<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
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))
[X]Definitive Proxy Statement
[_]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 REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X]No fee required.
[_]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:
<PAGE>
LIFELINE SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING
MAY 21, 1997
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 21, 1997, at 10:00 A.M., Boston time, at the offices of
Lifeline Systems, Inc., 640 Memorial Drive, Cambridge, Massachusetts 02139, to
consider and act upon the following matters:
1. To elect two Class II Directors, each to hold office until the
Annual Meeting of Stockholders in 2000 and until his successor is
elected and qualified;
2. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent accountants; and
3. 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 28, 1997 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 11, 1997
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 21, 1997
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 21, 1997 (the "Annual Meeting") and at any adjournment or
adjournments of the Annual 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 28, 1997 as the record date for
determining stockholders who are entitled to vote at the Annual Meeting. At
the close of business on March 28, 1997, there were outstanding and entitled
to vote 5,708,130 shares of the Common Stock, $.02 par value per share, 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 11, 1997.
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 ratification of the approval 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
<PAGE>
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 voting on the
matter being presented for stockholder approval at the Annual Meeting.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of February 1, 1997,
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, 1997 as a
group:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME OF BENEFICIAL STOCK BENEFICIALLY COMMON STOCK
OWNER OWNED(1) OUTSTANDING(2)
------------------ ------------------ --------------
<S> <C> <C>
L. Dennis Shapiro(3)....................... 736,833 12.9%
24 Essex Road
Chestnut Hill, MA 02167
SAFECO Corporation(4)...................... 770,750 13.6
4333 Brooklyn Ave. N.E.
Seattle, WA 98185
Ronald Feinstein(5)........................ 401,377 6.8
c/o Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, MA 02139
Pequot Scout Fund, L.P.(6)................. 343,100 6.0
354 Pequot Avenue
Southport, CT 06490
Everett N. Baldwin(7)...................... 26,500 *
Joseph E. Kasputys, Ph.D.(8)............... 31,650 *
Carolyn C. Roberts(9)...................... 9,000 *
Steven M. Tritman(10)...................... 44,025 *
Gordon C. Vineyard, M.D.(11)............... 20,501 *
Thomas E. Loper(12)........................ 22,839 *
Dennis M. Hurley(13)....................... 21,964 *
Richard M. Reich(14)....................... 60,961 1.1
Paul V. Vizzini(15)........................ 47,610 *
All directors and executive officers as a
group (14 persons)(16).................... 1,497,064 24.6
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(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.
(Footnotes continued on following page)
2
<PAGE>
(2) Number of shares deemed outstanding includes 5,685,344 shares outstanding
as of February 1, 1997, 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, 1997.
(3) Includes 19,500 shares subject to stock options held by Mr. Shapiro that
are currently exercisable or exercisable within 60 days after February 1,
1997. 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 a Form 13-G of SAFECO Corporation filed with
the Securities and Exchange Commission on February 10, 1997. Includes the
following shares, as to all of which SAFECO Corporation disclaims
beneficial ownership: 503,550 shares held by SAFECO Common Stock Trust,
215,000 shares held by SAFECO Resources Series Trust and 52,200 shares
held by SAFECO Employee Savings Plan.
(5) Includes 197,500 shares subject to stock options held by Mr. Feinstein
that are currently exercisable or exercisable within 60 days after
February 1, 1997. Includes 16,000 shares held by Mr. Feinstein's
children. Includes 7,343 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 which were pledged to
the Company to secure a $250,000 loan by the Company to Mr. Feinstein,
which was repaid on February 24, 1997. See "Other Arrangements--Feinstein
Employment Agreement."
(6) Represents holdings based on information provided to the Company by
Pequot Scout Fund, L.P.
(7) Includes 11,500 shares subject to stock options held by Mr. Baldwin that
are currently exercisable or exercisable within 60 days after February 1,
1997.
(8) Includes 19,500 shares subject to stock options held by Dr. Kasputys that
are currently exercisable or exercisable within 60 days after February 1,
1997.
(9) Includes 8,000 shares subject to stock options held by Ms. Roberts that
are currently exercisable or exercisable within 60 days after February 1,
1997.
(10) Includes 1,650 shares held by Mr. Tritman's wife, as to which he
disclaims beneficial ownership, and 4,575 shares jointly held by Mr.
Tritman and his wife. Also includes 12,500 shares subject to stock
options held by Mr. Tritman that are currently exercisable or exercisable
within 60 days after February 1, 1997.
(11) Includes 19,500 shares subject to stock options held by Dr. Vineyard that
are currently exercisable or exercisable within 60 days after February 1,
1997.
(12) Includes 10,900 shares subject to stock options held by Mr. Loper that
are currently exercisable or exercisable within 60 days after February 1,
1997. Also includes 8,939 shares pledged to the Company to secure a
$100,000 loan by the Company to Mr. Loper. See "Other Arrangements--Loans
to Related Parties."
(13) Includes 13,500 shares subject to stock options held by Mr. Hurley that
are currently exercisable or exercisable within 60 days after February 1,
1997. Includes 564 shares beneficially owned by Mr. Hurley through the
401(k) Plan, as to which shares Mr. Hurley possesses sole investment
power but no voting power. Also includes 6,200 shares owned by Mr. Hurley
jointly with his wife.
(14) Includes 25,500 shares subject to stock options held by Mr. Reich that
are currently exercisable or exercisable within 60 days after February 1,
1997. Also includes 5,461 shares beneficially owned by Mr.
(Footnotes continued on following page)
3
<PAGE>
Reich through the 401(k) Plan, as to which shares Mr. Reich possesses sole
investment power but no voting power.
(15) Includes 26,550 shares subject to stock options held by Mr. Vizzini that
are currently exercisable or exercisable within 60 days after February 1,
1997. Also includes 1,710 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.
(16) Includes an aggregate of 410,550 shares subject to stock options that are
currently exercisable or exercisable within 60 days after February 1,
1997.
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 1999
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 1998 Annual Meeting of Stockholders.
The persons named in the proxy will vote to elect as Class II Directors the
two 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 II Directors at two
members, the proxy may not be voted for more than two 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. Each of the nominees, Ronald
Feinstein and Joseph E. Kasputys, Ph.D., has been a director since 1985. Each
of the nominees will be elected to hold office until the Annual Meeting of
Stockholders in 2000, and until his 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
AND BUSINESS EXPERIENCE FIRST BECAME A
DURING THE PAST FIVE YEARS AGE DIRECTOR
------------------------------- --- --------------
<S> <C> <C>
THE TWO NOMINEES FOR ELECTION AS CLASS II DIRECTORS TO SERVE
UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2000:
Ronald Feinstein............................................. 50 1985
Mr. Feinstein has been President and Chief Executive Officer
of the Company 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
Manufacturing Company. From 1982 to 1988, Mr. Feinstein was
the President, Chief Executive Officer and Director of
Dennison National Company, a wholly-owned subsidiary of
Dennison Manufacturing Company.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, PRINCIPAL OCCUPATION
AND BUSINESS EXPERIENCE FIRST BECAME A
DURING THE PAST FIVE YEARS AGE DIRECTOR
------------------------------- --- --------------
<S> <C> <C>
Joseph E. Kasputys, Ph.D. ................................ 60 1985
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.** ***
THE TWO CLASS I DIRECTORS NAMED BELOW WILL CONTINUE IN
OFFICE UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 1999:
L. Dennis Shapiro......................................... 63 1978
Mr. Shapiro has been Chairman of the Board since 1978 and
was Chief Executive Officer and Treasurer of the Company
from 1978 through December 1988.* **
Everett N. Baldwin........................................ 64 1991
Mr. Baldwin served as President and Chief Executive
Officer of Welch Foods, Inc. from August 1982 to August
1995, and as a Director of Welch Foods, Inc. from August
1982 to December 1995.*
THE THREE CLASS III DIRECTORS NAMED BELOW WILL CONTINUE IN
OFFICE UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 1998:
Steven M. Tritman......................................... 49 1984
Mr. Tritman has been President and Chief Executive
Officer of Performance Enhancement Systems, 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 Litle & Company, a financial and
information services firm, from January 1989 until
November 1990.** ***
Gordon C. Vineyard, M.D. ................................. 60 1985
Dr. Vineyard has been Director of Surgical Specialties
and Radiology and Surgeon-in-Chief of the Harvard
Pilgrim Health Care'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 was a surgeon
at Boston's Brigham and Women's Hospital from January
1972 through August 1995.*
Carolyn C. Roberts........................................ 58 1994
Ms. Roberts has been President and Chief Executive
Officer of 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, from 1991 to 1996, a member of its Executive
Committee. Ms. Roberts is currently a member of the
Board of Commissioners of the Joint Commission for
Accreditation of Health Care Organizations
(JCAHO).** ***
</TABLE>
- --------
* Member of the Audit Committee.
** Member of the Compensation Committee.
***Member of the Stock Option Plans Committee.
5
<PAGE>
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, 1996. 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 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, 1996. 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 held two meetings
during the fiscal year ended December 31, 1996. 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, 1996, 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 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 (the "1991 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 9, 1996, each of the then non-employee
directors received options to purchase 3,000 shares of Common Stock at an
exercise price of $11.938 per share (the fair market value on the date of
grant), and on January 9, 1997, each of the then non-employee directors
received options to purchase 3,000 shares of Common Stock at an exercise price
of $17.625 per share (the fair market value on the date of grant).
6
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kasputys, Shapiro and Tritman and Ms. Roberts served as members of
the Compensation Committee during the Company's most recent fiscal year. Mr.
Shapiro is the Chairman of the Board of Directors and previously served at
various times as the Company's President, Chief Executive Officer and
Treasurer.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on its review of copies of reports filed by Reporting Persons
of the Company pursuant to Section 16(a) of the Exchange Act or written
representations from certain Reporting Persons that no Form 5 filing was
required for such person, the Company believes that during fiscal 1996 all
filings required to be made by its Reporting Persons were timely made in
accordance with the requirements of the Exchange Act.
7
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated
executive officers during the fiscal year ended December 31, 1996 who were
serving as executive officers at December 31, 1996 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ ---------------------------
SECURITIES
UNDERLYING ALL OTHER
OTHER ANNUAL OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION GRANTED (#)(1) ($)(2)
- --------------------------- ---- ---------- --------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein......... 1996 $230,000 $128,238(3) -- -- $1,718
President and Chief 1995 218,000 191,317(3) -- -- (4) 1,000
Executive Officer 1994 206,667 144,492(3) -- 40,000 1,000
Richard M. Reich......... 1996 139,550 45,544(5) -- 7,000 1,436
Vice President, Technol- 1995 134,333 60,772(5) -- 3,000 1,000
ogy
and Advanced Services 1994 121,588 44,902(5) -- 10,000 1,000
Thomas E. Loper.......... 1996 136,750 47,450(5) $24,000(8) 7,500 427
Vice President, 1995 36,750 74,440(7) -- 47,000 --
Customer Care(6) 1994 -- -- -- -- --
Paul V. Vizzini.......... 1996 135,167 37,285(5) -- 5,000 1,422
Vice President, 1995 130,166 56,439(5) -- 7,500 1,000
Development 1994 125,000 44,276(5) -- 7,500 1,000
Dennis M. Hurley......... 1996 130,417 41,311(5) -- 7,500 1,407
Vice President, Finance, 1995 104,168 81,979(10) -- 45,000 250
and Chief Financial 1994 -- -- -- -- --
Officer(9)
</TABLE>
- --------
(1) Reflects the grant of options to purchase Common Stock.
(2) Represent Company contributions to the Company's 401(k) Plan and Group
Term Life Insurance.
(3) Represents amounts paid under the Company's Executive Bonus Plan. Also
includes $14,950 paid to Mr. Feinstein in each year 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 each of 1996, 1995
and 1994. See "Other Arrangements--Feinstein Employment Agreement."
(4) Excludes an option exercisable for 150,000 shares of Common Stock granted
on August 27, 1992, which was amended on December 6, 1995 to extend the
exercise period of the option from five years to ten years. Also excludes
an option exercisable for 100,000 shares of Common Stock granted on
August 27, 1992, which originally vested in three equal annual
installments following the achievement of certain financial goals but was
amended on September 27, 1995 to provide for vesting on the earlier of
the six-year anniversary of the date of grant or in three equal annual
installments following the achievement of certain financial goals and, on
June 14, 1996, was further amended to provide for full vesting in any
event on August 27, 1998. See "Other Arrangements--Feinstein Employment
Agreement."
8
<PAGE>
(5) Represents amounts paid under the Company's Executive Bonus Plan.
(6) Mr. Loper became an executive officer of the Company in September 1995.
(7) Includes $18,500 paid to Mr. Loper under the Company's Executive Bonus
Plan. Also includes $55,940, which represents the fair market value of
5,000 shares of the Company's Common Stock which the Company issued to
Mr. Loper on September 11, 1995 upon his becoming an executive officer of
the Company.
(8) Represents an annual living allowance paid to Mr. Loper.
(9) Mr. Hurley became an executive officer of the Company in March 1995.
(10) Includes $60,104 paid to Mr. Hurley under the Company's Executive Bonus
Plan. Also includes $21,875, representing the fair market value of 3,500
shares of the Company's Common Stock on March 1, 1995, which shares were
issued to Mr. Hurley upon becoming an executive officer of the Company.
Option Grants
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1996 to each of
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL APPRECIATION FOR OPTION
GRANTS TERM(1)
------------------------------------------------------------ ------------------------
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME (#) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
---- --------------- ---------------- ---------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 0 -- -- -- -- --
Richard M. Reich........ 7,000(2) 7.0% $12.125 2/16/2006 $ 53,377 $ 135,269
Thomas E. Loper......... 7,500(2) 7.5 12.125 2/16/2006 57,190 144,931
Paul V. Vizzini......... 5,000(2) 5.0 12.125 2/16/2006 38,127 96,621
Dennis M. Hurley........ 7,500(2) 7.5 12.125 2/16/2006 57,190 144,931
</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) 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 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.
9
<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, 1996 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, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
SHARES UNEXERCISED OPTIONS THE-MONEY OPTIONS
ACQUIRED 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........ 0(2) -- 197,500/100,000 $2,724,297/$1,453,125
Richard M. Reich........ 0 -- 21,133/ 23,867 266,748/ 248,158
Thomas E. Loper......... 0 -- 9,400/ 45,100 59,627/ 279,053
Paul V. Vizzini......... 3,450 $47,709 23,550/ 43,000 328,340/ 537,409
Dennis M. Hurley........ 0 -- 6,000/ 46,500 67,688/ 480,516
</TABLE>
- --------
(1) Based on the fair market value of the Common Stock on December 31, 1996
(approximately $17.53), less the option exercise price.
(2) On February 24, 1997, Mr. Feinstein exercised stock options for 10,700
shares of Common Stock at an exercise price of $3.00 per share and sold
such shares back to the Company at their fair market value on such date
($17.00 per share).
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 "Feinstein Note") which was secured by the
Common Stock that Mr. Feinstein purchased. On February 24, 1997, Mr. Feinstein
repaid the Feinstein Note in full, in part by exercising stock options and
selling 10,700 shares of Common Stock back to the Company at their fair market
value on such date ($17.00 per share), the proceeds of which were used to
repay the Feinstein Note.
Pursuant to the terms of Mr. Feinstein's employment agreement, until the
Feinstein Note was paid in full, the Company agreed to pay Mr. Feinstein a
bonus equal to the lesser of (x) the annual interest due on the Feinstein 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 $14,950 for the year
ending December 31, 1996. 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
10
<PAGE>
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. The original expiration date of this
stock option was the fifth anniversary of the date of grant; on December 6,
1995, the Stock Option Plans Committee extended the exercise period of the
option for an additional five years, so that the option will expire on August
27, 2002. Pursuant to his employment agreement, Mr. Feinstein was also 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 originally provided for vesting in three equal
annual installments commencing April 15 in the year following the achievement
of certain financial goals. On September 27, 1995, the Stock Option Plans
Committee amended this option to provide for vesting on the earlier of the
six-year anniversary of the date of grant or in three equal annual
installments commencing April 15 in the year following the achievement of
certain financial goals, and on June 14, 1996, the Compensation Committee
further amended this option to provide for full vesting in any event on August
27, 1998. The original expiration date of this option was six years from the
date of grant, but on June 14, 1996, the Compensation Committee extended the
exercise period of the option to seven years from the date of grant, so that
the option will expire on August 27, 1999. Upon a change in control of the
Company, both stock options described above would be accelerated and deemed to
be vested. 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. On
June 14, 1996, Mr. Feinstein's employment agreement was amended to provide
that in the event of a change in control of the Company following which Mr.
Feinstein no longer serves as the Chief Executive Officer of the Company
within the Boston, Massachusetts metropolitan area or as a director of the
Company, Mr. Feinstein may terminate the employment agreement and be paid
three times his salary and bonus for the preceding fiscal year (subject to
downward adjustment for any excess parachute payment as defined in Section
280G of the Internal Revenue Code of 1986, as amended).
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.
Loans to Related Parties
On September 11, 1995, the Company sold to Mr. Thomas Loper, Vice President,
Customer Care, 8,939 shares of the Company's Common Stock at a price of
$11.188 per share (which represented the fair market value of the Common Stock
on the date of issuance) for an aggregate price of $100,000. The Company
loaned $100,000 to Mr. Loper for seven years at an annual interest rate of
6.3% pursuant to the terms of a promissory note (the "Loper Note"), which is
secured by the Common Stock that Mr. Loper purchased. The Loper Note will
accelerate and become immediately due and payable within 90 days of
termination of Mr. Loper's employment for any reason. As of February 28, 1997,
$100,000 was outstanding on the Loper Note.
11
<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, 1991 in the Company's
Common Stock, the Nasdaq Composite Index and the Nasdaq Health Services Stocks
and assumes dividends are reinvested. Measurement points are at the last
trading day of the fiscal years ended December 31, 1991, 1992, 1993, 1994, 1995
and 1996.
[Graph appears here]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
Lifeline Systems, Inc .................... $100.00 $ 26.40 $ 34.50 $ 40.90 $ 88.20 $127.30
Nasdaq Composite Index .................... 100.00 116.40 133.60 130.60 184.70 227.20
Nasdaq Health Service Stocks .............. 100.00 103.60 119.50 128.20 162.90 163.10
</TABLE>
12
<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. During 1996, the Committee
granted non-qualified options which vest in five equal annual installments
commencing on the first anniversary of the date of grant. The Committee
expects that future grants will consist primarily of non-qualified options
which vest over time.
13
<PAGE>
The Compensation Committee periodically reviews all elements of officer
compensation with independent experts retained by the Company for this
purpose. Such a review was conducted during 1996 to help ensure that
compensation levels are appropriate.
Chief Executive Officer's 1996 Compensation
In fiscal 1996, the Company's President and Chief Executive Officer, Ronald
Feinstein, received (i) a base salary of $230,000, (ii) a bonus of $113,288
pursuant to the Company's annual cash bonus plan, which bonus was based upon
the Company's pre-tax profit in 1996, and (iii) a special bonus of $14,950
pursuant to the terms of Mr. Feinstein's employment agreement with the
Company, which special bonus was based on the Company's pre-tax profit in
1996. Mr. Feinstein's 1993 base salary had been initially established as
$200,000 pursuant to his employment agreement with the Company. His salary is
reviewed each year by the Compensation Committee, and was adjusted by the
Compensation Committee to $230,000 effective January 1, 1996, based on the
Company's performance in 1995, a review of salary data for chief executive
officers of comparable companies, at both the fiftieth and seventy-fifth
percentile, and Mr. Feinstein's performance and the scope of his
responsibilities. Mr. Feinstein 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.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"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), the Board has established the Stock Option Plans Committee
to administer all of the Company's stock option plans.
Compensation Committee
Joseph E. Kasputys, Ph.D., Chairman*
Carolyn C. Roberts*
L. Dennis Shapiro
Steven M. Tritman*
* Member of the Stock Option Plans
Committee
14
<PAGE>
2. 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 1997 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.
3. 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.
SOLICITATION OF PROXIES
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.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal
office in Cambridge, Massachusetts not later than December 6, 1997 for
inclusion in the proxy statement for that meeting.
By Order of the Board of Directors,
NORMAN B. ASHER, Clerk
Cambridge, Massachusetts
April 11, 1997
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.
15
<PAGE>
LIFELINE SYSTEMS, INC.
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
ANNUAL MEETING OF STOCKHOLDERS - MAY 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Those signing on the reverse side, revoking all prior proxies, hereby appoint L.
Dennis Shapiro and Norman B. Asher, and each of them, with full power of
substitution, as proxies to represent and to 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 the offices of Lifeline Systems, Inc.,
640 Memorial Drive, Cambridge, Massachusetts 02139, on May 21, 1997 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 STOCKHOLDERS.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) 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>
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
---------------------------
LIFELINE SYSTEMS, INC.
---------------------------
RECORD DATE SHARES:
Please be sure to sign and date this proxy. Date
- -------------------------------------------------------------------------
- -----Stockholder sign here Co-owner sign here--------------
1. To elect two Class II Directors, each to hold office until the Annual
Meeting of Stockholders in 2000 and until his success is elected and
qualifed.
For With- For All
hold Except
RONALD FEINSTEIN [_] [_] [_]
JOSEPH E KASPUTYS, PH.D.
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.
2. To ratify the selection of Coopers & Lybrand For Against Abstain
L.L.P. as the Company's independent
accountants for 1997. [_] [_] [_]
3. To transact such other business as may properly come before the meeting or
any adjournments of the meeting.
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.
Mark box at right if an address change or comment has been
noted on the reverse side of this card. [_]
DETACH CARD 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
Corporation 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 will 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 21, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
LIFELINE SYSTEMS, INC.
