LIFELINE SYSTEMS INC, DEFS14A, 2000-06-01

LIFELINE SYSTEMS INC
DEFS14A, 2000-06-01
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(C) or Section 240.14a-12

Lifeline Systems, Inc.
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(Name of Registrant as Specified in its Charter)

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(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it is determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE>

LIFELINE SYSTEMS, INC.

----------------

NOTICE OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING
July 19, 2000

To the Stockholders of
LIFELINE SYSTEMS, INC.:

Notice is hereby given that a Special Meeting in Lieu of Annual Meeting of
Stockholders of Lifeline Systems, Inc., a Massachusetts corporation (the
"Company"), will be held on Wednesday, July 19, 2000, at 10:00 A.M., local
time, at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, 02109, to consider and act upon the following matters:

1. To elect two Class II Directors, each to hold office until the Annual
Meeting of Stockholders in 2003 and until his or her successor is
elected and qualified;

2. To approve the Company's 2000 Stock Incentive Plan;

3. To approve the Company's 2000 Employee Stock Purchase Plan;

4. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the current fiscal year;

5. To vote on a stockholder proposal if presented by its proponent; and

6. To transact such other business as may properly come before the meeting
or any adjournment or adjournments of the meeting.

This Notice and the accompanying proxy materials are being mailed to all
holders of the Company's Common Stock. The close of business at 5:00 P.M., May
31, 2000 is the record date for determining stockholders entitled to receive
notice of and to vote at the Special Meeting in Lieu of Annual Meeting or any
adjournment or adjournments thereof, and only stockholders of record at the
close of business on that date are entitled to notice of and to vote at the
meeting. The stock transfer books of the Company remain open.

By Order of the Board of Directors,

JEFFREY A. STEIN, Clerk

Framingham, Massachusetts
June 13, 2000

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED
IN THE UNITED STATES.
<PAGE>

LIFELINE SYSTEMS, INC.
111 Lawrence Street
Framingham, MA 01702-8156

----------------

PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING
OF STOCKHOLDERS

July 19, 2000

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Lifeline Systems, Inc. (the "Company")
for use at a Special Meeting in Lieu of Annual Meeting of Stockholders to be
held at 10:00 A.M. local time on Wednesday, July 19, 2000 (the "Special
Meeting") at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, and at any adjournment or adjournments of the Special Meeting.
All proxies will be voted in accordance with the instructions contained
therein, and if no choice is specified, the proxies will be voted in favor of
proposal numbers 1 through 4 and against proposal number 5 set forth in the
Notice of Meeting. Any proxy may be revoked by a stockholder at any time
before it is exercised by giving written notice to that effect to the Chief
Financial Officer of the Company, by the submission of another signed proxy
bearing a later date or by the stockholder's personal attendance at the
meeting and voting by ballot.

The Board of Directors has fixed May 31, 2000 as the record date for
determining stockholders who are entitled to vote at the Special Meeting. At
the close of business on May 31, 2000, there were outstanding and entitled to
vote 5,983,783 shares of the common stock, $.02 par value per share, of the
Company (the "Common Stock"). Each share is entitled to one vote.

The Company's Annual Report and these proxy materials were first mailed to
stockholders on or about June 13, 2000.

The Company will, upon written request of any stockholder, provide without
charge a copy of its annual report on Form 10-K, including financial
statements and financial statement schedules, as filed with the Securities and
Exchange Commission. Requests should be addressed to the Company in care of
Chief Financial Officer, 111 Lawrence Street, Framingham, MA 01702-8156.

Votes Required and Tabulation of Votes

The holders of a majority of the shares of Common Stock issued, outstanding
and entitled to vote on any matter shall constitute a quorum at the Special
Meeting. Shares of Common Stock represented in person or by proxy (including
shares which abstain or do not vote with respect to one or more of the matters
presented for stockholder approval) will be counted for purposes of
determining whether a quorum is present.

The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Special Meeting is required for the
election of directors. The affirmative vote of the holders of a majority of
the shares of Common Stock present or represented and voting on the matter is
required for the approval of any other matter to be voted on at the meeting.

Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a
particular matter, will not be voted in favor of such matter, and will also
not be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on the
matters being presented for stockholder approval at the Special Meeting.
<PAGE>

Beneficial Ownership of Common Stock

The following table sets forth certain information, as of April 30, 2000
unless otherwise indicated, with respect to the beneficial ownership of the
Company's common stock by (i) each person known by the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) each executive officer of the Company named in the
Summary Compensation Table set forth under the caption "Executive
Compensation," below, and (iv) all directors and executive officers of the
Company as a group. The inclusion herein of any shares of common stock deemed
beneficially owned does not constitute an admission that the named
stockholders are direct or indirect beneficial owners of such shares. Unless
otherwise indicated, each person has sole voting and investment power with
respect to the shares listed. The share amounts include those shares as to
which the following persons had a right to acquire beneficial ownership by
exercising stock options as of April 30, 2000, or within 60 days following
that date: Mr. Feinstein, 193,277 shares; Mr. Reich, 39,844 shares; Mr. Loper,
56,652 shares; Mr. Hurley, 58,978 shares; Mr. Strange, 40,297 shares;
Ms. Bailis, 4,000 shares; Mr. Baldwin, 14,500 shares; Dr. Kasputys, 26,500
shares; Ms. Roberts, 15,000 shares; Mr. Shapiro, 2,000 shares and Dr.
Vineyard, 26,500 shares. The share amounts also include 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.

<TABLE>
<CAPTION>
Beneficially Common Stock
Name of Beneficial Owner Owned Outstanding(1)
------------------------ ------------ --------------
<S> <C> <C>
SAFECO Corporation(2)........................ 807,650 13.6%
4333 Brooklyn Ave. N.E.
Seattle, WA 98185
L. Dennis Shapiro(3)......................... 710,833 11.9%
24 Essex Road
Chestnut Hill, MA 02467
Pequot Capital Management, Inc.(4)........... 490,000 8.2%
500 Nyala Farm Road
Westport, CT 06880
Ronald Feinstein(5).......................... 459,868 7.5%
c/o Lifeline Systems, Inc.
111 Lawrence St.
Framingham, MA 01702
T. Rowe Price Associates, Inc.(6)............ 425,200 7.1%
100 E. Pratt Street
Baltimore, MD 21202
Goldman, Sachs Asset Management(7)........... 413,200 6.9%
85 Broad St.
New York, NY 10004
Richard M. Reich(8).......................... 80,305 1.3%
Thomas E. Loper(9)........................... 65,791 1.1%
Dennis M. Hurley(10)......................... 68,373 1.1%
Donald G. Strange............................ 50,661 *
Susan S. Bailis.............................. 5,500 *
Everett N. Baldwin(11)....................... 33,500 *
Joseph E. Kasputys, Ph.D. ................... 38,650 *
Gordon C. Vineyard, M.D. .................... 27,501 *
Carolyn C. Roberts........................... 16,000 *
All directors and officers as a group (12 1,591,359 24.6%
persons)(12)................................
</TABLE>
--------
* Less than 1% of the outstanding stock

2
<PAGE>

(1) Number of shares deemed outstanding includes 5,955,900 shares outstanding
as of April 30, 2000, plus any shares subject to options held by the named
person or entity that are currently exercisable or exercisable within 60
days after April 30, 2000.
(2) Represents holdings as of December 31, 1999 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 11, 2000 by SAFECO
Corporation. Includes the following shares, as to all of which SAFECO
Corporation disclaims beneficial ownership: 560,550 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.
(3) 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.
(4) Represents holdings as of December 31, 1999 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 10, 2000 by Pequot
Capital Management, Inc.
(5) Includes 16,000 shares held by Mr. Feinstein's children. Also includes
16,552 shares and 25,641 shares pledged to the Company to secure a
$300,000 and $250,000 loan, respectively, by the Company to Mr. Feinstein.
See "Other Arrangements--Loans to Related Parties."
(6) Represents holdings as of December 31, 1999 based on Schedule a 13G filed
with the Securities and Exchange Commission on February 14, 2000 by T.
Rowe Price Associates, Inc.
(7) Represents holdings as of December 31, 1999 based on a Schedule 13G filed
with the Securities and Exchange Commission on February 14, 2000 by
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. Includes 298,200 shares as to which Goldman Sachs Asset
Management has sole voting power and 413,200 as to which Goldman Sachs
Asset Management has sole dispositive power.
(8) Includes 35,000 shares owned by Mr. Reich jointly with his wife.
(9) Includes 8,939 shares pledged to the Company to secure a $100,000 loan by
the Company to Mr. Loper. See "Other Arrangements--Loans to Related
Parties."
(10) Includes 1,700 shares beneficially owned by Mr. Hurley through an
individual retirement account ("IRA"). Also includes 7,123 shares owned
by Mr. Hurley jointly with his wife.
(11) Includes 7,000 shares held by the Everett N. Baldwin Revocable Trust of
1997.
(12) Includes an aggregate of 511,480 shares subject to stock options that are
currently exercisable or exercisable within 60 days after April 30, 2000.
Also includes 15,631 shares beneficially owned by such persons through
the 401(k) Plan as to which such persons possess sole investment and
voting power.

1. ELECTION OF DIRECTORS

The Company's Board of Directors is classified into three classes
(designated Class I Directors, Class II Directors and Class III Directors),
with members of each class holding office for staggered three-year terms.
There are currently two Class I Directors, whose terms expire at the 2002
Annual Meeting of Stockholders, two Class II Directors, whose terms expire at
the 2000 Special Meeting in Lieu of Annual Meeting of Stockholders and three
Class III Directors, whose terms expire at the 2001 Annual Meeting of
Stockholders.

The persons named in the proxy will vote to elect as Class II Directors the
two nominees named below unless authority to vote for the election of any or
all of the nominees is withheld by marking the proxy to that effect. Because
the Board of Directors has fixed the number of Class II Directors at two
members, the proxy may not be voted for more than two directors. If any of the
nominees becomes unavailable, the person acting

3
<PAGE>

under the proxy may vote the proxy for the election of a substitute. It is not
presently contemplated that either of the nominees will be unavailable. Ronald
Feinstein and Joseph E. Kasputys have served as members of the Board of
Directors of the Company since 1985. Both of the nominees will be elected to
hold office until the Annual Meeting of Stockholders in 2003, and until his
successor is elected and qualified.

The following table sets forth the name of the nominees for election to the
Board of Directors at the Special Meeting, followed by the name of each other
director who will continue in office after the Special Meeting, and each such
person's principal occupation and business experience during the past five
years, his or her age and the year in which he or she became a director of the
Company.

RONALD FEINSTEIN 54 1985
Mr. Feinstein has been President and Chief
Executive Officer of the Company since January 1,
1993.

JOSEPH E. KASPUTYS, PH.D. 63 1985
Dr. Kasputys has been Chairman, President and Chief
Executive Officer of Primark Corporation, an
international company primarily engaged in the
information service business, since June 1987.**
***

The two Class I Directors named below will continue
in office until the Annual Meeting of Stockholders
in 2002:

L. DENNIS SHAPIRO 66 1978
Mr. Shapiro has been Chairman of the Board since
1978 and was Chief Executive Officer and Treasurer
of the Company from 1978 through December 1988.* **

EVERETT N. BALDWIN 66 1991
Mr. Baldwin served as President and Chief Executive
Officer of Welch Foods, Inc. from August 1982 to
August 1995, and as a Director of Welch Foods, Inc.
from August 1982 to December 1995. Mr. Baldwin
retired from Welch Foods in 1995.*

The three Class III Directors named below will
continue in office until the Annual Meeting of
Stockholders in 2001:

SUSAN S. BAILIS 54 1998
Ms. Bailis has been co-chairman and co-chief
executive officer of Solomont Bailis Ventures, a
health care company since May 1998. From October
1997 to May 1998 she was President and Chief
Executive Officer of the A.D.S. Group ("A.D.S."),
owned by an affiliate of Genesis Health Ventures.
From December 1996 to October 1997, Ms. Bailis held
the positions of Senior Vice President of the
Multicare Companies and President and Chief
Executive Officer of A.D.S., at which time A.D.S.
was a wholly owned subsidiary of the Multicare
Companies. From 1986 to December 1996 Ms. Bailis
was President of A.D.S.*

</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
Name, Principal Occupation
and Business Experience First Became a
During the Past Five Years Age Director
-------------------------- --- --------------
<S> <C> <C>
CAROLYN C. ROBERTS................................... 61 1994
Ms. Roberts has been President and Chief Executive
Officer of Copley Health Systems, Inc. since 1985.
Since 1982, she has also been President and Chief
Executive Officer of Copley Hospital, Inc. Ms.
Roberts has served on the Board of Trustees of the
American Hospital Association since 1990, was Chair
of the Board in 1994 and, from 1991 to 1996, was a
member of its Executive Committee. Ms. Roberts is
currently a member of the Board of Commissioners of
the Joint Commission for Accreditation of HealthCare
Organizations ("JCAHO").** ***

GORDON C. VINEYARD, M.D. ............................ 63 1985
Dr. Vineyard has been Director of Surgical
Specialties and Radiology and Surgeon-in-Chief of
the Harvard Vanguard Medical Associates since 1991.
From 1980 to 1991, he was its Chief of Surgery. He
is also an Associate Clinical Professor of Surgery
at the Harvard Medical School. Dr. Vineyard was a
surgeon at Boston's Brigham and Women's Hospital
from January 1972 through August 1995.*
</TABLE>
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* Member of Audit Committee
** Member of Compensation Committee
*** Member of Stock Option Plans Committee

Meetings of the Board Of Directors

The Company has an Audit Committee, which held two meetings during the
fiscal year ended December 31, 1999. The principal functions of the Audit
Committee are to make recommendations to the Board of Directors regarding the
engagement of the Company's independent auditors, to review and approve any
major accounting policy changes affecting the Company's operating results, to
review the arrangements for and scope of the independent audit and the results
of the audit, to review the scope of non-audit activities performed by the
independent auditors and to assure that the auditors are in fact independent,
and to establish and monitor policies to prohibit unethical, questionable or
illegal activities by employees of the Company.

The Company has a Compensation Committee, which held three meetings during
the fiscal year ended December 31, 1999. The principal function performed by
the Compensation Committee is to make recommendations to the Board of
Directors as to compensation arrangements, including bonuses for senior
management. The Company also has a Stock Option Plans Committee, which held
two meetings during the fiscal year ended December 31, 1999. The principal
function of the Stock Option Plans Committee is to grant stock options to
employees of the Company and to otherwise administer the Company's stock
option plans.

The Company has no nominating committee of the Board of Directors or
committee performing similar functions. The Board of Directors will consider
nominees for director recommended by stockholders of the Company. The names of
such nominees should be forwarded to the Chief Financial Officer, Lifeline
Systems, Inc., 111 Lawrence Street, Framingham, Massachusetts 01702, who will
submit them to the Board of Directors for its consideration.

5
<PAGE>

During the fiscal year ended December 31, 1999, the Board of Directors of
the Company held nine meetings. All directors attended at least 75% of the
aggregate number of meetings of the Board of Directors and of the committees
of the Board on which they respectively served.

Directors' Compensation

Each director who is not an executive officer received an annual retainer
fee of $5,000 plus $750 for each Board meeting attended and $500 for each
Committee meeting attended ($750 for each day during which a director attended
both a Board and a Committee meeting). The Chairmen of the Audit Committee and
the Compensation Committee each received an annual fee of $2,500 for their
services in this capacity in addition to their regular annual retainer fee.
Executive officers do not receive any additional remuneration for their
services as directors. The Chairman of the Board, Mr. Shapiro, received an
annual fee of $10,000 for his services as Chairman in addition to his regular
annual retainer fee. Effective April 2000, members of the Board of Directors
will receive $250 for each telephonic committee meeting attended by them.

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.
The Company's proposed 2000 Stock Incentive Plan contains a similar provision.
Pursuant to the terms of the merger agreement between Lifeline and Protection
One, Inc., dated October, 1998 (the "Merger Agreement") no options were
granted to the non-employee directors in 1999. The Merger Agreement was
terminated on September 2, 1999.

Compensation Committee Interlocks and Insider Participation

Dr. Kasputys, Mr. Shapiro and Ms. Roberts served as members of the
Compensation Committee during the Company's most recent fiscal year. Mr.
Shapiro is the Chairman of the Board of Directors and previously served at
various times as the Company's President, Chief Executive Officer and
Treasurer.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Based solely on its review of copies of reports filed by reporting persons
of the Company pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or written representations from certain
Reporting Persons that no Form 5 filing was required for such person, the
Company believes that during fiscal 1999 all filings required to be made by
its Reporting Persons were timely made in accordance with the requirements of
the Exchange Act.

6
<PAGE>

Executive Compensation

Summary Compensation

The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of the Company's Chief
Executive Officer and the Company's four other most highly compensated
executive officers during the fiscal year ended December 31, 1999 who were
serving as executive officers at December 31, 1999 (the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
----------------------------------------- ----------------------------------
Securities
Underlying
Name and Principal Other Annual Options All Other
Position Year Salary ($) Bonus ($) Compensation Granted (#)(1) Compensation ($)(2)
------------------ ---- ---------- --------- ------------ -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 1999 $267,712 -- 25,000 $2,700
President and Chief 1998 254,992 $172,293(5) 20,000 2,980
Executive Officer 1997 242,826 -- (3) 34,810(4) 2,657
Richard M. Reich........ 1999 160,292 8,450(5) 11,000 2,380
Vice President, 1998 153,833 65,906(5) 5,000 2,703
Chief Information
Officer 1997 146,750 -- (3) 12,411(4) 2,331
Thomas E. Loper......... 1999 157,800 7,950(5) $4,800(6) 7,000 2,370
Vice President, 1998 150,833 64,545(5) 28,800(6) 5,000 2,691
Customer Care 1997 145,333 -- (3) 24,000(6) 12,052(4) 2,278
Dennis M. Hurley........ 1999 149,416 7,525(5) 7,000 2,351
Vice President, 1998 143,000 61,229(5) 5,000 2,680
Finance and Chief
Financial Officer 1997 136,917 -- (3) 11,978(4) 2,302
Donald G. Strange....... 1999 142,417 8,610(5) 7,000 2,332
Vice President, 1998 135,833 56,822(5) 5,000 2,662
Sales and Marketing 1997 130,000 -- (3) 11,631(4) 2,287
</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) 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 bonus was
determined using the Black-Scholes option pricing model, which accounts
for certain variables such as fair market value of the option on the date
of grant, stock price volatility, life of the option, and interest rates.
The exercise price of these options was $24.00 per share, representing the
fair market value of the 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.

(5) Represents amounts paid under the Company's Executive Bonus Plan.

(6) Represents an annual living allowance paid to Mr. Loper.

7
<PAGE>

Option Grants

The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1999 to each of
the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term(1)
--------------------------------------------------------------- -----------------
Securities Percent of Total
Underlying Options Granted To
Options Employees in Exercise or Base
Name Granted(#) Fiscal Year Price ($/Share) Expiration Date 5% ($) 10% ($)
---- ---------- ------------------ ---------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ronald Feinstein........ 25,000(2) 18.7% $18.50 6/7/2009 $290,864 $737,106
Richard M. Reich........ 7,000(3) 5.2% 18.50 6/7/2009 81,442 206,390
4,000(2) 3.0% 14.63 12/2/2009 36,790 93,234
Thomas E. Loper......... 7,000(3) 5.2% 18.50 6/7/2009 81,442 206,390
Dennis M. Hurley........ 7,000(3) 5.2% 18.50 6/7/2009 81,442 206,390
Donald G. Strange....... 7,000(3) 5.2% 18.50 6/7/2009 81,442 206,390
</TABLE>
--------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the common stock and the date on which
the options are exercised.
(2) Exercisable in installments beginning 12 months after the 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 thereby becoming
exercisable on each of the next two anniversary dates. Under the terms of
the Company's 1991 and 1994 Stock Option Plans, 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.
(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 1991 and
1994 Stock Option Plans, 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.

8
<PAGE>

Option Exercises and Year-End Values

The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended December 31, 1999 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, 1999:

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Shares Options at Fiscal Year-End(#) Fiscal Year-End($)(1)
Acquired on Value ----------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Ronald Feinstein........ 70,459(2) $1,512,500 166,672/49,938 $1,466,084/ -
Richard M. Reich........ -- -- 31,629/29,282 169,340/ $64,809
Thomas E. Loper......... -- -- 49,535/29,017 147,088/ 41,753
Dennis M. Hurley........ -- -- 40,885/35,593 259,367/ 14,473
Donald G. Strange....... -- -- 34,820/23,811 256,303/ 46,362
</TABLE>
--------
(1) Based on the fair market value of the common stock on December 31, 1999
(approximately $14.78), less the option exercise price.
(2) Excludes 29,541 shares withheld by the Company for the payment of taxes
associated with the exercise of such options.

Other Arrangements

Feinstein Employment Agreement

Pursuant to the terms of an employment agreement, as amended, effective as
of August 27, 1992, Ronald Feinstein became the Executive Vice President and
Chief Operating Officer of the Company on October 1, 1992, and the President
and Chief Executive Officer on January 1, 1993. Mr. Feinstein receives a base
salary of not less than $200,000 annually.

Pursuant to the terms of Mr. Feinstein's employment agreement, Mr. Feinstein
is eligible to receive a bonus equal to 40% of his base salary if the Company
achieves the annual profit performance plan goals adopted by the Board of
Directors and a bonus of greater than 40% of his base salary if the Company
exceeds such goals. Pursuant to his employment agreement, Mr. Feinstein will
continue to serve as a member of the Board of Directors during the period of
his employment.

Pursuant to his employment agreement, on August 27, 1992, Mr. Feinstein also
received a nonstatutory stock option to purchase up to 150,000 shares of
common stock at an exercise price of $3.00 per share (which represented the
fair market value on the date of grant), vesting one-fifth on the date of
grant and one-fifth on each of the next four anniversary dates. The original
expiration date of this stock option was the fifth anniversary of the date of
grant. On December 6, 1995, the Stock Option Plans Committee extended the
exercise period of the option for an additional five years, so that the option
will expire on August 27, 2002.

Pursuant to his employment agreement, Mr. Feinstein was also granted a stock
option to purchase up to 100,000 shares of common stock at $3.00 per share
(which represented the fair market value on the date of

9
<PAGE>

grant), subject to a vesting schedule that originally provided for vesting in
three equal annual installments commencing April 15 in the year following the
achievement of certain financial goals. On September 27, 1995, the Stock
Option Plans Committee amended this option to provide for vesting on the
earlier of the six-year anniversary of the date of grant or in three equal
annual installments commencing April 15 in the year following the achievement
of certain financial goals. 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 was to expire on August 27, 1999. Mr. Feinstein
exercised this option on August 23, 1999. See "Loans to Related Parties."

Upon a change in control of the Company, the stock options described in the
preceding paragraphs would be accelerated and deemed to be vested. Upon
termination by the Company of his employment as Chief Executive Officer and
his membership on the Board of Directors, other than for cause, Mr. Feinstein
will continue to receive his salary for 12 months. On June 14, 1996, Mr.
Feinstein's employment agreement was amended to provide that in the event of a
change in control of the Company following which Mr. Feinstein no longer
serves as the Chief Executive Officer of the Company within the Boston,
Massachusetts metropolitan area or as a director of the Company, Mr. Feinstein
may terminate the employment agreement and be paid three times his salary and
bonus for the preceding fiscal year (subject to downward adjustment for any
excess parachute payment as defined in Section 280G of the Internal Revenue
Code of 1986, as amended).

Change of Control Agreements

Each of the Company's executive officers, other than Mr. Feinstein, has
entered into an agreement with the Company which provides that, if within 12
months of a change of control of the Company, such officer's employment is
terminated without cause or the officer terminates his or her employment with
the Company due to a significant change in responsibilities or condition of
employment, then such officer would be entitled to receive a payment equal to
one year's base salary then being paid to him or her.

Loans to Related Parties

On September 11, 1995, the Company sold to Mr. Thomas E. Loper, Vice
President, Customer Care, 8,939 shares of the Company's common stock at a
price of $11.188 per share (which represented the fair market value of the
common stock on the date of issuance) for an aggregate price of $100,000. The
Company loaned $100,000 to Mr. Loper for seven years at an annual interest
rate of 6.3% pursuant to the terms of a promissory note (the "Loper Note"),
which is secured by the common stock that Mr. Loper purchased. The Loper Note
will accelerate and become immediately due and payable within 90 days of
termination of Mr. Loper's employment for any reason. As of April 30, 2000,
$100,000 was outstanding on the Loper Note.

In August 1999, the Company loaned $300,000 to Mr. Ronald Feinstein pursuant
to a secured promissory note (the "Feinstein Note") for the exercise of a
stock option which was to expire. The Feinstein Note, which bears interest at
a rate of 6.77% per annum, payable annually in arrears, is due August 23, 2004
and is secured by a pledge of 16,552 shares of Common Stock of the Company.
Mr. Feinstein has the right to put 70,459 shares (representing the net number
of shares issued to Mr. Feinstein with the proceeds of the loan, after
withholding for taxes) back to the Company at a price equal to $16.3125 per
share at any time during the 18-month period following April 30, 2001. As of
April 30, 2000, $300,000 was outstanding on the Feinstein Note.

In April, 2000, the Company loaned $250,000 to Mr. Ronald Feinstein,
pursuant to a collateralized promissory note (the "Note"). The Note, which
bears interest at a rate of 6.94% payable annually in arrears, is due April 5,
2005 and is collateralized by a pledge of 25,641 shares of Common Stock of the
Company. As of April 30, 2000, $250,000 was outstanding on the Note.

10
<PAGE>

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return of (i) the Center for Research in Security Prices ("CRSP") Total
Return Index for the Nasdaq National Market (U.S. Companies) (the "Nasdaq
Composite Index") and (ii) the CRSP Total Return Index for Nasdaq Health
Services Stocks ("Nasdaq Health Services Stocks"). This graph assumes the
investment of $100 on December 31, 1994 in the Company's Common Stock, the
Nasdaq Composite Index and the Nasdaq Health Services Stocks and assumes
dividends are reinvested. Measurement points are at the last trading day of
the fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999.

[Graph of five-year performance appears here]

<TABLE>
<CAPTION>
December 31,
------------------------------------
1994 1995 1996 1997 1998 1999
----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Lifeline Systems, Inc...................... 100.0 215.6 311.1 446.7 444.4 266.67
Nasdaq Composite Index (U.S. Companies).... 100.0 141.3 173.9 213.1 300.3 542.43
Nasdaq Health Services Stocks.............. 100.0 126.8 126.6 129.0 109.3 90.32
</TABLE>

11
<PAGE>

REPORT OF THE COMPENSATION COMMITTEE

Overview and Philosophy

The Compensation Committee of the Board of Directors (the "Committee") is
composed of three non-employee directors and is responsible for the
development and administration of the Company's executive compensation
policies and programs, subject to the review and approval of the entire Board.
The Committee reviews and recommends to the Board for its approval the
salaries and incentive compensation of the executive officers of the Company.
The Company also has a Stock Option Plans Committee, which grants stock
options to executives and other key employees of the Company and otherwise
administers the Company's stock option plans.

The objectives of the Company's executive compensation program are as
follows:

. support the achievement of strategic goals and objectives of the Company

. attract and retain key executives critical to the long-term success of
the Company

. align the executive officers' interests with the success of the Company

Compensation Program

The Company's executive compensation program consists of three principal
elements: base salary, annual incentive compensation in the form of cash or
stock options and long-term incentive compensation in the form of stock
options. Generally, the Company's objective is to pay base compensation which
is comparable to the fiftieth percentile total compensation package offered to
officers in similar positions at comparable companies, and to pay total
compensation, including annual bonuses and long-term incentives such as stock
options, comparable to the seventy-fifth percentile total compensation package
offered to officers in similar positions at comparable companies.

The Company's annual bonus plan is designed to create incentives for meeting
pre-tax profit goals. The Committee establishes a target bonus amount, which
would be paid out in full in the event that the Company achieves an
established pre-tax profit level, and which would be paid out to a lesser or
greater extent in the event that the goals are not met or are surpassed. No
annual bonus is paid if the Company's pre-tax profit falls below a minimum
level established by the Committee. Prior to 1997, the annual bonus was
payable in cash. Beginning in the year ended December 31, 1997, in order to
further align the executives' interests with those of the stockholders, the
Compensation Committee approved a change to the annual bonus plan pursuant to
which officers are able to elect to receive stock options in lieu of a cash
bonus. The number of such options is determined by a formula based on the cash
bonus each officer would have received, a Black-Scholes option valuation model
as of the grant date, and consideration of the risk associated with trading
stock options for cash.

Long-term incentives for executive officers and key managers are provided
through stock options. The objectives of this program are to align executive
and stockholder long-term interest by creating a strong and direct link
between executive compensation and stockholder return.

Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of grant and will only have value if
the Company's stock price increases. In selecting executives eligible to
receive option grants and determining the amount of such grants (other than
options granted in lieu of cash under the annual bonus plan), the Committee
evaluates a variety of factors, including (i) the job level of the executive,
(ii) option grants awarded by competitors to executives at a comparable job
level, and (iii) past, current and prospective service to the Company
rendered, or to be rendered, by the executive. During 1999, the

12
<PAGE>

Committee granted non-qualified options which vest (except for certain options
granted to the Chief Executive Officer and Vice President, Chief Information
Officer described in Footnote (2) of the Option Grants in Last Fiscal Year
Table) in five equal installments commencing on the first anniversary date of
the grant.

The Compensation Committee periodically reviews all elements of officer
compensation with independent experts retained by the Company for this
purpose. Such a review was conducted during 1999 to help ensure that
compensation levels are appropriate.

Chief Executive Officer's 1999 Compensation

During the year ended December 31, 1999, the Company's President and Chief
Executive Officer, Mr. Ronald Feinstein, received a base salary of $267,712.
For the year ended December 31, 1999, Mr. Feinstein also received options to
purchase 25,000 shares which become exercisable in installments beginning 12
months after the date of grant, with one-third becoming exercisable at that
time and an additional one-third becoming exercisable on each successive
anniversary date. Mr. Feinstein's salary is reviewed each year by the
Compensation Committee, and was adjusted by the Compensation Committee to
$269,850 effective March 1, 1999, based on the Company's performance in 1998,
a review of salary data for chief executive officers of comparable companies,
at both the fiftieth and seventy-fifth percentile, and Mr. Feinstein's
performance and the scope of his responsibilities. Mr. Feinstein is generally
compensated on the same basis as the other executive officers of the Company,
including a combination of base salary, bonus plan payments and stock options.

Compliance with Internal Revenue Code Section 162(m)

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), disallows a tax deduction to public companies for certain
compensation in excess of $1 million paid to the corporation's Chief Executive
Officer and four other most highly compensated executive officers. The Company
does not believe that Section 162(m) will generally have an effect on the
Company, because of the current and expected compensation levels of its
officers. However, the Committee intends to periodically review the potential
consequences of Section 162(m) and may structure the performance-based portion
of its executive officer compensation (including its stock plans) to comply
with certain exemptions provided in Section 162(m). To meet the requirements
of Section 162(m), the Board has established the Stock Option Plans Committee
to administer all of the Company's stock option plans.

Compensation Committee
Joseph E. Kasputys, Ph.D., Chairman*
Carolyn Roberts*
L. Dennis Shapiro
--------
* Member of the Stock Option Plans Committee

13
<PAGE>

2. APPROVAL OF THE 2000 STOCK INCENTIVE PLAN

On February 2, 2000, the Board of Directors of the Company adopted, subject
to stockholder approval, the 2000 Stock Incentive Plan (the "2000 Plan"). The
total number of shares of Common Stock (subject to adjustment in the event of
stock splits and other similar events) which may be issued pursuant to awards
under the 2000 Plan is equal to 250,000 shares (plus 25,000 shares which may
be issued to non-employee directors pursuant to options granted under the 2000
Plan), plus an annual increase to be added on January 1 of each year,
beginning in 2001, equal to the lesser of (i) 150,000 shares; (ii) 1.5% of the
outstanding shares on such date; or (iii) a lesser amount determined by the
Board. In addition, on January 1 of each year, beginning in 2001, the
aggregate number of shares of Common Stock available for the grant of options
to non-employee directors will be automatically increased by the number
necessary to cause the total number of shares of Common Stock then available
for non-employee directors to be restored to 25,000.

The 2000 Plan is intended to replace the Company's 1991 and 1994 Stock
Option Plans (the "Old Plans"). On February 2, 2000, the Board of Directors of
the Company approved the 2000 Employee Stock Option Plan, pursuant to which
the Company is authorized to issue options to purchase up to an aggregate of
150,000 shares, provided that not more than 25,000 shares may be issued
pursuant thereto to officers or directors of the Company. This plan was
authorized primarily to enable the Company to grant options in 2000 as part of
its annual stock option program. No stockholder approval is being sought for
the 2000 Employee Stock Option Plan. As of April 30, 2000, options to purchase
997,464 shares of Common Stock were outstanding under the Old Plans and the
2000 Employee Stock Option Plan and 104,157 shares remained available for
future grant.

The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
ACCORDINGLY, THE BOARD OF DIRECTORS BELIEVES ADOPTION OF THE 2000 PLAN IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
FOR THIS PROPOSAL.

Summary of the 2000 Plan

The following is a brief summary of the 2000 Plan. The following summary is
qualified in its entirety by reference to the 2000 Plan, a copy of which is
attached as Exhibit A to this proxy statement.

Description of Awards

The 2000 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the
grant of stock appreciation rights (collectively "Awards").

Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may be granted at an
exercise price which may be less than, equal to or greater than the fair
market value of the Common Stock on the date of grant. Under present law,
however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common
Stock on the date of grant (or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the Company). The 2000 Plan

14
<PAGE>

permits the Board of Directors to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note, or by any other lawful means.

Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the
end of the applicable restriction period established for such Award.

Other Stock-Based Awards. Under the 2000 Plan, the Board of Directors has
the right to grant other Awards based upon the Common Stock having such terms
and conditions as the Board of Directors may determine, including the grant of
shares based upon certain conditions, the grant of securities convertible into
Common Stock and the grant of stock appreciation rights.

Eligibility to Receive Awards

Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries (and any individuals who have accepted an offer for
employment) are eligible to be granted Awards under the 2000 Plan. Under
present law, however, incentive stock options may only be granted to
employees. The maximum number of shares with respect to which an Award may be
granted to any participant under the 2000 Plan may not exceed 100,000 shares
per calendar year.

Directors who are not also employees of the Company shall be granted, on the
sixth business day in each calendar year, options to purchase 3,000 shares of
Common Stock at a price equal to 100% of the fair market value of a share of
Common Stock on the date of grant. Such options shall become exercisable in
three equal installments over a two-year period, with the first installment
becoming exercisable on the date of grant and the second and third
installments becoming exercisable on the first and second anniversaries of the
date of grant, respectively.

As of May 31, 2000, approximately 100 persons were eligible to receive
Awards under the 2000 Plan, including the Company's 6 executive officers and 6
non-employee directors. The granting of Awards under the 2000 Plan is
discretionary, and the Company cannot now determine the number or type of
Awards to be granted in the future to any particular person or group.

On May 31, 2000, the last reported sale price of the Company Common Stock on
the Nasdaq National Market was $12.313.

Administration

The 2000 Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the 2000 Plan and to interpret the
provisions of the 2000 Plan. Pursuant to the terms of the 2000 Plan, the Board
of Directors may delegate authority under the 2000 Plan to one or more
committees of the Board of Directors, and subject to certain limitations, to
one or more executive officers of the Company. Subject to any applicable
limitations contained in the 2000 Plan, the Board of Directors, or any
committee or executive officer to whom the Board of Directors delegates
authority, as the case may be, selects the recipients of Awards and determines
(i) the number of shares of Common Stock covered by options and the dates upon
which such options become exercisable, (ii) the

15
<PAGE>

exercise price of options, (iii) the duration of options, and (iv) the number
of shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price.

The Board of Directors is required to make appropriate adjustments in
connection with the 2000 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of an
Acquisition Event (as defined in the 2000 Plan), the Board of Directors will
provide that all outstanding options will be assumed, or equivalent options
will be substituted, by the acquiring or succeeding corporation or its
affiliate. In the event that the Acquisition Event also constitutes a Change
of Control Event (as defined in the 2000 Plan), the assumed or substituted
options will be immediately exercisable in full except to the extent otherwise
specifically provided in the option agreement. If any Award under the 2000
Plan or any outstanding award under the Company's 1991 Stock Option Plan or
1994 Stock Option Plan expires or is terminated, surrendered, canceled or
forfeited, the unused shares of Common Stock covered by such award will again
be available for grant under the 2000 Plan.

Amendment or Termination

No Award may be made under the 2000 Plan after February 2, 2005, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2000 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or
vested (to the extent such amendment was required to grant such Award) unless
and until such amendment shall have been approved by the Company's
stockholders.

Federal Income Tax Consequences

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under
the 2000 Plan and with respect to the sale of Common Stock acquired under the
2000 Plan.

Incentive Stock Options

In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will
recognize taxable income with respect to an incentive stock option only upon
the sale of Common Stock acquired through the exercise of the option ("ISO
Stock"). The exercise of an incentive stock option, however, may subject the
participant to the alternative minimum tax.

Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.

If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of
the gain recognized by the participant will be ordinary compensation income
and the remaining gain, if any, will be a capital gain. This capital gain will
be a long-term capital gain if the participant has held the ISO Stock for more
than one year prior to the date of sale.

16
<PAGE>

If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of sale.

Nonstatutory Stock Options

As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation
income in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Stock") on the
Exercise Date over the exercise price.

With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will
be a long-term gain or loss if the participant has held the NSO Stock for more
than one year prior to the date of the sale.

Restricted Stock Awards

A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the Award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the Award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The participant will have a
basis in the Common Stock acquired equal to the sum of the price paid and the
amount of ordinary compensation income recognized.

Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to
the difference between the sale price of the Common Stock and the
participant's basis in the Common Stock. The gain or loss will be a long-term
gain or loss if the shares are held for more than one year. For this purpose,
the holding period shall begin just after the date on which the forfeiture
provisions or restrictions lapse if a Section 83(b) Election is not made, or
just after the Award is granted if a Section 83(b) Election is made.

Other Stock-Based Awards

The tax consequences associated with any other stock-based Award granted
under the 2000 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property
to be received by the participant under the Award and the participant's
holding period and tax basis for the Award or underlying Common Stock.

Tax Consequences to the Company

The grant of an Award under the 2000 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the

17
<PAGE>

2000 Plan will have any tax consequences to the Company. The Company generally
will be entitled to a business-expense deduction, however, with respect to any
ordinary compensation income recognized by a participant under the 2000 Plan,
including in connection with a restricted stock Award or as a result of the
exercise of a nonstatutory stock option or a Disqualifying Disposition. Any
such deduction will be subject to the limitations of Section 162(m) of the
Code. The Company will have a withholding obligation with respect to any
ordinary compensation income recognized by participants under the 2000 Plan
who are employees or otherwise subject to withholding in connection with a
restricted stock Award or the exercise of a nonstatutory stock option.

3. APPROVAL OF THE 2000 EMPLOYEE STOCK PURCHASE PLAN

On February 2, 2000, the Board of Directors of the Company adopted, subject
to stockholder approval, the 2000 Employee Stock Purchase Plan (the "2000
Employee Plan"). The 2000 Employee Plan provides eligible participating
employees with an opportunity to purchase shares of Company Common Stock at
below fair market value. The total number of shares of Common Stock (subject
to adjustment in the event of stock splits and other similar events) which may
be issued pursuant to awards under the 2000 Employee Plan is equal to 200,000
shares.

The Board of Directors believes that the future success of the Company
depends in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
ACCORDINGLY, THE BOARD OF DIRECTORS BELIEVES ADOPTION OF THE 2000 EMPLOYEE
PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE FOR THIS PROPOSAL.

Summary of the 2000 Employee Plan

The following is a brief summary of the 2000 Employee Plan. The following
summary is qualified in its entirety by reference to the 2000 Employee Plan, a
copy of which is attached as Exhibit B to this proxy statement:

Administration

The 2000 Employee Plan is administered by the Company's Board of Directors
or by a Committee appointed by the Board of Directors (the "Committee"). The
Board of Directors or the Committee has authority to make rules and
regulations for the administration of the 2000 Employee Plan and its
interpretation and decisions with regard thereto shall be final and
conclusive.

Eligibility

All employees of the Company, including Directors who are employees of the
Company and all employees of any subsidiary of the Company, who own less than
five percent of the Company's Common Stock, are employed by the Company or a
designated subsidiary for more than 20 hours a week and five months a year,
who have been employed by the Company or a designated subsidiary for at least
six months prior to enrolling in the 2000 Employee Plan and who were employees
of the Company or a designated subsidiary on the first day of the applicable
offering period (the "Plan Period") are eligible to participate in the 2000
Employee Plan.

Participation

Under the 2000 Employee Plan, the Company will conduct ten offerings
("Offerings") to employees to purchase Common Stock. Offerings under the 2000
Employee Plan will commence on June 1 and December 1

18
<PAGE>

and terminate respectively, on November 30 and May 31. To participate in the
2000 Employee Plan, an employee must authorize the Company to deduct an
amount, up to 15% of the employee's compensation received during the Plan
Period. The maximum number of shares of Company Common Stock that a
participating employee may purchase in any payment period is determined by
applying the formula stated in the 2000 Employee Plan.

The price at which an employee's Option is exercised will be the lower of
(i) 85% of the closing price of the Common Stock on (a) any national
securities exchange on which the Common Stock is listed or (b) the Nasdaq
National Market, or (c) the average of the closing bid and asked prices in the
over-the-counter-market, as published in the Wall Street Journal (the "Closing
Price") on the first business day of such Plan Period (the "Offering
Commencement Date") or (ii) 85% of the Closing Price on the last business day
of the Plan Period (the "Offering Termination Date"). The Closing Price of the
Company's Common Stock on May 31, 2000 was $12.313 per share, as reported on
the Nasdaq National Market.

In the event of a participating employee's termination of employment prior
to the last business day of a Plan Period, no payroll deduction shall be taken
from any pay due and owing to an employee and the balance in the employee's
account shall be paid to the employee or, in the event of the employee's
death, to his or her beneficiary or estate.

Adjustment in Case of Changes Affecting Common Stock

In the event of a subdivision of outstanding shares of Common Stock, or the
payment of a dividend in Common Stock, the number of shares approved for the
2000 Employee Plan, and the share limitation relating to the 2000 Employee
Plan, shall be increased proportionately, and such other adjustment shall be
made as be deemed equitable by the Board of Directors or the Committee. In the
event of any other change affecting the Common Stock, an equitable adjustment
shall be made by the Board.

Merger and Change of Control

In the event of a merger with another Corporation where the Company is the
surviving entity, the holder of each Option will be entitled to receive at the
next Offering Termination Date, the equivalent number of securities or
property which holders of such Options were entitled to receive upon
consummation of such merger. In the event of a merger in which the Company is
not the surviving entity, or of a sale of all or substantially all of the
assets of the Company, the 2000 Employee Plan will terminate, and the Board
may either accelerate the then current Offering Termination Date or return the
payroll deductions to the respective employees.

In the event of a Change of Control of the Company as such term is defined
in the 2000 Employee Plan, the Board of Directors may accelerate the Offering
Termination Date of the Offering then in effect and permit participants to
purchase shares under the 2000 Employee Plan at such accelerated Offering
Termination Date.

Amendment or Termination

The Board of Directors or the Committee may at any time terminate or amend
the 2000 Employee Plan. However, if stockholder approval of an amendment is
required by Section 423 of the Code, under the Exchange Act, such amendment
may not be effected without such stockholder approval. The 2000 Employee Plan
requires that all amounts in the accounts of participating employees be
promptly refunded upon termination of the 2000 Employee Plan.

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<PAGE>

Federal Income Tax Consequences

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to purchases made under
the 2000 Employee Plan and with respect to the sale of Common Stock acquired
under the 2000 Employee Plan.

Tax Consequences to Participants

In general, a participant will not recognize taxable income upon enrolling
in the 2000 Employee Plan or upon purchasing shares of Common Stock at the end
of an offering. Instead, if a participant sells Common Stock acquired under
the 2000 Employee Plan at a sale price that exceeds the price at which the
participant purchased the Common Stock, then the participant will recognize
taxable income in an amount equal to the excess of the sale price of the
Common Stock over the price at which the participant purchased the Common
Stock. A portion of that taxable income will be ordinary income, and a portion
may be capital gain.

If the participant sells the Common Stock more than one year after acquiring
it and more than two years after the date on which the offering commenced (the
"Grant Date"), then the participant will be taxed as follows. If the sale
price of the Common Stock is higher than the price at which the participant
purchased the Common Stock, then the participant will recognize ordinary
compensation income in an amount equal to the lesser of:

(i) fifteen percent of the fair market value of the Common Stock on the
Grant Date; and

(ii) the excess of the sale price of the Common Stock over the price at
which the participant purchased the Common Stock.

Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.

If the participant sells the Common Stock within one year after acquiring it
or within two years after the Grant Date (a "Disqualifying Disposition"), then
the participant will recognize ordinary compensation income in an amount equal
to the excess of the fair market value of the Common Stock on the date that it
was purchased over the price at which the participant purchased the Common
Stock. The participant will also recognize capital gain in an amount equal to
the excess of the sale price of the Common Stock over the fair market value of
the Common Stock on the date that it was purchased, or capital loss in an
amount equal to the excess of the fair market value of the Common Stock on the
date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the
participant has held the Common Stock for more than one year prior to the date
of the sale and will be a short-term capital gain or loss if the participant
has held the Common Stock for a shorter period.

Tax Consequences to the Company

The offering of Common Stock under the 2000 Employee Plan will have no tax
consequences to the Company. Moreover, in general, neither the purchase nor
the sale of Common Stock acquired under the 2000 Employee Plan will have any
tax consequences to the Company except that the Company will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.

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4. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS

Subject to ratification by the stockholders, the Board of Directors has
selected the firm of PricewaterhouseCoopers LLP, certified public accountants,
as independent accountants of the Company for the Company's 2000 fiscal year.
Although stockholder approval of the Board of Directors' selection of
PricewaterhouseCoopers LLP is not required by law, the Board of Directors
believes that it is advisable to give the stockholders an opportunity to
ratify this selection. If this proposal is not approved, the Board of
Directors will reconsider its selection of PricewaterhouseCoopers LLP.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Special Meeting. They will have an opportunity to make a statement if they
desire to do so, and will also be available to respond to appropriate
questions from stockholders.

5. STOCKHOLDER PROPOSAL

We recommend a vote AGAINST this proposal.

The following stockholder proposal has been submitted to the Company by
Dolphin Limited Partnership I, L.P., 96 Cummings Point Road, Stamford, CT
06902, beneficial owner of 109,100 shares of common stock.

Maximize Value Resolution:

RESOLVED: That the stockholders of Lifeline Systems, Inc. urge the
Board of Directors of the Company to appoint a Committee comprised
solely of independent directors to explore methods to maximize
stockholder value in the short-term. The Independent Committee is urged
to promptly engage a qualified investment bank to pursue alternatives
that will include a leveraged recapitalization, a sale of the entire
company, or such other action as will increase stockholder value.

Stockholder's Supporting Statement

"The purpose of the MAXIMIZE VALUE RESOLUTION is to give all stockholders of
the Company the opportunity to send a message to the Board that they support
the establishment of an independent committee of the Board to explore methods
to maximize stockholder value in the short term, including pursuing a sale of
the Company.

"The Company's subscriber base is growing at 20% annually and enjoys a
dominant market share in an industry with positive demographic trends. The
past two years sales and adjusted EBITDA have grown at attractive rates, with
analyst projections estimating greater growth trends. The Company has made
important changes in 1999--most notable is the transition to the new
CareSystem platform--that should enable the Company to continue to deliver
solid operating results. The Company has no net debt.

"Despite these developments, and notwithstanding the failed transaction with
Protection One which initially valued the Company at a significant premium to
market, the share price has declined approximately 50% during the past two
years and presently trades at a 4.5 multiple to analyst estimated EBITDA.
During the same period, the S&P 500 index has returned approximately 50%.
Further, share liquidity remains extremely low and there is little following
in the analyst community.

"If the resolution is adopted, we believe that management and the Board will
be persuaded that it is no longer sufficient or acceptable for the Board to
continue with its current management plan and strategies. We

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<PAGE>

firmly believe that Lifeline should more appropriately revise its strategy so
as to become part of a larger entity that can provide revenue and cost
synergies, greater financial resources for growth and employee opportunity;
and that stockholder interests and value will be aligned with such a revised
strategy."

"We urge your support--vote FOR this Maximize Value Resolution!"

Board of Directors' Statement Opposing Stockholder Proposal

Since the termination of our merger agreement with Protection One on
September 2, 1999, we have continued to explore strategic alternatives for the
Company. Our efforts have been led by a committee of the Board of Directors
comprising Messrs. L. Dennis Shapiro (Chairman of the Board of Directors) and
Ronald Feinstein (President and Chief Executive Officer), and to which
director Dr. Joseph Kasputys (Chairman, President and Chief Executive Officer
of Primark Corporation) has served as advisor. In connection with the process
that led to the signing of the Protection One agreement on October 19, 1998,
we had, through our financial advisor Deutsche Banc Alex. Brown, made a
significant effort to find a buyer, and in fact conducted a broad auction
process which resulted in the Protection One agreement. Although our formal
engagement letter with Deutsche Banc Alex. Brown had been officially
terminated shortly following the termination of the Protection One agreement,
Deutsche Banc Alex. Brown and we continued to act together to find a buyer for
Lifeline. As a result of these efforts we have had discussions with parties we
believed may be interested in making an offer for the Company; however none of
these efforts has resulted in a proposal that the Board of Directors has
concluded is in the best interests of stockholders, and we have been
unsuccessful in our efforts to induce any of these parties to engage in
discussions at valuation levels we believe to be appropriate. In addition,
with the assistance of Deutsche Banc Alex. Brown, we considered other
strategic alternatives, including the possibility of selling the Company to
private investors, but have concluded that a transaction of this sort was also
unlikely to be completed at this time at an acceptable valuation. Based on
these efforts, the Board of Directors has concluded that a sale or
recapitalization of the Company at this time is highly unlikely, and that as a
result, continuing the process of proactively searching for a buyer or other
alternatives would be unduly disruptive to our ongoing operations, including
to the detriment of our stockholders, employees and subscribers. Accordingly,
we do not believe that a vote to urge us to re-engage an investment banker at
this time and to continue efforts to sell or recapitalize Lifeline is in the
best interests of stockholders.

We recommend a vote AGAINST this proposal. Proxies solicited by the Board of
Directors will be voted AGAINST the proposal unless stockholders specify
otherwise in their proxies.

Approval of Proposal 5 requires the approval of the holders of a majority of
the shares of our common stock present or represented and voting on the
proposal.

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<PAGE>

6. OTHER MATTERS

The Board of Directors does not know of any other matters which may come
before the Special Meeting. However, if any other matters are properly
presented to the meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their
judgment on such matters.

Solicitation of Proxies

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, facsimile machine and personal interviews. The Company has retained
Corporate Investor Communications, Inc., Carlstadt, New Jersey, to assist in
soliciting proxies at a cost not expected to exceed $5,500.00, exclusive of
expenses. Brokers, custodians and fiduciaries will be requested to forward
proxy soliciting material to the owners of stock held in their names, and the
Company will reimburse them for their out-of-pocket expenses in this regard.

Deadline for Submission of Stockholder Proposals

The Company expects to hold its 2001 Annual Meeting in May 2001 and to mail
its proxy statement in connection therewith by April 13, 2001. Accordingly,
stockholder proposals submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") for inclusion in the
Company's proxy materials for its 2001 Annual Meeting of Stockholders must be
received by the Chief Financial Officer of the Company at the principal
offices of the Company no later than December 14, 2000. Written notice of
proposals of stockholders submitted outside the processes of Rule 14a-8 under
the Exchange Act for consideration at the 2001 Annual Meeting must be received
on or before February 27, 2001, in order to be considered timely for purposes
of Rule 14a-4 under the Exchange Act.

By Order of the Board of Directors,

Jeffrey A. Stein, Clerk

Framingham, Massachusetts
June 13, 2000

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING, AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.

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EXHIBIT A

LIFELINE SYSTEMS, INC.
2000 STOCK INCENTIVE PLAN

1. Purpose

The purpose of this 2000 Stock Incentive Plan (the "Plan") of Lifeline
Systems, Inc., a Massachusetts corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any of the Company's present or future subsidiary corporations
as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder (the "Code") and any other business
venture (including, without limitation, joint venture or limited liability
company) in which the Company has a significant interest, as determined by the
Board of Directors of the Company (the "Board").

2. Eligibility

(a) All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for
employment) are eligible to be granted options, restricted stock
awards, or other stock-based awards (each, an "Award") under the Plan.
Each person who has been granted an Award under the Plan shall be
deemed a "Participant".

(b) Directors who are not also employees of the Company shall be granted,
on the sixth business day in each calendar year, options to purchase
3,000 shares of Common Stock at a price equal to 100% of the fair
market value of a share of Common Stock on the date of grant. Such
options shall become exercisable in three equal installments over a
two-year period, with the first installment becoming exercisable on
the date of grant and the second and third installments becoming
exercisable on the first and second anniversaries of the date of
grant, respectively.

3. Administration, Delegation

(a) Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall
have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as
it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in
the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such
expediency. All decisions by the Board shall be made in the Board's
sole discretion and shall be final and binding on all persons having
or claiming any interest in the Plan or in any Award. No director or
person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the
Plan made in good faith.

(b) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one
or more committees or subcommittees of the Board (a "Committee"). All
references in the Plan to the "Board" shall mean the Board or a
Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under
the Plan have been delegated to such Committee or executive officer.
<PAGE>

4. Stock Available for Awards

(a) Number of Shares. Subject to adjustment under Section 8, the maximum
aggregate number of shares of common stock, $0.02 par value per share,
of the Company (the "Common Stock"), which may be subject to Awards
made under the Plan is 250,000 shares of common stock (plus 25,000
shares which may be issued to non-employee directors pursuant to
options granted under the Plan), plus an annual increase to be added
on January 1 of each year, beginning in 2001, equal to the lesser of
(i) 150,000 shares, (ii) 1.5% of the outstanding shares on such date,
or (iii) a lesser amount determined by the Board. If any Award under
the Plan or any Award under any terminated employee benefit plan of
the Company expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards
under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the
Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares. As of January 1 of
each year, commencing with the year 2001, the aggregate number of
shares of Common Stock available for the grant of options under the
Plan to non-employee directors shall automatically be increased by the
number to cause the total number of shares of Common Stock then
available for non-employee directors to be restored to 25,000.

(b) Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the
Securities Exchange Act of 1934 (the "Exchange Act"), the maximum
number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 100,000 per
calendar year. The per-Participant limit described in this Section
4(b) shall be construed and applied consistently with Section 162(m)
of the Code ("Section 162(m)").

5. Stock Options

(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each Option,
including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter
defined) shall be designated a "Nonstatutory Stock Option".

(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the
Company and shall be subject to and shall be construed consistently
with the requirements of Section 422 of the Code. The Company shall
have no liability to a Participant, or any other party, if an Option
(or any part thereof) which is intended to be an Incentive Stock
Option is not an Incentive Stock Option.

(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option
agreement.

(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in
the applicable option agreement.

(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person
or by any other form of notice (including electronic notice) approved
by the Board together with payment in full as specified in Section
5(f) for the number of shares for which the Option is exercised.

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<PAGE>

(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the exercise price
or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy
broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;

(3) provided that the Common Stock is registered under the Exchange
Act, by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by (or
in a manner approved by) the Board in good faith ("Fair Market
Value"), provided (i) such method of payment is then permitted
under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;

(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) payment of such
other lawful consideration as the Board may determine; or

(5) by any combination of the above permitted forms of payment.

6. Restricted Stock

(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other
stated or formula price (or to require forfeiture of such shares if
issued at no cost) from the recipient in the event that conditions
specified by the Board in the applicable Award are not satisfied prior
to the end of the applicable restriction period or periods established
by the Board for such Award (each, a "Restricted Stock Award").

(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the
conditions for repurchase (or forfeiture) and the issue price, if
any. Any stock certificates issued in respect of a Restricted Stock
Award shall be registered in the name of the Participant and, unless
otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction
periods, the Company (or such designee) shall deliver the
certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary
designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the
event of the Participant's death (the "Designated Beneficiary"). In
the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.

7. Other Stock-Based Awards

The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including
the grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.

8. Adjustments for Changes in Common Stock and Certain Other Events

(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in

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<PAGE>

capitalization or event, or any distribution to holders of Common Stock
other than a normal cash dividend, (i) the number and class of
securities available under this Plan, (ii) the per-Participant limit set
forth in Section 4(b), (iii) the number and class of securities and
exercise price per share subject to each outstanding Option, (iv) the
repurchase price per share subject to each outstanding Restricted Stock
Award, and (v) the terms of each other outstanding Award shall be
appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 8(a) applies and Section 8(c) also applies
to any event, Section 8(c) shall be applicable to such event, and this
Section 8(a) shall not be applicable.

(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days
prior to the effective date of such liquidation or dissolution and
(ii) terminate effective upon such liquidation or dissolution, except
to the extent exercised before such effective date. The Board may
specify the effect of a liquidation or dissolution on any Restricted
Stock Award or other Award granted under the Plan at the time of the
grant of such Award.

(1) Definitions
(a) An "Acquisition Event" shall mean:

(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive cash,
securities or other property; or

(ii) any exchange of shares of the Company for cash, securities
or other property pursuant to a statutory share exchange
transaction.

(b) A "Change in Control Event" shall mean:

(i) the acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership of any capital
stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30% or more of either
(x) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (y) the
combined voting power of the then-outstanding securities of
the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change in
Control Event: (A) any acquisition directly from the Company
(excluding an acquisition pursuant to the exercise,
conversion or exchange of any security exercisable for,
convertible into or exchangeable for common stock or voting
securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such
security directly from the Company or an underwriter or
agent of the Company), (B) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or
(C) any acquisition by any corporation pursuant to a
Business Combination (as defined below) which complies with
clauses (x) and (y) of subsection (iii) of this definition;
or

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<PAGE>

(ii) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if
applicable, the Board of Directors of a successor
corporation to the Company), where the term "Continuing
Director" means at any date a member of the Board (x) who
was a member of the Board on the date of the initial
adoption of this Plan by the Board or (y) who was
nominated or elected subsequent to such date by at least a
majority of the directors who were Continuing Directors at
the time of such nomination or election or whose election
to the Board was recommended or endorsed by at least a
majority of the directors who were Continuing Directors at
the time of such nomination or election; provided,
however, that there shall be excluded from this clause (y)
any individual whose initial assumption of office occurred
as a result of an actual or threatened election contest
with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the
Board; or

(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share
exchange involving the Company or a sale or other
disposition of all or substantially all of the assets of
the Company (a "Business Combination"), unless,
immediately following such Business Combination, each of
the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50%
of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation
in such Business Combination (which shall include,
without limitation, a corporation which as a result of
such transaction owns the Company or substantially all of
the Company's assets either directly or through one or
more subsidiaries) (such resulting or acquiring
corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as
their ownership of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no
Person (excluding the Acquiring Corporation or any
employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, 30% or more of
the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power of
the then-outstanding securities of such corporation
entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior
to the Business Combination).
(2) Effect on Options

(a) Acquisition Event. Upon the occurrence of an Acquisition
Event (regardless of whether such event also constitutes a
Change in Control Event), or the execution by the Company
of any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change
in Control Event), the Board shall provide that all
outstanding Options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof); provided that if
such Acquisition Event also constitutes a Change in Control
Event, except to the extent

5
<PAGE>

specifically provided to the contrary in the instrument
evidencing any Option or any other agreement between a
Participant and the Company, such assumed or substituted
options shall be immediately exercisable in full upon the
occurrence of such Acquisition Event. For purposes hereof, an
Option shall be considered to be assumed if, following
consummation of the Acquisition Event, the Option confers the
right to purchase, for each share of Common Stock subject to
the Option immediately prior to the consummation of the
Acquisition Event, the consideration (whether cash, securities
or other property) received as a result of the Acquisition
Event by holders of Common Stock for each share of Common
Stock held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders
of a majority of the outstanding shares of Common Stock);
provided, however, that if the consideration received as a
result of the Acquisition Event is not solely common stock of
the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring
or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of
common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per
share consideration received by holders of outstanding shares
of Common Stock as a result of the Acquisition Event.

Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not
agree to assume, or substitute for, such Options, then the
Board shall, upon written notice to the Participants, provide
that all then unexercised Options will become exercisable in
full as of a specified time prior to the Acquisition Event and
will terminate immediately prior to the consummation of such
Acquisition Event, except to the extent exercised by the
Participants before the consummation of such Acquisition
Event; provided, however, in the event of an Acquisition Event
under the terms of which holders of Common Stock will receive
upon consummation thereof a cash payment for each share of
Common Stock surrendered pursuant to such Acquisition Event
(the "Acquisition Price"), then the Board may instead provide
that all outstanding Options shall terminate upon consummation
of such Acquisition Event and that each Participant shall
receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (A) the Acquisition Price multiplied
by the number of shares of Common Stock subject to such
outstanding Options (whether or not then exercisable), exceeds
(B) the aggregate exercise price of such Options.

(b) Change in Control Event that is not an Acquisition Event.
Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, except to the
extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company, all Options then-
outstanding shall automatically become immediately
exercisable in full.

(3) Effect on Restricted Stock Awards

(a) Acquisition Event that is not a Change in Control Event.
Upon the occurrence of an Acquisition Event that is not a
Change in Control Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award
shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other

6
<PAGE>

property which the Common Stock was converted into or
exchanged for pursuant to such Acquisition Event in the same
manner and to the same extent as they applied to the Common
Stock subject to such Restricted Stock Award.

(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, all restrictions and
conditions on all Restricted Stock Awards then-outstanding
shall automatically be deemed terminated or satisfied.

(4) Effect on Other Awards

(a) Acquisition Event that is not a Change in Control Event. The
Board shall specify the effect of an Acquisition Event that
is not a Change in Control Event on any other Award granted
under the Plan at the time of the grant of such Award.

(b) Change in Control Event. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any other Award or any other agreement between a
Participant and the Company, all other Awards shall become
exercisable, realizable or vested in full, or shall be free
of all conditions or restrictions, as applicable to each
such Award.

(5) Limitations. Notwithstanding the foregoing provisions of this
Section 8(c), if the Change in Control Event is intended to be
accounted for as a "pooling of interests" for financial
accounting purposes, and if the acceleration to be effected by
the foregoing provisions of this Section 8(c) would preclude
accounting for the Change in Control Event as a "pooling of
interests" for financial accounting purposes, then no such
acceleration shall occur upon the Change in Control Event.

9. General Provisions Applicable to Awards

(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom
they are granted, either voluntarily or by operation of law, except by
will or the laws of descent and distribution, and, during the life of
the Participant, shall be exercisable only by the Participant.
References to a Participant, to the extent relevant in the context,
shall include references to authorized transferees.

(b) Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.

(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award.
The terms of each Award need not be identical, and the Board need not
treat Participants uniformly.

(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of
absence or other change in the employment or other status of a
Participant and the extent to which, and the period during which, the
Participant, the Participant's legal representative, conservator,
guardian or Designated Beneficiary may exercise rights under the
Award.

7
<PAGE>

(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required
by law to be withheld in connection with Awards to such Participant no
later than the date of the event creating the tax liability. Except as
the Board may otherwise provide in an Award, when the Common Stock is
registered under the Exchange Act, Participants may, to the extent
then permitted under applicable law, satisfy such tax obligations in
whole or in part by delivery of shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.

(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant's consent to
such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially
and adversely affect the Participant.

(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i)
all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company's
counsel, all other legal matters in connection with the issuance and
delivery of such shares have been satisfied, including any applicable
securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any
applicable laws, rules or regulations.

(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of restrictions in full or in part or that
any other Awards may become exercisable in full or in part or free of
some or all restrictions or conditions, or otherwise realizable in
full or in part, as the case may be.

10. Miscellaneous

(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment
or any other relationship with the Company. The Company expressly
reserves the right at any time to dismiss or otherwise terminate its
relationship with a Participant free from any liability or claim under
the Plan, except as expressly provided in the applicable Award.

(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder
of such shares. Notwithstanding the foregoing, in the event the
Company effects a split of the Common Stock by means of a stock
dividend and the exercise price of and the number of shares subject to
such Option are adjusted as of the date of the distribution of the
dividend (rather than as of the record date for such dividend), then
an optionee who exercises an Option between the record date and the
distribution date for such stock dividend shall be entitled to
receive, on the distribution date, the stock dividend with respect to
the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.

(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to
a Participant that is intended to comply with Section 162(m)

8
<PAGE>

shall become exercisable, vested or realizable, as applicable to such
Award, unless and until the Plan has been approved by the Company's
stockholders to the extent stockholder approval is required by Section
162(m) in the manner required under Section 162(m) (including the vote
required under Section 162(m)). No Awards shall be granted under the
Plan after the completion of five years from the earlier of (i) the date
on which the Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company's stockholders, but Awards previously granted
may extend beyond that date.

(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that to the extent
required by Section 162(m), no Award granted to a Participant that is
intended to comply with Section 162(m) after the date of such
amendment shall become exercisable, realizable or vested, as
applicable to such Award, unless and until such amendment shall have
been approved by the Company's stockholders as required by Section
162(m) (including the vote required under Section 162(m)).

(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts without regard to any
applicable conflicts of law.

(f) Provision for Foreign Participants. The Board of Directors may,
without amending the Plan, modify awards or options granted to
participants who are foreign nationals or employed outside the United
States to recognize differences in laws, rules, regulations or customs
of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.

9
<PAGE>

EXHIBIT B

LIFELINE SYSTEMS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN

The purpose of this Plan is to provide eligible employees of Lifeline
Systems, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.02 par value
(the "Common Stock"). Two hundred thousand (200,000) shares of Common Stock in
the aggregate have been approved for this purpose. This Plan is intended to
qualify as an "employee stock purchase plan" as defined in Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder, and shall be interpreted consistent therewith.

1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.

2. Eligibility. All employees of the Company, including Directors who are
employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"))
designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings
of options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:

(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and

(b) they have been employed by the Company or a Designated Subsidiary for
at least six months prior to enrolling in the Plan; and

(c) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).

No employee may be granted an option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary. For purposes of
the preceding sentence, the attribution rules of Section 424(d) of the Code
shall apply in determining the stock ownership of an employee, and all stock
which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.

3. Offerings. The Company will make ten offerings ("Offerings") to employees
to purchase stock under this Plan.

(a) Offering 1 shall begin on August 1, 2000 and terminate on November
30, 2000.

(b) Offering 2 shall begin on December 1, 2000 and terminate on May 31,
2001.

(d) Offering 4 shall begin on December 1, 2001 and terminate on May 31,
2002.

(e) Offering 5 shall begin on June 1, 2002 and terminate on November 30,
2002.

(f) Offering 6 shall begin on December 1, 2002 and terminate on May 31,
2003.

(g) Offering 7 shall begin on June 1, 2003 and terminate on November 30,
2003.
<PAGE>

(h) Offering 8 shall begin on December 1, 2003 and terminate on May 31,
2004.

(i) Offering 9 shall begin on June 1, 2004 and terminate on November 30,
2004.

(j) Offering 10 shall begin on December 1, 2004 and terminate on May 31,
2005.

If any of the above dates is not a business date, the offering shall
commence or terminate, as applicable, on the first business day thereafter.
The date of the commencement of each offering is referred to herein as an
"Offering Commencement Date" and the date of termination of each Offering is
referred to herein as an "Offering Termination Date." Each Offering period is
referred to herein as a "Plan Period," during which payroll deductions will be
made and held for the purchase of Common Stock at the end of the Plan Period.

4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such offering by completing and forwarding a
payroll deduction authorization form to the office of Human Resources of the
Company at least seven but not more than 30 days prior to the applicable
Offering Commencement Date. The form will authorize a regular payroll
deduction from the Compensation received by the employee during the Plan
Period. Unless an employee files a new form or withdraws from the Plan, his
deductions and purchases will continue at the same rate for future Offerings
under the Plan as long as the Plan remains in effect. The term "Compensation"
means the amount of money reportable on the employee's Federal Income Tax
Withholding Statement and includes any amounts deferred under a salary
reduction agreement under an IRS Code Section 401(k) plan or Section 125 plan.
Compensation excludes allowances and reimbursements for expenses such as
relocation allowances for travel expenses and executive medical
reimbursements, income or gains on the exercise of Company stock options or
stock appreciation rights, and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement.

5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a
maximum of 15% of the Compensation he or she receives during the Plan Period
or such shorter period during which deductions from payroll are made. Payroll
deductions may be at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13,
14, or 15% of Compensation with any change in compensation during the Plan
Period to result in an automatic corresponding change in the dollar amount
withheld.

No employee may be granted an Option (as defined in Section 9) which permits
his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at
the Offering Commencement Date of the Plan Period) for each calendar year in
which the Option is outstanding at any time.

6. Deduction Changes. An employee may not increase or decrease his or her
payroll deduction during a Plan Period.

7. Interest. Interest will not be paid on any employee accounts, except as
otherwise provided herein.

8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering by providing written notice
of withdrawal to the office of Human Resources of the Company. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by the
Board or the Committee.

2
<PAGE>

9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by (i) multiplying an amount equal to 150% of the employee's
annualized base pay as of the Offering Commencement Date by the percentage of
it which he or she has elected to have withheld (but not in excess of 15%),
(ii) dividing such product by 85% of the market value of a share of Common
Stock as of the offering Commencement Date, and (iii) multiplying such
quotient by 1.25, but in no event more than 600 shares. The market value of
the Common Stock shall be determined as provided in the following paragraph.
An employee's annualized base pay shall be determined as follows: (i) in the
case of a full-time employee normally paid on an hourly rate, by multiplying
his or her normal hourly rate by 2080; (ii) in the case of a part-time
employee normally paid on an hourly rate, by multiplying his or her normal
hourly rate by the product of 52 times the number of hours in his or her
normal work week; (iii) in the case of an employee normally paid at a weekly
rate, by multiplying his or her normal weekly rate by 52; (iv) in the case of
an employee normally paid at a bi-weekly rate, by multiplying his or her
normal biweekly rate by 26; and (v) in the case of an employee normally paid
at a semi-monthly rate, by multiplying his or her normal semi-monthly rate by
24, and (vi) in the case of an employee normally paid at a monthly rate, by
multiplying his or her normal monthly rate by 12.

The purchase price for each share purchased will be 85% of the closing price
of the Common Stock on (i) the first business day of such Plan Period or (ii)
the Exercise Date, whichever closing price shall be less. Such closing price
shall be (a) the closing price on any national securities exchange on which
the Common Stock is listed, (b) the closing price of the Common Stock on the
Nasdaq National Market or (c) the average of the closing bid and asked prices
in the over-the-counter-market, whichever is applicable, as published in The
Wall Street Journal. If no sales of Common Stock were made on such a day, the
price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.

Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the
formula set forth above (but not in excess of the maximum number determined in
the manner set forth above).

Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee.

10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the
street name of a brokerage firm, bank or other nominee holder designated by
the employee.

11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any
pay due and owing to an employee and the balance in the employee's account
shall be paid to the employee or, in the event of the employee's death, (a) to
a beneficiary previously designated in a revocable notice signed by the
employee (with any spousal consent required under state law) or (b) in the
absence of such a designated beneficiary, to the executor or administrator of
the employee's estate or (c) if no such executor or administrator has been
appointed to the knowledge of the Company, to such other person(s) as the
Company

3
<PAGE>

may, in its discretion, designate. If, prior to the last business day of the
Plan Period, the Designated Subsidiary by which an employee is employed shall
cease to be a subsidiary of the Company, or if the employee is transferred to
a subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.

12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.

13. Rights Not Transferable. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.

14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.

15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, shall be increased proportionately,
and such other adjustment shall be made as may be deemed equitable by the
Board or the Committee. In the event of any other change affecting the Common
Stock, such adjustment shall be made as may be deemed equitable by the Board
or the Committee to give proper effect to such event.

16. Merger Involving Continuity of Control. If the Company shall at any time
merge or consolidate with another corporation and the holders of the capital
stock of the Company immediately prior to such merger or consolidation
continue to hold at least 80% by voting power of the capital stock of the
surviving corporation ("Continuity of Control"), the holder of each Option
then outstanding will thereafter be entitled to receive at the next Exercise
Date upon the exercise of such Option for each share as to which such Option
shall be exercised the securities or property which a holder of one share of
the Common Stock was entitled to upon and at the time of such merger or
consolidation, and the Board or the Committee shall take such steps in
connection with such merger or consolidation as the Board or the Committee
shall deem necessary to assure that the provisions of Section 15 shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
said securities or property as to which such holder of such Option might
thereafter be entitled to receive thereunder.

17. Merger Not Involving Continuity of Control. In the event of a merger or
consolidation of the Company with or into another corporation which does not
involve Continuity of Control, or of a sale of all or substantially all of the
assets of the Company while unexercised Options remain outstanding under the
Plan, (a) subject to the provisions of clauses (b) and (c), after the
effective date of such transaction, each holder of an outstanding Option shall
be entitled, upon exercise of such Option, to receive in lieu of shares of
Common Stock, shares of such stock or other securities as the holders of
shares of Common Stock received pursuant to the terms of such transaction; or
(b) all outstanding Options may be cancelled by the Board or the Committee as
of a date prior to the effective date of any such transaction and all payroll
deductions shall be paid out to the participating employees; or (c) all
outstanding Options may be cancelled by the Board or the Committee as of the
effective date of any such transaction, provided that notice of such
cancellation shall be given to each holder of an Option, and each holder of an
Option shall have the right to exercise such Option in full based on payroll
deductions then credited to his account as of a date determined by the Board
or the Committee, which date shall not be less than ten (10) days preceding
the effective date of such transaction.

4
<PAGE>

18. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the shareholders of the Company is required by Section 423 of the
Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to
comply with Section 423 of the Code.

19. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan
exceeds the maximum number of shares issuable under this Plan, the Board or
the Committee will allot the shares then available on a pro rata basis. The
balance of the payroll deductions credited to the account of each
participating employee shall be returned to him or her with simple interest
computed upon such balance at the 90-day U.S. Treasury Bill rate as of the
applicable Offering Commencement Date.

20. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.

21. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the NASDAQ National Market and the approval of all
governmental authorities required in connection with the authorization,
issuance or sale of such stock.

The Plan shall be governed by Massachusetts law except to the extent that
such law is preempted by federal law.

22. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.

23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.

24. Effective Date and Approval of Shareholders. The Plan shall take effect
on February 2, 2000, subject to approval by the shareholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.

Adopted by the Board of Directors on February 2, 2000

5
<PAGE>

[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE

------------------------------------
LIFELINE SYSTEMS, INC.
------------------------------------

UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSAL
NUMBERS 1 THROUGH 4 AND AGAINST PROPOSAL NUMBER 5 SET FORTH HEREON.

A VOTE "FOR" PROPOSAL NUMBERS 1 THROUGH 4 AND "AGAINST" PROPOSAL NUMBER 5
IS RECOMMENDED BY THE BOARD OF DIRECTORS.

Mark box at right if an address change or comment has [_]
been noted on the reverse side of this card.

CONTROL NUMBER:
RECORD DATE SHARES:

----------------------------
Please be sure to sign and date this Proxy. Date
-------------------------------------------------------------------------

------------ Stockholder sign here ------------ Co-owner sign here ------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 THROUGH 4.

1. To elect two Class II Directors, each to hold office
until the Annual Meeting of Stockholders in 2003
and until his or her successor is elected and qualified.

For With- For All
hold Except

(01) Ronald Feinstein [ ] [ ] [ ]
(02) Joseph E. Kasputys, Ph.D.

NOTE: If you do not wish your shares voted "For" a particular
nominee, mark the "For All Except" box and write that nominee's
name on the line below.

------------------------------------------------

For Against Abstain
2. The approval of the Company's 2000 Stock [ ] [ ] [ ]
Incentive Plan.

3. The approval of the Company's 2000 Employee [ ] [ ] [ ]
Stock Purchase Plan.

4. The ratification of the selection of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as the Company's
independent accountants for the current
fiscal year.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"AGAINST" PROPOSAL NUMBER 5.

5. The Stockholder proposal described in the [ ] [ ] [ ]
accompanying proxy statement.

6. To transact such other business as may properly come before the meeting or
any adjournment or adjournments of the meeting.

DETACH CARD DETACH CARD

LIFELINE SYSTEMS, INC.

Dear Stockholder,

Please take note of the important information enclosed with this Proxy, which
requires your immediate attention.

Your vote on these matters counts, and you are strongly encouraged to exercise
your right to vote your shares.

Please mark the boxes on this proxy card to indicate how your shares will be
voted, then sign the card, detach it and return it in the enclosed postage paid
envelope.

Your vote must be received prior to the Special Meeting in Lieu of Annual
Meeting of Stockholders to be held on July 19, 2000.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

Lifeline Systems, Inc.

<PAGE>

LIFELINE SYSTEMS, INC.

111 LAWRENCE STREET, FRAMINGHAM, MASSACHUSETTS 01702

SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
JULY 19, 2000

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

Those signing on the reverse side, revoking all prior proxies, hereby appoint L.
Dennis Shapiro, Ronald Feinstein and Jeffrey A. Stein, and each of them, with
full power of substitution, as proxies, to represent and to vote as designated
hereon, all shares of stock of Lifeline Systems, Inc. which those signing on the
reverse side would be entitled to vote if personally present at the Special
Meeting in Lieu of Annual Meeting of Stockholders of the Company to be held at
the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109,
on July 19, 2000 at 10:00 a.m., local time, and at any adjournment thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDERS.

--------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE-PAID ENVELOPE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person and state title.
--------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

--------------------------- -----------------------------