-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ErXmIQzoAEYkXywje74N4b2jZjFH+VBc2XnF8TAHSiIJYDmi5wZIDTKV9vMYjmMh RGnGwKB/cBqe2sudj8Rwrw== 0000891618-96-002234.txt : 19961004 0000891618-96-002234.hdr.sgml : 19961004 ACCESSION NUMBER: 0000891618-96-002234 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961003 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961003 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27186 FILM NUMBER: 96638959 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 4153490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 8-K 1 FORM 8-K DATED OCTOBER 3, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest reported) October 3, 1996 Raytel Medical Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Delaware 0-27186 94-2787342 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 2755 Campus Drive, Suite 200, San Mateo, CA 94403 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 349-0800 - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. (a) SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, P.A. On September 20, 1996, but effective September 18, 1996, Raytel Medical Corporation, through a wholly owned subsidiary which serves as the corporate general partner in a Texas limited partnership (together, the "Company"), acquired the nonmedical assets and assumed the liabilities of, and entered into a long-term management agreement with, Southeast Texas Cardiology Associates, P.A. (the "SETCA Practice"), a seven-physician cardiology practice based in Beaumont, Texas, with additional practice locations in Jasper, Orange and Port Arthur, Texas. The aggregate purchase price was approximately $7,631,000 consisting of (i) cash, (ii) subordinated promissory notes, and (iii) an agreement to deliver a specified number of shares of Common Stock at specified future dates. The purchase price was determined after arms-length negotiation between the Company and the SETCA Practice. The cash component of the purchase price was funded from a credit facility with a group of commercial banks lead by Bank of Boston Connecticut. The purchase price is subject to an adjustment for an increase or decrease in the amount of net assumed liabilities determined with reference to the closing statement to be prepared within 30 days after the closing. The management agreement with the SETCA Practice has a forty-year term with automatic 5-year renewal periods unless either party should give notice of termination at least 120 days prior to the end of the initial term or any renewal term. The management agreement provides for payment to the Company of a management fee, which includes all practice costs (other than amounts retained by the SETCA Practice's physicians, and a performance fee), if certain criteria are satisfied. Each of the physicians also entered into an employment agreement with the SETCA Practice. The acquired nonmedical assets include cash, cash equivalents, equipment, leasehold interests, and other tangible personal property. The SETCA Practice used the nonmedical assets in connection with the operation of its cardiology practice, and the Company intends to employ these assets to provide services under the terms of the management agreement with the SETCA Practice. Before the acquisition, there was no material relationship between the SETCA Practice and the registrant or any of its affiliates, any director or officer of the registrant, or any associate of any such director or officer. (b) Business of the SETCA Practice The SETCA Practice is engaged in a multi-site medical practice providing invasive and non-invasive cardiology services to patients located in the six-county area surrounding Beaumont, Texas. The SETCA Practice intends to continue providing similar services following the transaction. -2- 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. It is impracticable to provide the audited financial statements of the SETCA Practice for the periods required at the date of this report. The Company intends to file such financial statements as soon as they become available and in any event not later than December 2, 1996. (b) Pro forma financial information. It is impracticable to provide the pro forma financial information required pursuant to Article 11 of Regulation S-X at the date of this report. The Company intends to file such pro forma financial information as soon as it becomes available and in any event not later than December 2, 1996. (c) The following exhibits are attached and filed herewith: 2.1* Master Transaction Agreement, dated as of August 21, 1996, but effective as of September 18, 1996, between and among Raytel Medical Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., Michael L. Smith, M.D., and Miguel Castellanos, M.D. 2.2* Agreement for the Purchase and Sale of Assets, dated as of August 21, 1996, but effective as of September 18, 1996, between and among Raytel Medical Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., and Michael L. Smith, M.D. 2.3* Management Services Agreement, dated and effective as of September 18, 1996, between Cardiology Management Partnership, a Texas general partnership, and Southeast Texas Cardiology Associates II, P.A., as assigned to Raytel Southeast Management, L.P. Each of the above-listed agreements contains a list identifying all omitted exhibits and schedules. The Company agrees to furnish supplementally a copy of any omitted exhibits or schedule to the Securities and Exchange Commission upon request. - ----------------- * Confidential treatment has been requested for portions of this exhibit. -3- 4 SIGNATURES Pursuant to the requirements 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. RAYTEL MEDICAL CORPORATION Dated: October 3, 1996 By: /s/ Richard F. Bader ------------------------------------ Richard F. Bader Chairman and Chief Executive Officer -4- 5 INDEX TO EXHIBITS Exhibit Description ------- ----------- 2.1* Master Transaction Agreement, dated as of August 21, 1996, but effective as of September 18, 1996, between and among Raytel Medical Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., Michael L. Smith, M.D., and Miguel Castellanos, M.D. 2.2* Agreement for the Purchase and Sale of Assets, dated as of August 21, 1996, but effective as of September 18, 1996, between and among Raytel Medical Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., and Michael L. Smith, M.D. 2.3* Management Services Agreement, dated and effective as of September 18, 1996, between Cardiology Management Partnership, a Texas general partnership, and Southeast Texas Cardiology Associates II, P.A., as assigned to Raytel Southeast Management, L.P. Each of the above-listed agreements contains a list identifying all omitted exhibits and schedules. The Company agrees to furnish supplementally a copy of any omitted exhibits or schedule to the Securities and Exchange Commission upon request. - ------------------ * Confidential treatment has been requested for portions of this exhibit. EX-2.1 2 MASTER TRANSACTION AGREEMENT DATED AUGUST 21, 1996 1 EXHIBIT 2.1 MASTER TRANSACTION AGREEMENT BY AND AMONG RAYTEL MEDICAL CORPORATION RAYTEL SOUTHEAST MANAGEMENT, L. P. AND SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, P. A. SOUTHEAST TEXAS CARDIOLOGY GROUP, P. A. AND RODOLFO P. SOTOLONGO, M. D. WAYNE S. MARGOLIS, M. D. MICHAEL L. SMITH, M. D. MIGUEL CASTELLANOS, M.D. 2 INDEX
PAGE ---- ARTICLE I. DEFINITIONS............................................................... 1 ARTICLE II. RESTRUCTURING............................................................ 5 Section 2.01 Pre-Closing Actions.................................................... 5 Section 2.02 Purchase, Security and Conveyance Agreements........................... 5 Section 2.03 Partnership Interest Purchase Agreement................................ 5 Section 2.04 Noncompetition and Confidentiality Covenants........................... 7 ARTICLE III. REPRESENTATIONS OF THE PHYSICIAN PARTIES................................ 7 Section 3.01 Joint Representations of the Physicians................................ 7 (a) Organization, Valid Authorization and Good Standing.......................... 7 (b) Compliance................................................................... 8 (c) Approvals.................................................................... 8 (d) Financial Statements......................................................... 8 (e) Undisclosed Liabilities...................................................... 9 (f) Absence of Changes or Events................................................. 9 (g) Litigation................................................................... 10 (h) Permits; Compliance with Laws................................................ 10 (i) Insurance.................................................................... 11 (j) Tax Matters.................................................................. 11 (k) Contracts.................................................................... 12 (l) Employee Benefit Plans....................................................... 12 (m) Environmental Protection..................................................... 14 (n) Labor Matters................................................................ 14 (o) Brokers...................................................................... 14 (p) Disclosure................................................................... 15 Section 3.02 Several Representations of the Physicians.............................. 15 (b) Compliance................................................................... 15 (c) Approvals.................................................................... 16 (d) Litigation................................................................... 16 (e) Permits...................................................................... 16 (f) Staff Privileges............................................................. 16 (h) Intentions................................................................... 17 ARTICLE IV. REPRESENTATIONS OF THE RAYTEL PARTIES.................................... 17 Section 4.01 Representations of the Raytel Parties.................................. 17 (b) Compliance................................................................... 17 (c) Approvals.................................................................... 18 (d) Financial Statements......................................................... 18 (e) Litigation................................................................... 18 (f) Disclosure................................................................... 18
i 3 ARTICLE V. PRE-CLOSING COVENANTS..................................................... 19 Section 5.01 Conduct of Physician Practice.......................................... 19 Section 5.02 Access to Information and Records Before Closing....................... 19 Section 5.03 Other Transactions..................................................... 20 Section 5.04 Covenant Not To Compete................................................ 20 ARTICLE VI. ADDITIONAL AGREEMENTS.................................................... 20 Section 6.01 Certain Notifications.................................................. 20 Section 6.02 Investment Representations and Covenants of Physicians................. 20 Section 6.03 No Corporate Practice.................................................. 22 Section 6.04 Development of Cardiac Catheterization Laboratory...................... 22 ARTICLE VII. CONDITIONS.............................................................. 23 Section 7.01 Conditions Precedent to the Obligations of All Parties................. 23 Section 7.02 Conditions Precedent to the Obligations of the Raytel Parties.......... 23 Section 7.03 Conditions Precedent to the Obligations of the Physician Parties....... 24 ARTICLE VIII. CLOSING................................................................ 25 Section 8.01 Closing................................................................ 25 Section 8.02 Deliveries to the Raytel Parties at the Closing........................ 25 Section 8.03 Deliveries to the Physician Parties at the Closing..................... 26 ARTICLE IX. TERMINATION................................................................. 26 Section 9.01 Termination by Mutual Agreement........................................ 26 Section 9.02 Termination by Raytel Parties.......................................... 26 Section 9.03 Termination by the Physician Parties................................... 27 Section 9.04 Termination Date....................................................... 27 ARTICLE X. INDEMNIFICATION........................................................... 27 Section 10.01 Indemnification by the Physician Parties.............................. 27 Section 10.02 Indemnification by the Raytel Parties................................. 28 Section 10.03 Notice................................................................ 28 Section 10.04 Defense of Third Party Claims......................................... 29 Section 10.05 Payment of Losses..................................................... 30 Section 10.06 Limitations........................................................... 31 ARTICLE XI. ARBITRATION................................................................ 32 Section 11.01 Scope................................................................. 32 Section 11.02 Arbitrators........................................................... 32 Section 11.03 Applicable Rules...................................................... 33
ii 4 ARTICLE XII. MISCELLANEOUS.............................................................. 34 Section 12.01 Remedies Not Exclusive................................................ 34 Section 12.02 Expenses.............................................................. 35 Section 12.03 Parties Bound......................................................... 35 Section 12.04 Notices............................................................... 35 Section 12.05 Choice of Law......................................................... 36 Section 12.06 Entire Agreement; Amendments and Waivers.............................. 36 Section 12.07 Reformation Clause.................................................... 36 Section 12.08 Assignment............................................................ 37 Section 12.09 Attorneys' Fees....................................................... 37 Section 12.10 Further Assurances.................................................... 37 Section 12.11 Announcements and Press Releases...................................... 37 Section 12.12 Return of Information and Confidentiality............................. 37 Section 12.12 Antidilution.......................................................... 38 Section 12.13 No Tax Representations................................................ 38 Section 12.14 No Rights as Stockholder.............................................. 39 Section 12.15 Multiple Counterparts................................................. 39 Section 12.16 Headings.............................................................. 39 Section 12.17 Severability.......................................................... 39
EXHIBITS Exhibit A Form of Asset Purchase Agreement Exhibit B Form of Conveyance Agreement Exhibit C Form of Employment Agreement Exhibit D Form of Management Services Agreement Exhibit E Form of New P Partnership Agreement Exhibit F Form of New PA Bylaws Exhibit G Form of New PA Articles of Association Exhibit H Form of New PA Consent Exhibit I Form of Note Exhibit J Form of Partnership Interest Purchase Agreement Exhibit K Form of Security Agreement iii 5 MASTER TRANSACTION AGREEMENT This Master Transaction Agreement ("Master Transaction Agreement"), dated and effective as of August 21, 1996, is by and among (i) RAYTEL MEDICAL CORPORATION, a Delaware corporation ("Raytel"); (ii) RAYTEL SOUTHEAST MANAGEMENT, L.P., a Texas limited partnership ("Raytel Management"); RAYTEL TEXAS PHYSICIAN SERVICES, INC., a Delaware corporation (the "Corporate General Partner") (iii) SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, P.A., a Texas professional association ("Existing PA"); (iv) SOUTHEAST TEXAS CARDIOLOGY GROUP II, P.A., a Texas professional association ("New PA"); and (v) RODOLFO P. SOTOLONGO, M.D., WAYNE S. MARGOLIS, M. D., MICHAEL L. SMITH, M. D., and MIGUEL CASTELLANOS, M.D. (collectively the "Physicians" and individually a "Physician")(Raytel, Raytel Management, Corporate General Partner, Existing PA, New PA and the Physicians are collectively referred to herein as the "Parties" and individually as a "Party"). R E C I T A L S A. Each Physician is a physician licensed to practice medicine in the State of Texas. B. The Physicians desire to restructure their cardiology practice by consummation of the transactions described in this Master Transaction Agreement. C. The Parties to this Master Transaction Agreement desire to set forth the terms and conditions upon which the restructuring described above shall be accomplished and to agree upon other matters set forth herein. NOW, THEREFORE, in consideration of the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows: A G R E E M E N T ARTICLE I. DEFINITIONS For purposes of this Master Transaction Agreement, the following terms, in addition to other capitalized terms used in this Master Transaction Agreement that are defined elsewhere herein, shall have the meanings set forth herein. - 1 - 6 1.01. Asset Purchase Agreement. The Asset Purchase Agreement to be executed by and between Raytel Management, the Corporate General Partner, Existing PA and New PA, including the Physicians' Agreement and Covenant Not To Compete attached thereto and forming a part thereof for all purposes, substantially in the form attached hereto as Exhibit A. 1.02. Closing. The closing of the transactions contemplated by this Master Transaction Agreement. 1.03. Closing Date. As defined in Section 8.01 hereof. 1.04. Code. The Internal Revenue Code of 1986, as amended. 1.05. Conveyance Agreement. The Conveyance Agreement to be executed between Existing PA and New PA substantially in the form attached hereto as Exhibit B. 1.06. Disclosure Schedule. The disclosure schedule attached hereto setting forth, with reference to the applicable section and subsection of this Master Transaction Agreement, certain information and exceptions to the representations, warranties and covenants. 1.07. Employment Agreements. Collectively, the Employment Agreements to be executed between each Physician and New PA, substantially in the form set forth in Exhibit C. 1.08. Environmental Laws. As defined in Section 3.01(m) hereof. 1.09. ERISA. As defined in Section 3.01(l) hereof. 1.10. Existing PA Balance Sheet. As defined in Section 3.01(d) hereof. 1.11. Existing PA Balance Sheet Date. As defined in Section 3.01(d) hereof. 1.12. Existing PA Unaudited Financial Statements. As defined in Section 3.01(d) hereof. 1.13. Exchange Act. The Securities Exchange Act of 1934, as amended. 1.14. GAAP. Generally accepted accounting principles, consistently applied. 1.15. Governmental Authority. Any national, state, provincial, local or tribal governmental, judicial or administrative authority or agency. 1.16. Hazardous Wastes. As defined in Section 3.01(m) hereof. 1.17. Indemnity Loss. As defined in Section 10.01(a) hereof. - 2 - 7 1.18. Investment Representations Schedule. The schedule attached hereto setting forth exceptions to each Physician's representations, warranties and covenants set forth in Section 6.02 hereof. 1.19. Management Services Agreement. The Management Services Agreement to be executed between New P and New PA substantially in the form set forth in Exhibit D. 1.20. Market Price. The market price per share of Raytel Common Stock determined in the following manner: (i) the closing price (which shall be the last reported sales price, or, in case no such sales take place on such day, the average of the closing bid and the asked prices) per share of Raytel Common Stock on the principal national securities exchange on which the Raytel Common Stock is then listed or admitted for trading, if the Raytel Common Stock is then listed or admitted for trading on any national securities exchange; (ii) if Raytel Common Stock is not then so listed on a national securities exchange, the average of the closing bid and asked prices of the Raytel Common Stock in the over-the-counter market as reported by Nasdaq; (iii) if the Raytel Common Stock is not then quoted by Nasdaq, as furnished by any member of NASD selected by Raytel for that purpose; or (iv) if no member of NASD furnishes quotes with respect to the Raytel Common Stock, an amount determined in good faith by the board of directors of Raytel and approved by Physicians. 1.21. NASD. The National Association of Securities Dealers, Inc. 1.22. Nasdaq. The National Association of Securities Dealers Automated Quotation System. 1.23. New P. Cardiology Management Partnership, a Texas general partnership. 1.24. New P Partnership Agreement. The Partnership Agreement of New P, substantially in the form attached hereto as Exhibit E. 1.25. New PA Bylaws. The Bylaws of New PA, substantially in the form attached hereto as Exhibit F. 1.26. New PA Articles of Association. The Articles of Association of New PA, substantially in the form attached hereto as Exhibit G. 1.27. New PA Consent. The Unanimous Consent of directors of New PA, substantially in the form attached hereto as Exhibit H. 1.28. Notes. Collectively, the promissory notes to be delivered to the Physicians at the Closing pursuant to this Master Transaction Agreement, substantially in the form set forth in Exhibit I. 1.29. Partnership Interest Purchase Agreement. The Partnership Interest Purchase - 3 - 8 Agreement to be executed by and among Raytel Management, the Corporate General Partner and the Physicians, substantially in the form attached hereto as Exhibit J. 1.30. Physician Indemnified Persons. As defined in Section 10.02 hereof. 1.31. Physician Parties. The Physicians, Existing PA and New PA. 1.32. Practice. The cardiology and all other related healthcare practices conducted by Existing PA prior to the Closing and by New PA after the Closing. 1.33. Raytel Audited Financial Statements. As defined in Section 4.01(e) hereof. 1.34. Raytel Common Stock. The Common Stock, par value $0.001 per share, of Raytel. 1.35. Raytel Indemnified Persons. As defined in Section 10.01(a) hereof. 1.36. Raytel Parties. Raytel and Raytel Management. 1.37. SEC. The Securities and Exchange Commission. 1.38. Securities. The Notes and the shares of Raytel Common Stock to be issued to the Physicians pursuant to this Master Transaction Agreement. 1.39. Securities Act. The Securities Act of 1933, as amended. 1.40. Security Agreement. The Security Agreement to be executed by and between Raytel Management and the Physicians, substantially in the form attached hereto as Exhibit K. 1.41 Supplies. The supplies, pharmaceuticals, medical devices, equipment and other expendables used by the Physicians in performing medical services as that term is defined in the Management Services Agreement. 1.42. Taxes. As defined in Section 3.01(j) hereof. 1.43. Transaction Documents. This Master Transaction Agreement, the Asset Purchase Agreement (including the Agreement and Covenant Not To Compete attached thereto and forming a part thereof for all purposes), the Conveyance Agreement, the Employment Agreements, the Management Services Agreement, the New P Partnership Agreement, the New PA Bylaws, the New PA Articles of Association, the New PA Consent, the Notes, the Partnership Interest Purchase Agreement, the Security Agreement and each other document and instrument executed and delivered at the Closing. - 4 - 9 ARTICLE II. RESTRUCTURING Section 2.01 Pre-Closing Actions. Immediately prior to the Closing, the following actions shall occur in the order set forth in this Section 2.01: (a) each Physician and Existing PA shall terminate any existing employment agreement or other agreement between such Physician and Existing PA; (b) the Physicians shall duly organize New P by executing and delivering the New P Partnership Agreement; (c) the Physicians shall cause New PA to be duly organized under the laws of Texas by (i) filing the New PA Articles of Association with the Secretary of State of the State of Texas, (ii) adopting the New PA Bylaws and (iii) executing the New PA Consent. (d) New PA and New P shall execute and deliver the Management Service Agreement; and (e) New PA and each Physician shall execute and deliver an Employment Agreement. Section 2.02 Purchase, Security and Conveyance Agreements. Subject to the conditions set forth herein, at the Closing, Existing PA and Raytel Management shall execute and deliver the Asset Purchase Agreement, and each Physician shall execute and deliver the Agreement and Covenant Not To Compete attached thereto and forming a part thereof. In addition, Raytel Management and the Physicians shall execute and deliver the Security Agreement and existing PA and New PA shall execute and deliver the Conveyance Agreement. Section 2.03 Partnership Interest Purchase Agreement. Subject to the conditions set forth herein, at the Closing, after the occurrence of the events described in Section 2.02, Raytel Management and the Physicians shall execute and deliver the Partnership Interest Purchase Agreement, and, in consideration therefor, Raytel or Raytel Management, as appropriate, shall deliver the following consideration to the Physicians in the amounts and on the dates set forth below: - 5 - 10 (a) At the Closing, Raytel shall deliver to each Physician a Note in the original principal amount set forth opposite such Physician's name:
PRINCIPAL AMOUNT PHYSICIAN OF NOTE --------- ------- Rodolfo P. Sotolongo, M.D. [*] Wayne S. Margolis, M.D. [*] Michael L. Smith, M.D. [*] Miguel Castellanos, M.D. [*]
Provided, however, that, to secure for New PA the benefits of each Employment Agreement and as an additional inducement for the performance by each Physician of such Physician's obligations thereunder, in the event the Employment Agreement between New PA and any Physician is terminated prior to the fifth anniversary of the Closing Date by (i) New PA for cause and without such Physician's payment of the appropriate amount of liquidated damages, as specified in such Employment Agreement, or (ii) such Physician without cause and without such Physician's payment of the appropriate amount of liquidated damages, as specified in such Employment Agreement, then such Physician shall execute an appropriate assignment of the Note held by such Physician pursuant to which all of the Physician's rights under such Note are assigned to Raytel Management. If such Physician fails to execute the assignment of Note provided for in this Section 2.03, such Note shall be deemed assigned to Raytel Management, and Raytel shall be authorized to setoff against such Note the amounts specified herein. (b) At the Closing, Raytel Management shall deliver to each Physician cash in the amount set forth opposite such Physician's name:
PHYSICIAN CASH AMOUNT --------- ----------- Rodolfo P. Sotolongo, M.D. [*] Wayne S. Margolis, M.D. [*] Michael L. Smith, M.D. [*] Miguel Castellanos, M.D. [*]
Payments of the cash amounts set forth above may be made by wire transfer to bank accounts designated by each Physician. (c) On the first, second, third, fourth and fifth anniversaries of the Closing [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] - 6 - 11 Date, Raytel shall deliver shares of Raytel Common Stock to each Physician in the amounts set forth opposite such Physician's name:
Number of Shares of Raytel Common Stock --------------------------------------------------------------- First Second Third Fourth Fifth Physician Anniversary Anniversary Anniversary Anniversary Anniversary --------- ----------- ----------- ----------- ----------- ----------- Rodolfo P. Sotolongo, M.D [*] [*] [*] [*] [*] Wayne S. Margolis, M.D [*] [*] [*] [*] [*] Michael L. Smith, M.D [*] [*] [*] [*] [*] Miguel Castellanos, M.D [*] [*] [*] [*] [*]
Section 2.04. Noncompetition and Confidentiality Covenants. In connection with the consummation of the transactions contemplated by this Master Transaction Agreement, and by executing and delivering certain of the other Transaction Documents, the Physician Parties will be entering into certain noncompetition and confidentiality covenants. The Physician Parties recognize that such covenants are an essential part of the transactions contemplated by this Master Transaction Agreement and certain other Transaction Documents and that, but for the contemplated agreement of the Physician Parties to comply with such covenants, the Raytel Parties would not have entered into this Master Transaction Agreement or any other Transaction Documents. ARTICLE III. REPRESENTATIONS OF THE PHYSICIAN PARTIES Section 3.01 Joint Representations of the Physicians. The Physicians represent and warrant to the Raytel Parties that: (a) Organization, Valid Authorization and Good Standing. Each of Existing PA and New PA is a professional associations duly organized, validly existing and in good standing under the laws of the State of Texas. Each of Existing PA and New PA has the power and authority to own all of its properties and assets and to conduct the Practice. Each of Existing PA and New PA has the power and authority to enter into the Transaction Documents to which it is a party and to carry out its obligations thereunder. The execution and delivery of the Transaction Documents to which Existing PA or New PA is a party and the consummation of the transactions contemplated thereby have been duly and validly authorized by such party, and no other corporate or other proceedings on the part of such party are necessary to authorize such Transaction Documents and the transactions contemplated thereby. This [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] - 7 - 12 Master Transaction Agreement has been duly and validly executed and delivered by Existing PA and New PA and constitutes the valid and binding agreement of such party enforceable against it in accordance with its terms. Each Transaction Document executed and delivered by Existing PA or New PA will upon such execution and delivery constitute the valid and binding agreement of such party enforceable against it in accordance with its terms. (b) Compliance. Except as disclosed on the Disclosure Schedule, the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby by Existing PA or New PA will not (i) violate any provision of its organizational documents, (ii) violate any material provision of or result in the breach of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any material obligation under, any mortgage, lien, lease, contract, license, instrument or any other agreement to which party is a party, (iii) result in the creation or imposition of any material lien, charge, pledge, security interest or other material encumbrance upon any property of such party or (iv) to the best of each Physician's knowledge, violate or conflict with any order, award, judgement or decree or other material restriction or any law, ordinance or regulation to which such party or its property is or will be subject. (c) Approvals. To the best of each Physician's knowledge, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or other person is required in connection with the execution and delivery of the Transaction Documents by Existing PA or New PA or the consummation by it of the transactions contemplated thereby, except for those consents or approvals set forth in the Disclosure Schedule. (d) Financial Statements. Existing PA has furnished to the Raytel Parties Existing PA's unaudited financial statements for the two years ended December 31, 1994 and December 31, 1995, the six-month period ended June 30, 1996, consisting of a balance sheet, the related statement of income, and changes in stockholders' equity (collectively, the "Existing PA Unaudited Financial Statements"). To the best of each Physician's knowledge, except for the omission of footnotes, preparation in summary or condensed form and the effect of normal, recurring year-end adjustments, the Existing PA Unaudited Financial Statements (i) have been prepared in accordance with the principles of cash accounting consistently applied, (ii) are true, complete and correct in all material respects as of the dates and for the periods above stated and (iii) fairly present the financial position of Existing PA at such dates and the results of its operations for the periods ended on such dates. Except as set forth in the Disclosure Schedule, and except for the omission of footnotes, preparation in summary or condensed form and the effect of normal, year-end adjustments, the Existing PA Unaudited Financial Statements reflect all of the liabilities and obligations of Existing PA that are required to be reflected or disclosed therein in accordance with principles of cash accounting consistently applied. For purposes of this Master Transaction - 8 - 13 Agreement, the balance sheet of Existing PA included in Existing PA Unaudited Financial Statements is referred to as the "Existing PA Balance Sheet" and the date thereof is referred to as the "Existing PA Balance Sheet Date." (e) Undisclosed Liabilities. To the best of each Physician's knowledge, Existing PA does not have any liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due, and whether choate or inchoate) individually or in the aggregate in excess of $10,000, and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against Existing PA giving rise to any liability, except as set forth on the Existing PA Balance Sheet or on the Disclosure Schedule. (f) Absence of Changes or Events. Except as set forth on the Disclosure Schedule, since the Existing PA Balance Sheet Date, Existing PA has conducted the Practice only in the ordinary course of business, and Existing PA has not: (i) Incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, whether individually or in the aggregate, that has had or might have a material adverse effect on Existing PA or the Practice; (ii) Pledged or subjected to any material lien, charge, security interest or any other encumbrance or restriction on any of its assets; (iii) Sold, transferred, leased to others or otherwise disposed of any of its assets material to the operation of the Practice, except in the ordinary course of the business of Existing PA; (iv) Canceled or compromised any material debt or claim, or waived or released any right of substantial value; (v) Received any notice of termination of any contract, lease or other agreement, or suffered any damage, destruction or loss that, individually or in the aggregate, has had or might have a material adverse effect on Existing PA or the Practice; (vi) Instituted, settled or agreed to settle any litigation, action, proceeding or arbitration; (vii) Failed to replenish its Supplies (as defined in Section 1.37) in a normal and customary manner or made any material purchase commitment other than in the ordinary course of business of Existing PA; (viii) Failed to pay any accounts or notes payable or any other - 9 - 14 obligations on a timely basis consistent with the practices of Existing PA; (ix) Entered into any material transaction, contract or commitment other than in the ordinary course of the business of Existing PA; (x) Suffered any event or events, whether individually or in the aggregate, that has had or could be reasonably expected to have a material adverse effect on the financial condition, results of operations, properties, assets, liabilities, business, operations or prospects of Existing PA or the Practice; (xi) Made any material change in the rate of compensation, commission, bonus or other remuneration payable, or paid or agreed to pay any material bonus, extra compensation, pension, severance or vacation pay, to any partner or employee; (xii) Issued any equity interests, declared or paid any distribution or entered into any agreement or understanding to do or engage in any of the foregoing actions; (xiii) Engaged in any activities or practices other than the Practice; or (xiv) Entered into any agreement or made any commitment to take any of the actions described in Subsections (i) through (xiii) inclusive of this Section 3.01(f). (g) Litigation. Except as disclosed on the Disclosure Schedule, there are no material claims, actions, suits, proceedings (arbitration or otherwise) or investigations pending or, to the best of each Physician's knowledge, threatened against Existing PA or the Practice at law or in equity in any court or before or by any Governmental Authority, and, to the best of each Physician's knowledge, there are no, and have not been any, facts, conditions or incidents that may result in any such actions, suits, proceedings (arbitration or otherwise) or investigations which if adversely determined would have a material adverse effect on the practice. To the best of the Physicians' knowledge, neither Existing PA nor the Practice is in default in respect of any judgment, order, writ, injunction or decree of any court or other Governmental Authority. (h) Permits; Compliance with Laws. Each of Existing PA and New PA has all permits, licenses, orders and approvals of all Governmental Authorities material to the conduct of the Practice, a true and correct list of which is set forth on the Disclosure Schedule. To the best of each Physician's knowledge, all such permits, licenses, orders and approvals are in full force and effect, and no suspension or cancellation of any of them is pending or threatened. To the best of each Physician's - 10 - 15 knowledge, none of such permits, licenses, orders or approvals, and no application for any of such permits, licenses, orders or approvals, will be adversely affected by the consummation of the transactions contemplated by this Master Transaction Agreement or any other Transaction Document. Except as set forth on the Disclosure Schedule, no consent or approval is required for, and no other impediment or restriction exists that will prohibit or limit, the transfer of any of such permits, licenses, orders and approvals (and any applications therefor) in accordance with the terms of the Transaction Documents. The Physician Parties have not received any written notice of violation that Existing PA in its conduct of the Practice has not complied in any material respects with any rule or regulation of any Governmental Authority having authority over Existing PA, including without limitation, agencies concerned with occupational safety, environmental protection, employment practices, and Medicare and Medicaid requirements applicable to Existing PA's billing procedures (except denials of claims in the ordinary course of business). (i) Insurance. The Disclosure Schedule sets forth a complete and correct list of all insurance policies obtained and maintained by Existing PA or the Physicians in connection with the operation of the Practice. Such insurance policies are in full force and effect, and all premiums due on such policies have been paid. The insureds under each such policy have complied in all material respects with the provisions of all such policies. Except as set forth on the Disclosure Schedule, no consent or approval is required for, and no other impediment or restriction exists that will prohibit or limit, the transfer of any such insurance policies in accordance with the terms of the Asset Purchase Agreement. Existing PA and the Physicians have made available to the Raytel Parties complete and correct copies of all such policies, together with all riders and amendments thereto. Existing PA and the Physicians have also set forth on the Disclosure Schedule a list of malpractice insurance policies previously maintained within the last ten (10) years by them. They have also set forth on such Disclosure Schedule a list of all malpractice claims and similar types of claims, actions or proceedings asserted against any of the Physicians or Existing PA at any time within the last ten (10) years. (j) Tax Matters. To the best of each Physician's knowledge, all federal, state and local tax returns required to be filed by Existing PA prior to the Closing Date have been filed on a timely basis with the appropriate Governmental Authorities in all jurisdictions in which such returns are required to be filed, and all such returns are true and correct. To the best of each Physician's knowledge, all federal, state and local income, franchise, sales, use, property, and all other taxes, fees, assessments or other governmental changes (including withholding taxes), and all interest and penalties thereon (all of the foregoing, collectively "Taxes") due from, or properly accruable by, Existing PA with respect to taxable periods ending on or prior to, and the portion of any interim period through, the date hereof have been fully and timely paid or, in the case of Taxes for which payment is not yet required, properly and fully accrued for on Existing PA Unaudited Financial Statements. The Raytel Parties will not after the - 11 - 16 Closing owe, or be liable directly or indirectly, to any other person or entity for any taxes imposed upon Existing PA. Existing PA is not currently the subject of any audit, examination or any similar investigation by any Governmental Authority. The Disclosure Schedule sets forth all audits, examinations or similar investigations of Existing PA by any Governmental Authority since January 1, 1990. The consummation of the transactions contemplated by the Asset Purchase Agreement will not be subject to any sales or other transfer tax of any state or local taxing authority. (k) Contracts. Set forth on the Disclosure Schedule is a complete and correct list of all material agreements, contracts and commitments, written or oral, to which Existing PA is a party or by which it or any of its properties or the Practice is bound, including without limitation: (i) mortgages, indentures, notes, letters or credit, security agreements and other agreements and instruments relating to the borrowing of money by or extension of credit to or by Existing PA; (ii) employment and consulting agreements, employee benefit, profit-sharing and retirements plans and all collective bargaining agreements; (iii) all joint venture or partnership agreements to which Existing PA is a party; (iv) licenses of software and any patent, trademark and other intellectual property rights; (v) agreements or commitments for capital expenditures; (vi) brokerage or finder's agreements; (vii) agreements regarding clinical research; and (viii) agreements with payors, leases for real or personal property and contracts to provide medical or health-care services. Existing PA has made available to the Raytel Parties complete and correct copies of all written agreements, contracts and commitments, together with all amendments thereto, and accurate descriptions of all oral agreements, set forth on the list on the Disclosure Schedule. All such agreements, contracts and commitments are in full force and effect and, to the best of each Physician's knowledge, all parties thereto have performed all material obligations required to be performed by them to date, are not in default in any material respect thereunder, and have not violated any representation or warranty, explicit or implied, contained therein. No claim or default by any party has been made or is now pending under any such agreement, contract or commitment, and, to the best of the Physicians' knowledge, no event has occurred and is continuing that with notice or the passing of time or both would constitute a default thereunder or would excuse performance by any party thereto. Except as set forth in the Disclosure Schedule, no consents or approvals are required under the terms of any agreement listed on the Disclosure Schedule in connection with any of the transactions contemplated by the Transaction Documents including, without limitation, the transfer of any such agreement pursuant to the Asset Purchase Agreement. (l) Employee Benefit Plans. Except as set forth on the Disclosure Schedule, neither Existing PA nor any other entity, whether or not incorporated, which is deemed to be under common control (as defined in Section 414 of the Code or 4001(b) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with Existing PA ("Commonly Controlled Entity") maintains or contributes to any employee pension benefit plan (as defined in Section 3(2) of ERISA) - 12 - 17 that is a defined contribution plan described in Section 3(34) of ERISA or Section 414(i) of the Code, or that is a defined benefit plan described in Section 3(35) of ERISA or Section 414(j) of the Code, and that gives, or will give, rise to any liability of Existing PA for (i) any premium payments due under Section 4007 of ERISA with respect to any such defined benefit plan, or (ii) any unpaid minimum funding contributions that would result in the imposition of a lien on any assets of Existing PA pursuant to Section 412(c)(11) of the Code or Section 302(c)(11) of ERISA. Neither Existing PA nor any Commonly Controlled Entity sponsors or sponsored, or maintains or maintained, any defined benefit plan (described in the immediately preceding sentence) that has been, or will be, terminated in a manner that would result in any liability of Existing PA to the Pension Benefit Guaranty Corporation or that would result in the imposition of a lien on any assets of Existing PA pursuant to Section 4068 of ERISA. At no time during the five (5) consecutive year period immediately preceding the first day of the year in which the Closing Date occurs has Existing PA or any Commonly Controlled Entity participated in or contributed to any multiemployer plan defined in Section 4001(a)(3) of ERISA, or Section 414(f) of the Code, nor during such period has Existing PA or any Commonly Controlled Entity had an obligation to participate in or contribute to any such multiemployer plan. Except as set forth on the Disclosure Schedule, Existing PA is not obligated under any agreement or other arrangement pursuant to which compensation or benefits will become payable as a result of the consummation of the transactions contemplated in this Master Transaction Agreement. Neither Existing PA nor any of its respective directors, officers, employees or agents, has, with respect to any employee benefit plan (as defined in Section 3(3) of ERISA), that is or has been established by or contributed to, or with respect to which costs or liabilities are accrued by Existing PA, engaged in any conduct that would result in any material taxes or penalties on prohibited transactions under Section 4975 of the Code or under Section 502(i) or (1) of ERISA or in breach of fiduciary duty liability under Section 409 of ERISA which, in the aggregate, could be material to the business, financial condition or results of operation of Existing PA, taken as a whole, and no actions, investigations, suits or claims with respect to the fiduciaries, administrators or assets of any such employee benefit plan (other than routine claims for benefits) is pending or threatened, which, in the aggregate could reasonably be expected to give rise to material liability of Existing PA, that could be material to the business, financial condition or results of operations of Existing PA, taken as a whole. None of the Existing PA welfare benefit plans (as defined in Section 3(1) of ERISA) provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of Existing PA other than "continuation coverage" required under the Controlled Omnibus Budget Reconciliation Act of 1985. Any and all plans, policies, programs or arrangements of Existing PA or any Commonly Controlled Entity which are subject to Section 4980B of the Code have been and are in compliance with the requirements of Section 4980B of the Code and Part 6 of Title I of ERISA. Existing PA will remain fully liable with respect to all plans, programs, policies or other arrangements, including but not limited to any pension, profit-sharing, thrift or other retirement plan; deferred compensation; - 13 - 18 or any other pension benefit plan of any kind; stock ownership, stock purchase, performance share, bonus or other incentive plan; severance plan; disability, medical, dental, vision or other health plan; life insurance or death benefit plan; vacation, sick leave, holiday or other paid leave plan; cafeteria plan, medical flexible spending account reimbursement plan; dependent care plan; or any other welfare benefit plan of any kind; or any other benefit plan, policy, program or arrangement whether or not any such plan, policy, program or other arrangement is, or is intended to be, qualified under Section 401(a) of the Code, and whether or not any such plan, policy, program or arrangement is subject to the provisions of ERISA, and the Raytel Parties will not be required to assume by law or under any form of any such plans, policies, programs or arrangements any of the liabilities for or under such plans, policies, programs or arrangements. (m) Environmental Protection. To the best of each Physician's knowledge, Existing PA has obtained all permits, licenses and other authorizations that are required for the conduct of its Practice under any federal, state and local laws and the regulations promulgated thereunder relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of hazardous substances, materials or wastes (collectively, "Hazardous Wastes"), into the environment (including, without limitation, ambient air, surface water, ground water, or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Wastes (collectively, "Environmental Laws"). To the best of each Physician's knowledge, Existing PA and the Practice is in material compliance with all terms and conditions of such required permits, licenses and authorizations, and is also in compliance with all applicable Environmental Laws. Except as set forth on the Disclosure Schedule, no consent or approval is required for, and no other impediment or restriction exists that will prohibit or limit, the transfer of such permits, licenses and authorizations in accordance with the terms of the Asset Purchase Agreement. There are no pending or, to the best of each Physician's knowledge, threatened, investigations, actions or proceedings of whatsoever nature involving Existing PA or the Practice arising under any Environmental Laws. (n) Labor Matters. Except as described on the Disclosure Schedule, there are no contracts for the employment of any officer or employee of Existing PA in effect. The Disclosure Schedule sets forth a complete list of the names and positions held of all employees of Existing PA, and the current annual rate of compensation (including bonuses) paid to each such employee. (o) Brokers. All negotiations relating to the Transaction Documents and the transactions contemplated hereby have been carried on without the intervention of any person acting on behalf of the Physician Parties as a group in such manner as to give rise to any valid claim against any Raytel Party for any broker's or finder's fee or similar compensation. - 14 - 19 (p) Disclosure. To the best of each Physician's' knowledge, no representation, warranty or statement made by any of the Physician Parties in this Master Transaction Agreement or any of the exhibits or schedules hereto, or any agreements, certificates, documents or instruments delivered or to be delivered to the Raytel Parties in accordance with this Master Transaction Agreement or the other Transaction Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Physician Parties do not know of any fact or condition (other than general economic conditions or legislative or administrative changes in health-care delivery) that materially adversely affects, or in the future may materially adversely affect, the condition, properties, assets, liabilities, business, operations or prospects of the Practice that has not been set forth herein or in the Disclosure Schedule. (q) Cardiac Catheterization Lab. The Physicians have an existing agreement with St. Elizabeth's Hospital or with Baptist Memorial Hospital in Beaumont, Texas, for the development of a cardiac catheterization laboratory on the hospital campus, and the Cath Lab will be eligible for licensing as a fully functional cath lab for the performance of both diagnostic and invasive and noninvasive therapeutic procedures. (r) Financial and Medical Environmental Factors. Except as set forth on the Disclosure Schedule, the Physicians are not aware of any financial or medical practice environmental factor which would materially affect the medical practice as now being conducted by the Physicians and the Existing PA. Section 3.02 Several Representations of the Physicians. Each of the Physicians severally represents and warrants to the Raytel Parties as to himself that: (a) Valid Authorization. Such Physician is competent and has full power, capacity and authority to enter into the Transaction Documents to which such Physician is a party and to carry out such Physician's obligations thereunder. This Master Transaction Agreement has been duly and validly executed and delivered by such Physician and constitutes the valid and binding agreement of such Physician enforceable against such Physician in accordance with its terms. Each Transaction Document executed and delivered at the Closing by such Physician will upon such execution and delivery constitute the valid and binding agreement of such Physician enforceable against such Physician in accordance with its terms. (b) Compliance. Except as set forth on the Disclosure Schedule, to the best of such Physician's knowledge, the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby by such Physician will not (i) violate any material provision of or result in the breach of or - 15 - 20 entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any material obligation under any mortgage, lien, lease, contract, license, instrument or any other agreement to which such Physician is a party, (ii) result in the creation or imposition of any material lien, charge, pledge, security interest or other encumbrance upon any property of such Physician or (iii) violate or conflict with any order, award, judgment or decree or other material restriction or any law, ordinance or regulation to which such Physician or the property of such Physician is subject. (c) Approvals. To the best of such Physician's knowledge, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or other person is required in connection with the execution and delivery of the Transaction Documents by such Physician or the consummation by such Physician of the transactions contemplated thereby. (d) Litigation. Except as disclosed on the Disclosure Schedule, there are no claims, actions, suits or proceedings (arbitration or otherwise) pending or, to such Physician's knowledge, threatened against such Physician at law or at equity in any court or before or by any Governmental Authority arising out of or otherwise relating to such Physician's practice of medicine, and, to such Physician's knowledge, there are no, and within the last five (5) years have not been any, facts, conditions or incidents that may result in any such actions, suits, proceedings (arbitration or otherwise) or investigations which if adversely determined would have a material adverse effect on the Practice. Such Physician is not in default in respect of any judgement, order, writ, injunction or decree of any court or other Governmental Authority known to such Physician. (e) Permits. To the best of such Physician's knowledge, such Physician has all permits, licenses, orders and approvals of all Governmental Authorities necessary to perform the services performed by such Physician in connection with the conduct of the Practice. All such permits, licenses, orders and approvals are in full force and effect and no suspension or cancellation of any of them is pending or threatened. To the best of such Physician's knowledge, none of such permits, licenses, orders or approvals, and no application for any of such permits, licenses, orders or approvals will be adversely affected by the consummation of the transactions contemplated by the Transaction Documents. Such Physician is a participating physician, as such term is defined by the Medicare program, and such Physician has not been disciplined, sanctioned or excluded from the Medicare program and has not been subject to any plan of correction imposed by any professional review body within the last five (5) years. (f) Staff Privileges. The Disclosure Schedule lists all hospitals at which such Physician has full staff privileges. Such staff privileges have not been revoked, surrendered, suspended or terminated, and to such Physician's knowledge, there are no, and have not been any, facts, conditions or incidents that may result in any such - 16 - 21 revocation, surrender, suspension or termination. (g) Board Certification. The Physicians each are board certified in cardiology by the American College of Cardiology. (h) Intentions. Except as set forth on the Disclosure Schedule, from and after the Closing Date, such Physician intends to continue practicing medicine on a full-time basis for the next five (5) years with New PA and does not know of any fact or condition that materially adversely affects, or in the future may materially adversely affect, his ability or intention to practice medicine on a full-time basis for the next five years with New PA. ARTICLE IV. REPRESENTATIONS OF THE RAYTEL PARTIES Section 4.01 Representations of the Raytel Parties. The Raytel Parties jointly and severally represent and warrant to each of the Physicians that: (a) Organization, Valid Authorization and Good Standing. Raytel is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Raytel Management is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas. Each of the Raytel Parties has the power and authority to own all of its properties and assets and to conduct its business. Each of the Raytel Parties has the power and authority to enter into the Transaction Documents to which it is a party and to carry out its obligations thereunder. The execution and delivery of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby have been duly and validly authorized by each of the Raytel Parties, and no other corporate or other proceedings on the part of either of the Raytel Parties are necessary to authorize the Transaction Documents and the transactions contemplated thereby. This Master Transaction Agreement has been duly and validly executed and delivered by each of the Raytel Parties and constitutes the valid and binding agreement of each of the Raytel Parties enforceable against the Raytel Parties, in accordance with its terms. Each Transaction Document executed and delivered at the Closing by a Raytel Party will upon such execution and delivery constitute the valid and binding agreement of such Raytel Party, enforceable against such Raytel Party in accordance with its terms. (b) Compliance. The execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby by the Raytel Parties will not (i) violate any provision of their respective organizational documents, (ii) violate any material provision of or result in the breach of or entitle any party to accelerate (whether after the giving of notice or lapse of time or both) any material obligation under, any mortgage, lien, lease, contract, license, instrument or - 17 - 22 any other agreement to which either of the Raytel Parties is a party, (iii) result in the creation or imposition of any material lien, charge, pledge, security interest or other encumbrance upon any property of either of the Raytel Parties or (iv) violate or conflict with any order, award, judgement or decree. (c) Approvals. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or other person is required in connection with the execution and delivery of the Transaction Documents by either of the Raytel Parties or the consummation by either of the Raytel Parties of the transactions contemplated thereby. (d) Financial Statements. Raytel has furnished to the Physician Parties Raytel's audited financial statements for the year ended September 30, 1995, consisting of a balance sheet, the related statement of income and changes in stockholders' equity (the "Raytel Audited Financial Statements"). In addition, Raytel has furnished to the Physician Parties its unaudited financial statements for the three-month period ended March 31, 1996, consisting of a balance sheet, the related statement of income and changes in stockholders' equity (the "Raytel Unaudited Financial Statements"). With respect to the Raytel Unaudited Financial Statements, except for the omission of footnotes, preparation in summary or condensed form and the effect of normal, year-end adjustments, the Raytel Audited Financial Statements and the Raytel Unaudited Financial Statements (i) have been prepared in accordance with GAAP, (ii) are true, complete and correct in all material respects as of their date and for the period above stated and (iii) fairly present the financial position of Raytel at such date and the results of its operations for the period ended on such date. Except as set forth on the Disclosure Schedule, each of the Raytel Audited Financial Statements and the Raytel Unaudited Financial Statements reflects all of the liabilities and obligations of Raytel that are required to be reflected or disclosed therein in accordance with GAAP. (e) Litigation. Except as set forth on the Disclosure Schedule, there are no claims, actions, suits, proceedings (arbitration or otherwise) or investigations pending or, to either of the Raytel Parties' knowledge, threatened against either of the Raytel Parties at law or in equity in any court or before or by any Governmental Authority, and, to such Raytel Parties' knowledge, there are no, and have not been any, facts, conditions or incidents that may result in any such actions, suits, proceedings (arbitration or otherwise) or investigations. Neither of the Raytel Parties is in default in respect of any judgment, order, writ, injunction or decree of any court or other Governmental Authority. None of the matters listed in the Disclosure Schedule will have a material adverse affect on the Raytel Parties even if adversely decided against any of the Raytel Parties. (f) Disclosure. No representation, warranty or statement made by any of the Raytel Parties in this Master Transaction Agreement or any of the exhibits or schedules hereto, or any agreements, certificates, documents or instruments delivered - 18 - 23 or to be delivered to the Physician Parties in accordance with this Master Transaction Agreement or the other Transaction Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. ARTICLE V. PRE-CLOSING COVENANTS Section 5.01 Conduct of Physician Practice. From the date hereto to the Closing, except with the prior written consent of Raytel or as set forth on the Disclosure Schedule, or except as otherwise provided for in this Master Transaction Agreement, each Physician and Existing PA will: (a) carry on the Practice in the usual, regular and ordinary course in substantially the same manner as heretofore and use best efforts to preserve relationships with patients, contractors, institutional health care providers, health care professionals and others having business dealings with the Practice; (b) keep in full force and effect insurance comparable in amount and scope of coverage to insurance now carried by Existing PA; (c) perform all obligations under agreements, contracts and instruments relating to or affecting the Practice; (d) comply with all statutes, laws, ordinances, rules and regulations applicable to the Practice; (e) not merge or consolidate with or purchase substantially all of the assets of, or otherwise acquire, any corporation, partnership, association or other business; and (f) promptly advise Raytel in writing of any material adverse change in the financial condition, results of operations, properties, assets, liabilities, business operations or prospects of the Practice. Section 5.02 Access to Information and Records Before Closing. Subject to the Confidentiality provision set forth in Section 12.12, Raytel may, at its expense, prior to the Closing Date, make, or cause to be made, such investigation of the assets, liabilities, operations and properties of Existing PA and of its financial and legal condition as Raytel deems necessary or advisable to familiarize itself with such matters. Each Physician Party shall permit Raytel and its representatives (including legal counsel and independent accountants) upon reasonable notice to have full access to the properties and relevant books and records of Existing PA, at reasonable business hours, and will cause its employees to - 19 - 24 furnish Raytel with such financial and operating data and other information and copies of documents with respect to the services, operations and properties of Existing PA as Raytel may from time to time request. Section 5.03 Other Transactions. Existing PA and the Physicians agree that so long as this Agreement has not been terminated in accordance with its terms, neither Existing PA nor any of the Physicians, will, directly or indirectly through any officer, director, employee, agent or otherwise, take any action to solicit, initiate, seek, encourage or support any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than Raytel and its officers, employees and agents) regarding any acquisition of any capital stock or other securities of Existing PA, any merger or consolidation with or involving Existing PA, or any acquisition of any material portion of the Assets of Existing PA. If such an acquisition proposal is received by, or information is requested from Existing PA or any of its affiliates, or shareholders, officers or directors, Existing PA shall promptly notify Raytel of such fact and specify the nature of such proposal and/or the information requested and the name of the person or entity making such proposal and/or requesting such information. Section 5.04 Covenant Not To Compete. Existing PA and the Physicians, both jointly and severally, agree that they will obtain from each of the present physicians employed by Existing PA or serving as an independent contractor to Existing PA a binding covenant not to compete substantially similar to the terms of the Agreement and Covenant Not To Compete attached as an exhibit to the Agreement for the Purchase and Sale of Assets (which is one of the Transaction Documents set forth in Section 1.43, herein above). ARTICLE VI. ADDITIONAL AGREEMENTS Section 6.01. Certain Notifications. At all times from the date hereof until the Closing, each party shall promptly notify the others in writing of the occurrence of any event which will or may result in the failure to satisfy any of the conditions specified in Article VII. Section 6.02. Investment Representations and Covenants of Physicians. (a) Each Physician understands that the Securities will not be registered under the Securities Act or any state securities laws on the grounds that the issuance of the Securities is exempt from registration pursuant to Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act and applicable state securities laws, and that the reliance of Raytel on such exemptions is predicated in part on the Physician's representations, warranties, covenants and acknowledgments set forth in this Section 6.02. (b) Except as disclosed on the Investment Representations Schedule - 20 - 25 attached hereto, each Physician represents and warrants that such Physician is an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. (c) Each Physician represents and warrants that the Securities to be acquired by such Physician upon consummation of the transactions described in Article II of this Master Transaction Agreement will be acquired by such Physician for such Physician's own account, not as a nominee or agent, and without a view to resale or other distribution within the meaning of the Securities Act and the rules and regulations thereunder, and that such Physician will not distribute any of the Securities in violation of the Securities Act. (d) Each Physician represents and warrants that the address set forth below such Physician's name in the Investment Representations Schedule is such Physician's principal residence. (e) Each Physician (i) acknowledges that the Securities issued to such Physician at the Closing must be held indefinitely by such Physician unless subsequently registered under the Securities Act or an exemption from registration is available, (ii) is aware that any routine sales of Securities made pursuant to Rule 144 under the Securities Act may be made only in limited amounts and in accordance with the terms and conditions of that Rule and that in such cases where the Rule is not applicable, compliance with some other registration exemption will be required, and (iii) is aware that Rule 144 is not currently available for use by such Physician for resale of any of the Securities to be acquired by such Physician upon consummation of the transactions described in Article II of this Master Transaction Agreement. (f) Each Physician represents and warrants to Raytel that such Physician has such knowledge and experience in financial and business matters such that such Physician is capable of evaluating the merits and risks of such Physician's investment in any of the Securities to be acquired by such Physician upon consummation of the transactions described in Article II of this Master Transaction Agreement. (g) Each Physician confirms that such Physician has received and read the Company's Prospectus dated November 30, 1995, Annual Report for 1995, Proxy Statement dated April 5, 1996, and its Form 10-Q for the quarter ended March 31, 1996. Each Physician also confirms that Raytel has made available to such Physician the opportunity to ask questions of and receive answers from it concerning the terms and conditions of such Physician's investment in the Securities, and the Physician has received to such Physician's satisfaction, such additional information, in addition to that set forth herein, about Raytel's operations and the terms and conditions of the offering as such Physician has requested. (h) In order to ensure compliance with the provisions of paragraph (c) hereof, each Physician agrees that after the Closing such Physician will not sell or otherwise transfer or dispose of Securities or any interest therein (unless such shares - 21 - 26 have been registered under the Securities Act) without first complying with either of the following conditions, the expenses and costs of satisfaction of which shall be fully borne and paid for by such Physician: (i) Raytel shall have received a written legal opinion from legal counsel, which opinion and counsel shall be satisfactory to Raytel in the exercise of its reasonable judgment, or a copy of a "no-action" or interpretive letter of the Securities and Exchange Commission specifying the nature and circumstances of the proposed transfer and indicating that the proposed transfer will not be in violation of any of the registration provisions of the Securities Act and the rules and regulations promulgated thereunder; or (ii) Raytel shall have received an opinion from its own counsel to the effect that the proposed transfer will not be in violation of any of the registration provisions of the Securities Act and the rules and regulations promulgated thereunder. Each Physician also agrees that the certificates or instruments representing the Securities to be issued to such Physician pursuant to this Master Transaction Agreement may contain a restrictive legend noting the restrictions on transfer described in this Article and required by federal and applicable state securities laws, and that appropriate "stop-transfer" instructions will be given to Raytel's transfer agent, if any, provided that this paragraph (h) shall no longer be applicable to any Securities following their transfer pursuant to a registration statement effective under the Securities Act or in compliance with Rule 144 or if the opinion of counsel referred to above is to the further effect that transfer restrictions and the legend referred to herein are no longer required in order to establish compliance with any provisions of the Securities Act. Section 6.03. No Corporate Practice. No Physician Party has knowledge that the actions, transactions or relationships arising from, and contemplated by the Transaction Documents violate any law, rule or regulation relating to the corporate practice of medicine. Each Physician Party accordingly agrees that such Physician Party will not, in an attempt to void or nullify any Transaction Document or any relationship involving any Raytel Party or any Physician Party, sue, claim, aver, allege or assert that any such Transaction Document or any such relationship violates any law, rule or regulation relating to the corporate practice of medicine; provided, however, such Physician Party is entitled to make any such claim, assessment, allegation or assertion if such Physician Party reasonably believes, on advice from counsel, that failure to terminate such Transaction Document or such relationship will subject such Physician Party to material liability or will materially adversely affect such Physician Party's right to practice medicine. Section 6.04. Development of Cardiac Catheterization Laboratory. Raytel agrees that it will use its best efforts to investigate the feasibility of obtaining the necessary certification, accreditation and licensing for a free-standing invasive cardiac catheterization - 22 - 27 laboratory (the "Cath Lab"). However, in the event that Raytel determines in good faith and after reasonable inquiry that it is either not economically feasible to develop the Cath Lab, or that it is not legally possible for to meet the requirements of federal or state laws prohibiting physician self-referral to facilities such as the Cath Lab in which the physicians have a financial interest (whether an equity ownership or profit participation of any sort), or that it is not legally possible to comply with the Medicare Fraud and Abuse provisions for a Cath Lab that is for the exclusive use of the Physicians, then Raytel may terminate this Agreement. On the other hand, if Raytel determines that such a Cath Lab is economically feasible and that all legal requirements can be met to its satisfaction, then Raytel agrees that it will negotiate in good faith with New PA to develop the ownership structure, management services agreement, financial models and practice protocols for the Cath Lab in accordance with the term sheet attached to the letter of intent dated June 18, 1996, between and among Raytel, the Physicians and Existing PA. ARTICLE VII. CONDITIONS Section 7.01 Conditions Precedent to the Obligations of All Parties. The obligations of the parties to complete the Closing shall be subject to the fulfillment, at or prior to the time of the Closing, of each of the following conditions: (a) all permits, approvals, waivers and consents of any Governmental Authority or of any third party necessary or appropriate for consummation of the Closing shall have been obtained; (b) no preliminary or permanent injunction or other order of a court or other Governmental Authority in the United States shall have been issued and be in effect, and no United States federal or state statute, rule or regulation shall have been enacted or promulgated after the date hereof and be in effect, that (i) prohibits the consummation of the Closing or (ii) imposes material limitations after the Closing on the ability of Existing PA to operate the Practice or Raytel Management to manage the Practice pursuant to the Management Services Agreement; and (c) there shall not be any action or proceeding commenced by or before any court or other Governmental Authority in the United States that challenges the consummation of the Closing or seeks to impose material limitations on the ability of Existing PA to operate the Practice or Raytel Management to manage the Practice pursuant to the Management Services Agreement. Section 7.02 Conditions Precedent to the Obligations of the Raytel Parties. The obligations of the Raytel Parties to complete the Closing shall be subject to the fulfillment, at or prior to the time of the Closing, of each of the following conditions: - 23 - 28 (a) except for such changes as permitted or contemplated by this Master Transaction Agreement, the representations and warranties of the Physician Parties contained in this Master Transaction Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date; (b) the Physician Parties shall have performed, complied with and fulfilled all the covenants, agreements, obligations and conditions required by any of the Transaction Documents to be performed, complied with or fulfilled by them prior to or at the Closing; (c) since the date of this Master Transaction Agreement, there shall not have occurred any event or events, whether individually or in the aggregate, that have had or that reasonably could be expected to have a material adverse effect on the financial condition, results of operations, properties, assets, liabilities, business, operations, ownership, organization or capital structure or prospects of Existing PA or the Practice; and (d) the Raytel Parties shall have received all of the instruments, documents and other items described in Section 8.02 hereof. Section 7.03. Conditions Precedent to the Obligations of the Physician Parties. The obligations of the Physician Parties to complete the Closing shall be subject to the fulfillment at or prior to the time of the Closing, of each of the following conditions: (a) except for such changes as permitted or contemplated by this Master Transaction Agreement, the representations and warranties of the Raytel Parties contained in this Master Transaction Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date; (b) the Raytel Parties shall have performed, complied with and fulfilled all of the covenants, agreements, obligations and conditions required by any of the Transaction Documents to be performed, complied with or fulfilled by them prior to or at the Closing; (c) since the date of this Master Transaction Agreement, there shall not have occurred any event or events, whether individually or in the aggregate, that have had or that reasonably could be expected to have a material adverse effect on the financial condition, results of operations, properties, assets, liabilities, business, operations or prospects of Raytel; and (d) the Physician Parties shall have received from the Raytel Parties all of the instruments, documents and other items described in Section 8.03 hereof. - 24 - 29 ARTICLE VIII. CLOSING Section 8.01 Closing. (a) The Closing shall take place at the offices of Orgain, Bell & Tucker, L.L.P., 470 Orleans Street, Beaumont, Texas 77001, immediately following the satisfaction of each condition set forth in Article VII hereof (the "Closing Date"). (b) At the Closing, the parties shall complete the transactions provided for in Sections 2.02 and 2.03 in the sequence specified in Article II hereof. Section 8.02 Deliveries to the Raytel Parties at the Closing. At the Closing, and simultaneously with the deliveries to the Physician Parties specified in Section 8.03 hereof, and in addition to any other deliveries required to be made to an Raytel Party pursuant to any other Transaction Document at the Closing, the Physician Parties shall deliver or cause to be delivered to the Raytel Parties the following: (a) the New P Partnership Agreement duly executed by each Physician; (b) the New PA Articles of Association, New PA Bylaws, New PA Consent; (c) the Management Services Agreement duly executed by New P and New PA; (d) the Employment Agreements duly executed by New PA and each Physician; (e) the Asset Purchase Agreement duly executed by Existing PA, together with the Agreement and Covenant Not To Compete duly executed by each Physician; (f) the Security Agreement duly executed by the Physicians; (g) the Conveyance Agreement duly executed by New PA and Existing PA; (h) the Partnership Interest Purchase Agreement duly executed by each Physician; and (i) such other closing documents, certificates and instruments as are contemplated by the other Transaction Documents or as shall have been reasonably requested by the Raytel Parties and as are customarily delivered in connection with - 25 - 30 transactions of the type contemplated herein. Section 8.03 Deliveries to the Physician Parties at the Closing. At the Closing, and simultaneously with the deliveries to the Raytel Parties specified in Section 8.02, and in addition to any other deliveries required to be made to a Physician Party pursuant to any other Transaction Document at the Closing, the Raytel Parties shall deliver or cause to be delivered to the Physician Parties the following: (a) the Asset Purchase Agreement duly executed by Raytel Management; (b) the Security Agreement duly executed by Raytel Management; (c) the Partnership Interest Purchase Agreement duly executed by Raytel Management; (d) the consideration required to be delivered by the Raytel Parties at the Closing pursuant to the Transaction Documents; and (e) such other closing documents, certificates and instruments as are contemplated by the other Transaction Documents or as shall have been reasonably requested by the Physician Parties and as are customarily delivered in connection with transactions of the type contemplated herein. ARTICLE IX. TERMINATION Section 9.01 Termination by Mutual Agreement. This Master Transaction Agreement may be terminated by the mutual agreement in writing of the parties hereto at any time prior to the Closing. Section 9.02 Termination by Raytel Parties. If at any time prior to or at the Closing (a) any of the Physician Parties shall have failed to perform in any respect any of their respective covenants or obligations, at the time required to be performed, set forth in this Master Transaction Agreement or the other Transaction Documents and such failure has not been or cannot be cured to the reasonable satisfaction of the Raytel Parties within a reasonable time; (b) any material representation or warranty of any of the Physician Parties contained herein or in any of the other Transaction Documents is false or misleading in any material respect; (c) any of the Physician Parties shall fail to make any deliveries, at the time required to be delivered, specified in Section 8.02; or (d) any of the conditions set forth in Sections 7.01 or 7.02 shall not have been satisfied in any respect (and such failure cannot be cured to the reasonable satisfaction of the Raytel Parties prior to Closing) or waived in writing by the Raytel Parties, all obligations of the Raytel Parties under this Master Transaction Agreement (other than their obligations under Sections 12.02 and 12.11) may be terminated by the Raytel Parties. - 26 - 31 Section 9.03 Termination by the Physician Parties. If at any time prior to or at the Closing (a) any of the Raytel Parties shall have failed to perform in any respect any of their respective covenants or obligations, at the time required to be performed, set forth in this Master Transaction Agreement or the other Transaction Documents and such failure has not been or cannot be cured to the reasonable satisfaction of the Physician Parties within a reasonable time; (b) any material representation or warranty of any of the Raytel Parties contained herein or in any of the other Transaction Documents is false or misleading in any material respect; (c) any of the Raytel Parties shall fail to make any deliveries, at the time required to be delivered, specified in Section 8.03; or (d) any of the conditions set forth in Sections 7.01 or 7.03 shall not have been satisfied in any respect (and such failure cannot be cured to the reasonable satisfaction of the Physician Parties prior to Closing) or waived in writing by the Physician Parties, all obligations of the Physician Parties under this Master Transaction Agreement (other than their obligations under Sections 12.02 and 12.11) may be terminated by the Physician Parties. Section 9.04 Termination Date. This Master Transaction Agreement may be terminated by either the Raytel Parties or the Physician Parties giving written notice to the other in the event the Closing has not occurred by August 31, 1996, unless due to the breach of this Master Transaction Agreement by any of the parties seeking termination. ARTICLE X. INDEMNIFICATION Section 10.01 Indemnification by the Physician Parties. Subject to the limitations set forth in Section 10.06, each of the Physician Parties, jointly and severally, hereby agrees to indemnify, defend and hold the Raytel Parties, and their respective officers, directors, employees and shareholders (collectively, "Raytel Indemnified Persons") harmless from and against all demands, suits, claims, actions or causes of action, assessments, losses, damages, liabilities, liens, settlements, penalties, and forfeitures, and reasonable costs and expenses incident thereto (including reasonable attorneys' fees) (collectively, the "Indemnity Losses" and individually, an "Indemnity Loss"), asserted against or suffered or incurred, directly or indirectly, by any of the Raytel Indemnified Persons and resulting from: (a) any misrepresentation in or breach of the representations or warranties of any of the Physician Parties or the failure of any of the Physician Parties to perform any of their respective covenants or obligations contained in this Master Transaction Agreement, the Asset Purchase Agreement or the Partnership Interest Purchase Agreement; (b) except with respect to those liabilities specifically assumed by Raytel Management pursuant to the Asset Purchase Agreement, the operation of the Practice prior to the Closing including, but not limited to, any and all obligations or liabilities of any of the Physician Parties of any kind, description or character, direct or indirect, - 27 - 32 absolute or contingent, known or unknown; (c) any tax liability arising out of, or by virtue of, or based on any Physician Party; or (d) any Environmental Claim (as hereinafter defined) arising out of or based upon operation of the Practice on or prior to the Closing Date. For purposes of this Master Transaction Agreement, the term "Environmental Claim" means any liabilities, responsibilities, third party (including private parties, governmental agencies and employees) actions, lawsuits, claims or proceedings (whether they arise under common law or statute or are recognized now or at a later time and regardless of form including strict liability and negligence) that relate to or arise from or in connection with any environmental law or hazardous wastes, including, but not limited to, any liability which relates to or arises from or in connection with any investigation, remediation, or removal of any hazardous wastes. Section 10.02 Indemnification by the Raytel Parties. Subject to the limitations set forth in Section 10.06, the Raytel Parties, jointly and severally, hereby agree to indemnify, defend and hold the Physician Parties and their respective officers, directors, employees, partners and shareholders (collectively "Physician Indemnified Persons") harmless from and against any Indemnity Loss asserted against or suffered or incurred by any of Physician Indemnified Persons and resulting from any misrepresentation in or breach of the representations and warranties of any of the Raytel Parties or the failure of any of the Raytel Parties to perform any of their respective covenants or obligations contained in this Master Transaction Agreement, the Asset Purchase Agreement, the Partnership Interest Purchase Agreement, the Management Services Agreement of the Raytel Parties in connection with the consummation of the transactions contemplated by the Transaction Documents. Section 10.03 Notice. If any person or entity has reason to believe that he, she or it has suffered or incurred (or has a reasonable belief that he or it will suffer or incur) any Indemnity Loss subject to indemnity hereunder, such person or entity shall so notify the indemnifying party promptly in writing describing such loss or expense, the amount thereof, if known, and the method of computation of such Indemnity Loss, all with reasonable particularity. If the nature of the Indemnity Loss set forth in the notice does not involve any third party claim, and if the indemnifying party does not respond to the indemnified party in writing contesting the existence of amount of any Indemnity Loss within thirty (30) days after delivery of such notice, then such indemnifying party shall be obligated to pay, and shall pay in accordance with Section 10.05, the amount of the Indemnity Loss set forth in such notice to the indemnified party. If any action at law, suit in equity, administrative action or arbitration or mediation proceeding is instituted by or against a third party with respect to which any person intends to claim any liability or expense as an Indemnity Loss under this Article X, such person shall promptly notify the indemnifying party of such action. The failure to give or - 28 - 33 to timely give any notice required by this Section 10.03 shall not relieve the party from whom indemnity is sought of any of its obligations under this Article X, except to the extent that such failure results in actual prejudice to the indemnifying party. Section 10.04 Defense of Third Party Claims. (a) With respect to any action at law, suit in equity, administrative action or arbitration or mediation proceeding that is instituted by or against a third party with respect to which any person intends to claim any liability or expense under this Article X, the indemnifying party shall have ten (10) business days after receipt of the notice with respect thereto referred to in the first sentence of Section 10.03 to notify the indemnified party that it elects to conduct and control any action, suit or proceeding with respect to such claim; provided, however, that no such election may be made with respect to any action, suit or proceeding by a taxing authority with respect to any consolidated, combined or unitary return filed by Raytel or any of its affiliates. If the indemnifying party does not give such notice, the indemnified person shall have the right to defend, contest, settle or compromise such action, suit or proceeding in the exercise of its exclusive discretion, and the indemnifying party shall, upon request from the indemnified person, promptly pay the indemnified person in accordance with the other terms and conditions of this Article X the amount of any Indemnity Loss subject to indemnity hereunder resulting from its liability to the third party claimant. If the indemnifying party gives such notice, it shall have the right to participate in, and, to the extent that it shall desire, to undertake, conduct and control, through counsel of its own choosing (which counsel shall be satisfactory to the indemnified party in the reasonable judgment of the indemnified party and shall not, except with the consent of the indemnified party, be counsel to the indemnified party) and at its sole expense, the conduct and settlement of such action, suit or proceeding, and the indemnified person shall cooperate with the indemnifying party in connection therewith; provided, however, that (i) the indemnifying party shall not thereby permit to exist any lien, encumbrance or other adverse charge securing the claims indemnified hereunder upon any asset of the indemnified person, (ii) the indemnifying party shall not thereby consent to the imposition of any injunction against the indemnified person without the written consent of the indemnified person, (iii) the indemnifying party shall permit the indemnified person to participate in such conduct or settlement through counsel chosen by the indemnified person, but the fees and expenses of such counsel shall be borne by the indemnified person except as provided below, and (iv) upon a final determination of such action, suit or proceeding, the indemnifying party shall promptly reimburse to the extent required under this Article X the indemnified person for the full amount of any Indemnity Loss resulting from such action, suit or proceeding and all reasonable and related expenses incurred by the indemnified person, other than fees and expenses of counsel for the indemnified person incurred after the assumption of the conduct and control of such action, suit or proceeding by the indemnifying party (except as provided below); provided further, however, that such fees and expenses of counsel for the indemnified party shall be borne by the indemnifying party if (i) the employment of - 29 - 34 counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on the advice of counsel) that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party, (iii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between such party and the indemnifying party in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party, or (iv) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after giving notice of its intent to assume such defense. So long as the indemnifying party is contesting any such action in good faith, the indemnified person shall not pay or settle any such action, suit or proceeding. Notwithstanding the foregoing, the indemnified person shall have the right to pay or settle any such action, suit or proceeding, provided that in such event the indemnified person shall waive any right to indemnity therefor from the indemnifying party and no amount in respect thereof shall be claimed as an Indemnity Loss under this Article X. (b) If requested by the indemnifying party, the indemnified person agrees to cooperate with the indemnifying party and its counsel in contesting any claim which the indemnifying party elects to contest or, if appropriate, in making any counterclaim against the person asserting the claim, or any cross-complaint against any person asserting the claim, or any cross-complaint against any person and further agrees to take such other action as reasonably may be requested by an indemnifying party to reduce or eliminate any loss or expense for which the indemnifying party would have responsibility, but the indemnifying party will reimburse the indemnified person for any expenses incurred by it in so cooperating or acting at the request of the indemnifying party. (c) The indemnified person agrees to afford the indemnifying party and its counsel the opportunity to be present at, and to participate in, conferences with all persons, including governmental authorities, asserting any claim against the indemnified person or conferences with representatives of or counsel for such persons. Section 10.05 Payment of Losses. Except as specifically set forth in any other section of this Master Transaction Agreement, the Asset Purchase Agreement or the Partnership Interest Purchase Agreement with respect to payment of losses, which section shall govern payment of losses with respect to matters set forth therein, the indemnifying party shall pay to the indemnified person in cash the amount of any Indemnity Loss to which the indemnified person may become entitled by reason of the provisions of this Agreement, such payment to be made within sixty (60) business days after any such amount of losses is finally determined either pursuant to mutual agreement of the parties, pursuant to the second sentence of Section 10.03, pursuant to the provisions of Section 10.04(a) or pursuant to the dispute resolution provisions set forth in Article XI or pursuant to a final, nonappealable binding judgment of a court with jurisdiction. If any of the Physicians is the indemnifying party and fails to make payment as contemplated by this Section 10.05, Raytel, at its election, shall be - 30 - 35 entitled to (i) terminate its obligation to deliver such number of shares of Raytel Common Stock, valued at the Market Price per share as of the date payment was due under this Section 10.05, representing the amount equal to or less than the amount of Indemnity Loss, or (ii) set off all or any amounts payable under the Note held by such Physician, representing the amount equal to or less than the amount of the Indemnity Loss, or both of the foregoing, but in no event shall Raytel be entitled to offset amounts in excess of the Indemnity Loss pursuant to this Section 10.05. Such indemnifying party agrees to redeliver to Raytel any Note that, as a result of the exercise of set-off rights, is paid in full. Section 10.06 Limitations. Notwithstanding anything contained to the contrary in this Master Transaction Agreement, a Party's right to recover any amounts under the indemnification provisions of this Article X shall be limited as provided in this Section 10.06. (a) All representations, warranties and associated indemnities made by the parties shall survive the Closing and shall thereafter terminate and expire twenty-four (24) months after the Closing Date, except that indemnities with respect to tax matters and environmental matters, shall survive for a period equal to the statute of limitations applicable to any claim arising from or attributable to such matters; provided, however, that notwithstanding the foregoing, the rights and obligations with respect to indemnification as provided in Article X shall continue with respect to any matter for which indemnification has been properly sought pursuant to the terms and conditions of this Master Transaction Agreement prior to the expiration of any such survival period. (b) The Physician Parties' liabilities to Raytel Indemnified Persons pursuant to this Article X shall be limited as follows: with respect to any claim for indemnification under Section 10.01, no Raytel Indemnified Person shall be entitled to indemnification pursuant to Article X until the Raytel Indemnified Parties in the aggregate have suffered or incurred Indemnity Losses of $25,000, and each Physician Party's obligations under this Article X shall be limited to the amount set forth opposite such Physician Party's name on the Disclosure Schedule; provided, however, that nothing contained in this Section 10.06(b) shall be deemed to limit or impair an Raytel Party's right to seek injunction or other equitable relief for a Physician's breach of any provision set forth in the Non-Competition Covenant attached to the Asset Purchase Agreement or in the Partnership Interest Purchase Agreement. (c) The Raytel Parties' liabilities to Physician Indemnified Persons pursuant to this Article X shall be limited as follows: with respect to any claim for indemnification under Section 10.02, no Physician Indemnified Person shall be entitled to indemnification pursuant to Article X until the Physician Indemnified Persons in the aggregate have suffered or incurred Indemnity Losses of $25,000. - 31 - 36 ARTICLE XI. ARBITRATION Section 11.01 Scope. Unless otherwise specifically provided in any other Transaction Document, the parties hereto agree that any claim, controversy, dispute or disagreement between or among any of the parties to any of the Transaction Documents arising out of or relating to any Transaction Document (other than claims involving any noncompetition or confidentiality covenant) shall be governed exclusively by the terms and provisions of this Article XI; provided, however, that the terms and provisions of this Article XI shall not preclude any party hereto from seeking, or a court of competent jurisdiction from granting, a temporary restraining order, temporary injunction or other equitable relief for any breach of (i) any noncompetition or confidentiality covenant in any Transaction Document or (ii) any duty, obligation, covenant, representation or warranty, the breach of which may cause irreparable harm or damage. Section 11.02 Arbitrators. In the event any claim or claims for an Indemnity Loss is brought by any of the Raytel Parties or any of the Physician Parties, or there is any other claim, controversy, dispute or disagreement among any of the Raytel Parties or the Physician Parties arising out of or relating to any Transaction Document, and the parties are unable to resolve such claim, controversy, dispute or disagreement within thirty (30) days after notice is first delivered pursuant to Section 10.03, then such Physician Parties shall select one arbitrator, and the Raytel Parties shall select one arbitrator, and the two arbitrators shall select a third arbitrator (the "Presiding Arbitrator") who is experienced in the matter or action that is subject to such arbitration and who then shall have sole and complete jurisdiction over the arbitration. If such claim, controversy, dispute or disagreement is between any of the Physician Parties, on the one hand, and any of the Raytel Parties, on the other hand, then such Physician Parties shall select one arbitrator, and the Raytel Parties shall select one arbitrator, and the two arbitrators shall select a third arbitrator (the "Presiding Arbitrator") who is experienced in the matter or action that is subject to such arbitration and who then shall have sole and complete jurisdiction over the arbitration. If such claim, controversy, dispute or disagreement is between any of the Physicians, on the one hand, and Existing PA or New PA (as the case may be), on the other hand, then the Physician shall select one arbitrator, and Existing PA or New PA (as the case may be) shall select one arbitrator. The two arbitrators so chosen shall then select a third arbitrator (the "Presiding Arbitrator") who is experienced in the matter or action that is subject to such arbitration and who then shall have sole and complete jurisdiction over the arbitration. If such matter or action involves healthcare issues, then the Presiding Arbitrator shall have such qualifications as would satisfy the requirements of the National Health Lawyers Association Alternative Dispute Resolution Service. Each of the arbitrators chosen shall be impartial and independent of all parties to the Transaction Documents. If either of the parties fails to select an arbitrator within twenty days after the end of such thirty-day period, or if the arbitrators chosen fail to select a third arbitrator within twenty days, then any party may in writing request the judge of the United States District Court for the Eastern District of Texas senior in term of service to appoint the Presiding Arbitrator and, subject to this Article XI, such Presiding Arbitrator shall hear all arbitration - 32 - 37 matters arising under this Article XI. Section 11.03 Applicable Rules. (a) Each arbitration hearing shall be held at a place in Houston, Texas acceptable to the Presiding Arbitrator. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association to the extent such rules do not conflict with the terms hereof. The decision of the Presiding Arbitrator shall be reduced to writing and shall be binding on the parties. Judgment upon the award(s) rendered by the Presiding Arbitrator may be entered and execution had in any court of competent jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement. The charges and expenses of the arbitrators shall be shared equally by the parties to the hearing. (b) The arbitration shall commence within ten (10) days after the Presiding Arbitrator is selected in accordance with the provisions of this Article XI. In fulfilling the duties with respect to determining the amount of an Indemnity Loss, the Presiding Arbitrator may consider such matters as, in the opinion of the Presiding Arbitrator, is necessary or helpful to make a proper valuation. The Presiding Arbitrator may consult with and engage disinterested third parties to advise the Presiding Arbitrator. The Presiding Arbitrator shall add an interest factor reflecting the time value of money to the amount of any Indemnity Loss and shall not award any punitive damages. (c) If a Presiding Arbitrator selected hereunder should die, resign or be unable to perform his or her duties hereunder, the two original arbitrators selected by the parties or such senior judge (or such judge's successor) shall select a replacement Presiding Arbitrator. The procedure set forth in this Article XI for selecting the Presiding Arbitrator shall be followed from time to time as necessary. (d) As to any determination of the amount of an Indemnity Loss, or as to the resolution of any other claim, controversy, dispute or disagreement, that under the terms hereof is made subject to arbitration, no lawsuit based on such claimed Indemnity Loss or such resolution shall be instituted by any of the Raytel Parties or the Physician Parties, other than to compel arbitration proceedings or enforce the award of a majority of the arbitrators. (e) All privileges under Texas and federal law, including attorney-client and work-product privileges, shall be preserved and protected to the same extent that such privileges would be protected in a federal court proceeding applying Texas law. The rules of evidence under the Federal Rules shall apply to the arbitration proceedings conducted pursuant to this Article XI. (f) The parties shall have the right to conduct and enforce pre-hearing discovery in accordance with the then current Federal Rules of Civil Procedure, subject - 33 - 38 to these limitations: (i) Each party may serve no more than one set of interrogatories; (ii) Each party may depose the other party's expert witnesses who will be called to testify at the hearing, plus two fact witnesses without regard to whether they will be called to testify (the Physician Parties and the Raytel Parties will be entitled to a total of not more than 24 hours of depositions of the other party's witnesses); and (iii) Document discovery and other discovery shall be under the control of an enforceable by the Presiding Arbitrator. Discovery disputes shall be decided by the Presiding Arbitrator. The Presiding Arbitrator is empowered to: (i) issue subpoenas to compel pre-hearing document or deposition discovery; (ii) enforce the discovery rights and obligations of the parties; and (iii) otherwise to control scheduling and conduct the proceedings. Notwithstanding any thing to the contrary herein, the Presiding Arbitrator shall have the power and authority to, and to the fullest extent practicable shall abbreviate arbitration discovery in a manner which is fair to all parties in order to expedite the conclusion of each alternative dispute resolution proceeding. (g) The hearing shall be conducted to preserve its privacy and to allow reasonable procedural due process. The parties hereto will maintain the substance of any proceedings hereunder in confidence and the arbitrators, prior to any proceedings hereunder, will sign an agreement whereby the arbitrators agree to keep the substance of any proceedings hereunder in confidence. ARTICLE XII. MISCELLANEOUS Section 12.01 Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Master Transaction Agreement or any other Transaction Document is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver of the right to pursue other available remedies. - 34 - 39 Section 12.02 Expenses. Whether or not the transactions contemplated by this Master Transaction Agreement are consummated, each of the parties hereto shall pay the fees and expenses of its counsel, accountants and other experts incident to the negotiation and preparation of the Transaction Documents and consummation of the transactions contemplated thereby. Section 12.03 Parties Bound. Except to the extent otherwise expressly provided herein, this Master Transaction Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, administrators, guardians, successors and assigns; and no other person shall have any right, benefit or obligation hereunder. Section 12.04 Notices. All notices, reports, records or other communications that are required or permitted to be given to the parties under this Master Transaction Agreement shall be sufficient in all respects if given in writing and delivered in person, by telecopy, by overnight courier or by registered or certified mail, postage prepaid, return receipt requested, to the receiving party at the following address: If to the Raytel Parties, addressed to: Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, California 94403-2515 Attn: Michael Kokesh, General Counsel Telecopy: (415) 349-8850 With copies to: Mayor, Day, Caldwell & Keeton, L.L.P. 700 Louisiana, Suite 1900 Houston, Texas 77002 Attention: Diana M. Hudson Telecopy: (713) 225-7047 If to the Physician Parties, addressed to: Southeast Texas Cardiology Associates II, P.A. 2535 Calder Street Beaumont, Texas 77702 Attn: Rodolfo Sotolongo, M.D. Telecopy: ________________ - 35 - 40 With copies to: Orgain, Bell & Tucker, L.L.P. 470 Orleans Street Beaumont, Texas 77702 Attn: John Creighton, Esq. Lance Fox, Esq. Telecopy: 409-838-6959 or to such other address as such party may have given to the other parties by notice pursuant to this Section 12.04. Notice shall be deemed given on the date of delivery, in the case of personal delivery or telecopy, or on the delivery or refusal date, as specified on the return receipt, in the case of overnight courier or registered or certified mail. SECTION 12.05 CHOICE OF LAW. THIS MASTER TRANSACTION AGREEMENT SHALL BE CONSTRUED, INTERPRETED, AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT WITH RESPECT TO MATTERS OF LAW CONCERNING THE INTERNAL AFFAIRS OF ANY CORPORATE OR PARTNERSHIP ENTITY WHICH IS A PARTY TO OR THE SUBJECT OF THIS MASTER TRANSACTION AGREEMENT, AND AS TO THOSE MATTERS THE LAW OF THE STATE OF INCORPORATION OR ORGANIZATION OF THE RESPECTIVE ENTITY SHALL GOVERN. Section 12.06 Entire Agreement; Amendments and Waivers. This Master Transaction Agreement, together with the other Transaction Documents and all exhibits and schedules hereto and thereto, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof. No supplement, modification or waiver of this Master Transaction Agreement shall be binding unless it shall be specifically designated to be a supplement, modification or waiver of this Master Transaction Agreement and shall be executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Master Transaction Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Master Transaction Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Section 12.07 Reformation Clause. The parties acknowledge that federal and state law and regulations applicable to business transactions in which physicians and other healthcare providers own equity interests in healthcare companies are in a state of flux, and that as such laws and regulations, and interpretations of such laws and regulations by the courts and regulatory authorities, evolve, the transactions contemplated by this Master Transaction Agreement may be prohibited by, or become economically impractical due to, such laws and regulations. If such event occurs, the parties each agree to negotiate in good faith such changes to the structure and terms of the transactions provided for in this Master - 36 - 41 Transaction Agreement as may be necessary to make these transactions, as restructured, lawful under applicable laws and regulations, without materially disadvantaging either party. Section 12.08 Assignment. The Master Transaction Agreement may not be assigned by operation of law or otherwise except that Raytel shall have the right to assign this Master Transaction Agreement, at any time, to any direct or indirect wholly owned subsidiary of Raytel. No such assignment shall relieve Raytel of its obligations hereunder. Section 12.09 Attorneys' Fees. Except as otherwise specifically provided herein, if any action or proceeding is brought by any party with respect to this Master Transaction Agreement or the other Transaction Documents, or with respect to the interpretation, enforcement or breach hereof, the prevailing party in such action shall be entitled to an award of all reasonable costs of litigation or arbitration, including, without limitation, attorneys' fees, to be paid by the losing party, in such amounts as may be determined by the court having jurisdiction of such action or proceeding or by the arbitrators deciding such action or proceeding. Section 12.10 Further Assurances. From time to time hereafter and without further consideration, each of the parties hereto shall execute and deliver such additional or further instruments of conveyance, assignment and transfer and take such actions as any of the other parties hereto may reasonably request in order to more effectively consummate the transactions contemplated by the Transaction Documents or as shall be reasonably necessary or appropriate in connection with the carrying out of the parties' respective obligations hereunder or the purposes of this Master Transaction Agreement. Section 12.11 Announcements and Press Releases. Between the date hereof and the Closing Date, none of the parties shall furnish any communications to, or otherwise communicate with, the public with respect to the transactions contemplated by this Master Transaction Agreement and the other Transaction Documents, except to the extent necessary to obtain consents and approvals required in order to complete the transactions. Any press releases or any other public announcement concerning this Master Transaction Agreement or the other Transaction Documents shall be approved by both Raytel and Existing PA, which approval shall not be unreasonably withheld or delayed where such communication is required by applicable law or is required as a condition of any regulatory approval sought by a Raytel Party; provided, however, that if any party reasonably believes that it has a legal obligation to make a press release and the consent of the other party cannot be obtained, then the release may be made without such approval. No such communication or public announcement shall disclose the amount of the consideration unless, in the opinion of Raytel's counsel, such disclosure is required by applicable law. Section 12.12 Return of Information and Confidentiality. If for any reason whatsoever the transactions contemplated by this Master Transaction Agreement and the other Transaction Documents is not consummated, (i) each party shall promptly deliver (without retaining copies thereof) to the other party, or certify to the other party that it has destroyed, - 37 - 42 all documents, work papers and other material obtained by such party or on its behalf from the other party or any of its agents, employees or representatives as a result hereof or in connection herewith, whether so obtained before or after the execution hereof, and (ii) each party shall cause any such confidential information obtained from the other party pursuant to this Master Transaction Agreement or the other Transaction Documents or otherwise to be kept confidential and will not use, permit the use of, such confidential information in its business or in any manner or for any other purpose. Section 12.12 Antidilution. (a) The existence of Raytel's obligation to issue shares of Raytel Common Stock pursuant to Section 2.03(c) of this Master Transaction Agreement shall not affect in any way the right or power of Raytel or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Raytel's capital structure or its business, or any merger or consolidation of Raytel, or any issue of bonds, debentures, preferred or prior preference stock ahead of, or affecting the Raytel Common Stock, or the rights thereof, as the dissolution or liquidation of Raytel, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of similar character or otherwise. (b) If Raytel effects a subdivision or consolidation of shares of Raytel Common Stock or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of Raytel Common Stock outstanding, without receiving compensation therefor in money, services or property, then the number of shares of Raytel Common Stock subject to issuance pursuant to Section 2.03(c) of this Master Transaction Agreement shall be appropriately adjusted in such a manner to entitle the Physicians to receive the same total number and class of shares as it would have received had it received shares of Raytel Common Stock immediately prior to the event requiring the readjustment. In the event of any capital reorganization or reclassification of the capital stock of Raytel, any consolidation or merger of Raytel with or into another corporation, or any sale, lease or disposition of all or substantially all of the assets of Raytel that is effected in such a manner that holders of shares of Raytel are entitled to receive additional shares, other securities and/or property (including cash) with respect to or in exchange for shares of Raytel Common Stock, Raytel shall, as a condition precedent to such transaction, cause effective provision to be made so that the Physicians shall thereafter have the right to receive the kind and amount of additional shares, other securities and/or other property receivable upon such event as it would have received had it received the shares of Raytel Common Stock immediately prior to the event. Section 12.13 No Tax Representations. Each party acknowledges that it is relying solely on its advisors to determine the tax consequences of the transactions contemplated hereunder and that no representation or warranty has been made by any party as to the tax consequences of such transactions. - 38 - 43 Section 12.14 No Rights as Stockholder. No Physician shall have any rights as a stockholder with respect to any shares of Raytel Common Stock until the issuance of a stock certificate for such shares. Except as otherwise provided in Section 12.12, no adjustments shall be made for dividends or distributions or other rights for which the record date is prior to such date any such stock certificate is issued. Section 12.15 Multiple Counterparts. This Master Transaction Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 12.16 Headings. The headings of the several Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Master Transaction Agreement. Section 12.17 Severability. Each article, section, subsection and lesser section of this Master Transaction Agreement constitutes a separate and distinct undertaking, covenant or provision hereof. In the event that any provision of this Master Transaction Agreement shall finally be determined to be unlawful, such provision shall be deemed severed from this Master Transaction Agreement, but every other provision of this Master Transaction Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Master Transaction Agreement to be duly executed as of August 21, 1996. RAYTEL MEDICAL CORPORATION /s/ RODOLFO P. SOTOLONGO a Delaware corporation -------------------------- RODOLFO P. SOTOLONGO, M.D. By: /s/ Richard F. Bader --------------------------------------------- Name: Richard F. Bader /s/ WAYNE S. MARGOLIS Title: Chairman and Chief Executive Officer -------------------------- WAYNE S. MARGOLIS, M.D. RAYTEL SOUTHEAST MANAGEMENT, L. P. a Texas limited partnership By: Raytel Texas Physician Services, Inc. /s/ MICHAEL L. SMITH Its General Partner -------------------------- MICHAEL L. SMITH, M.D. By: /s/ Richard F. Bader --------------------------------------------- Name: Richard F. Bader /s/ MIGUEL CASTELLANOS Title: Chairman and Chief Executive Officer -------------------------- MIGUEL CASTELLANOS, M.D. [signatures continued on next page] - 39 - 44 [signatures continued from previous page] SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, P.A., a Texas professional association By: /s/ Rodolfo Sotolongo ----------------------------- Name: Rodolfo Sotolongo, M.D. Title: President SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, P.A., a Texas professional association By: /s/ Rodolfo Sotolongo ----------------------------- Name: Rodolfo Sotolongo, M.D. Title: President - 40 - EX-2.2 3 AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS 1 EXHIBIT 2.2 AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS (the "Agreement") is made and entered into as of August 21, 1996, between and among SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, P.A., a Texas professional association ("Seller" and occasionally SETCA), RODOLFO SOTOLONGO, M. D. ("SOTOLONGO"), WAYNE MARGOLIS, M. D. ("MARGOLIS"), and MICHAEL SMITH, M. D. ("SMITH"), and RAYTEL SOUTHEAST MANAGEMENT, L. P., a Texas limited partnership ("Buyer"), its corporate general partner, RAYTEL TEXAS PHYSICIAN SERVICES, INC., a Delaware corporation ("RTPS"), a wholly owned subsidiary of RAYTEL MEDICAL CORPORATION, a Delaware corporation ("RMC"), and collectively SETCA, SOTOLONGO, MARGOLIS, SMITH, RMC, RTPS and BUYER are referred to as the "Parties", and SOTOLONGO, MARGOLIS and SMITH are sometimes referred to as the "Shareholders". RECITALS A. WHEREAS, Seller owns certain assets used in connection with the conduct of its cardiology medical practice with its principal practice located at 2535 Calder Street, Beaumont, 2693 North Street, Beaumont, as well as at locations in Orange, Port Arthur, and Jasper, TX (the "Practice"), and B. WHEREAS, Seller desires to sell, assign, transfer and convey the nonmedical assets of the Practice set forth in the exhibits hereto, to Buyer, and Buyer desires to purchase for good and valuable consideration those specific nonmedical assets of the Practice from Seller, and the assumption by Buyer of certain specific liabilities of Seller, as set forth in the exhibits hereto, on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises, mutual covenants, representations, warranties and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby covenant and agree as follows: AGREEMENT ARTICLE I PURCHASE AND SALE OF THE ASSETS; ASSUMPTION OF LIABILITIES 1.1. PURCHASE AND SALE OF NONMEDICAL ASSETS. Subject to the terms and conditions of this Agreement, Seller agrees to sell, transfer, convey, assign and deliver to Buyer, and Buyer -1- 2 agrees to purchase from Seller, on the date of Closing, the following items of tangible and intangible assets and properties (hereinafter collectively referred to as the "Nonmedical Assets"): (a) The furniture, fixtures, leasehold improvements, office supplies, and general office equipment; medical instruments, medical equipment, medical supplies; the telephones, telephone switches, and telephone numbers; and the other tangible assets and properties of, or pertaining to, the Practice, set forth in "Exhibit 1.1(a)" of this Agreement; (b) The accounting records, files, books, and work papers pertaining to the Practice, including without limitation all credit records, payroll records, operating manuals, procedure manuals, and the computer databases, computer hardware, computer software and related documentation, including source code and systems documentation, set forth in "Exhibit 1.1(b)" of this Agreement; (c) The leasehold interests for the premises in which the Practice is located in Beaumont, Orange, Port Arthur, Jasper, TX, as set forth in "Exhibit 1.1(c)" of this Agreement; (d) The contracts, leases, insurance policies, purchase orders, commitments and other agreements listed on Exhibit 1.1(d), to the extent assignable; (e) All marketing materials and referring physician lists, customer lists, client lists and vendor accounts of the Practice, but specifically excluding therefrom the patient lists, medical records, charts, diagnostic imaging films and similar items (which are designated part of the "Medical Assets" of the Practice, herein); (f) All United States and foreign patents, patent applications, trademarks and applications for trademarks, tradenames and applications for tradenames, service marks and service names and applications for service marks and service names, copyrights and applications for copyrights and registrations; developments, discoveries, inventions, ideas and trade secrets; goodwill and/or other intangible assets of the Practice, set forth in "Exhibit 1.1(f)" of this Agreement; (h) All transferable licenses, permits, certificates, approvals and other governmental authorizations necessary to own and operate the Practice as set forth in "Exhibit 1.1(h)" to this Agreement; and (i) All prepaid expenses, prepaid insurance, deposits and other similar items related to the Practice as of the Closing as set forth on the Closing Statement (as hereafter defined). (j) Cash and cash equivalents, bank accounts and certificates of deposit. 1.2. NONMEDICAL ASSETS. All of the foregoing assets, properties and businesses to be -2- 3 transferred hereunder are sometimes referred to herein as the "Nonmedical Assets." (a) To the extent the transfer of any of the Nonmedical Assets requires the consent of another party thereto, then the assignment of such Nonmedical Asset shall be subject to receipt of such consent and the transfer and assignment shall not be effective until such consent has been obtained. Seller agrees to cooperate fully with Buyer in seeking such consents or reasonable arrangement designed to provide to Buyer the benefits, claims and rights arising hereunder. (b) Except as set forth in paragraph 1.4, all of the Nonmedical Assets shall be delivered free and clear of any liens, claims, pledges, security interests or encumbrances of any kind, except (i) liens for current taxes not yet delinquent, (ii) liens imposed by law and incurred in the ordinary course or business for obligations not yet due to vendors and the like, and (iii) minor defects in title, none of which in the aggregate or individually interfere with the use of the Nonmedical Assets. 1.3. EXCLUDED ASSETS. Notwithstanding anything herein to the contrary, Seller hereby retains all of its right, title and interest in and to, and there shall be excluded from the sale, assignment or transfer to Buyer hereunder, whether or not related to the Practice, all of the assets of Seller which are not specifically described in sections 1.1(a) through (i) above; (which are herein referred to as the "Medical Assets"): (a) accounts receivable, goodwill attributable to or arising from the practice of medicine or use of the Medical Assets, and the name of Seller; (b) the patient lists, medical records, charts, diagnostic imaging films and similar items; (c) all drugs, pharmaceuticals, controlled substances, medical devices or similar items which requires the authorization, prescription or order of a physician or other licensed health care provider or requires a permit, registration, certification or other governmental authorization held by a physician or other licensed health care provider as required by federal or state law, or both; (d) any licenses, certificates, approvals and other governmental authorizations necessary or appropriate to own the Medical Assets and to practice medicine; (e) insurance policies covering or relating to medical malpractice; (f) tax refunds, other rebates, refunds or credits due, if any, relating to any period prior to the Closing; and -3- 4 (g) all contracts or agreements requiring performance by a licensed health care provider under federal or state law. 1.4. LIABILITIES. (a) ASSUMED LIABILITIES. Subject to the terms and conditions of this Agreement, Buyer agrees to assume on the Closing Date (as hereinafter defined), and shall thereafter be responsible for paying and satisfying to the extent not discharged prior to the Closing Date, the liabilities and obligations of Seller (the "Assumed Liabilities") expressly set forth in this section 1.4, as follows: (1) accrued vacation and sick pay of Seller's current employees; (2) accrued accounts payable and accrued expenses of Seller as of the Closing, as set forth on the Closing Statement; (3) indebtedness owing to Bank One, Texas, N.A., in an aggregate amount not to exceed [*] as shown on the Seller's financial statements dated as of June 30, 1996, and the precise amount to be determined prior to Closing, as set forth in Section 5.1(a)(8). (4) all contractual liabilities and obligations of Seller under the contracts, agreements and leases included in the Nonmedical Assets and arising from and after the Closing Date and incurred or arising in the ordinary course of business consistent with past practices and not incurred in violation of any law or in breach of any duty, existing as of the Closing. (b) EXCLUDED LIABILITIES. Except as specifically provided herein, Buyer shall not assume or become liable for any of Seller's debts, obligations or liabilities, known or unknown, fixed or contingent, arising in any way out of Seller's use of the Medical Assets, the Nonmedical Assets or the conduct of any trade, practice or business on the premises previously occupied by the Practice on or before the Closing Date, including, without limitation: (1) salary, bonus, or other compensation which shall have accrued to Seller's employees for any period prior to the Closing (all such salary, bonuses and other compensation payable by Seller to be excluded from accrued expenses in the determination of Net Assumed Liabilities pursuant to Section 2.5 below); (2) any obligations or liabilities arising under any pension plan, defined benefit plan, defined contribution plan, profit sharing plan, retirement plan, deferred compensation arrangement, welfare plans and other similar plans for any current employee, whether or not such employee accepts employment with Buyer prior to the Closing Date; [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -4- 5 (3) payroll taxes and unemployment insurance plans for any current employee, whether or not such employee accepts employment with Buyer prior to the Closing Date; (4) any federal, state, or local taxes, including, but not limited to, income or franchise taxes or similar taxes based upon or measured by revenue, income, profit or gain from the transfer of the Nonmedical Assets or the operation of the Practice prior to the Closing, any secured or unsecured personal property taxes, or other local, state, or federal tax; (5) any and all environmental liabilities or liabilities arising out of the use or disposal of petroleum or petroleum products or any hazardous substance or hazardous waste by Seller, or claims by Medicare, Medicaid, the Health Care Finance Administration, any insurance company, managed care organization or other health care claims paying or claims processing intermediary (as those terms are defined by applicable federal, state and local law) relating to the acts or omissions of the Seller. (c) DEFENSES AND CLAIMS. Nothing herein shall be deemed to deprive Buyer of any defenses, set-offs or counterclaims (the "Defenses and Claims") which Seller may have had or which Buyer shall have with respect to any of the liabilities assumed pursuant to Section 1.4(a) above. Effective as of the Closing, Seller agrees to assign, transfer and convey to Buyer all Defenses and Claims and agrees to cooperate with Buyer to maintain, secure, perfect and enforce such Defenses and Claims, including the execution of any documents, the giving of any testimony or the taking of any such other action as is reasonably requested by Buyer in connection with such Defenses and Claims. ARTICLE II PURCHASE PRICE AND PAYMENT 2.1. PURCHASE PRICE. In consideration for the purchase of the Nonmedical Assets and the covenant not to compete set forth in section 8 hereof or delivered hereunder (the "Covenant Not to Compete"), Buyer shall pay: (a) to Seller at the Closing the sum of [*] in cash; (b) Buyer shall assume the Assumed Liabilities, as provided in section 1.4(a) hereof; and The amount of cash set forth herein is a preliminary amount which may change prior to the Closing in accordance with a schedule to be prepared by Buyer and accepted by Seller, as a closing condition set forth in Section 5.1(a)(8). [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -5- 6 2.2. PAYMENT OF PURCHASE PRICE. Subject to the terms and conditions set forth herein, the Purchase Price shall be paid on the Closing Date, by wire transfer of federal funds to accounts designated by Seller at least two (2) business days prior to the Closing Date. 2.3 TAX ALLOCATION. The parties agree to comply with the provisions of Section 1060 of the Internal Revenue Code of 1986, as amended. 2.4. PRORATIONS. There shall be prorated between Buyer and Seller, based on the Closing Date of this Agreement, the amounts paid, or to be paid, by or for the Practice to a third party, on the basis of 365 day year, or thirty-day month, as the case may be, for the following: (a) All personal property taxes, real property taxes, federal, state and local taxes levied or assessed against the Practice or any of the Assets described in this Agreement for the current year based on the amount shown on the latest available bill for such item. (b) Charges accruing on any service or other contracts shown on Exhibit 1.1(d) to this Agreement. 2.5. PURCHASE PRICE ADJUSTMENT. For purposes of this Section 2.5, the term "Net Assumed Liabilities" refers to the result of Seller's (i) accounts payable, plus (ii) accrued expenses less (iii) inventories, less (iv) prepaid items, in each case as of the Closing Date. The Purchase Price shall be adjusted as follows: (a) REDUCTION IN PURCHASE PRICE. The Purchase Price shall be reduced by the amount that the Net Assumed Liabilities, defined in the Preamble to Section 2.5, above, exceed [*]. (b) INCREASE IN PURCHASE PRICE. The Purchase Price shall be increased by the amount that the Net Assumed Liabilities, defined in the Preamble to Section 2.5, above, are less than [*]. (c) CLOSING STATEMENT. For purposes of establishing the amount of the Purchase Price Adjustment, Seller shall prepare and deliver to Buyer, within thirty (30) days after the Closing, a statement as of the Closing Date (the "Closing Statement"), which shall set forth, as of the Closing, the Net Assumed Liabilities and shall calculate any resultant Purchase Price Adjustment. The Closing Statement will be derived from the internal books and records of Seller in accordance with and consistent with Seller's accounting practices. Transfer taxes arising in connection with the Closing which are to be paid by Seller shall not, however, be included in the Closing Statement. Buyer shall give Seller and its representatives full access to the premises, systems, books and records of the Practice in order to prepare the Closing Statement and to calculate the Purchase Price Adjustment. Buyer shall have thirty (30) business days after receipt [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -6- 7 of such Closing Statement and proposed Purchase Price Adjustment in which to give Seller written notice of any objection thereto (which notice shall specify the factual basis for such objection and the amount at issue). (d) DISPUTE RESOLUTION. If Buyer timely objects (as provided in subparagraph (c) above) to such Closing Statement and Purchase Price Adjustment, then Seller and Buyer shall promptly meet and attempt in good faith to agree on the Purchase Price Adjustment. Any disputes with respect to the such Closing Statement which are not resolved by Seller and Buyer and their respective accountants within ninety (90) days after the Closing shall, upon written request by either Seller or Buyer, be referred, for final resolution, to such firm of independent certified public accountants as Seller and Buyer shall jointly designate. In the event that the parties are unable to agree upon such designated accounting firm, Arthur Andersen shall choose an independent certified public accounting firm, of national recognition, to perform such services. Each party shall, with twenty (20) days after such submission of such dispute, deliver to such firm the information such party wishes to have considered by such firm in making its determination. Such firm shall present its determination and resolution of such disputes with thirty (30) business days after the submission of such dispute to the firm. Seller and Buyer agree that the determination and resolution by such firm shall be binding and conclusive among the parties. The fees of the accounting firm selected to resolve such disputes shall be borne one-half by Seller and one-half by Buyer. Failure to timely object to the proposed Closing Statement and Purchase Price Adjustment shall prevent Buyer from asserting any claim inconsistent with the amounts set forth therein. If Buyer does not object to the proposed Closing Statement and Purchase Price Adjustment prior to the close of business on the thirtieth (30) business day following the delivery thereof, such proposed Closing Statement and Purchase Price Adjustment shall be deemed final and binding on both parties and shall constitute the Purchase Price Adjustment for all purposes of this Agreement. (e) SETTLEMENT. If the Purchase Price Adjustment results in an increase in the Purchase Price, Buyer shall pay such amount by wire transfer immediately from immediately available funds to the account designated by Seller and such amount shall bear interest from the Closing Date to the date of Payment at the rate of one percent per month. If the Purchase Price Adjustment results in an decrease in the Purchase Price, Seller shall pay such amount by wire transfer immediately from immediately available funds to the account designated by Buyer and such amount shall bear interest from the Closing Date to the date of Payment at the rate of one percent per month. 2.6. SALES TAXES. Buyer and Seller agree that Seller shall be obligated to pay all of the sales, use and other like taxes arising out of the sale of the Nonmedical Assets to Buyer under the terms of this Agreement, and that Seller shall be responsible for the remittance of the sales taxes arising out of the sale of the Nonmedical Assets. -7- 8 ARTICLE III REPRESENTATIONS AND WARRANTEES 3.1. REPRESENTATIONS AND WARRANTIES. (a) SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Buyer, on the date hereof, as follows: (1) STANDING. Seller is a professional association duly organized, validly existing and in good standing under the laws of the State of Texas. (2) SUBSIDIARIES. Seller does not own any equity interest, directly or indirectly, in any corporation, partnership, joint venture or other entity which is engaged in any aspect of the Practice. (3) CORPORATE AUTHORITY. Seller has all necessary corporate power and authority to own or lease its properties and to carry on its business as now being conducted. Seller is duly qualified to do business and in good standing in each state or jurisdiction wherein the nature of the business conducted or the character of the property owned or leased makes such qualification necessary, except in those jurisdictions where the failure to qualify would not have a material and adverse affect on the Practice or the Nonmedical Assets of Seller. (4) AUTHORIZATION. Seller has full corporate power and authority to enter into this Agreement and each of the other transaction documents to which it is a party and to carry out the transactions contemplated hereby and thereby. The Board of Directors and shareholders of Seller have taken all action required by law, Seller's Articles of Association and Bylaws, or otherwise, to authorize the execution and delivery of this Agreement and such other transaction documents and the consummation of the transactions contemplated hereby and thereby, and this Agreement and such other transaction documents constitute the valid and binding obligation of Seller, enforceable in accordance with their respective terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law. (5) EFFECT OF THIS AGREEMENT. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby nor compliance by Seller with any of the provisions hereof will violate, breach or, with the giving of notice or passage of time, constitute an event of default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument or obligation which have been assigned by Seller to Buyer, or by which any of the Nonmedical Assets may be bound, except for the requirement of consent or waiver to such transactions by the other party to the agreement or instrument, and except for such violations, -8- 9 breaches or defaults (or rights of termination, cancellation or acceleration) which taken as a whole are not material to the Practice, Nonmedical Assets or financial condition of Seller. Except for this Agreement, Seller has no binding commitment as of the date of this Agreement and will have none as of the Closing Date to sell the Practice or the Nonmedical Assets. (6) TITLE TO NONMEDICAL ASSETS. Seller has good and marketable title to all Nonmedical Assets, except to those covered by equipment leases identified in Exhibit 1.1(a) or Exhibit 1.1(d) hereto (the "Leased Assets"), as to which Seller has valid and subsisting leasehold interests. All of the Nonmedical Assets are free and clear of restrictions on or conditions to transfer or assignment, and free and clear of mortgages, liens, pledges, encumbrances, claims, conditions or restrictions, except: (A) those for current taxes not yet due and payable, or the validity of which is being contested in good faith by appropriate proceedings; and (B) liens imposed by law, such as materialmen's, mechanics', workers', repairmen's, employees', carriers', vendors', warehousemen's, and other like liens arising in the ordinary course of business in respect of obligations that are not yet due and payable and that do not, individually or in the aggregate, materially interfere with the conduct of the Practice, and the Assumed Liabilities as set forth in Section 1.4(a). (7) FINANCIAL STATEMENTS. Seller has hereby delivered to Buyer its unaudited financial statements for the years ended December 31, 1995, 1994 and 1993, respectively, and for the six (6) month period ended June 30, 1996 in an unaudited form (the "Financial Statements"), and represents and warrants that the Financial Statements fairly reflect in all material respects the financial condition of the Seller on their respective dates. The Financial Statements present fairly in all material respects the revenues and the results of the operations of the Seller for the periods covered, in accordance with the books and records of the Seller, and determined in accordance with cash basis accounting principles consistently applied, as of the respective date of each statement, subject in the case of the unaudited statements to any year end audit adjustments and the lack of financial disclosures required pursuant to generally accepted accounting principles. (8) BOOKS OF ACCOUNT. To the knowledge of Seller, the books, records and accounts of Seller accurately and fairly reflect, in reasonable detail, the transactions and the assets and liabilities of Seller with respect to the Practice. Seller has not engaged in any transaction with respect to the Practice, maintained any bank account for the Practice or used any of the funds of Seller in the conduct of the Practice except for transactions, bank accounts and funds which have been and are reflected in the normally maintained books and records of Seller. (9) STATUS REGARDING LEASES. Seller is not in default under any lease agreement to be assigned to Buyer under the terms of this Agreement and that said lease agreements are the only lease agreements pertaining to such leased space. To the knowledge of -9- 10 Seller, neither the operations of the Practice on any of such leased real property, nor any improvements thereon, violate in any material respect any applicable building code, zoning requirement, or any statute applicable to such real property. (10) COMPLIANCE WITH APPLICABLE LAWS. Seller has not received any notice of any violation of any law or order, writ, injunction or decree of any court or Federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality (including without limitation applicable laws and regulations regarding government contracting, bribery and other prohibited foreign and domestic payment practices, environmental protection, equal employment opportunity, civil rights, and occupational safety and health). (11) LITIGATION AND INVESTIGATIONS. Except as set for in Exhibit 3.1(a)(11), Seller warrants that there are no lawsuits, proceedings, claims or governmental investigations pending, or known to be threatened or contemplated, against Seller or the Nonmedical Assets or the Practice, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that are known to Seller, which, if determined adversely, could have a material adverse effect on the Assets or the Practice or the ability of Buyer to carry on the Practice following the Closing Date. Without limiting the generality of the foregoing, there are no such claims or proceedings pending or threatened which assert claims for product liability or malpractice arising out of the operations of the Practice, except as set forth in said Exhibit. (12) LICENSES AND GOVERNMENT AUTHORIZATIONS. Seller has all licenses, permits, and authorizations known by Seller to be necessary for the conduct of Seller's Practice as currently conducted, and for the operation of the properties currently operated by Seller on its own account or on behalf of others pursuant to leases or similar arrangements, and no suspension or cancellation of any such license, permit, or authorization is pending or known to be threatened, except for such licenses, permits, and authorizations the failure of which to obtain would not have a material and adverse effect on the Practice or the Nonmedical Assets. (13) GENERAL CONSENTS AND FILINGS. All consents, authorizations, registrations, qualifications, or filings with any federal or state governmental authority on the part of Seller, known by Seller to be required in connection with the consummation of the transactions contemplated herein, are listed on Exhibit 3.1(a)(13) hereto. (14) SUBSTANTIAL CONTRACTS AND OBLIGATIONS. Except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application referring to, or affecting enforcement of, creditors' rights, and by general equitable principles, to the best knowledge of Seller, all substantial contracts are valid and binding upon Seller and the other parties thereto, and are in full force and effect. Neither Seller nor any other party to a substantial contract is known to be in violation of the terms thereof or in default -10- 11 thereunder, and Seller knows of no facts which upon notice or with the passage of time would cause Seller or any other party thereto to be in default thereunder, where such violation or default would have a material and adverse effect on the conduct and operation of the Practice. (15) LAWSUITS OR CLAIMS. Seller has complied with and is not in violation of any applicable federal, state, or local statutes, laws or regulations affecting the Practice, and has disclosed any and all knowledge regarding any legal actions or other proceedings, in whatever stage or form, pending, or to its knowledge threatened or affecting the Practice or the Nonmedical Assets. (16) LOSS, DAMAGE OR DESTRUCTION. Seller is not aware of any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Nonmedical Assets or the Practice. (17) EMPLOYEES. Seller hereby warrants that attached hereto and marked "Exhibit 3.1(a)(17)" is a true and complete list of all persons employed (the "Employees") by Seller in Seller's Practice showing their names, social security numbers, positions or job classifications, and salaries. To the knowledge of Seller: (A) No Employee is obligated under any contract or agreement, or subject to any judgment, decree or order of any court or administrative agency that would conflict with such employee's obligation to use his or her best efforts to promote the interests of Seller or Buyer (assuming such employee's employment by Buyer after the Closing) or with Buyer's conduct of the Practice, as contemplated by this Agreement; (B) No Employee is in violation of any term of any employment agreement, non-competition agreement, or any other contract or agreement relating to the relationship of any such employee with Seller or any previous employer; and (C) There are no pending or threatened suits or administrative actions brought by any current Employee or former Employee alleging any violation of federal, state or local law protecting such Employee in their right to employment, wrongful termination of employment, failure to maintain a safe work place, or similar causes of action, including but not limited to Title VII of the U.S.C.A. (18) LABOR DIFFICULTIES. None of Seller's employees are represented by unions. There is no unfair labor practice complaint pending before the National Labor Relations Board (the "NLRB") or overtly threatened against or affecting Seller or the Practice. There is no labor strike, dispute, slowdown or stoppage pending or overtly threatened against or affecting Seller. -11- 12 (19) SERVICE CONTRACTS. Seller hereby warrants that attached hereto and marked "Exhibit 1.1(d)" is a true and complete list of all leases, service and other contracts pertaining to the Practice on which Seller is obligated, showing (A) the names of the parties to each such contract; (B) the services rendered (or to be rendered) under each such contract; (C) the compensation payable by Seller under each such contract; and (D) the term and expiration date of each such contract. (20) ABSENCE OF LIENS. At or prior to the Closing, Buyer shall have received a UCC search report dated as of a date not more than twenty-five (25) days before the Closing Date issued by the Secretary of State of Texas indicating that there are no filings under the Uniform Commercial Code on file with such Secretary of State which name Seller as debtor or otherwise indicating any lien on the Assets, except for the leases to be assumed by Buyer hereunder and liens as to which UCC Termination Statements have been obtained from lienholders subject only to payment of specified dollar amounts at the Closing. (21) COVENANTS NOT TO COMPETE. Seller is not a party or otherwise subject to any contract containing covenants by which Seller agrees not to compete in any geographic area, line of business, or with any person or business entity, which in any way relates to the Practice. (22) TAX RETURNS. Seller warrants that it has filed with the appropriate state and federal governmental agencies all material tax returns and tax reports required to be filed by it and which pertain to the operations of the Practice and that such returns have been lawfully filed and in all material respects are true and accurate. (23) ENVIRONMENTAL COMPLIANCE. There are no conditions, circumstances, activities, practices, incidents, actions or plans, in each case relating to the acts or omissions of Seller or the conduct by Seller of the Practice, which pose a significant hazard to human health or the environment, whether or not in compliance with law, existing on any real property presently leased, operated or controlled by Seller and used in connection with the Practice, and there has been no production, use, presence, treatment, storage, transportation, disposal, release or threatened release by Seller of any petroleum, petroleum products or any substance classified as "hazardous" under an applicable federal, state or local law or regulation, other than those materials used in the ordinary course of the operation of the Practice, or which to Seller's knowledge is likely to give rise to any common law or legal liability based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, chemical, or industrial, toxic or hazardous substance or waste as a result of Seller's operation of the Practice prior to the Closing Date. -12- 13 (A) Seller has obtained all permits, licenses and other authorizations which are required with respect to the operation of the Practice prior to the Closing Date (the "Environmental Permits") under applicable federal, state, local and foreign laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes (the "Environmental Laws"). (B) Seller is in compliance with all terms and conditions of the Environmental Permits and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder except for such violations that would not have a material and adverse effect on the Practice or the Nonmedical Assets. (C) There is no civil, criminal, or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending or, to the knowledge of Seller, threatened against Seller or the Practice relating in any way to the Environmental Laws or any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. (24) DISCLOSURE. No representation or warranty by Seller in this Agreement contains, or as of the Closing will contain, any untrue statement of a material fact, or omits, or as of the Closing will omit, to state a material fact necessary to make the statements not misleading in light of the circumstances under which they were made; provided, however, that if any party to this Agreement becomes aware prior to the Closing Date (by investigation or otherwise) of any such misstatements or omissions, that party promptly will notify the other parties of such discovery as soon as practicable. (25) INSURANCE. Exhibit 3.1(a)(25) hereto sets forth the insurance covering the Nonmedical Assets and the Practice which have been maintained by the Seller over the three year period preceding the date hereof. At or prior to the Closing, the Seller shall provide to the Buyer certificates of insurance providing evidence of the policies which are currently in force. (26) FRINGE BENEFIT PLANS. Except as described in Exhibit 3.1(a)(26), Seller has no bonus, deferred compensation, pension, profit-sharing, retirement, stock purchase, stock option or any other fringe benefit plan, arrangement or practices, whether formal or -13- 14 informal under which any Employee is eligible for benefits, and Seller has not entered into any commitment to create any additional such plan or arrangement. (27) PENSION BENEFIT PLANS. (A) Except as set forth in Exhibit 3.1(a)(26) to this Agreement, Seller is not a party to, does not participate in and is not obligated to contribute to any "employee welfare benefit plan" as such term is defined in Section 3(l) of ERISA, and Seller is not a party to, does not participate in and is not obligated to contribute to any employee pension benefit plan, as such term is defined in Section 3(2) of ERISA, including any pension, profit-sharing, retirement, savings, bonus, thrift or stock bonus plan. Except as set forth in said Exhibit, Seller is not a party to, a participant in or obligated to contribute to any other deferred compensation, incentive, vacation, severance pay, group insurance, stock option or other stock-related employee benefit, or other plan (whether or not written) or arrangement or understanding of any kind whatsoever providing employee benefits for any or all of the current or former employees or agents of Seller. (B) Except as set forth in "Exhibit 3.1(a)(26)" to this Agreement, there are no "employee pension benefit plans", as defined in Section 3(2) of ERISA, (i) in respect of which Seller is an "employer" or a "substantial employer," as defined in Sections 3(5) and 4001(a)(2), respectively, of ERISA, (ii) with respect to which Seller is a "party in interest" within the meaning of Section 3(14) of ERISA, or (iii) with respect to which Seller is assuming any liability or will be liable to make contributions to or for the payment of benefits. Seller is not a party to, and none of its operations is or has ever been covered by, (i) any "multi-employer plan" as such term is defined in Section 3(37) or Section 4001(a)(3) of ERISA or (ii) any other pension or retirement payment arrangement, whether or not written, involving a past or unfunded future cost to Seller, whether or not such plan or arrangement is covered by ERISA. (28) INTANGIBLE PROPERTY. Seller owns and as of the Closing will own, the entire right, title and interest in and to all of the trademarks, trademark registrations and applications, service marks, service names, and commercial names set forth in "Exhibit 1.1(f)" to this Agreement, (the "Seller Intangible Property"). To the knowledge of Seller: (i) none of the Seller Intangible Property is being infringed by others; and (ii) the conduct of the Practice does not infringe any patent, copyright, trademark, trade secret, trade name or commercial name, registered or unregistered, or other intellectual property rights of third parties, including present or former employees of the Practice or former employers of such persons, and no claims are pending or have been made to such effect. (29) ADVERSE CHANGES. Since the date of the most recent financial statement referred to in Section 3.1(a)(7) above, there has been no material adverse change in the Assets or the Practice. 3.2. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby represents and -14- 15 warrants to Seller that: (a) ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) CORPORATE AUTHORITY. Buyer has all necessary corporate power and authority to own or lease its properties and to carry on its business as now being conducted. Buyer is duly qualified to do business and in good standing in each state or jurisdiction wherein the nature of the business conducted or the character of the property owned or leased makes such qualification necessary, except in those jurisdictions where the failure to qualify would not have a material and adverse affect on the business of Buyer. (c) AUTHORIZATION. Buyer has full corporate power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party and to carry out the transactions contemplated hereby and thereby. The Board of Directors of Buyer has taken all action required by law, Buyer's Certificate of Incorporation and Bylaws, or otherwise, to authorize the execution and delivery of this Agreement and such other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and this Agreement and such other Transaction Documents constitute the valid and binding obligation of Buyer, enforceable in accordance with their respective terms, except as enforceability may be limited by (i) applicable bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law. (d) LITIGATION. There are no actions, suits, proceedings or investigations, at law or in equity, pending before any court, arbitrator or governmental board or body, or pending or, to the knowledge of Buyer, threatened, against or affecting Buyer which may adversely affect the ability of Buyer to perform its obligations under the Transaction Documents. (e) GENERAL CONSENTS AND FILINGS. All consents, authorizations, registrations, qualifications, or filings with any federal or state governmental authority on the part of Buyer, known by Buyer to be required in connection with the consummation of the transactions contemplated herein, shall have been obtained prior to and be effective as of the Closing Date. (f) WARRANTIES ON CLOSING DATE. No representation or warranty by Buyer in this Agreement contains, or as of the Closing will contain, any untrue statement of a material fact, or omits, or as of the Closing will omit, to state a material fact necessary to make the statements not misleading in light of the circumstances under which they were made; provided, -15- 16 however, that if any party to this Agreement becomes aware prior to the Closing Date (by investigation or otherwise) of any such misstatements or omissions, that party promptly will notify the other parties of such discovery as soon as practicable. (g) EFFECT OF THIS AGREEMENT. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby nor compliance by Buyer with any of the provisions hereof will violate, breach or, with the giving of notice or passage of time, constitute an event of default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement or other instrument or obligation, except for the requirement of consent or waiver to such transactions by the other party to the agreement or instrument, and except for such violations, breaches or defaults (or rights of termination, cancellation or acceleration) which taken as a whole are not material to the financial condition of Buyer. 3.3. BROKER OR AGENT. Each party shall pay any fee due to any broker, finder, agent or other person or entity contracted by that party in regard to this transaction and shall indemnify and hold harmless the other party therefrom. 3.4. OBLIGATIONS AFTER CLOSING. From time to time after the Closing, the parties shall, at the reasonable request of the other, and without further consideration, execute and deliver or cause to be executed and delivered such instruments, and take such other actions, as may reasonably be requested in order fully to transfer and perfect title to the Nonmedical Assets and to effectuate the transactions contemplated by this Agreement. ARTICLE IV COVENANTS 4.1. COVENANTS OF SELLER. Seller hereby covenants that: (a) ADVICE OF CHANGES. Seller will promptly notify Buyer in writing of: (1) any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Seller contained in this Agreement, if made on or as of the date of that event or the Closing Date, untrue or inaccurate in any material respect and (2) any known or reasonably anticipated material adverse change in the Practice occurring after the date of this Agreement. (b) ABSENCE OF CHANGES. Except as set forth in "Exhibit 4.1(b)" to this Agreement there has not been, since July 1, 1996, and as of the Closing Date, there will not be: -16- 17 (1) any change in the Assets, financial condition, accounting methods or operations of the Seller or the Practice, except changes in the ordinary course of business which have not been, either in any single case or in the aggregate, materially adverse to the Seller or the Practice; (2) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the Nonmedical Assets or the Seller; (3) any waiver by the Seller of valuable rights or of debts owed to it (including, but not limited to, accounts receivable) which, taken as a whole, are material to the business or financial condition of Seller; (4) any loans made by Seller to its employees or agents other than advances of expenses made in the ordinary course of business or consistent with prudent past practices as to kind and amount; (5) other than in accordance with obligations, agreements or commitments in effect on or before the Closing Date and disclosed to Buyer, any increase in the compensation payable by Seller to any employee or agent or any declaration, payment, commitment or obligation of any kind for the payment by Seller of any bonus, additional compensation or salary, or retirement, termination or severance benefits to employees or agent; provided that Seller may grant annual raises in the ordinary course consistent with past practices; or (6) any other event or condition of any character which materially and adversely has affected or can be reasonably anticipated to materially and adversely affect the condition, affairs or operations of the Seller or the Practice. (c) IMPLEMENTATION OF REPRESENTATIONS AND WARRANTIES. Seller shall use its best efforts to render accurate as of the Closing its representations and warranties contained in this Agreement, and shall refrain from taking any action which would render inaccurate as of the Closing any of such representations and warranties. (d) COMMUNICATIONS AND PUBLIC ANNOUNCEMENTS. Between the date hereof and the Closing, Seller shall not furnish any communication to, or otherwise communicate with, the public with respect to the transactions contemplated by this Agreement, except to the extent necessary to obtain consents and approvals required in order to transfer the Nonmedical Assets, without the prior approval of Buyer as to the content thereof, which approval shall not be unreasonably withheld or delayed by Buyer and which shall not be withheld or delayed where such communication is required by applicable law or is required as a condition of any regulatory approval sought by Seller. No such communication or public announcement shall disclose the -17- 18 amount of the Purchase Price unless, in the opinion of Seller's counsel, such disclosure is required by applicable law. The foregoing provisions do not limit the ability of the Seller to discuss with, or disclose to, its employees this transaction. (e) ASSISTANCE IN TRANSFERRING NONMEDICAL ASSETS AND PRACTICE. Seller shall use reasonable efforts to assist Buyer in planning for and accomplishing the orderly transition and transfer of the Nonmedical Assets to Buyer as provided herein and shall take all steps as may be reasonably requested by Buyer in furtherance thereof, including the continuation of services to patients and customers of Seller. Seller will also cooperate in the preparation of any required financial statements, the cost thereof to be borne by Buyer. (f) ACCESS FOR DUE DILIGENCE. Between the date hereof and the Closing or the termination of this Agreement, whichever shall first occur: (1) Seller shall afford representatives of Buyer and its agents reasonable access during normal business hours to the offices, personnel and representatives (including independent accountants) of Seller and to such of the financial, contractual and other records of Seller as shall be reasonably necessary for Buyer's investigation of the Seller Practice, which investigations will be conducted in a manner which will not unreasonably interfere with the normal conduct of the Practice; (2) Buyer and its representatives shall have the right to contact third parties who have material contractual relationships with Seller in order to investigate the status of such relationships, however, Buyer shall not contact any third parties without the prior approval of the Seller and in a manner reasonably satisfactory to Seller, which approval shall not be unreasonably withheld; (3) Seller shall promptly provide to representatives of Buyer and its agents such financial and operating data of Seller and such other information with respect to the Assets and the Practice as such persons shall, from time to time, reasonably request. (g) OTHER TRANSACTIONS. So long as this Agreement has not been terminated in accordance with its terms, Seller will not, directly or indirectly through any officer, director, employee, agent or otherwise, take any action to solicit, initiate, seek, encourage or support any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than Buyer and its officers, employees and agents) regarding any acquisition of any capital stock or other securities of Seller, any merger or consolidation with or involving Seller or any acquisition of any material portion of the assets of Seller. -18- 19 (h) THIRD PARTY CONSENTS. Seller shall use its best efforts to obtain the written consent of each person, organization or governmental authority whose consent or approval shall be required or advisable in order to permit it to transfer the Nonmedical Assets hereunder; however, should Buyer elect to proceed with the Closing notwithstanding Seller's failure to obtain any of the written consents required or advisable hereunder, then the Seller shall have no further liability or obligation with respect thereto. (i) RISK OF LOSS. All risk of loss, damage or destruction to the Nonmedical Assets shall be borne by Seller until the Closing Date as provided herein. 4.2. COVENANTS OF BUYER. Buyer hereby covenants that: (a) ADVICE OF CHANGES. Buyer will promptly notify Seller in writing of (i) any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Buyer contained in this Agreement, if made on or as of the date of that event or the Closing Date, untrue or inaccurate in any material respect, and (ii) any material adverse change in the business or prospects of the business of the Buyer. (b) IMPLEMENTATION OF REPRESENTATIONS AND WARRANTIES. Buyer shall use its best efforts to render accurate as of the Closing Date its representations and warranties contained in this Agreement, and shall refrain from taking any action which would render inaccurate as of the Closing Date any of such representations or warranties. (c) COMMUNICATIONS AND PUBLIC ANNOUNCEMENTS. Between the date hereof and the Closing Date, Buyer shall not furnish any communication to, or otherwise communicate with, the public with respect to the transactions contemplated by this Agreement, except to the extent necessary to obtain consents and approvals required in order to transfer the Assets, without the prior approval of Seller as to the content thereof, which approval shall not be unreasonably withheld or delayed by Seller and which shall not be withheld or delayed where such communication is required by applicable law or is required as a condition of any regulatory approval sought by Buyer. No such communication or public announcement shall disclose the amount of the Purchase Price unless, in the opinion of Buyer's counsel, such disclosure is required by applicable law. (d) THIRD PARTY CONSENTS. Buyer shall use reasonable efforts to assist the Seller in obtaining the written consent and approvals of each person, organization or governmental authority whose consent or approval shall be required or advisable in order to permit it to transfer the Nonmedical Assets hereunder. (e) COLLECTION OF ACCOUNTS RECEIVABLE. At Seller's option following the Closing, or as soon thereafter as shall be practicable, Seller shall deliver to Buyer a list of its accounts receivable as of the Closing Date. Buyer agrees to use its best efforts, during the six -19- 20 months period following the Closing, to collect, on behalf of and for the account of Seller, such accounts receivable as expeditiously as possible. Any payments which Buyer receives which are made in the name of the Seller shall be immediately delivered to the Seller. Any payments which are received in the name of Buyer shall be transmitted to the Seller on a weekly basis. It is agreed that all payments received from an account debtor shall be applied against the receivables of such debtor in the same order as booked, except in the event the account debtor otherwise specifies in writing. Nothing contained herein shall obligate Buyer to institute litigation in an effort to collect the accounts receivable, nor shall Seller be prevented from taking any action to collect the accounts receivable. Seller shall pay to the Buyer a fee with respect to such services, at a mutually agreed rate. Seller may terminate this arrangement at any time upon 15 days prior notice. 4.3. OTHER AGREEMENTS OF THE PARTIES. (a) NON-COMPETITION AGREEMENT. At the Closing, Seller, its individual shareholders and Buyer, its corporate general partner, Raytel Cardiovascular Labs, Inc., a Delaware corporation, and its parent corporation, Raytel Medical Corporation, a Delaware corporation, shall enter into a Covenant Not to Compete, in form and substance satisfactory to each party, pursuant to which Seller and the individual shareholders shall agree not to compete with the Buyer, in the manner and to the extent provided therein. (b) BOOKS AND RECORDS. Excluded from the Nonmedical Assets are the patient records described on Exhibit 1.4(b) hereto. Seller shall preserve such patient records and files for a period of five years from the date the patient ceases to be an active patient, and in the event the Seller at any time after the end of such period of time determines to destroy all or any portion of said patient records and files, it shall first notify Buyer of such decision and provide Buyer the opportunity to obtain possession thereof. Buyer shall at all times have immediate and unrestricted access to such patient records and files, upon reasonable notice and for any reasonable purpose of Buyer. Buyer will maintain the confidentiality of all patient records and not use the same except to respond to (i) third party claims, (ii) governmental or third party payor inquiries, investigations or proceedings, or (iii) physician or patient inquiries. 4.4. TERMINATION. (a) This Agreement may be terminated, and the purchase and sale of the Nonmedical Assets abandoned, at any time by the mutual written consent of the parties expressed by action of their respective Boards of Directors. (b) This Agreement shall automatically terminate if the Closing hereunder shall not have been consummated on or before August 31, 1996, unless the parties shall have agreed in writing to extend such date. -20- 21 (c) Buyer shall also be able to terminate this Agreement in the event that (i) it determines that, in the course of its due diligence review of the books, records, contracts, documents and other materials requested from , Seller's Practice is not in substantial compliance with all federal, state and local statutes, regulations and rules applicable to the Practice, including but not limited to Title XVIII of the Social Security Act, codified at 42 U.S.C.A. sections 1395-1395cc and Medicare regulations codified at 42 C.F.R. Parts 405-424, and 482-498, (ii) Seller's representations and warranties contained herein are materially incorrect and cannot be corrected within a reasonable period of time, or (iii) the Assets and Practice are materially not as represented by Seller. (d) Seller shall also be able to terminate this Agreement in the event that Buyer's representations and warranties contained herein are materially incorrect and cannot be corrected within a reasonable period of time. ARTICLE V CLOSING CONDITIONS 5.1. CLOSING CONDITIONS. (a) SELLER'S CONDITIONS. Seller's obligations hereunder at Closing are specifically conditioned on the following: (1) ACCURACY OF REPRESENTATIONS AND WARRANTIES; ETC. All of the representations and warranties made by Buyer in this Agreement shall be true in all material respects as of the Closing with the same force and effect as though such representations and warranties had been made as of the Closing, except as affected by transactions contemplated by this Agreement; all of the terms, covenants and conditions of this Agreement to be complied with and performed by Buyer at or before the Closing shall have been duly complied with and performed; and Seller shall receive a certification of the Buyer, dated the Closing Date and executed by the Chairman or President of the Buyer, to each such effect. (2) APPROVAL OF SALE. All authorizations, consents and approvals of all federal, state, and local governmental agencies and authorities required to be obtained in order to permit the consummation of the transactions contemplated by this Agreement, if any, shall have been obtained. (3) CONSENTS OBTAINED. Seller shall have received consent or approval of each person or organization whose consent or approval shall be required in order to permit Seller to consummate the transactions contemplated hereby or in order to avoid any breach or termination of any material contract, agreement or lease included in the Assets. -21- 22 (4) NO LITIGATION. There shall be no litigation pending which has been brought for the purpose of enjoining the purchase and sale of the Nonmedical Assets or any part thereof or any other transaction contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon Seller, or any of their officers or directors, because of such purchase and sale or any such transaction. (5) NON-COMPETITION COVENANT. The non-competition agreement referred to in paragraph 4.3(a) shall have been executed and delivered by the parties thereto. (6) PAYMENT. The payment of the Purchase Price, in accordance with the provisions of paragraph 2.2 above, shall have been made to the Seller. (7) ASSUMPTION AGREEMENT. An assumption agreement, in form and substance satisfactory to Seller, pursuant to which the Buyer confirms its assumption of liabilities and obligations as provided herein, shall have been executed and delivered by the Buyer. (8) PURCHASE PRICE. A schedule setting forth the cash amount to be delivered at the Closing. (9) DOCUMENTATION. All documentation to be delivered by Buyer at closing shall be in a form reasonably acceptable to Seller as to form and content. (b) BUYER'S CONDITIONS. The obligations of Buyer hereunder at Closing shall be subject to satisfaction of the following conditions: (1) ACCURACY OF REPRESENTATIONS AND WARRANTIES; ETC. All of the representations and warranties made by Seller in this Agreement shall be true in all material respects as of the Closing, with the same force and effect as though such representations and warranties had been made as of the Closing, except as affected by transactions contemplated by this Agreement; all of the terms, covenants and conditions of this Agreement to be complied with and performed by Seller or its affiliates, at or before the Closing shall have been duly complied with and performed; and Buyer shall have received a certification of the Seller, dated the Closing Date and executed by the President and Chief Executive Officer of the Seller, to each such effect. (2) APPROVAL OF SALE. All authorization, consents and approvals of all federal, state, and local governmental agencies and authorities required to be obtained in order to permit the consummation of the transactions contemplated by this Agreement shall have been obtained, it being agreed that Seller shall have no liability to the Buyer in the event that the Buyer chooses to proceed with closing notwithstanding the failure to obtain any such authorization, consent or approval. -22- 23 (3) CONSENTS OBTAINED. The consent or approval of each person or organization whose consent or approval shall be required in order to permit Seller to consummate the transactions contemplated hereby or in order to avoid any breach or termination of any contract, agreement or lease included in the Nonmedical Assets shall have been obtained, it being agreed that the Seller shall have no liability in the event the Buyer chooses to proceed with closing notwithstanding the failure to obtain any such consent or approval. (4) NO LITIGATION. There shall be no litigation pending which has been brought for the purpose of enjoining the purchase and sale of the Nonmedical Assets or any part thereof or any other transaction contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon Buyer, or any of their officers or directors, because of such purchase and sale or any such transaction. (5) DOCUMENTATION. All documentation to be delivered by Seller at Closing shall be in a form reasonably acceptable to Buyer as to form and content. (6) ASSIGNMENTS. All steps necessary to assure proper transfer of all assignable permits and licenses relating to the Practice, including but not limited to assignable environmental permits and business licenses, shall have been taken. (7) NO ADVERSE EVENT. No other event has occurred which, either singly or in the aggregate, has or may have a material and adverse effect on the Nonmedical Assets or the Practice. (8) NON-COMPETITION AGREEMENT. The non-competition agreement referred to in paragraph 4.3(a) shall have been executed and delivered by the parties thereto. (9) EMPLOYEE COVENANTS. Seller and its shareholders, both jointly and severally, covenant that they will obtain from each of the present physicians employed by Seller or serving as an independent contractor to Seller a binding covenant not to compete substantially similar to the terms of the agreement referred to in paragraph 4.3(a), and such covenant not to compete shall have been executed and delivered by each such physician employee or physician independent contractor prior to the closing of the transaction set forth in this Agreement. In addition, Seller shall have assigned to the Buyer its rights under any outstanding non-competition, confidentiality or similar covenant or agreements which it may have received from its current employees. (10) BILL OF SALE. A bill of sale, and such other instruments of assignment as may be appropriate, in form and substance satisfactory to the Buyer, shall have been delivered to the Buyer, evidencing the transfer of the Nonmedical Assets to the Buyer. -23- 24 (11) ASSUMED BANK LOANS. A schedule disclosing the exact amount of indebtedness being assumed by Buyer. ARTICLE VI CLOSING 6.1. CLOSING. The consummation of the purchase and sale of the Nonmedical Assets hereunder (the "Closing") shall take place on such date as the parties shall mutually agree in writing (the "Closing Date"), but in no event later than August 31, 1996. The Closing shall take place at the offices of Orgain, Bell & Tucker, LLP, 470 Orleans Street, Beaumont, TX 77702 ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION 7.1. SURVIVAL. The representations and warranties of the parties contained in this Agreement or in any certificate or instrument delivered pursuant hereto shall survive the Closing Date for the period in which a claim with respect thereto may be made, in accordance with the provisions of paragraph 7.3 hereto. 7.2. INDEMNITY. (a) BY SELLER. Upon and following the Closing, and subject to the limitations set forth in paragraph 7.3 hereto, Seller shall indemnify, defend, protect and hold Buyer harmless from, and against, any and all claims, demands and liabilities (including but not limited to claims or liabilities relating to environmental damage or claims by Medicare, Medicaid, Health Care Finance Administration (including but not limited to Title XVIII of the Social Security Act, codified at 42 U.S.C.A. sections 1395-1395cc and Medicare regulations codified at 42 C.F.R. Parts 405-424, and 482-498), any insurance company, managed care organization or other health care claims paying or claims processing intermediary), including reasonable attorney's fees, arising from or on account of: (1) any breach by Seller of this Agreement; (2) any liability of Seller not assumed by Buyer herein or in any instrument delivered hereunder; (3) any inaccuracy to, misrepresentation in or breach of any of the warranties, representations, covenants or agreements made by Seller herein; and -24- 25 (4) Seller's use of the Nonmedical Assets, operation of the Practice and use and occupation of any premises in which the Practice is located prior to the Closing, including, without limitation, any and all amounts payable to local, state or federal tax authorities, claims made by creditors of Seller and liability claims made with respect to the conduct of the Practice by Seller prior to the Closing, except for liabilities expressly assumed herein by Buyer. (b) BY BUYER. Buyer shall indemnify, defend, protect, and hold Seller harmless from and against any and all claims, demands and liabilities, including reasonable attorneys' fees, arising from or on account of (1) Buyer's use of the Nonmedical Assets or Buyer's operation of any business using the Nonmedical Assets or the use and occupation of the premises in which the Practice is located on or after the Closing, including without limitation any and all amounts payable to local, state or federal tax authorities, claims made by creditors of Buyer and liability claims made with respect to the conduct of the business by Buyer following the Closing; (2) any breach by Buyer of this Agreement; (3) any liability of Seller assumed by Buyer herein or in any instrument delivered hereunder; and (4) any inaccuracy to, misrepresentation in or breach of any of the warranties, representations, covenants or agreements made by Buyer herein. 7.3. LIMITS TO INDEMNITY. Notwithstanding the provisions of this Article VII, or any other provisions set forth in this Agreement or in any document delivered hereunder: (a) Any claim for indemnification made pursuant to paragraph 7.2(a) above must be made in writing to Seller during the six month period following the Closing Date, unless and to the extent that such claim relates to a claim or liability relating to environmental damage or claims by Medicare, Medicaid or the Health Care Finance Administration or any insurance company, managed care organization or other health care claims paying or claims processing intermediary (collectively, "Environmental or Medicare Claims"), which Environmental or Medicare Claims must be made, if at all, in writing within three years following the Closing Date. Buyer shall have no right to make a claim for indemnity after the end of the applicable period. (b) Buyer shall be entitled to indemnification from Seller (i) only in the event that all such claims exceed $500, and then only with respect to the excess above $500 and (ii) only in an amount, in the aggregate not exceeding $5,000,000, unless and to the extent that a claim is an Environmental or Medicare Claim, in which case such parties' aggregate liability for all such Environmental or Medicare Claims shall be unlimited. 7.4 RESPONSE TO MEDICARE CLAIMS. In the event that Buyer receives a Medicare Claim (or inquiry which could result in a Medicare Claim), as to which Buyer has the right to indemnity, Buyer will immediately notify Seller thereof and Seller will have sole right to respond to and defend such Claim or inquiry. ARTICLE VIII COVENANT NOT TO COMPETE -25- 26 8.1 COVENANT NOT TO COMPETE. (a) Seller and the individual Shareholders, either individually or in any combination among themselves or in combination with others, covenant and agree that they will not, nor will they permit any affiliate, during the five (5) year period following the Closing, to engage, directly or indirectly, as owner, partner, stockholder, joint venturer, consultant, or in any other capacity whatsoever become financially interested, in any medical practice providing the same or similar services as now being performed by Seller or the individual Shareholders, including but not limited to invasive or noninvasive cardiac services (the "Restricted Services") anywhere within the six (6) counties consisting of Jefferson, Orange, Hardin, Jasper, Chambers and Liberty Counties, all within the State of Texas. (b) The provisions of subparagraph (a) above shall not pertain to or restrict Seller or the Shareholders from: (1) owning up to 5% of the capital stock of any corporation whose stock is publicly traded; (2) performing the duties and responsibilities of a full-time member of the teaching faculty at an accredited medical school; or (3) owning shares in New PA for the purposes contemplated in the Transaction Documents or Seller following the Closing for the sole and exclusive purpose of collecting the accounts receivable, defending any existing medical malpractice claims or potential claims, paying liabilities, and otherwise winding up the affairs of Seller, which shall specifically exclude the performing of additional medical services, either for compensation or without compensation, and (c) Seller and the Shareholders agree that the time period provided for, and the geographical area encompassed by, the covenants contained in this Section 8.1 are necessary and reasonable in order to protect Buyer in the conduct of the business and the utilization of the Nonmedical Assets acquired by virtue of this Agreement. (d) If any court having jurisdiction at any time hereafter shall hold any provision or clause of this Section 8.1 to be unreasonable as to its scope, territory or term, and if such court in its judgment or decree shall declare or determine a lesser scope, territory or term which such court deems to be reasonable, then such scope, territory or term, as the case may be, shall be deemed automatically to have been reduced or modified to conform to that declared or determined by such court to be reasonable. (e) It is expressly agreed that monetary damages would be inadequate to -26- 27 compensate Buyer for any breach by Seller or the individual shareholders of the covenants set forth in this Section 8.1 and, accordingly, that in the event of any breach or threatened breach by Seller or the individual shareholder of any such covenant, Buyer will be entitled to seek and obtain preliminary and permanent injunctive relief in any court of competent jurisdiction, in addition to any other remedies at law or in equity to which Buyer may be entitled. ARTICLE IX GENERAL PROVISIONS 9.1. MISCELLANEOUS. (a) AMENDMENTS. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties. (b) WAIVER. Buyer, on the one hand, and Seller, on the other hand, may, by written notice to the other: (1) waive any of the conditions to its obligations hereunder or extend the time for the performance of any obligation or action of the other; (2) waive any inaccuracies in the representations of the other contained in this Agreement or in any documents delivered pursuant to this Agreement; (3) waive compliance with any of the covenants of the other contained in this Agreement; or (4) waive or modify performance of any of the obligations of the other. No action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranty, condition or agreement contained herein. Waiver of the breach of any one or more provisions of this Agreement shall not be deemed or construed to be a waiver of other breaches or subsequent breaches of the same provision. (c) APPLICABLE LAW. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance or otherwise, by the laws of the State of Texas. -27- 28 (d) BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and personal representatives. No party may assign or transfer any rights or obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed; provided however, that (1) Buyer may assign its rights under this Agreement to any majority-owned subsidiary of Buyer, provided that Buyer or its parent corporation guarantees the obligations of such subsidiary hereunder; and (2) any party may assign its rights under this Agreement to any successor through any merger or consolidation, or purchaser of all or substantially all of such party's stock or assets. (e) EXPENSES. The parties shall each be responsible for accounting, legal, and other professional fees, or other costs or expenses which are related to the transactions contemplated herein, whether or not such transactions are consummated. (f) NOTICES. All notices and other communications provided for in this Agreement shall be given or made by telex, telecopy, telegraph, cable, certified or registered mail (return receipt requested), or delivered personally or by a nationally recognized overnight courier service to the address set forth below (or such other address as may be designated by any method permitted by this Paragraph 9). All such communications shall be deemed to have been duly given when transmitted by telex or telecopier (if a copy thereof is also mailed to the recipient, certified or registered mail, postage paid), or personally delivered or delivered by cable, telegraph, or nationally overnight courier service, or five (5) calendar days after mailing, postage prepaid, to the address set forth below. IF TO SELLER: Southeast Texas Cardiology Associates II, P.A. 2693 North Street Beaumont, TX 77701 Attn: Rodolfo Sotolongo, M. D. President WITH COPY TO: Orgain, Bell & Tucker, L.L.P. 470 Orleans Street Beaumont, TX 77701 Attn: John Creighton, Esq. Lance J. Fox, Esq. -28- 29 IF TO BUYER: Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, California 94403 Attn: Richard F. Bader Chairman and Chief Executive Officer WITH COPY TO: Mayor, Day, Caldwell & Keeton, L.L.P. 700 Louisiana Street, Suite 1900 Houston, TX 77002-2778 Attn: Diana M. Hudson, Esq. (g) PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. (h) SEVERABILITY. In the event any provision or portion of a provision of this Agreement is held to be invalid, void or unenforceable, the rest of the Agreement shall, nonetheless, remain in full force and effect and shall in no way be affected, impaired, or invalidated. (i) ENTIRE AGREEMENT. This instrument constitutes the entire agreement between the parties and supersedes all prior understandings, previous negotiations, and any memoranda or understanding with respect to the subject matter hereof. (j) NO STRICT CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. (k) COUNTERPARTS. This Agreement may be executed in any number of identical counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument when each party has signed one such counterpart. (l) TIME OF THE ESSENCE. Time is of the essence in this Agreement. (m) EXHIBITS. All exhibits attached to this Agreement are incorporated herein by reference. -29- 30 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
SELLER: BUYER: SOUTHEAST TEXAS CARDIOLOGY RAYTEL MANAGEMENT SERVICES ASSOCIATES, OF TEXAS, L. P., a Texas P.A., a Texas professional limited corporation partnership By: /s/ Rodolfo Sotolongo By: /s/ Richard F. Bader ---------------------------- ------------------------------- Rodolfo Sotolongo, M. D. Richard F. Bader Its: President and Chief Executive Officer RAYTEL TEXAS PHYSICIAN SERVICES, INC., a Delaware corporation (the"General Partner") SHAREHOLDERS: Its: Chairman and Chief Executive Officer PARENT: /s/ Rodolfo Sotolongo - --------------------------- Rodolfo Sotolongo, M. D. RAYTEL MEDICAL CORPORATION, a Delaware corporation /s/ Wayne Margolis - --------------------------- Wayne Margolis, M. D. By: /s/ Richard F. Bader ------------------------------ Richard F. Bader Its: Chairman and Chief Executive Officer /s/ Michael Smith - -------------------------- Michael Smith, M. D.
-30- EX-2.3 4 MANAGEMENT SERVICES AGREEMENT DATED SEPT. 18, 1996 1 EXHIBIT 2.3 MANAGEMENT SERVICES AGREEMENT BY AND BETWEEN CARDIOLOGY MANAGEMENT PARTNERSHIP, A TEXAS GENERAL PARTNERSHIP AND SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, P.A. A TEXAS PROFESSIONAL ASSOCIATION 2 TABLE OF CONTENTS
Page ARTICLE I. DEFINITIONS........................................................... 2 Section 1.1 Adjusted Gross Revenue............................................ 2 Section 1.2 Adjustments....................................................... 2 Section 1.3 Ancillary Revenue................................................. 2 Section 1.4 Base Management Fee............................................... 2 Section 1.5 Budget............................................................ 2 Section 1.6 Business Manager.................................................. 2 Section 1.7 Business Manager Consent.......................................... 2 Section 1.8 Business Manager Expense.......................................... 3 Section 1.9 Confidential Information.......................................... 3 Section 1.14 GAAP............................................................. 3 Section 1.15 Management Fee................................................... 3 Section 1.16 Management Services.............................................. 3 Section 1.13 Management Services Agreement.................................... 3 Section 1.14 Master Transaction Agreement..................................... 4 Section 1.15 Medical Group.................................................... 4 Section 1.16 Medical Group Account............................................ 4 Section 1.17 Medical Group Consent............................................ 4 Section 1.18 Medical Group Expense............................................ 4 Section 1.19 Medical Services................................................. 4 Section 1.20 Net Collections................................................ 4 Section 1.21 Office........................................................... 4 Section 1.22 Office Expense................................................... 5 Section 1.23 Original Physicians' Salaries.................................. 6 Section 1.24 Performance Fee.................................................. 6 Section 1.25 Physician........................................................ 6 Section 1.26 Policy Board..................................................... 6 Section 1.27 Practice Territory............................................... 6 Section 1.28 Professional Services Revenues................................... 7 Section 1.29 Representatives.................................................. 7 Section 1.30 State............................................................ 7 Section 1.31 Term............................................................. 7 ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER....................... 7 Section 2.1 Appointment...................................................... 7 Section 2.2 Authority........................................................ 7 Section 2.3 Patient Referrals................................................ 7 Section 2.4 Practice of Medicine............................................. 8 ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD............................... 8 Section 3.1 Formation and Operation of the Policy Board...................... 8 Section 3.2 Duties and Responsibilities of the Policy Board.................. 8 Section 3.3 Medical Decisions................................................ 9
-i- 3 ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER.................. 10 Section 4.1 Office and Equipment............................................. 10 Section 4.2 Medical Supplies................................................. 11 Section 4.3 Support Services................................................. 11 Section 4.4 Quality Assurance Risk Management and Utilization Review......... 11 Section 4.5 Licenses and Permits............................................. 11 Section 4.6 Personnel........................................................ 11 Section 4.7 Contract Negotiations............................................ 12 Section 4.8 Billing and Collection........................................... 12 Section 4.9 Medical Group Account............................................ 13 Section 4.10 Fiscal Matters.................................................. 14 Section 4.11 Reports and Records............................................. 16 Section 4.12 Recruitment of Medical Group Physicians......................... 16 Section 4.13 Acquisitions of or Mergers with other Medical Groups............ 16 Section 4.14 Business Manager's Insurance.................................... 16 Section 4.15 No Warranty..................................................... 17 ARTICLE V. COVENANTS AND RESPONSIBILITIES OF MEDICAL GROUP...................... 17 Section 5.1 Organization and Operation....................................... 17 Section 5.2 Medical Group Personnel.......................................... 17 Section 5.3 Professional Standards........................................... 20 Section 5.4 Medical Services................................................. 20 Section 5.5 Peer Review/Quality Assurance.................................... 21 Section 5.6 Medical Group's Insurance........................................ 21 Section 5.7 Confidential and Proprietary Information......................... 21 Section 5.8 Noncompetition................................................... 22 Section 5.9 Name, Trademark.................................................. 24 ARTICLE VI. FINANCIAL ARRANGEMENT............................................... 24 Section 6.1 Definitions...................................................... 24 Section 6.2 Compensation..................................................... 24 Section 6.3 Adjustments...................................................... 25 Section 6.4 Reasonable Value................................................. 25 Section 6.5 Payment of Management Fee........................................ 26 Section 6.6 Disputes Regarding Fees.......................................... 26 ARTICLE VII. TERM AND TERMINATION............................................... 26 Section 7.1 Initial and Renewal Term......................................... 26 Section 7.2 Termination...................................................... 27 Section 7.3 Legislative, Regulatory or Administrative Change................. 28 Section 7.4 Effects of Termination........................................... 29 Section 7.5 Repurchase Obligation............................................ 29 Section 7.6 Repurchase Option................................................ 30 Section 7.7 Closing of Repurchase............................................ 31
-ii- 4 ARTICLE VIII. MISCELLANEOUS..................................................... 31 Section 8.1 Administrative Services Only..................................... 31 Section 8.2 Status of Contractor............................................. 31 Section 8.3 Notices.......................................................... 31 Section 8.4 Governing Law.................................................... 32 Section 8.5 Assignment....................................................... 32 Section 8.6 Arbitration...................................................... 33 Section 8.7 Waiver of Breach................................................. 33 Section 8.8 Enforcement...................................................... 33 Section 8.9 Gender and Number................................................ 33 Section 8.10 Additional Assurances........................................... 33 Section 8.11 Consents, Approvals, and Exercise of Discretion................. 33 Section 8.12 Force Majeure................................................... 33 Section 8.13 Severability.................................................... 34 Section 8.14 Divisions and Headings.......................................... 34 Section 8.15 Amendments and Management Services Agreement Execution.......... 34 Section 8.16 Entire Management Services Agreement............................ 34
- -iii- 5 MANAGEMENT SERVICES AGREEMENT THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as of September 18, 1996 (the "Effective Date"), by and between Cardiology Management Partnership, a Texas general partnership (as defined more precisely in Article I, "Business Manager"), and Southeast Texas Cardiology Associates II, P.A., a Texas professional association ("Medical Group"). RECITALS This Management Services Agreement is made with reference to the following premises: A. Medical Group is a validly existing Texas professional association, formed for and engaged in the conduct of a cardiology medical practice and the provision of cardiology medical services to the general public in and around the Beaumont, Texas area through individual physicians who are licensed to practice medicine in the State of Texas and who are employed or otherwise retained by Medical Group. B. Business Manager is a validly existing Texas general partnership that has been duly formed to manage the business aspects of the cardiology medical practice of Medical Group. C. Medical Group desires to focus its energies, expertise and time on the practice of medicine and on the delivery of medical services to patients, and to accomplish this goal it desires to delegate the increasingly more complex business functions of its medical practice to persons with business expertise. D. Medical Group wishes to engage Business Manager to provide such management, administrative and business services as are necessary and appropriate for the day-to-day administration of the nonmedical aspects of Medical Group's medical practice, and Business Manager desires to provide such services, all upon the terms and conditions hereinafter set forth. E. Medical Group and Business Manager have determined a fair market value for the services to be rendered by Business Manager and have developed a formula for compensation for Business Manager that will allow the parties to establish a relationship permitting each party to devote its skills and expertise to the appropriate responsibilities and functions. -1- 6 NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions herein above and hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. DEFINITIONS For the purposes of this Management Services Agreement, the following terms shall have the meanings ascribed thereto: Section 1.1 Adjusted Gross Revenue The term "Adjusted Gross Revenue" shall mean the sum of Professional Services Revenue and Ancillary Revenue determined in accordance with GAAP. Section 1.2 Adjustments. The term "Adjustments" shall mean any adjustments on an accrual basis for uncollectible accounts, Medicare, Medicaid and other payor contractual adjustments, discounts, workers' compensation adjustments, professional courtesies and other reductions in collectible revenue that result from activities that do not result in collectible charges. Section 1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all revenue actually recorded each month (net of Adjustments) that is not Professional Services Revenues. Section 1.4 Base Management Fee. The term "Base Management Fee" shall mean the amount determined in accordance with Section 6.1. Section 1.5 Budget. The term "Budget" shall mean an operating and capital expenditure budget of Medical Group for each fiscal year. Section 1.6 Business Manager. The term "Business Manager" shall mean Cardiology Management Partnership, a Texas general partnership, and each entity that succeeds to the interests of the Business Manager and to whom the obligations of Business Manager are assigned and transferred. Section 1.7 Business Manager Consent. The term "Business Manager Consent" shall mean the consent granted by Business Manager's representatives to the Policy Board created pursuant to Article III herein. When any provision of this Management Services Agreement requires Business Manager Consent, Business Manager Consent shall not be unreasonably withheld and shall be binding on Business Manager. -2- 7 Section 1.8 Business Manager Expense. The term "Business Manager Expense" shall mean an expense or cost incurred by the Business Manager and for which the Business Manager, and not Medical Group, is financially liable. Section 1.9 Confidential Information. The term "Confidential Information" shall mean any information of Business Manager or Medical Group, as appropriate (whether written or oral), including all notes, studies, patient lists, information, forms, business or management methods, marketing data, fee schedules, or trade secrets of the Business Manager or of Medical Group, as applicable, whether or not such Confidential Information is disclosed or otherwise made available to one party by the other party pursuant to this Management Services Agreement. Confidential Information shall also include the terms and provisions of this Management Services Agreement and the Budget. Confidential Information does not include, however, any information that (i) is or becomes generally available to and known by the public (other than as a result of an unpermitted disclosure directly or indirectly by the receiving party or its affiliates, advisors or Representatives); or (ii) has already been or is hereafter independently acquired or developed by the receiving party without violating any confidentiality agreement with or other obligation of secrecy to the furnishing party. Section 1.10 GAAP. The term "GAAP" shall mean generally accepted accounting principles, consistently applied, as set forth in the opinions and pronouncements of the Accounting by such other entity or other practices and procedures as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of the determination. For purposes of this Management Services Agreement, GAAP shall be applied on an accrual basis in a manner consistent with the historic practices of the person to which the term applies. Section 1.11 Management Fee. The term "Management Fee" shall mean Business Manager's compensation determined in accordance with in Article VI hereof. Section 1.12 Management Services. The term "Management Services" shall mean the business, administrative, management and supervisory services to be provided to Medical Group, including without limitation the provision of equipment, supplies, support services, marketing and advertising, certain nonmedical personnel, office space, management, administration, billing and collection services, financial recordkeeping and reporting and other business office services, business functions and business affairs. Section 1.13 Management Services Agreement. The term "Management Services Agreement" shall mean this Management Services Agreement by and between Medical Group and Business Manager and any amendments hereto as may be adopted as provided in this Management Services Agreement. -3- 8 Section 1.14 Master Transaction Agreement. The term "Master Transaction Agreement" shall mean the agreement effective as of August 21, 1996, by and between Raytel Medical Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas Cardiology Associates II, P.A., Southeast Texas Cardiology Associates, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., Michael L. Smith, M.D., and Miguel Castellanos, M.D. Section 1.15 Medical Group . The term "Medical Group" shall mean Southeast Texas Cardiology Associates II, P.A., a Texas professional association. Section 1.16 Medical Group Account. The term "Medical Group Account" shall mean the bank account of Medical Group established as described in Sections 4.8 and 4.9. Section 1.17 Medical Group Consent. The term "Medical Group Consent" shall mean the consent granted by Medical Group's representatives to the Policy Board created pursuant to Article III herein. When any provision of this Management Services Agreement requires Medical Group Consent, Medical Group Consent shall not be unreasonably withheld and shall be binding on Medical Group. Section 1.18 Medical Group Expense. The term "Medical Group Expense" shall mean an expense incurred by the Business Manager or Medical Group and for which Medical Group, and not the Business Manager, is financially liable. Except as modified in Section 5.2, herein below, Medical Group Expense shall include such items as salaries for Physicians and physician assistants, benefits and other related costs (including professional dues, subscriptions, continuing medical education expenses and travel costs for continuing medical education or other business travel). In the event Medical Group incurs consulting, accounting or legal fees without coordinating such engagement through Business Manager, all fees and expenses so incurred shall also be Medical Group Expenses. Section 1.19 Medical Services. The term "Medical Services" shall mean medical care and services, including but not limited to the practice of cardiology and all related health care services provided by Medical Group through the Physicians and other health care providers that are professionally affiliated with Medical Group. Section 1.20 Net Collections. The term "Net Collections" shall mean the sum of all professional fees actually recorded each month on a cash basis as a result of professional medical services and related health care services rendered by the Physicians whether rendered in an outpatient or inpatient setting. Section 1.21 Office. The term "Office" shall mean any office space, clinic, facility that Business Manager shall own or lease or otherwise procure for the use of Medical Group. -4- 9 Section 1.22 Office Expense. The term "Office Expense" shall mean all operating and non-operating expenses incurred by the Business Manager or Medical Group in the provision of services to Medical Group. Office Expense shall not include any state or federal income tax or any other expense that is a Medical Group Expense or a Business Manager Expense. Without limitation, Office Expense shall include: (a) the salaries, benefits, and other direct costs of all employees of Business Manager at the Office and the salaries, benefits, and other direct costs of the nonphysician employees of Medical Group, but not the salaries, or other direct costs of the Physicians or physician assistants (which shall be Medical Group Expenses); (b) the direct cost of any employee or consultant that provides services at or in connection with the office for improved clinic performance, such as management, billing and collections, business office consultation, accounting and legal services, but only when such services are coordinated by Business Manager; (c) reasonable recruitment costs and out-of-pocket expenses of Business Manager or Medical Group associated with the recruitment of additional physician employees of Medical Group; (d) malpractice insurance expenses for Physicians, Business Manager employees, and nonphysician employees; comprehensive and general liability and vicarious liability insurance covering the Office and employees of Medical Group and Business Manager at the Office; (e) the expense of using, leasing, purchasing or otherwise procuring the Office and related equipment, including depreciation; (f) the cost of capital (whether as actual interest on indebtedness incurred on behalf of Medical Group or as reasonable imputed interest on capital advanced by Business Manager) to finance or refinance obligations of Medical Group, purchase medical or nonmedical equipment, or finance new ventures of Medical Group; (g) the Base Management Fee; (h) direct costs related to obtaining and maintaining capitation or other managed care contracts for professional medical services or health care service contracts with medical or health care providers; (i) the reasonable travel expenses associated with attending meetings, -5- 10 conferences, or seminars to benefit Medical Group; (j) the cost of medical supplies (including but not limited to drugs, pharmaceuticals, products, substances, items, or medical devices), office supplies, inventory and utilities (excluding, however, those medical supplies or medical inventory owned by Medical Group on the date of this Management Services Agreement); (k) any state sales tax on those certain enumerated services in Article IV that have been determined to be taxable services by the state; (l) any interest expense on promissory notes, contractual obligations, or the Transaction Documents arising as part of the consideration paid to the Physicians pursuant to the Master Transaction Agreement and the other Transaction Documents; and (m) all amortization and depreciation expense related to or arising as part of the consideration paid to the Physicians pursuant to the Master Transaction Agreement and the other Transaction Documents. Section 1.23 Original Physicians' Salaries. The term "Original Physicians' Salaries" shall mean the sum of the salaries paid to the Physicians as agreed upon at the Effective Date of this Agreement as set forth in Exhibit 5.1A. Section 1.24 Performance Fee. The term "Performance Fee" shall mean the amount payable to the Business Manager, if any, determined under Article VI, as a Management Fee based upon the Business Manager assisting Medical Group to achieve certain pre-determined performance criteria. Section 1.25 Physician. The term "Physician" shall mean each individually licensed professional who is employed or otherwise retained by or associated with Medical Group, each of whom shall meet at all times the qualifications described in Article V. Section 1.26 Policy Board. The term "Policy Board" shall refer to the body responsible for developing and implementing management and administrative policies for the overall operation of Medical Group. Section 1.27 Practice Territory. The term "Practice Territory" shall mean the geographic area within the six counties consisting of Jefferson, Orange, Hardin, Jasper, Chambers and Liberty Counties and within a radius of thirty (30) miles of any current or future facility from which Medical Group provides Medical Services in Texas, representing the -6- 11 geographic boundaries of the medical practice conducted by Medical Group. Section 1.28 Professional Services Revenues. The term "Professional Services Revenues" shall mean the sum of all professional fees actually recorded each month on an accrual basis under GAAP (net of Adjustments) as a result of professional medical services and related health care services rendered by the Physicians whether rendered in an outpatient or inpatient setting. Section 1.29 Representatives. The term "Representatives" shall mean a party's officers, directors, employees, or other agents or representatives. Section 1.30 State. The term "State" shall mean the State of Texas. Section 1.31 Term. The term "Term" shall mean the initial and any renewal periods of duration of this Management Services Agreement as described in Section 7.1. ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER Section 2.1 Appointment. Medical Group hereby appoints Business Manager as its sole and exclusive agent for the provision of Management Services to the Medical Group, and Business Manager hereby accepts such appointment, subject at all times to the provisions of this Management Services Agreement. Section 2.2 Authority. Consistent with the provisions of this Management Services Agreement, Business Manager shall have the responsibility and commensurate authority to provide Management Services to Medical Group. Subject to the terms and conditions of this Management Services Agreement, Business Manager is hereby expressly authorized to provide the Management Services in any reasonable manner Business Manager deems appropriate to meet the day-to-day requirements of the business functions of Medical Group. Business Manager is also expressly authorized to negotiate and execute on behalf of Medical Group all contracts, including payor, managed care or provider agreements. The parties acknowledge and agree that Medical Group, through its Physicians, shall be responsible for and shall have complete authority, responsibility, supervision and control over the provision of all Medical Services and other professional health care services performed for patients, and that all diagnoses, treatments, procedures and other professional health care services shall be provided and performed exclusively by or under the supervision of Physicians as such Physicians, in their sole discretion, deem appropriate. Business Manager shall have no control or supervision over the provision of Medical Services. Section 2.3 Patient Referrals. Business Manager and Medical Group agree that the -7- 12 benefits hereunder do not require, are not payment for, and are not in any way contingent upon the referral, admission, or any other arrangement for the provision of any item or service offered by Business Manager to patients of Medical Group in any facility, laboratory, catheterization laboratory, or health care operation controlled, managed, or operated by Business Manager. Section 2.4 Practice of Medicine. The parties acknowledge that Business Manager is not authorized or qualified to engage in any activity that may be construed or deemed to constitute the practice of medicine. To the extent any act or service herein required by Business Manager should be construed by a court of competent jurisdiction or by the Texas State Board of Medical Examiners constitute the practice of medicine, the requirement to perform that act or service by Business Manager shall be deemed waived and unenforceable. ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD Section 3.1 Formation and Operation of the Policy Board. The parties hereby establish a Policy Board that shall be responsible for developing and implementing management and administrative policies for the overall operation and management of Medical Group. The Policy Board shall consist of five (5) members. Business Manager shall designate, in its sole discretion, three (3) members of the Policy Board, and Medical Group shall designate, in its sole discretion, two (2) members of the Policy Board. Each party's representatives to the Policy Board shall have the authority to make decisions on behalf of the respective party. Except as may otherwise be provided, the act of a majority of the members of the Policy Board shall be the act of the Policy Board. The Medical Group shall designate the Executive Director as a member of the Policy Board. Section 3.2 Duties and Responsibilities of the Policy Board. The Policy Board shall have the following duties, obligations, and authority: (a) Capital Improvements and Expansion. Any renovation and expansion plans and capital equipment expenditures with respect to Medical Group's facilities shall be reviewed and approved by the Policy Board and shall be based upon economic feasibility, physician support, productivity and then current market conditions. (b) Patient Fees; Collection Policies. As a part of the annual operating budget, the Policy Board shall review and approve the fee schedule and collection policies for all physician and ancillary services rendered by Medical Group. (c) Ancillary Services. The Policy Board shall approve Medical Group-provided ancillary services based upon the pricing, access to and quality of such -8- 13 services. (d) Provider and Payor Relationships. Decisions regarding the establishment or maintenance of relationships with institutional health care providers and third party payors shall be approved by the Policy Board. The Policy Board shall review and approve discounted fee schedules, including capitated fee arrangements. (e) Strategic Planning. The Policy Board shall approve the long-term strategic planing objectives. (f) Physician Hiring. The Policy Board shall approve the number and type of physicians required for the efficient operation of Medical Group's facilities. The Policy Board shall review and approve any variations to the restrictive covenants in any physician employment contract. (g) Grievance Referrals. The Policy Board shall consider and make recommendations to Medical Group regarding grievances pertaining to matters not specifically addressed in this Management Services Agreement as referred to it by Medical Group's Board of Directors. (h) Policy Board Meetings. The Policy Board meetings shall be held as mutually agreed, but at least quarterly, in Jefferson County, Texas. (i) Relationship to Business Manager. The Policy Board does not have the authority to remove, replace, or supersede the Business Manager. (j) Annual Budget. The Policy Board shall approve the Budget prepared in accordance with Section 4.10, herein, and once approved will remain the Budget until a new Budget is adopted by the Policy Board. It shall require the four-fifths (4/5ths) vote of the Policy Board to change the Performance Fee and Monthly Fee contained in the schedules attached to the Budget. Section 3.3 Medical Decisions. Despite the above listing of activities and areas of interest, all medical decisions will be made solely by physicians, but nonphysician members of the Policy Board may participate in the discussion process. The physician members of the Policy Board shall review and resolve issues relating to: (a) Types and levels of Medical Services to be provided; (b) Recruitment of physicians to Medical Group, including the specific qualifications and specialties of recruited physicians; (c) Fee schedules; and (d) Any other function or decision that the parties agree is medical related. -9- 14 ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER During the Term, Business Manager shall serve generally in a supervisory capacity in order to best oversee all aspects of the Management Services provided hereunder, specifically by arranging and coordinating such Management Services as Business Manager, in its supervisory capacity, deems necessary and appropriate to facilitate the day-to-day administration of the business aspects of Medical Group's operations, including without limitation those set forth in this Article IV in accordance with all law, rules, regulations and guidelines applicable to the provision of Management Services. Section 4.1 Office and Equipment (a) As necessary and appropriate, taking into consideration the professional concerns of Medical Group, Business Manager shall lease, acquire or otherwise procure an Office in a location or locations reasonably acceptable to Medical Group and shall permit Medical Group to use the Office. Any Office procured by Business Manager for the use by Medical Group shall be procured at commercially reasonable rates. Any move from Medical Group's present practice location(s) shall be done only after Business Manager has received Medical Group's Consent. (b) Business Manager shall provide all nonmedical equipment, fixtures, office supplies, furniture and furnishings deemed reasonably necessary by Business Manager for the operation of the Office and reasonably necessary for the provision of Medical Services. (c) Business Manager shall provide, finance, or cause to be provided or financed medical related equipment as requested by Medical Group. Subject to economic feasibility, Medical Group shall have final authority in all medical equipment selections. All medical and nonmedical equipment acquired for the use of Medical Group shall be owned by Business Manager. (d) Business Manager shall be responsible for the care, custody, and control, including repair and maintenance of the Office, consistent with Business Manager's responsibilities under the terms of any lease or other use arrangement, and for the repair, maintenance, and replacement of all equipment other than such repairs, maintenance and replacement necessitated by the negligence or willful misconduct of Medical Group, its Physicians or other personnel employed by Medical Group, the repair or replacement of which shall be a Medical Group Expense and not an Office Expense. -10- 15 Section 4.2 Medical Supplies. Business Manager shall order, procure, purchase and provide on behalf of and as agent for Medical Group all reasonable medical supplies unless otherwise prohibited by federal and/or State law. Furthermore, Business Manager shall ensure that the Office is at all times adequately stocked with the medical supplies appropriate for the operation of Medical Group and required for the provision of Medical Services. The ultimate oversight, supervision and ownership, to the extent necessary, for all medical supplies is and shall remain the sole responsibility of Medical Group. As used in this provision the term "medical supplies" shall mean all drugs, pharmaceuticals, products, substances, items or devices whose purchase, possession, maintenance, administration, prescription or security requires the authorization or order of a licensed health care provider or requires a permit, registration, certification or other governmental authorization held by a licensed health care provider as specified under any federal and/or State law. Section 4.3 Support Services. Business Manager shall coordinate, supervise, or otherwise arrange for all printing, stationery, forms, postage, duplication or photocopying services, and other support services as are reasonably necessary and appropriate for the operation of the Office and the provision of Medical Services therein. Section 4.4 Quality Assurance Risk Management and Utilization Review. Business Manager shall assist Medical Group in Medical Group's establishment and implementation of procedures to ensure the consistency, quality, appropriateness, and medical necessity of Medical Services provided by Medical Group, and shall arrange for administrative support for Medical Group's overall quality assurance, risk management and utilization review programs. Section 4.5 Licenses and Permits. Business Manager shall, on behalf of and in the name of Medical Group, coordinate all development and planning processes, and apply for and use reasonable efforts to obtain and maintain all federal, State, and local licenses and regulatory permits required for or in connection with the operation of Medical Group and equipment (existing and future) located at the Office, other than those relating to the practice of medicine or the administration of drugs by Physicians retained by or associated with Medical Group. Section 4.6 Personnel. Business Manager shall coordinate and supervise the retention of and shall oversee the selection, hiring, training, supervision and termination of all management, administrative, clerical, secretarial, bookkeeping, accounting, payroll, billing and collection and other nonphysician personnel of Medical Group to enable Business Manager to perform its duties and obligations under this Management Services Agreement. Business Manager shall have sole responsibility for determining the salaries and providing such fringe benefits, and for withholding, as required by law, any sums for income tax, unemployment insurance, social security, or any other withholding required by applicable law or governmental requirement. -11- 16 Section 4.7 Contract Negotiations. Business Manager shall negotiate, either directly or on Medical Group's behalf all contractual arrangements with third parties as are reasonably necessary and appropriate for Medical Group's provision of Medical Services, including, without limitation, negotiated price agreements with third party payors, employers, employer groups, alternative delivery systems, or other purchasers of group health care services. Section 4.8 Billing and Collection. On behalf of and for the account of Medical Group, Business Manager shall have the exclusive right to establish and maintain, on behalf of Medical Group, all credit and billing and collection policies and procedures, and shall coordinate and supervise Medical Group personnel to ensure the timely billing and collection of all professional and other fees for all billable Medical Services provided by Medical Group or Physicians. Business Manager shall advise and consult with Medical Group regarding the fees for Medical Services provided by Medical Group; it being understood, however, that Business Manager shall establish the fees to be charged for Medical Services. In connection with the billing and collection services to be provided hereunder, and throughout the Term (and thereafter as provided in Section 7.3), Medical Group hereby grants to Business Manager an exclusive special power of attorney and appoints Business Manager as Medical Group's exclusive true and lawful agent and attorney-in-fact, and Business Manager hereby accepts such special power of attorney and appointment, for the following purposes: (a) To supervise and coordinate the billing of Medical Group's patients, in the name of Medical Group's and on behalf of Medical Group for all billable Medical Services provided by Medical Group to patients. (b) To supervise and coordinate the billing in Medical Group's name and on Medical Group's behalf, as applicable, all claims for reimbursement or indemnification from Blue Shield/Blue Cross, insurance companies, Medicare, Medicaid, and all other third party payors or fiscal intermediaries for all covered billable Medical Services provided by Medical Group to patients. (c) To ensure the collection and receipt in Medical Group's name and on Medical Group's behalf, all accounts receivable generated by such billings and claims for reimbursement that have not been purchased by Business Manager, to administer such accounts including, but not limited to, (i) extending the time of payment of any such accounts for cash, credit or otherwise; (ii) discharging or releasing the obligors of any such accounts; (iii) with the consent of the Policy Board, suing, assigning or selling at a discount such accounts to collection agencies; or (iv) with the of the Policy Board, taking other measures to require the payment of an any such accounts. (d) To deposit all amounts collected in Medical Group's name and on behalf -12- 17 of Medical Group into Medical Group Account which shall be and at all times in Medical Group's name. Medical Group covenants to transfer and deliver to Business Manager for deposit into Medical Group Account or itself to make such deposit of all funds received by Medical Group from patients or third party payors for Medical Services. Upon receipt by Business Manager of any funds from patients or third party payors or from Medical Group pursuant hereto for Medical Services, Business Manager shall immediately deposit same into the Medical Group Account. Business Manager shall disburse such deposited funds to creditors and other persons on behalf of Medical Group, maintaining records of such receipt and disbursement of funds as directed by Medical Group. (e) To take possession of, endorse in the name of Medical Group, and deposit into the Medical Group Account any notes, checks, money orders, insurance payments, and any other instruments received in payment for Medical Services. (f) To sign checks, drafts, bank notes or other instruments on behalf of Medical Group, and to make withdrawals from the Medical Group Account for payments specified in this Management Services Agreement and as requested from time to time by Medical Group. Upon request of Business Manager, Medical Group shall execute and deliver to the financial institution wherein the Medical Group is maintained, such additional documents or instruments as may be necessary to evidence or effect the special and limited power of attorney granted to Business Manager by Medical Group pursuant to this Section 4.8 or pursuant to Section 4.9 of this Management Services Agreement. The special and limited power of attorney granted herein shall be coupled with an interest and shall be irrevocable except with Business Manager's written consent. The irrevocable power of attorney shall expire on the later of when this Management Services Agreement has been terminated, when all accounts receivable purchased by Business Manager have been collected, or when all Management Fees due to Business Manager have been paid. If Business Manager assigns this Management Services Agreement in accordance with its terms, then Medical Group shall execute a power of attorney in favor of the assignee and in the form of Exhibit 4.8 attached hereto. Section 4.9 Medical Group Account. (a) Power of Attorney. Business Manager shall have access to the Medical Group Account solely for the purposes stated herein. In connection herewith and throughout the Term (and thereafter as provided in Section 7.3), Medical Group hereby grants to Business Manager an exclusive special power of attorney for the purposes herein and appoints Business Manager as Medical Group's exclusive true and lawful agent and attorney-in-fact, and Business Manager hereby accepts such power of -13- 18 attorney and appointment, to deposit into the Medical Group Account all funds, fees, and revenues generated from the Medical Group's provision of Medical Services and collected by Business Manager, and to make withdrawals from Medical Group Account for payments specified in this Management Services Agreement and as requested from time-to-time by Medical Group. (b) Priority of Payments. Each month, Business Manager shall apply funds that are in the Medical Group Account in the following order of priority: (1) to Medical Group, all Original Physician Salaries (all other expenses incurred by Medical Group for such expenses as attorneys, accountants, and consultants, as well as other expenses for continuing medical education, professional society meetings, and other similar expense shall be paid by Medical Group out of its portion of the balance remaining after payment of the items set forth in subparagraphs (2) through (4), herein below); (2) to Business Manager, Office Expenses, except the Base Management Fee; (3) to Business Manager, the Base Management Fee; (4) to Business Manager, any Performance Fee to which Business Manager may be entitled; and (5) the remaining balance shall remain with the Medical Group. Section 4.10 Fiscal Matters. (a) Annual Budget. (1) Process for Budgets. Annually and at least thirty (30) days prior to the commencement of each fiscal year of Medical Group, Business Manager shall prepare and deliver to Medical Group a proposed Budget, setting forth an estimate of Medical Group's revenues and expenses for the upcoming fiscal year (including, without limitation, the Management Fee and Performance Fee associated with the services provided by Business Manager hereunder). Medical Group shall review the proposed Budget and either approve the proposed Budget or request any changes within fifteen (15) days after receiving the proposed Budget. The Budget shall be deemed adopted by Medical Group unless specific changes are reasonably requested within the fifteen days of receiving the -14- 19 proposed budget. The Budget may be revised or modified only in consultation with the Business Manager. (2) Obligation of Business Manager. Business Manager shall use commercially reasonable efforts to manage and administer the operations of Medical Group as herein provided so that the actual revenues, costs and expenses of the operation and maintenance of Medical Group during any applicable period of Medical Group's fiscal year shall be consistent with the Budget. (b) Accounting and Financial Records. Business Manager shall establish and administer accounting procedures, controls, and systems for the development, preparation, safekeeping of administrative or financial records and books of account relating to the business and financial affairs of Medical Group and the provision of Medical Services, all of which shall be prepared and in accordance with GAAP, as consistently applied, and applicable laws and regulations. Business Manager shall prepare and deliver to Medical Group, within ninety (90) days of the end of each calendar year, a balance sheet and a profit and loss statement reflecting the financial status of Medical Group in regard to the provision of Medical Services as of the end of such calendar year, all of which shall be prepared in accordance with GAAP consistently applied. (c) Review of Expenditures. Either one of Medical Group's representatives to the Policy Board shall review all expenditures related to the operation of Medical Group, but neither shall have the power to prohibit or invalidate any expenditure that is consistent with the Budget. (d) Tax Matters. (1) In General. Business Manager shall prepare or arrange for the preparation by an accountant approved in advance by Medical Group (which approval shall not be unreasonably withheld) of all appropriate tax returns and reports required of Medical Group. (2) Sales and Use Taxes. Business Manager and Medical Group acknowledge and agree that although Business Manager generally acts in a supervisory and consultative capacity hereunder by coordinating, overseeing and otherwise facilitating the provision of services, there are certain services provided by Business Manager hereunder that the parties recognize are subject to State sales taxes and for which Business Manager may have a legal obligation to collect such taxes and to remit same to the appropriate tax collection -15- 20 authorities. Medical Group agrees to the payment of such State sales tax as an Office Expense. Section 4.11 Reports and Records. (a) Medical Records. Business Manager shall establish, monitor, and maintain procedures and policies for the timely creation, preparation, filing and retrieval of all medical records generated by Medical Group in connection with Medical Group's provision of Medical Services; and, subject to applicable law, shall ensure that medical records are promptly available to Physicians and any other appropriate persons. All such medical records shall be retained and maintained in accordance with all applicable State and federal laws relating to the confidentiality and retention thereof. All medical records shall be and remain the property of Medical Group. (b) Other Reports and Records. Business Manager shall timely create, prepare, and file such additional reports and records as are reasonably necessary and appropriate for Medical Group's provision of Medical Services, and shall be prepared to analyze and interpret such reports and records upon the request of Medical Group. Section 4.12 Recruitment of Medical Group Physicians. Business Manager shall coordinate, supervise or perform all administrative services reasonably necessary and appropriate to recruit potential physician personnel to become employees of Medical Group. Business Manager shall provide Medical Group with agreements to document Medical Group's employment, retention or other service arrangements with such individuals. It will be and remain the sole and complete responsibility of Medical Group to interview, select, supervise, and control all Physicians performing Medical Services or other professional services on behalf of the Medical Group. Section 4.13 Acquisitions of or Mergers with other Medical Groups. Business Manager shall negotiate all acquisitions of or mergers with any other medical practices in the Practice Territory. Business Manager agrees to coordinate all such acquisitions or mergers with the Policy Board in order to obtain the advice and consent (which shall not be unreasonably withheld) of the Medical Group representatives regarding the professional qualifications of the physician groups to be acquired or merged with the Medical Group. Section 4.14 Business Manager's Insurance. Throughout the Term, Business Manager shall, as an Office Expense, obtain and maintain with commercial carriers, through self-insurance or some combination thereof, appropriate workers' compensation coverage for Business Manager's employed personnel provided pursuant to this Management Services Agreement, and professional, casualty and comprehensive general and vicarious liability covering Business Manager, Business Manager's personnel, and all of Business Manager's -16- 21 equipment in such amounts, on such basis and upon such terms and conditions as Business Manager deems appropriate. Upon the request of Medical Group, Business Manager shall provide Medical Group with a certificate evidencing such coverage. Business Manager may also carry, at its own expense, key person life and disability insurance on any shareholder or Physician employee of Medical Group in amounts determined reasonable and sufficient by Business Manager. Business Manager shall be the owner and beneficiary of any such insurance. Section 4.15 No Warranty. Medical Group acknowledges that Business Manager has not made and will not make any express or implied warranties or representations that the services provided by Business Manager will result in any particular amount or level of medical practice or income to Medical Group. ARTICLE V. COVENANTS AND RESPONSIBILITIES OF MEDICAL GROUP Section 5.1 Organization and Operation. Medical Group, as a continuing condition of Business Manager's obligations under this Management Services Agreement, shall at all times during the Term be and remain legally organized and operated to provide Medical Services in a manner consistent with all State and federal laws. Medical Group shall operate and maintain within the Practice Territory a full time practice of medicine specializing in the provision of cardiology Medical Services, and for the first five (5) years of the Term of this Management Services Agreement, Medical Group shall maintain and enforce employment agreements in the form of Exhibit 5.1 with the Physicians specified in Exhibit 5.1A. Medical Group shall not amend the employment agreements in any material manner or waive any material rights of Medical Group thereunder without the prior approval of Business Manager. Recognizing that Business Manager would not have entered into this Management Services Agreement but for Medical Group's covenant to maintain employment agreements with its original shareholders, Medical Group agrees that any damages, compensation, payment, or settlement received by Medical Group as liquidated damages from a Physician who terminates the employment agreement without cause or whose employment agreement is terminated by Medical Group for cause shall be treated as Ancillary Revenue under this Agreement. Section 5.2 Medical Group Personnel. (a) Physician Personnel. Medical Group shall retain, as the Medical Group Expense and not as an Office Expense, that number of Physicians, as are reasonably and appropriate in the sole discretion of Medical Group for the provision of Medical Services, subject to the following conditions: (1) During the first year of this Agreement, the total Original -17- 22 Physician' Salaries (as defined above in Section 1.23 shall remain equal to an aggregate amount of [*] and shall be paid in accordance with the amounts set forth in Exhibit 5.1A attached hereto; (2) During the subsequent four (4) years of this Agreement, the total amount of the Original Physicians' Salaries shall remain at [*] of Net Collections, as that term is defined above in Section 1.20. (3) After the first [*] of this Agreement, Original Physician Salaries shall become a Medical Group Expense. (4) Salaries for physicians hired during the term of this Agreement shall be a Medical Group Expense. (5) During the entire Term of this Agreement if the Policy Board determines that it is necessary and appropriate to hire additional physicians, and that Business Manager is required to advance working capital to the Medical Group [*] (b) Revised Priority of Payments. Beginning with the sixth year and continuing thereafter for the balance of the term of this Agreement, the order of priority in which Business Manager shall apply funds shall be as follows: (1) to Medical Group, all Original Physician Salaries; (2) to Business Manager, Office Expenses, except the Base Management Fee; (3) to Business Manager, the Base Management Fee; (4) to Medical Group, other expenses incurred by Medical Group for such expenses as attorneys, accountants, and consultants, as well as other expenses for continuing medical education, professional society meetings, and other similar expense; [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -18- 23 (5) to Business Manager, any Performance Fee to which Business Manager may be entitled; and (6) the remaining balance shall remain with the Medical Group. (c) Each Physician shall hold and maintain a valid and unrestricted license to practice medicine in the State of Texas, and shall be competent in the practice of cardiology. (d) Except as provided in subparagraph (a), above, Medical Group shall be responsible for paying the compensation and benefits as applicable, for all Physicians and any other physician personnel or other contracted or affiliated physicians, and for withholding, as required by law, any sums for income tax, unemployment insurance, social security, or any other withholding required by applicable law. Business Manager may, on behalf of Medical Group, establish and administer the compensation program with respect to such individuals in accordance with the written agreement between Medical Group and each Physician. Business Manager shall neither control nor direct any Physician in the performance of Medical Services for patients. (e) Nonphysician Health Care Personnel. All nonphysician health care personnel who provide care services in the diagnostic areas shall be employed by or retained by the Business Manager as an Office Expense and shall be under Medical Group's control, supervision and direction while performing Medical Services for patients. (f) Covenant of Medical Group to Maintain Adjusted Gross Revenue Production. The Physicians hereby covenant and agree to maintain Adjusted Gross Revenue at [*] during the initial [*] years of this Agreement in order to maintain the salary amount specified in Section 5.2(a) and provide the basis for the consideration paid pursuant to Section 2.03 of the Master Transaction Agreement. In the event the Threshold Revenue declines at least [*] during any three (3) month period of time and remains at that level for more than six (6) months, then the consideration specified in Section 2.03 of the Master Transaction Agreement shall be reduced and each Physician shall refund to Business Manager a proportionate amount of the consideration, as follows: (1) In the event the reduction in Adjusted Gross Revenue is equal to [*] of Threshold Revenue, then the Physicians shall refund [*] [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -19- 24 percent of the consideration paid pursuant to Section 2.03 of the Master Transaction Agreement; and (2) In the event the reduction in Adjusted Gross Revenue is more than [*] percent, then Physicians shall refund the same percentage of the consideration as the percentage decline in Threshold Revenue. (3) Provided, however, that the refund amount shall be adjusted on an annual basis so that only the unamortized amount of the consideration shall be reduced. Thus, on each anniversary of the Closing, which shall be deemed to be September 18, 1996, for purposes of this Agreement, [*] of the consideration shall have been vested and not subject to the adjustment specified in this Section 5.2(f). For example, if Threshold Revenue declined [*] during year [*] of this Agreement, then the consideration would be reduced by [*] of the [*] decline, or in other words there would be a refund of [*] of the consideration paid to the Physicians, who would then refund a proportionate share of their consideration. The [*] shall be adjusted downwards by the same percentage that the consideration is reduced. Section 5.3 Professional Standards. As a continuing condition of Business Manager's obligations hereunder, each Physician and any other physician personnel retained by Medical Group to provide Medical Services must (i) comply with, be controlled and governed by and otherwise provide Medical Services in accordance with all applicable federal, State and municipal laws, rules, regulations, ordinances and orders, and the ethics and of care of the medical community wherein the principal office of each Physician is and (ii) obtain and retain appropriate medical staff membership with appropriate clinical privileges at any hospital or health care facility at which Medical Services are to be provided. Procurement of temporary staff privileges pending the completion of the medical staff approval process shall satisfy this provision, provided the Physician actively pursues full appointment and actually receives full appointment within a reasonable time. Section 5.4 Medical Services. The Medical Group shall ensure that Physicians and nonphysician health care personnel are available to provide medical services to patients in accordance with the acceptable medical standards established from time to time by the Business Manager after consultation with the Medical Group. In the event that Physicians employed by, or shareholders of, Medical Group are not available to provide Medical Services coverage, Medical Group shall engage and retain locum tenens coverage. Physicians retained on a locum tenens basis shall meet all of the requirements of Section 5.3, and the cost of providing locum tenens coverage shall be a Medical Group Expense. With the assistance of the Business Manager, Medical Group and the Physicians shall be responsible for scheduling Physician and nonphysician health care personnel coverage of all medical procedures. Medical Group shall cause all Physicians to develop and promote Medical Group. [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -20- 25 Section 5.5 Peer Review/Quality Assurance. The Medical Group shall adopt a peer review/quality assurance program to monitor and evaluate the quality and cost-effectiveness of Medical Services provided by physician personnel of Medical Group in accordance with medical standards established from time to time by the American College of Cardiologists, the American Medical Association, the Texas Medical Association, and other similar professional associations, which would be acceptable to Business Manager. Upon request of Medical Group, Business Manager shall provide administrative assistance to Medical Group in performing its peer review/quality assurance activities, but only if such assistance can be provided consistent with maintaining the confidentiality and nondiscoverability of the processes and actions of the peer review/quality assurance process of Medical Group. Section 5.6 Medical Group's Insurance. The Medical Group shall, as an Office Expense, obtain and maintain with commercial carriers reasonably acceptable to Business Manager appropriate worker's compensation coverage for Medical Group's employed personnel, if any, and professional and comprehensive general liability and vicarious liability insurance covering Medical Group and each of the Physicians Medical Group retains or employs to provide Medical Services. The comprehensive general liability and vicarious liability coverage shall be in the minimum amount of One Million Dollars ($1,000,000.00); and professional liability coverage shall be in the minimum amount of One Million Dollars ($1,000,000.00) for each occurrence and Three Million Dollars ($3,000,000.00) annual aggregate. The insurance policy or policies shall provide for at least thirty (30) days advance written notice to Medical Group from the insurer as to any alteration of coverage, cancellation, or proposed cancellation for any cause. Medical Group shall cause to be issued to Business Manager by such insurer or insurers a certificate reflecting such coverage and shall provide written notice to Business Manager promptly upon receipt of notice given to Physician of the cancellation or proposed cancellation of such for any cause. Upon the termination of this Management Services Agreement for any reason, Medical Group shall obtain and maintain as a Medical Group Expense "tail" professional liability coverage, in the amounts specified in this section for an extended reporting period of 10 years, and Medical Group shall be responsible for paying all premiums for "tail" insurance coverage; except for a termination pursuant to Section 7.2(b), in which case Business Manager shall be responsible for paying all premiums for "tail" insurance coverage. In no event shall the professional liability insurance carrier be replaced or changed without Medical Group Consent. Section 5.7 Confidential and Proprietary Information. The Medical Group will not disclose any Confidential Information of Business Manager without Business Manager's express written authorization, such Confidential Information will not be used in any way directly or indirectly detrimental to Business Manager, and Medical Group will keep such Confidential Information confidential and will ensure that its affiliates and advisors who have access to such Confidential Information comply with these nondisclosure obligations; -21- 26 provided, however, that Medical Group may disclose Confidential Information to those of its Representatives who need to know Confidential Information for the purposes of this Management Services Agreement, it being understood and agreed to by Medical Group that such Representatives will be informed of the confidential nature of the Confidential Information, will agree to be bound by this Section , and will be directed by Medical Group not to disclose to any other person any Confidential Information. Medical Group agrees to be responsible for any breach of this Section by its advisors, or Representatives. If Medical Group is requested or required (by oral questions, interrogatories, requests for information or documents, subpoenas, civil investigative demands, or similar processes) to disclose or produce any Confidential Information furnished in the course of its dealings with Business Manager or its advisors, or Representatives, Medical Group will (i) provide Business Manager with prompt notice thereof and copies, if possible, and, if not, a description, of the Confidential Information requested or required to be produced so that Business Manager may seek an appropriate protective order or waive compliance with the provisions of this Section and (ii) consult with Business Manager as to the advisability of Business Manager's taking of legally available steps to resist or narrow such request. Medical Group further agrees that, if in the absence of a protective order or the receipt of a waiver hereunder Medical Group is nonetheless, in the written opinion of its legal counsel, compelled to disclose or produce Confidential Information concerning Business Manager to any tribunal legally authorized to request and entitled to receive such Confidential Information or to stand liable for contempt or suffer other censure or penalty, Medical Group may disclose or produce such Confidential Information to such tribunal without liability hereunder, provided, however, that Medical Group shall give Business Manager written notice of the Confidential Information to be so disclosed or produced as far in advance of its disclosure or production as is practicable and shall use its best efforts to obtain, to the greatest extent practicable, an order or other reliable assurance that confidential treatment will be accorded to such Confidential Information so required to be disclosed or produced. Section 5.8 Noncompetition. The Medical Group hereby recognizes and acknowledges that Business Manager will incur substantial costs in providing the equipment, support services, personnel, management, administration, and other items and services that are the subject matter of Management Services Agreement and that in the process of providing services under this Management Services Agreement, Medical Group will be privy to financial and Confidential Information, to which Medical Group would not otherwise be exposed. The parties also recognize that the services to be provided by Business Manager will be feasible only if Medical Group operates an active practice to which the Physicians associated with Medical Group devote their full professional time and attention. Medical Group agrees and acknowledges that the noncompetition covenants described hereunder are necessary for the protection of Business Manager, and that Business Manager would not have entered into this Management Services Agreement without the following covenants. -22- 27 (a) During the Term of this Management Services Agreement and except for its obligations pursuant to this Management Services Agreement, Medical Group shall not establish, operate, or provide Medical Services at a medical office, clinic or other health care facility anywhere within the Practice Territory. (b) Except as specifically agreed to by Business Manager in writing and except as otherwise specifically provided herein, Medical Group covenants and agrees that during the Term of this Management Services Agreement and for a period of [*] years from the date this Management Services Agreement is terminated, Medical Group shall not directly or indirectly (excluding ownership of less than five percent (5%) of the of equity of any publicly traded entity), manage, operate, control, or be otherwise associated with, lend funds to, lend its name to, or maintain any interest whatsoever in any enterprise (i) having to do with the provision, distribution, promotion, or advertising of any type of management or services or products to third parties in competition with Business Manager, in the Practice Territory; and/or (ii) offering any type of service(s) or product(s) to third parties similar to those offered by Business Manager to Medical Group in the Practice Territory. Notwithstanding the above restriction, nothing herein shall prohibit Medical Group or any of its shareholders from providing management and administrative services to its or their own medical practices after the termination of this Management Services Agreement. (c) The written employment agreements described in Section 5.1 shall contain covenants of the shareholder employees pursuant to which the shareholders agree not to compete with Medical Group within the Practice Territory for [*] years after termination of their respective employment agreement, except as otherwise specifically provided herein. (d) Medical Group understands and acknowledges that the provisions in Section 5.7 and Section 5.8 are designed to preserve the goodwill of Business Manager and the goodwill of the individual Physicians of Medical Group. Accordingly, if Medical Group breaches any obligation of Section 5.7 or Section 5.8, in addition to any other remedies available under this Management Services Agreement, at law or in equity, Business Manager shall be entitled to enforce this Management Services Agreement by injunctive relief and by specific performance of the Management Services Agreement, such relief to be without the necessity of posting a bond, cash or otherwise. Additionally, nothing in this paragraph shall limit Business Manager's right to recover any other damages to which it is entitled as result of Medical Group's breach. If any provision of the covenants is held by a court of competent jurisdiction to be unenforceable due to an excessive time period, geographic area, or restricted activity, the covenant shall be reformed to comply with such time period, geographic area, or restricted activity that would be held enforceable. [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -23- 28 Section 5.9 Name, Trademark. Medical Group represents and warrants that Medical Group conducts its professional practice under the name of, and only under the name of "Southeast Texas Cardiology Group, P.A." and that such name is the name of Medical Group under State law, and that Medical Group is the sole and absolute owner of the name. Medical Group covenants and promises that, without the prior written consent of the Business Manager, Medical Group will not: (a) take any action or omit to take any action that is reasonably likely to result in the change or loss of the name; (b) license, sell, give, or otherwise transfer the name or the right to use the name to any medical practice, physician, professional corporation, professional association, or any other entity; or (c) cease conducting the professional practice of Medical Group under the name. ARTICLE VI. FINANCIAL ARRANGEMENT Section 6.1 Definitions. For purposes of this Article VI, capitalized terms used herein shall have the meanings ascribed as follows: (a) Monthly Fee. The Monthly Fee shall be [*] per month for the first year. As part of the budgeting process the Monthly Fee shall be adjusted annually at the beginning of each fiscal year, in order for Business Manager to provide proper staffing levels to support Medical Group. (b) Fee Amount. The Fee Amount shall be the Monthly Fee and for each prior month in which the Base Management Fee is less than the Monthly Fee, the sum of the amounts of any such shortfall not previously paid. (c) Base Management Fee. The Base Management Fee shall be the lesser of the Fee Amount or the amount of cash available to be paid by the Medical Group out of the Medical Group Account pursuant to Sections 4.8 and 4.9 hereof. Section 6.2 Compensation. Medical Group and Business Manager agree to the compensation set forth herein as being paid to Business Manager in consideration of a substantial commitment made by Business Manager hereunder and that such fees are fair and reasonable. Each month, in the priority established by Section 4.9(b), Business Manager shall be paid the following: [*CONFIDENTIAL TREATMENT REQUESTED -- OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION] -24- 29 (i) the amount of all Office Expenses (other than the Base Management Fee) paid on behalf of Medical Group. (ii) the Base Management Fee. (iii) the Performance Fee if the mutually agreed upon pre-established criteria for payment of the Performance Fee set forth in the Budget have been met. Section 6.3 Adjustments. Adjustments to the Management Fee calculation shall be made as follows: (a) Upon termination of this Management Services Agreement (except as provided in Section 7.2(b)(iv) herein below), a liability for the Management Fee shall be established in an amount equal to the difference, if any, between (i) the cumulative Base Management Fees during the Term less (ii) the amounts already paid by Medical Group as Base Management Fees, and the Base Management Fee and any cumulated but unpaid Performance Fees shall become immediately due and payable. (b) After the fifth anniversary of this Management Services Agreement, the Monthly Fee shall increase each year by the lesser of five per cent (5%) per year or the increase, if any, from the prior year in the Consumer Price Index - Health/Medical Services, as published by the United States Department of Labor ("DOL"), for the Beaumont, Texas metropolitan area. If the DOL ceases publishing the Consumer Price Index - Health/Medical Services, or ceases to publish the Consumer Price Index - Health/Medical Services of Beaumont, Texas metropolitan area, the parties shall use any other comparable index selected by the Business Manager. (c) If there are not sufficient funds to pay the Performance Fee, unpaid amounts shall accumulate and carry over from month to month until paid. No amounts carried over shall earn interest. Furthermore, the amount of the Performance Fee paid will be monitored and reconciled on an annual basis and any overpayment of the Performance Fee shall be promptly refunded by the Business Manager. Section 6.4 Reasonable Value. Payment of the Base Management Fee or Performance Fee is not intended to be and shall not be interpreted or applied as permitting Business Manager to share in Medical Group's fees for Medical Services or any other services. Rather, such payment is acknowledged as the parties' negotiated agreement as to the reasonable fair market value of the management expertise, strategic planning, capital access, resource retention, equipment, contract analysis and support, purchasing, office space, and other management and administrative oversight services supervised, coordinated, arranged for or otherwise facilitated by Business Manager pursuant to this Management Services -25- 30 Agreement, as more specifically set forth in Article IV herein, as well as for the personnel services Business Manager provides under Section 4.6 hereof, considering the nature and extent of the services required and the risks assumed by Business Manager. Section 6.5 Payment of Management Fee. To facilitate the payment of the Management Fee as provided in Section 6.2 hereof, Medical Group hereby expressly authorizes Business Manager to make withdrawals of the Management Fee from the Medical Group Account as such fee becomes due and payable during the Term and thereafter as provided in Section 7.3. Section 6.6 Disputes Regarding Fees. (a) It is the parties' intent that any disputes regarding the payment of the Management Fee shall be resolved to the extent possible by good faith negotiation. Business Manager and Medical Group shall negotiate the dispute in good faith, and if an agreement is reached, the parties shall implement the resolution without further action. (b) If the parties cannot reach a resolution within a reasonable time, Medical Group shall, at its option, submit the dispute to mediation. Mediation shall be conducted in Beaumont, Texas in accordance with the rules of the National Health Lawyers Association Alternative Dispute Resolution Service, and if the amount in dispute is $25,000 or less, the mediation shall be binding. (c) If the amount in dispute is greater than $25,000, or if the mediation process fails to resolve the dispute, the dispute shall be submitted by either party to binding arbitration pursuant to the Master Transaction Agreement. ARTICLE VII. TERM AND TERMINATION Section 7.1 Initial and Renewal Term. The Term of this Management Services Agreement will be for an initial period of forty (40) years after the effective date, and shall be automatically renewed for successive five (5) year periods thereafter, provided that neither Business Manager nor Medical Group shall have given notice of termination of this Management Services Agreement at least one hundred twenty (120) days before the end of the initial term or any renewal term, or unless otherwise terminated as provided in Section 7.2 of this Management Services Agreement. -26- 31 Section 7.2 Termination. (a) Termination By Business Manager. Business Manager may terminate this Services Agreement upon the occurrence of any one of the following events which shall be deemed to be "for cause": (i) The revocation, suspension, cancellation or restriction of any Medical Group shareholder Physician's license to practice medicine in the State if, in the reasonable discretion of the Business Manager, Medical Group will not be financially viable after such revocation, suspension, cancellation, or restriction; (ii) Medical Group's loss or suspension of its Medicare or Medicaid provider number, and/or Medical Group's restriction from treating beneficiaries of the Medicare or Medicaid programs, or such successor programs; (iii) The dissolution of Medical Group or the filing of a petition in voluntary bankruptcy, an assignment for the benefit of creditors, or other action taken voluntarily or involuntarily under any State or federal statute for the protection of debtors; (iv) Medical Group materially defaults in the performance of any of its material duties or obligations hereunder, and such default continues for sixty (60) days after Medical Group receives notice of the default. (b) Termination By Medical Group. Medical Group may terminate this Management Services Agreement upon the following occurrence which shall be deemed to be "for cause": (i) If either Business Manager, Raytel Southeast Management, L.P., Raytel Texas Physician Services, Inc., or Raytel Medical Corporation (each a "Raytel Party") is adjudicated a bankrupt and its affairs are ordered to be wound up and then dissolved, or a Raytel Party makes an assignment for the benefit of creditors, or other action is taken voluntarily or involuntarily under any State or federal statute for the protection of debtors; (ii) Business Manager is convicted of a felony in connection with the performance of its duties and obligations under this Management Services Agreement; (iii) Business Manager materially defaults in the performance of any -27- 32 of its material duties or obligations hereunder, and such default continues for sixty (60) days after Business Manager receives notice of the default; or (iv) in the event there is a change in control of the Business Manager. For purposes of this Section 7.2(b)(iv), a "Change in Control" shall mean the sale of substantially all of the assets of the Business Manager or a sale of more than two-thirds (2/3) of the ownership interests of the Business Manager (other than the sale and assignment of the partnership interests provided in Section 8.5 and as contemplated in the Transaction Documents) to a party not approved by the Medical Group. A sale of the ownership interests of Business Manager shall include the Change in Control in Raytel Texas Physician Services, Inc., the corporate General Partner of Raytel Southeast Management, L.P. (except within the controlled group of companies owned or controlled by Raytel Medical Corporation), and shall also include the Change in Control of Raytel Medical Corporation. A Change in Control shall have the result of accelerating the vesting of all consideration paid to the Physicians pursuant to the Master Transaction Agreement and the other Transaction Documents, and shall cause the noncompetition covenants or agreements which are part of the Master Transaction Agreement and the Transaction Documents to be rescinded. Termination by Medical Group hereunder shall require the affirmative vote of three-fourths of the outstanding voting shares of the common shareholders of Medical Group entitled to vote. (c) Termination by Agreement. In the event Medical Group and Business Manager shall mutually agree in writing, this Management Services Agreement may be terminated on the date specified in such written agreement. Section 7.3 Legislative, Regulatory or Administrative Change. In the event there shall be a change in the Medicare or Medicaid statutes, federal or State statutes, case laws, regulations or general instructions, the interpretation of any of the foregoing, the adoption of new federal or State legislation, or a change in any third party reimbursement system, any of which are reasonably likely to materially and adversely affect the manner in which either party may perform or be compensated for its services under this Management Services Agreement or which shall make this Management Services Agreement unlawful, the parties shall immediately enter into good faith negotiations regarding a new service arrangement or basis for compensation for the services furnished pursuant to this Management Services Agreement that complies with the law, regulation, or policy and that approximates as closely as possible the economic position of the parties prior to the change. If good faith negotiations cannot resolve the matter, it shall be submitted to arbitration as referenced in Section 8.6. -28- 33 Section 7.4 Effects of Termination. Upon termination of this Management Services Agreement, as herein above provided, neither party shall have any further obligations hereunder except for (i) obligations accruing prior to the date of termination, including, without limitation, payment of the Management Fees and Medical Group Expenses relating to services provided prior to the termination of this Management Services Agreement, (ii) obligations, promises, or covenants set forth herein that are expressly made to extend beyond the Term, including, without limitation, indemnities and noncompetition provisions, which provisions shall survive the expiration or termination of this Management Services Agreement by Business Manager for cause, and (iii) the obligations of Medical Group and Business Manager described in this Section 7.4; provided that in case of any termination under Section 7.2(b), Medical Group and the Physicians shall be released, relieved and discharged from any non-compete agreements or covenants under the Master Transaction Agreement, the Partnership Interest Purchase Agreement, the respective Employment Agreement for each of the Physicians, and any Succession Agreement for the Medical Group. In effectuating the provisions of this Section 7.3, Medical Group specifically acknowledges and agrees that Business Manager shall continue to collect on behalf of Medical Group all cash collections from accounts receivable in existence at the time this Management Services Agreement is terminated (except in the case of termination under Section 7.2(b) it being understood that such cash collections will represent, in part, compensation to Business Manager for management services already rendered, provided however, if this Agreement is terminated by Medical Group with cause, Business Manager shall not have the right to collect the accounts receivable. Upon the expiration or termination of this Management Services Agreement for any reason or cause whatsoever, Business Manager shall surrender to Medical Group all books and records pertaining to Medical Group's medical practice. Section 7.5 Repurchase Obligation. Upon termination of this Management Services Agreement by Business Manager for cause, Medical Group shall: (a) Purchase from Business Manager at book value the intangible assets, deferred charges, and all other amounts on the books of the Business Manager relating to and including the Management Services Agreement as adjusted through the last day of the month most recently ended prior to the date of such termination in accordance with GAAP to reflect amortization or depreciation of the intangible assets, deferred charges, or covenants; (b) Purchase from Business Manager any real estate owned by Business Manager and used as an Office at the greater of the appraised fair market value thereof or the then book value thereof; (c) Purchase at book value all improvements, additions, or leasehold improvements that have been made by Business Manager at any Office and that relate -29- 34 solely to the performance of Business Manager's obligations under this Management Services Agreement; (d) Assume all debt, and all contracts, payables, and leases that are obligations of Business Manager and that relate principally to the performance of Business Manager's obligations under this Management Services Agreement or the properties leased or subleased hereunder by Business Manager; and (e) Purchase from Business Manager at book value all of the equipment and all other assets, including inventory and supplies, tangibles and intangibles, set forth on the books of the Business Manager as adjusted through the last day of the month most recently ended prior to the date of such termination in accordance with GAAP to reflect operations of the Office, depreciation, amortization, and other adjustments of assets shown on the books of the Business Manager. Section 7.6 Repurchase Option. Upon termination of this Management Services Agreement by Medical Group for cause, Medical Group shall have the option but not the obligation to do all or none of the following: (a) Purchase from Business Manager any real estate owned by Business Manager and used as an Office at the greater of the appraised fair market value thereof or the then book value thereof; (b) Purchase at book value all improvements, additions, or leasehold improvements that have been made by Business Manager at any Office and that relate solely to the performance of Business Manager's obligations under this Management Services Agreement; (c) Assume all debt, and all contracts, payables, and leases that are obligations of Business Manager and that relate principally to the performance of Business Manager's obligations under this Management Services Agreement or the properties leased or subleased by Business Manager; and (d) Purchase from Business Manager at book value all of the equipment and all other tangible assets, including inventory and supplies, set forth on the books of the Business Manager as adjusted through the last day of the month most recently ended prior to the date of such termination in accordance with GAAP to reflect operations of the Office, depreciation, amortization, and other adjustments of assets shown on the books of the Business Manager. Section 7.7 Closing of Repurchase. Medical Group shall pay cash for the -30- 35 repurchased assets. The amount of the purchase price shall be reduced by the amount of debt and liabilities of Business Manager, if any, assumed by Medical Group. Medical Group and any Physician associated with Medical Group shall execute such documents as may be required to assume the liabilities set forth in Section 7.4(d) or Section 7.5(c) and to remove Business Manager from any liability with respect to such purchased asset and with to any property leased or subleased by Business Manager. The closing date for the repurchase shall be determined by Business Manager but shall in no event occur sooner than sixty (60) days or later than one hundred eighty (180) days from the date of the notice of termination. ARTICLE VIII. MISCELLANEOUS Section 8.1 Administrative Services Only. Nothing in this Management Services Agreement is intended or shall be construed to allow Business Manager to exercise control or direction over the manner or method by which Medical Group and its Physicians perform Medical Services or other professional health care services. The provision of all Medical Services, including, but not limited to, the prescription or administration of medicine and drugs, shall be the sole responsibility of Medical Group and its Physicians, and Business Manager shall not interfere in any manner or to any extent therewith. Nothing contained in this Management Agreement shall be construed to permit Business Manager to engage in the practice of medicine, it being the sole intention of the parties hereto that the services to be rendered to Medical Group by Business Manager are solely for the purpose of providing nonmedical and management and administrative services to Medical Group so as to enable Medical Group to devote its full time and energies to the professional conduct of its medical practice and provision of Medical Services to its patients and not to administration or practice management. Section 8.2 Status of Contractor. It is expressly acknowledged that the parties hereto are independent contractors, and nothing in this Management Services Agreement is intended and nothing shall be construed to create an employer/employee, partnership or joint venture relationship. Section 8.3 Notices. Any notice, demand, or communication required, permitted, or desired to be given hereunder shall be in writing and shall be delivered to the parties at the following respective addresses: Medical Group: Southeast Texas Cardiology Associates, P.A. 2535 Calder Street Beaumont, Texas 77702 Attn: Rodolfo Sotolongo, M.D. -31- 36 with a copy to: Orgain, Bell & Tucker, L.L.P. 470 Orleans Street Beaumont, Texas 77702 Attn: John Creighton, Esq. Lance Fox, Esq. Business Manager: Raytel Southeast Management, L.P. 2755 Campus Drive, Suite 200 San Mateo, CA 94403 Attn: Michael Kokesh, Esq. or to such other address, or to the attention of such other person or officer, as any party may by written notice designate. Any notice, demand, or communication required, permitted, or desired to be given hereunder shall be sent either (a) by hand delivery, in which case notice shall be deemed received when actually delivered, (b) by prepaid certified or registered mail, return receipt requested, in which case notice shall be deemed five calendar days after deposit, postage prepaid in the United States mail, or (c) by a nationally recognized overnight courier, in which case notice shall be deemed received one business day after deposit with such courier. Section 8.4 Governing Law This Management Services Agreement shall be governed by the laws of the State of Texas applicable to agreements to be performed wholly within the State. The federal and State courts of Jefferson County, Texas shall be the exclusive venue for any litigation, special proceeding, or other proceeding between the parties that may arise out of, or be brought in connection with or by reason of, this Management Services Agreement. Section 8.5 Assignment. Except as may be herein provided to the contrary, this Management Services Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors, and assigns; provided, however, that Medical Group may not assign this Management Services Agreement without the prior written consent of Business Manager, which consent may be withheld in Business Manager's sole and absolute discretion. The sale, transfer, pledge, or assignment of any of the common shares held by any shareholder of Medical Group or the issuance by Medical Group of common or other voting shares to any other person, or any combination of such transactions within a period of one (1) year, such that the existing shareholders in Medical Group fail to maintain a majority of the voting in Medical Group shall be deemed an attempted assignment by Medical Group, and shall be null and void unless consented to in writing by Business Manager prior to any such transfer or issuance. The parties agree that Raytel Southeast Management L.P. ("Raytel Southeast") shall succeed to all of the rights and obligations of Cardiology Management Partnership under this Management Services Agreement, and Raytel -32- 37 Medical Corporation guarantee the performance of Raytel Southeast, under this Management Services Agreement, or any appointed successor. Business Manager shall have the right to (i) assign its rights and obligations hereunder to any third party and (ii) collaterally assign its interest in this Management Services Agreement and its right to collect Management Fees hereunder to any financial institution or other third party. Section 8.6 Arbitration. The parties shall use good faith negotiation to resolve any controversy, dispute or disagreement arising out of or relating to this Management Services Agreement or the breach of this Management Services Agreement. Any matter not resolved by negotiations shall be submitted to binding arbitration and such arbitration shall be governed by the terms of the Master Transaction Agreement, which, as it applies to the parties hereto, is incorporated herein by reference in its entirety. Section 8.7 Waiver of Breach. The waiver by either party of a breach or violation of any provision of this Management Services Agreement shall not operate as, or be construed to constitute, a waiver of any subsequent breach of the same or another provision hereof. Section 8.8 Enforcement. In the event either party resorts to legal action to enforce or interpret any provision of this Management Services Agreement, the prevailing party shall be entitled to recover the costs and expenses of such action so incurred, including, without limitation, reasonable attorneys' fees. Section 8.9 Gender and Number. Whenever the context of this Management Services Agreement requires, the gender of all words herein shall include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural. Section 8.10 Additional Assurances. Except as may be herein specifically provided to the contrary, the provisions of this Management Services Agreement shall be self-operative and shall not require further agreement by the parties; provided, however, at the request of either party, the other party shall execute such additional instruments and take such additional acts as are reasonable and as the requesting party may deem necessary to effectuate this Management Services Agreement. Section 8.11 Consents, Approvals, and Exercise of Discretion. Whenever this Management Services Agreement requires any consent or approval to be given by either party, or either party must or may exercise discretion, and except where specifically set forth to the contrary, the parties agree that such consent or approval shall not be unreasonably withheld or delayed, and that such discretion shall be reasonably exercised. Section 8.12 Force Majeure. Neither party shall be liable or deemed to be in default for any delay or failure in performance under this Management Services Agreement or other -33- 38 interruption resulting from, directly or indirectly, acts of God, civil or military authority, acts of public enemy, war, accidents, fires, explosions, earthquakes, floods, failure of transportation, strikes or other work interruptions by either party's employees, or any other similar cause beyond the reasonable control of either party unless such delay or failure in performance is expressly addressed elsewhere in this Management Services Agreement. Section 8.13 Severability. The parties hereto have negotiated and prepared the terms of this Management Services Agreement with the intent that each and every one of the terms, covenants and conditions herein be binding upon and inure to the benefit of the respective parties. Accordingly, if any one or more of the terms, provisions, promises, covenants or conditions of this Management Services Agreement or the application thereof to any person or circumstance shall be adjudged to any extent invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction or an arbitration tribunal, such provision shall be as narrowly construed as possible, and each and all of the remaining terms, provisions, promises, covenants and conditions of this Management Services Agreement or their application to other persons or circumstances shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by applicable law. Section 8.14 Divisions and Headings. The divisions of this Management Services Agreement into articles, sections, and subsections and the use of captions and headings in connection therewith is solely for convenience and shall not affect in any way the meaning or interpretation of this Management Services Agreement. Section 8.15 Amendments and Management Services Agreement Execution. This Management Services Agreement and amendments hereto shall be in writing and may be executed in multiple copies. Each multiple copy shall be deemed an original, but all multiple copies together shall constitute one and the same instrument. Section 8.16 Entire Management Services Agreement. With respect to the subject matter of this Management Services Agreement, this Management Services Agreement supersedes all previous contracts and constitutes the entire agreement between the parties. Neither party shall be entitled to benefits other than those specified herein. No prior oral statements or contemporaneous negotiations or understandings or prior written material not specifically incorporated herein shall be of any force and effect, and no changes in or additions to this Management Services Agreement shall be recognized unless incorporated herein by amendment as provided herein, such amendments to become effective on the date stipulated in such amendments. The parties specifically acknowledge that, in entering into and executing this Management Services Agreement, the parties rely solely upon the representations and agreements contained in this Management Services Agreement and no others. -34- 39 IN WITNESS WHEREOF, Medical Group and Business Manager have caused this Management Services Agreement to be executed by their duly authorized representatives, all as of the day and year first above written. MEDICAL GROUP: BUSINESS MANAGER: SOUTHEAST TEXAS CARDIOLOGY CARDIOLOGY MANAGEMENT ASSOCIATES II, P.A., PARTNERSHIP a Texas professional association a Texas general partnership By: /s/ Rodolfo Sotolongo By:/s/ Wayne Margolis ------------------------- ---------------------------- Rodolfo Sotolongo, M.D. Wayne Margolis, M.D. Title: President Title: Administrative Partner GUARANTY This Management Services Agreement shall be assigned to Raytel Southeast Management, L.P., pursuant to Section 8.5, herein above, as part of the series of transactions set forth in the Master Transaction Agreement, and Raytel Medical Corporation, a party to the Master Transaction Agreement hereby guarantees the performance of Raytel Southeast Management, L.P. as the Business Manager of each and every duty, responsibility, obligation, and covenant set forth herein. RAYTEL MEDICAL CORPORATION By: /s/ E. Payson Smith, Jr. ------------------------------- E. Payson Smith, Jr. Its: Senior Vice President and Chief Financial Officer. -35- -----END PRIVACY-ENHANCED MESSAGE-----