<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Lifeline Systems, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
LIFELINE SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING
MAY 17, 1995
To the Stockholders of LIFELINE SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Lifeline
Systems, Inc., a Massachusetts corporation (the "Company"), will be held on
Wednesday, May 17, 1995, at 10:00 A.M., Boston time, at Hale and Dorr, 60 State
Street (Hale and Dorr Suites, 26th Floor), Boston, Massachusetts 02109, to
consider and act upon the following matters:
1. To elect three Class III Directors, each to hold office until the
Annual Meeting of Stockholders in 1998 and until his or her
successor is elected and qualified;
2. To ratify and approve the Company's 1995 Employee Stock Purchase
Plan;
3. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent accountants; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments of the meeting.
This Notice and the accompanying proxy materials are being mailed to all
holders of the Company's Common Stock. The close of business at 5:00 P.M.,
March 24, 1995 is the record date for determining stockholders entitled to
receive notice of and to vote at the Annual Meeting or any adjournment or
adjournments thereof, and only stockholders of record at the close of business
on that date are entitled to notice of and to vote at the meeting. The stock
transfer books of the Company remain open.
By Order of the Board of Directors,
NORMAN B. ASHER, Clerk
Cambridge, Massachusetts
April 12, 1995
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED
IN THE UNITED STATES.
<PAGE>
LIFELINE SYSTEMS, INC.
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1995
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lifeline Systems, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held at 10:00 A.M. on
Wednesday, May 17, 1995 (the "Annual Meeting") and at any adjournment of that
meeting. All proxies will be voted in accordance with the instructions
contained therein, and if no choice is specified, the proxies will be voted in
favor of the proposals set forth in the Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before it is exercised by giving written
notice to that effect to the Clerk of the Company, by the submission of another
signed proxy bearing a later date or by the stockholder's personal attendance
at the meeting and voting by ballot.
The Board of Directors has fixed March 24, 1995 as the record date for
determining stockholders who are entitled to vote at the Annual Meeting. At the
close of business on March 24, 1995 there were outstanding and entitled to vote
5,628,672 shares of the Common Stock, $.02 par value, of the Company. Each
share is entitled to one vote.
The Company's Annual Report and these proxy materials were first mailed to
stockholders on or about April 12, 1995.
THE COMPANY WILL, UPON WRITTEN REQUEST OF ANY STOCKHOLDER, PROVIDE WITHOUT
CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. REQUESTS SHOULD BE ADDRESSED TO THE COMPANY IN CARE OF CORPORATE
SECRETARY, 640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139.
VOTES REQUIRED AND TABULATION OF VOTES
The holders of a majority of the shares of Common Stock issued, outstanding
and entitled to vote on any matter shall constitute a quorum with respect to
that matter at the Annual Meeting. Shares of Common Stock represented in person
or by proxy (including shares which abstain or do not vote with respect to one
or more of the matters presented for stockholder approval) will be counted for
purposes of determining whether a quorum is present.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the
election of directors. The affirmative vote of the holders of a majority of the
shares of Common Stock present or represented and voting on the matter is
required for the approval of the Company's 1995 Employee Stock Purchase Plan
and the ratification of the selection of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the current year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be voted in favor of such matter, and will also not be counted
as votes cast or shares voting on such matter. Accordingly, abstentions and
"broker non-votes" will have no effect on the
<PAGE>
voting on a matter that requires the affirmative vote of a certain percentage
of the votes cast or shares voting on a matter, such as the election of
directors, the approval of the 1995 Employee Stock Purchase Plan and the
ratification of accountants.
In addition to the vote required to approve the Company's 1995 Employee Stock
Purchase Plan, in order for such plan to qualify under Rule 16b-3, which
provides an exemption from Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), for certain employee benefit plans, the plan
must be approved by the affirmative vote of the holders of a majority of the
shares of Common Stock present, or represented, and entitled to vote at the
Annual Meeting. For these purposes, an abstention will be treated the same as a
vote against the proposal.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of February 1, 1995,
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company named in the Summary Compensation Table
set forth under the caption "Executive Compensation" below, and (iv) all
directors and executive officers of the Company as of February 1, 1995 as a
group:
<TABLE>
<CAPTION>
SHARES OF COMMON PERCENTAGE OF
NAME OF BENEFICIAL STOCK BENEFICIALLY COMMON STOCK
OWNER OWNED(1) OUTSTANDING(2)
------------------ ------------------ --------------
<S> <C> <C>
L. Dennis Shapiro(3).................... 770,833 13.7%
24 Essex Road
Chestnut Hill, MA 02167
FMR Corp.(4)............................ 354,300 6.4%
82 Devonshire Street
Boston, MA 02109
Ronald Feinstein(5)..................... 338,651 6.0%
c/o Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, MA 02139
Michael A. Noch(6)...................... 289,800 5.3%
124 East Woods Road
Pound Ridge, NY 10576
Steven M. Tritman(7).................... 38,025 *
Joseph E. Kasputys, Ph.D.(8)............ 25,650 *
Gordon C. Vineyard, M.D.(9)............. 14,501 *
Everett N. Baldwin(10).................. 20,500 *
Carolyn C. Roberts(11).................. 2,000 *
Paul V. Vizzini(12)..................... 26,580 *
Richard M. Reich(13).................... 68,588 1.2%
John D. Gugliotta(14)................... 30,689 *
Donald G. Strange(15)................... 11,000 *
All directors and executive officers as
a group (13 persons)(16)............... 1,397,133 23.6%
</TABLE>
- - --------
* Less than 1% of the outstanding Common Stock.
(Footnotes continued on following page)
2
<PAGE>
(1) The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission that the named stockholders are
direct or indirect beneficial owners of such shares. Unless otherwise
indicated, each person listed above has sole voting and investment power
with respect to the shares listed.
(2) Number of shares deemed outstanding includes 5,495,415 shares outstanding
as of February 1, 1995, plus any shares subject to options held by the
named person or entity that are currently exercisable or exercisable
within 60 days after February 1, 1995.
(3) Includes 115,500 shares subject to stock options held by Mr. Shapiro that
are currently exercisable or exercisable within 60 days after February 1,
1995. Also includes the following shares, as to all of which Mr. Shapiro
disclaims beneficial ownership: 4,124 shares held by Mr. Shapiro as
custodian for three minor children, over which he has sole voting and
investment power; and 35,312 shares held by Mr. Shapiro's wife, 12,360
shares held by Mr. Shapiro's wife as custodian for three minor children,
66,000 shares held by Mr. Shapiro's wife as co-trustee of three trusts for
his children and 17,062 shares held by Mr. Shapiro's children, over which
he has shared voting and investment power.
(4) Represents holdings based on information provided by FMR Corp. in Schedule
13G dated February 13, 1995. Includes 31,000 shares owned by an
institutional account over which Edward D. Johnson 3d and FMR Corp.,
indirectly through its control of Fidelity Management Trust Company, has
sole voting and investment power and 280,800 shares owned by Fidelity
Trend Fund over which each of FMR Corp. and its Chairman, Edward D.
Johnson 3d, has sole investment power. The sole power to vote these
280,800 shares is possessed by the Board of Trustees of Fidelity Trend
Fund. The Chairman of the Fidelity Trend Fund's Proxy Committee is the
President of Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp.
(5) Includes 138,501 shares subject to stock options held by Mr. Feinstein
that are currently exercisable or exercisable within 60 days after
February 1, 1995. Includes 16,000 shares held by Mr. Feinstein's children.
Includes 4,867 shares beneficially owned by Mr. Feinstein through the
Lifeline Employees' Savings and Investment Plan (the "401(k) Plan"), as to
which shares Mr. Feinstein possesses sole investment power but no voting
power. Also includes 83,333 shares pledged to the Company to secure a
$250,000 loan by the Company to Mr. Feinstein. See "Other Arrangements--
Feinstein Employment Agreement."
(6) Represents holdings based on information provided to the Company by
Michael A. Noch.
(7) Includes 1,650 shares held by Mr. Tritman's wife, as to which he disclaims
beneficial ownership. Also, includes 13,500 shares subject to stock
options held by Mr. Tritman that are currently exercisable or exercisable
within 60 days after February 1, 1995.
(8) Includes 15,000 shares subject to stock options held by Dr. Kasputys that
are currently exercisable or exercisable within 60 days after February 1,
1995.
(9) Includes 13,500 shares subject to stock options held by Dr. Vineyard that
are currently exercisable or exercisable within 60 days after February 1,
1995.
(10) Includes 13,500 shares subject to stock options held by Mr. Baldwin that
are currently exercisable or exercisable within 60 days after February 1,
1995.
(11) Includes 1,000 shares subject to stock options held by Ms. Roberts that
are currently exercisable or exercisable within 60 days after February 1,
1995.
(12) Includes 9,000 shares subject to stock options held by Mr. Vizzini that
are currently exercisable or exercisable within 60 days after February 1,
1995. Also includes 880 shares beneficially owned by Mr. Vizzini through
the 401(k) Plan as to which shares Mr. Vizzini possesses sole investment
power but no voting power.
(Footnotes continued on following page)
3
<PAGE>
(13) Includes 35,667 shares subject to stock options held by Mr. Reich that are
currently exercisable or exercisable within 60 days after February 1,
1995. Also includes 5,421 shares beneficially owned by Mr. Reich through
the 401(k) Plan, as to which shares Mr. Reich possesses sole investment
power but no voting power.
(14) Includes 29,000 shares subject to stock options held by Mr. Gugliotta that
are currently exercisable or exercisable within 60 days after February 1,
1995. Also includes 1,689 shares beneficially owned by Mr. Gugliotta
through the 401(k) Plan, as to which shares Mr. Gugliotta possesses sole
investment power but no voting power.
(15) Includes 9,000 shares subject to stock options held by Mr. Strange that
are currently exercisable or exercisable within 60 days after February 1,
1995.
(16) Includes an aggregate of 432,734 shares subject to stock options that are
currently exercisable or exercisable within 60 days after February 1,
1995.
1. ELECTION OF DIRECTORS
The Company's Board of Directors is classified into three classes (designated
Class I Directors, Class II Directors and Class III Directors), with members of
each class holding office for staggered three year terms. There are currently
two Class I Directors, whose terms expire at the 1996 Annual Meeting of
Stockholders, two Class II Directors, whose terms expire at the 1997 Annual
Meeting of Stockholders, and three Class III Directors, whose terms expire at
the 1995 Annual Meeting of Stockholders.
The persons named in the proxy will vote to elect as Class III Directors the
three nominees named below unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. Because
the Board of Directors has fixed the number of Class III directors at three
members, the proxy may not be voted for more than three directors. If any of
the nominees becomes unavailable, the person acting under the proxy may vote
the proxy for the election of a substitute. It is not presently contemplated
that any of the nominees will be unavailable. The nominees, Steven M. Tritman,
Gordon C. Vineyard, M.D., and Carolyn C. Roberts, have been directors since
1984, 1985 and 1994, respectively. Each of the nominees will be elected to hold
office until the Annual Meeting of Stockholders in 1998, and until his or her
successor is elected and qualified.
The following table sets forth the name of each of the nominees for election
to the Board of Directors at the Annual Meeting, followed by the name of each
other director who will continue in office after the Annual Meeting, and each
such person's principal occupation and business experience during the past five
years, his or her age and the year in which he or she became a director of the
Company:
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FIRST
AND BUSINESS EXPERIENCE BECAME A
DURING THE PAST FIVE YEARS DIRECTOR
------------------------------- --------
<S> <C>
THE THREE NOMINEES FOR ELECTION AS CLASS III DIRECTORS TO SERVE UNTIL THE ANNUAL
MEETING OF STOCKHOLDERS IN 1998:
Steven M. Tritman................................................................. 1984
Age 47; Mr. Tritman has been President and Chief Executive Officer of InterGREAT,
Inc., which develops and markets performance enhancement software, since
November 1994. From November 1990 to October 1994, Mr. Tritman was President of
Innovation Associates, a management consulting firm, prior to which time he was
its Chairman, from January 1988 to November 1990. He was also President of
Little & Company, a financial and information services firm, from January 1989
until November 1990.** ***
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION FIRST
AND BUSINESS EXPERIENCE BECAME A
DURING THE PAST FIVE YEARS DIRECTOR
------------------------------- --------
<S> <C>
Gordon C. Vineyard, M.D. ......................................................... 1985
Age 58; Dr. Vineyard has been Director of Surgical Specialties and Radiology and
Surgeon-in-Chief of the Harvard Community Health Plan's Health Centers Division
since 1991. From 1980 to 1991, he was its Chief of Surgery. He is also an
Associate Clinical Professor of Surgery at The Harvard Medical School. Dr.
Vineyard has been a surgeon at Boston's Brigham and Women's Hospital since
1972.*
Carolyn C. Roberts................................................................ 1994
Age 56; Ms. Roberts has been President and Chief Executive Officer at Copley
Health Systems, Inc. since 1985. Since 1982, she has also been President and
Chief Executive Officer of Copley Hospital, Inc. Ms. Roberts has served on the
Board of Trustees of the American Hospital Association since 1990, was Chair of
the Board in 1994 and is currently a member of its Executive Committee.
THE TWO CLASS I DIRECTORS NAMED BELOW WILL CONTINUE IN OFFICE UNTIL THE ANNUAL
MEETING OF
STOCKHOLDERS IN 1996:
L. Dennis Shapiro................................................................. 1978
Age 61; Mr. Shapiro has been Chairman of the Board since 1978. Mr. Shapiro was
Chief Executive Officer and Treasurer of the Company from 1978 through December
1988.* **
Everett N. Baldwin................................................................ 1991
Age 62; Mr. Baldwin has been President and Chief Executive Officer and a Director
of Welch Foods, Inc. since August 1982.* ** ***
THE TWO CLASS II DIRECTORS NAMED BELOW WILL CONTINUE IN OFFICE UNTIL THE ANNUAL
MEETING OF
STOCKHOLDERS IN 1997:
Ronald Feinstein.................................................................. 1985
Age 48; Mr. Feinstein has been President and Chief Executive Officer of the Com-
pany since January 1, 1993. In October 1992, Mr. Feinstein was appointed Chief
Operating Officer and Executive Vice President of the Company. Mr. Feinstein was
the President and Chief Executive Officer of International Business Interiors
from January 1991 to September 1992. From January 1989 to December 1990, Mr.
Feinstein was the President of the European Stationery Group of Dennison Manu-
facturing Company. From 1982 to 1988, Mr. Feinstein was the President, Chief Ex-
ecutive Officer and Director of Dennison National Company, a wholly owned sub-
sidiary of Dennison Manufacturing Company.
Joseph E. Kasputys, PH.D. ........................................................ 1985
Age 58; Dr. Kasputys has been Chairman, President and Chief Executive Officer of
Primark Corporation, an international company primarily engaged in information
service businesses, since June 1987.** ***
</TABLE>
- - --------
* Member of the Audit Committee.
** Member of the Compensation Committee.
*** Member of the Stock Option Plans Committee.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company has an Audit Committee, which held two meetings during the fiscal
year ended December 31, 1994. The principal functions of the Audit Committee
are to make recommendations to the Board of Directors regarding the engagement
of the Company's independent auditors, to review and approve any major
accounting policy changes affecting the Company's operating results, to review
the arrangements for and
5
<PAGE>
scope of the independent audit and the results of the audit, to review the
scope of non-audit activities performed by the independent auditors and to
assure that the auditors are in fact independent, and to establish and monitor
policies to prohibit unethical, questionable or illegal activities by employees
of the Company.
The Company has a Compensation Committee, which held two meetings during the
fiscal year ended December 31, 1994. The principal function performed by the
Compensation Committee is to make recommendations to the Board of Directors as
to compensation arrangements, including bonuses for senior management. The
Company also has a Stock Option Plans Committee, which was formed in February
1994. The principal function of the Stock Option Plans Committee is to grant
stock options to employees of the Company and to otherwise administer the
Company's stock option plans.
The Company has no nominating committee of the Board of Directors or
committee performing similar functions. The Board of Directors will consider
nominees for director recommended by stockholders of the Company. The names of
such nominees should be forwarded to the Corporate Secretary, Lifeline Systems,
Inc., 640 Memorial Drive, Cambridge, Massachusetts 02139, who will submit them
to the Board of Directors for its consideration.
During the fiscal year ended December 31, 1994, the Board of Directors of the
Company held six meetings. All directors attended at least 75% of the aggregate
number of meetings of the Board of Directors and of the number of meetings of
the committees of the Board on which they respectively served.
DIRECTORS' COMPENSATION
Each director who is not an executive officer receives an annual retainer fee
of $5,000 plus $750 for each Board meeting attended and $500 for each Committee
meeting attended ($750 for each day during which a director attended both a
Board and a Committee meeting). The Chairmen of the Audit Committee and the
Compensation Committee each receive an annual fee of $2,500 for their services
in this capacity in addition to their regular annual retainer fee. Executive
officers do not receive any additional remuneration for their services as
directors. The Chairman of the Board, Mr. Shapiro, receives an annual fee of
$10,000 for his services as Chairman in addition to his regular annual retainer
fee.
The Company's 1991 Stock Option Plan provides that non-employee directors
receive, on the sixth business day of each calendar year, options to purchase
3,000 shares of Common Stock at an exercise price equal to the fair market
value of such shares on the date of grant, vesting one-third on the date of
grant and one-third on each of the next two anniversary dates. Pursuant to this
provision, on January 10, 1994, each of the then non-employee directors
received options to purchase 3,000 shares of Common Stock at an exercise price
of $4.438 per share (the fair market value on the date of grant), and on
January 9, 1995, each of the then non-employee directors received options to
purchase 3,000 shares of Common Stock at an exercise price of $5.50 per share
(the fair market value on the date of grant). In addition, in September 1994 in
connection with her initial election as a director, Ms. Roberts received an
option to purchase 3,000 shares of Common Stock at $4.25 per share (which
represented the fair market value of the Common Stock on the date of grant)
vesting one-third on the date of grant and one-third on each of the next two
anniversary dates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kasputys, Baldwin, Shapiro and Tritman served as members of the
Compensation Committee during the Company's most recent fiscal year. Mr.
Shapiro is the Chairman of the Board of Directors and previously served at
various times as the Company's President, Chief Executive Officer and
Treasurer.
6
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated
executive officers during the fiscal year ended December 31, 1994 who were
serving as executive officers at December 31, 1994 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND SALARY BONUS GRANTED COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (#)(1) ($)(2)
------------------ ---- ------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ronald Feinstein........ 1994 $ 206,667 $ 144,492(4) 40,000 $1,000
President and Chief Ex-
ecutive 1993 200,000 125,500(4) -- 667
Officer(3) 1992 55,061 -- 250,000 --
Paul V. Vizzini......... 1994 125,000 44,276(6) 7,500 1,000
Vice President, Market-
ing(5) 1993 68,231 27,600(6) 50,000 1,000
Richard M. Reich........ 1994 121,588 44,902(6) 10,000 1,000
Vice President, Tech-
nology and 1993 120,888 34,720(6) 7,500 1,000
Advanced Services 1992 119,861 -- 5,000 1,000
John D. Gugliotta....... 1994 117,604 41,711(6) 7,500 --
Vice President, Opera-
tions 1993 112,125 34,720(6) 7,500 --
1992 110,903 -- 5,000 1,000
Donald G. Strange....... 1994 108,153 39,284(6) 7,500 1,000
Vice President,
Sales(7) 1993 82,821 24,402(6) 25,000 1,000
</TABLE>
- - --------
(1) Reflects the grant of options to purchase Common Stock.
(2) Represents Company contributions to the Company's 401(k) Plan.
(3) Mr. Feinstein became an executive officer of the Company in October 1992.
(4) Includes $14,950 and $21,200 paid to Mr. Feinstein as a special bonus
pursuant to the terms of his employment agreement with the Company, which
amount was based on the Company's pre-tax profit in 1994 and 1993,
respectively. See "Other Arrangements--Feinstein Employment Agreement."
(5) Mr. Vizzini became an executive officer of the Company in June 1993.
(6) Represents amounts paid under the Company's Executive Bonus Plan.
(7) Mr. Strange became an executive officer of the Company in February 1993.
7
<PAGE>
Option Grants
The following table sets forth certain information concerning grants of stock
options made during the fiscal year ended December 31, 1994 to each of the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES
UNDER- OPTIONS EXERCISE OF STOCK PRICE
LYING GRANTED TO OR APPRECIATION FOR
OPTIONS EMPLOYEES BASE OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 40,000(2) 33.0% $5.00 2/11/04 $ 125,779 $ 318,748
Paul V. Vizzini......... 5,000(3) 4.1% 5.00 2/11/04 15,722 39,844
2,500(4) 2.1% 5.00 2/11/01 5,089 11,859
Richard M. Reich........ 5,000(4) 4.1% 4.25 2/11/01 7,825 17,977
3,334(3) 2.8% 5.00 2/11/04 10,484 26,568
1,666(4) 1.4% 5.00 2/11/01 3,391 7,903
John D. Gugliotta....... 5,000(3) 4.1% 5.00 2/11/04 15,722 39,844
2,500(4) 2.1% 5.00 2/11/01 5,089 11,859
Donald G. Strange....... 5,000(3) 4.1% 5.00 2/11/04 15,722 39,844
2,500(4) 2.1% 5.00 2/11/01 5,089 11,859
</TABLE>
- - --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and the date on which
the options are exercised.
(2) Fully exercisable on date of grant. Under the terms of the Company's 1994
Stock Option Plan, the Stock Option Plans Committee retains discretion,
subject to limits set forth in the plan, to modify the terms of outstanding
options. The options were granted for a term of ten years, subject to
earlier termination in certain events related to termination of employment.
(3) Exercisable in installments beginning 12 months after the grant date, with
20% of the shares covered thereby becoming exercisable at that time and an
additional 20% of the shares becoming exercisable on each successive
anniversary date. Under the terms of the Company's 1991 Stock Option Plan,
the Stock Option Plans Committee retains discretion, subject to limits set
forth in the plan, to modify the terms of outstanding options. The options
were granted for a term of ten years, subject to earlier termination in
certain events related to termination of employment.
(4) One-third of the shares covered by the option becomes exercisable on April
15 of the year following the first year ending after the date of grant in
which the Company's after-tax earnings meet a specified level, and one-
third of the shares becomes exercisable on April 15 of each of the two
following years. Under the terms of the Company's 1991 Stock Option Plan,
the Stock Option Plans Committee retains discretion, subject to limits set
forth in the plan, to modify the terms of outstanding options. The options,
other than the option for 5,000 shares granted to Mr. Reich, which was for
a term of approximately 6 1/2 years, were granted for a term of seven
years, subject to earlier termination in certain events related to
termination of employment.
8
<PAGE>
Option Exercises and Year-End Values
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1994 by each of the
Named Executive Officers and the number and value of unexercised options held
by each of the Named Executive Officers on December 31, 1994:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald Feinstein........ -- -- 138,501/160,000 $264,458/$420,000
Paul V. Vizzini......... -- -- 8,000/ 49,500 18,496/ 101,792
Richard M. Reich........ 7,500 $20,310 33,000/ 19,500 106,365/ 27,063
John D. Gugliotta....... -- -- 26,000/ 17,000 84,121/ 21,750
Donald G. Strange....... -- -- 4,000/ 28,500 10,500/ 59,813
</TABLE>
- - --------
(1) Based on the fair market value of the Common Stock on December 31, 1994
($5.625), less the option exercise price.
OTHER ARRANGEMENTS
Feinstein Employment Agreement
Pursuant to the terms of an employment agreement, as amended, effective as of
August 27, 1992, Ronald Feinstein became the Executive Vice President and Chief
Operating Officer of the Company on October 1, 1992, and the President and
Chief Executive Officer on January 1, 1993. Mr. Feinstein receives a base
salary of not less than $200,000 annually. Pursuant to the terms of Mr.
Feinstein's agreement, on September 1, 1992, the Company sold to Mr. Feinstein
83,333 shares of the Company's Common Stock at a price of $3.00 per share
(which represented the fair market value of the Common Stock on August 27,
1992) for an aggregate price of $250,000. The Company loaned $250,000 to Mr.
Feinstein for seven years at an annual interest rate of 5.98% pursuant to the
terms of a promissory note (the "Note") which is secured by the Common Stock
that Mr. Feinstein purchased. The Note will accelerate and become immediately
due and payable in certain cases within 90 days of termination of employment or
on the twentieth business day following a determination (the "Determination
Date") by the Chief Financial Officer of the Company, with the approval of the
Chairman of the Stock Option Plans Committee, that the value of 40,000 shares
of Common Stock exceeds (i) the sum of $450,000 plus (ii) the federal and state
taxes in effect on the Determination Date applicable to long-term capital gain,
determined as if 40,000 shares, with a total cost of $200,000, were bought and
sold on the Determination Date and resulted in a net profit after applicable
taxes of $250,000.
Until the Note is paid in full, but in no event later than April 15, 1999,
the Company will pay Mr. Feinstein a bonus equal to the lesser of (x) the
annual interest due on the Note and (y) 1% of the Company's pre-tax profit (a)
in the first year that the Company achieves a specified level of after-tax net
profit, and (b) in subsequent years, in the event that the Company achieves
certain percent increases in net profit from the previous year. Pursuant to
this provision of his employment agreement, Mr. Feinstein earned a bonus of
9
<PAGE>
$14,950 for the year ending December 31, 1994. In addition, Mr. Feinstein is
eligible to receive a bonus equal to 40% of his base salary if the Company
achieves the annual profit performance plan goals adopted by the Board of
Directors and a bonus of greater than 40% of his base salary if the Company
exceeds such goals. During the term of his employment agreement, Mr. Feinstein
will continue to serve as a member of the Board of Directors.
Pursuant to his employment agreement, Mr. Feinstein also received a
nonstatutory stock option to purchase up to 150,000 shares of Common Stock at
an exercise price of $3.00 per share (which represented the fair market value
on the date of grant), vesting one-fifth on the date of grant and one-fifth on
each of the next four anniversary dates. In addition, Mr. Feinstein was granted
a stock option to purchase up to 100,000 shares of Common Stock at $3.00 per
share (which represented the fair market value on the date of grant), subject
to a vesting schedule that is based on the achievement of certain financial
performance objectives by the Company. Upon a change in control of the Company,
(i) the stock option for 150,000 shares described above would be accelerated
and deemed to be vested and (ii) the stock option for 100,000 shares described
above would also be accelerated and deemed to be vested, provided that the
Company has achieved a certain level of profitability for the four quarters
preceding such change in control. Notwithstanding the foregoing, in the event
that there is a change in control prior to August 27, 1995 and no options are
then exercisable, the option covering 100,000 shares will become immediately
exercisable with respect to 50,000 shares. Furthermore, on February 11, 1994,
Mr. Feinstein received a nonstatutory, fully vested option under the Company's
1994 Stock Option Plan to purchase 40,000 shares of Common Stock at an exercise
price of $5.00 per share (which represented the fair market value on the date
of grant). Upon termination by the Company of his employment as Chief Executive
Officer and his membership on the Board of Directors, other than for cause, Mr.
Feinstein will continue to receive his salary for 12 months.
Change of Control Agreements
Each of the Company's executive officers, other than Mr. Feinstein, has
entered into an agreement with the Company which provides that, if within 12
months of a change of control of the Company, such officer's employment is
terminated without cause or the officer terminates his or her employment with
the Company due to a significant change in responsibilities or condition of
employment, then such officer would be entitled to receive a payment equal to
one year's base salary then being paid to him or her.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return of (i) the CRSP Total Return Index for the Nasdaq National Market
(U.S. Companies) (the "Nasdaq Composite Index") and (ii) the CRSP Total Return
Index for Nasdaq Health Services Stocks, ("Nasdaq Health Services Stocks").
This graph assumes the investment of $100 on December 31, 1989 in the Company's
Common Stock, the Nasdaq Composite Index and the industry index and assumes
dividends are reinvested. Measurement points are at the last trading day of the
fiscal years ended December 31, 1989, 1990, 1991, 1992, 1993 and 1994.
[Chart]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Lifeline Systems, Inc........... $100.00 $486.70 $550.00 $145.00 $190.00 $225.00
Nasdaq Composite Index.......... 100.00 84.90 136.30 158.60 180.90 176.90
Nasdaq Health Services Stocks... 100.00 116.00 258.20 267.40 308.60 332.40
</TABLE>
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four non-employee directors and is responsible for the development
and administration of the Company's executive compensation policies and
programs, subject to the review and approval of the entire Board. The Committee
reviews and recommends to the Board for its approval the salaries and incentive
compensation of the executive officers of the Company. The Company also has a
Stock Option Plans Committee, which grants stock options to executives and
other key employees of the Company and otherwise administers the Company's
stock option plans.
The objectives of the Company's executive compensation program are as
follows:
. support the achievement of strategic goals and objectives of the Company
. attract and retain key executives critical to the long-term success of
the Company
. align the executive officers' interests with the success of the Company
Compensation Program
The Company's executive compensation program consists of three principal
elements: base salary, annual cash incentive compensation and long-term
incentive compensation in the form of stock options. Generally, the Company's
objective is to pay base compensation which is comparable to the fiftieth
percentile total compensation package offered to officers in similar positions
at comparable companies, and to pay total compensation, including annual cash
bonuses and long-term incentives such as stock options, comparable to the
seventy-fifth percentile total compensation package offered to officers in
similar positions at comparable companies.
The Company's annual cash bonus plan is designed to create incentives for
meeting pre-tax profit goals. The Committee establishes a target bonus amount,
which would be paid out in full in the event that the Company achieves an
established pre-tax profit level, and which would be paid out to a lesser or
greater extent in the event that the goals are not met or are surpassed. No
annual cash bonus is paid if the Company's pre-tax profit falls below a minimum
level established by the Committee.
Long-term incentives for executive officers and key managers are provided
through stock options. The objectives of this program are to align executive
and stockholder long-term interests by creating a strong and direct link
between executive compensation and stockholder return.
Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of grant and will only have value if
the Company's stock price increases. In selecting executives eligible to
receive option grants and determining the amount of such grants, the Committee
evaluates a variety of factors, including (i) the job level of the executive,
(ii) option grants awarded by competitors to executives at a comparable job
level, and (iii) past, current and prospective service to the Company rendered,
or to be rendered, by the executive. Further, the Committee has typically
divided stock option awards into two-thirds non-qualified options which vest
over time and one-third with vesting schedules that begin upon the achievement
of financial goals.
The Compensation Committee periodically reviews all elements of officer
compensation with independent experts retained by the Company for this purpose.
12
<PAGE>
Chief Executive Officer's 1994 Compensation
Ronald Feinstein, the Chief Executive Officer of the Company since January 1,
1993, is generally compensated on the same basis as the other executive
officers of the Company, including a combination of base salary, bonus plan
payments and stock options. In fixing Mr. Feinstein's base salary, the
Committee reviewed salary data for chief executive officers of comparable
companies, at both the fiftieth and seventy-fifth percentile, as well as Mr.
Feinstein's performance and the scope of his responsibilities.
The Stock Option Plans Committee awarded to Mr. Feinstein in February 1994,
subject to the approval by stockholders of the Company's 1994 Stock Option
Plan, stock options for the purchase of 40,000 shares of Common Stock. The
Company's 1994 Stock Option Plan was subsequently approved by the Company's
stockholders. The Stock Option Plans Committee believes that this stock option
grant, which would have value to Mr. Feinstein if the Company's stock
appreciates in the marketplace, would more fully align his interests with those
of the Company's stockholders.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code disallows a tax deduction to
public companies for certain compensation in excess of $1 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. The Company does not believe that Section 162(m) will
generally have an effect on the Company, because of the current and expected
compensation levels of its officers. However, the Committee intends to
periodically review the potential consequences of Section 162(m) and may
structure the performance-based portion of its executive officer compensation
(including its stock plans) to comply with certain exemptions provided in
Section 162(m). To meet the requirements of Section 162(m), effective February
9, 1994 the Board established the Stock Option Plans Committee to administer
all of the Company's stock option plans.
Compensation Committee
Joseph E. Kasputys, Ph.D, Chairman*
Everett N. Baldwin*
L. Dennis Shapiro
Steven M. Tritman*
* Member of the Stock Option Plans
Committee
2. RATIFICATION AND APPROVAL OF 1995 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes it is in the best interests of the Company to
encourage stock ownership by employees of the Company. Although there are
approximately 230,000 shares available for issuance under the Company's 1992
Employee Stock Purchase Plan, the final offering under such plan terminates in
April 1995. In order to continue to encourage stock ownership by employees of
the Company, on March 31, 1995 the Board of Directors adopted, subject to
stockholder approval, the Company's 1995 Employee Stock Purchase Plan (the
"1995 Purchase Plan") providing for the issuance of up to 200,000 shares of
Common Stock (subject to adjustment for any dividend, stock split or other
relevant change in the Company's capitalization).
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE 1995 PURCHASE PLAN
IS IN THE BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A
VOTE "FOR" THIS PROPOSAL.
13
<PAGE>
The following is a brief summary of certain provisions of the 1995 Purchase
Plan. This summary is qualified in all respects by reference to the full text
of the 1995 Purchase Plan, which appears as Exhibit A to this Proxy Statement.
Offerings and Purchase Price of Shares. The 1995 Purchase Plan consists of
ten consecutive semiannual offerings, each (other than the first offering) six
months in length. Each semiannual offering period under the 1995 Purchase Plan
is referred to as an "Offering Period". The first Offering Period begins in
June 1995 and terminates in October 1995 and the final Offering Period begins
in November 1999 and terminates in April 2000.
Each eligible employee who elects to participate in the 1995 Purchase Plan
may authorize an amount (a whole percentage from 1% to 10% of such employee's
eligible compensation) to be deducted by the Company from his pay during the
Offering Period. On the last day of the Offering Period, the employee is deemed
to have, to the extent of accumulated payroll deductions, purchased shares of
the Company's Common Stock at a price equal to 90% of the fair market value per
share of the Common Stock on either the first day or the last day of the
Offering Period, whichever is lower. The fair market value of the Company's
Common Stock on March 15, 1995, represented by the closing sale price on the
Nasdaq National Market, was $6.00.
In no event may an employee purchase in any one Offering Period a number of
shares which is more than 125% of the quotient of (A) 150% of the employee's
annualized base pay multiplied by the percentage of the amount he or she has
elected to have withheld divided by (B) 90% of the market value of a share of
Common Stock on the commencement date of the Offering, but in no event more
than 500 shares.
Eligibility. With certain limited exceptions in the case of employees already
holding a significant amount of Common Stock, each employee of the Company
having at least six months of service as of the date of the Offering Period
commences and who ordinarily works 20 or more hours per week and more than five
months per year is eligible to participate in the 1995 Purchase Plan. As of
March 15, 1995, approximately 240 employees were eligible to participate in the
1995 Purchase Plan. The purchase of shares under the 1995 Purchase Plan is
voluntary, and the Company cannot now determine the number of shares to be
purchased in the future by any person or group.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to purchase shares under the 1995 Purchase Plan,
and the amount of such employee's accumulated payroll deductions will be
refunded. An employee's rights under the 1995 Purchase Plan terminate upon
voluntary withdrawal from the 1995 Purchase Plan at any time, or when such
employee ceases employment for any reason.
Change in Control. In the event of a change in control of the Company, the
Board of Directors may accelerate the last day of the Offering Period then in
effect and permit participants to purchase shares under the 1995 Purchase Plan
at such accelerated transaction date. The 1995 Purchase Plan also contains
provisions relating to the disposition of rights to purchase shares in the
event of certain mergers or other significant transactions involving the
Company.
Amendment and Termination. The Board of Directors of the Company may
terminate or amend the 1995 Purchase Plan at any time. However, no amendment
shall be made without prior approval of the stockholders of the Company if such
approval is required under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), or Rule 16b-3 under the Exchange Act, and no amendment
may be made that would cause the plan to fail to qualify under Section 423 of
the Code or Section 16 of the Exchange Act.
14
<PAGE>
Federal Income Tax Consequences. The 1995 Purchase Plan is intended to
qualify as an "Employee Stock Purchase Plan" within the meaning of Section 423
of the Code, which provides that the participant does not have to pay any
federal income tax upon joining the 1995 Purchase Plan or when an offering ends
and he or she receives shares of Common Stock. The participant is, however,
required to pay federal income tax on the difference, if any, between the price
at which he or she sells the shares and the price that he or she paid for them.
If the participant has owned the shares for more than one year and disposes of
them at least two years after the date the offering commenced, he or she will
be taxed as follows. If the sale price of the shares is equal to or less than
the price paid for the shares under the 1995 Purchase Plan, the participant
will incur a long-term capital loss in the amount equal to the price paid over
the sale price. If the sale price is higher than the price paid under the 1995
Purchase Plan, the participant will recognize ordinary income in an amount
equal to the lesser of (i) the market price of the shares on the day the
offering commenced over the price paid or (ii) the excess of the sale price
over the price paid. Any further gain is treated as a long-term capital gain.
If the employee sells the shares before he or she has owned them for more
than one year or before the expiration of a two-year period commencing on the
day the offering period commenced, the employee will have to recognize ordinary
income on the amount of the difference between the purchase price and the
market price of the shares on the date of purchase and the Company will receive
an expense deduction for the same amount. The employee will recognize a capital
gain or loss (long or short-term, depending on the period the employee has
owned the shares) for the difference between the sale price and the market
price on the date of purchase. Other than as described above, the Company will
not be entitled to a tax deduction upon the purchase or sale of shares under
the 1995 Purchase Plan.
3. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
Subject to ratification by the stockholders, the Board of Directors has
selected the firm of Coopers & Lybrand L.L.P., certified public accountants, as
independent accountants of the Company for the Company's 1995 fiscal year.
Coopers & Lybrand L.L.P. has served as the Company's independent accountants
since 1979. Although stockholder approval of the Board of Directors' selection
of Coopers & Lybrand L.L.P. is not required by law, the Board of Directors
believes that it is advisable to give the stockholders an opportunity to ratify
this selection. If this proposal is not approved, the Board of Directors will
reconsider its selection of Coopers & Lybrand L.L.P. Representatives of Coopers
& Lybrand L.L.P. are expected to be present at the Annual Meeting. They will
have an opportunity to make a statement if they desire to do so, and will also
be available to respond to appropriate questions from stockholders.
4. OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to the
meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
facsimile machine and personal interviews, and the Company reserves the right
to retain outside agencies for the purpose of soliciting proxies. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names and the Company will
reimburse them for their out-of-pocket expenses in this regard.
15
<PAGE>
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual Meeting
of Stockholders must be received by the Company at its principal office in
Cambridge, Massachusetts not later than December 14, 1995 for inclusion in the
proxy statement for that meeting.
By Order of the Board of Directors,
NORMAN B. ASHER, Clerk
Cambridge, Massachusetts
April 12, 1995
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
16
<PAGE>
LIFELINE SYSTEMS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Lifeline
Systems, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.02 par value
(the "Common Stock"). Two hundred thousand (200,000) shares of Common Stock in
the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings
of Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated Subsidiary
for more than 20 hours a week and for more than five months in a calendar
year; and
(b) they have been employed by the Company or a Designated Subsidiary for
at least six months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary. For purposes of the
preceding sentence, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which
the employee has a contractual right to purchase shall be treated as stock
owned by the employee.
3. Offerings. The Company will make ten offerings ("Offerings") to employees
to purchase stock under this Plan.
(a) Offering 1 shall begin on June 1, 1995 and terminate on October 31,
1995.
(b) Offering 2 shall begin on November 1, 1995 and terminate on April 30,
1996.
(c) Offering 3 shall begin on May 1, 1996 and terminate on October 31,
1996.
(d) Offering 4 shall begin on November 1, 1996 and terminate on April 30,
1997.
(e) Offering 5 shall begin on May 1, 1997 and terminate on October 31,
1997.
(f) Offering 6 shall begin on November 1, 1997 and terminate on April 30,
1998.
(g) Offering 7 shall begin on May 1, 1998 and terminate on October 31,
1998.
(h) Offering 8 shall begin on November 1, 1998 and terminate on April 30,
1999.
<PAGE>
(i) Offering 9 shall begin on May 1, 1999 and terminate on October 31,
1999.
(j) Offering 10 shall begin on November 1, 1999 and terminate on April
30, 2000.
If any of the above dates is not a business date, the Offering shall commence
or terminate, as applicable, on the first business day thereafter. The date of
the commencement of each Offering is referred to herein as an "Offering
Commencement Date" and the date of termination of each Offering is referred to
herein as an "Offering Termination Date." Each Offering period is referred to
herein as a "Plan Period," during which payroll deductions will be made and
held for the purchase of Common Stock at the end of the Plan Period.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the office of Human Resources of the
Company at least seven but not more than 30 days prior to the applicable
Offering Commencement Date. The form will authorize a regular payroll deduction
from the Compensation received by the employee during the Plan Period. Unless
an employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses and executive medical
reimbursements, income or gains on the exercise of Company stock options or
stock appreciation rights, and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement, but including overtime and
shift premium.
5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of 10% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. Payroll
deductions may be at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of
Compensation with any change in compensation during the Plan Period to result
in an automatic corresponding change in the dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which permits
his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at
the Offering Commencement Date of the Plan Period) for each calendar year in
which the Option is outstanding at any time.
6. Deduction Changes. An employee may not increase or decrease his or her
payroll deduction during a Plan Period.
7. Interest. Interest will not be paid on any employee accounts, except as
otherwise provided herein.
8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering by providing written notice
of withdrawal to the office of Human Resources of the Company. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by the
Board or the Committee, except that employees who are also directors or
officers of the Company within the meaning
2
<PAGE>
of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules promulgated there under may not participate again for a period of at
least six months as provided in Rule 16b-3(d)(2)(i) or any successor provision.
9. Purchase of Shares. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible employee who is then a participant in
the Plan an option ("Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for,
such number of whole shares of Common Stock of the Company reserved for the
purposes of the Plan as does not exceed the number of shares determined by (i)
multiplying an amount equal to 150% of the employee's annualized base pay as of
the Offering Commencement Date by the percentage of it which he or she has
elected to have withheld (but not in excess of 10%), (ii) dividing such product
by 90% of the market value of a share of Common Stock as of the Offering
Commencement Date, and (iii) multiplying such quotient by 1.25, but in no event
more than 500 shares. The market value of the Common Stock shall be determined
as provided in the following paragraph. An employee's annualized base pay shall
be determined as follows: (i) in the case of a full-time employee normally paid
on an hourly rate, by multiplying his or her normal hourly rate by 2080; (ii)
in the case of a part-time employee normally paid on an hourly rate, by
multiplying his or her normal hourly rate by the product of 52 times the number
of hours in his or her normal work week; (iii) in the case of an employee
normally paid at a weekly rate, by multiplying his or her normal weekly rate by
52; (iv) in the case of an employee normally paid at a bi-weekly rate, by
multiplying his or her normal bi-weekly rate by 26; and (v) in the case of an
employee normally paid at a monthly rate, by multiplying his or her normal
monthly rate by 12.
The purchase price for each share purchased will be 90% of the closing price
of the Common Stock on (i) the first business day of such Plan Period or (ii)
the Exercise Date, whichever closing price shall be less. Such closing price
shall be (a) the closing price on any national securities exchange on which the
Common Stock is listed, (b) the closing price of the Common Stock on the Nasdaq
National Market or (c) the average of the closing bid and asked prices in the
over-the-counter-market, whichever is applicable, as published in The Wall
Street Journal. If no sales of Common Stock were made on such a day, the price
of the Common Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined in
the manner set forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the
street name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the event of
a participating employee's termination of employment prior to the last business
day of a Plan Period, no payroll deduction
3
<PAGE>
shall be taken from any pay due and owing to an employee and the balance in the
employee's account shall be paid to the employee or, in the event of the
employee's death, (a) to a beneficiary previously designated in a revocable
notice signed by the employee (with any spousal consent required under state
law) or (b) in the absence of such a designated beneficiary, to the executor or
administrator of the employee's estate or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate. If, prior to the
last business day of the Plan Period, the Designated Subsidiary by which an
employee is employed shall cease to be a subsidiary of the Company, or if the
employee is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge with another corporation
and the Company is the surviving entity, the holder of each Option then
outstanding will thereafter be entitled to receive at the next Offering
Termination Date upon the exercise of such Option for each share as to which
such Option shall be exercised the securities or property which a holder of one
share of the Common Stock was entitled to upon and at the time of such merger,
and the Board of Directors shall take such steps in connection with such merger
as the Board of Directors shall deem necessary to assure that the provisions of
Paragraph 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder. In the event of a
merger in which the Company is not the surviving entity, or of a sale of all or
substantially all of the assets of the Company, the Plan shall terminate, and
all payroll deductions credited to participants' accounts shall be returned to
them, with simple interest computed at the 90-day Treasury Bill rate as of the
applicable Offering Commencement Date; provided, however, that the Board of
Directors may, in the event of such merger or sale, accelerate the Offering
Termination Date of the Offering then in effect and permit participants to
purchase shares under the Plan at such accelerated Offering Termination Date.
17. Change in Control. Notwithstanding any other provision of the Plan and
except as otherwise provided in the relevant option agreement, in the event of
a "Change in Control of the Company" (as defined below), the Board of Directors
may accelerate the Offering Termination Date of the Offering then in effect and
permit participants to purchase shares under the Plan at such accelerated
Offering Termination Date. For purposes of the Plan, a "Change in Control of
the Company" shall occur or be deemed to have occurred
4
<PAGE>
only if (i) any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years ending
during the term of the Plan (not including any period prior to the adoption of
the Plan), individuals who at the beginning of such period constitute the Board
of Directors of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect any transaction described in clause (i), (iii) or (iv) of this Section
17) whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were either directors at the beginning of
the period or whose election or whose nomination for election was previously so
approved (collectively, the "Disinterested Directors"), cease for any reason to
constitute a majority of the Board of Directors; (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 30% of the combined voting power of the Company's then outstanding
securities or (C) a merger or consolidation which has been approved by a
majority of the Disinterested Directors; or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets which, in either case, has not previously been approved by a
majority of the Disinterested Directors. Notwithstanding the foregoing, the
Board of Directors of the Company may, in its sole discretion, by a resolution
adopted by two-thirds of the Disinterested Directors prior to the occurrence of
any of the events otherwise constituting a Change in Control of the Company,
declare that such event will not constitute a Change in Control of the Company
for the purposes of the Plan. If such resolution is adopted, such event shall
not constitute a Change in Control of the Company for any purpose of the Plan.
18. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the shareholders of the Company is required by Section 423 of the
Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange
Act and the rules promulgated thereunder, as in effect from time to time, or
Section 423 of the Code.
19. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis. The balance of the
payroll deductions credited to the account of each participating employee shall
be returned to him or her with simple interest computed upon such balance at
the 90-day U.S. Treasury Bill rate as of the applicable Offering Commencement
Date.
5
<PAGE>
20. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
The Plan shall be governed by Massachusetts law except to the extent that
such law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. Any provision inconsistent with such
Rule shall to that extent be inoperative and shall not affect the validity of
the Plan.
22. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on March 31, 1995, subject to approval by the shareholders of the Company as
required by Rule 16b-3 under the Exchange Act and by Section 423 of the Code,
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors on
March 31, 1995
6
<PAGE>
LIFELINE SYSTEMS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Lifeline
Systems, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.02 par value
(the "Common Stock"). Two hundred thousand (200,000) shares of Common Stock in
the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings
of Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated Subsidiary
for more than 20 hours a week and for more than five months in a calendar
year; and
(b) they have been employed by the Company or a Designated Subsidiary for
at least six months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary. For purposes of the
preceding sentence, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which
the employee has a contractual right to purchase shall be treated as stock
owned by the employee.
3. Offerings. The Company will make ten offerings ("Offerings") to employees
to purchase stock under this Plan.
(a) Offering 1 shall begin on June 1, 1995 and terminate on October 31,
1995.
(b) Offering 2 shall begin on November 1, 1995 and terminate on April 30,
1996.
(c) Offering 3 shall begin on May 1, 1996 and terminate on October 31,
1996.
(d) Offering 4 shall begin on November 1, 1996 and terminate on April 30,
1997.
(e) Offering 5 shall begin on May 1, 1997 and terminate on October 31,
1997.
(f) Offering 6 shall begin on November 1, 1997 and terminate on April 30,
1998.
(g) Offering 7 shall begin on May 1, 1998 and terminate on October 31,
1998.
(h) Offering 8 shall begin on November 1, 1998 and terminate on April 30,
1999.
<PAGE>
(i) Offering 9 shall begin on May 1, 1999 and terminate on October 31,
1999.
(j) Offering 10 shall begin on November 1, 1999 and terminate on April
30, 2000.
If any of the above dates is not a business date, the Offering shall commence
or terminate, as applicable, on the first business day thereafter. The date of
the commencement of each Offering is referred to herein as an "Offering
Commencement Date" and the date of termination of each Offering is referred to
herein as an "Offering Termination Date." Each Offering period is referred to
herein as a "Plan Period," during which payroll deductions will be made and
held for the purchase of Common Stock at the end of the Plan Period.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the office of Human Resources of the
Company at least seven but not more than 30 days prior to the applicable
Offering Commencement Date. The form will authorize a regular payroll deduction
from the Compensation received by the employee during the Plan Period. Unless
an employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses and executive medical
reimbursements, income or gains on the exercise of Company stock options or
stock appreciation rights, and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement, but including overtime and
shift premium.
5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of 10% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. Payroll
deductions may be at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of
Compensation with any change in compensation during the Plan Period to result
in an automatic corresponding change in the dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which permits
his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at
the Offering Commencement Date of the Plan Period) for each calendar year in
which the Option is outstanding at any time.
6. Deduction Changes. An employee may not increase or decrease his or her
payroll deduction during a Plan Period.
7. Interest. Interest will not be paid on any employee accounts, except as
otherwise provided herein.
8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering by providing written notice
of withdrawal to the office of Human Resources of the Company. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by the
Board or the Committee, except that employees who are also directors or
officers of the Company within the meaning
2
<PAGE>
of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules promulgated there under may not participate again for a period of at
least six months as provided in Rule 16b-3(d)(2)(i) or any successor provision.
9. Purchase of Shares. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible employee who is then a participant in
the Plan an option ("Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for,
such number of whole shares of Common Stock of the Company reserved for the
purposes of the Plan as does not exceed the number of shares determined by (i)
multiplying an amount equal to 150% of the employee's annualized base pay as of
the Offering Commencement Date by the percentage of it which he or she has
elected to have withheld (but not in excess of 10%), (ii) dividing such product
by 90% of the market value of a share of Common Stock as of the Offering
Commencement Date, and (iii) multiplying such quotient by 1.25, but in no event
more than 500 shares. The market value of the Common Stock shall be determined
as provided in the following paragraph. An employee's annualized base pay shall
be determined as follows: (i) in the case of a full-time employee normally paid
on an hourly rate, by multiplying his or her normal hourly rate by 2080; (ii)
in the case of a part-time employee normally paid on an hourly rate, by
multiplying his or her normal hourly rate by the product of 52 times the number
of hours in his or her normal work week; (iii) in the case of an employee
normally paid at a weekly rate, by multiplying his or her normal weekly rate by
52; (iv) in the case of an employee normally paid at a bi-weekly rate, by
multiplying his or her normal bi-weekly rate by 26; and (v) in the case of an
employee normally paid at a monthly rate, by multiplying his or her normal
monthly rate by 12.
The purchase price for each share purchased will be 90% of the closing price
of the Common Stock on (i) the first business day of such Plan Period or (ii)
the Exercise Date, whichever closing price shall be less. Such closing price
shall be (a) the closing price on any national securities exchange on which the
Common Stock is listed, (b) the closing price of the Common Stock on the Nasdaq
National Market or (c) the average of the closing bid and asked prices in the
over-the-counter-market, whichever is applicable, as published in The Wall
Street Journal. If no sales of Common Stock were made on such a day, the price
of the Common Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined in
the manner set forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the
street name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. Rights on Retirement, Death or Termination of Employment. In the event of
a participating employee's termination of employment prior to the last business
day of a Plan Period, no payroll deduction
3
<PAGE>
shall be taken from any pay due and owing to an employee and the balance in the
employee's account shall be paid to the employee or, in the event of the
employee's death, (a) to a beneficiary previously designated in a revocable
notice signed by the employee (with any spousal consent required under state
law) or (b) in the absence of such a designated beneficiary, to the executor or
administrator of the employee's estate or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate. If, prior to the
last business day of the Plan Period, the Designated Subsidiary by which an
employee is employed shall cease to be a subsidiary of the Company, or if the
employee is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge with another corporation
and the Company is the surviving entity, the holder of each Option then
outstanding will thereafter be entitled to receive at the next Offering
Termination Date upon the exercise of such Option for each share as to which
such Option shall be exercised the securities or property which a holder of one
share of the Common Stock was entitled to upon and at the time of such merger,
and the Board of Directors shall take such steps in connection with such merger
as the Board of Directors shall deem necessary to assure that the provisions of
Paragraph 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder. In the event of a
merger in which the Company is not the surviving entity, or of a sale of all or
substantially all of the assets of the Company, the Plan shall terminate, and
all payroll deductions credited to participants' accounts shall be returned to
them, with simple interest computed at the 90-day Treasury Bill rate as of the
applicable Offering Commencement Date; provided, however, that the Board of
Directors may, in the event of such merger or sale, accelerate the Offering
Termination Date of the Offering then in effect and permit participants to
purchase shares under the Plan at such accelerated Offering Termination Date.
17. Change in Control. Notwithstanding any other provision of the Plan and
except as otherwise provided in the relevant option agreement, in the event of
a "Change in Control of the Company" (as defined below), the Board of Directors
may accelerate the Offering Termination Date of the Offering then in effect and
permit participants to purchase shares under the Plan at such accelerated
Offering Termination Date. For purposes of the Plan, a "Change in Control of
the Company" shall occur or be deemed to have occurred
4
<PAGE>
only if (i) any "person", as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years ending
during the term of the Plan (not including any period prior to the adoption of
the Plan), individuals who at the beginning of such period constitute the Board
of Directors of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect any transaction described in clause (i), (iii) or (iv) of this Section
17) whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were either directors at the beginning of
the period or whose election or whose nomination for election was previously so
approved (collectively, the "Disinterested Directors"), cease for any reason to
constitute a majority of the Board of Directors; (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined) acquires
more than 30% of the combined voting power of the Company's then outstanding
securities or (C) a merger or consolidation which has been approved by a
majority of the Disinterested Directors; or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets which, in either case, has not previously been approved by a
majority of the Disinterested Directors. Notwithstanding the foregoing, the
Board of Directors of the Company may, in its sole discretion, by a resolution
adopted by two-thirds of the Disinterested Directors prior to the occurrence of
any of the events otherwise constituting a Change in Control of the Company,
declare that such event will not constitute a Change in Control of the Company
for the purposes of the Plan. If such resolution is adopted, such event shall
not constitute a Change in Control of the Company for any purpose of the Plan.
18. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the shareholders of the Company is required by Section 423 of the
Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange
Act and the rules promulgated thereunder, as in effect from time to time, or
Section 423 of the Code.
19. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis. The balance of the
payroll deductions credited to the account of each participating employee shall
be returned to him or her with simple interest computed upon such balance at
the 90-day U.S. Treasury Bill rate as of the applicable Offering Commencement
Date.
5
<PAGE>
20. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
The Plan shall be governed by Massachusetts law except to the extent that
such law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. Any provision inconsistent with such
Rule shall to that extent be inoperative and shall not affect the validity of
the Plan.
22. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on March 31, 1995, subject to approval by the shareholders of the Company as
required by Rule 16b-3 under the Exchange Act and by Section 423 of the Code,
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors on
March 31, 1995
6
<PAGE>
LIFELINE SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS - MAY 17, 1995
This Proxy is solicited on behalf of the Board of Directors.
Those signing on the reverse side, revoking all prior proxies, hereby appoint
Ronald Feinstein and Norman B. Asher, and each of them, with full power of
substitution, as proxies to represent and vote as designated hereon, all shares
of stock of Lifeline Systems, Inc. which those signing on the reverse side would
be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held at Hale and Dorr, 60 State Street (Hale and Dorr
Suites, 26th Floor), Boston, Massachusetts 02109, on May 17, 1995 at 10:00 A.M.
(Boston Time) and at any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed by the
undersigned stockholder(s).
- - --------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE.
- - --------------------------------------------------------------------------------
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer and state
title. If a partnership, please sign in partnership name by authorized person
and state title.
- - --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- - ------------------------------- -------------------------------
- - ------------------------------- -------------------------------
- - ------------------------------- -------------------------------
<PAGE>
Please Mark Votes as in
[X] this Example
1) To elect three Class III Directors.
For All
For Withhold Except
[_] [_] [_]
STEVEN M. TRITMAN
GORDON C. VINEYARD, M.D.
CAROLYN C. ROBERTS
IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK THE "FOR
ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NOMINEE'S NAME. YOUR SHARES WILL
BE VOTED FOR THE REMAINING NOMINEE(S).
2) Approval of the Company's 1995 Employee Stock Purchase Plan.
For Against Abstain
[_] [_] [_]
3) Ratification of the selection of Coopers & Lybrand L.L.P. as the Company
independent accountants for 1995.
For Against Abstain
[_] [_] [_]
4) In their discretion the proxies named herein are authorized to vote upon
such other business as may properly come before said meeting or any
adjournment thereof.
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS
SET FORTH HEREON.
A VOTE "FOR" EACH PROPOSAL IS RECOMMENDED BY THE BOARD OF DIRECTORS.
Please be sure to sign and date this Proxy.
Mark box at right if comments or address change have been noted on the reverse
side of this card.
[_]
Date _____________
- - -----------------------------------------------
Stockholder sign here Co-owner sign here
<PAGE>
- - --------------------------------------------------------------------------------
DETACH CARD
LIFELINE SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information enclosed with the Proxy
Ballot. There are a number of issues related to the management and
operation of your Company that require your immediate attention and
approval. These are discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall
be voted. Then sign and date the card, detach it and return your proxy vote
in the enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to
be held on May 17, 1995.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Lifeline Systems, Inc.
