<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>3
<FILENAME>dex1035.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT, LEONARD WECHSLER
<TEXT>
<PAGE>
Exhibit 10.35
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 3rd day of March, 2003
but with effect from January 1, 2003, is entered into by Lifeline Systems
Canada, Inc., an Ontario Corporation with its principal place of business at 95
Barber Greene Road, Suite 105, Toronto, Ontario M3C 3E9, (the "Company"), and
Leonard Wechsler, residing at 58 Millwood Road, Toronto, Ontario, M4S 1J7,
Canada (the "Employee").
ARTICLE 1
TERM OF EMPLOYMENT
The Company hereby agrees to continue to employ the Employee, and the Employee
hereby accepts the continuing employment with the Company, upon the terms set
forth in this Agreement, for an indefinite term.
ARTICLE 2
TITLE; CAPACITY
The Employee shall serve as President of the Company. As President, the Employee
shall report to the Chief Executive Officer (the "CEO") of Lifeline Systems,
Inc., a Massachusetts corporation with its principal place of business at 111
Lawrence Street, Framingham, Massachusetts, 01702 ("Lifeline"). The Employee
shall be subject to the supervision of, and shall have such authority as is
delegated to him by, the CEO.
The Employee agrees to undertake the duties and responsibilities inherent in the
position of President and such other duties and responsibilities as the Board or
its designee shall from time to time reasonably assign to him. The Employee
agrees to devote his entire business time, attention and energies to the
business and interests of the Company during his Employment. The Employee agrees
to abide by the rules, regulations, instructions, personnel practices and
policies of the Company and any changes therein which may be adopted from time
to time by the Company.
In the event that Lifeline or the Company is a party to a business transaction,
whether by way of purchase or sale of assets, merger, liquidation or otherwise,
whereby there is a change in the organizational structure of Lifeline or the
Company subsequent to which the Employee may be required to report to another
executive responsible for foreign subsidiaries or the like, the Employee's
reporting arrangements shall be altered accordingly, provided that the
Employee's responsibilities and authority remain intact.
ARTICLE 3
COMPENSATION AND BENEFITS
3.1 Salary
The Company shall pay the Employee, in bi-weekly installments in arrears, an
annual gross salary, less all applicable tax withholdings and statutory
deductions. Effective March 1, 2003 and annually thereafter, such salary shall
be subject to increase as determined by the Company, based on performance of the
Employee.
<PAGE>
3.2 Bonuses
The Employee shall be entitled to bonus payments in accordance with Schedule "A"
attached hereto. All such bonus payments are subject to applicable tax
withholdings and statutory deductions. The Employee's rights to bonuses on
termination are set forth in Article 5 below. The parties agree to renegotiate
the Schedule "A" thresholds in good faith on the date which is three years from
the signing of this Agreement and every third anniversary thereafter in an
effort to achieve compensation no less favourable than the prior term if it is
reasonably possible to do so based on the Company's performance.
3.3 Fringe Benefits
The Employee shall be entitled to participate in all benefit programs, if any,
that the Company establishes and makes available to its employees and to its
senior management to the extent that the Employee's position, tenure, salary and
other qualifications make him eligible to participate (the "Employee Benefits").
The Employee shall be entitled to 4 weeks paid vacation per year in addition to
all statutory holidays in Ontario, to be taken at such times as are reasonable.
The Employee understands and agrees that the Company reserves the right to
unilaterally revise the terms of the Employee Benefits or to eliminate any
Employee Benefits thereunder altogether. Benefits will be provided in accordance
with the formal plan documents or policies and any issues with respect to
entitlement or payment of benefits under any of the Employee Benefits will be
governed by the terms of such documents or policies establishing the benefit in
issue.
3.4 Reimbursement of Expenses
The Employee shall comply with, and shall be entitled to the reimbursement
established pursuant to the Company's policies in effect from time to time with
respect to travel, entertainment and other expenses incurred or paid by the
Employee in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement.
3.5 Automobile Expenses
The Company shall pay the Employee a monthly automobile allowance of Cdn$1,000
in bi-weekly installments in arrears.
3.6 Stock Options
Lifeline shall make an annual grant of options to the Employee under Lifeline's
Stock Option Plan at such times as Lifeline grants options to its other senior
executives. The number of options to be granted in each fiscal year, if any,
shall be determined by Lifeline, in its sole discretion, based on the Employee's
performance during such fiscal year.
ARTICLE 4
EMPLOYMENT TERMINATION
The employment of the Employee by the Company pursuant to this Agreement shall
terminate upon the occurrence of any of the following:
<PAGE>
4.1 At the election of the Company, for cause, immediately upon written
notice by the Company to the Employee. For the purposes of this Section 4.1,
cause for termination shall mean (a) willful misconduct or gross negligence by
the Employee or willful failure to perform his responsibilities in the best
interest of the Company (provided, that except in the case of criminal
behaviour, the Employee shall be given at least one written notice specifying
the nature of his misconduct) to provide an opportunity for the Employee to
remedy such misconduct; or (b) the breach of the Employee of Article 6 or
Article 7 of this Agreement, which breach continues for 30 days subsequent to
written notice from the Company to the Employee of the breach (unless such
breach is material and is not susceptible to cure, in which case termination
shall be deemed to be immediate).
4.2 Upon the death or, at the election of the Company, upon the disability
of the Employee. As used in this Agreement, and subject to applicable human
rights legislation, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of 90 days,
whether or not consecutive, during any 360 day period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Employee and the Company; provided that
if the Employee and the Company do not agree upon a physician, the Employee and
the Company shall each select a physician and these two together shall select a
third physician, whose determination as to disability shall be binding on all
parties;
4.3 At the election of the Employee, upon not less than two months prior
written notice of termination, in which event the Company may waive such notice,
in whole or in part, upon payment to the Employee of salary and benefits
otherwise payable in respect of such two month period.
4.4 At the election of the Company without cause by providing the payments
set out in Section 5.2 below.
4.5 Upon material breach of this Agreement by the Company, in which case
the Employee shall provide written notice of such material breach to the CEO of
Lifeline and Lifeline shall have a two week period in which to cure such
material breach (or to take all reasonable steps towards curing a material
breach which is not capable of being cured within such two week period), failing
which the payments set out in Section 5.2 below shall be payable. For purposes
of clarity, and without limitation, any reduction in base salary and any failure
to abide by paragraph 3 of Article 2 of this Agreement shall constitute a
material breach.
ARTICLE 5
EFFECT OF TERMINATION
5.1 Termination for Cause or Voluntary Termination
In the event the Employee's employment is terminated for cause pursuant to
Section 4.1, or at the election of the Employee pursuant to Section 4.3, the
Company shall pay to the Employee the compensation and benefits otherwise
payable to him under Sections 3.1, 3.2, 3.3, 3.4 and 3.5 through the Termination
Date. All amounts due to the Employee will be paid within seven (7) days of the
Termination Date. For greater certainty, bonuses pursuant to Section 3.2 are
payable and earned at the end of the relevant fiscal year and no bonus (pro rata
or otherwise) will be paid or payable by the Company to the Employee in the
event the Employee's employment is terminated for cause pursuant to Section 4.1,
or in the event the Employee voluntarily resigns his employment unless such
termination or resignation becomes effective on or after the completion of the
relevant fiscal year.
<PAGE>
5.2 Termination Without Cause
In the event the Employee's employment is terminated at the election of the
Company pursuant to Section 4.4 or terminated in accordance with Section 4.5, or
if the Employee's employment is terminated by the Company or the Employee for
any reason whatsoever within the two (2) year period following a Change of
Control (as defined in Lifeline's Stock Option Plan), and in consideration of
the Employee entering into this Agreement and the post-termination non-compete
and non-solicitation agreement set forth in Article 6, the Company shall pay to
the Employee:
(i) a lump sum amount equal to [two (2)] times his then current
base salary; plus
(ii) the pro-rated portion of Annual Performance Bonus [and
Strategic Bonus] earned in that calendar year up to the
Termination Date; plus
(iii) two (2) times the average of the Annual Performance Bonus
and Strategic Bonus paid to the Employee for each of the
two most recently completed fiscal years; plus
(iv) if, and only if, the Company is performing above the NIBT
Goal thresholds which are described in Schedule "A" an
amount of $300,000, less any Progress Payments paid in
respect of Long Term Performance Bonus on the Termination
Date in lieu of the Long Term Performance Bonus.
The payments contemplated in this Section 5.2 include all entitlement to either
notice of termination or pay in lieu of notice and severance pay under the
Employment Standards Act of Ontario. If the minimum statutory requirements as at
the Termination Date provide a greater benefit than provided in this Agreement,
such statutory requirements will replace the payments contemplated under this
Agreement. All amounts due to the Employee, other than any bonuses which shall
be paid out in accordance with Section 5.5, will be paid within fifteen (15)
days of the end of the month during which the employment terminates. In addition
to the payments set out herein, the Company shall, to the extent permitted by
its applicable plans and policies, continue the Employee's basic group health
and dental benefits until the earlier of the date the Employee obtains
alternative employment providing health and dental benefits, or twenty-four (24)
months from the Termination Date. As a condition of payment, the Employee agrees
to deliver to the Company (including affiliates, subsidiaries, parents and
affiliated corporations and their respective directors, officers and employees)
a general release of all claims in a form reasonably satisfactory to the
Company.
5.3 Termination for Death or Disability
If the employment of the Employee is terminated by death or because of
disability pursuant to Section 4.2, the Company shall pay to the estate of the
Employee or to the Employee, as the case may be:
(i) the compensation which would otherwise be payable to the
Employee through the Termination Date; plus
(ii) a lump sum payment equal to his then current base salary
for a one year period (payable within fifteen (15) days
following his death or termination due to disability); plus
(iii) the pro-rated portion of Annual Performance Bonus and
Strategic Bonus earned in that calendar year up to the
Termination Date; plus
<PAGE>
(iv) the pro-rated portion of Long Term Performance Bonus earned
up to the Termination Date, less any Progress Payments paid
in respect of Long Term Performance Bonus.
5.4 Options
In the event of a termination pursuant to Article 4 herein, the Employee shall
have the right to exercise all options of Lifeline previously granted that have
vested as of the Termination Date. The Employee ceases to vest any additional
options of Lifeline on such Termination Date and the Employee has three (3)
months from such date to exercise any vested options of Lifeline.
Notwithstanding the foregoing, in the event of a termination pursuant to Section
4.4 herein which occurs within the two (2) year period following a Change of
Control, all unvested options of Lifeline shall vest in accordance with
Lifeline's Stock Option Plan.
5.5 Bonus Payments
In the event that any bonus for the current fiscal year is payable pursuant to
Sections 5.2 or 5.3 herein, then such bonus will be payable within thirty (30)
days after the end of the relevant fiscal year and once the figures necessary to
calculate the applicable bonus payments are available. Bonus calculations and
calculations of the financial information upon which bonuses are based shall be
calculated consistent with generally accepted accounting principles and
consistent with the Company's approach to such calculations in fiscal years
prior to the termination. The Employee shall be granted such reasonable access
he may request to all books and records of the Company as may be reasonably
required with respect to the calculation of bonus payments for the relevant
fiscal year. All bonus amounts shall be deemed final, binding and conclusive
unless, within sixty (60) days of payment by the Company, the Employee has given
written notice to the Company disputing any such amounts.
5.6 Termination
For the purposes of this Article 5, "Termination Date" means the last day of the
Employee's actual employment by the Company, without regard to any damages,
severance obligations or notice of termination (contractual, statutory or at
common law).
ARTICLE 6
NON-COMPETE
6.1 Non-Compete
(a) The Employee acknowledges that the restrictions contained in this
Article 6 will not materially or unreasonably interfere with the
Employee's ability to earn a living.
(b) During his Employment with the Company and for a period of two (2)
years after the Termination Date (howsoever caused), the Employee
will not directly or indirectly, within Canada or the United States
of America:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in
any other capacity whatsoever (other than as the holder of
not more than one (1%) percent of the total outstanding
stock of a publicly held company), engage in the business
of developing, producing, marketing or selling personal and
medical emergency response products and services of the
kind or type produced, marketed or sold by Lifeline
Systems, Inc.
<PAGE>
or by the Company on the date hereof or any other
business engaged in by the Company after the date
hereof in which the Employee has material involvement
(collectively, the "Business"); or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate
their employment with, or otherwise cease their
relationship with, the Company or to accept any
employment or consulting relationship with the
Employee or any third party; or
(iii) solicit for any purpose competitive with the Business
of the Company, divert or take away, or attempt to
divert or to take away, the business or patronage of
any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by
employees of the Company while the Employee was
employed by the Company.
(c) If any restriction set forth in this Article 6 is found by any
court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range
of activities or geographic area as to which it may be enforceable.
The parties intend that the restrictions in this Article 6 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 and
each and every political subdivision of Canada.
(d) The restrictions contained in this Article 6 are necessary for the
protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The
Employee agrees that any breach of this Article 6 will cause the
Company substantial and irrevocable damage and therefore, in the
event of any such breach, in addition to such other remedies which
may be available, the Company shall have the right to seek specific
performance and injunctive relief.
(e) For purposes of this Article 6, the "Company" refers to Lifeline
Systems Canada, Inc. and any of its respective affiliates, parents
or subsidiaries.
(f) The Employee acknowledges that he is party to non-competition and
non-solicitation covenants in Sections 30.02 and 8.03 of that
certain Stock Purchase Agreement among Caretel, the Company and the
former stockholders of the Company dated as of the date hereof (the
"Stock Purchase Agreement"). The Employee agrees that nothing in
this Agreement shall be deemed to affect any provision of the Stock
Purchase Agreement, including without limitation such
non-competition and non-solicitation covenants. In the event that
the non-competition and non-solicitation covenants in this
Agreement would expire before those in the Stock Purchase
Agreement, or vice versa, the Employee acknowledges his intention
that he shall, following the first to expire of such covenants,
continue to be bound until the other of such covenants expire by
their terms.
(g) Nothing contained in this Agreement and in particular 6.1(b)(i) is
intended to restrict the Employee from, directly or indirectly,
engaging in the business of security systems, access control
systems or environmental monitoring or participating in any entity
provided that the activities that compete with the Company are not
a significant portion of the business of the entity and do not
become so within the period of restriction.
<PAGE>
ARTICLE 7
PROPRIETARY INFORMATION AND DEVELOPMENTS
7.1 Proprietary Information
(a) The Employee agrees that all information and know-how,
whether or not in writing, of a private, secret or
confidential nature concerning the Company's business or
financial affairs (collectively, "Proprietary Information")
is and shall be the exclusive property of the Company. By way
of illustration, but not limitation, Proprietary Information
may include inventions, products, processes, methods,
techniques, formulas, compositions, compounds, projects,
developments, plans, research, data, clinical data, financial
data, personnel data, computer programs and customer and
supplier lists. Employee will not disclose any Proprietary
Information to others outside the Company other than for the
Company's purposes and the performance of his services
hereunder or use of the same for any unauthorized purposes
without written approval by an authorized officer of the
Company, either during or after his employment, unless and
until such Proprietary Information has become public
knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory
notebooks, program listings or other written, photographic or
other tangible material containing Proprietary Information,
whether created by the Employee or others, which shall come
into his custody or possession, shall be and are the
exclusive property of the Company to be used by the Employee
only in the performance of his duties for the Company, and
will be returned by the Employee at the termination of his
employment hereunder.
(c) The Employee agrees that his obligation not to disclose or
use information, know-how and records of the types set forth
in paragraphs (a) and (b) above, also extends to such types
of information, know-how, records and tangible property of
customers of the Company or suppliers to the Company or other
third parties who may have disclosed or entrusted the same to
the Company or to the Employee in the course of the Company's
business.
(d) For the purposes of this Article 7, the "Company" refers to
the Company Lifeline and any of their respective affiliates.
7.2 Developments
(a) The Employee will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries,
methods, developments, software and works of authorship,
whether patentable or not, which are created, made, conceived
or reduced to practice by the Employee or under his direction
or jointly with others during his employment by the Company,
whether or not during normal working hours or on the premises
of the Company which relate to the Business of the Company
(all of which are collectively referred to in this Agreement
as "Developments"). The Employee waives any and all moral
rights he may have to all such developments.
(b) The Employee agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company)
all his right, title and interest in and to all Developments
and all related patents, patent applications, copyrights and
copyright applications.
<PAGE>
(c) The Employee agrees to provide reasonable cooperation to the
Company, both during and after his employment with the
Company, with respect to the procurement , maintenance,
enforcement of copyrights, patents (in the United States,
Canada and foreign countries) relating to Developments.
Employee shall sign all papers, including, without
limitation, copyright applications, patent applications,
declarations, oaths, formal assignments, assignment of
priority rights, and powers of attorney, which the Company
may deem necessary or desirable in order to protect its
rights and interests in any Development.
7.3 Other Agreements
The Employee hereby represents that he is not bound by the terms of any
agreement with any previous employer or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information in the
course of his employment with the Company or to refrain from competing, directly
or indirectly, with the business of such previous employer or any other party.
The Employee further represents that his performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by him in confidence or in trust to his employment with the Company.
ARTICLE 8
SURVIVAL
The provisions of Sections 6 and 7 shall survive the termination of this
Agreement.
ARTICLE 9
NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be deemed effective upon personal delivery or facsimile transmission or on
the fourth business day following deposit in either the Canada Post Office or
the United States Post Office, by registered or certified mail, postage prepaid,
addressed to the other party at the address shown above, or at such other
address or addresses as either party shall designate to the other in accordance
with this Article 9.
ARTICLE 10
PRONOUNS
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
forms of nouns and pronouns shall include the plural, and vice versa.
ARTICLE 11
DOLLAR AMOUNTS
All dollar amounts referenced in this Agreement shall mean Canadian dollars.
ARTICLE 12
ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supercedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Agreement.
<PAGE>
ARTICLE 13
AMENDMENT
This Agreement may be amended or modified only by a written instrument executed
by both the Company and the Employee.
ARTICLE 14
GOVERNING LAW
This Agreement shall be construed, interpreted and enforced in accordance with
the Laws of Ontario.
ARTICLE 15
SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of both parties
and their respective successors and assigns, including any corporation with
which or into which the Company or Lifeline may be merged or which may succeed
to its assets or business, provided, however, that the obligations of the
Employee are personal and shall not be assigned by him.
ARTICLE 16
MISCELLANEOUS
16.1 No delay or omission by the Company in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
16.2 The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance of
any section of this Agreement.
16.3 In case any provision of this Agreement shall be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
ARTICLE 17
AGREEMENT NOT TO SELL SHARES
The Company acknowledges that the restriction on the Employee's ability to sell
his shares in Lifeline Systems, Inc. as contained in the initial Employment
Agreement entered into between the parties is no longer applicable. The Employee
is free to sell his shares at any time and Lifeline Systems, Inc. agrees to
remove the endorsement on any share certificate immediately upon request by the
Employee.
ARTICLE 18
ACKNOWLEDGMENTS
The Employee acknowledges that, (a) he has had sufficient time to review this
Agreement; (b) he has read and understands the terms of the Agreement and the
obligations hereunder; (c) he has been given an opportunity to obtain
independent legal advice concerning the interpretation and affect of this
Agreement; and (d) he has received a fully executed counterpart copy of this
Agreement.
<PAGE>
ARTICLE 19
TAXES
The Employee acknowledges and agrees that he is solely responsible for all tax
liability resulting from his receipt of monies or benefits pursuant to this
Agreement and that all payments, perquisites or benefits shall be subject to
withholding of such amounts, if any, relating to tax or other payroll deductions
as the Company may reasonably determine it should withhold pursuant to any
applicable law or regulation.
IN WITNESS WHEREOF, each of the parties have executed counterpart copies of this
Agreement under seal.
LIFELINE SYSTEMS CANADA INC.
By: /s/ Ronald Feinstein By: /s/ Leonard Wechsler
-------------------------------------------- -----------------------
Name: Ronald Feinstein Leonard Wechsler (l/s)
Title: Chairman, Lifeline Systems Canada
Inc.
LIFELINE SYSTEMS INC.
By: /s/ Ronald Feinstein
------------------------------------------------------------
Name: Ronald Feinstein
Title: President and Chief Executive Officer
<PAGE>
Schedule A
Bonus Payments
I. Annual Performance Bonus
The Employee shall be entitled to an Annual Performance Bonus payment,
a portion of which will be based upon the level of revenue ("Revenue")
actually attained by the Company in such year in relation to Goal, Plan
and Target revenue, and the other portion of which will be based upon
the level of net income before taxes ("NIBT") actually attained by the
Company in such year in relation to Goal, Plan and Target NIBT. The
2002 profit and loss statement will reflect the actual revenue and NIBT
baseline for the Company. The 2002 Base Revenue is $[**] and the 2002
Base NIBT is $[**].
The profit and loss statement will reflect only those revenues and
costs that are directly associated with the Company, and will not
include any allocation of management fees from Lifeline Systems, Inc.
The Employee's annual bonus is to be calculated as follows. The Bonus
Payout is expressed as a percentage of the Employee's annualized base
salary for the applicable calendar year, and shall be paid by the
Company promptly following the availability of audited financial
results for such year, but in any event no later than February 28 of
each fiscal year.
Revenue
The portion of the Employee's bonus payment based on Revenue, shall be
calculated for each fiscal year as follows:
For each fiscal year, Goal Revenue will be determined by increasing the
prior year's actual Revenue by [**]%. Plan Revenue will be determined
by increasing the prior year's actual Revenue by [**]%. Any
non-operational Revenue windfalls that have been excluded for the
purposes of Annual Performance Bonus in the prior year, will be
excluded when determining the following year's Goal and Plan Revenue.
Bonus Payout
Revenue (As a Percentage of
Attainment Base Salary)
---------- ------------
Prior Year Actual [**]%
Goal Revenue [**]%
Plan Revenue [**]%
Bonus Payout will be linearly determined between each set of points.
Revenue in excess of Plan Revenue will accrue additional Bonus Payout at a rate
of [**]% of the excess.
<PAGE>
-2-
There will be no cap on bonus payments; however, in the event of unusual
non-operational revenue windfalls to the Company, the CEO of Lifeline Systems,
Inc. may, in his sole discretion, adjust the revenue calculation for purposes
hereof and consider the appropriateness of a one-time bonus payment associated
with such unusual items, or may exclude such items from the bonus calculation.
PricewaterhouseCoopers will be responsible for arbitrating any disputes over
whether an item is unusual.
Net Income Before Taxes("NIBT")
The portion of the Employee's bonus payment based on NIBT shall be calculated
for each fiscal year, as follows:
For each fiscal year, Goal NIBT will be determined by increasing the prior years
actual NIBT by [**]%. Plan NIBT will be determined by increasing the prior years
actual NIBT by [**]%. Any non-operational NIBT windfalls that have been excluded
for the purposes of the Annual Performance Bonus in the prior year, will be
excluded when determining the following years Goal and Plan NIBT. NIBT will be
net of accruals for the employee's bonus when calculating the bonus payout.
Bonus Payout
NIBT (As a Percentage of
Attainment Base Salary)
Prior Year Actual [**]%
Goal NIBT [**]%
Plan NIBT [**]%
Payments will be linearly determined between each set of points.
NIBT in excess of Plan NIBT will accrue additional Bonus Payout at a rate of
[**]% of NIBT in excess of the applicable Plan NIBT.
There will be no cap on bonus payments; however, in the event of unusual
non-operational NIBT windfalls to the Company, the CEO of Lifeline Systems, Inc.
may, in his sole discretion, adjust the NIBT calculation for purposes hereof and
consider the appropriateness of a one-time bonus payment associated with such
unusual items, or may exclude such items from the bonus calculation.
PricewaterhouseCoopers will be responsible for arbitrating any disputes over
whether an item is unusual.
II. Strategic Bonus
At the beginning of each year, the Employee and the CEO of Lifeline Systems,
Inc. will jointly develop one or more objectives, the achievement of which will
impact the long term strategic success of the Company. Upon completion of the
year, the CEO will evaluate the Employee's accomplishment of the stated
objective. Depending upon the level of success attained, the CEO will grant a
Bonus Payout ranging from 0% to 10% of the Employee's base salary.
III. Long Term Performance Bonus
The Employee shall be entitled to a Long Term Performance Bonus Payout in
respect of the three (3) year term of the Agreement, which will be based upon
the level of Revenue actually attained by the Company
<PAGE>
-3-
at the end of year 2003, 2004 and 2005 in relation to Target Revenue, and the
other portion of which will be based upon the level of NIBT actually attained by
the Company at the end of year 2003, 2004 and 2005 in relation to the Target
NIBT.
The 2002 profit and loss statement will reflect the actual revenue and NIBT
baseline for the Company. The 2002 Base Revenue is $[**] and the 2002 Base NIBT
is $[**].
The profit and loss statement will reflect only those revenues and costs that
are directly associated with the Company, and will not include any allocation of
management fees from Lifeline Systems, Inc.
The Long Term Performance Bonus is expressed as a total dollar payment for both
Revenue and NIBT, and shall be paid by the Company promptly following the
availability of audited financial results for the third year of each term, but
in any event no later than February 28.
In each year, a minimum payment ("Progress Payment") of $[**] for the Long Term
Performance Bonus for Revenue and NIBT will be paid by no later than February
28, provided that the NIBT Goal for that year has been exceeded. The Progress
Payments will be deducted from the total of Revenue and NIBT Long Term
Performance Bonus otherwise calculated and payable. NIBT will be net of accruals
for the employee's bonus when calculating the NIBT portion of the Long Term
Performance Bonus. In the event that a $[**] progress payment was paid for over
Goal achievement in 2003 and 2004, but the long term cumulative Goal NIBT
threshold of $[**] is not exceeded, the employee will repay $[**] of the
Progress Payments.
There will be no Long Term Performance Bonus payout for Revenue if the
cumulative three year NIBT achievement has not exceeded the NIBT Goal threshold
of $[**]. For this purpose, when calculating NIBT achievement for either annual
or cumulative three year performance, any accruals for Long Term Performance
Bonus will be added back to NIBT.
Revenue
The Revenue portion of the Employee's Long Term Performance Bonus shall be
calculated as follows:
Revenue
Revenue Attainment Long Term Performance
Attainment ($000) Bonus Payment
---------- ------ -------------
Base Year -2002 $[**]
Three Year Target
2003 $[**]
2004 $[**]
2005 $[**]
--------------------------
Three Year Target $[**] [**]% of excess of 3 year
total revenue achieved over 3
year Plan Revenue up to 3 year
Target Revenue; and [**]% of
excess of total revenue
achieved over Target Revenue.
<PAGE>
-4-
There will be no cap on bonus payments; however, in the event of unusual
non-operational revenue windfalls to the Company, the CEO of Lifeline Systems,
Inc. may, in his sole discretion, adjust the revenue calculation for purposes
hereof and consider the appropriateness of a one-time bonus payment associated
with such unusual items, or may exclude such items from the bonus calculation.
PricewaterhouseCoopers will be responsible for arbitrating any disputes over
whether an item is unusual.
NIBT
The NIBT portion of the Employee's Long Term Performance Bonus Payment shall be
calculated as follows:
NIBT
NIBT Attainment Long Term Performance
Attainment ($000) Bonus Payment
---------- ------ -------------
Base Year -2002 $[**]
Three Year Target
2003 $[**]
2004 $[**]
2005 $[**]
--------------------------
Three Year Target $[**] [**]% of excess of 3 year
total NIBT achieved over 3
year Plan NIBT up to 3 year
Target NIBT; and [**]% of
excess of total NIBT achieved
over Target NIBT.
There will be no cap on bonus payments; however, in the event of unusual
non-operational NIBT windfalls to the Company, the CEO of Lifeline Systems, Inc.
may, in his sole discretion, adjust the NIBT calculation for purposes hereof and
consider the appropriateness of a one-time bonus payment associated with such
unusual items, or may exclude such items from the bonus calculation.
PricewaterhouseCoopers will be responsible for arbitrating any disputes over
whether an item is unusual.
<PAGE>
-5-
Thresholds:
<TABLE>
<CAPTION>
2002 2003 2004 2005 Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Goal Revenue $[**] $[**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
Increase % [**]% [**]% [**]%
--------------------------------------------------
Plan Revenue $[**] [**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
Increase % [**]% [**]% [**]%
--------------------------------------------------
Target Revenue $[**] $[**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
[**]% [**]% [**]%
--------------------------------------------------
Goal NIBT $[**] $[**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
Increase % [**]% [**]% [**]%
--------------------------------------------------
Plan NIBT $[**] $[**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
Increase % [**]% [**]% [**]%
--------------------------------------------------
Target NIBT $[**] $[**] $[**] $[**] $[**]
--------------------------------------------------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>