1
EXHIBIT 99.1
STOCK OPTION AGREEMENT, dated as of October 18, 1998 (the
"Stock Option Agreement"), between Protection One, Inc., a Delaware corporation
(the "Parent"), and Lifeline Systems, Inc., a Massachusetts corporation (the
"Company")
WHEREAS, the Parent and the Company are parties to that
certain Agreement and Plan of Contribution and Merger, dated as of the date
hereof (the "Merger Agreement"), which provides, among other things, that Merger
Sub I (as defined in the Merger Agreement), on the terms and subject to the
conditions thereof, will merge with and into the Company with Company surviving
as a wholly owned subsidiary of New Parent (as defined in the Merger Agreement);
WHEREAS, as a condition to its willingness to enter into the
Merger Agreement, the Parent has requested that the Company grant to the Parent
an option to purchase up to 1,159,410 shares of common stock, par value $0.02
per share ("Common Stock") of the Company, upon the terms and subject to the
conditions hereof; and
WHEREAS, in order to induce the Parent to enter into the
Merger Agreement, the Company is willing to grant the Parent the requested
option.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
1. The Option; Exercise; Adjustments. (a) Contemporaneously
herewith the Parent and the Company are entering into the Merger Agreement.
Subject to the other terms and conditions set forth herein, the Company hereby
grants to the Parent an irrevocable option (the "Option") to purchase up to
1,159,410 shares of Common Stock (the "Shares"). The purchase price per Share
(the "Purchase Price") shall be $29.00.
(b) Subject to the provisions of Section 1(c), the
Option may be exercised by the Parent, in whole or in part, at any time or from
time to time after (i) (A) the termination of the Merger Agreement and (B) the
occurrence of any circumstance that would entitle the Parent to receive the fee
provided for pursuant to Section 6.3(b) or (ii) the commencement of any
Acquisition Proposal as defined in Section 6.5(a)(i) of the Merger Agreement and
prior to the termination of the Option in accordance with Section 18 hereof;
provided that any purchase of Shares upon exercise of the Option shall be
subject to compliance with applicable law. Notwithstanding the termination of
the Option, Parent shall be entitled to purchase the Shares with respect to
which it has exercised the Option in accordance with the terms hereof prior to
the termination of the Option.
(c) In the event the Parent wishes to exercise the
Option, the Parent shall send a written notice to the Company (the "Stock
Exercise Notice") specifying a date (subject to the HSR Act (as defined below)
not later than 20 business days and not earlier than three business days
following the date such notice is given) for the closing of such purchase. In
the event of any change in the number of issued and
2
outstanding shares of Common Stock by reason of any stock dividend, stock split,
split-up, recapitalization, merger or other change in the corporate or capital
structure of the Company, the number of Shares subject to this Option and the
purchase price per Share shall be appropriately adjusted to restore the Parent
to its rights hereunder, including its right to purchase Shares representing
approximately 19.9% of the capital stock of the Company entitled to vote
generally for the election of the directors of the Company which are issued and
outstanding immediately prior to the exercise of the Option at an aggregate
purchase price equal to the Purchase Price multiplied by 1,159,410; provided,
however, that in no event shall any adjustment be made under this Section 1(c)
with respect to any transaction contemplated or permitted by the Merger
Agreement.
(d) If at any time the Option is then exercisable
pursuant to the terms of Section 1(b)(i) hereof, the Parent may elect, in lieu
of exercising the Option to purchase Shares provided in Section 1(a) hereof, to
send a written notice to the Company (the "Cash Exercise Notice") specifying a
date not later than 20 business days and not earlier than 10 business days
following the date such notice is given on which date the Company shall pay to
the Parent an amount in cash equal to the Spread (as hereinafter defined)
multiplied by all or such portion of the Shares subject to the Option as Parent
shall specify. As used herein "Spread" shall mean the excess, if any, over the
Purchase Price of the higher of (x) if applicable, the highest price per share
of Common Stock (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by any person pursuant to an Acquisition Proposal
(as defined in the Merger Agreement) (the "Alternative Purchase Price") or (y)
the closing price of the shares of Common Stock on the Nasdaq Stock Market on
the last trading day immediately prior to the date of the Cash Exercise Notice
(the "Closing Price"). If the Alternative Purchase Price includes any property
other than cash, the Alternative Purchase Price shall be the sum of (i) the
fixed cash amount, if any, included in the Alternative Purchase Price plus (ii)
the fair market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending two trading days prior to the date of the Cash Exercise
Notice shall be deemed to equal the fair market value of such property. If such
other property consists of something other than cash or securities with an
existing public trading market and, as of the payment date for the Spread,
agreement on the value of such other property has not been reached, the
Alternative Purchase Price shall be deemed to equal the Closing Price. Upon
exercise of its right to receive cash pursuant to this Section 1(c), the
obligations of the Company to deliver Shares pursuant to Section 3 shall be
terminated with respect to such number of Shares for which the Parent shall have
elected to be paid the Spread.
2. Conditions to Delivery of Shares. The Company's obligation
to deliver Shares upon exercise of the Option is subject only to the conditions
that:
(i) No preliminary or permanent injunction or other
order issued by any federal or state court of competent jurisdiction in
the United States prohibiting the delivery of the Shares shall be in
effect; and
2
3
(ii) Any applicable waiting periods under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx "XXX Xxx")
shall have expired or been terminated.
3. The Closing. (a) Any closing hereunder shall take place on
the date specified by the Parent in its Stock Exercise Notice or Cash Exercise
Notice, as the case may be, at 9:00 A.M., local time, at the offices of Weil,
Gotshal & Xxxxxx LLP, 000 Xxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxx, Xxxxx, or, if the
conditions set forth in Section 2(i) or 2(ii) have not then been satisfied, on
the second business day following the satisfaction of such conditions, or at
such other time and place as the parties hereto may agree (the "Closing Date").
On the Closing Date, (i) in the event of a closing pursuant to Section 1(c)
hereof, the Company will deliver to the Parent a certificate or certificates,
duly endorsed (or accompanied by duly executed stock powers), representing the
Shares in the denominations designated by the Parent in its Stock Exercise
Notice and the Parent will purchase such Shares from the Company at the price
per Share equal to the Purchase Price or (ii) in the event of a closing pursuant
to Section 1(d) hereof, the Company will deliver to the Parent cash in an amount
determined pursuant to Section 1(d) hereof. Any payment made by the Parent to
the Company, or by the Company to the Parent, pursuant to this Stock Option
Agreement shall be made by wire transfer of immediately available funds to a
bank designated by the party receiving such funds.
(b) The certificates representing the Shares may bear
an appropriate legend relating to the fact that such Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Company. The Company
represents and warrants to the Parent that (a) the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the requisite corporate power and
authority to enter into and perform this Stock Option Agreement; (b) the
execution and delivery of this Stock Option Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Company and this Stock Option
Agreement has been duly executed and delivered by a duly authorized officer of
the Company and will constitute a valid and binding obligation of the Company
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; (c) the Company has taken
all necessary corporate action to authorize and reserve the Shares issuable upon
exercise of the Option and the Shares, when issued and delivered by the Company
upon exercise of the Option, will be duly authorized, validly issued, fully paid
and non-assessable and free of preemptive rights; and (d) except as otherwise
required by the HSR Act, the execution and delivery of this Stock Option
Agreement by the Company and the consummation by it of the transactions
contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default
3
4
under, any provision of any charter or by-law, indenture, mortgage, lien, lease,
agreement, contract, instrument, order, law, rule, regulation, judgment,
ordinance, or decree, or restriction by which the Company or any of its
subsidiaries or any of their respective properties or assets is bound, except
for any breach, violation, default, acceleration, creation or change that,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect (as defined in the Merger Agreement) or prevent,
materially delay or materially impair the ability of the Company to consummate
the transactions contemplated by this Stock Option Agreement; and (e) no "fair
price", "moratorium", "control share acquisition" or other form of antitakeover
statute or regulation (including, without limitation, the prohibitions of
Chapters 110C, 110D and 110F of the Massachusetts General Laws) is applicable to
the acquisition of Shares pursuant to this Stock Option Agreement.
5. Representations and Warranties of the Parent. The Parent
represents and warrants to the Company that (a) the Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Stock Option Agreement, (b) the execution and delivery of this
Stock Option Agreement by the Parent and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Parent and this Stock Option Agreement has
been duly executed and delivered by a duly authorized officer of the Parent and
will constitute a valid and binding obligation of Parent enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles, and
(c) the Parent is acquiring the Option and, if and when it exercises the Option,
will be acquiring the Shares issuable upon the exercise thereof for its own
account and not with a view to distribution or resale in any manner which would
be in violation of the Securities Act.
6. Quotation of Shares; HSR Act Filings; Governmental
Consents. The Company will promptly file an application to have the Shares
approved for quotation on the Nasdaq Stock Market and will use all reasonable
efforts to obtain approval of such quotation and to effect all necessary filings
by the Company under the HSR Act; provided, however, that if the Company is
unable to effect such quotation on the Nasdaq Stock Market by the Closing Date,
the Company will nevertheless be obligated to deliver the Shares upon the
Closing Date. Each of the parties hereto will use all reasonable efforts to
obtain consents of all third parties and governmental authorities, if any,
necessary to the consummation of the transactions contemplated hereby.
7. Registration Rights. (a) In the event that the Parent shall
desire to sell any of the Shares within two years after the purchase of such
Shares pursuant hereto, and such sale requires, in the opinion of counsel to the
Parent, which opinion shall be reasonably satisfactory to the Company and its
counsel, registration of such Shares under the Securities Act, the Company will
cooperate with the Parent and any underwriters in registering such Shares for
resale, including, without limitation, promptly filing a registration statement
which complies with the requirements of applicable federal and
4
5
state securities laws, entering into an underwriting agreement with such
underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided that
the Company shall not be required to have declared effective more than two
registration statements hereunder and shall be entitled to delay the filing or
effectiveness of any registration statement for up to 120 days if the offering
would, in the good faith judgment of the Board of Directors of the Company,
require premature disclosure of any material corporate development or otherwise
interfere with or adversely affect any pending or proposed offering of
securities of the Company or any other material transaction involving the
Company.
(b) If the Common Stock is registered pursuant to the
provisions of this Section 7, the Company agrees (i) to furnish copies of the
registration statement and the prospectus relating to the Shares covered thereby
in such numbers as the Parent may from time to time reasonably request and (ii)
if any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Parent such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. The Company shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Company, except that the Parent shall pay the
fees and disbursements of its counsel, the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Parent. The
Company shall indemnify and hold harmless Parent, its affiliates and its
officers and directors from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in, omissions or alleged omissions from, each registration statement filed
pursuant to this paragraph; provided, however, that this provision does not
apply to any loss, liability, claim, damage or expense to the extent it arises
out of any untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by the Parent, its affiliates,
officers or other representatives expressly for use in any registration
statement (or any amendment thereto) or any prospectus (as amended or
supplemented) filed pursuant to this paragraph. The Company shall also indemnify
and hold harmless each underwriter and each person who controls any underwriter
within the meaning of either the Securities Act or the Securities Exchange Act
of 1934, as amended, against any and all losses, claims, damages, liabilities
and expenses arising out of or based upon any statements contained in, omissions
or alleged omissions from, each registration statement filed pursuant to this
paragraph; provided, however, that this provision does not apply to any loss,
liability, claim, damage or expense to the extent it arises out of any untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the underwriters
expressly for use in any registration statement (or any amendment thereto) or
any prospectus, as amended or supplemented, filed pursuant to this paragraph.
5
6
8. Expenses. Each party hereto shall pay its own expenses
incurred in connection with this Stock Option Agreement.
9. Specific Performance. The Company acknowledges that if the
Company fails to perform any of its obligations under this Stock Option
Agreement immediate and irreparable harm or injury would be caused to the Parent
for which money damages would not be an adequate remedy. In such event, the
Company agrees that the Parent shall have the right, in addition to any other
rights it may have, to specific performance of this Stock Option Agreement.
Accordingly, if the Parent should institute an action or proceeding seeking
specific enforcement of the provisions hereof, the Company hereby waives the
claim or defense that the Parent has an adequate remedy at law and hereby agrees
not to assert in any such action proceeding the claim or defense that such a
remedy at law exists. The Company further agrees to waive any requirements for
the securing or posting of any bond in connection with obtaining any such
equitable relief.
10. Profit Limitation. (a) Notwithstanding any other provision
of this Stock Option Agreement, in no event shall the Parent's Total Profit (as
hereinafter defined) exceed $9 million and, if it otherwise would exceed such
amount, the Parent, at its sole election, shall either (a) deliver to the
Company for cancellation Shares previously purchased by Parent, (b) pay cash or
other consideration to the Company or (c) undertake any combination thereof, so
that Parent's Total Profit shall not exceed $9 million after taking into account
the foregoing actions.
(b) Notwithstanding any other provision of this Stock
Option Agreement, this Option may not be exercised for a number of Shares as
would, as of the date of the Stock Exercise Notice, result in a Notional Total
Profit (as defined below) of more than $9 million and, if exercise of the Option
otherwise would exceed such amount, the Parent, at its discretion, may increase
the Purchase Price for that number of Shares set forth in the Stock Exercise
Notice so that the Notional Total Profit shall not exceed $9 million; provided,
that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date at the Purchase Price set forth in
Section 1(a) hereof.
(c) As used herein, the term "Total Profit" shall
mean the aggregate amount (before taxes) of the following: (i) the amount of
cash received by Parent pursuant to Section 1(d), (ii) (x) the net cash amounts
received by Parent pursuant to the sale of Shares (or any other securities into
which such Shares are converted or exchanged) to any unaffiliated party, less
(y) the Parent's Purchase Price for such Shares, and (iii) any fees received
pursuant to Section 6.3(b) or Section 6.3(e) of the Merger Agreement.
(d) As used herein, the term "Notional Total Profit"
with respect to any number of Shares as to which Parent may propose to exercise
this Option shall be the Total Profit determined as of the date of the Stock
Exercise Notice assuming that this Option were exercised on such date for such
number of Shares and assuming that
6
7
such Shares, together with all other Shares held by Parent and its affiliates as
of such date, were sold for cash at the closing market price for the Common
Stock as of the close of business on the preceding trading day (less customary
brokerage commissions).
11. Notice. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
fully given if (i) delivered personally, (ii) sent by certified or registered
mail, return receipt requested, (iii) sent by overnight courier for delivery on
the next business day or (iv) sent by confirmed telecopy, provided that a hard
copy of all such telecopied materials is thereafter sent within 24 hours in the
manner described in clauses (i), (ii) or (iii), to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
If to the Parent:
Protection One, Inc.
0000 Xxxxxxx Xxxxxxx
Xxxxxx Xxxx, XX 00000
Attn: Xxxx X. Xxxx, III
Telecopy: 310/649-3855
Protection One, Inc.
0000 Xxxxx Xxxxxxx 000, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxx
Telecopy: 972/916-6156
With a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Telecopy: 214/746-7777
If to the Company:
Lifeline Systems, Inc.
000 Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxxx
Telecopy: (000) 000-0000
7
8
With a copies to:
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 0000
Attn: Xxx Xxxxxxxx, Esq.
Telecopy: 617/526-5000
Notices provided in accordance with this Section 11 shall be
deemed delivered (i) on the date of personal delivery, (ii) four business days
after deposit in the mail, (ii) one business day after delivery to an overnight
courier, or (iv) on the date of confirmation of the telecopy transmission, as
the case may be.
12. Parties in Interest. This Stock Option Agreement shall
inure to the benefit of and be binding upon the parties named herein and their
respective successors and permitted assigns; provided, however, that such
successor in interest or permitted assigns shall agree to be bound by the
provisions of this Stock Option Agreement. Nothing in this Stock Option
Agreement, express or implied, is intended to confer upon any Person other than
the Company or the Parent, or their successors or assigns, any rights or
remedies under or by reason of this Stock Option Agreement.
13. Entire Agreement; Amendments. This Stock Option Agreement,
together with the Merger Agreement and the other documents referred to therein,
contains the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, oral or written, with respect to such transactions. This
Stock Option Agreement may not be changed, amended or modified orally, but may
be changed only by an agreement in writing signed by the party against whom any
waiver, change, amendment, modification or discharge may be sought.
14. Assignment. No party to this Stock Option Agreement may
assign any of its rights or obligations under this Stock Option Agreement
without the prior written consent of the other party hereto, except that the
Parent may assign its rights and obligations hereunder to any of its direct or
indirect wholly owned subsidiaries, but no such transfer shall relieve the
Parent of its obligations hereunder if such transferee does not perform such
obligations.
15. Headings. The section headings herein are for convenience
only and shall not affect the construction of this Stock Option Agreement.
16. Counterparts. This Stock Option Agreement may be executed
in any number of counterparts, each of which, when executed, shall be deemed to
be an original and all of which together shall constitute one and the same
document.
17. Governing Law. This Stock Option Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts (regardless of the laws that might otherwise govern under
applicable Massachusetts principles of conflicts of law).
8
9
18. Termination. The right to exercise the Option granted
pursuant to this Stock Option Agreement shall terminate upon the earliest of (i)
the Effective Time (as defined in the Merger Agreement), (ii) the termination of
the Merger Agreement pursuant to circumstances under which the Parent is not
entitled (whether at the time of termination or upon the occurrence of a
Triggering Event) to receive the fee provided for pursuant to Section 6.3(b) of
the Merger Agreement, (iii) the date on which Purchaser realizes a Total Profit
equal to the Profit Limit (as such terms are defined in Section 10) and (iv) one
year after the date (the "Merger Termination Date") on which the Merger
Agreement is terminated (the date referred to in clause (iv) being hereinafter
referred to as the "Option Expiration Date"); provided that, if the Option
cannot be exercised or the Shares cannot be delivered to Parent upon such
exercise by reason of any applicable judgment, decree or order or because the
condition set forth in Section 2(ii) has not yet been satisfied, the Option
Expiration Date shall be extended until thirty days after such impediment to
exercise has been removed.
19. Severability. If any term, provision, covenant or
restriction of this Stock Option 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 Stock Option Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
20. Public Announcement. Each of Parent, New Parent, the
Company and the Merger Subsidiaries (as defined in the Merger Agreement) will
consult with one another before issuing any press release or otherwise making
any public statements with respect to the transactions contemplated by this
Stock Option Agreement, and shall not issue any such press release or make any
such public statement prior to such consultation, except to the extent that the
party making such announcement determines that it must do so in order to comply
with applicable law or its obligations pursuant to any listing agreement with
the Nasdaq Stock Market or the NYSE and it is impracticable under the
circumstances to consult with the other parties hereto prior to making such
announcement.
[THIS REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
9
10
IN WITNESS WHEREOF, the Parent and the Company have caused
this Stock Option Agreement to be duly executed and delivered on the day and
year first above written.
PROTECTION ONE, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
LIFELINE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
-------------------------------
10
