Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995 Commission File Number 0-13617
LIFELINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2537528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 Memorial Drive, Cambridge, Massachusetts 02139-4851
(Address of principal executive offices) (Zip Code)
(617) 679-1000
(Registrant's telephone number, including area code)
----------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock $0.02 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of February 29, 1996, 5,702,822 shares of the Registrant's Common Stock were
outstanding and the aggregated market value of such Common Stock held by non-
affiliates of the Registrant was approximately $70,000,000.
------------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's proxy statement for the Annual Meeting of
Stockholders to be held on May 15, 1996 are incorporated by reference into
Part III hereof.
Exhibit index is located on pages 33 through 36 of this Report.
PART I
ITEM 1. Business
General
Lifeline Systems, Inc. (the "Company"), designs, manufactures, and markets
personal response products and provides monitoring and other services
associated with those products. Through its central monitoring facility, the
Company provides 24-hour monitoring to its subscribers, primarily elderly
individuals with medical or age-related conditions as well as physically
challenged individuals. These subscribers communicate with the Company
primarily through a personal help button, worn or carried by the individual
subscriber, and a communicator, which connects to the telephone line in the
subscriber's home. The Company believes it is a major provider of such
services.
Business Developments
In March, 1995, Dennis M. Hurley joined the Company as Vice President,
Finance; Chief Financial Officer; and Treasurer. Thomas E. Loper joined the
Company in September, 1995 as Vice President, Subscriber Services.
During the second quarter of 1995, the Company acquired the assets of Tele-
Response and Support Services, Inc. Tele-Response was a distributor of the
Company's response monitoring products and services.
In the third quarter of 1995, the Company launched CarePartner(TM), a new
line of home communicators which incorporate digital speech technology, called
VoiceAssist(TM), to clarify alarm messages and instruct users in a friendly,
reassuring manner. The new units offer additional features, increased
personal help button range, and simplified functionality as compared to the
Company's older models.
Industry Segments
The Company operates in one industry segment. Its operations consist of
designing, manufacturing, and marketing personal response products and
providing monitoring and other services associated with those products.
Foreign revenues, principally from Canada, are not material, and the Company
has no significant assets in foreign countries.
The Lifeline Service
The Company's principal offering, called LIFELINE(R), consists of equipment
manufactured by the Company combined with a monitoring service. The equipment
includes a personal help button, worn or carried by the individual subscriber,
and a communicator, which connects to the telephone line in the subscriber's
home. When pressed, the personal help button sends a radio signal to the
communicator; the communicator automatically dials a response center where
monitoring personnel answer the call and dispatch the designated responders,
typically a friend or relative of the subscriber, and/or emergency service.
The Company's monitoring service is a personal response service which
provides 24-hour monitoring and personalized support to elderly individuals
with medical or age-related conditions and to physically challenged
individuals throughout the United States and Canada. Through use of the
LIFELINE service,
-2-
individuals in need of help are able to signal monitoring personnel in the
Company's monitoring center, Lifeline Central(TM). These trained monitors
identify the nature and extent of the subscriber's particular need and manage
the situation according to the subscriber's predetermined response sequence of
friends, neighbors, and/or emergency personnel. Since its acquisition of the
assets of CarePartners, Inc., in September, 1993, the Company also offers a
supportive home monitoring service called CommuniCall(R). This service,
distinct from the LIFELINE personal response service, emphasizes social
support for elderly individuals who live alone, rather than solely a response
to an emergency situation. The equipment used by subscribers to the
CommuniCall service is similar to that used by subscribers to LIFELINE: a
personal help button and a communicator.
The Company's monitoring operation is supported by its proprietary
CORMIS(TM) system, a computer-based system utilizing advanced software
technologies and integrated telecommunication services. The system receives
incoming signals from subscribers' communicators, matches and retrieves the
appropriate subscriber data records from a central database, and routes both
the call and the data record to monitoring personnel in Lifeline Central.
In the past, the Company offered its customers, typically health care
providers which established their own Lifeline programs, two alternatives for
providing the LIFELINE monitoring service: they could perform their own
monitoring locally using equipment and software manufactured by the Company or
they could utilize Lifeline Central. Although the Company continues to
service equipment for customers who perform their own monitoring, the Company
no longer markets the equipment necessary for new providers to monitor their
own subscribers. New providers utilize Lifeline Central to monitor their
subscribers.
Lifeline also plans to provide its local programs with a comprehensive set
of monitoring and business support services which will reduce the program
management responsibilities and administrative burden associated with a local
monitoring center. In addition, the Company also provides monitoring coverage
directly to selected subscribers who do not have access to a local Lifeline
program.
The Company offers several versions of its communicators. All models
currently available provide two-way voice communication over a speaker phone
between the subscriber and the response center as well as other features. The
product line offers customers flexibility in terms of price and functionality.
In the third quarter of 1995, the Company launched CarePartner, a new
generation of home communicators which incorporate digital speech technology,
called VoiceAssist, to clarify alarm messages and instruct users in a
friendly, reassuring manner. The new units offer additional features,
increased personal help button range, and simplified functionality as compared
to the Company's earlier models
Lifeline's premier model, the CommuniCator Plus(TM), was introduced in the
second quarter of 1994. The CommuniCator Plus is not only a communicator, but
is also a full-function telephone, with special features for those with visual
or hearing limitations. CommuniCator Plus offers enhanced voice clarity with
significantly greater personal help button range than the Company's other
models, and includes a large, illuminated keypad and adjustable volume
handset, ringer and speaker phone for subscribers with visual or hearing
limitations. Like many of the Company's other models, CommuniCator Plus
offers the RSVP(TM) feature that allows the subscriber to answer routine phone
calls by pushing the personal help button.
The Slimline(TM), introduced in late 1993, is the Company's leading
personal help button. It is fully waterproof, half the size and weight of
previous personal help buttons, and offers the same performance in a design
that is more attractive and comfortable for subscribers to wear. The Slimline
can be used with all
-3-
current models and can replace other personal help buttons that
are used with the Company's earlier communicator products.
Customers
The Company primarily markets its products and services to hospitals,
institutions, and other service providers in a variety of health care-related
fields. Hospitals, however, have historically been the Company's primary
market. The Company believes that hospitals offer Lifeline's products and
services to capture revenues from the sale of the service, improve health care
for the communities they serve, enhance community relations, market other
hospital services to the subscriber base, and/or contain health care costs by
facilitating early discharge from the hospital and reducing the need for
nursing home care.
The Company also offers its monitoring service directly to selected
consumers in order to serve subscribers who do not have access to a local
LIFELINE program.
Marketing
The Company markets its products and services through a direct sales
organization in the United States and Canada.
In support of the sales effort, these sales professionals assist the
Company's institutional customers in developing a marketing plan for the
Lifeline program, monitoring progress against that plan, and providing
training to the customer's staff on the management of their local Lifeline
program. Programs' marketing plans typically address the introduction of
Lifeline's services to key decision makers and service providers within the
customer's organization; the planning and delivery of presentations to
community responders such as police, fire, and medical emergency
professionals; and the development of local referral networks of elder care
and other service organizations. Lifeline personnel also provide continuing
operational support, ongoing consultation, and program evaluations.
For individuals for whom no local Lifeline program is available, the
Company provides the LIFELINE service to these individuals directly.
Development of this business is supported by an internal sales force.
Source of Raw Materials
The Company manufactures all of its products, relying on outside vendors
for components and enclosures. Any difficulties in obtaining these parts will
have a direct effect on the Company's ability to meet shipment targets.
Although the Company does generally have two or more suppliers for its
proprietary components, it has no assurance that it will not encounter
component shortages in the future, which may adversely affect the results of
operations.
Patents, Licenses and Trademarks
The Company considers its proprietary know-how with respect to the
development, manufacture, and marketing of its personal response services to
be a valuable asset. Due to rapid technological changes that characterize the
industry, the Company believes that continuing development of new products,
the improvement of existing products, and patent and license protection are
important in maintaining a competitive advantage.
-4-
Although the Company owns numerous patents and patent applications in the
United States, Canada, and other countries, the Company does not believe that
its business as a whole is or will be materially dependent upon the protection
afforded by its patents.
The Company's LIFELINE trademark and servicemark are registered at the
United States Patent and Trademark Office and in most states and some foreign
countries. The Company also has a number of other trademarks.
Research and Development
Research and development continues to be an important strategic element for
the Company and is geared toward enhancing and augmenting the Company's
products and services. Research and development expenses were $1,701,000,
$1,682,000, and $1,599,000 for the years ended December 31, 1995, 1994, and
1993, respectively.
Backlog/Seasonality
Because of the nature of the Company's products, it endeavors to minimize
the time which elapses from the receipt of a purchase order to the date of
delivery of the products. Accordingly, the Company's backlog as of the end of
any period represents only a portion of the Company's expected sales for the
succeeding period and is not significant in understanding the Company's
business. The Company does not believe that the industry in which it operates
is seasonal.
Government Regulation
The Company's products are registered with the Federal Communication
Commission ("FCC") and comply with FCC regulations pertaining to radio
frequency devices (Part 15) connected to the telephone system (Part 68). The
Company has also received registrations of equipment from Canadian agencies.
As new models are developed, they are submitted to appropriate agencies as
required.
The Company has registered its communicator products with the United States
Food and Drug Administration.
None of the Company's business is subject to negotiation of profits or
termination of contract by the government, nor is it impacted by any existing
environmental laws.
Competition
The Company believes that it is a major provider of personal response
products and services. Other companies offer services and products
competitive with those offered by the Company, including many burglar alarm
companies which offer emergency response as a part of security services.
These companies offer personal response services on a regional or national
basis through both health care providers and directly to the subscribers
themselves.
Although price is a competitive factor, the Company believes that its
customers' main considerations in choosing a personal response service are
product and service performance and reliability; customer support and service;
and reputation and experience in the industry. The Company believes it
competes favorably with respect to these factors.
-5-
Employees
As of February 29, 1996 the Company employed approximately 342 full-time
and permanent part-time employees. None of the Company's employees is
represented by a collective bargaining unit, and the Company believes its
relations with its employees are good.
ITEM 2. Properties
The Company leases a portion of a facility in Cambridge, Massachusetts which
serves as its corporate headquarters and houses its manufacturing and monitoring
operations. The lease includes two five-year options to renew at the end of the
initial ten-year lease term. The Company believes that this facility is
adequate for its current needs.
ITEM 3. Legal Proceedings
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers of the Company as of December 31, 1995:
Name Position Age
- -------------------- ------------------------------------------------ ---
L. Dennis Shapiro Chairman of the Board 62
Ronald Feinstein President, Chief Executive Officer
and Director 49
Dennis M. Hurley Vice President, Finance,
Chief Financial Officer, Treasurer 49
Heather E. Edelman Vice President, Human Resources 48
John D. Gugliotta Vice President, Operations 48
Thomas E. Loper Vice President, Subscriber Services 46
Richard M. Reich Vice President, Technology and Advanced Services 48
Donald G. Strange Vice President, Sales 49
Paul V. Vizzini Vice President, Marketing 48
Norman B. Asher Clerk 69
L. Dennis Shapiro joined the Company in July, 1978 as Chairman of the Board,
Chief Executive Officer and Treasurer and has at various times served as
President and Chief Financial Officer.
-6-
Ronald Feinstein became an employee of the Company in September, 1992 and
became Executive Vice President and Chief Operating Officer in October, 1992. He
was appointed President and Chief Executive Officer in January, 1993. Mr.
Feinstein has served as a director of the Company since 1985. From January,
1991 until September, 1992, he was President and Chief Executive Officer of
International Business Interiors.
Dennis M. Hurley joined the Company in March, 1995 as Vice President, Finance;
Chief Financial Officer; and Treasurer. From 1977 to 1994, Mr. Hurley held
various senior financial management positions with Avery Dennison, most recently
as Group Controller for the Office Products Group.
Heather E. Edelman joined the Company in June, 1993 as Vice President, Human
Resources. From 1989 through 1992, Ms. Edelman was Manager, Human Resources
Programs for ROLM, which manufactures, markets and services telecommunications
products and services.
John D. Gugliotta has been Vice President, Operations since June, 1990. Mr.
Gugliotta had served as Vice President, Manufacturing since he joined the
Company in August, 1987.
Thomas E. Loper joined the Company in September, 1995 as Vice President,
Subscriber Services. From 1993 until 1995, Mr. Loper served as Area Vice
President for Herman Miller, manufacturer of office furniture. Prior to that,
he was President of Business Interiors, a division of International Business
Interiors, from 1991 until 1993.
Richard M. Reich has been Vice President, Technology and Advanced Services
since August, 1994. From June, 1990 to August, 1994, Mr. Reich had served as
Vice President, Product Planning and Development. Since joining the Company in
April, 1986 he had held the position of Vice President, Engineering.
Donald G. Strange joined the Company in February, 1993 as Vice President,
Sales. From September, 1992 to January, 1993, Mr. Strange was Senior Vice
President and General Manager of American Distribution System, which manages the
distribution of prescription drugs and controlled substances. From 1969 to
1992, he was employed by Hoffman-La Roche, Inc., where he held various
management positions in sales and marketing, most recently as National Director
of Sales for its Roche Home Healthcare Services division.
Paul V. Vizzini joined the Company in June, 1993 as Vice President, Marketing.
From 1968 to 1993, he was employed by Avery Dennison, where he held various
senior marketing and operations management positions, most recently as Vice
President/General Manager of the Customer Operations Division.
Norman B. Asher has been the Clerk of the Company since July, 1978 and since
1965 has been a partner of the law firm of Hale and Dorr, which has been general
counsel to the Company since 1976.
-7-
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Quarterly Market Information and Related Matters
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
"LIFE." On February 29, 1996, the Company had 541 shareholders of record.
The table below reflects the high and low sales price for 1995 and 1994.
High Low
1995 First Quarter $ 7.13 $ 5.38
Second Quarter 8.13 5.25
Third Quarter 13.25 7.63
Fourth Quarter 14.13 10.88
1994 First Quarter $ 5.38 $ 3.88
Second Quarter 4.50 3.88
Third Quarter 4.75 3.88
Fourth Quarter 6.50 4.00
During the periods presented, the Company has not paid or declared any cash
dividends on its common stock. While the payment of dividends is within the
discretion of the Company's Board of Directors, the Company presently expects to
retain all of its earnings for use in financing the future growth of the
Company.
-8-
ITEM 6. Selected Financial Data
Selected Financial Data
(in thousands, except per share data) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
OPERATING RESULTS
Total revenues $ 43,379 $ 36,141 $ 30,059 $ 28,496 $ 38,463
Income (loss) before taxes 5,505 3,413 1,870 (4,460) 6,295
Net income (loss) 3,148 1,980 1,085 (2,944) 3,669
Net income (loss) per share $ 0.51 $ 0.34 $ 0.19 $ (0.54) $ 0.64
Weighted average common and
common equivalent shares
outstanding 6,115 5,776 5,680 5,429 5,732
FINANCIAL POSITION (1)
Working capital $ 15,253 $ 14,971 $ 10,469 $ 8,970 $ 11,695
Total assets 31,961 28,883 28,327 25,935 29,263
Long-term debt 32 85 395 458 323
Stockholders' equity 24,289 21,208 19,421 18,462 20,833
(1) There were no cash dividends paid or declared during any of the periods
presented.
-9-
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This and other reports, proxy statements, and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
There are a number of factors of which the Company is aware that may cause the
Company's actual results to vary materially from those forecast or projected in
any such forward-looking statement. A discussion of these risk factors is
included herein under the caption "Significant Risk Factors" which contains
certain, but not necessarily all, of the factors which the management of the
Company presently believes could cause the Company's actual operating results to
be materially different from that forecast or projected in any forward-looking
statement.
RESULTS OF OPERATIONS
1995 Compared with 1994
Total revenues for the year ended December 31, 1995 were $43.4 million, an
increase of 20% compared with the $36.1 million recorded in 1994.
Total service revenues, primarily from monitoring, increased 34% to $18.6
million in 1995 from $13.9 million in 1994. The Company continues to transition
to a service-oriented business, with its focus on developing its base of
subscribers and recurring service revenues. The success of this strategy was
demonstrated by a 35% growth in the number of subscribers monitored by Lifeline
Central(TM), which totaled nearly 120,000 by year end, resulting in a 32%
increase in monitoring revenues. This rapid expansion was driven by the
Company's continued conversions of locally-monitored programs to Lifeline
Central, growth in existing programs, and from the acquisition of Tele-Response
and Support Services, Inc. during the second quarter of 1995.
Net product sales increased 15% to $23.4 million in 1995 from $20.4 million in
1994. The Company introduced a new product line, the CarePartner(TM), during
the third quarter. This new communicator incorporates advanced technologies,
including digital speech, or VoiceAssist(TM), which clarifies alarm messages
and instructs users in a friendly, reassuring manner. In addition, 1995 results
benefited from an entire year of sales of the Company's premier model, the
CommuniCator Plus(TM). This communicator was introduced during the second
quarter of 1994 and provides extended range and enhanced voice clarity in
addition to being a full-featured speaker telephone. Strong sales of this
product have continued through 1995 and contributed significantly to year-over-
year growth in product revenues. The Company also experienced a significant
increase in accessory sales, driven primarily by the Slimline(TM) personal help
button. While the success of these products strengthened product sales in 1995,
the Company's ability to sustain the current level of product sales in the long
run depends upon its ability to expand the market for its personal response
services. The Company believes its new products will be a factor in meeting
this challenge.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, decreased $0.6 million to $1.3 million in 1995
from $1.9 million for the previous year. The decline is attributable to the
overall aging of the existing lease portfolio. In January, 1994 the Company
entered into an arrangement with a third-party leasing agent, offering
competitive rates and programs. This arrangement provided cash flow benefits
during 1994 and 1995. In January, 1996 the Company terminated this arrangement
and introduced a more customer-focused, internally managed and funded leasing
program which is expected to increase finance income in future years.
-10-
The Company continued to improve the profitability of its service operations.
Overall cost of services was 40% of service revenues in 1995, compared with 41%
for 1994. The most significant component of the improved cost structure was the
Company's realization of a full year of operating expense savings resulting from
the integration of monitoring and administrative functions of its CommuniCall
operation during the second half of 1994. During 1995, the Company focused its
efforts to expand and better serve its subscriber base through investments in a
supporting organization. The Company will continue to invest in its service
business in upcoming periods.
Cost of sales was 36% of product sales in 1995 compared with 40% in 1994. The
improvement is largely attributable to a shift in the Company's product mix
toward lower cost models, including the new CarePartner series and its focus
aimed at manufacturing high quality, lowest-cost products. Also, overall
product mix improved as a result of increasing accessory sales, which yielded
higher average selling prices than in the prior year.
Selling, general, and administrative expenses as a percentage of total sales
remained constant at 48%. The increase in expenditures in 1995 was largely
attributable to market development and promotional strategies aimed at the
health care channel and related referral networks, as well as the Company's
acquisition of Tele-Response and Support Services, Inc. Other elements of
selling, general, and administrative expense included continued expenses for
improvements in the systems infrastructure for subscriber support and sales and
management bonuses relating to favorable 1995 performance.
Research and development expenses represented 4% of revenues in 1995 versus 5%
in 1994. Research and development efforts are focused on ongoing product
improvements, and the Company expects to maintain these expenses, as a
percentage of total revenues, at a relatively consistent level.
The Company's effective tax rate was 43% for 1995 as compared with 42% in 1994.
1994 Compared with 1993
Total revenues for the year ended December 31, 1994 were $36.1 million, an
increase of 20% compared with the $30.1 million recorded in 1993.
Service revenues, primarily from monitoring services, increased 35% to $13.9
million in 1994 from $10.3 million in 1993. The growth in service revenues was
directly attributable to an increase in the number of subscribers monitored by
the Company's Lifeline Central monitoring service. The additional subscribers
resulted from conversions to Lifeline Central of health care providers' programs
that had been locally monitored, as well as from a greater number of subscribers
served by health care providers that already use Lifeline Central. Additionally,
a full year of revenue from the CommuniCall(R) business, acquired in September,
1993, contributed to the increase.
Net product sales increased 17% to $20.4 million in 1994 from $17.4 million in
1993. Increased shipment volumes as well as slightly higher average selling
prices resulted largely from the second quarter 1994 introduction of the
Company's newest and premier model communicator, the CommuniCator Plus. This
advanced communicator offers extended range and enhanced voice clarity and is
also a full-featured telephone. Sales of the Company's new Slimline(TM)
personal help button, which was introduced in late 1993, also contributed to the
increase. The Slimline, lighter and more comfortable than previous models, has
provided customers an opportunity to replace earlier buttons with a newer, more
contemporary design. While the initial success of these products strengthened
product sales in 1994, the Company's ability to sustain the current level
-11-
of product sales in the long run depends upon its ability to expand the market
for its personal response services. The Company believes its new products will
be a factor in helping it to meet this challenge.
Finance and rental income, representing income earned from the Company's
portfolio of sales-type leases, decreased $0.5 million to $1.9 million in 1994
from $2.4 million for the previous year. The decline was attributable to lower
receivable balances due to the overall aging of the existing lease portfolio.
In January, 1994 the Company entered into an arrangement with a third-party
leasing agent, offering competitive rates and programs. Under the new
arrangement, the Company assigned new leases to the agent generating cash at the
time of sale rather than over the lease term. Finance income is expected to
decline while this relationship is in effect.
Cost of sales was 40% of product sales in 1994 compared with 41% in 1993. The
slight improvement was attributable to higher average selling prices in 1994
related to the sales of the new CommuniCator Plus product. Cost of services was
41% of service revenues for both 1994 and 1993, as efficiencies realized from
the higher base of monitored subscribers were offset by the higher operating
expenses for the acquired CommuniCall business, a brand of CarePartners, Inc.
In July, 1994 the Company relocated CommuniCall from San Diego, California to
the Company's new headquarters in Cambridge, Massachusetts. The consolidation
of CommuniCall's monitoring center, management, and administrative functions is
expected to have a positive effect on overall operating expenses of the
Company's service business in the future.
As a percentage of total revenues, selling, general and administrative expenses
improved to 48% in 1994 from 51% in 1993. Expenditures in 1994 included
expenses associated with sales and marketing strategies aimed at the health care
channel and related referral networks. Such expenses included marketing support
and promotional materials to assist local Lifeline programs in marketing the
Company's products and services in their communities. Selling, general, and
administrative expenses also included sales and management bonuses relating to
the improved 1994 performance.
Research and development expenses represented 5% of revenues in both 1994 and
1993. Research and development efforts are focused on ongoing product
improvements, and the Company expects to maintain these expenses, as a
percentage of total revenues, at a consistent level.
The Company's effective tax rate was 42% for both 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, cash and cash equivalents decreased
$6.1 million at December 31, 1995 from $9.6 million at December 31, 1994. The
decrease in cash and cash equivalents resulted from the investment of excess
cash reserves as the Company adopted a revised investment strategy for its cash
and temporary investments. The Company's portfolio of cash, cash equivalents,
and investments grew by over $3.2 million in total as a result of positive cash
flows from profitable operations, including payments received from the Company's
portfolio of sales-type leases. The Company used $2.7 million of cash for
equipment purchases for use in the development and manufacture of its products
and services.
In May, 1995 the Company completed the acquisition of the assets of Tele-
Response and Support Services, Inc., of Raynham, Massachusetts. Tele-Response
was a distributor of the Company's personal response products and services. The
purchase price was approximately $1.0 million, of which $0.9 million was paid at
the closing and the remainder paid in the third quarter of 1995. The
acquisition was accounted for as a purchase transaction and, as a result, the
Company recorded goodwill of approximately $0.6 million which is being amortized
over an
-12-
estimated life of seven years. The results of the acquired business
have been included in the Company's consolidated financial statements from the
date of acquisition and did not have a material impact on 1995 operating
results.
In September, 1995 the Company paid $539,000 to repurchase a warrant on 100,000
shares of the Company's common stock. The warrant had been issued in connection
with the acquisition of the assets of CarePartners, Inc. in September, 1993.
In October, 1993 the Company's Board of Directors approved the repurchase of up
to 300,000 shares of the Company's common stock from time to time in the open
market for general corporate purposes, including shares for use in connection
with employee stock option plans and stock purchase plans. The Company has
purchased 197,000 shares of the approved amount through December, 1995. During
1995, $122,000 of cash was used to purchase 10,000 shares of treasury stock.
The Company's $2.0 million line of credit and its $1.0 million lease line
expired in June, 1994. There had never been any borrowings under either
facility. In November, 1995, the Company secured a $4.0 million line of credit
effective in January, 1996. This credit agreement contains a number of
covenants, including requirements that the Company maintain certain levels of
financial performance and capital structure, limitations on the Company's
capital and other expenditures, and restrictions on the Company's capacity to
secure additional debt financing.
In October, 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation.
This statement encourages, but does not require, employers to adopt a fair-value
based accounting method for employee stock-based arrangements in place of APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
decided to adopt the disclosure provisions of this new standard for the year
ended December 31, 1996; therefore, its adoption will have no impact on its
results of operations and financial position.
Given the company's current cash, marketable securities, and revenue levels,
funding requirements for operations and in support of future growth are expected
to be met primarily from existing cash and investment balances and funds
generated from operations. The Company expects these sources will be sufficient
to finance the requirements of its internally funded lease financing program,
stock repurchases, other investments in support of its current business, and any
potential acquisitions through 1996.
SIGNIFICANT RISK FACTORS
The ability of the Company to attain the financial or other results that may be
forecast or projected from time to time is subject to a number of risk factors,
including the ability of the Company to introduce new services and products and
enhancements at competitive prices and on a timely basis, the ability of the
Company to market its services directly to subscribers, the ability of the
Company to provide technologically advanced services and products in comparison
to those offered by competitors, the ability of the Company to make appropriate
acquisitions and to integrate the acquired companies successfully, and the risk
factors listed from time to time in the Company's reports to the Securities and
Exchange Commission. The Company may fail to meet any such forecast or
projected results for reasons other than those set forth above.
-13-
ITEM 8. Financial Statements and Supplementary Data
Quarterly Results of Operations
(Unaudited) Quarter Ended
(Dollars in thousands, except per share data) Mar 31 Jun 30 Sep 30 Dec 31 Full Year
1995 Total revenues $ 9,711 $ 11,080 $11,416 $11,172 $ 43,379
Net income 527 744 883 994 3,148
Net income per common share $ 0.09 $ 0.12 $ 0.14 $ 0.16 $ 0.51
1994 Total revenues $ 8,040 $ 8,892 $ 9,573 $ 9,636 $ 36,141
Net income 309 369 584 718 1,980
Net income per common share $ 0.05 $ 0.06 $ 0.10 $ 0.12 $ 0.34
Report of Independent Accountants
To the Stockholders and Board of Directors of Lifeline Systems, Inc.:
We have audited the accompanying consolidated financial statements and financial
statement schedule of Lifeline Systems, Inc. listed in Items 14(a)(1) and
14(a)(2) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lifeline Systems,
Inc. as of December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material aspects, the information to be included therein.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Boston, Massachusetts
February 13, 1996
-14-
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
1995 1994
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,490 $ 9,555
Short-term investments 6,726 -
Accounts receivable trade, net of allowance for doubtful
accounts of $156 in 1995 and $221 in 1994 5,976 4,943
Inventories 1,394 1,511
Net investment in sales-type leases 1,992 3,222
Other current assets 624 280
Deferred income taxes 1,093 1,030
-------- --------
Total current assets 21,295 20,541
Long-term investments 2,597 -
Property and equipment, net 4,648 3,450
Goodwill, net 2,018 1,748
Net investment in sales-type leases 1,208 2,941
Other assets 195 203
-------- --------
Total assets $ 31,961 $ 28,883
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,508 $ 2,599
Accrued payroll and payroll taxes 1,702 1,136
Accrued income taxes 319 -
Deferred revenues 936 954
Current portion of obligations under capital lease 91 273
Product warranty 456 369
Other current liabilities 30 39
Accrued restructuring charges - 200
-------- --------
Total current liabilities 6,042 5,570
Obligations under capital lease 32 85
Deferred income taxes 1,148 1,954
Deferred compensation 450 66
Commitments:
Stockholders' equity:
Common stock, $.02 par value, 10,000,000 shares
authorized, 6,132,457 and 5,939,202 shares issued
in 1995 and 1994, respectively 123 118
Additional paid-in capital 15,161 14,533
Retained earnings 10,975 8,366
-------- --------
26,259 23,017
Less: treasury stock at cost, 436,848 shares in 1995
and 444,287 shares in 1994 (1,620) (1,559)
Notes receivable - officers (350) (250)
-------- --------
Total stockholders' equity 24,289 21,208
-------- --------
Total liabilities and stockholders' equity $ 31,961 $ 28,883
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-15-
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1995, 1994, and 1993
(In thousands except for per share data)
1995 1994 1993
---- ---- ----
Revenues
Net product sales $ 23,440 $ 20,394 $ 17,449
Services 18,602 13,860 10,256
Finance and rental income 1,337 1,887 2,354
-------- -------- --------
Total revenues 43,379 36,141 30,059
-------- -------- --------
Costs and expenses
Cost of sales 8,500 8,232 7,175
Cost of services 7,454 5,740 4,197
Selling, general, and administrative 20,959 17,421 15,394
Research and development 1,701 1,682 1,599
-------- -------- --------
Total costs and expenses 38,614 33,075 28,365
-------- -------- --------
Income from operations 4,765 3,066 1,694
-------- -------- --------
Other income (expense)
Interest income 748 368 223
Interest expense (8) (21) (47)
-------- -------- --------
Total other income, net 740 347 176
-------- -------- --------
Income before income taxes 5,505 3,413 1,870
Provision for income taxes 2,357 1,433 785
-------- -------- --------
Net income $ 3,148 $ 1,980 $ 1,085
======== ======== ========
Net income per common share:
Primary $ 0.51 $ 0.34 $ 0.19
Fully diluted $ 0.51 $ 0.34 $ 0.19
Weighted average common and common equivalent shares outstanding:
Primary 6,115 5,776 5,680
Fully diluted 6,217 5,880 5,831
The accompanying notes are an integral part of these consolidated financial
statements.
-16-
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994, and 1993
(Dollars in thousands)
Common Stock Additional Notes Total
--------------------- Paid-In Retained Treasury Receivable Stockholders'
Shares Amount Capital Earnings Stock Officers Equity
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 5,521,241 $116 $14,080 $5,301 ($785) ($250) $18,462
- --------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 21,330 46 46
Issuance of stock under employee stock purchase plan 23,817 66 66
Purchase of treasury stock (59,000) (238) (238)
Net Income 1,085 1,085
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 5,507,388 116 14,192 6,386 (1,023) (250) 19,421
---------------------------------------------------------------------------
Exercise of stock options 97,110 2 222 224
Issuance of stock under employee stock purchase
plan 18,417 70 70
Income tax benefit from stock options exercised 49 49
Purchase of treasury stock (128,000) (536) (536)
Net Income 1,980 1,980
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 5,494,915 118 14,533 8,366 (1,559) (250) 21,208
---------------------------------------------------------------------------
Exercise of stock options 177,202 5 423 428
Issuance of stock under employee stock purchase
plan 16,053 88 88
Purchase of treasury stock (10,000) (122) (122)
Sale of stock to officer 8,939 69 31 (100) 0
Issuance of treasury stock 8,500 48 30 78
Purchase of common stock warrant (539) (539)
Net Income 3,148 3,148
---------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,695,609 $123 $15,161 $10,975 ($1,620) ($350) $24,289
===========================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-17-
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994, and 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 3,148 $ 1,980 $ 1,085
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,231 2,021 1,997
Income tax benefit from stock options
exercised - 49 -
Deferred income taxes (869) (1,191) 105
Deferred compensation 384 66 -
Changes in operating assets and liabilities:
Accounts receivable (961) (1,068) 104
Inventories 117 (240) 369
Net investment in sales-type leases 2,963 3,672 1,460
Income taxes receivable - 579 487
Other assets (331) 53 100
Accounts payable and accrued expenses (117) 266 676
Accrued payroll and payroll taxes 566 (122) 748
Deferred revenues, product warranty,
and other current liabilities 60 156 (146)
Income taxes payable 319 (420) 420
Accrued restructuring charge (200) (195) (1,065)
-------- -------- --------
Net cash provided by operating
activities 7,310 5,606 6,340
-------- -------- --------
Cash flows from investing activities:
Purchase of investments (9,323) - -
Additions to property and equipment (2,709) (2,022) (1,223)
Payment for business acquisition (1,000) (500) (1,694)
-------- -------- --------
Net cash (used in) investing
activities (13,032) (2,522) (2,917)
-------- -------- --------
Cash flows from financing activities:
Principal payments under capital lease
obligations (276) (299) (338)
Proceeds from common stock options
exercised and proceeds from employee
stock purchase plan 516 294 112
Purchase of common stock warrant (539) - -
Purchase of treasury stock (122) (536) (238)
Issuance of treasury stock 78 - -
-------- -------- --------
Net cash (used in) financing
activities (343) (541) (464)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents (6,065) 2,543 2,959
-------- -------- --------
Cash and cash equivalents at beginning
of year 9,555 7,012 4,053
-------- -------- --------
Cash and cash equivalents at end of year $ 3,490 $ 9,555 $ 7,012
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Lifeline Systems,
Inc. and its wholly owned subsidiaries. All significant inter-company balances
and transactions have been eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash, Short-term Investments, and Long-term Investments
The Company considers all investments purchased with a maturity of three months
or less at the date of acquisition to be cash equivalents. They are carried at
fair value which approximates cost. The Company's investments are deemed to be
available for sale. Short-term investments consist primarily of obligations of
the US Government and its agencies, tax-exempt securities, commercial paper, and
bank time deposits with maturities at date of acquisition beyond three months
and less than one year. Long-term investments consist primarily of obligations
of the US Government and its agencies, tax-exempt securities, and commercial
paper with maturities at date of acquisition beyond one year and less than three
years. Investments are carried at fair value, which approximates cost.
Investments are made with major financial institutions. The Company has not
experienced any significant losses on its investments.
The fair value of securities, which approximates cost, consists
of the following at December 31, 1995:
(Dollars in thousands)
Maturity
----------------------
Less than More than
Types of Security one year one year Total
- ----------------------------------------------------------------
US Government and Agency
securities $1,535 $ 500 $ 2,035
Tax-exempt securities 1,256 2,097 3,353
Corporate bonds and
securities 3,935 - 3,935
- ----------------------------------------------------------------
6,726 2,597 9,323
- ----------------------------------------------------------------
Cash and Cash Equivalents 3,490
- ----------------------------------------------------------------
$12,813
- ----------------------------------------------------------------
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization are
computed principally by the straight-line method over the useful lives of the
assets, typically three to five years, or, in the case of leasehold
improvements, over the lesser of the useful life or the lease term.
When assets are sold or retired, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income. Expenditures for maintenance and repairs are charged to
expense as incurred; betterments are capitalized.
Goodwill
Goodwill is amortized on a straight-line basis over an estimated useful life of
seven years. Amortization expense was $361,000, $318,000, and $93,000 in 1995,
1994 and 1993, respectively. Accumulated amortization amounted to $772,000 and
$411,000 as of December 31, 1995 and 1994 respectively. The Company will
evaluate the possible impairment of long-lived assets, including goodwill,
whenever events or circumstances indicate that the carrying value of the assets
may not be recoverable.
Product Warranty
The Company's products are generally under warranty against defects in material
and workmanship. The Company provides an accrual for estimated warranty costs
at the time of sale of the related products.
Revenue Recognition
Revenues from the sale of personal response products are recognized upon
shipment. Service revenues are associated primarily with providing monitoring
and maintenance of personal response products and are recognized ratably over
the contractual period. Finance income attributable to the sales-type lease
contracts is initially recorded as unearned income and subsequently recognized
under the interest method over the term of the leases.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109) Accounting for Income Taxes. Under this balance
sheet approach, deferred tax assets and liabilities are recognized based on
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse.
Net Income Per Common Share
Net income per common share is computed based on the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
Common equivalent shares consist of stock options and warrants calculated using
the treasury stock method.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Industry Segments
The Company operates in one industry segment. Its operations consist of
designing, manufacturing and marketing personal response products and providing
monitoring and other services associated with those products. Foreign
activities, principally from Canada, are not material, and the Company has no
significant assets in foreign countries.
Concentration of Credit Risk
The Company sells its products primarily to hospitals and other health care
institutions. The Company performs ongoing credit evaluations of its customers
and, in the case of sales-type leases, the leased equipment serves as collateral
in the transactions. The Company maintains reserves for potential credit losses
and such losses have been within management's expectations.
Reclassification
Certain prior year balances have been reclassified to conform to the current
year presentation.
B. INVENTORIES
Inventories consist of the following:
December 31,
-----------------
(Dollars in thousands) 1995 1994
- --------------------------------------------------------
Purchased parts and assemblies $ 602 $ 771
Work in progress 492 361
Finished goods 300 379
- --------------------------------------------------------
$1,394 $1,511
- --------------------------------------------------------
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
------------------
(Dollars in thousands) 1995 1994
- ---------------------------------------------------------
Equipment $ 7,532 $ 6,712
Furniture and fixtures 332 171
Equipment leased to others 2,661 1,276
Equipment under capital leases 1,035 1,244
Leasehold improvements 663 612
- ---------------------------------------------------------
12,223 10,015
Less: accumulated depreciation and
amortization (7,575) (6,565)
- ---------------------------------------------------------
$ 4,648 $ 3,450
- ---------------------------------------------------------
Accumulated depreciation and amortization amounted to $1,276,000 and $810,000 on
equipment leased to others and $991,000 and $1,108,000 on equipment under
capital leases at December 31, 1995 and 1994, respectively.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
D. LEASING ARRANGEMENTS
As Lessor
Through March 31, 1993, the Company leased its personal response products to
customers principally under sales-type leases provided by Lifeline Acceptance
Corporation (L.A.C.), its wholly owned subsidiary. Effective March 31, 1993,
L.A.C. was combined with the parent company for operational reasons, with no
impact on the Company's results of operations or financial position. In
January, 1994 the Company entered into an arrangement with a third-party leasing
agent that could offer competitive rates and programs. In January, 1996 the
Company terminated this relationship and initiated an internally-financed and
operated leasing program which is expected to handle the majority of new lease
sales.
As sales-type leases, the lease payments to be received over the term of the
leases are recorded as a receivable at the inception of the new lease. Finance
income attributable to the lease contracts is initially recorded as unearned
income and subsequently recognized as income under the interest method over the
term of the leases.
The lease contracts are generally for five-year terms, and the residual value of
the leased equipment is considered nominal at the end of the lease period.
The components of the net investment in sales-type leases are as follows:
December 31,
-----------------
(Dollars in thousands) 1995 1994
- ---------------------------------------------------------
Minimum lease payments receivable $ 3,994 $ 7,912
Less: Unearned interest 577 1,445
Allowance for doubtful
accounts 217 304
- ---------------------------------------------------------
3,200 6,163
Less Current portion 1,992 3,222
- ---------------------------------------------------------
Net investment in sales-type leases $ 1,208 $ 2,941
- ---------------------------------------------------------
Future minimum lease payments due under non-cancellable sales-type leases
at December 31, 1995 are as follows:
(Dollars in thousands)
1996 $ 2,376
1997 1,090
1998 458
1999 55
2000 15
- -------------------------------------------
$ 3,994
- -------------------------------------------
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As Lessee
The Company conducts its primary operations in a leased facility under a ten-
year operating lease which commenced in the second quarter of 1994. The lease
includes scheduled base rent increases over the term of the lease. The total
amount of base rent payments is being charged to expense on the straight-line
method over the term of the lease. The Company recorded a deferred credit to
reflect the excess of rent expense over cash payments upon the commencement of
the lease. In addition, the Company pays a monthly allocation of the building's
operating expenses. The lease contains two five-year renewal options.
In conjunction with the move to the new facility, the Company also entered into
operating lease arrangements for certain furniture, computer equipment, and
leasehold improvements totaling approximately $1.5 million. These leases
contain renewal options and expire through 2001.
The Company also has several operating lease arrangements for sales offices and
office equipment that expire through 2000 and leases certain equipment under
capital leases which expire through 2000.
Future minimum lease payments under capital and operating leases with initial
or remaining terms of one year or more are:
(Dollars in thousands) Capital Leases Operating Leases
-----------------------------------
1996 $ 97 $ 1,281
1997 13 1,556
1998 13 1,078
1999 13 989
2000 6 1,094
Thereafter - 3,155
- -----------------------------------------------------------------------
Total minimum lease payments 142 $ 9,153
-------
Less amount representing interest 19
- --------------------------------------------
Present value of net minimum lease
payments 123
Less current portion 91
- --------------------------------------------
Long-term obligation under capital
leases $ 32
- --------------------------------------------
Total rent expense under all operating leases was $1,451,000, $1,208,000, and
$659,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
E. SUMMARY OF SIGNIFICANT RISKS AND UNCERTAINTIES
The ability of the Company to attain the financial or other results that may be
forecast or projected from time to time is subject to a number of risk factors,
including the ability of the Company to introduce new services and products and
enhancements at competitive prices and on a timely basis, the ability of the
Company to market its services directly to subscribers, the ability of the
Company to provide technologically advanced services and products in comparison
to those offered by competitors, the ability of the Company to make appropriate
acquisitions and to integrate the acquired companies successfully, and the risk
factors listed from time to time in the Company's reports to the Securities and
Exchange Commission. The Company may fail to meet any such forecast or
projected results for reasons other than those set forth above.
F. STOCK OPTIONS AND STOCK PURCHASE PLAN
In May, 1994 the stockholders approved the 1994 Stock Option Plan (the "1994
Plan"). The 1994 Plan provides that officers and key employees may be granted
either nonqualified or incentive stock options for the purchase of the Company's
common stock at the fair market value on the date of grant. The employee
options granted generally become exercisable at a rate of 20% per year and
expire ten years from the date of grant. Certain options, as originally
granted, became exercisable only to the extent the Company achieved specific
financial goals. During 1995 these options were amended to provide for vesting
on the earlier of the six year anniversary of the date of grant or the original
vesting schedule upon the achievement of the aforementioned financial goals. As
a result of this change, the Company incurred additional compensation totaling
$1.8 million, which is being amortized based on a vesting schedule which
approximates the expected date of meeting the specific financial goals.
Compensation expense of $384,000 was recorded in 1995, and accumulated deferred
compensation was $450,000 at December 31, 1995.
The 1991 Stock Option Plan also remains in effect, providing for similar grants
to officers and employees. Additionally, the 1991 Plan provides for an
automatic annual grant to non-employee directors. The non-employee director
options become exercisable in three equal installments with the first
installment exercisable on the date of grant and the second and third
installments becoming exercisable on the second and third anniversaries of such
date.
Prior to the adoption of the 1994 Plan, several other stock option plans were in
effect and options which remain outstanding under those plans are included
below.
At December 31, 1995, under the terms of these plans, options for 363,880 shares
were exercisable, and 159,833 shares were available for future grants.
In October, 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation.
This statement encourages, but does not require, employers to adopt a fair-value
based accounting method for employee stock-based arrangements in place of APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
decided to adopt the disclosure provisions of this new
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
standard for the year ended December 31, 1996; therefore, its adoption will have
no impact on its results of operations and financial position.
The following table summarizes all stock option plan activity for the years
ended December 31, 1993, 1994, and 1995:
Option
Shares Option Price Ranges
-------------------------------
Outstanding at December 31, 1992 778,216 $1.92 - $18.50
Granted 186,500 3.00 - 3.56
Exercised (21,330) 1.92 - 2.58
Cancelled or lapsed (107,550) 1.92 - 18.50
- --------------------------------------------------
Outstanding at December 31, 1993 835,836 1.92 - 18.50
Granted 139,250 4.00 - 5.00
Exercised (97,110) 1.92 - 4.25
Cancelled or lapsed (11,750) 1.92 - 18.50
- --------------------------------------------------
Outstanding at December 31, 1994 866,226 1.92 - 18.50
Granted 207,450 5.50 - 11.88
Exercised (177,202) 1.92 - 5.00
Cancelled or lapsed (24,801) 3.00 - 16.33
- --------------------------------------------------
Outstanding at December 31, 1995 871,673 $2.00 - $18.50
- --------------------------------------------------
In May, 1995 the stockholders approved the Lifeline Employee Stock Purchase Plan
whereby eligible employees may invest up to 10% of their base salary in shares
of the Company's common stock. The purchase price of the shares is 90% of the
fair market value of the stock on either the commencement date or the date of
purchase, whichever is lower. Under the Plan, 200,000 shares of common stock
are available for purchase over ten offering periods through April, 2000, of
which approximately 192,213 shares remain available. During 1995 a total of
7,787 shares were issued under the Plan.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
G. INCOME TAXES
The provision (benefit) for income taxes was computed as follows:
For the years ended December 31,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Federal income taxes:
Current $2,563 $2,155 $614
Deferred (722) (995) 44
- --------------------------------------------------------------------------------
1,841 1,160 658
- --------------------------------------------------------------------------------
State income taxes:
Current 663 469 120
Deferred (147) (196) 7
- --------------------------------------------------------------------------------
516 273 127
- --------------------------------------------------------------------------------
$2,357 $1,433 $785
- --------------------------------------------------------------------------------
The differences between the statutory U.S. federal income tax rate and the
Company's effective tax rate are as follows:
For the years ended December 31,
--------------------------------
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Provision at statutory rate $1,872 $1,160 $636
State income tax, net of federal tax effect 338 273 84
Other, net 147 - 65
- --------------------------------------------------------------------------------
Provision for income taxes $2,357 $1,433 $785
- --------------------------------------------------------------------------------
Deferred tax liabilities (assets) are comprised of the following significant
items at December 31, 1995 and 1994:
December 31,
---------------------
(Dollars in thousands) 1995 1994
- --------------------------------------------------------------------------------
Gross deferred tax liabilities:
Sales-type leases $ 1,168 $ 2,331
Other 67 -
- --------------------------------------------------------------------------------
1,235 2,331
- --------------------------------------------------------------------------------
Gross deferred tax assets:
Depreciation (87) (377)
Inventory and warranty reserves (713) (595)
Accounts receivable reserves (123) (222)
Restructuring and other reserves (217) (172)
Other (40) (41)
- --------------------------------------------------------------------------------
(1,180) (1,407)
- --------------------------------------------------------------------------------
Deferred taxes, net $ 55 $ 924
- --------------------------------------------------------------------------------
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
H. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution savings plan covering
substantially all of its employees. The Company's contributions, which are
included in selling, general and administrative expenses, were $152,000,
$152,000 and $128,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
I. SUPPLEMENTAL CASH FLOW INFORMATION
The Company incurred capital lease obligations to obtain certain equipment in
the amounts of $41,000, $0, and $40,000 in 1995, 1994, and 1993, respectively.
Cash paid for income taxes amounted to $2,908,000, $2,941,000, and $328,000
during 1995, 1994, and 1993, respectively. Cash received from income tax
refunds was $562,000 in 1993. Interest paid was $8,000, $21,000, and $47,000
during 1995, 1994, and 1993, respectively.
J. REVOLVING CREDIT AGREEMENT
The Company's $2.0 million line of credit and its $1.0 million lease line
expired in June, 1994. There had never been any borrowings under either
facility. In November, 1995, the Company secured a $4.0 million line of credit
effective in January, 1996. This credit agreement contains a number of
covenants, including requirements that the Company maintain certain levels of
financial performance and capital structure, limitations on the Company's
capital and other expenditures, and restrictions on the Company's capacity to
secure additional debt financing.
K. COMMON STOCK
In September, 1995 the Company issued 8,939 shares of its common stock to the
Vice President, Subscriber Services in exchange for a collateralized promissory
note in the amount of $100,000. The note, which bears interest at a rate of
6.3% per annum, payable annually in arrears, is due September, 2002. In
September, 1992 the Company issued 83,333 shares of its common stock to the
Chief Executive Officer in exchange for a collateralized promissory note in the
amount of $250,000. The note, which bears interest at a rate of 5.98% per annum,
payable annually in arrears, is due September 1, 1999.
In connection with the 1993 acquisition of the assets of CarePartners, Inc., the
Company issued a warrant to purchase 100,000 shares of the Company's common
stock at $4.78 per share, expiring in March, 1996. In September, 1995 the
Company paid $539,000 to repurchase the warrant.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
L. ACQUISITION
In May, 1995, the Company completed the acquisition of the assets of Tele-
Response and Support Services, Inc., of Raynham, Massachusetts. Tele-Response
was a distributor of the Company's personal response products and services. The
purchase price was approximately $1.0 million, of which $900,000 was paid at the
closing and the remainder paid in the third quarter of 1995. The acquisition
was accounted for as a purchase transaction and, as a result, the Company
recorded goodwill of approximately $631,000 which is being amortized over an
estimated life of seven years. The results of the acquired business have been
included in the Company's consolidated financial statements from the date of
acquisition and did not have a material impact on its 1995 operating results.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
28
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information under the heading "Election of Directors" in the Company's
definitive proxy material for its annual meeting of stockholders to be held on
May 15, 1996, is incorporated herein by reference. Information concerning
officers of the Company appears in Part I of this Annual Report on Form 10-K.
ITEM 11. Executive Compensation
The information under the heading "Executive Compensation," excluding the
"Compensation Committee Report on Executive Compensation" and the Stock Price
Performance Graph in the Company's definitive proxy material for its annual
meeting of stockholders to be held on May 15, 1996, is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners: The information
under the heading "Principal Stockholders" in the Company's definitive
proxy material for its annual meeting of stockholders to be held on
May 15, 1996, is incorporated herein by reference.
(b) Security ownership of management: The information under the heading
"Election of Directors" in the Company's definitive proxy material for
its annual meeting of stockholders to be held on May 15, 1996, is
incorporated herein by reference.
(c) Changes in control: None known.
ITEM 13. Certain Relationships and Related Transactions
None.
29
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Lifeline Systems, Inc.
and the report of independent accountants relating thereto, are incorporated by
reference into Item 8 of this Annual Report on Form 10-K on the pages indicated.
Pages
-----
Report of Independent Accountants 14
Consolidated Balance Sheets as of December 31, 1995 and 1994 15
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993 16
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 17
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 18
Notes to Consolidated Financial Statements 19-28
(a)(2) Financial Statement Schedule
The following financial statement schedule of Lifeline Systems, Inc. is
filed herewith and included in ITEM 14 (a)(2) of the pages indicated below.
Pages
-----
Report of Independent Accountants 14
Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 1995, 1994 and 1993 37
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the quarter ended December 31, 1995.
30
(c) Exhibits
The Exhibits which are filed with this Report or which are incorporated
herein by reference are set forth in the Exhibit Index which appears on pages 33
through 36 hereof.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIFELINE SYSTEMS, INC.
3/21/96 By:/s/ Ronald Feinstein
- ------- -----------------------
Date Ronald Feinstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- ------------------------ ------------------------- -------
/s/ L. Dennis Shapiro Chairman of the Board 3/21/96
- ------------------------ -------
L. Dennis Shapiro
/s/ Ronald Feinstein Chief Executive Officer, 3/21/96
- ------------------------ -------
Ronald Feinstein President and Director
/s/ Dennis M. Hurley Vice President of Finance 3/21/96
- ------------------------ -------
Dennis M. Hurley Principal Financial and
Accounting Officer
/s/ Everett N. Baldwin Director 3/21/96
- ------------------------ -------
Everett N. Baldwin
/s/ Joseph E. Kasputys Director 3/24/96
- ------------------------ -------
Joseph E. Kasputys
/s/ Carolyn C. Roberts Director 3/21/96
- ------------------------ -------
Carolyn C. Roberts
/s/ Steven M. Tritman Director 3/21/96
- ------------------------ -------
Steven M. Tritman
/s/ Gordon C. Vineyard Director 3/24/96
- ------------------------ -------
Gordon C. Vineyard
32
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities and Exchange Act
of 1934 and are referred to and incorporated herein by reference to such
filings.
Exhibit No. Exhibit SEC Document Reference
- ------------- --------------------------------------------------------- ------------------------
Exhibit 3. Articles of Incorporation and By-Laws
3.1 Articles of Organization of Lifeline Systems, Inc., 2-84060 Exhibit 3.1
as amended.
3.2 Articles of Amendment of Lifeline Systems, Inc. 1987 10K Exhibit 3.4
3.3 Restated By-Laws of Lifeline Systems, Inc. 1990 10K Exhibit 3.4
Exhibit 4. Instruments Defining the Rights of Security Holders
4.1 Specimen Stock Certificate. 2-84060 Exhibit 4.1
Exhibit 10. Material Contracts
10.1 Registrant's 1982 Incentive Stock Option Plan 2-84060 Exhibit 10.19
and form of Option Agreement.
10.2 Registrant's 1982-A Incentive Stock Option Plan and 2-84060 Exhibit 10.20
form of Option Agreement.
10.3 Medical Expense Reimbursement Plan. 2-84060 Exhibit 10.21
10.4 Registrant's 1986 Incentive Stock 33-12030 Exhibit 10.26
Option Plan and form of Option Agreement
10.5 Amendments to Registrant's 1986 Incentive 1987 10K Exhibit 10.13
Stock Option Plan.
10.6 Registrant's 1982 Incentive Stock Option Plan, 1988 10K Exhibit 10.14
as amended.
10.7 Registrant's 1982-A Incentive Stock Option Plan, 1988 10K Exhibit 10.15
as amended.
10.8 Amendment to Registrant's 1986 Incentive Proxy Statement filed
Stock Option Plan. April 13, 1989 (0-13617)
33
10.9 Registrant's 1991 Stock Option Plan. 1990 10K Exhibit 10.37
10.10 Form of Non-statutory Stock Option Agreement 1992 10K Exhibit 10.32
for Registrant's 1991 Stock Option Plan.
10.11 Form of Special Non-statutory Stock Option Agreement 1992 10K Exhibit 10.33
for Registrant's 1991 Stock Option Plan.
10.12 Lease Agreement between the Registrant and 1992 10K Exhibit 10.34
the Massachusetts Institute of Technology,
dated April 3, 1992.
10.13 First Amendment to Lease Agreement dated April 3, 1992 1992 10K Exhibit 10.35
between the Registrant and the Massachusetts Institute of
Technology, dated August 25, 1992.
10.14 Amended Employment and Noncompetition Agreement 1992 10K Exhibit 10.36
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.15 Secured Promissory Note between Ronald Feinstein and 1992 10K Exhibit 10.37
the Registrant, dated September 1, 1992.
10.16 Security and Pledge Agreement between 1992 10K Exhibit 10.38
Ronald Feinstein and the Registrant,
dated September 1, 1992.
10.17 Non-statutory Stock Option Agreement, as amended, between 1992 10K Exhibit 10.39
Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.18 Special Non-statutory Stock Option Agreement, as amended, 1992 10K Exhibit 10.40
between Ronald Feinstein and the Registrant,
dated August 27, 1992.
10.19 Second Amendment to Lease Agreement dated 10Q for the Quarter
April 3, 1992 between the Registrant and ended June 30, 1993
the Massachusetts Institute of Technology, Exhibit 10.42
dated May 18, 1993.
10.20 Amended and Restated Asset Purchase Agreement 10Q for the Quarter
dated September 9, 1993 between the Registrant and ended September 30,1993
CarePartners, Inc. Exhibit 10.43
34
10.21 Second Amendment to Lease Agreement 1993 10K Exhibit 10.44
dated August 31, 1989 and Consent to
Assignment of Lease between the Registrant
and Tierrasanta 234 dated September 9, 1993.
10.22 Letter Agreement between Ronald Feinstein 1993 10K Exhibit 10.45
and the Registrant dated March 4, 1994.
10.23 Nonstatutory Stock Option Agreement between 1993 10K Exhibit 10.46
Ronald Feinstein and the Registrant dated
February 11, 1994.
10.24 Third Amendment to Lease Agreement dated April 3, 1992 10Q for the Quarter
between the Registrant and the Massachusetts ended March 31, 1993
Institute of Technology Exhibit 10.47
10.25 Registrant's 1994 Stock Option Plan. 1994 10K Exhibit 10.48
10.26 Form of Non-statutory Stock Option Agreement 1994 10K Exhibit 10.49
for Registrant's 1994 Stock Option Plan.
10.27 Form of Special Non-statutory Stock Option Agreement 1994 10K Exhibit 10.50
for Registrant's 1994 Stock Option Plan.
10.28 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.51
Bell Atlantic-TriCon Leasing Corporation
10.29 Master Lease Agreement between Registrant and 1994 10K Exhibit 10.52
U.S. Leasing Corporation
Filed herewith:
10.30 Secured Promissory Note between Thomas E. Loper
and the Registrant, dated September 11, 1995.
10.31 Security and Pledge Agreement between
Thomas E. Loper and the Registrant,
dated September 11, 1995.
10.32 Asset Purchase Agreement dated May 17, 1995
between the Registrant and Martha's Vineyard
Hospital Foundation.
10.33 Form of the Non-statutory Stock Option
Agreement to Registrant's 1991 Stock
Option Plan
35
10.34 Form of the Non-statutory Stock Option
Agreement to Registrant's 1994 Stock
Option Plan
10.35 1995 Employee Stock Purchase Plan
10.36 Revolving Credit Agreement between
the First National Bank of Boston
and the Registrant, dated November 30, 1995
Exhibit 11. Earnings per Share
Filed herewith:
11.1 Statement re computation of per share earnings
Exhibit 21. Subsidiaries.
Filed herewith:
21.1 Subsidiaries of Lifeline Systems, Inc.
Exhibit 23. Consents of Experts and Counsel
Filed herewith:
23.1 Consent of Coopers and Lybrand L.L.P.
36
LIFELINE SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1995, 1994, and 1993
(Dollars in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs & End of
Description of Year Expenses Deductions/(1)/ Year
- ----------- ---------- -------- --------------- ----
1995
- ----
Allowance for doubtful receivables:
Trade accounts receivable $221 $ 65 $156
Lease receivables 304 87 217
---- ---- ----
Total $525 $152 $373
1994
- ----
Allowance for doubtful receivables:
Trade accounts receivable $246 $ 25 $221
Lease receivables 322 18 304
---- ---- ----
Total $568 $ 43 $525
1993
- ----
Allowance for doubtful receivables:
Trade accounts receivable $243 $ 5 $ 2 $246
Lease receivables 380 6 64 322
---- --- ---- ----
Total $623 $11 $ 66 $568
(1) Uncollectible accounts and adjustments.
37
EXHIBIT 10.30
Dated: September 11, 1995
SECURED PROMISSORY NOTE
-----------------------
FOR VALUE RECEIVED, the undersigned hereby promises to pay to Lifeline
Systems, Inc., a Massachusetts corporation with its principal offices in
Cambridge, Massachusetts ("Lifeline"), or order, the principal sum of One
Hundred Thousand ($100,000) Dollars in or within seven (7) years from the date
hereof. The outstanding principal balance hereunder shall, commencing September
11, 1995, bear interest at the rate of 6.30% per annum, payable annually in
arrears. This Note may be paid prior to maturity in whole or in part at the
discretion of the Maker; provided that all principal and accrued interest
hereunder shall be due and payable in full within ninety (90) days of the
Maker's termination of employment with Lifeline for any reason. The obligation
to pay the interest and principal on account of this Note is secured by a pledge
of 8,939 shares of Common Stock of Lifeline, pursuant to a Security and Pledge
Agreement of even date hereof which Security and Pledge Agreement sets forth the
rights and obligations of the parties in the event of default as defined in said
Pledge Agreement.
Payment of principal and interest hereunder shall be made in lawful money
of the United States at the offices of Lifeline, 640 Memorial Drive, Cambridge,
Massachusetts.
Maker of this Note hereby waives notice, presentation, and demand and
shall be liable for all reasonable expenses of collection in the event of
default including counsel fees of the Payee.
IN WITNESS WHEREOF, the undersigned has executed the within Note under
the seal as of the date first above mentioned.
/s/ Paul V. Vizzini /s/ Thomas E. Loper
- ------------------- -------------------
Witness Thomas E. Loper
-38-
EXHIBIT 10.31
SECURITY AND PLEDGE AGREEMENT
-----------------------------
This is a pledge agreement made as of the 11th day of September, 1995
between Thomas E. Loper, an individual residing at 29 Pleasant View Road,
Wilbraham, Massachusetts ("Pledgor") and LIFELINE SYSTEMS, INC., a Massachusetts
corporation with its principal office at 640 Memorial Drive, Cambridge,
Massachusetts
("Pledgee").
1. Pledge of Collateral. Pledgor hereby grants Pledgee a security
--------------------
interest in the shares of Lifeline Systems, Inc. Common Stock ("Shares")
identified in Exhibit A, annexed hereto, which Pledgor has delivered to Pledgee,
as well as such other instruments, documents, stock certificates, money and
goods as may come into Pledgee's possession from time to time, whether through
delivery by Pledgor or otherwise (the "Collateral").
2. Obligations Secured. The security interest in the Collateral
-------------------
granted hereby secures payment and performance of all debts, loans and
liabilities of Pledgor to Pledgee arising out of a promissory note from Pledgor
to Pledgee of even date herewith in the principal amount of One Hundred Thousand
$100,000 Dollars (the "Note"), together with all interests, fees, charges and
expenses with respect to such debt, loan or liability (the "Obligations").
3. Pledgee's Rights and Duties with Respect to the Collateral.
----------------------------------------------------------
Pledgee's only duty with respect to the Collateral shall be to exercise
reasonable care to secure the safe custody thereof. Pledgee shall have the
right but not the obligation to (a) demand, sue for, receive and collect all
money or money damages payable on account of any Collateral, (b) protect,
preserve or assert any other rights of Pledgor or take any other action with
respect to the Collateral, (c) pay any taxes, liens, assessments, insurance
premiums or other charges pertaining to Collateral. Any expenses incurred by
Pledgee under the preceding sentence shall be paid by Pledgor upon demand,
become part of the Obligations secured by the Collateral and bear interest at
the rate provided in the Note until paid. Pledgee shall be relieved of all
responsibility for the Collateral upon surrendering it to Pledgor.
4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants
----------------------------------
and covenants (a) that he is and will be the lawful owner of the Collateral, (b)
that the Collateral is and will remain free and clear of all liens, encumbrances
and security interests other than the security interest granted by Pledgor
hereunder, and (c) that Pledgor has the sole right and lawful authority to
pledge the Collateral and otherwise to comply with the provisions hereof. In
the event that any adverse claim is asserted in respect of the Collateral or any
portion thereof, except such as may result from an act of Pledgee not authorized
hereunder, Pledgor promises and agrees to indemnify Pledgee and hold Pledgee
harmless from and against any losses, liabilities, damages, expenses, costs and
reasonable counsel fees incurred by Pledgee in exercising any right, power or
remedy of Pledgee hereunder or defending, protecting or enforcing the security
interests created hereunder. Any such loss, liability or expense so incurred
shall be paid by Pledgor upon demand, become part of the Obligations secured by
the Collateral and bear interest at the rate provided in the Note until paid.
-39-
5. Voting of Collateral. While Pledgor is not in default hereunder,
--------------------
Pledgor may vote Shares pledged as Collateral.
6. Dividends And Other Distributions. While Pledgor is not in default
---------------------------------
hereunder, Pledgor may receive cash dividends and other cash distributions
payable with respect to Collateral. Pledgor shall cause all non-cash dividends
and distributions with respect to Collateral to be distributed directly to
Pledgee, to be held by Pledgee as additional Collateral, and if any such
distribution is made to Pledgor he shall receive such distribution in trust for
Pledgee and shall immediately transfer it to Pledgee.
7. Pledgor's Default. Pledgor shall be in default hereunder upon the
-----------------
occurrence of any of the following events:
(a) If Pledgor is not paying his debts as they become due, becomes
insolvent, files or has filed against him a petition under any chapter of the
United States Bankruptcy Code, 11 U.S.C. (S)101 et seq. (or any similar petition
------
under any insolvency law of any jurisdiction), proposed any liquidation,
composition or financial reorganization with his creditors, makes an assignment
or trust mortgage for the benefit of creditors, or if a receiver trustee,
custodian or similar agent is appointed or takes possession with respect to any
property or business of Pledgor;
(b) If Pledgor dies;
(c) If any lien, encumbrance or adverse claim of any nature
whatsoever is asserted with respect to any Collateral;
(d) If any warranty of Pledgor hereunder is or shall become false;
(e) If Pledgor fails to fulfill any obligation hereunder;
(f) If Pledgor fails to pay or perform any of the Obligations when
such payment of performance is due.
8. Pledgee's Right Upon Default. Upon the occurrence of any default as
----------------------------
defined in the preceding section, Pledgee may, if Pledgee so elects in its sole
option, subject at the times to compliance with the securities law and
regulations of the United States:
(a) at any time and from time to time sell, assign and deliver the
whole or any part of the Collateral at a sale through a broker in a public
market where securities of the type constituting such Collateral are usually
traded, without any advertisement, presentment, demand for performance, protest,
nature of protest, notice of dishonor or any other notice;
-40-
(b) at any time and from time to time sell, assign and deliver all
or any part of the Collateral, or any interest therein, at any other public or
private sale, for cash, on credit or for other property, for immediate or future
delivery without any assumption for credit risk, and for such price or prices
and on such terms as Pledgee in its absolute discretion may determine, provided
--------
that (i) at least ten days' notice of the time and place of any such sale shall
be given to Pledgor, and (ii) in the case of any private sale, such notice shall
also contain the terms of the proposed sale and Pledgee shall sell the
Collateral proposed to be sold to any purchaser procured by Pledgor who is
ready, willing and able to purchase, and who prior to the time of such sale
tenders the purchase price of, such Collateral on terms more favorable to
Pledgee than the terms contained in such notice;
(c) exercise the right to vote, the right to receive cash dividends
and other distributions, and all other rights with respect to the Collateral as
though Pledgee were the absolute owner thereof, whether or not such rights were
retained by Pledgor as against Pledgee before default; and
(d) exercise all other rights available to a secured party under
the Uniform Commercial Code and other applicable law.
Notwithstanding the foregoing, the Pledgor acknowledges and agrees that the
Pledgee may elect, with respect to the offer or sale of any or all of the
Collateral, to conduct such offer and sale in a manner as to avoid the need for
registration or qualification of the Collateral or the offer and sale thereof
under any Federal or state securities laws and that the Pledgee is authorized to
comply with any limitation or restriction in connection with such sale as
counsel may advise the Pledgee is necessary in order to avoid any violation of
applicable law, including, without limitation compliance with such procedures as
may restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral, or in order to obtain any
required approval of the sale or of the purchaser by any governmental body. The
Pledgee further acknowledges and agrees that any such transaction may be at
prices and on terms less favorable than those which may be obtained through a
public sale and not subject to such restrictions and agrees that,
notwithstanding and foregoing, the Pledgee is under no obligation to conduct any
such public sale and may elect to impose any or all of the foregoing
restrictions, or any other restrictions which may be necessary or desirable in
order to avoid any such registration or qualification, at its sole discretion
and that any such offer and sale shall be a commercially reasonable manner for
disposition or the Collateral.
9. Application Of Sale Proceeds. In the event of a sale of Collateral,
----------------------------
the proceeds shall first be applied to the payment of the expenses of the sale,
including brokers' commissions, counsel fees, any taxes or other charges imposed
by law upon the Collateral or the transfer thereof and all other charges paid or
incurred by Pledgee pertaining to the sale; and, second, to
-41-
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. Notices. All notices made or required to be made hereunder shall be
-------
sent by United States first class or certified or registered mail, with postage
prepaid, or delivered by hand to Pledgee or to Pledgor at the addresses first
above written. Notice by mail shall be deemed to have been made on the date
when the notice is deposited in the mail.
11. Heirs, Successors, Etc. This Pledge Agreement and all of its terms
----------------------
and provisions shall benefit and bind the heirs, successors, assigns,
transferees, executors and administrators of each of the parties hereto. If
this Pledge Agreement is executed by more than one Pledgor, then (a)
"Obligations" shall include the Obligations of either or both of the Pledgors,
(b) Pledgors shall be in default if any of the events described in Section 7
above takes place with respect to either Pledgor, (c) any notice required of
Pledgee shall be given to both Pledgors and (d) all Pledgors' covenants,
warranties and representations hereunder shall be joint and several.
12. Pledgee's Forbearance. Any forbearance, failure or delay by Pledgee
---------------------
in exercising any right, power or remedy hereunder shall not be deemed a waiver
of such right, power or remedy. Any single or partial exercise of any right,
power or remedy of Pledgee shall continue in full force and effect until such
right, power or remedy is specifically waived in writing by Pledgee.
EXECUTED under seal at Cambridge, Massachusetts, as of the date first
above written.
/s/ Ronald Feinstein /s/ Thomas E. Loper
- -------------------- -------------------
Ronald Feinstein Thomas E. Loper
President, Lifeline Systems, Inc.
Exhibit A To Security and Pledge Agreement
- ------------------------------------------
8,939 Shares of Lifeline Systems, Inc. Common Stock
-42-
EXHIBIT 10.32
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made and entered into this 17th day of May, 1995, by and
between Tele-Response & Support Services, Inc. ("Seller"), a Massachusetts
charitable corporation with principal offices at 175 Paramount Drive, Raynham,
MA 02767, Martha's Vineyard Hospital Foundation, the sole Member of the Seller
and a Massachusetts charitable corporation, with principal offices at Linton
Lane, Oak Bluffs, MA 02557 ("MVHF"), and Lifeline Systems, Inc., a
Massachusetts corporation with principal offices at 640 Memorial Drive,
Cambridge, MA 02139 ("Buyer").
Seller is engaged in the business of providing in-home personal response
services to subscribers who utilize Buyer's home communicators, and who are
monitored by Buyer's Lifeline Central(R) Monitoring Service. Seller desires
to sell to Buyer, and Buyer desires to purchase from Seller, substantially all
of the assets of Seller, for the consideration set forth below, as more fully
described in this Agreement.
In consideration of the foregoing and the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Assets to be Purchased from Seller. Simultaneously with the
----------------------------------
closing of the transactions contemplated hereby (the "Closing"), Seller is
selling, conveying, assigning, transferring and delivering to Buyer all of
Seller's right, title and interest in and to all of its assets (tangible and
intangible) (the "Assets"), including without limitation the assets described
below:
(a) all subscriber and inquiry files and all purchase history
information, in all forms in which such information is recorded, including,
without limitation, the name and address list of all subscribers (the
"Subscriber List");
(b) all inventory (the "Inventory") of Seller, wherever located,
including, without limitation, office supplies, raw materials, work in
process, finished goods, maintenance supplies, packaging materials, spare
parts and similar items of Seller;
-43-
(c) all accounts, accounts receivable, notes and notes receivable
existing on the Closing Date that are payable to Seller, including any
security held by Seller for the payment thereof (the "Accounts Receivable");
(d) cash in an amount equal to $100,000 (the "Current Assets");
(e) all prepaid expenses;
(f) all outstanding purchase orders (the "Purchase Orders");
(g) all fixtures, furnishings, equipment and appliances owned by
Seller (including all home communicators and other equipment being used by
subscribers) and all service agreements, license agreements and warranties
relating thereto;
(h) all rights of Seller under the contracts, agreements, leases,
licenses and other instruments set forth on Schedule 1.01 hereto (including
all of Seller's managed care contracts and its rights under the Asset
Purchase Agreement with Norwood Hospital and Neponset Valley Health System,
Inc. dated June 23, 1994);
(i) a copy of all records, history and analysis relating to
purchasing, selling, advertising and promotional activities, in all forms in
which such information is recorded, wherever located;
(j) all intangible property rights, including but not limited to
inventions, discoveries, trade secrets, processes, protocols, formulas, know-
how, United States and foreign patents, patent applications, trade names,
including the names "Tele-Response" and "Tele-Response & Support Services,
Inc." or any derivation thereof, trademarks, trademark registrations,
applications for trademark registrations (collectively, the "Trademarks"),
copyrights, copyright registrations, owned or, where not owned, used by Seller
and all licenses and other agreements to which Seller is a party (as licensor
or licensee) or by which Seller is bound relating to any of the foregoing
kinds of property or rights to any "know-how" or disclosure or use of ideas;
and
(k) all other assets, properties, claims, rights and interests of
Seller that exist on the date of Closing, of every kind and nature, whether
tangible or intangible, real, personal or mixed.
Notwithstanding the foregoing, the Assets shall not include Current Assets in
excess of $100,000.
1.02 Liabilities Retained by Seller. Seller is retaining and agrees to
------------------------------
perform, pay or discharge all of its liabilities
-44-
and obligations, including without limitation those relating to the Assets.
1.03 Deliveries by Seller. Simultaneously with the Closing, Seller shall
--------------------
deliver or cause to be delivered to Buyer the following:
(a) a Bill of Sale in the form of Exhibit 1.03a hereto;
-----
(b) an opinion of Choate Hall & Stewart, counsel to
Seller, in the form of Exhibit 1.03b hereto;
-----
(c) certificates of duly authorized officers of Seller, dated the
Closing Date, setting forth the resolutions of the Board of Trustees of
Seller and of MVHF authorizing the execution and delivery by Seller of this
Agreement and the consummation of the transactions contemplated hereby, and
certifying that such resolutions were duly adopted and have not been
rescinded or amended;
(d) a copy of the notice to Paramount Development Associates (the
"Landlord") pursuant to Article 14 of the lease between the Seller and
and the Landlord commencing September 1, 1993 (the "Lease") to the effect
that Buyer will be occupying the premises on an at-will basis after the
Closing (and to the effect that Buyer will not be assuming any of Seller's
obligations under the Lease);
(e) a report of a reputable lien search firm indicating that there
are no liens of record against any of the Assets;
(f) the written approval of the Attorney General of the
Commonwealth of Massachusetts with respect to the transaction contemplated
hereby;
(g) the consents of all parties necessary to enable the Buyer to
continue the business of the Seller after the Closing, including the consent
of all parties required under any managed care contracts or referral
contracts of the Seller;
(h) A true, correct and complete list and amount, as of the Closing
Date, of the Accounts Receivable, including an aging thereof; and
(i) Articles of Merger between Seller and MVHF;
(j) a tax lien waiver from the Department of Revenue of the
Commonwealth of Massachusetts; and
(k) such other instruments or documents as may be reasonably
necessary to carry out the transactions contemplated by this Agreement and
to comply with the terms hereof.
-45-
1.04 Deliveries by Buyer. Simultaneously with the Closing, Buyer shall
-------------------
deliver or cause to be delivered to Seller the following:
(a) by wire transfer or certified check in immediately available
funds, $1,000,000 (the "Initial Purchase Price");
(b) certificates of duly authorized officers of Buyer, dated the
Closing Date, setting forth the resolutions of the Board of Directors of
Buyer authorizing the execution and delivery by Buyer of this Agreement and
the consummation of the transactions contemplated hereby, and certifying that
such resolutions were duly adopted and have not been rescinded or amended; and
(c) such other instruments or documents as may be reasonably
necessary to carry out the transactions contemplated by this Agreement and
to comply with the terms hereof.
1.05 Additional Purchase Price Payments. Buyer will pay $100,000 to
----------------------------------
Seller on the 60th day following the Closing Date (together with the Initial
Purchase Price, the "Purchase Price").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and MVHF, jointly and severally, represent and warrant to Buyer as
follows:
2.01 Organization. Seller is a corporation, duly organized, validly
------------
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power and authority to carry on its business as
presently being conducted.
2.02 Authorization. The Board of Trustees of Seller and of MVHF have each
-------------
duly authorized the execution and delivery of this Agreement and the other
agreements, documents and instruments to be executed and delivered by Seller
pursuant hereto and the consummation by Seller of the transactions
contemplated hereby and thereby. No further corporate or other proceedings on
the part of Seller is necessary to authorize this Agreement or the other
agreements, documents and instruments to be executed and delivered by Seller
pursuant hereto or the transactions contemplated hereby or thereby.
2.03 Valid and Binding Agreement. Seller has the necessary power and
---------------------------
authority to enter into this Agreement and
-46-
the other agreements, documents and instruments to be executed and delivered
by Seller pursuant hereto, and to carry out the transactions contemplated
hereby and thereby. When fully executed and delivered, this Agreement and
each of the other agreements, documents and instruments to be executed and
delivered by Seller pursuant hereto will constitute valid and binding
agreements of Seller, enforceable against Seller in accordance with their
terms.
2.04 No Violation. Neither the execution and delivery of this Agreement
------------
or the other agreements, documents and instruments to be executed and
delivered by Seller pursuant hereto nor the consummation by Seller of the
transactions contemplated hereby or thereby (a) will violate any provision of
the Articles of Organization or By-laws of Seller, each as currently in
effect, (b) will violate or conflict with any applicable statute, law,
ordinance, rule, regulation, order, judgment or decree, or (c) will violate
or conflict with or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or will result in
the termination of, or accelerate the performance required by, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the Assets under, any contract, commitment, understanding, arrangement,
agreement or restriction of any kind by which the Assets are bound or
affected, to which the Assets are subject, or to which Seller is a party.
2.05 Consents; Filings. No registration or filing with, or consent,
-----------------
approval, permit, authorization or action by, any third party (including,
without limitation, any federal, state, local, foreign or other governmental
agency, instrumentality, commission, authority, board or body or other person
or entity, other than the consent of the Attorney General of the Commonwealth
of Massachusetts, which has already been obtained) is required in connection
with the execution and delivery by Seller of this Agreement or the other
agreements, documents and instruments to be executed and delivered by Seller
pursuant hereto or the consummation by Seller of the transactions contemplated
hereby or thereby.
2.06 Financial Statements. Seller has delivered to Buyer unaudited
--------------------
statements of income for the fiscal years ended September 30, 1992, 1993 and
1994 and for the six months ended March 31, 1995 (the "Financial Statements"),
and such statements of income are true, complete and accurate and fairly
present the results of operations for the periods therein referred to on a
stand-alone basis in accordance with generally accepted accounting principles
consistently applied throughout such periods, except that no notes are
included therewith.
-47-
2.07 No Material Adverse Change. No material adverse change in the
--------------------------
business prospects, operations or condition of Seller or in the Assets has
occurred since September 30, 1994.
2.08 Compliance with Law. The operations of Seller have been conducted in
-------------------
substantial accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all states,
municipalities and other political subdivisions and agencies thereof, having
jurisdiction over Seller, including without limitation, all such laws,
regulations and requirements relating to antitrust, consumer protection,
employee benefit, equal opportunity, health, occupational safety, pension or
pollution or environmental protection matters. Seller has not received any
notification of any asserted present or past failure to comply with such laws,
rules or regulations.
2.09 Tax Matters. Except to the extent set forth on Schedule 2.09
----------- -------------
attached hereto, Seller has filed all federal, state and local tax returns
which are required to be filed and has paid all taxes, interests, penalties,
assessments and deficiencies which have become due or which have been claimed
to be due. Seller is current in the payment of all income, franchise, real
estate, sales, use and withholding taxes and other employee benefits, taxes
or imposts. Except as set forth on Schedule 2.09 attached hereto, no
deficiencies have been asserted or assessed as a result of any audit by the
Internal Revenue Service or any state or local taxing authority and no such
deficiency or audit has been proposed or threatened.
2.10 Good Title. Seller has complete and unrestricted power and the
----------
unqualified right to sell, convey, assign, transfer and deliver to Buyer, and
upon payment of the Initial Purchase Price, Buyer will acquire, good, valid
and marketable (and, with respect to the Trademarks, recordable) title to the
Assets, free and clear of title defects or objections, liens, claims, charges,
security interests or other encumbrances of any nature whatsoever. The Bill
of Sale provided for in Section 1.03 constitute valid and binding obligations
of Seller and will effectively vest in Buyer good, valid and marketable (and,
with respect to the Trademarks, recordable) title to all of the Assets.
2.11 Trademarks. Seller owns and has the sole and exclusive right to use
----------
the Trademarks. No claims have been asserted by any person against Seller in
regard to its use of the Trademarks (and Seller does not know of any valid
basis for any such claim), and the use of the Trademarks does not infringe on
the rights of any person.
2.12 No Undisclosed Liabilities. Seller has no liabilities or
--------------------------
obligations of any nature (whether absolute,
-48-
accrued, known or unknown, contingent or otherwise and whether due or to
become due) which are not disclosed on the most recent Financial Statement.
2.13 Subscriber List. The Subscriber List contains the names and
---------------
addresses of all subscribers and customers of Seller as of the date hereof,
and all of the persons on the Subscriber List pay Seller more than a nominal
amount on a monthly basis. Seller has no reason to believe that any of the
contracts listed on Exhibit 2.13 hereto (the "Managed Care Contracts") will
not be renewed upon the expiration thereof on June 30, 1995.
2.14 Accounts Receivable. Schedule 2.14 attached hereto sets forth a
------------------- -------------
true, correct and complete list of all Accounts Receivable, including an aging
thereof as of May 15, 1995. All accounts receivable arose out of sales of
inventory or services in the ordinary course of business and are collectible
in the face value thereof within 90 days of the date of invoice, using normal
collection procedures, net of the reserve for doubtful accounts as set forth
in the Financial Statements, which reserve is adequate and was calculated in
accordance with generally accepted accounting principles consistently applied.
On the Closing Date, the sum of the Accounts Receivable and the Current Assets
shall be at least $205,000 as calculated in accordance with generally accepted
accounting principles consistently applied.
2.16 Purchase Orders. Seller has heretofore made available to Buyer
---------------
true and correct copies of the Purchase Orders. The Purchase Orders were
made in the ordinary course of business and consistent with past practice of
the business of Seller and are for inventory of quality and quantity usable,
salable and merchantable at first quality prices without discount or
reduction, other than any discount or reduction taken in the ordinary course
of business consistent with past practice for promotional purposes, in the
ordinary course of business and consistent with past practice of the Seller.
2.17 Brokers. Seller is not obligated to pay, nor has Seller retained any
-------
broker or finder or other person who is entitled to, any broker's or finder's
fee or any other commission or financial advisory fee based on any agreement
or understanding made by Seller in connection with the transactions
contemplated hereby.
-49-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
3.01 Organization. Buyer is a corporation duly organized, validly existing
------------
and in good standing under the laws of the Commonwealth of Massachusetts, and
Buyer has the power and authority to carry on its business as presently being
conducted.
3.02 Authorization. The Board of Directors of Buyer has duly authorized the
-------------
execution and delivery of this Agreement and the other agreements, documents
and instruments to be executed and delivered by Buyer pursuant hereto and the
consummation by Buyer of the transactions contemplated hereby and thereby. No
further corporate or other proceedings on the part of Buyer are necessary to
authorize this Agreement or the other agreements, documents and instruments to
be executed and delivered by Buyer pursuant hereto or the transactions
contemplated hereby or thereby.
3.03 Valid and Binding Agreement. Buyer has the necessary power and
---------------------------
authority to enter into this Agreement and the other agreements, documents and
instruments to be executed and delivered by Buyer pursuant hereto, and to
carry out the transactions contemplated hereby and thereby. When fully
executed and delivered, this Agreement and each of the other agreements,
documents and instruments to be executed and delivered by Buyer pursuant
hereto will constitute valid and binding agreements of Buyer, enforceable
against Buyer in accordance with their terms.
3.04 No Violation. Neither the execution and delivery of this Agreement or
------------
the other agreements, documents and instruments to be executed and delivered
by Buyer pursuant hereto nor the consummation by Buyer of the transactions
contemplated hereby or thereby (a) will violate any provision of the Articles
of Organization or By-laws of Buyer, each as currently in effect, or (b) will
violate or conflict with any applicable statute, law, ordinance, rule,
regulation, order, judgment or decree.
3.05 Consents; Filings. No registration or filing with, or consent,
-----------------
approval, permit, authorization or action by, any third party (including,
without limitation, any federal, state, local, foreign or other governmental
agency, instrumentality, commission, authority, board or body or other person
or entity) is required in connection with the execution and delivery by Buyer
of this Agreement or the other
-50-
agreements, documents and instruments to be executed and delivered by Buyer
pursuant hereto or the consummation by Buyer of the transactions contemplated
hereby or thereby.
3.06 Brokers. Buyer is not obligated to pay, nor has Buyer retained any
-------
broker or finder or other person who is entitled to, any broker's or finder's
fee or any other commission or financial advisory fee based on any agreement
or understanding made by Buyer in connection with the transactions
contemplated hereby.
ARTICLE IV
CERTAIN COVENANTS OF THE PARTIES
4.01 Purchase Price Allocation. The allocation of the Purchase Price,
-------------------------
which shall be utilized by the parties hereto in connection with the
preparation of their respective federal and state tax returns and the return
required by Section 1060 of the Internal Revenue Code of 1986, as amended,
shall be as set forth on Schedule 4.01, attached hereto. Such allocation shall
-------------
be subject to adjustment to the extent that the Purchase Price is adjusted
pursuant to the terms of this Agreement.
4.02 Non-competition.
---------------
(a) For a period of five (5) years after the Closing Date, neither
Seller nor MVHF shall, and they shall cause their respective affiliates to
not, directly or indirectly, (i) engage in any business competitive with the
business of the Seller as conducted on the date hereof or on the Closing Date,
in the United States or (ii) recruit, solicit or hire any employee or former
employee of Seller.
(b) The parties hereto agree that the duration and geographic scope
of the non-competition provision set forth in this Section 4.02 are reasonable.
In the event that any court determines that the duration or the geographic
scope, or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in
full force and effect for the greatest time period and in the greatest area
that would not render it unenforceable. The parties intend that this non-
competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America. Seller and MVHF agree that damages are an inadequate remedy for any
breach of this provision and that Buyer shall, whether or not it is pursuing
any potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision.
-51-
4.03 Employees. Seller and MVHF shall satisfy all severance obligations
---------
related to each person employed by Seller prior to or at the Closing Date who
is to become employed by Buyer after the Closing Date. Seller and MVHF shall
cooperate with Buyer in Buyer's efforts to obtain the employment of those
employees of Seller who Buyer desires to hire.
4.04 Subscriber List. Neither Seller nor MVHF shall retain a copy of the
---------------
Subscriber List.
4.05 Mail; Referrals. Seller and MVHF agree, and shall cause their
---------------
respective affiliates to agree, that all mail addressed to Seller or MVHF
relating to the business of Seller or the Assets shall be delivered to Buyer
at the address specified pursuant to Section 8.02, and that all inquiries to
Seller or MVHF or their respective affiliates regarding personal emergency
response services will be referred by Seller and MVHF to Buyer.
4.06 Use of Name. Seller and MVHF agree not to use after the Closing Date
-----------
the name "Tele-Response" or "Tele-Response & Support Services, Inc." or any
derivation thereof or name similar thereto, or any name or mark that is
associated with, or confusingly similar to, any other name or mark used in the
personal response industry.
4.07 Repurchase of Accounts Receivable.
---------------------------------
(a) For a period of 90 days after the Closing Date (the "Collection
Period"), Buyer shall use its reasonable efforts (consistent with its current
practice regarding the collection of accounts receivable due from subscribers)
to collect the Accounts Receivable. Buyer may, but shall not be obligated to,
use a collection agency or commence legal actions in connection with such
collection efforts. Promptly after the expiration of the Collection Period,
Buyer shall give notice to Seller designating those Accounts Receivable which
have not been collected as of the end of the Collection Period and which Buyer
wishes Seller and MVHF to purchase. Within fifteen (15) days after receipt of
such notice from Buyer, Seller and MVHF shall purchase (without recourse to
Buyer) such designated Accounts Receivable then remaining unpaid for a
purchase price equal to the face amount thereof.
(b) In the event that any payment received by Buyer during the
Collection Period is remitted by a customer which is indebted under both
Accounts Receivable and an account receivable arising out of the sale of
inventory or services in the ordinary course of business after the Closing Date
(a "New Receivable"), such payments shall first be applied to the Accounts
Receivable due from such customer and the balance remaining after payment in
full of all Accounts Receivable due
-52-
from such customer shall be applied to the New Receivable; provided, however,
that (i) with respect to any Account Receivable being contested or disputed by
the payor thereof, no portion of the amount in dispute shall be deemed to have
been collected by Buyer in respect of the Account Receivable due from such
customer (unless otherwise directed by the customer) until all amounts owed by
such customer to Buyer for New Receivables have been paid or such dispute has
been resolved, whichever occurs first (it being understood that undisputed
amounts of Accounts Receivable shall be applied in accordance with the
priorities set forth above in this Section 4.07) and (ii) the foregoing
priorities shall not apply to sums received by Buyer which are specifically
identified by the customer as being tendered in payment of a New Receivable.
(c) Seller hereby authorizes Buyer to open any and all mail addressed
to Seller (if delivered to Buyer) if received on or after the Closing Date and
hereby grants to Buyer a power of attorney to endorse and cash any checks or
instruments made payable or endorsed to Seller or its order and received by
Buyer.
(d) Seller and MVHF agree that they will forward promptly to Buyer any
monies, checks or instruments received by them after the Closing Date with
respect to the Accounts Receivable, except with respect to those Accounts
Receivable which are repurchased by Seller pursuant to this Section 4.07.
4.08 Proprietary Information.
-----------------------
(a) Seller and MVHF each agree to hold in confidence, and use its best
efforts to have all of its officers, directors, personnel and affiliates hold
in confidence, all knowledge and information of a secret or confidential nature
with respect to the business of Seller and shall not disclose, publish or make
use of the same without the written consent of Buyer, except to the extent that
such information shall have become public knowledge other than by breach of
this Agreement by Seller or any of its officers, directors, personnel or
affiliates.
(b) Seller and MVHF each agree that the remedy at law for any breach of
this Section 4.08 would be inadequate and that Buyer shall be entitled to
injunctive relief in addition to any other remedy it may have upon breach of
any provision of this Section 4.08.
-53-
ARTICLE V
CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of Buyer under this agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of Buyer:
5.01 Delivery of Documents. Seller shall have delivered to Buyer all items
---------------------
described in Section 1.03 above.
5.02 Certain Assets. The sum of the Accounts Receivable and Current Assets
--------------
shall, in Buyer's reasonable judgment, equal or exceed $205,000 (provided,
however, that the occurrence of the Closing shall not be deemed an agreement
by Buyer that such condition shall have been met).
5.03 Due Diligence. Seller shall have provided to Buyer access to all
-------------
materials, information and customers requested by Buyer to allow Buyer to
conduct a thorough due diligence review of all aspects of Seller's business in
such detail as the Buyer in its discretion deems appropriate, and Buyer shall
in its sole discretion be satisfied with the results of that review in both
scope and substance.
5.04 Subscribers. At the Closing Date, Seller shall have at least 3,900
-----------
paying subscribers (i.e., persons paying more than a nominal amount on a
monthly basis) who utilize Buyer's home communicators and who are monitored by
Lifeline Central. Of such subscribers, at least 2,757 shall be persons who are
not Medicaid Subscribers.
5.05 Continued Truth of Representations and Warranties of Seller; Compliance
-----------------------------------------------------------------------
with Covenants and Obligations. The representations and warranties of Seller
- ------------------------------
shall be true on and as of the Closing Date as though such representations and
warranties were made on and as of such date, except for any changes permitted
by the terms hereof or consented to in writing by Buyer. Seller shall have
performed and complied with all terms, conditions, covenants, obligations,
agreements and restrictions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
5.06 Employment Agreement. The Buyer shall have entered into an employment
--------------------
agreement with Mary Elizabeth Marden in form satisfactory to Buyer in its sole
discretion.
-54-
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each
of which may be waived in writing in the sole discretion of Seller:
6.01 Delivery of Documents. Buyer shall have delivered to Seller all
---------------------
items described in Section 1.04 above.
6.02 Continued Truth of Representations and Warranties of Buyer;
-----------------------------------------------------------
Compliance with Covenants and Obligations. The representations and warranties
- -----------------------------------------
of Buyer shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for
any changes permitted by the terms hereof or consented to in writing by
Seller. Buyer shall have performed and complied with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.01 Survival. The representations and warranties and covenants
--------
contained in this Agreement shall not be deemed waived by any investigation at
any time made by or on behalf of any party and shall survive the closing of the
transactions contemplated hereby and shall be fully effective and enforceable
forever; provided, however, that (i) the representations and warranties
contained in Sections 2.06, 2.07, 2.08, 2.11, 2.12, 2.13, 2.14, 2.15, 2.16,
2.17 and 3.06 shall survive the Closing and shall be fully effective and
enforceable until eighteen months after the date hereof, and thereafter shall
be of no further force or effect, and (ii) the representations and warranties
contained in Section 2.09 shall survive the Closing and shall be fully
effective and enforceable until the expiration of the statute of limitations
applicable thereto, and thereafter shall be of no further force or effect,
except, in the case of representations or warranties referenced in clause (i)
or (ii) above, as they relate to any claim for indemnification made before such
date pursuant to Section 7.02.
7.02 Indemnification.
---------------
(a) Seller and MVHF, jointly and severally, shall indemnify, defend,
and hold harmless Buyer and its subsidiaries and affiliates and its directors,
officers, employees and agents (collectively, "Buyer's Indemnified
-55-
Persons"), and reimburse Buyer's Indemnified Persons for, from and against all
payments, demands, claims, suits, judgments, liabilities, losses, costs,
damages and expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees, disbursements and expenses, imposed on or incurred
by Buyer's Indemnified Persons, directly or indirectly, which relate to or
arise out of (i) breach of any representation and warranty of, or covenant to
be performed by, Seller or MVHF, in each case contained in this Agreement or in
any other agreement specifically referred to herein, (ii) any of the
liabilities or obligations retained by Seller pursuant to Section 1.02, (iii)
the failure of Seller or of Buyer to comply with any bulk sales laws applicable
to the transactions contemplated hereby, (iv) any warranty expenses incurred by
Buyer in excess of the reserve established by Seller on the most recent
Financial Statement relating to products shipped prior to the Closing Date, or
(v) any tax liabilities of Seller.
Notwithstanding the foregoing, the indemnification obligations under this
Section 7.02(a) shall be subject to the following limitations:
(i) no indemnification shall be payable pursuant to this Section 7.02(a)
unless the total of all claims for indemnification pursuant to this Section
7.02(a) shall exceed Ten Thousand Dollars ($10,000) in the aggregate (in which
case, Seller shall be liable for the entire amount for which it is providing
indemnification hereunder, and not just the amount in excess of $10,000), and
(ii) the indemnification obligations under this Section 7.02(a) shall
belimited, in the aggregate, to the Purchase Price.
(b) Buyer shall indemnify, defend, and hold harmless Seller and each of
Seller's subsidiaries and affiliates and their respective partners, directors,
officers, employees and agents (collectively, "Seller's Indemnified Persons"),
and reimburse Seller's Indemnified Persons for, from, and against all payments,
demands, claims, suits, judgments, liabilities, losses, costs, damages and
expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees, disbursements and expenses, imposed on or incurred by Seller's
Indemnified Persons, directly or indirectly, which relate to, or arise out of
breach of any representation and warranty of Buyer or covenant to be performed
by Buyer, in each case contained in this Agreement or in any other agreement
specifically referred to herein.
(c) An indemnified party under this Section 7.02 or any successor
thereto (the "Indemnified Party") shall give prompt written notice to an
indemnifying party (the "Indemnifying
-56-
Party") of any payments, demands, claims, suits, judgments, liabilities,
losses, costs, damages or expenses (a "Claim") in respect of which such
Indemnifying Party has a duty to provide indemnity to such Indemnified Party
under this Section 7.02, except that any delay or failure so to notify the
Indemnifying Party only shall relieve the Indemnifying Party of its obligations
hereunder to the extent, if at all, that it is prejudiced by reason of such
delay or failure.
(d) If a Claim is brought or asserted by a third party (a "Third Party
Claim"), the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all expenses. The Indemnified Party shall have the right to employ
separate counsel in such Third Party Claim and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party. In the event that the Indemnifying Party, within 20
days after written notice of any Third Party Claim, fails to assume the defense
thereof, the Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Third Party Claim for the account of the
Indemnifying Party. Anything in this Section 7.02(d) to the contrary
notwithstanding, the Indemnifying Party shall not, without the Indemnified
Party's prior written consent, settle or compromise any Third Party Claim or
consent to the entry of any judgment with respect to any Third Party Claim
which would have any adverse effect on the Indemnified Party, except as
provided immediately below. The Indemnifying Party may, without the
Indemnified Party's prior written consent, settle or compromise any such Third
Party Claim or consent to entry of any judgment with respect to any Third Party
Claim which requires solely money damages paid by the Indemnifying Party and
which includes as an unconditional term thereof the release by the claimant or
the plaintiff of the Indemnified Party from all liability in respect of such
Third Party Claim.
(e) With respect to any Claim other than a Third Party Claim, the
Indemnifying Party shall have 30 days from receipt of written notice from the
Indemnified Party of such Claim within which to respond thereto. If the
Indemnifying Party does not respond within such 30-day period, the Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such Claim. If the
Indemnifying Party notifies the Indemnified Party within such 30-day period
that it rejects such Claim in whole or in part, the Indemnified Party shall be
free to pursue such remedies as may be available to the Indemnified Party under
applicable law.
7.03 Confidentiality. The parties hereto agree to cooperate in such a
---------------
manner as to preserve in full the confidentiality of all confidential business
records and the
-57-
attorney-client and work-product privileges. In connection therewith, each
party hereto agrees that:
(a) it will use all reasonable efforts, in any action, suit or
proceeding in which it has assumed or participated in the defense, to avoid
production of confidential business records; and
(b) all communications between any party hereto and counsel
responsible for, or participating in, the defense of any action, suit or
proceeding shall, to the extent possible, be made so as to preserve any
applicable attorney-client or work-product privilege.
7.04 Remedies Cumulative. Except as otherwise provided herein, the
-------------------
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
7.05 Set-off. Any amount or amounts due from Seller to Buyer under
-------
this Section 7 may be paid to Buyer, at Buyer's option, by set-off against any
amounts due to Seller pursuant to this Agreement or pursuant to any agreement
contemplated hereby. Any such set-off will be without prejudice to Buyer's
right to pursue any other remedies at law or in equity available to it.
ARTICLE VIII
GENERAL PROVISIONS
8.01 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
Buyer if such failure is by Seller and by Seller if such failure is by Buyer,
but such waiver shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure. No failure by any party to take any action
against any breach of this Agreement or default by the other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
8.02 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be sent by personal delivery or
registered or certified mail, postage prepaid, or by telecopier as follows:
(a) if to Seller or MVHF:
-58-
Tele-Response & Support Services, Inc.
c/o Martha's Vineyard Hospital Foundation, Inc.
P.O. Box 1477
Linton Lane
Oak Bluffs, MA 02557
Attn: Chief Financial Officer
with a copy to:
Choate Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Willie J. Washington, Esq.
(b) if to Buyer:
Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139
Attention: Ronald Feinstein, President
with a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Norman B. Asher, Esq.
Any party may change its address for receiving notice by written notice given
to the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
8.03 Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
8.04 Parties in Interest. This Agreement shall bind and inure to the
-------------------
benefit of the parties named herein and their respective heirs, successors and
assigns. This Agreement shall not be assignable by any party without the prior
written consent of the other parties, except that Buyer may assign its rights
under this Agreement to any affiliate of Buyer.
8.05 Further Assurances. From time to time, at the request of any party
------------------
hereto and without further consideration, the other parties will execute and
deliver to such requesting party such documents and take such other action (but
without incurring any material financial obligation) as such requesting party
may reasonably request in order to consummate more effectively the transactions
contemplated hereby,
-59-
including, without limitation, vesting in Buyer good, valid and marketable
title to the Assets.
8.06 Entire Transaction. This Agreement and the other agreements,
------------------
documents and instruments referred to herein contain the entire understanding
among the parties with respect to the transactions contemplated hereby and
supersede all other agreements and understandings among the parties.
8.07 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal substantive laws of the Commonwealth
of Massachusetts, and the parties hereby consent to the sole jurisdiction of
Massachusetts courts over all matters relating to this Agreement.
8.08 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.09 Expenses. Except as otherwise expressly provided herein, each
--------
party to this Agreement shall pay its own costs and expenses in connection
with the transactions contemplated hereby.
8.10 Announcements. Except as required by law, no announcement of
-------------
this Agreement or the transactions contemplated hereby shall be made by either
party without the written approval of the other parties which approval shall
not be unreasonably withheld.
8.11 Third Parties. Except as specifically set forth or referred to
-------------
herein, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any person or entity other than the parties hereto
and their successors or assigns, any rights or remedies under or by reason of
this Agreement.
8.12 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
-60-
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed all as of the day and year first written above.
TELE-RESPONSE & SUPPORT SERVICES, INC.
By: /s/ Claude G. Davis
------------------------------------
Title: Chairman
MARTHA'S VINEYARD HOSPITAL FOUNDATION, INC.
By: /s/ Calhoun L. Howard
-------------------------------------
Title: Chairman of the Board of Directors
LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
-------------------------------------
Title: Chief Financial Officer
-61-
EXHIBIT 2.13 TO ASSET PURCHASE AGREEMENT
a. WestMass ElderCare
b. Tri-Valley Elder Services, Inc.
c. SouthShore Elder Services, Inc.
d. Old Colony Elderly Services, Inc.
e. Elder Care of Merrimack Valley, Inc.
f. Highland Valley Elder Services, Inc.
g. Greater Springfield Senior Services, Inc.
h. Elder Services of Cape Cod & the Islands
i. Boston Senior Home Care
j. Elder Services of Berkshire County
-62-
EXHIBIT 10.33
LIFELINE SYSTEMS, INC.
AMENDED AND RESTATED
--------------------
SPECIAL NON-STATUTORY STOCK OPTION AGREEMENT
--------------------------------------------
This agreement amends and restates in its entirety this special stock option
agreement dated ____________ which is hereby superseded and of no further
force or effect.
1. Grant of Option. Lifeline Systems, Inc., a Massachusetts corporation (the
---------------
"Company"), hereby grants to _______________ (the "Optionee") an option,
pursuant to the Company's 1991 Stock Option Plan (the "Plan"), to purchase an
aggregate of _____ shares of Common Stock, $.02 par value per share ("Common
Stock") of the Company at a price of $_____ per share, purchasable as set forth
in, and subject to the terms and conditions of, this option and the Plan.
Except where the context otherwise requires, the term "Company" shall include
the parent and all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code").
2. Non-Statutory Stock Option. This option is not intended to qualify as an
--------------------------
incentive stock option under Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
-------------------------------------------------
(a) Vesting and Conditions of Exercise. Except as otherwise provided in
----------------------------------
this Agreement, this option may be exercised prior to the seventh anniversary of
----------------------
the date of the grant (herein after the "Expiration Date") in installments as to
- ---------------------
not more than the numbers of shares and during the respective installment
periods set forth in the table below.
One third (1/3) of the aggregate shares on April 15 of the year
following the first year ending after the date hereof in which the Company's
after-tax earnings are at least ___ cents per share; and
One third (1/3) of the aggregate shares on April 15 of each of the
next two following years.
In the event that vesting has not occurred according to the above schedule, all
- -------------------------------------------------------------------------------
shares shall vest on the Sixth Anniversary of the date of grant.
- ----------------------------------------------------------------
-63-
Expiration Date shall be the earlier of (i) Seven (7) years from the Effective
Date and (ii) three (3) months from the death or termination of Optionee's
employment as provided in subsection (d) and (e) of this Section 3. The right
of exercise shall be cumulative so that if the option is not exercised to the
maximum extent permissible during any exercise period, it shall be exercisable,
in whole or in part, with respect to all shares not so purchased at any time
prior to the Expiration Date or the earlier termination of this option. This
option may not be exercised at any time on or after the Expiration Date, except
as otherwise provided in Section 3(e) below.
(b) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement, this option shall be exercised by the Optionee's delivery of written
notice of exercise to the Treasurer of the Company specifying the number of
shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise
shall be effective upon receipt by the Treasurer of the Company of such written
notice together with the required payment. The Optionee may purchase fewer than
the total number of shares covered hereby, provided that no partial exercise of
this option may be for any fractional share or for fewer than ten whole shares.
(c) Continuous Relationship With the Company Required. Except as otherwise
-------------------------------------------------
provided in this Section 3, this option may not be exercised unless the
Optionee, at the time he or she exercises this option, is, and has been at all
times since the date of grant of this option, an employee, officer, or director
of, or consultant or advisor to, the Company (an "Eligible Optionee").
(d) Termination of Relationship With the Company. If the Optionee ceases
--------------------------------------------
to be an Eligible Optionee of the Company for any reason, then, except as
provided in paragraphs (e) and (f) below, the right to exercise this option
shall terminate three months after such cessation (but in no event after the
Expiration Date), provided that this option shall be exercisable only to the
-------------
extent that the Optionee was entitled to exercise this option on the date of
such cessation. Notwithstanding the foregoing, if the Optionee, prior to the
Expiration Date, materially violates the non-competition or confidentiality
provisions of any employment contract, confidentiality and nondisclosure
agreement or other agreement between the Optionee and the Company, the right to
exercise this option shall terminate immediately upon written notice to the
Optionee from the Company describing such violation.
(e) Exercise Period Upon Death or Disability. If the Optionee dies or
----------------------------------------
becomes disabled (within the meaning of SectionE22(e)(3) of the Code) prior to
the Expiration Date, while he or she is an Eligible Optionee, or if the Optionee
dies within three months after the Optionee ceases to be an Eligible Optionee of
the Company (other than as the result of a termination of such relationship by
the Company for "cause" as specified in paragraph (f) below), this option shall
be exercisable, within the period of one year following the date of death or
disability of the Optionee (whether or not such exercise occurs before the
Expiration Date), by the Optionee or by the personto whom this option is
transferred by will or the laws of descent and distribution, provided that this
-------------
option
-64-
shall be exercisable only to the extent that this option was exercisable
by the Optionee on the date of his or her death or disability. Except as
otherwise indicated by the context, the term "Optionee", as used in this option,
shall be deemed to include the estate of the Optionee or any person who acquired
the right to exercise this option by bequest or inheritance or otherwise by
reason of the death of the Optionee.
(f) Discharge for Cause. If the Optionee, prior to the Expiration Date,
-------------------
ceases his or her relationship with the Company because such relationship is
terminated by the Company for "cause" (as defined below), the right to exercise
this option shall terminate immediately upon such cessation. "Cause" shall mean
willful misconduct by the Optionee or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of any employment,
consulting, advisory, nondisclosure, non-competition or other similar agreement
between the Optionee and the Company), as determined by the Company, which
determination shall be conclusive. The Optionee shall be considered to have
been discharged for "cause" if the Company determines, within 30 days after the
Optionee's resignation, that discharge for cause was warranted.
4. Payment of Purchase Price.
-------------------------
(a) Method of Payment. Payment of the purchase price for shares purchased
-----------------
upon exercise of this option shall be made by (i) delivery to the Company of
cash or a check to the order of the Company in an amount equal to the purchase
price of such shares, (ii) subject to the consent of the Company, by delivery to
the Company of shares of Common Stock of the Company then owned by the Optionee
for a period of at least six (6) months and having a fair market value equal in
amount to the purchase price of such shares, (iii) by any other means which the
Board of Directors determines are consistent with the purpose of the Plan and
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 under the Securities Exchange Act of 1934, Regulation T
promulgated by the Federal Reserve Board, and Section 162(m) of the Code to the
extent this option is intended to qualify as performance-based compensation
within the meaning of that Section), or (iv) by any combination of such methods
of payment.
(b) Valuation of Shares or Other Non-Cash Consideration Tendered in Payment
-----------------------------------------------------------------------
of Purchase Price. For the purposes hereof, the fair market value of any share
- -----------------
of the Company's Common Stock or other non-cash consideration which may be
delivered to the Company in exercise of this option shall be determined in good
faith by the Board of Directors of the Company.
(c) Delivery of Shares Tendered in Payment of Purchase Price. If the
--------------------------------------------------------
Company permits the Optionee to exercise options by delivery of shares of Common
Stock of the Company, the certificate or certificates representing the shares
of Common Stock of the Company to be delivered shall be duly executed in blank
by the Optionee or shall be accompanied by a stock power duly executed in blank
suitable for purposes of transferring such shares to the Company.
-65-
Fractional shares of Common Stock of the Company will not be accepted in
payment of the purchase price of shares acquired upon exercise of this option.
(d) Restrictions Upon Use of Option Stock. Notwithstanding the foregoing, no
-------------------------------------
shares of Common Stock of the Company may be tendered in payment of the purchase
price of shares purchased upon exercise of this option if the shares to be
tendered were acquired within twelve (12) months before the date of such tender,
through the exercise of an option granted under the Plan or any other stock
option or restricted stock plan of the Company.
5. Delivery of Shares; Compliance With Securities Law, Etc.
-------------------------------------------------------
(a) General. The Company shall, upon payment of the option price for the
-------
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee, provided that if any law or regulation requires the Company to
take any action with respect to such shares before the issuance thereof, then
the date of delivery of such shares shall be extended for the period necessary
to complete such action.
(b) Listing, Qualification, Etc. This option shall be subject to the
---------------------------
requirements that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject hereto upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of non-
public information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure, or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure or satisfy such other condition.
6. Nontransferability of Option. Except as provided in Section 3(e) of this
----------------------------
Agreement or in Section 9 of the Plan, this option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option and
such rights shall, at the election of the Company, become null and void.
7. No Special Employment of Similar Rights. Nothing contained in the Plan or
---------------------------------------
this option shall be construed or deemed by any person under any circumstances
to bind the Company to continue the employment or other relationship of the
Optionee with the Company for the period within which this option may be
exercised.
-66-
8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder
-----------------------
with respect to any shares which may be purchased by exercise of this option
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) unless and until a certificate
representing such shares is duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
9. Adjustment Provisions.
---------------------
(a) General. If, through or as a result of any merger, consolidation, sale
-------
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the
Optionee shall, with respect to this option or any unexercised portion hereof,
be entitled to the rights and benefits, and be subject to the limitations, set
forth in Section 14(a) of the Plan.
(b) Board Authority to Make Adjustments. Any adjustments under this Section
-----------------------------------
9 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under this option on
account of any such adjustments.
10. Mergers, Consolidation, Distributions, Liquidations, Etc. In the event of a
--------------------------------------------------------
merger or consolidation or sale of all or substantially all of the assets of
the Company, in which outstanding shares of the Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity,
or in the event of a liquidation of the Company, prior to the Expiration Date or
termination of this option, the Optionee shall, with respect to this option or
any unexercised portion hereof, be entitled to the rights and benefits, and be
subject to the limitations, set forth in Section 15(a) of the Plan. In the
event of a change in control as defined in Section 12(c) of the Plan, the
Optionee shall be entitled to the rights and benefits provided in Section 12(c)
of the Plan.
11. Withholding Taxes. The Company's obligation to deliver shares upon the
-----------------
exercise of this option shall be subject to the Optionee's satisfaction of all
applicable federal, state and local income and employment tax withholding
requirements.
12. Miscellaneous.
-------------
(a) Except as provided herein, this option may not be amended or otherwise
modified unless evidenced in writing and signed by the Company and the Optionee.
-67-
(b) All notices under this option shall be mailed or delivered by hand to
the parties at their respective addresses set forth beneath their names below or
at such other address as may be designated in writing by either of the parties
to one another.
(c) This option shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
(d) The attached agreement supersedes, in its entirety the special non-
statutory stock option agreement.
Date of Grant: LIFELINE SYSTEMS, INC.
640 Memorial Drive
Cambridge, MA 02139
By:________________________
Ronald Feinstein
Title: President/CEO
---------------------
-68-
OPTIONEE ACCEPTANCE
The undersigned hereby accepts the foregoing performance option and agrees
to the terms and conditions thereof. The undersigned hereby acknowledges
receipt of a copy of the Company's 1991 Stock Option Plan.
OPTIONEE:______________________________
-69-
EXHIBIT 10.34
LIFELINE SYSTEMS, INC.
AMENDED AND RESTATED
--------------------
SPECIAL NON-STATUTORY STOCK OPTION AGREEMENT
--------------------------------------------
This agreement amends and restates in its entirety this special stock option
agreement dated _______________ which is hereby superseded and of no further
force or effect.
1. Grant of Option. Lifeline Systems, Inc., a Massachusetts corporation (the
---------------
"Company"), hereby grants to _______________ (the "Optionee") an option,
pursuant to the Company's 1994 Stock Option Plan (the "Plan"), to purchase an
aggregate of _____ shares of Common Stock, $.02 par value per share ("Common
Stock") of the Company at a price of $_____ per share, purchasable as set forth
in, and subject to the terms and conditions of, this option and the Plan.
Except where the context otherwise requires, the term "Company" shall include
the parent and all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code").
2. Non-Statutory Stock Option. This option is not intended to qualify as an
--------------------------
incentive stock option under Section 422 of the Code.
3. Exercise of Option and Provisions for Termination.
-------------------------------------------------
(a) Vesting and Conditions of Exercise. Except as otherwise provided in
----------------------------------
this Agreement, this option may be exercised prior to the seventh anniversary of
----------------------
the date of the grant (herein after the "Expiration Date") in installments as to
- ---------------------
not more than the numbers of shares and during the respective installment
periods set forth in the table below.
One third (1/3) of the aggregate shares on April 15 of the year
following the first year ending after the date hereof in which the Company's
after-tax earnings are at least ___ cents per share; and
One third (1/3) of the aggregate shares on April 15 of each of the
next two following years.
In the event that vesting has not occurred according to the above schedule, all
- -------------------------------------------------------------------------------
shares shall vest on the Sixth Anniversary of the date of grant.
- ----------------------------------------------------------------
-70-
Expiration Date shall be the earlier of (i) Seven (7) years from the Effective
Date and (ii) three (3) months from the death or termination of Optionee's
employment as provided in subsection (d) and (e) of this Section 3. The right
of exercise shall be cumulative so that if the option is not exercised to the
maximum extent permissible during any exercise period, it shall be exercisable,
in whole or in part, with respect to all shares not so purchased at any time
prior to the Expiration Date or the earlier termination of this option. This
option may not be exercised at any time on or after the Expiration Date, except
as otherwise provided in Section 3(e) below.
(b) Exercise Procedure. Subject to the conditions set forth in this
------------------
Agreement, this option shall be exercised by the Optionee's delivery of written
notice of exercise to the Treasurer of the Company specifying the number of
shares to be purchased and the purchase price to be paid therefor and
accompanied by payment in full in accordance with Section 4. Such exercise
shall be effective upon receipt by the Treasurer of the Company of such written
notice together with the required payment. The Optionee may purchase fewer than
the total number of shares covered hereby, provided that no partial exercise of
this option may be for any fractional share or for fewer than ten whole shares.
(c) Continuous Relationship With the Company Required. Except as otherwise
-------------------------------------------------
provided in this Section 3, this option may not be exercised unless the
Optionee, at the time he or she exercises this option, is, and has been at all
times since the date of grant of this option, an employee, officer, or director
of, or consultant or advisor to, the Company (an "Eligible Optionee").
(d) Termination of Relationship With the Company. If the Optionee ceases to
--------------------------------------------
be an Eligible Optionee of the Company for any reason, then, except as provided
in paragraphs (e) and (f) below, the right to exercise this option shall
terminate three months after such cessation (but in no event after the
Expiration Date), provided that this option shall be exercisable only to the
-------------
extent that the Optionee was entitled to exercise this option on the date of
such cessation. Notwithstanding the foregoing, if the Optionee, prior to the
Expiration Date, materially violates the non-competition or confidentiality
provisions of any employment contract, confidentiality and nondisclosure
agreement or other agreement between the Optionee and the Company, the right to
exercise this option shall terminate immediately upon written notice to the
Optionee from the Company describing such violation.
(e) Exercise Period Upon Death or Disability. If the Optionee dies or
----------------------------------------
becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to
the Expiration Date, while he or she is an Eligible Optionee, or if the Optionee
dies within three months after the Optionee ceases to be an Eligible Optionee of
the Company (other than as the result of a termination of such relationship by
the Company for "cause" as specified in paragraph (f) below), this option shall
be exercisable, within the period of one year following the date of death or
disability of the Optionee (whether or not such exercise occurs before the
Expiration Date), by the Optionee or by the personto whom this option is
transferred by will or the laws of descent and distribution, provided that this
-------------
option shall be exercisable only to the extent that this option was exercisable
by the Optionee on the date
-71-
of his or her death or disability. Except as otherwise indicated by the
context, the term "Optionee", as used in this option, shall be deemed to
include the estate of the Optionee or any person who acquired the right to
exercise this option by bequest or inheritance or otherwise by reason of the
death of the Optionee.
(f) Discharge for Cause. If the Optionee, prior to the Expiration Date,
-------------------
ceases his or her relationship with the Company because such relationship is
terminated by the Company for "cause" (as defined below), the right to exercise
this option shall terminate immediately upon such cessation. "Cause" shall mean
willful misconduct by the Optionee or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of any employment,
consulting, advisory, nondisclosure, non-competition or other similar agreement
between the Optionee and the Company), as determined by the Company, which
determination shall be conclusive. The Optionee shall be considered to have
been discharged for "cause" if the Company determines, within 30 days after the
Optionee's resignation, that discharge for cause was warranted.
4. Payment of Purchase Price.
-------------------------
(a) Method of Payment. Payment of the purchase price for shares purchased
-----------------
upon exercise of this option shall be made by (i) delivery to the Company of
cash or a check to the order of the Company in an amount equal to the purchase
price of such shares, (ii) subject to the consent of the Company, by delivery to
the Company of shares of Common Stock of the Company then owned by the Optionee
for a period of at least six (6) months and having a fair market value equal in
amount to the purchase price of such shares, (iii) by any other means which the
Board of Directors determines are consistent with the purpose of the Plan and
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 under the Securities Exchange Act of 1934, Regulation T
promulgated by the Federal Reserve Board, and Section 162(m) of the Code to the
extent this option is intended to qualify as performance-based compensation
within the meaning of that Section), or (iv) by any combination of such methods
of payment.
(b) Valuation of Shares or Other Non-Cash Consideration Tendered in Payment
-----------------------------------------------------------------------
of Purchase Price. For the purposes hereof, the fair market value of any share
- -----------------
of the Company's Common Stock or other non-cash consideration which may be
delivered to the Company in exercise of this option shall be determined in good
faith by the Board of Directors of the Company.
(c) Delivery of Shares Tendered in Payment of Purchase Price. If the
--------------------------------------------------------
Company permits the Optionee to exercise options by delivery of shares of Common
Stock of the Company, the certificate or certificates representing the shares
of Common Stock of the Company to be delivered shall be duly executed in blank
by the Optionee or shall be accompanied by a stock power duly executed in blank
suitable for purposes of transferring such shares to the Company.
-72-
Fractional shares of Common Stock of the Company will not be accepted in
payment of the purchase price of shares acquired upon exercise of this option.
(d) Restrictions Upon Use of Option Stock. Notwithstanding the foregoing, no
-------------------------------------
shares of Common Stock of the Company may be tendered in payment of the purchase
price of shares purchased upon exercise of this option if the shares to be
tendered were acquired within twelve (12) months before the date of such tender,
through the exercise of an option granted under the Plan or any other stock
option or restricted stock plan of the Company.
5. Delivery of Shares; Compliance With Securities Law, Etc.
-------------------------------------------------------
(a) General. The Company shall, upon payment of the option price for the
-------
number of shares purchased and paid for, make prompt delivery of such shares to
the Optionee, provided that if any law or regulation requires the Company to
take any action with respect to such shares before the issuance thereof, then
the date of delivery of such shares shall be extended for the period necessary
to complete such action.
(b) Listing, Qualification, Etc. This option shall be subject to the
---------------------------
requirements that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject hereto upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of non-
public information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure, or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure or satisfy such other condition.
6. Nontransferability of Option. Except as provided in Section 3(e) of this
----------------------------
Agreement or in Section 9 of the Plan, this option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option or of
such rights contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon this option or such rights, this option and
such rights shall, at the election of the Company, become null and void.
7. No Special Employment of Similar Rights. Nothing contained in the Plan or
---------------------------------------
this option shall be construed or deemed by any person under any circumstances
to bind the Company to continue the employment or other relationship of the
Optionee with the Company for the period within which this option may be
exercised.
-73-
8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder
-----------------------
with respect to any shares which may be purchased by exercise of this option
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) unless and until a certificate
representing such shares is duly issued and delivered to the Optionee. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
9. Adjustment Provisions.
---------------------
(a) General. If, through or as a result of any merger, consolidation, sale
-------
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i)Ethe outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii)Eadditional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the
Optionee shall, with respect to this option or any unexercised portion hereof,
be entitled to the rights and benefits, and be subject to the limitations, set
forth in Section 14(a) of the Plan.
(b) Board Authority to Make Adjustments. Any adjustments under this Section
-----------------------------------
9 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under this option on
account of any such adjustments.
10. Mergers, Consolidation, Distributions, Liquidations, Etc. In the event of a
--------------------------------------------------------
merger or consolidation or sale of all or substantially all of the assets of
the Company, in which outstanding shares of the Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity,
or in the event of a liquidation of the Company, prior to the Expiration Date or
termination of this option, the Optionee shall, with respect to this option or
any unexercised portion hereof, be entitled to the rights and benefits, and be
subject to the limitations, set forth in Section 15(a) of the Plan. In the
event of a change in control as defined in Section 12(c) of the Plan, the
Optionee shall be entitled to the rights and benefits provided in Section 12(c)
of the Plan.
11. Withholding Taxes. The Company's obligation to deliver shares upon the
-----------------
exercise of this option shall be subject to the Optionee's satisfaction of all
applicable federal, state and local income and employment tax withholding
requirements.
12. Miscellaneous.
-------------
(a) Except as provided herein, this option may not be amended or otherwise
modified unless evidenced in writing and signed by the Company and the Optionee.
-74-
(b) All notices under this option shall be mailed or delivered by hand to
the parties at their respective addresses set forth beneath their names below or
at such other address as may be designated in writing by either of the parties
to one another.
(c) This option shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
(d) The attached agreement supersedes, in its entirety the special non-
statutory stock option agreement.
Date of Grant: LIFELINE SYSTEMS, INC.
640 Memorial Drive
Cambridge, MA 02139
By:________________________
Ronald Feinstein
Title: President/CEO
---------------------
-75-
OPTIONEE ACCEPTANCE
The undersigned hereby accepts the foregoing performance option and agrees
to the terms and conditions thereof. The undersigned hereby acknowledges
receipt of a copy of the Company's 1994 Stock Option Plan.
OPTIONEE:_________________________
-76-
EXHIBIT 10.35
LIFELINE SYSTEMS, INC.
640 Memorial Drive
Cambridge, MA 02139
Telephone: (617) 679-1000
200,000 SHARES OF COMMON STOCK
($.02 par value per share)
1995 EMPLOYEE STOCK PURCHASE PLAN
------------------------------
The shares of common stock $.02 par value per share (the "Common Stock"), of
Lifeline Systems, Inc. (the "Company") covered by this Prospectus are offered as
set forth under the heading "DESCRIPTION OF THE 1995 EMPLOYEE STOCK PURCHASE
PLAN" to certain employees, including officers and directors who are employees,
of the Company under the Company's 1995 Employee Stock Purchase Plan (the
"Plan"). This Prospectus also covers such additional shares that may be
issuable under the Plan in the event of any stock dividend, split-up of shares,
recaptialization or other similar change in the Common Stock.
The members of the Board of Directors and officers of the Company, who may be
deemed to be "affiliates", may resell shares of the Company's Common Stock
purchased under the Plan only in accordance with certain restrictions imposed by
the Securities Act of 1933, as amended (the "Securities Act") and Rule 144
promulgated thereunder. Any director or officer acquiring shares under the Plan
should consult with legal counsel prior to reselling shares of Common Stock.
See "RESALE OF SHARES BY OFFICERS AND DIRECTORS".
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act. The date of this Prospectus is May
17, 1995.
-77-
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information concerning the Company may be inspected at the Commission's Public
Reference Room, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Copies of such material, or any portion thereof, may be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. The Company's
Common Stock is traded on the NASDAQ National Market under the symbol "LIFE"
The Company has filed with the Commission a Registration statement on Form S-8
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, as certain items
are omitted in accordance with the rules and regulations of the Commission.
Statements contained in this prospectus concerning the contents of any agreement
or other document referred to are not necessarily complete. Where such agreement
or other document is an exhibit to the Registration Statement registering the
shares offered under the Plan, each such statement is qualified in all respects
by the provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof. For further information pertaining to the
Company and shares of Common Stock offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates.
------------------------------
-78-
The Company hereby undertakes to provide, without charge, upon written or oral
request of any participant in the Plan or any person to whom this Prospectus is
delivered, a copy of any and all documents incorporated by reference in this
Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Any other
documents required to be delivered to participants pursuant to Rule 428(b) under
the Securities Act shall also be provided, without charge, upon written or oral
request of any participant in the Plan. Requests for such information should be
addressed to Corporate Secretary, Lifeline Systems, Inc., 640 Memorial Drive,
Cambridge, Massachusetts 02139, telephone (617) 679-1000.
------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OTHER PERSON DEEMED TO
BE AN UNDERWRITER. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE DATES
AS OF WHICH CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SHARES COVERED BY THIS PROSPECTUS BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OF SOLICITATION.
------------------------------
-79-
TABLE OF CONTENTS
Page
THE COMPANY........................................... 1
DESCRIPTION OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN.. 1
Introduction..................................... 1
Principal Features............................... 2
Administration................................. 2
Shares Available; Offerings.................... 2
Eligibility.................................... 3
Participation in the Plan...................... 3
Payroll Deductions............................. 3
Number of Shares Subject to Option............. 4
Option Exercise Price.......................... 4
Exercise of Option............................. 5
Withdrawal..................................... 5
Nontransferability of Interest................. 5
Termination of Employment...................... 6
Certificates................................... 6
Amendment; Termination......................... 6
Merger or Consolidation........................ 6
Federal Income Tax Consequences.................. 7
Employee Retirement Income Security Act of 1974
RESALE OF SHARES BY OFFICERS AND DIRECTORS............ 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....... 8
-80-
THE COMPANY
Lifeline Systems, Inc., a Massachusetts corporation (the "Company"), is the
issuer of the shares of Common Stock covered by this Prospectus. Its principal
offices are located at 640 Memorial Drive, Cambridge, Massachusetts 02139, and
its telephone number is (617) 679-1000.
DESCRIPTION OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN
Introduction
This Prospectus relates to 200,000 shares of the Common Stock, $.02 par
value per share, of the Company (the "Common Stock") issuable to employees of
the Company pursuant to the terms of the Company's 1995 Employee Stock Purchase
Plan (the "Plan").
The purpose of the Plan is to provide employees of the Company and, if
applicable, certain of its subsidiaries, an opportunity to acquire a proprietary
interest in the Company through the purchase of Common Stock. As stockholders,
employees will share in the financial profit or loss of the Company and will run
the usual stockholder's risks that the value of the Common Stock may go up or
down. Neither the Company nor anyone else can guarantee the future value of the
Common Stock. The decision, therefore, as to whether or not an employee should
participate in the Plan must be made individually on the basis of each
employee's own economic circumstances.
The Plan permits employees of the Company to purchase shares of Common
Stock from the Company through a series of offerings (referred to herein
collectively as "Offerings" and individually as an "Offering"). Each employee
who elects to participate in an Offering will be deemed to have been granted an
option to purchase up to the number of shares of Common Stock determined by the
formula described below under the subheading "Number of Shares Subject to
Option." During such Offering, participants will accrue funds in an account
through payroll deductions. The funds in this account at the end of such
Offering, will be applied to the purchase of Common Stock, up to the maximum
number of shares for which the option was previously granted, at a 10% discount
from the lower of the closing price of Common Stock on the date on which the
offering commenced (the "Offering Commencement Date") or the date on which the
Offering terminated(the "Offering Termination Date").
The Plan was adopted by the Board of Directors of the Company on March 31,
1995 and approved by the stockholders of the Company on May 17, 1995. The Plan
will remain in effect until the termination of the Plan by the Board of
Directors.
-81-
The description of the Plan contained in this Prospectus is qualified in
its entirety by reference to the Plan, copies of which are available upon
request to the Company.
Principal Features of the Plan
Administration. The Plan is administered by the Company's Board of
--------------
Directors or by a committee (the "Committee") designated by the Board of
Directors. If the Board of Directors has not designated any such Committee, all
references herein to the Committee shall be to the Board of Directors. The
directors are elected by the Stockholders of the Company in accordance with the
provisions of the Restated Certificate of Incorporation, as amended, and the By-
Laws of the Company, as amended. The members of the Committee, if any, serve at
the pleasure of the full Board. The interpretation and construction of any
provision of the Plan and the adoption of all rules and regulations for
administering the Plan are made by the Committee, subject to the final
jurisdiction of the Board of Directors.
Employees may obtain additional information about the Plan and its
administrators from the Corporate Secretary of the Company, 640 Memorial drive,
Cambridge, Massachusetts 02139, telephone (617) 679-1000.
Shares Available; Offerings. The total number of shares issuable under the
---------------------------
Plan is limited to 200,000 shares of Common stock (subject to adjustment in the
event of any change of outstanding shares of Common Stock by reason of stock
dividend or subdivision or in the event of any other change affecting the Common
Stock).
The Company will make ten Offerings to employees to purchase Common Stock
under the Plan. Offerings will begin on each May 1 and November 1, or the first
business day thereafter, except that the first Offering Commencement Date will
be June 1, 1995. Each Offering will be for a period of six months.
Participation in any one or more of the Offerings under the Plan neither limits,
nor requires, participation in any other Offering.
If the total number of shares for which options are exercised on any
Offering Termination Date exceeds the number of shares remaining available for
issuance under the Plan, the shares of Common Stock available in such Offering
will be allocated by the Committee on a pro rata basis. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares. The Company may purchase shares on the open market in order to
have shares available for purchase by participants in each Offering.
-82-
Eligibility. An employee is eligible to participate in an Offering if he
-----------
or she (i) is employed by the Company or any designated subsidiary on the
applicable Offering Commencement Date, (ii) is regularly employed by the Company
or any designated subsidiary for 20 or more hours per week and for more than
five months in a calendar year and (iii) has been employed by the Company or any
designated subsidiary for at lease six months prior to enrolling in the Plan.
No employee may be granted an option under the Plan if, immediately after
such grant, the employee would own stock, and/or immediately after such grant,
the employee would own stock, and/or hold outstanding options to purchase stock,
possessing 5% or more of the total voting power or value of all classes of stock
of the Company or any of its subsidiaries. No employee may be granted an option
under the plan which would give him or her the right to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries at a rate
which exceeds $25,000 of the fair market value of the Common Stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding at any time.
Participation in the Plan. Participation in the Plan is voluntary. An
-------------------------
eligible employee may become a participant in any Offering by completing an
authorization for a payroll deduction on the form provided by the Company (the
"Authorization") and filing it with the Office of Human Resources of the Company
at least seven (7) but not more than (30) days prior to the applicable Offering
Commencement Date.
Payroll Deductions. When an eligible employee files an Authorization, he
------------------
or she must elect to have deductions made from his or her pay during the time he
or she is a participant in an Offering at the rate of 1, 2, 3, 4, 5, 6, 7, 8, 9,
or 10% of his or her compensation on the applicable Offering Commencement Date.
For this purpose, compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding incentive or
bonus awards, allowances and reimbursements for expenses, such as relocation
allowances for travel expenses and executive medical reimbursements, income or
gains on the exercise of stock options, and similar items, but including
overtime and shift premium.
All payroll deductions made for a participant shall be credited to his or
her account under the Plan. A participant may not make any separate cash
payment into such account. An employee may not increase or decrease his or her
payroll deduction rate during an Offering. The Company does not intend to
provide reports to participants as to the amount and status of their respective
accounts unless requested by a participant.
-83-
No interest will be paid or allowed on any money paid into the Plan during
any Offering period or credited to the account of any participating employee
during such Offering period except as otherwise specified in the Plan or by the
Committee.
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose and the Company is not
obligated to segregate such payroll deductions.
Number of Shares Subject to Option. A participant in an Offering shall be
----------------------------------
deemed to have been granted an option to purchase a maximum number of shares of
Common Stock equal to an amount determined as follows: (I) multiplying 150% of
the participant's annualized base pay as of the Offering Commencement Date by
the percentage of compensation the participant elected to have withheld, (ii)
dividing such product by 90% 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 500 shares. This option is granted automatically to
all participating employees on the applicable Offering Commencement Date.
Participants will not receive a separate option agreement.
A participant may not purchase shares of Common Stock in excess of the
maximum number of shares subject to the option granted to such participant on
the applicable Offering Commencement Date. Participants have no rights or
interests as stockholders in the shares of Common Stock covered by options until
shares covered by such options have been purchased and issued to the
participant.
Option Exercise Price. The purchase price of a share of common Stock
---------------------
purchased with payroll deductions made during each Offering will be the lower
of:
(i) 90% of the closing price of the Common Stock on the Offering
Commencement Date; or
(ii) 90% of the closing price of the Common Stock on the Offering
Termination Date.
For example, if the closing price of the Common Stock was $5 on the
applicable Offering Commencement Date and if $6 on the applicable Offering
Termination Date, the option exercise price for the Offering will be $4.50 (90%
of $5). If the closing price on such Offering Termination Date.is $4, the
option exercise price will be $3.60 (90% of $4).
-84-
Such closing price will be (a) the closing price on any national securities
exchange on which the Common Stock is listed, or (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.
Exercise of Option. Unless a participant gives proper notice of withdrawal
------------------
to the Company, his or her option will be automatically exercised on the
applicable Offering Termination Date for the purchase of the number of full
shares of Common Stock that may be purchased at the applicable option exercise
price, up to a maximum number of shares of Common Stock equal to the number of
shares for which the option was granted. Any funds remaining in the
participant's account following such purchase will be returned following the
termination of each Offering. No option may be exercised unless and until any
applicable registration requirements, listing requirements and any other
requirements of law have been fully complied with.
Withdrawal. A participant may withdraw the accumulated payroll deductions
----------
in his or her account at any time prior to the applicable Offering Termination
Date of an Offering by giving written notice of withdrawal to the appropriate
payroll office of the Company. All of the participant's payroll deductions
credited to his or her account will be paid to the participant and no further
payroll deductions will be made from his or her pay during the remainder of the
Offering.
A participant's withdrawal from an Offering will not have any effect upon
his or her eligibility to participate in any succeeding Offering, unless such
participant is a member of the Board of Directors of the Company or an officer
of the Company within the meaning of Section 16 of the Exchange Act, in which
case such director or officer is subject to the provisions of Rule 16b-3, which
generally prohibits such director or officer from participating in another
Offering for a period of a least six months following the date of withdrawal.
Nontransferability of Interests. Rights under the Plan, including any
-------------------------------
rights of a participant to receive stock under the Plan, are not transferable by
the participant other than by will or the laws of descent and distribution, and
are exercisable during the participant's lifetime only by the participant.
Neither the Plan nor any agreement in connection therewith provides that any
person has or may create a lien on any funds, securities, or other property held
under the Plan.
-85-
Termination of Employment. Upon termination of a participant's employment
-------------------------
for any reason, all of the payroll deductions credited to such participant's
account will be returned to the participant, or, in the case of the death of the
participant, (a) to a beneficiary previously designated in a revocable notice
signed by the participant (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 participant's estate of (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such other
person(s) as the Company may, in its discretion, designate.
Certificates. As promptly as practicable after each Offering Termination
------------
Date, the Company will deliver to each participant certificates representing the
Common Stock purchased upon the exercise of such participant's option.
Certificates will be issued in the name of the participant or, if the
participant so directs, in the names of the participant and one such other
person as may be designated by the participant, 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.
Each participant agrees, by entering the Plan, to promptly give the Company
notice of any disposition of shares purchased under the Plan if such disposition
occurs within two years after the date of grant of the option pursuant to which
such shares were purchased.
Amendment Termination. The Board may at any time terminate or amend the
---------------------
Plan, provided that no such amendment may be made without prior approval of the
stockholders of the Company if such approval is required under Rule 16b-3
promulgated under the Exchange Act, Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor rule or regulation to the
foregoing, and in no event may any amendment be made which would cause the Plan
to fail to comply with Section 16 of the Exchange Act and the rules promulgated
thereunder or Section 423 of the Code.
Merger or Consolidation. In the event of a merger in which the Company is
-----------------------
not the surviving entity, or a sale of all or substantially all of the Company's
assets, the Plan will terminate, and all payroll deductions will be returned
with interest, as provided in the Plan; provided, however, that the Board of
Directors may in its discretion accelerate the applicable Offering Termination
Date and permit participants to purchase shares at such accelerated date. The
Board may also in its discretion accelerate the applicable Offering Termination
Date in the Plan.
-86-
Federal Income Tax Consequences
The Plan is intended to qualify as an "Employee Stock Purchase Plan" within
the meaning of Section 423 of the Code, which provides that the participant does
not have to pay any federal income tax upon joining the Plan or when an Offering
ends and he or she receives shares of the Common Stock. The participant is,
however, required to pay federal income tax on the difference, if any, between
the price at which he or she sells the shares and the price which he or she paid
for them.
The amount which a participant elects to have deducted from his or her base
pay for the purchase of Common Stock under the Plan constitutes compensation and
is includable in such participant's gross income for federal income tax
purposes.
If the participant has owned the shares for more than one year and disposes
of them at least two years after the date the Offering commenced, he or she will
be taxed as follows. If the market price of the shares on the date they are
sold is less than the price paid for the shares under the Plan, the participant
will incur a long-term capital loss in the amount equal to the price paid over
the sale price. If the sale price is higher than the price paid under the Plan,
the participant will have to recognize ordinary income in an amount equal to the
lesser of (a) the market price of the shares on the day the Offering commenced
over the priced paid or (b) the excess of the sale price over the price paid.
Any further gain is treated as a long-term capital gain.
If the participant sells the shares before he or she has owned them for
more than one year or before the expiration of a two-year period commencing on
the date the Offering commenced, the participant will have to recognize ordinary
income in the amount of the difference between the actual purchase price and the
market price of the shares on the date of purchase and the Company will receive
an expense deduction for the same amount. The participant will recognize a
capital gain or loss for the difference between the sale price and the market
price on the date of purchase. The gain or loss will be long-term if the
participant owned the shares for more than one year.
Except as provided in the preceding paragraph, the Company will not be
entitled to a tax deduction upon the purchase or sale of shares under the Plan.
This tax summary is general and does not apply to gifts or any dispositions
other than sales. In addition, in some individual cases, it will be important
to consider the state and foreign tax consequences of participation in the Plan
and the effect, if any, of gift, estate and inheritance taxes. For precise
advice as to your specific transactions, you should consult your tax advisor.
Employee Retirement Income Security Act of 1974
The Plan is not qualified under Section 401 (a) of the Code and the Company
believes that the Plan is not subject to the Employee Retirement Income Security
Act of 1974.
-87-
RESALE OF SHARES BY OFFICERS AND DIRECTORS
Shares of Common Stock purchased upon exercise of options granted under the
Plan may be resold freely, except that any participant deemed to be an
"affiliate" of the Company, within the meaning of the Securities Act and the
rules and regulations promulgated thereunder, may not sell shares acquired upon
exercise of options granted under the Plan unless such shares have been
registered by the Company under the Securities Act for resale by such affiliate
or an exemption from registration under the Securities Act is available. Rule
144 under the Securities Act provides an exemption from registration provided
certain limitations on the manner of sale and the amount of shares sold are
observed. An employee who is not an executive officer, director or 10%
stockholder of the company generally would not be deemed to be an "affiliate" of
the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are filed with the Commission, are
incorporated in this Prospectus by reference:
(1) The company's latest annual report filed pursuant to Sections 13(a) or
15(d) of the Exchange Act or the latest prospectus filed pursuant to Rule
424(b) under the Securities Act that contains audited financial statements
for the registrant's latest fiscal year for which such statements have been
filed.
(2) All other reports filed pursuant to Sections 13 (a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the document
referred to in (1) above.
(3) The description of the Common Stock of the Company contained in a
Registration Statement filed under the Exchange Act, including any
amendment or report filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15 (d) of the Exchange Act prior to the filing of a post-
effective amendment which indicates that all shares of Common Stock offered
hereby have been sold or which deregisters all shares of Common Stock then
remaining unsold, shall be deemed to be incorporated by reference herein
and to be part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a document which also is or
is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
-88-
EXHIBIT 10.36
REVOLVING CREDIT AGREEMENT
Dated as of November 30, 1995
TABLE OF CONTENTS
Section Title Page
- ------- ----- ----
SECTION I - DEFINITIONS
1.1 Definitions............................................. 1
1.2 Accounting Terms........................................ 7
SECTION II - DESCRIPTION OF CREDIT
2.1 The Loans............................................... 7
2.2 Notice and Manner of Borrowing or Conversion of Loans... 8
2.3 Commitment Fee.......................................... 8
2.4 Reduction of Commitment Amount.......................... 8
2.5 The Note................................................ 9
2.6 Duration of Interest Periods............................ 9
2.7 Interest Rates and Payments of Interest................. 9
2.8 Changed Circumstances................................... 10
2.9 Capital Requirements.................................... 11
2.10 Payments and Prepayments of the Loans................... 12
2.11 Method of Payment....................................... 12
2.12 Overdue Payments........................................ 12
2.13 Payments not at End of Interest Period.................. 12
2.14 Computation of Interest and Fees........................ 13
SECTION III - CONDITIONS OF LOAN
3.1 Conditions Precedent to Initial Loan.................... 13
3.2 Conditions Precedent to all Loans....................... 14
SECTION IV - REPRESENTATIONS AND WARRANTIES
4.1 Organization and Qualification.......................... 15
4.2 Corporate Authority..................................... 15
4.3 Valid Obligations....................................... 15
-89-
4.4 Consents or Approvals................................... 15
4.5 Title to Properties; Absence of Encumbrances............ 16
4.6 Financial Statements.................................... 16
4.7 Changes................................................. 16
4.8 Defaults................................................ 16
4.9 Taxes................................................... 16
4.10 Litigation.............................................. 16
4.11 Use of Proceeds......................................... 17
4.12 Subsidiaries............................................ 17
4.13 Investment Company Act, etc............................. 17
4.14 Compliance with ERISA................................... 17
4.15 Environmental Matters................................... 17
SECTION V - AFFIRMATIVE COVENANTS
5.1 Financial Statements and other Reporting Requirements... 18
5.2 Conduct of Business..................................... 19
5.3 Maintenance and Insurance............................... 19
5.4 Taxes................................................... 20
5.5 Inspection by the Bank.................................. 20
5.6 Maintenance of Books and Records........................ 20
5.7 Consolidated Total Liabilities to Consolidated
Tangible Net Worth Ratio.............................. 20
5.8 EBITDA.................................................. 20
5.9 Subsidiary Guarantees................................... 21
5.10 Further Assurances...................................... 21
SECTION VI - NEGATIVE COVENANTS
6.1 Indebtedness............................................ 21
6.2 Contingent Liabilities.................................. 21
6.3 Sale and Leaseback...................................... 22
6.4 Encumbrances............................................ 22
6.5 Merger; Consolidation; Sale or Lease of Assets.......... 23
6.6 Additional Stock Issuance............................... 23
6.7 Capital Expenditures.................................... 23
6.8 Investments............................................. 23
6.9 ERISA................................................... 24
SECTION VII - DEFAULTS
7.1 Events of Default....................................... 24
7.2 Remedies................................................ 26
-90-
SECTION VIII - MISCELLANEOUS
8.1 Notices................................................. 26
8.2 Expenses................................................ 27
8.3 Set-Off................................................. 27
8.4 Term of Agreement....................................... 27
8.5 No Waivers.............................................. 28
8.6 Governing Law........................................... 28
8.7 Amendments.............................................. 28
8.8 Binding Effect of Agreement............................. 28
8.9 Counterparts............................................ 28
8.10 Partial Invalidity...................................... 28
8.11 Captions................................................ 28
8.12 Waiver of Jury Trial.................................... 28
8.13 Entire Agreement........................................ 29
-91-
THIS REVOLVING CREDIT AGREEMENT is made as of November 30, 1995, by and
between LIFELINE SYSTEMS, INC. (the "Company"), a Massachusetts corporation
-------
having its chief executive office at 640 Memorial Drive, Cambridge,
Massachusetts 02139 and THE FIRST NATIONAL BANK OF BOSTON (the "Bank"), a
----
national banking association having its head office at 100 Federal Street,
Boston, Massachusetts 02110.
SECTION I
---------
DEFINITIONS
-----------
1.1. Definitions.
-----------
All capitalized terms used in this Agreement or in the Note or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
Accounts. All rights of the Company to payment for goods sold or leased or
--------
for services rendered or to be rendered, all sums of money or other proceeds due
or becoming due thereon, all instruments pertaining thereto, all guarantees and
security therefor, and the Company's rights pertaining to and interest in such
goods, including the right of stoppage in transit, replevin or reclamation; all
chattel paper; all amounts due from affiliates of the Company; all insurance
proceeds; all other rights and claims to the payment of money, under contracts
or otherwise; and all other property constituting "accounts" as such term is
defined in the Uniform Commercial Code as in effect in The Commonwealth of
Massachusetts.
Adjusted Eurodollar Rate. Applicable to any Interest Period, shall mean a
------------------------
rate per annum determined pursuant to the following formula, rounded upwards, if
necessary, to the next higher 1/100 of 1%:
Adjusted Eurodollar Rate = Interbank Offered Rate
-------------------------
1.00 - Reserve Percentage
Where:
"Interbank Offered Rate" means the rate of interest determined by the
----------------------
Bank to be the prevailing rate per annum at which deposits in U.S. dollars
are offered to the Bank by first-class banks in the interbank Eurodollar
market in which it regularly participates on or about 10:00 a.m. (Boston,
Massachusetts time) two Business Days before the first day of such Interest
Period in an amount approximately equal to the principal amount of the
Eurodollar Loan to which such Interest Period is to apply for a period of
time approximately equal to such Interest Period.
-92-
"Reserve Percentage" means the rate (expressed as a decimal)
------------------
applicable to the Bank during such Interest Period under regulations issued
from time to time by the Board of Governors of the Federal Reserve System
for determining the maximum reserve requirement (including, without
limitation, any basic, supplemental, emergency or marginal reserve
requirement) of the Bank with respect to "Eurocurrency liabilities" as that
term is defined under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
Agreement. This Agreement, as the same may be supplemented or amended from
---------
time to time.
Bank. See Preamble.
----
Base Rate. The greater of (i) the rate of interest announced from time to
---------
time by the Bank at its head office as its Base Rate, and (ii) the Federal Funds
Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to the
next 1/8 of 1%).
Base Rate Loan. Any Loan bearing interest determined with reference to the
--------------
Base Rate.
Borrowing Base. The lesser of (i) the Commitment Amount and (ii) 80% of
--------------
Eligible Accounts.
Business Day. (i) For all purposes other than as covered by clause (ii)
------------
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts or New York, New York are open for the conduct of a
substantial part of their commercial banking business; and (ii) with respect to
all notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, any such day that is also a day for trading
between banks in U.S. Dollar deposits in the interbank Eurodollar market.
Code. The Internal Revenue Code of 1986 and the rules and regulations
----
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
Commitment Amount. $4,000,000 or any lesser amount, including zero,
-----------------
resulting from a termination or reduction of such amount in accordance with
Section 2.4 or Section 7.2.
Company. See Preamble.
-------
Consolidated Tangible Net Worth. As of any date of determination, the
-------------------------------
consolidated total assets of the Company and its Subsidiaries minus (i) any
-----
amounts attributable to goodwill, intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, all reserves not
already deducted from assets, any write-up in the book value of assets resulting
from
-93-
any revaluation thereof subsequent to the date of the financial statements
referred to in Section 4.6 and the value of any minority interests in
Subsidiaries and minus (ii) Consolidated Total Liabilities.
-----
Consolidated Total Liabilities. As of any date of determination, all
------------------------------
obligations that should, in accordance with generally accepted accounting
principles, be classified as liabilities on the consolidated balance sheet of
the Company and its Subsidiaries, including in any event all Indebtedness.
Controlled Group. All trades or businesses (whether or not incorporated)
----------------
under common control that, together with the Company, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
Default. An Event of Default or event or condition that, but for the
-------
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
Eligible Account. An Account which meets all of the following
----------------
requirements:
(i) such Account is subject to no Encumbrance whatsoever other than a
Permitted Encumbrance;
(ii) such Account is owned by the Company and represents a complete bona
fide transaction which requires no further act under any circumstances on the
part of the Company to make such Account payable by the account debtor;
(iii) such Account is not past due;
(iv) such Account is evidenced by an invoice or other documentation in form
reasonably acceptable to the Bank;
(v) the amount owing on the invoice evidencing such Account is a valid,
legally enforceable obligation of the account debtor with respect thereto and is
not subject to any material present or contingent offset, deduction or
counterclaim, dispute or other defense on the part of such account debtor, and
no facts exist which are the basis for any future such action or claim;
(vi) the goods the sale of which gave rise to such Account were shipped or
delivered to the account debtor on an absolute sale basis and not on a bill-and-
hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale-or-
return basis, or on the basis of any other similar understanding, and no
material part of such goods has been returned or rejected;
(vii) the goods giving rise to such Account were not, at the time of the
sale thereof, subject to any Encumbrance, other than a Permitted Encumbrance;
-94-
(viii) the account debtor with respect to such Account is not insolvent or
the subject of any bankruptcy or insolvency proceedings of any kind or of any
other proceeding or action, threatened or pending, which might have a materially
adverse effect on such account debtor and is not, in the reasonable discretion
of the Bank, deemed ineligible for credit or other reasons;
(ix) the account debtor with respect thereto is not an affiliate or
employee of the Company;
(x) if the account debtor with respect thereto is located outside of the
United States of America or Canada, the goods which gave rise to such Account
were shipped after receipt by the Company from the account debtor of an
irrevocable letter of credit issued or confirmed by a financial institution
reasonably acceptable to the Bank and in form and substance reasonably
acceptable to the Bank, payable in the amount of the face value of the Account
in Dollars at a place of payment located within the United States;
(xi) such Account is not subject to the Assignment of Claims Act of 1940,
as amended from time to time, or any applicable law similar in effect thereto,
as determined in the reasonable discretion of the Bank, or to any provision
prohibiting its assignment or requiring notice of or consent to such assignment;
and
(xii) such Account is not determined by the Bank to be ineligible for any
other reason based upon such credit and collateral considerations as the Bank
may reasonably deem appropriate.
Encumbrances. See Section 6.4.
------------
Environmental Laws. Any and all applicable foreign, federal, state and
------------------
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law whether now existing or hereafter
enacted or promulgated, relating to injury to, or the protection of, real or
personal property or human health or the environment.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
-----
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended.
Eurodollar Loan. Any Loan bearing interest at a rate determined with
---------------
reference to the Adjusted Eurodollar Rate.
Event of Default. Any event described in Section 7.1.
----------------
Federal Funds Effective Rate. For any day, a fluctuating interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of
-95-
New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day on such transactions received
by the Bank from three Federal funds brokers of recognized standing selected by
the Bank.
Guarantees. All guarantees, endorsements or other contingent or surety
----------
obligations with respect to obligations of others whether or not reflected on
the consolidated balance sheet of the Company and its Subsidiaries, including
any obligation to furnish funds, directly or indirectly (whether by virtue of
partnership arrangements, by agreement to keep-well or otherwise), through the
purchase of goods, supplies or services, or by way of stock purchase, capital
contribution, advance or loan, or to enter into a contract for any of the
foregoing, for the purpose of payment of obligations of any other person or
entity.
Hazardous Material. Any substance which is or becomes defined as a
------------------
"hazardous waste", "hazardous material" or "hazardous substance" or "controlled
industrial waste" or "pollutant" or "contaminant" under any Environmental Law or
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by
any governmental authority or instrumentality or which contains gasoline, diesel
fuel or other petroleum products, asbestos or polychlorinated biphenyls
("PCB's").
Indebtedness. All obligations (i) for borrowed money or other extensions
------------
of credit whether or not secured or unsecured, absolute or contingent,
including, without limitation, unmatured reimbursement obligations with respect
to letters of credit, bankers' acceptances or guarantees issued for the account
of or on behalf of the Company and its Subsidiaries, (ii) representing the
deferred purchase price of property, other than accounts payable arising in the
ordinary course of business, (iii) evidenced by bonds, notes, debentures or
other similar instruments, (iv) secured by any mortgage, pledge, security
interest or other lien on property owned or acquired by the Company or any of
its Subsidiaries whether or not the obligations secured thereby shall have been
assumed, (v) arising under capital leases required to be capitalized on the
consolidated balance sheet of the Company and its Subsidiaries, and (vi)
consisting of Guarantees.
Interest Period. With respect to each Eurodollar Loan, the period
---------------
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one, two, three or six months thereafter, as the
Company may elect in the applicable Notice of Borrowing or Conversion, provided
--------
that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans, such Business Day falls in the
next calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period applicable to a Eurodollar Loan that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically
-96-
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) below, end on the last Business Day
of a calendar month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date;
(iv) notwithstanding clause (iii) above, no Interest Period shall
have a duration of less than one month; and if any Interest Period
applicable to such Loans would be for a shorter period, such Interest
Period shall not be available hereunder.
Investment. The purchase or acquisition of any share of capital stock,
----------
partnership interest, evidence of indebtedness or other equity security of any
other person or entity, any loan, advance or extension of credit to, or
contribution to the capital of, any other person or entity, any real estate held
for sale or investment, any commodities futures contracts held other than in
connection with bona fide hedging transactions, any other investment in any
other person or entity, and the making of any commitment or acquisition of any
option to make an Investment.
Loan. A loan made to the Company by the Bank pursuant to Section II of
----
this Agreement, and "Loans" means all of such loans, collectively.
-----
Note. A promissory note of the Company, substantially in the form of
----
Exhibit A hereto.
- ---------
Notice of Borrowing or Conversion. See Section 2.2.
---------------------------------
Obligations. All obligations of the Company to the Bank hereunder of every
-----------
kind and description, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument, if any, and including
obligations to perform acts and refrain from taking action as well as
obligations to pay money.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
----
any or all of its functions under ERISA.
Permitted Encumbrances. See Section 6.4.
----------------------
Plan. An employee pension or other benefit plan that is subject to Title
----
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (i) maintained by the Company or any member of the Controlled
Group for employees of the Company or any member of the Controlled Group or (ii)
if such Plan is established, maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which the Company or any member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five Plan years made contributions.
-97-
Qualified Investments. Investments in such securities or instruments as
---------------------
permitted by Investment Policy Guidelines/Cash and Temporary Investments as
approved by the Board of Directors of the Company as of September 27, 1995 and
attached hereto as Exhibit F.
Subsidiary. Any corporation, association, joint stock company, business
----------
trust or other similar organization of which 50% or more of the ordinary voting
power for the election of a majority of the members of the board of directors or
other governing body of such entity is held or controlled by the Company or a
Subsidiary of the Company; or any other such entity the management of which is
directly or indirectly controlled by the Company or a Subsidiary of the Company
through the exercise of voting power or otherwise; or any joint venture, whether
incorporated or not, in which the Company has an ownership interest of 50% or
more.
Termination Date. November 29, 1996 or such earlier date on which the
----------------
commitment to make Loans is terminated or the Commitment Amount is reduced to
zero in accordance with the terms hereof.
1.2. Accounting Terms. All terms of an accounting character shall have the
----------------
meanings assigned thereto by generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in Section 4.6 of
this Agreement, modified to the extent, but only to the extent, that such
meanings are specifically modified herein.
SECTION II
----------
DESCRIPTION OF CREDIT
---------------------
2.1. The Loans. (a) Subject to the terms and conditions hereof, the Bank
---------
will make Loans to the Company, from time to time until the close of business on
the Termination Date, in such sums as the Company may request, provided that the
--------
aggregate principal amount of all Loans at any one time outstanding hereunder
shall not exceed the Borrowing Base. The Company may borrow, prepay pursuant to
Section 2.10 and reborrow, from the date of this Agreement until the Termination
Date, the full amount of the Borrowing Base or any lesser sum that is at least
$1,000,000 and an integral multiple of $100,000. Any Loan not repaid by the
Termination Date shall be due and payable on the Termination Date.
(b) Provided that no Default shall have occurred and be continuing, the
Company may convert all or any part (in integral multiples of $1,000,000) of any
outstanding Loan into a Loan of any other type provided for in this Agreement in
the same aggregate principal amount, on any Business Day (which, in the case of
a conversion of a Eurodollar Loan, shall be the last day of the Interest Period
applicable to such Eurodollar Loan). The Company shall give the Bank prior
notice of each such conversion (which notice shall be effective upon receipt) in
accordance with Section 2.2.
-98-
2.2. Notice and Manner of Borrowing or Conversion of Loans. (a) Whenever
-----------------------------------------------------
the Company desires to obtain or continue a Loan hereunder or convert an
outstanding Loan into a Loan of another type provided for in this Agreement, the
Company shall notify the Bank (which notice shall be irrevocable) by telex,
telegraph or telephone received no later than 10:00 a.m. (Boston, Massachusetts
time) on the date one Business Day before the day on which the requested Loan is
to be made or continued as or converted to a Base Rate Loan, and received no
later than 10:00 a.m. (Boston, Massachusetts time) on the date three Business
Days before the day on which the requested Loan is to be made or continued as or
converted to a Eurodollar Loan. Such notice shall specify (i) the effective
date and amount of each Loan or portion thereof to be continued or converted,
subject to the limitations set forth in Section 2.1, (ii) the interest rate
option to be applicable thereto, and (iii) the duration of the applicable
Interest Period, if any (subject to the provisions of the definition of Interest
Period and Section 2.6). Each such notification (a "Notice of Borrowing or
----------------------
Conversion") shall be immediately followed by a written confirmation thereof by
- ----------
the Company in substantially the form of Exhibit B hereto, provided that if such
--------- --------
written confirmation differs in any material respect from the action taken by
the Bank, the records of the Bank shall control absent manifest error.
(b) Subject to the terms and conditions hereof, the Bank shall make each
Loan on the effective date specified therefor by crediting the amount of such
Loan to the Company's demand deposit account with the Bank.
2.3. Commitment Fee. The Company shall pay to the Bank a commitment fee
--------------
computed at the rate of three-tenths of one percent (.30%) per annum on the
average daily amount of the unborrowed portion of the Commitment Amount during
each quarter or portion thereof. Commitment fees shall be payable quarterly in
arrears, on the last day of each calendar quarter, beginning September 30, 1995,
and on the Termination Date.
2.4. Reduction of Commitment Amount. The Company may from time to time by
------------------------------
written notice delivered to the Bank at least five Business Days prior to the
date of the requested reduction, reduce by integral multiples of $1,000,000 any
unborrowed portion of the Commitment Amount. No reduction of the Commitment
Amount shall be subject to reinstatement.
2.5. The Note. (a) The Loans shall be evidenced by the Note, payable to
--------
the order of the Bank and having a final maturity on the Termination Date. The
Note shall be dated on or before the date of the first Loan and shall have the
blanks therein appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the Company to,
enter on the schedule forming a part of the Note or otherwise in its records
appropriate notations evidencing the date and the amount of each Loan, the
interest rate applicable thereto and the date and amount of each payment of
principal made by the Company with respect thereto; and in the absence of
manifest error, such notations shall constitute conclusive evidence thereof.
The Bank is hereby irrevocably authorized by the Company to attach to and make a
part of the Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to
-99-
make any notation as provided in this subsection (b) shall in any way affect
any Loan or the rights or obligations of the Bank or the Company with respect
thereto.
2.6. Duration of Interest Periods. (a) Subject to the provisions of the
----------------------------
definition of Interest Period, the duration of each Interest Period applicable
to a Loan shall be as specified in the applicable Notice of Borrowing or
Conversion. The Company shall have the option to elect a subsequent Interest
Period to be applicable to such Loan by giving notice of such election to the
Bank received no later than 10:00 a.m. (Boston, Massachusetts time) on the date
one Business Day before the end of the then applicable Interest Period if such
Loan is to be continued as or converted to a Base Rate Loan and three Business
Days before the end of the then applicable Interest Period if such Loan is to be
continued as or converted to a Eurodollar Loan.
(b) If the Bank does not receive a notice of election of duration of an
Interest Period for a Eurodollar Loan pursuant to subsection (a) above within
the applicable time limits specified therein, or if, when such notice must be
given, a Default exists, the Company shall be deemed to have elected to convert
such Loan in whole into a Base Rate Loan on the last day of the then current
Interest Period with respect thereto.
(c) Notwithstanding the foregoing, the Company may not select an Interest
Period that would end, but for the provisions of the definition of Interest
Period, after the Termination Date.
2.7. Interest Rates and Payments of Interest. (a) Each Base Rate Loan
---------------------------------------
shall bear interest on the outstanding principal amount thereof at a rate per
annum equal to the Base Rate, which rate shall change contemporaneously with any
change in the Base Rate. Such interest shall be payable on the last day of each
calendar quarter, beginning December 31, 1995, and when such Loan is due
(whether at maturity, by reason of acceleration or otherwise).
(b) Each Eurodollar Loan shall bear interest on the outstanding principal
amount thereof, for each Interest Period applicable thereto, at a rate per annum
equal to the Adjusted Eurodollar Rate plus 2-1/4 percent (2-1/4%). Such
interest shall be payable for such Interest Period on the last day thereof and
when such Eurodollar Loan is due (whether at maturity, by reason of acceleration
or otherwise) and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof.
2.8. Changed Circumstances.
---------------------
(a) In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would otherwise
be set the Bank shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist
for ascertaining the Interbank Offered Rate, or
-100-
(ii) at any time the Bank shall have determined in good faith (which
determination shall be final and conclusive) that:
(A) the making or continuation of or conversion of any Loan to a
Eurodollar Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
interbank Eurodollar market or (2) compliance by the Bank in good faith
with any applicable law or governmental regulation, guideline or order or
interpretation or change thereof by any governmental authority charged with
the interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not having the
force of law); or
(B) the Adjusted Eurodollar Rate shall no longer represent the
effective cost to the Bank for U.S. dollar deposits in the interbank market
for deposits in which it regularly participates;
then, and in any such event, the Bank shall forthwith so notify the Company
thereof. Until the Bank notifies the Company that the circumstances giving rise
to such notice no longer apply, the obligation of the Bank to allow selection by
the Company of Eurodollar Loans shall be suspended. If at the time the Bank so
notifies the Company, the Company has previously given the Bank a Notice of
Borrowing or Conversion with respect to one or more Eurodollar Loans but such
Loans have not yet gone into effect, such notification shall be deemed to be
void and the Company may borrow Loans of another type by giving a substitute
Notice of Borrowing or Conversion pursuant to Section 2.2 hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) the Company shall, with respect to
the outstanding Eurodollar Loans, prepay the same, together with interest
thereon and any amounts required to be paid pursuant to Section 2.13, and may
borrow a Loan of another type in accordance with Section 2.1 hereof by giving a
Notice of Borrowing or Conversion pursuant to Section 2.2 hereof.
(b) In case the adoption of or any change after the date hereof in law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or by any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law):
(i) subjects the Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by the Company
or otherwise with respect to the transactions contemplated hereby (except
for taxes on the overall net income of the Bank imposed by the United
States of America or any political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of,
-101-
or loans by, the Bank (other than such requirements as are already
included in the determination of the Adjusted Eurodollar Rate), or
(iii) imposes upon the Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by the Bank or impose any expense upon the Bank
with respect to any Loans, the Bank shall notify the Company thereof prior to
the Termination Date. The Company agrees to pay to the Bank the amount of such
increase in cost, reduction in income or additional expense as and when such
cost, reduction or expense is incurred or determined, upon presentation by the
Bank of a statement in the amount and setting forth the Bank's calculation
thereof, which statement shall be deemed true and correct absent manifest error.
2.9. Capital Requirements. If after the date hereof the Bank determines
--------------------
that (i) the adoption of or change adopted after the date hereof in any law,
rule, regulation or guideline regarding capital requirements for banks or bank
holding companies, or any change in the interpretation or application thereof by
any governmental authority charged with the administration thereof, or (ii)
compliance by the Bank or its parent bank holding company with any guideline,
request or directive of any such entity adopted after the date hereof regarding
capital adequacy (whether or not having the force of law), has the effect of
reducing the return on the Bank's or such holding company's capital as a
consequence of the Bank's commitment to make Loans hereunder to a level below
that which the Bank or such holding company could have achieved but for such
adoption, change or compliance (taking into consideration the Bank's or such
holding company's then existing policies with respect to capital adequacy and
assuming the full utilization of such entity's capital) by any amount deemed by
the Bank to be material, then the Bank shall notify the Company thereof prior to
the Termination Date. The Company agrees to pay to the Bank the amount of such
reduction in the return on capital as and when such reduction is determined,
upon presentation by the Bank of a statement in the amount and setting forth the
Bank's calculation thereof, which statement shall be deemed true and correct
absent manifest error. In determining such amount, the Bank may use any
reasonable averaging and attribution methods.
2.10. Payments and Prepayments of the Loans. (a) All Loans shall be due
-------------------------------------
and payable on the Termination Date. In addition, if at any time the aggregate
principal amount of outstanding Loans shall exceed the Borrowing Base, the
Company shall immediately repay to the Bank the amount of such excess.
(b) Eurodollar Loans may be prepaid at any time, without premium or
penalty, on the last day of any Interest Period applicable thereto and upon
three Business Days' notice. Base Rate Loans may be prepaid at any time,
without premium or penalty, upon one Business Day's notice. Any interest
accrued on the amounts so prepaid to the date of such payment must be paid at
the time of any such payment. No prepayment of the Loans prior to the
Termination Date shall affect the Commitment Amount or impair the Company's
right to borrow as set forth in Section 2.1.
-102-
2.11. Method of Payment. All payments and prepayments of principal and
-----------------
all payments of interest, fees and other amounts payable hereunder shall be made
by the Company to the Bank at its head office in immediately available funds, on
or before 11:00 a.m. (Boston, Massachusetts time) on the due date thereof, free
and clear of, and without any deduction or withholding for, any taxes or other
payments. The Bank may, and the Company hereby authorizes the Bank to, debit
the amount of any payment not made by such time to the demand deposit account of
the Company with the Bank.
2.12. Overdue Payments. Overdue principal (whether at maturity, by reason
----------------
of acceleration or otherwise) and, to the extent permitted by applicable law,
overdue interest and fees or any other amounts payable hereunder or under the
Note shall bear interest from and including the due date thereof until paid,
compounded daily and payable on demand, at a rate per annum equal to (i) if such
due date occurs prior to the end of an Interest Period, 2% above the interest
rate applicable to such Loan for such Interest Period until the expiration of
such Interest Period, and thereafter, 2% above the Base Rate; and (ii) in all
other cases, 2% above the rate then applicable to Base Rate Loans.
2.13. Payments Not at End of Interest Period. If the Company for any
--------------------------------------
reason makes any payment of principal with respect to any Eurodollar Loan on any
day other than the last day of an Interest Period applicable to such Eurodollar
Loan, or fails to borrow or continue or convert to a Eurodollar Loan after
giving a Notice of Borrowing or Conversion pursuant to Section 2.2, the Company
shall pay to the Bank an amount computed pursuant to the following formula:
L = (R - T) x P x D
---------------
360
L = amount payable to the Bank
R = interest rate on such Loan
T = effective interest rate per annum at which any readily marketable bond
or other obligation of the United States, selected at the Bank's sole
discretion, maturing on or near the last day of the then applicable
Interest Period of such Loan and in approximately the same amount as
such Loan can be purchased by the Bank on the day of such payment of
principal or failure to borrow or continue or convert
P = the amount of principal prepaid or the amount of the requested Loan
D = the number of days remaining in the Interest Period as of the date of
such payment or the number of days of the requested Interest Period
The Company shall pay such amount upon presentation by the Bank of a statement
setting forth the amount and the Bank's calculation thereof pursuant hereto,
which statement shall be deemed true and correct absent manifest error.
2.14. Computation of Interest and Fees. Interest and all fees payable
--------------------------------
hereunder shall be computed daily on the basis of a year of 360 days and paid
for the actual number of days for
-103-
which due. If the due date for any payment of principal is extended by
operation of law, interest shall be payable for such extended time. If any
payment required by this Agreement becomes due on a day that is not a Business
Day such payment may be made on the next succeeding Business Day (subject to
clause (i) of the definition of Interest Period), and such extension shall be
included in computing interest in connection with such payment.
SECTION III
-----------
CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Loan. The obligation of the Bank to
------------------------------------
make its initial Loan is subject to the condition precedent that the Bank shall
have received, in form and substance satisfactory to the Bank and its counsel,
the following:
(a) this Agreement and the Note, duly executed by the Company;
(b) a certificate of the Clerk or an Assistant Clerk of the Company with
respect to resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement and the Note and identifying the
officer(s) authorized to execute, deliver and take all other actions required
under this Agreement, and providing specimen signatures of such officers;
(c) the articles of organization of the Company and all amendments and
supplements thereto, filed in the office of the Secretary of State of
Massachusetts, each certified by said Secretary of State as being a true and
correct copy thereof;
(d) the Bylaws of the Company and all amendments and supplements thereto,
certified by the Clerk or an Assistant Clerk as being a true and correct copy
thereof;
(e) a certificate of the Secretary of State of Massachusetts, as to legal
existence and good standing in such state of the Company and listing all
documents on file in the office of said Secretary of State with respect to the
Company;
(f) a certificate of Massachusetts Department of Revenue as to the tax good
standing of the Company (provided that such certificate may be delivered not
--------
later than 60 days after the date hereof if the Company's treasurer shall have
timely delivered to the Bank a certificate verifying the tax good standing of
the Company in Massachusetts);
(g) an opinion addressed to it from Hale and Dorr, counsel to the Company,
substantially in the form of Exhibit H hereto;
---------
(h) a commercial finance-type examination of the Company's Accounts, in
form and substance satisfactory to the Bank; and
-104-
(i) such other documents, and completion of such other matters, as counsel
for the Bank may deem necessary or appropriate.
3.2. Conditions Precedent to all Loans. The obligation of the Bank to make
----------------------------------
each Loan, including the initial Loan, or continue or convert Loans to Loans of
another type, is further subject to the following conditions:
(a) timely receipt by the Bank of the Notice of Borrowing or Conversion as
provided in Section 2.2;
(b) the representations and warranties contained in Section IV shall be
true and accurate in all material respects on and as of the date of such Notice
of Borrowing or Conversion and on the effective date of the making, continuation
or conversion of each Loan as though made at and as of each such date (except to
the extent that such representations and warranties expressly relate to an
earlier date), and no Default shall have occurred and be continuing, or would
result from such Loan;
(c) the resolutions referred to in Section 3.1(b) shall remain in full
force and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for the
Bank to make Loans hereunder.
The making of each Loan shall be deemed to be a representation and warranty
by the Company on the date of the making, continuation or conversion of such
Loan as to the accuracy of the facts referred to in subsection (b) of this
Section 3.2.
SECTION IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Company represents and warrants to the Bank that:
4.1. Organization and Qualification. Each of the Company and its
------------------------------
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification.
-105-
4.2. Corporate Authority. The execution, delivery and performance of this
-------------------
Agreement and the Note and the transactions contemplated hereby are within the
corporate power and authority of the Company and have been authorized by all
necessary corporate proceedings, and do not and will not (a) require any consent
or approval of the stockholders of the Company, (b) contravene any provision of
the charter documents or by-laws of the Company or any law, rule or regulation
applicable to the Company, (c) contravene any provision of, or constitute an
event of default or event that, but for the requirement that time elapse or
notice be given, or both, would constitute an event of default under, any other
agreement, instrument, order or undertaking binding on the Company, or (d)
result in or require the imposition of any Encumbrance on any of the properties,
assets or rights of the Company.
4.3. Valid Obligations. This Agreement and the Note and all of their
-----------------
respective terms and provisions are the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective terms except as
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, and except as the
remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
4.4. Consents or Approvals. The execution, delivery and performance of
---------------------
this Agreement and the Note and the transactions contemplated herein do not
require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other party.
4.5. Title to Properties; Absence of Encumbrances. Each of the Company and
--------------------------------------------
its Subsidiaries has good and marketable title to all of the properties, assets
and rights of every kind and nature now purported to be owned by it, including,
without limitation, such properties, assets and rights as are reflected in the
financial statements referred to in Section 4.6 (except such properties, assets
or rights as have been disposed of in the ordinary course of business since the
date thereof), free from all Encumbrances except Permitted Encumbrances or those
Encumbrances disclosed in Exhibit C hereto, and, except as so disclosed, free
---------
from all defects of title that might materially adversely affect such
properties, assets or rights, taken as a whole.
4.6. Financial Statements. The Company has furnished the Bank its
--------------------
consolidated balance sheet as of December 31, 1994 and its consolidated
statements of income, changes in stockholders' equity and cash flow for the
fiscal year then ended, and related footnotes, audited and certified by Coopers
& Lybrand. The Company has also furnished the Bank its consolidated balance
sheet as of June 30, 1995 and its consolidated statements of income, changes in
stockholders' equity and cash flow for the fiscal quarter then ended, certified
by the principal financial officer of the Company but subject, however, to
normal, recurring year-end adjustments that shall not in the aggregate be
material in amount. All such financial statements were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods specified and present fairly the financial position of
the Company and its Subsidiaries as of such dates and the results of the
operations of the Company and its Subsidiaries
-106-
for such periods. There are no liabilities, contingent or otherwise, not
disclosed in such financial statements that involve a material amount.
4.7. Changes. Since the date of the most recent financial statements
-------
referred to in Section 4.6, there have been no changes in the assets,
liabilities, financial condition, business or prospects of the Company or any of
its Subsidiaries that have had, in the aggregate, a materially adverse effect.
4.8. Defaults. As of the date of this Agreement, the Company is not in
--------
default of any of its obligations under any material agreement.
4.9. Taxes. The Company and each Subsidiary have filed all federal, state
-----
and other tax returns required to be filed, and all taxes, assessments and other
governmental charges due from the Company and each Subsidiary have been fully
paid. The Company and each Subsidiary have established on their books reserves
adequate for the payment of all federal, state and other tax liabilities.
4.10. Litigation. Except as set forth on Exhibit D hereto, there is no
---------- ---------
litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Company's or any Subsidiary's officers, threatened, against the
Company or any Subsidiary that, if adversely determined, could result in a
material judgment not fully covered by insurance, could result in a forfeiture
of all or any substantial part of the property of the Company or its
Subsidiaries, or could otherwise have a material adverse effect on the assets,
business or prospects of the Company or any Subsidiary.
4.11. Use of Proceeds. No portion of any Loan is to be used for the
---------------
"purpose of purchasing or carrying" any "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. 221 and 224, as amended; and following the application of the proceeds of
each Loan, the value of all "margin stock" of the Company will not exceed 25% of
the value of the total assets of the Company that are subject to the
restrictions set forth in Section 6.4 and 6.5.
4.12. Subsidiaries. As of the date of this Agreement, all the
------------
Subsidiaries of the Company are listed on Exhibit E hereto. The Company or a
---------
Subsidiary of the Company is the owner, free and clear of all liens and
encumbrances, of all of the issued and outstanding stock of each Subsidiary.
All shares of such stock have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares have been
granted, and no options, warrants or similar rights are outstanding.
4.13. Investment Company Act, etc. Neither the Company nor any of its
---------------------------
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended, the Public Utility Holding Company Act of 1935, as amended, or any
other statute or regulation that limits its ability to incur Indebtedness.
-107-
4.14. Compliance with ERISA. The Company and each member of the
---------------------
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
4.15. Environmental Matters. The Company and each of its Subsidiaries are
---------------------
in compliance, in all material respects, with all Environmental Laws. No
demand, claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry arising under, relating to or in connection with any
Environmental Laws is pending or threatened against the Company or any of its
Subsidiaries, any real property in which the Company or any such Subsidiary
holds or, to the Company's knowledge, has held, an interest or any past or
present operation of the Company or any such Subsidiary. Neither the Company
nor any of its Subsidiaries (i) is the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any Hazardous Materials or other wastes into the environment, (ii)
has received any notice of any Hazardous Materials or other wastes in or upon
any of its properties in violation of any Environmental Laws, or (iii) knows of
any basis for any such investigation, notice or violation, except as disclosed
to the Bank on Exhibit D, and as to such matters disclosed on such Exhibit, none
---------
will have a material adverse effect on the financial condition, business,
operations or prospects of the Company or the Company and its Subsidiaries on a
consolidated basis.
SECTION V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation hereunder remains outstanding, the Company covenants as
follows:
5.1. Financial Statements and other Reporting Requirements. The Company
-----------------------------------------------------
shall furnish to the Bank:
(a) within 91 days after the end of each of its fiscal years, the
consolidated and consolidating balance sheet as of the end of such year, and the
related consolidated and consolidating statements of income, changes in
stockholders' equity and cash flow for such year, audited and certified by
Coopers & Lybrand (or other independent certified public accountants acceptable
to the Bank) in the case of such consolidated statements, and certified by the
chief financial officer in the case of such consolidating statements; and,
concurrently with such financial statements, a copy of said certified public
accountants' management report and a written statement by such accountants that,
in the making of the audit necessary for their report and opinion upon such
financial statements they have obtained no knowledge of any Default or, if in
the opinion of such accountants any such Default exists, they shall disclose in
such written statement the nature and status thereof;
-108-
(b) within 46 days after the end of each of its fiscal quarters, the
consolidated and consolidating balance sheet as of the end of such quarter, and
the related consolidated and consolidating statements of income and cash flow
for the period then ended, certified by the chief financial officer of the
Company but subject, however, to normal, recurring year-end adjustments that
shall not in the aggregate be material in amount;
(c) concurrently with the delivery of each financial statement pursuant to
subsections (a) and (b) of this Section 5.1, a report in substantially the form
of Exhibit G hereto, containing calculations of the financial covenants set
---------
forth in Sections 5.7 and 5.8 and of the Borrowing Base, signed on behalf of the
Company by its chief financial officer;
(d) promptly after the receipt thereof by the Company, copies of any
reports submitted to the Company by independent public accountants in connection
with any interim review of the accounts of the Company made by such accountants;
(e) promptly after the same are available, copies of all proxy statements,
financial statements and reports as the Company shall send to its stockholders
or as the Company may file with the Securities and Exchange Commission or any
governmental authority at any time having jurisdiction over the Company or its
Subsidiaries;
(f) if and when the Company gives or is required to give notice to the PBGC
of any "Reportable Event" (as defined in Section 4043 of ERISA) with respect to
any Plan that might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that any member of the Controlled Group or the plan
administrator of any Plan has given or is required to give notice of any such
Reportable Event, a copy of the notice of such Reportable Event given or
required to be given to the PBGC;
(g) immediately, and in any event within five days of becoming aware of the
existence of any condition or event that constitutes a Default by the Company,
written notice thereof specifying the nature and duration thereof and the action
being or proposed to be taken with respect thereto;
(h) promptly upon becoming aware of any litigation or of any investigative
proceedings by a governmental agency or authority commenced or threatened
against the Company or any of its Subsidiaries, the outcome of which would or
might have a materially adverse effect on the assets, business or prospects of
the Company or the Company and its Subsidiaries on a consolidated basis, written
notice thereof and the action being or proposed to be taken with respect
thereto;
(i) promptly upon becoming aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Company or
any of its Subsidiaries regarding any potential violation of Environmental Laws
or any spill, release,
-109-
discharge or disposal of any Hazardous Material, written notice thereof and the
action being or proposed to be taken with respect thereto; and
(j) from time to time, such other financial data and information about the
Company or its Subsidiaries as the Bank may reasonably request.
5.2. Conduct of Business. Each of the Company and its Subsidiaries shall:
-------------------
(a) duly observe and comply in all material respects with all applicable
laws and valid requirements of any governmental authorities relative to its
corporate existence, rights and franchises, to the conduct of its business and
to its property and assets (including without limitation all Environmental Laws
and ERISA), and shall maintain and keep in full force and effect all licenses
and permits necessary in any material respect to the proper conduct of its
business;
(b) maintain its corporate existence; and
(c) remain engaged substantially in the manufacture, lease, monitoring,
rental, sale and/or service of, or other activity related to, personal emergency
response systems and/or related products and/or services.
5.3. Maintenance and Insurance. Each of the Company and its Subsidiaries
-------------------------
shall maintain its properties in good repair, working order and condition as
required for the normal conduct of its business, and shall at all times maintain
liability and casualty insurance with financially sound and reputable insurers
in such amounts as the officers of the Company in the exercise of their
reasonable judgment deem to be adequate.
5.4. Taxes. The Company shall pay or cause to be paid all taxes,
-----
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due;
provided that this covenant shall not apply to any tax, assessment or charge
- --------
that is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established and are being
maintained in accordance with generally accepted accounting principles.
5.5. Inspection by the Bank. The Company shall permit the Bank or its
----------------------
designees, at any reasonable time, and upon reasonable notice (or if a Default
shall have occurred and is continuing, at any time and without prior notice), to
(i) visit and inspect the properties of the Company and its Subsidiaries, (ii)
examine and make copies of and take abstracts from the books and records of the
Company and its Subsidiaries, and (iii) discuss the affairs, finances and
accounts of the Company and its Subsidiaries with their appropriate officers,
employees and accountants.
5.6. Maintenance of Books and Records. Each of the Company and its
--------------------------------
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be
-110-
made reflecting all of its business and financial transactions, and such
entries will be made in accordance with generally accepted accounting
principles consistently applied and applicable law.
5.7. Consolidated Total Liabilities to Consolidated Tangible Net Worth
-----------------------------------------------------------------
Ratio. The Company shall at all times maintain a ratio of Consolidated Total
- -----
Liabilities (excluding deferred federal and state income taxes) to Consolidated
Tangible Net Worth of not greater than 0.75 to 1.00.
5.8. EBITDA. The Company shall, for each period commencing October 1, 1995
------
and ending on the dates set forth below, maintain cumulative consolidated
earnings from continuing operations before interest expense (including imputed
interest on capitalized lease obligations) and income taxes for such period,
excluding any nonrecurring or extraordinary items, plus consolidated
----
depreciation and amortization expenses for such period, of not less than the
amount set forth opposite such dates:
Period Beginning 10/01/95
and Ended Minimum EBITDA
------------------------------------------------
12/31/95 $1,100,000
03/31/96 $2,400,000
06/30/96 $3,700,000
09/30/96 $5,000,000
5.9. Subsidiary Guarantees. The Company shall cause each new Subsidiary
---------------------
formed or acquired after the date hereof to guarantee the Obligations of the
Company hereunder within 15 days of the formation of such Subsidiary, pursuant
to documentation in form and substance satisfactory to the Bank.
5.10. Further Assurances. At any time and from time to time the Company
------------------
shall, and shall cause each of its Subsidiaries to, execute and deliver such
further instruments and take such further action as may reasonably be requested
by the Bank to effect the purposes of this Agreement and the Note.
SECTION VI
----------
NEGATIVE COVENANTS
------------------
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation hereunder remains outstanding, the Company covenants as
follows:
6.1. Indebtedness. Neither the Company nor any of its Subsidiaries shall
------------
create, incur, assume or be or remain liable with respect to any Indebtedness
other than the following:
-111-
(a) Indebtedness to the Bank or any of its affiliates;
(b) Indebtedness existing as of the date of this Agreement and disclosed on
Exhibit C hereto or in the financial statements referred to in Section 4.6;
- ---------
(c) Indebtedness of the Company incurred for the purchase of tangible
property used in its business and secured by Permitted Encumbrances, in amounts
not exceeding in the aggregate at any time $250,000;
(d) capitalized lease obligations of the Company in amounts that, when
added to capital expenditures incurred pursuant to Section 6.7, do not exceed in
the aggregate at any time $5,500,000; and
(e) Indebtedness of the Company to any of its Subsidiaries, or of any
Subsidiary to the Company, provided that such Indebtedness is subordinated to
--------
the payment and performance of the Obligations on terms and conditions
satisfactory to the Bank.
6.2. Contingent Liabilities. Neither the Company nor any of its
----------------------
Subsidiaries shall create, incur, assume or remain liable with respect to any
Guarantees other than the following:
(a) Guarantees in favor of the Bank or any of its affiliates;
(b) Guarantees existing on the date of this Agreement and disclosed on
Exhibit C hereto or in the financial statements referred to in Section 4.6;
- ---------
(c) Guarantees resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business;
(d) Guarantees with respect to surety, appeal, performance and return-of-
money and other similar obligations incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); and
(e) Guarantees of normal trade debt incurred in connection with the
acquisition of goods and supplies.
6.3. Sale and Leaseback. Neither the Company nor any of its Subsidiaries
------------------
shall enter into any arrangement, other than between or among the Company and
any of its Subsidiaries, directly or indirectly, whereby it shall sell or
transfer any property owned by it in order to lease such property or lease other
property that the Company or any such Subsidiary intends to use for
substantially the same purpose as the property being sold or transferred.
6.4. Encumbrances. Neither the Company nor any of its Subsidiaries shall
------------
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with
-112-
respect to any of its property or assets ("Encumbrances"), or assign or
------------
otherwise convey any right to receive income, including the sale or discount
of accounts receivable with or without recourse, except the following
("Permitted Encumbrances"):
----------------------
(a) Encumbrances in favor of the Bank or any of its affiliates;
(b) Encumbrances existing as of the date of this Agreement and disclosed in
Exhibit C hereto;
- ---------
(c) liens for taxes, fees, assessments and other governmental charges to
the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 5.4;
(d) landlords' and lessors' liens in respect of rent not in default or
liens in respect of pledges or deposits under workmen's compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to litigation;
mechanics', laborers' and materialmen's and similar liens, if the obligations
secured by such liens are not then delinquent; liens securing the performance of
bids, tenders, contracts (other than for the payment of money); and statutory
obligations incidental to the conduct of its business and that do not in the
aggregate materially detract from the value of its property or materially impair
the use thereof in the operation of its business;
(e) judgment liens that shall not have been in existence for a period
longer than 30 days after the creation thereof or, if a stay of execution shall
have been obtained, for a period longer than 30 days after the expiration of
such stay;
(f) rights of lessors under capitalized leases permitted by Section 6.1(d);
(g) Encumbrances securing Indebtedness permitted by Section 6.1(c),
provided that any such Encumbrances shall not extend to assets of the Company or
- --------
any such Subsidiary not financed by such a purchase money obligation;
(h) easements, rights of way, restrictions and other similar charges or
Encumbrances relating to real property and not interfering in a material way
with the ordinary conduct of its business; and
(i) Encumbrances on its assets created in connection with the refinancing
of Indebtedness secured by Permitted Encumbrances on such assets, provided that
--------
the amount of Indebtedness secured by any such Encumbrance shall not be
increased as a result of such refinancing and no such Encumbrance shall extend
to property and assets of the Company or any such Subsidiary not encumbered
prior to any such refinancing.
6.5. Merger; Consolidation; Sale or Lease of Assets. Neither the Company
----------------------------------------------
nor any of its Subsidiaries shall sell, lease or otherwise dispose of all or any
substantial portion of its assets,
-113-
other than sales of inventory in the ordinary course of business; or liquidate,
merge or consolidate into or with any other person or entity, provided that any
--------
Subsidiary of the Company may merge or consolidate into or with (i) the Company
if no Default has occurred and is continuing or would result from such merger
and if the Company is the surviving company, or (ii) any other wholly-owned
Subsidiary of the Company.
6.6. Additional Stock Issuance. The Company shall not permit any of its
-------------------------
Subsidiaries to issue any additional shares of its capital stock or other equity
securities, any options therefor or any securities convertible thereto other
than to the Company. Neither the Company nor any of its Subsidiaries shall
sell, transfer or otherwise dispose of any of the capital stock or other equity
securities of a Subsidiary, except (i) to the Company or any of its wholly-owned
Subsidiaries, or (ii) in connection with a transaction permitted by Section 6.5.
6.7. Capital Expenditures. Neither the Company nor any of its Subsidiaries
--------------------
shall purchase or agree to purchase, or incur any Indebtedness (including that
portion of the obligations arising under capital leases that is required to be
capitalized on the consolidated balance sheet of the Company and its
Subsidiaries) for, any equipment or other property constituting fixed assets in
any fiscal year in excess of $5,500,000.
6.8. Investments. Neither the Company nor any of its Subsidiaries shall
-----------
make or maintain any Investments other than (i) Qualified Investments; (ii)
Investments in existing Subsidiaries in the ordinary course of its business; and
(iii) acquisitions of new Subsidiaries, provided that such Subsidiaries are
--------
engaged in similar or complementary lines of business as the Company and no
Default shall then exist or would result from such acquisition.
6.9. ERISA. Neither the Company nor any member of the Controlled Group
-----
shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of the Company or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
SECTION VII
-----------
DEFAULTS
--------
7.1. Events of Default. There shall be an Event of Default hereunder if
-----------------
any of the following events occurs:
(a) the Company shall fail to pay when due (i) any amount of principal of
any Loans, including any mandatory prepayments, or (ii) any amount of interest
thereon or any fees or expenses payable hereunder or under the Note within five
days of the due date therefor; or
-114-
(b) the Company shall fail to perform any term, covenant or agreement
contained in Sections 5.1(g), 5.5, 5.7 through 5.9 or Section VI; or
(c) the Company shall fail to perform any covenant contained in Sections
5.1(f), 5.1(h), 5.1(i) or 5.2, and such failure shall continue for 30 days; or
(d) the Company shall fail to perform any term, covenant or agreement
(other than in respect of subsections 7.1(a) through (c) hereof) contained in
this Agreement and such default shall continue for 30 days after notice thereof
has been sent to the Company by the Bank; or
(e) any representation or warranty of the Company made in this Agreement or
in the Note or any other documents or agreements executed in connection with the
transactions contemplated by this Agreement or in any certificate delivered
hereunder shall prove to have been false in any material respect upon the date
when made or deemed to have been made; or
(f) there shall occur any material adverse change in the assets,
liabilities, financial condition, business or prospects of the Company or the
Company and its Subsidiaries, taken as a whole, as determined by the Bank acting
in good faith; or
(g) the Company or any of its Subsidiaries shall fail to pay at maturity,
or within any applicable period of grace, any Indebtedness for borrowed money or
advances, or for the use of real or personal property, or fail to observe or
perform any term, covenant or agreement evidencing or securing such obligations
for borrowed monies or advances, or relating to such use of real or personal
property, the result of which failure is to permit the holder or holders of such
obligations to cause such Indebtedness to become due prior to its stated
maturity upon delivery of required notice, if any; or
(h) the Company or any of its Subsidiaries shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar official of itself or of all or a substantial
part of its property, (ii) be generally not paying its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) take any action or commence any case or proceeding
under any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or any other law providing for the relief of
debtors, (vi) fail to contest in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code or other similar law, (vii) take any action under the
laws of its jurisdiction of incorporation or organization similar to any of the
foregoing, or (viii) take any corporate action for the purpose of effecting any
of the foregoing; or
(i) a proceeding or case shall be commenced, without the application or
consent of the Company or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
-115-
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 45 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against the Company or
such Subsidiary; or action under the laws of the jurisdiction of incorporation
or organization of the Company or any of its Subsidiaries similar to any of the
foregoing shall be taken with respect to the Company or such Subsidiary and
shall continue unstayed and in effect for any period of 45 days; or
(j) a judgment or order for the payment of money shall be entered against
the Company or any of its Subsidiaries by any court, or a warrant of attachment
or execution or similar process shall be issued or levied against property of
the Company or such Subsidiary, that in the aggregate exceeds $200,000 in value
and such judgment, order, warrant or process shall continue undischarged or
unstayed for 45 days; or
(k) the Company or any member of the Controlled Group shall fail to pay
when due any amounts that it shall have become liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by the Company, any member of the
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans against
the Company and such proceedings shall not have been dismissed within 45 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated.
7.2. Remedies. Upon the occurrence of an Event of Default described in
--------
subsections 7.1(h) and (i), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
(a) the Bank's commitment to make any further Loans hereunder shall
terminate;
(b) the unpaid principal amount of the Loans, together with accrued
interest and all other Obligations hereunder, shall become immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived; and
(c) the Bank may exercise any and all rights it has under this Agreement,
the Note or any other documents or agreements executed in connection herewith,
or at law or in equity, and proceed to protect and enforce the Bank's rights by
any action at law, in equity or other appropriate proceeding.
-116-
SECTION VIII
------------
MISCELLANEOUS
-------------
8.1. Notices. Unless otherwise specified herein, all notices hereunder to
-------
any party hereto shall be in writing and shall be deemed to have been given when
(a) delivered by hand, (b) properly deposited in the mails postage prepaid, (c)
sent by telex, answerback received, or electronic facsimile transmission, or (d)
delivered to the telegraph company or overnight courier, in each case addressed
to such party at its address indicated below:
If to the Company, at
LIFELINE SYSTEMS, INC.
640 Memorial Drive
Cambridge, Massachusetts 02139
Attention: Dennis M. Hurley, Vice President, Finance,
Chief Financial Officer and Treasurer
Telephone: (617) 679-1382
Facsimile: (617) 679-1386
If to the Bank, at
THE FIRST NATIONAL BANK OF BOSTON
100 Federal Street
Boston, Massachusetts 02110
Attention: Patricia Sluder, Assistant Vice President
Telephone: (617) 434-7348
Facsimile: (617) 434-0819
or at any other address specified by such party in writing.
8.2. Expenses. The Company will pay on demand all expenses of the Bank in
--------
connection with the preparation, waiver or amendment of this Agreement, the Note
or other documents or agreements executed in connection therewith, or the
default or collection of the Loans or other Obligations or in connection with
the Bank's exercise, preservation or enforcement of any of its rights, remedies
or options thereunder, including, without limitation, fees and expenses of
outside legal counsel or the allocated costs of in-house legal counsel,
accounting, consulting, brokerage or other similar professional fees or
expenses, and any fees or expenses associated with any travel or other costs
relating to any appraisals or examinations conducted in connection with the
Obligations or any collateral therefor, and the amount of all such expenses
shall, until paid, bear interest at the rate applicable to principal hereunder
(including any default rate).
-117-
8.3. Set-Off. Regardless of the adequacy of any collateral or other means
-------
of obtaining repayment of the Obligations, any deposits, balances or other sums
credited by or due from the head office of the Bank or any of its branch offices
to the Company may, at any time and from time to time after the occurrence of an
Event of Default hereunder, without notice to the Company or compliance with any
other condition precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are hereby expressly waived) be set off, appropriated,
and applied by the Bank against any and all obligations of the Company to the
Bank or any of its affiliates in such manner as the head office of the Bank or
any of its branch offices in their sole discretion may determine, and the
Company hereby grants the Bank a continuing security interest in such deposits,
balances or other sums for the payment and performance of all such Obligations.
8.4. Term of Agreement. This Agreement shall continue in full force and
-----------------
effect so long as the Bank has any commitment to make Loans hereunder or any
Loan or any Obligation hereunder shall be outstanding.
8.5. No Waivers. No failure or delay by the Bank in exercising any right,
----------
power or privilege hereunder or under the Note or under any other documents or
agreements executed in connection herewith shall operate as a waiver thereof;
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided herein and in the Note and such other documents and
agreements are cumulative and not exclusive of any rights or remedies otherwise
provided by agreement or law.
8.6. Governing Law. This Agreement and the Note shall be deemed to be
-------------
contracts made under seal and shall be construed in accordance with and governed
by the laws of The Commonwealth of Massachusetts (without giving effect to any
conflicts of laws provisions contained therein).
8.7. Amendments. Neither this Agreement nor the Note nor any provision
----------
hereof or thereof may be amended, waived, discharged or terminated except by a
written instrument signed by the Bank and, in the case of amendments, by the
Company.
8.8. Binding Effect of Agreement. This Agreement shall be binding upon and
---------------------------
inure to the benefit of the Company and the Bank and their respective successors
and assigns; provided that the Company may not assign or transfer its rights or
--------
obligations hereunder. The Bank may sell or transfer its interests hereunder
and under the Note, or grant participations therein, without the prior written
consent of the Company. In the case of any such participation, the Company
agrees that any such participant shall be entitled to the benefits of Sections
2.8, 2.9, 2.13, 5.5 and 8.3 to the same extent as if such transferee or
participant were the Bank hereunder; provided the Company may, for all purposes
--------
of this Agreement, treat the Bank as the person entitled to exercise all rights
hereunder and under the Note and to receive all payments with respect thereto.
8.9. Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
-118-
8.10. Partial Invalidity. The invalidity or unenforceability of any one or
------------------
more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
8.11. Captions. The captions and headings of the various sections and
--------
subsections of this Agreement are provided for convenience only and shall not be
construed to modify the meaning of such sections or subsections.
8.12. WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY AGREE THAT NEITHER OF
--------------------
THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT OR THE NOTE OR ANY RELATED DOCUMENTS OR AGREEMENTS, ANY COLLATERAL OR
THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE BANK AND THE COMPANY, AND THESE PROVISIONS SHALL BE SUBJECT TO
NO EXCEPTIONS. NEITHER THE BANK NOR THE COMPANY HAS AGREED WITH OR REPRESENTED
TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
8.13. Entire Agreement. This Agreement, the Note and the documents and
----------------
agreements executed in connection herewith constitute the final agreement of the
parties hereto and supersede any prior agreement or understanding, written or
oral, with respect to the matters contained herein and therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
LIFELINE SYSTEMS, INC.
By: /s/ Dennis M. Hurley
-----------------------------------------
Title: Vice President, Finance/CFO
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Oscar Jazdowski
-----------------------------------------
Title: Managing Director
-119-
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share figures)
Year ended December 31,
1995 1994 1993
------ ------ ------
Primary
- -------
Weighted average shares outstanding 5,636 5,598 5,542
Net effect of dilutive common stock equivalents
based on the treasury method 472 253 148
Effect of treasury shares purchased - (75) (10)
Effect of treasury shares issued 7 - -
------ ------ ------
Total 6,115 5,776 5,680
------ ------ ------
Net income $3,148 $1,980 $1,085
====== ====== ======
Net income per common share $ 0.51 $ 0.34 $ 0.19
====== ====== ======
Fully diluted
- -------------
Weighted average shares outstanding 5,636 5,598 5,542
Net effect of dilutive common stock equivalents
based on the treasury method 574 357 299
Effect of treasury shares purchased - (75) (10)
Effect of treasury shares issued 7 - -
------ ------ ------
Total 6,217 5,880 5,831
------ ------ ------
Net income $3,148 $1,980 $1,085
====== ====== ======
Net income per common share $ 0.51 $ 0.34 $ 0.19
====== ====== ======
-120-
EXHIBIT 21.1
SUBSIDIARIES OF LIFELINE SYSTEMS, INC.
Lifeline Systems Securities Corporation
640 Memorial Drive
Cambridge, MA 02139-4851
Incorporated in the Commonwealth of Massachusetts
Lifeline Systems (Canada), Inc.
640 Memorial Drive
Cambridge, MA 02139-4851
Incorporated in the Province of Ontario, Canada
Lifeline Systems Export, Inc.
The Financial Services Centre
Bishops Court Hill
St. Michael, Barbados
Incorporated in the Country of Barbados
-121-