contracts, agreements, commitments, leases, subleases, licenses, sublicenses and similar arrangements (written or oral) to which Seller is a party in connection with the Business that involve an annual expenditure by Seller in excess of $2,500 (“Contracts”). Seller has delivered to Buyer a true and complete copy of each written Contract and a written summary setting forth the terms and conditions of any oral Contract. With respect to each of the Contracts: (a) the Contract is legal, valid, binding, enforceable and in full force and effect; (b) Seller has fulfilled, or taken all action necessary to enable it to fulfill when due, all of its obligations under the Contract; (c) the transactions contemplated by this Agreement do not require the consent of any other party to the Contract, will not result in a breach of or default under the Contract, and will not otherwise cause the Contract to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (d) no party to the Contract is in breach or default under the Contract, or has alleged a breach or default, and no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute a breach or default, or permit termination, modification or acceleration under the Contract; and (e) no party has repudiated any provision of the Contract. With respect to each real property lease included in the Contracts: (i) Seller’s possession and quiet enjoyment of the real property under such lease has not been disturbed; (ii) Seller has not subleased, licensed or otherwise granted any person or entity the right to use or occupy the leased real property or any portion thereof; (iii) Seller has not collaterally assigned or granted any other Lien in such lease or any interest therein; and (iv) all buildings, structures, fixtures, building systems and equipment, and all components thereof included in the underlying leased real property are in good condition and repair and sufficient for the operation of the Business.

3.8 Licenses. Seller possesses or has been granted all licenses, permits, certifications, registrations, authorizations, and similar rights required to carry on the Business in the ordinary course (“Licenses”) and all such Licenses are listed on Schedule 1.1(c). All such Licenses are in full force and effect and no proceeding is pending or, to Seller’s knowledge, threatened seeking the revocation or limitation of any License.

3.9 Accounts Receivable. All Accounts Receivable represent or will represent valid obligations arising from bona fide sales actually made or services actually performed by Seller in the ordinary course of the Business, are consistent with all applicable fee schedules and all usual and customary charges of the Business, are current and collectible, and are not subject to any defense, setoff or counter-claim. Schedule 1.1(f) contains a complete and accurate list of all Accounts Receivable as of May 31, 2008, which list sets forth the aging of each Account Receivable. Since December 31, 2006, Seller has maintained, in the ordinary course of business, a consistent policy for the collection of accounts receivable of the Business and has not accelerated the collection of any such accounts receivable in any manner.

3.10 Accounts Payable. All Accounts Payable represent or will represent valid obligations arising from bona fide purchases actually made or services actually obtained by Seller in the ordinary course of the Business. Schedule 1.3(a) contains a complete and accurate list of all Accounts Payable as of May 31, 2008, which list sets forth the aging of each Account Payable. Since December 31, 2006, Seller has maintained, in the ordinary course of business, a consistent policy for the payment of accounts payable of the Business and has not delayed or postponed the payment of such accounts payable in any manner.

3.11 Compliance with Laws. Seller has, with respect to the Business and the Purchased Assets, complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of every federal, state, local, and foreign governmental authority (and all agencies thereof) having jurisdiction, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against Seller alleging any failure so to comply.

3.12 Litigation; Orders. Except as disclosed on Schedule 3.12, there is no action, suit, arbitration, inquiry, proceeding or investigation by or before any court of competent jurisdiction, governmental or other regulatory or administrative agency or commission or arbitral panel (including, without limitation any workers compensation claims) (“Action”) pending or, to Seller’s knowledge, threatened against Seller or any of its physician contractors with respect to the Business or any of the Purchased Assets and to Seller’s knowledge, there is no basis in fact for any such Action. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency, or by arbitration) against Seller that would interfere with the conduct of the Business as presently conducted or prevent or delay the transactions contemplated in this Agreement.

3.13 Taxes. Seller has filed all tax returns required to be filed by Seller in connection with the Business. All such returns are true and correct, and all taxes due in connection with such returns or otherwise due have been paid in full. There is no Action or unresolved claim for assessment or collection, pending or, to Seller’s knowledge, threatened, by, or present dispute with, the United States or any other taxing authority for assessment or collection from Seller of any taxes of any nature in connection with the Business. All taxes that Seller has been required to collect or withhold for in connection with the Business, including, without limitation, all payroll taxes, have been withheld or collected and, to the extent required, have been paid to the proper taxing authority. Seller has not waived any statute of limitations in respect of taxes in connection with the Business or agreed to any extension of time with respect to a tax assessment or deficiency in connection with the Business. Seller is not a “foreign person” within the meaning of Internal Revenue Code Section 1445(f)(3).

3.14 Labor. Schedule 3.14 to this Agreement is a list, as of the date of this Agreement, of the current employees of Seller associated with the Business (“Current Employees”), and their dates of hire, positions, base salary and commission schedule (if applicable). Except as set forth on Schedule 3.14 none of the Current Employees has any understanding or agreement (written or otherwise) with Seller or is covered by any collective bargaining or union contract or agreement. There are no material strikes, work stoppages, boycotts or concerted actions pending or, to the knowledge of Seller, threatened (and Seller has no knowledge of any circumstances that may reasonably be expected to give rise thereto) against Seller or the conduct of the Business. Seller has not received notice of any pending (a) proceeding under the National Labor Relations Act or before the National Labor Relations Board, (b) grievances or arbitrations, or (c) organizational drives or union clarification requests, in each case against or affecting Seller or the conduct of the Business.

3.15 Customers and Contractors. No customer of the Business has indicated to Seller that it will stop, or materially decrease the rate of, purchasing services from the Business. Schedule 3.15 lists the top twenty-five (25) revenue producing physician contractors to the Business during the last fiscal year and the amount of combined revenue from each such physician contractor during such period. No physician contractor listed on Schedule 3.15 has indicated to Seller that it will stop providing, or materially decrease his or her availability to provide, services to the Business. To Seller’s knowledge, there is no fact, condition or event relating to the Business that would materially adversely affect Seller’s relationship, or Buyer’s relationship after the Closing, with any customer or contractor.

3.16 Brokers. Seller has not employed any broker or finder, or incurred any liability or obligation for a brokerage fee, commission or finder's fee in connection with the transactions contemplated by this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this Article are correct and complete.

4.1 Organization of Buyer. Buyer is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of New York and has full power to carry on its business as now being conducted. Buyer is duly authorized to conduct business as a foreign limited liability company and is in good standing in each jurisdiction in which the property owned, leased or operated by Buyer, or the nature of the business conducted by Buyer makes such qualification necessary.

4.2 Authorization. Buyer has full power and authority to execute and deliver this Agreement and all other agreements and documents to be executed and delivered by it in connection with the consummation of the transactions contemplated hereby and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms.

4.3 Noncontravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and the compliance with the terms of this Agreement do not and will not: (a) conflict with or result in any breach of any provision of the terms of the Articles of Organization of Buyer, (b) conflict with, constitute a default under, result in a breach of or require notice to or the consent of any third party under any contract, agreement, commitment, note, license or other instrument to which Buyer is a party or by which it or any of its property may be bound; (c) result in the creation of any Lien upon or any person obtaining the right to acquire any properties, assets or rights of Buyer; (d) violate or conflict with any law, ordinance, code, rule, regulation, decree, order or ruling of any court or governmental authority, to which Buyer or any of its property is subject; or (e) require any authorization, consent, order, permit or approval of, or notice to, or filing, registration or qualification with, any governmental, administrative or judicial authority.

4.4 Brokers. Buyer has not employed any broker or finder, or incurred any liability or obligation for a brokerage fee, commission or finder's fee in connection with the transactions contemplated by this Agreement.

ARTICLE V

COVENANTS OF SELLER AND BUYER

5.1 General. Each party agrees to take further action as reasonably requested by the other to carry out the purpose of this Agreement. The sole cost and expense of any further action will be borne by the requesting party.

5.2 Consents. Seller will use commercially reasonable efforts from and after the Closing Date to obtain all agreed upon third-party consents that have not been obtained by Seller prior to the Closing Date. Nothing in this Agreement shall be construed as an attempt to assign any Contract or License that is by its terms or law nonassignable without the consent of the other party or parties thereto, unless such consent shall have been given or as to which all the remedies for the enforcement thereof enjoyed by Seller would, as a matter of law, pass to Buyer as an incident of the assignments provided for by this Agreement. In the event (a) a Contract or License either does not permit or expressly prohibits the assignment by Seller of its rights and obligations thereunder, or (b) Seller has not obtained the necessary consents to assignment from all parties to any Contract or License prior to the Closing Date, or (c) direct assumption of any Contract or License is not practical, Buyer shall fulfill such Contract or License and shall assume the obligations and liabilities of such Contract or License accruing after the Closing for and on behalf of Seller but for the account of Buyer and Seller shall cooperate with Buyer in any reasonable arrangements designed to provide for Buyer the benefits under such Contract or License accruing after the Closing including the enforcement for the benefit and at the expense of Buyer of any rights comparable to the rights previously enjoyed by Seller in connection with such Contract or License.

5.3 Proration. Current real estate taxes, personal property taxes, rents, utility charges (including electricity, gas, water, sewer and telephone), refuse collection, and other service contracts assumed by Buyer shall be prorated ratably as of the Closing Date. To the extent practicable, all such prorations shall be computed and paid by Seller at the Closing, and to the extent not practicable, as soon as practicable thereafter. Current real estate taxes and personal property taxes shall be prorated as of the Closing Date in accordance with the custom and practice of the jurisdiction of the Business location.

5.4 Reimbursement for Certain Payments. If Buyer pays any of the Excluded Liabilities, then Seller shall reimburse the amount of such payment to Buyer by wire transfer of immediately available funds within five (5) business days of receipt by Seller of a demand for reimbursement, together with corresponding documentation of such payment. In the event that on or after the Closing Date Seller receives any Accounts Receivable payments belonging to Buyer, Seller shall remit such payments to Buyer in the form received within five (5) business days of Seller’s receipt of such payments. Seller shall, if applicable, provide Buyer with a regular accounting of all Accounts Receivable payments received by Seller, but belonging to Buyer, and shall provide Buyer with access to such books, records and other information as may be reasonably necessary for Buyer to verify such accounting. Shareholder shall be jointly and severally liable with Seller for any payments required under this Section 5.4.

5.5 Transition Services. In order to facilitate the orderly continuation of the Business after the Closing, for a period of three (3) months following the Closing Date, Seller shall provide, or cause to be provided, to Buyer, the services described on Schedule 5.5 (“Transition Services”). If Buyer wishes to extend the term of any such Transition Services beyond such period, Seller and Buyer shall negotiate such extension in good faith. Seller agrees that for the first sixty (60) days following the Closing Date, the Transition Services shall be provided to Buyer free of charge. Thereafter, to the extent Buyer still requires any of the Transition Services, Buyer shall reimburse Seller for Seller’s actual, direct, out-of-pocket cost, without markup, to provide the applicable Transition Services to Buyer. Upon Buyer’s request, Seller shall provide Buyer with access to such books, records and other information as may be reasonably necessary for Buyer to verify such cost.

5.6 Accounts Receivable Collection Assistance. For a period of six (6) months following the Closing Date, upon Buyer’s specific request, Seller will use commercially reasonable efforts to assist Buyer in the collection of any Accounts Receivable that remain uncollected after their respective due dates.

5.7 Access. For a period of four (4) years following the Closing Date, each party shall provide the other party with commercially reasonable access during normal business hours to its books, records and other information relating to the Business to the extent related to the condition or operation of the Business by Seller prior to the Closing Date and that are requested by the party to prepare its tax returns, to respond to third party claims, or for any other legitimate purpose specified in writing. Each party shall have the right, at its own expense, to make copies of any such books, records and information.

5.8 Employees. Buyer shall offer to employ, commencing on the Closing Date, those employees of Seller listed on Schedule 5.8 who are actively performing services for the Business as of the Closing Date (including any such employee of Seller on vacation) or who, as of the Closing Date are on leave of absence for any reason (other than long-term disability) and return to active full time employment within ninety (90) days after commencement of the leave (each, an “Eligible Employee”), on substantially similar terms and conditions of employment and with substantially the same benefits as those enjoyed by similarly situated employees of Buyer as of the Closing Date. If an Eligible Employee accepts the offer to commence employment as of the Closing Date, he or she shall become an employee of Buyer as of the Closing Date (or as of the return from leave) and shall be referred to herein as a “Company Employee.” Nothing herein shall limit the right of Buyer to terminate the employment of any such employee at any time after the Closing Date, or alter the salary, wages or benefits payable to any such employee at any time after the Closing Date. Seller shall be responsible for the payment through the Closing Date of all compensation and benefits (including, without limitation, accrued vacation, sick time and personal time benefits) payable to all Company Employees and all other liabilities and obligations of Seller with respect to such Company Employees arising out of or relating to matters, events or periods occurring prior to the Closing Date, including, but not limited to any and all severance and/or stay bonus arrangements. As to any of Seller’s employees that do not become a Company Employee, Seller shall retain and discharge when due any and all liabilities and obligations of Seller with respect to such employees, regardless of whether relating to matters or events occurring on, prior to or after the Closing Date.

5.9 Employee Benefit Arrangements.

(a) Effective as of the Closing Date, Company Employees shall cease participation in all employee benefit plans, programs, policies and arrangements maintained or contributed to for their benefit by Seller or any of its affiliates (“Seller Plans”) except to the extent such Seller Plans provide for continued participation by former employees or Seller otherwise retains liability with respect to such Seller Plans under this Agreement.

(b) Buyer shall use reasonable efforts to cause each Company Employee to be given credit for purposes of vesting and eligibility for participation for all service prior to the Closing Date with Seller and its affiliates (to the extent taken into account under similar employee benefit plans, programs, policies and arrangements of Seller in effect immediately prior to the Closing Date) under each employee benefit plan, program and arrangement intended to meet the requirements of Code section 401(a) and for all purposes, including benefit payment levels under any severance or vacation arrangement and any other welfare benefit arrangement (in each case, to the extent taken into account under similar employee benefit plans, programs, policies and arrangements of Seller in effect immediately prior to the Closing Date) maintained for his or her benefit by Buyer on the Closing Date.

(c) Seller shall retain responsibility for and continue to pay, to the extent covered by Seller Plans, all medical, life insurance, disability and other welfare and government-mandated plan expenses and benefits for each Company Employee with respect to claims incurred by such employees or their covered dependents on or prior to the Closing Date. Expenses and benefits with respect to claims incurred by Company Employees or their covered dependents after the Closing Date shall be the responsibility of Buyer under, and to the extent covered by, Buyer’s employee benefit plans, programs, policies and arrangements, and government-mandated plans. For purposes of this paragraph, a medical claim shall be deemed to be incurred as of the date of the occurrence or event giving rise to the benefit to which the claim relates.

(d) With respect to the welfare benefit plans initially implemented for the benefit of Company Employees immediately after the Closing Date, Buyer shall use reasonable efforts to (i) cause to be waived any requirement to provide evidence of insurability and any pre-existing condition limitations, (ii) give effect, in determining any deductible and maximum out-of-pocket limitations for the year in which the Closing Date occurs, to claims incurred and amounts paid with respect to such employees with respect to similar plans maintained by Seller (or any affiliate thereof) for their benefit during the portion of the year that occurs prior to the date employment commences (provided Seller provides such information to Buyer as of the Closing Date).

(e) Seller shall furnish Buyer with any information that Buyer may require to provide benefits to Company Employees as of the Closing Date in accordance with this Section 5.9.

5.10 Public Announcements. Except as agreed in writing by the parties or as otherwise may be required by applicable law or applicable stock exchange regulation, none of Seller, Shareholder or Buyer will issue, or permit any agent or affiliate to issue, any press releases or otherwise make, or permit any agent or affiliate to make, any public statements with respect to this Agreement or the transactions contemplated hereby. Without limiting the generality of the foregoing, in no event shall any public statements reference any parent or affiliated entity of Buyer.

ARTICLE VI

INDEMNIFICATION

6.1 Survival. All representations and warranties of the parties contained in this Agreement shall survive the Closing Date until the eighteen (18) month anniversary of the Closing Date, other than the representations and warranties contained in Sections 3.13 (Employee Benefits) and 3.14 (Taxes), which shall survive until six (6) months following the expiration of the applicable statutes of limitations; provided, however, (a) representations and warranties that are the basis for claims asserted under this Agreement prior to the expiration of such applicable time periods shall also survive until the final resolution of those claims; and (b) the representations and warranties in Sections 3.2 and 3.6(a) and any representation or warranty made falsely by a party intentionally, willfully or recklessly shall survive the Closing without limitation. Covenants and agreements contained in this Agreement shall survive the Closing without limitation. The right to indemnification, payment of damages and other remedies based on representations, warranties, covenants and obligations in this Agreement shall not be affected by any investigation conducted by any party or by any information that any party may receive at any time, whether before or after the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation.

6.2 Indemnification by Buyer. From and after the Closing Date, Buyer shall indemnify and hold harmless Seller and its affiliates, each of their respective members, managers, directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, “Seller Indemnified Parties”) from and against any and all loss, cost, liability, damage, penalty, fine, judgment, claim or expense (including reasonable attorneys’ fees) (“Losses”) incurred by or asserted against any of the Seller Indemnified Parties in connection with or arising from (a) any breach by Buyer of its covenants and agreements contained herein; (b) any breach by Buyer of its representations and warranties contained herein; or (c) the Assumed Liabilities. Notwithstanding the foregoing, (i) Buyer shall be required to indemnify the Seller Indemnified Parties pursuant to Section 6.2(b) only to the extent that the aggregate Losses indemnifiable pursuant to Section 6.2(b) exceed (U.S.) $10,000 in the aggregate (“Basket”), (ii) Buyer shall not be required to indemnify the Seller Indemnified Parties pursuant to Section 6.2(b) in an aggregate amount in excess of (U.S.) $1,000,000 (“Cap”), and (iii) any claim for indemnification under Section 6.2(b) must be made, if at all, during the applicable survival period set forth in Section 6.1.

6.3 Indemnification by Seller and Shareholder. From and after the Closing Date, Seller and Shareholder, jointly and severally, shall indemnify and hold harmless Buyer and its affiliates, each of their respective stockholders, directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, “Buyer Indemnified Parties”) from and against any and all Losses incurred by or asserted against any of the Buyer Indemnified Parties in connection with or arising from (a) any breach by Seller or Shareholder of their covenants and agreements contained herein; (b) any breach by Seller of its representations and warranties contained herein; (c) the Excluded Liabilities; or (d) the matters disclosed in Schedule 3.12. Notwithstanding the foregoing, (i) Seller and Shareholder shall be required to indemnify the Buyer Indemnified Parties pursuant to Section 6.3(b) only to the extent that the aggregate Losses indemnifiable pursuant to Section 6.3(b) exceed the Basket, (ii) Seller and Shareholder shall not be required to indemnify the Buyer Indemnified Parties pursuant to Section 6.3(b) in an aggregate amount in excess of the Cap, and (iii) any claim for indemnification under Section 6.3(b) must be made, if at all, during the applicable survival period set forth in Section 6.1; provided, however, that claims made under Section 6.3(b) for breaches of Sections 3.2 or 3.6(a) or for any representation or warranty made falsely by a party intentionally, willfully or recklessly shall not be subject to the Basket or the Cap.

6.4 Third-Party Claims. Promptly after receipt by a Seller Indemnified Party or a Buyer Indemnified Party (“Indemnified Party”) of notice of any matter or the commencement of any Action by a third party in respect of which the Indemnified Party will seek indemnification hereunder (“Third-Party Claim”), the Indemnified Party shall notify each Person that is obligated to provide such indemnification (“Indemnifying Party”) thereof in writing but any failure to so notify the Indemnifying Party shall not relieve it from any liability that it may have to the Indemnified Party other than to the extent the Indemnifying Party is actually prejudiced by such failure. The Indemnifying Party shall be entitled to participate in the defense of such Third-Party Claim and, provided that within fifteen (15) days after receipt of such written notice the Indemnifying Party confirms in writing its responsibility therefor and demonstrates to the reasonable satisfaction of the Indemnified Party its financial capability to undertake the defense and provide indemnification with respect to such Third-Party Claim, to assume control of such defense with counsel reasonably satisfactory to such Indemnified Party; provided, however, that:

(a) the Indemnified Party shall be entitled to participate in the defense of such Third-Party Claim and to employ counsel at its own expense to assist in the handling of such matter or claim;

(b) the Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into any settlement of such Third-Party Claim or ceasing to defend against such matter or claim (with such approval not to be unreasonably withheld);

(c) no Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a full and complete release from all liability in respect of such Third-Party Claim; and

(d) the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any Third-Party Claim to the extent the matter or claim seeks an order, injunction, non-monetary or other equitable relief against the Indemnified Party that, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party.

After written notice by the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of any such Third-Party Claim and proof of its financial responsibility as provided in this Section 6.4, the Indemnifying Party shall not be liable to such Indemnified Party hereunder for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation and of liaison counsel for the Indemnified Party; provided, however, that the Indemnifying Party shall be liable for such legal expenses if the Indemnified Party determines in good faith that the incurrence of the same is appropriate in light of defenses not available to the Indemnifying Party, conflicts of interest or other similar circumstances. If the Indemnifying Party does not assume control of the defense of such Third-Party Claim as provided in this Section 6.4, the Indemnified Party shall have the right to defend such Third-Party Claim in such manner as it may deem appropriate at the cost and expense of the Indemnifying Party, and the Indemnifying Party will promptly reimburse the Indemnified Party therefor in accordance with this Article VI. The reimbursement of fees, costs and expenses required by this Article VI shall be made by periodic payments during the course of the investigations or defense, as and when bills are received or expenses incurred.

ARTICLE VII

CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION

7.1 Confidentiality. From and after the Closing, each of Seller and Shareholder agrees to keep confidential and not divulge, communicate, use to the detriment of Buyer or for the benefit of any other person or persons or misuse in any way any knowledge or information of a confidential nature relating to the Business or the Purchased Assets, including, without limitation, confidential or proprietary information of Seller acquired by Buyer pursuant to this Agreement (“Confidential Information”). Seller may disclose Confidential Information if required by any judicial or governmental request, requirement or order; provided that Seller will take reasonable steps to give Buyer sufficient prior notice in order to contest such request, requirement or order or to obtain a protective order. Seller may also disclose Confidential Information if the information has become known to the general public by means other than Seller’s or Shareholder’s breach of this Agreement.

7.2 Non-Competition. In consideration for the Purchase Price, each of Seller and Shareholder agrees that for a period of three (3) years following the Closing Date, neither Seller nor Shareholder shall, either directly or indirectly (and whether or not for compensation), work for, be employed by, own, manage, operate, control, finance, participate or engage in, or have any interest in, any person, firm, entity, partnership, limited partnership, limited liability company, corporation or business (whether as an employee, owner, sole proprietor, partner, venturer, member, shareholder, officer, director, agent, creditor, consultant or in any capacity which calls for the rendering of personal services, advice, acts of management, operation or control) which engages in the business of independent medical evaluations, peer reviews, functional capacity evaluations, related services, or any other activity substantially the same as or competitive with all or any part of the Business anywhere in the State of New York (“Restricted Business”).

7.3 Non-Solicitation. In consideration for the Purchase Price, each of Seller and Shareholder agrees that for a period of three (3) years following the Closing Date, neither Seller nor Shareholder shall, either directly or indirectly: (a) divert or attempt to divert from Buyer or any affiliate of Buyer any work within the definition of the Restricted Business; (b) solicit, contact, call upon or attempt to solicit, or provide services to, any of Buyer’s or its affiliates’ customers, suppliers or actively sought potential customers or suppliers for the purpose of doing anything within the definition of the Restricted Business; or (c) induce or attempt to induce any person who is an employee or consultant of Buyer or any affiliate of Buyer to leave the employ of Buyer or such affiliate or hire any person who is, or within twelve (12) months prior to the date of such hiring was, an employee or consultant of Buyer or any affiliate of Buyer.

7.4 Reasonable Restrictions. Each of Seller and Shareholder acknowledges and agrees that the covenants set forth in this Article VII are necessary to protect the goodwill value and other legitimate business interests of Buyer relating to the Business and are reasonable and valid in geographical and temporal scope and in all other respects. If, at the time of enforcement of any of the provisions of this Article VII, a court holds that the restrictions stated therein are unreasonable under the circumstances then existing, each of Seller and Shareholder agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area.

7.5 Remedies. Each of Seller and Shareholder acknowledges that the remedy at law of Buyer for breach of the covenants in this Article VII will be inadequate and that, in addition to any other remedy Buyer may have, including the right to recover damages, Buyer will be entitled to an injunction restraining any breach or threatened breach, without proof of actual damages and without bond or other security being required. Each of Seller and Shareholder further agrees not to assert as a defense in any proceeding in which Buyer is seeking enforcement of any of the covenants in this Article VII any claim that Seller or Shareholder may have against Buyer or any other person arising under this Agreement or otherwise. Seller or Shareholder, as applicable, shall be permitted to assert any such claim in a separate proceeding initiated by Seller or Shareholder but the pendency of any such proceeding shall not affect Buyer’s right to the strict enforcement of the covenants set forth in this Article VII.

ARTICLE VIII

MISCELLANEOUS

8.1 Entire Agreement. This Agreement (including all Schedules or other attachments hereto) constitutes the complete and exclusive statement of the terms of the agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, promises, and arrangements, oral or written, among the parties with respect to the subject matter hereof.

8.2 Amendment. This Agreement may be amended or modified only by an instrument in writing signed by each of the parties.

8.3 Third Parties. Except as otherwise expressly provided under this Agreement, nothing in this Agreement, express or implied, is intended to or shall be construed to confer upon or give any person other than the parties and their respective successors and permitted assigns, any legal or equitable right, remedy or claim under or with respect to this Agreement.

8.4 Expenses. Except as otherwise expressly provided in this Agreement, each party shall pay its own fees and expenses (including, without limitation, the fees of any attorneys, accountants, investment bankers or others engaged by such party) incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the transactions contemplated hereby.

8.5 Notices. All notices, consents, waivers and other communications required or permitted under this Agreement shall be sufficiently given for all purposes hereunder if in writing and (a) hand delivered, (b) sent by certified or registered mail, return receipt requested and proper postage prepaid, (c) sent by a nationally recognized overnight courier service, or (d) sent by facsimile, in each case to the address or facsimile number and to the attention of the Person (by name or title) set forth below (or to such other address and to the attention of such other Person as a party may designate by written notice to the other parties):

If to Seller:

Hooper Evaluations, Inc.

170 Mt. Airy Road

Basking Ridge, NJ 07920

Attn: William F. Kracklauer,

Sr. Vice President,

General Counsel

Facsimile No.: (908) 953-6304

If to Shareholder:

Hooper Holmes, Inc.

170 Mt. Airy Road

Basking Ridge, NJ 07920

Attn: William F. Kracklauer

Sr. Vice President,

General Counsel

Facsimile No.: (908) 953-6304

If to Buyer: with a mandatory copy to:

DDA Management Services, LLC Bodman LLP

9400 Grogans Mill Road 201 West Big Beaver Rd.

Suite 305 Suite 500

The Woodlands, TX 77380 Troy, MI 48084

Attn: Scott J. Orr Attn: Gene P. Bowen

Sr. Vice President Facsimile No.: (248) 743-6002

General Counsel

Facsimile No.: (832) 485-0266

The date of giving of any such notice, consent, waiver or other communication shall be (i) the date of delivery if hand delivered, (ii) the date of receipt for certified or registered mail, (iii) the day after delivery to the overnight courier service if sent thereby, and (iv) the date of facsimile transmission on production of a transmission report by the machine from which the facsimile was sent that indicates that the facsimile was sent in its entirety to the facsimile number of the recipient.

8.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns; provided, however, that no party shall assign any of its rights or delegate any of its obligations under this Agreement without the express prior written consent of each other party, except that Buyer may assign and/or delegate any or all of its rights and obligations hereunder, without the consent of Seller or Member, to (a) one or more Affiliates of Buyer, (b) an entity that acquires all or substantially all of the assets of Buyer used in connection with the Business; or (c) to any successor in a merger or acquisition involving Buyer; provided, further, that in no event shall any such assignment or delegation relieve Buyer of its obligations under this Agreement. Any purported assignment of rights or delegation of obligations in violation of this Section, whether voluntary or involuntary, by merger, consolidation, dissolution, operation of law, or otherwise, is void.

8.7 Construction. Captions, titles and headings to articles, sections or paragraphs of this Agreement are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement. All references in this Agreement to “Article”, or “Section” refer to the corresponding articles or sections of this Agreement unless otherwise stated and, unless the context otherwise specifically requires, refer to all subsections or subparagraphs thereof. All references in this Agreement to “Schedule” or “Exhibit” refer to the corresponding Schedules or Exhibits to this Agreement unless otherwise stated. All references in this Agreement to a “party” or “parties” refer to the parties signing this Agreement. All defined terms and phrases used in this Agreement are equally applicable to both the singular and plural forms of such terms. Nouns and pronouns will be deemed to refer to the masculine, feminine or neuter, singular and plural, as the identity of the Person or Persons may in the context require.

8.8 Cumulative Remedies. Except as otherwise expressly provided in this Agreement, the rights and remedies of the parties under this Agreement are cumulative and not alternative and are in addition to any other right or remedy set forth in any other agreement between the parties, or that may now or subsequently exist at law or in equity, by statute or otherwise.

8.9 Waiver. Neither any failure nor any delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by each party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

8.10 Severability. In the event that a court or arbitral body of competent jurisdiction holds any provision of this Agreement invalid, illegal or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which other provisions shall remain in full force and effect, and the application of such invalid, illegal or unenforceable provision to Persons or circumstances other than those as to which it is held invalid, illegal or unenforceable shall be valid and be enforced to the fullest extent permitted by law. To the extent permitted by applicable law, each party waives any provision of law that renders any provision of this Agreement invalid, illegal or unenforceable in any respect.

8.11 Representation of Parties. The parties acknowledge that they have been represented by competent counsel of their own choice and that this Agreement has been the product of negotiation between them. Accordingly, the parties agree that in the event of any ambiguity in any provision of this Agreement, this Agreement shall not be construed against a party regardless of which party was responsible for the drafting thereof.

8.12 Time of the Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

8.13 Execution of Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. This Agreement shall become effective when one or more counterparts have been executed by each of the parties and delivered to each other party. The exchange of copies of this Agreement and of signature pages by facsimile or other electronic transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile or by other electronic means shall be deemed to be their original signatures for all purposes.

8.14 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts-of-law principles that would require the application of any other law.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, this Asset Purchase Agreement has been signed by or on behalf of each of the parties as of the day first above written.

“SELLER”

HOOPER EVALUATIONS, INC.

By:

Name: William F. Kracklauer

Title: Sr. Vice President, General Counsel

“SHAREHOLDER”

HOOPER HOLMES, INC.

By:

Name: William F. Kracklauer

Title: Sr. Vice President, General Counsel

“BUYER”

DDA MANAGEMENT SERVICES, LLC

By:

Name:

Title: