-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RbXNFDrncIQqmVCbOoJEVU+bU8jY2JUhXUM/bKlqWC8uA3ZbHfLryqgDmQGyHwwV 9bcwI6R+GgSgHQ0j2rQRtg== 0000950109-97-002698.txt : 19970401 0000950109-97-002698.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950109-97-002698 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOOPER HOLMES INC CENTRAL INDEX KEY: 0000741815 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 221659359 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09972 FILM NUMBER: 97571697 BUSINESS ADDRESS: STREET 1: 170 MT AIRY RD 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-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 --------------------------------------------------- Commission File Number 1-9972 --------------------------------------------------- Hooper Holmes, Inc. - ----------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) New York 22-1659359 - ------------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 170 Mt. Airy Road, Basking Ridge, N.J. 07920 - ------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (908) 766-5000 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - -------------------- --------------------------- Common Stock ($0.04 Par Value) American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None - ----------------------------------------------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Based on the closing sales price of February 28, 1997 the aggregate market value of the voting stock held by non affiliates of Registrant was $98,842,000. The number of shares outstanding of the Registrant's common stock, $.04 par value was 6,794,121 at February 28, 1997. Certain information contained in the Company's 1996 Annual Report to Shareholders and its Proxy Statement in connection with its 1997 Annual Meeting of Shareholders is incorporated by reference into Parts I, II and III of this Form 10-K. FORM 10K -------- PART 1 ------ ITEM 1. Business - ------- General The Company was founded in 1899 to provide business information reports to the insurance industry. During its first 70 years, the Company established a nationwide network of branch offices through which it successfully developed relationships with most of the leading insurance companies in the United States. In the early 1970's, to meet the increasingly sophisticated needs of its insurance industry clients, the Company began using nurses and other skilled professionals to provide physical examinations and health profiles for persons applying for life and health insurance. By the early 1980's, the Company had developed an extensive branch office network and had gained experience in providing health-related services. These factors, coupled with favorable demographic and health care cost containment trends, led the Company to expand into the health care field by providing home health care services to individuals, and nurses and other personnel for supplemental staffing to health care facilities. To focus on its growing health information examination services and health care operations, the Company sold most of its original business information operation in 1988, sold its direct marketing services business in 1992, and sold the majority of its facilities for servicing medically fragile-children in 1994. In 1995, the Company sold its Nurse's House Call home healthcare segment and, as part of that transaction, acquired a major competitor in the health information segment, American Service Bureau, Inc., d/b/a ASB Meditest ("ASB Meditest") of Framingham, Mass. Today, the Company is nationally recognized as the largest provider of health information services through a network of nearly 200 branch offices in 50 states. Through its health information alternate site operations the Company provides medical and paramedical examinations (which typically involve taking a medical history, recording physical information and obtaining specimens) and related services to life and health insurance companies. Business Strategy Management believes that the Company is well positioned to continue to capitalize on several favorable trends currently affecting the health information, alternate site industry. The health information alternate site services business which provides specialty underwriting information services to the country's life and health insurance industry, continues to show trends which indicate an increase in life and health insurance underwriting volume, stricter underwriting standards for life and health insurance and a basic consolidation of health information companies serving the industry. The Company's commitment to automation has placed it in the position of being the leading nationwide automated provider of health information services. Development of electronic exam technology via laptops has led to the introduction of our "Teledex" automated exam and application services which we find has been widely accepted as a solution to many of our clients' needs for accurate and timely health information. The formulation in 1996 of our partnerships with new clients utilizing direct response to sell policies are examples of strides recently made as a result of our investments in technology in the past 3 years. It is management's objective to expand the Company's capabilities to provide additional database services to the insurance industry as they face new challenges in their changing market. Over the past several years, the Company's health information services have grown through internal development of branch offices and acquisitions of strategically located similar businesses. The acquisition of - 2 - ASB Meditest in 1995 ratifies management's intentions to continue to expand its health information services business through internal growth and strategic acquisitions. The Company's ongoing strategy is to combine these positive industry trends, increased market presence, entrance into related markets and our superior technology to become the leading health information services provider in the life and health insurance industry. Health Information Services Industry Overview Management believes that continued growth in the health information business results from an increase in the number of medical and paramedical examinations ordered and from additional testing procedures and new services required by insurance companies. Additionally, several important trends in the insurance industry point to increased demand for the Company's health information services: Stricter Underwriting Standards. Many life and health insurance companies continue to lower the thresholds of insurance coverage requiring pre-insurance examinations, due in part to growing concern over substance abuse, AIDS and other illnesses and the improved ability to identify AIDS and other life- threatening diseases through laboratory testing. As technological advances enable home detection of additional risks, the Company anticipates an increased demand for such procedures as part of the examination process. Consolidation. To improve quality control and reduce administrative costs, life and health insurance companies are reducing the number of health information providers approved for use by local agents. Management believes that the Company has benefited and will continue to benefit from these consolidation efforts because of its reputation for providing prompt, high quality service and its well established relationships with most of the major insurance companies at both national and local levels. The acquisition of ASB Meditest in 1995 and its resources has further enhanced both our abilities and standing among our client base. Restructuring. Costs and competitive pressures are forcing many of our clients in the life and health industry to change their methods of doing business. Procedures for completing applications, processing and even the underwriting of risks are being outsourced from what were traditionally in-house operations to more efficient, cost effective third parties. This area is our fastest growing segment of new services. The Company believes that it is well positioned to capitalize on these trends for several reasons. The Company's network of highly automated branch offices enables it to provide services nationwide in all urban and rural locations. On-site branch office management is accountable for local operations which enhances the Company's ability to establish and maintain relationships with local insurance agents. The 1993 acquisition of Lifedata Medical Services, Inc., a company with a large number of rural examiners, enhanced this long term objective. The 1995 acquisition of ASB Meditest added additional locations rounding our total nationwide to 200, which were consolidated during 1996. Also, the Company is committed to providing superior quality service and has established and implemented a strict set of quality assurance standards. Because the Company owns the majority of its branch offices and does not rely on franchisees to provide medical and paramedical examinations, it is able to maintain consistent enforcement of these Company-wide standards. Finally, the Company provides accurate and complete examination results to insurance clients, in most cases within three to five days of receiving the initial request for an examination. The Company's ability to process examinations rapidly is due, in part, to the proximity of its branch offices to the homes and workplaces of insurance applicants, ongoing improvements in data processing and management information systems, and the use of medically trained personnel who promptly evaluate insurance applicants and efficiently process examination results. The Company has increased resources in its quality assurance review system in an effort to make the quality of its health information services among the best in the life and health insurance industry. - 3 - Services Portamedic(R) -- Medical and Paramedical Examinations Management believes that the Company is the leader of four leading national providers of medical and paramedical examinations for applicants seeking insurance coverage from life and health insurers. Examinations are provided nationwide under the Portamedic trade name through nearly 200 branch locations in 50 states. During 1996, The Company performed over 2.3 million paramedical examinations, covering all 50 states, Guam and Puerto Rico. Each branch office is staffed with a branch manager, who is responsible for local business development and general oversight of the local health information operation, and a support staff who are responsible for coordinating examination and reporting procedures. Each branch office typically uses full-time and part- time employees, and contract personnel to perform examinations, including registered nurses, licensed practical nurses, physicians, and medical and paramedical technicians. The Company's examiners provide examinations at the request of insurance agents at times and locations convenient to applicants, including the applicants' home or place of business. Each office is automated via a computer network using Novell networking software. The application software is written and maintained by in-house personnel. The Company acquired 27 "contract affiliates" with the acquisition of ASB Meditest and have now consolidated down to 17, which the Company feels complements its own branch network in many geographical areas. Since almost all of the Company's examiners are nurses and other medically trained professionals, the Company is able to provide its clients with a full range of medical and paramedical examination services. These services primarily involve recording an applicant's medical history, height and weight, measuring blood pressure, and collecting urine specimens. In addition, examiners increasingly perform more sophisticated procedures requested by insurance underwriters, including electro-cardiograms, lung capacity measurements and blood sample collections which are sent to independent laboratories for testing for AIDS and other life-threatening diseases. Both written and electronic reports of examination results are provided to insurance clients typically within three to five days of the initial request for an examination. Prudential Insurance Company of America continues to be a major customer but due to overall revenue growth, fell below 10% of revenues for 1996 and 1995. In 1994, Prudential provided 12% of total revenues. Infolink(TM) Services Group Under the Infolink name, the Company offers comprehensive life and health inspection reports and Attending Physician Statements to its insurance clients. During 1996, the Company provided over 409,000 Infolink reports. The ASB Meditest acquisition had a substantial complimentary operation in Chicago and we have focused new product development in this Chicago office. These reports, available in varying degrees of detail pursuant to a client's request, assist insurance underwriters in developing a more comprehensive profile of an insurance applicant. A life and health inspection report includes information relating to an insurance applicant's lifestyle, employment history and financial status. A member of the branch office staff prepares the Infolink report primarily based upon telephone interviews with the applicant, his or her employer, his or her business and personal associates, and electronically transmits the report to the insurance underwriter. An Attending Physician Statement provides details of an applicant's medical history and is obtained, with the insurance applicant's consent, from notes and records maintained by the physician responsible for administering treatment. Our new Teledex service offers sophisticated electronically produced exams to our clients and was developed for what we see as a natural fit with the trends for "smart underwriting" (electronic) now emerging within the life and health insurance industry. Management expects that Infolink reports will become increasingly important to insurance underwriters as insurance companies continue to tighten underwriting standards. The Company is a leader in applying computerized technology to provide health information to the life and health industry. In 1995, the Company developed an automated pen-based laptop computer that permits the immediate input of data into the Company's computer network by examiners at the examination site. This same - 4 - technology was utilized in the development of our Teledex services which we feel will both replace and enhance the laptop technology initiated by the Company. Management intends to continue to integrate computer technology into its health information services business to provide additional data needed by insurance companies to make underwriting decisions. In 1995, we added the ability to complete and transmit ECG's in the same fashion. From time to time, the Company performs other services such as wellness health screening for corporations and other organizations outside of the insurance industry. These other services presently do not constitute a significant portion of the Company's health information business. Total Company revenues follow:
-- 1996 -- --1995 -- % of % of Amount Total Revenues Amount Total Revenue ------ -------------- ------ ------------- Portamedic $140.4 89.9% $100.4 90.2% Infolink 15.9 10.1% 10.9 9.8% --------- --------- --------- --------- $156.3 100.0% $111.3 100.0%
Quality Assurance and Training The quality and reputation of personnel and operations are critical to the continued success of the Company's business. Management believes that its insurance clients view the Company as a leader in terms of overall quality of services. The Company's commitment to the highest quality standards is supported by its quality assurance and training program. In 1995 the Company completed the ability to monitor all health services via an automated statistical quality control program. As a result of this advanced capability, it has greater control over the quality of services performed and as a result, 1996 was a year of unequaled quality performance. At the branch office level, local management is accountable for maintaining quality controls. In each branch office, examiners receive training in proper examination procedures and reporting requirements. Quality assurance specialists monitor examiner's performance through detailed analyses of examinations, provide examiners with periodic evaluations and conduct regular audits of branch office quality controls to assist examiners and branch managers in continually improving the quality of services performed. At the corporate headquarters level, quality assurance personnel use a comprehensive management information system to compile and review Company-wide information regarding the accuracy and timeliness of examinations and reports. These personnel regularly evaluate the Company's examination procedures and communicate with insurance company clients to address any specific evaluation results and, where appropriate, suggest revisions to improve the format of clients' examination procedures and reports. Marketing and Sales The Company markets Portamedic and Infolink health information services on a national level through seven full-time sales representatives who call on senior underwriting executives at the home offices of insurance companies. The Company serves approximately 900 active life and health underwriting clients, including their extensive network of agency, district, and brokerage offices. National sales representatives promote the Company's consistently high quality of service and rapid response time to examination requests and are responsible for maintaining the Company's position on each insurance company's approved list of examination providers. The Company regularly attends and occasionally sponsors client conferences to provide national sales representatives with opportunities to further develop key relationships. In 1996, the Company launched its Healthdex services which provide a variety of services to the wellness and pharmaceutical sectors outside our core markets. We have begun further initiatives in this product line, which we feel will have a substantial impact on our new service offerings in 1997. - 5 - At the local level, branch managers, and in certain offices, additional marketing personnel, market the Company's services directly to the local insurance agents and local managers, who have the authority to select examination providers from the list approved by the insurance companies' home offices. These local marketing efforts highlight the quality of the Company's examiners and the speed and accuracy of its services, including the ability of each branch to quickly ascertain the status of each service request through the Company's automated branch management information system. The Company has developed a comprehensive automated branch management information system which is now "on-line" in all branch offices. A key benefit of the system is that it permits each branch office to instantly and regularly monitor the status of a particular examination request, which results in more responsive client service. The Company has been making its "status" information available to its clients on a dial in electronic basis. Management believes that the Company is the sole provider within the industry to offer this improved service. The system also enables personnel at the Company's corporate headquarters to compile company-wide information regarding quality assurance standards as well as other administrative and accounting information. Competition The health information business is highly competitive, and certain of the Company's competitors in this business have greater resources than the Company, and offer services not offered by the Company or offer similar services at prices lower than those charged by the Company. Management believes that the Company is the leader of four firms operating nationally to provide health information services to insurance companies. A large, though decreasing number of regional and local firms also offer these services. In management's opinion, the principal competitive factors in the health information services market are speed of response, delivery of complete and accurate information, and price. Most recently, technological capabilities have taken the forefront in our clients needs. The Company, through its nationwide branch office network and highly qualified examiners, provides accurate and reliable health information reports at competitive prices to its insurance clients promptly, and generally within three to five days of receiving a request for an examination. Personnel At December 31, 1996, the Company employed approximately 980 full-time and 720 part-time employees, none of whom is represented by a collective bargaining agreement. The Company also contracts with over 10,000 medically trained examiners. The Company's ability to recruit skilled personnel is essential to its continued growth and success. Management attributes the Company's success in recruiting skilled personnel in its health information business to the flexible work schedules and varied work assignments it offers to its examiners. Management believes that these factors will enable the Company to continue to attract and retain qualified personnel. Regulation Various aspects of the Company's business are regulated by the federal government and the states in which the Company currently operates. The Company's discontinued Nurse's House Call business was regulated by both the federal and state governments. See also Item 3, Legal Proceedings. Although the Company has been able to comply with applicable regulations to date, there can be no assurance that it will continue to be able to comply with specific requirements of certain states. States periodically change the regulations and licensing requirements that apply to the Company. If such changes occur, or if the Company expands its operations into new jurisdictions or services, there can be no assurance that the Company will be able to comply with regulations and licensing requirements, although the Company will be required to do so before providing service. - 6 - Management is not aware of any pending federal or state environmental laws or regulations that would have a material adverse effect on the Company's business or competitive position or that would require material capital expenditures on the part of the Company to effect compliance. Insurance and Litigation The Company's health-information business involves a minimal risk of liability. To date, claims made against the Company arising in the course of providing health information services have not resulted in any material liability to the Company. The Company carries liability insurance in coverage amounts that management believes are customary in its business and sufficient to cover most claims. There can be no assurance, however, that such coverage will be sufficient to cover claims made against the Company, that adequate insurance coverage will continue to be available to the Company in the future, or that insurance coverage will be available on terms favorable to the Company. The Company's insurance coverage includes occurrence-based medical professional liability insurance and claims-made non-medical professional liability insurance, a property insurance policy, a general liability policy, and an umbrella insurance policy. The Company is a party to a number of legal actions arising in the ordinary course of business, none of which, in management's view, will have a material adverse effect on the Company. ITEM 2. Properties - ------- The Company owns a five-building complex located at 170 Mt. Airy Road, Basking Ridge, New Jersey. Of approximately 53,000 total square feet of office space, the Company maintains its operations in approximately 41,000 square feet and the balance is leased or available for lease to several tenants. Management believes that this arrangement provides for the Company's foreseeable expansion needs. The Company leases its branch offices under a number of operating leases with varying terms and expirations. See Note 6 to the Company's Consolidated Financial Statements. ITEM 3. Legal Proceedings - ------- None ITEM 4. Submission of Matters to a Vote of Security Holders - ------- No matters were submitted to a vote of securities holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder - ------- Matters The common equity and related shareholder information presented under the caption "Quarterly Common Stock Price Ranges and Dividends" and "Shareholder Information -- Stock Listing" is incorporated by reference from the Company's 1996 Annual Report to Shareholders which is Exhibit 13 to this report. As of February 28, 1997, there were 659 shareholders of record. - 7 - ITEM 6. Selected Financial Data - ------- The financial data included under the caption "Selected Financial Data" is incorporated by reference from the Company's 1996 Annual Report to Shareholders which is Exhibit 13 to this report. ITEM 7. Management Discussion and Analysis of Financial Condition and Results - ------- of Operations The discussion included under the caption "Management's Discussion and Analysis of Financial Conditions and Results of Operations" is included in the Company's 1996 Annual Report to Shareholders which is Exhibit 13 to this report. ITEM 8. Financial Statements and Supplementary Data - ------- Financial statements and supplementary data are included in the Company's 1996 Annual Report to Shareholders which is Exhibit 13 to this report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and - ------- Financial Disclosure None PART III ITEM 10. Directors and Executive Officers of the Registrant - -------- Information contained under the captions "Nominees for Directors", "Directors Continuing in Office" and "Executive Officers" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 1997 is incorporated herein by reference. ITEM 11. Executive Compensation - -------- Information contained under the captions "Compensation of Executive Officers," "Compensation of Directors", "Option Grants in Last Fiscal Year", "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values", "Report of the Executive Compensation Committee" and "Employment Contracts and Change-in-Control Arrangements" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 1997 is incorporated herein by reference. ITEM12. Security Ownership of Certain Beneficial Owners and Management - ------- Information contained under the caption "Stock Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the Annual Meeting of shareholders to be held on May 27, 1997 is incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions - -------- Information contained under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 1997 is incorporated herein by reference. - 8 - PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------- (a) (1) The following financial statements and independent auditors' report are included in the Registrant's 1996 Annual Report to Shareholders. Independent Auditors' Report Consolidated Balance Sheets -- December 31, 1996 and 1995 Consolidated Statements of Operations -- Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (2) The following financial statement schedules and auditors' report are submitted herewith: Independent Auditors' Report Schedule II -- Valuation and Qualifying Accounts -- Years ended December 31, 1996, 1995 and 1994 All other schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (3) Exhibits included herein
EXHIBIT PAGE 3.1 Restated Articles of Incorporation of -- Hooper Holmes, Inc., as amended (1) 3.2 Bylaws of Hooper Holmes, Inc., as amended 4.1 Amended and Restated Rights Plan Agreement -- between Hooper Holmes, Inc. and Midlantic National Bank (2) 10.1 Mortgage and Mortgage Modification Agreement -- between Hooper Holmes, Inc. and First Fidelity Bank, N.A., New Jersey (3)
_______________________ (1) Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (2) Incorporated by reference to Exhibit 4(a) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1991. (3) Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. - 9 -
EXHIBIT PAGE 10.2 Amended Employee Retention Agreement by and between -- Hooper Holmes, Inc., and James M. McNamee (5) 10.3 Form of Indemnification Agreement (6) -- 10.4 Hooper Holmes, Inc. Nonqualified Stock -- Option Plan (7) 10.5 First Amendment to Hooper Holmes, Inc. -- Nonqualified Stock Option Plan (8) 10.6 CEO Stock Award & Bonus Plan, 1990 - 1994 (9) -- 10.7 Hooper Holmes, Inc. 1992 Stock Option Plan -- as amended (10) 10.8 Employee Stock Purchase Plan (1993) of Hooper -- Holmes, Inc. (11) 10.9 Hooper Holmes, Inc. 1994 Stock Option Plan (12) -- 10.10 Credit Agreement between Hooper Holmes, Inc. and First Union National Bank. 10.11 Agreement of Acquisition between Hooper Holmes, Inc. -- and Olsten Corporation (13) 10.12 Escrow Agreement between Hooper Holmes, Inc. -- and Olsten Corporation (14) 10.13 Accounts Receivable Collection Agreement between -- Hooper Holmes, Inc. and Olsten Corporation (15) 10.14 Employee Retention Agreement by and between Hooper Holmes, Inc. and Executive Officers of Hooper Holmes, Inc. 13 Annual Report to security holders 21 Subsidiaries of Hooper Holmes, Inc. 23 Consent of KPMG Peat Marwick LLP 24 Power of attorney 27 Financial Data Schedule
_____________________ (5) Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. (6) Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990. (7) Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K or the fiscal quarter ended December 31, 1990. (8) Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (9) Incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. (10) Incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. (11) Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. (12) Incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (13) Incorporated by reference to Exhibit A Company's Proxy Statement for the Special Meeting of Shareholders held on September 29, 1995. (14) Incorporated by reference to Exhibit C to the Company's Proxy Statement for the Special Meeting of Shareholders held on September 29, 1995. (15) Incorporated by reference to Exhibit B to the Company's Proxy Statement for the Special Meeting of Shareholders held on September 29, 1995. Reports on Form 8-K No report on Form 8-K has been filed during the fourth quarter of 1996. - 10 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOOPER HOLMES, INC. (Registrant) /s/ James M. McNamee ------------------------------------------ By:James M. McNamee President & CEO Date: March 28, 1997 -------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: March 28, 1997 -------------------- /s/ James M. McNamee - ------------------------------------------------ James M. McNamee Director President & CEO Date: March 28, 1997 -------------------- - ------------------------------------------------ *Benjamin A. Currier Director Date: March 28, 1997 -------------------- - ------------------------------------------------ *Quentin J. Kennedy Director Date: March 28, 1997 -------------------- - ------------------------------------------------ *Kenneth R. Rossano Director Date: March 28, 1997 -------------------- - ------------------------------------------------ Elaine L. LaMonica Director Date: March 28, 1997 -------------------- - ------------------------------------------------ *John E. Nolan, Jr. Director Date: March 28, 1997 -------------------- - ------------------------------------------------ *G. Earle Wight Director Date: March 28, 1997 -------------------- /s/ Fred Lash - ------------------------------------------------ Fred Lash Senior V.P., Treasurer and Chief Financial and Accounting Officer *James M. McNamee, by signing his name hereto, does hereby sign this report for the persons before whose printed name and asterisk appears, pursuant to the power of attorney duly executed by such person and filed as Exhibit 24 hereto with the Securities and Exchange Commission. /s/ James M. McNamee --------------------------------------------- James M. McNamee - 11 - HOOPER HOLMES, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1995, 1996
-- Additions -- Balance At Charged To Charged To Balance At Beginning Of Cost And Other End Of Description Year Expenses Accounts Deductions(1) Year - --------------------------------- ---------------- ------------ ------------ --------------- ---------- Year ended December 31, 1994 Allowance for Doubtful Accounts $257,910 $ 76,000 -- $176,024 $157,886 Year ended December 31, 1995 Allowance for Doubtful Accounts $157,886 $320,979 -- $ 12,844 $466,021 Year ended December 31, 1996 Allowance for Doubtful Accounts $466,021 $380,000 -- $112,224 $733,797
________________________________ (1) Adjustment of uncollectible accounts, net of recoveries and credits. EX-3.2 2 BY-LAWS Revised October, 1996 INDEX ----- BY-LAWS ------- HOOPER HOLMES, INC. ------------------
Page ARTICLE I - SHAREHOLDERS........................................... 1 ARTICLE II - MEETINGS OF SHAREHOLDERS............................... 4 ARTICLE III - DIRECTORS.............................................. 9 ARTICLE IV - OFFICERS............................................... 13 ARTICLE V - CAPITAL STOCK.......................................... 14 ARTICLE VI - SIGNATURES AND ENDORSEMENTS............................ 14 ARTICLE VII - CORPORATE SEAL......................................... 14 ARTICLE VIII - FISCAL YEAR............................................ 15 ARTICLE IX - AMENDMENTS............................................. 15 ARTICLE X - INDEMNIFICATION........................................ 16
BY-LAWS ------- OF -- HOOPER HOLMES, INC. ------------------- (A New York Corporation) ARTICLE I SHAREHOLDERS ------------ Section 1.1 CERTIFICATES. The interest of each shareholder of the corporation shall be evidenced by certificates for shares of stock in such form not inconsistent with the Certificate of Incorporation and the Business Corporation Law as the Board of Directors may from time to time prescribe. Upon compliance with any provisions restricting the transferability of shares that may be set forth in the Certificate of Incorporation, these By-Laws, or any written agreement in respect thereof, the shares of stock of the corporation shall be transferable on the books of the corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the corporation or its agents may reasonably require. The certificates of shares shall be signed by the Chairman of the Board, if any, or the President or a Vice-President and by the Secretary or an Assistant -2- Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal of the corporation. Such seal may be a facsimile, engraved or printed. Where any such certificate is signed by a transfer agent or a transfer clerk and by a registrar, the signatures of the Chairman of the Board, if any, or the President, Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon such certificate may be facsimiles, engraved, or printed. In case any such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before certificate is issued, it may be issued by the corporation with the same effect as if such officer had not ceased to be such at the time of its issue. No certificate representing shares shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the corporation, if the Board of Directors shall so require, of a bond of indemnity in such amount upon such terms and secured by such surety as the Board of Directors may in its discretion require. Section 1.2. FRACTIONAL SHARE INTERESTS. The corporation may issue --------------------------- certificates for fractions of a share where necessary to effect transactions authorized by -3- the Business Corporation Law, which shall entitle the holder, in proportion to his fractional holdings, to exercise voting rights as set forth in the Certificate of Incorporation, receive dividends and participate in liquidating distributions; or it may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder except as therein provided. Section 1.3. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining ----------------------------- the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty (50) days nor less than ten (10) days before the date of such meeting, nor more than fifty (50) -4- days prior to any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held; the record date for determining shareholders for any purpose other than that specified in the preceding clause shall be at the close of business on the day on which the resolution of the directors relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this paragraph, such determination shall apply to any adjournment thereof, unless the directors fix a new record date under this paragraph for the adjourned meeting. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ Section 2.1. TIME AND PLACE. The annual meeting of the shareholders for --------------- the election of directors and all special meetings of shareholders for any purpose may be held at such time and place, within or without the State of New York, as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. Section 2.2. ANNUAL MEETING. The annual meeting of --------------- -5- shareholders of the corporation shall be held during the month of May in each year on such date and at such hour as the directors shall specify, at which the shareholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. Section 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may ----------------- be called by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of any one or more shareholders owning at least one-third of the common stock of the corporation, issued and outstanding, and entitled to vote, or by the holders of such lesser percentage of said common stock as is authorized by the Business Corporation Law, for the purposes therein expressly contained. Section 2.4. RIGHT TO VOTE. At all meetings of shareholders, the right of -------------- any shareholder to vote shall be governed and determined by the provisions of the Certificate of Incorporation. Section 2.5. NOTICE OF MEETING. Written notice of the place, date and ------------------ hour of annual and special meetings shall be given personally or by mail to each shareholder entitled to vote thereat, not less than ten (10) nor more than fifty (50) days prior to the meeting. Notice of a special meeting shall state the purpose or purposes for -6- which it is called and shall specify the person or persons calling the meeting by whom or at whose direction such notice is being issued. No notice of an adjourned meeting of shareholders need be given unless expressly required by statute. All meetings of the shareholders may be held without notice and without the lapse of any period of time, if at any time before or after such action be completed such requirements be waived in writing by the person or persons entitled to said notice or entitled to participate in the action to be taken or by his attorney thereunto authorized. 2.6. QUORUM. Except as otherwise provided by law or the Certificate of ------- Incorporation, the holders of record of a majority of the common shares of the corporation, issued and outstanding, and entitled to vote thereat, present in person or by proxy, shall be necessary to and shall constitute a quorum for the transaction of business at all meetings of the shareholders. If a quorum shall not be present at the time fixed for any meeting, the holders of a majority of such shares so present or so represented may adjourn the meeting from time to time, without further notice. 2.7. PRESIDING OFFICERS. Meetings of the shareholders shall be presided ------------------- over by one of the following officers in the order of seniority and if -7- present: the Chairman of the Board, the Vice Chairman, if any, the President, a Vice President, or if none of these is present, by a Chairman to be chosen at the meeting. The Secretary of the Corporation, or in his absence, an Assistant Secretary, shall act as Secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the meeting shall choose any person present to act as Secretary of the meeting. Section 2.8. VOTING. Every shareholder entitled to vote at any meeting ------- may so vote in person or by proxy and shall be entitled to one vote for each share of common stock of the corporation held by him of record at the time of the closing of the transfer books or on the record date fixed as hereinbefore provided or if the transfer books are not closed and no such record date shall have been fixed, then at the date of such meeting. At all elections of directors the voting may, but need not be, by ballot and a plurality of the votes cast thereat shall elect. Any other action shall be decided by a majority of the votes cast except where the Business Corporation Law specifically requires a larger proportion. Section 2.9. PROXIES. Every proxy shall be in writing executed by the -------- Shareholder giving the proxy or his duly authorized attorney. No proxy shall be valid after the expiration of eleven (11) months from its date, -8- unless a longer period is provided for in the proxy. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by law has been given. Section 2.10. INSPECTORS OF ELECTION. The directors, in advance of any ----------------------- meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at the meeting may, and, on the request of any shareholder, shall appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of common stock of the corporation outstanding, the shares thereof represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and -9- tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Section 2.11. SHAREHOLDER ACTION WITHOUT MEETING. Whenever shareholders ----------------------------------- are required or permitted to take any action by vote, such action may be taken without a meeting on written consent or dissent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. ARTICLE III DIRECTORS --------- Section 3.1. FUNCTIONS, QUALIFICATIONS AND NUMBER. ------------------------------------- The property and business of the corporation shall be managed by its Board of Directors. Each director shall be at least twenty-one (21) years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of New York. The number of directors constituting the entire Board shall be at least three (3) but not more than nine (9). Subject to the foregoing limitation, such number may be fixed from time -10- to time by action of the directors or of the shareholders, or, if the number is not so fixed, the number shall be three (3). The number of directors may be increased or decreased by action of directors or shareholders, provided that any action of the directors to effect such increase or decrease shall require the vote of a majority of the entire Board. No decrease shall shorten the term of any incumbent director. The phrase "entire board" refers to the total number of directors which the corporation would have if there were no vacancies. Section 3.2 ELECTION AND TENURE. Effective as of the annual meeting of -------------------- shareholders in 1990, the Board of Directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of one class expiring each year. The term of office of directors of the first class shall expire at the annual meeting of shareholders in 1991, the term of office of the second class at the annual meeting of shareholders in 1992 and the term of office of the third class at the annual meeting of shareholders in 1993. At each annual meeting of shareholders subsequent to 1990, successors to directors of the class whose terms then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of shareholders after their election. Each director shall hold office until his -11- successor is elected or qualified, or until his earlier resignation or removal. Newly created directorships and any vacancies on the Board of Directors, including vacancies resulting from the removal of directors with or without cause, may be filled by the majority vote of all of the directors then in office, although less than a quorum. Section 3.3. MEETINGS OF THE BOARD. Regular and special meetings of the ---------------------- Board of Directors shall be held at such time and place, either within or without the State of New York, as shall be fixed by the Board. Special meetings may be held at any time upon the call of the President or any director by oral, telegraphic or written notice duly served on or sent or mailed to each director not less than five (5) days before such meeting. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of shareholders at the same place at which such meeting is held. Notice need not be given of regular meetings of the Board of Directors held at times fixed by resolution of the Board of Directors. Meetings may be held at any time without notice if all the directors are present, or if at any time before or after the meeting those not present waive notice of the meeting in writing. Any action required or permitted to be taken by the Board may be -12- taken without a meeting if all members of the Board consent in writing to the adoption of a resolution authorizing the action. Any one or more members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Section 3.4. QUORUM AND ACTION. A majority of the entire Board shall ------------------ constitute a quorum except when vacancy prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided such majority shall constitute at least one-third of the entire Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, the vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board. Each director present shall have one vote. The Chairman of the Board, if any, and if present, shall preside at all meetings. Otherwise, the Vice Chairman, the President, if present, or any director chosen by the Board, shall preside. Section 3.5. REMOVAL OF DIRECTORS. Any or all of the directors may be --------------------- removed for cause or without cause by the shareholders. One or more of the directors may be removed -13- for cause by the Board of Directors. Section 3.6. COMMITTEES. By resolution adopted by a majority of the ----------- entire Board of Directors, the Directors may designate from their number, three or more directors to constitute an Executive Committee and other committees, each of which, to the extent provided in the resolution designating it, shall have the authority of the Board of Directors with the exception of any authority the delegation of which is prohibited by Section 712 of the Business Corporation Laws. ARTICLE IV OFFICERS -------- The directors, initially and at their first meeting each year following the meeting of shareholders at which they were elected, may elect or appoint a Chairman of the Board of Directors and a Vice Chairman, and shall elect a President, one or more Vice Presidents, a Secretary and a Treasurer, and such other officers as they may determine. The President may but need not be a director. Any two or more offices may be held by the same person except the offices of President and Secretary. Unless otherwise provided in the resolution of election or appointment, each officer shall hold office until the meeting of the Board of Directors following the next annual meeting of -14- shareholders and until his successor has been elected and qualified. Officers shall have such powers and duties as generally pertain to their respective offices and as defined in the resolution appointing them. Any officer may resign by written notice to the Corporation and may be removed for cause or without cause by the Board of Directors. ARTICLE V CAPITAL STOCK ------------- The total number of shares which the corporation shall henceforth have is 20,000,000 to be common at a par value of $0.04 each. ARTICLE VI SIGNATURES AND ENDORSEMENTS --------------------------- All checks or other orders for the payment of money and all notes or other instruments evidencing indebtedness of the corporation shall be signed on its behalf by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE VII CORPORATE SEAL -------------- The corporate seal, if any, shall be in such form as the Board of Directors shall prescribe. -15- ARTICLE VIII FISCAL YEAR ----------- The fiscal year of the corporation shall begin on the first day of January in each year and shall end on the 31st day of December next following, unless otherwise determined by the Board of Directors. ARTICLE IX AMENDMENTS ---------- Except as otherwise provided in the Certificate of Incorporation, these By-Laws may be amended or repealed, and new By-Laws may be adopted by vote of the shareholders entitled at the time to vote for the election of directors. By-Laws may also be amended, repealed or adopted by resolution adopted by a majority of the entire Board of Directors at any regular or special meeting; provided, however, that any By-law or amendment to the By-laws so adopted by the Board of Directors may be amended or repealed, and any By-law so repealed by the Board may be reinstated, by vote of the shareholders entitled to vote thereon as hereinabove provided, in which case the Board shall not thereafter take action with respect to the By-laws which is inconsistent with the action so taken by such shareholders. If any By-law regulating an impending election of directors is adopted, amended or repealed by the Board, there shall be set forth in the notice of the next meeting of shareholders for the -16- election of directors the By-law so adopted, amended or repealed, together with a concise statement of the changes made. ARTICLE X INDEMNIFICATION --------------- The Corporation shall (a) indemnify any person made a party to an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation, against the reasonable expenses, including attorneys' fees actually and necessarily incurred by him in connection with the defense of such action, and/or with any appeal therein, and (b) indemnify any person made, or threatened to be made, a party to any action or proceeding, other than one by or in the right of the Corporation to procure a judgment in its favor, whether civil or criminal, by reason of the fact that he, his testator or intestate is or was a director or officer of the Corporation or served any other corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise in any capacity at the request of the Corporation, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred as a result of such action or proceeding, or any appeal -17- therein, in each case to the fullest extent permissible under Sections 721 through 726 of the New York Business Corporation Law or the indemnification provisions of any successor statute. EX-10.10 3 CREDIT AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $20,000,000 CREDIT AGREEMENT dated as of December 19, 1996 by and among HOOPER HOLMES, INC. as Borrower, THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF as Lenders, AND FIRST UNION NATIONAL BANK as Agent - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION...................... 1 1.01 Definitions............................................... 1 1.02 Principles of Construction................................ 13 SECTION 2. AMOUNT AND TERMS OF CREDIT...................................... 13 2.01 Revolving Credit.......................................... 13 2.02 Revolving Credit Payment and Maturity; Extension of Maturity.................................................. 14 2.03 Procedure for Revolving Credit Loan Borrowings............ 14 2.04 Reduction of Commitment................................... 15 2.05 Interest.................................................. 16 2.06 Conversions and Continuations............................. 16 2.07 Letters of Credit......................................... 17 2.08 Letter of Credit Requests................................. 17 2.09 Letter of Credit Participations........................... 17 2.10 Agreement to Repay Letter of Credit Drawings.............. 19 2.11 Indemnification; Nature of Agent's Duties................. 20 2.12 Increased Costs; Illegality; Capital Adequacy; Funding Losses.................................................... 21 2.13 Computation............................................... 23 SECTION 3. FEES............................................................ 23 3.01 Upfront Fee............................................... 23 3.02 Commitment Fee............................................ 24 3.03 Letter of Credit Fee...................................... 24 3.04 Letter of Credit Processing Fee........................... 24 SECTION 4. PREPAYMENTS AND PAYMENTS GENERALLY.............................. 24 4.01 Voluntary Prepayments..................................... 24 4.02 Mandatory Prepayments..................................... 24 4.03 Application of Mandatory Prepayments...................... 25 4.04 General Provisions as to Payments......................... 25 4.05 Net Payments.............................................. 25 4.06 Debiting of Account....................................... 26 i TABLE OF CONTENTS ----------------- (Continued) Page ---- SECTION 5. CONDITIONS...................................................... 26 5.01 Documents Required for Initial Advance.................... 26 5.02 Requirements for Any Advance and Issuance of Letter of Credit................................................. 29 SECTION 6. REPRESENTATIONS AND WARRANTIES.................................. 29 6.01 Organization; Authority................................... 29 6.02 Use of Proceeds; Margin Regulation........................ 30 6.03 Specific Financial Statements............................. 30 6.04 Burdensome Agreements..................................... 30 6.05 Suits..................................................... 31 6.06 Defaults.................................................. 31 6.07 ERISA..................................................... 31 6.08 Tax Returns and Taxes..................................... 31 6.09 Compliance with Statutes, etc............................. 31 6.10 Environmental Compliance.................................. 32 6.11 No Notification of Dumping of Hazardous Substances........ 32 6.12 No Authorizations or Approvals............................ 32 6.13 Not an Investment Company................................. 32 6.14 Subsidiaries.............................................. 32 6.15 Intellectual Property, etc................................ 32 6.16 Labor Matters............................................. 32 6.17 Assets and Properties..................................... 32 6.18 Insurance................................................. 33 6.19 True and Complete Disclosure.............................. 33 SECTION 7. AFFIRMATIVE COVENANTS........................................... 33 7.01 Payment of Indebtedness................................... 33 7.02 Payment of Taxes, Etc..................................... 33 7.03 Reporting Requirements.................................... 34 7.04 Compliance Certificate.................................... 35 7.05 Notice of Certain Events.................................. 35 7.06 Preservation of Property; Insurance....................... 35 ii TABLE OF CONTENTS ----------------- (Continued) Page ---- 7.07 Conduct of Business and Maintenance of Existence.......... 35 7.08 Operation of Properties................................... 35 7.09 Access to Properties, Books and Records................... 35 7.10 Keeping of Records and Books of Account................... 36 7.11 ERISA Compliance.......................................... 36 7.12 Environmental Liens....................................... 36 7.13 Removal of Hazardous Substances........................... 36 7.14 Further Assurances........................................ 37 SECTION 8. NEGATIVE COVENANTS.............................................. 37 8.01 Incur Indebtedness........................................ 37 8.02 Negative Pledge........................................... 37 8.03 Sale of Assets; Liquidation; Merger; Acquisitions......... 38 8.04 Nature of Business........................................ 39 8.05 Dividends, Stock Redemption, Etc.......................... 39 8.06 Accounts.................................................. 39 8.07 Sale-Leaseback Transactions............................... 39 8.08 Prepayment of Other Indebtedness.......................... 40 8.09 Investments............................................... 40 8.10 Loans and Advance Generally............................... 40 8.11 Loans and Advances to Officers............................ 40 8.12 Create Subsidiaries....................................... 40 8.13 Hazardous Substances...................................... 40 8.14 Consolidated Tangible Net Worth........................... 40 8.15 Consolidated Debt Service Coverage Ratio.................. 41 8.16 Consolidated Funded Debt to Cash Flow Ratio............... 41 8.17 Use of Proceeds........................................... 41 SECTION 9. EVENTS OF DEFAULT AND REMEDIES.................................. 41 9.01 Events of Default......................................... 41 9.02 Right of Set-off.......................................... 44 9.03 Sharing of Payments, Etc.................................. 45 9.04 Turnover of Property held by Affiliate.................... 45 9.05 Remedies Cumulative; No Waiver............................ 45 iii TABLE OF CONTENTS ----------------- (Continued) Page ---- SECTION 10. THE AGENT...................................................... 46 10.01 Appointment.............................................. 46 10.02 Delegation of Duties..................................... 46 10.03 Exculpatory Provisions................................... 46 10.04 Reliance by Agent........................................ 46 10.05 Notice of Default........................................ 47 10.06 Non-Reliance on Agent and Other Lenders.................. 47 10.07 Indemnification.......................................... 48 10.08 Agent in Its Individual Capacity......................... 48 10.09 Successor Agent.......................................... 48 SECTION 11. MISCELLANEOUS.................................................. 48 11.01 Notices.................................................. 49 11.02 Costs and Expenses....................................... 49 11.03 Payment Due on a Day Other Than a Business Day........... 49 11.04 Governing Law............................................ 49 11.05 Counterparts; Integration................................ 49 11.06 Amendment or Waiver...................................... 50 11.07 Successors and Assigns................................... 50 11.08 Participations and Assignments........................... 50 11.09 Severability............................................. 51 11.10 Consent to Jurisdiction and Service of Process........... 51 11.11 Confidentiality.......................................... 52 11.12 Indemnification.......................................... 52 11.13 Inconsistencies.......................................... 53 11.14 Headings................................................. 53 11.15 Exhibits and Annexes..................................... 53 11.16 Judicial Proceeding; Waivers............................. 53 EXHIBIT A FORM OF REVOLVING CREDIT NOTE EXHIBIT B FORM OF NOTICE OF BORROWING EXHIBIT C FORM OF LETTER OF CREDIT REQUEST EXHIBIT D FORM OF SUBSIDIARY GUARANTY AGREEMENT EXHIBIT E COMPLIANCE CERTIFICATE OF BORROWER ANNEX I BORROWER INFORMATION ANNEX II EXISTING LETTERS OF CREDIT ANNEX III PROVISIONS FOR ALTERNATIVE DISPUTE RESOLUTION iv CREDIT AGREEMENT THIS CREDIT AGREEMENT is made as of this 19th day of December, 1996, by and among HOOPER HOLMES, INC. (the Borrower), the LENDERS listed on the signature pages hereof and FIRST UNION NATIONAL BANK, as Agent. WHEREAS, the Borrower has certain credit accommodations available to it pursuant to that certain Credit Agreement, dated as of November 20, 1995, by and among the Borrower, the Agent (then known as First Fidelity Bank, National Association) and the lender parties thereto (as amended from time to time, the Existing Credit Agreement) and desires to modify and replace said accommodations, and refinance outstanding balances thereunder, with the credit facilities provided herein; and WHEREAS, subject to and upon the terms and conditions herein set forth, the Lenders are willing to make available to the Borrower the credit facilities provided herein to replace such existing credit accommodations; and WHEREAS, for administrative convenience and to properly reflect (i) the replacement of the credit accommodations provided under the Existing Credit Agreement with the credit facilities herein provided and (ii) the relationship and obligations of the Lenders as to one another with respect to such credit facilities, the outstanding balances of all "Revolving Credit Loans" under the Existing Credit Agreement shall be refinanced as Revolving Credit Loans hereunder and any "Letters of Credit" issued under the Existing Credit Agreement and outstanding as of the date hereof, shall be deemed to have been issued hereunder in accordance with Section 2.07(b) hereof. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION. ------------------------------------------ 1.01 Definitions. Unless the context requires otherwise, the ----------- following terms used throughout this Agreement shall have the meanings assigned to such terms below (such meanings to be equally applicable to both the singular and plural number of the terms defined): Affiliate shall mean, as applied to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and -1- "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the securities or other ownership interests having voting power for the election of directors (or other persons performing similar functions) of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. Agent shall mean First Union National Bank, in its capacity as agent for the Lenders hereunder, and its successors in such capacity. Agreement shall mean this Credit Agreement, as the same may be from time to time modified, amended and/or supplemented. Applicable Margin shall mean (A) with respect to Prime Rate Loans, minus 50 basis points (-.50%) and (B) with respect to LIBOR Loans, plus 150 basis points (1.50%); provided, however, that from and after the first day of any Applicable Margin Adjustment Period to and including the last day of such Applicable Margin Adjustment Period, the Applicable Margin shall be equal to the percentages determined by reference to the Consolidated Funded Debt to Cash Flow Ratio of the Borrower for the Test Period last ended, as follows:
If Such Ratio Is: Applicable Margin for Applicable Margin for - ---------------- --------------------- --------------------- Prime Rate Loans LIBOR Loans ---------------- ----------- Equal to or less than minus 25 basis plus 175 basis points (1.75%) 2.50:1.00 but points (-.25%) greater than 1.75:1.00 Equal to or less than minus 50 basis plus 150 basis points (1.50%) 1.75:1.00 but greater points (-.50%) than 1.35:1.00 Equal to or less than minus 100 basis plus 100 basis points (1.00%) 1.35:1.00 but greater points (-1.00%) than 1.00 to 1.00 Equal to or less minus 125 basis points plus 75 basis points (.75%) than 0.99:1.00 (-1.25%)
Notwithstanding the foregoing, at all times during which there exists a Default or Event of Default, the Applicable Margin (A) with respect to Prime Rate Loans, shall be zero and (B) with respect to LIBOR Loans, shall be 200 basis points (2.00%). Applicable Margin Adjustment Period shall mean the period commencing April 1, 1997 and ending June 30, 1997, and each calendar quarter occurring thereafter. -2- Approved Subordinated Indebtedness shall mean Indebtedness of the Borrower that (i) is subordinated on terms and conditions approved in writing by the Lenders and (ii) does not constitute Guaranteed Indebtedness of the Borrower or any Subsidiary or Affiliate of the Borrower. Availability shall mean, at any particular time, the amount by which the Maximum Available Credit Amount at such time exceeds the Credit Obligations at such time. Business Day shall mean any day other than a Saturday, Sunday, or a day on which the Agent and the Lenders are authorized or obligated by law or executive order to be closed. Capital Expenditures shall mean, with respect to any Person, without duplication and for any period, the aggregate value attributed in accordance with GAAP, to acquisitions during such period by such Person of any asset, tangible or intangible, or replacements or substitutions therefor or additions thereto which such Person treated as a non-current asset on such Person's financial statements, including, without limitation, (y) the acquisition or construction of assets having a useful life of more than one year, and (z) assets acquired during such period in connection with Capitalized Leases. Capitalized Lease shall mean any lease with respect to which the obligation to pay rent or other amounts constitutes Capitalized Lease Obligations. Capitalized Lease Obligations shall mean obligations to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as capital leases on a balance sheet in accordance with GAAP. Closing Date shall mean the date on which all of the conditions set forth in Section 5.01 hereof have been fulfilled. Code shall mean the Internal Revenue Code of 1986, as amended. Consolidated shall mean an accounting presentation which includes any consolidated Subsidiary of the Borrower. Consolidated Debt Service Ratio shall mean the ratio of (A) the Borrower's net income as determined in accordance with clause (B) of the definition of Consolidated Funded Debt to Cash Flow Ratio plus amounts (without duplication) deducted therefrom in determining net income for the relevant Test Period in respect of interest expense, tax expense, but less unfinanced Capital Expenditures to (B) the aggregate amount of the Indebtedness of the Borrower of the type described in Clause (A) of the definition of Consolidated Funded Debt to Cash Flow Ratio plus all cash and non-cash interest (including, without limitation, capitalized interest) accrued and/or payable during the -3- relevant Test Period on or in connection with any Indebtedness of the Borrower of any type, in each case determined for the relevant Test Period on a Consolidated basis in accordance with GAAP, consistently applied. Consolidated Funded Debt to Cash Flow Ratio shall mean the ratio of (A) the aggregate amount of the Indebtedness of the Borrower which by its terms or by the terms of any instrument or agreement relating thereto, matures or which is otherwise payable, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more from, the date of the creation thereof, and any current maturities of any such Indebtedness (including, without limitation, all of the Credit Obligations hereunder and Capital Lease Obligations of the Borrower) to (B) the Borrower's net income (excluding non-cash extraordinary items or non- cash post-tax non-operating earnings adjustments) plus depreciation plus amortization, in each case determined for the relevant Test Period on a Consolidated basis in accordance with GAAP, consistently applied. Credit Commitment shall mean, with respect to each Lender, the amount set forth opposite such Lender's name under the heading Credit Commitment on the signature pages hereof which is such Lender's Pro Rata Share of the Maximum Available Credit Amount that such Lender has agreed to advance hereunder, as the same may be (i) reduced from time to time pursuant to Section 2.04 hereof or (ii) adjusted from time to time as a result of assignments to and from the Lenders pursuant to Section 11.08 hereof. Credit Documents shall mean this Agreement, each of the Revolving Credit Notes, each Subsidiary Guaranty, each Notice of Borrowing, each Letter of Credit Request and all other credit accommodations, notes, loan agreements, guaranties, security agreements, mortgages, instruments, pledge agreements, assignments, acceptance agreements, commitments, facilities, reimbursement agreements and any other agreements and documents, now or hereafter existing, creating, evidencing, guarantying, securing or relating to any or all of the Obligations, together with all amendments, supplements, modifications, renewals, or extensions thereof. Credit Obligations shall mean, at any particular time, the sum of (A) the aggregate principal amount of the outstanding Revolving Credit Loans and (B) the Letter of Credit Outstandings. Default shall mean any event, act or condition which, with notice or the lapse of time, or both, would constitute an Event of Default. Drawings shall have the meaning assigned to such term in Section 2.10(b) hereof. Dumping shall mean the releasing, spilling, emptying, pouring, emitting, dumping or discharging of any hazardous substance into, or otherwise permitting to exist any hazardous substance in, the environment. -4- ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. ERISA Affiliate shall mean any person (as defined in Section 3(9) of ERISA) which together with the Borrower or any of its Subsidiaries would be deemed to be a "single employer" within the meaning of Section 414 of the Code. Event of Default shall have the meaning assigned to such term in Section 9 hereof. Existing Credit Agreement shall have the meaning assigned to such term in the Recitals hereof. Existing Letter of Credit shall have the meaning assigned to such term in Section 2.07(b) hereof. Facility shall mean either of the two (2) facilities established under this Agreement, i.e., the Revolving Credit Facility and the Letter of Credit Facility. FASB shall mean the officially released written statements of the Financial Accounting Standards Board in general usage from time to time in the accounting profession in the United States. Federal Funds Rate shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published by the Federal Reserve Bank of New York on the Business Day next preceding such day for amounts in immediately available funds comparable to the principal amount of the relevant indebtedness or, if such rate is not so published for any day for which the next preceding day is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three (3) Federal Funds brokers of recognized standing selected by the Agent. First Fidelity Term Loan Agreement shall mean that certain Term Loan Agreement, dated December 31, 1992, by and between the Borrower and First Union National Bank (then known as First Fidelity Bank, National Association), as amended from time to time. Funding Losses shall have the meaning assigned to such term in Section 2.12(c) hereof. -5- GAAP shall mean generally accepted accounting principles in effect from time to time in the United States. Guaranteed Indebtedness shall mean, as to any Person, all Indebtedness of the type referred to in clauses (i) through (ix) of the definition of Indebtedness in this Agreement guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether or not such property is received or such services are rendered), or (iv) otherwise to assure a creditor against loss. Guarantor shall mean Health Care. Health Care shall mean Hooper Holmes Health Care, Inc., a New Jersey corporation and a wholly owned subsidiary of the Borrower. Indebtedness shall mean, as to any Person (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property, (v) all Capitalized Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person under acceptances, letters of credit or similar facilities, (vii) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (viii) all obligations of such Person in respect of interest rate swap agreements, currency swap agreements and other similar agreements designed to hedge against fluctuations in interest rates or foreign exchange rates, (ix) all obligations of production payments from property operated by or on behalf of such Person and other similar arrangements with respect to natural resources, (x) all Guaranteed Indebtedness of such Person, and (xi) all Indebtedness of the type referred to in clauses (i) through (x) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. -6- Interest Period shall mean with respect to any LIBOR Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such LIBOR Loan and ending one (1), two (2) or three (3) months thereafter, as selected by the Borrower in its Notice of Borrowing delivered pursuant to Section 2.03(a) hereof, or in its notice of conversion delivered pursuant to Section 2.06(a) hereof, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such LIBOR Loan and ending one (1), two (2) or three (3) months thereafter, as selected by the Borrower in its notice of continuance delivered pursuant to Section 2.06(b) hereof, with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a LIBOR Loan would otherwise end on a day that is not a LIBOR Business Day, such Interest Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding LIBOR Business Day; and (ii) any Interest Period pertaining to a LIBOR Loan that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last LIBOR Business Day of a calendar month. Lender shall mean each Lender listed on the signature page hereto, each assignee which becomes a Lender pursuant to Section 11.08 hereof, and their respective successors and assigns. Letter of Credit shall mean each standby letter of credit issued pursuant to Section 2.07 hereof. Letter of Credit Facility shall have the meaning assigned to such term in Section 2.07 hereof. Letter of Credit Fee shall have the meaning assigned to such term in Section 3.03 hereof. Letter of Credit Outstandings shall mean, at any time, the sum of, without duplication (i) the aggregate Stated Amount of all outstanding Letters of Credit; (ii) the aggregate -7- amount of all Unpaid Drawings in respect of all Letters of Credit; and (iii) the Stated Amount of all Letters of Credit requested pursuant to Section 2.08 hereof but not yet issued. Letter of Credit Processing Fees shall have the meaning assigned to such term in Section 3.04 hereof. Letter of Credit Request shall have the meaning assigned to such term in Section 2.08 hereof. Letter of Credit Sublimit shall mean Four Million Dollars ($4,000,000); provided, however, that in no event shall the Letter of Credit Sublimit be at any time greater than the Maximum Available Credit Amount. LIBOR Business Day shall mean any Business Day on which dealing in the London interbank market may be carried on by commercial banks in London, England. LIBOR Loan shall mean any Loan that bears interest at a rate of interest based upon the LIBOR Rate. LIBOR Rate shall mean, with respect to each day during each Interest Period pertaining to a LIBOR Loan, the per annum rate (rounded to the next higher 1/100 of 1%) for deposits in United States dollars for a period equal to the relevant Interest Period as reported on the Telerate Page 3750 as of 11:00 a.m. (London time), on the day that is two (2) LIBOR Business Days prior to the commencement of such Interest Period (or if not so reported, then as determined by the Agent from another recognized source for London interbank market quotations), adjusted for reserves by dividing that rate by 1.00 minus the LIBOR Reserve. LIBOR Reserve shall mean the maximum percentage reserve requirements (rounded to the next higher 1/100 of 1% and expressed as a decimal) of the Agent (including, without limitation, basic, supplemental, marginal and emergency reserves), in effect on any day during the relevant Interest Period under Regulation D with respect to eurocurrency funding currently referred to as "Eurocurrency liabilities" in Regulation D. Lien shall mean any mortgage, pledge, security interest, encumbrance, lien or other form of charge or preferential arrangement of any kind (including, without limitation, any agreement to give any of the foregoing, any conditional sale or other title retention or any lease in the nature thereof). Loan shall mean each and every Revolving Credit Loan made by any Lender hereunder. For purposes of this Agreement, the continuation or conversion of a Prime Rate Loan or LIBOR Loan shall not constitute the making of a new Loan. -8- Maximum Available Credit Amount shall mean Twenty Million Dollars ($20,000,000), less any reduction to said Maximum Revolving Credit Amount pursuant to Section 2.04 hereof. Multi-employer Plan shall mean a Plan which is a multi-employer plan as defined in Section 4001(a)(3) of ERISA. Natural Resources shall mean each and all of the atmosphere, air, waters, earth, land, minerals, flora, fauna, fish, shellfish, wildlife, biota, and/or other natural resources. Notice of Borrowing shall have the meaning assigned to such term in Section 2.03(a) hereof. Obligations shall mean any and all obligations and indebtedness of every kind and description of the Borrower owed to the Agent, the Lenders or any Affiliate of the Agent or any Lender (including, without limitation, the Credit Obligations, any interest accrued thereon and any other amount due hereunder), whether primary or secondary, direct or indirect, absolute or contingent, sole, joint or several, secured or unsecured, due or to become due, contractual or tortious, arising by operation of law or otherwise, or now or hereafter existing, whether incurred by the Borrower, including, without limitation, principal, interest and fees, including, without limitation, late fees and expenses, including, without limitation, attorneys' fees and costs and/or allocated fees and costs of any Lender's in-house legal counsel. Obligor shall mean the Borrower, each Guarantor, and every other maker, endorser, guarantor or surety of or for the Obligations. Payment Office shall mean the office identified as such below the signature of the Agent and the Lenders on the signature pages hereto, or such other office as such parties may designate in writing to the other parties hereto. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, and any entity succeeding to any or all of its functions under ERISA. Permitted Investments shall mean (i) readily marketable direct obligations of the Government of the United States of America or any agency or instrumentality thereof or any full faith and credit obligations of the United States Government or obligations guaranteed by the United States Government and its agencies maturing within one (1) year of purchase, (ii) repurchase agreements having a duration of not more than sixty (60) days that are collateralized by full faith and credit obligations of the United States Government or obligations guaranteed by the United States Government and its agencies, (iii) interests in investment companies registered under the Investment Company Act of 1940, as amended (or in a separate portfolio of such an investment company), that invest primarily in full faith and credit obligations of the United States Government or obligations -9- guaranteed by the United States Government and its agencies and repurchase agreements collateralized by such obligations, (iv) time deposits with any office located in the United States of the Lenders or any other bank or trust company which is organized under the laws of the United States and has combined capital, surplus and undivided profits of not less than $500,000,000 or with any bank which is organized other than under the laws of the United States (x) the commercial paper of which is rated at least A-1+ by Standard & Poor's Corporation (S&P) and P-1 by Moody's Investors Service, Inc. (Moody's) (or, if such commercial paper is rated only by S&P, at least A-1+ by S&P, or if such commercial paper is rated only by Moody's, at least P-1 by Moody's) or (y) the long term senior debt of which is rated at least AA by S&P and Aa2 by Moody's (or, if such debt is rated only by S&P, at least AA by S&P, or if such debt is rated only by Moody's, at least Aa2 by Moody's), (v) commercial paper having a maturity of not more than one year from the date of such investment and rated at least A-1 by S&P and P-1 by Moody's (or, if such commercial paper is rated only by S&P, at least A-1 by S&P or, if such commercial paper is rated only by Moody's, at least P-1 by Moody's), (vi) instruments held for collection in the ordinary course of business, (vii) any equity or debt securities or other form of debt instrument obtained in settlement of debts previously contracted, (viii) any equity or debt securities obtained by the Borrower in connection with any acquisition permitted pursuant to clause (B) of Section 8.03 hereof, and (ix) any equity or debt securities held by the Borrower as of the Closing Date that are listed on Annex I hereto and any distributions of securities made in respect thereof. Permitted L/C Obligation shall mean, as to any Letter of Credit, obligations (i) in connection with the Borrower's "Liberty Mutual" worker's compensation self-insurance program; (ii) to support Indebtedness supported by the Existing Letters of Credit; and (iii) to support any other obligation of the Borrower acceptable to the Agent and the Required Lenders, in their sole discretion. Permitted Liens shall mean those Liens permitted to exist pursuant to Section 8.02 hereof. Person shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. Plan shall mean any employee benefit plan which is subject to ERISA and which covers the employees or former employees of the Borrower, any of its Subsidiaries or an ERISA Affiliate, under which the Borrower, any of its Subsidiaries or an ERISA Affiliate has any obligation or liability or under which the Borrower, any of its Subsidiaries or an ERISA Affiliate has made contributions within the preceding five years. References herein to a Plan shall include any Multiemployer Plan. Prime Rate shall mean the per annum rate of interest established by the Agent as its reference rate in making loans, and does not reflect the rate of interest charged to any particular borrower or class of borrowers. The Borrower acknowledges that the Prime Rate is not tied to any external index or rate of interest and that the rate of interest charged hereunder shall change -10- automatically and immediately as of the date of any change in the Prime Rate, without notice to the Borrower. Prime Rate Loan shall mean any Loan that bears interest at a rate of interest based upon the Prime Rate. Pro Rata Share shall mean, with respect to each of the Facilities for each Lender at any time, the percentage obtained by dividing such Lender's Credit Commitment by the Maximum Available Credit Amount (in each case, as adjusted from time to time in accordance with the provisions of this Agreement). Regulation D shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. Required Lenders shall mean Lenders holding more than sixty-six and two/thirds percent (66.67%) of the aggregate of all the Credit Commitments of the Lenders, or, if the Credit Commitments have been terminated, the Lenders holding more than sixty-six and two/thirds percent (66.67%) of such Credit Commitments immediately prior to such termination. Revolving Credit Expiration Date shall mean January 2, 2000, as the same may be extended for an additional one (1) year period in accordance with Section 2.02 hereof. Revolving Credit Facility shall have the meaning assigned to such term in Section 2.01 hereof. Revolving Credit Loans shall have the meaning assigned to such term in Section 2.01 hereof. Revolving Credit Notes shall have the meaning assigned to such term in Section 2.01 hereof. Revolving Credit Period shall mean the period from and including the Closing Date to but excluding the Revolving Credit Expiration Date or such earlier date on which the Lenders' obligation to make Revolving Credit Loans shall have terminated as provided herein. SEC shall mean the Securities and Exchange Commission or any governmental entity which may be substituted therefor. Stated Amount shall mean, as to any Letter of Credit, the maximum amount available to be drawn thereunder, determined without regard to whether any conditions to drawing could then be met. -11- Subsidiary shall mean, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such Person, one or more of the other Subsidiaries of such Person or any combination thereof. Subsidiary Guaranty shall mean that certain Guaranty Agreement, dated even date herewith, provided by Health Care in favor of the Agent for the ratable benefit of the Lenders, substantially in the form of Exhibit D hereto. Tangible Net Worth shall mean, at any time: (a) the total assets of the Borrower which would be shown as assets on a consolidated balance sheet of the Borrower and its Subsidiaries as of such time prepared in accordance with GAAP, consistently applied, after subtracting therefrom the aggregate amount of any capitalized research and development costs, capitalized interest, debt discount and expense, goodwill, patents, trademarks, copyrights, franchises, licenses, amounts owing from officers, directors, shareholders, principals, partners, or other Affiliates of the Borrower and any investments in any Affiliate of any of the foregoing, and such other assets as are properly classified as "intangible assets" determined in accordance with GAAP, consistently applied, minus (b) the total liabilities of the Borrower which would be shown as liabilities on a consolidated balance sheet of the Borrower and its Subsidiaries as of such time, prepared in accordance with GAAP, consistently applied; provided, however, that for purposes of the foregoing determination of Tangible Net Worth, increases thereto from stock offering and FASB changes shall not be included. Telerate Page 3750 shall mean the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying London interbank offered rates of major banks). Test Period shall mean, with respect to any applicable determination under this Agreement, a period of twelve (12) consecutive months (taken as one accounting period) and ending on the last day of the fiscal quarter of the Borrower then last ended. Type shall mean any type of Loan determined with respect to its interest option applicable thereto, i.e., a Prime Rate Loan or LIBOR Loan. -12- Unpaid Drawing shall have the meaning assigned to such term in Section 2.10 hereof. 1.02 Principles of Construction. --------------------------- (a) References. All references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) Accounting Terms. All accounting terms not specifically defined herein or in any exhibit hereto shall be construed in accordance with GAAP in conformity with those principles used in the preparation of the financial statements referred to in Section 7.03 of this Agreement. Any non-cash accrual accounting charges or gains arising from the adoption of FASB rulings not yet fully adopted by the Borrower and the Guarantors shall not be included in the definitions of said accounting terms, and therefore shall be excluded for the purposes of financial covenant calculations required pursuant to Sections 8.14, 8.15 and 8.16 hereof. SECTION 2. AMOUNT AND TERMS OF CREDIT. --------------------------- 2.01 Revolving Credit. Subject to the terms and conditions herein set ---------------- forth and in reliance upon representations and warranties set forth herein and in the other Credit Documents, each Lender severally agrees to make available to the Borrower a revolving credit facility (the Revolving Credit Facility), pursuant to which each Lender shall make advances (each a Revolving Credit Loan) to the Borrower from time to time during the Revolving Credit Period, in an amount not to exceed such Lender's Pro Rata Share of the Availability. All Revolving Credit Loans comprising the same advance under this Agreement shall be made by the Lenders simultaneously and proportionately to their then respective Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by another Lender to perform its obligations to make a Revolving Credit Loan hereunder nor shall the Credit Commitment of any Lender be increased or decreased as a result of any such failure. The Revolving Credit Loans outstanding under the Revolving Credit Facility shall be evidenced by Revolving Credit Notes issued to each of the Lenders, substantially in the form of Exhibit A hereto (each a Revolving Credit Note), with blanks appropriately completed in conformity herewith. Subject to Section 2.03(c) hereof, the Revolving Credit Loans shall from time to time be (i) LIBOR Loans, (ii) Prime Rate Loans, or (iii) a combination thereof, as determined by the Borrower in accordance with Sections 2.03 and 2.06 hereof, provided that no Revolving Credit Loan shall be made as a LIBOR Loan after the day that is one (1) month prior to the Revolving Credit Expiration Date. Subject to the provisions of this Agreement, the Borrower from time to time may borrow, repay and reborrow Loans made hereunder at any time during the Revolving Credit Period. 2.02 Revolving Credit Payment and Maturity; Extension of Maturity. ------------------------------------------------------------- Subject to the immediately succeeding sentences of this Section 2.02, the aggregate unpaid principal amount of the Revolving Credit Loans, all accrued but unpaid interest thereon, and any and all fees payable -13- hereunder, shall mature and be due and payable on the Revolving Credit Expiration Date. The Revolving Credit Expiration Date may be extended for an additional one (1) year period upon the written request of the Borrower to the Agent and the Lenders made at least six (6) months prior (but not more than nine (9) months prior) to the then Revolving Credit Expiration Date. Such notice shall be accompanied by a certificate of the chief financial officer of the Borrower stating that no Default or Event of Default has occurred and is then continuing and that the representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects on such date. Neither the Agent nor any Lender shall be obligated to grant any extensions pursuant to this Section 2.02 and any such extension shall be in the sole and absolute discretion of each of them, but the Agent and each Lender agrees to reply to any such request within a reasonable period of time. 2.03 Procedure for Revolving Credit Loan Borrowings. ---------------------------------------------- (a) Notice of Borrowing. Whenever the Borrower desires to incur Revolving Credit Loans, the Borrower shall deliver a Notice of Borrowing (or provide telephonic notice thereof, promptly confirmed in writing) to the Agent (i) in the case of a LIBOR Loan, no later than 11:00 a.m. (prevailing Eastern Standard Time) on the date that is at least two (2) LIBOR Business Days prior to the date of the proposed Loan and (ii) in the case of a Prime Rate Loan, no later than 10:00 a.m. (prevailing Eastern Standard Time) on the date of the proposed Loan. Each such Notice of Borrowing (a Notice of Borrowing) shall be substantially in the form of Exhibit B hereto and shall be irrevocable and shall specify (i) the principal amount of the proposed Revolving Credit Loan, (ii) the amount of the Availability as of the date of the funding of the proposed Revolving Credit Loan, (iii) the date of funding of the proposed Revolving Credit Loan, (iv) the Type of Revolving Credit Loan proposed, and (v) in the case of a proposed Revolving Credit Loan in the form of a LIBOR Loan, the desired Interest Period. The Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Revolving Credit Loan, of such Lender's Pro Rata Share thereof and of the other matters covered by the Notice of Borrowing. Without in any way limiting the obligation of the Borrower to confirm in writing any notice it may give hereunder by telephone, the Agent may act prior to receipt of written confirmation, without liability, upon the basis of such telephonic notice believed by the Agent in good faith to be from the chief financial officer of the Borrower, or from any other person designated in writing to the Agent by the chief financial officer of the Borrower as a person entitled to give telephonic notices under this Agreement on behalf of the Borrower. In each such case, the Borrower hereby waives the right to dispute the Agent's record of the terms of any such telephonic notice. (b) Disbursement of Funds. No later than 2:00 p.m. (prevailing Eastern Standard Time) on the date of each such Loan, each Lender will make available its Pro Rata Share of such Revolving Credit Loan requested to be made on such date in immediately available funds to the Agent at its Payment Office and the Agent shall make such funds available to the Borrower by depositing such funds into the Borrower's account at the Agent's Payment Office. Unless the Agent shall have been notified by any Lender prior to the date of any such Revolving Credit Loan that such Lender does not intend to make available to the Agent its Pro Rata Share of such Revolving Credit Loan, the Agent may assume that such Lender has made such amount available to the Agent on the -14- date of such Revolving Credit Loan and the Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower such Pro Rata Share of such Revolving Credit Loan. If such Pro Rata Share is not in fact made available to the Agent by such Lender and the Agent has made available the same to the Borrower, the Agent shall be entitled to recover such amount from such Lender. If such Lender does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such amount to the Agent. The Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (x) if paid by such Lender, the Federal Funds Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 2.13 hereof, for the respective Revolving Credit Loans. Nothing in this Section 2.03(b) shall be deemed to relieve any Lender from its obligation to fulfill its Credit Commitment hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. (c) Minimum Advance and Type Limitation. Each Revolving Credit Loan requested hereunder shall be in an amount equal to $500,000 or any whole multiple thereof, except that any Revolving Credit Loan may be in the aggregate amount of the Availability. At no single time during the Revolving Credit Period shall there be any more than five (5) LIBOR Loans outstanding under the Revolving Credit Facility. 2.04 Reduction of Commitment. The Borrower shall have the right, upon ----------------------- not less than three (3) Business Days' prior written notice to the Agent (which the Agent shall promptly transmit to the Lenders), to reduce all or part of the Maximum Available Credit Amount, such reduction to be permanent and irrevocable upon delivery of said notice. Any partial reduction of the Maximum Available Credit Amount shall be in a minimum amount equal to $500,000 or any whole multiple thereof and shall reduce each Lender's Credit Commitment proportionately in accordance with its Pro Rata Share. 2.05 Interest. -------- (a) Interest Rates. Prior to an Event of Default (i) each LIBOR Loan shall bear interest for each day during each Interest Period applicable thereto at a per annum rate equal to the LIBOR Rate plus the Applicable Margin and (ii) each Prime Rate Loan shall bear interest at a per annum rate equal to the Prime Rate minus the Applicable Margin in effect from time to time. Upon and following an Event of Default each Loan shall bear interest at the Default Rate, as such term is defined in the Revolving Credit Notes. (b) Interest Accrual and Payment Date. Interest on each Loan shall accrue from and including the date of the advance of funds with respect to such Loan or the first day of the relevant Interest Period to but excluding the date of repayment thereof or the expiration of the Interest Period and shall be payable in arrears (i) in the case of a Prime Rate Loan, on the last day of -15- each calendar month and (ii) in the case of a LIBOR Loan on the last day of the Interest Period with respect thereto. (c) Agent's Determination. The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt written notice to the Borrower and the Lenders of each rate of interest so determined (and, in respect of the Prime Rate, any change thereof); provided, however that the failure of the Agent to give such notice shall in no way affect the validity or applicability of any such determination or change. The Agent's determinations under this Section 2.05(c) shall be conclusive and binding, absent manifest error. 2.06 Conversions and Continuations. ----------------------------- (a) Conversions. Subject to Section 2.03(c) hereof, the Borrower may elect from time to time to convert any Loan to any other Type of Loan by delivering to the Agent an irrevocable notice (or by providing telephonic notice promptly confirmed in writing) of such election (A) in the case of a conversion to a Prime Rate Loan, at least one (1) Business Day prior to the expiration of the then current Interest Period with respect to the LIBOR Loan to be converted or (B) in the case of a conversion to a LIBOR Loan, at least two (2) LIBOR Business Days prior to the proposed commencement of the Interest Period of the LIBOR Loans as so converted. Any notice delivered pursuant to this Section 2.06(a) with respect to a conversion to a LIBOR Loan shall also specify the desired Interest Period for the Loan as so converted. No Loan may be converted pursuant to this Section 2.06(a) hereof (i) at any time during which an Event of Default has occurred and is continuing, (ii) if, after giving effect to such conversion, Section 2.03(c) hereof is violated, or (iii) if, in case of a conversion to a LIBOR Loan, such conversion were to be effective at any time after a date that is one (1) month prior to the Revolving Credit Expiration Date. The Agent shall give each Lender notice as promptly as practicable of any such proposed conversion affecting any of its Loans. (b) Continuance of LIBOR Loan. The Borrower may elect to continue any LIBOR Loan as such upon the expiration of the then current Interest Period with respect thereto by delivering to the Agent an irrevocable notice (or by providing telephone notice thereof, promptly confirmed in writing) of such election, at least two (2) LIBOR Business Days prior to the expiration of the then current Interest Period with respect thereto. Such notice shall also specify the desired Interest Period for the Loan so continued. No continuance shall be permitted under this Section 2.06(b), (i) at any time during which an Event of Default has occurred and is continuing or (ii) if the effective date (i.e., the value date) of such continuance were to occur after a date that is one (1) month prior to the Revolving Credit Expiration Date. The Agent shall give each Lender notice as promptly as practicable of any such proposed continuance affecting any of its Revolving Credit Loans. (c) Automatic Conversion to Prime Rate. If the Borrower fails to notify the Agent of the conversion or continuance of any LIBOR Loan within the time specified in this Section 2.06, or is otherwise not permitted to convert or continue any LIBOR Loan pursuant to said Section, then any such Loan shall automatically convert to a Prime Rate Loan on the last day of the then expiring applicable Interest Period. -16- 2.07 Letters of Credit. ----------------- (a) Issuance of Letters of Credit. Subject to and upon the terms herein set forth and in reliance upon the representations and warranties herein set forth and in the other Credit Documents, the Borrower at any time and from time to time on or after the Closing Date and prior to the Revolving Credit Expiration Date, may request that the Agent issue, for the account of the Borrower and in support of any Permitted L/C Obligation, an irrevocable standby letter of credit or letters of credit in such form as may be approved by the Agent (the Letter of Credit Facility). Notwithstanding the foregoing (i) no Letter of Credit shall be issued in a Stated Amount which (x) when added to the Letter of Credit Outstandings at such time would exceed the Letter of Credit Sublimit, or (y) when added to the sum of the aggregate principal amount of the Credit Obligations then outstanding would exceed the Availability; (ii) each Letter of Credit shall, unless otherwise agreed to by the Agent and the Required Lenders, have an expiration date occurring no later than one (1) year after the date of issuance thereof, and in no event occurring later than the Business Day next preceding the Revolving Credit Expiration Date; (iii) each Letter of Credit shall be denominated in U.S. dollars; and (iv) no Letter of Credit shall be issued by the Agent after it has received a notice in writing from the Required Lenders or the Borrower that one or more of the conditions specified in Section 5.02 hereof are not then satisfied. (b) Existing Letter of Credit. Annex II hereto contains a description of all letters of credit issued pursuant to the Existing Credit Agreement and outstanding on the Closing Date. Each such letter of credit, including any extension or renewal thereof (each, as amended from time to time in accordance with the terms thereof and hereof, an Existing Letter of Credit) shall constitute a Letter of Credit for all purposes of this Agreement, issued, for purposes of Section 2.07(a), on the Closing Date. 2.08 Letter of Credit Requests. Whenever the Borrower desires that a ------------------------- Letter of Credit be issued for its account, it shall give the Agent at least five (5) Business Days' notice (or such lesser number of days as may be agreed to by the Agent and the Required Lenders). Each notice shall be executed by the Borrower and shall be in the form of Exhibit C hereto (each a Letter of Credit Request). The Agent shall promptly transmit copies of each Letter of Credit Request to each Lender. Each Letter of Credit Request shall be accompanied by a completed and executed "Letter of Credit Application" (or an amendment to any then effective application) in the form furnished by the Agent to the Borrower from time to time. The terms of each such application are incorporated herein to the extent not inconsistent herewith. 2.09 Letter of Credit Participations. -------------------------------- (a) Participations. Immediately upon the issuance by the Agent -------------- of any Letter of Credit, the Agent shall be deemed to have sold and transferred to each other Lender (each such other Lender, in such capacity under this Section 2.09, a L/C Participant), and each such L/C Participant shall be deemed irrevocably and unconditionally to have purchased and received from the -17- Agent, without recourse or warranty, an undivided interest and risk and income participation (each a L/C Participation), to the extent of such L/C Participant's Pro Rata Share, in such Letter of Credit, each substitute letter of credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto, and any security thereof or guaranty pertaining thereto (although Letter of Credit Fees will be paid directly to the Agent for the ratable account of the L/C Participants as provided in Section 3.03 and the L/C Participants shall have no right to receive any portion of any Letter of Credit Processing Fees). Upon any change in the Credit Commitments of the Lenders pursuant to Section 11.08 hereof, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the L/C Participations pursuant to this Section 2.09 to reflect the new Pro Rata Shares of the assignor and assignee Lender. (b) Agent's Obligations. In determining whether to pay under any Letter of Credit, the Agent shall have no obligation relative to the L/C Participants or the Borrower other than to confirm that any documents required to be delivered under such Letter of Credit have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by the Agent under or in connection with any Letter of Credit issued by it, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for the Agent any resulting liability. (c) Payments Upon Drawing. In the event that the Agent makes any payment under any Letter of Credit issued by it and the Borrower shall not have reimbursed such amount in full to the Agent pursuant to Section 2.10(a), the Agent shall promptly notify each L/C Participant of such failure, and each L/C Participant shall promptly and unconditionally pay to the Agent the amount of such L/C Participant's Pro Rata Share of such unreimbursed payment in immediately available funds. If the Agent so notifies, prior to 11:00 A.M. (prevailing Eastern Standard Time) on any Business Day, any L/C Participant required to fund a payment under a Letter of Credit, shall make available to the Agent such L/C Participant's Pro Rata Share of the amount of such payment on such Business Day in same day funds. If and to the extent such L/C Participant shall not have so made its Pro Rata Share of the amount of such payment available to the Agent, such L/C Participant agrees to pay to the Agent, forthwith on demand, such amount, together with interest thereon for each day from such date until the date such amount is paid to the Agent at the Federal Funds Rate. The failure of any L/C Participant to make available to the Agent its Pro Rata Share of any payment under any Letter of Credit shall not relieve any other L/C Participant of its obligation hereunder to make available to the Agent its Pro Rata Share of any payment under any Letter of Credit on the date required, as specified above, but no L/C Participant shall be responsible for the failure of any other L/C Participant to make available to the Agent such other L/C Participant's Pro Rata Share of any such payment. (d) L/C Participants' Duties Absolute. The obligations of the L/C Participants to make payments to the Agent with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever -18- and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, any Lender, or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; (v) the occurrence of any Default or Event of Default; or (vi) the failure of any condition precedent set forth in Section 5.02 hereof to have been satisfied at the time of the issuance of any Letter of Credit unless the Agent shall have received a notice in writing to such effect from such Lender hereof prior to the issuance of such Letter of Credit. 2.10 Agreement to Repay Letter of Credit Drawings. -------------------------------------------- (a) Borrower's Obligation to Pay Drawings. The Borrower hereby agrees to reimburse the Agent, by making payment to the Agent in immediately available funds, for any payment or disbursement made by the Agent under any Letter of Credit issued by it (each such amount so paid until reimbursed, an Unpaid Drawing) immediately after, and in any event on the date of, notice given by the Agent to the Borrower of such payment (which notice the Agent hereby agrees to give promptly after the making of any payment or disbursement under a Letter of Credit), with interest on the amount so paid or disbursed by the Agent, to the extent not reimbursed prior to 1:00 P.M. (prevailing Eastern Standard Time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date the Agent is reimbursed therefor, at a rate per annum which shall be the Prime Rate as in effect from time to time (plus an additional 300 basis points (3.00%) per annum, if not reimbursed by the second (2nd) Business Day following any such notice of payment or disbursement), such interest to be payable on demand. -19- (b) Borrower's Obligations Absolute. The Borrower's obligations under this Section 2.10 to reimburse the Agent with respect to Unpaid Drawings (including, in each case, interest thereon) issued by it shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower or any other Person may have or have had against the Agent or any Lender, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit (each a Drawing) to conform to the terms of the Letter of Credit or any non- application or misapplication by the beneficiary of the proceeds of such Drawing; provided, that the Borrower shall not be obligated to reimburse the Agent for any wrongful payment made by the Agent under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Agent. 2.11 Indemnification; Nature of Agent's Duties. ----------------------------------------- (a) Indemnification Generally. The Borrower hereby agrees to protect, indemnify, pay and save the Agent harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that the Agent may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit or (ii) the failure of the Agent to honor a Drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such actions or omissions, herein called Government Acts). (b) Allocation of Risk. As between the Borrower and the Agent, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Agent shall not be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a Drawing under a Letter of Credit or of the proceeds thereof; and (vii) for any consequences arising from causes beyond the control of the Agent, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of any of the Agent's rights or powers hereunder. (c) Scope of Agent's Duties. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Agent under or in connection with any Letter of Credit or the related drawing certificates, if taken or omitted in good faith, shall not put the Agent under any resulting liability to the Borrower. The Agent shall -20- not, in any way, be liable for any failure by it or anyone else to pay any Drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of the Agent. (d) No Limitation as to Reimbursement. Nothing in this Section 2.11 is intended to limit the reimbursement obligation of the Borrower contained in Section 2.10 hereof. The obligations of the Borrower under this Section 2.11 shall survive the termination of this Agreement. No act or omissions of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Agent to enforce any right, power or benefit under this Agreement. (e) Limitation of Indemnification. Notwithstanding anything to the contrary contained in this Section 2.11, (i) the Borrower shall have no obligation to indemnify the Agent in respect of any liability incurred by the Agent arising solely out of the gross negligence or willful misconduct of the Agent, as determined by a court of competent jurisdiction and (ii) the Borrower shall have a claim against the Agent and the Agent shall be liable to the Borrower to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by (x) the Agent's willful misconduct or gross negligence in determining whether the documents presented under a Letter of Credit complied with the terms of such Letter of Credit or (y) the Agent's willful or grossly negligent failure to pay under a Letter of Credit after presentation to it of a drawing certificate and any other documents strictly complying with the terms and conditions of such Letter of Credit. 2.12 Increased Costs; Illegality; Capital Adequacy; Funding ------------------------------------------------------ Losses. ------ (a) Increased Costs and Illegality. In the event that (x) in the case of clause (i) below, the Agent, and (y) in the case of clauses (ii) and (iii) below, any Lender, shall have determined (which determination in either case shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the LIBOR Rate for any Interest Period that, by reason of any changes arising on or after the date of this Agreement affecting the relevant capital market, (x) adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR Rate or (y) such means will not adequately and fairly reflect the cost to the Lenders of funding LIBOR Loans for the relevant Interest Periods; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any LIBOR Loans because of (x) any change since the date of this Agreement in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, -21- in the case of a LIBOR Loan, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the LIBOR Rate) and/or (y) other circumstances affecting the relevant capital market; or (iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the relevant capital market; then, and in any such event, the Lender so affected (or the Agent, in the case of clause (i) above) shall on such date give notice to the Borrower (and the other Lenders and/or the Agent, as the case may be) of such determination. Thereafter (x) in the case of clause (i) above, LIBOR Loans shall no longer be available until such time as the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Agent no longer exist, and any Notice of Borrowing delivered pursuant to Section 2.03(a) hereof or notice of conversion or continuance delivered pursuant to Section 2.06 hereof with respect to a LIBOR Loan shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, LIBOR Loans shall no longer be available until such time as such Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist, any Notice of Borrowing delivered pursuant to Section 2.03(a) hereof or notice of conversion or continuance delivered pursuant to Section 2.06 hereof with respect to LIBOR Loans shall be deemed rescinded by the Borrower, and any LIBOR Loans that are then outstanding shall be automatically converted to Prime Rate Loans; provided, however that if such Lender, in its sole discretion, determines that such circumstances can only be alleviated by repayment of such Loans, then, upon demand, the Borrower shall repay in full such Loans, together with accrued but unpaid interest thereon. (b) Capital Adequacy. If after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by a Lender or its parent with any request or directive made or adopted after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has -22- or would have the effect of reducing the rate of return on such Lender's or its parent's capital or assets as a consequence of such Lender's commitments or obligations hereunder to a level below that which such Lender or its parent could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's or its parent's policies with respect to capital adequacy), then from time to time, upon demand, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its parent for such reduction. Such Lender, upon determining in good faith that any additional amounts will be payable pursuant to this Section 2.12, will give prompt written notice thereof to the Borrower, which notice shall set forth in reasonable detail the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 2.12 upon receipt of such notice. (c) Funding Losses. The Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities, including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its LIBOR Loans (all such losses Funding Losses) which such Lender may sustain: (x) if for any reason an advance of, or conversion from or into, LIBOR Loans does not occur on a date specified therefor in a Notice of Borrowing or notice of conversion given pursuant to Section 2.06(a) or (b), as the case may be, (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 2.12(a)); (y) if any repayment (including any prepayment made pursuant to Section 4.01 or 4.02) or conversion of any of its LIBOR Loans occurs on a date which is not the last day of an Interest Period with respect thereto; or (z) as a consequence of (i) any other default by the Borrower to repay its Loans when required by the terms of this Agreement or any Note held by such Lender or (ii) any prepayment or conversion made pursuant to Section 2.12(a). The amount of compensation available to any Lender pursuant to this Section 2.12(c) shall be determined based on the assumption that such Lender has funded the entire amount of the relevant LIBOR Loan through match funding obtained in the London interbank market. 2.13 Computation. Interest and any fees or compensation based upon a ----------- per annum rate shall be calculated on the basis of a 360 day year for the actual number of days elapsed. SECTION 3. FEES. ---- 3.01 Upfront Fees. The Borrower shall pay, or have paid, to the ------------ Agent on or before the Closing Date a one-time facility upfront fee in an amount equal to twelve and one-half (12 1/2) basis points (.125%) of the Maximum Available Credit Amount as of the Closing Date. On the Closing Date, the Agent shall disburse such fees to the Lenders based on their respective Pro Rata Shares. The Borrower acknowledges that such fees are a liquidated damages amount and, together with the amounts payable pursuant to Section 5.01(c) hereof, constitute reasonable compensation to the Agent and the Lenders for their expenses and services in connection with the arrangement of their respective Credit Commitments and the negotiations and preparation of this Agreement and the other Credit Documents. -23- 3.02 Commitment Fee. The Borrower shall pay to the Agent for the -------------- ratable account of the Lenders based on their respective Pro Rata Shares, quarterly in arrears, a commitment fee for the period from and including the Closing Date until the Revolving Credit Expiration Date, computed at a rate equal to 25 basis points (.25%) per annum of the average daily amount of the Availability. Such fee shall be payable commencing on March 31, 1997 (for the period commencing on the Closing Date and ending on said March 31, 1997), and continuing quarterly on the last Business Day of each March, June, September and December occurring thereafter. 3.03 Letter of Credit Fee. The Borrower shall pay to the Agent for -------------------- the ratable account of the Lenders based on their respective Pro Rata Shares, quarterly in advance, a fee in respect of the Letters of Credit (the Letter of Credit Fee) computed at a rate equal to 100 basis points (1.00%) per annum of the aggregate Stated Amount of the Letters of Credit outstanding as of the first day of each January, April, July and October. Such fee shall be payable commencing on January 2, 1997 and continuing quarterly on the first Business Day of each January, April, July and October occurring thereafter. For the avoidance of doubt, the foregoing calculation of the Letter of Credit Fee may be calculated in accordance with the following formula: A (multiplied by) .01 (multiplied by) N ----- 360 ; with A equal to the aggregated Stated Amount of the Letters of Credit outstanding as of the first day of the relevant payment period and N equal to the actual number of days elapsed during the period commencing on said first day and ending on the last day of the relevant payment period. 3.04 Letter of Credit Processing Fee. The Borrower shall pay to the ------------------------------- Agent for its sole account, upon each issuance of, drawing under, and/or amendment of, a Letter of Credit, such amounts as shall at the time of such issuance, drawing or amendment be the administrative charge which the Agent customarily charges for such issuances of, drawings under or amendments of, letters of credit issued by it (Letter of Credit Processing Fees). SECTION 4. PREPAYMENTS AND PAYMENTS GENERALLY. ---------------------------------- 4.01 Voluntary Prepayments. The Borrower may prepay any Loan, in --------------------- whole or in part, without premium or penalty (except as provided in Section 2.12(c) hereof) upon at least three (3) Business Days' irrevocable notice to each Lender (or one (1) Business Day's irrevocable notice in the case of a prepayment of a Prime Rate Loan), specifying the date and the amount of the prepayment and whether such prepayment is in respect of LIBOR Loans, Prime Rate Loans or a combination thereof; provided, that any such prepayment shall include all accrued but unpaid interest in respect of the Loans being prepaid. The principal portion of any partial prepayment shall be in an amount equal to $500,000 or any whole multiple thereof. 4.02 Mandatory Prepayments. Immediately upon the Credit Obligations --------------------- exceeding the Maximum Available Credit Amount, the Borrower shall make, or cause to be made, a -24- mandatory prepayment of the Credit Obligations in an amount equal to such excess, together with accrued but unpaid interest thereon. Without limiting the foregoing, immediately upon the Letter of Credit Outstandings exceeding the Letter of Credit Sublimit, the Borrower shall make, or cause to be made, payment to the Agent in the amount of such excess to be held as cash collateral (on terms and conditions established by the Agent and reasonably acceptable to the Borrower) to secure such Letter of Credit Outstandings in excess of the Letter of Credit Sublimit. Provided that no Default or Event of Default has occurred and is then continuing, such cash collateral shall be released by the Agent (on behalf of the Lenders) if and when the Letter of Credit Outstandings have been reduced to an amount equal to or less than the Letter of Credit Sublimit then in effect. 4.03 Application of Mandatory Prepayments. Any prepayment ------------------------------------ received pursuant to Section 4.02 hereof shall be applied first to reduce amounts owing in respect of any Prime Rate Loans and second to reduce amounts owing in respect of any LIBOR Loans (provided that, if there is more than one outstanding LIBOR Loan, then amounts owing in respect of the LIBOR Loans with the Interest Period ending on the date that is the least number of days from the date of such prepayment shall be reduced first before reduction of amounts owing in respect of other LIBOR Loans). Within the order of priority set forth above, the amount of any prepayment received hereunder shall be applied to the Loans first to reduce amounts owing in respect of accrued but unpaid interest on the Loans being prepaid and second to reduce amounts owing in respect of outstanding principal of such loans. If by operation of the provisions set forth above or any other reason, payment of principal in respect of a LIBOR Loan is received (from any source) on a date other than the last day of the Interest Period pertaining to such Loan, including, without limitation, due to acceleration of said amount following the occurrence of an Event of Default, then the Borrower shall pay to each Lender an additional amount equal to the applicable Funding Losses. Such Funding Losses shall be payable on demand by such affected Lender. 4.04 General Provisions as to Payments. The Borrower shall make --------------------------------- each payment of principal of, and interest on, the Loans and of fees due hereunder, not later than 2:00 p.m. (prevailing Eastern Standard Time) on the date when due, in immediately available funds to the Agent at its Payment Office. Provided that the Agent receives such payments by such time, the Agent will distribute to each Lender on the same day its Pro Rata Share of each such payment received by the Agent. 4.05 Net Payments. All payments made by the Borrower hereunder ------------ shall be made without setoff or counterclaim. All such payments shall be made free and clear of and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature, now or hereafter imposed by any jurisdiction or by any department, agency, state or other political subdivision or taxing authority thereof or therein (but excluding any tax imposed on or measured by the net income of a Lender pursuant to the laws of the jurisdiction in which the principal office or Payment Office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or Payment Office of such Lender is located) and all interest, penalties, or similar liabilities with respect thereto (collectively, Taxes). If any Taxes are so levied or imposed, the Borrower agrees to pay the full -25- amount of such Taxes, and such additional amounts as may be necessary so that every net payment of amounts due hereunder, after withholding or deduction for or on account of any Taxes, will not be less than the amounts provided for herein. The Borrower shall furnish to the Agent, within thirty (30) days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Borrower. The Borrower shall indemnify and hold harmless each Lender and reimburse each Lender upon the written request of such Lender setting forth the basis for requesting such amount, for the amount of any Taxes so levied or imposed and paid by such Lender. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made by the Borrower or the Agent hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Credit Document. 4.06 Debiting of Account. If so requested by the Agent, the Borrower ------------------- shall maintain a demand deposit account (a DDA Account) at the Agent, and the Agent may, and the Borrower hereby authorizes the Agent to, debit any such DDA Account or such other account and/or certificate of deposit maintained by the Borrower with the Agent for the amount of any payment, as and when such payment becomes due hereunder, whether such payment is for accrued interest, principal or expense, even if debiting any such account or certificate of deposit results in a loss or reduction of interest to the Borrower or the imposition of a penalty applicable to the early withdrawal of time deposits. Such authorization shall not affect the Borrower's obligation to pay when due all amounts payable hereunder, whether or not there are sufficient funds in any accounts of the Borrower. The foregoing rights of the Agent to debit the Borrower's accounts shall be in addition to, and not in limitation of, any rights of set-off which the Agent may have hereunder or under any Credit Document. Nothing in this Section 4.06 or otherwise in this Agreement shall be interpreted to obligate the Agent to so debit, or set-off against, any account of the Borrower maintained with the Agent to satisfy any of the Obligations of the Borrower, such right to so debit and/or set-off to be exercised by the Agent in its sole and absolute discretion. SECTION 5. CONDITIONS. ---------- 5.01 Documents Required for Initial Advance. The obligation of each -------------------------------------- Lender to make the initial advances under the Revolving Credit Facility requested on the Closing Date is subject to the satisfaction of all of the following conditions precedent: (a) Certain Documents. The Agent shall have received on or before the Closing Date all of the following, each in form and substance satisfactory to each of the Lenders and in such quantities as the Agent shall reasonably request: (i) the following Credit Documents, each duly executed and delivered by the parties thereto: -26- (A) this Agreement; (B) the Notes; and (C) the Subsidiary Guaranty; (ii) a Notice of Borrowing requesting the initial advance hereunder in an amount at least sufficient to pay in full the "Revolving Credit Loans" outstanding under the Existing Credit Agreement and such other amounts (without duplicating) owing to PNC Bank (as successor in interest to Midlantic Bank, N.A.) under the Existing Credit Agreement as set forth on its pay-off letter with respect thereto previously submitted to the Agent, and evidence of the termination of the "Credit Commitments" the Existing Credit Agreement; (iii) pre-closing UCC lien search report and tax lien and judgment search reports with respect to the Borrower and the Guarantors, in all appropriate jurisdictions; (iv) evidence of termination of all UCC-1 financing statements filed in connection with the perfection of security interest in favor of the "Agent" pursuant to the Existing Credit Agreement; (v) an incumbency certificate of an appropriate officer of the Borrower certifying, as of the Closing Date, the names, titles and true signatures of the officers certified to execute the Credit Documents, and the names, titles and true signatures of such officers of the Borrower authorized to deliver Notices of Borrowing and Letter of Credit Requests on behalf of the Borrower; (vi) a favorable New Jersey and New York law opinion of outside counsel to the Borrower and the Guarantors addressed to the Agent and the Lenders to the effect that the Credit Documents have been duly authorized and executed and are enforceable against the Borrower and the Guarantors in accordance with their respective terms, and as to such other matters reasonably requested by the Agent and the Lenders; (vii) a secretary's certificate for each of the Borrower and the Guarantors, to which are attached certified copies of (x) the respective articles of incorporation of the Borrower and the Guarantors and all amendments thereto, certified by an appropriate corporate officer, (y) the respective By-Laws of the Borrower and the Guarantors and all amendments thereto, and (z) appropriate resolutions and shareholder consents authorizing the transactions herein contemplated; -27- (viii) a certificate from the chief financial officer of the Borrower dated the Closing Date to the effect that as of such date (i) no Default or Event of Default has occurred or is continuing, (ii) since September 30, 1996, there has been no material adverse change in the business, financial condition or operations of the Borrower and (iii) each of the representations and warranties of the Borrower contained in this Agreement are true in all material respects; (ix) good standing certificates issued by the appropriate official of the state in which the Borrower and the Guarantors are incorporated; and such good standing certificates issued by the appropriate official of each of the states in which the Borrower and the Guarantors are qualified as foreign corporations as the Lenders shall require; (x) certificates of insurance evidencing the existence and full force and effect of the insurance described in Section 6.18 hereof; (xi) a letter from the certified public accountants for the Borrower and Health Care consenting to the reliance by the Agent and the Lenders upon the financial statements of the Borrower and Health Care; (xii) an update in form and substance satisfactory to the Agent regarding matters pertaining to the civil investigative demand served upon the Borrower by the United States Department of Justice on April 4, 1995, and evidence that the Borrower has adequately reserved for any exposure resulting from said investigation; (xiii) execution and delivery of documentation in form and substance satisfactory to First Union National Bank that the representations, warranties and covenants set forth herein have been incorporated by reference into the First Fidelity Term Loan Agreement; and (xiv) such other documents as the Lenders may reasonably require, including, without limitation, other agreements, instruments, or indentures to which any Obligor is a party, including, without limitation, financing statements, proofs, opinions, guaranties and other written assurances. (b) Settlement of Fees Under Existing Credit Agreement. The Borrower shall have paid to the agent under the Existing Credit Agreement for the ratable account of the lenders thereunder, the fees payable pursuant to Section 3.02 and 3.04 of the Existing Credit Agreement that have accrued through the date immediately preceding the Closing Date. (c) Fees and Expenses. The Borrower shall have paid (or otherwise satisfied to the satisfaction of the Agent and the Lenders) to the Agent and/or the Lenders, as the case may be, all -28- fees hereunder that are expenses due and payable on or prior to the Closing Date, including, without limitation, fees and expenses incurred by the Agent and Lenders related to the preparation, negotiation and closing of the transaction contemplated herein that have been requested by such parties pursuant to invoices submitted to the Borrower on or prior to the Closing Date. 5.02 Requirements for Any Advance and Issuance of Letter of Credit. ------------------------------------------------------------- The obligation of the Lenders to make any Revolving Credit Loans and the obligation of the Agent to issue any Letter of Credit, in each case subsequent to the Closing Date, is subject to satisfaction of the following conditions: (i) the representations and warranties contained in Section 6 hereof are true and correct on and as of the date of funding of each such Loan or date of issuance of such Letter of Credit, as the case may be; (ii) no Default or Event of Default has occurred and is continuing; (iii) there has been no material adverse change in the Borrower's or any other Obligor's condition, financial or otherwise, since the date of this Agreement; and (iv) all of the Credit Documents remain in full force and effect. SECTION 6. REPRESENTATIONS AND WARRANTIES. ------------------------------ In order to induce the Lenders to enter into this Agreement, the Borrower represents and warrants with respect to itself and, to the extent applicable, each of its Subsidiaries, and agrees that each such representation and warranty shall be deemed to be restated at the time of funding of each Loan and at the time of issuance of each Letter of Credit, that: 6.01 Organization; Authority. The Borrower and the Guarantor is a ----------------------- corporation, duly organized, validly existing and in good standing under the laws of the state of its incorporation, is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction in which it is required to be qualified because of the business it conducts or the property it owns, and has the necessary power and authority to enter into and perform its obligations under the Credit Documents. The execution and performance of the Credit Documents have been duly authorized by all necessary and appropriate corporate proceedings on the part of the Borrower and the Guarantor, and, upon their execution and delivery, they will be valid, binding, and enforceable in accordance with their terms; the execution and performance of the Credit Documents will not violate any orders, laws or regulations applicable to any such Obligor, any of their respective organizational documents, or any instruments, indentures or agreements (including any provisions pertaining to subordinated debt) to which they are a party or by which any such Obligor or any of their respective properties are bound; and all consents, approvals, licenses, franchises, patents, trademarks and other general intangibles -29- required in connection with this Agreement, the other Credit Documents or the operation of any such Obligor's business have been obtained and are in full force and effect. All of the issued and outstanding stock of the Borrower and the Guarantor has been validly issued and fully paid and is non-assessable. The Borrower's Subsidiary is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization and is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction in which it is required to be qualified because of the business it conducts or the property it owns. 6.02 Use of Proceeds; Margin Regulation. The proceeds of the ---------------------------------- Revolving Credit Loans shall be used only for the following purposes: (i) to repay all amounts outstanding under the Existing Credit Agreement, (ii) to finance the Borrower's accounts receivable, purchase equipment, make Capital Expenditures permitted hereunder, (iii) in connection with acquisitions permitted pursuant to Section 8.03, or (iv) in connection with the Borrower's other working capital needs. The Letters of Credit shall be used solely to support Permitted L/C Obligations. The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying "margin stock" (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). Neither the making of any Loan, the issuance of any Letter of Credit, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 6.03 Specific Financial Statements. ----------------------------- (i) The consolidated financial statements of the Borrower as of December 31, 1995, audited by KPMG Peat Marwick and the six (6) and nine (9) month statements as of June 30, 1996 and September 30, 1996, respectively, prepared by management, copies of which have heretofore been provided to the Agent, present fairly the financial condition of the Borrower and Health Care, as applicable, as of such dates and the results of operations for the periods then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP, consistently applied. (ii) There has been no material adverse change in the financial condition of the Borrower and Health Care or any Subsidiary or Affiliate of the Borrowers or Health Care since September 30, 1996. (iii) Except as reflected in the financial statements referred to in clause (i) of this Section 6.03, the Borrower and Health Care have no material liabilities, absolute or contingent. 6.04 Burdensome Agreements. Neither the Borrower nor the Guarantor is --------------------- a party to any indenture, loan or credit agreement or any other agreement, contract or instrument, or subject to any certificate of incorporation, by-law, or corporate restriction, which may reasonably be expected to -30- have an adverse affect on its corporate activities, properties, assets, operations or conditions, financial or otherwise, or on its ability to carry out its obligations under the Credit Documents. 6.05 Suits. Except as disclosed on Annex I hereto, there are no ----- actions, suits, proceedings, or claims pending or, to the best knowledge of the Borrower, threatened against the Borrower or its Subsidiaries, or any of their property that, if determined adversely, are reasonably likely to have a material adverse effect on the business, properties, assets, operations, financial condition or prospects of the Borrower, or its Subsidiaries, taken as a whole. 6.06 Defaults. Except as disclosed on Annex I hereto, neither -------- the Borrower nor any of its Subsidiaries is in default under any agreement to which it is a party or by which it or any of its property is bound, or under any indenture or instrument evidencing any Indebtedness, and neither the execution of, nor performance under, the Credit Documents will create a default or any Lien or encumbrance under any such agreement, indenture or instrument other than Liens or encumbrances in favor of the Lenders. 6.07 ERISA. Each Plan is in substantial compliance with ERISA and ----- the applicable provisions of the Code and there does not exist with respect to any such Plan an "accumulated funding deficiency" (as such term is defined in ERISA). No material liability to the PBGC has been incurred by the Borrower with respect to any such Plan and no "Reportable Event" under ERISA has occurred. Neither the Borrower nor any of its Subsidiaries has actual or anticipated liability under Section 4971 of the Code (relating to tax on failure to meet the minimum funding standard of Section 412 of the Code) with respect to any Multiemployer Plan. No proceedings have been instituted to terminate any Plan and no condition exists which presents a material risk to the Borrower or any of its Subsidiaries of incurring a liability to or on account of any Plan pursuant to the provisions of ERISA or the applicable provisions of the Code. 6.08 Tax Returns and Taxes. Each of the Borrower and its Subsidiaries --------------------- has filed all federal, state and local tax returns required to be filed and has paid all taxes, assessments and governmental charges and levies thereon, including interest and penalties, except where the same are being contested in good faith by appropriate proceedings and for which adequate reserves have been set aside, and no liens for taxes have been filed and no claims are being assessed by a governmental authority with respect to any taxes. The charges, accruals and reserves on the books of the Borrower or its Subsidiaries, as the case may be, with respect to taxes or other governmental charges are adequate. 6.09 Compliance with Statutes, etc. Each of the Borrower and its ------------------------------ Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as would not, in the aggregate, have a material adverse effect on the business, operations, property, assets or financial condition of the Borrower or of the Borrower and its Subsidiaries taken as a whole. -31- 6.10 Environmental Compliance. To the best of the Borrower's ------------------------ knowledge, after due inquiry and investigation, no Lien has attached to any revenues or any real or personal property owned by the Borrower or any of its Subsidiaries in any jurisdiction, arising from an intentional or unintentional action or omission of the Borrower or any of its Subsidiaries or any previous owner and/or operator of said real property, resulting from the Dumping of hazardous substances or wastes into the atmosphere or waters or onto lands. 6.11 No Notification of Dumping of Hazardous Substances. Neither the -------------------------------------------------- Borrower nor any of its Subsidiaries has received a summons, citation, directive, letter, or other communication, written or oral, from any jurisdiction, or political sub-division or any agency or instrumentality thereof, concerning any intentional or unintentional action or omission on the part of the Borrower or any of its Subsidiaries arising from the Dumping of hazardous substances into the atmosphere or waters, or onto the lands in any jurisdiction. 6.12 No Authorizations or Approvals. No authorization or approval or ------------------------------ other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement and the other Credit Documents. 6.13 Not an Investment Company. The Borrower is not an "investment ------------------------- company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 6.14 Subsidiaries. Annex I hereto lists each Subsidiary of the ------------ Borrower (and the direct or indirect ownership interest of the Borrower therein), in each case existing on the Closing Date. Neither the Borrower nor any of its Subsidiaries has any interests in any Person other than as set forth in said Annex I. No such Subsidiary has any Subsidiaries. 6.15 Intellectual Property, etc. The Borrower and each of its -------------------------- Subsidiaries have obtained all material patents, trademarks, servicemarks, trade names, copyrights, technology, processes, licenses and other rights (Intellectual Property), free from any burdensome restrictions, that are necessary for the operation of their respective businesses as presently conducted and as proposed to be conducted. No claim has been asserted or threatened questioning the use of such Intellectual Property, nor does the Borrower know of any valid basis for any such claim. 6.16 Labor Matters. Except as disclosed on Annex I, neither the ------------- Borrower nor any of its Subsidiaries is a party to a labor contract. There are no strikes, lockouts or other disputes relating to any collective bargaining or similar agreement to which the Borrower or any of its Subsidiaries is a party. 6.17 Assets and Properties. The Borrower and its Subsidiaries have --------------------- good and marketable title to all of their respective assets and properties (tangible and intangible) and all such -32- assets and properties are free and clear of all Liens (except Permitted Liens). Substantially all of the assets and properties owned by, leased to or used by the Borrower or its Subsidiaries are in adequate operating condition and repair, ordinary wear and tear excepted, are free and clear of any known defects except such defects as do not substantially increase with the continued use thereof in the conduct of normal operation, and such assets are able to serve the function for which they are currently being used, except in each case where the failure of such asset or property to meet such requirements would not have or is not expected to have a material adverse effect on the operations of the Borrower or its Subsidiaries, taken as a whole. 6.18 Insurance. Annex I hereto lists all material insurance contracts --------- and binders of the Borrower and its Subsidiaries which are currently in full force and effect. Such contracts and binders provide coverages which are usual and customary in the business of the Borrower and its Subsidiaries as to amount and scope. If requested by the Agent, each such insurance contract and binder shall contain standard lender's endorsement and loss payee endorsements in favor of the Agent, on behalf of the Lenders, and be subject to cancellation or reduction in coverage only upon thirty (30) days' prior written notice thereof to the Agent. 6.19 True and Complete Disclosure. All factual information (taken as ---------------------------- a whole) heretofore or contemporaneously furnished by the Borrower to the Agent or any of the Lenders for the purposes of or in connection with this Agreement or any transactions contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such Persons in writing to any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and does not omit to state any fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. SECTION 7. AFFIRMATIVE COVENANTS. --------------------- The Borrower covenants and agrees that for so long as there are any outstanding Obligations hereunder, or the Agent or the Lenders shall have any obligation hereunder, the Borrower shall (and, as applicable, shall cause each of its Subsidiaries (including the Guarantors) to): 7.01 Payment of Indebtedness. Pay the Credit Obligations in ----------------------- accordance with their respective terms and pay and perform its other Indebtedness and obligations in accordance with their terms. 7.02 Payment of Taxes, Etc. Pay and discharge all taxes, assessments --------------------- and governmental charges or levies imposed upon it, or upon its properties, prior to the date on which penalties attach thereto, provided, however, that the Borrower and its Subsidiaries shall not be required to pay or discharge such tax, assessment, governmental charge or levy if the validity, amount or applicability thereof is being contested by the Borrower or such Subsidiaries in good faith, by appropriate proceedings and with diligence and continuity (and for which adequate reserves therefor are maintained on the books of the Borrower or such Subsidiaries, as the case may be). -33- 7.03 Reporting Requirements. Furnish to the Agent and the Lenders: (i) as soon as available and in any event within one hundred (100) days after the end of each fiscal year of the Borrower and the Guarantor, an annual audit report for the Borrower and the Guarantor, including, but not limited to, the balance sheet of the Borrower and the Guarantor as of the end of such fiscal year and the statements of operations and cash flows of the Borrower and the Guarantor for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, prepared in accordance with GAAP, consistently applied, all in reasonable detail and prepared on a Consolidated and consolidating basis and in each case duly certified by independent certified public accountants of recognized standing acceptable to the Agent. At the same time as the annual report is so provided to the Agent and the Lenders, the Borrower shall also provide to the Agent and the Lenders its Annual Report on Form 10-KSB (or successor form) prescribed by the SEC for such fiscal year; and (ii) as soon as available and in any event within sixty (60) days after the end of the first three quarters of each fiscal year of the Borrower and the Guarantor, management prepared Consolidated and consolidating financial statements including, but not limited to, a balance sheet, income statement and cash flow statement prepared in accordance with GAAP, consistently applied, in form and substance satisfactory to the Agent for the quarter and the period commencing at the end of the previous fiscal year and ending with the end of such quarter. In addition, at the times of delivery to the Agent and the Lenders of such quarterly reports, the Borrower shall also deliver to the Agent and the Lenders its Quarterly Report on Form 10-QSB (or successor form) prescribed by the SEC for such fiscal year; and (iii) promptly after filing, copies of any and all public disclosures of the Borrower whether to the SEC or otherwise, including but not limited to any reports on Form 8-K (or successor form) prescribed by the SEC, and any proxy and registration statements; and (iv) within six (6) months after the end of the Borrower's fiscal year, a management letter prepared by the independent certified public accountants of the Borrower; and (v) such other information as may be reasonably requested by the Agent and any Lender respecting the condition or operations, financial or otherwise, of the Borrower and the Subsidiaries and their respective businesses. -34- 7.04 Compliance Certificate. Furnish to the Agent and the Lenders, ---------------------- together with each set of financial statements described in clauses (i) and (ii) of Section 7.03 hereof, a compliance certificate, substantially in the form of Exhibit E hereto, signed by the Borrower's chief financial officer, certifying that: (i) all representations and warranties set forth in this Agreement and in any other Credit Document are true and correct as of the date thereof; (ii) none of the covenants in this Agreement or in any other Credit Document has been breached; (iii) no Default or Event of Default under this Agreement or under any other Credit Document has occurred and is continuing; and (iv) the computation of the financial covenants set forth in Sections 8.14, 8.15 and 8.16 hereof, together with the calculation of each significant component thereof necessary to determine compliance with such covenants. 7.05 Notice of Certain Events. Promptly give written notice to the ------------------------ Agent and the Lenders of: (i) the occurrence of any Default or Event of Default; (ii) the commencement of any proceeding (administrative or otherwise) or litigation which, if adversely determined, would materially and adversely affect its financial condition or ability to conduct business; and (iii) the formation of any Subsidiary of the Borrower after the date of this Agreement, which notice shall be accompanied by the resolution of the Board of Directors of such Subsidiary authorizing such Subsidiary to execute a guaranty of the Obligations, satisfactory in form and substance to the Lenders, together with such guaranty duly executed by such Subsidiary. 7.06 Preservation of Property; Insurance. Keep and maintain all of its ----------------------------------- properties and assets in good order and repair; maintain all insurance coverages described in Section 6.18 hereof and such other extended coverage, general liability, hazard, malpractice, business interruption and property insurance in amounts deemed satisfactory to the Agent and as is customary for businesses similar to the Borrower's business and deliver to the Agent certificates of all such insurance in effect; and cause all such policies to contain a standard lender's endorsement and loss payee endorsements in favor of the Agent, on behalf of the Lenders, and to be subject to cancellation or reduction in coverage only upon thirty (30) days' prior written notice thereof to the Agent. 7.07 Conduct of Business and Maintenance of Existence. Continue to ------------------------------------------------ engage in business of the same general type as now conducted and preserve, renew and keep in full force and effect its corporate existence and rights, privileges and franchises necessary or desirable in the normal conduct of business and which are material to the Borrower and each of its Subsidiaries. 7.08 Operation of Properties. Conduct its business and operate its ----------------------- properties, in compliance with all applicable orders, rules and regulations promulgated by the jurisdictions and agencies thereof where such business is conducted and where such properties are located, and duly file or cause to be filed such reports and/or information as may be required or appropriate under applicable orders, regulations or law. 7.09 Access to Properties, Books and Records. Upon reasonable notice, --------------------------------------- at any reasonable time and from time to time, permit the Agent's and/or the Lenders' representatives and/or agents full and complete access to any or all of the Borrower's and its Subsidiaries' properties and -35- financial records, to make extracts from and/or audit such records, and to examine and discuss the Borrower's properties, business, finances and affairs with the Borrower's officers and outside accountants. 7.10 Keeping of Records and Books of Account. Keep adequate records --------------------------------------- and books of account reflecting all its financial transactions. 7.11 ERISA Compliance. Comply with all the applicable provisions of ---------------- ERISA now or hereafter in effect with respect to each of its Plans and notify the Lenders of the following events, as soon as possible and in any event within ten (10) days after the Borrower knows or has reason to know thereof: (i) the occurrence of any "Reportable Event" (as defined in ERISA) with respect to any Plan; (ii) the occurrence of a "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan, (iii) the institution of proceedings or the taking or expected taking of any other action by the PBGC or the Borrower or any ERISA Affiliate to terminate or withdraw or partially withdraw from any Plan and, with respect to a Multiemployer Plan, the "Reorganization" or "Insolvency" of such Plans (as such terms are defined in ERISA); (iv) the failure of the Borrower or any ERISA Affiliate to make a required installment under Section 412 (m) of the Code or any other payment required under Section 412 of the Code on or before the due date or (v) the adoption of an amendment with respect to a Plan so that the Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the Code, and in addition to such notice, deliver to the Lenders a certificate signed by the chief financial officer of the Borrower or of the respective ERISA Affiliate describing what action the Borrower or the respective ERISA Affiliate proposes to take with respect thereto and when known, any action taken or threatened by the Internal Revenue Service or the PBGC, together with a copy of any notice to the PBGC or the Internal Revenue Service or any notice delivered by the PBGC or the Internal Revenue Service. 7.12 Environmental Liens. In the event that there shall be filed a ------------------- Lien against any property of the Borrower by any jurisdiction, political sub- division, agency or instrumentality thereof arising from an intentional or unintentional act or omission of the Borrower, resulting in the Dumping of hazardous substances or wastes into the atmosphere or waters or onto lands then, within thirty (30) days from the date that the Borrower is given notice that the Lien has been placed against such property, or within such shorter period of time in the event that such jurisdiction, political sub-division, agency, or instrumentality thereof has commenced steps to cause such property to be sold pursuant to the Lien, either (i) pay the claim and remove the Lien from the applicable property or (ii) furnish such jurisdiction, political subdivision, agency or instrumentality thereof that imposed the Lien with one of the following: (a) a bond satisfactory to such jurisdiction, political sub-division, agency, or instrumentality thereof that imposed the Lien in the amount of the claim out of which the Lien arises, (b) a cash deposit in the amount of the claim out of which the Lien arises, or (c) other security reasonably satisfactory to such jurisdiction, political sub-division, agency, or instrumentality thereof in an amount sufficient to discharge the claim out of which the Lien arises. 7.13 Removal of Hazardous Substances. Should the Borrower cause or ------------------------------- permit any intentional or unintentional act or omission resulting in the Dumping of hazardous substances or -36- wastes into the atmosphere or waters or onto the lands resulting in damage to the Natural Resources without having obtained a permit issued by the appropriate governmental authorities, promptly remediate said damage in accordance with all applicable federal, state, and local orders, statutes, laws, ordinances, rules and regulations. 7.14 Further Assurances. Do, execute, acknowledge and deliver or cause ------------------ to be done, executed, acknowledged and delivered all such further instruments, acts, deeds, and assurances as may be reasonably requested by the Agent or the Lenders for the purpose of carrying out the provisions and intent of the Credit Documents. SECTION 8. NEGATIVE COVENANTS. ------------------ For so long as any Obligations are outstanding, or the Lenders shall have any obligation hereunder, the Borrower shall not (and shall not, as applicable, permit any of its Subsidiaries (including the Guarantor) to): 8.01 Incur Indebtedness. Incur, create, assume, or permit to exist any ------------------ Indebtedness, except: (a) Indebtedness of the Borrower owing to the Lenders and the Agent under this Agreement and the Notes; (b) Indebtedness existing on the Closing Date that is listed on Annex I hereto and any renewals, extensions or refinancings of the same, provided that the principal amount of such Indebtedness at the time of such renewal, extension or refinancing is not increased in connection therewith; (c) Approved Subordinated Indebtedness; (d) Indebtedness in respect of normal trade debt arising in the ordinary course of business which does not significantly exceed the levels of such debt historically incurred by the Borrower or its Subsidiary, as the case may be; (e) Indebtedness secured by Liens permitted by Section 8.02(f); and (f) Indebtedness that constitutes Guaranteed Indebtedness of the Borrower that has been incurred by the Borrower solely by virtue of the Borrower's endorsement of checks or drafts negotiated in the ordinary course of the Borrower's business. 8.02 Negative Pledge. Create, permit to exist, or suffer the creation --------------- of, any Lien, on any of its properties or assets (real or personal, tangible or intangible), except: (a) Liens existing on the Closing Date that are listed on Annex I hereto; -37- (b) Liens for taxes, assessments or governmental charges or levies to the extent not required to be paid by Section 7.02 hereof; (c) Liens imposed by law, such as materialmen's, mechanics', carriers, workmen's, and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue for a period of more than thirty (30) days; (d) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation or to secure public or statutory obligations of the Borrower; (e) Certain de minimus Liens with respect to the assets and properties acquired in acquisitions permitted pursuant to Section 8.03 hereof which were existing upon such assets or properties prior to the relevant permitted acquisitions; (f) Liens for finance leases of equipment leased by the Borrower or any of its Subsidiaries, which do not constitute Capitalized Leases or purchase money Liens upon or in property acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such property to be subject to such Liens, or Liens existing on any such property at the time of the leasing, acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being leased or acquired and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced, and provided, further, that (i) the aggregate principal amount of the Indebtedness at any one time outstanding secured by Liens permitted pursuant to this clause (g) shall not exceed $250,000 at any one time outstanding and (ii) any such Indebtedness shall not otherwise be prohibited by the terms of this Agreement; and (g) the replacement, extension or renewal of any Lien permitted by clauses (a) through (f) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase of principal amount) of the Indebtedness secured thereby. 8.03 Sale of Assets; Liquidation; Merger; Acquisitions. Convey, lease, ------------------------------------------------- sell, transfer or assign any assets or properties presently owned or hereafter acquired except dispositions of inventory in the ordinary course of business for value received and such other dispositions of assets and properties that are not material to the business or operations of the Borrower or any of its Subsidiaries, if such asset or property is replaced with reasonable promptness or is otherwise obsolete; liquidate or discontinue its normal operations with intent to liquidate; enter into any merger or consolidation; or acquire all or substantially all of the assets, stock or other equity interests of another entity. Notwithstanding the foregoing, (A) any of the Borrower's Subsidiaries may merge with or be consolidated into the Borrower and the Borrower's Subsidiaries may merge with or be consolidated into other Subsidiaries of the Borrower, in each case upon not less than sixty (60) days' prior written -38- notice to the Agent and the Lenders and on terms reasonably acceptable to the Agent and the Required Lenders and (B) upon twenty (20) days' prior written notice to the Agent and the Lenders, the Borrower may from time to time acquire (by stock or asset acquisitions) other business entities that are engaged in businesses related or complimentary to the business of the Borrower, as presently conducted; if, and only if, the aggregate cash and non-cash consideration paid or exchanged by the Borrower in all such acquisitions does not exceed (A) $3,000,000 in any consecutive twelve (12) month period or (B) $5,000,000 at any time while the Obligations are outstanding or the Lenders have any obligations hereunder. For purpose of determining the consideration paid or exchanged in any such acquisition, such consideration shall include the amount of any liability (direct or contingent) assumed by the Borrower in connection with any such acquisition. 8.04 Nature of Business. Engage (directly or indirectly) in any ------------------ business other than the business in which it is generally engaged on the Closing Date or any other business that is related or complimentary thereto. 8.05 Dividends, Stock Redemption, Etc. Declare or make any dividend -------------------------------- payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of stock of the Borrower, or purchase, redeem, or otherwise acquire for value (or permit any Subsidiary to do so) any shares of any class of stock of the Borrower or any warrants, rights or options to acquire any such shares, now or hereafter outstanding; except that (A) if as at the relevant ex-dividend date, the Borrower's Consolidated Tangible Net Worth is less than $20,000,000, the Borrower may declare and pay quarterly cash dividends in respect of its capital stock or expend in connection with the redemption, retirement or purchase of its common stock an amount not to exceed thirty percent (30%) of its quarterly average net income (determined in accordance with clause (B) of the definition of Consolidated Funded Debt to Cash Flow Ratio and exclusively from continued operations) for the four (4) quarters immediately preceding the relevant ex-dividend date and (B) if as at the relevant ex-dividend date, the Borrower's Consolidated Tangible Net Worth is greater than $20,000,000, the Borrower may declare and pay quarterly cash dividends in respect of its capital stock or expend in connection the redemption, retirement or purchase of its common stock an amount not to exceed forty percent (40%) of its quarterly average net income (determined pursuant to clause (B) hereof); provided, however, that if immediately after giving effect to any such proposed dividend payment or stock redemption, a Default or Event of Default would exist, then no such dividend payment or stock redemption shall be permitted hereunder. Anything to the contrary in this Section 8.05 notwithstanding, the Borrower shall be permitted to distribute additional shares of its capital stock in respect of any issued and outstanding shares of its capital stock in connection with stock splits effected by the Borrower from time to time. 8.06 Accounts. Sell, assign, transfer or dispose of any of its -------- accounts or notes receivable, with or without recourse, except to the Agent or the Lenders. 8.07 Sale-Leaseback Transactions. Enter into any sale-leaseback --------------------------- transaction or any transaction howsoever termed which would have the same or substantially the same result or effect as a sale-leaseback. -39- 8.08 Prepayment of Other Indebtedness. Prepay any Indebtedness not -------------------------------- required to be prepaid in excess of $250,000 in the aggregate in any period of twelve (12) consecutive months, except to the Lenders or any Affiliate of any of the Lenders, or cause or permit to be accelerated any amounts on any outstanding Indebtedness now existing or hereafter arising. 8.09 Investments. Purchase or make any investment in the stock, ----------- securities or evidences of indebtedness of (other than as permitted pursuant to Sections 8.10 and 8.11 hereof), or make capital contributions to, or other forms of investments in, any Person except Permitted Investments. 8.10 Loans and Advances Generally. Other than as permitted pursuant ---------------------------- to Section 8.11 hereof, loan or make advances, or other forms of extensions of credit, to any Subsidiary or Affiliate of the Borrower, or any other Person (other than as permitted under Section 8.9 hereof); provided however, that the Borrower may make such loans, advances and other forms of extension of credit to such parties in the ordinary course of business at arm's length and on commercially reasonable terms. 8.11 Loans and Advances to Officers. Loan or make advances, or other ------------------------------ forms of extensions of credit, to any officer, director or shareholder of the Borrower or any Subsidiary or to any Affiliate of any of the foregoing other than at arm's length and/or commercially reasonable terms or which in the aggregate for all such loans and advances do not exceed $1,000,000 outstanding at any time. 8.12 Create Subsidiaries. Create, permit to exist, or invest or ------------------- otherwise participate in any Subsidiaries or any partnership, joint venture or other enterprise (other than the Subsidiaries and Persons listed in Annex I hereto). 8.13 Hazardous Substances. Cause or permit to exist a Dumping of -------------------- hazardous substances or wastes into the atmosphere or waters or onto lands resulting in damage to the Natural Resources unless the Dumping is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state, or local governmental authorities. 8.14 Consolidated Tangible Net Worth. Permit its Consolidated ------------------------------- Tangible Net Worth at any time during the periods specified below to be less than the amount set forth opposite such period: Measuring Period Minimum Tangible Net Worth ---------------- -------------------------- Closing Date through December 30, 1996 $ 7,500,000 December 31, 1996 through -40- December 30, 1997 $10,000,000 December 31, 1997 through December 30, 1998 $11,000,000 December 31, 1998 through December 30, 1999 $12,000,000; and for each fiscal year thereafter, an amount equal to the sum of $1,000,000 plus the minimum Tangible Net Worth required hereunder during the immediately preceding fiscal year, in all cases measured no less frequently than quarterly. 8.15 Consolidated Debt Service Coverage Ratio. Permit its Consolidated ---------------------------------------- Debt Service Coverage Ratio to be at any time less than 2.00 to 1.00, measured on a quarterly basis for the relevant Test Period. 8.16 Consolidated Funded Debt to Cash Flow Ratio. Permit its ------------------------------------------- Consolidated Funded Debt to Cash Flow Ratio to exceed at any time 2.5 to 1.00, measured on a quarterly basis for the relevant Test Period. 8.17 Use of Proceeds. Use the proceeds of the Revolving Credit Loans, --------------- and the Letters of Credit, for any purpose other than the purposes set forth in Section 6.02 hereof. SECTION 9. EVENTS OF DEFAULT AND REMEDIES. ------------------------------ 9.01 Events of Default. Upon the occurrence of any of the following ----------------- events (each an Event of Default): (i) Payment Default. The Borrower shall (a) default in the payment when due of any principal of the Loans or Unpaid Drawings or (b) default in the payment of interest on the Loans or any other amounts owing hereunder, under the Notes or under any other Credit Document, and such default shall continue for a period of five (5) or more days; (ii) Negative Covenant Breach. The Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in Section 8 hereof; (iii) Other Covenant Breaches. The Borrower shall default in the due performance or observance of any term, covenant or agreement (other than those referred to in clauses (i) and (ii) above) contained in this Agreement, the Notes or any other Credit Document, and such default shall continue unremedied for a period of at least ten (10) days after the earlier to occur of (a) -41- the date the Borrower obtains actual knowledge of such default or (b) the date notice of such default is given to the Borrower by the Agent; (iv) Default Under Other Agreements. (a) The Borrower or any of its Subsidiaries shall default in any payment with respect to any Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; (b) any such Indebtedness shall be declared to be due and payable, or required to be prepaid as a mandatory prepayment, prior to the stated maturity thereof; or (c) without limiting the generality of the foregoing, the occurrence of an "Event of Default" (as defined therein) under the First Fidelity Term Loan Agreement; (v) Voluntary Bankruptcy. The Borrower or any of its Subsidiaries commences any bankruptcy, reorganization, debt arrangement, or other case or proceeding under the United States Bankruptcy Code or under any similar foreign, federal, state, or local statute, or any dissolution or liquidation proceeding, or makes a general assignment for the benefit of creditors, or takes any action for the purpose of effecting any of the foregoing; (vi) Involuntary Bankruptcy. Any bankruptcy, reorganization, debt arrangement, or other case or proceeding under the United States Bankruptcy Code or under similar foreign, federal, state or local statute, or any dissolution or liquidation proceeding, is involuntarily commenced against or in respect of the Borrower or any of its Subsidiaries or an order for relief is entered in any such proceeding and is not dismissed within sixty (60) days; (vii) Appointment of Receiver. The appointment, or the filing of a petition seeking the appointment, of a custodian, receiver, trustee, or liquidator for the Borrower or any of its Subsidiaries or any of their respective properties or the taking of possession of any part of such property at the instance of any governmental authority; (viii) Insolvency. The Borrower or the Guarantor becomes insolvent (however defined), is generally not paying its debts as they become due, or has suspended transaction of its usual business; -42- (ix) Reorganization. The dissolution, merger, consolidation, or reorganization of the Borrower or any of its Subsidiary (other than as expressly permitted under Section 8.03 hereof); (x) Action in Furtherance of Certain Defaults. The Borrower or any of its Subsidiaries has taken any corporate action for the purpose of effecting any of the events described in clauses (v), (vii) or (ix) above; (xi) Material Misstatement. Any statement, representation or warranty made in or pursuant to this Agreement or any other Credit Document or to induce the Lenders to enter into this Agreement or to enter into the transactions referred to in this Agreement shall prove to be untrue or misleading in any material respect; (xii) Material Adverse Change. The occurrence of a material adverse change in the financial condition of the Borrower or any of its Subsidiaries or the occurrence of any event which, in the sole opinion of the Lenders, impairs the financial responsibility of the Borrower or any of its Subsidiaries; (xiii) Entry of Judgment. The entry or issuance of judgments, orders, decrees or fines against the Borrower or any of its Subsidiaries which, in the aggregate, involve liabilities in excess of the sum of $100,000 (the discharge of which is not the obligation of any insurance company) and any such judgments or orders involving liabilities in excess of said sum shall have continued unbonded or unsatisfied and without stay of execution or agreement between the parties thereon for a period of thirty (30) days after the entry or issuance of such judgment; or (xiv) Transfer of Assets. The Borrower or any of its Subsidiaries transfers or sells all or substantially all of their respective assets, without the prior written consent of the Lenders; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing the Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Agent or any Lender to enforce its claim against the Borrower, except as otherwise specifically provided for in this Agreement (provided that, if an Event of Default specified in clause (v), (vi), (vii) or (viii) above shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare all of the Credit Commitments terminated, whereupon the Credit Commitment of each Lender shall forthwith terminate immediately and any fees theretofore accrued shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any -43- accrued interest in respect of all Credit Obligations and all other Obligations owing hereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; and (iv) direct the Borrower to pay (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default as specified in clause (v) (vi), (vii) or (viii) above, it will pay) to the Agent such additional amounts of cash to be held as cash collateral for the Borrower's reimbursement obligations for Drawings that may subsequently occur under any Letter of Credit then outstanding, equal to the Stated Amount of all such Letters of Credit. Notwithstanding anything contained in the foregoing paragraph, if at any time within sixty (60) days after an acceleration of the Loans pursuant to the preceding paragraph, the Borrower shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in the Credit Documents) and all Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived to the satisfaction of the Lenders, then the Lenders, by written notice to the Borrower, may at their option rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind the Lenders to a decision which may be made at the election of the Lenders and are not intended to benefit the Borrower and do not grant the Borrower the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. Without limiting the generality of the remedies available to the Lenders pursuant to the Credit Documents or by law following an Event of Default, (y) the rate of interest on the principal portion of the Obligations incurred hereunder shall be increased to a rate equal to the lesser of: (i) the highest rate of interest set forth in the Credit Documents, or (ii) the highest rate of interest allowed by law, such rate of interest to apply to such Obligations upon and after an Event of Default, maturity, whether by acceleration or otherwise, and the entry of a judgment in favor of the Lenders with respect to any or all of such Obligations and (z) the Letter of Credit Fee shall be increased to 300 basis points (3.00%) at all times during which an Event of Default continues to exist. 9.02 Right of Set-off. If any of the Obligations shall be due and ---------------- payable or any one or more Events of Default shall have occurred, whether or not any Lender shall have made demand under any Credit Document and regardless of the adequacy of any collateral or other form of security for the Obligations or other means of obtaining repayment of the Obligations, each Lender shall have the right, without notice to the Borrower or any other Obligor, and is specifically authorized hereby to set-off against and apply to the then unpaid balance of the Obligations any items or funds of the Borrower and/or any Obligor held by each Lender or any Affiliate of such Lender, any and all deposits (whether general or special, time or demand, matured or unmatured) or any other property of the Borrower and/or any Obligor, including, without limitation, securities and/or certificates of deposit, now or hereafter maintained by the Borrower and/or any Obligor for its or their own account with any Lender or any Affiliate thereof, and any other indebtedness at any time held or owing by the Lender or -44- any Affiliate to or for the credit or the account of the Borrower and/or any Obligor, even if effecting such set-off results in a loss or reduction of interest or the imposition of a penalty applicable to the early withdrawal of time deposits. For such purpose, each Lender shall have, and the Borrower hereby grants to each Lender, a first Lien on and security interest in such deposits, property, funds and accounts and the proceeds thereof. 9.03 Sharing of Payments, Etc. If any Lender shall obtain any payment ------------------------ (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans made by it in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's Pro Rata Share according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 9.03 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The foregoing shall in no way obligate any Lender to seek payment in respect of the Obligations of the Borrower hereunder through such Lender's right of set-off or otherwise at any time, or in any particular order relative to such other rights or remedies such Lender may possess, in a manner that prejudices or impairs (as determined in such Lender's sole discretion) any other right or remedy such Lender may possess to enforce claims against the Borrower in respect of Obligations of the Borrower hereunder or such other Obligations of the Borrower owed to such Lender. 9.04 Turnover of Property held by Affiliate. The Borrower further -------------------------------------- authorizes each Affiliate of any Lender, upon and following the occurrence of an Event of Default, at the request of the Lender so affiliated, and without notice to the Borrower, to turn over to such Lender any property of the Borrower, including, without limitation, funds and securities, held by such Affiliate for the Borrower's account and to debit, for the benefit of such Lender, any deposit account maintained by the Borrower with such Affiliate (even if such deposit account is not then due or there results a loss or reduction of interest or the imposition of a penalty in accordance with law applicable to the early withdrawal of time deposits), in the amount requested by such Lender up to the amount of the Obligations, and to pay or transfer such amount or property to such Lender for application to the Obligations. 9.05 Remedies Cumulative; No Waiver. The rights, powers and remedies ------------------------------ of the Agent and the Lenders provided in this Agreement and any of the Credit Documents are cumulative and not exclusive of any right, power or remedy provided by law or equity. No failure or delay on the part of the Agent or the Lenders in the exercise of any right, power or remedy shall operate as a waiver -45- thereof, nor shall any single or partial exercise preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. SECTION 10. THE AGENT. --------- 10.01 Appointment. Each Lender hereby irrevocably designates and ----------- appoints First Union National Bank as the Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes First Union National Bank, as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Agent. 10.02 Delegation of Duties. The Agent may execute any of its duties -------------------- under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 10.03 Exculpatory Provisions. Neither the Agent nor any of its ---------------------- officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Credit Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the property, books or records of the Borrower. 10.04 Reliance by Agent. The Agent shall be entitled to rely, and shall ----------------- be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes -46- unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Credit Documents in accordance with a request of the Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. Without limiting the generality of the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any Credit Documents in accordance with the instructions of the Lenders. 10.05 Notice of Default. The Agent shall not be deemed to have ----------------- knowledge or notice of the occurrence of any Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Event of Default as shall be reasonably directed by the Lenders; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interests of the Lenders. 10.06 Non-Reliance on Agent and Other Lenders. Each Lender expressly --------------------------------------- acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. -47- 10.07 Indemnification. The Lenders agree to indemnify the Agent in its --------------- capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. If, however, the Agent shall have been reimbursed by the Borrower in respect of any amounts previously paid to the Agent by the Lenders pursuant to this Section 10.07, then the Agent shall pay to the Lenders their Pro Rata Shares of such duplicative reimbursement. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 10.08 Agent in Its Individual Capacity. The Agent and its Affiliates -------------------------------- may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Agent were not the Agent hereunder and under the other Credit Documents. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any Lender and may exercise the same as though it were not the Agent, and the terms Lender and Lenders shall include the Agent in its individual capacity. 10.09 Successor Agent. The Agent may resign as Agent upon ten (10) --------------- days' notice to the Lenders. If the Agent shall resign as Agent under this Agreement, then the Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower. If a successor Agent shall not have been so appointed within said ten (10) day period, the Borrower shall appoint from among the Lenders a successor agent for the Lenders. Any such successor agent shall succeed to the rights, powers and duties of the Agent, and the term Agent shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. SECTION 11. MISCELLANEOUS. ------------- 11.01 Notices. Unless otherwise expressly stated notices and ------- communications under this Agreement and the other Credit Documents shall be in writing and shall be delivered by either (i) hand-delivery, (ii) first class mail (postage prepaid), (iii) reliable overnight commercial courier (charges -48- prepaid), or (iv) telecopy, to the addresses and telecopy numbers listed in this Agreement. Notice by telecopy shall be deemed to have been delivered and received when sent. Notice by overnight courier shall be deemed to have been delivered and received on the date scheduled for delivery. Notice by mail shall be deemed to have been delivered and received three (3) calendar days after the date first deposited in the United States mail. Notice by hand delivery shall be deemed to have been delivered and received upon delivery. A party may change its address and/or telecopier number by delivering written notice to the other parties as specified herein. 11.02 Costs and Expenses. Whether or not the transactions contemplated ------------------ by the Credit Documents are fully consummated, the Borrower shall promptly pay (or reimburse, as the Agent and/or any of the Lenders, as the case may be, may elect) all costs and expenses which the Agent or the Lenders have incurred or may hereafter incur in connection with the negotiation, preparation, reproduction, interpretation, perfection, monitoring, administration and enforcement of the Credit Documents, the collection of all amounts due under the Credit Documents, and all amendments, modifications, consents or waivers, if any, to the Credit Documents. Such costs and expenses shall include, without limitation, the fees and disbursements of counsel to the Agent and/or any of the Lenders (including the Agent's in-house counsel), the costs of appraisals, costs of environmental studies, searches of public records, costs of filing and recording documents with public offices, internal and/or external audit and/or examination fees and costs, stamp, excise and other taxes and costs and expenses incurred by the Agent or any of the Lenders, and the fees of the accountants, consultants or other professionals engaged by the Agent or the Lenders in connection with the transactions contemplated in this Agreement and the other Credit Documents. Without limiting the generality of the foregoing, the Borrower shall reimburse the Agent for the costs and expenses of Shanley & Fisher, P.C., counsel to the Agent, for services rendered in consideration with the preparation and negotiation of the Credit Documents and matters related thereto. Such reimbursement shall be payable within ten (10) days after presentation to the Borrower of an invoice itemizing such costs and expenses. The Borrower's reimbursement obligations under this paragraph shall survive any termination of the Credit Documents. 11.03 Payment Due on a Day Other Than a Business Day. If any payment ---------------------------------------------- due or action to be taken under this Agreement or any Credit Document falls due or is required to be taken on a day that is not a Business Day, such payment or action shall be made or taken on the next succeeding Business Day and such extended time shall be included in the computation of interest. 11.04 Governing Law. This Agreement shall be construed in accordance ------------- with and governed by the substantive laws of the State of New Jersey without reference to conflict of laws principles. 11.05 Counterparts; Integration. This Agreement may be signed in any ------------------------- number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were on the same instrument. This Agreement and the other Credit Documents constitute the sole agreement of the parties with respect to the subject matter hereof and thereof and supersede all oral negotiations and prior writings with respect to the subject matter hereof and thereof. -49- 11.06 Amendment or Waiver. Neither this Agreement nor any other Credit ------------------- Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Required Lenders; provided, that no such change, waiver, discharge or termination shall, without the consent of each Lender, (i) extend the final maturity of any Loan or Note, or any portion thereof, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) thereon or fees payable hereunder or reduce the principal amount thereof, or increase the Credit Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Credit Commitment shall not constitute a change in the terms of the Credit Commitment of any Lender), (ii) release all or substantially all of collateral at such time securing the Obligations hereunder (except as expressly provided in such instruments pertaining to such collateral), (iii) the release of the Guaranty or any other guaranty at any time supporting the Obligations, (iv) amend, modify or waive any provision of this Section, or Section 2.12, 2.13, 4.05, 9.01, 9.02, 9.03, 11.02, 11.08 or 11.11; (v) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders; (vi) alter or amend any provision hereof expressly requiring the consent of all of the Lenders; or (vii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. No provision of Section 10 may be amended without the consent of the Agent. The provisions of Sections 2.07, 2.08, 2.09, 2.10 and 2.11 shall not be amended or modified in any way that adversely affects the Agent with respect to its obligation to issue Letters of Credit, without the Agent's consent. 11.07 Successors and Assigns. This Agreement (i) shall be binding upon ---------------------- the Borrower, the Agent and the Lenders and their successors and permitted assigns, and (ii) shall inure to the benefit of the Borrower, the Agent and the Lenders and their respective successors and permitted assigns; provided, however, that the Borrower may not assign its rights hereunder or any interest herein without the prior written consent of the Lenders, and any such assignment or attempted assignment by the Borrower shall be void and of no effect with respect to the Lenders. 11.08 Participations and Assignments. The Borrower hereby acknowledges ------------------------------ and agrees that each Lender may at any time: (I) grant participations in all or any portion of its rights and obligations hereunder (including, without limitation, its obligation to make advances hereunder in accordance with its Credit Commitment) or under its Revolving Credit Note (collectively, Participations) to any other lending office or to any other bank, lending institution or other entity which has the requisite sophistication to evaluate the merits and risks of investments in Participations (each a Participant); provided, however, that: (i) all amounts payable by the Borrower hereunder shall be determined as if such Lender had not granted such Participation, such Lender (A) shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provisions of this Agreement; and (B) shall not in any event be relieved from its obligations to make advances hereunder in accordance with its Credit Commitment; provided, however, that such Lender may agree with the Participant that such Lender will not agree to any modification, amendment or waiver of this Agreement without the consent of the Participant if such amendment, modification or waiver would -50- reduce the principal of or rate of interest on the Credit Obligations so participated or postpone the date fixed for any payment of principal of or interest on such Credit Obligations; and (II) assign up to one hundred percent (100%) of its rights and obligations hereunder (including, without limitation, its obligation to make advances hereunder in accordance with its Credit Commitment) or under its Revolving Credit Note; provided, however, that, except with respect to assignments between and among Lenders which are parties to this Agreement (as to which the conditions in clauses (i) through (iii) below shall not be applicable) prior to such assignment: (i) it has obtained the prior written consent of the Agent (which consent shall not be unreasonably withheld); (ii) the amount assigned shall be an amount equal to $2,000,000 or multiples of $1,000,000 in excess thereof; and (iii) such Lender has paid to the Agent a transfer fee of $2,500. Notwithstanding anything in this Section 11.08 to the contrary, each Lender may sell or assign, in whole or in part, any or all of its interest in the Credit Obligations (without the consent of any Person or any other restriction) to (i) any Affiliate of such Lender, (ii) any Federal Reserve Bank in connection with a pledge of said interest as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System, and (iii) any Person at any time after an Event of Default. The holder of any sale, assignment or Participation permitted pursuant to this Section 11.08, if the applicable agreement between the relevant Lender and such holder so provides, (i) shall be entitled to all of the rights, obligations and benefits of a Lender hereunder and (ii) shall be deemed to hold and may exercise the rights of set-off or banker's lien with respect to any and all obligations of such holder to the Borrower, in each case as fully as though the Borrower were directly indebted to such holder. The Borrower authorizes each Lender to provide information concerning the Borrower to any prospective purchaser, assignee or participant. The information provided may include, but is not limited to, amounts, terms, balances, payment history, and any financial or other information about the Borrower. The Borrower agrees to indemnify, defend, and release any Lender that has so disclosed such information, and hold such Lender harmless, at the Borrower's cost and expense, from and against any and all lawsuits, claims, actions, proceedings, or suits against such Lender arising out of or relating to such Lender's reporting or disclosure of such information. 11.09 Severability. The illegality or unenforceability of any ------------ provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. In lieu of any illegal or unenforceable provision in this Agreement, there shall be added automatically as a part of this Agreement a legal and enforceable provision as similar in terms to such illegal or unenforceable provision as may be possible. 11.10 Consent to Jurisdiction and Service of Process. The Borrower ---------------------------------------------- irrevocably appoints each and every senior vice president (or higher ranking officer) of the Borrower as its attorneys upon whom may be served, by regular or certified mail at the address set forth in this Agreement, any notice, process or pleading in any action or proceeding against it arising out of or in connection with this Agreement or any of the other Credit Documents. The Borrower hereby consents that any action or proceeding against it may be commenced and maintained in any court within the State of New Jersey or in the United States District Court for the District of New Jersey by service of process on any such officer. The Borrower and Guarantor further agree that such courts of the State -51- of New Jersey and the United States District Court for the District of New Jersey shall have jurisdiction with respect to the subject matter hereof and the person of the Borrower and all collateral for the Obligations. Notwithstanding the foregoing, the Borrower agrees that any action brought by the Borrower shall be commenced and maintained only in a court in the federal judicial district or county in which the Agent has its principal place of business in New Jersey. 11.11 Confidentiality. Each Lender shall hold, and shall cause its --------------- Participants and prospective Participants, if any, to agree to hold, all non- public information obtained pursuant to the requirements of any Credit Document which has been identified as such by the Borrower in accordance with its customary procedure for handling confidential information of such nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by any bona fide assignee, transferee or participant or as legally required or reasonably requested by any governmental agency or representative thereof or pursuant to legal process. 11.12 Indemnification. --------------- (a) The Borrower agrees to indemnify the Agent and each Lender, their respective Affiliates and each of their respective directors, officers, agents and employees (each an Indemnitee) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement, the other Credit Documents or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. (b) Without limiting the generality of the foregoing, the Borrower shall indemnify, defend and hold harmless each Indemnitee with respect to any and all claims, expenses, demands, losses, costs, fines or liabilities of any kind (including, without limitation, those involving death, personal injury or property damage and including reasonable attorneys fees and costs) arising from or in any way related to any hazardous materials or a dangerous environmental condition within, on, from, related to or affecting any real property owned or occupied by the Borrower including, without limitation, any and all claims that may arise as a result of an intentional or unintentional act or omission of the Borrower, any previous owner and/or operator of real property owned or occupied by the Borrower that resulted in the Dumping of hazardous substances or wastes into the atmosphere or waters or onto the lands and that resulted in damage to the Natural Resources or to any persons or property. (c) If, after receipt of any payment of all or any part of the Obligations, any Lender is compelled or agrees, for settlement purposes, to surrender such payment to any person or entity for any reason (including, without limitation, a determination that such payment is void or voidable as a preference or fraudulent conveyance, an impermissible set-off, or a diversion of trust funds), then this -52- Agreement and the other Credit Documents shall continue in full force and effect, and the Borrower shall be liable for, and shall indemnify, defend and hold harmless such Lender with respect to, the full amount so surrendered. (d) The provisions of this subsection shall survive the termination of this Agreement and the other Credit Documents and shall be and remain effective notwithstanding the payment of the Obligations, the release of any security interest, lien or encumbrance securing the Obligations or any other action which the Lenders may have taken in reliance upon their receipt of such payment. Any action by the Lenders shall be deemed to have been conditioned upon any payment of the Obligations having become final and irrevocable. 11.13 Inconsistencies. The Credit Documents are intended to be --------------- consistent. However, in the event of any inconsistencies between this Agreement and any of the other Credit Documents, the terms of this Agreement shall govern, but such inconsistency shall not otherwise affect the validity or enforceability of such inconsistent Credit Document. 11.14 Headings. The headings of sections and paragraphs have been -------- included herein for convenience only and shall not be considered in interpreting this Agreement. 11.15 Exhibits and Annexes. The Exhibits and Annexes attached hereto -------------------- and the provisions thereof, are incorporated herein. 11.16 Judicial Proceeding; Waivers. ---------------------------- (i) EACH PARTY TO THIS AGREEMENT AGREES THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY ANY PARTY HERETO OR ANY SUCCESSOR OR ASSIGN OF ANY PARTY, ON OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY. IN THE EVENT THAT THE FOREGOING WAIVER OF JURY TRIAL BY THE BORROWER IS DETERMINED TO BE INVALID OR UNENFORCEABLE AS A MATTER OF LAW, THE BORROWER, THE AGENT AND THE LENDERS AGREE THAT THE PROVISIONS OF ANNEX III TO THIS AGREEMENT SHALL GOVERN AS TO THE MATTERS SET FORTH THEREIN. (ii) EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. FURTHER, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR -53- RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. (iii) THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE LENDERS WOULD NOT EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT. -54- IN WITNESS WHEREOF, the parties by themselves or their duly authorized representatives have executed this Agreement the day and year first above written. WITNESS OR ATTEST: HOOPER HOLMES, INC. By: /s/ Robert William Jarrett By: /s/ Fred Lash ------------------------------ ----------------------------- Name:Robert William Jarrett Name:Fred Lash Title:Secretary Title:S.V.P./CFO & Treas. Address:170 Mt. Airy Road Address: 170 Mt. Airy Road ------------------------- Basking Ridge, NJ 07920 Basking Ridge, NJ 07920 Attn: Fred Lash ------------------------- Senior Vice President, Chief Financial Officer and Treasurer Telecopier No.: (908) 953-6304 FIRST UNION NATIONAL BANK, Individually and as Agent Credit Commitment: By: /s/ Richard F. Neuman $12,000,000.00 ------------------------- Name: Richard F. Neuman Title: Senior Vice President Address: 550 Broad Street Newark, New Jersey 07102 Attn: Robert Slater, Senior Vice President Telecopier No.: (201) 565-3908 with a copy to: 1889 Highway #27, NO2701 Edison, New Jersey 08817 Attn: Richard F. Neuman Telecopier No.: (908) 985-4651 Payment Office: Address: 1889 Highway #27, NO2701 Edison, NJ 08817 Telecopier No.: (908) 985-4651 -55- BROWN BROTHERS HARRIMAN & CO. Credit Commitment: By:/s/William J. Whelan, Jr. $4,000,000.00 ------------------------------ Name: William J. Whelan, Jr. Title: Senior Manager Address: 40 Water Street Boston, MA 02109 Attn: Victoria Evans, Administration Office Telecopier No.: (617) 589-3178 Payment Office: Address: 40 Water Street Boston, MA 02109 Telecopier No.: (617) 589-3178 FLEET BANK, N.A. Credit Commitment: By:/s/ Jill C. Malone $4,000,000.00 ------------------------------ Name: Jill C. Malone Title: Vice President Address: 1125 Route 22W Bridgewater, NJ 08816 Attn: Jill C. Malone Telecopier No.: (908) 253-4118 Payment Office: Address: 1125 Route 22W Bridgewater, NJ 08816 Attn: Jill C. Malone Telecopier No.: (908) 253-4118 Total Credit Commitment: $20,000,000 -56- EX-10.14 4 EMPLOYMENT RETENTION AGREEMENT EMPLOYEE RETENTION AGREEMENT AGREEMENT by and between Hooper Holmes, Inc., a New York corporation (the "Company"), and (the -------------- "Employee"), dated as of the day of , 199 . ---- ------------- -- The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change in Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Employee with compensation arrangements upon a Change in Control which provide the Employee with individual financial security and which are competitive with those of other corporations and, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. ------------------- (a) Effective Date. The "Effective Date" shall be the first date -------------- during the "Change in Control Period" (as defined in Section 1(b)) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. (b) Change in Control Period. The "Change in Control Period" is the ------------------------ period commencing on the date hereof and ending on the second anniversary of such date; provided, however, that commencing on the date one year after the -------- ------- date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change in Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Employee that the Change in Control Period shall not be so extended. (c) Change in Control. A "Change in Control" shall occur or be deemed ----------------- to have occurred only if any of the following events occur (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, or the John J. King Trust or the Trustees of the John J. King Trust) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities (other than as a result of acquisitions of such securities from the Company); (ii) individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders-was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act relating to the election of the Directors of the Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 20% of the combined voting power of the Company' s then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially ail of the Company's assets. 2. Employment period. The Company hereby agrees to continue the ----------------- Employee in its employ, and, subject to Section 4(c), the Employee hereby agrees to remain in the employ of the -2- Company, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 3. Terms of Employment. ------------------- (a) Position and Duties. ------------------- (i) During the Employment Period, (A) the Employees position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Employee's services shall be performed at the location where the Employee was employed immediately preceding the Effective Date or any office or location less than 25 miles from such location and less than 10 miles in commuting distance further than the Employee's commuting distance to the location at which the Employee performed such services prior to the Change in Control. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee hereunder, to use the Employee's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company. (b) Compensation. ------------ (i) Base Salary. During the Employment Period, the ----------- Employee shall receive a base salary ("Base Salary") payable no less frequently than semimonthly at a monthly rate at least equal to the highest monthly base salary paid or payable to the Employee by the Company during the twelve-month period immediately preceding the month in which the Effective Date -3- occurs. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Employee under this Agreement. Base Salary shall not be reduced after any such increase and the term Base Salary as utilized in this Agreement shall refer to Base Salary as so increased. As used in this Agreement, the term "affiliated companies". Shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Base Salary, the Employee shall ------------ be awarded, for each fiscal year ending during the Employment Period, an annual bonus (an "Annual Bonus") in cash at least equal to the greater of the guaranteed bonus to which the Employee is entitled under any contractual arrangements between the Employee and the Company as of the date hereof or the highest bonus which the Employee received during the three (3) years preceding the Effective Date. (iii) Incentive, Savings and Retirement Plans. During the Employment --------------------------------------- period, in addition to Base Salary and Annual Bonus payable as hereinabove provided, the Employee shall be entitled to participate in the Company provided SERP benefit, all other incentive, savings and retirement plans, practices, policies and programs applicable to other key employees of the Company and its subsidiaries (including the Company's employee benefit plans, in each case providing benefits which are the economic equivalent to those in effect or as subsequently amended). Such plans, practices, policies and programs, in the aggregate, shall provide the Employee with compensation, benefits and reward opportunities at least as favorable as the most favorable of such compensation benefits and reward opportunities provided by the Company for the Employee under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time during the Employment period with respect to other key employees of the Company. (iv) Welfare Benefit Plans. During the Employment Period, the --------------------- Employee and/or the Employee's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs), at least as -4- favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time during the Employment Period with respect to other key employees of the Company. (v) Expenses. During the Employment period, the Employee shall be -------- entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the most favorable policies, practices and procedures of the Company in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time during the Employment period with respect to other key employees of the Company. (vi) Fringe Benefits. During the Employment Period, the Employee --------------- shall be entitled to fringe benefits and perquisites in accordance with the most favorable plans, practices, programs and policies of the Company in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time during the Employment period with respect to other key employees of the Company . (vii) Office and Support Staff. During the Employment period, the ------------------------ Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Employee by the Company at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time during the Employment period with respect to other key employees of the Company. (viii) Vacation. During the Employment period, the Employee shall be -------- entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time during the Employment Period with respect to other key employees of the Company. (ix) Indemnity Agreement. During the Employment Period, the Company ------------------- shall keep in full force and effect and shall not purport to amend or terminate the indemnity agreement between the Employee and the Company in the form attached as Exhibit A hereto. -5- 4. Termination. ----------- (a) Death or Disability. This Agreement shall terminate ------------------- automatically upon the Employee's death during the Employment Period. If during the Employment Period, as a result of incapacity due to physical or mental illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative, the Employee shall have been absent from the full-time performance of the Employee's duties with the Company for six (6) consecutive months and, within thirty (30) days after written notice of termination is given to the Employee, the Employee shall not have returned to the full-time performance of the Employee's duties, the Employee's employment may be terminated for "Disability". Any termination for Disability under this Agreement shall not affect any rights the Employee may otherwise have under the Company's Long-Term Disability Plan. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth above), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 3Oth day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. (b) Cause. The Company may terminate the Employee's employment ----- during the Employment Period for "Cause". For purposes of this Agreement, "Cause" shall mean termination (A) upon the Employee's willful and continued failure to substantially perform the Employee's duties with the Company (other than any such failure resulting from the Employee's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Employee, provided that a written demand for substantial performance has been delivered to the Employee by the Company specifically identifying the manner in which the Company believes that the Employee has not substantially performed the Employee's duties and the Employee has not cured such failure within 30 days after such demand, or (B) by reason of the Employee's willful engaging in conduct which is demonstrably and materially injurious to the Company, or (C) the Employee's willful violation of any material provision of any confidentiality, nondisclosure, non-competition or similar agreement entered into by the employee in connection with the Employee's employment by the Company. For purposes of this paragraph, no act or failure to act on the Employee's part shall be deemed "willful" unless done or omitted to be done by the Employee not in good faith and without reasonable belief that the Employee's action or omission was in the best interest of the Company. -6- (c) Termination by Employee. The Employee may terminate his ----------------------- employment with the Company (i) in the event of a breach of this Agreement by the Company, or (ii) during the Window Period for any reason. For purposes of this Agreement, the term "Window Period" shall mean the thirty (30) day period immediately following the nine (9) month anniversary of the Effective Date. (d) Notice of Termination. Any termination by the Company for Cause --------------------- or by the Employee for any reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination for the Employee's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (e) Date of Termination. "Date of Termination" means the date of ------------------- receipt of the Notice of Termination or any later date specified therein, as the case may be; provided, however, that (i) if the Employee's employment is ----------------- terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 5. Obligations of the Company Upon Termination. ------------------------------------------- (a) Death. If, during the Employment Period, the Employee's ----- employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose (i) the Employee's full Base Salary through the Date of Termination at the rate in effect on the Date of Termination or; if higher, at the highest rate in effect at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), (ii) the product of the Annual Bonus paid to the Employee for the last full fiscal year and a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (iii) any compensation previously deferred by the Employee (together with any accrued interest thereon) and not yet paid by the Company and - 7 - any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i), (il) and (iii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company to surviving families of employees of the Company under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time during the Employment Period with respect to other key employees of the Company and their families. (b) Disability. If, during the Employment Period, the Employee's ---------- employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time during the Employment period with respect to other key employees of the Company and their families. (c) Cause. If, during the Employment Period, the Employee's ----- employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee other than the obligation to pay to the Employee the Highest Base Salary through the Date of Termination plus the amount of any accrued vacation pay and any compensation previously deferred by the Employee (together with accrued interest thereon). (d) Other Than for Cause Death or Disability. If, during the ---------------------------------------- Employment period, the Company shall terminate the Employee's employment other than for Cause, Disability, or death, or if the Employee shall terminate his employment for any reason: -8- (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. to the extent not theretofore paid, the Employee's Highest Base Salary through the Date of Termination; and B. the product of (x) the Annual Bonus paid or payable to the Employee for the last full fiscal year (if any) ending during the Employment Period or, if higher, the Annual Bonus paid to the Employee for the last full fiscal year prior to the Effective Date (as applicable, the "Recent Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination and the denominator of which is 365; and C. the product of (x) two and (y) the sum of (i) the Highest Base Salary and (ii) the Recent Bonus; and D. in the case of compensation previously deferred by the Employee, all amounts previously deferred (together with any accrued interest thereon) and not yet paid by the Company, and any accrued vacation pay not yet paid by the Company; and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice, or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3 (b) (iv) of this Agreement if the Employee's employment had not been terminated, including medical and dental insurance and life insurance, in accordance with the most favorable plans, practices, programs or policies of the Company during the 90- day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time during the Employment Period with respect to other key employees and their families and for purposes of eligibility for retiree benefits pursuant to such plans, practices, programs and policies the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period. 6. Non-exclusivity of Rights. Nothing in this Agreement shall ------------------------- prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company -9- or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 7. Full Settlement. The Company's obligation to make the payments --------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement. 8. Enforcement of Rights. --------------------- (a) The parties shall endeavor to resolve any dispute arising out of, or relating to, this agreement by mediation under the CPR Mediation Procedure for Business Disputes. Unless the parties agree otherwise, the mediator will be selected from the CPR Panel of Neutrals with notification to CPR. Any controversy or claim arising out of or relating to this contract or the breach, termination or validity thereof, which remains unresolved 45 days after appointment of a mediator, shall be settled by arbitration by a sole arbitrator in accordance with the CPR Nonadministered Arbitration Rules, and judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. (b) The Company shall pay to the Employee all legal fees and expenses incurred by the Employee as a result of any dispute under this Agreement (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") to any payment or benefit provided hereunder). 9. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment (including any "parachute payment" within the meaning of Section 280G(b) (2) of the Code) or distribution by the Company to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this -10- Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment under this Agreement (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by KPMG Peat Marwick LLP, or such other public accounting firm chosen by the Audit Committee of the Board as the Company's independent accountants, (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within fifteen business days of the Date of Termination, if applicable, or such earlier time as is requested by the Company. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(b), shall be paid to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with an opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of an accuracy- related penalty under Section 6662 of the Code or any other penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. All fees and expenses of the Accounting Firm shall be paid by the Company. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the GrossUp Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is -11- requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income or employment tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income or employment tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder -12- and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 9(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Employee shall hold in a fiduciary ------------------------ capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts by the Employee or his representatives in violation of this Agreement). After termination of the Employee's employment with the Company, the Employee shall not, without the prior written consent of the Company, or as may otherwise be required by law, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. 11. Successors. ---------- (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. -13- (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified other than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: ------------------- ------------------- ------------------- ------------------- If to the Company: ------------------ Hooper Holmes, Inc. 170 Mt. Airy Road Basking Ridge, N.J. 07920 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. -14- (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof and the Employee waives any severance benefits (but not pension benefits) that he might otherwise be entitled to under the Company's severance plan or policy and agrees that from and after the Effective Date that this Agreement supersedes the agreements specified on Schedule A hereto. (g) Nothing herein shall constitute a promise of employment other than as results from a Change in Control and the Employee and the Company acknowledge that, except as provided by any other agreement between the Employee and the Company, the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, the Employee shall have no further rights under this Agreement. IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant to the authorization form its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. --------------------------------- Attest: HOOPER HOLMES, INC. By: By: --------------------------- --------------------------------- Secretary -15- EX-13 5 ANNUAL REPORT [LOGO OF HOOPER HOLMES APPEARS HERE] providing alternate-site health information [PHOTOGRAPH APPEARS HERE] 1996 Annual Report to shareholders Examiner on location Hooper Holmes
Financial Highlights - ------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, (dollars in thousands except per share data) 1996 1995 1994 --------------------------------------------------------------------------------------------------------------------------- Revenues $ 156,254 $ 111,313 $ 92,534 Operating income 8,576 4,059 3,803 Income from continuing operations 4,086 1,667 1,480 Income (loss) from discontinued operations -- (14,716) 1,184 Net income (loss) $ 4,086 ($13,049) $ 2,664 Earnings per share from continuing operations $ .61 $ .25 $ .22 Earnings per share from discontinued operations -- ($2.19) $ .18 Net earnings per share $ .61 ($1.94) $ .40 Cash dividends per share $ .06 $ .06 $ .30 Weighted average number of shares outstanding 6,727,719 6,707,128 6,706,713 ---------------------------------------------------------------------------------------------------------------------------
On the cover, Pamela Goldberg Miami, Florida Hooper Holmes Inc. is the nation's leading provider of - -------------------------------------------------------------- alternate-site health information. health information Hooper Holmes Inc. is the nation's leading provider of alternate-site health Information. Serving all 50 states, the Company's network of experienced medical professionals conducts physical examinations, testing and personal health interviews, primarily for the life and health insurance industry. Information gathered in these activities is used by insurance underwriters to assess risks and make informed decisions. Hooper Holmes' customers include most of the nation's major life and health insurers, and the Company performed approximately 2.7 million tests on insurance applicants in 1996 under its trade name Portamedic. The Company offers the industry's widest geographic coverage and up-to-date technology to ensure timely, accurate delivery of health information. Hooper Holmes' mission is to be recognized as a quality service provider that meets the needs of its customers, employees, and shareholders. We pride ourselves on anticipating new challenges that face our clients and finding solutions to help them adapt to change. Hooper Holmes' common stock trades on the American Stock Exchange under the symbol "HH." The Company is headquartered in Basking Ridge, New Jersey. 1996 annual report to shareholders - ----------------------------------------------------- Hooper Holmes To Our Shareholders A year ago, we said that Hooper Holmes was committed to using our position as the undisputed industry leader as a platform to support stronger growth and profitability. We are pleased to report that in 1996 we delivered on that commitment. In a year of many achievements, we wish to highlight two that illustrate the strength and growth potential of this Company. First, our focused efforts to significantly reduce our bank debt has made our balance sheet stronger than it has been in years. Second, the successful integration of ASB Meditest into the operations of Portamedic expanded the breadth of our integrated nationwide network, which continues to be supported by the most advanced information technology in the industry. In short, the strong financial and operating performance we recorded in 1996 validates Hooper Holmes' targeted efforts to establish and maintain its position as the dominant provider of alternate-site health information services. FINANCIAL REVIEW In 1996, Hooper Holmes reported record revenue and earnings. Income from continuing operations for the year ended December 31, 1996, more than doubled to $4.1 million, or $0.61 per share, from $1.7 million, or $0.25 per share, for 1995. We also reported a similarly dramatic increase in operating income, which grew to $8.6 million in 1996 from $4.1 million a year earlier. Revenues rose 40% to $156.3 million, compared to $111.3 million in 1995. The increases are largely attributable to the ASB Meditest acquisition, which closed at the end of the third quarter of 1995. During 1996, operating margins improved to 5.5% for the year. This improvement results from a combination of a comprehensive review of incoming ASB business and the resultant changes and continued control over field expenses. The ASB Meditest acquisition and related sale of our healthcare business produced another benefit to the Company in 1996. With the receipt of an income tax refund related to the transaction, along with the full release of the escrowed purchase price upon the collection of accounts receivables, we reduced our bank debt by $28.8 million to $6.3 million by year-end 1996. The significant reduction in debt has strengthened our balance sheet. Our working capital remains strong at 1.8:1, and our long-term debt-to-equity ratio improved to .14 from .79 one year ago. REVIEW OF OPERATIONS Our mandate in 1996 was to integrate ASB Meditest's operations into the Portamedic network, which we successfully completed in the second quarter 1996. The combination has made Portamedic the undisputed market leader in providing alternate-site health information to the country's largest life and health insurers. During 1996, we increased our share of the market from 20% to 25%. The expanded network has enabled the Company to achieve greater efficiencies. Since the acquisition in September 1995, we closed over 40 offices and identified millions in cost savings. During 1996, we also made notable progress pursuing our strategic objective of leveraging our existing distribution network and information infrastructure. Early in the year, Hooper Holmes entered into its first agreement with a leading financial services Page 2 [PHOTO OF JAMES M. MCNAMEE APPEARS HERE] company engaged in the direct-response marketing of insurance products. The outsourcing relationship, which builds on our health information testing expertise and advanced information systems, supplies a new source of revenue to the Company while enabling our customer to reduce its cost base. In another significant development, we entered into a strategic marketing agreement with Policy Management Systems Corporation (PMSC) in early 1997. Through our partnership, users of PMSC's software-supported life insurance underwriting services will have access to Portamedic's network of 7,000 examiners who perform medical examinations for life insurance applicants. In 1996, we were saddened by the loss of Frederick D. "Ted" King, our Chairman, who passed away in July. Ted joined the Company in 1949, was elected President in 1996 and began serving as Chairman in 1973. His accomplishments were many. Ted will be remembered for his steady leadership and counsel over the years, for which the Company will forever be thankful. OUTLOOK As we enter into a new year, our core business, Portamedic, is strong and growing. The integration of our operations has made us a larger, more efficient and a more focused company--an attractive array of attributes to issuers under continuing pressure to reduce their costs and minimize their underwriting risk. With our stronger balance sheet, we have even greater resources and flexibility to pursue opportunities to build on our demonstrated success as a leading health information services provider. For example, we are optimistic that our ability to cost-effectively support the direct marketing of insurance products will lead to new outsourcing agreements. Our recently formed Healthdex services group represents a highly focused effort to utilize Hooper Holmes' historical strength as an alternate-site medical data and information gatherer to enter new markets. Among the new development initiatives the group is exploring are support of pharmaceutical clinical trials, as well as providing data on covered participants in health maintenance organizations and other risk-bearing managed care plans. The transformation of Hooper Holmes over the past year has been dramatic. We couldn't have done it without the dedication and hard work of our employees. We offer our thanks and appreciation to them, as well as our customers and shareholders. We look forward to an exciting year ahead. /s/ James M. McNamee ----------------------------------------- James M. McNamee President and Chief Executive Officer Page 3 1996 annual report to shareholders - -------------------------------------------------------------------------------- Hooper Holmes is the largest provider of alternate-site health information... - -------------------------------------------------------------------------------- we have a nationwide, integrated network, Pat Hernandez San Antonio, Texas [PICTURE APPEARS HERE] For more than 25 years, Hooper Holmes has been a leading provider of alternate-site health information services. Each month, the Company's network of approximately 7,000 experienced medical professionals conduct more than 225,000 medical examinations, tests, personal health interviews and other services for the life and health insurance industry. We maintain close relationships with 48 of the top 50 life and health insurance companies as well as a broad base of local and regional insurance agents. With an estimated 25% share of the market, Hooper Holmes dominates the business. The scope of the Company's network of people and technology are unmatched in the industry. We are able to provide a wide array of mobile paramedical services ranging from taking personal history reports to basic physical examinations to electrocardiograms. Within 24 hours of a request a physician, RN, LPN, ECG technician or other medical professional will be dispatched to perform the required service in any county in any state. Orders may be placed by phone, fax, electronic mail , or via the Internet's World Wide Web. In addition, many of our customers in the insurance industry receive financial and health history information via Infolink, our automated reporting system. By eliminating paper from key steps in the applications and underwriting process, we are able to help our customers reduce costs, speed turnaround time, and devote more resources to selling. Hooper Holmes continues to be well positioned to benefit from the ongoing pressure on our clients to obtain the timely and cost-effective delivery of accurate health information. We are committed to enhancing our reputation for high-quality service, leading-edge technology and the industry's best turnaround time. Page 4 accomodates well over 200,000 requests for service each month ---------------------------------------------------------------- Hooper Holmes maintains strong links with customers - -------------------------------------------------------------------------------- we apply advanced i n f o r m a t i o n technology. Bernard Jacobs New York, New York ------------------------------------- [PHOTOGRAPH OF BERNARD JACOBS APPEARS HERE] a d v a n c e d c a p a b i l i t i e s To maintain strong links among our customers, branches and corporate offices, Hooper Holmes has developed an advanced information processing infrastructure. This enables us to deliver timely, accurate health information -- when and where it is needed -- the definition of quality in our business. The Company recognizes that as the needs of our customers change, we must continue to make investments in technology to create further efficiencies in application processing and insurance underwriting and to support our anticipated entry into additional markets. As a result, in late 1996, Hooper Holmes began a restructuring program to more fully integrate the three key components of our information technology infrastructure -- MIS, our centralized management information reporting system that ties together branches and the corporate offices; the Client Services group, which fulfills the multiple information needs of our customers; and Infolink, the channel that delivers financial and health information reports electronically to customers. One key change is organizational; beginning in the second quarter of 1997, the three divisions will function as a single entity which allows service delivery to be coordinated and more responsive to the many changes taking place in the industry. That capability will become increasingly important as Hooper Holmes seeks to leverage its information infrastructure to pursue new business opportunities. The success of alternate-site health information is built upon convenience. We recognize that shifting needs and new technologies are constantly redefining convenience. As a result, we remain committed to strengthening the links among our systems and our people. PAGE 5 the nation's leading provider of alternative site health information - -------------------------------------------------------------------------------- We are leveraging our information infrastructure - -------------------------------------------------------------------------------- to pursue profitable g r o w t h in a changing industry [PHOTO OF JIM NOVAK APPEARS HERE] Chicago, Illinois ---------------------------------------- In recent years, the insurance industry has been undergoing tremendous change, as mutual fund companies, banks and other financial services firms have, to varying degrees, begun to offer insurance products to their customers. As insurers face intensifying competition, they are under pressure to develop distribution channels that reduce costs while providing high-quality service. These pressures have led many companies to seek cost-effective solutions from companies like Hooper Holmes. We are aggressively pursuing opportunities that will streamline the application and underwriting process and leverage the power of our state-of-the art information infrastructure. In 1996, Hooper Holmes formed preferred relationships with leading marketers that offer direct response life insurance sales. A major financial services firm, for example, will use Hooper Holmes' online, nationwide network for applications processing, ordering alternative-site tests, and reporting information to underwriters. The Company has also formed strategic alliances with major providers of back-office systems and "smart" underwriting software. We will continue to pursue other arrangements that make it easier for insurers using leading software packages to order services through Portamedic or other points of access to Hooper Holmes' electronic network. Another key development in 1996 was the formation of Healthdex, a marketing arm that is exploring new opportunities that are anciliary to our core business but can utilize our existing network of branches and production personnel. We plan to invest considerable resources in this initiative to enable us to enter markets outside of our core business. Page 6 accommodates well over 200,000 requests for service each month --------------------------------------------------------------------- Hooper Holmes In our business, accuracy and timeliness are critical... - --------------------------------------------------------------------- we have unyielding Quality standards. [PHOTO OF LISA CLOUD APPEARS HERE] Lisa Cloud Seattle Washington ----------------------- a c c u r a c y Hooper Holmes recognizes the critical importance of accuracy, confidentiality and timeliness in health information. As a result, quality is monitored daily for each region and every branch location. Our sophisticated reporting and control mechanisms enable us to pinpoint the performance of individual examiners, branches, or entire geographic areas. Hooper Holmes also maintains its exclusive physician data base, a process by which credentials of all physicians who provide services through the Company have their credentials verified. The Company's commitment to quality is recognized in objective studies that are regularly supplied to us by our leading customers in the life and health insurance industry. We are proud of our reputation for quality and are committed to finding ways to sustain and enhance our ability to gather and communicate high-quality health information. We are especially proud of our hard working and dedicated employees, as well as our network of physicians, nurses, technicians and other medically trained personnel who we believe are key factors in our success. PAGE 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of Operations 1996 Compared to 1995 Total revenues for 1996 increased 40.4% to $156.3 million from $111.3 million for 1995. This growth results from a 36% unit increase in the number of paramedical examinations performed and a 25% increase in inspection and attending physician statement units. The overall increase stems from revenue growth in existing offices, the acquisition of ASB Meditest in September 1995, and the result of market share gains. The Company's cost of operations in 1996 totaled $118.0 million compared to $85.9 million for 1995. Cost of operations as a percentage of revenues totaled 75.5% for 1996 versus 77.2% for 1995. The dollar increase was primarily due to higher direct costs and branch operating expenses, partly due to the ASB Meditest acquisition. As a percentage of revenues, the decrease is due to ongoing efforts to reach the optimum number of branches, control branch operating expenses, and the efficiencies realized from the integration of ASB Meditest. Selling, general and administrative expenses increased to $29.7 million for 1996 from $21.3 million for 1995. The increase of $8.4 million is attributed to the additional corporate staffing functions and increased depreciation and amortization expense as a result of the ASB Meditest acquisition in September 1995. Accordingly, the Company's operating income for 1996 increased to $8.6 million versus $4.1 million for 1995, and as a percentage of revenues, increased to 5.5% for 1996 compared to 3.6% for 1995. The company reduced long term debt by $28.8 million during 1996 and therefore interest expense decreased in 1996 compared to 1995 by $.3 million. Other income items in 1996 were primarily due to interest earned on the escrowed funds that were part of the Nurses House Call transaction in September 1995 and was approximately the same amount as in 1995. As a result of the foregoing, net income from continuing operations in 1996 totaled $4.1 million or $0.61 per share compared to $1.7 million or $0.25 per share for 1995. The 1995 net loss from discontinued operations totaled $14.7 million, or $2.19 per share. Inflation did not have a significant effect on the Company's operations in 1996. 1995 Compared to 1994 Total revenues for 1995 increased 20.3% to $111.3 million from $92.5 million for 1994. This growth results from a 19% unit increase in the number of paramedical examinations performed and a 26% increase in inspection and attending physician statement units. Of the overall increase, approximately 14% reflects new revenue provided in the fourth quarter by the acquisition of ASB Meditest and 6% stems from revenue growth of the existing offices. Management believes this latter increase is the result of market share gains, partially offset by pricing pressures and volume discounting. In 1995, the Company discontinued its healthcare operations including its occupational health operations. See Note 2 to the consolidated financial statements for information related to discontinued operations. The results reported herein are representative of the Company's continuing operations. The Company's cost of operations in 1995 totaled $85.9 million compared to $70.7 million for 1994. Cost of operations as a percentage of revenues totaled 77.2% for 1995 versus 76.4% for 1994. This increase was primarily due to competitive pricing pressures in the marketplace and higher branch operating expenses, partly due to the ASB Meditest acquisition. The Company believes that additional branch operating savings will be realized as planned consolidations of the ASB Meditest acquisition are completed. Selling, general and administrative expenses ("SG&A") increased to $21.3 million for 1995 from $18.1 million for 1994. The increase of $3.2 million is largely attributed to SG&A expenses related to ASB Meditest's corporate functions which were duplicative of existing company SG&A. The Company believes that as the integration of ASB Meditest continues, additional cost savings may be realized. Accordingly, the Company's operating income for 1995 increased to $4.1 million versus $3.8 million for 1994, and, as a percentage of revenues, decreased to 3.6% for 1995 compared to 4.1% for 1994. Interest expense increased in 1995 over 1994 due to higher amounts borrowed, but this increase was offset by certain other income items. See Note 3 to the consolidated financial statements. As a result of the foregoing, net income from continuing operations in 1995 totaled $1.7 million or $0.25 per share compared to $1.5 million or $0.22 per share for 1994. The 1995 net loss from discontinued operations totaled $14.7 million, or $2.19 per share, compared to a net income of $1.2 million, or $0.18 per share for the prior year. The net loss for 1995 was $13.0 million compared to net income of $2.7 million for 1994. The net loss in 1995 includes a $14.7 million, or $2.19 per share, net loss from discontinued operations. See Note 2 to the consolidated financial statements. In the second quarter of 1995, the Company discontinued its Nurse's House Call healthcare business and entered into a contract to sell this business. In the fourth quarter of 1995, the Company discontinued its occupational health business recently acquired as part of ASB Meditest which primarily consisted of Page 8 Management's Discussion and Analysis of Financial Conditions and Results of Operations - -------------------------------------------------------------------------------- drug testing and immunizations. These disposals are in connection with the Company's strategy to focus on its core business of providing health information services. Inflation did not have a significant effect on the Company's operations in 1995. Liquidity and Financial Resources The Company's primary sources of cash are internally generated funds and the Company's bank credit facility. In late 1995, the Company sold its Nurse's House Call division, and as part of that transaction, $15 million of the purchase price was placed in escrow to be released to the Company to the extent that certain accounts receivable sold as part of the transaction were collected. These funds were received in 1996 in their entirety and were principally utilized to reduce the Company's bank debt. For the year ended December 31, 1996, the net cash provided by operating activities of continuing operations was $16.3 million as compared to $5.6 million in 1995. The significant sources were income from continuing operations of $4.1 million, $5.1 million of depreciation and amortization, $6.5 million of accounts receivable reduction and $8.0 million of tax refunds, which were partially offset by a decrease in liabilities of approximately $8.3 million. The Company replaced its $40 million revolving credit facility with a $20 million, three year revolving facility in December 1996. The revolver loan will accrue interest at either the bank's base rate or at LIBOR, as adjusted, at the option of the Company. At December 31, 1996, the Company had $4 million in revolver borrowings. The mortgage loan balance of $2.3 million is scheduled to be fully paid by January 1998. Capital expenditures for 1997 are anticipated to be less than $2.0 million. While the Company always considers acquisitions or growth opportunities, it has no specific commitments or contracts at this time. Management believes that the combination of cash and cash equivalents, other working capital sources, and borrowings under the Company's credit facility along with anticipated cash flows from continuing operations, will provide sufficient capital resources for the foreseeable future. Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share ("EPS"), which is effective as of December 31, 1997. This standard changes the way companies compute EPS to require all companies to show "basic" and "dilutive" EPS and is to be retroactively applied, including each 1997 interim quarter. - -------------------------------------------------------------------------------- Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. Page 9
Consolidated Balance Sheets - ------------------------------------------------------------------------------------------------------------------------ December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Assets - ------------------------------------------------------------------------------------------------------------------------ Current assets: Cash and cash equivalents $ 2,936,447 $ 1,065,464 Accounts receivable - trade (Note 4) 17,035,255 21,974,398 Accounts receivable - other 1,095,772 2,387,010 Escrow funds (Note 3) -- 15,000,000 Refundable taxes 1,230,198 9,264,734 Other current assets 3,474,226 4,716,328 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 25,771,898 54,407,934 - ------------------------------------------------------------------------------------------------------------------------ Property, plant and equipment (Notes 5 and 6) 19,196,013 18,270,355 Less: Accumulated depreciation and amortization 9,712,650 7,423,190 - ------------------------------------------------------------------------------------------------------------------------ 9,483,363 10,847,165 - ------------------------------------------------------------------------------------------------------------------------ Goodwill (net of accumulated amortization of $2,600,613 in 1996 and $1,742,563 in 1995) (Note 3) 15,948,735 16,601,785 - ------------------------------------------------------------------------------------------------------------------------ Intangible assets (net of accumulated amortization of $3,170,077 in 1996 and $1,365,526 in 1995) (Note 3) 9,394,485 11,088,036 - ------------------------------------------------------------------------------------------------------------------------ Other assets 697,185 1,052,175 - ------------------------------------------------------------------------------------------------------------------------ $ 61,295,666 $ 93,997,095 - ------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------------------------------ Current liabilities: Current maturities of long-term debt $ 1,030,000 $ 8,800,000 Accounts payable 6,168,864 10,677,452 Accrued expenses: Insurance benefits 1,536,315 1,018,517 Salaries, wages and fees 1,264,739 596,886 Payroll and other taxes 167,013 740,678 Income taxes payable 334,879 -- Discontinued operations (Note 2) 1,287,700 4,380,023 Other 2,175,651 3,408,067 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 13,965,161 29,621,623 - ------------------------------------------------------------------------------------------------------------------------ Long-term debt, less current maturities (Note 6) 5,250,000 26,250,000 Deferred income taxes (Note 9) 4,361,049 4,993,459 - ------------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Notes 7 and 8) - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity (Note 11): Common stock, par value $.04 per share; authorized 20,000,000 shares, issued 6,791,459 in 1996 and 6,744,422 in 1995 271,658 269,777 Additional paid-in capital 24,645,945 24,080,988 Retained earnings 12,820,355 9,138,401 - ------------------------------------------------------------------------------------------------------------------------ 37,737,958 33,489,166 Less: Treasury stock, 1,683 shares in 1996 and 32,308 shares in 1995, at cost 18,502 357,153 - ------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 37,719,456 33,132,013 - ------------------------------------------------------------------------------------------------------------------------ $ 61,295,666 $ 93,997,095 - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Page 10 Consolidated Statement of Operations - --------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Revenues $156,253,763 $111,313,005 $ 92,533,685 Cost of operations 117,959,274 85,933,510 70,677,574 - --------------------------------------------------------------------------------------------------------------------------- Gross profit 38,294,489 25,379,495 21,856,111 Selling, general and administrative expenses 29,718,867 21,320,852 18,053,281 - --------------------------------------------------------------------------------------------------------------------------- Operating income 8,575,622 4,058,643 3,802,830 - --------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense (1,394,038) (1,673,548) (994,208) Interest income 348,153 262,247 21,682 Other income (Note 3) 328,035 383,793 -- - --------------------------------------------------------------------------------------------------------------------------- (717,850) (1,027,508) (972,526) - --------------------------------------------------------------------------------------------------------------------------- Income before income taxes 7,857,772 3,031,135 2,830,304 - --------------------------------------------------------------------------------------------------------------------------- Income taxes (Note 9) 3,772,000 1,364,161 1,350,272 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 4,085,772 1,666,974 1,480,032 - --------------------------------------------------------------------------------------------------------------------------- Discontinued operations (Note 2): Income (loss) from operations, net of taxes -- (4,389,559) 1,183,488 Loss on disposal, net of taxes -- (10,326,068) -- - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations -- (14,715,627) 1,183,488 - --------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 4,085,772 $ (13,048,653) $ 2,663,520 - --------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share (Note 10): Weighted average number of shares 6,727,719 6,707,128 6,706,713 Income from continuing operations $ 0.61 $ 0.25 $ .22 Income (loss) from discontinued operations -- (2.19) .18 - --------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.61 $ (1.94) $ .40 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. PAGE 11 Consolidated Statements of Stockholders' Equity - --------------------------------------------------------------------------------
Common Stock --------------------- Additional Number of Paid-in Retained Treasury Years ended December 31, 1994, 1995 and 1996 Shares Amount Capital Earnings Stock Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 6,744,422 $269,777 $24,143,059 $21,938,247 $(434,711) $45,916,372 Net income 2,663,520 2,663,520 Cash dividends ($.30 per share) (2,012,397) (2,012,397) Exercise of stock options (28,649) 67,370 38,721 Purchase of treasury stock (103,808) (103,808) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 6,744,422 269,777 24,114,410 22,589,370 (471,149) 46,502,408 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss (13,048,653) (13,048,653) Cash dividends ($.06 per share) (402,316) (402,316) Exercise of stock options (16,728) 55,959 39,231 Issuance of stock award (16,694) 58,037 41,343 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 6,744,422 269,777 24,080,988 9,138,401 (357,153) 33,132,013 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 4,085,772 4,085,772 Cash dividends ($.06 per share) (403,818) (403,818) Issuance of stock award 2,405 29,470 31,875 Exercise of stock options 47,037 1,881 349,300 309,181 660,362 Exercised stock options tax benefit 213,252 213,252 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 6,791,459 $271,658 $24,645,945 $12,820,355 $(18,502) $37,719,456 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Income from continuing operations $ 4,085,772 $ 1,666,974 $ 1,480,032 Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 5,071,692 2,469,116 1,316,040 Provision for bad debt expense 380,000 320,979 76,000 Deferred tax (benefit) expense (467,448) 362,000 (67,000) Issuance of stock awards 31,875 41,343 -- Loss on sale of fixed assets 58,313 14,429 37,619 Change in assets and liabilities, net of effect from acquisitions/dispositions of businesses: Accounts receivable 6,456,636 (328,030) 39,192 Other current assets 1,038,631 (646,540) (968,992) Income tax receivable 8,004,039 (1,269,570) -- Accounts payable and accrued expenses (8,347,222) 2,999,731 254,376 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities of continuing operations 16,312,288 5,630,432 2,167,267 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities of discontinued operations -- (3,265,830) (13,367,913) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 16,312,288 2,364,602 (11,200,646) - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Net proceeds including escrow funds from dispositions 15,000,000 12,449,646 -- Business acquisitions (37,500) -- (23,000) Capital expenditures, net of disposals (1,103,601) (857,126) (872,726) Net investing activities of discontinued operations -- (797,475) 307,559 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 13,858,899 10,795,045 (588,167) - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Issuance of long term debt 19,000,000 43,500,000 21,326,942 Principal payments on long term debt (47,770,000) (56,926,942) (4,350,000) Payment of note -- -- (3,000,000) Proceeds related to the exercise of stock options 873,614 39,231 38,721 Treasury stock acquired -- -- (103,808) Dividends paid (403,818) (402,316) (2,012,397) - ---------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (28,300,204) (13,790,027) 11,899,458 - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,870,983 (630,380) 110,645 Cash and cash equivalents at beginning of year 1,065,464 1,695,844 1,585,199 - ---------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,936,447 $ 1,065,464 $ 1,695,844 - ---------------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 1,668,018 $ 1,446,753 $ 904,034 Income taxes $ 1,955,316 $ 1,238,356 $ 2,899,520 - ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Note 1 -- Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Hooper Holmes, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany balances and transactions are eliminated in consolidation. Description of the Business The Company provides alternate-site health information. The Company's network of experienced medical professionals conduct physical examinations, testing, and personal health interviews, primarily for the life and health insurance industry. Information gathered in these activities is used by insurance underwriters to assess risks and make informed decisions. The Company is subject to certain risks and uncertainties as a result of changes that could occur in the life and health insurance industry's underwritng requirements and standards, and in the Company's customer base. Use of Estimates The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures in these financial statements. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers highly liquid investments with original maturities of less than ninety days to be cash equivalents. Long-Lived Assets Long-lived assets consist of property, plant and equipment, goodwill, and identifiable intangibles. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is computed using the straight line method over the assets estimated useful life. The cost of maintenance and repairs is charged to income as incurred. Significant renewals and betterments are capitalized. Goodwill and Intangibles Goodwill and intangible assets are being amortized using the straight line method over lives ranging from 10-25 years and 1-15 years, respectively. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance with SFAS No. 121, the Company reviews long-lived assets for impairment whenever events or changes in business circumstances occur that indicate that the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of long-lived assets held and to be used based on undiscounted cash flows, and measures the impairment, if any, using discounted cash flows. Adoption of SFAS No. 121 did not have a material impact on the Company's consolidated financial position, operating results or cash flows. Revenues Revenues from services rendered are recognized when services are performed. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Concentration of Credit Risk The Company's accounts receivable is due primarily from insurance companies. Prudential Insurance Company of America continues as a major customer but due to overall revenue growth, fell below 10% of total revenues for 1996 and 1995. In 1994, Prudential provided revenues of $11.0 million. Fair Value of Financial Instruments The carrying value of long-term debt approximates its fair value due to the variable interest rate and short interest rate reset period. For all other financial instruments, their carrying value approximates fair value, due to the short maturity of these instruments. Employee Stock Options Employee stock options are granted with an exercise price equal to the market price and, therefore, compensation expense is not recognized on the issuance of employee stock options. Effective January 1, 1996, the Company adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. For the fair value of the employee stock options issued, see Note 11. PAGE 14 Advertising Costs related to space in publications are expensed the first time the advertising occurs. Advertising expense was approximately $285,000, $318,000, and $230,000 in 1996, 1995, and 1994, respectively. Basis of Presentation Certain reclassifications have been made to the prior years' financial information to conform with the current year presentation. Note 2 -- Discontinued Operations In 1995, the Company transferred substantially all of the assets and business of its Nurse's House Call health care division (the "NHC division") to Olsten Corporation, (the "NHC Transaction"), pursuant to an Agreement of Acquisition between the Company and Olsten, dated May 26, 1995. The transaction closed September 29, 1995 subject to the final adjustment of the cash portion of the purchase price as discussed below. Pursuant to the Acquisition Agreement, Olsten transferred to the Company all of the issued and outstanding capital stock ("ASB Meditest Stock") of American Service Bureau, Inc., engaged in the business of providing paramedical examinations and related services to the life and health insurance industries under the name ASB Meditest ("ASB Meditest"), $27.3 million in cash as adjusted to reflect changes in the NHC Division Net Asset Amount between November 30, 1994 and the Closing Date, and in the ASB Meditest Net Asset Amount between December 31, 1994 and the Closing Date and assumed certain specified liabilities of approximately $5.1 million relating to the NHC Division. Included in accounts receivable other for 1995, are amounts due from Olsten for liabilities paid by the Company on Olsten's behalf. Net sales for the NHC Division for the period ended September 29, 1995 were $117.2 million, and for the years ending December 1994 and 1993 were $159.3 million and $106.8 million, respectively. Earnings (loss) from operations of such business, for the period ending September 29, 1995, were $(4.1) million, and for the years ending December 31, 1994 and 1993 were $1.2 million and $.9 million, respectively, and are net of taxes (benefits) of $(2.2) million for the period ending September 29, 1995, and $1.1 million and $.7 million for the years ended December 31, 1994, and 1993, respectively. Interest expense was allocated to discontinued operations based on the increase in debt required to fund the NHC Division's accounts receivable growth. Interest expense allocated to the NHC Division was approximately $1.9 million, $1.7 million, and $.3 million in 1995, 1994, and 1993, respectively. The Company has recorded a loss in the amount of $10.3 million, net of tax benefits of $7.6 million, on the disposal of the NHC Division. The Company recorded a provision for certain costs related to the disposal including the transaction loss, severance and other expenses, transaction fees, and accounts receivable collection fees. Consistent with the Company's decision to discontinue its healthcare business, the Company, in the 4th quarter of 1995, also discontinued the operations of its Occupational Health segment acquired as part of the ASB Meditest acquisition, and has reflected in its discontinued operations, a loss, net of taxes of $.3 million. In October 1995, the Company sold the Drug Screen portion of its Occupational Health segment for $.7 million in cash, and a $.5 million, one year promissory note, which was paid in full in 1996. The assets consisted primarily of computer equipment and software and customer lists. There was no gain or loss to be recognized on this transaction. The Company concluded its seasonal flu vaccination commitments late in 1995, and has not continued this business. The 1995 and 1994 figures exclude amounts for discontinued operations from captions applicable to continuing operations. Note 3 -- Acquisitions and Dispositions On September 29, 1995, in connection with the NHC Transaction the Company acquired all of the outstanding common stock of ASB Meditest, a national health information services company. As a result of an independent valuation appraisal, the Company has recorded goodwill of approximately $12.3 million, and intangible assets in the amount of $10.8 million, comprised of assembled work force $2.3 million, contractor network $2.4 million, referral base $4.1 million, and a non competition agreement valued at $2.0 million. These amounts are all being amortized over their useful lives. The NHC transaction called for a portion of the purchase price to be placed in escrow until collections of the trade receivables of NHC sold to Olsten were reduced to below $30.0 million. At that point the escrow funds were to be released dollar for dollar until the balance is reduced to $15.0 million. In 1996, the Company has received all $15 million of the escrowed funds. The acquisition discussed above has been accounted for using the purchase method of accounting and the purchase price of the acquisition has been assigned to the net assets based on the fair value of such assets and liabilities at the date of acquisition. The consolidated financial statements include the results of operations of ASB Meditest from September 29, 1995. In 1992 the Company sold its Direct Marketing business and received cash and a six year promissory note. The Company determined that the gain on this transaction should be recognized as note payments are received. During 1996, the Company received $324,000 which is included in other income. The following unaudited pro forma information has been prepared as if the 1995 acquisition of ASB Meditest had occurred on January 1, 1994, and excludes the NHC Division. This pro forma information does not purport to be an indication of the results that actually would have been obtained if the operations had been combined during the periods. PAGE 15
(dollars in thousands except per share data) 1995 1994 - ---------------------------------------------------------------------------- Revenues $170,296 $174,380 - ---------------------------------------------------------------------------- Net income $ 4 $ 743 - ---------------------------------------------------------------------------- Earnings per share $ .00 $ .11 - ----------------------------------------------------------------------------
Note 4 -- Accounts Receivable Accounts receivable are net of an allowance for doubtful accounts in the amount of $733,797 and $466,021 in 1996 and 1995, respectively. Note 5 -- Property, Plant and Equipment Property, plant and equipment consists of the following:
Estimated December 31, December 31, Useful Life 1996 1995 In Years - ------------------------------------------------------------------------------ Land and improvements $ 571,314 $ 570,116 10 - 20 - ------------------------------------------------------------------------------ Building and improvements 3,841,703 3,744,552 10 - 45 - ------------------------------------------------------------------------------ Furniture, fixtures and equipment 14,782,996 13,955,687 3 - 10 - ------------------------------------------------------------------------------ $19,196,013 $18,270,355 - ------------------------------------------------------------------------------
Note 6 -- Long Term Debt
Long term debt, excluding current portion: (millions) 1996 1995 - ---------------------------------------------------------------------------- 1995 Revolving loan, due January 1998 $ 0.0 $ 24.0 Mortgage, due January 1998 1.3 2.3 1996 Revolving loan, due January 2000 4.0 0.0 - ---------------------------------------------------------------------------- $ 5.3 $ 26.3 - ----------------------------------------------------------------------------
The 1995 revolving loan was refinanced in December 1996 with a $20.0 million three year revolving loan. The 1996 revolving loan accrues interest at the bank's base rate minus 1/4% to 1 1/4% or LIBOR plus 3/4% to 1 3/4%, at the election of the Company. The interest rate at December 31, 1996 was 7.75% and the maximum available credit amount was $20.0 million. Also, commitment fees of 1/4% of the unused credit are charged and the loan is unsecured. Dividend payments are limited to maximum quarterly amounts of 30% to 40% of average quarterly net incomes. At December 31, 1995 the interest rate on the 1995 revolving loan was 8.1%. The mortgage loan is composed of two components. One accrues interest at 6.9% and the other at 5.65%. The Company has entered into a one year renewable Letter of Credit to the benefit of an insurance company relating to workers' compensation insurance. At December 31, 1996 the amount was $2.9 million. Note 7 -- Commitments and Contingencies The Company leases branch field offices under a number of operating leases which expire in various years through 2001. These leases generally contain renewal options and require the Company to pay all executory costs (such as property taxes, maintenance and insurance). The Company also leases telephone, computer and other miscellaneous equipment which are classified as operating leases and expire in the years 1997 through 2001. The following is a schedule of future minimum lease payments for operating leases (with initial or remaining terms in excess of one year) as of December 31, 1996:
Year Ending December 31, - ------------------------------------------------------------------------------ 1997 $ 5,552,273 1998 3,198,047 1999 1,537,935 2000 243,709 2001 6,476 - ------------------------------------------------------------------------------ Total minimum lease payments $10,538,440 - ------------------------------------------------------------------------------
Rental expenses under operating leases were $6,053,129, $3,908,709 and $3,740,373 in 1996, 1995 and 1994, respectively. In 1990, the Company entered into an employment retention contract with the President for a two year period from the date a change in control occurs as further defined in the contract and in 1996 with the remaining executive officers of the Company. Note 8 -- Litigation The Company is a party to a number of legal actions arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defense and/or insurance coverage respecting each of these actions and does not believe their ultimate disposition will materially affect the Company's results of operations or financial position. Note 9 -- Income Taxes Income tax expense is comprised of the following:
(in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------- United States Federal: Current $ 2,948 $ 699 $1,077 Deferred (354) 362 (67) State and local: Current 1,292 303 340 Deferred (114) -- -- - ----------------------------------------------------------------------------- $ 3,772 $1,364 $1,350 - -----------------------------------------------------------------------------
The following reconciles the "statutory" federal income tax rates to the effective income tax rates:
1996 1995 1994 - ------------------------------------------------------------------------------- Computed "expected" tax expense 34 % 34 % 34 % Increase (reduction) in tax expense resulting from: State tax, net of federal income tax benefit 5 6 7 Non-tax deductible, amortization of goodwill 10 7 5 Other (1) (2) 2 - ------------------------------------------------------------------------------- Effective income tax rates 48 % 45 % 48 % - -------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 1996 and 1995 are as follows:
(in thousands) 1996 1995 - ------------------------------------------------------------------------------- Deferred tax assets: Discontinued operation accruals $ 541 $ 933 Receivable allowance 308 196 Intangible assets 165 191 Net operating loss carry forwards -- 365 Acquisition bases adjustment accounts receivable 665 875 Insurance benefits 572 -- Other 261 117 - ------------------------------------------------------------------------------- 2,512 2,677 - ------------------------------------------------------------------------------- Deferred tax liabilities: Accumulated depreciation (833) (975) Acquisition bases adjustment primarily intangibles (4,017) (4,692) Other (185) -- - ------------------------------------------------------------------------------- (5,035) (5,667) - ------------------------------------------------------------------------------- Net deferred tax liability $ (2,523) $ (2,990) - -------------------------------------------------------------------------------
Deferred tax assets (liabilities) are reflected in the consolidated balance sheets at December 31, 1996 as follows: other current assets $1,838,000 and deferred income taxes (noncurrent) $(4,361,000) and at December 31, 1995, other current assets $2,003,000 and deferred income taxes (noncurrent) $(4,993,000). No valuation allowance has been provided on deferred tax assets since management believes that it is more likely than not that such assets will be realized through the reversal of existing deferred tax liabilities and future taxable income. The principal components of the deferred tax provision in 1996 and 1995 include differences between financial and tax reporting for depreciation, amortization, and allowance for accounts receivable. Note 10 -- Earnings (Loss) Per Share Earnings (loss) per share of common stock have been computed based on the weighted average number of shares outstanding. No effect has been given in the calculation for common stock equivalents since the equivalents are either not materially dilutive to earnings per share or are antidilutive to loss per share. Note 11 -- Capital Stock Stockholder Rights Plan -- On January 23, 1990, the Board of Directors adopted a Stockholder Rights Plan, which was amended and restated on May 10, 1991 and further amended on July 12, 1995. The Board declared a dividend of one Common Share Right for each outstanding share of Common Stock distributable on April 2, 1990. Such rights only become exercisable ten business days after (a) the Company or a person or group announces that such person or group (other than certain specified persons, such as the Company, any wholly-owned subsidiary, employee benefit plans of the Company and persons who held at least 20% of the Common Stock when the Rights Plan was adopted, until the occurrence of certain events, or as the result of an acquisition of shares by the Company) has acquired beneficial ownership of 20% or more of the Company's Common Stock or (b) the commencement of a tender offer by a person or group to acquire 30% or more of the Company's Common Stock (such date, the "Separation Date"). Upon the Separation Date, each right shall constitute the right to purchase one share of Common Stock of the Company for $24.00, subject to adjustment. After (x) the announcement of the acquisition by a person or group of 20% or more of the Company's Common Stock (other than in a tender offer for all shares which has been approved by the Board of Directors), or (y) the Company enters into or consummates a merger or other similar business transaction, or a sale of more than 50% of the assets or earning power, each right shall be adjusted to constitute the right to purchase that number of shares of Common Stock of the Company or capital stock of the acquiring company, as the case may be, having an aggregate market price on the date of such announcement of the acquisition or such consummation or occurrence of the transaction equal to twice the exercise price of $24.00, also subject to adjustment. The rights may be redeemed for $0.05 per right at any time until the tenth day following public announcement that a 20% position has been acquired. The rights will expire on March 16, 2000, unless sooner redeemed. Page 17 Stock Purchase Plan -- In 1993, the shareholders approved the 1993 Employee Stock Purchase Plan which provides for granting of purchase rights to all full-time employees, as defined, of up to 250,000 shares. This plan terminates on December 31, 1998. The plan provides for the purchase of shares on the date one year from the grant date. During the year after the grant date, up to 10% of an employee's compensation is withheld for their purchase. An employee can cancel their purchase any time during the year, without penalty. The purchase price is 95% of the closing common stock price on the grant date. In April 1996, the Company made a grant, of approximately 37,000 shares, and the aggregate purchase price will be approximately $334,000. No other grants have been made under this plan. Stock Awards -- The Company's president is entitled to receive stock awards based on the attainment of performance goals established for any given year. For the years ended December 31, 1996, 1995 and 1994, awards of 2,500, 6,000 (paid in cash at its fair value at the time of grant), and 5,250 (shares issued in 1995), respectively, have been granted. Stock Option Plan -- The Company's stockholders approved stock option plans totaling 300,000 and 500,000 shares, respectively, in 1988 and 1992, and 500,000 shares in 1994, which provide that options may be granted to management. Options are granted at market value on the dates of the grants and are exercisable as follows: 25% after two years and 25% on each of three anniversary dates thereafter, and terminate after 10 years. The following table summarizes stock option activity:
Under Option ------------------------------------ Shares Weighted Available for Average Exercise Grant Shares Price Per Share - ------------------------------------------------------------------------------- Balance January 1, 1994 158,688 606,438 $ 12.56 Authorized 500,000 -- --- Granted (141,000) 141,000 11.88 Exercised -- (5,813) 6.66 Cancelled 76,700 (76,700) 13.12 - ------------------------------------------------------------------------------- Balance December 31, 1994 594,388 664,925 12.40 Granted (359,850) 359,850 7.95 Exercised -- (5,062) 7.75 Cancelled 111,413 (111,413) 10.74 - ------------------------------------------------------------------------------- Balance December 31, 1995 345,951 908,300 10.87 Granted -- -- -- Exercised -- (75,162) 8.79 Cancelled 7,050 (7,050) 9.99 - ------------------------------------------------------------------------------- Balance December 31, 1996 353,001 826,088 $ 11.07 - -------------------------------------------------------------------------------
The weighted average fair value per option at the date of grant for options granted during 1995 was $4.67. The fair value was estimated using the Black-Scholes option pricing model, modified for dividends and based on weighted average dividend yield of .48%, risk-free interest rate of 6.65%, expected stock price volatility of 37.46%, and an expected term until exercise of 10 years. There were no option grants in 1996. Pro forma net income (loss) and earnings (loss) per share reflecting approximate compensation cost for the fair value of stock options awarded in 1995 is as follows:
(dollars in thousands except per share data) 1996 1995 - ------------------------------------------------------------------------------- Net income (loss): As reported $ 4,086 $ (13,049) Pro forma 3,846 (13,165) Earnings (loss) per share: As reported .61 (1.94) Pro forma .57 (1.96) - -------------------------------------------------------------------------------
The pro forma effects on net income (loss) and earnings (loss) per share for 1996 and 1995 may not be representative of the pro forma effects in future years since compensation cost is allocated on a straight-line basis over the vesting periods of the grants, which extends beyond the reported years. The following table summarizes information concerning options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range ofOutstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/96Term (Years) Priceat 12/31/96Price - ------------------------------------------------------------------------------ $ 5.50 -$ 8.38 345,100 7.9 $ 7.80 41,750 $ 6.75 11.88 - 14.94 480,988 5.8 13.41 271,219 13.53 - ------------------------------------------------------------------------------
On January 28, 1997, the Board of Directors granted 174,000 stock options to certain employees. These options were granted under the 1994 stock option plan with an exercise price that equalled the fair market value of the stock at the date of grant. Note 12 -- 401k Savings and Retirement Plan This plan is available to all employees with at least one year of service of greater than 1,000 hours of employment, and is administered by Lincoln National Life Insurance Co. The Company matches up to 25% of the first 10% of employee salary contributions. The Company's payments for 1996, 1995, and 1994, were $228,000, $137,000, and $123,000, respectively. Independent Auditors' Report - -------------------------------------------------------------------------------- The Board of Directors and Stockholders Hooper Holmes, Inc. We have audited the accompanying consolidated balance sheets of Hooper Holmes, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hooper Holmes, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Short Hills, New Jersey February 20, 1997
For the years ended December 31, (dollars in thousands except per share data) 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Statement of Operations Data: Revenues $ 156,254 $ 111,313 $ 92,534 $ 80,600 $ 68,931 Operating income 8,576 4,059 3,803 5,020 4,548 Interest expense 1,394 1,674 994 237 144 Income from continuing operations 4,086 1,667 1,480 2,739 2,779 Income (loss) from discontinued operations (2) -- (14,716) 1,184 867 2,099 Net income (loss) 4,086 (13,049) 2,664 3,606 4,878 Earnings from continuing operations per share 0.61 0.25 0.22 0.41 0.42 Earnings (loss) from discontinued operations per share (2) -- (2.19) 0.18 0.13 0.31 Earnings (loss) per share (1) 0.61 (1.94) 0.40 0.54 0.73 Cash dividends per share (1) $ 0.06 $ 0.06 $ 0.30 $ 0.30 $ 0.25 Weighted average number of shares outstanding (1) 6,727,719 6,707,128 6,706,713 6,714,061 6,717,667 - -------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Working capital $ 11,807 $ 24,786 $ 6,407 $ 4,024 $ 9,861 Total assets 61,296 93,997 103,172 88,355 52,754 Current maturities of long term debt 1,030 8,800 2,150 1,550 0 Long-term debt, less current maturities 5,250 26,250 46,327 29,950 3,000 Total long-term debt 6,280 35,050 48,477 31,500 3,000 Stockholders' equity $ 37,719 $ 33,132 $ 46,502 $ 45,916 $ 44,384 - --------------------------------------------------------------------------------------------------------------------------------
(1) Adjusted to reflect a 3 for 2 stock split effective February 28, 1992. (2) See Note 2 to the consolidated financial statements. Page 19 Quarterly Common Stock Price Ranges and Dividends - -------------------------------------------------------------------------------
1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- High Low High Low Quarter Bid Bid Dividend Bid Bid Dividend - --------------------------------------------------------------------------------------------------------------------------------- First 9 9/16 8 1/16 .01 10 3/4 6 1/2 .03 Second 13 7/8 8 1/4 .01 10 1/2 7 5/8 .01 Third 15 3/8 10 5/8 .02 10 6 3/4 .01 Fourth 18 1/2 14 1/2 .02 9 7/8 7 3/4 .01 - ---------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Data (Unaudited) - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands except per share data) Per share of common stock -------------------------------------- Income from Loss from Income from Loss from Gross continuing discontinued Net continuing discontinued Net Quarter (1) Revenues profit operations operations(1) income (loss) operations operations income (loss) - ----------------------------------------------------------------------------------------------------------------------------------- 1996 Fourth $ 39,922 $ 9,924 $ 1,494 $ -- $ 1,494 $0.22 $ -- $ 0.22 Third 37,907 9,276 1,101 -- 1,101 0.17 -- 0.17 Second 39,814 9,897 946 -- 946 0.14 -- 0.14 First 38,611 9,197 545 -- 545 0.08 -- 0.08 - ----------------------------------------------------------------------------------------------------------------------------------- Total $156,254 $ 38,294 $4,086 $ -- $ 4,086 $0.61 $ -- $0.61 - ----------------------------------------------------------------------------------------------------------------------------------- 1995 Fourth $ 39,736 $ 8,136 $ 421 $ (338) $ 83 $0.06 $(0.05) $ 0.01 Third 23,184 5,287 394 (720) (326) 0.06 (0.11) (0.05) Second 24,396 5,940 446 (13,310) (12,864) 0.07 (1.98) (1.91) First 23,997 6,016 406 (348) 58 0.06 (0.05) 0.01 - ----------------------------------------------------------------------------------------------------------------------------------- Total $111,313 $ 25,379 $1,667 $(14,716) $ (13,049) $0.25 $(2.19) $(1.94) - -----------------------------------------------------------------------------------------------------------------------------------
(1) During 1995, the second quarter consists of after tax charges of $10.3 million for the loss on the disposal of the NHC division and $3.0 million of operating loss. The third quarter consists of an after tax charge of $.7 million for additional NHC division operating losses. The fourth quarter charge of $.3 million, net of tax, relates to discontinuance of the Occupational Health segment acquired as part of the ASB Meditest acquisition. See Note 2 to the Consolidated Financial Statements Page 20 ================================================== Directors and Officers - -------------------------------------------------------------------------------- Directors Benjamin A. Currier Senior Vice President, Security Life of Denver Ins. Co. Quentin J. Kennedy Executive Vice President, Secretary and Director Federal Paper Board Company Retired Elaine L. LaMonica Professor Department of Nursing Education Teachers College Colombia University James M. McNamee Chairman, President, and Chief Executive Officer John E. Nolan, Jr. Partner Steptoe & Johnson Kenneth R. Rossano Senior Vice President Cassidy & Associates G. Earle Wight Senior Vice President Officers James M. McNamee Chairman, President, and Chief Executive Officer Paul W. Kolacki Executive Vice President and Chief Operating Officer Robert William Jewett Senior Vice President, General Counsel and Secretary Fred Lash Senior Vice President, Chief Financial Officer and Treasurer G. Earle Wight Senior Vice President Francis A. Stiner Vice President Stock Listing The Company's common stock is traded on the American Stock Exchange (AMEX) under the symbol "HH." Form 10-K Holders of the Company's common stock may obtain, without charge, a copy of the Hooper Holmes, Inc. Annual Report on Form 10-K as filed with the Securities and Exchange Commission upon request. Address inquiries to: Secretary Hooper Holmes, Inc. 170 Mt. Airy Road Basking Ridge, NJ 07920 Independent Certified Public Accounts KPMG Peat Marwick LLP Short Hills, NJ Transfer Agents & Registrar First City Transfer Company Iselin, NJ Annual Meeting May 27, 1997 at the American Stock Exchange New York, NY Hooper Holmes, Inc. - ------------------------ Corporate Headquarters 170 Mount Airy Road Basking Ridge, NJ 07920 (908) 766-5000 BACK COVER EX-21 6 SUBSIDIARIES OF HOOPER HOLMES, INC. EXHIBIT 21 SUBSIDIARIES OF HOOPER HOLMES, INC. -----------------------------------
NAME STATE OF INCORPORATION D/B/A ---- ---------------------- ----- Hooper Holmes Health Care, Inc. New Jersey Nurse's House Call
EX-23 7 CONSENT OF KPMG PEAT MARWICK LLP INDEPENDENT AUDITORS' CONSENT The Board of Directors Hooper Holmes, Inc. We consent to incorporation by reference in the registration statements (No. 33- 53086 and No. 333-04785) on Form S-8 of Hooper Holmes, Inc. of our reports dated February 20, 1997, relating to the consolidated balance sheets of Hooper Holmes, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows and related schedule for each of the years in the three-year period ended December 31, 1996, which reports appear in the December 31, 1996 annual report on Form 10-K of Hooper Holmes, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Short Hills, New Jersey March 28, 1997 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Hooper Holmes, Inc. Under date of February 20, 1997, we reported on the consolidated balance sheets of Hooper Holmes, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996 as contained in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are included in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as of December 31, 1996, 1995, and 1994, and for the years then ended. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Short Hills, New Jersey February 20,1997 EX-24 8 POWER OF ATTORNEY POWER OF ATTORNEY ----------------- The undersigned Director of Hooper Holmes, Inc., a New York corporation (the "Company"), which proposes to file a Form 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett, or either of them, his attorneys in fact, and hereby grants to him, for him and in his name as such Director, full power and authority as his agent or agents and in his place and stead: 1. to sign such Annual Report on Form 10-K and any subsequent amendment thereto, and any and all other amendments or documents related thereto which any of said attorneys in fact, in his discretion, may deem necessary or proper; and 2. to perform every other act which any of said attorneys in fact, in his discretion, may deem necessary or appropriate in connection with such Annual Report or any amendments thereto. DATED: March 24, 1997 ---------------------------- /s/ Benjamin A. Currier ----------------------------------- Benjamin A. Currier POWER OF ATTORNEY ----------------- The undersigned Director of Hooper Holmes, Inc., a New York corporation (the "Company"), which proposes to file a Form 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett, or either of them, his attorneys in fact, and hereby grants to him, for him and in his name as such Director, full power and authority as his agent or agents and in his place and stead: 1. to sign such Annual Report on Form 10-K and any subsequent amendment thereto, and any and all other amendments or documents related thereto which any of said attorneys in fact, in his discretion, may deem necessary or proper; and 2. to perform every other act which any of said attorneys in fact, in his discretion, may deem necessary or appropriate in connection with such Annual Report or any amendments thereto. DATED: March 25, 1997 ---------------------------- /s/ G. Earle Wight ----------------------------------- G. Earle Wight POWER OF ATTORNEY ----------------- The undersigned Director of Hooper Holmes, Inc., a New York corporation (the "Company"), which proposes to file a Form 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett, or either of them, his attorneys in fact, and hereby grants to him, for him and in his name as such Director, full power and authority as his agent or agents and in his place and stead: 1. to sign such Annual Report on Form 10-K and any subsequent amendment thereto, and any and all other amendments or documents related thereto which any of said attorneys in fact, in his discretion, may deem necessary or proper; and 2. to perform every other act which any of said attorneys in fact, in his discretion, may deem necessary or appropriate in connection with such Annual Report or any amendments thereto. DATED: March 18, 1997 ---------------------------- /s/ Kenneth R. Rossano ----------------------------------- Kenneth R. Rossano POWER OF ATTORNEY ----------------- The undersigned Director of Hooper Holmes, Inc., a New York corporation (the "Company"), which proposes to file a Form 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett, or either of them, his attorneys in fact, and hereby grants to him, for him and in his name as such Director, full power and authority as his agent or agents and in his place and stead: 1. to sign such Annual Report on Form 10-K and any subsequent amendment thereto, and any and all other amendments or documents related thereto which any of said attorneys in fact, in his discretion, may deem necessary or proper; and 2. to perform every other act which any of said attorneys in fact, in his discretion, may deem necessary or appropriate in connection with such Annual Report or any amendments thereto. DATED: March 20, 1997 ---------------------------- /s/ John E. Nolan, Jr. ----------------------------------- John E. Nolan, Jr. POWER OF ATTORNEY ----------------- The undersigned Director of Hooper Holmes, Inc., a New York corporation (the "Company"), which proposes to file a Form 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1996, hereby appoints James M. McNamee and Robert William Jewett, or either of them, his attorney in fact, and hereby grants to him, for him and in his name as such Director, full power and authority as his agent or agents and in his place and stead: 1. to sign such Annual Report on Form 10-K and any subsequent amendment thereto, and any and all other amendments or documents related thereto which any of said attorneys in fact, in his discretion, may deem necessary or proper; and 2. to perform every other act which any of said attorneys in fact, in his discretion, may deem necessary or appropriate in connection with such Annual Report or any amendments thereto. DATED: March 20, 1997 ---------------------------- /s/ Quentin J. Kennedy ----------------------------------- Quentin J. Kennedy EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF HOOPER HOLMES, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 2,936,447 0 17,769,052 733,797 0 25,771,898 19,196,013 9,712,650 61,295,666 13,965,161 5,250,000 271,658 0 0 37,447,798 61,295,666 156,253,763 156,253,763 117,959,274 117,959,274 29,718,867 380,000 1,394,038 7,857,772 3,772,000 4,085,772 0 0 0 4,085,772 .61 0
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