<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Lifeline Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
LIFELINE SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING
June 17, 1999
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
Thursday, June 17, 1999, at 10:00 A.M., local time, at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts, 02109, to consider and act
upon the following matters:
1. To elect two Class I Directors, each to hold office until the Annual
Meeting of Stockholders in 2002 and until his or her successor is
elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the current fiscal year; 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., May
25, 1999 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
Framingham, Massachusetts
June 3, 1999
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.
111 Lawrence Street
Framingham, MA 01702-8156
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
June 17, 1999
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. local
time on Thursday, June 17, 1999 (the "Annual Meeting") at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts, 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 May 25, 1999 as the record date for
determining stockholders who are entitled to vote at the Annual Meeting. At
the close of business on May 25, 1999, there were outstanding and entitled to
vote 5,862,198 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 June 3, 1999.
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, 111 Lawrence Street, Framingham, MA 01702-8156.
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 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
PricewaterhouseCoopers LLP as the Company's independent accountants for the
current year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be voted in favor of such matter, and will also
not be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on the
matter being presented for stockholder approval at the Annual Meeting.
<PAGE>
Beneficial Ownership of Common Stock
The following table sets forth certain information, as of April 30, 1999
unless otherwise indicated, 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 a group. 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 has sole voting and investment power with
respect to the shares listed. The share amounts include those shares as to
which the following persons had a right to acquire beneficial ownership by
exercising stock options as of April 30, 1999, or within 60 days following
that date: Mr. Feinstein, 266,673 shares, Mr. Reich, 31,629 shares, Mr. Loper,
40,135 shares, Mr. Hurley, 40,885 shares, Mr. Strange, 34,820 shares,
Ms. Bailis, 2,000 shares, Mr. Baldwin, 12,500 shares, Mr. Kasputys, 24,500
shares, Ms. Roberts, 13,000 shares and Dr. Vineyard, 24,500 shares. Also
includes shares beneficially owned by certain executive officers through
participation in the Company's 401(k) Plan, as to which shares those executive
officers possess sole investment and voting power.
<TABLE>
<CAPTION>
Stock Percentage of
Beneficially Common Stock
Name of Beneficial Owner Owned Outstanding(2)
------------------------ ------------ --------------
<S> <C> <C>
Western Resources, Inc. and affiliates(1)..... 1,216,971 17.3%
818 S. Kansas Ave.
Topeka, KS 66612
SAFECO Corporation(3)......................... 745,450 12.7%
4333 Brooklyn Ave. N.E.
Seattle, WA 98185
L. Dennis Shapiro(4)(13)...................... 708,833 12.1%
24 Essex Road
Chestnut Hill, MA 02467
Dawson-Samberg Capital Management, Inc.(5) ... 449,000 7.7%
354 Pequot Ave.
Southport, CT 06490
Ronald Feinstein(6)(13)....................... 462,205 7.5%
c/o Lifeline Systems, Inc.
111 Lawrence St.
Framingham, MA 01702
Goldman, Sachs & Co.(7)....................... 305,700 5.2%
85 Broad St.
New York, NY 10004
Richard M. Reich(8)(13)....................... 69,590 1.2%
Thomas E. Loper(9)(13)........................ 49,274 *
Dennis M. Hurley(10)(13)...................... 50,280 *
Donald G. Strange(13)......................... 39,833 *
Susan S. Bailis(13)........................... 2,000 *
Everett N. Baldwin(11)(13).................... 31,500 *
Joseph E. Kasputys, Ph.D.(13)................. 36,650 *
Gordon C. Vineyard, M.D.(13).................. 25,501 *
Carolyn C. Roberts(13)........................ 14,000 *
All directors and officers as a group
(13 persons)(12)(13)......................... 1,563,621 24.4%
</TABLE>
- --------
*Less than 1% of the outstanding stock
2
<PAGE>
(1) Represents holdings as of October 18, 1998 of Western Resources, Inc.,
Protection One, Inc. ("Protection One"), Westar Capital, Inc., Westar
Security, Inc. (which are affiliated entities), John E. Mack, who is an
executive officer of Protection One, and John W. Hesse (who was an
executive officer of Protection One, as of October 18, 1998), based on a
Schedule 13D filed with the Securities and Exchange Commission on October
29, 1998. The Company has entered into an Agreement and Plan of
Contribution of Merger (the "Merger Agreement") with Protection One. If
effected, the merger contemplated by the Merger Agreement (the "Merger")
will result in the Company becoming a wholly-owned subsidiary of
Protection One. According to its terms, either party may unilaterally
terminate the Merger Agreement if the Merger is not effective by June 1,
1999. The holdings represented here include 983,271 shares (as to which
these reporting persons disclaim beneficial ownership) which are subject
to voting agreements (the "Voting Agreements") executed by certain
stockholders of the Company and Protection One in connection with the
Merger Agreement (defined below). Unless extended, the Voting Agreements
terminate on June 1, 1999, or if earlier, upon the termination of the
Merger Agreement.
(2) Number of shares deemed outstanding includes 5,862,398 shares outstanding
as of April 30, 1999, plus any shares subject to options held by the
named person or entity that are currently exercisable or exercisable
within 60 days after April 30, 1999.
(3) Represents holdings as of December 31, 1998 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 11, 1999 by
SAFECO Corporation. Includes the following shares, as to all of which
SAFECO corporation disclaims beneficial ownership: 514,450 shares held by
SAFECO Common Stock Trust, an investment company for which SAFECO Asset
Management Company, a wholly owned subsidiary of SAFECO Corporation, acts
as the investment advisor.
(4) 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 children, over which he has sole voting and investment power;
35,312 shares held by Mr. Shapiro's wife; 12,360 shares held by Mr.
Shapiro's wife as custodian for three 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.
(5) Represents holdings as of December 31, 1998 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 10, 1999 by
Dawson-Samberg Capital Management, Inc.
(6) Includes 16,000 shares held by Mr. Feinstein's children.
(7) Represents holdings as of December 31, 1998 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 14, 1999 by
Goldman Sachs & Co. Includes 196,200 shares as to which Goldman Sachs &
Co. has shared voting power and 305,700 shares as to which Goldman Sachs
& Co. has shared dispositive power.
(8) Includes 32,500 shares owned by Mr. Reich jointly with his wife.
(9) 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."
(10) Includes 1,700 shares beneficially owned by Mr. Hurley through an
individual retirement account ("IRA"). Also includes 7,123 shares owned
by Mr. Hurley jointly with his wife.
(11) Includes 7,000 shares held by the Everett N. Baldwin Revocable Trust of
1997.
(12) Includes an aggregate of 546,499 shares subject to stock options that are
currently exercisable or exercisable within 60 days after April 30, 1999.
Also includes 17,684 shares beneficially owned by such persons through
the 401(k) Plan as to which such persons possess sole investment and
voting power.
(13) In connection with the Merger Agreement, each of the Company's officers
and directors entered into a Voting Agreement with Protection One, in
which they agree to vote their shares of the Company's Common Stock for
the approval and adoption of the Merger Agreement and the Merger. Unless
extended, the Voting Agreements expire on June 1, 1999 or, if earlier,
upon the termination of the Merger Agreement.
3
<PAGE>
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 2000 Annual Meeting of Stockholders and three Class III Directors, whose
terms expire at the 2001 Annual Meeting of Stockholders.
The persons named in the proxy will vote to elect as Class I 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 I 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. L. Dennis Shapiro and Everett N.
Baldwin have served as members of the Board of Directors of the Company since
1978 and 1991, respectively. Both of the nominees will be elected to hold
office until the Annual Meeting of Stockholders in 2002, and until his
successor is elected and qualified.
The following table sets forth the name 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, 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 I Directors to
serve until the Annual Meeting of Stockholders in
2002
L. DENNIS SHAPIRO 65 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 66 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. Mr. Baldwin
retired from Welch Foods in 1995.*
The two Class II Directors named below will continue
in office until the Annual Meeting of Stockholders
in 2000:
RONALD FEINSTEIN 53 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.
JOSEPH E. KASPUTYS, Ph.D. 62 1985
Dr. Kasputys has been Chairman, President and Chief
Executive Officer of Primark Corporation, an
international company primarily engaged in the
information service business, since June 1987.** ***
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name, Principal Occupation
and Business Experience First Became a
During the Past Five Years Age Director
-------------------------- --- --------------
<S> <C> <C>
The three Class III Directors named below will
continue in office until the Annual Meeting of
Stockholders in 2001:
SUSAN S. BAILIS 53 1998
Ms. Bailis has been co-chairman and co-chief
executive officer of Solomont Bailis Ventures, a
health care company, since May 1998. From October
1997 to May 1998 she was President and Chief
Executive Officer of the A.D.S. Group ("A.D.S."),
owned by an affiliate of Genesis Health Ventures.
From December 1996 to October 1997, Ms. Bailis held
the positions of Senior Vice President of the
Multicare Companies and President and Chief
Executive Officer of A.D.S., at which time A.D.S.
was a wholly owned subsidiary of the Multicare
Companies. From 1986 to December 1996 Ms. Bailis was
President of A.D.S.*
CAROLYN C. ROBERTS 60 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, was 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").** ***
GORDON C. VINEYARD, M.D. 62 1985
Dr. Vineyard has been Director of Surgical
Specialties and Radiology and Surgeon-in-Chief of
the Harvard Vanguard Medical Associates (formerly
Harvard Pilgrim Health Care) 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.*
</TABLE>
- --------
* Member of Audit Committee
** Member of Compensation Committee
*** Member of Stock Option Plans Committee
Meetings of the Board of Directors
The Company has an Audit Committee, which held two meetings during the
fiscal year ended December 31, 1998. 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.
5
<PAGE>
The Company has a Compensation Committee, which held two meetings during the
fiscal year ended December 31, 1998. 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, 1998. 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 forward to the Corporate Secretary, Lifeline Systems,
Inc., 111 Lawrence Street, Framingham, Massachusetts 01702, who will submit
them to the Board of Directors for its consideration.
During the fiscal year ended December 31, 1998, the Board of Directors of
the Company held nine 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 received 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 received 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, received 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, 1998, each of the then non-employee
directors received options to purchase 3,000 shares of common stock at an
exercise price of $22.75 per share (the fair market value on the date of
grant). Ms. Bailis received options to purchase 3,000 shares of common stock
on May 20, 1998 (the date of her election to the Board) at an exercise price
of $19.875, the fair market value on such date. Pursuant to the terms of the
Merger Agreement between Lifeline and Protection One, no options were granted
to the non-employee directors in 1999.
Compensation Committee Interlocks and Insider Participation
Messrs. Kasputys, Shapiro and Ms. Roberts served as members of the
Compensation Committee during the Company's most recent fiscal year. Mr.
Shapiro is the Chairman of the Board of Directors and previously served at
various times as the Company's President, Chief Executive Officer and
Treasurer.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on its review of copies of reports filed by Reporting Persons
of the Company pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or written representations from certain
Reporting Persons that no Form 5 filing was required for such person, the
Company believes that during fiscal 1998 all filings required to be made by
its Reporting Persons were timely made in accordance with the requirements of
the Exchange Act.
6
<PAGE>
Executive Compensation
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated
executive officers during the fiscal year ended December 31, 1998 who were
serving as executive officers at December 31, 1998 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
----------------------------------------- ----------------------------------
Securities
Underlying
Name and Salary Bonus Other Annual Options All Other
Principal Position Year ($) ($) Compensation($) Granted (#)(1) Compensation ($)(2)
------------------ ---- -------- -------- --------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 1998 $254,992 $172,293(6) -- 20,000 $2,980
President and Chief 1997 242,826 -- (3) -- 34,810(5) 2,657
Executive Officer 1996 230,000 128,238(4) -- -- 1,718
Richard M. Reich........ 1998 153,833 65,906(6) -- 5,000 2,703
Vice President,
Technology 1997 146,750 -- (3) -- 12,411(5) 2,331
and Advanced Services 1996 139,550 45,544(6) -- 7,000 1,436
Thomas E. Loper......... 1998 150,833 64,545(6) $28,800(7) 5,000 2,691
Vice President, 1997 145,333 -- (3) 24,000(7) 12,052(5) 2,278
Customer Care 1996 136,750 47,450(6) 24,000(7) 7,500 427
Dennis M. Hurley........ 1998 143,000 61,229(6) -- 5,000 2,680
Vice President, Finance 1997 136,917 -- (3) -- 11,978(5) 2,302
and Chief Financial
Officer 1996 130,417 41,311(6) -- 7,500 1,407
Donald G. Strange....... 1998 135,833 56,822(6) -- 5,000 2,662
Vice President, Sales 1997 130,000 -- (3) -- 11,631(5) 2,287
and Marketing 1996 114,062 37,116(6) -- 7,500 1,994
</TABLE>
- --------
(1) Reflects the grant of options to purchase common stock.
(2) Represents Company contributions to the Company's 401(k) Plan and Group
Term Life Insurance Plan.
(3) For the year ended December 31, 1997, Mr. Feinstein, Mr. Reich, Mr. Loper,
Mr. Hurley and Mr. Strange each elected to take stock options in lieu of a
cash bonus. See column entitled "Securities Underlying Options Granted."
(4) Represents amounts paid under the Company's Executive Bonus Plan. Also
includes $14,950 paid to Mr. Feinstein in 1996 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 that year.
(5) Includes options to purchase 14,810, 6,411, 6,052, 5,978, and 5,631 shares
under the 1994 Stock Option Plan in lieu of cash bonus for the year ended
December 31, 1997 to each of Mr. Feinstein, Mr. Reich, Mr. Loper, Mr.
Hurley, and Mr. Strange, respectively. The amount of cash bonus foregone
in exchange for these options by Mr. Feinstein, Mr. Reich, Mr. Loper, Mr.
Hurley and Mr. Strange was $79,181, $34,277, $32,354, $31,961 and $30,108,
respectively. The number of options granted in lieu of cash bonus was
determined using the Black-Scholes option pricing model, which accounts
for certain variables such as fair market value of the option on the date
of grant, stock price volatility, life of the option, and interest rates.
The exercise price of these options was $24.00 per share, representing the
fair market value of the
7
<PAGE>
underlying shares on the date of grant, February 13, 1998. These options
became exercisable one-third immediately upon grant, with an additional
one-third becoming exercisable on each of the next two anniversary dates.
(6) Represents amounts paid under the Company's Executive Bonus Plan.
(7) Represents an annual living allowance paid to Mr. Loper.
Option Grants
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1998 to each of
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation For
Individual Grants Option Term(1)
------------------------------------------------------------ -------------------
Securities Percent of Total
Underlying Options Granted
Options Granted to Employees in Exercise or Base Expiration
Name (#) Fiscal Year Price ($/Share) Date 5%($) 10%($)
- ---- --------------- ---------------- ---------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 34,810(2) 24.5% $24.00 02/13/2008 $525,404 $1,331,476
Richard M. Reich........ 11,411(3) 8.0% 24.00 02/13/2008 172,232 436,469
Thomas E. Loper......... 11,052(3) 7.8% 24.00 02/13/2008 166,813 422,737
Dennis M. Hurley........ 10,978(3) 7.7% 24.00 02/13/2008 165,696 419,907
Donald G. Strange....... 10,631(3) 7.5% 24.00 02/13/2008 160,459 406,634
</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) Includes options to purchase 20,000 shares which are exercisable in
installments beginning 12 months after the date of grant, with one-third
of the shares covered thereby becoming exercisable at that time and an
additional one-third of the shares covered becoming exercisable on each of
the next two anniversary dates. 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. Also includes options to purchase 14,810 shares granted on
February 13, 1998 in lieu of cash bonus for the year ended December 31,
1997, at an exercise price of $24.00 per share. These options became
exercisable immediately upon grant, with an additional one-third becoming
exercisable on each of the next two anniversary dates.
(3) Exercisable in installments beginning 12 months after the date of grant
with 20% of the shares covered thereby becoming exercisable at that time
and an additional 20% of the shares covered 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. Also includes options to purchase 6,411 shares, 6,052 shares,
5,978 shares and 5,631 shares granted to Mr. Reich, Mr. Loper, Mr. Hurley
and Mr. Strange, respectively, all of which were granted on February 13,
1998 in lieu of cash bonus for the year ended December 31, 1997, at an
exercise price of $24.00 per share. These options became exercisable
immediately upon grant, with an additional one-third becoming exercisable
on each of the next two anniversary dates.
8
<PAGE>
Option Exercises and Year-End Values
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1998 by each of the
Named Executive Officers and the number and value of unexercised options held
by each of the Named Executive Officers on December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-
Acquired Options at Fiscal The-Money Options at
on Value Year-End(#) Fiscal Year-End($)(1)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald Feinstein........ -- -- 248,404/43,206 $5,178,315/$149,332
Richard M. Reich........ -- -- 19,704/30,207 283,642/ 353,824
Thomas E. Loper......... -- -- 34,418/37,134 447,593/ 374,379
Dennis M. Hurley........ -- -- 24,193/45,285 393,316/ 622,690
Donald G. Strange....... 2,500 $213,437 20,577/31,054 355,408/ 376,342
</TABLE>
- --------
(1) Based on the fair market value of the common stock on December 31, 1998
(approximately $25.22), less the option exercise price.
Other Arrangements
Feinstein Employment Agreement
Pursuant to the terms of an employment agreement, as amended, effective as
of August 27, 1992, Ronald Feinstein became the Executive Vice President and
Chief Operating Officer of the Company on October 1, 1992, and the President
and Chief Executive Officer on January 1, 1993. Mr. Feinstein receives a base
salary of not less than $200,000 annually.
Pursuant to the terms of Mr. Feinstein's employment agreement, Mr. Feinstein
is eligible to receive a bonus equal to 40% of his base salary if the Company
achieves the annual profit performance plan goals adopted by the Board of
Directors and a bonus of greater than 40% of his base salary if the Company
exceeds such goals. Pursuant to his employment agreement, Mr. Feinstein will
continue to serve as a member of the Board of Directors during the period of
his employment.
Pursuant to his employment agreement, on August 27, 1992, 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
9
<PAGE>
financial goals. On June 14, 1996, Mr. Feinstein's employment agreement was
amended to provide for full vesting of this option 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 in the
preceding paragraph 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). The merger of the Company with a subsidiary of
Protection One would constitute a change of control for purposes of this
Agreement.
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. The merger of the
Company with a subsidiary of Protection One would constitute a change of
control for purposes of each of these Agreements.
Loans to Related Parties
On September 11, 1995, the Company sold to Mr. Thomas E. 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 April 30, 1999,
$100,000 was outstanding on the Loper Note.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return of (i) the Center for Research in Security Prices ("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, 1993 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, 1993, 1994, 1995, 1996, 1997 and 1998.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lifeline Systems, Inc. ........ $100.00 $118.40 $255.30 $368.40 $528.90 $526.30
Nasdaq Composite Index......... 100.00 97.80 130.30 170.00 208.30 293.50
Nasdaq Health Services Stocks.. 100.00 107.30 136.10 135.90 138.50 117.30
</TABLE>
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
composed of three 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 incentive compensation in the form of cash or
stock options 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 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 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 bonus is paid if the Company's pre-tax profit falls below a minimum
level established by the Committee. Prior to 1997, the annual bonus was
payable in cash. Beginning with the year ended December 31, 1997, in order to
further align the executives' interests with those of the stockholders, the
Compensation Committee approved a change to the annual bonus plan pursuant to
which officers are able to elect to receive stock options in lieu of a cash
bonus. The number of such options is determined by a formula based on the cash
bonus each officer would have received, a Black-Scholes option valuation model
as of the grant date, and consideration of the risk associated with trading
stock options for cash.
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 interest 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 (other than
options granted under the annual bonus plan), 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 1998, the Committee
12
<PAGE>
granted non-qualified options which vest (except for certain options granted
to the Chief Executive Officer as described below) in five equal installments
commencing on the first anniversary date of the grant.
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 1998 to help ensure that
compensation levels are appropriate.
Chief Executive Officer's 1998 Compensation
For the year ended December 31, 1998, the Company's President and Chief
Executive Officer, Ronald Feinstein, received a base salary of $254,992 and a
bonus of $172,293. For the year ended December 31, 1998, Mr. Feinstein also
received options to purchase 20,000 shares which become exercisable in
installments beginning 12 months after the date of grant, with one-third
becoming exercisable at that time and an additional one-third becoming
exercisable on each successive anniversary date. 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
$269,856 effective March 1, 1998, based on the Company's performance in 1997,
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
--------
* Member of the Stock Option Plans
Committee
13
<PAGE>
2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
Subject to ratification by the stockholders, the Board of Directors has
selected the firm of PricewaterhouseCoopers LLP, certified public accountants,
as independent accountants of the Company for the Company's 1999 fiscal year.
Although stockholder approval of the Board of Directors' selection of
PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP 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 Annual 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
Stockholder proposals submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") for inclusion in the
Company's proxy materials for its 2000 Annual Meeting of Stockholders must be
received by the Corporate Secretary of the Company at the principal offices of
the Company no later than February 4, 2000. Written notice of proposals of
stockholders submitted outside the processes of Rule 14a-8 under the Exchange
Act for consideration at the 2000 Annual Meeting must be received on or before
April 19, 2000, in order to be considered timely for purposes of Rule 14a-4
under the Exchange Act.
By Order of the Board of Directors,
Norman B. Asher, Clerk
Framingham, Massachusetts
June 3, 1999
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.
LLSCM-PS-99
14
<PAGE>
[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ------------------------------------
LIFELINE SYSTEMS, INC.
- ------------------------------------
Mark box at right if an address change or comment has [_]
been noted on the reverse side of this card.
CONTROL NUMBER:
RECORD DATE SHARES:
----------------------------
Please be sure to sign and date this Proxy. Date
- -------------------------------------------------------------------------
- ------------ Stockholder sign here ------------ Co-owner sign here ------
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN
FAVOR OF THE PROPOSALS SET FORTH HEREON.
A VOTE "FOR" THE PROPOSALS IS RECOMMENDED
BY THE BOARD OF DIRECTORS.
1. To elect two Class I Directors, each to hold office
until the Annual Meeting of Stockholders in 2002
and until their successors are elected and qualified.
For With- For All
hold Except
L. Dennis Shapiro [ ] [ ] [ ]
Everett N. Baldwin
NOTE: If you do not wish your shares voted "For" a particular
nominee, mark the "For All Except" box and write that nominee's
name on the line below.
- ---------------------------------------------------------------
For Against Abstain
[ ] [ ] [ ]
2. To ratify the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants
for 1999.
3. To transact such other business as may properly come before the meeting or
any adjournments of the meeting.
DETACH CARD DETACH CARD
LIFELINE SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information enclosed with this Proxy, which
requires your immediate attention.
Your vote on these matters counts, and you are strongly encouraged to exercise
your right to vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted, then sign the card, detach it and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to be
held on June 17, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Lifeline Systems, Inc.
<PAGE>
LIFELINE SYSTEMS, INC.
111 LAWRENCE STREET, FRAMINGHAM, MASSACHUSETTS 01702
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Those signing on the reverse side, revoking all prior proxies, hereby appoint
Ronald Feinstein and Norman B. Asher, and each of them, with full power of
substitution, as proxies, to represent and 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 Hale and Dorr LLP, 60
State Street, Boston, Massachusetts 02109, on June 17, 1999 at 10:00 a.m., local
time, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDERS.
- --------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE-PAID 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. If a partnership, please sign in partnership name by
authorized person and state title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------- -----------------------------
- --------------------------- -----------------------------
- --------------------------- -----------------------------
