<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998 Commission File Number 0-13617
LIFELINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2537528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 Memorial Drive
Cambridge, Massachusetts 02139
(Address of principal executive offices) (Zip Code)
(617) 679-1000
(Registrant's telephone number, including area code)
------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock $0.02 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days. Yes X No
---------- ----------
Number of shares outstanding of this issuer's class of common stock as of April
30, 1998: 5,803,176
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LIFELINE SYSTEMS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income - Three months
ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-7
ITEM 2.
Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-12
PART II. OTHER INFORMATION
ITEM 6.
Exhibits and Reports on Form 8-K 13
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,272 $ 2,019
Short-term investments 6,436 5,850
Accounts receivable, net 5,420 7,406
Inventories 1,562 1,375
Net investment in sales-type leases 1,379 1,444
Other current assets 1,051 1,045
Deferred income taxes 2,599 2,209
----------- -----------
Total current assets 22,719 21,348
Property and equipment, net 15,853 15,435
Goodwill, net 175 192
Net investment in sales-type leases 4,923 4,641
Other assets 653 653
----------- -----------
Total assets $ 44,323 $ 42,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,045 $ 1,352
Accrued expenses 2,859 1,954
Accrued payroll and payroll taxes 1,069 1,753
Accrued income taxes 393 229
Deferred revenues 732 714
Product warranty and other current liabilities 751 702
Accrued restructuring charge 2,153 2,324
----------- -----------
Total current liabilities 9,002 9,028
Deferred income taxes 2,820 2,136
Deferred compensation 1,094 975
Other non-current liabilities 354 413
Commitments:
Stockholders' equity:
Common stock, $.02 par value, 10,000,000 shares authorized, 6,395,644
shares issued at March 31, 1998 and 6,375,750 shares
issued at December 31, 1997 128 128
Additional paid-in capital 16,513 16,340
Retained earnings 18,594 17,449
----------- -----------
35,235 33,917
Less: treasury stock at cost, 592,548 shares at March 31, 1998
and December 31, 1997 (4,028) (4,028)
Note receivable - officer (100) (100)
Cumulative translation adjustment (54) (72)
----------- -----------
Total stockholders' equity 31,053 29,717
----------- -----------
Total liabilities and stockholders' equity $ 44,323 $ 42,269
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(In thousands except for per share data)
Three months ended
March 31,
--------------------------
1998 1997
---- ----
Revenues
Services $ 9,010 $ 7,349
Net product sales 5,604 5,918
Finance and rental income 338 289
----------- -----------
Total revenues 14,952 13,556
----------- -----------
Costs and expenses
Cost of services 5,100 3,930
Cost of sales 1,486 1,810
Selling, general, and administrative 6,166 5,969
Research and development 375 429
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Total costs and expenses 13,127 12,138
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Income from operations 1,825 1,418
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Other income (expense)
Interest income 108 162
Interest expense (12) (2)
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Total other income, net 96 160
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Income before income taxes 1,921 1,578
Provision for income taxes 776 623
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Net income 1,145 955
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Other comprehensive income, net of tax
Foreign currency translation adjustments 18 (25)
----------- -----------
Comprehensive Income $ 1,163 $ 930
=========== ===========
Net income per weighted average share:
Basic $ 0.20 $ 0.17
======= ======
Diluted $ 0.18 $ 0.15
======= ======
Weighted average shares:
Basic 5,795 5,701
====== =====
Diluted 6,296 6,246
====== =====
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,145 $ 955
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 979 967
Deferred compensation 119 101
Deferred income taxes 294 -
Changes in operating assets and liabilities:
Accounts receivable 1,993 (442)
Inventories (187) (166)
Net investment in sales-type leases (217) (190)
Prepaid expenses, other current assets and other assets (6) 121
Accrued payroll and payroll taxes (686) (752)
Accounts payable, accrued expenses and other liabilities 604 536
Income taxes payable 231 554
Accrued restructuring charge (171) -
--------------- ---------------
Net cash provided by operating activities 4,098 1,684
--------------- ---------------
Cash flows from investing activities:
Purchases of investments (2,445) (4,230)
Sales and maturities of investments 1,859 3,420
Additions to property and equipment (1,374) (1,274)
--------------- ---------------
Net cash used in investing activities (1,960) (2,084)
--------------- ---------------
Cash flows from financing activities:
Principal payments under capital lease obligations (3) (2)
Proceeds from issuance of common stock 173 96
Purchase of treasury stock - (182)
Issuance of treasury stock - 9
Repayment of note receivable, officer - 250
--------------- ---------------
Net cash provided by financing activities 170 171
--------------- ---------------
Effect of foreign exchange on cash (55) (9)
Net increase (decrease) in cash and cash equivalents 2,253 (238)
Cash and cash equivalents at beginning of period 2,019 3,030
--------------- ---------------
Cash and cash equivalents at end of period $ 4,272 $ 2,792
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
LIFELINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information furnished has been prepared from the accounts without
audit. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments necessary, consisting only of
those of a normal recurring nature, to present fairly its consolidated
financial position as of March 31, 1998 and the consolidated results of its
operations and cash flows for the three months ended March 31, 1998 and
1997.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these statements should be read in
conjunction with the consolidated financial statements and the related
notes included in the Company's audited financial statements for the year
ended December 31, 1997.
Certain amounts in the prior year have been reclassified from selling,
general, and administrative expenses to cost of services to conform to the
current year presentation.
The results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results expected for the full year.
2. Details of certain balance sheet captions are as follows (in thousands):
March 31, December 31,
1998 1997
--------- ------------
Inventories:
Purchased parts and assemblies $709 $827
Work-in-process 328 391
Finished goods 525 157
--------- ----------
$1,562 $1,375
========= ==========
Property and equipment:
Equipment $10,541 $10,410
Furniture and fixtures 687 659
Equipment leased to others 7,732 7,195
Equipment under capital leases 1,035 1,035
Leasehold improvements 751 751
Capital in progress 9,002 8,319
--------- ----------
29,748 28,369
Less: accumulated depreciation
and amortization (13,895) (12,934)
---------- ----------
$15,853 $15,435
========== ==========
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. The calculation of per share earnings is as follows:
(In thousands except per share figures)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Basic:
- ------
Net income $1,145 $955
Weighted average common shares outstanding 5,795 5,701
Net income per share, basic $0.20 $0.17
=========== ==========
Diluted:
- --------
Net income for calculating diluted earnings per share $1,145 $955
Weighted average common shares outstanding 5,795 5,701
Common stock equivalents 501 545
----------- ----------
Total weighted average shares 6,296 6,246
Net income per share, diluted $0.18 $0.15
=========== ==========
</TABLE>
4. In June, 1997, the Financial Accounting Standards Board issued Statement
No. 131 ("SFAS" 131), "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131, which supersedes Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise," changes the
way public companies report information about segments. SFAS 131, which is
based on management's approach to segment reporting, includes requirements
to report segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which
the entity holds assets and reports revenues. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. Restatement for earlier
years is required for comparative purposes unless impracticable. In
addition, SFAS 131 need not be applied to interim periods in the initial
year; however, in subsequent years, interim period information must be
presented on a comparative basis. The Company does not believe that the
adoption of SFAS 131 will have a material impact on financial statement
disclosures.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This and other reports, proxy statements, and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. There are a number of factors of which the Company is aware that may
cause the Company's actual results to vary materially from those forecast or
projected in any such forward-looking statement. These factors include, without
limitation, those set forth below under the caption "Certain Factors That May
Affect Future Results." The Company's failure to successfully address any of
these factors could have a material adverse effect on the Company's future
results of operations.
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1998 were $15.0 million, a 10%
increase over total revenues of $13.6 million for the quarter ended March 31,
1997.
Service revenues, at $9.0 million for the first quarter of 1998, represented 60%
of the Company's first quarter total revenues. This increase, up from $7.3
million or 54% of total revenues in the first quarter of 1997, is due to the
continued growth in the number of subscribers monitored by the Company and the
success of its strategy of growing the service business. The Company is now
monitoring approximately 204,000 subscribers as of March 31, 1998, 23% more than
the 166,000 subscribers monitored at the end of the first quarter of 1997. The
Company's ability to sustain the current level of service revenue growth depends
on its ability to expand the market for its personal response services and
convert additional locally monitored programs to service provided by Lifeline.
The Company believes that the high quality of its services and its commitment to
providing caring and rapid response to the at-risk elderly and physically
challenged will be a factor in enabling the Company to meet this challenge.
Net product revenues for the first quarter of 1998 decreased 5% to $5.6 million
from $5.9 million for the same period in 1997. Product sales continue to decline
as a result of the Company's strategy of combining service and hardware
offerings to support the transition to a service oriented business. As a result,
the Company expects continued declining product sales in future periods as it
continues packaging products and services into a single service offering.
Finance and rental income, representing revenue earned from the Company's
portfolio of sales-type leases, increased 17% in the first quarter of 1998 to
$338,000, from $289,000 for the same period last year. The increase is a result
of the continued growth of the Company's internally managed and funded leasing
program. The Company believes that the retention of new leases in its own
portfolio will result in an increase in finance income for the remainder of
1998.
Cost of services, as a percentage of service revenues, was 56% for the first
quarter of 1998 as compared to 53% for the first quarter of 1997. Costs of
services include investments in personnel and systems enhancements to support
the Company's current service infrastructure pending the
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<PAGE>
introduction of its new $11 million call center platform. Through the first
quarter of 1998, the Company has invested just over $7.8 million towards this
new platform. These expenditures are not expected to have a material impact on
1998 results of operations since the platform is expected to be placed in
service in late 1998. However, cost of services in future years is expected to
be impacted by the depreciation of these investments.
Cost of sales was 27% of product sales for the three months ended March 31,
1998, compared with 31% for the same period a year ago. The improvement was
largely due to further reductions in material costs from volume pricing
discounts, a change in product mix to lower cost products, and the enhanced
reliability of the Company's product, which resulted in lower warranty costs in
the first quarter ended March 31, 1998 as compared to the same quarter in the
prior year.
Selling, general, and administrative expenses decreased as a percentage of total
revenues to 41% for the first quarter of 1998 as compared to 44% during the
first quarter of 1997. Actual first quarter selling, general, and administrative
expenditures totaled $6.2 million during 1998, a slight increase of $.2 million
over expenses of $6.0 million for the same period in 1997. While the Company
continues to focus on reducing costs, the majority of the percentage reduction
was primarily related to the minor reduction in work force taken with the one-
time reorganization charge in the fourth quarter of 1997 coupled with a
significant decrease in amortization expense because of the impairment of
goodwill, also accounted for in the fourth quarter of 1997.
Research and development expenses were 3% of total revenues for the quarters
ended March 31, 1998 and 1997. Research and development efforts are focused on
ongoing product improvements and developments. The Company expects to maintain
these expenses at approximately a consistent percentage of total revenues for
the remainder of 1998.
The Company's effective tax rate was 40.4% for the three months ended March 31,
1998 compared to 39.5% for the three months ended March 31, 1997. The increase
in the Company's rate was largely due to the decrease of tax exempt interest
income from the Company's marketable securities portfolio as well as a higher
Canadian effective tax rate for the first quarter of 1998 as compared to the
first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, the Company's portfolio of cash,
cash equivalents, and investments increased $2.8 million to $10.7 million at
March 31, 1998 from $7.9 million at December 31, 1997. The increase was mainly
attributable to profitable operations and the cash flow benefit derived from the
Company's change, as of January 1, 1998, to billing in advance those programs
whose subscribers are monitored by the Lifeline Response Center. The Company
also enhanced its collection efforts in the first quarter of 1998 on its
accounts receivable portfolio outstanding at December 31, 1997. These cash flows
were in part offset by continued purchases of property and equipment of $1.4
million in the first quarter of 1998. These expenditures were associated with
the continued development of its new response center platform at its primary
monitoring facility, Company-owned equipment provided directly to customers
under comprehensive service agreements and to subscribers not serviced by local
Lifeline programs, and expenditures associated with the Company's anticipated
move to a new corporate facility.
-9-
<PAGE>
In 1998, the Company expects to use a significant amount of its cash and
marketable securities as it continues to invest approximately $11 million in its
new response center platform. The Company anticipates it will spend close to
$3.5 million in 1998 as it continues to develop a flexible, scaleable, and fault
tolerant response center platform at its primary monitoring facility to support
its growing subscriber base.
In November, 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, MA for its corporate headquarters. The
Company intends to occupy this new facility in late 1998. Annual rental payments
under the lease approximate $775,000. The lease contains two five-year options
to renew at the end of the initial lease term. The Company is currently
evaluating possible alternatives for its existing lease. The Company expects
that it will incur capital expenditures associated with the move.
In January, 1997, the Company's Board of Directors approved the repurchase of up
to 100,000 shares of the Company's common stock from time to time in the open
market for general corporate purposes. Of the 100,000 shares approved, the
Company has repurchased 60,700 shares through July, 1997, all of which were
repurchased from the Company's Chief Executive Officer. No additional shares
have been purchased through the first quarter of 1998.
In November, 1995, the Company secured a $4.0 million line of credit effective
in January, 1996. During 1997, the term of the credit facility was extended
until March, 1998. This credit agreement contained a number of covenants,
including requirements that the Company maintain certain levels of financial
performance and capital structure, limitations on the Company's capital and
other expenditures, and restrictions on the Company's capacity to secure
additional debt financing. No amounts were outstanding as of March 31, 1998. The
Company is in the process of finalizing the terms of its new line of credit.
The Company expects that funding requirements for operations and in support of
future growth are expected to be met primarily from operating cash flow,
existing cash, and marketable securities. The Company expects these sources will
be sufficient to finance the cash needs of the Company through 1998 including
the continued investment in its new response center platform, the 1998 move to
its new corporate headquarters, the 1998 requirements of its internally funded
lease financing program, potential acquisitions, stock repurchases, and other
investments in support of its current business.
In June, 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS" 131), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131, which supersedes Statement No. 14, "Financial Reporting
for Segments of a Business Enterprise," changes the way public companies report
information about segments. SFAS 131, which is based on management's approach to
segment reporting, includes requirements to report segment information quarterly
and entity-wide disclosures about products and services, major customers, and
the material countries in which the entity holds assets and reports revenues.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
Restatement for earlier years is required for comparative purposes unless
impracticable. In addition, SFAS 131 need not be applied to interim periods in
the initial year; however, in subsequent years, interim period information must
be presented on a comparative basis. The Company does not believe that the
adoption of SFAS 131 will have a material impact on financial statement
disclosures.
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<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.
The Company's results are partially dependent on its ability to develop services
and products that keep pace with continuing technological changes, evolving
industry standards, changing subscriber preferences and new service and product
introductions by the Company's competitors. Lifeline's future success will
depend on its ability to enhance its existing services and products (including
accessories), to introduce new service and product offerings to meet and adapt
to changing customer requirements and emerging technologies on a timely basis
and to offer such products and services at competitive prices. There can be no
assurance that Lifeline will be successful in identifying, developing,
manufacturing or marketing new services and products or enhancing its existing
services and products on a timely basis or that Lifeline will be able to offer
such services and products at competitive prices. Also, there can be no
assurance that services, products or technologies developed by others will not
render Lifeline's services or products noncompetitive or obsolete.
The Company may experience risks and uncertainties associated with the
development of new information technology. These include the risks that such
development effort may not be completed on schedule, or at all, or within
budget, or that future developments in information technology will render the
Company's system non-competitive; the risks that the Company does not realize
the intended benefits from the new system, once completed; and the uncertainty
associated with the substantial commitment of funds to the development effort,
including the risks that the Company will have available significantly less cash
to finance its operations, other capital expenditures and future growth,
including acquisitions.
The Company's growth is dependent on its ability to increase the number of
subscribers served by its monitoring centers. The Company's ability to continue
to increase service revenue is a key factor in its long-term growth, and there
can be no assurance that the Company will be able to do so. The Company's
failure to increase service revenue could have a material adverse effect on the
Company's results of operations.
The Company's equipment sales have continued to decline as a result of the
Company's strategy of combining service and hardware offerings to support the
transition to a service oriented business. There can be no assurance that
service revenue will increase at a rate sufficient to offset the expected
decrease in equipment sales.
The Company may expand its operations through the acquisition of additional
businesses. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate any
acquired businesses into the Company without substantial expenses, delays or
other operational or financial problems. In addition, acquisitions may involve a
number of special risks, including diversion of management's attention, failure
to retain key acquired personnel, unanticipated events, contingent liabilities
and amortization of acquired intangible assets. There can be no assurance that
the acquired businesses, if any, will achieve anticipated revenues or earnings.
-11-
<PAGE>
The Company sells a significant portion of its products to healthcare providers
which establish their own Lifeline programs. These healthcare providers
typically rent, rather than sell, the Lifeline products to subscribers and
accordingly following such time as a product is no longer used by a subscriber,
it is returned to the healthcare provider and becomes available for rent to
another subscriber. As a result of this use and reuse of the Company's products,
sales of such products are dependent on growth in the number of subscribers and
on the ability of the Company to encourage its healthcare provider customers to
replace their existing inventory by continuing to enhance its products with new
features.
The Company's monitoring operations are concentrated principally in its
corporate headquarters facility. Although the Company believes that it has
constructed safeguards to protect against system failures, the disruption of
service at its monitoring facility, whether due to telephone or electrical
failures, earthquakes, fire, the 1998 move to new corporate headquarters, or
other similar events or for any other reason, could have a material adverse
effect on the Company's results of operations.
The Company believes that its future success will also depend in large part upon
its ability to attract and retain key personnel, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. This could result in
computer programs that have date-sensitive software recognizing a date using
"00" as the year 1900 rather than the year 2000. Such errors could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has implemented a formal Year 2000 program to determine the extent
of its own Year 2000 problems. As part of this program, in the first quarter of
1998 the Company continued with the process of determining whether its operating
systems need modifications to be in compliance with the Year 2000. The Company
has not yet fully assessed the Year 2000 compliance expense and related
potential effect on the Company's earnings. The Company anticipates that any
modifications required to be made to its software systems to comply with the
Year 2000 Issue will be completed in a timely manner. The Company has designed
its new call center platform to be in compliance with the Year 2000.
The Company has also initiated formal communications with significant suppliers
and other key third parties to determine the extent to which the Company is
vulnerable to those third parties' failure to resolve their own Year 2000 issue.
There can be no assurance that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company's results of
operations.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K - No reports on Form 8-K were filed for the three
months ended March 31, 1998.
(b) Exhibits - The Exhibit which is filed with this Report or which is
incorporated herein by reference is set forth in the Exhibit Index
which appears on page 15 hereof.
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<PAGE>
LIFELINE SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
May 8, 1998 LIFELINE SYSTEMS, INC.
- ---------------- ----------------------
Date Registrant
/s/ Ronald Feinstein
----------------------------
Ronald Feinstein
Chief Executive Officer
/s/ Dennis M. Hurley
------------------------
Dennis M. Hurley
Vice President of Finance and
Administration, Principal Financial
and Accounting Officer
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<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed herewith
or have heretofore been filed with the Securities and Exchange Commission under
the Securities Act of 1933 or the Securities and Exchange Act of 1934 and are
referred to and incorporated herein by reference to such filings.
Exhibit No. Exhibit SEC Document Reference
- ----------- ------- ----------------------
Exhibit 10. MATERIAL CONTRACTS
10.50 Fourth Amendment to Lease Agreement dated
April 3, 1992 between the Registrant and
the Massachusetts Institute of Technology
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<PAGE>
EXHIBIT 10.50
-------------
FOURTH AMENDMENT TO LEASE
-------------------------
THIS FOURTH AMENDMENT TO LEASE is made as of the 1st day of April, 1997 by
---
and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a Massachusetts educational
corporation with an address of 238 Main Street, Cambridge, Massachusetts 02142
("Lessor"), and LIFELINE SYSTEMS, INC., a Massachusetts corporation with an
address of 640 Memorial Drive, Cambridge, Massachusetts 02139 ("Lessee").
Reference is made to a lease dated April 3, 1992 by and between Lessor and
Lessee, as previously amended by First Amendment to Lease dated as of August 25,
1992, and by Second Amendment to Lease dated as of May 18, 1993, and by Third
Amendment to Lease dated as of April 25, 1994 (collectively, the "Lease"),
concerning certain Premises located at 640 Memorial Drive, Cambridge,
Massachusetts, as more particularly described in the Lease, Notice of which
Lease was filed with the Middlesex Southern Registry District of the Land Court
on April 10, 1992 as Document No. 86632, as amended by Notices filed with said
Registry District on August 31, 1992 as Document No. 879314 and on May 25, 1993
as Document No. 905210 and noted on Certificate of Title No. 89497. Capitalized
terms used in this Amendment which are defined in the Lease and not otherwise
defined herein shall have the same meaning in this Amendment as in the Lease.
Lessor has constructed a conference center for the use of tenants of the
Building in the area on the first floor of the Building previously identified as
the site of a possible expansion of the Building cafeteria. Since such
conference center will be available for use by tenants of the Building as a
Building amenity, and therefore should become part of the Common Areas, the area
of such conference center should be included in the rentable area of the
Building and allocated among the rentable area of each tenant's premises in the
Building. Accordingly, Lessor and Lessee desire to amend the Lease to reflect
the re-calculated rentable area of the Premises.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and legal sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease
as follows:
1. Premises. Effective as of March 1, 1997, line 4 of Section 1.1 of the
--------
Lease is hereby amended by deleting the phrase "74,201 rentable square
feet of space" and substituting therefor the phrase "75,450 rentable
square feet of space".
<PAGE>
2. Lessee's Share. Effective as of March 1, 1997, "Lessee's Share" (as
--------------
defined in Section 6.0 of the Lease) shall be 41.43%
3. Conference Center. Effective as of March 1, 1997, the area shown
-----------------
cross-hatched on the plan attached hereto as Exhibit I (the
---------
"Conference Center") shall be deemed to part of the Common Areas for
all purposes of this Lease. Use of the Conference Center by Tenant
and by other tenants of the Building shall be governed by rules and
regulations therefor adopted from time to time by Landlord, which
rules and regulations shall be uniformly applied to all lessees of the
Building; provided, however, that no such rule or regulation shall
-------- -------
materially impair any right of Lessee under the Lease nor impose any
material additional cost on Lessee.
4. Cafeteria Expansion. Effective as of March 1, 1997, all references in
-------------------
the Lease to the possible expansion of the cafeteria in the Building
(including, without limitation, Section 37.0 of the Lease) are hereby
deleted.
In all other respects, the terms and provisions of the Lease are hereby
ratified and confirmed and remain in full force and effect and unamended.
EXECUTED UNDER SEAL as of the date set forth above.
LESSOR: MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By: /s/ Philip A. Trussell
----------------------
Philip A. Trussell,
Director of Real Estate and
Associate Treasurer
Hereunto duly authorized
LESSEE: LIFELINE SYSTEMS, INC.
By: /s/ Ronald Feinstein
--------------------
Ronald Feinstein,
President and Chief Executive
Officer
Hereunto duly authorized
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