<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 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.)
111 Lawrence Street, Framingham, Massachusetts 01702-8156
(Address of principal executive offices) (Zip Code)
(508) 988-1000
(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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of February 26, 1999, 5,857,366 shares of the Registrant's Common Stock were
outstanding and the aggregate market value as of such date of such Common Stock
held by non-affiliates of the Registrant was approximately $153,023,687.
__________________
Exhibit index is located on pages 55 through 60 of this Report.
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PART I
ITEM 1. Business
General
Lifeline Systems, Inc. (the "Company") provides 24-hour personal response
monitoring services to its subscribers, primarily elderly individuals with
medical or age-related conditions as well as physically challenged individuals.
These subscribers communicate with the Company through products designed,
manufactured and marketed by the Company, consisting principally of a
communicator which connects to the telephone line in the subscriber's home and a
personal help button, which is worn or carried by the individual subscriber and
which, when activated, initiates a telephone call from the subscriber's
communicator to the Company's central monitoring facilities. The Company
believes it is a major provider of these services since it monitors
approximately 229,000 subscribers as of December 31, 1998 and estimates it
serves, along with community hospitals, more than 350,000 subscribers in a North
American personal emergency response services market estimated by the Company to
serve between 500,000 and 600,000 subscribers as of December 31, 1998.
Business Developments
The Company entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 18, 1998, with Protection One, Inc. and a
subsidiary of Protection One, Inc. (the "Merger Sub"), pursuant to which,
subject to the terms and conditions of the Merger Agreement, the Company will be
merged with and into the Merger Sub (the Company is the surviving entity). In
connection with the merger, each share of the Company's common stock will be
converted into the right to receive $14.50 plus a certain number of shares of
the common stock of a newly formed holding company for Protection One, based on
the average closing price of Protection One's common stock prior to the
consummation of the transaction and adjusted for a variable exchange rate. The
number of shares of Protection One holding company common stock to be received
by the Company's stockholders will be based on the average closing price of
Protection One common stock for the ten days ending three days prior to the
Company's shareholder meeting to be held in connection with the transaction (the
"Average Closing Price"). The number of shares of holding company common stock
to be received by the Company shareholders per share of the Company's common
stock will be as follows:
- - 1.7857 if the Average Closing Price is less than $7.00;
- - the quotient obtained by dividing (x) $12.50 by (y) the Average Closing Price,
if the Average Closing Price is equal to or greater than $7.00 but less than
$8.19;
- - 1.5263 if the Average Closing Price is equal to or greater than $8.19 but less
than $9.50;
- - the quotient obtained by dividing (x) $14.50 by (y) the Average Closing Price,
if the Average Closing Price is equal to or greater than $9.50 but less than
$11.00; and
- - 1.3182 if the Average Closing Price is equal to or greater than $11.00.
Based on the Average Closing Price on February 26, 1999, each share of the
Company's common stock would have been converted to the right to receive 1.5480
shares of holding company common stock. The acquisition will be accounted for
as a purchase and is intended to qualify as a tax-free reorganization to the
extent of the holding company common stock received in the transaction. The
merger is conditioned upon, among other things, approval by shareholders of the
Company and Protection One. On December 11, 1998, early termination of the
waiting period provided by Section 7A(b)(1) of the Clayton Act and Section
803.10(b) of the premerger notification rules was granted. The Merger Agreement
has been approved by the boards of directors of both Protection One and the
Company, and the merger is expected to be completed in the second quarter of
1999.
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In February 1999, the Company began to move to its new corporate
headquarters. The hew headquarters is an 84,000 square foot facility in
Framingham, Massachusetts which will include its U.S. based monitoring
operations. Annual base rental payments under the lease approximate $772,000.
The lease contains two five-year options to renew at the end of the initial
lease term. In October 1998, the Company entered into a five-year lease to rent
an additional 16,000 square feet of a facility located in Framingham,
Massachusetts to maintain its inventory. The Company intends to occupy this new
facility in 1999. Annual base rental payments will be approximately $79,000. The
lease contains two five-year options to renew at the end of the initial lease
term.
In February 1999, the Company negotiated a buyout of its old corporate
headquarters facility lease. Pursuant to the arrangement, payments of
approximately $1 million are expected to be made to the Company during 1999, as
space becomes available in the old facility. Lifeline will record these
payments as other income in 1999.
In January 1999, the Company selected Ademco as the primary manufacturer
for Lifeline equipment. Ademco, a division of Pittway Corporation, is an
international manufacturer of electronic equipment. It is the largest contract
manufacturer of equipment to the security industry and performs contract
manufacturing for a large number of companies in related industries. This
decision represents a change in the Company's manufacturing strategy, as it will
no longer support a manufacturing site at its corporate location. All repair and
distribution of the Company's hardware, however, will continue from its
corporate headquarters. The Company anticipates that this strategic decision
will result in technological innovation and significant cost savings
opportunities.
In November 1998 the Company completed the acquisition of the assets of
AlertCall, Inc. of Amherst, New York. AlertCall was a distributor of the
Company's personal response products and services.
Industry Segments
The Company operates in one industry segment. Its operations consist of
providing personal response services associated with those products it designs,
manufactures, and markets. Foreign revenues, from Canada, comprised less than
10% of the Company's total revenues in 1998, and the Company has no significant
tangible assets in foreign countries.
The Lifeline Service
The Company's principal offering, called LIFELINE/R/, consists of a
monitoring service utilizing equipment currently manufactured by the Company.
The Company's monitoring service is a personal response service which provides
24-hour monitoring and personalized support to elderly individuals with medical
or age-related conditions and to physically challenged individuals throughout
the United States and
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Canada. Through use of the LIFELINE service, individuals in need of help are
able to signal monitoring personnel in one of the Company's response centers.
These trained monitors identify the nature and extent of the subscriber's
particular need and manage the situation by notifying the subscriber's friends,
neighbors, and/or emergency personnel, as set forth in a predetermined protocol
established by the subscriber. The Company also offers a version of its home
monitoring service that provides social support for elderly individuals who live
alone. This service allows trained monitoring personnel to often be in daily
contact with these elders which can be an important social connection for these
subscribers.
The equipment used for the LIFELINE service includes a communicator, which
connects to the telephone line in the subscriber's home and a personal help
button, which is worn or carried by the individual subscriber. When pressed, the
personal help button sends a radio signal to the communicator; the communicator
automatically dials a response center where monitoring personnel answer the call
and dispatch the designated responders, typically a friend or relative of the
subscriber and/or emergency service, when help is needed. Most of the time,
however, subscribers' calls require reassurance and support as a result of
isolation or loneliness.
The Company's primary monitoring center in Cambridge, Massachusetts is
supported by its proprietary CORMIS(TM) software. CORMIS receives incoming
signals from subscribers' communicators, matches and retrieves the appropriate
subscriber data records from a central database, and routes both the call and
the data record to monitoring personnel in the Lifeline Response Center. The
Company continues with its significant investment in its new CareSystem call
center platform to replace CORMIS. This call center platform is a specially
designed computer and telecommunications hardware and software system used to
identify, track and respond to subscriber calls. This new call center platform
is expected to become operational in the first half of 1999.
In the past, the Company offered its customers, typically healthcare
providers which established their own Lifeline programs, two alternatives for
providing the LIFELINE monitoring service: they could utilize the Lifeline
Response Center to perform their monitoring or they could perform their own
monitoring locally using equipment and software manufactured by the Company.
Although the Company continues to service equipment for customers who perform
their own monitoring, the Company no longer markets the equipment necessary for
new providers to monitor their own subscribers. New providers outsource their
monitoring activities to a Lifeline monitoring center to service their
subscribers.
Lifeline also provides its local programs with a comprehensive set of
monitoring and business support services, which reduces the program management
responsibilities and administrative burden associated with a local monitoring
center. In addition, the Company also provides the LIFELINE service directly to
subscribers in the United States and to subscribers in Canada who do not have
access to a local Lifeline program.
The Company offers several versions of its communicators. All models
currently available provide two-way voice communication over a speaker between
the subscriber and the response center as well as other features. All of the
Company's current models also offer the RSVP(TM) feature, which allows the
subscriber to answer routine telephone calls by pushing the personal help
button. The Company believes that the product line offers customers flexibility
in terms of price and functionality.
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Customers
The Company primarily markets its services and products to hospitals and
other service providers in a variety of healthcare related fields. Hospitals,
however, have historically been the Company's primary market. The Company
believes that hospitals offer Lifeline's services and products to capture
revenues from the sale of the service, improve healthcare for the communities
they serve, enhance community relations, market other hospital services to the
subscriber base, and/or contain healthcare costs by facilitating early discharge
from the hospital and reducing the need for nursing home care.
Sales and Marketing
The Company sells its services and products through its sales organization
in the United States and Canada.
In support of the sales effort, the Company's sales professionals assist
the Company's service providers in developing a marketing plan for the Lifeline
program, monitoring progress against that plan, and providing training to the
provider's staff on the management of their local Lifeline program. Programs'
marketing plans typically address the introduction of Lifeline's services to the
service provider's key decision makers; the planning and delivery of
presentations to community responders such as police, fire, and medical
emergency professionals; and the development of local referral networks of elder
care and other service organizations to position the LIFELINE service as part of
a continued care plan. Lifeline personnel also provide continuing operational
support, ongoing consultation, and program evaluations.
Source of Raw Materials
The Company has historically manufactured all of its products, relying on
outside vendors for components and enclosures. In January 1999, the Company
selected Ademco, a division of Pittway Corporation, as the primary manufacturer
for Lifeline equipment. Ademco is an international manufacturer of electronic
equipment. It is the largest contract manufacturer of equipment to the security
industry and performs contract manufacturing for a large number of companies in
related industries. This decision represents a change in the Company's
manufacturing strategy, as it will no longer support a manufacturing site at its
corporate location. All repair and distribution of the Company's hardware,
however, will continue from its corporate headquarters. The Company anticipates
that this strategic decision will result in technological innovation and
significant cost savings opportunities. However, there can be no assurance that
the Company will realize the intended cost savings it anticipates, or that
Ademco will not incur delays in manufacturing products for the Company as a
result of process difficulties, component shortages or for other reasons. Any
such delay could have a material adverse effect on the Company's business,
financial condition, or results of operations.
Patents, Licenses and Trademarks
The Company considers its proprietary know-how with respect to the
development, manufacture, and marketing of its personal response services to be
a valuable asset. Due to rapid technological changes that characterize the
industry, the Company believes that continued development of new services and
products, the improvement of existing services and products, and patent and
license protection are important in maintaining a competitive advantage.
Although the Company owns numerous patents and patent applications in the
United States, Canada, and other countries, the Company does not believe that
its business as a whole is or will be materially dependent upon the protection
afforded by its patents.
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The Company's LIFELINE trademark and servicemark are registered at the
United States Patent and Trademark Office and in most states and some foreign
countries. The Company also has a number of other trademarks.
Research and Development
Research and development continues to be an important strategic element for
the Company and is geared towards enhancing and augmenting the Company's
products and services. Research and development expenses were $1,470,000,
$1,709,000, and $1,771,000, for the years ended December 31, 1998, 1997, and
1996, respectively.
Backlog/Seasonality
Because of the nature of the Company's products, it endeavors to minimize
the time that elapses from the receipt of a purchase order to the date of
delivery of the products. Accordingly, the Company's backlog as of the end of
any period represents only a portion of the Company's expected sales for the
succeeding period and is not significant in understanding the Company's
business. The Company does not believe that the industry in which it operates
is seasonal.
Government Regulation
The Company's products are registered with the Federal Communication
Commission ("FCC") and comply with FCC regulations pertaining to radio frequency
devices (Part 15) connected to the telephone system (Part 68). The Company has
also received registrations of equipment from Canadian agencies. As new models
are developed, they are submitted to appropriate agencies as required.
The Company has registered its communicator products with the United States
Food and Drug Administration.
None of the Company's business is subject to renegotiation of profits or
termination of contract by the government, nor is it impacted by any existing
environmental laws.
Competition
The Company believes that it is a major provider of personal response
services and products since it monitors approximately 229,000 subscribers as of
December 31, 1998 and estimates it serves, along with community hospitals,
more than 350,000 subscribers in a North American personal emergency response
services market estimated by the Company to serve between 500,000 and 600,000
subscribers as of December 31, 1998. Other companies offer services and products
competitive with those offered by the Company. These companies offer personal
response services on a regional or national basis through both healthcare
providers and directly to the subscribers themselves.
Although price is a competitive factor, the Company believes that its
customers' main considerations in choosing a personal response service are the
high quality of service and product performance and reliability; customer
support and service; and reputation and experience in the industry. The Company
believes it competes favorably with respect to these factors.
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Employees
As of February 28, 1999 the Company employed approximately 635 full-time
and permanent part-time employees. None of the Company's employees is
represented by a collective bargaining unit, and the Company believes its
relations with its employees are good.
ITEM 2. Properties
In November 1997, the Company entered into a ten-year lease for an 84,000
square foot facility in Framingham, Massachusetts for its corporate
headquarters, including its U.S. based monitoring operations. The Company began
occupying this new facility in February 1999. Annual base rental payments under
the lease approximate $772,000. The lease contains two five-year options to
renew at the end of the initial lease term. The Company also leases facilities
in other locations to support its field and Canadian operations.
In February 1999, the Company negotiated a buyout of its old corporate
headquarters facility lease. Pursuant to the arrangement, payments of
approximately $1 million are expected to be made to the Company during 1999, as
space becomes available in the old facility. Lifeline will record these
payments as other income in 1999.
In October 1998, the Company entered into a five-year lease to rent an
additional 16,000 square feet of a facility located in Framingham, Massachusetts
to maintain its inventory. The Company intends to occupy this new facility in
1999. Annual base rental payments will be approximately $79,000. The lease
contains two five-year options to renew at the end of the initial lease term.
ITEM 3. Legal Proceedings
The Company is not party to any material litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company as of December 31, 1998:
Name Position Age
- ------------------------ ------------------------------------------- ---
L. Dennis Shapiro Chairman of the Board 65
Ronald Feinstein President, Chief Executive Officer
and Director 52
Dennis M. Hurley Vice President, Finance,
Chief Financial Officer, Treasurer 52
Heather E. Edelman Vice President, Human Resources 51
John D. Gugliotta Vice President, Operations 51
Thomas E. Loper Vice President, Customer Care 49
Richard M. Reich Vice President, Technology and Advanced
Services 51
Donald G. Strange Vice President, Sales and Marketing 52
Norman B. Asher Clerk 72
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L. Dennis Shapiro, Chairman of the Board, has served the Company in this
capacity since 1978, and at various times, has served as President and Chief
Financial Officer.
Ronald Feinstein became an employee of the Company in September 1992 and
became Executive Vice President and Chief Operating Officer in October 1992. He
was appointed President and Chief Executive Officer in January 1993. Mr.
Feinstein has served as a director of the Company since 1985. From January 1991
until September 1992, he was President and Chief Executive Officer of
International Business Interiors.
Dennis M. Hurley joined the Company in March 1995 as Vice President,
Finance; Chief Financial Officer; and Treasurer. From November 1994 to February
1995, Mr. Hurley was Corporate Controller for C.P. Clare Corp., which is an
electronics manufacturer. From 1977 to 1994, Mr. Hurley held various senior
financial management positions with Avery Dennison, most recently as Group
Controller for the Office Products Group.
Heather E. Edelman joined the Company in June 1993 as Vice President, Human
Resources. From 1989 through 1992, Ms. Edelman was Manager, Human Resources
Programs for ROLM, which manufactures, markets and services telecommunications
products and services.
John D. Gugliotta has been Vice President, Operations since June 1990. Mr.
Gugliotta had served as Vice President, Manufacturing since he joined the
Company in August 1987.
Thomas E. Loper serves as Vice President, Customer Care. He joined the
Company in September 1995 as Vice President, Subscriber Services. From 1993
until 1995, Mr. Loper served as Area Vice President for Herman Miller,
manufacturer of office furniture. Prior to that, he was President of Business
Interiors, a division of International Business Interiors, from 1991 until 1993.
Richard M. Reich has been Vice President, Technology and Advanced Services
since August 1994. From June 1990 to August 1994, Mr. Reich had served as Vice
President, Product Planning and Development. Since joining the Company in
April, 1986 he had held the position of Vice President, Engineering.
Donald G. Strange is Vice President, Sales and Marketing. He joined the
Company in February 1993 as Vice President, Sales. From September 1992 to
January 1993, Mr. Strange was Senior Vice President and General Manager of
American Distribution System, which manages the distribution of prescription
drugs and controlled substances. From 1969 to 1992, he was employed by Hoffman-
La Roche, Inc., where he held various management positions in sales and
marketing, most recently as National Director of Sales for its Roche Home
Healthcare Services division.
Norman B. Asher has been the Clerk of the Company since July 1978 and from
1965 until December 1997 was a partner of the law firm of Hale and Dorr LLP,
which has been general counsel to the Company since 1976.
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PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Quarterly Market Information and Related Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
"LIFE." On February 26, 1999, the Company had 438 shareholders of record.
The table below reflects the high and low sales prices for 1998 and 1997.
High Low
1997 First Quarter $ 19.13 $ 16.50
Second Quarter 20.50 16.00
Third Quarter 20.50 17.00
Fourth Quarter 25.25 18.00
1998 First Quarter $ 25.38 $ 21.00
Second Quarter 22.50 16.75
Third Quarter 21.88 17.75
Fourth Quarter 28.25 16.50
During the periods presented, the Company has not paid or declared any cash
dividends on its common stock. While the payment of dividends is within the
discretion of the Company's Board of Directors, the Company presently expects to
retain all of its earnings for use in financing the future growth of the
Company.
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ITEM 6. Selected Financial Data
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
(In thousands, except per share data) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total revenues $ 64,410 $ 56,964 $ 50,223 $ 43,379 $ 36,141
Income before taxes 9,976 3,921 7,078 5,505 3,413
Net income 5,986 2,298 4,176 3,148 1,980
Net income per share, diluted $ 0.95 $ 0.37 $ 0.67 $ 0.51 $ 0.34
Diluted weighted average
shares outstanding 6,309 6,232 6,197 6,115 5,776
FINANCIAL POSITION (1)
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Working capital $ 13,361 $ 12,320 $ 14,003 $ 15,253 $ 14,971
Total assets 52,504 42,269 37,909 31,961 28,883
Long-term debt 6 16 25 32 85
Stockholders' equity 36,921 29,717 27,620 24,289 21,208
</TABLE>
(1) There were no cash dividends paid or declared during any of the periods
presented.
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ITEM 7. 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
1998 Compared with 1997
Total revenues for the year ended December 31, 1998 were $64.4 million, an
increase of 13% compared with the $57.0 million recorded in 1997.
Service revenues, which grew 22% to $39.0 million for the year ended December
31, 1998, comprised 61% of the Company's total 1998 revenues, up from 56% in
1997. This increase in service revenue reflects the continued success of the
Company's strategy to focus on subscriber growth and recurring service revenues.
Accordingly, there was a 17% growth in the number of subscribers the Company
monitors to approximately 229,000 at December 31, 1998 from approximately
196,000 at December 31, 1997. The increase in service revenues continues to be
favorably impacted by the Company's strategy of packaging products and services
into a single service offering, which resulted in higher per-subscriber service
revenue. 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, convert community hospital programs to service provided by the Company
and increase its focus on referral development and innovative partner
relationships in new channels of distribution. The Company believes that the
high quality of its services, its commitment to providing caring and rapid
response to the at-risk elderly and the physically challenged and other
potential opportunities afforded by its upcoming merger with Protection One will
be factors in meeting this challenge.
Net product revenues totaled $24.0 million during 1998, representing a 1%
increase over net product revenues in 1997 of $23.8 million. During 1998, the
Company was able to maintain its product sales while continuing with its
strategy of providing the hardware as part of the monthly service fee to support
the transition to a service oriented business. However, the Company expects
declining product sales in future periods as it continues packaging products and
services into a single service offering.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, increased 20% to $1.4 million for the year ended
December 31, 1998 as compared to the $1.2 million recorded in the previous year.
The increase is the result of the continued growth and success of the Company's
internally managed and funded leasing program. The Company believes that the
retention of new leases in its own portfolio will increase finance income in
future years.
Cost of services, as a percentage of service revenues, increased to 57% for the
year ended December 31, 1998 from 56% for the year ended December 31, 1997.
Cost of services remains high due to continued investments
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in personnel and additional costs of employee retention and recruiting
initiatives. These initiatives were associated with the relocation of the
Company's monitoring facility as part of the move of the Company's headquarters
to Framingham, Massachusetts. The Company also incurred higher costs associated
with continued systems enhancements and support to maintain its current service
infrastructure pending the implementation of its CareSystem call center
platform. Total expenditures for this new information technology are expected to
be approximately $12 million, of which nearly $10.7 million has been invested
through December 31, 1998. These expenditures did not have an impact on 1998
results of operations since the platform is expected to be placed in service in
1999. However, cost of services is expected to be impacted, commencing in 1999,
by the depreciation of these investments.
For the year ended December 31, 1998, cost of product sales as a percentage of
product sales was 27%, versus 28% in the prior year. The improvement was largely
due to further reductions in material costs from volume pricing discounts. The
Company continues to strive to maintain its cost of sales at a consistent
percentage of net product sales. In connection with the decision to outsource
its manufacturing function, as described above, the Company anticipates that
this change in its manufacturing strategy will result in future cost savings
opportunities resulting in lower cost of sales as a percentage of product sales.
Selling, general, and administrative expenses as a percentage of total revenues
improved to 40% for the year ended December 31, 1998 from 41% for the year ended
December 31, 1997. The improvement in selling, general, and administrative
expenses is mainly due to the Company effectively reducing such costs as a
percentage of total revenues in 1998. There was also a significant decrease in
amortization expense because of the impairment of goodwill accounted for in the
restructuring charge taken in the fourth quarter of 1997. The actual $2.5
million dollar increase to $25.7 million at December 31, 1998 from $23.2 million
at December 31, 1997 was attributable to a variety of factors including
increased spending associated with recruiting and hiring of employees as a
result of the growth of the Company, higher operating costs for the Company's
former corporate headquarters and increased sales and management bonuses
relating to the improved 1998 performance. In 1998, the Company also met
financial goals that caused certain stock options to vest. The Company
therefore was required to record approximately $603,000 of compensation expense
associated with these options.
Research and development expenses represented 2% of revenues in 1998 versus 3%
in 1997. Research and development efforts are focused on ongoing product
improvements, and the Company expects to maintain these expenses, as a
percentage of total revenues, at a relatively consistent level.
As discussed in more detail in Note K to the financial statements, in December
1997, the Company approved a restructuring plan to improve operating
efficiencies and reduce costs, and recorded a restructuring charge of $4.3
million on a pre-tax basis. During 1998, certain events occurred which resulted
in changes to the Company's original estimates. These changes resulted in the
reversal of approximately $200,000 of the original severance reserve in the
second quarter of 1998 and the reversal of approximately $655,000 and $155,000
of the original reserves for its old lease commitment and the net book value of
abandoned assets, respectively, in the fourth quarter of 1998.
The Company's effective tax rate was 40.0% for 1998, as compared to 41.4% in
1997. The decrease in the Company's rate was largely attributable to the
decrease in Canadian earnings, lower amortization of non-deductible goodwill in
Canada and lower state income taxes as a result of a favorable change in state
apportionment rules in Massachusetts.
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1997 Compared with 1996
Total revenues for the year ended December 31, 1997 were $57.0 million, an
increase of 14% compared with the $50.2 million recorded in 1996.
Service revenues grew to $32.0 million of the Company's total revenues for the
year ended December 31, 1997, compared to $24.2 million for the prior year.
Service revenues comprised 56% of the Company's total revenues in 1997 up from
48% in 1996. This increase in revenue reflected the success of the Company's
continued transition to a service-oriented business, with its focus on
developing its base of subscribers and generating recurring service revenues.
As a result, there was a 26% growth in the number of subscribers the Company
monitored to approximately 196,000 at December 31, 1997 from approximately
156,000 at December 31, 1996. The increase in subscribers continued to be
driven principally by conversions of locally monitored programs to centralized
monitoring provided by the Lifeline Response Center and growth of the Company's
existing programs. The increase in service revenues was also favorably impacted
by the Company's strategy of packaging products and services into a single
service offering, which resulted in higher per-subscriber service revenue.
Net product revenues totaled $23.8 million during 1997, representing a 4%
decrease over net product revenues in 1996 of $24.9 million. The decrease in
1997 was a result of the decline in the average selling price from 1996 levels
because of a change in product mix sold to lower priced products coupled with
volume discounts. In January 1997, the Company introduced the Classic
Pendant/TM/, a new personal help button designed with particular emphasis on its
fashion appeal. This new button did not have a material impact on 1997 product
revenue.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, was consistent in 1997 with the $1.1 million
recorded in the previous year. While customers continued to take advantage of
the Company's internal leasing program in 1997, there was an unusually high
number of leases expiring during the previous year ended December 31, 1996 that
resulted in higher rental income in the prior year. Rental income is derived
from the short-term rental of equipment from expired leases until such time the
equipment is returned to the Company. The decline in rental income in 1997 was
offset in part by an increase in finance income from leases maintained in the
Company's portfolio which led to the consistent level achieved.
Cost of services, as a percentage of service revenues, increased to 56% for the
year ended December 31, 1997 from 48% for the year ended December 31, 1996. The
Company's continued investment in personnel enabled it to continue to provide a
high level of service to its increasing subscriber base and resulted in higher
cost of services for the Company in 1997. The Company also incurred higher
costs associated with continued systems enhancements and support to maintain its
current service infrastructure pending the introduction of its approximately $12
million new call center platform. Total expenditures for the development of the
Company's new CareSystem call center platform did not have an impact on 1997
results of operations since the platform is expected to be placed in service
in 1999.
For the year ended December 31, 1997, cost of product sales as a percentage of
product sales was 28%, versus 33% in the prior year. The improvement was
largely attributable to the continued utilization of new technology which
reduced material costs, improvements in manufacturing processes, and the
enhanced reliability of the Company's product which reduced the warranty costs
compared to 1996 levels.
Selling, general, and administrative expenses as a percentage of total revenues
improved to 41% for the year ended December 31, 1997 from 45% for the year ended
December 31, 1996. The approximate $1.0 million
-13-
<PAGE>
increase in actual expenses year-over-year was attributable to a variety of
factors associated with the growth of the Company. The Company's larger employee
base in 1997 resulted in an increase in salaries and related fringe benefits as
compared to the year ended December 31, 1996. Also, increased spending
associated with the Company's employee recruitment efforts, higher operating
costs for the Company's corporate headquarters, enhancements related to
information systems, and the inclusion of a full year of costs associated with
the July 1996 acquisition of CareTel, Inc. of Ontario, Canada attributed to the
overall increased spending in 1997.
Research and development expenses represented 3% of revenues in 1997 versus 4%
in 1996. Research and development efforts are focused on ongoing product
improvements, and the Company expects to maintain these expenses, as a
percentage of total revenues, at a relatively consistent level.
In the fourth quarter of 1997, the Company's management completed an overall
strategy for the Company's future. In December 1997, the Company made several
strategic decisions to effect a corporate reorganization to streamline
operations and reduce costs. The two most critical components of the strategy
were its fourth quarter announcement to relocate the Company's corporate
headquarters and its significant investment in technology. In addition, and in
conjunction with the strategy, the Company recorded a $4.3 million restructuring
charge. There were three principal components of the charge recorded for the
period ended December 31, 1997: $0.8 million of severance and related costs;
$1.5 million of costs for the write down to fair value of certain property and
equipment and lease commitments, net of sublease income, related to the
relocation to a new corporate facility; and $2.0 million for the write down of
impaired goodwill and certain equipment, in accordance with the provisions of
SFAS 121, due to reorganization and closing of certain divisions within the
Company.
The Company's effective tax rate was 41.4% for 1997, as compared to 41% in 1996.
The increase in the Company's rate was largely attributable to the
nondeductibility of the write down of the Canadian portion of goodwill and a
higher Canadian tax rate.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, the Company's portfolio of cash, cash
equivalents, and investments increased $1.5 million to $9.4 million at December
31, 1998 from $7.9 million at December 31, 1997. The increase was mainly
attributable to profitable operations of $11.3 million offset by continued
purchases of property and equipment and the use of $1.5 million, net of cash
received on leases, to fund its internal leasing program. This level of funding
for the internal leasing program compares to $1.6 million used in 1997 and $1.2
million used in 1996. The Company incurred expenditures for property and
equipment of approximately $9.0 million in 1998. These purchases included $3.0
million spent for the continued development of the Company's new CareSystem
response center platform at its primary monitoring facility; $2.9 million in
equipment purchases for use in the development and manufacture of its products
and services, as well as for Company-owned equipment provided directly to
customers under comprehensive service agreements and to subscribers not serviced
by local Lifeline programs; and $2.5 million in expenditures (primarily
leasehold improvements) associated with the Company's new corporate
headquarters.
During 1998, the Company continued its investment in new information technology
for its response center platform. The Company has invested nearly $10.7 million
through December 31, 1998 and anticipates it will spend approximately an
additional $1.3 million in 1999 as it develops a flexible, scaleable, and fault
tolerant response center platform at its primary monitoring facility to support
its growing subscriber base.
In November 1998 the Company completed the acquisition of the assets of
AlertCall, Inc. of Amherst, New York. AlertCall was a distributor of the
Company's personal response products and services. The purchase
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<PAGE>
price was approximately $1.5 million. The acquisition was accounted for as a
purchase transaction and, as a result, the Company recorded goodwill of
approximately $1.1 million, which is being amortized over an estimated life of
five years. The results of the acquired business have been included in the
Company's consolidated financial statements from the date of the acquisition and
did not have a material impact on 1998 operating results.
The Company's $4.0 million line of credit was obtained in January 1996 and
expired in March 1998. No amounts were outstanding at the date of expiration. In
April 1998, the Company obtained a $10.0 million line of credit. The agreement
contains several covenants, including the Company maintaining certain levels of
financial performance and capital structure. These financial covenants include a
requirement for a current ratio of at least 1.5 to 1.0, and a leverage ratio of
no more than 1.0 to 1.0. In addition, there are certain negative covenants that
include limitations on the Company's capital and other expenditures,
restrictions on the Company's capacity to obtain additional debt financing,
restrictions on the disposition of the Company's assets, and restrictions on its
investment portfolio. This line of credit matures on June 30, 2004, and no
amounts were outstanding at December 31, 1998.
In November 1997, the Company entered into a ten-year lease for an 84,000 square
foot facility in Framingham, Massachusetts for its corporate headquarters. The
Company began occupying this new facility in February 1999. Annual base rental
payments under the lease approximate $772,000. The lease contains two five-year
options to renew at the end of the initial lease term. The Company has spent
approximately $2.5 million through December 31, 1998 for capital expenditures
(primarily leasehold improvements) associated with the move and expects to spend
an additional $1.5 million in 1999.
In October 1998, the Company entered into a five-year lease to rent an
additional 16,000 square feet of a facility located in Framingham, Massachusetts
to maintain its inventory. The Company intends to occupy this new facility in
1999. Annual base rental payments will be approximately $79,000. The lease
contains two five-year options to renew at the end of the initial lease term.
In July, 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan in which common stock purchase rights were distributed as a dividend at the
rate of one Right for each share of the Company's Common Stock outstanding as of
the close of business on August 3, 1998. This plan was adopted as a means of
deterring possible coercive or unfair takeover tactics and to prevent a
potential acquirer from gaining control of the Company without offering a fair
price to all of the Company's shareholders. In connection with the Merger
Agreement described in Note J, an amendment to this Rights Plan was adopted on
October 18, 1998, providing, in part, that Protection One and its Affiliates are
not Acquiring Persons, that no Distribution Date, Stock Acquisition Date, or
Triggering Event shall be deemed to have occurred, and that no holder of Rights
is entitled to exercise such Rights (as all such terms are defined in the Rights
Plan), by virtue of the execution of the Merger Agreement. Unless the Rights are
redeemed or exchanged earlier, they will expire on July 24, 2008. No rights were
exercised at December 31, 1998.
The Company expects that funding requirements for operations and in support of
future growth are expected to be met primarily from operating cash flow and
existing cash and marketable securities. The Company expects these sources will
be sufficient to finance the cash needs of the Company through 1999 including
the continued investment in its new response center platform, its move to a new
corporate headquarters, the 1999 requirements of its internally funded lease
financing program, any potential acquisitions and other investments in support
of its current business. Company operations have historically provided a
strong, positive cash flow, and the Company expects that its operations will
continue to provide adequate liquidity to meet the Company's operational needs
in the long term.
-15-
<PAGE>
In June, 1997 the Financial Accounting Standards Board issued Statement No. 130
("SFAS" 130), "Reporting Comprehensive Income." SFAS 130 requires changes in
comprehensive income to be shown in a financial statement that is displayed with
the same prominence as other financial statements. While not mandating a
specific financial statement format, SFAS 130 requires that an amount
representing total comprehensive income be reported. SFAS 130 will become
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required for comparative
purposes. The Company adopted SFAS 130 for fiscal year ending December 31,
1998.
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 are
required to report information about segments. SFAS 131, which is based on the
management 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. As
explained in more detail in Note L, the Company adopted SFAS 131 for fiscal year
ending December 31, 1998.
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 Annual Report on Form 10-K and presented elsewhere by management from time
to time.
The Company entered into the Merger Agreement with Protection One, Inc. and a
subsidiary of Protection One, Inc. (the "Merger Sub"), pursuant to which,
subject to the terms and conditions of the Merger Agreement, the Company will be
merged with and into the Merger Sub and the outstanding capital stock of the
Company will be converted into the right to receive $14.50 plus a certain number
of shares of the common stock of a newly formed holding company for Protection
One. The Merger is conditioned upon, among other things, approval by
shareholders of the Company and Protection One. Accordingly, there can be no
assurance that the Merger will be consummated. If the Merger is not
consummated, there can be no assurance that the Company's results of operations
and financial condition will not have been adversely affected by the Merger
negotiations or the announcement of the Merger, by the passage of time following
the signing of the Merger Agreement, or by other factors. If the Merger is
consummated, stockholders of the Company will become stockholders of the holding
company, and as such will have the risks associated with an investment in that
company.
In January 1999, the Company selected Ademco as the primary manufacturer for
Lifeline equipment. This decision represents a change in the Company's
manufacturing strategy, as it will no longer support a manufacturing site at its
corporate location. There can be no assurance that the Company will realize the
intended cost savings it anticipates, or that Ademco will not incur delays in
manufacturing products for the Company as a result of process difficulties,
component shortages or for other reasons. Any such delay could have a material
adverse effect on the Company's business, financial condition, or results of
operations.
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
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<PAGE>
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 is in the process of developing its new CareSystem call center
platform and may experience risks and uncertainties associated with the
development and implementation of new information technologies. These include
the risks that such development and implementation 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 existing call center platform, CORMIS, which is being replaced by the
new CareSystem platform, may not be Year 2000 compliant. Because the Company
expects to implement CareSystem during 1999, the Company has not devoted
resources to making CORMIS Year 2000 compliant.
The Company has recently moved to new corporate headquarters. The new facility
is approximately 20 miles from the Company's former headquarters. There can be
no assurance that the move will not have a material adverse effect on the
Company's business, financial condition or results of operations, including as a
result of employee attrition.
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 business, financial condition, or results of operations.
The Company's equipment sales have continued to decline as a result of its
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.
The Company sells a significant portion of its products to healthcare providers
that 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.
-17-
<PAGE>
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, its continued move to new corporate headquarters,
or other similar events or for any other reason, could have a material adverse
effect on the Company's business, financial condition, or results of operations.
The Company believes that its future success will 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. In
particular, the Company believes that its recent move to new corporate
headquarters and its pending acquisition by Protection One may result in
employee resignations and is actively addressing this possibility.
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, an inability to respond to subscriber calls, send invoices,
or engage in similar normal business activities.
The Company has implemented a formal six-phase Year 2000 program to determine
the extent of its own Year 2000 exposures. The Awareness Phase is ongoing and
involves continuous communication, both internally and externally with customers
and vendors. The Assessment Phase identifies the Company's products, services
and equipment that contain micro-controllers, as well as all information
technology hardware and software to identify two-digit year exposures. The
Planning Phase is the Company's decision-making phase, and it prioritizes the
schedule of resolutions to be implemented. In the Resolution Phase, the Company
will modify, replace or retire systems where necessary. The Testing Phase tests
the Company's readiness to roll out its results. Finally the Rollout Phase
implements the entire process into production.
The Company has utilized internal resources to test all products that it
currently manufactures for Year 2000 issues. This product-testing phase has
revealed only minor product behaviors in date keeping that do not, in the
Company's judgment, cause operational failure relating to the year 2000. The
Company has provided its customers with written information on how to correct
such Year 2000 conditions.
The Company's information technology systems, which include its networks,
desktops, data servers and applications, are being analyzed and tested for Year
2000 compliance. The Company has designed its new CareSystem call center
platform to be in compliance with the Year 2000. The Company began to
transition subscribers to its new CareSystem platform in February 1999. The
Company has performed extensive testing on its CareSystem technology with
successful results. The Company believes that it will incur a smooth transition
of its subscribers during 1999 and believes that the implementation of its new
platform will be complete during the first half of 1999. However, there can be
no assurance that the implementation effort will be completed on schedule, or at
all. The Company has not allocated any resources for its current CORMIS
monitoring platform to ensure that it is Year 2000 ready. As a result, there can
be no assurance that the Company will not need to incur material costs in order
to ensure that the CareSystem monitoring platform is operational in 1999. The
Company believes, however, that it has the necessary resources to ensure that
CareSystem is implemented in 1999.
-18-
<PAGE>
The Company is currently completing the Assessment Phase of its remaining
information technology systems. Of all of the Company's material systems,
software replacements and upgrades in the ordinary course of business (without
acceleration for Year 2000 issues) have enhanced the Company's Year 2000
readiness without incremental costs. Of its existing desktop computers, the
Company believes that approximately 90% are Year 2000 compliant with the
remaining 10% requiring some modification to ensure Year 2000 compliance. The
Company also estimates that approximately 75% of its mission critical systems
are Year 2000 ready. The Company anticipates that any remaining Year 2000
modifications will be completed during 1999.
The Company has moved to new corporate headquarters effective February 1999. As
part of this process, the Company has confirmed that all embedded systems
contained in its new building, such as its elevators, heating, air conditioning
and security systems, are Year 2000 compliant.
The Company has categorized its manufacturing equipment and systems as either
mission-critical or non-mission-critical. To date, the Company believes that
its mission-critical manufacturing equipment and systems are Year 2000 ready.
All of the identified non-mission-critical manufacturing equipment and systems
are either not affected by the Year 2000 issue or are deemed to be Year 2000
ready. In January 1999, the Company selected Ademco as the primary
manufacturer for Lifeline personal response units. Based on information obtained
from Ademco's website, the Company believes that Ademco's control products are
Year 2000 compliant.
The Company is completing its assessment of whether third parties with whom it
has significant relationships are Year 2000 compliant. The Company sent formal
communications to third parties to determine the extent to which the Company is
vulnerable in the event those third parties fail to resolve their own Year 2000
issues. Responses to these letters are still being received, but of those
received to date, 80% of the Company's certified vendors have confirmed their
Year 2000 readiness in writing and most other third parties have informed the
Company, either verbally or in writing, that they believe they are or will be
Year 2000 ready. The Company defines certified vendors as those that have
satisfied certain key criteria established by the Company. However, there can
be no assurance that the systems of these companies on which the Company's
systems rely will not experience problems associated with the Year 2000 and, if
so, that such problems would not have a material adverse effect on the Company's
business, financial condition, or results of operations.
The Company believes that its most reasonably likely worse case Year 2000
scenario is significant interruptions in the supply of necessary services and
products, caused by third party suppliers that do not resolve their own Year
2000 issues. These disruptions could have a material adverse effect on the
Company's monitoring operations, and accordingly, its business, financial
condition or results of operations. The Company's major provider of telephone
service is AT&T. Based on information received directly from AT&T and from its
website, AT&T has an established Year 2000 compliance plan relating to its
products, services, desktop, infrastructure and vendor supplied products. This
information indicated that AT&T has achieved 100% assessment and repair of
systems and network elements that directly impact its customers and is more than
99% complete in its testing of these systems and network elements. The Company
has selected Ademco as the primary manufacturer for Lifeline personal response
units. Although the Company believes that Ademco's products are Year 2000
compliant, there can be no assurance that Ademco will not incur delays in
manufacturing products for the Company as a result of its inability to resolve
its own Year 2000 issues. The Company is developing contingency plans to prepare
for the inability of its key third-party suppliers to resolve their own Year
2000 issues.
Through December 31, 1998, the Company has had only limited expenditures related
to Year 2000 issues, consisting principally of personnel costs incurred in the
scope of normal operations. The total cost of the Year 2000 project, estimated
to be approximately $0.2 million, and the date on which the Company plans to
complete
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<PAGE>
the Year 2000 modifications, estimated to be during 1999, are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Item 7a Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Quarterly Results of Operations
(Unaudited) Quarter Ended
(Dollars in thousands, except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Full Year
<S> <C> <C> <C> <C> <C>
1998 Total revenues $14,952 $16,017 $16,286 $17,155 $64,410
Net income 1,145 1,451 1,506 1,884 5,986
Net income per share, diluted $ 0.18 $ 0.23 $ 0.24 $ 0.30 $ 0.95
1997 Total revenues $13,556 $14,243 $14,185 $14,980 $56,964
Net income (loss) 955 1,226 1,289 (1,172) 2,298
Net income (loss) per share, diluted $ 0.15 $ 0.20 $ 0.21 $ (0.20) $ 0.37
</TABLE>
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<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of Lifeline Systems, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 53 present fairly, in all material
respects, the consolidated financial position of Lifeline Systems, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
on page 53 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
---------------------------------
Boston, Massachusetts
February 8, 1999
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,702 $ 2,019
Short-term investments 6,696 5,850
Accounts receivable, net of allowance for
doubtful accounts of $239 in 1998 and
$216 in 1997 7,459 7,406
Inventories 1,496 1,375
Net investment in sales-type leases 1,713 1,444
Prepaid expenses and other current assets 1,974 1,045
Deferred income taxes 2,238 2,209
------- -------
Total current assets 24,278 21,348
Property and equipment, net 20,776 15,435
Net investment in sales-type leases 5,892 4,641
Goodwill, net 1,134 192
Other assets 424 653
------- -------
Total assets $52,504 $42,269
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,690 $ 1,352
Accrued expenses 2,857 1,954
Accrued payroll and payroll taxes 2,695 1,753
Accrued income taxes 1,300 229
Deferred revenues 685 714
Product warranty and other current liabilities 827 702
Accrued restructuring charge 863 2,324
------- -------
Total current liabilities 10,917 9,028
Deferred income taxes 3,548 2,136
Deferred compensation 1,578 975
Other non-current liabilities 170 413
Commitments and contingencies
Stockholders' equity:
Common stock, $.02 par value, 20,000,000 shares
authorized, 6,425,414 shares issued in 1998
and 6,375,750 shares issued in 1997 129 128
Additional paid-in capital 16,945 16,340
Retained earnings 23,435 17,449
------- -------
40,509 33,917
Less: Treasury stock at cost, 592,548 shares
in 1998 and 1997 (4,028) (4,028)
Notes receivable-officer (100) (100)
Accumulated other comprehensive loss/
cumulative translation adjustment (90) (72)
------- -------
Total stockholders' equity 36,291 29,717
------- -------
Total liabilities and stockholders' equity $52,504 $42,269
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
For the years ended December 31, 1998, 1997 and 1996
(In thousands except for per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues
Services $38,991 $32,031 $24,220
Net product sales 24,032 23,776 24,864
Finance and rental income 1,387 1,157 1,139
------- ------- -------
Total revenues 64,410 56,964 50,223
------- ------- -------
Costs and expenses
Cost of services 22,201 17,821 11,550
Cost of sales 6,533 6,582 8,238
Selling, general, and administrative 25,703 23,215 22,369
Research and development 1,470 1,709 1,771
Restructuring charge (1,010) 4,310 --
------- ------- -------
Total costs and expenses 54,897 53,637 43,928
------- ------- -------
Income from operations 9,513 3,327 6,295
------- ------- -------
Other income (expense)
Interest income 510 614 790
Interest expense (47) (20) (7)
------- ------- -------
Total other income, net 463 594 783
------- ------- -------
Income before income taxes 9,976 3,921 7,078
Provision for income taxes 3,990 1,623 2,902
------- ------- -------
Net income 5,986 2,298 4,176
Other comprehensive loss, net of tax
Foreign currency translation adjustments (11) (43) --
------- ------- -------
Comprehensive income $ 5,975 $ 2,255 $ 4,176
======= ======= =======
Net income per weighted average share:
Basic $1.03 $0.40 $0.74
Diluted $0.95 $0.37 $0.67
Weighted average shares:
Basic 5,817 5,736 5,678
Diluted 6,309 6,232 6,197
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Notes Cumulative Total
---------------- Paid-In Retained ---------------- Receivable Translation Stockholders'
Shares Amount Capital Earnings Shares Amount Officers Adjustment Equity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 5,695,609 $123 $15,161 $10,975 436,848 $(1,620) $(350) $24,289
Exercise of stock options 69,650 1 230 231
Issuance of stock under
employee stock purchase
plan 15,085 163 163
Purchase of treasury stock (103,000) 103,000 (1,337) (1,337)
Issuance of treasury stock 7,500 64 (7,500) 34 98
Net income 4,176 4,176
----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 5,684,844 124 15,618 15,151 532,348 (2,923) (350) 27,620
Exercise of stock options 143,546 4 490 494
Issuance of stock under
employee stock purchase
plan 15,012 220 220
Income tax benefit from
stock options exercised 6 6
Purchase of treasury stock (60,700) 60,700 (1,107) (1,107)
Issuance of treasury stock 500 6 (500) 2 8
Payment of note receivable
by CEO 250 250
Cumulative translation
adjustment $(72) (72)
Net income 2,298 2,298
----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 5,783,202 128 16,340 17,449 592,548 (4,028) (100) (72) 29,717
Exercise of stock options 37,364 1 386 387
Issuance of stock under
employee stock purchase
plan 12,300 219 219
Cumulative translation
adjustment (18) (18)
Net income 5,986 5,986
----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 5,832,866 $129 $16,945 $23,435 592,548 $(4,028) $(100) $(90) $36,291
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,986 $ 2,298 $ 4,176
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring charge (1,010) 4,310 --
Depreciation and amortization 4,221 3,919 3,216
Provision for bad debts 138 85 120
Deferred income tax provision (benefit) 1,383 (717) 589
Deferred compensation 603 79 446
Changes in operating assets and liabilities:
Accounts receivable (145) (1,440) (182)
Inventories (121) 75 (56)
Net investment in sales-type leases (1,520) (1,647) (1,238)
Prepaid expenses, other current assets
and other assets (698) 171 (1,049)
Accounts payable, accrued expenses and
other liabilities 1,331 97 1,058
Accrued payroll and payroll taxes 957 15 41
Income taxes payable/receivable 1,080 (625) 529
Accrued restructuring charge (451) -- --
------- ------- -------
Net cash provided by operating activities 11,754 6,620 7,650
------- ------- -------
Cash flows from investing activities:
Purchases of investments (24,319) (7,500) (20,664)
Sales and maturities of investments 23,473 11,968 19,669
Additions to property and equipment (9,035) (11,886) (5,033)
Payment for business acquisition (1,581) -- (1,146)
------- ------- -------
Net cash used in investing activities (11,462) (7,418) (7,174)
------- ------- -------
Cash flows from financing activities:
Principal payments under long-term
obligations (226) (59) (91)
Proceeds from stock options exercised and
employee stock purchase plan 606 720 394
Repayment of loan from officer -- 250 --
Purchase of treasury stock -- (1,107) (1,337)
Issuance of treasury stock -- 8 98
------- ------- -------
Net cash provided by (used in)
financing activities 380 (188) (936)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 672 (986) (460)
------- ------- -------
Effect of foreign exchange on cash 11 (25) --
------- ------- -------
Cash and cash equivalents at beginning of year 2,019 3,030 3,490
------- ------- -------
Cash and cash equivalents at end of year $ 2,702 $ 2,019 $ 3,030
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Lifeline Systems,
Inc. and its wholly owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash, Cash Equivalents, and Investments
The Company considers all securities purchased with a maturity of three months
or less at the date of acquisition to be cash equivalents. The Company's
investments are deemed to be available for sale. Short-term investments consist
primarily of obligations of the US Government and its agencies, tax-exempt
securities, commercial paper, and bank time deposits. Investments are carried
at fair market value, which approximates cost.
The fair market value of securities, which approximates cost, consists of the
following at December 31, 1998 and 1997:
<TABLE>
Type of Security December 31,
- --------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
US Government and Agency
securities $ 252 $ 649
Tax-exempt securites 2,236 2,724
Corporate bonds and securities 4,208 2,477
----------------
$6,696 $5,850
- --------------------------------------------------------------
Cash and cash equivalents 2,702 2,019
- --------------------------------------------------------------
Total $9,398 $7,869
==============================================================
</TABLE>
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or market, as determined by the
first-in, first-out method.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
computed principally by the straight-line method over the useful lives of the
assets, typically three to five years, or, in the case of leasehold
improvements, over the lesser of the useful life or the lease term.
When assets are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income. Expenditures for maintenance and repairs are charged to
expense as incurred; betterments are capitalized.
Equipment Leased to Others
The Company rents its personal response products to subscribers who do not have
access to a local Lifeline program. The Company records the products as
property and equipment at cost, and depreciation is computed by the straight-
line method over the estimated useful life of three years.
Goodwill
Goodwill is recorded at cost and amortized on a straight-line basis over its
estimated useful life, not to exceed five years. Amortization expense was
$110,000, $542,000, and $472,000 for the years ended 1998, 1997 and 1996,
respectively. Accumulated amortization amounted to $155,000 and $53,000 as of
December 31, 1998 and 1997, respectively.
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
be Disposed Of," the Company evaluates the possible impairment of long-lived
assets, including goodwill, whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable.
Product Warranty
The Company's products are generally under warranty against defects in material
and workmanship. The Company provides an accrual for estimated warranty costs
at the time of sale of the related products.
Revenue Recognition
Service revenues are associated primarily with providing monitoring and
maintenance of personal response products and are recognized ratably over the
contractual period. Revenues from the sale of personal response products are
recognized upon shipment. Finance income attributable to sales-type lease
contracts is initially recorded as unearned income and subsequently recognized
under the interest method over the term of the leases.
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
The financial statements of the Company's subsidiary outside the United States
is generally measured using the local currency as the functional currency.
Assets and liabilities of this subsidiary are translated at the rates of
exchange at the balance sheet date. The resulting translation adjustments are
included in cumulative translation adjustment as a separate component of
stockholders' equity. Income and expense items are translated at average
monthly rates of exchange. Gains and losses from foreign currency transactions
of this subsidiary are included in net income.
Income Taxes
The Company accounts for income taxes under a liability approach. Under this
approach, deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse.
Net Income Per Common Share
Net income per basic common share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Net income per diluted common shares is computed based on the
weighted-average number of common and dilutive common equivalent shares
outstanding during each period. Common equivalent shares consist of stock
options calculated in accordance with SFAS No. 128, "Earnings per Share."
Industry Segments
The Company operates in one industry segment. Its operations consist of
providing personal response services associated with the monitoring of those
products it designs, manufactures, and markets. Foreign revenues, from Canada,
comprise less than 10% of the Company's total revenues, and the Company has no
significant tangible assets in foreign countries.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk, include cash, cash equivalents, investments, and trade receivables.
The Company sells its products primarily to hospitals and other healthcare
institutions. The Company performs ongoing credit evaluations of its customers
and, in the case of sales-type leases, the leased equipment serves as collateral
in the transactions. The Company has established guidelines relative to credit
ratings, diversification and maturities that maintain safety and liquidity. The
Company has not experienced any significant losses on these financial
instruments.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Newly Issued Accounting Standards
In June, 1997 the Financial Accounting Standards Board issued Statement No. 130
("SFAS" 130), "Reporting Comprehensive Income." SFAS 130 requires changes in
comprehensive income to be shown in a financial statement that is displayed with
the same prominence as other financial statements. While not mandating a
specific financial statement format, SFAS 130 requires that an amount
representing total comprehensive income be reported. SFAS 130 will become
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required for comparative
purposes. The Company adopted SFAS 130 for fiscal year ending December 31,
1998.
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 the management 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. As explained in
more detail in Note L, the Company adopted SFAS 131 for fiscal year ending
December 31, 1998.
B. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Purchased parts and assemblies $ 556 $ 827
Work in progress 324 391
Finished goods 616 157
- -------------------------------------------------------------
$1,496 $1,375
=============================================================
</TABLE>
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Equipment $ 11,136 $ 10,410
Furniture and fixtures 684 659
Equipment leased to others 9,834 7,195
Equipment under capital leases 1,035 1,035
Leasehold improvements 3,439 751
Capital in progress 10,943 8,319
--------------------
37,071 28,369
Less: accumulated depreciation and amortization (16,295) (12,934)
- ------------------------------------------------------------------------
$ 20,776 $ 15,435
========================================================================
</TABLE>
Accumulated depreciation and amortization amounted to $5,996,000 and $3,708,000
on equipment leased to others and $1,023,000 and $1,014,000 on equipment under
capital leases at December 31, 1998 and 1997, respectively. In total,
depreciation expense amounted to $4,111,000, $3,377,000, and $2,750,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.
D. LEASING ARRANGEMENTS
As Lessor
The Company maintains an internally financed and operated leasing program and
leases its personal response products to customers principally under sales-type
leases. As sales-type leases, the lease payments to be received over the term
of the leases are recorded as a receivable at the inception of the new lease.
Finance income attributable to the lease contracts is initially recorded as
unearned income and subsequently recognized as income under the interest method
over the term of the leases. The lease contracts are generally for five-year
terms, and the residual value of the leased equipment is considered to be
nominal at the end of the lease period.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
LEASING ARRANGEMENTS (continued)
The components of the net investment in sales-type leases are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Minimum lease payments receivable $ 10,492 $ 8,580
Less: Unearned interest 2,697 2,305
Allowance for doubtful accounts 190 190
- -------------------------------------------------------------------------------
7,605 6,085
Less: Current portion 1,713 1,444
- -------------------------------------------------------------------------------
Net investment in sales-type leases $ 5,892 $ 4,641
===============================================================================
</TABLE>
Future minimum lease payments due under non-cancellable sales-type leases at
December 3, 1998 are as follows:
<TABLE>
<S> <C>
(Dollars in thousands)
1999 $ 2,868
2000 2,867
2001 2,534
2002 1,595
2003 620
Thereafter 8
- ----------------------------------------------------------
$ 10,492
==========================================================
</TABLE>
Lessee
The Company conducted its primary operations in 1998 in a leased facility under
a ten-year operating lease, which commenced in the second quarter of 1994. The
lease included scheduled base rent increases over the term of the lease. The
total amount of base rent payments was being charged to expense on the straight-
line method over the term of the lease. The Company recorded a deferred credit
to reflect the excess of rent expense over cash payments upon the commencement
of the lease. In addition, the Company paid a monthly allocation of the
building's operating expenses and real estate taxes. The lease contained two
five-year renewal options. See Note N.
In November 1997, the Company entered into a ten-year lease for an 84,000 square
foot facility in Framingham, Massachusetts for its corporate headquarters. The
Company began to occupy this new facility in February 1999. Annual rental
payments under the lease approximate $772,000. The lease contains two renewal
options of five years each.
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
D. LEASING ARRANGEMENTS (continued)
The Company also has several operating lease arrangements for sales offices and
office equipment that expire through 2003 and leases certain equipment under
capital leases which expire through 2000. Capital lease obligations are
collateralized by the related equipment.
Future minimum lease payments under capital and operating leases with initial or
remaining terms of one year or more are:
<TABLE>
<CAPTION>
(Dollars in thousands) Capital Leases Operating Leases
-----------------------------------
<S> <C> <C>
1999 $13 $1,126
2000 6 1,047
2001 -- 863
2002 -- 809
2003 -- 795
Thereafter -- 4,138
- -----------------------------------------------------------------------------
Total minimum lease payments 19 $8,778
=======
Lease amount representing interest 3
- ------------------------------------------------------
Present value of net minimum lease payments 16
Less current portion 10
- ------------------------------------------------------
Long-term obligation under capital leases $ 6
======================================================
</TABLE>
Total rent expense under all operating leases was $1,506,000, $1,485,000, and
$1,466,000, for the years ended December 31, 1998, 1997, and 1996, respectively.
E. STOCKHOLDERS' EQUITY
Net Income Per Common Share
In accordance with SFAS No. 128, "Earnings per Share" the Company presents basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. A reconciliation of basic
EPS to diluted EPS and dual presentation on the face of the statement of income
are also required.
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. STOCKHOLDERS' EQUITY (continued)
Calculation of per share earnings is as follows:
<TABLE>
<CAPTION>
(In thousands except per share figures)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic:
- -----
Net income $5,986 $2,298 $4,176
Weighted average common share outstanding 5,817 5,736 5,678
Net income per share, basic $ 1.03 $ 0.40 $ 0.74
====== ====== ======
Diluted:
- -------
Net income for calculating diluted earnings
per share $5,986 $2,298 $4,176
Weighted average common shares outstanding 5,817 5,736 5,678
Common stock equivalent 492 496 519
------ ------ ------
Total weighted average shares 6,309 6,232 6,197
Net income per share, diluted $ 0.95 $ 0.37 $ 0.67
====== ====== ======
</TABLE>
Stock-Based Compensation Plans
The Company has adopted the disclosure requirements of SFAS No. 123 "Accounting
for Stock-Based Compensation." The Company continues to recognize compensation
costs using the intrinsic value based method described in Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees."
In May 1994 the stockholders approved the 1994 Stock Option Plan (the "1994
Plan"). The 1994 Plan provides that officers and key employees may be granted
either nonqualified or incentive stock options for the purchase of the Company's
common stock at the fair market value on the date of grant. The employee
options granted generally become exercisable at a rate of 20% per year and
expire ten years from the date of grant. Certain options, as originally
granted, became exercisable only to the extent the Company achieved specific
financial goals. During 1995 these options were amended to provide for vesting
on the earlier of the six-year anniversary of the date of grant or the original
vesting schedule upon the achievement of the aforementioned financial goals. In
1998 the Company achieved the specific financial goals as outlined in the 1994
Plan and as such fully recognized the related compensation expense.
Compensation expense of $603,000, $79,000, and $446,000 was recorded in 1998,
1997, and 1996 and accumulated deferred compensation was $1.6 million and
$975,000 at December 31, 1998 and 1997, respectively.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. STOCKHOLDERS' EQUITY (continued)
The 1991 Stock Option Plan also remains in effect, providing for similar grants
to officers and employees. Additionally, the 1991 Stock Option Plan provides
for an automatic annual grant to non-employee directors. The non-employee
director options become exercisable in three equal installments with the first
installment exercisable on the date of grant and an additional one-third
becoming exercisable on each of the next two anniversary dates. The options
expire ten years from date of grant.
In July, 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan in which common stock purchase rights were distributed as a dividend at
the rate of one Right for each share of the Company's Common Stock outstanding
as of the close of business on August 3, 1998. This plan was adopted as a means
of deterring possible coercive or unfair takeover tactics and to prevent a
potential acquirer from gaining control of the Company without offering a fair
price to all of the Company's shareholders. In connection with the Merger
Agreement described in Note J, an amendment to this Rights Plan was adopted on
October 18, 1998, providing, in part, that Protection One and its Affiliates are
not Acquiring Persons, that no Distribution Date, Stock Acquisition Date, or
Triggering Event shall be deemed to have occurred, and that no holder of Rights
is entitled to exercise such Rights (as all such terms are defined in the Rights
Plan), by virtue of the execution of the Merger Agreement. Unless the Rights
are redeemed or exchanged earlier, they will expire on July 24, 2008. No rights
were exercised at December 31, 1998.
In May 1996 the Company, upon approval by the Board of Directors and
stockholders, increased the total number of shares approved for future grant
under plans currently in effect by 300,000 for the 1994 Stock Option Plan and
25,000 for the 1991 Stock Option Plan. At December 31, 1998 shares available
for future grants under all option plans were 178,646.
Net income and net income per share as reported in these financial statements
and on a pro forma basis for the years ended December 31, 1998, 1997 and 1996,
as if the fair value based method described in SFAS No. 123 had been adopted are
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income As Reported $5,986 $2,298 $4,176
Pro Forma $5,388 $1,973 $3,990
Basic net income per share As Reported $ 1.03 $ 0.40 $ 0.74
Pro Forma $ 0.93 $ 0.34 $ 0.70
Diluted net income per share As Reported $ 0.95 $ 0.37 $ 0.67
Pro Forma $ 0.87 $ 0.32 $ 0.66
</TABLE>
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. STOCKHOLDERS' EQUITY (continued)
The effect of applying SFAS No. 123 for the purpose of providing pro forma
disclosure may not be indicative of the effects on reported net income and net
income per share for future years. The pro forma disclosures include the
effects of all awards granted after January 1, 1995 and additional awards in
future years are anticipated.
For the purpose of providing pro forma disclosures, the fair values of stock
options granted were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1998, 1997 and
1996, respectively: a risk-free interest rate of 5.5%, 6.3%, and 6.3%; an
expected life of 6 years in all years; expected volatility of 35%, 37%, and 40%;
and no expected dividends.
The following table summarizes all stock option plan activity for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- ----------------------
Wgtd. Avg. Wgtd. Avg. Wgtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer. Price
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning of year 831,410 $ 8.37 875,657 $ 6.24 871,673 $ 5.40
Granted 163,084 23.69 128,450 17.03 100,500 12.51
Exercised (37,364) 10.36 (143,546) 3.43 (69,650) 3.31
Cancelled or lapsed (32,580) 16.28 (29,151) 7.00 (26,866) 9.95
-------- -------- --------
Outstanding at end of year 924,550 $10.71 831,410 $ 8.37 875,657 $ 6.24
======== ======== ========
Options exercisable
at year end 542,090 $ 7.54 380,709 $ 7.01 400,726 $ 5.58
Weighted average fair value
of options granted at fair
market value during the year $10.58 $ 8.12 $ 6.19
</TABLE>
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. STOCKHOLDERS' EQUITY (continued)
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------ ----------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- ------------------------------------------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
$3.00-$5.00 359,126 3.0 $ 3.57 309,263 $ 3.48
5.50-10.00 126,410 4.7 6.83 65,500 7.22
11.19-14.81 168,030 6.1 12.46 108,090 12.74
16.19-19.88 118,450 8.0 17.10 37,857 17.29
21.13-24.00 152,534 9.1 23.87 21,380 23.71
-------- --------
$3.00-$24.00 924,550 5.4 $10.71 542,090 $ 7.54
======== ========
</TABLE>
In May 1995 the stockholders approved the Lifeline Employee Stock Purchase Plan
(ESPP) whereby eligible employees may invest up to 10% of their base salary in
shares of the Company's common stock. The purchase price of the shares is 90%
of the fair market value of the stock on either the commencement date or the
date of purchase whichever is lower. Under the Plan, 200,000 shares of common
stock are available for purchase over ten offering periods through April 2000,
of which approximately 149,816 shares remain available. Shares purchased under
the ESPP totaled 12,300, 15,012, and 15,085 in 1998, 1997 and 1996,
respectively. The weighted-average grant-date fair value of shares purchased
under the ESPP was $19.80, $17.79, and $15.62 in 1998, 1997, and 1996,
respectively.
For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for purchases in 1998, 1997 and 1996
respectively: a risk free interest rate of 5.2%, 5.9%, and 5.4%; an expected
life of 6 months in each year; expected volatility of 30% in 1998 and 1997 and
40% in 1996; and no expected dividends.
Common Stock
On September 11, 1995 the Company issued 8,939 shares of its common stock at a
price of $11.188, which represented the fair market value of the common stock on
that date, to an officer of the Company in exchange for a collateralized
promissory note in the amount of $100,000. The note, which bears interest at a
rate of 6.3% per annum, payable annually in arrears is due September 2002.
In September 1992 the Company sold to its Chief Executive Officer 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, the Chief
Executive Officer's date of hire) for an
-36-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. STOCKHOLDERS' EQUITY (continued)
aggregate price of $250,000. The Company loaned $250,000 to its Chief Executive
Officer for seven years at an annual interest rate of 5.98% pursuant to the term
of a promissory note which was collateralized by the common stock that was
purchased. The promissory note was due September 1, 1999. On February 24, 1997,
the Company's Chief Executive Officer repaid the full promissory note, in part
by exercising stock options and selling 10,700 shares of common stock back to
the Company at fair market value on such date ($17.00), the proceeds of which
were used to help repay the promissory note.
In January 1997, the Board of Directors authorized the repurchase of 100,000
shares of common stock for general corporate purposes. The Company has
purchased 60,700 shares directly from the Company's Chief Executive Officer
through December 31, 1997 for $1.1 million as part of this program, including
the 10,700 shares repurchased on February 24, 1997. These shares were purchased
from the Chief Executive Officer partly in connection with the repayment of the
$250,000 note and associated tax expenses.
F. INCOME TAXES
The provision (benefit) for income taxes was computed as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
(Dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $2,036 $1,720 $1,834
Deferred 1,120 (586) 404
- --------------------------------------------------------------------------------
3,156 1,134 2,238
- --------------------------------------------------------------------------------
State income taxes:
Current 538 504 567
Deferred 263 (131) 97
- --------------------------------------------------------------------------------
801 373 664
- --------------------------------------------------------------------------------
Foreign income taxes:
Foreign income taxes 33 116 --
- --------------------------------------------------------------------------------
Provision for income taxes $3,990 $1,623 $2,902
================================================================================
</TABLE>
-37-
<PAGE>
FINANCIAL STATEMENTS (continued)
F. INCOME TAXES (continued)
Total deferred tax assets (liabilities) are as follows at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets $ 2,238 $ 3,588
Total deferred tax liabilities (3,548) (3,515)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) ($ 1,310) $ 73
================================================================================
Deferred tax assets (liabilities) are comprised of the following
significant items at December 31:
1998 1997
---- ----
Current deferred tax assets:
Inventory and warranty reserves $ 328 $ 653
Restructuring reserve 339 586
Deferred compensation 620 393
Deferred revenue 234 255
Accounts receivable reserves 130 126
Accrued vacation and other reserves 587 196
- --------------------------------------------------------------------------------
Net current deferred tax asset 2,238 2,209
- --------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Sales type leases (4,118) (3,447)
Restructuring reserve -- 425
Depreciation (120) 117
Amortization 690 769
- --------------------------------------------------------------------------------
Net noncurrent deferred tax liability (3,548) (2,136)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) ($ 1,310) $ 73
================================================================================
</TABLE>
The differences between the statutory U.S. federal income tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $3,457 $1,336 $2,406
State income tax, net of federal tax effect 529 246 472
Tax exempt income (34) (68) (60)
Canadian goodwill 26 112 --
Foreign rate differences 30 65 --
Other, net (18) (68) 84
- -------------------------------------------------------------------------------
Provision for income taxes $3,990 $1,623 $2,902
===============================================================================
</TABLE>
-38-
<PAGE>
STATEMENTS (continued)
G. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution savings plan covering
substantially all of its employees. The Company's contributions, which are
included in selling, general and administrative expenses, were $372,000,
$354,000, and $184,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
H. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes amounted to $1,624,000, $2,313,000, and $2,679,000,
during 1998, 1997 and 1996, respectively. Interest paid was $47,000, $20,000,
and $7,000, during 1998, 1997 and 1996, respectively.
I. REVOLVING CREDIT AGREEMENT
The Company's $4.0 million line of credit was obtained in January 1996 and
expired in March 1998. No amounts were outstanding at the date of expiration. In
April 1998, the Company obtained a $10.0 million line of credit. The agreement
contains several covenants, including the Company maintaining certain levels of
financial performance and capital structure. These financial covenants include a
requirement for a current ratio of at least 1.5 to 1.0, and a leverage ratio of
no more than 1.0 to 1.0. In addition, there are certain negative covenants which
include limitations on the Company's capital and other expenditures,
restrictions on the Company's capacity to obtain additional debt financing,
restrictions on the disposition of the Company's assets, and restrictions on its
investment portfolio. This line of credit matures on June 30, 2004, and no
amounts were outstanding at December 31, 1998.
J. ACQUISITIONS
In November 1998 the Company completed the acquisition of the assets of
AlertCall, Inc. of Amherst, New York. AlertCall was a distributor of the
Company's personal response products and services. The purchase price was
approximately $1.5 million. The acquisition was accounted for as a purchase
transaction and, as a result, the Company recorded goodwill of approximately
$1.1 million, which is being amortized over an estimated life of five years.
The results of the acquired business have been included in the Company's
consolidated financial statements from the date of the acquisition and did not
have a material impact on 1998 operating results.
The Company entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 18, 1998 with Protection One, Inc. (a publicly
traded security company located in Culver City, California) and a subsidiary of
Protection One, Inc. (the "Merger Sub"), pursuant to which, subject to the terms
and conditions of the Merger Agreement, the Company will be merged with and into
the Merger Sub. In connection with the merger, each share of the Company's
common stock will be converted into the right to receive $14.50 plus a certain
-39-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
J. ACQUISITIONS (continued)
number of shares of the common stock of a newly formed holding company for
Protection One, Inc. based on the average closing price of Protection One's
common stock prior to the consummation of the transaction and adjusted for a
variable exchange rate. The merger is conditioned upon, among other things,
approval by shareholders of the Company and Protection One.
K. RESTRUCTURING
In December 1997, the Company approved a restructuring plan to improve operating
efficiencies and reduce costs, and recorded a pre-tax restructuring charge of
$4.3 million. This charge was established to provide for a business
reorganization which included relocation of the Company's corporate
headquarters, work force reduction and write down of impaired assets in
accordance with SFAS 121.
The $4.3 million restructuring charge included $842,000 of costs related to the
reduction in workforce, $454,000 of costs associated with the write down of
certain fixed assets, $1.2 million for real estate and related commitment costs,
and a $1.8 million write down of impaired goodwill.
Accrued restructuring charges at December 31, 1997 amounted to $2.3 million,
which represented $655,000 for rent commitments related to the Company's
relocation, $827,000 for the buy-out of lease commitments and write-down of
fixed assets upon abandonment of its old office location, and $842,000 for the
reduction in workforce. In fiscal 1998, the Company continued to execute its
restructuring plan, and as such paid $136,000 to terminate lease commitments and
paid $315,000 of costs associated with severance arrangements.
During 1998, certain events occurred which resulted in changes to the Company's
original estimates. In the second quarter of 1998, the Company made a
determination to retain certain employees originally scheduled to be terminated.
As a result, it reversed approximately $200,000 of the original severance
reserve.
In February 1999, the Company negotiated a buyout of its old corporate
headquarters facility lease, which eliminated the requirement for rental
commitment payments of $655,000. In addition, the delay of the Company's move
to its new corporate headquarters extended the period of depreciation expense of
its fixed assets related to its old corporate headquarters and reduced the net
book value writeoff at the abandonment date amounting to $155,000.
-40-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
K. RESTRUCTURING (continued)
At December 31, 1998, accrued restructuring charges of $863,000 represents
$327,000 of remaining severance costs and $536,000 of fixed assets to be written
off upon final relocation to the Company's new corporate headquarters.
The following is a summary of activity for 1998:
<TABLE>
<CAPTION>
December 31, Amounts Amounts December 31,
1997 Utilized Reversed 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Non-cash write down
of fixed assets $ 827 ($136) ($155) $536
Rent commitment 655 -- (655) --
Reduction of workforce
and other cash flows 842 (315) (200) 327
--------------------------------------------------------
Total $2,324 ($451) ($1,010) $863
========================================================
</TABLE>
L. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes standards
for reporting information regarding operating segments and related disclosures
about products and services, geographic areas and major customers.
The Company is active in one business segment: designing, manufacturing,
marketing, monitoring and supporting its personal response units. The Company
maintains sales and marketing operations in both the United States and Canada.
The majority of the Canadian operations were established through an acquisition
in July 1996.
Geographic Segment Data
Net revenues to external customers are based on the location of the customer.
Geographic information as of December 31, 1998, 1997 and 1996 is presented as
follows:
-41-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
L. SEGMENT INFORMATION (continued)
1998 1997 1996
------------------------------
Net Sales:
United States $ 60,049 $ 52,922 $ 48,193
Canada 4,361 4,042 2,030
------------------------------
$ 64,410 $ 56,964 $ 50,223
==============================
Net Income (Loss):
United States $ 5,523 $ 2,337 $ 4,470
Canada 463 (39) (294)
------------------------------
$ 5,986 $ 2,298 $ 4,176
==============================
Total Assets:
United States $49,348 $ 40,008 $ 35,516
Canada 3,156 2,261 2,393
------------------------------
$52,504 $ 42,269 $ 37,909
==============================
M. SUBSEQUENT EVENTS
As discussed in Note K, in February 1999, the Company negotiated a buyout of its
old corporate headquarters facility lease. In connection with the buyout, the
Company's landlord has agreed to compensate Lifeline approximately $1 million
during 1999. Lifeline will record these payments as other income in 1999.
In January 1999, the Company decided to outsource the manufacturing of its
personal response units. All repair and distribution of the Company's hardware,
however, will continue from its corporate headquarters. The Company believes
that this strategic decision will result in technological innovation and
significant cost savings opportunities. The Company does not anticipate any
charges in 1999 resulting from this decision.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-42-
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The following table sets forth the name of each director of The Company,
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. Information concerning officers of the Company appears
in Part I of this Annual Report on Form 10-K.
First
Name, Principal Occupation and Business Experience Became a
During the Past Five Years Age Director
- --------------------------------------------------------------------------------
Susan S. Bailis. 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.* 53 1998
- --------------------------------------------------------------------------------
Everett N. Baldwin. 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.* 65 1991
- --------------------------------------------------------------------------------
Ronald Feinstein. 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. 52 1985
- --------------------------------------------------------------------------------
Joseph E. Kasputys, Ph.D. 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.** *** 62 1985
- --------------------------------------------------------------------------------
Carolyn C. Roberts. 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
- --------------------------------------------------------------------------------
-43-
<PAGE>
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").** *** 60 1994
- --------------------------------------------------------------------------------
L. Dennis Shapiro. 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.* ** 65 1978
- --------------------------------------------------------------------------------
Gordon C. Vineyard, M.D. 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.* 62 1985
- --------------------------------------------------------------------------------
* Member of Audit Committee
** Member of Compensation Committee
*** Member of Stock Option Plans Committee
ITEM 11. 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.
-44-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation Awards
----------------------------------------------------- ------------------------------------
Securities All Other
Name and Other Annual Underlying Options Compensation
Principal Position Year Salary($) Bonus($) Compensation Granted(#)(1) ($)(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 and 1997 136,917 -- (3) 11,978(5) 2,302
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 in 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 option, and interest rates. The
exercise price of these options was $24.00 per share, representing the fair
market value of the underlying shares on the date of grant, February 13,
1998. These options became exercisable one-third immediately upon grant,
with an additional one-third becoming exercisable on each of the next two
anniversary dates.
(6) Represents amounts paid under the Company's Executive Bonus Plan.
(7) Represents an annual living allowance paid to Mr. Loper.
-45-
<PAGE>
Option Grants
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1998 to each of the
Named Executive Officers:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(1)
------------------------------------------------------------------------------- ----------------------------
Securities Percent of Total
Underlying Options Options Granted to Exercise or Base Expiration
Name Granted(#) Employees in Fiscal Year Price ($/Share) Date 5%($) 10%($)
----- ---------- ------------------------ --------------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein 34,810 (2) 24.5% $24.00 2/13/2008 $525,404 $1,331,476
Richard M. Reich 11,411 (3) 8.0% 24.00 2/13/2008 172,232 436,469
Thomas E. Loper 11,052 (3) 7.8% 24.00 2/13/2008 166,813 422,737
Dennis M. Hurley 10,978 (3) 7.7% 24.00 2/13/2008 165,696 419,907
Donald G. Strange 10,631 (3) 7.5% 24.00 2/13/2008 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 $24.00 per share. These options became exercisable immediately
upon grant, with an additional one-third becoming exercisable on each of
the next two anniversary dates.
-46-
<PAGE>
Option Exercises and Year-End Values
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1998 by each of the
Named Executive Officers and the number and value of unexercised options held by
each of the Named Executive Officers on December 31, 1998:
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securites Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End(#) Fiscal Year-End($)(1)
Shares Acquired Value ------------------------------ ----------------------------
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------------- ----------- ------------------------- --------------------------
<S> <C> <C> <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 on-fifth on the date of grant and on-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),
-47-
<PAGE>
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. 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.
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.
-48-
<PAGE>
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, Inc., no options were granted to
the non-employee directors in 1999.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of certain beneficial owners and management
The following table sets forth certain information, as of February 28, 1999
unless otherwise indicated, with respect to the beneficial ownership of the
Company's common stock by each person known by the Company to beneficially own
more than 5% of the outstanding shares of common stock, each director of the
Company, each executive officer of the Company named in the Summary
Compensation Table set forth under the caption "Executive Compensation", and 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 February 28, 1999, or within 60 days
following that date: Mr. Shapiro, 1,000 shares, 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, 1,000 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 include sole investment and voting power.
-49-
<PAGE>
Stock Percentage of
Name of Beneficially Common Stock
Beneficial Owner Owned Outstanding(2)
---------------- ----- ---------------
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%
433 Brooklyn Ave. N.E.
Seattle, WA 98185
L. Dennis Shapiro(4) 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) 461,878 7.5%
c/o Lifeline Sytems, 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) 69,590 1.2%
Thomas E. Loper(9) 49,274 *
Dennis M. Hurley(10) 50,280 *
Donald G. Strange 39,833 *
Susan S. Bailis 1,000 *
Everett E. Baldwin(11) 31,500 *
Joseph E. Kasputys, Ph.D. 36,650 *
Gordon C. Vineyard, M.D. 25,501 *
Carolyn C. Roberts 14,000 *
All directors and officers as
a group (13 persons)(12) 1,098,318 24.4%
*Less than 1% of the outstanding stock
(1) Represents holdings as of October 18, 1998 of Western Resources, Inc.,
Protection One, Inc., Westar Capital, Inc., Westar Security, Inc. (which
are affiliated entities), John E. Mack, who is an executive officer of
Protection One, Inc. and John W. Hesse (who was an executive officer of
Protection One, Inc. as of October 18, 1998), based on a Schedule 13D filed
with the Securities and Exchange Commission on October 29, 1998. Includes
1,159,410 shares (as to which these reporting persons disclaim beneficial
ownership) subject to a stock option agreement between the Company and
Protection One, Inc., and which are exercisable pending the occurrence of
certain triggering events, which have not occurred.
(2) Number of shares deemed outstanding includes 5,857,366 shares outstanding
as of February 28, 1999, plus any shares subject to options held by the
named person or entity that are currently exercisable or exercisable within
60 days after February 28, 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.
-50-
<PAGE>
Includes 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 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 Item 13, "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 543,499 shares subject to stock options that are
currently exercisable or exercisable within 60 days after February 28,
1999. Also includes 17,259 shares beneficially owned by such persons
through the 401(k) Plan as to which such persons possess sole investment
and voting power.
Change in Control
The Company entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of October 18, 1998, with Protection One, Inc. and a
subsidiary of Protection One, Inc. (the "Merger Sub"), pursuant to which,
subject to the terms and conditions of the Merger Agreement, the Company
will be merged with and into the Merger Sub. In connection with the merger,
each share of the Company's common stock will be converted into the right
to receive $14.50 plus a certain number of shares of the common stock of a
newly formed holding company for Protection One, based on the average
closing price of Protection One's common stock prior to the consummation of
the transaction and adjusted for a variable exchange rate. The number of
shares of Protection One holding company common stock to be received by the
Company's stockholders will be based on the average closing price of
Protection One common stock for the ten days ending three days prior to the
Company's shareholder meeting to be held in connection with the transaction
(the "Average Closing Price"). The number of shares of holding company
common stock to be received by the Company shareholders per share of the
Company's common stock will be as follows:
-1.7857 if the Average Closing Price is less than $7.00;
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<PAGE>
-the quotient obtained by dividing (x) $12.50 by (y) the Average Closing
Price, if the Average Closing Price is equal to or greater than $7.00 but
less than $8.19;
-1.5263 if the Average Closing Price is equal to or greater than $8.19 but
less than $9.50;
-the quotient obtained by dividing (x) $14.50 by (y) the Average Closing
Price, if the Average Closing Price is equal to or greater than $9.50 but
less than $11.00; and
-1.3182 if the Average Closing Price is equal to or greater than $11.00.
Based on the Average Closing Price on February 26, 1999, each share of the
Company's common stock would have been converted to the right to receive 1.5480
shares of holding company common stock. The acquisition will be accounted for
as a purchase and is intended to qualify as a tax-free reorganization to the
extent of the holding company common stock received in the transaction. The
merger is conditioned upon, among other things, approval by shareholders of the
Company and Protection One. On December 11, 1998, early termination of the
waiting period provided by Section 7A(b)(1) of the Clayton Act and Section
803.10(b) of the premerger notification rules was granted. The Merger Agreement
has been approved by the boards of directors of both Protection One and the
Company, and the merger is expected to be completed in the second quarter of
1999.
ITEM 13. Certain Relationships and Related Transactions
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 February 28, 1999, $100,000 was
outstanding on the Loper Note.
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<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Lifeline Systems,
Inc. and the report of independent accountants relating thereto, are set forth
in Item 8 of this Annual Report on Form 10-K on the pages indicated.
Pages
Report of Independent Accountants 21
Consolidated Balance Sheets as of December 31, 1998 and 1997 22
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 1998, 1997, and 1996 23
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997, and 1996 24
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996 25
Notes to Consolidated Financial Statements 26-42
(a)(2) Financial Statement Schedule
The following financial statement schedule of Lifeline Systems, Inc. is
filed herewith and included in ITEM 14 (a)(2) on the pages indicated below.
Pages
Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 1998, 1997 and 1996 61
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission on
October 30, 1998.
(c) Exhibits
The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibit Index, which appears on pages
55 through 60 hereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIFELINE SYSTEMS, INC.
March 5, 1998 By: /s/ Ronald Feinstein
- ------------------ ----------------------------
Date Ronald Feinstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ L. Dennis Shapiro Chairman of the Board March 5, 1998
- -------------------------- --------------
L. Dennis Shapiro
/s/ Ronald Feinstein Chief Executive Officer, March 5, 1998
- -------------------------- President and Director --------------
Ronald Feinstein (Principal Executive
Officer)
/s/ Dennis M. Hurley Vice President of Finance March 5, 1998
- -------------------------- (Principal Financial and -------------
Dennis M. Hurley Accounting Officer)
/s/ Susan S. Bailis Director March 5, 1998
- -------------------------- -------------
Susan S. Bailis
/s/ Everett N. Baldwin Director March 5, 1998
- -------------------------- -------------
Everett N. Baldwin
/s/ Joseph E. Kasputys Director March 5, 1998
- -------------------------- -------------
Joseph E. Kasputys
/s/ Carolyn C. Roberts Director March 5, 1998
- -------------------------- -------------
Carolyn C. Roberts
/s/ Gordon C. Vineyard Director March 5, 1998
- -------------------------- -------------
Gordon C. Vineyard
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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.
<TABLE>
<CAPTION>
Exhibit No. Exhibit SEC Document Reference
- ---------- ------- ----------------------
<S> <C> <C>
Exhibit 3. Articles of Incorporation and By-Laws
3.1 Articles of Organization of Lifeline Systems, Inc., 2-84060 Exhibit 3.1
as amended.
3.2 Articles of Amendment of Lifeline Systems, Inc. 1987 10K Exhibit 3.4
3.3 Restated By-Laws of Lifeline Systems, Inc. 1990 10K Exhibit 3.4
Exhibit 4. Instruments Defining the Rights of Security Holders
4.1 Specimen Stock Certificate. 2-84060 Exhibit 4.1
4.2 Shareholder Rights Plan dated July 24, 1998 8-K dated August 5, 1998
4.3 Amendment Number 1 to Shareholder 10Q for the quarter ended
Rights Plan dated October 18, 1998 September 30, 1998 Exhibit 4.3
Exhibit 10. Material Contracts
10.01 Registrant's 1982 Incentive Stock Option Plan 2-84060 Exhibit 10.19
and form of Option Agreement.
10.02 Registrant's 1982-A Incentive Stock Option Plan and 2-84060 Exhibit 10.20
form of Option Agreement.
10.03 Medical Expense Reimbursement Plan. 2-84060 Exhibit 10.21
10.04 Registrant's 1986 Incentive Stock 33-12030 Exhibit 10.26
Option Plan and form of Option Agreement
10.05 Amendments to Registrant's 1986 Incentive 1987 10K Exhibit 10.13
Stock Option Plan.
10.06 Registrant's 1982 Incentive Stock Option Plan, 1988 10K Exhibit 10.14
as amended.
10.07 Registrant's 1982-A Incentive Stock Option Plan, 1988 10K Exhibit 10.15
as amended.
10.08 Amendment to Registrant's 1986 Incentive Proxy Statement filed
Stock Option Plan. April 13, 1989 (0-13617)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10.09 Registrant's 1991 Stock Option Plan. 1990 10K Exhibit 10.37
10.10 Form of Non-statutory Stock Option Agreement 1992 10K Exhibit 10.32
for Registrant's 1991 Stock Option Plan.
10.11 Form of Special Non-statutory Stock Option Agreement 1992 10K Exhibit 10.33
for Registrant's 1991 Stock Option Plan.
10.12 Lease Agreement between the Registrant and 1992 10K Exhibit 10.34
the Massachusetts Institute of Technology,
dated April 3, 1992.
10.13 First Amendment to Lease Agreement dated April 3, 1992 1992 10K Exhibit 10.35
between the Registrant and the Massachusetts Institute
of Technology, dated August 25, 1992.
10.14 Amended Employment and Noncompetition Agreement 1992 10K Exhibit 10.36
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.15 Secured Promissory Note between Ronald Feinstein and 1992 10K Exhibit 10.37
the Registrant, dated September 1, 1992.
10.16 Security and Pledge Agreement between 1992 10K Exhibit 10.38
Ronald Feinstein and the Registrant,
dated September 1, 1992.
10.17 Non-statutory Stock Option Agreement, as amended, between 1992 10K Exhibit 10.39
Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.18 Special Non-statutory Stock Option Agreement, as amended, 1992 10K Exhibit 10.40
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.19 Second Amendment to Lease Agreement dated 10Q for the Quarter
April 3, 1992 between the Registrant and ended June 30, 1993
the Massachusetts Institute of Technology, Exhibit 10.42
dated May 18, 1993.
10.20 Amended and Restated Asset Purchase Agreement 10Q for the Quarter
dated September 9, 1993 between the ended September 30,1993
Registrant and CarePartners, Inc. Exhibit 10.43
10.21 Second Amendment to Lease Agreement 1993 10K Exhibit 10.44
dated August 31, 1989 and Consent to
Assignment of Lease between the Registrant
and Tierrasanta 234 dated September 9, 1993.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10.22 Letter Agreement between Ronald Feinstein 1993 10K Exhibit 10.45
and the Registrant dated March 4, 1994.
10.23 Nonstatutory Stock Option Agreement between 1993 10K Exhibit 10.46
Ronald Feinstein and the Registrant dated
February 11, 1994.
10.24 Third Amendment to Lease Agreement dated April 3, 1992 10Q for the Quarter
between the Registrant and the Massachusetts ended March 31, 1993
Institute of Technology Exhibit 10.47
10.25 Registrant's 1994 Stock Option Plan. 1994 10K Exhibit 10.48
10.26 Form of Non-statutory Stock Option Agreement 1994 10K Exhibit 10.49
for Registrant's 1994 Stock Option Plan.
10.27 Form of Special Non-statutory Stock Option Agreement 1994 10K Exhibit 10.50
for Registrant's 1994 Stock Option Plan.
10.28 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.51
Bell Atlantic-TriCon Leasing Corporation
10.29 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.52
U.S. Leasing Corporation
10.30 Secured Promissory Note between Thomas E. Loper 1995 10K Exhibit 10.30
and the Registrant, dated September 11, 1995.
10.31 Security and Pledge Agreement between 1995 10K Exhibit 10.31
Thomas E. Loper and the Registrant,
dated September 11, 1995.
10.32 Asset Purchase Agreement dated May 17, 1995 1995 10K Exhibit 10.32
between the Registrant and Martha's Vineyard
Hospital Foundation.
10.33 Form of the Non-statutory Stock Option 1995 10K Exhibit 10.33
Agreement to Registrant's 1991 Stock
Option Plan
10.34 Form of the Non-statutory Stock Option 1995 10K Exhibit 10.34
Agreement to Registrant's 1994 Stock
Option Plan
10.35 1995 Employee Stock Purchase Plan 1995 10K Exhibit 10.35
10.36 Revolving Credit Agreement between 1995 10K Exhibit 10.36
the First National Bank of Boston
and the Registrant, dated November 30, 1995
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10.37 Amended Employment Agreement between 10Q for the quarter ended
Ronald Feinstein and the Registrant, June 30, 1996, Exhibit 10.60
dated June 14, 1996
10.38 Employment Agreement between Len Wechsler 10Q for the quarter ended
and Lifeline Systems (Canada), Inc. September 30, 1996, Exhibit 10.60
dated July 3, 1996
10.39 Stock purchase agreement between 10Q for the quarter ended
Lifeline Systems (Canada), Inc. and September 30, 1996, Exhibit 10.61
Len Wechsler dated July 3, 1996
10.40 Stock purchase agreement between 10Q for the quarter ended
Lifeline Systems (Canada), Inc., and September 30, 1996, Exhibit 10.62
CareTel, Inc. and the stockholders of
CareTel, ,Inc., dated July 3, 1996
10.41 Amendment to Registrant's 1991 1996 10K Exhibit 10.41
Stock Option Plan
10.42 Amendment to Registrant's 1994 1996 10K Exhibit 10.42
Stock Option Plan
10.43 First Amendment to Revolving Credit Agreement 1996 10K Exhibit 10.43
between the First National Bank of Boston
and the Registrant dated November 29, 1996
10.44 Lease Agreement between the Registrant and 1997 10K Exhibit 10.44
Bishop/Clark Associates Limited Partnership
dated November 11, 1997
10.45 Second Amendment to Revolving Credit Agreement 1997 10K Exhibit 10.45
between the First National Bank of Boston
and the Registrant dated December 31, 1997
10.46 Offer to Lease between CareTel, Inc. and Graduate 1997 10K Exhibit 10.46
Holdings Limited and Samuel Sarick Limited
dated September 1, 1994
10.47 Form of Lease Agreement between Lifeline Systems, Canada 1997 10K Exhibit 10.47
and Samuel Sarick Limited and Graduate Holdings Limited
dated January 29, 1998
10.48 Master Agreement for Professional Services between 1997 10K Exhibit 10.48
Cambridge Technology Partners and the
Registrant dated June 16, 1997
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10.49 Form of Change in Control Agreement for 1997 10K Exhibit 10.49
for the following Named Executives:
Mr. Richard Reich, Mr. Thomas Loper,
Mr. Dennis Hurley, Mr. John Gugliotta
10.50 Fourth Amendment to Lease Agreement dated 10Q for the quarter ended
April 3, 1992 between the Registrant and the March 31, 1998 Exhibit 10.50
Massachusetts Institute of Technology
10.51 Revolving Line of Credit between 10Q for the quarter ended
State Street Bank and Trust Company June 30, 1998 Exhibit 10.51
and the Registrant, dated April 22, 1998
10.52 First amendment to lease agreement 10Q for the quarter ended
between the Registrant and Bishop/Clark Associates June 30, 1998 Exhibit 10.52
Limited Partnership dated June 30, 1998
10.53 Lease agreement between the Registrant and 10Q for the quarter ended
Triangle Realty Trust dated August, 1998 September 30, 1998 Exhibit 10.53
10.54 Amended and Restated Agreement and Plan of 8-K dated October 30,1998
Contribution and Merger dated October 28, 1998
Filed herewith:
10.55 Lease Termination Agreement between the Registrant
and Massachusetts Institute of Technology
dated January 29, 1999.
10.56 Sublease Agreement between the Registrant and
Millennium Pharmaceuticals, Inc. dated January 29, 1999
10.57 Consent to Sublease and Agreement between the Registrant,
Massachusetts Institute of Technology and Millennium
Pharmaceuticals, Inc. dated January 29, 1999
10.58 Notice of Termination of Lease dated January 29, 1999
10.59 Asset Purchase Agreement dated November 13, 1998
between the Registrant and Homemakers Upstate
Group
</TABLE>
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<PAGE>
Exhibit 21. Subsidiaries.
Filed herewith:
21.1 Subsidiaries of Lifeline Systems, Inc.
Exhibit 23. Consents of Experts and Counsel.
Filed herewith:
23.1 Consent of PricewaterhouseCoopers LLP
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<PAGE>
LIFELINE SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1998, 1997, and 1996
(Dollars in thousands)
Additions Balance
Balance at Charged to at
Beginning Costs & End of
Description of Year Expenses Deductions(1) Year
- ------------ -------- -------- ------------- ----
1998
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $216 $138 $115 $239
Lease receivables 190 - - 190
---- ---- ---- ----
Total $406 $138 $115 $429
1997
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $197 $ 71 $ 52 $216
Lease receivables 176 14 - 190
---- ---- ---- ----
Total $373 $ 85 $ 52 $406
1996
- ----
Allowance for doubtful
receivables:
Trade accounts receivable $156 $120 $ 79 $197
Lease receivables 217 - 41 176
---- ---- ---- ----
Total $373 $120 $120 $373
(1) Uncollectible accounts and adjustments.
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<PAGE>
EXHIBIT 10.55
LEASE TERMINATION AGREEMENT
---------------------------
THIS LEASE TERMINATION AGREEMENT is made as of the 29th day of January,
1999 by and between Massachusetts Institute of Technology, a Massachusetts
corporation, as lessor ("Lessor") and Lifeline Systems, Inc., a Massachusetts
corporation, as lessee ("Lessee"). Reference is made to a lease dated April 3,
1992 by and between Lessor and Lessee, as 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, and by
Fourth Amendment to Lease dated as of April 1, 1997, and by Fifth Amendment to
Lease dated September 29, 1997 (collectively, the "Lease"), pursuant to which
Lessee leased certain premises at 640 Memorial Drive, Cambridge, Massachusetts,
all as more particularly described in the Lease (collectively, the "Premises").
Capitalized terms used in this Agreement which are defined in the Lease and not
otherwise defined herein shall have the same meaning herein as in the Lease.
Lessor and Lessee mutually desire to terminate the Lease, on and subject to
the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. Termination. Subject to the provisions of Sections 2 and 10 below, the
-----------
Lease shall terminate as follows:
(a) with respect to the entire Basement Space, effective on the date
on which Lessee surrenders and redelivers the Basement Space to
Lessor in accordance with the provisions of the Lease (including,
without limitation, Section 12(k)) (the "Basement Space
Termination Date"), except that the trash compactor and waste
------
area shall remain intact for Lessee's use until the "Area A
Termination Date"(as hereinafter defined);
(b) with respect to (1) the portion of the Premises shown as "Area A"
on the plan attached hereto as Exhibit I and containing
---------
approximately 51,353 square feet of rentable area, (2) one
hundred (100) On-Site Parking Spaces, and (3) forty (40)
Additional Parking Spaces in the Waverly Street lot (the
foregoing are sometimes hereinafter collectively referred to as
the "Area A Surrendered Premises"), effective on the date which
is fifteen (15) days after the date on which Lessee vacates the
<PAGE>
Area A Surrendered Premises and delivers possession thereof to
Lessor (the "Area A Termination Date"); and
(c) with respect to (1) the portions of the Premises shown as "Area
B" on the plan attached hereto as Exhibit I and containing
---------
approximately 24,097 square feet of rentable area, (2) all
remaining On-Site Parking Spaces, and (3) all remaining
Additional Parking Spaces (the foregoing are hereinafter
sometimes collectively referred to as the "Area B Surrendered
Premises"), effective on the date on which is fifteen (15) days
after the date on which Lessee vacates the Area B Surrendered
Premises and delivers possession thereof to Lessor (the "Area B
Termination Date").
On the applicable Termination Date (i.e., the Basement Space
Termination Date, the Area A Termination Date or the Area B Termination Date, as
the case may be), Lessee shall surrender, quit, yield up and deliver to Lessor
the applicable portion of the Premises, together with the stated number of
parking spaces, and all of Lessee's right, title and interest therein or thereto
under the Lease, in accordance with the provisions of the Lease (including,
without limitation, Section 12(k) thereof), and the Lease shall terminate with
respect thereto with the same effect as if the term of the Lease expired on such
date with respect to such portion of the Premises and parking spaces. Lessor and
Lessee hereby agree that (i) during the 15-day period described in clause (b)
above, Lessee shall have the right to remove any of its equipment, trade
fixtures and personal property remaining in the Area A Surrendered Premises, and
shall construct (or cause Millennium Pharmaceuticals, Inc. ("Millennium") to
construct) the temporary demising partition described in Section 5(a) of this
Agreement, provided that any delay in the completion of such construction shall
not delay the occurrence of the Area A Termination Date ; and (ii) during the
15-day period described in clause (c) above, Lessee shall have the right to
remove any of its equipment, trade fixtures and personal property remaining in
the Area B Surrendered Premises; provided, however, that such activities on the
-------- -------
part of Lessee shall not interfere with Millennium's preparations of such space
for its occupancy. Lessee agrees to use reasonable efforts to give Lessor and
Millennium at least seven (7) days' advance notice of the dates on which it will
vacate the Area A Surrendered Premises and the Area B Surrendered Premises, and
Lessor acknowledges Lessee's notice that it intends to vacate the Area A
Surrendered Premises on or about January 31, 1999. Notwithstanding anything to
the contrary contained herein, Lessor agrees, with respect to tenant
improvements in the Premises, that none of the tenant improvements located in
the Premises as of the date of this Agreement, nor the temporary demising
partition described in Section 5(a) of this Agreement, shall be required to be
removed by Lessee from the Premises; and Lessee shall remove from the Premises
all modular furniture, portable partitions, equipment in the computer room at
the Premises, generators and all other trade fixtures (including, without
limitation, the Liebert air conditioning system, the power conditioning system,
and all fans and blowers specifically related to Lessee's manufacturing system).
Lessee shall repair any damage to the Premises caused by such removal to
Lessor's reasonable satisfaction. Provided that the entire Premises
2
<PAGE>
and all parking spaces are surrendered and delivered to Lessor in accordance
with the terms of this Agreement, the term "Final Termination Date" shall mean
the last to occur of the Basement Space Termination Date, the Area A Termination
Date or the Area B Termination Date.
2. Delays in Surrendering Space.
----------------------------
(a) Lessee hereby acknowledges that in reliance upon Lessee's
agreement as set forth herein to surrender and redeliver the
Premises and parking spaces in portions to the Lessor by the
dates hereinafter set forth in this Paragraph 2, Lessor is
entering into a lease of the entire Premises and all of such
parking spaces to a third party, commencing in stages on the next
day following each Termination Date hereunder. Lessee further
acknowledges that any failure or delay on Lessee's part in
surrendering the Premises or parking spaces or any portion of
either as herein provided shall subject Lessor to expense and to
the risk of losing such successor tenant. In the event that, for
any reason whatsoever, Lessee fails to surrender and redeliver
all or any portion of the Premises and parking spaces by the
dates set forth in this Paragraph 2, Lessor shall have the
remedies provided in this Paragraph 2. Lessor agrees that the
remedies provided in this Paragraph 2 shall be the exclusive
remedies for Lessee's failure or delay in surrendering the
Premises or parking spaces or any portion of either as herein
provided, and that, except as expressly provided in this
Paragraph 2, Lessor shall have no recourse to Lessee for any
damage suffered by Lessor as a result of such failure, including,
without limitation, any damage arising out of Lessor's inability
to deliver the Premises to a third party.
(b) The parties currently anticipate that the Basement Space
Termination Date and the Area A Termination Date will occur on or
about February 15, 1999. In the event that either the Basement
Space Termination Date or the Area A Termination Date has not
occurred, for any reason whatsoever:
(1) by February 28, 1999, then commencing on March 1, 1999 and
continuing until the earlier of (A) the last to occur of the
Basement Space Termination Date or the Area A Termination
Date, or (B) the effective date of the termination of this
Agreement by Lessor as hereinafter provided, Lessee shall
pay to Lessor, as Additional Rent, the sum of $7,500.00 per
day; and
(2) by March 31, 1999, Lessor shall have the right to terminate
this Agreement in its entirety, effective seven (7) days
after Lessor gives written notice of termination to Lessee,
in which event the
3
<PAGE>
Lease shall remain in full force and effect as if this
Agreement had never been executed, except that until the
------
effective date of such termination Lessee shall remain
liable to Lessor for the payment, as Additional Rent, of the
sum of $7,500.00 per day commencing on March 1, 1999.
(c) The parties currently anticipate that the Area B Termination Date
will occur on or about July 1, 1999. In the event that the Area
B Termination Date has not occurred, for any reason whatsoever:
(1) by July 31, 1999, then commencing on August 1, 1999 and
continuing until the earlier of (A) the Area B Termination
Date, or (B) the effective date of the termination of this
Agreement with respect to the Area B Surrendered Premises by
Lessor as hereinafter provided, Lessee shall pay to Lessor,
as Additional Rent, the sum of $7,500.00 per day; and
(2) by August 31, 1999, Lessor shall have the right to terminate
this Agreement as to the Area B Surrendered Premises,
effective seven (7) days after Lessor gives written notice
of termination to Lessee, in which event the Lease shall
remain in full force and effect with respect to the Area B
Surrendered Premises as if this Agreement had never been
executed, except that until the effective date of such
------
termination Lessee shall remain liable to Lessor for the
payment, as Additional Rent, of the sum of $7,500.00 per day
commencing on August 1, 1999.
(d) Lessor may (but shall not be required to) offset all amounts due
under this Paragraph 2 from Lessee to Lessor against payments to
be made by Lessor to Lessee pursuant to Paragraph 6 below.
3. Performance of Obligations. Notwithstanding the execution and delivery
--------------------------
of this Agreement, until the surrender and redelivery by Lessee to Lessor of a
portion of the Premises and parking spaces as provided in this Agreement, Lessee
shall remain liable for and shall timely pay and perform all obligations of
Lessee under the Lease with respect thereto, including, without limitation, the
payment of Rent and all other charges when due under the Lease.
4. Acceptance of Surrender. Effective as of the applicable Termination
-----------------------
Date, and provided that (a) Lessee has performed all of its obligations under
the Lease and under this Agreement to be performed thereunder and hereunder
through and including such applicable Termination Date, and (b) Lessor has not
previously terminated this Agreement in whole or in part pursuant to Paragraph 2
above, Lessor shall accept the surrender of the applicable portion of the
Premises and parking spaces (if applicable), and thereafter neither party shall
have any
4
<PAGE>
obligation to or recourse against the other party to the Lease with respect
thereto except to the extent to which such obligations expressly survive the
expiration of the Term of the Lease.
5. Additional Obligations of Lessee.
--------------------------------
(a) Lessee shall, at its sole cost and expense, construct (or cause
Millennium to construct) temporary demising partitions separating
Area A from Area B prior to the Area A Termination Date, in
accordance with the provisions of Section 12(f) of the Lease.
(b) Lessee shall, at its sole cost and expense, remove its sign from
the Building in accordance with the provisions of the Lease prior
to the Final Termination Date.
(c) Lessee shall permit Millennium to construct an exhaust shaft from
the basement of the Building into either Lessee's mailroom or the
loading dock area included within the Premises.
6. Termination Payment. In consideration of the termination of the Lease
-------------------
and the surrender and redelivery of the Premises by Lessee, Lessor shall make
the following termination payments to Lessee:
(a) Upon the surrender and redelivery of the Area A Surrendered
Premises in accordance with the provisions of this Agreement,
Lessor shall pay to Lessee the sum of $654,585.50; and
(b) Upon the surrender and redelivery of the Area B Surrendered
Premises in accordance with the provisions of this Agreement,
Lessor shall pay to Lessee the sum of $307,159.26.
All payments to be made by Lessor to Lessee pursuant to this Paragraph 6 are
subject to setoff as provided in Paragraph 2 above.
In addition, upon surrender and redelivery of the Area A Surrendered
Premises, Lessor shall exercise such rights as it may have with respect to 68%
of the Security Deposit and return so much of 68% of the Security Deposit as is
returnable to Lessee, all pursuant to Section 30.0 of the Lease, within 30 days
of the surrender and redelivery of the Area A Surrendered Premises. Further,
Lessor shall exercise such rights as it may have with respect to the Area B
Surrendered Premises, and return so much of the balance of the Security Deposit
to Lessee to which Lessee is entitled, within 30 days after the surrender and
redelivery of the Area B Surrendered Premises.
5
<PAGE>
7. Brokers. Lessor and Lessee each represents to the other that it has
-------
dealt with no broker in connection with this Agreement other than Fallon, Hines
& O'Connor ("Broker"). Lessee shall be solely responsible for the payment of all
fees and commissions due to Broker in connection with this transaction, and
indemnifies and holds Lessor harmless from and against any claim by Broker for
any such fee or commission. Each of the parties hereby agrees to indemnify and
hold the other party harmless from and against any claims for commissions or
fees by any person or firm other than Broker by reason of any act of the
indemnifying party.
8. Release.
-------
(a) In consideration of the agreements contained in this Agreement,
Lessee hereby releases and forever discharges Lessor and its
officers, directors, employees, agents and servants
(collectively, the "Lessor Released Parties"), of and from any
and all claims, demands, causes of action, costs, expenses,
liabilities and obligations, at law or in equity, which Lessee
ever had, now has, or hereafter may have against the Lessor
Released Parties or any of them, arising out of or relating to
the proposed subleasing of the Premises by Lessee to Millennium.
Lessee hereby acknowledges that its execution and delivery of
this Agreement constitute Lessee's intention to terminate the
Lease in full substitution for any proposed sublease of the
Premises to Millennium.
(b) In consideration of the agreements contained in this Amendment,
Lessor hereby releases and forever discharges Lessee and its
officers, directors, employees, agents and servants
(collectively, the "Lessee Released Parties"), of and from any
and all claims, demands, causes of action, costs, expenses,
liabilities and obligations, at law or in equity, which Lessor
ever had, now has, or hereafter may have against the Lessee
Released Parties or any of them, arising out of or relating to
the proposed subleasing of the Premises by Lessee to Millennium.
9. Notice of Termination of Lease. Contemporaneously with their execution
------------------------------
of this Agreement, Lessee and Lessor shall execute and acknowledge a Notice of
Termination of Lease, in form acceptable for recording and registration,
terminating all Notices of Lease and Notices of Amendment to Lease previously
executed in connection with the Lease. The original executed Notice of
Termination of Lease shall be held in escrow by Lessor's counsel and shall not
be recorded or filed for registration until the earlier of (a) receipt by
Lessor's counsel of written direction from Lessee (or Lessee's counsel), or (b)
the Final Termination Date.
10. Conditions of Effectiveness. Notwithstanding anything contained herein
---------------------------
to the contrary, this Agreement shall not be effective unless and until all of
the following occur:
6
<PAGE>
(a) Lessor and Lessee each delivers to the other an original executed
counterpart of this Agreement;
(b) Lessor and Lessee each executes and acknowledges a Notice of
Termination of Lease to be held by Lessor's counsel as provided
above;
(c) Lessor receives from Millennium the unconditional delivery of an
executed counterpart of an amendment to the lease between Lessor
and Millennium pursuant to which Millennium leases the entire
Premises, consistent with the provisions of this Agreement and
otherwise acceptable in all respects to Lessor;
(d) Lessee receives from Millennium the unconditional delivery of an
executed counterpart of a sublease of approximately 9,000 square
feet in Area A, which has been consented to by Lessor, acceptable
in all respect to Lessee; and
(e) Lessee receives from Millennium a release and discharge from
Millennium with respect to the proposed subleasing of the
Premises by Lessee to Millennium acceptable in all respects to
Lessee.
11. Authority. Promptly after its execution of this Amendment, Lessee
---------
shall furnish to Lessor a Secretary's Certificate of Lessee certifying to the
incumbency and authority of the person acting on behalf of Lessee to enter into
this Agreement and to execute and acknowledge the aforementioned Notice of
Termination of Lease.
12. Miscellaneous. This Agreement shall be governed by and construed in
-------------
accordance with the laws of Massachusetts and, if any provisions of this
Agreement shall to any extent be invalid, the remainder of this Agreement, and
the application of such provisions in other circumstances, shall not be affected
thereby. The titles of the several Paragraphs contained herein are for
convenience only and shall not be considered in construing this Agreement. All
notices provided for in this Agreement shall be in writing and shall be given in
the manner provided in, and shall be effective as provided in, the Lease. This
Agreement may be executed in several counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument. This
Agreement sets forth the entire agreement of the parties with respect to the
subject matter hereof, and no prior or contemporaneous oral statement or written
matter shall have any force or effect. This Agreement shall not be modified or
canceled except by writing subscribed to by both parties hereto.
(The next page is the signature page)
7
<PAGE>
EXECUTED under seal as of the day and year first above written.
LESSOR: MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
By: /s/ Philip A. Trussell
-------------------------
Philip A. Trussell,
Director of Real Estate
LESSEE: LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
-------------------------
Name: Dennis M. Hurley
Title: Vice President Finance/
Chief Financial Officer
8
<PAGE>
EXHIBIT 10.56
S U B L E A S E
---------------
ARTICLE I
Reference Data
--------------
1.1 Subjects Referred To.
--------------------
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1.
(a) Date of this Lease: As of January 29, 1999
(b) Premises: The area containing 10,861 rentable square feet on the
first floor of the Building (the "Building") located
at 640 Memorial Drive, Cambridge, Massachusetts, shown
on the plan attached hereto as Exhibit A attached
hereto, together with the right to use the IDF closet,
as more particularly described in Section 2.1 hereof.
(c) Sublandlord (hereafter referred to as "Landlord"): Millennium
Pharmaceuticals, Inc.
(d) Original Address of Landlord: 640 Memorial Drive, Cambridge, MA
(e) Subtenant (hereafter referred to as Tenant): Lifeline Systems
Inc.
(f) Original Address of Tenant: 640 Memorial Drive
Cambridge, MA
(g) Term: The period commencing on the Commencement Date and ending
at 11:59 p.m. local time June 30, 1999.
(h) Commencement Date: Immediately upon the termination of that
portion of Tenant's lease of space which includes the Premises with the
Massachusetts Institute of Technology (together with its successors and assigns,
"Prime Landlord").
(i) Annual Fixed Rent: $35.00 per rentable square foot.
<PAGE>
(j) Permitted Uses: General office, assembly, light manufacturing,
warehouse and distribution
(k) Public Liability Insurance Limits:
Bodily Injury: $2,000,000
Property Damage: $2,000,000
1.2 Exhibits.
--------
The Exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as a part of this Lease:
EXHIBIT A. Plan showing the Premises.
1.3 Table of Articles and Sections.
------------------------------
<TABLE>
<S> <C>
ARTICLE I Reference Data.................................................................................... 1
1.1 Subjects Referred To......................................................................... 1
1.2 Exhibits..................................................................................... 2
1.3 Table of Articles and Sections............................................................... 2
ARTICLE II Premises and Term................................................................................ 5
2.1 Premises; IDF Closet......................................................................... 5
2.2 Term......................................................................................... 5
ARTICLE III Condition of Premises........................................................................... 5
3.1 As Is........................................................................................ 5
ARTICLE IV Rent; Insurance; Utilities....................................................................... 5
4.1 The Rent..................................................................................... 5
4.2. Insurance.................................................................................... 5
4.3 Utilities; Taxes............................................................................. 6
4.4 Late Payment of Rent......................................................................... 7
ARTICLE V Landlord's Covenants.............................................................................. 7
5.1 Delivery of Possession....................................................................... 7
5.2 Quiet Enjoyment.............................................................................. 7
5.3 Landlord's Work; Tenant Reimbursement........................................................ 7
ARTICLE VI Tenant's Additional Covenants.................................................................... 8
6.1 Affirmative Covenants........................................................................ 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.1.1 Perform Obligations................................................................... 8
6.1.2 Use................................................................................... 8
6.1.3 Repair and Maintenance................................................................ 8
6.1.4 Compliance with Law................................................................... 8
6.1.5 Intentionally Omitted................................................................. 8
6.1.6 Indemnity............................................................................. 8
6.1.7 Landlord's Right to Enter............................................................. 9
6.1.8 Personal Property at Tenant's Risk.................................................... 9
6.1.9 Yield Up.............................................................................. 9
6.2 Negative Covenants........................................................................... 9
6.2.1 Assignment and Subletting............................................................. 9
6.2.2 Overloading and Nuisance; Construction................................................ 10
ARTICLE VII Casualty or Taking............................................................................... 10
7.1 Termination.................................................................................. 10
7.2 Restoration.................................................................................. 10
ARTICLE VIII Defaults......................................................................................... 11
8.1 Events of Default............................................................................ 11
8.2 Remedies..................................................................................... 11
8.3 Remedies Cumulative.......................................................................... 12
8.4 Landlord's Right to Cure Defaults............................................................ 12
8.5 Effect of Waivers of Default................................................................. 12
8.6 No Accord and Satisfaction................................................................... 13
ARTICLE IX Mortgages and Prime Lease........................................................................ 13
9.1 Lease Subordinate to Mortgages and Prime Lease............................................... 13
ARTICLE X Miscellaneous Provisions......................................................................... 13
10.1 Notices from One Party to the Other.......................................................... 13
10.2 Lease not to be Recorded..................................................................... 14
10.3 Bind and Inure............................................................................... 14
10.4 Landlord's Default........................................................................... 14
10.5 Brokerage.................................................................................... 14
10.6 Applicable Law and Construction.............................................................. 14
10.6.1 Applicable Law....................................................................... 14
10.6.2 No Other Agreement................................................................... 15
10.6.3 Titles............................................................................... 15
10.6.4 "Landlord" and "Tenant".............................................................. 15
10.7 Submission Not an Offer...................................................................... 15
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.8 Holdover................................................................................... 15
</TABLE>
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<PAGE>
ARTICLE II
Premises and Term
-----------------
2.1 Premises; IDF Closet. As of the Commencement Date, Landlord subleases
--------------------
and demises to Tenant and Tenant subleases from Landlord, subject to and with
the benefit of the terms, covenants, conditions and provisions of this Sublease
(hereafter referred to as this Lease), the Premises. Tenant shall have a right
of access to, and the right to use, the IDF closet located on the second floor
of the Building, provided that any such right shall be limited to use by no more
than two people at any one time, who must be escorted by Landlord's personnel,
and who shall be subject to reasonable security requirements of Landlord.
Landlord will not disturb the equipment and wiring in the IDF closet.
2.2 Term. TO HAVE AND TO HOLD for a term beginning on the Commencement
----
Date hereof and continuing for the Term, unless sooner terminated as hereinafter
provided.
ARTICLE III
Condition of Premises
---------------------
3.1 As Is. Tenant accepts the Premises in their "as is" condition as of
-----
the date of this Lease.
ARTICLE IV
Rent Insurance; Utilities
-------------------------
4.1 The Rent. Tenant covenants and agrees to pay rent to Landlord at the
--------
Original Address of Landlord or at such other place or to such other person or
entity as Landlord may by notice to Tenant from time to time direct, in equal
installments of 1/12th of the Annual Fixed Rent in advance on the first day of
each calendar month included in the Term; and for any portion of a calendar
month at the beginning or end of the Term, at that rate payable in advance for
such portion.
4.2. Insurance. Tenant shall take out and maintain throughout the Term the
---------
following insurance protecting Landlord and Prime Landlord as a named insured
and with such additional insureds as Landlord from time to time may designate by
notice to Tenant:
-5-
<PAGE>
4.2.1 All-risk insurance covering and all furniture, furnishings,
equipment and trade fixtures installed in or used in connection with the
Premises, with such additional endorsements as may be necessary to include
coverage for vandalism and malicious conduct, floods, water damage and debris
removal and demolition, with a co-insurance provision of 80% or an agreed amount
clause, in an amount equal to the replacement cost of all such equipment and
trade fixtures (but not less than the agreed amount if coverage is pursuant to
an agreed amount clause) as such replacement cost may be determined from time to
time.
4.2.2 Commercial general liability insurance indemnifying Landlord and
Prime Landlord and Tenant against all claims and demands for any injury to
person or property which may be claimed to have occurred on or about the
Premises, in amounts which shall, be at least equal to the limits set forth in
Section 1.1,; and worker's compensation insurance with statutory limits covering
all of Tenant's employees working on the Premises.
4.2.3 All policies required under this Section 4.2 shall be obtained
from responsible companies qualified to do business in the state in which the
Premises are located and in good standing therein, which companies and the
amount of insurance allocated thereto shall be subject to Landlord's reasonable
approval. Tenant agrees to furnish Landlord with certificates evidencing all
such insurance prior to the beginning of the Term hereof and evidence of each
renewal policy at least 20 days prior to the expiration of the policy it renews.
Each such policy shall be non-cancelable with respect to the interest of
Landlord and Prime Landlord without at least 10 days' prior written notice
thereto.
4.2.4 All insurance which is carried by either party with respect to
the Premises or to furniture, furnishings, trade fixtures or equipment therein
or alterations or improvements thereto, whether or not required, shall include
provisions which either designate the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of recovery against the
other party to the extent such rights have been waived by the insured party
prior to occurrence of loss or injury, insofar as, and to the extent that such
provisions may be effective without making it impossible to obtain insurance
coverage from responsible companies qualified to do business in the state in
which the Premises are located. If at the request of one party, this non-
subrogation provision is waived as to such party, then the obligation of
reimbursement by such party shall cease for such period of time as such waiver
shall be effective, but nothing contained in this Section 4.2.4 shall derogate
from or otherwise affect releases elsewhere herein contained of either party for
claims. Each party hereby waives all rights of recovery against the other for
loss or injury against which the waiving party is protected by insurance
containing said non-subrogation provisions, reserving, however,
-6-
<PAGE>
any rights with respect to any excess of loss or injury over the amount
recovered by such insurance.
4.3 Utilities; Taxes. Landlord shall be responsible for the payment of all
----------------
charges for water, sewer, gas, electricity, telephone and other utilities or
services used or consumed on the Premises, whether called charge, tax,
assessment, fee or otherwise, including, without limitation, water and sewer use
charges and taxes, if any, all such charges to be paid as the same from time to
time become due. Landlord shall be responsible for the payment of all real
estate taxes applicable to the Premises. Tenant shall be responsible for all
telephone charges.
4.4 Late Payment of Rent. If any installment of Rent is paid more than
--------------------
five (5) days after the date the same was due, it shall bear interest from the
due date at the prime commercial rate of the Bank of Boston, as it may be
adjusted from time to time, plus two percent per annum, but in no event more
than the maximum rate of interest allowed by law, the payment of which shall be
Additional Rent.
ARTICLE V
Landlord's Covenants
--------------------
Landlord covenants:
5.1 Delivery of Possession. Landlord covenants and agrees to deliver
----------------------
possession of the Premises to Tenant on the Commencement Date.
5.2 Quiet Enjoyment. That Tenant on paying the Annual Fixed Rent and
---------------
Additional Rent and performing the tenant obligations in this Lease shall
peacefully and quietly have, hold and enjoy the Premises, subject to all of the
terms and provisions hereof.
5.3 Landlord's Work; Tenant Reimbursement. Landlord agrees to construct,
-------------------------------------
prior to the Commencement Date, a temporary demising wall, with access doors, in
the location shown on the plan attached as Exhibit A, in a good and workmanlike
manner employing materials of good quality and so as to conform with all zoning,
building, fire, health and other codes, regulations, ordinances and laws
applicable to temporary demising walls. Any delay in the completion of
construction of the demising wall shall not delay the occurrence of the
Commencement Date. Tenant shall reimburse Landlord, as additional rent, for all
reasonable costs and expenses of Landlord incurred in constructing said wall,
within 30 days of receipt of invoices therefor showing the costs and expenses
incurred by Landlord in reasonable detail.
-7-
<PAGE>
Reference is also made to the temporary demising wall on the second
floor of the Building to be constructed in the location shown on Exhibit A-1
(the "A/B Wall"). Landlord agrees to construct, and Tenant agrees to reimburse
Landlord for the cost of construction, of the A/B Wall during the same time
period and on the same terms and conditions as those set forth in the
immediately preceding paragraph with respect to the temporary demising wall
described therein. Any delay in the completion of the A/B Wall shall not delay
the termination of Tenant's lease of space from MIT (hereafter defined) pursuant
to separate documentation between Tenant and MIT.
ARTICLE VI
Tenant's Additional Covenants
-----------------------------
6.1 Affirmative Covenants. Tenant covenants at its sole expense at all
---------------------
times during the Term and for such prior or subsequent time as Tenant occupies
the Premises or any part thereof:
6.1.1 Perform Obligations. To perform promptly all of the obligations
-------------------
of Tenant set forth in this Lease; and to pay when due the Annual Fixed Rent and
all charges, rates and other sums which by the terms of this Lease are to be
paid by Tenant ("Additional Rent") (the Annual Fixed Rent and Additional Rent
are sometimes referred to herein as "Rent").
6.1.2 Use. To use the Premises only for the Permitted Uses, and from
---
time to time to procure all licenses and permits necessary therefor at Tenant's
sole expense.
6.1.3 Repair and Maintenance. Except as otherwise provided in Articles
----------------------
V and VII, to keep the Premises in good order, condition and repair and in at
least as good order, condition and repair as they are in on the Commencement
Date or may be put in during the Term, reasonable use and wear, fire and other
casualty only excepted. Notwithstanding the foregoing, in no event shall Tenant
be required to make any repair or replacement which would be considered capital
in nature under generally accepted accounting principles.
6.1.4 Compliance with Law. To comply with the orders, regulations,
-------------------
variances, licenses and permits of or granted by governmental authorities with
respect to zoning, building, fire, health and other codes, regulations,
ordinances or laws applicable to the Premises, and the condition, use or
occupancy thereof, except that Tenant may defer compliance so long as the
validity of any such order, regulation, code, ordinance or law shall be
contested by Tenant in good faith and by appropriate legal proceedings.
-8-
<PAGE>
6.1.5 Intentionally Omitted.
6.1.6 Indemnity. Tenant shall defend all actions against Landlord or
---------
Prime Landlord, any partner, trustee, stockholder, officer, director, employee
or beneficiary of Landlord, holders of mortgages on the Premises and any other
party having an interest in the Premises (herein, "Indemnified Parties") with
respect to, and shall pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against any and all
liabilities, losses, damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from (i) injury to or death of any person, or damage to or loss
of property, on or about the Premises or on adjoining sidewalks, streets or
ways, or connected with the use, condition or occupancy of any thereof, unless
such injury, death or damage was caused by the negligence or willful misconduct
of Landlord or its agents, contractors, licensees or invitees, (ii) violation by
Tenant of this Lease, or (iii) any act, fault, omission, or other misconduct of
Tenant or its agents, contractors, licensees, sublessees or invitees.
6.1.7 Landlord's Right to Enter. To permit Landlord and its agents to
-------------------------
enter the Premises at reasonable times after reasonable notice to examine the
Premises, to make such repairs and replacements as Landlord may elect or as
Landlord may be required to perform hereunder.
6.1.8 Personal Property at Tenant's Risk. All of the furnishings,
----------------------------------
fixtures, equipment, effects and property of every kind, nature and description
of Tenant and of all persons claiming by, through or under Tenant which, during
the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises, shall be at the sole risk
and hazard of Tenant and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person for any injury, loss, damage or
liability caused by Landlord's negligence or willful misconduct.
6.1.9 Yield Up. At the expiration of the Term or earlier termination
--------
of this Lease: to surrender all keys to the Premises, to remove all furnishings,
modular furniture, trade fixtures, fans and blowers specifically related to
Tenant's manufacturing system, generators, equipment and other personal property
now or hereafter located in the Premises, and to deliver and yield up the
Premises broom-clean and in the same condition the Premises are in as of the
Commencement Date, reasonable wear and tear, fire and other casualty excepted.
-9-
<PAGE>
6.2 Negative Covenants. Tenant covenants at all times during the Term
------------------
and for such further time as Tenant occupies the Premises or any part thereof:
6.2.1 Assignment and Subletting. Not to assign, transfer, mortgage
-------------------------
or pledge this Lease or to grant a security interest in Tenant's rights
hereunder, or to sublease (which term shall be deemed to include the granting of
concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law. Notwithstanding the foregoing
Tenant may assign this Lease or sublet any portion or all of the Premises to any
corporation, partnership, trust, association, limited liability company or other
business or organization (x) directly or indirectly controlling and beneficially
owning Tenant, (y) directly or indirectly controlled by and beneficially owned
by Tenant, or (z) under common control with Tenant, or to any successor of
Tenant by merger, consolidation or acquisition of substantially all of the stock
or assets of Tenant, without the prior written consent of Landlord.
Any attempted assignment, transfer, mortgage, pledge, grant of
security interest, sublease or other encumbrance, except as permitted by this
Section 6.2.1, shall be void. No assignment, transfer, mortgage, grant of
security interest, sublease or other encumbrance, whether or not approved, and
no indulgence granted by Landlord to any assignee, sublessee or occupant shall
in any way impair Tenant's continuing primary liability (which after an
assignment or subletting shall be joint and several with the assignee or
sublessee) of Tenant hereunder, and no approval in a particular instance shall
be deemed to be a waiver of the obligation to obtain Landlord's approval in any
other case.
6.2.2 Overloading and Nuisance; Construction. Not to injure,
--------------------------------------
overload, deface or otherwise harm the Premises; nor commit any nuisance; not to
dump, flush, or in any way introduce any hazardous materials or any other toxic
substances into the septic, sewage or other waste disposal system serving the
Premises in violation of law; not to generate, store, use or dispose of
hazardous materials in or on the Premises (except such quantities customarily
used by Tenant in connection with the Permitted Uses, and then in compliance
with all applicable law), or commit or suffer to be committed in or on the
Premises any act in violation of law. Not to construct any improvement or
alterations in the Premises without the consent of Landlord.
ARTICLE VII
-10-
<PAGE>
Casualty or Taking
------------------
7.1 Termination. In the event that the Premises, or any material part
-----------
thereof, shall be taken by any public authority or for any public use, or shall
be destroyed or damaged by fire or casualty, or by the action of any public
authority, then this Lease may be terminated at the election of Landlord or
Tenant. Such election, which may be made notwithstanding the fact that
Landlord's entire interest may have been divested, shall be made by the giving
of notice within 10 days after the right of election accrues.
7.2 Restoration. If this Lease is not terminated as aforesaid, this Lease
-----------
shall continue in force and a just proportion of the rent reserved, according to
the nature and extent of the damages sustained by the Premises, shall be
suspended or abated until the Premises, or what may remain thereof, shall be put
by Landlord in proper condition for use.
ARTICLE VIII
Defaults
--------
8.1 Events of Default. If (a) Tenant shall default in the performance of
-----------------
any of its obligations to pay the Fixed Rent or Additional Rent hereunder and if
such default shall continue for 10 days after notice from Landlord designating
such default or if within 30 days after notice from Landlord to Tenant
specifying any other default or defaults Tenant has not commenced diligently to
correct the default or defaults so specified or has not thereafter diligently
pursued such correction to completion, or (b) Tenant becomes insolvent or fails
to pay its debts as they fall due, or (c) a trust mortgage or assignment is made
by Tenant for the benefit of creditors, or (d) Tenant proposes a composition,
arrangement, reorganization or recapitalization with creditors, or (e) the
leasehold estate under this Lease or any substantial part of the property of
Tenant is taken on execution, or by other process of law, or is attached or
subjected to any other involuntary encumbrance, or (f) a receiver, trustee,
custodian, guardian, liquidator or similar agent is appointed with respect to
Tenant, or if any such person or a mortgagee, secured party or other creditor
takes possession of the Premises or of any substantial part of the property of
Tenant, and, in either case, if such appointment or taking of possession is not
terminated within 90 days after it first occurs, or (g) a petition is filed by
or with the consent of Tenant under any federal or state law concerning
bankruptcy, insolvency, reorganization, arrangement, or relief from creditors,
or (h) a petition is filed against Tenant under any federal or state law
concerning bankruptcy, insolvency, reorganization, arrangement, or relief from
creditors, and such petition is not dismissed within 90 days thereafter, or (i)
Tenant dissolves or is dissolved or liquidates or adopts any plan or commences
any proceeding, the result of which is intended to include dissolution or
liquidation, then,
-11-
<PAGE>
and in any of such cases, Landlord and the agents and servants of Landlord
lawfully may, in addition to and not in derogation of any remedies for any
preceding breach of covenant, immediately or at any time thereafter and without
demand or notice and with or without process of law enter into and upon the
Premises or any part thereof in the name of the whole or mail a notice of
termination addressed to Tenant, and repossess the same as of Landlord's former
estate and expel Tenant and those claiming through or under Tenant and remove
its and their effects without being deemed guilty of any manner of trespass and
without prejudice to any remedies which might otherwise be used for arrears of
rent or prior breach of covenant, and upon such entry or mailing as aforesaid
this Lease shall terminate.
8.2 Remedies. In the event that this Lease is terminated under any of the
--------
provisions contained in Section 8.1 or shall be otherwise terminated for breach
of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, the excess of the total rent reserved for the residue of the Term
over the rental value of the Premises for said residue of the Term, discounted
to present value using the then current discount rate of the Federal Reserve
Bank of Boston. In calculating the rent reserved there shall be included, in
addition to the Fixed Rent and Additional Rent, the value of all other
considerations agreed to be paid or performed by Tenant for said residue. Tenant
further covenants as additional and cumulative obligations after any such
termination to pay punctually to Landlord all the sums and to perform all the
obligations which Tenant covenants in this Lease to pay and to perform in the
same manner and to the same extent and at the same time as if this Lease had not
been terminated. In calculating the amounts to be paid by Tenant pursuant to the
next preceding sentence Tenant shall be credited with the portion of any amount
paid to Landlord as compensation as in this Section 8.2 provided, allocable to
the corresponding portion of the Term and also with the net proceeds of any rent
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings under any federal or
state law relating to bankruptcy or insolvency or reorganization or arrangement,
an amount equal to the maximum allowed by any statute or rule of law in effect
at the time when, and governing the proceedings in which, the damages are to be
proved, whether or not the amount be greater than the amount of the loss or
damages referred to above.
8.3 Remedies Cumulative. Any and all rights and remedies which Landlord or
-------------------
Tenant may have under this Lease, and at law and equity, shall be cumulative and
-12-
<PAGE>
shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
8.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be
---------------------------------
obligated to, cure, at any time, following 10 days' prior notice to Tenant,
except in cases of emergency when no notice shall be required, any default by
Tenant under this Lease; and whenever the Landlord so elects, all costs and
expenses incurred by Landlord, including reasonable attorneys' fees, in curing a
default shall be paid by Tenant on demand, together with interest thereon at the
rate provided in Article IV.
8.5 Effect of Waivers of Default. Any consent or permission by Landlord or
----------------------------
Tenant to any act or omission which otherwise would be a breach of any covenant
or condition herein, or any waiver by Landlord or Tenant of the breach of any
covenant or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing obligation of
any covenant or condition herein, or otherwise, except as to the specific
instance, operate to permit similar acts or omissions.
The failure of Landlord or Tenant to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this Lease
shall not be deemed a waiver of such violation nor prevent a subsequent act,
which would have originally constituted a violation, from having all the force
and effect of an original violation. The receipt by Landlord of rent with
knowledge of the breach of any covenant of this Lease shall not be deemed to
have been a waiver of such breach by Landlord, or by Tenant, unless such waiver
be in writing signed by the party to be charged. No consent or waiver, express
or implied, by Landlord or Tenant to or of any breach of any agreement or duty
shall be construed as a waiver or consent to or of any other breach of the same
or any other agreement or duty.
8.6 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum
--------------------------
than the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, unless Landlord elects by notice to Tenant to credit such sum
against the most recent installment due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
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<PAGE>
ARTICLE IX
Mortgages and Prime Lease
-------------------------
9.1 Lease Subordinate to Mortgages and Prime Lease. This Lease is and
----------------------------------------------
shall continue to be subject and subordinate to any presently existing mortgage
or mortgages secured by the Premises, and to any and all advances hereafter made
thereunder, and to the interest of the holder or holders thereof in the
Premises, and the Landlord's lease of the Premises from Prime Landlord (the
"Prime Lease"). Landlord represents to Tenant that, other than as provided in
Section 1.1 of this Sublease, there are no material conflicts or variances
between the terms of the Prime Lease and the terms of this Sublease. Landlord
agrees not to voluntarily amend or modify, or allow the termination of the Prime
Lease, so as to disturb Tenant's rights hereunder or to make the representation
of Landlord in the immediately preceding sentence untrue.
ARTICLE X
Miscellaneous Provisions
------------------------
10.1 Notices from One Party to the Other. All notices required or permitted
-----------------------------------
hereunder shall be in writing and addressed, if to the Tenant, at the Original
Address of Tenant or such other address as Tenant shall have last designated by
notice in writing to Landlord and, if to Landlord, at the Original Address of
Landlord or such other address as Landlord shall have last designated by notice
in writing to Tenant. Any notice shall be deemed duly given on the third day
after the same was mailed to such address postage prepaid, registered or
certified mail, return receipt requested, or when delivered to such address by
hand or by nationally recognized overnight courier service.
10.2 Lease not to be Recorded. Tenant agrees that it will not record this
------------------------
Lease.
10.3 Bind and Inure. The obligations of this Lease shall run with the land,
--------------
and this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
10.4 Landlord's Default. Landlord shall not be deemed to be in default in
------------------
the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of 30 days
following receipt of notice from Tenant, or such additional time as is
reasonably required with the exercise
-14-
<PAGE>
of reasonable diligence to correct any such default, after notice has been given
by Tenant to Landlord specifying the nature of Landlord's default.
10.5 Brokerage. Landlord and Tenant each warrants and represents to the
---------
other party hereto that it has had no dealings with any broker or agent in
connection with this Lease other than Fallon, Hines & O'Conner ("Tenant's
Broker") and Lynch Murphy Walsh & Partners ("Landlord's Broker") and covenants
to defend, hold harmless and indemnify the other party hereto from and against
any and all cost, expense or liability for any breach of the foregoing
representation. Tenant shall be responsible for any commission due to Tenant's
Broker and Landlord shall be responsible for any commission due Landlord's
Broker.
10.6 Applicable Law and Construction.
-------------------------------
10.6.1 Applicable Law. This Lease shall be governed by and construed
--------------
in accordance with the laws of the state in which the Premises are located. If
any term, covenant, condition or provision of this Lease or the application
thereof to any person or circumstances shall be declared invalid, or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Lease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
10.6.2 No Other Agreement. There are no oral or written agreements
------------------
between Landlord and Tenant affecting this Lease. This Lease may be amended, and
the provisions hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant.
10.6.3 Titles. The titles of the several Articles and Sections
------
contained herein are for convenience only and shall not be considered in
construing this Lease.
10.6.4 "Landlord" and "Tenant". Unless repugnant to the context, the
---------------------
words "Landlord" and "Tenant" appearing in this Lease shall be construed to mean
those named above and their respective heirs, executors, administrators,
successors and assigns, and those claiming through or under them respectively.
10.7 Submission Not an Offer. The submission of a draft of this Lease or a
-----------------------
summary of some or all of its provisions does not constitute an offer to lease
or demise the Premises, it being understood and agreed that neither Landlord nor
Tenant shall be
-15-
<PAGE>
legally bound with respect to the leasing of the Premises unless and until this
Lease has been executed by both Landlord and Tenant and a fully executed copy
delivered.
10.8 Holdover. If Tenant wrongfully holdsover after expiration or
--------
termination of this Lease, in addition to all other remedies of Landlord,
Landlord shall be entitled to collect from Tenant as a use and occupancy fee, a
fee equal to 200% of the Fixed Rent for the period of such holdover.
-16-
<PAGE>
WITNESS the execution hereof under seal as of the day and year set forth in
Section 1.1.
Landlord:
MILLENNIUM PHARMACEUTICALS,
INC.
By: /s/ Janet C. Bush
---------------------------------
Name: Janet C. Bush
Title: Vice President Finance
Tenant:
LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
---------------------------------
Name: Dennis M. Hurley
Title: Vice President Finance/
Chief Financial Officer
-17-
<PAGE>
EXHIBIT 10.57
CONSENT TO SUBLEASE AND AGREEMENT
----------------------------------
THIS CONSENT TO SUBLEASE AND AGREEMENT ("Consent") is made as of this 29th
day of January, 1999, by and between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
Massachusetts educational corporation with an address of 238 Main Street, Suite
200, Cambridge, Massachusetts 02142 Attention: Director of Real Estate ("MIT"),
MILLENNIUM PHARMACEUTICALS, INC., a Delaware corporation with an address of 640
Memorial Drive, Cambridge, Massachusetts 02139 ("Millennium"), and LIFELINE
SYSTEMS, INC., a Massachusetts corporation with an address of 640 Memorial
Drive, Cambridge, Massachusetts 02139 ("Lifeline Systems").
WHEREAS, MIT, as landlord, and Millennium, as tenant, entered into a
certain lease dated August 26, 1993, as amended (the "Prime Lease"), concerning
certain premises (the "Millennium Premises") located in the building at 640
Memorial Drive, Cambridge, Middlesex County, Massachusetts (the "Building").
Capitalized terms used in this Consent which are defined in the Prime Lease and
not otherwise defined herein shall have the same meaning herein as therein; and
WHEREAS, Millennium now desires to sublease a portion of the Millennium
Premises (the "Subleased Premises") to Lifeline Systems upon the terms and
conditions set forth in a certain sublease dated as of January 27, 1999, a copy
of which is attached hereto and incorporated herein as Exhibit "A" (the
"Sublease"), and, as required by the terms of the Prime Lease, has requested
MIT's consent thereto; and
WHEREAS, MIT is willing to consent to the Sublease solely upon the terms
and conditions hereinafter set forth and in consideration of the undertakings of
Lifeline Systems and Millennium as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
hereinafter, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed by and between
the parties as follows:
1. MIT hereby consents to the Sublease from Lifeline Systems to
Millennium in the form attached hereto and incorporated herein as Exhibit "A",
subject to the terms and conditions hereinafter set forth.
2. Notwithstanding the consent of MIT to the Sublease, Millennium shall
remain directly and primarily responsible for any and all obligations of
Millennium under the terms and conditions of the Prime Lease, including, but not
limited to the obligation to pay to MIT Basic Rent, Additional Rent and other
charges as provided in the Prime Lease. Further, MIT's consent to the Sublease
shall in no manner be deemed to release Millennium from any liability of any
nature whatsoever, nor to release Millennium in any manner from any obligation
or responsibility pursuant to the Prime Lease, whether heretofore or hereafter
arising, except as otherwise provided in Section
<PAGE>
16 of the Sixth Amendment to Lease of even date herewith executed by MIT and
Millennium..
3. Lifeline Systems hereby acknowledges and agrees that the Sublease and
all of its rights pursuant to the Sublease are and shall at all times be subject
and subordinate to all of the terms, conditions and limitations set forth in the
Prime Lease; and, in the event of any conflict or variance between the terms and
conditions of the Prime Lease and this Consent, on the one hand, and the terms
and conditions of the Sublease other than as provided in Section 1.1 of the
Sublease, on the other, the terms and conditions of the Prime Lease and this
Consent shall be deemed to control in each and every event and circumstance,
unchanged and unaltered by the terms and conditions of the Sublease and
notwithstanding any term or provision of the Sublease except that the provisions
of Section 1.1 of the Sublease shall control over the Prime Lease and this
Consent.
4. MIT shall not in any manner be deemed to have assumed or undertaken
any obligation or responsibility of any nature to Lifeline Systems, and Lifeline
Systems hereby covenants and agrees to look solely to Millennium for
satisfaction of any claim, demand or liability of any nature in any manner
arising out of or relating to the Sublease or Lifeline Systems use and occupancy
of the Subleased Premises.
5. Notwithstanding anything to the contrary contained herein, the consent
of MIT to the Sublease, as set forth herein, shall in no manner be deemed to be
a waiver of the restrictions of the Prime Lease as to any future assignment,
subletting or permission to use or occupy all or any portion of the Millennium
Premises on any occasion subsequent hereto. Notwithstanding anything to the
contrary contained in the Sublease or in the Prime Lease, without the prior
written consent of MIT in each instance (which consent may be withheld by MIT in
its sole and absolute discretion), Lifeline Systems shall not sublet the
Subleased Premises or any portion thereof, nor assign or in any way transfer its
interest in the Sublease, nor suffer or permit others to occupy the Subleased
Premises, nor suffer or permit the Sublease to be assigned or transferred by
operation of law or otherwise, except as expressly provided in the last sentence
of the first paragraph of Section 6.2.1 of the Sublease.
6. Neither this Consent nor any provision hereof may be waived, modified,
amended, discharged or terminated, except by an instrument in writing signed by
the party against which the enforcement of any such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument. Further, the Sublease shall not be amended or
modified in any respect, nor may the term thereof be extended, without the prior
written consent of MIT.
7. Any notice or demand which under the terms of this Consent must or may
be given by the parties hereto shall be in writing, in each case addressed to
the respective addresses hereinbefore given, and shall be given in the manner
in, and shall be effective as provided in, the Prime Lease. Any party may
designate by written notice given in the manner provided in this Section a new
or other address to which such notice or demand shall thereafter be so given.
2
<PAGE>
8. This Consent shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts. All covenants, agreements,
conditions and undertakings as contained in this Consent shall extend to and be
binding upon the legal representatives, successors and permitted assigns of each
of the respective parties hereto. Each party hereby represents and warrants to
the others that it has the full right, power and authority to enter into this
Consent, and to perform all of their respective obligations thereunder, and that
the person signing this Consent on its behalf has the requisite lawful authority
to do so.
EXECUTED under seal as of the day and year first above written.
MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
By: /s/ Philip A. Trussell
-----------------------------------
Name: Philip A. Trussell
Title: Associate Treasurer
LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
-----------------------------------
Name: Dennis M. Hurley
Title: Vice President Finance/
Chief Financial Officer
MILLENNIUM PHARMACEUTICALS, INC.
By: /s/ Janet C. Bush
-----------------------------------
Name: Janet C. Bush
Title: Vice President Finance
3
<PAGE>
EXHIBIT 10.58
NOTICE OF TERMINATION OF LEASE
------------------------------
Notice is hereby given that the lease dated as of April 3, 1992 (as amended,
the "Lease") by and between Massachusetts Institute of Technology, a
Massachusetts educational corporation, as Lessor, and Lifeline Systems, Inc., a
Massachusetts corporation, as Lessee, notice of which Lease was filed with the
Middlesex Southern Registry District of the Land Court as Document No. 866322,
and noted on Certificate of Title No. 89497, as amended, has been terminated
effective as of ___________, 1999 by agreement of the parties. This Notice of
Termination of Lease may be executed in counterparts, each of which shall be an
original instrument but all of which together shall constitute one and the same
instrument
Executed under seal as of the 29th day of January, 1999.
LESSOR: MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
By: /s/ Allan S. Bufferd
-------------------------
Name: Allan S. Bufferd
Title: Treasurer
LESSEE: LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
-------------------------
Name: Dennis M. Hurley
Title: Vice President Finance/
Chief Financial Officer
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX, ss. February 1, 1999
Then personally appeared the above named Allan S. Bufferd, the Treasurer of
Massachusetts Institute of Technology, and acknowledged the foregoing instrument
to be his free act and deed and the free act and deed of said corporation, as
aforesaid, before me.
/s/ Alexandra Griffin Arnold
-------------------------------------
Notary Public
My Commission Expires: March 29, 2002
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX, ss. February 2, 1999
Then personally appeared the above named Dennis Hurley, the Vice
President/Chief Financial Officer of Lifeline Systems, Inc., and acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
of said corporation, as aforesaid, before me.
/s/
-------------------------------------
Notary Public
My Commission Expires:
2
<PAGE>
EXHIBIT 10.59
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made and entered into this 13th day of November, 1998
(the "Closing Date"), by and between Lifeline Systems, Inc., a Massachusetts
corporation with principal offices at 640 Memorial Drive, Cambridge, MA 02139
(the "Buyer"), and AlertCall, Inc., a New York corporation with principal
offices at 2001 Niagara Falls Boulevard, Amherst, New York 14228, and AlertCall
LLC, a Delaware limited liability company with principal offices at P.O. Box
351224, Jacksonville, Florida 32235 (together with AlertCall, Inc., the
"Sellers").
RECITALS
--------
WHEREAS, the Sellers are engaged in the business of providing in-home
personal response services to Subscribers (as defined in Section 2.15 herein)
who utilize the Buyer's home communicators, and who are monitored by the Buyer's
Lifeline Central(R) Monitoring Service.
WHEREAS, the Sellers desire to sell to the Buyer, and the Buyer desires to
purchase from the Sellers, substantially all of the assets of the Sellers, for
the consideration set forth below, as more fully described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
I.1 Assets to be Purchased from Sellers. Simultaneously with the closing
-----------------------------------
of the transaction contemplated hereby (the "Closing"), the Sellers are selling,
conveying, assigning, transferring and delivering to the Buyer, free and clear
of all obligations, liabilities, liens, mortgages, security interests, charges,
pledges or other encumbrances or adverse claims of any nature except as
otherwise disclosed pursuant to this Agreement, and the Buyer is purchasing from
the Sellers, all of the Sellers' right, title and interest in and to all of the
Sellers' assets (tangible and intangible) and other claims, rights and interests
of every kind and nature (the "Assets"), including, without limitation, the
assets described below:
(a) all subscriber and inquiry files and all purchase history
information, in all forms in which such information is recorded, including,
without limitation, the name and address list of all Subscribers as defined in
Section 2.15 herein.
<PAGE>
(b) all inventory (the "Inventory") of the Sellers, wherever located,
including, without limitation, office supplies, raw materials, work in process,
finished goods, maintenance supplies, packaging materials, spare parts and
similar items of the Sellers;
(c) all accounts, accounts receivable, notes and notes receivable,
other than inter-Seller receivables as set forth on Schedule 1.1(c), existing on
---------------
the Closing Date that are payable to the Sellers, including any security held by
the Sellers for the payment thereof (the "Accounts Receivable");
(d) all prepaid expenses;
(e) all outstanding purchase orders (the "Purchase Orders");
(f) all fixtures, furnishings, motor vehicles, equipment and
appliances owned by the Sellers (including, but not limited to, manufacturing
and maintenance equipment, all central monitoring hardware and software, and all
home communicators and other equipment being used by Subscribers) and all
service agreements, license agreements, supplier agreements and warranties
(express or implied) relating thereto;
(g) all rights of the Sellers under the contracts, agreements,
leases, licenses and other instruments as set forth on Schedules 2.21 and 2.23
-----------------------
hereto, including, but not limited to, any and all contracts or agreements with
Subscribers, any and all contracts or agreements with customers, and the lease
(the "Lease") for premises located at 2001 Niagara Falls Boulevard, Amherst, New
York;
(h) a copy of all records, history and analysis relating to
purchasing, selling, advertising and promotional activities, in all forms in
which such information is recorded, wherever located;
(i) all intangible property rights and goodwill related thereto,
including, but not limited to, inventions, discoveries, trade secrets,
processes, protocols, formulae, know-how, trade names, including the names
"AlertCall," "AlertCall, Inc." and "AlertCall LLC," or any derivation thereof,
trademarks, trademark registrations, applications for trademark registrations
(collectively, the "Trademarks"), copyrights, copyright registrations, owned, or
where not owned, used by the Sellers, and all licenses and other agreements to
which the Sellers are a party (as licensor or licensee) or by which the Sellers
are bound relating to any of the foregoing kinds of property or rights to any
"know-how" or disclosure or use of ideas but excluding any patents or pending
patents owned by the Sellers indicated on Schedule 1.1(i);
---------------
(j) to the extent assignable, all licenses, permits, franchises,
approvals and authorizations by or of any governmental body or other persons
required for the conduct of the business of the Sellers or in connection with
the ownership of the Assets, if any.
-2-
<PAGE>
(k) all causes of action, judgments, awards, claims and demands of
whatever nature of the Sellers against any person relating to the Assets or
arising in connection with the Sellers' business heretofore existing or
hereinafter accruing to the Sellers; and
(i) all other assets, properties, claims, rights and interests of the
Sellers relating to the business that exist on the Closing Date, of every kind
and nature, whether tangible or intangible, real, personal or mixed.
I.2 Excluded Assets. Notwithstanding the provisions of Section 1.1 above,
---------------
the assets to be transferred to the Buyer under this Agreement shall not include
those assets listed on Schedule 1.2 hereto (the "Excluded Assets").
------------
I.3 Liabilities Retained by the Sellers. The Sellers are retaining and
-----------------------------------
agree to perform, pay or discharge all of their liabilities and obligations
(whether known or unknown, absolute or contingent, direct or indirect, asserted
or unasserted), including, without limitation, those relating to the Assets,
except for those liabilities to be assumed by the Buyer as specifically set
forth on Schedule 1.3 hereto (the "Assumed Liabilities"); provided, however, in
------------ -------- -------
no event shall the contractual share obligations referenced in Schedule 1.3
------------
exceed $40,000 in the aggregate.
I.4 Purchase Price. The aggregate cash portion of the purchase price is
--------------
$1,500,000 (the "Purchase Price") to be paid as follows:
(a) $100,000 (the "Escrow Deposit") upon Closing to be delivered to
the Escrow Agent pursuant to Section 1.7 herein; and
(b) $1,400,000, to be adjusted as provided on Schedule 1.4(b) (the
---------------
"Initial Purchase Price") to be paid to the Sellers at the Closing as provided
in Section 1.6 herein.
I.5 Deliveries by the Sellers. Simultaneously with the Closing, the
-------------------------
Sellers shall deliver or cause to be delivered to the Buyer the items listed
below, unless the condition of the delivery of such item is waived in writing by
the Buyer:
(a) a Bill of Sale in the form of Schedule 1.5(a) hereto;
---------------
(b) such deeds, endorsements, assignments and other good and
sufficient instruments of conveyance and transfer, in form reasonably
satisfactory to the Buyer, as shall be effective to vest in the Buyer all of the
Sellers' title to and interest in the Assets;
(c) an opinion of Hodgson, Russ, Andrews, Woods & Goodyear, LLP,
counsel to the Sellers, in the form of Schedule 1.5(c) attached hereto, as to
---------------
certain matters agreed upon by legal counsel for the Buyer and the Sellers;
-3-
<PAGE>
(d) the certificate of a duly authorized officer of each of the
Sellers dated the Closing Date, as to the Sellers' representations and
warranties as contained in this Agreement;
(e) copies of any and all notices to landlords, vendors, or other
third parties, where such notices of the transaction contemplated hereby are
required by the terms of the agreements between such parties and the Sellers or
otherwise;
(f) except as provided on Schedule 1.5(f) attached hereto, the
---------------
requisite consents and approvals of all parties whose consents or approvals to
the transactions contemplated hereby are required by the terms of their
agreements with the Sellers or otherwise in order for the Sellers to consummate
the transactions contemplated by this Agreement, including, without limitation,
the consent or approval of all parties required under any managed care contracts
of the Sellers;
(g) a true, correct and complete list and amount, as of a date within
five business days before Closing, of the Accounts Receivable, including an
aging thereof;
(h) certificates of the Secretaries of State (or corresponding
entity), dated as of the Closing Date or the most recent practicable date, of
the states of formation of each of the Sellers as to their legal existence and
good standing (including tax good standing);
(i) certificates of the Secretaries of State (or corresponding
entity), dated as of the Closing Date or the most recent practicable date, as to
the Sellers' valid existence, good standing and due qualifications from those
jurisdictions in which the Sellers' ownership of property or the character of
their business requires such qualification;
(j) certificates of the Secretaries of each of the Sellers setting
forth the resolutions of their respective governing bodies authorizing the
execution and delivery of this Agreement and other documents referred to herein
and the consummation of the transactions contemplated hereby, and certifying
that such resolutions were duly adopted and have not been rescinded or amended,
and attesting to the incumbency of their respective officers and the
authenticity and continued validity of their respective charter documents;
(k) estoppel certificate from the lessor under the Lease, consenting
to the assumption of the Lease by the Buyer and representing that there are no
outstanding claims against the Sellers under the Lease;
(l) a report of a reputable lien search firm indicating the status of
liens of record against any of the Assets;
(m) a cross-receipt executed by the Sellers and The Manufacturers and
Traders Trust Company;
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<PAGE>
(n) a guaranty executed and delivered by Homemakers Upstate Group,
Inc., in the form attached hereto as Schedule 1.5(n) (the "Guaranty");
---------------
(o) the Escrow Agreement in the form attached hereto as Schedule 1.7;
------------
and
(p) such other certificates, instruments or documents as may be
reasonably necessary to carry out the transaction contemplated by this Agreement
and to comply with the terms hereof.
I.6 Deliveries by the Buyer. Simultaneously with the Closing, the Buyer
-----------------------
shall deliver or cause to be delivered to the Sellers the following:
(a) the Initial Purchase Price, by wire transfer and by the
assumption of the Assumed Liabilities by execution of the instrument of
assumption of liabilities as provided in Section 1.6(c) below;
(b) [INTENTIONALLY LEFT BLANK];
(c) an instrument of assumption of liabilities in the form of
Schedule 1.6(c) attached hereto;
- ---------------
(d) certificates of duly authorized officers of the Buyer, dated the
Closing Date, setting forth the resolutions of the Board of Directors of the
Buyer authorizing the execution and delivery of this Agreement and other
documents referred to herein by the Buyer and the consummation of the
transactions contemplated hereby and thereby, and certifying that such
resolutions were duly adopted and have not been rescinded or amended and
attesting to the incumbency of their respective officers and to the authenticity
and continued validity of their respective charter documents;
(e) the certificate of a duly authorized officer of the Buyer, dated
the Closing Date, as to the representations and warranties as contained in this
Agreement;
(f) an opinion of Hale and Dorr LLP, counsel to the Buyer, in the
form of Schedule 1.6(f) attached hereto, as to certain matters agreed upon by
---------------
legal counsel for the Buyer and the Sellers;
(g) a cross-receipt executed by the Buyer;
(h) a credit memo for sales of PERS units and related equipment from
the Buyer to the Sellers since September 15, 1998, in form satisfactory to the
Sellers;
(i) such other certificates, instruments or documents as may be
reasonably necessary to carry out the transactions contemplated by this
Agreement and to comply with the terms hereof; and.
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<PAGE>
(j) the Escrow Agreement in the form attached hereto as Schedule 1.7.
------------
I.7 Escrow Arrangement. Simultaneously with the Closing, the Buyer shall
------------------
deposit the Escrow Deposit (as defined in Section 1.4) with Manufacturers and
Traders Trust Company (the "Escrow Agent") to be held and disbursed in
accordance with the Escrow Agreement in the form attached hereto as Schedule
--------
1.7. The Escrow Deposit shall serve as security for all obligations of Sellers
- ---
pursuant to Section 7.2 of this Agreement.
1.8 Closing. The acquisition of the Assets and the other transactions
-------
contemplated by this Agreement shall be consummated at a closing (the "Closing")
to be held on November __, 1998 at 10:00 a.m. Boston Time (the "Closing Date"),
or such other time as the parties hereto shall mutually agree.
1.9 Further Assurances. At any time, and from time to time, at the
------------------
request of any party hereto and without further consideration, the other parties
will execute and deliver to such requesting party such documents, instruments of
sale, transfer, conveyance, assignment and confirmation and take such other
action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby, including, without limitation, vesting in
the Buyer good, valid and marketable title to the Assets.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, jointly and severally, represents and warrants to the
Buyer as follows:
II.1 Organization; Good Standing. AlertCall, Inc. is a corporation duly
---------------------------
organized, validly existing and in good standing (including tax) under the laws
of New York and has the requisite power and authority to carry on its business
as presently being conducted, to execute and deliver this Agreement and the
agreements contemplated herein, and to consummate the transactions contemplated
hereby. AlertCall LLC is a limited liability company duly organized, validly
existing and in good standing (including tax) under the laws of Delaware and has
the power and authority to carry on its business as presently being conducted,
to execute and deliver this Agreement and the agreements contemplated herein and
to consummate the transactions contemplated hereby. Each of the Sellers is duly
qualified to do business and is in good standing in all of jurisdictions in
which its ownership of property or the character of its business requires such
qualifications.
II.2 Authorization. The execution and delivery of this Agreement and the
-------------
other agreements, documents and instruments to be executed and delivered by the
Sellers pursuant hereto and the consummation by the Sellers of the transactions
contemplated hereby and thereby, have been duly authorized by all requisite
corporate and limited liability company
-6-
<PAGE>
action. No further corporate actions or other proceedings on the part of the
Sellers are necessary to authorize this Agreement or the other agreements,
documents and instruments to be executed and delivered by the Sellers pursuant
hereto or the transactions contemplated hereby and thereby. Neither of the
Sellers owns, directly or indirectly, any capital stock of or other equity
interest in any corporation, partnership or other entity.
II.3 Capitalization of Sellers. AlertCall, Inc.'s authorized capital
-------------------------
stock consists of 20,000 shares of Common Stock, $1.00 par value per share, of
which one hundred (100) shares are issued and outstanding and held of record and
beneficially owned by the shareholders listed on Schedule 2.3 attached hereto.
------------
All of such shares have been duly and validly issued and are fully paid and
nonassessable. The interests of any persons in AlertCall LLC are as set forth
on Schedule 2.3 attached hereto.
------------
II.4 Valid and Binding Agreement. The Sellers have the necessary power
---------------------------
and authority to enter into this Agreement and other agreements, documents and
instruments to be executed and delivered by the Sellers pursuant hereto, and to
carry out the transaction contemplated hereby and thereby. When fully executed
and delivered, this Agreement and each of the other agreements, documents and
instruments to be executed and delivered by the Sellers pursuant hereto will
constitute valid and legally binding agreements and obligations of the Sellers
enforceable against the Sellers in accordance with their respective terms,
except that the enforcement of the rights and remedies created hereby and
thereby are subject to bankruptcy, insolvency, reorganization or other laws of
general application of creditors' rights and that the availability of specific
performance, injunctive relief or other equitable remedy is subject to the
discretion of the court before which any proceeding therefore may be brought.
II.5 No Violation. Neither the execution and delivery of this Agreement
------------
or other agreements, documents and instruments to be executed and delivered by
the Sellers pursuant hereto nor the consummation by the Sellers of the
transactions contemplated hereby or thereby (a) will violate any provision of
the Certificate of Incorporation, Certificate of Formation, Bylaws or Operating
Agreement, as applicable, of the Sellers, each as currently in effect, (b)
except as set forth on Schedule 2.5, will violate or conflict with any
------------
applicable statute, law, ordinance, rule, regulation, order, judgment, award or
decree or (c) except as set forth on Schedule 2.5, will violate or conflict with
------------
or constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or will result in the termination of,
or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the Assets under, any
contract, commitment, understanding, arrangement, agreement or restriction of
any kind by which the Assets are bound or affected, to which the Assets are
subject, or to which the Sellers are a party.
II.6 Consents; Notices; Filings. Except as set forth on Schedule 2.6, no
-------------------------- ------------
registration or filing with, notice to, or consent, approval, permit,
authorization or action by, any third party (including, without limitation, any
federal, state, local, foreign or other governmental agency, instrumentality,
commission, authority, board, or body or other person or entity) is
-7-
<PAGE>
required in connection with the execution and delivery by the Sellers of this
Agreement or the other agreements, documents and instruments to be executed and
delivered by the Sellers pursuant hereto or the consummation by the Sellers of
the transactions contemplated hereby or thereby.
II.7 Financial Statements. The Sellers have delivered to the Buyer the
--------------------
reviewed financial statements of AlertCall, Inc. for the fiscal years ended
December 31, 1995, 1996 and 1997, the unaudited financial statements of
AlertCall, Inc. for the nine months ended September 30, 1998, and the unaudited
financial statements of AlertCall LLC for the fiscal years ended December 31,
1996 and 1997, and the nine months ended September 30, 1998 (the "Financial
Statements"), and such Financial Statements are true, complete and accurate and
fairly present the results of operations and financial condition of the Sellers
at the dates and for the periods therein referred to on a stand-alone basis in
accordance with generally accepted accounting principles as consistently applied
throughout such periods.
II.8 No Material Adverse Change. No material adverse change in the
--------------------------
business, prospects, operations or condition (financial or otherwise) of the
Sellers or in the Assets has occurred since September 30, 1998. The Sellers
have no knowledge of any existing or threatened occurrence, event or development
which, as far as can be reasonably foreseen, could have a material adverse
effect on the Sellers or their business, properties, assets, condition
(financial or otherwise) or prospects. Without limiting the foregoing
representation, the Sellers' balance sheet dated October 30, 1998 does not
include or reflect any of the PERS units and related equipment received by the
Sellers on or after September 15, 1998.
II.9 Compliance with Laws. The operations of the Sellers have been
--------------------
conducted in substantial accordance with all applicable laws, regulations and
other requirements of all national governmental authorities, states,
municipalities and other political subdivisions and agencies thereof, having
jurisdiction over the Sellers, including, without limitation, all such laws,
regulations and requirements relating to antitrust, consumer protection,
employee benefit, Medicare, Medicaid, occupational safety, or environmental
protection matters. The Sellers have not received any notification of any
asserted present or past failure to comply with such laws, rules and
regulations.
II.10 Litigation. Except as set forth on Schedule 2.10 attached hereto,
---------- -------------
the Sellers are not, and have not been parties to or, to the Sellers' knowledge,
threatened with any litigation, suit, action, investigation, proceeding or
controversy before any court, administrative agency or other governmental
authority relating to or affecting the Assets or the business or condition
(financial or otherwise) of the Sellers. The Sellers are not in violation of or
in default with respect to any judgment, order, writ, injunction, decree or rule
of any court, administrative agency or governmental authority or, to the
Sellers' knowledge, any regulation of any administrative agency or governmental
agency or governmental authority.
II.11 Tax Matters. The Sellers have filed all federal, state and local
-----------
tax returns which are required to be filed and have paid all taxes, interest,
penalties, assessments and deficiencies
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<PAGE>
which have become due or which have been claimed to be due, whether or not
reflected on such tax returns. The Sellers are current in the payment of all
income, franchise, real estate, sales, use and withholding taxes and other
employee benefits, taxes or imposts. No deficiencies have been asserted or
assessed as a result of any audit by the Internal Revenue Service or any state
or local taxing authority and no such deficiency or audit has been proposed or,
to the knowledge of the Sellers, threatened.
None of the assets of the Company or any subsidiary: (i) is property that
is required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code; and (iii) directly
or indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code.
II.12 Good Title to and Ownership of the Assets. Except as set forth on
-----------------------------------------
Schedule 2.12 attached hereto, the Sellers have complete and unrestricted power
- -------------
and the unqualified right to sell, convey, assign, transfer and deliver to the
Buyer, and at the Closing, the Buyer will acquire good, valid and marketable
and, with respect to the Trademarks, recordable title to the Assets, free and
clear of title defects, liabilities, objections, liens, pledges, claims,
charges, security interest or other encumbrances of any nature whatsoever. The
Bill of Sale and other instruments of transfer of ownership contemplated by this
Agreement will constitute valid and binding obligations of the Sellers and,
except as set forth on Schedule 2.12 attached hereto, will effectively vest in
-------------
the Buyer good, valid and marketable and, with respect to the Trademarks,
recordable title to all of the Assets. Except for the Excluded Assets, the
Assets constitute all of the rights, properties, and other assets of every type
and description (whether tangible or intangible, real or personal) used in the
Sellers' business.
II.13 Trademarks. The Sellers own and have the sole and exclusive right
----------
to use the Trademarks listed on Schedule 2.13, which Schedule 2.13 contains a
-------------- -------------
list of all of the Trademarks of the Sellers. To the Sellers' knowledge, no
claims have been asserted by any person against the Sellers in regard to their
use of the Trademarks (and the Sellers do not know of any valid basis for any
such claim), and the use of the Trademarks does not infringe on the rights of
any person.
II.14 No Undisclosed Liabilities. The Sellers have no material
--------------------------
liabilities or obligations of any nature (whether absolute, accrued, known or
unknown, contingent or otherwise and whether due or to become due) which are not
disclosed on the most recent Financial Statement, other than (i) liabilities
which have arisen since September 30, 1998 in the ordinary course of business
which are similar in nature and amount to the liabilities which arose during the
comparable period of time in the immediately preceding quarter, and (ii)
contractual liabilities incurred in the ordinary course of business which are
not required by generally accepted accounting principles ("GAAP") to be
reflected on a balance sheet. For purposes of this Section 2.14, "material"
shall mean any amount in excess of $10,000.
-9-
<PAGE>
II.15 Subscriber List. Attached hereto as Schedule 2.15 is a true,
--------------- -------------
correct and complete summary of the Subscriber List (the "Subscriber List").
The Subscriber List contains the true, correct and complete names and addresses
of all of the Sellers' active subscribers who utilize the Buyer's home
communicators on a monthly basis and who are monitored by Lifeline Central as of
date hereof (the "Subscribers"). The Subscriber List includes the names and
addresses of no fewer than 3,350 Subscribers.
II.16 Accounts Receivable. Schedule 2.16 attached hereto sets forth a
------------------- -------------
true, correct and complete list of all Accounts Receivable, including an aging
thereof as of October 30, 1998. All Accounts Receivable arose out of sales of
inventory or services in the ordinary course of business.
II.17 Purchase Orders. The Sellers have heretofore made available to the
---------------
Buyer. The Purchase Orders were made in the ordinary course of business and
consistent with past practice of the business of the Sellers.
II.18 Insurance. Schedule 2.18 attached hereto sets forth a true, correct
--------- -------------
and complete list of all fire, theft, casualty, general liability, workers
compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Assets or
business of the Sellers and of all life insurance policies maintained for any of
its employees, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies"). The Insurance Policies are in such amounts and of a
nature which are adequate and customary for the Sellers' business (not including
life insurance). All premiums due on the Insurance Policies or renewals thereof
have been paid and to the knowledge of the Sellers there is no default under any
of the Insurance Policies (not including life insurance).
II.19 Brokers. The Sellers are not obligated to pay, nor have the Sellers
-------
retained any broker or finder or other person who is entitled to, any broker's
or finder's fee or any other commission or financial advisory fee based on any
agreement or understanding made by the Sellers in connection with the
transactions contemplated hereby.
II.20 Fixed Assets. Schedule 2.20 sets forth a true, correct and complete
------------ -------------
summary of the Fixed Assets, including a description and valuation thereof, as
of no longer than five (5) business days before Closing. All of the Fixed
Assets are in good operating condition and repair, normal wear and tear
excepted, are currently used by the Sellers in the ordinary course of business
and in the production of products of the Sellers and normal maintenance has been
consistently performed with respect to such Fixed Assets.
II.21 Leases. Schedule 2.21 attached hereto sets forth a true, correct
------
and complete list as of the Closing Date of all leases of real and personal
property, to which the Sellers are a party (the "Leases"). True, correct and
complete copies of the Leases, and all amendments, modifications and
supplemental agreements thereto, have previously been delivered by the Sellers
to the Buyer. The Leases are in full force and effect, are binding and
enforceable
-10-
<PAGE>
against each of the parties thereto in accordance with their respective terms
and, except as set forth on Schedule 2.21, have not been modified or amended
-------------
since the date of delivery to the Buyer. No party to any Lease has sent written
notice to the other claiming that such party is in default thereunder, which
remains uncured. Except as set forth on Schedule 2.21 attached hereto, there has
-------------
not occurred any event which would constitute a breach of or default in the
performance of any material covenant, agreement or condition contained in any
Lease, nor has there occurred any event which with the passage of time or the
giving of notice or both would constitute such a breach or material default. The
Sellers are not obligated to pay any leasing or brokerage commission relating to
any of the Leases. No material construction, alterations or other leasehold
improvement work with respect to any of the Leases remains to be paid for or to
be performed by the Sellers.
II.22 Books and Records. The general ledgers and books of account of the
-----------------
Sellers, all federal, state and local income, franchise, property and other tax
returns filed by the Sellers, with respect to the Assets, and all other books
and records of the Sellers are in all material respects, except as disclosed in
the footnotes to the Financial Statements, pursuant to this Agreement, complete
and correct and have been maintained in accordance with good business practice
and in accordance with all applicable procedures required by laws and
regulations.
II.23 Contracts and Commitments.
-------------------------
(a) Schedule 2.23 attached hereto contains a true, complete and
-------------
correct list and description of the following contracts and agreements of the
Sellers, in relation to the personal emergency response business, whether
written or oral:
(i) all contracts, agreements, commitments, purchase orders or
other understandings or arrangements to which the Sellers are a party or by
which the Sellers or any of their property is bound which (A) involve payments
or receipts by the Sellers of more than $1,000 in the case of any single (or
series of related) contracts, agreements, commitments, understandings or
arrangements under which full performance (including payment) has not been
rendered by all parties thereto or (B) which may materially adversely affect the
condition (financial or otherwise) or the properties, assets, business or
prospects of the Sellers;
(ii) all employment and consulting agreements, executive
compensation plans, bonus plans, deferred compensation agreements, pension
plans, retirement plan, employee stock option or stock purchase plans and group
life, health and accident insurance and other employee benefit plans,
agreements, arrangements or commitments to which the Sellers are a party or by
which the Sellers or any of their property is bound;
(iii) all agency, distributor, sales representative and similar
agreements to which the Sellers are a party;
(iv) all contracts, agreements or other understandings or
arrangements between the Sellers and any officers, shareholder, manager, member
or affiliate of the Sellers; and
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<PAGE>
(v) any other material agreement or contract entered into by the
Sellers.
(b) Except as set forth on Schedule 2.23 attached hereto:
-------------
(i) each contract is a valid and binding agreement of the
Sellers, enforceable against the Sellers in accordance with its terms, and the
Sellers do not have any knowledge that any contract is not a valid and binding
agreement of the other parties thereto;
(ii) the Sellers have fulfilled all material obligations
required pursuant to the contracts to have been performed by the Sellers on
their part prior to the date hereof, and the Sellers have no reason to believe
that they will not be able to fulfill, when due, all of their obligations under
the contracts which remain to be performed after the date hereof;
(iii) the Sellers are not in breach of or default under any
contract, and no event has occurred which with the passage of time or giving of
notice or both would constitute such a default, result in a loss of rights or
result in the creation of any lien, charge or encumbrance, thereunder or
pursuant thereto; and
(iv) to the best knowledge of the Sellers, there is no existing
breach or default by any other party to any contract, and no event has occurred
which with the passage of time or giving of notice or both would constitute a
default by such other party, result in a loss of rights or result in the
creation of any lien, charge or encumbrance thereunder or pursuant thereto;
(v) the Sellers are not restricted by any contract from
carrying on their business in the states of New York, Florida or Pennsylvania;
and
(c) True, correct and complete copies of all contracts listed on
Schedules 2.21 and 2.23(a) have previously been delivered by the Sellers to the
- --------------------------
Buyer.
II.24 Absence of Certain Changes or Events. Except as set forth on
------------------------------------
Schedules 2.24 attached hereto, since September 30, 1998, the Sellers have not
- ---------------
entered into any transaction which is not in the usual and ordinary course of
business, and, without limiting the generality of the foregoing, the Sellers
have not, other than in the ordinary course of business:
(a) Discharged or satisfied any lien or encumbrance or paid any
obligation or liability other than current liabilities reflected in the current
balance sheet;
(b) Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets;
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<PAGE>
(c) Sold or purchased, assigned or transferred any of its intangible
assets or cancelled any debts or claims, except for inventory sold and raw
materials purchased in the ordinary course of business;
(d) Made any material amendment to or termination of any contract or
done any act or omitted to do any act which would cause the material breach of
any contract; and
(e) Received notice of any litigation, warranty claim or product
liability claims.
II.25 Employees. The Sellers have satisfied any severance and accrued
---------
vacation obligations related to each person employed by the Sellers at the
Closing Date. The Sellers shall cooperate with the Buyer in the Buyer's efforts
to obtain the employment of those employees of the Sellers who the Buyer desires
to hire.
II.26 Disclosure. No representation or warranty by the Sellers in this
----------
Agreement or in any Exhibit hereto, or any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
III.1 Organization. The Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Commonwealth of
Massachusetts, and the Buyer has the power and authority to carry on its
business as presently being conducted.
III.2 Authorization. The Board of Directors of the Buyer has duly
-------------
authorized the execution and delivery of this Agreement and other agreements,
documents and instruments to be executed and delivered by the Buyer pursuant
hereto and the consummation by the Buyer of the transactions contemplated hereby
and thereby. No further corporate actions or other proceedings on the part of
the Buyer are necessary to authorize this Agreement or the other agreements,
documents and instruments to be executed and delivered by the Buyer pursuant
hereto or the transactions contemplated hereby or thereby.
III.3 Valid and Binding Agreement. The Buyer has the necessary power and
---------------------------
authority to enter into this Agreement and the other agreements, documents and
instruments to be executed and delivered by the Buyer pursuant hereto, and to
carry out the transactions contemplated hereby and thereby. When fully executed
and delivered, this Agreement and each of the other agreements, documents and
instruments to be executed and delivered by the Buyer pursuant hereto will
constitute valid and binding agreements of the Buyer, enforceable
-13-
<PAGE>
against the Buyer in accordance with their terms, except that the enforcement of
the rights and remedies created hereby and thereby are subject to bankruptcy,
insolvency, reorganization or other laws of general application of creditors'
rights and that the availability of specific performance, injunctive relief or
other equitable remedy is subject to the discretion of the court before which
any proceeding therefore may be brought.
III.4 No Violation. Neither the execution and delivery of this Agreement
------------
or other agreements, documents, and instruments to be executed and delivered by
the Buyer pursuant hereto nor the consummation by the Buyer of the transactions
contemplated hereby or thereby (a) will violate any provision of the Articles of
Organization or By-Laws of the Buyer, each as currently in effect, or (b) will
violate or conflict with any applicable statute, law, ordinance, rule,
regulation, order, judgment or decree.
III.5 Consents; Notices; Filings. No registration or filing with, notices
--------------------------
to, or consent, approval, permit authorization or action by, any third party
(including, without limitation, any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body or
person or entity), is required in connection with the execution and delivery by
the Buyer of this Agreement or other agreements, documents and instruments to be
executed and delivered by the Buyer pursuant hereto or the consummation by the
Buyer of the transactions contemplated hereby or thereby.
III.6 Brokers. The Buyer is not obligated to pay, nor has the Buyer
-------
retained any broker or finder or other person who is entitled to, any broker's
or finder's fee or any other commission or financial advisory fee based on any
agreement or understanding made by the Buyer in connection with the transactions
contemplated hereby.
III.7 Disclosure. No representation or warranty by the Buyer in this
----------
Agreement or in any Exhibit hereto, or any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading.
ARTICLE IV
CERTAIN COVENANTS OF THE PARTIES
IV.1 Notices. The Buyer hereby waives (a) the giving of any notices which
-------
may be required pursuant to the terms of any of the leases, contracts or
agreements listed on Schedules 2.21 and 2.23(a) attached hereto and to accept
--------------------------
the assignment of any such leases, contracts or agreements at the Closing and
(b) any rights to indemnification the Buyer might have for failure to give any
required notice pursuant to terms of any of the leases, contracts or agreements
listed on Schedules 2.21 and 2.23(a) attached hereto or to give notice pursuant
--------------------------
to terms of any of the leases, contracts or agreements listed on Schedules 2.21
--------------
and 2.23(a) attached hereto for a required number of days.
- -----------
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<PAGE>
IV.2 Purchase Price Allocation. The allocation of the Purchase Price,
-------------------------
which shall be utilized by the parties hereto in connection with the preparation
of their respective federal and state tax returns and the return required by
Section 1060 of the Internal Revenue Code of 1986, as amended, shall be as set
forth on Schedule 4.2, attached hereto. Such allocation shall be subject to
------------
adjustment to the extent that the Purchase Price is adjusted pursuant to the
terms of this Agreement.
IV.3 Non-competition.
----------------
(a) For a period of five years after the Closing Date, the Sellers
shall not, and they shall cause their respective affiliates to not, directly or
indirectly, in any capacity whatsoever (i) engage in any business competitive
with business of the Sellers as conducted on the Closing Date, in the states of
New York, Pennsylvania and Florida (the "Territory"), (ii) solicit any customers
or Subscribers or any prospective customers or Subscribers for emergency medical
response services or (iii) recruit, solicit or hire any employee or former
employee of the Sellers.
(b) The parties hereto agree that the duration and geographic scope
of the non-competition provision set forth in this Section 4.3 are reasonable.
In the event that any court determines that the duration or the geographic
scope, or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one for each and
every county of each and every state of the United States of America included in
the Territory. The Sellers agree that damages are an inadequate remedy for any
breach of this provision and that the Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision.
IV.4 Mail; Referrals; Checks and Other Instruments. The Sellers agree,
---------------------------------------------
and shall cause their respective affiliates to agree that, as of the Closing
Date, all mail addressed to the Sellers relating to the business of the Sellers
or the Assets shall be delivered to the Buyer at the address specified pursuant
to Section 8.2, and that all inquiries to the Sellers or their respective
affiliates regarding personal emergency response services will be referred by
the Sellers to the Buyer. The Sellers hereby authorize the Buyer to open any
and all mail addressed to the Sellers (if delivered to the Buyer) if received on
or after the Closing Date and hereby grant to the Buyer a power of attorney to
endorse and cash those checks or instruments remitted for payment of the
Accounts Receivable listed on Schedule 2.16 and made payable or endorsed to the
-------------
Sellers or their order and received by the Buyer. The Buyer agrees to forward
all other checks or instruments not remitted for payment of the Accounts
Receivable listed on Schedule 2.16 and made payable or endorsed to the Sellers
-------------
and, any mail of the Sellers received by the Buyer not related to the business
or the Assets, to the Sellers pursuant to Section 8.02. The
-15-
<PAGE>
Sellers agree that they will forward promptly to the Buyer any monies, checks or
other instruments received by them after the Closing Date with respect to the
Accounts Receivable.
IV.5 Use of Name. The Sellers agree not to use, following the Closing
-----------
Date, the names and marks "AlertCall," "AlertCall, Inc.," or "AlertCall LLC" or
any derivation thereof or name similar thereto. For five years after the
Closing Date, the Sellers will not use any name or mark that is associated with,
or confusingly similar to, or may be commonly understood to be associated with,
any other name or mark used in the emergency personal response industry. As
soon as practicable after the Closing Date, AlertCall, Inc. and AlertCall LLC
shall deliver to the Buyer (a) a duplicate original of a document, in form
sufficient for filing, amending the Certificate of Incorporation and the
Certificate of Formation of the Sellers so as to change the names of the Sellers
to names which, in the opinion of the Buyer, are sufficiently distinct from the
Sellers' current names so as to not be confused therewith and (b) a true,
complete and correct copy, certified by the Secretaries of the Sellers, of the
resolutions of the Sellers' Board of Directors or managers, whichever is
applicable and, if necessary, shareholders or Members, authorizing and approving
such change of name. In order to effectuate such change, the Sellers shall file
the originals thereof with the state of New York and the State of Delaware and
any other state requiring such a filing, as applicable, as soon as practicable
after the Closing Date. The Sellers are delivering to the Buyer at the Closing
a written consent to the use by the Buyer of the Sellers' names, or any
variation and such other documents as may be necessary to effectuate the
foregoing in respect of any states in which the Sellers are qualified to do
business. As soon as practicable after the termination of the Escrow Period,
AlertCall, Inc. and AlertCall LLC shall be dissolved and copies of Certificates
of Dissolution shall be provided to the Buyer. Notwithstanding the foregoing,
the Sellers shall be allowed to use the names "AlertCall", "AlertCall, Inc.,"
"AlertCall LLC," or any variations thereof, for such time and only to such
extent, as is necessary to wind-up and dissolve their businesses and to make any
necessary tax filings.
IV.6 Proprietary Information.
-----------------------
(a) The Sellers agree to hold in confidence, and use their best
efforts to have all of their officers, directors, managers, members, personnel,
affiliates and other such agents hold in confidence, all knowledge and
information of a secret or confidential nature with respect to the businesses of
the Sellers and shall not disclose, publish or make use of the same without the
written consent of the Buyer, except to the extent that (1) such knowledge and
information shall have become public knowledge other than by breach of this
Agreement by the Sellers or any of their respective officers, directors,
members, personnel, affiliates and other such agents, or (2) one or both of the
Sellers or any of their officers, directors, managers, members, personnel,
affiliates and other such agents is required by law or pursuant to a court order
to disclose such secret or confidential knowledge or information. Without
limiting the foregoing, neither of the Sellers shall retain a copy of the
Subscriber List.
-16-
<PAGE>
(b) The Sellers each agree that the remedy at law for any breach of
this Section 4.6 would be inadequate and that the Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of any
provision of this Section 4.6.
IV.7 Taxes. The Buyer, on the one hand, and the Sellers, on the other
-----
hand, shall each be responsible for one half of the payment of any transfer,
sales, use or other similar taxes imposed by reason of the transfer of the
Assets, pursuant to this Agreement and any deficiency, interest or penalty with
respect to such taxes; except that any transfer, sales or use tax imposed by
reason of the transfer of any motor vehicles to the Buyer from the Sellers shall
be the responsibility of the Buyer. With regard to the joint payment by the
Sellers and the Buyer of any sales tax liability owing to the State of New York
as a result of the bulk transfer of the assets listed on Schedule 4.7 pursuant
------------
to this Agreement (the "Bulk Transfer"), the Sellers shall include in their
respective 1998 New York State sales tax returns (the "Returns" or individually
a "Return") a report of the Bulk Transfer based on the allocation of Purchase
Price agreed to by the parties hereto and listed on Schedule 4.2. The Sellers
------------
shall deliver the Returns to the Buyer for the Buyer's review such that the
Buyer shall have received the Returns no later than March 2, 1999. The Buyer
shall then forward the Returns and funds payable to each Seller in amount equal
to exactly fifty percent (50%) of the New York State sales tax due from each
Seller, including any deficiency, penalty or interest assessed, for whatever
reason, as a result of the Bulk Transfer. The Buyer's delivery to the Sellers
shall be such that each Seller shall have received the Return and the funds no
later than March 6, 1999. The Sellers shall then file the Returns and remit a
payment to New York State sufficient to discharge the entire sales tax liability
arising due to the Bulk Transfer, including any deficiency, penalty or interest
assessed, for whatever reason, no later than March 20, 1999. Nothing in this
Section 4.7 shall impose an obligation on the Buyer to pay any New York State
sales tax, including any deficiency, penalty or interest accrued or assessed for
whatever reason, which is owed by either of the Sellers as a result of any sale
or transfer, other than the transfer of the Assets pursuant to this Agreement or
the Bulk Transfer.
IV.8 Access to Books and Records. From the Closing Date and for a period
---------------------------
of seven (7) years thereafter, each of the Sellers and the Buyer and their
respective attorneys, accountants and agents shall be allowed upon reasonable
notice during normal business hours to inspect and copy, at the requesting
party's expense, the books and records of the other's business pertaining to
transactions occurring or assets relating to the transactions contemplated
hereby held at or before the Closing Date. The Sellers and the Buyer agree to
keep such books and records confidential, except and only to the extent required
by law, rule, regulation or court order. The Buyer agrees not to destroy or
abandon any such books or records for a period of seven (7) years following the
Closing Date and, for the two years following the initial seven year period, to
provide thirty (30) days' advance written notice to the Sellers before
destroying such books or records. If, following such notice any party requests
the surrender of such books or records the other party will, at the requesting
party's expense, surrender at the office of the requesting party or at such
location as directed by the requesting party, such books or records so requested
rather than proceeding with such destruction.
-17-
<PAGE>
IV.9 Nonassignable Contracts. To the extent that the assignment hereunder
-----------------------
by the Sellers to the Buyer of any contract listed on Schedules 2.21 and
------------------
2.23(a) attached hereto is not permitted without the consent of any other party
- -------
to the contract, except for the contracts listed on Schedule 1.5(f), this
Agreement shall not be deemed to be an assignment of any such contract if such
consent is not given or if such assignment otherwise would constitute a breach
of, or cause a loss of contractual benefits under, any such contract, and the
Buyer shall not assume any obligations or liabilities thereunder. Without in
any way limiting the Sellers' obligations to obtain all consents necessary for
the sale, transfer, assignment and delivery of the contracts to the Buyer
hereunder, if such consent is not obtained or if such assignment is not
permitted, irrespective of consent, and the Closing hereunder is consummated,
the Sellers shall continue to use their best efforts to obtain such consents and
shall cooperate with the Buyer in any arrangement to provide the Buyer with the
rights and benefits under any such contracts.
IV.10 Bulk Sales. The Buyer and the Sellers shall comply with the bulk
----------
sales provisions of the sales tax laws of the State of New York. The Buyer and
the Sellers each hereby waive compliance with all provisions of the Uniform
Commercial Code -- Bulk Transfer laws of the State of New York and any other
state imposed upon it (subject to the indemnity provided for in Article VII).
IV.11 Medicaid Provider Number. The Buyer shall promptly apply for its
-------------------------
own Medicaid provider number and hereby agrees that it will not at any time use
the Sellers' Medicaid provider number.
IV.12 Termination of Agreements. The monitoring agreement dated September
-------------------------
3, 1993 by and between the Buyer and AlertCall, Inc. and the services agreement
dated August 18, 1998 are hereby terminated and are of no further force and
effect, and all of the benefits, liabilities and obligations of the Buyer and
AlertCall, Inc. thereunder shall cease and terminate immediately.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
V.1 Delivery of Documents. The Sellers shall have delivered to the Buyer
---------------------
all items described in Section 1.5 above and required to be delivered pursuant
thereto.
V.2 Continued Truth of Representations and Warranties of the Sellers;
-----------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties
- -----------------------------------------
of the Sellers shall be true in all material respects on and as of the Closing
Date as though such representations and warranties were made on and as of such
date, except for any changes permitted by the terms
-18-
<PAGE>
hereof or consented to in writing by the Buyer. The Sellers shall have performed
and complied with all terms, conditions, covenants, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by them
prior to or at the Closing Date.
V.3 Employment Agreements. The Buyer shall have entered into employment
---------------------
agreements or arrangements, if the Buyer in its sole discretion shall so desire,
with Patricia LaMonte in a form satisfactory to the Buyer in its sole
discretion.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Sellers:
VI.1 Delivery of Documents. The Buyer shall have delivered to the Sellers
---------------------
all items described in Section 1.6 above and required to be delivered pursuant
thereto.
VI.2 Continued Truth of Representations and Warranties of the Buyer;
---------------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties
- -----------------------------------------
of the Buyer shall be true in all material respects on and as of the Closing
Date as though such representations and warranties were made on and as of such
date, except for any changes permitted by the terms hereof or consented to in
writing by the Sellers. The Buyer shall have performed and complied with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by it prior to or at the
Closing Date.
VI.3 [INTENTIONALLY LEFT BLANK]
VI.4 Letter Agreement with Patricia LaMonte. The Sellers shall have
--------------------------------------
entered into a letter agreement, in form satisfactory to them, relating to,
among other things, the termination of any and all ownership interests or rights
to ownership interests Patricia LaMonte may have in either of the Sellers, and
of her employment by the Sellers.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
VII.1 Survival. The representations and warranties and covenants
--------
contained in this Agreement shall not be deemed waived by an investigation at
any time made by or on behalf of any party. The representations and warranties
contained in this Agreement shall survive the Closing for a period of 18 months
after the Closing unless prior to the expiration of such 18 month period either
party notifies the other of a claim in reasonable detail to the extent then
known by the party making the claim. Notwithstanding the foregoing, the
Sellers' obligations arising under or relating to Section 7.2(a)(iv) herein
shall survive until the expiration of the
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<PAGE>
applicable periods (including any extensions) of the respective statutes of
limitation applicable to the payment of any taxes referred to in Section
7.2(a)(iv) herein. All of the covenants and agreements set forth in this
Agreement shall survive the Closing and continue until fully performed or
discharged.
VII.2 Indemnification.
---------------
(a) The Sellers, jointly and severally, shall indemnify, defend, and
hold harmless the Buyer and its subsidiaries and affiliates and its directors,
officers, employees and agents (collectively, the "Buyer's Indemnified
Persons"), and reimburse the Buyer's Indemnified Persons for, from and against
all payments, demands, claims, suits, judgments, liabilities, losses, costs,
damages and expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees, disbursements and expenses (a "Claim"), imposed on
or incurred by the Buyer's Indemnified Persons, directly or indirectly, which
relate to or arise out of (i) breach of any representation and warranty of, or
covenant to be performed by, the Sellers, in each case contained in this
Agreement or in any other agreements specifically referred to herein, (ii) any
of the liabilities or obligations retained by the Sellers pursuant to Section
1.3, (iii) the failure of the Sellers or of the Buyer to comply with any bulk
sales laws applicable to the transactions contemplated hereby, or (iv) any tax
liabilities of the Sellers, including, but not limited to, any accrued state
sales and/or use tax liability.
(b) The Buyer shall indemnify, defend, and hold harmless each of the
Sellers and their subsidiaries and affiliates and their directors, officers,
employees and agents (collectively the "Sellers' Indemnified Persons"), and
reimburse each of the Sellers' Indemnified Persons for, from and against Claims,
imposed or incurred by the Sellers' Indemnified Persons, directly or indirectly,
which relate to or rise out of (i) a breach of any representation and warranty
of, or covenant to be performed by, the Buyer in each case contained in this
Agreement or in any other agreement specifically referred to herein, or (ii) any
of the Assumed Liabilities.
(c) No indemnification shall be payable to an indemnified party
pursuant to Section 7.2(a) or 7.2(b) or any successor thereto (the "Indemnified
Party") unless the total of all of the Indemnified Party's Claims for
indemnification pursuant to Section 7.2(a) or 7.2(b) shall exceed Twenty
Thousand Dollars ($20,000) in the aggregate (the "Threshold") (in which case the
Sellers shall be liable for the entire amount for which they are providing
indemnification hereunder, and not just the amount in excess of the Threshold);
provided, however, that the Threshold shall not apply to Claims arising out of
- --------- -------
breaches of representations or warranties contained in Section 2.11 (Tax
Matters), and the Sellers shall indemnify the Buyer for any Claim related
thereto in accordance with this Article VII without regard to the Threshold.
The indemnification obligations under Section 7.2(a) or 7.2(b) shall be limited,
in the aggregate, to an amount equal to the Purchase Price.
(d) An Indemnified Party shall give prompt written notice to an
indemnifying party (the "Indemnifying Party") of any Claim in respect of which
such
-20-
<PAGE>
Indemnifying Party has a duty to provide indemnity to such Indemnified Party
under this Section 7.2, except that any delay or failure to so notify the
Indemnifying Party only shall relieve the Indemnifying Party of its obligations
hereunder to the extent, if at all, that it is prejudiced by reason of such
delay or failure.
(e) If a Claim is brought or asserted by a third party (a "Third Party
Claim"), the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all expenses. The Indemnified Party shall have the right to employ
separate counsel in such Third Party Claim and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party. In the event that the Indemnifying Party, within 20 days
after written notice of any Third Party Claim, fails to assume the defense
thereof, the Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Third Party Claim for the account of the
Indemnifying Party. Anything in this Section 7.2(f) to the contrary
notwithstanding, the Indemnifying Party shall not, without the Indemnified
Party's prior written consent, settle or compromise any Third party Claim or
consent to the entry of any judgment with respect to any Third Party Claim which
would have any adverse effect on the Indemnified Party, except as provided
immediately below. The Indemnifying Party may, without the Indemnified Party's
prior written consent, settle or compromise any such Third Party Claim or
consent to entry of any judgment, with respect to any Third party Claim which
requires solely money damages paid by the Indemnifying Party and which includes
as an unconditional term thereof the release by the claimant or the plaintiff of
the Indemnified Party from all liability in respect of such Third Party Claim.
(f) With respect to any Claim other than a Third Party Claim, the
Indemnifying Party shall have 30 days from receipt of written notice from the
Indemnified Party of such claim within which to respond thereto. If the
Indemnifying Party does not respond within such 30-day period, the Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such Claim. If the
Indemnifying Party notifies the Indemnified Party within such 30-day period that
it rejects such Claim in whole or in part, the Indemnified Party shall be free
to pursue such remedies as may be available to the Indemnified Party under
applicable law.
(g) Anything in this Section 7.2 to the contrary notwithstanding, if a
third party asserts that an Indemnified Party is liable to such third party for
a monetary or other obligation which may constitute or result in damages for
which such Indemnified Party may be entitled to indemnification pursuant to this
Section 7.2, and such Indemnified Party reasonably determines that it has a
valid business reason to fulfill such obligation, then (i) such Indemnified
Party shall be entitled to satisfy such obligation without consent from the
Indemnifying Party, (ii) such Indemnified Party may make a claim for
indemnification pursuant to this Section 7.2 and (iii) such Indemnified Party
shall be reimbursed, for any such damages for which it is entitled to
indemnification pursuant to this Section 7.2 (subject to the right of the
Indemnifying Party to dispute the Indemnified Party's entitlement to
indemnification under the terms of this Section 7.2).
-21-
<PAGE>
VII.3 Confidentiality. Each of the parties hereto agrees to cooperate in
---------------
such a manner as to preserve in full the confidentiality of all information
received (whether received before or after the date of this Agreement) relating
to any party to this Agreement, or an affiliate of such party or relating to the
transactions contemplated by this Agreement (the "Confidential Information").
In connection therewith, each party hereto agrees that:
(a) it will use all reasonable and lawful efforts, in any action,
suit or proceeding in which it has assumed or participated in the defense, to
avoid producing the Confidential Information, and in the event a party hereto
determines that disclosure must be made as being required by law or court order,
it may make such disclosure only to that extent as required by such applicable
law or court order and only after prior consultation between the principals and
attorneys of each party; and
(b) all communications between any party hereto and counsel
responsible for, or participating in, the defense of any action, suit or
proceeding shall, to the extent possible, be made so as to preserve any
applicable attorney-client or work-product privilege.
VII.4 Remedies Cumulative. Except as otherwise provided herein, the
-------------------
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
VII.5 Set-off. Any amount or amounts due from the Sellers to the Buyer
-------
under this Article VII may be set off by the Buyer, at the Buyer's option, from
the Escrow Deposit pursuant to the terms of the Escrow Agreement. Neither the
exercise of nor the failure to exercise such right of set-off or to give a
notice of a claim will constitute an election of remedies or limit Buyer in any
manner in the enforcement of any other remedies that may be available to it.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the Buyer if such failure is by the Sellers and by the Sellers if such failure
is by the Buyer, but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by the other
party shall constitute a waiver of such party's right to enforce any provision
hereof or to take any such action.
-22-
<PAGE>
VIII.2 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be sent by personal delivery or
registered or certified mail, postage prepaid, or by telecopier as follows:
(a) if to the Sellers:
AlertCall, Inc.
P.O. Box 1264
Buffalo, NY 14240
Attn: Mr. Carmen P. Flitt
with a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear LLP
Suite 1800, One M&T Plaza
Buffalo, NY 14203
Attention: Pamela Davis Heilman, Esq.
(b) if to the Buyer:
Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, MA 02139
Attention: Mr. Ronald Feinstein, President
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Jeffrey A. Stein, Esq.
Any party may change its address for receiving notice by written notice given to
the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
VIII.3 Counterparts and Facsimile Signature. This Agreement may be
------------------------------------
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
Agreement. This Agreement may be executed by facsimile signature, and such
facsimile signature shall be deemed an original.
VIII.4 Parties in Interest. This Agreement shall bind and inure to the
-------------------
benefit of the parties named herein and their respective heirs, successors and
assigns. This Agreement shall not be assignable by any party without the prior
written consent of the other parties, (except
-23-
<PAGE>
that Buyer may assign its rights under this Agreement to Protection One, Inc. or
any affiliate of Protection One, Inc. without the consent of any other party
hereto.
VIII.5 Entire Transaction. This Agreement and the other agreements,
------------------
documents and instruments referred to herein contain the entire understanding
among the parties with respect to the transactions contemplated hereby and
supersede all other agreements and understandings among the parties.
VIII.6 Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the internal substantive laws of the Commonwealth of
Massachusetts, and the parties hereby consent to the sole jurisdiction of
Massachusetts courts over all matters relating to this Agreement.
VIII.7 Headings. The section and other headings contained in this
--------
Agreement are for reference and convenience purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
VIII.8 Expenses. Except as otherwise expressly provided in this Agreement
--------
or the agreements, documents and instruments to be executed and delivered
pursuant hereto, each party to this Agreement shall pay its own costs and
expenses in connection with the transactions contemplated hereby.
VIII.9 Announcements. Except as required by law (and then only to the
-------------
extent as required by such applicable law), no announcement of this Agreement or
the transactions contemplated hereby shall be made by either party without the
written approval of the other parties, which approval shall not be unreasonably
withheld or delayed.
VIII.10 Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or entity other than the parties hereto and
their successors or assigns, any rights or remedies under or by reason of this
Agreement.
VIII.11 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
[Remainder of Page Intentionally Left Blank.
Signature Page(s) to Follow]
-24-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed all as of the day and year first written above.
SELLERS:
ALERTCALL, INC.
By: /s/ Carmen P. Flitt
--------------------------------------
Name: Carmen P. Flitt
Title: Vice President/Chief Financial
Officer
ALERTCALL LLC
By: /s/ Carmen P. Flitt
--------------------------------------
Name: Carmen P. Flitt
Its: Member
LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
--------------------------------------
Name: Dennis M. Hurley
Title: Chief Financial Officer
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF LIFELINE SYSTEMS, INC.
Lifeline Systems Securities Corporation
111 Lawrence Street
Framingham, Massachusetts 01702-8156
Incorporated in the Commonwealth of Massachusetts
Lifeline Systems Canada, Inc.
111 Lawrence Street
Framingham, Massachusetts 01702
Incorporated in the Province of Ontario, Canada
Lifeline Systems Export, Inc.
The Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
Incorporated in the Country of Barbados
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Lifeline Systems, Inc. on Form S-8 (File Nos. 33-40684, 33-58632,
33-79294, 33-59499, 333-03949, 333-03953, and 333-03951) of Lifeline Systems,
Inc. of our report dated February 8, 1999, on our audits of the consolidated
financial statements and financial statement schedule of Lifeline Systems, Inc.
as of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, which report is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 1999
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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<SECURITIES> 6,696
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<COMMON> 129
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<TOTAL-LIABILITY-AND-EQUITY> 52,504
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