-----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, AVFa9S8tZAef8IbQk3yikSOtYAKygYC8WwgkhWbggrahWDXzByg3qPZTnnrzd2Ro 3I8eo0GM90hkS5u0bhAz1Q== 0001021408-01-002012.txt : 20010409 0001021408-01-002012.hdr.sgml : 20010409 ACCESSION NUMBER: 0001021408-01-002012 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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: SEC FILE NUMBER: 001-09972 FILM NUMBER: 1591392 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 0001.txt FORM 10-K405 ================================================================================ 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, 2000. 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 (I.R.S. Employer incorporation or organization) Identification No.) 170 ML Airy Road Basking Ridge, NJ 07920 (Address of principal executive offices) (Zip Code) Area Code (908) 766-5000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: ================================================================================ Name of Each Exchange Title of Each Class on Which Registered - -------------------------------------------------------------------------------- Common Stock (5.04 par value) American Stock Exchange ================================================================================ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229,4O5 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. |X| As of February 28, 2001, there were 65,171,810 shares of Common Stock outstanding. The aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant, based on the closing price of these shares on the American Stock Exchange, was $ 494,607.856 based on 61,825,982 shares. For the purposes of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. Certain information contained in the Company's 2000 Annual Report to Shareholders and its Proxy Statement in connection with its 2001 Annual Meeting of Shareholders is incorporated by reference into Parts I, It and III of this Form 10-K. ================================================================================ FORM 10K PART I ITEM 1. Business General Hooper Holmes is the nation's leading provider of health information services to the life insurance industry. We provide paramedical and medical examinations, personal health interviews and record collection, and laboratory testing, which help life insurance companies evaluate the risks associated with underwriting policies. We serve our customers through our network of over 8,500 registered nurses, licensed practical nurses, physicians, phlebotomists and medical and EKG technicians, of which approximately 1,000 are employees and 7,500 are active independent contractors. We operate through approximately 230 branch offices and 75 contract affiliate offices located in 50 states, Guam and Puerto Rico. We have over 700 life insurance company customers, and virtually all of the 100 largest in the United States. Growth Strategy Our growth strategy is to enhance our industry leadership position by capitalizing on the industry trends and providing the most comprehensive array of health information services to the life insurance industry. We will pursue this strategy by: o Continuing our commitment to industry leadership through automation. Insurance companies and insurance agents are demanding faster, more user-friendly services. In response, we have made a substantial investment in technology and we believe we have the most automated branch network and operating system in the industry. Today, customers can handle several examination orders, monitor order status, communicate with our customer service and branch locations, and receive results of personal health interviews. For 2000, we received approximately 40% of all orders electronically. We intend to continue investing in the latest technology to further enhance our services and provide expanded electronic access over the Internet. o Increasing our focus on alternate distribution channels. Alternate distribution channels represent a rapidly growing segment of the life insurance industry. For the year 2000, alternate distribution channel customers accounted for approximately $51 million or 19% of our gross Portamedic revenues, up approximately 24% from $41 million for the same period in 1999. We believe that our geographic coverage and level of automation position us to provide the level of support that alternate distribution channels require. We have aggressively pursued sales to entities using these channels and are currently establishing alliances that in many cases have resulted in exclusive relationships with them. o Leveraging our national branch network. Our national branch network provides us with a broad geographical coverage capable of providing local service for insurance companies. agents and brokers across the entire United States. This coverage positions us to become the preferred provider of health information services to a consolidating life insurance industry. We believe that our branch network and technological infrastructure enable us to significantly increase the volume of our services with only a marginal increase in our branch operating costs. o Continuing to pursue strategic acquisitions. We intend to continue pursuing strategic acquisitions that complement existing services and leverage our existing capabilities. A sizable regional competitor acquisition on the west coast and several small regional competitors have increased our market share and enhanced our ser- - 2 - vice offerings. Our marketing alliance and equity investment in e-Nable.com allows us to join with its parent company, the MIB Group, to offer complete services through one portal, e-Nable.com. o Expanding into related lines of business. We are exploring means to enter new lines of business which leverage our existing branch network, service capabilities or customer base. For example, we continue to develop services for pharmaceutical companies engaged in the clinical trials process, including specimen collection and data management. Our exclusive arrangement with DNA Services paved the way for entry into those markets. Services Portamedic -- Paramedical and Medical Examinations We perform paramedical and medical examinations of insurance policy applicants under the Portamedic trade name and provide the results to insurance companies, agents and other non-traditional insurance marketers in connection with issuance of primarily life insurance policies. We are the leading paramedical and medical examination company in the U.S., having performed approximately 3.4 million exams in the twelve months ended December 31, 2000 up from the 2.9 million performed in 1999. Since an insurance applicant may reconsider his or her purchase in the time it takes to deliver examination results, our system is designed to timely deliver application information to the insurance company. We strive to schedule an appointment within 24 to 30 hours of receiving the request and to complete the entire examination process in three to five days, unless the applicant desires a later appointment. Our examiners perform examinations at times and locations convenient to applicants, primarily at the applicant's home or place of business. Since almost all of our examiners are nurses and other medically trained professionals, we are able to provide our customers with a full range of paramedical and medical examinations. Our examiners also perform other ancillary services including helping applicants understand and complete forms and obtaining consent signatures. In addition, we have dedicated customer service employees in Chicago, who help complete applications based on telephone interviews with applicants, and additional customer service employees located in service centers in Minneapolis, Dallas and Kansas City, who provide general customer service support. Each insurance company has separate guidelines for determining whether an examination is required and the type of services required. The following chart illustrates what a typical insurance company's guidelines might look like for determining the types of examinations and samples collected when our services are requested. Our computer system contains more than 2,000 of these charts for various insurance companies. - 3 -
Age of Applicant ------------------------------------------------------------- 18-40 41-50 51-60 61-70 ------------------------------------------------------------- $100,000 Urine, Blood Paramedical, Paramedical, Paramedical and under Urine, Blood Urine, Blood Urine, Blood, Resting EKG ------------------------------------------------------------- $100,001- Paramedical Paramedical, Paramedical Paramedical $350,000 Urine, Blood Urine, Blood Urine, Blood, Urine, Blood, Resting EKG Resting EKG ------------------------------------------------------------- Policy $350,001- Paramedical Paramedical Medical Exam, Medical Exam, Amount $500,000 Urine, Blood Urine, Blood, Urine, Blood, Urine, Blood, Resting EKG Stress EKG Stress EKG ------------------------------------------------------------- $500,001- Paramedical Paramedical Medical Exam, Medical Exam, $1,000,000 Urine, Blood Urine, Blood, Urine, Blood, Urine, Blood, Resting EKG Stress EKG Stress EKG ------------------------------------------------------------- $1,000,001 Paramedical Medical Exam, Medical Exam, Medical Exam, and up Urine, Blood, Urine, Blood, Urine, Blood, Urine, Blood, Resting EKG Stress EKG Stress EKG Stress EKG -------------------------------------------------------------
Infolink Services Group -- Personal Health Interviews and Medical Record Collection Under the Infolink name, we offer personal health interviews and medical record collection, including attending physician statements, to our customers. Infolink reports are completed through highly automated, centrally located offices. In 2000, we provided approximately 420,000 Infolink reports, up 20% over 1999. Infolink reports can be ordered electronically, by fax or by phone. Approximately 50 full-time employees prepare all of the Infolink reports ordered by our customers from call centers in Austin, Texas; Philadelphia. Pennsylvania; and Louisville, Kentucky. These employees interview the applicant, his or her employer; and his or her business and personal associates. The report is then electronically transmitted or faxed to the insurance underwriter at its request. Our information systems allow us to tailor reports for each client's needs and reduce paperwork and turnaround time for our clients. We strive to deliver our Infolink reports back to the insurance company within two to three days from the time of request. In addition, life insurance companies may also require attending physician statements. In such cases, either a branch office or our central attending physician statement office in Chicago will contact the applicant's physician, clinic or hospital to request medical records, send a written request with payment and follow-up to confirm delivery of the information. Heritage Labs In December 1998, we acquired a 55% interest in Heritage Labs, a laboratory providing testing services for the life insurance industry. Heritage Labs processes tab tests both for our customers and third-party health information service providers. This acquisition has enabled us to internalize the laboratory testing process and to offer our life insurance customers a one-stop source for their health information service needs. Combined with our existing automation, we believe Heritage Labs allows us to provide a seamless service of processing, gathering and testing health information for our life insurance customers. - 4 - Insurance companies determine which laboratory will process the samples collected from their respective applicants. In 2000, we increased our customer list to over 150 insurance companies. The number of samples tested in 2000 was 339,000 versus 290,000 in 1999. Other Services Under the Healthdex tradename, we are developing services for pharmaceutical and biotechnology companies. Our goal is to leverage our health information expertise and branch network to provide outsourced information services to support clinical trials and data analysis. Currently our business in this area consists of performing chart review and monitoring clinical trials processes. Chart review entails collecting patient information from physician records and transmitting it to customers in formats requested by them. Clinical trials monitoring entails verifying investigator credentials and site locations, as well as assuring that proper informed consent processes are followed. In addition, we perform some ancillary services such as occupational health screening and substance abuse testing for corporations and other organizations outside of the insurance industry. In late 2000, we began offering Teledex as a licensed product to the insurance industry. After providing tele-underwriting solutions to customers who have outsourced their call centers to us, we now have the technology and support systems necessary to license our innovative product to customers. As our customers strive to improve their efficiency, we believe licensing offers a unique opportunity for Hooper Holmes to further leverage its investments in technology to meet the increasing demands of the evolving life insurance industry." In 2000, we began working with Numoda.com, a communications technology company to jointly develop underwriting applications for hand-held devices, such as the Palm Pilot. This program is expected to benefit the insurance industry by delivering examination data to the underwriters within twenty-four hours of completion. The electronic devices will also allow us to communicate more efficiently with our field force by electronically assigning cases and receiving updated statuses on outstanding cases. Our Network We believe our network of branch offices and contract affiliates is the most extensive in our industry. We can provide an examination to any applicant in any location in the United States. Our branch managers are responsible for the supervision of the local health information operations. Support staff coordinate examinations and reporting procedures and perform quality assurance functions. Branch sales personnel perform marketing and sales activities. Each branch office is automated with direct electronic connections to our home office in Basking Ridge, New Jersey. Orders are received by both branch offices and our corporate home office. Those orders received by our home office are electronically processed and routed to the appropriate branch. The branch office is responsible for scheduling the examination and assigning an examiner. The status of the examination is entered into the branch office system, then is retrieved and processed by the home office and made available to the customer. Once examination results are complete, they are faxed or mailed directly to the customer. We have approximately 75 independent contract affiliates. Contract affiliates perform many of the same functions as our branch offices, but are independently owned and operated. Our contract affiliates provide our Portamedic services in assigned geographical areas throughout the United States and receive orders directly from our customers. Three of our contract affiliates have exclusive rights to provide examination services in areas that are not served by our branch offices. Each contract affiliate is responsible for compensating, training, hiring and supervising all of its personnel and must meet the same quality assurance standards of our branch- - 5 - es, including necessary credentialing of its examiners. Our contract affiliates use a version of our system software that allows them to bill customers and obtain examination status reports. Our Automation Systems As technology continues to advance the underwriting process, life insurance companies are demanding timely delivery of information from health information service providers. Our automation systems are designed to meet these demands by providing the following benefits. Electronic Networking Capabilities Between Branch Offices We have developed a comprehensive, automated management information system, designed by our field personnel, that is now online in all branch offices, The system connects each branch and the home office, allowing us to send and receive orders, schedule examinations, and instantly and regularly monitor examination request status. The system enables personnel at our corporate headquarters to compile company-wide information regarding quality assurance standards, in addition to administrative, accounting and other management information. Direct Electronic Links with our Customers Many of our customers communicate with us electronically through our Win Remote APS Paramedical Inspection Data (R.A.P.I.D.) system. Customers electronically place orders with us and receive personal interview reports through this system, reducing the turnaround time and cost associated with each order. We provide additional automation services to our customers through our Teledex service. Teledex is an automated service providing applicant information to our insurance customers on an expedited basis. When an insurance customer transmits an order through Teledex, a staff member pulls up a customer-specific underwriting questionnaire on his or her computer terminal and begins collecting applicant information, which includes a telephone interview with the applicant. Teledex has over 1,600 different, customer-specific underwriting questionnaires in its system, which enables us to provide customized reports for each customer in a matter of hours. This process is valuable to our customers because it allows them to been the underwriting process upon receipt of our Teledex report, rather than waiting for an examiner to perform the examination, collect the data and then return the report and examination results. Teledex additionally receives and handles orders for attending physician statements. These customer links are designed to reduce paperwork, turnaround time and the chance that the insurance applicant will reconsider his or her buying decision by the time results are gathered. Internet-based Ordering and Monitoring In addition to accessing Win R.A.P.I.D., customers can conduct business with us online through the Internet. Our online service enables customers to place orders and instantly and regularly monitor the status of a particular examination request. The benefits of this service to the customer are faster processing, 24-hour access, and easy order tracking. Customers gain access to our Portamedic Web site using a secure password. The status of exams is updated at the close of each business day and made available to the customer at the beginning of the next business day. The Internet has improved our customer service and has also lowered our processing costs by reducing the human interaction in the ordering process. This service is intended to complement telephone contact between our branches and insurance customers, and it provides an additional level of service that many of our customers desire. Management believes that we are the only health information services provider to offer this online service. Non-traditional insurance marketers, who employ a direct response approach to selling - 6 - insurance products, particularly depend upon our ability to expedite their requests for service. Approximately 30% of our alternate distribution channel orders were placed through the Internet in 2000. Investment in e-Nable.com In December 2000, Hooper Holmes and e.Nable.com Corporation, entered into a marketing agreement (concurrent with an equity investment) that will allow insurance carrier customers to order and receive all the requirements for life and health insurance underwriting from a single source. e-Nable.com, a subsidiary of MIB Group, is a leader in e-commerce solutions for life and health insurance underwriting. The exclusive agreement is expected to significantly enhance the transaction time in the life and health insurance underwriting process, increase revenue and decrease acquisition costs. As a result, we are able to provide the life and health insurance industry unprecedented speed and accuracy in submitting, underwriting, and issuing insurance policies. Quality Assurance Program The quality and reputation of personnel and operations are critical to the continued success of our business. Our successful implementation of quality assurance depends on our ability to recognize problems and solve them within a relatively short time period. To help do this, we employ a statistical quality control program, which allows us to monitor quality at many different levels of operation. At the branch office level, quality assurance specialists monitor examiner performance. Each examiner undergoes periodic evaluations to provide feedback and ensure that any recurring mistakes are remedied. Specialists also conduct regular audits of branch office quality controls to assist branch managers in improving their performance and the quality of services examiners perform. At the corporate headquarters level, quality assurance specialists monitor examiner performance twice each year through detailed statistical analyses of examination accuracy and reporting methodology, A quality assurance log created monthly by the corporate office tracks errors and problems with examinations and examiners, including lab errors, omissions on forms and misdirected transmission of results. The quality assurance specialists regularly evaluate examination procedures and consult with our insurance customers to address any specific problems and, where appropriate, suggest revisions to improve examination procedures and reports. We hire and contract with properly trained, experienced examiners. In addition, we have developed a database of over 1,000 credentialed physicians who are approved to perform medical examinations for our customers. Sales and Marketing We market Portamedic and Infolink health information services on a national level through seven full-time sales representatives who call on senior underwriting executives at the home offices of insurance companies. Two of these sales representatives call exclusively on entities that distribute through alternate distribution channels. We serve approximately 700 life insurance companies, including their extensive network of agency, district. and brokerage offices. National sales representatives promote our consistently high quality of service and rapid response time to examination requests and are responsible for maintaining our position on each insurance company's approved list of examination providers. We regularly attend and occasionally sponsor customer conferences to provide national sales representatives with opportunities to further develop key relationships. At the local level, branch managers, and in certain offices, additional marketing personnel, market our services directly to the local insurance agents and managers, who have the authority to select examination providers from the list approved by the insurance companies' home offices. These local marketing efforts high. - 7 - light the quality of our examiners and the speed and accuracy of our services, including the ability of each branch to quickly ascertain the status of each service request through our automated branch management information system. Competition Management believes that we are the largest of the three national firms that focus primarily on providing paramedical and medical examinations, personal interviews and record collection to the life insurance industry. Our largest competitors are Examination Management Services, Inc., American Para Professional Systems and Exam One, a subsidiary of Lab One (Labs). A significant number of regional and local firms also compete in our industry. Through our Heritage Labs subsidiary we also compete with laboratory testing providers, who typically do not provide other health information services such as paramedical and medical examinations, personal interviews and record collection. Although we have exclusive relationships with a small number of our customers, companies traditionally use two or more health information services providers. This means we face direct competition from our competitors who have existing relationships with many of our customers. Our ability to retain customers will depend on our continued ability to serve their needs and distinguish ourselves from our competitors. In management's opinion, the principal competitive factors in our market are: o quality of service and examinations; o timeliness of examination process and communication of results; o geographic breadth of coverage; o automation and connectivity between health information providers and insurers; and o price. More recently, technological capabilities have become much more important to meeting our customers' needs. We are continually enhancing and expanding our technology and network infrastructure to accommodate our customers' changing needs, including the electronic ordering of our services and online status checks. We are also adapting to the technological needs of insurance companies which are beginning to rely more on alternate distribution channels, including the Internet. to sell their products. Service Marks and Trademarks We have registered several service marks, including "Portamedic(R)." Healthdex(R)" and "Teledex(R)," and have filed applications to register "Infolink" and the Hooper Holmes logo with the United States Patent and Trademark Office. Our rights to these marks will continue as long as we comply with the usage, renewal filing and other legal requirements relating to the renewal of service marks. Personnel We employ approximately 1,350 full-time and 950 part-time employees, including over 1,000 examiners, none of whom is represented by a collective bargaining agreement. We also contract with over 7,500 medically trained examiners, and utilize the services of 75 contract affiliates. We hire and contract with properly trained, experienced and, when required, licensed or certified examiners. Our ability to recruit skilled personnel is essential to our continued growth and success. Management attributes our success in recruiting skilled - 8 - personnel in our health information services business to the flexible work schedules and varied work assignments we offer our examiners. Management believes that these factors will enable us to continue to attract and retain qualified personnel. Government Regulation Certain aspects of our business are regulated by the states in which we operate and, to a lesser extent, by the federal government. In addition to licensing and certification requirements for our examiners, we are subject to regulations governing various aspects of out services, including needle disposal and specimen handling procedures, and licensing and FDA requirements governing Heritage Labs and our examination kits. Management is not aware of any pending federal or state environmental laws or regulations that would have a material adverse effect on our business or competitive position or that would require material capital expenditures on our part to effect compliance. Insurance and Legal Proceedings Claims made against us arising in the course of providing health information services have not resulted in any material liability to date. We carry liability insurance in coverage amounts that we believe is customary in our business. There can be no assurance, however, that such coverage will be sufficient to cover claims made against us, that adequate insurance coverage will continue to be available to us, or that insurance coverage will be available on favorable terms. Our insurance coverage includes occurrence-based medical professional liability insurance and, claims-made non-medical professional liability insurance, a property insurance policy, a general liability policy, and an umbrella insurance policy. We are a party to a number of legal actions arising in the ordinary course of business. In the opinion of management, we have adequate legal defense and/or insurance coverage respecting each of these actions and do not believe their ultimate disposition will materially affect our consolidated results of operations or financial position. In the past, some state agencies have claimed that we improperly classified our examiners as independent contractors for purposes of state unemployment tax laws and that we were therefore liable for arrears of taxes, or for penalties for failure to comply with these laws. We have received an adverse determination in California on an unemployment tax issue and are currently appealing that decision. Other similar state claims are also pending or have been resolved. We have prevailed in four of these states, and we have re- classified our independent contractors as employees in two states, These adverse determinations have not had a material adverse effect on our business. ITEM 2. Properties We own a five-building complex located at 170 Mt. Airy Road, Basking Ridge, New Jersey. Of approximately 53,000 total square feet of office space, we maintain our operations in approximately 43,500 square feet and the balance is leased or available for lease to several tenants. Management believes that this arrangement provides for our foreseeable expansion needs. We lease our field offices under a number of operating leases with varying terms and expirations. ITEM 3. Legal Proceedings Information contained in Note 8 to the Company's consolidated financial statements contained in the annual report to shareholders is incorporated herein by reference. - 9 - 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 2000 Annual Report to Shareholders which is Exhibit 13 to this report. As of February 16, 2001, there were 982 shareholders of record. ITEM 6. Selected Financial Data The financial data included under the caption "Selected Financial Data" is incorporated by reference from the Company's 2000 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", which is incorporated by reference to the Company's 2000 Annual Report to Shareholders which is Exhibit 13 to this report. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk None ITEM 8. Financial Statements and Supplementary Data Financial statements and supplementary data are included in the Company's 2000 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 22, 2001 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 - 10 - and Change-in-Control Arrangements" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 22, 2001 is incorporated herein by reference. ITEM 12. 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 22, 2001 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 22, 2001 is incorporated herein by reference. 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 2000 Annual Report to Shareholders. Independent Auditors' Report Consolidated Balance Sheets -- December 31, 2000 and 1999 Consolidated Statements of Income -- Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity -- Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 -- Notes to Consolidated Financial Statements (2) Schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (3) Exhibits included herein EXHIBIT PAGE 3.1 Restated Certificate of Incorporation of -- Hooper Holmes, Inc., as amended (1) 3.2 Certificate of Amendment of the Certificate of -- Incorporation of Hooper Holmes, Inc. (2) 3.3 Bylaws of Hooper Holmes, Inc., as amended (3) -- 4.1 Rights Agreement between Hooper Holmes. Inc. and First City Transfer Company - -------- (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 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (3) Incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. - 11 - 10.1 Amended Employee Retention Agreement by and between Hooper -- Holmes, Inc., and James M. McNamee (4) 10.2 Form of Indemnification Agreement (5) -- 10.3 Hooper Holmes, Inc. Nonqualified Stock Option Plan (6) -- 10.4 First Amendment to Hooper Ho1mes, Inc. Nonqualified Stock -- Option Plan (7) 10.5 Hooper Holmes, Inc. 1992 Stock Option Plan as amended (8) -- 10.6 Employee Stock Purchase Plan (1993) of Hooper Holmes, -- Inc., as amended (9) 10.7 Hooper Holmes, Inc. 1994 Stock Option Plan (10) -- 10.8 Amended and Restated Revolving Credit and Term Loan -- Agreement between Hooper Holmes, Inc. and First Union National Sank and Fleet Bank, N.A. (11) 10.9 CEO Stock Option Agreement (12) -- 10.10 1997 Stock Option Plan (13) -- 10.11 1997 Director Option Plan (14) -- 10.12 Employee Retention Agreement by and between Hooper Holmes, -- Inc. and Executive Officers of Hooper Holmes, Inc. (15) 10.13 1999 Stock Option Plan (16) -- 13 Annual Report to security holders 21 Subsidiaries of Hooper Holmes, Inc. (none) 23 Consent of KPMG LLP 24 Power of attorney 27 Financial Data Schedule - -------- (4) 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. (5) 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. (6) 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. (7) 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. (8) 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. (9) Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (10) 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. (11) Incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended September 30, 1999. (12) Incorporated by reference to Attachment to the Company's Proxy Statement for the Annual Meeting of Shareholders held on May 27, 1997. (13) Incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (14) Incorporated by reference to Exhibit 10.11 of Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (15) Incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (16) Incorporated by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Reports on Form S-K No report on Form 8-K was filed during the fourth quarter of 2000. - 12 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange, Act of 1934, the Registrant has duty caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, HOOPER HOLMES, INC. (Registrant) ---------------------------------------- By: James M. McNamee President & CEO Date: March 30, 2001 ----------------------------------- 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: /s/ James M. McNamee - ------------------------------------------------ Date: March 30, 2001 James M. McNamee Director ------------------- President & CEO - ------------------------------------------------ Date: March 30, 2001 *Benjamin A. Currier Director ------------------- - ------------------------------------------------ Date: March 30, 2001 *Quentin J. Kennedy Director ------------------- - ------------------------------------------------ Date: March 30, 2001 *Kenneth R. Rossano Director ------------------- - ------------------------------------------------ Date: March 30, 2001 *Elaine Rigolosi Director ------------------- - ------------------------------------------------ Date: March 30, 2001 *John E. Nolan Director ------------------- - ------------------------------------------------ Date: March 30, 2001 *G. Earle Wight Director ------------------- /s/ Fred Lash - ------------------------------------------------ Date: March 30, 2001 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 an asterisk appears, pursuant to the power of attorney duly executed by such person and filed as Exhibit 24 hereto with the Securities and Exchange Commission. ---------------------------------------- James M. McNamee EX-4.1 2 0002.txt RIGHTS AGREEMENT EXHIBIT 4.1 ________________________________________________________________________________ RIGHTS AGREEMENT Dated as of June 16, 2000 Between HOOPER HOLMES, INC. and FIRST CITY TRANSFER COMPANY as Rights Agent ________________________________________________________________________________ Table of Contents -----------------
Page Article I - Certain Definitions................................................................. 1 - --------- 1.1 Certain Definitions........................................................... 1 ------------------- Article II - The Rights......................................................................... 7 - ---------- ---------- 2.1 Summary of Rights............................................................. 7 ----------------- 2.2 Legend on Common Stock Certificates........................................... 7 ----------------------------------- 2.3 Initial Exercise Price; Exercise of Rights; Detachment of Rights.............. 8 ---------------------------------------------------------------- 2.4 Adjustments to Exercise Price; Number of Rights.............................. 10 ----------------------------------------------- 2.5 Date on Which Exercise is Effective.......................................... 14 ----------------------------------- 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates........ 14 --------------------------------------------------------------------- 2.7 Registration, Registration of Transfer and Exchange.......................... 15 --------------------------------------------------- 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates.................... 16 --------------------------------------------------------- 2.9 Persons Deemed Owners........................................................ 16 --------------------- 2.10 Delivery and Cancellation of Certificates.................................... 17 ----------------------------------------- 2.11 Agreement of Rights Holders.................................................. 17 --------------------------- Article III - Adjustments to the Rights in the Event of Certain Transactions................... 18 - ----------- -------------------------------------------------------------- 3.1 Flip-over.................................................................... 18 --------- 3.2 Flip-in...................................................................... 19 ------- 3.3 Obligations of the Company................................................... 20 -------------------------- Article IV - The Rights Agent.................................................................. 21 - ---------- ---------------- 4.1 General...................................................................... 21 ------- 4.2 Merger or Consolidation or Change of Name of Rights Agent.................... 22 --------------------------------------------------------- 4.3 Duties of Rights Agent....................................................... 23 ---------------------- 4.4 Change of Rights Agent....................................................... 25 ---------------------- Article V - Miscellaneous...................................................................... 26 - --------- ------------- 5.1 Redemption................................................................... 26 ---------- 5.2 Expiration................................................................... 26 ---------- 5.3 Issuance of New Rights Certificates.......................................... 27 ----------------------------------- 5.4 Supplements and Amendments................................................... 27 -------------------------- 5.5 Fractional Shares............................................................ 27 ----------------- 5.6 Rights of Action............................................................. 27 ---------------- 5.7 Holder of Rights Not Deemed a Stockholder.................................... 28 ----------------------------------------- 5.8 Notice of Proposed Actions................................................... 28 -------------------------- 5.9 Notices...................................................................... 28 ------- 5.10 Costs of Enforcement......................................................... 29 -------------------- 5.11 Suspension of Exercisability................................................. 29 ---------------------------- 5.12 Successors................................................................... 30 ---------- 5.13 Determination and Actions by the Board of Directors.......................... 30 --------------------------------------------------- 5.14 Benefits of this Agreement................................................... 30 -------------------------- 5.15 Descriptive Headings......................................................... 31 -------------------- 5.16 Governing Law................................................................ 31 ------------- 5.17 Counterparts................................................................. 31 ------------ 5.18 Severability................................................................. 31 ------------ Exhibit A Form of Rights Certificates (Together with Form of Election of Exercise) - ---------
i RIGHTS AGREEMENT ---------------- THIS RIGHTS AGREEMENT (this "Agreement"), dated as of May ___, 2000, between Hooper Holmes, Inc., a New York corporation (the "Company"), and First City Transfer Company, a New Jersey company, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent hereunder). WHEREAS, the Board of Directors of the Company desires to provide shareholders of the Company with the opportunity to benefit from the long-term prospects and value of the Company and to ensure that shareholders of the Company receive fair and equal treatment in the event of any proposed takeover of the Company; and WHEREAS, on May ___, 2000 the Board of Directors of the Company: (a) authorized and declared a dividend of one right ("Right") in respect of each share of Common Stock (as hereinafter defined) held of record as of the close of business on May ___, 2000 (the "Record Date"), and (b) authorized the issuance of one Right in respect of each share of Common Stock issued after the Record Date and prior to the close of business on the earlier of the Expiration Time or the Separation Date (as such terms are hereinafter defined); WHEREAS, each Right entitles the holder thereof, after the Separation Date, to purchase securities of the Company (or, in certain cases, of certain other entities) pursuant to the terms and subject to the conditions set forth herein; and WHEREAS, the Company desires to appoint the Rights Agent to act as rights agent hereunder, in accordance with the terms and conditions hereof. NOW THEREFORE, in consideration of the premises and respective agreements set forth herein, the parties hereby agree as follows: Article I - Certain Definitions --------- 1.1 Certain Definitions. ------------------- For purposes of this Agreement, the following terms have the meanings indicated: -1- (a) "Acquiring Person" shall mean any Person who is a Beneficial Owner of 20% or more of the outstanding shares of Common Stock (other than as a result of a Permitted Offer); provided, however, that the term "Acquiring -------- ------- Person" shall not include: (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or its Subsidiaries, and (iv) any entity holding Common Shares for or pursuant to the terms of any such plan; and provided further, that: (a) the term "Acquiring Person" shall not include any - -------- ------- Person who shall become the Beneficial Owner of 20% or more of the outstanding shares of Common Stock as a result of an acquisition by the Company of shares of Common Stock unless and until such time thereafter as such Person shall become the Beneficial Owner (other than by means of a stock dividend, stock split or further acquisition of Common Stock by the Company) of any additional shares of Common Stock, and (b) no Person shall be deemed to be an "Acquiring Person" if the Board of Directors of the Company determines that a Person who would otherwise be an "Acquiring Person" has become such without intending to become an "Acquiring Person," and such Person divests as promptly as practicable (or within such period of time as the Board of Directors determines is reasonable) a sufficient number of shares of Common Stock so that such Person would no longer be an "Acquiring Person," as defined herein. (b) "Affiliate", used to indicate a relationship with a specified Person, shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified Person. (c) "Associate" of a specified Person shall mean (i) any corporation, partnership or other organization of which such specified Person is an officer or partner, (ii) any trust or other estate in which such specified Person has a substantial beneficial interest or as to which such specified Person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such specified Person, or any relative of such spouse, who has the same home as such specified Person and (iv) any Person who is a director, officer, partner or trustee of such specified Person or of any corporation, partnership or other organization (other than the Company or any Subsidiary of the Company) which is an Affiliate or Associate of such specified Person. -2- (d) A Person shall be deemed the "Beneficial Owner", and to have "Beneficial Ownership" of, and to "Beneficially Own", any securities as to which such Person or any of such Person's Affiliates or Associates is or may be deemed to be the beneficial owner pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (or pursuant to any comparable or successor laws or regulations or, if such Rules shall be rescinded and there shall be no comparable or successor laws or regulations, pursuant to Rules 13d-3 and 13d-5 as in effect on the date of this Agreement), as well as any securities as to which such Person or any of such Person's Affiliates or Associates has the right to become Beneficial Owner (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, -------- however, that a Person shall not be deemed the "Beneficial Owner", or to have - ------- "Beneficial Ownership" of, or to "Beneficially Own", any security (i) solely because such security has been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered security is accepted for payment or exchange, (ii) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such security pursuant to a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Securities Exchange Act of 1934, except if such power (or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Securities Exchange Act of 1934 (or any similar provision of a comparable or successor report) or held (iii) for or pursuant to the terms of any employee stock ownership or other employee benefit plan of the Company or a wholly owned Subsidiary of the Company. For purposes of this Agreement, in determining the percentage of the outstanding shares of Common Stock with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding; and provided further, however, --- -------- ------- ------- that nothing in this Section 1.1(d) shall cause a person engaged in business as an underwriter of securities, to be the "Beneficial Owner" of, to have "Beneficial Ownership" of, or to "Beneficially Own," any securities acquired through such underwriter's participation in good faith in a firm commitment underwriting except with respect to securities so acquired and which such underwriter continues to own forty days after the date of such acquisition. -3- (e) "Business Day" shall mean any day other than Saturday, Sunday or a day on which banking institutions in the City of New York are generally authorized or obligated by law or executive order to close. (f) The "close of business" on any given date shall means 5:00 P.M., New York City time, on such date; provided, however, that if such date is -------- ------- not a Business Day, "close of business" on such date shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (g) "Common Stock" shall mean the shares of Common Stock, par value $.04 per share, of the Company; provided, however, that "Common Stock", -------- ------- when used with reference to any Person other than the Company, shall mean the capital stock (or similar equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately controls such first-mentioned Person. (h) "Exercise Price" shall mean, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $110.00. (i) "Expiration Time" shall mean the earlier of (i) the Redemption Time or (ii) the close of business on May ___, 2010. (j) A "Flip-in Event" shall mean occurrence of the Stock Acquisition Date (other than as a result of a Flip-over Transaction or Event and other than as a result of any Permitted Offer). (k) "Flip-over Transaction or Event" shall mean (A) a transaction in which, directly or indirectly, the Company shall consolidate with, or merge with or into, any other Person (other than a wholly owned Subsidiary of the Company), or any other Person (other than a wholly owned Subsidiary of the Company) shall consolidate with, or merge with or into, the Company, and, in connection therewith, all or part of the outstanding shares of Common Stock shall be changed in any way or converted into or exchanged for stock or other securities or cash or any other property, or (B) a transaction or series of transactions in which, directly or indirectly, the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall -4- sell or otherwise transfer) assets (i) aggregating more than 50% of the assets (measured by either book value or fair market value) or (ii) generating more than 50% of the operating income or cash flow, of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or one or more of its wholly owned Subsidiaries) or to two or more such Persons which are affiliated or otherwise acting in concert. (l) "Market Price" per share of any securities on any date shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, -------- however, that if an event of a type analogous to any of the events described in - ------- Section 2.4 hereof shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination, each such closing price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.4 hereof in order to make it fully comparable with the closing price on such date of determination. The closing price per share of any securities on any date shall be the last sale price, regular way, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for each share of such securities, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange or, if the securities are not listed or admitted to trading on the American Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if the securities are not listed or admitted to trading on any national securities exchange, the average of the high bid and low asked prices for each share of such securities in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected by the Board of Directors of the Company; provided, however, that if on any such date -------- ------- the securities are not listed or admitted for trading on a national securities exchange or traded in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of securities on such date as determined in good -5- faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm with respect to the fair value per share of such securities. (m) "Permitted Offer" shall mean a tender or exchange offer which is for all outstanding shares of Common Stock at a price and on terms determined, prior to the purchase of shares under such tender or exchange offer, by at least a majority of the members of the Board of Directors who are not officers of the Company and who are not Acquiring Persons or Affiliates, Associates, nominees or representatives of an Acquiring Person, to be adequate (taking into account all factors that such directors deem relevant including, without limitation, prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and otherwise in the best interests of the Company and its stockholders (other than any Person or any Affiliate or Associate thereof on whose basis the offer is being made) taking into account all factors that such directors may deem relevant. (n) "Person" shall mean any individual, firm, partnership, association, group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as in effect on the date of this Agreement), corporation or other entity. (o) "Redemption Price" shall mean an amount equal to [$.01]. (p) "Redemption Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 5.1(b) hereof. (q) "Separation Date" shall mean the earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth day (or such later date as may be fixed by the Board of Directors of the Company by notice to the Rights Agent and publicly announced by the Company prior to the close of business on the Separation Date) after the date of the commencement of a tender or exchange offer to acquire (when added to any shares as to which such Person is the Beneficial Owner immediately prior to such tender or exchange offer) Beneficial Ownership of 30% or more of the outstanding shares of Common Stock, other than a Permitted Offer, provided that, if the foregoing results in the Separation Date being prior to the Record Date, the Separation Date shall be the Record Date and provided further that, if any tender or exchange offer referred to in clause (ii) of this Section 1.1(q) is cancelled, terminated or otherwise withdrawn prior to the Separation Date, such offer shall be deemed, for purposes of this Section 1.1(q), never to have been made. -6- (r) "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (s) "Subsidiary" of any specified Person shall mean any corporation or other entity of which a majority of the voting power of the equity securities or a majority of the equity interest is Beneficially Owned, directly or indirectly, by such Person. (t) "Trading Day", when used with respect to any securities, shall mean a day on which the principal national securities exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any national securities exchange, a Business Day. Article II - The Rights ---------- ---------- 2.1 Summary of Rights. ----------------- As soon as practicable after the date hereof, the Company will mail a copy of a letter to stockholders summarizing the terms of the Rights to each holder of record of Common Stock as of close of business on such Record Date, at such holder's address as shown by the records of the Company. 2.2 Legend on Common Stock Certificates. ----------------------------------- Certificates for the Common Stock issued after the Record Date but prior to the close of business on the Separation Date shall evidence one Right for each share of Common Stock represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: Until the close of business on the Separation Date (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of May __, 2000, (the "Rights Agreement"), between Hooper Holmes, Inc. (the "Company") and First City Transfer Company, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged for shares of Common Stock, may expire, may become void (if they -7- are "Beneficially Owned" by "Acquiring Persons", as such terms are defined in the Rights Agreement, or certain transferees thereof) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor. Certificates representing shares of Common Stock that are issued and outstanding on the Record Date shall evidence one Right for each share of Common Stock evidenced thereby notwithstanding the absence of the foregoing legend. 2.3 Initial Exercise Price; Exercise of Rights; Detachment of Rights. ---------------------------------------------------------------- (a) Subject to adjustment as herein set forth, each Right will entitle the holder thereof, after the Separation Date, to purchase, for the Exercise Price, one share of Common Stock. (b) Until the close of business on the Separation Date, (i) no Right may be exercised and (ii) each Right will be evidenced by the certificate for the associated share of Common Stock and will be transferable only together with, and will be transferred by a transfer of, such associated share. Notwithstanding any other provision of this Agreement, any Rights held by the Company or any of its Subsidiaries shall be void. (c) After the Separation Date and prior to the Expiration Time, the Rights will be transferable independent of Common Stock. Promptly following the Separation Date the Rights Agent will mail to each holder of record of Common Stock as of the close of business on the Separation Date, at such holder's address as shown by the records of the Company (the Company hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (x) a certificate (a "Rights Certificate") in substantially the form of Exhibit A hereto appropriately completed, representing the number of Rights held by such holder at the close of business on the Separation Date and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or quotation system on which the Rights may from time -8- to time be listed or traded, or to conform to usage, and (y) a disclosure statement describing the Rights. (d) Rights may be exercised on any Business Day after the Separation Date and prior to the earlier of (i) the Expiration Time or (ii) the time at which the Rights are redeemed pursuant to Section 5.1 hereof, by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an Election to Exercise (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed, accompanied by payment in cash or by certified check or money order payable to the order of the Company, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Stock or depository receipts (or both) in a name other than that of the holder of the Rights being exercised. (e) Upon receipt of a Rights Certificate, with an Election to Exercise accompanied by payment as set forth in Section 2.3(d) above, the Rights Agent will thereupon promptly (i) (A) requisition from a transfer agent of the Common Stock certificates for the number of shares of Common Stock to be purchased (the Company hereby irrevocably authorizing its transfer agents to comply with all such requisitions) and (B) if the Company elects pursuant to Section 5.5 hereof not to issue certificates representing fractional shares of Common Stock, requisition from the depositary selected by the Company depositary receipts representing the fractional shares of Common Stock to be purchased and (ii) after receipt of such certificates or depositary receipts, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder. (f) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Company covenants and agrees that following the later of (i) the Separation Date and (ii) the termination of any period during which the exercisability of the -9- Rights are suspended, it will (i) cause to be reserved and kept available until the Expiration Time out of its authorized and unissued shares of capital stock or out of its authorized and issued shares held in its treasury, a number of shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Rights; (ii) take all such action as may be necessary to ensure that all shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable; (iii) take all such action as may be necessary to comply with any applicable requirements of the Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules and regulations thereunder, or any other applicable law, rule or regulation, in connection with the issuance of any shares upon exercise of Rights; (iv) use its best efforts to cause all shares issued upon exercise of Rights to be listed on a national securities exchange upon issuance; and (v) pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any shares issued upon the exercise of Rights, provided that the Company shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for shares in a name other than that of the holder of the Rights being transferred or exercised. 2.4 Adjustments to Exercise Price; Number of Rights. ----------------------------------------------- (a) In the event the Company shall at any time after the Record Date and prior to the Expiration Time (i) declare or pay a dividend on Common Stock payable in Common Stock (or other capital stock), (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its Common Stock (or other capital stock) in respect of, in lieu of or in exchange for existing Common Stock in a reclassification, merger or consolidation, the Exercise Price and the number of Rights outstanding, or, if the payment or effective date therefor shall occur after the close of business on the Separation Date, the securities purchasable upon exercise of Rights shall be adjusted in the manner set forth below. If the Exercise Price and number of Rights are to be adjusted, (x) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of shares of Common Stock (or other capital stock) (the "Expansion Factor") that a holder of one -10- share of Common Stock immediately prior to such dividend, subdivision, combination or issuance would hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be distributed among the shares of Common Stock with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect to such dividend, subdivision, combination or issuance, so that each such share of Common Stock (or other capital stock) will have exactly one Right associated with it. If the securities purchasable upon exercise of Rights are to be adjusted, the securities purchasable upon exercise of each Right after such adjustment will be the securities that a holder of the securities purchasable upon exercise of one Right immediately prior to such dividend, subdivision, combination or issuance would hold thereafter as a result thereof. If after the close of business on the Record Date and prior to the Expiration Time the Company shall issue any shares of capital stock other than Common Stock in a transaction of a type described in the first sentence of this Section 2.4(a), shares of such capital stock shall be treated herein as nearly equivalent to shares of Common Stock as may be practicable and appropriate under the circumstances and the Company and the Rights Agent agree to amend this Agreement in order to effect, and will not consolidate with, or merge with or into, any other Person unless such Person agrees to be bound by the terms of an amendment effecting, such treatment. In the event the Company shall at any time after the close of business on the Record Date and prior to the close of business on the Separation Date issue any shares of Common Stock otherwise than in a transaction referred to in the preceding paragraph, each such share of Common Stock so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such share. (b) In the event the Company shall at any time after the close of business on the Record Date and prior to the close of business on the Separation Date fix a record date for the making of a distribution to all holders of Common Stock of rights or warrants entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share of Common Stock (or, if a security convertible into Common Stock, having a conversion price (including the price required to be paid to purchase such convertible security) per share) less than the Market Price per share of Common Stock on such record date, the Exercise Price -11- shall be adjusted. The Exercise Price in effect after such record date will equal the Exercise Price in effect immediately prior to such record date multiplied by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered (including the price required to be paid to purchase such convertible securities)) would purchase at such Market Price and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the values of such consideration shall be as determined in good faith by the Board of Directors of the Company. For purposes of this Agreement, the granting of the right to purchase shares of Common Stock (whether from treasury shares or otherwise) pursuant to any dividend or interest reinvestment plan and/or any Common Stock purchase plan providing for the reinvestment of dividends or interest payable on securities of the Common and/or the investment of periodic optional payments and/or employee benefit or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants) shall not be deemed to constitute an issue of rights or warrants by the Company; provided, however, that, in the case of any dividend or interest -------- ------- reinvestment plan, the right to purchase shares of Common Stock is at a price per share of not less than 90 percent of the current market price per share (determined as provided in such plans) of the Common Stock. (c) In the event the Company shall at any time after the close of business on the Record Date and prior to the close of business on the Separation Date fix a record date for the making of a distribution to all holders of Common Stock of evidences of indebtedness or assets (other than a regular periodic cash dividend or a dividend paid in Common Stock) or rights or warrants (excluding those referred to in Section 2.4(b)), the Exercise Price shall be adjusted. The Exercise Price in effect after such record date will equal the Exercise Price in effect immediately prior to such record date less the fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, -12- evidences of indebtedness, rights or warrants so to be distributed applicable to the securities purchasable upon exercise of one Right. (d) Each adjustment made pursuant to this Section 2.4 shall be made as of (i) the record date for the applicable dividend or distribution, in the case of an adjustment made pursuant to subsection (b) or (c) above and (ii) the payment or effective date for the applicable dividend, subdivision, combination or issuance, in the case of an adjustment made pursuant to subsection (a) above. (e) In the event the Company shall at any time after the Record Date and prior to the Separation Date issue any shares of capital stock (other than Common Stock), or rights or warrants to subscribe for or purchase any such capital stock, or securities convertible into or exchangeable for any such capital stock, in a transaction referred to in clause (a)(i) or (a)(iv) above, if the Company determines that the adjustments contemplated by clauses (a), (b) and (c) above in connection with such transaction will not appropriately protect the interests of the holders of Rights, the Company may determine what other adjustments to the Exercise Price, number of Rights and/or securities purchasable upon exercise of Rights would be appropriate and, notwithstanding clauses (a), (b) and (c) above, such adjustments, rather than the adjustments contemplated by clauses (a), (b) and (c) above, shall be made. The Company and the Rights Agent shall amend this Agreement as appropriate to provide for such adjustments. (f) Each adjustment to the Exercise Price made pursuant to this Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.4, the Company shall (i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (ii) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of Rights. (g) Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the securities so purchasable which were expressed in the initial Rights Certificates issued hereunder. -13- 2.5 Date on Which Exercise is Effective. ----------------------------------- Each person in whose name any certificate for shares of Common Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, -------- ------- that if the date of such surrender and payment is a date upon which the Common Stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Stock transfer books of the Company are open. 2.6 Execution, Authentication, Delivery and Dating of Rights -------------------------------------------------------- (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. Promptly after the Company learns of the Separation Date, the Company will notify the Rights Agent of such Separation Date and will deliver Rights Certificates executed by the Company to the Rights Agent for countersignature, and the Rights Agent shall manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose until manually countersigned by the Rights Agent. (b) Each Rights Certificate shall be dated the date of countersignature thereof. -14- 2.7 Registration, Registration of Transfer and Exchange. -------------------------------------------------- (a) The Company will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Company will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Company and registering Rights and transfers of Rights as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times. After the Separation Date and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Section 2.7(c) below, the Company will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificate so surrendered. (b) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Company, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. (d) The Company shall not be required to register the transfer or exchange of any Rights after the Rights have been redeemed under Section 5.1 hereof. -15- 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. --------------------------------------------------------- (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Company shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Company and the Rights Agent prior to the Expiration Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, in the absence of notice, to the Company or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.9 Persons Deemed Owners. --------------------- Prior to due presentment of a Rights Certificate (or, prior to the close of business on the Separation Date, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name such Rights Certificate (or, prior to the close of business on the Separation Date, such Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless -16- the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the close of business on the Separation Date, the associated shares of Common Stock). 2.10 Delivery and Cancellation of Certificates. ----------------------------------------- All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificates shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.10, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Company. 2.11 Agreement of Rights Holders. --------------------------- Every holder of Rights by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of Rights that: (a) prior to the close of business on the Separation Date, each Right will be transferable only together with, and will be transferred by a transfer of, the associated share of Common Stock; (b) after the Separation Date, the Rights Certificates will be transferable only on the Rights Register as provided herein; (c) prior to due presentment of a Rights Certificate (or, prior to the close of business on the Separation Date, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the close of business on the Separation Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common -17- Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; (d) this Agreement may be supplemented or amended from time to time pursuant to Section 5.4, Section 2.4(e) or the last sentence of the first paragraph of Section 2.4(a) hereof; and (e) the Board of Directors shall have the exclusive power and authority to administer this Agreement and to exercise all the rights and powers set forth in Section 5.13 hereof including, without limitation, the exclusive power to interpret and to make determinations deemed necessary or advisable, and that all actions, calculations, interpretations and determinations of the Board of Directors shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and shall not subject the Board of Directors to any liabilities to the holder of the Rights. Article III - Adjustments to the Rights in the Event of Certain ----------- ------------------------------------------------- Transactions - ------------ 3.1 Flip-over. --------- (a) Subject to Section 3.3 hereof, in the event that prior to the Expiration Time the Company enters into, consummates or permits to occur any Flip-over Transaction or Event, the Company shall take such action as shall be necessary to ensure, and shall not enter into, consummate or permit to occur such Flip-over Transaction or Event until it shall have entered into a supplemental agreement with the Person engaging in such Flip-over Transaction or Event, for the benefit of the holders of the Rights, providing, that upon consummation of the Flip-over Transaction or Event (i) each Right shall thereafter constitute the right to purchase from such Person (the "Flip-over Entity"), upon exercise thereof in accordance with the terms hereof, that number of shares of Common Stock of such Flip-over Entity having an aggregate Market Price on the date of consummation or occurrence of such Flip-over Transaction or Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment to the Rights provided for in Section 2.4 in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.4 shall have occurred with respect to such Common Stock) and (ii) the issuer of such -18- shares of Common Stock shall thereafter be liable for, and shall assume, by virtue of such Flip-over Transaction or Event and such supplemental agreement, all the obligations and duties of the Company pursuant to this Agreement. The provisions of this Section 3.1 shall apply to successive Flip-over Transactions or Events. (b) Notwithstanding anything in this Agreement to the contrary, Section 3.1 shall not be applicable to a Flip-over Transaction or Event if (i) such transaction or event is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a Permitted Offer (or a wholly owned Subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such Permitted Offer, and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such Permitted Offer. Upon consummation of any such transaction contemplated by this Section 3.1(b), all Rights hereunder shall expire. 3.2 Flip-in. ------- (a) Subject to Section 3.3, in the event that prior to the Expiration Time a Flip-in Event shall occur, the Company shall take such action as shall be necessary to ensure and provide that, except as provided below, each Right shall, following the tenth day after the Flip-in Event, constitute the right to purchase from the Company, upon exercise thereof in accordance with the terms hereof, that number of shares of Common Stock of the Company having an aggregate Market Price on the date of the Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in section 2.4 in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.4 shall have occurred with respect to such Common Stock). (b) Notwithstanding the foregoing, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially owned on or after the Stock Acquisition Date by (i) an Acquiring Person or (ii) a transferee, direct or indirect, of an Acquiring Person in a transfer, whether or not for consideration, that the Board of Directors of the Company has determined is part of a plan, arrangement or scheme of an Acquiring Person (or any Affiliate or -19- Associate of an Acquiring Person) that has the purpose or effect of avoiding clause (i) of this Section 3.2(b), shall become void and any holder of such Rights (including transferees) shall thereafter have no right to exercise or transfer such Rights under any provision of this Agreement. (c) The Board of Directors of the Company may, at its option, at any time after a Flip-in Event and prior to the time that an Acquiring Person becomes the Beneficial Owner of more than 50% of the outstanding shares of Common Stock, elect to exchange all (but not less than all) the then outstanding Rights (which shall not include Rights that have become void pursuant to the provisions of Section 3.2(b)) for shares of Common Stock-at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio, as adjusted from time to time, being hereinafter referred to as the "Exchange Ratio"). Immediately upon the action of the Board of Directors of the Company electing to exchange the Rights and without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive a number of shares of Common Stock equal to the Exchange Ratio. Promptly after the action of the Board of Directors electing to exchange the Rights, the Company shall give notice thereof (specifying the steps to be taken to receive shares of Common Stock in exchange for Rights) to the Rights Agents and the holders of the then outstanding Rights by mailing such notice in accordance with Section 5.9. 3.3 Obligations of the Company. -------------------------- (a) The Company shall not enter into, consummate or permit to occur any Flip-over Transaction or Event if at the time thereof there are any rights, warrants or securities outstanding or any other arrangements, agreements or instruments which would eliminate or otherwise diminish in any respect the benefits intended to be afforded by this Rights Agreement to the holders of Rights upon consummation of such transaction. (b) In the event that there shall not be sufficient treasury shares or authorized but unissued shares of Common Stock of the Company to permit the exercise in full of the Rights in accordance with Section 3.2, the Company shall cause sufficient additional shares of Common Stock to be authorized (and shall call a stockholders' meeting to effect the -20- same) or, if the Company is unable to cause such additional shares to be authorized (whether-because the same is not approved at the stockholders' meeting referred to above or for any other reason) or the Company chooses not to do so, the Company shall take such action as shall be necessary to ensure and provide, as permitted by applicable law and any agreements or instruments in effect on the Stock Acquisition Date to which it is a party, that each Right shall thereafter constitute the right to receive, at the Company's option, either (i) in return for the Exercise Price, debt or equity securities or other assets (or a combination thereof) having a value equal to twice the Exercise Price, or (ii) without charge (except as otherwise required by applicable law), debt or equity securities or other assets (or a combination thereof) having a value equal to the Exercise Price, where in either case the value of such debt or equity securities shall be determined by a nationally recognized investment banking firm selected by the Board of Directors of the Company. (c) To the extent that the Company determines in good faith that some action need be taken pursuant to Section 3.3(b) or to comply with federal or state securities laws, the Company may suspend the exercisability of the Rights for a period of up to ninety (90) days following the date of the occurrence of the relevant Flip-in Event in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement stating that the exercisability of the Rights has been temporarily suspended. Article IV - The Rights Agent ---------------- 4.1 General. ------- (a) The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or -21- omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Common Stock, Rights Certificate, certificate for or other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. 4.2 Merger or Consolidation or Change of Name of Rights Agent. --------------------------------------------------------- (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been -22- countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3 Duties of Rights Agent. ---------------------- The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Common Stock or the Rights Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. -23- (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for Common Stock or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 3.2(b) hereof) or any adjustment required under the provisions of Section 2.4 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.4 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Rights or as to whether any shares of Common Stock will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President or the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer of the Company, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such person. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Stock, Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely -24- as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4 Change of Rights Agent. ---------------------- The Rights Agent may resign and be discharged from its duties under this Agreement upon 90 days' notice (or such lesser notice as is acceptable to the Company) in writing mailed to the Company and to each transfer agent of Common Stock by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. The Company may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Company), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or any state in the United States, in good standing, having its principal office in the State of New York or New Jersey, which is authorized under such laws to exercise the powers of the Rights Agent contemplated by this Agreement and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named -25- as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Article V - Miscellaneous --------- ------------- 5.1 Redemption. ---------- (a) The Board of Directors of the Company may, at its option, at any time on or prior to the tenth day after the Stock Acquisition Date, elect to redeem all (but not less than all) the then outstanding Rights at the Redemption Price. Notwithstanding anything to the contrary in this Agreement, the Rights shall not be exercisable after the first occurrence of a Flip-in Event until such time as the Company's right of redemption hereunder has expired. (b) Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights and without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive the Redemption Price. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Market Price, as defined in Section 1.1(l) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. Promptly after the action of the Board of Directors electing to redeem, and thereby redeeming, the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice in accordance with Section 5.9. 5.2 Expiration. ---------- No Person shall have any rights pursuant to this Agreement or any Right after the Expiration Time, except, if the Rights are redeemed, as provided in Section 5.1 hereof. -26- 5.3 Issuance of New Rights Certificates. ----------------------------------- Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares of stock purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. 5.4 Supplements and Amendments. -------------------------- The Company and the Rights Agent may from time to time supplement or amend this Agreement without the approval of any holders of Rights (i) in any respect on or prior to the tenth day after the Stock Acquisition Date, (ii) to make any changes following the tenth day after the Stock Acquisition Date which the Company and the Rights Agent may deem necessary or desirable and which shall not materially adversely affect the interests of the holders of Rights generally or (iii) at any time, including following the tenth day after the Stock Acquisition Date, in order to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with any other provisions herein or otherwise defective. 5.5 Fractional Shares. ----------------- If the Company elects not to issue certificates representing fractional shares of Common Stock upon exercise of Rights, the Company shall, in lieu thereof, evidence such fractional shares by depositary receipts issued pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of the depositary receipts shall have all of the rights, privileges and preferences to which they are entitled as Beneficial Owners of Common Stock. 5.6 Rights of Action. ---------------- Subject to the terms of this Agreement, rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in -27- respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.7 Holder of Rights Not Deemed a Stockholder. ----------------------------------------- No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Common Stock or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 5.8 hereof), or to receive dividends or subscription rights, or otherwise, until such Rights shall have been exercised in accordance with the provisions hereof. 5.8 Notice of Proposed Actions. -------------------------- In case the Company shall propose after the Separation Date and prior to the Expiration Time (i) to effect or permit (in cases where the Company's permission is required) any Flip-in Event or Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 5.9 hereof, a notice of such proposed action, which shall specify the date on which such Flip-in Event or Flip-over Transaction or Event, liquidation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed action. 5.9 Notices. ------- Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Company shall be sufficiently -28- given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Hooper Holmes, Inc. 170 Mt. Airy Road Basking Ridge, NJ 07920 Attention: Secretary Notices or demands authorized or required by this Agreement to be given or made by the Company or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: First City Transfer Company P.O. Box 170 Iselin, NJ 08830 Attention: Kathleen Zaleske Notices or demands authorized or required by this Agreement to be given or made by the Company or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 5.10 Costs of Enforcement. -------------------- The Company agrees that if the Company or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfill any of its obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce his rights pursuant to any Rights or this Agreement. 5.11 Suspension of Exercisability. ---------------------------- To the extent the Company determines in good faith that some action need be taken pursuant to Section 3.1(c) or 3.1(e) hereof or to comply with federal or state securities laws, the Company may suspend the exercisability of the Rights for a period of up to ninety (90) -29- days following the date of the occurrence of the Separation Date or Flip-in Event in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement stating that the exercisability of the Rights has been temporarily suspended and shall simultaneously so notify the Rights Agent. 5.12 Successors. ---------- All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 5.13 Determination and Actions by the Board of Directors. --------------------------------------------------- For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors to any liability to the holders of the Rights. 5.14 Benefits of this Agreement. -------------------------- Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or -30- claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of the Rights. 5.15 Descriptive Headings. -------------------- Descriptive headings appear herein for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 5.16 Governing Law. ------------- This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. 5.17 Counterparts. ------------ This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.18 Severability. ------------ If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. -31- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HOOPER HOLMES, INC. By ________________________________ James M. McNamee President & CEO FIRST CITY TRANSFER COMPANY By ________________________________ Kathleen Zaleske Assistant Vice President -32- EXHIBIT A --------- [Form of Rights Certificate] Certificate No.W- ______________ Rights THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR CERTAIN TRANSFEREES THEREOF MAY BECOME VOID. Rights Certificate HOOPER HOLMES, INC. This certifies that , or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of May ___, 2000 (the "Rights Agreement"), between Hooper Holmes, Inc., a New York corporation (the "Company"), and First City Transfer Company, a New Jersey company, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent under the Rights Agreement), to purchase from the Company at any time after the Separation Date (as such term is defined in the Rights Agreement) and prior to the close of business on ___________, one fully paid share of Common Stock, par value $.04 (the "Common Stock"), of the Company (subject to adjustment as provided in the Rights Agreement) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise duly executed at the principal office of the Rights Agent in the State of New York or New Jersey. The Exercise Price shall initially be $110.00 per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, the Rights evidenced hereby may entitle the registered holder thereof to purchase capital stock of an entity other than the Company or shares of capital stock of the Company other than Common Stock, all as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal office of the Company and are available upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be (a) redeemed by the Company under certain circumstances at its option at a redemption price of [$.01] per Right or (b) exchanged by the Company under certain circumstances at its option for one share of Common Stock per Right, subject in each case to adjustment in certain events as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Stock or of any other securities which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Date:_______________________ ATTEST:_____________________ HOOPER HOLMES, INC. ____________________________ By ___________________ Secretary Countersigned: FIRST CITY TRANSFER COMPANY By__________________________ -35- [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights certificates.) FOR VALUE RECEIVED ________________________________________ hereby sells, assigns and transfers unto ______________________________________________ (Please print name) ________________________________________________________________________________ and address of transferee this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated:___________________ Signature Guaranteed: _______________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. -36- - -------------------------------------------------------------------------------- (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common Stock, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ______________________________ Signature [To be attached to each Rights Certificate] FORM OF ELECTION TO EXERCISE (To be executed if holder desires to exercise the Rights Certificate.) TO: HOOPER HOLMES, INC. The undersigned hereby irrevocably elects to exercise ____________________ whole Rights represented by the attached Rights Certificate to purchase the shares of Common Stock issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: ____________________________________________ Address:. -------------------------------------------- Social Security or Other Taxpayer Identification Number: -------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: ____________________________________________ Address:. -------------------------------------------- Social Security or Other Taxpayer Identification Number: -------------------------------------------- Date: __________________ Signature Guaranteed: __________________________________ Signature (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) -38- EX-13 3 0003.txt ANNUAL REPORT TO SECURITY HOLDERS [PICTURE] 2000 Annual Report - -------------------------------------------------------------------------------- Hooper Holmes, Inc. [LOGO OF HOOPER HOLMES] Our Mission: "To be recognized as the premier provider of health information services to businesses within the industries we compete. In that regard we will continue to provide unparalleled efficiencies to our customers, while creating superior value for our shareholders and establishing an exceptional workplace for our employees." Contents Financial Highlights 1 Letter to Shareholders 2 Operations Review 5 Hooper Holmes at a Glance 12 Management's Discussion and Analysis 13 Consolidated Financial Statements 16 Notes to Consolidated Financial Statements 20 Independent Auditors' Report 29 10 Year Selected Financial Data 30 Directors and Officers 32 Investor Information 33 Quarterly Information 34 Glossary 35 - -------------------------------------------------------------------------------- Financial Highlights
Years ended December 31, -------------------------------------- (dollars in thousands, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------- Revenues $ 274,974 $ 237,068 $ 185,210 Operating income 32,633 36,535 25,592 Income from continuing operations 20,964 20,793 14,185 Loss from discontinued operations -- -- (1,485) Net income 20,964 20,793 12,700 Earnings per share-- basic Continuing operations .32 .36 .25 Discontinued operations -- -- (.03) Net income .32 .36 .22 Earnings per share-- diluted Continuing operations .31 .34 .24 Discontinued operations -- -- (.03) Net income $ .31 $ .34 $ 21 Weighted average number of shares-- basic 64,830,697 57,560,564 56,241,370 Weighted average number of shares--diluted 68,377,742 61,533,558 59,719,420 Return on stockholders' equity 14.9% 27.4% 22.9% Dividend payout rate 9.2% 6.9% 6.9% Cash dividends paid $ 1,925 $ 1,438 $ 985 Cash dividend per share .03 .02 .02 Net cash provided by operating activities 33,442 30,904 21,609 Cash flow earnings per diluted share .43 .43 .30 Working capital 93,305 56,076 33,476 EBITDA 42,169 42,102 30,209 Book value per share 2.79 1.46 1.04 Closing stock price per common share $ 11.06 $ 12.88 $ 7.25 Current ratio 7.2:1 3.1:1 2.7:1 Quick ratio 6.9:1 2.9:1 2.4:1 ======================================================================================
Per share and share amounts have been adjusted to reflect two for one stock splits effective January 8, 1999 and April 12, 2000. [GRAPH] [GRAPH] [GRAPH] 1996 156.3 1996 8.6 1996 .08 1997 165.4 1997 16.3 1997 .15 1998 185.2 1998 25.6 1998 .24 1999 237.1 1999 36.5 1999 .34 2000 275.0 2000 32.6 2000 .31 - ---------------------------------------------------------------------- Revenues Operating Income Earnings Per Share - Dollars in millions Dollars in millions Diluted Dollars All graphs presented herein are continuing operations. 2000 Annual Report 1 1996 14.0 1997 21.8 1998 30.2 1999 42.1 2000 42.2 - ------------------- EBITDA Dollars in millions To Our Shareholders - ------------------- [PHOTO] Hooper Holmes is built on solid ground. In 2000, our strong foundation allowed us to successfully introduce a revolutionary new service, complete a follow-on stock offering, acquire related businesses, form valuable new relationships to expand our longer-term growth prospects, and realize record top-line financial results. For 2000, revenues were a record $275.0 million, a 16 percent increase from $237.1 million in 1999. Net income was a record $21.0 million, or $0.31 per diluted share, compared with net income of $20.8 million, or $0.34 per diluted share for 1999. We also generated record cash from operations of $33.4 million for 2000, versus $30.9 million for the prior year. While our top line grew in 2000, our bottom line was not as strong as we had hoped - due to regulatory changes in the life insurance industry, which caused some core business softness in the second half of the year. The impact of this aberration was felt industrywide. For Hooper Holmes, it resulted in bottom-line figures that do not reflect the overall financial strength and excellent growth prospects for our Company. "Triple X," a life insurance regulatory event in certain states that spurred consumers to buy certain policies before rates increased or premium structures changed, created a boom/bust business cycle for the life insurance industry in 2000. Because Triple X generated such heavy demand for our services during late 1999 and the first quarter of 2000, it slowed our efforts to eliminate the operating redundancies resulting from the November 1999 acquisition of Paramedical Services of America (PSA) and delayed our ability to fully realize the ensuing operating efficiencies. Importantly, the effects of Triple X are now largely behind us, and our Company is back on track. Positive indications for long-term trends in the life insurance industry and Hooper Holmes' access to a larger demographic portion of an aging population fare well for our long-term growth prospects. In fact, we repurchased 1.8 million shares of our stock over the course of last year because of our belief in the value and financial strength of our Company. While the challenges we experienced during 2000 did temporarily slow our pace, they certainly didn't stop us from moving ahead. In fact, we managed to accomplish quite a lot last year in a number of different areas. In February of 2000, we successfully completed an equity offering of 7.4 million shares of common stock. This enabled us to improve our balance sheet by paying down the vast majority of debt we incurred acquiring PSA. In addition, we bolstered our cash by $4.3 million last year, finishing the year with $45.7 million in cash and cash equivalents, and increased our total liquid assets from $41 million to $75 million. We are very pleased that we were able to start 2001 with such an excellent balance sheet and the liquidity to expand our growth both organically and through acquisitions. Our introduction of Portamedic Select(TM), the insurance industry's most comprehensive and efficient case-management process, was truly a milestone event for our Company last year. This innovative new service fulfills all of the requirements needed to properly underwrite Individual or Group life- and disability-insurance applications and speeds the delivery of those requirements by as much as 70 percent, compared with conventional methods. In addition, Portamedic Select(TM) offers electronic case management to track insurance applications from point-of-sale through the entire underwriting process. Consistent with our mission of helping our customers increase their efficiency, reduce cycle time and boost profitability, Portamedic Select(TM) is the latest on a long list of examples of why Hooper Holmes is the indisputable leader in its industry. 2 Hooper Holmes, Inc. To complement the benefits of Portamedic Select(TM), we recently entered into an equity-investment and marketing agreement with e-Nable.com Corporation, a service that increases front-end efficiency. This partnership will allow customers to order and receive all the information requirements for life insurance underwriting from their existing vendors over a single, Internet-based network. By providing a full-spectrum insurance underwriting solution, e- Nable.com and Hooper Holmes can significantly cut the length of the underwriting process, increase insurers' revenues and decrease consumers' acquisition costs. It also strategically positions our Company as a gateway to the insurance industry for all vendors who use the service and gives us access to the "non- medically underwritten" segment of the life insurance business, which accounts for some 50 percent of all life insurance sales. Another way in which Hooper Holmes is leveraging its core competencies and infrastructure to participate in emerging-growth industries is through a joint agreement with DNA Sciences, Inc. During 2000, our Company agreed to provide nationwide phlebotomy and informed-consent services for The DNA Sciences Gene Trust Project(SM), one of the first, large-scale consumer-focused research initiatives to invite volunteers via the Internet to participate in genetic research. We believe that the work of the Gene Trust accelerates the identification of genetic variations that cause disease and can speed the development of new diagnostic programs and therapies. In addition, by providing services to the Gene Trust, Hooper Holmes is able to increase its volume, without diverting attention from its core business. In line with our ongoing strategy, during 2000, we acquired California-based Exam Services, Inc., greatly increasing our presence in California, where there is a large market for insurance. This acquisition was accretive to our earnings. Throughout 2001, Hooper Holmes will continue to pursue strategic acquisitions that further extend the quality, depth and breadth of its services. Hooper Holmes' long-term focus remains sharp and our outlook very optimistic. [GRAPH] 1996 16.3 1997 16.6 1998 21.6 1999 30.9 2000 33.4 - -------------------- Net Cash Provided by Operating Activities Dollars in millions Hooper Holmes' long-term focus remains sharp and our outlook very optimistic. With alternate distribution channels (ADCs) joining traditional sales methods, a reduced number of approved health-information service providers and favorable insurance-applicant trends, we see many opportunities for Hooper Holmes to further expand its core business as well as offer ancillary services. We would like to express our deeply felt gratitude to our employees for a job well done during an especially demanding year. We also thank our customers and shareholders, whose best interests remain our priority as we work to maximize the value of our Company. /s/ James M. McNamee James M. McNamee Chairman, President and Chief Executive Officer 2000 Annual Report 3 [PICTURE] With Portamedic Select(TM), we believe we have demonstrated, once again, why we are number one. 4 Hooper Holmes, Inc. Operations Review ---------------------------------------- Introducing Portamedic Select(TM) Super-charged Services That Rev Up the Insurance Process The introduction of Portamedic Select(TM), an innovative process for gathering and managing underwriting information, was one of the most exciting accomplishments for Hooper Holmes during 2000. Because we are so committed to maintaining our leadership position in the industry, we focus on offering services that provide incomparable advantages and tangible results to our customers. With Portamedic Select(TM), we believe that we have demonstrated, once again, why we are number one. Portamedic Select(TM) is a comprehensive case-management process for gathering the information needed to initiate the underwriting process for life and disability insurance. The many benefits of this new service bring us even closer to our goal of making Portamedic the one-stop underwriting service source. We believe that Portamedic Select(TM) can cut five to ten days from the application-to-policy issuance time, which means that it's as much as 70 percent faster than conventional methods. And because reduced cycle time may improve placement ratios, we consider this new process not merely a convenience for life and disability insurers, but a valuable competitive edge. Portamedic Select(TM) offers any or all of the following services to insurers: . Teledex telephone interview and examination-appointment scheduling . Electronic data transmission of exam documents, required forms and work orders (based on individual insurance company's underwriting criteria) from Teledex to one of our 300 local Portamedic locations and Heritage Labs . Review of physical examination of applicant and document signatures . Electronic transmission of lab-testing results to customers' home office . Automatic fulfillment of additional pre-specified underwriting information requirements (Inspection Reports, Motor Vehicle Reports (MVRs), Attending Physician Statements (APSs), MIB history and additional reflex lab testing) This product addresses virtually every efficiency issue for obtaining and managing underwriting information. The Portamedic Select(TM) staff can review and categorize cases using the specified guidelines of each insurer before [GRAPH] 1996 4.1 1997 9.8 1998 14.2 1999 20.8 2000 21.0 - -------------------- Net Income Dollars in millions 2000 Annual Report 5 [PICTURE] Because Hooper Holmes has such a strong technological advantage in the industry, we are able to create new standards for service, speed, efficiency and price. 6 Hooper Holmes, Inc. Operations Review ------------------------------------ delivering the information to that insurer's underwriting department. As a result, as many as nine out of ten cases, in our opinion, can then be immediately directed to junior underwriters or knowledge-based underwriting systems - a far more efficient use of both human and systems resources than traditional methods. In addition, all involved parties are able to track the status of each phase of the process through Portamedic Select's secure Internet server. By enabling insurers to issue policies faster and more efficiently, Hooper Holmes is helping its customers maximize profits and cut down on policy rejection due to "buyer remorse." Moreover, it is another way in which we are using our technological expertise to enhance the benefits of our services and meet the growing needs of our customers in an increasingly competitive environment. Wired for Success Mention the word "technology" today, and many people instantly think "Internet." For Hooper Holmes, however, technology means so much more: It means over a century of building this Company by adhering to the principle that technological progress fosters growth. Of course, the advent of the Internet has created many new technological opportunities for us, but it is only one aspect of our technological leadership in the industry. Overall, technology is crucial to all three core components of our business: Portamedic, Infolink and Heritage Labs. For Portamedic, we have used technology to create innovative new services like Portamedic Select(TM); to seamlessly link our network of 300 locations; and to develop a Web site that allows insurers to conveniently place and monitor orders, schedule medical exams and communicate client information quickly and securely. Internet ordering on the Portamedic Web site accounted for 6.5 percent of all orders in 2000, up from 2.7 percent in 1999. This reflects both the overall success of our online presence and our leadership position in serving the growing market of alternate distribution channels (ADCs). Infolink electronically sends customers their applicants' employment information, physical and medical histories and attending physician statements (APSs). Teledex, our telephone interview call center, complements Infolink by supplying the pertinent details of a phone interview with the applicant in addition to the above [GRAPH] 1996 61.3 1997 65.9 1998 85.0 1999 184.5 2000 211.0 - -------------- Total Assets Dollars in millions 2000 Annual Report 7 [PICTURE] Hooper Holmes will continue to seek strategic opportunities that will enable us to remain in the forefront of the industry, both technology and operationally. 8 Hooper Holmes, Inc. Operations Review ---------------------------------------- information. Heritage Labs electronically processes blood, urine and oral-fluid specimen samples collected during the Portamedic exam and electronically transmits the results to the insurance companies. Because Hooper Holmes has such a strong technological advantage in the industry, we are able to create new standards for service, speed, efficiency and price. We are also able to leverage our technological expertise and infrastructure to acquire or meaningfully participate in new technologies and successfully branch out into related lines of business. This strategy keeps us competitively strong and able to provide the best and most innovative services to our customers. In line with this business incubation strategy, our Healthdex Services Group reached a joint agreement with DNA Sciences, Inc. in 2000 to provide nationwide phlebotomy and informed-consent services. Our Company sees substantial medical potential for genetic research over the long term and believes that both individuals and insurers could benefit from this developing field. Most recently, we leveraged our technological strength to reach an exclusive marketing agreement with e-Nable.com, a leader in e-commerce solutions for life insurance underwriting. Together, Hooper Holmes and e-Nable.com are able to offer full-spectrum services for supplying underwriting requirements to life insurance carriers. This significantly reduces cycle time in the underwriting process and provides us with a point of entry to the "non-medically underwritten" segment of the life insurance business, which is estimated to be nearly half of total life insurance sales. We believe so strongly in the potential for this agreement to improve the underwriting process and decrease costs that we recently became a minority shareholder in e-Nable.com. Hooper Holmes will continue to seek strategic opportunities that will enable us to remain in the forefront of the industry, both technologically and operationally. [GRAPH] 1996 11.8 1997 20.4 1998 33.5 1999 56.1 2000 93.3 - -------------------- Working Capital Dollars in millions 2000 Annual Report 9 [PICTURE] Our multi-faceted approach includes initiatives for organic growth, expansion by acquisition and the formation of strategic relationships to capitalize on promising new technologies. 10 Hooper Holmes, Inc. Operations Review ------------------------------------ A Clear Strategy for Growth When it comes to growing our Company, Hooper Holmes meets the challenge from all angles. Our multi-faceted approach includes initiatives for organic growth, expansion by acquisition and the formation of strategic relationships to capitalize on promising new technologies. Our organic growth is facilitated by the fast, convenient, high-quality results of our thoughtfully developed services as well as the competence and professionalism of our people. Moreover, a linked network of 300 locations and more than 8,500 examiners make it possible for us to schedule a medical examination within 24 hours anywhere in the country. This extensive national coverage, coupled with our dynamic technologies, enable us to provide the quick turnaround and competitive pricing underwriters require to operate efficiently and profitably. Because we are so responsive to the needs of insurance carriers and sellers, we serve virtually all of the top 100 life and health insurers in the US - and with some, we even have an exclusive relationship. Our acquisition strategy is structured and disciplined to ensure that only the most appropriate candidates are brought into the Hooper Holmes fold. These companies must offer complementary field services, proprietary services or technologies that can enhance our existing operations. In addition, the acquisition must be accretive to our earnings in the immediate or short-term future, and we must be able to quickly integrate it into our Company to realize attractive cost benefits. Past acquisitions, such as Heritage Labs and Paramedical Services of America (PSA), have expanded Hooper Holmes' ability to serve its customers and, we believe, also increased the long-term growth prospects of our Company. Our most recent acquisition - Exam Services, Inc. - expanded our presence in California, a key growth market in the life and health insurance industry. Exam Services provided a broad range of health information services through a network of eight branches and generated annualized sales of approximately $8 million. And with the integration of this company on track, we believe we are realizing substantial operating efficiencies. Acquisitions will continue to be a component of Hooper Holmes' growth strategy. We will remain focused on companies that offer us bottom-line benefits and expand the quality, depth and breadth of our services. [GRAPH] 1996 37.7 1997 48.5 1998 62.3 1999 89.7 2000 191.1 - -------------------- Stockholders' Equity Dollars in millions 2000 Annual Report 11 Hooper Holmes at a Glance - ------------------------- Our Company Hooper Holmes, Inc., is the nation's leading provider of health information services. Through Company-owned branch locations in all fifty states, the Company's network of experienced medical professionals conduct physical examinations, testing and personal health interviews, primarily for the life and health insurance industry. Services Hooper Holmes offers a wide range of health information services for gathering and managing insurance underwriting requirements. Customers Hooper Holmes serves virtually all of the top 100 life and health insurers in the United States. 2000 Highlights Financial: . Record revenues of $275 million . Record net income of $21.0 million . Record cash from operations of $33.4 million Operational: . Introduction of Portamedic Select(TM) . Follow-on stock offering . Full completion of PSA acquisition . Acquisition of Exam Services . Marketing Agreement with e-Nable.com . Joint Agreement with DNA Sciences, Inc. Outlook With alternate distribution channels (ADCs) joining traditional sales methods, a reduced number of approved health-information service providers and favorable insurance-applicant trends, we see many opportunities for Hooper Holmes to further expand its core business as well as offer ancillary services. 12 Hooper Holmes, Inc, Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Management's Discussion and Analysis Results of Operations 2000 Compared to 1999 Total revenues for 2000 increased 16% to $275.0 million from $237.1 million for 1999. This growth resulted from a 17% increase in the number of paramedical examinations performed to 3,414,000 from 2,917,000, principally from the acquisition of Paramedical Services of America, Inc. (PSA) on November 1, 1999 (see Note 3 of the consolidated financial statements), an increase in services performed per examination, an increase in the number of Infolink reports to 420,000 from 350,000, and a modest price increase. "Triple X," a life insurance regulatory event in certain states, created a rush by consumers to buy life insurance policies in late 1999 and early 2000. This event significantly increased volume in the first quarter of 2000. The increase in Infolink reports resulted from management reemphasizing branch generation of Infolink reports, and a major client changing ordering requirements. The Company's cost of operations in 2000 totaled $197.3 million compared to $164.0 million for 1999. Cost of operations as a percentage of revenues totaled 71.8% for 2000 versus 69.2% for 1999. As a percentage of revenues, this increase is primarily due to higher costs as a result of the PSA acquisition, and higher branch operating expenses incurred in early 2000 to meet the increased volume associated with the "Triple X" phenomenon. Selling, general and administrative (SG&A) expenses were $45.0 million for 2000 compared to $36.6 million for 1999. As a percentage of revenues, SG&A expenses increased to 16.4% for 2000 from 15.4% for 1999. This increase is attributable to certain expenses associated with the acquisition of PSA, largely amortization of goodwill and intangibles, and the additional corporate resources needed to handle the increased business associated with the PSA acquisition. Accordingly, the Company's operating income for 2000 decreased to $32.6 million versus $36.5 million for 1999, and as a percentage of revenues, decreased to 11.9% for 2000 compared to 15.4% for 1999. Interest income in 2000 consisted primarily of interest earned on invested funds, the average balance of which was $81.7 million in 2000 compared to $35.1 million for 1999, and interest expense increased in 2000 to $1.3 million, as a result of borrowings against the Company's term loan, used to finance the acquisition of PSA. Other income, net in 2000, includes a one time pre-tax gain realized from the sale of securities owned by the Company of $.4 million. The effective tax rate was 42% and 44% for 2000 and 1999, respectively. The decrease is the result of increased profitability which lessened the impact of non-tax deductible amortization of goodwill from a 1995 acquisition, and interest earned on tax exempt investments. As a result of the foregoing, net income from continuing operations in 2000 totaled $21.0 million or $0.31 per diluted share compared to $20.8 million or $0.34 for 1999. Inflation did not have a significant effect on the Company's operations in 2000. 1999 Compared to 1998 Total revenues for 1999 increased 28% to $237.1 million from $185.2 million for 1998. This growth resulted from a 16% increase in the number of paramedical examinations performed to 2,917,000 from 2,515,000, the acquisition of Paramedical Services of America, Inc. (PSA) on November 1, 1999 (see Note 3 of the consolidated financial statements), an increase in services performed per examination, an increase in the number of Infolink 13 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- reports to 350,000 from 303,000, and a modest price increase. The increase in Infolink reports resulted from management reemphasizing branch generation of Infolink reports. The Company's cost of operations in 1999 totaled $164.0 million compared to $129.3 million for 1998. Cost of operations as a percentage of revenues totaled 69.2% for 1999 versus 69.8% for 1998. As a percentage of revenues, the decrease is due to ongoing efforts to control branch operating expenses, despite increased revenue growth and slightly lower direct production costs. Selling, general and administrative (SG&A) expenses were $36.6 million for 1999 compared to $30.4 million for 1998. As a percentage of revenues, SG&A expenses decreased to 15.4% for 1999 from 16.4% for 1998, which is due to management's continued efforts to control corporate expenses. Accordingly, the Company's operating income for 1999 increased to $36.5 million versus $25.6 million for 1998, and as a percentage of revenues, increased to 15.4% for 1999 compared to 13.8% for 1998. Other income items in 1999 were primarily interest earned on invested funds, the average balance of which was $35.1 million in 1999 over $22.7 million for 1998, and interest expense increased in 1999 to $.9 million, as a result of borrowings against the Company's term loan, used to finance the acquisition of PSA. The effective tax rate was 44% and 46% for 1999 and 1998, respectively. The decrease is the result of increased profitability which lessened the impact of non-tax deductible amortization of goodwill from a 1995 acquisition. As a result of the foregoing, net income from continuing operations in 1999 totaled $20.8 million or $0.34 per diluted share compared to $14.2 million or $0.24 for 1998. Inflation did not have a significant effect on the Company's operations in 1999. Liquidity and Financial Resources The Company's primary sources of cash are internally generated funds and the Company's senior credit facility. On May 30, 2000, the Board of Directors authorized the repurchase of 2,500,000 million shares of the Company's common stock during 2000 for an aggregate purchase price not to exceed $25 million. For the year ended December 31, 2000, the Company purchased 1,785,000 shares at a total cost of $17.1 million. On February 29, 2000, the Company successfully completed a 7,350,000 share offering of common stock, at an offering price of $12.563 per share which provided net proceeds of approximately $87 million to the Company. On October 29, 1999, the Company replaced its previous revolving loan facility and entered into a senior credit facility with three banks that included a $65 million, six-year term loan, and a $35 million dollar, three-year revolving loan. The loans bear interest at either the prime rate minus 1/2% to plus 1/4% or LIBOR plus 3/4% to 1 3/4%, depending on our consolidated funded debt, as defined, to our earnings before interest, taxes, depreciation and amortization or "EBITDA" ratio. As of December 31, 2000, interest was payable at an effective interest rate of 7.37% per annum. No principal payments are due on the term loan for the first eighteen months. In conjunction with the acquisition of PSA in November 1999, the Company borrowed the entire amount of the term loan. Shortly after the February 29, 2000 secondary stock offering, the Company repaid $50 million against the term loan, and in June 2000, repaid an additional $12 million. As of December 31, 2000, the Company has outstanding borrowings against the term loan in the amount of $3 million. There are no borrowings against the revolving loan. For the year ended December 31, 2000, the net cash provided by operating activities was $33.4 million as compared to $30.9 million in 1999. The significant sources were net income of $21.0 million, $9.0 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- million of depreciation and amortization, an $8.3 million decrease in accounts receivable which was offset by a decrease in accounts payable and accrued expenses of $4.1 million. The decrease in accounts receivable was due to successful collections of the acquired PSA accounts receivable, strong accounts receivable collections in December 2000, and lower revenues for the fourth quarter 2000 compared to prior quarters of 2000. Days sales outstanding was 38.5 days at December 31, 2000, compared to 54.5 days at December 31, 1999. Our current ratio as of December 2000 was 7.2 to 1, compared to 3.1 to 1 at December 31, 1999. Also, inflation has not had, nor is it expected to have, a material impact on our consolidated financial results, and we currently have no material commitments for capital expenditures. Quarterly dividends paid in 2000 were $.0075 per share. Management believes that the combination of current cash and cash equivalents, other working capital sources, and available borrowings under our senior credit facility, along with anticipated cash flows from continuing operations, will provide sufficient capital resources to satisfy both our short-term and foreseeable long-term needs. Safe Harbor Statement under the Private Securities Litigation Act Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters beginning after June 30, 2000. The adoption by FASB of the SFAS's did not have an impact on the Company's consolidated financial statements. 15 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheets
December 31, --------------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 45,680,471 $ 41,363,019 Marketable securities 29,188,309 0 Accounts receivable 28,870,624 36,836,412 Other current assets 4,539,330 5,233,884 - ------------------------------------------------------------------------------------------------------ Total current assets 108,278,734 83,433,315 - ------------------------------------------------------------------------------------------------------ Property, plant and equipment 27,382,480 26,465,947 Less: Accumulated depreciation and amortization 18,058,073 16,075,132 - ------------------------------------------------------------------------------------------------------ 9,324,407 10,390,815 - ------------------------------------------------------------------------------------------------------ Goodwill (net of accumulated amortization of $8,726,370 in 2000 and $5,483,514 in 1999) 78,815,845 73,276,965 - ------------------------------------------------------------------------------------------------------ Intangible assets (net of accumulated amortization of $10,931,382 in 2000 and $7,658,860 in 1999) 13,865,768 16,523,290 - ------------------------------------------------------------------------------------------------------ Other assets 751,128 846,943 - ------------------------------------------------------------------------------------------------------ $211,035,882 $184,471,328 - ------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current liabilities: Current maturities of long-term debt $ 196,836 $ 142,953 Accounts payable 7,402,862 11,543,665 Accrued expenses: Insurance benefits 291,408 1,559,552 Salaries, wages and fees 2,585,457 3,209,031 Payroll and other taxes 232,348 357,029 Income taxes payable 902,721 5,033,946 Discontinued operations 286,594 293,736 Other 3,075,431 5,217,684 - ------------------------------------------------------------------------------------------------------ Total current liabilities 14,973,657 27,357,596 - ------------------------------------------------------------------------------------------------------ Long-term debt, less current maturities 3,195,295 65,307,047 Deferred income taxes 1,708,954 1,911,027 Minority interest 81,355 203,962 - ------------------------------------------------------------------------------------------------------ Commitments and contingencies - ------------------------------------------------------------------------------------------------------ Stockholders' equity: Common stock, par value $.04 per share; authorized 240,000,000 shares, issued 67,454,174 in 2000 and 58,391,052 in 1999 2,698,167 2,335,642 Additional paid-in capital 135,419,195 36,357,092 Retained earnings 71,009,995 51,971,602 - ------------------------------------------------------------------------------------------------------ 209,127,357 90,664,336 Less: Treasury stock at cost (1,993,564 and 208,664 shares) 18,050,736 972,640 - ------------------------------------------------------------------------------------------------------ Total stockholders' equity 191,076,621 89,691,696 - ------------------------------------------------------------------------------------------------------ $211,035,882 $184,471,328 ======================================================================================================
See accompanying notes to consolidated financial statements. 16 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Income
Years ended December 31, ----------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------------------------- Revenues $ 274,973,666 $ 237,068,057 $ 185,209,776 Cost of operations 197,347,143 163,958,380 129,261,234 - ---------------------------------------------------------------------------------------------- Gross profit 77,626,523 73,109,677 55,948,542 Selling, general and administrative expenses 44,993,468 36,574,333 30,356,166 - ---------------------------------------------------------------------------------------------- Operating income 32,633,055 36,535,344 25,592,376 - ---------------------------------------------------------------------------------------------- Other income (expense): Interest expense (1,290,973) (859,555) (3,391) Interest income 4,259,390 1,106,901 768,476 Other income, net 532,379 249,567 (88,171) - ---------------------------------------------------------------------------------------------- 3,500,796 496,913 676,914 - ---------------------------------------------------------------------------------------------- Income before income taxes 36,133,851 37,032,257 26,269,290 - ---------------------------------------------------------------------------------------------- Income taxes 15,170,000 16,239,000 12,084,000 - ---------------------------------------------------------------------------------------------- Income from continuing operations 20,963,851 20,793,257 14,185,290 - ---------------------------------------------------------------------------------------------- Discontinued operations Loss on disposal, net of taxes -- -- (1,485,000) - ---------------------------------------------------------------------------------------------- Net income $ 20,963,851 $ 20,793,257 $ 12,700,290 - ---------------------------------------------------------------------------------------------- Earnings per share -- basic: Income from continuing operations $ .32 $ .36 $ .25 Discontinued operations-- net of taxes -- -- (.03) - ---------------------------------------------------------------------------------------------- Net income $ .32 $ .36 $ .22 - ---------------------------------------------------------------------------------------------- Earnings per share -- diluted: Income from continuing operations $ .31 $ .34 $ .24 Discontinued operations-- net of taxes -- -- (.03) - ---------------------------------------------------------------------------------------------- Net income $ .31 $ .34 $ .21 - ---------------------------------------------------------------------------------------------- Weighted average shares-- basic 64,830,697 57,560,564 56,241,370 Weighted average shares-- diluted 68,377,742 61,533,558 59,719,420 ==============================================================================================
Per share and share amounts are adjusted to reflect two for one stock splits effective January 8, 1999 and April 12, 2000. See accompanying notes to consolidated financial statements. 17 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity
Common Stock ------------------------ Additional Number of Paid-in Retained Treasury Shares Amount Capital Earnings Stock Total - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 13,939,115 $ 557,565 $ 27,079,265 $ 20,901,043 $ (18,502) $ 48,519,371 - ------------------------------------------------------------------------------------------------------------------------------- Net income 12,700,290 12,700,290 Cash dividends ($.036 per share) (985,039) (985,039) Issuance of stock award 2,000 80 38,170 38,250 Exercise of stock options 208,415 8,336 1,244,633 1,252,969 Exercised stock option tax benefit 1,398,000 1,398,000 Issuance of shares for employee stock purchase plan 40,452 1,618 322,630 324,248 Purchase of treasury stock (954,138) (954,138) Two for one stock split effective January 8, 1999 14,189,982 567,599 (567,599) -- - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 28,379,964 1,135,198 29,515,099 32,616,294 (972,640) 62,293,951 - ------------------------------------------------------------------------------------------------------------------------------- Net income 20,793,257 20,793,257 Cash dividends ($.050 per share) (1,437,949) (1,437,949) Issuance of stock award 5,000 200 63,850 64,050 Exercise of stock options 742,500 29,700 2,226,969 2,256,669 Exercised stock option tax benefit 5,170,000 5,170,000 Issuance of shares for employee stock purchase plan 68,062 2,723 548,995 551,718 Two for one stock split effective April 12, 2000 29,195,526 1,167,821 (1,167,821) -- - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 58,391,052 2,335,642 36,357,092 51,971,602 (972,640) 89,691,696 - ------------------------------------------------------------------------------------------------------------------------------- Net income 20,963,851 20,963,851 Cash dividends ($.030 per share) (1,925,458) (1,925,458) Net proceeds from the sale of common stock 7,350,000 294,000 86,534,696 86,828,696 Issuance of stock award 10,000 400 153,350 153,750 Exercise of stock options 1,589,000 63,560 3,637,884 3,701,444 Exercised stock option tax benefit 8,060,000 8,060,000 Issuance of shares for employee stock purchase plan 114,122 4,565 676,173 680,738 Purchase of treasury stock (17,078,096) (17,078,096) - ------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 67,454,174 $ 2,698,167 $ 135,419,195 $ 71,009,995 $ (18,050,736) $ 191,076,621 ===============================================================================================================================
Per share amounts are adjusted to reflect two for one stock splits effective January 8, 1999 and April 12, 2000. See accompanying notes to consolidated financial statements. 18 Hooper Holmes, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Years ended December 31, -------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 20,963,851 $ 20,793,257 $ 12,700,290 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal -- -- 1,485,000 Depreciation and amortization 9,003,473 5,317,466 4,704,540 Provision for bad debt expense -- -- 130,000 Deferred tax expense (benefit) 918,587 390,773 (2,804,000) Issuance of stock awards 153,750 64,050 38,250 Loss on sale of fixed assets 50,873 46,037 67,237 Change in assets and liabilities, net of effect from acquisitions of businesses: Accounts receivable 8,307,328 (5,964,107) 715,604 Other assets (1,874,676) (815,693) (566,046) Income tax receivable -- 7,408 -- Accounts payable and accrued expenses (4,080,805) 11,064,431 5,138,185 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 33,442,381 30,903,622 21,609,060 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Business acquisitions, net of cash acquired (8,728,550) (82,949,063) (2,820,352) Purchases of marketable securities (79,507,324) -- -- Redemptions of marketable securities 50,319,015 -- -- Capital expenditures, net of disposals (1,357,525) (2,714,339) (1,833,818) - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (39,274,384) (85,663,402) (4,654,170) - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Issuance of long-term debt 100,000 65,100,000 -- Principal payments on long-term debt (62,157,869) (100,000) -- Proceeds from issuance of common stock 86,828,696 -- -- Proceeds from employee stock purchase plan 680,738 551,718 324,248 Proceeds related to the exercise of stock options 3,701,444 2,256,669 1,252,969 Treasury stock acquired (17,078,096) -- (954,138) Dividends paid (1,925,458) (1,437,949) (985,039) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 10,149,455 66,370,438 (361,960) - ------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 4,317,452 11,610,658 16,592,930 Cash and cash equivalents at beginning of year 41,363,019 29,752,361 13,159,431 - ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 45,680,471 $ 41,363,019 $ 29,752,361 - ------------------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 2,065,297 $ 70,473 $ -- Income taxes $ 9,883,975 $ 8,787,418 $ 9,140,543 ==================================================================================================================
See accompanying notes to consolidated financial statements. 19 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Note 1 -- Principles of Consolidation Summary of The consolidated financial statements include the accounts Significant of Hooper Holmes, Inc. and its majority owned subsidiaries Accounting (the "Company"). All significant intercompany balances and Policies transactions are eliminated in consolidation. Description of the Business The Company provides health information services to the life and health insurance industry. The Company's network of experienced medical professionals conduct physical examinations, testing, and personal health interviews, primarily for the life and health insurance industry. Information gathered in these activities is used by insurance underwriters to assess risks and make informed decisions. The Company is subject to certain risks and uncertainties as a result of changes that could occur in the life and health insurance industry's underwriting requirements and standards, and in the Company's customer base. Use of Estimates The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures in these consolidated financial statements. Actual results could differ from those estimates. Marketable Securities At December 31, 2000, marketable securities consist of U.S. Treasury, municipal bonds, mortgage-backed, and corporate debt securities. The Company classifies all of its marketable security investments as available-for-sale. Available-for-sale securities are recorded at fair value and dividend and interest income are recognized when earned. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. At December 31, 2000, the cost of the marketable securities approximates fair value. Cash and Cash Equivalents The Company considers highly liquid investments with original maturities of less than 90 days to be cash equivalents. Long-Lived Assets Long-lived assets consist of property, plant and equipment, goodwill, and identifiable intangibles. The Company reviews long-lived assets for impairment whenever events or changes in business circumstances occur that indicate that the carrying amount of the assets may not be recoverable. Impairments are recognized when the expected future undiscounted cash flows derived from such 20 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- assets are less than their carrying value. For such cases, losses are recognized for the difference between the fair value and the carrying amount. The Company considers various valuation factors, principally discounted cash flows, to assess the fair values of long-lived assets. Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line method over the assets estimated useful lives. The cost of maintenance and repairs is charged to income as incurred. Significant renewals and betterments are capitalized. Goodwill and intangible assets are being amortized using the straight-line method over lives ranging from 10-25 years and 1-15 years, respectively. Earnings Per Common Share Basic earnings per common share equals net income divided by the weighted average common shares outstanding during the period. "Diluted" earnings per common share equals net income divided by the sum of the weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents (3,547,045, 3,972,994 and 3,478,050 for 2000, 1999 and 1998, respectively) are shares assumed to be issued if outstanding stock options were exercised. All appropriate share and per share period amounts have also been restated for the April 12, 2000 and January 8, 1999 stock splits (see note 10, "Capital Stock"). Revenues Revenues from services rendered are recognized when services are performed. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Concentration of Credit Risk The Company's accounts receivable are due primarily from insurance companies. No one customer accounts for more than 10% of revenues. Fair Value of Financial Instruments The carrying value for all financial instruments, except long-term debt, at December 31, 2000 and 1999, approximates fair value due to the short maturity of these instruments. For long-term debt, the carrying value approximates fair value due to the interest rate being reset in December 2000. Employee Stock Options Employee non-qualified stock options are granted with an exercise price equal to the market price at the date of grant, and therefore, compensation expense is not recognized on the issuance of employee stock options. Advertising Costs related to space in publications are expensed the first time the advertising occurs. Advertising expense was approximately $289,000, $288,000 and $149,000 in 2000, 1999 and 1998, respectively. - -------------------------------------------------------------------------------- Note 2 -- In 1995, the Company transferred substantially all of the Discontinued assets and business of its Nurse's House Call health care Operations division (the "NHC division") to Olsten Corporation, (the "NHC Transaction"), 21 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- pursuant to an Agreement of Acquisition between the Company and Olsten, dated May 26, 1995. The transaction closed September 29, 1995. Pursuant to the Acquisition Agreement, Olsten transferred to the Company all of the issued and outstanding capital stock of American Service Bureau, Inc., which was engaged in the business of providing paramedical examinations and related services to the life and health insurance industries under the name ASB Meditest ("ASB Meditest"), approximately $27.3 million in cash, and assumed certain specified liabilities of approximately $5.1 million relating to the NHC Division. In 1995, the Company recorded a loss in the amount of $10.3 million, net of tax benefits of $7.6 million, on the disposal of the NHC Division. The Company recorded a provision for certain costs related to the disposal including the transaction loss, severance and other expenses, transaction fees, and accounts receivable collection fees. During the fourth quarter of 1998, the Company recorded an additional after tax charge of $1.5 million, net of a tax benefit of $1.3 million. The charge resulted from residual worker's compensation charges and certain reimbursement issues associated with the NHC Division. - -------------------------------------------------------------------------------- Note 3-- During 2000, the Company acquired specific assets and Acquisitions and liabilities of eight health information services companies. Dispositions The aggregate purchase price of these acquisitions was approximately $10.5 million and has resulted in total costs in excess of net assets acquired of approximately $9.5 million. This amount is being amortized on a straight line basis over a period of 10-25 years. Additionally, non-competition agreements were entered into in the aggregate amount of approximately $.6 million and are being amortized on a straight line basis over 5 years. As of November 1, 1999, the Company purchased substantially all of the assets of Paramedical Services of America, Inc. ("PSA"), an Atlanta based subsidiary of Pediatric Services of America, Inc. The purchase price was approximately $80 million, and was financed with a $65 million term loan (see note 6) and approximately $15 million in existing cash. As a result of an independent appraisal, the Company has recorded costs in excess of net assets acquired of approximately $58 million, and intangible assets in the amount of $11.6 million, comprised of customer base $4.6 million, affiliate network $3.2 million, assembled workforce $1.2 million, and a non- competition agreement valued at $2.6 million. The amounts are being amortized over their estimated useful lives of 25 years for costs in excess of net assets acquired, and between 5 to 9 years for the remaining intangibles. During the fourth quarter of 2000, the Company adjusted the purchase price allocation in the amount of $.7 million, as a result of the increase in the net realizable value of assets acquired, partially offset by an increase in the liabilities assumed. The liabilities assumed in the PSA acquisition included approximately $3.8 million for certain PSA facility exit costs and certain legal, accounting and other acquisition costs. At December 31, 2000, the Company had closed 83 branches of PSA and had paid the majority of the other acquisition costs. At December 31, 2000 and 1999, the remaining liabilities assumed total $.6 million and $1.4 million, respectively, and are included in other accrued expenses on the accompanying consolidated balance sheet. At December 31, 2000, the remaining costs represent office and equipment lease liabilities for closed PSA branches. On August 12, 1998, the Company acquired specific assets of a health information services company. The purchase price was $750,000. Cost in excess of net assets acquired of approximately $597,000 is being amortized over 15 years. Additionally, a non-competition agreement was entered into in the amount of $150,000, and is being amortized over 5 years. On November 30, 1998, the Company acquired a 55% ownership interest in Heritage Labs International LLC, a national provider of laboratory testing services, primarily to life and health insurance companies. The purchase price was approximately $1.8 million. Cost in excess of net assets 22 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- acquired of approximately $1.4 million is being amortized over 15 years. Additionally, a non- competition agreement was entered into in the amount of $.2 million, and is being amortized over 3 years. The acquisitions discussed above have been accounted for using the purchase method of accounting and the purchase price of the acquisitions has been assigned to the net assets based on the fair value of such assets and liabilities at the date of acquisition. The consolidated financial statements include the results of operations from the respective dates of purchase. If the acquisition of PSA had occurred on January 1, 1999, it would have resulted in the following unaudited pro forma information, and does not include cost savings expected from the transaction: revenues $299,340,000, net income $15,842,000 and earnings per diluted share, $.26. The unaudited pro forma financial information does not purport to represent our consolidated results of operations or financial position that would have been achieved had the transactions to which pro forma effect is given been consummated as of the dates or for the periods indicated. The 2000 acquisitions do not require pro forma information, as the results of operations of the businesses acquired were not material.
- ---------------------------------------------------------------------------------------------------------------- Note 4 -- Accounts receivable are net of an allowance for Account Receivable doubtful accounts in the amount of $884,352 and $1,092,071 in 2000 and 1999, respectively. - ---------------------------------------------------------------------------------------------------------------- Note 5 -- Property, plant and equipment consists of the following: Property, Plant and Equipment Estimated December 31, December 31, Useful Life 2000 1999 In Years - ---------------------------------------------------------------------------------------------------------------- Land and improvements $ 618,972 $ 618,972 10 - 20 ------------------------------------------------------------------------------------ Building and improvements 4,933,481 4,826,966 10 - 45 ------------------------------------------------------------------------------------ Furniture, fixtures and equipment 21,830,027 21,020,009 3 - 10 ------------------------------------------------------------------------------------ $27,382,480 $ 26,465,947 ==================================================================================== - ----------------------------------------------------------------------------------------------------------------
Note 6 -- On October 29, 1999, the Company entered into a $100 Long Term Debt million Amended and Restated Revolving Credit and Term Loan Agreement with three banks. This senior credit facility consists of a $65 million, six-year term loan, and a $35 million, three-year revolving loan. The $65 million term loan was used in connection with the purchase of the assets of PSA. As of December 31, 2000, $3.0 million is outstanding against the term loan. The Company has not borrowed under the $35 million revolving loan. Both the term loan and the revolving loan bear interest at either the prime rate minus 1/2% to plus 1/4% or LIBOR plus 3/4% to 1 3/4%, depending on the ratio of our consolidated funded debt, as defined, to earnings before interest, taxes, depreciation and amortization, or "EBITDA." As of December 31, 2000, interest was payable at an effective annual interest rate of 7.37%. Either loan can be prepaid without penalty at any time. Also, commitment fees up to 1/4% of the unused revolving loan are charged, and the agreement contains certain financial covenants related to dividends, fixed charge coverage and funded debt to EBITDA ratio. As of December 31, 2000, the majority owned subsidiary of the Company had outstanding obligations under its bank note in the amount of $.4 million. The interest rate at December 31, 2000 was 10.0%. The note matures on January 1, 2003 and monthly principal payments are required. 23 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Note 7 -- The Company leases branch field offices under a number of Commitments and operating leases which expire in various years through 2005. Contingencies These leases generally contain renewal options and require the Company to pay all executory costs (such as property taxes, maintenance and insurance). The Company also leases telephone, computer and other miscellaneous equipment. These leases expire in various years through 2005. 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, 2000: Year Ending December 31, 2001 $ 9,435,619 2002 5,498,526 2003 5,281,343 2004 2,034,915 2005 309,764 ------------------------------------------------------------ Total minimum lease payments $ 22,560,167 ------------------------------------------------------------ Rental expenses under operating leases were $12,429,976, $10,768,315 and $8,633,036 in 2000, 1999 and 1998, respectively. The Company has employment retention contracts with certain executive officers of the Company for a two year period from the date a change in control occurs as further defined in the contracts. - -------------------------------------------------------------------------------- Note 8 -- The Company is a party to a number of legal actions arising Litigation in the ordinary course of its business. The Company is a defendant in an action arising out of the Company's resale of a drug screening business it acquired and subsequently sold in 1995. The plaintiff claims to have suffered damages from the Company's alleged failure to comply with the terms of a non-competition agreement and a right of first refusal, as well as incomplete disclosure about the transaction. The Company believes that the plaintiff suffered no damages and will vigorously defend this action in court. In the opinion of management, the Company has substantial legal defenses and/or insurance coverage with respect to all of its pending legal actions; accordingly, none of these actions is expected to have a material adverse effect on the Company, its results of operations or its consolidated financial position. - -------------------------------------------------------------------------------- Note 9 -- Income tax expense is comprised of the following: Income Taxes (in thousands) 2000 1999 1998 ------------------------------------------------------------ Federal: Current $ 11,554 $ 13,603 $ 11,693 Deferred 724 285 (1,277) ------------------------------------------------------------ State and local: Current 2,697 2,245 1,930 Deferred 195 106 (262) ------------------------------------------------------------ $ 15,170 $ 16,239 $ 12,084 ============================================================ 24 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- The following reconciles the "statutory" federal income tax rates to the effective income tax rates:
2000 1999 1998 ------------------------------------------------------------------------------- Computed "expected" tax expense 35% 35% 35% ------------------------------------------------------------------------------- Increase (reduction) in tax expense resulting from: State tax, net of federal benefit 8 8 7 Non-tax deductible amortization of goodwill 1 1 2 Other (2) -- 2 ------------------------------------------------------------------------------- Effective income tax rates 42% 44% 46% ===============================================================================
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows:
(in thousands) 2000 1999 ------------------------------------------------------------------------------- Deferred tax assets: Acquisition reserve $ -- $ 592 Discontinued operation accruals 117 123 Receivable allowance 361 459 Intangible assets 227 234 Insurance benefits 119 655 Other 202 263 ------------------------------------------------------------------------------- 1,026 2,326 ------------------------------------------------------------------------------- Deferred tax liabilities: Accumulated depreciation (671) (681) Acquisition bases adjustment, primarily intangibles (1,432) (1,860) Other (57) -- ------------------------------------------------------------------------------- (2,160) (2,541) ------------------------------------------------------------------------------- Net deferred tax liability $(1,134) $ (215) ===============================================================================
Deferred tax assets (liabilities) are presented in the consolidated balance sheets at December 31, 2000 as follows: other current assets $575,000 and deferred income taxes (noncurrent) $(1,709,000) and at December 31, 1999, other current assets $1,696,000 and deferred income taxes (noncurrent) $(1,911,000). 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 2000 and 1999 include differences between financial and tax reporting for depreciation and amortization. - -------------------------------------------------------------------------------- Note 10-- Stock Split and Authorized Shares -- Effective January 8, 1999 Capital Stock and April 12, 2000, the Company declared two for one stock splits in the form of 100% stock dividends to all stockholders, which were distributed on January 29, 1999 and April 26, 2000, respectively. The stock splits resulted in additional shares of 14,189,982 shares and 33,160,626 shares of common stock, respectively, of which, 52,166 and 104,332 shares, respectively, were shares of treasury stock. All share and per share amounts have been retroactively restated for these events. On February 24, 1998, the stockholders approved a proposal to increase the authorized number of common shares from 20 25 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- million to 80 million. On May 25, 1999, the stockholders approved a proposal to increase the authorized number of common shares from 80 million to 240 million. Stock Offering -- The Company completed a secondary common stock offering of 7,350,000 shares on February 29, 2000. The offering price was $12.563 and provided approximately $87 million in net proceeds to the Company. Stock Repurchase Program -- On May 30, 2000, the Board of Directors authorized the repurchase of 2.5 million shares of the Company's common stock during this calendar year for an aggregate purchase price not to exceed $25 million. For the year ended December 31, 2000, the Company purchased 1,785,000 shares for a total cost of $17.1 million. Rights Agreement -- On May 23, 2000, the Board of Directors adopted a Rights Agreement to replace the Rights Agreement which expired on June 16, 2000. The Board declared a dividend of one Common Share Purchase Right (a "Right") for each outstanding share of Common Stock distributable on June 30, 2000. The Rights Agreement was not adopted in response to any known effort to acquire control of the Company. Rather, the Rights Agreement was adopted in an effort to ensure that all of the Company's shareholders are treated fairly in the event an attempt is made to take over the Company without paying all shareholders a full and fair price for all of their shares of Common Stock. Until a person or group acquires 20% or more of the Company's Common Stock or announces a tender or exchange offer to acquire 30% or more of the Company's Common Stock (other than a Permitted Offer), the Rights will be evidenced by the Common Stock certificates, will automatically trade with the Common Stock and will not be exercisable. Thereafter, separate Rights certificates will be distributed. If (i) any person or group acquires 20% or more of the Company's Common Stock (other than by a tender offer for all shares which the Company's Board of Directors determines to be in the best interests of the Company and its shareholders, or by an inadvertent acquisition after which such person or group promptly divests a sufficient number of shares so that such person's ownership is less than 20%) or (ii) the Company is involved in a merger or other business combination or sells more than 50% of its assets or earning power, each Right (other than Rights beneficially owned by 20% or more shareholders or certain transferees thereof, which Rights become void) will entitle the holder, upon payment of the exercise price of $110 (as adjusted), to buy a number of shares of Common Stock of the Company or of the acquiring company having a market value of twice the exercise price. If any person or group acquires between 20% and 50% of the Company's Common Stock, the Company's Board of Directors may, at its option, exchange each Right for a share of Company Common Stock. The Rights Agreement will expire on June 15, 2010. In addition, the Rights may be redeemed for $0.01 per Right on or prior to the tenth day after any person or group acquires 20% or more of the Company's Common Stock, thus clearing the way for an acquisition which the Board believes to be in the best interests of the Company and its shareholders. Stock Purchase Plan -- In 1993, the shareholders approved the 1993 Employee Stock Purchase Plan which provided for granting of purchase rights to all full-time employees, as defined, of up to 2,000,000 shares of Company stock. The plan provided for the purchase of shares on the date one year from the grant date. During the year after the grant date, up to 10% of an employee's compensation was withheld for their purchase. Employees can cancel their purchases any time during the year, without penalty. The purchase price was 95% of the closing common stock price on the grant date. In April 1998, April 1999, and April 2000, the Company distributed 161,808, 136,124 and 114,122 shares, respectively, under the April 1997, April 1998 and April 1999 grants, 26 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- and the aggregate purchase price was $324,248, $551,718 and $680,738, respectively. In April 2000, the Company made a grant of approximately 127,488 shares, and the aggregate purchase price was approximately $1,279,342; however, the 2000 plan offering terminated, in accordance with the plan's automatic termination provision. Stock Awards -- The Company's Chairman and President is entitled to receive stock awards based on the attainment of performance goals established for any given year. For the years ended December 31, 2000, 1999 and 1998, awards of 10,000 shares, 10,000 shares and 8,000 shares, respectively, have been granted. Stock Option Plans -- The Company's stockholders approved stock option plans totaling 2,000,000 shares in 1999, 2,400,000 shares in 1998 and 1997, and 4,000,000 shares in 1994 and 1992, which provide that options may be granted to management. Options are granted at market value on the dates of the grants and are exercisable as follows: 25% after two years and 25% on each of three anniversary dates thereafter, and terminate after 10 years. In May 1997, the Company's stockholders approved the 1997 Director Stock Option Plan for 1,200,000 shares, which provides 200,000 options to non-employee Directors. The options were granted at market value on the date of the grant, and are exercisable in five equal annual installments beginning on the first anniversary of the date of the grant. The Company currently has five non-employee directors. Also in May 1997, the Company's stockholders approved the CEO Stock Option Agreement, which provides options to the Chief Executive Officer to acquire 800,000 shares, at an exercise price equal to the fair value at the date of grant. The options vest 160,000 shares annually for five years. Any unvested options became immediately exercisable in 1999, because the two performance related conditions were met: (a) the Company's earnings per share were at least $.18 for the year ended December 31, 1998, and (b) the Company's closing stock price was at least $3.75 per share for any consecutive 30 day period during the six months ended June 30, 1999.
The following table summarizes stock option activity: ------------------------------------------------------------------------------------ Under Option ------------------------------------------------------------------------------------ Shares Weighted Available for Average Exercise Grant Shares Price Per Share ------------------------------------------------------------------------------------ Balance, December 31, 1997 3,994,408 8,679,660 $ 1.62 Granted (2,421,600) 2,421,600 5.23 Exercised -- (833,660) 1.50 Cancelled 57,700 (57,700) 2.52 ------------------------------------------------------------------------------------ Balance, December 31, 1998 1,630,508 10,209,900 $ 2.48 Authorized 2,000,000 -- -- Granted (1,085,000) 1,085,000 12.88 Exercised -- (1,485,000) 1.52 Cancelled 69,200 (69,200) 5.58 ------------------------------------------------------------------------------------ Balance, December 31, 1999 2,614,708 9,740,700 $ 3.77 Granted (501,500) 501,500 7.13 Exercised -- (1,589,000) 2.33 Cancelled 106,000 (106,000) 8.75 ------------------------------------------------------------------------------------ Balance, December 31, 2000 2,219,208 8,547,200 $ 4.17 ------------------------------------------------------------------------------------
27 Hooper Holmes, Inc. and Subsidiaries ----------------------------------------------------------------- The weighted average fair value per stock option granted was $4.36 for the 2000 options, $7.77 for the 1999 options, and $1.18 in 1998. The Company estimated the fair values using the Black- Scholes option pricing model, modified for dividends and using the following assumptions: 2000 1999 1998 ----------------------------------------------------------------- Expected dividend yield .26% .26% .34% Risk-free interest rate 5.75% 6.00% 4.75% Expected stock price volatility 43.78% 40.98% 41.90% Expected term until exercise (years) 9.6 10 9 ================================================================= The Company does not record compensation expense for stock option grants. The following table summarizes results as if the Company had recorded compensation expense for option grants:
(thousands of dollars, except per share data) 2000 1999 1998 ----------------------------------------------------------------------------------- Net income: As reported $ 20,964 $ 20,793 $ 12,700 Pro forma 17,873 18,919 11,552 Basic earnings per share: As reported $ .32 $ .36 $ .22 Pro forma .28 .33 .21 Diluted earnings per share: As reported $ .31 $ .34 $ .21 Pro forma .26 .31 .19 ===================================================================================
The pro forma effects on net income and earnings per share for 2000, 1999 and 1998 may not be representative of the pro forma effects in future years since compensation cost is allocated on a straight-line basis over the vesting periods of the grants, which extend beyond the reported years. The following table summarizes information concerning options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ---------------------------------------------------------- ----------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/00 Term (Years) Price at 12/31/00 Price ----------------------------------------------------------------------------------- $ .98 - $1.87 2,450,700 2.7 $ 1.33 2,450,700 $ 1.33 2.03 - 2.14 2,638,600 6.0 2.09 1,042,600 2.10 3.22 - 3.69 873,900 7.0 3.59 362,475 3.30 6.69 - 7.13 1,578,400 8.4 6.82 208,000 6.69 12.88 1,005,600 8.8 12.88 11,200 12.88 ===================================================================================
- -------------------------------------------------------------------------------- Note 11 -- This plan is available to all employees with at least one year of 401k Savings service of greater than 1,000 hours of employment, and is and Retirement administered by ING/ReliaStar Financial Corporation. The Company Plan matches 25% of the first 10% of employee salary contributions. The Company's payments for 2000, 1999 and 1998, were $426,000, $345,000 and $300,000, respectively. 28 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Independent Auditors' Report The Board of Directors and Stockholders Hooper Holmes, Inc. We have audited the accompanying consolidated balance sheets of Hooper Holmes, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hooper Holmes, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Short Hills, New Jersey February 26, 2001 29 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Selected Financial Data
For the years ended December 31, -------------------------------------------------------- (dollars in thousands except per share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Statement of Income Data: Revenues $ 274,974 $ 237,068 $ 185,210 Operating income 32,633 36,535 25,592 Interest expense 1,291 860 3 Income from continuing operations 20,964 20,793 14,185 Loss from discontinued operations /(1)/ -- -- (1,485) Net income 20,964 20,793 12,700 Earnings per share -- basic: Income from continuing operations .32 .36 .25 Discontinued operations /(1)/ -- -- (.03) Net income .32 .36 .22 Earnings per share -- diluted: Income from continuing operations .31 .34 .24 Discontinued operations /(1)/ -- -- (.03) Net income $ .31 $ .34 $ .21 - ---------------------------------------------------------------------------------------------------------------- Cash dividends per share $ .030 $ .025 $ .018 - ---------------------------------------------------------------------------------------------------------------- Weighted average shares-- basic 64,830,697 57,560,564 56,241,370 Weighted average shares-- diluted 68,377,742 61,533,558 59,719,420 - ---------------------------------------------------------------------------------------------------------------- Balance Sheet Data (as of December 31): Working capital $ 93,305 $ 56,076 $ 33,476 Total assets 211,036 184,471 85,016 Current maturities of long-term debt 197 143 450 Long-term debt, less current maturities 3,195 65,307 -- Total long-term debt 3,392 65,450 450 Stockholders' equity $ 191,077 $ 89,692 $ 62,294 ================================================================================================================
Per share and share amounts are adjusted to reflect a three for two stock split effective February 28, 1992, and two for one stock splits effective August 22, 1997, January 8, 1999 and April 12, 2000. /(1)/ See note 2 to the consolidated financial statements. 30
For the Years ended December 31, - ----------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------- $ 165,353 $ 156,254 $ 111,313 $ 92,534 $ 80,600 $ 68,931 $ 61,585 16,344 8,576 4,059 3,803 5,020 4,548 4,079 168 1,394 1,674 994 237 144 319 8,770 4,086 1,667 1,480 2,739 2,779 2,159 -- -- (14,716) 1,184 867 2,099 1,427 8,770 4,086 (13,049) 2,664 3,606 4,878 3,586 .16 .08 .03 .03 .05 .05 .05 -- -- (.27) .02 .02 .04 .04 .16 .08 (.24) .05 .07 .09 .09 .15 .08 .03 .03 .05 .05 .05 -- -- (.27) .02 .02 .04 .04 $ .15 $ .08 $ (.24) $ .05 $ .07 $ .09 $ .09 - ----------------------------------------------------------------------------------------------------- $ .013 $ .008 $ .008 $ .038 $ .038 $ .031 $ .03 - ----------------------------------------------------------------------------------------------------- 55,073,336 53,821,752 53,657,024 53,653,704 53,712,488 53,741,336 41,129,608 57,128,264 54,487,604 53,809,428 53,831,164 54,083,472 54,057,263 41,400,722 - ----------------------------------------------------------------------------------------------------- $ 20,381 $ 11,807 $ 24,786 $ 6,407 $ 4,024 $ 9,861 $ 15,720 65,941 61,296 93,997 103,172 88,355 52,754 48,962 -- 1,030 8,800 2,150 1,550 -- 93 -- 5,250 26,250 46,327 29,950 3,000 3,078 -- 6,280 35,050 48,477 31,500 3,000 3,171 $ 48,519 $ 37,719 $ 33,132 $ 46,502 $ 45,916 $ 44,384 $ 41,160 =====================================================================================================
31 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Directors and Officers Directors Benjamin A. Currier Retired. Formerly Senior Vice President, Security Life of Denver Ins. Co.-- ING/Barings Mr. Currier, age 67, was Senior Vice President of Operations for Security Life of Denver Insurance Company, a subsidiary of ING/Barings, in Denver, Colorado prior to his retirement in 1997. Mr. Currier was Vice President, Allstate Life Insurance Company from 1978 to 1995. He has been a director of the Company since 1996, and is a member of the Audit Committee and the Executive Compensation Committee. Mr. Currier is also a director of e-Nable.com Corporation. (Term expires at the Annual Meeting in 2002.) Quentin J. Kennedy Retired. Formerly Executive Vice President, Secretary and Director Federal Paper Board Company Mr. Kennedy, age 67, was Executive Vice President, Secretary, Treasurer and Director of Federal Paper Board Company in Montvale, New Jersey until his retirement in 1996. He had served in various executive positions with Federal Paper Board since 1960. Mr. Kennedy has been a director of the Company since 1991. He is a member of the Executive Committee and the Executive Compensation Committee. (Term expires at the Annual Meeting in 2003.) James M. Mcnamee Chairman, President and Chief Executive Officer Mr. McNamee, age 56, has served as Chairman of the Board of Directors of the Company since 1996 and as President and Chief Executive Officer of the Company since 1984. He has been an employee of the Company since 1968, an officer since 1979 and a director since 1984. Mr. McNamee is a member of the Executive Committee and the Nominating Committee. (Term expires at the Annual Meeting in 2001.) John E. Nolan Partner Steptoe & Johnson LLP Mr. Nolan, age 73, is a partner in the law firm of Steptoe & Johnson, LLP, Washington, D.C. and has been engaged in the practice of law since 1956. He has been a director of the Company since 1971, and is a member of the Audit Committee and the Executive Committee. Mr. Nolan is also a director of Iomega Corporation. (Term expires at the Annual Meeting in 2003.) Elaine L. Rigolosi Professor of Education Department of Organization and Leadership Teachers College Columbia University Dr. Rigolosi, Ed.D, J.D., age 56, is Professor, Department of Organization and Leadership, Teachers College, Columbia University. She has been associated with Columbia University since 1976, and has maintained a private consulting practice in management for health care organizations since 1974. Dr. Rigolosi has been a director of the Company since 1989, and is a member of the Audit Committee and the Executive Compensation Committee. (Term expires at the Annual Meeting in 2002.) Kenneth R. Rossano Private Investor. Formerly Senior Vice President Cassidy & Associates Mr. Rossano, age 66, is a private investor. From 1992 to 1999, he was Senior Vice President, Cassidy & Associates in Boston, Massachusetts. From 1991 to 1992, he was Vice President, Development, Massachusetts Higher Education Assistance Corporation in Boston, Massachusetts. He has been a director of the Company since 1967, and is a member of the Executive Committee and the Nominating Committee. Mr. Rossano is also a director of Active International, Inc. and A+ America, Inc. (Term expires at the Annual Meeting in 2001.) G. Earle Wight Senior Vice President Mr. Wight, age 67, has served as Senior Vice President of the Company since 1985 and has been a director of the Company since 1966. Mr. Wight is a member of the Nominating Committee. (Term expires at the Annual Meeting in 2001.) Officers James M. Mcnamee Chairman, President and Chief Executive Officer Mario L. Cavezza Senior Vice President David J. Goldberg Senior Vice President Robert William Jewett Senior Vice President, General Counsel and Secretary Steven A. Kariotis Vice President Fred Lash Senior Vice President, Chief Financial Officer and Treasurer Joseph A. Marone Vice President Raymond A. Sinclair Senior Vice President Alexander Warren Senior Vice President G. Earle Wight Senior Vice President Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Investor Information Stock Listing The Company's common stock is traded on the American Stock Exchange (AMEX) under the symbol "HH". Form 10-K Holders of the Company's common stock may obtain, without charge, a copy of the Hooper Holmes, Inc. Annual Report on Form 10-K as filed with the Securities and Exchange Commission upon request. Address inquires to: Secretary Hooper Holmes, Inc. 170 Mt. Airy Road Basking Ridge, NJ 07920 Independent Certified Public Accountants KPMG LLP Short Hills, NJ Transfer Agents & Registrar First City Transfer Company Iselin, NJ Annual Meeting May 22, 2001, at the Company's Headquarters Corporate Headquarters Hooper Holmes, Inc. 170 Mt. Airy Road Basking Ridge, NJ 07920 (908) 766-5000 www.hooperholmes.com Dividend Reinvestment Plan The Hooper Holmes Dividend Reinvestment Plan is designed to enable record shareholders of Hooper Holmes' Common Shares to acquire additional Common Shares through the automatic investment of their cash dividends. With this Plan, there are no transaction charges or brokerage commissions associated with the purchase of Common Shares, thereby permitting the entire amount of your dividend to be invested. The Plan is administered for Hooper Holmes by First City Transfer Company. For more information or an enrollment form, please contact the Investor Relations department at (908) 766-5000. 33 Hooper Holmes, Inc. and Subsidiaries - -------------------------------------------------------------------------------- Quarterly Common Stock Price Ranges and Dividends (dollars) 2000 1999 --------------------------- ----------------------------- Quarter High Low Dividend High Low Dividend - ------------------------------------------------------------------------------ First 18.25 9.69 .0075 8.28 6.19 .0063 Second 18.31 8.00 .0075 10.81 7.50 .0063 Third 13.81 7.13 .0075 12.81 9.16 .0063 Fourth 11.06 8.50 .0075 13.69 11.13 .0063 - ------------------------------------------------------------------------------ Adjusted to reflect two for one stock splits effective January 8, 1999, and April 12, 2000. Quarterly Financial Data (Unaudited) (dollars in thousands, except per share data) Per Share of Common Stock Net Income Gross ------------------------- Quarter Revenues Profit Net Income Basic Diluted - ------------------------------------------------------------------------------ 2000 Fourth $ 60,350 $ 16,535 $ 4,515 $ .07 $ .07 Third 61,270 16,570 3,887 .06 .06 Second 67,581 18,722 4,665 .07 .07 First 85,773 25,800 7,897 .12 .11 - ------------------------------------------------------------------------------ Total $ 274,974 $ 77,627 $ 20,964 $ .32 $ .31 - ------------------------------------------------------------------------------ 1999 Fourth $ 75,827 $ 23,052 $ 6,232 $ .11 $ .10 Third 53,830 16,077 4,989 .09 .08 Second 54,472 16,932 4,821 .08 .08 First 52,939 17,049 4,751 .08 .08 - ------------------------------------------------------------------------------ Total $ 237,068 $ 73,110 $ 20,793 $ .36 $ .34 ============================================================================== Per share calculations are adjusted to reflect two for one stock splits effective January 8, 1999, and April 12, 2000. 34 Glossary ---------------------------------------- Accretive Adding to the Company's earnings, as in the case of an acquisition. Alternate Distribution Channel (ADC) Non-traditional channel for selling life insurance, such as the Internet, banks and quote services. Attending Physician Statement (APS) Medical records used for underwriting life, health and disability insurance. These records are obtained with the signed authorization of the proposed insured. Basic Earnings per Share Net income divided by the weighted average number of shares outstanding during the period. Cycle Time The period of time needed to underwrite an insurance application. Diluted Earnings per Share Net income divided by the sum of weighted average number of shares outstanding during the period plus shares assumed to be issued if all outstanding stock options were exercised. DNA Sciences Gene Trust Project A large-scale consumer-focused research initiative that invites volunteers via the Internet to participate in genetic research. e-Nable.com Corporation Provides an Internet-based system that integrates and streamlines the process of insurance product selection, policy application, underwriting and policy issue. EBITDA Earnings before interest, taxes, depreciation and amortization. Health Information Services The core service of Hooper Holmes, collecting health information for the purpose of underwriting life, health and disability insurance. Healthdex Service Group Hooper Holmes' data-gathering service specifically dedicated to the biotech and pharmaceutical industries in support of clinical trials and sales and marketing activities. Heritage Labs A full-service, progressive laboratory serving the insurance industry. Heritage assembles collection kits for use by paramedical companies, and analyzes blood, urine and oral- fluid samples and transmits the results to the ordering insurance company. Infolink Services Group Developed to complement the paramedical services provided by Portamedic. Products include Inspection Reports and Attending Physician Statements. Inspection Reports Consumer investigative reports used for underwriting life, health and disability insurance policies. Liquid Assets Assets categorized as cash or cash equivalents, and non-cash assets easily convertible to cash. Market Share Percentage of the market's sales obtained by one brand or company. Motor Vehicle Reports (MVRs) Driving records compiled by law enforcement agencies within each state. Operating Income Earnings from the operation of our business services, not including interest expense, interest income and other non-operations related income, net. Portamedic Hooper Holmes' health information division, conducting physical examinations, testing and personal health interviews primarily for the life and health insurance industry. Portamedic Select(TM) A comprehensive process for gathering together the requirements needed to initiate the underwriting process for life, health and disability insurance. Return on Stockholders' Equity Net income divided by average shareholders' equity; a measure of the rate of return on a common stockholder's investment. Teledex Portamedic's telephone interview call center, which gathers information needed for an underwriter to make faster and better informed decisions. Triple X A life insurance industry regulatory event that occurred in certain states, causing a consumer rush on certain policies late in 1999 and early in 2000 to avoid increased rates or premium-structure changes. Underwriting The process by which a life and health insurance company gathers information to assess risks in order to make informed decisions as to the issuance of a policy to an applicant. Hooper Holmes, Inc. Corporate Headquarters 170 Mt. Airy Road Basking Ridge, NJ 07920 908.766.5000 www.hooperholmes.com EX-21 4 0004.txt SUBSIDIARIES OF HOOPER HOLMES, INC. EXHIBIT 21 SUBSIDIARIES OF HOOPER HOLMES, INC. (none) EX-23 5 0005.txt CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Hooper Holmes, Inc. We consent to incorporation by reference in the registration statements on Form S-8 (No. 333-57771, No. 33-53086 and No. 333-04785) of Hooper Holmes, Inc. of our report dated February 26, 2001, relating to the consolidated balance sheets of Hooper Holmes, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000, annual report on Form 10-K of Hooper Holmes, Inc. KPMG LLP Short Hills, New Jersey March 30, 2001 EX-24 6 0006.txt POWER OF ATTORNEY EXHIBIT 24 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, 2000, 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 30, 2001 /s/ G. Earle Wight ------------------------ G. Earle Wight EXHIBIT 24 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, 2000, 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 30, 2001 /s/ John E. Nolan ------------------------ John E. Nolan EXHIBIT 24 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, 2000, 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 30, 2001 /s/ Kenneth R. Rosano ------------------------ Kenneth R. Rosano EXHIBIT 24 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, 2000, 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 30, 2001 /s/ Quentin J. Kennedy ------------------------ Quentin J. Kennedy EXHIBIT 24 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, 2000, 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 30, 2001 /s/ Benjamin A. Currier ------------------------ Benjamin A. Currier EXHIBIT 24 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, 2000, 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 30, 2001 /s/ Elaine Rigolosi ------------------------ Elaine Rigolosi EX-27.1 7 0007.txt FINANCIAL DATA SCHEDULE 1999
5 This schedule contains summary financial information extracted from the consolidated balance sheet of Hooper Holmes, Inc. and subsidiaries as of December 31, 1999 and the related consolidated statements of income and cash flows for the period ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 41,363,019 0 37,950,347 1,113,935 277,070 83,433,315 26,465,947 16,075,132 184,471,328 27,357,596 0 0 0 2,335,642 87,356,054 184,471,328 237,068,057 237,068,057 163,958,380 163,958,380 36,574,333 0 859,555 37,032,257 16,239,000 20,793,257 0 0 0 20,793,257 .36 .34 Adjusted to reflect a two-for-one stock split effective April 12, 2000.
EX-27.2 8 0008.txt FINANCIAL DATA SCHEDULE 2000
5 This schedule contains summary financial information extracted from the consolidated balance sheet of Hooper Holmes, Inc. and subsidiaries as of December 31, 2000 and the related consolidated statements of income and cash flows for the period ended December 31, 2000 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-2000 JAN-01-2000 DEC-31-2000 45,680,471 29,188,309 37,720,764 884,352 284,418 108,278,734 27,382,480 18,058,073 211,035,882 14,973,657 0 0 0 2,698,167 188,378,454 211,035,882 274,973,666 274,973,666 197,347,143 197,347,143 48,993,468 0 1,290,973 36,133,851 15,170,000 20,963,851 0 0 0 20,963,851 .32 .31
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