<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 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.
<PAGE>
(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.
__________________________________________________________________
[X] 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:
$125.00
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party:
Lifeline Systems, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed:
April 4, 1996
- --------------------------------------------------------------------------------
<PAGE>
LIFELINE SYSTEMS, INC.
1991 STOCK OPTION PLAN
Adopted: January 9, 1991
------------------------
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Lifeline Systems,
Inc. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 425(e)
and 425(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code").
Concurrently with the adoption of the Plan, the Company is terminating the
1986 Incentive Stock Option Plan, the 1982-A Incentive Stock Option Plan and the
1982 Incentive Stock Option Plan (collectively, the "Prior Plans").
Notwithstanding the aforesaid, the termination of the Prior Plans shall not
affect the rights of the holder of any options granted under the Prior Plane.
2. Type of Options and Administration.
----------------------------------
(a) Types of Options. Options granted pursuant to the Plan shall be
----------------
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422A of the Code
or non- statutory options which are not intended to meet the requirements of
Section 422A of the Code.
(b) Administration. The Plan will be administered by the Board of
--------------
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors
may in its sole discretion grant options to purchase shares of the Company's
Common Stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective
<PAGE>
option agreements, which need not be identical, and to make all other
determinations in the judgment of the Board of Directors necessary or desirable
for the administration of the Plan. The Board of Directors may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director shall be liable for any action or determination made in
good faith. The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b3")), delegate
any or all of its powers under the Plan to a committee (the "Committee")
appointed by the Board of Directors, and if the Committee is so appointed all
references to the Board of Directors in the Plan shall mean and relate to such
Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
---------------------------
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
-----------
(a) General. Options shall be granted to persons who are, at the time of
-------
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that Incentive Stock Options may be granted only to persons
--------
who are eligible to receive such options under Section 422A of the Code. A
person who has been granted an option may, if he or she is otherwise eligible,
be granted an additional option or options if the Board of Directors shall so
determine.
(b) Grant of Options to Outside Directors. Each director who is not also
-------------------------------------
an employee of the Company shall be granted, on the sixth business day in each
calendar year, options to purchase 3,000 shares (4,500 shares in 1991) of Common
Stock at a price equal to 100% of the fair market value of a share of Common
Stock on the date of grant. Such options shall become exercisable in three
equal installments over a two-year period, with the first installment becoming
exercisable on the date of grant and the second and third installments becoming
exercisable on the first and second anniversaries of the date of grant,
respectively.
-2-
<PAGE>
4. Stock Subject to Plan.
---------------------
Subject to adjustment as provided in Section 14 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan is equal to the sum of (A) 328,407 shares, representing the number of
shares of Common Stock which have been authorized and reserved for issuance
under the Prior Plans, but which have not been granted under the Prior Plans,
plus (B) the shares subject to options granted under the Prior Plans which are
subsequently cancelled, terminated or forfeited, plus (C) 150,000 shares, plus
(D) up to 150,000 shares which may be issued to non-employee directors pursuant
to options granted under the Plan. If an option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan. If shares issued upon exercise of an
option under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants under the Plan; provided, that in no
event shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under clauses (A) and (B) of
the first sentence of this Section 4, exclusive of shares made available for
issuance pursuant to this sentence or (ii) the total number of shares issued
pursuant to the exercise of options by Reporting Persons, on a cumulative basis,
exceed the maximum number of shares authorized for issuance under the Plan
exclusive of shares made available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
--------------
(a) General. The purchase price per share of stock deliverable upon the
-------
exercise of an option shall be determined by the Board of Directors, provided,
---------
however, that in the case of an Incentive Stock Option, the exercise price shall
- -------
not be less than 100% of the fair market value of such stock, as determined by
the Board of Directors, at the time of grant of such option, or less than 110%
of such fair market value in the case of options described in Section 11(b).
-3-
<PAGE>
(b) Payment of Purchase Price. Options granted under the Plan may provide
-------------------------
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee for a period of at least six months and having a fair market value
equal in amount to the exercise price of the options being exercised, (ii) by
any other means which the Board of Directors determines are consistent with the
purpose of the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the
Federal Reserve Board) or (iii) by any combination of such methods of payment.
The fair market value of any shares of the Company's Common Stock or other non-
cash consideration which may be delivered upon exercise of an option shall be
determined in such manner as may be prescribed by the Board of Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that such date, in the case
of an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
-----------------------------
Incentive Stock Options and options granted to Reporting Persons shall not
be assignable or transferable by the person to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be exercisable only by
the optionee.
10. Effect of Termination of Employment or Other Relationship.
----------------------------------------------------------
The Board of Directors shall determine the period of time during which an
optionee may exercise an option following (i) the termination of the optionee's
employment or other relationship
-4-
<PAGE>
with the Company or (ii) the death or disability of the optionee Such periods
shall be set forth in the agreement evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
-------------------
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
---------------
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 425(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the date
of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
-----------------
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
----------------------------------------------
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
-5-
<PAGE>
(i) an Incentive Stock Option may be exercised within the period of three
months after the date the optionee ceases to be an employee of the Company
(or within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
--------
designate a longer exercise period and that the exercise after such three-
month period shall be treated as the exercise of a non-statutory option
under the Plan;
(ii) if the optionee dies while in the employ of the Company, or within
three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may be
specified in the applicable option agreement)
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of
the Income Tax Regulations (or any successor regulations). Notwithstanding
the foregoing provisions, no Incentive Stock Option may be exercised after
its expiration date.
12. Additional Provisions.
---------------------
(a) Additional Option Provisions. The Board of Directors may, in its sole
----------------------------
discretion, include additional provisions in any option granted under the Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; provided that such
-------------
additional provisions shall not be inconsistent with any other term or condition
of the Plan.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
-----------------------------
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular option or options granted under the
Plan may be
-6-
<PAGE>
exercised; provided, however, that no such extension shall be permitted if it
would cause the Plan to fail to comply with Section 422A of the Code or with
Rule 16b-3
(c) 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 exercise dates of all
options then outstanding shall be accelerated in full and any restrictions on
exercising outstanding options issued pursuant to the Plan prior to any given
date shall terminate. For purposes of the Plan, a "Change in Control of the
Company" shall occur or be deemed to have occurred 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 12(c)) 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
-7-
<PAGE>
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.
(d) Parachute Payments. Notwithstanding any other provision of the Plan,
------------------
the provisions of Section 12(c) shall not be applicable to any option the
acceleration of which would, taking into account any other consideration to be
received by the optionholder from the Company, constitute an excess parachute
payment as defined in Section 280G of the Code.
13. Rights as a Shareholder.
-----------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
14. Adjustment Provisions for Recapitalizations and Related Transactions.
------------------------------------------------------- ------------
(a) General. If, through or as a result of any merger, consolidation, sale
-------
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under
-8-
<PAGE>
the Plan, without changing the aggregate purchase price as to which such options
remain exercisable, provided that no adjustment shall be made pursuant to this
Section 14 if such adjustment would cause the Plan to fail to comply with
Section 422A of the Code or with Rule 16b-3.
(b) Board Authority to Make Adjustments Any adjustments under this
-----------------------------------
Section 14 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
15. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) General. In the event of a consolidation or merger or sale of all or
-------
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
--------
shall meet the requirements of Section 425(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such outstanding options
(to the extent then exercisable at prices in excess of the Merger Price) and (B)
the aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
------------------
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one
-9-
<PAGE>
of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
16. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
17. Other Employee Benefits.
-----------------------
The amount of any compensation deemed to be received by an employee as a
result of the exercise of an option or the sale of shares received upon such
exercise will not constitute compensation with respect to which any other
employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
18. Amendment of the Plan.
---------------------
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required as to such modification or amendment
under Section 422A of the Code or any successor provision with respect to
Incentive Stock Options or under Rule 16b-3 or any successor provision with
respect to options held by Reporting Persons, the Board of Directors may not
effect such modification or amendment without such approval. Notwithstanding
the foregoing, the provisions of Section 3(b) of the Plan may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected,
the Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to
amend or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of
-10-
<PAGE>
taxation upon exercise) as may be afforded incentive stock options under Section
422A of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3 or any successor rule.
19. Withholding.
-----------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 19(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3(e) or
any successor rule under such Act.
20. Cancellation and New Grant of Options, Etc
------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options; provided, that in the case of a Reporting Person, the
--------
exercise price of options substituted or amended in the manner described above
shall not be less than 50% of the fair market value of the
-11-
<PAGE>
underlying stock at the time of such substitution or amendment; and Provided
further, that no action may be taken pursuant hereto with respect to options
- -------
granted to non-employee directors if such action would cause the Plan to cease
to be qualified under Rule 16b-3 or any successor rule.
21. Effective Date and Duration of the Plan.
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
--------------
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 18) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option issued after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 15,
-----------
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options granted under the
Plan. Unless sooner terminated in accordance with Section 15, the Plan shall
terminate with respect to options which are not Incentive Stock Options on the
date specified in (ii) above. If the date of termination is determined under
(i) above, then options outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
options.
-12-
<PAGE>
22. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
23. Rule 16b-3.
----------
Notwithstanding anything in the Plan to the contrary, no action may be
taken with respect to the Plan which would cause the Plan to cease to be
qualified under Rule 16b-3 or any successor rule, without the express
acknowledgment of the Board of Directors that such disqualification may occur.
Adopted by the Board of Directors on
January 9, 1991.
Note: All share amounts set forth above reflect the 1.5-for-1 stock split
effected on July 15, 1991.
-13-
<PAGE>
AMENDMENT NO. 1 TO THE 1991 STOCK OPTION PLAN
OF LIFELINE SYSTEMS, INC.
Section 4 of the 1991 Stock Option Plan (the "Plan") of Lifeline Systems,
Inc. (the "Company") is hereby amended, subject to stockholder approval, to
increase from 150,000 to 175,000 the number of shares of Common Stock authorized
for issuance to non-employee directors of the Company under the Plan.
Adopted by the Board of
Directors on January 31, 1996
<PAGE>
LIFELINE SYSTEMS, INC.
1994 STOCK OPTION PLAN
Adopted: February 9, 1994
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Lifeline Systems,
Inc. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code").
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or nonstatutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations which are in
the judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any option
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency. No
director shall be liable
<PAGE>
for any action or determination made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law, Section 162(m)
of the Code ("Section 162(m)") or any regulations thereunder, or any successor
code section or regulations and Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule
16b-3")), delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee. Unless all members of the Board of Directors are
"outside directors" within the meaning of Section 162(m), as such term is
interpreted from time to time, the Board shall appoint such a Committee of two
or more directors, all of whom are outside directors, and shall delegate to such
Committee all of its powers under the Plan; provided, that any failure of any
director or Committee member to satisfy the definition of outside director shall
not invalidate any action taken by the Board or Committee with respect to any
participant in the Plan, whether or not such person is a "covered employee"
within the meaning of Section 162(m), as such term is interpreted from time to
time. Notwithstanding any provision in this plan to the contrary, whenever the
Board of Directors is authorized to exercise its discretion in the
administration or amendment of this plan or any option hereunder or otherwise,
the Board may not exercise such discretion in a manner that would cause any
option to fail to qualify as performance-based compensation under Section
162(m).
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
Options shall be granted to persons who are, at the time of grant,
employees, or consultants or advisors to, the Company, other than nonemployee
directors; provided, that Incentive Stock Options may be granted only to persons
who are eligible to receive such options under Section 422 of the Code. A person
who has been granted an option may, if he or she is otherwise eligible, be
granted an additional option or options if the Board of Directors shall so
determine. The maximum number of shares with respect to which options may be
granted to any employee during the term of the Plan shall not exceed 75,000
shares of common stock. For this purpose, (a) an option shall continue to be
treated as outstanding notwithstanding its repricing, cancellation or expiration
and (b) the repricing of an outstanding option or the issuance of a new
-2-
<PAGE>
option in substitution for a cancelled option shall be deemed to constitute the
grant of a new additional option separate from the original grant of the option
that is repriced or cancelled.
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 14 below, the maximum number of
shares of Common Stock of the Company which may be issued and sold under the
Plan is 300,000 shares. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall (i)
the total number of shares issued pursuant to the exercise of Incentive Stock
Options under the Plan, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under clauses (A) and (B) of the first sentence
of this Section 4, exclusive of shares made available for issuance pursuant to
this sentence or (ii) the total number of shares issued pursuant to the exercise
of options by Reporting Persons, on a cumulative basis, exceed the maximum
number of shares authorized for issuance under the Plan exclusive of shares made
available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, provided,
however, that in the case of an Incentive Stock Option, or in the case of an
option intended to qualify as performance-based compensation within the meaning
of Section 162(m), the exercise price shall not be less than 100% of the fair
market value of such stock, as determined by the Board of Directors, at the time
of grant of such option, or less than 110% of such fair market value in the case
of options described in Section 11(b).
-3-
<PAGE>
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee for a period of at least six months and having a fair market value
equal in amount to the exercise price of the options being exercised, (ii) by
any other means which the Board of Directors determines are consistent with the
purpose of the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3, Regulation T promulgated by the
Federal Reserve Board and Section 162(m) to the extent an option is intended to
qualify as performance-based compensation within the meaning of that Section) or
(iii) by any combination of such methods of payment. The fair market value of
any shares of the Company's Common Stock or other noncash consideration which
may be delivered upon exercise of an option shall be determined in such manner
as may be prescribed by the Board of Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that such date, in the case
of an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or in
installments at such time or times and during such period as shall be set forth
in the agreement evidencing such option, subject to the provisions of the Plan.
9. Nontransferability of Options.
Incentive Stock Options and options granted to Reporting Persons shall not
be assignable or transferable by the person to whom it is granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be exercisable only by
the optionee.
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination
-4-
<PAGE>
of the optionee's employment or other relationship with the Company or (ii) the
death or disability of the optionee. Such periods shall be set forth in the
agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is to
be granted under the Plan is, at the time of the grant of such option, the owner
of stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (after taking into account the attribution of
stock ownership rules of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value of
one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the date of
grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company), which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
-5-
<PAGE>
(i) an Incentive Stock Option may be exercised within the period of three
months after the date the optionee ceases to be an employee of the Company (or
within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a nonstatutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or within
three months after the optionee ceases to be such an employee, the Incentive
Stock Option may be exercised by the person to whom it is transferred by will or
the laws of descent and distribution within the period of one year after the
date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ of
the Company, the Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an employee because of
such disability (or within such lesser period as may be specified in the
applicable option agreement).
For all purposes of the Plan and any option granted hereunder, employment" shall
be defined in accordance with the provisions of Section 1.421-7(h) of the Income
Tax Regulations (or any successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its expiration
date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in any option granted under the Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; provided that such
additional provisions shall not be inconsistent with any other term or condition
of the Plan or cause any option granted under the Plan to fail to qualify as
performance-based compensation within the meaning of Section 162(m).
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised to the extent that any
such acceleration
-6-
<PAGE>
would not result in a loss of a deduction to the Company under Section 162(m) or
(ii) extend the dates during which all, or any particular option or options
granted under the Plan may be exercised; provided, however, that no such
extension shall be permitted if it would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 or cause any option granted under the
Plan to fail to qualify as performance-based compensation within the meaning of
Section 162(m).
(c) 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 exercise dates of all
options then outstanding shall be accelerated in full and any restrictions on
exercising outstanding options issued pursuant to the Plan prior to any given
date shall terminate. For purposes of the Plan, a "Change in Control of the
Company" shall occur or be deemed to have occurred 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 12(c)) 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
-7-
<PAGE>
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.
(d) Parachute Payments. Notwithstanding any other provision of the Plan, the
provisions of Section 12(c) shall not be applicable to any option the
acceleration of which would, taking into account any other consideration to be
received by the optionholder from the Company, constitute an excess parachute
payment as defined in Section 280G of the Code.
13. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or noncash distributions with respect to such shares) until
the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
14. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other noncash assets are
distributed with respect to such shares of Common Stock or other securities, an
-8-
<PAGE>
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable, provided that no adjustment shall be made pursuant
to this Section 14 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3 or cause any option granted
under the Plan to fail to qualify as performance-based compensation within the
meaning of Section 162(m).
(b) Board Authority to Make Adjustments. Any adjustments under this Section
14 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
15. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options:
(i) provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice,
(iii) in the event of a merger under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the merger (the "Merger Price"), make or provide for
a cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately
-9-
<PAGE>
prior to such event, provided, however, the Board of Directors may not take any
action which would cause any option granted under the Plan to fail to qualify as
performance-based compensation within the meaning of Section 162(m).
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
16. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
17. Other Employee Benefits.
The amount of any compensation deemed to be received by an employee as a
result of the exercise of an option or the sale of shares received upon such
exercise will not constitute compensation with respect to which any other
employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
18. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required as to such modification or amendment
under Sections 422 with respect to Incentive Stock Options or under Rule 16b-3
or any successor provision with respect to options held by Reporting Persons, or
is required to ensure that any compensation attributable to any option under the
Plan is deductible by the company for federal income tax purposes under section
162(m), the Board of Directors may not effect such modification or amendment
without such approval. Notwithstanding the foregoing, the provisions of Section
3(b) of the Plan may not be amended more than once every six months, other than
to comport with changes in
-10-
<PAGE>
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder.
(b) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code; (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3 or any successor rule; or to ensure
that any compensation resulting from any option under the Plan is deductible by
the Company for federal income tax purposes under Section 162(m).
19. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 19(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3(e) or
any successor rule under such Act.
-11-
<PAGE>
20. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution there for of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options; provided, that in the case of a Reporting Person, the
exercise price of options Substituted or amended in the manner described above
shall not be less than 50% of the fair market value of the underlying stock at
the time of such substitution or amendment; and provided further, that no action
may be taken pursuant hereto with respect to options granted to nonemployee
directors if such action would cause the Plan to cease to be qualified under
Rule 16b-3 or any successor rule.
21. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan or
nonstatutory option granted under the Plan to an officer shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options, options
previously granted to officers shall not vest and shall terminate and no
Incentive Stock Options shall be granted thereafter nor shall any options be
granted thereafter to officers. Amendments to the Plan not requiring shareholder
approval shall become effective when adopted by the Board of Directors;
amendments requiring shareholder approval (as provided in Section 18) shall
become effective when adopted by the Board of Directors, but no Incentive Stock
Option granted after the date of such amendment and no option granted to any
officer after the date of such amendment shall become exercisable (to the extent
that (i) such amendment to the Plan was required to enable the Company to grant
such Incentive Stock Option to a particular optionee or (ii) shareholder
approval of such amendment to the Plan was required to ensure the deductibility
by the Company of any compensation resulting from any option under Section
l62(m)) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, (i) any
-12-
<PAGE>
Incentive Stock Options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to enable
the Company to grant such option to a particular optionee and (ii) any option
granted to any officer on or after the date of such amendment shall terminate to
the extent that shareholder approval of such amendment was required to ensure
the deductibility by the Company of any compensation resulting from any option
under Section 162(m). Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 15, the
Plan shall terminate on the close of business on the day next preceding the
tenth anniversary of the date of its adoption by the Board of Directors. Options
outstanding on the date of termination shall continue to have force and effect
in accordance with the provisions of the instruments evidencing such options.
22. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
23. Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, no action may be taken
with respect to the Plan which would cause the Plan to cease to be qualified
under Rule 16b-3 or any successor rule, without the express acknowledgment of
the Board of Directors that such disqualification may occur.
-13-
<PAGE>
AMENDMENT NO. 1 TO THE 1994 STOCK OPTION PLAN
OF LIFELINE SYSTEMS, INC.
The third sentence of Section 3 of the 1994 Stock Option Plan (the "Plan")
of Lifeline Systems, Inc., which states "The maximum number of shares with
respect to which options may be granted to any employee during the term of the
Plan shall not exceed 75,000 shares of common stock," is hereby amended and
restated in its entirety, subject to stockholder approval, to provide as
follows:
"Subject to adjustment as provided in Section 14 below, the maximum
number of shares with respect to which options may be granted to any
employee under the Plan shall not exceed 50,000 shares of common stock
during any calendar year."
Section 4 of the Plan is hereby amended, subject to stockholder approval,
to increase from 300,000 to 600,000 the number of shares of Common Stock
authorized for issuance and sale under the Plan.
Adopted by the Board of
Directors on January 31, 1996
