-----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, BOQ+d/6fqCY6tjzxzoVrpquh57/HIkZtAOvbsinp5hBrJSNT0q/uubJQD3ePO7do EMZfzmbYSLzV/IywDPtVKg== /in/edgar/work/20000814/0000891618-00-004344/0000891618-00-004344.txt : 20000921 0000891618-00-004344.hdr.sgml : 20000921 ACCESSION NUMBER: 0000891618-00-004344 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: [8090 ] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27186 FILM NUMBER: 697082 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DR STREET 2: STE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 6503490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 10-Q 1 e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED JUNE 30,2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended June 30, 2000; or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____________ to ______________. Commission File Number: 0-27186 RAYTEL MEDICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2787342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CALIFORNIA 94403 (Address of principal executive offices) (Zip code) (650) 349-0800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AS OF JULY 28, 2000 ----- -------------------------------------- COMMON STOCK 8,748,888 ($.001 PAR VALUE)
2 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and September 30, 1999...................................... 3 Condensed Consolidated Statements of Operations for the three months and the nine months ended June 30, 2000 and 1999...... 4 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 and 1999........................... 5 Notes to Condensed Consolidated Financial Statements. ........................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 8 Item 3. Quantitative and Qualitative Disclosures about Market Risks................... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................. 16 Item 3. Defaults Upon Senior Securities............................................... 17 Item 6. Exhibits and Reports on Form 8-K............................................ 17 SIGNATURE............................................................................. 18
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND SEPTEMBER 30, 1999 (000'S OMITTED) ASSETS
JUNE 30, SEPTEMBER 30, 2000 1999 --------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 4,933 $ 6,110 Cash held in escrow 1,852 -- Receivables, net 29,572 34,858 Prepaid expenses and other 3,074 3,143 --------- --------- Total current assets 39,431 44,111 Property and equipment, less accumulated depreciation and amortization 19,830 22,239 Intangible assets, less accumulated amortization 42,369 51,388 Other 59 45 --------- --------- Total assets $ 101,689 $ 117,783 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 1,337 $ 2,124 Accounts payable 4,562 3,793 Accrued compensation and benefits 3,237 3,391 Accrued liabilities 2,531 6,204 --------- --------- Total current liabilities 11,667 15,512 Long-term debt and capital lease obligations, net of current portion 20,343 27,246 Deferred liabilities 4 129 Minority interest in consolidated entities 2,020 2,867 --------- --------- Total liabilities 34,034 45,754 --------- --------- Stockholders' equity: Common stock 9 9 Additional paid-in capital 62,663 62,053 Common stock to be issued 69 1,045 Retained earnings 8,536 12,544 --------- --------- 71,277 75,651 Less treasury stock, at cost (3,622) (3,622) --------- --------- Total stockholders' equity 67,655 72,029 --------- --------- Total liabilities and stockholders' equity $ 101,689 $ 117,783 ========= =========
3 4 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, --------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Cardiac information services $ 10,144 $ 10,953 $ 31,149 $ 33,694 Diagnostic imaging service 5,990 5,207 16,843 14,977 Heart facilities and other 6,570 6,986 20,793 24,612 -------- -------- -------- -------- Total revenues 22,704 23,146 68,785 73,283 -------- -------- -------- -------- Costs and expenses: Provision for OIG Expenses 2,000 -- 2,000 -- Operating costs 10,518 9,914 30,825 33,496 Selling, general and administrative 8,964 8,347 26,781 25,951 Depreciation and amortization 2,062 2,023 6,200 5,892 -------- -------- -------- -------- Total costs and expenses 23,544 20,284 65,806 65,339 -------- -------- -------- -------- Operating income (loss) (840) 2,862 2,979 7,944 Interest expense 523 617 1,471 1,750 Other expense (income) (286) (129) (673) (666) Minority interest 204 337 620 788 -------- -------- -------- -------- Income (loss) from continuing operations before income taxes (1,281) 2,037 1,561 6,072 Provision for income taxes (499) 794 609 2,368 -------- -------- -------- -------- Income (loss) from continuing operations (782) 1,243 952 3,704 Discontinued operations: Income (loss) from discontinued operations, net of tax (benefit) (41) 93 5 325 Loss on disposal of discontinued operations, net of tax (benefit) (4,965) -- (4,965) -- -------- -------- -------- -------- Net income (loss) $ (5,788) $ 1,336 $ (4,008) $ 4,029 ======== ======== ======== ======== Basic income (loss) per share: Income (loss) from continuing operations $ (.09) $ .14 $ .11 $ .42 Income (loss) from discontinued operations (.57) .01 (.57) .04 -------- -------- -------- -------- Total $ (.66) $ .15 $ (.46) $ .46 ======== ======== ======== ======== Diluted income (loss) per share: Income (loss) from continuing operations $ (.09) $ .14 $ .11 $ .41 Income (loss) from discontinued operations (.57) .01 (.57) .03 -------- -------- -------- -------- Total $ (.66) $ .15 $ (.46) $ .44 ======== ======== ======== ======== Weighted average shares outstanding: Basic 8,748 8,724 8,746 8,700 ======== ======== ======== ======== Diluted 8,748 9,059 8,746 9,070 ======== ======== ======== ========
4 5 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) (000'S OMITTED)
JUNE 30, --------------------- 2000 1999 ------- ------- Cash flows from operating activities: Net income $(4,008) $ 4,029 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,200 6,289 Minority interest 620 788 Pay out of deferred compensation -- (1,245) Net loss from discontinued operations 4,960 -- Other, net (60) (41) Changes in operating accounts: Receivables, net 226 (168) Prepaid expenses and other (3) 380 Accounts payable 860 (680) Accrued liabilities and other 1,045 (619) ------- ------- Net cash provided by operating activities 9,840 8,733 ------- ------- Cash flows from investing activities: Capital expenditures (3,402) (7,146) Other, net 169 (20) ------- ------- Net cash used in investing activities (3,233) (7,166) ------- ------- Cash flows from financing activities: Income distributions to noncontrolling investors (1,546) (925) Paydown of line of credit (3,180) (1,430) Proceeds from (principal repayments of) debt, net (1,150) 2,740 Other, net (56) 182 ------- ------- Net cash provided by (used in) financing activities (5,932) 567 ------- ------- Net increase in cash and cash equivalents 675 2,134 Cash and cash equivalents at beginning of period 6,110 7,463 ------- ------- Cash and cash equivalents at end of period $ 6,785 $ 9,597 ======= =======
5 6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 2000 AND 1999. 1. PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Information in the accompanying interim condensed consolidated financial statements and notes to the financial statements of Raytel Medical Corporation (Raytel or the Company) as of June 30, 2000 and for the three and nine-month periods ended June 30, 2000 and 1999 is unaudited. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2000. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 1999. 2. OFFICE OF THE INSPECTOR GENERAL INVESTIGATION Raytel is currently the subject of a grand jury investigation concerning unspecified allegations of impropriety in certain business practices of its trans-telephonic cardiac pacemaker monitoring business. See "Part II. Item 1. Legal Proceedings". In connection with the investigation, the Company is reviewing its compliance with Medicare billing and recordkeeping requirements on a patient-by-patient basis. Pending such confirmation, the Company is holding Medicare reimbursement checks received since June 23, 2000 in payment of invoices for pacemaker monitoring services and is establishing an escrow account for funds inadvertently deposited with respect to such services received since the date of the investigation. The total amount of such uncashed checks and escrowed funds was approximately $1,852,000 as of June 30, 2000. In addition, the Company has incurred, and expects to continue to incur, substantial legal fees and other expenses in connection with the investigation and has accrued in the period ended June 30, 2000, a reserve of $2,000,000 to cover these expenses. At this time, the Company cannot determine the additional financial impact, if any, of this investigation. 3. DISCONTINUED OPERATIONS Effective May 2000, the Company's Board of Directors approved management's plan to dispose of its practice management division, comprised of the management of Southeast Texas Cardiology Associates II, L.L.P. ("SETCA") and the management of Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG"), ("the Practice Management Division"). Effective May 31, 2000 the Company sold substantially all of the assets of Raytel Nuclear Imaging-Orange, L.P. and the common stock of Raytel Texas Physicians Services, Inc., which effectively terminated its management of SETCA. As compensation for this transaction, notes owed by the Company to the physicians of the practice managed by the Company were terminated in the aggregate amount of approximately $2,300,000 and the existing rights to receive 122,068 shares of Raytel's common stock by those physicians were cancelled. In addition, the Company has discontinued its management of CCMG. The Company has reported a $4,965,000 loss on the transaction (net of a $3,367,000 tax benefit) related to the write-off of unamortized intangible assets created at the inception of the management agreements, accounts receivable and other assets less the terminated notes and fair market value of the stock cancelled. Accordingly, the results of the Practice Management Division have been accounted for as a discontinued operation and the related operating results have been reported separately from continuing operations for all periods presented. The related net assets of the Practice Management Division are immaterial to the financial statements and are included in the accompanying balance sheet. Revenues applicable to the Practice Management Division during the three-months ended June 30, 2000 and 1999 were $758,000 and $1,435,000, respectively and during the nine-months ended June 30, 2000 and 1999 were $3,189,000 and $4,160,000, respectively. Income (loss) from discontinued operations is net of taxes (benefit) of $(27,000), $60,000, $3,000 and $208,000 for the three-months ended June 30, 2000 and 1999 and the nine-months ended June 30, 2000 and 1999, respectively. 6 7 INCOME PER SHARE For the three months and nine months ended June 30, 2000 and 1999, basic and diluted earnings per share are calculated as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- (000's omitted, except per share amounts) BASIC INCOME (LOSS) PER SHARE: Income (loss) from continuing operations$ (.09) $ .14 $ .11 $ .42 Income (loss) from discontinued operations (.57) .01 (.57) .04 --------- --------- --------- --------- Total $ (.66) $ .15 $ (.46) $ .46 ========= ========= ========= ========= Weighted average shares outstanding 8,748 8,724 8,746 8,700 ========= ========= ========= ========= DILUTED INCOME (LOSS) PER SHARE: Income (loss) from continuing operations $ (.09) $ .14 $ .11 $ .41 Income (loss) from discontinued operations (.57) .01 (.57) .03 --------- --------- --------- --------- Total $ (.66) $ .15 $ (.46) $ .44 ========= ========= ========= ========= Weighted average shares outstanding 8,748 8,724 8,746 8,700 Shares to be issued (a) 144 (a) 148 Options (a) 191 (a) 222 --------- --------- --------- --------- 8,748 9,059 8,746 9,070 ========= ========= ========= =========
(a) Due to the loss for the period shown, dilutives are not included in the calculation. Certain options and warrants to purchase shares of common stock were outstanding during the three months and nine months ended June 30, 2000 and 1999, but were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the period. The options and warrants outstanding and their exercise prices are as follows:
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- ------------- ------------- ------------- Options and warrants outstanding 1,163,012 484,299 1,041,587 482,856 Range of exercise prices $3.125-$11.875 $4.563-$13.50 $3.125-$13.50 $4.563-$13.50
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed under "Business Environment and Future Results" and elsewhere in this Item, that could cause actual results to differ materially from historical results or those anticipated. In this Item, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. OVERVIEW The Company generates its revenues from cardiac information services (which includes telephonic monitoring services for cardiac pacemaker patients ("Pacing"), cardiac event detection services ("CEDS") and Holter), diagnostic imaging services and from heart facilities. Following the Company's initial public offering in December 1995, the Company has entered into a series of transactions which expanded its heart center and physician practice management businesses. As a result, revenue is also being provided from: Raytel Heart Center at Granada Hills ("RHCGH") beginning on February 1, 1996; the management of Southeast Texas Cardiology Associates II, L.L.P. ("SETCA") beginning on September 18, 1996 and ending on May 31, 2000; the management of Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning on November 1, 1996 and ending on May 31, 2000; and Cardiovascular Ventures, Inc. ("CVI") beginning on August 15, 1997, which included the multi-specialty physician clinic, Heart and Family Health Institute ("HFHI") and six cardiovascular diagnostic facilities. Under certain practice management contracts, revenues were recognized pursuant to long-term arrangements with physician groups under which the Company provided the physician group with a full range of services, including, but not limited to, office space, specialized clinical and procedural facilities, medical equipment, data processing and medical record keeping, billing and collection procedures and services, non-physician licensed personnel, such as nurses and technicians, as well as office staff and administrative personnel. In the case of SETCA and CCMG, the Company's practice management revenues were derived from the physician groups' revenues, generally as a purchased service, except for certain physician compensation and employment benefits, which were paid by the physician group on a priority basis. Effective May 31, 2000 the Company discontinued its physician practice management division. For HFHI, the Company recognizes 100% of all medical revenue as the physicians are employees of the Company. On October 9, 1997, the Company announced it had entered into an agreement with The Baptist Hospital of Southeast Texas ("Baptist") to develop a Raytel Cardiovascular Center at the hospital. Under the agreement, Raytel was to manage the cardiovascular center, which did provide the entire continuum of cardiovascular services, including diagnostic, therapeutic and patient management programs. Among other duties, Raytel was to be responsible for the day-to-day operations of the heart center, including administrative support, information systems management, marketing and public relations activities. The Company began operations at Baptist during its fourth quarter of fiscal 1998. Due to a merger between Baptist and the Memorial Hermann Hospital System, a modified agreement became effective March 1, 1999. Therefore, during the first five months of fiscal 1999, the Company only recognized revenue to the extent of expenses. Effective March 1, 1999, the Company is recognizing revenue based on the modified agreement which calls for the Company to manage portions of the cardiovascular surgery and cardiology programs at Baptist and to develop and manage specialty clinics to support the cardiovascular program. Effective March 27, 1999, the Company entered into a revised agreement with RHCGH. The new agreement results in significantly lower revenues and expenses than revenues and expenses recognized under the previous agreements. However, under the new agreement, the Company expects to generate operating income. Under the old agreements, operating expenses were in excess of revenues. In November 1999, the Company filed a demand for arbitration against CCMG with JAMS/Endispute, Inc. The Company provided management services to CCMG pursuant to a long-term management services agreement entered into between the parties in November 1996. The demand for arbitration asserts that Raytel is entitled to rescission, restitution and/or damages as a result of CCMG's material breaches of the management services 8 9 agreement. The Company does not expect that an adverse opinion in the arbitration will have a material adverse effect on the financial condition of the Company. Effective May 31, 2000, the Company's Board of Directors approved management's plan to dispose of its Practice Management Division. Accordingly, the Company reported the results of operations of the Practice Management Division and the loss on disposal as discontinued operations. During the third quarter of the current year, the Company sold substantially all of the assets of Raytel Nuclear Imaging-Orange, L.P. and the common stock of Raytel Texas Physicians Services, Inc. in exchange for promissory notes in the aggregate amount of $2.3 million and the physicians' agreement to cancel the existing rights to receive 122,068 of Raytel's common stock. At June 30th, the net assets of the discontinued operations consist primarily of cash and trade receivables recorded at estimated net realizable value. The loss on disposal of $4,965,000 is net of an estimated tax benefit of approximately $3,367,000. Raytel is currently the subject of a grand jury investigation concerning unspecified allegations of impropriety in certain business practices of its trans-telephonic cardiac pacemaker monitoring business. See "Part II. Item 1. Legal Proceedings." In connection with the investigation, Raytel is reviewing its compliance with Medicare billing and record-keeping requirements on a patient-by-patient basis. Pending such confirmation, Raytel is holding Medicare reimbursement checks received since June 23, 2000 in payment of invoices for pacemaker monitoring services and is establishing an escrow account for funds inadvertently deposited with respect to such services. The total amount of such uncashed checks and escrowed funds was approximately $1,852,000 as of June 30, 2000. In addition, Raytel has suspended billing for such services. The checks will be deposited, the cash released from escrow, and additional bills sent, only after Raytel has conducted an additional review to confirm payment is appropriate. Since Raytel recognizes revenue when patient services are provided, neither the escrow arrangement nor the deferred billing has had a direct impact on Raytel's operating results. If the Company's review discloses any patient billings that have not been fully compliant with Medicare requirements, then any resulting billing adjustments or reversals will be charged against operating results in that current period. In addition, the Company has incurred, and expects to continue to incur, substantial legal fees and other expenses in connection with the investigation and has accrued in the period ended June 30, 2000 a reserve of $2,000,000 to cover these expenses. Expenses in excess of the $2,000,000 reserve, if any, will adversely affect operating results in future periods, regardless of the eventual outcome of the investigation. Moreover, the investigation, and the related internal compliance, also have diverted, and are expected to continue to divert, the efforts and attention of a number of Raytel's management and administrative personnel. The impact of this diversion reduced the efficiency of Raytel's pacemaker monitoring operations during the last week of the quarter ended June 30, 2000 and adversely affected both revenues and operating expenses for that period. Raytel expects that, while the impact of the investigation on the Company's operations will be less significant as the investigation proceeds, it will continue to adversely affect operating results in future periods. RESULTS OF OPERATIONS Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999. Revenues. For the three months ended June 30, 2000, total revenues were $22,704,000 compared to $23,146,000 for the three months ended June 30, 1999, representing a decrease of $442,000, or 1.9%. Cardiac information services revenues were $10,144,000 for the three months ended June 30, 2000, compared to $10,953,000 for the three months ended June 30, 1999, a decrease of $809,000, or 7.4%. The decrease in revenues for cardiac information services was due primarily to lower revenues from CEDS as a result of lower test volumes. Diagnostic imaging services revenue was $5,990,000 for the three months ended June 30, 2000, compared to $5,207,000 for the three months ended June 30, 1999, an increase of $783,000, or 15.0%, due primarily to increases in revenue at certain centers and the imaging network due to an increase in patient volumes. Heart facilities and other revenues were $6,570,000 for the three months ended June 30, 2000, compared to $6,986,000 for the three months ended June 30, 1999, a decrease of $416,000, or 6.0%, due primarily to lower revenue at certain cardiovascular diagnostic facilities, partially offset by an increase in revenue from HFHI. 9 10 Operating Expenses. Operating costs and selling, general and administrative expenses increased by $1,221,000, or 6.7% (excluding the provision for OIG expenses), from $18,261,000 for the three months ended June 30, 1999 to $19,482,000 for the three months ended June 30, 2000 due primarily to increases in costs and expenses in diagnostic imaging services and cardiac information services. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased by 6.9%, from 78.9% for the three months ended June 30, 1999 to 85.8% for the three months ended June 30, 2000. Provision for OIG Expenses. The Company has provided $2,000,000 for expected expenses associated with the OIG investigation. Depreciation and Amortization. Depreciation and amortization expense increased by $39,000, from $2,023,000 for the three months ended June 30, 1999 to $2,062,000 for the three months ended June 30, 2000 and increased as a percentage of revenues from 8.7% for the three months ended June 30, 1999 to 9.1% for the three months ended June 30, 2000. Operating Income (Loss). As a result of the foregoing factors, operating income decreased by $3,702,000 from income of $2,862,000 for the three months ended June 30, 1999 to a loss of $840,000 for the three months ended June 30, 2000. Interest Expense. Interest expense decreased by $94,000, or 15.2%, from $617,000 for the three months ended June 30, 1999 to $523,000 for the three months ended June 30, 2000 due primarily to a decrease in the average amount of debt outstanding. Other Expense (Income). Other income increased by $157,000 from $129,000 for the three months ended June 30, 1999 to $286,000 for the three months ended June 30, 2000 due primarily to a series of insignificant items. Minority Interest. Minority interest decreased by $133,000 or 39.5%, from $337,000 for the three months ended June 30, 1999 to $204,000 for the three months ended June 30, 2000 due primarily to decreased income in certain cardiovascular diagnostic facilities. Income Taxes (Benefit). The provision for income taxes decreased by $1,293,000 from $794,000 for the three months ended June 30, 1999 to a benefit of $499,000 for the three months ended June 30, 2000 as a result of decreased taxable income. Income (Loss) From Continuing Operations. As a result of the foregoing factors, income from continuing operations decreased by $2,025,000 from $1,243,000 for the three months ended June 30, 1999 to a loss of $782,000 for the three months ended June 30, 2000. Discontinued Operations. Income (loss) from discontinued operations, net of tax was a loss of $41,000 for the three months ended June 30, 2000 versus income of $93,000 for the three months ended June 30, 1999. The loss on disposal of the physician practice management business of $4,965,000 is net of estimated tax benefit of approximately $3,367,000. Net Income (Loss). As a result of the foregoing factors, the Company incurred a loss of $5,788,000 for the three months ended June 30, 2000 versus net income of $1,336,000 for the three months ended June 30, 1999. Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999. Revenues. For the nine months ended June 30, 2000, total revenues were $68,785,000 compared to $73,283,000 for the nine months ended June 30, 1999, representing a decrease of $4,498,000, or 6.1%. Cardiac information services revenues were $31,149,000 for the nine months ended June 30, 2000, compared to $33,694, 000 for the nine months ended June 30, 1999, a decrease of $2,545,000, or 7.6%. The decrease in revenues for cardiac information services was due primarily to lower revenues from CEDS as a result of lower test 10 11 volumes, and, to a lesser extent, lower revenues from Pacing due to a decrease in test volumes, as well as lower reimbursement rates. Diagnostic imaging services revenue was $16,843,000 for the nine months ended June 30, 2000, compared to $14,977,000 for the nine months ended June 30, 1999, an increase of $1,866,000, or 12.5%, due primarily to increases in revenue at certain centers and the imaging network due to an increase in patient volumes. Heart facilities and other revenues were $20,793,000 for the nine months ended June 30, 2000, compared to $24,612,000 for the nine months ended June 30, 1999, a decrease of $3,819,000, or 15.5%, due primarily to lower revenue at RHCGH due to the amended agreement, lower revenue at certain cardiovascular diagnostic facilities, partially offset by an increase in revenue from HFHI. Operating Expenses. Operating costs and selling, general and administrative expenses decreased by $1,841,000, or 3.1% (excluding the provision for OIG expenses), from $59,447,000 for the nine months ended June 30, 1999 to $57,606,000 for the nine months ended June 30, 2000, due primarily to lower expenses at RHCGH due to the amended agreement, partially offset by increases in costs and expenses in diagnostic imaging services, HFHI and cardiac information services. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased from 81.1% for the nine months ended June 30, 1999 to 83.7% for the nine months ended June 30, 2000. Provision for OIG Expenses. The Company has provided $2,000,000 for expected expenses associated with the OIG investigation. Depreciation and Amortization. Depreciation and amortization expense increased by $308,000, from $5,892,000 for the nine months ended June 30, 1999 to $6,200,000 for the nine months ended June 30, 2000 and increased as a percentage of revenues from 8.0% for the nine months ended June 30, 1999 to 9.0% for the nine months ended June 30, 2000. Operating Income. As a result of the foregoing factors, operating income decreased by $4,965,000 or 62.5%, from $7,944,000 for the nine months ended June 30, 1999 to $2,979,000 for the nine months ended June 30, 2000. Interest Expense. Interest expense decreased by $279,000, or 15.9%, from $1,750,000 for the nine months ended June 30, 1999 to $1,471,000 for the nine months ended June 30, 2000 due primarily to a decrease in the average amount of debt outstanding. Other Expense (Income). Other income increased by $7,000 from $666,000 for the nine months ended June 30, 1999 to $673,000 for the nine months ended June 30, 2000 due primarily to a series of insignificant items. Minority Interest. Minority interest decreased by $168,000, or 21.3%, from $788,000 for the nine months ended June 30, 1999 to $620,000 for the nine months ended June 30, 2000 due primarily to decreased income in certain cardiovascular diagnostic facilities. Income Taxes. The provision for income taxes decreased by $1,759,000, or 74.3%, from $2,368,000 for the nine months ended June 30, 1999 to $609,000 for the nine months ended June 30, 2000 as a result of decreased taxable income. Income (Loss) From Continuing Operations. As a result of the foregoing factors, income from continuing operations decreased by $2,752,000, or 74.3%, from $3,704,000 for the nine months ended June 30, 1999 to $952,000 for the nine months ended June 30, 2000. Discontinued Operations. Income (loss) from discontinued operations, net of tax was $5,000 for the nine months ended June 30, 2000 versus income of $325,000 for the nine months ended June 30, 1999. The loss on disposal of the physician practice management business of $4,965,000 is net of estimated tax benefit of approximately $3,367,000. Net Income (Loss). As a result of the foregoing factors, the Company incurred a loss of $4,008,000 for the nine months ended June 30, 2000 versus net income of $4,029,000 for the nine months ended June 30, 1999. 11 12 SEGMENT INFORMATION The Company's reportable segments are strategic business units that offer different services. The Company has three reportable segments: Cardiac Information Services ("Information"), Diagnostic Imaging Services ("Imaging") and Heart Facilities and Other ("Facilities"). The Information segment provides remote cardiac monitoring and testing services utilizing telephonic and Internet communication technology. The Imaging segment operates a network of imaging centers throughout the United States. The Facilities segment provides diagnostic, therapeutic and patient management services primarily associated with cardiovascular disease. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 of the Company's 1999 Annual Report) except that the Company does not allocate all interest expense, taxes or corporate overhead to the individual segments. The Company evaluates performance based on profit or loss from operations before income taxes and unallocated amounts. The totals per the schedules below will not and should not agree to the consolidated totals. The difference is due to corporate overhead and other unallocated amounts which are reflected in the reconciliation to consolidated earnings before income taxes (in thousands):
INFORMATION IMAGING FACILITIES TOTAL ----------- --------- ---------- --------- For the three months ended June 30, 2000: Net revenue $ 10,144 $ 5,990 $ 6,570 $ 22,704 Total operating expenses 10,959 4,366 5,097 20,422 --------- --------- --------- --------- Segment contribution (815) 1,624 1,473 2,282 Depreciation and amortization 767 422 788 1,977 Interest expense -- 67 60 127 Minority interest/other expense (income) (178) (47) 190 (35) --------- --------- --------- --------- Segment profit/(loss) $ (1,404) $ 1,182 $ 435 $ 213 ========= ========= ========= ========= Segment assets $ 38,953 $ 15,026 $ 42,644 $ 96,623 ========= ========= ========= ========= Capital expenditures $ 591 $ 139 $ 231 $ 961 ========= ========= ========= =========
INFORMATION IMAGING FACILITIES TOTAL ----------- --------- ---------- --------- For the three months ended June 30, 1999: Net revenue $ 10,953 $ 5,207 $ 6,986 $ 23,146 Total operating expenses 8,555 3,780 5,120 17,455 --------- --------- --------- --------- Segment contribution 2,398 1,427 1,866 5,691 Depreciation and amortization 740 499 701 1,940 Interest expense -- 62 84 146 Minority interest/other expense (income) (84) (2) 318 232 --------- --------- --------- --------- Segment profit $ 1,742 $ 868 $ 763 $ 3,373 ========= ========= ========= ========= Segment assets $ 40,641 $ 17,667 $ 49,177 $ 107,485 ========= ========= ========= ========= Capital expenditures $ 806 $ 60 $ 64 $ 930 ========= ========= ========= =========
12 13
INFORMATION IMAGING FACILITIES TOTAL ----------- --------- ---------- --------- For the nine months ended June 30, 2000: Net revenue $ 31,149 $ 16,843 $ 20,793 $ 68,785 Total operating expenses 28,551 12,476 15,461 56,488 -------- -------- -------- Segment contribution 2,598 4,367 5,332 12,297 Depreciation and amortization 2,269 1,255 2,423 5,947 Interest expense -- 208 182 390 Minority interest/other expense (income) (193) (127) 357 37 -------- -------- -------- -------- Segment profit $ 522 $ 3,031 $ 2,370 $ 5,923 ======== ======== ======== ======== Segment assets $ 38,953 $ 15,026 $ 42,644 $ 96,623 ======== ======== ======== ======== Capital expenditures $ 2,290 $ 694 $ 297 $ 3,281 ======== ======== ======== ========
INFORMATION IMAGING FACILITIES TOTAL ----------- --------- ---------- --------- For the nine months ended June 30, 1999: Net revenue $ 33,694 $ 14,977 $ 24,612 $ 73,283 Total operating expenses 25,661 11,041 19,855 56,557 -------- -------- -------- Segment contribution 8,033 3,936 4,757 16,726 Depreciation and amortization 2,152 1,410 2,172 5,734 Interest expense -- 77 276 353 Minority interest/other expense (income) (249) (73) 512 190 -------- -------- -------- -------- Segment profit $ 6,130 $ 2,522 $ 1,797 $ 10,449 ======== ======== ======== ======== Segment assets $ 40,641 $ 17,667 $ 49,177 $107,485 ======== ======== ======== ======== Capital expenditures $ 2,234 $ 2,863 $ 1,920 $ 7,017 ======== ======== ======== ========
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30, --------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Segment profit $ 213 $ 3,373 $ 5,923 $ 10,449 Unallocated amounts: Corporate general and administrative 1,060 806 3,118 2,890 Corporate depreciation and amortization 85 83 253 158 Corporate interest expense 396 471 1,081 1,397 Corporate other expense (income) (47) (24) (90) (68) -------- -------- -------- -------- Income (loss) from continuing operations before income taxes ($ 1,281) $ 2,037 $ 1,561 $ 6,072 ======== ======== ======== ========
13 14 BUSINESS ENVIRONMENT AND FUTURE RESULTS The Company's future operating results may be affected by various trends in the healthcare industry as well as by a variety of other factors, some of which are beyond the Company's control. The healthcare industry is undergoing significant change as third-party payors attempt to control the cost, utilization and delivery of healthcare services. Substantially all of the Company's revenues are derived from Medicare, HMOs, commercial insurers and other third-party payors. Both government and private payment sources have instituted cost containment measures designed to limit payments made to healthcare providers by reducing reimbursement rates, limiting services covered, increasing utilization review of services, negotiating prospective or discounted contract pricing, adopting capitation strategies and seeking competitive bids. Revenue from the Company's Pacing operations during certain periods of the last three fiscal years has been negatively impacted by Medicare reimbursement rate reductions. Reimbursement rate reductions applicable to the Company's Pacing procedures became effective on January 1, 1997. These reductions had a negative effect on the Company's operating results for the last three quarters of fiscal 1997 and for the first quarter of fiscal 1998. The Company's Pacing operations have been favorably impacted for the period January 1, 1998 to December 31, 1998 due to an increase in Medicare reimbursement rates effective on January 1, 1998. However, a slight decrease in these rates became effective on January 1, 1999, thereby having a negative effect on pacing revenue for calendar 1999. There was a slight increase in Medicare reimbursement rates effective January 1, 2000. The Company cannot predict with any certainty whether or when additional reductions or changes in Medicare or other third-party reimbursement rates or policies will be implemented. There can be no assurance that future changes, if any, will not adversely affect the amounts or types of services that may be reimbursed to the Company, or that future reimbursement of any service offered by the Company will be sufficient to cover the costs and overhead allocated to such service. From time to time, Congress considers legislation to reduce Medicare and Medicaid expenditures. Future legislation of this type could have a material adverse effect on the Company's business, financial condition and operating results. Governmental agencies promulgate regulations which mandate changes in the method of delivering services which could have a material adverse effect on the Company's business. An element of the Company's strategy is to expand, in part, through acquisitions and investments in complementary healthcare businesses. The implementation of this strategy may place significant strain on the Company's administrative, operational and financial resources and increase demands on its systems and controls. There can be no assurances that businesses acquired by the Company, either recently or in the future, will be integrated successfully and profitably into the Company's operations, that suitable acquisitions or investment opportunities will be identified, or that any such transactions can be consummated. Providers of healthcare services are subject to numerous federal, state and local laws and regulations that govern various aspects of their business. There can be no assurance that the Company will be able to obtain regulatory approvals that may be required to expand its services or that new laws or regulations will not be enacted or adopted that will have a material adverse effect on the Company's business, financial condition or operating results. The healthcare businesses in which the Company is engaged are highly competitive. The Company expects competition to increase as a result of ongoing consolidations and cost-containment pressures, among other factors. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's operating results, shortfalls in such operating results from levels forecasted by securities analysts and other events or factors. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices of companies in the healthcare service industries and that have often been unrelated to the operating performance of the affected companies. Announcements of changes in reimbursement policies of third-party payors, legislative or regulatory developments, economic news and other external factors may have a significant impact on the market price of healthcare stocks. 14 15 LIQUIDITY AND CAPITAL RESOURCES The Company acquired CDS in June 1996 for cash in the amount of $14,254,000, SETCA in September 1996 for cash in the amount of $4,010,000 and CCMG in November 1996 for cash in the amount of $427,000 and CVI in August 1997 for cash in the amount of $16,980,000 plus $280,000 paid during fiscal 1998. At June 30, 2000 the Company had working capital of $27,764,000, compared to $28,599,000 at September 30, 1999. At June 30, 2000, the Company had cash and temporary cash investments of $6,785,000. At June 30, 2000, $15,867,000 was outstanding under the Company's line of credit. The Company batch-bills Medicare insurance carriers for most cardiac testing services performed during the first few months of each calendar year. This practice results in a temporary build-up of accounts receivable during the Company's second and third fiscal quarters and the collection of these receivables primarily during the subsequent fourth fiscal quarter. The Company has a revolving line of credit with two banks in the amount of $45,000,000 to fund working capital needs, future acquisitions, equipment purchases and other business needs. Amounts outstanding under the line of credit bear interest based on a defined formula and are subject to certain covenants. The line of credit expires in August 2001 at which time any outstanding balance will be due and payable. The Company is currently in default of one of its financial covenants in connection with its line of credit. The Company has requested a waiver from the banks. If the banks do not grant the waiver, then the banks have the right to demand payment in full of the outstanding balance. See "Part II, Item 3.-Defaults Upon Senior Securities". The Company's long-term capital requirements will depend on numerous factors, including the rate at which the Company develops new products and services and acquires other businesses, if any. The Company believes that its cash and cash equivalent balances, together with amounts available from bank borrowings and cash generated by its operating activities, will be adequate to meet the Company's anticipated needs for working capital and capital expenditures through fiscal 2000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to market risk from interest rate fluctuations because it uses variable rate debt to finance working capital requirements. The Company does not believe that there is any material market risk exposure with respect to other financial instruments that would require further disclosure under this item. 15 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Raytel is currently the subject of a grand jury investigation being conducted under the direction of the United States Attorney for the District of Connecticut and the Office of the Inspector General of the U.S. Department of Health and Human Services. On June 23, 2000, the OIG and other federal agents executed a search warrant for information concerning unspecified allegations of impropriety in the Company's business practices related to Medicare-covered services. Subsequently, subpoenas have been served on Raytel for the production of additional documents, and several Raytel employees and contractors have been subpoenaed to provide testimony before the grand jury. Raytel has not been informed of any specific charges or allegations against the Company or its employees. However, based on the actions of the U.S. Attorney and the OIG to date, Raytel believes that the investigation is currently limited to certain business practices of its cardiac pacemaker monitoring business, conducted by its wholly-owned subsidiary, Raytel Cardiac Services, Inc. The Company is continuing to perform pacemaker monitoring services for its patients and intends to maintain the quality of its service and patient care during the course of the investigation. To date, the investigation has not involved Raytel's other healthcare-related services, such as its cardiac event detection, diagnostic imaging or other cardiac related businesses. Raytel is cooperating with the investigation and is currently engaged in the identification and production of documents in response to the subpoenas. In connection with the investigation, Raytel is confirming its compliance with Medicare billing and record-keeping requirements on a patient-by-patient basis. Pending such confirmation, Raytel is holding Medicare reimbursement checks received since June 23, 2000 in payment of invoices for pacemaker monitoring services and is establishing an escrow account for funds inadvertently deposited with respect to such services. The total amount of such uncashed checks and escrowed funds was approximately $1,852,000 as of June 30, 2000. In addition, Raytel has suspended billing for such services. The checks will be deposited, the cash released from escrow, and additional bills sent, only after the affected patients' records have been reviewed and found to be in compliance with applicable Medicare requirements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." Raytel has internal procedures in place designed to assure compliance with applicable laws and governmental regulations, including Medicare reimbursement laws. However, because of the preliminary stage of the investigation and the limited information currently available to Raytel, Raytel cannot predict the outcome of the investigation with any certainty. The investigation is complex and document-intensive and is likely to extend over a protracted period of time. The Company has incurred, and expects to continue to incur, substantial legal fees and other expenses in connection with the investigation and in the period ended June 30, 2000 accrued a reserve of $2,000,000 to cover the estimated amount of these expenses. Expenses in excess of the $2,000,000 reserve, if any, will adversely affect operating results in future periods, regardless of the eventual outcome of the investigation. The investigation, and the related internal review, also has diverted, and is expected to continue to divert, the efforts and attention of a number of Raytel's management and administrative personnel. As a result, the investigation, regardless of its eventual outcome, has been, and will likely continue to be, costly and time-consuming. See "Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Should the outcome of the investigation ultimately result in the Company being charged with and convicted of violations of federal criminal statutes, the Company could be required to pay substantial fines and its right to participate in federal health care programs, including Medicare, could be revoked. Conviction under certain statutes could result in mandatory exclusion from participation in federal health care programs. A significant fine or the revocation of its Medicare participation would significantly harm Raytel's business. 16 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company is currently in default of one of its financial covenants in connection with its $45,000,000 revolving line of credit with two banks. The Company has requested a waiver from the banks. The amount outstanding under the credit line as of June 30, 2000 is $15,867,000. If the banks do not grant the waiver, then the banks have the right to demand payment in full of the outstanding balance. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS: The following exhibits are filed as a part of this Report:
Exhibit Number Title ------- ----- 10.59 Stock Purchase Agreement dated as of May 31, 2000 between and among RTPS Acquisition Company, LLC, Raytel Medical Corporation, Raytel Texas Physician Services, Inc. The above listed agreement contains a list identifying all omitted exhibits and attachments. The Company agrees to furnish supplementally a copy of any omitted exhibits or attachment to the Securities and Exchange Commission upon request. 10.60 Master Termination Agreement entered into as of May 31, 2000 and effective as of November 10, 1999 between and among Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Southeast Texas Cardiology Associates II, LLP, Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., and Michael L. Smith, M.D., Raytel Southeast Management, L.P., Raytel Texas Physician Services, Inc., Raytel Management Holdings, Inc. and Raytel Medical Corporation. 27.1 Financial data schedule
b. REPORTS ON FORM 8-K: The Company filed no other reports on Form 8-K during the quarter ended June 30, 2000. 17 18 SIGNATURE 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: August 11, 2000 By: /s/ John F. Lawler, Jr. ----------------------- John F. Lawler, Jr. Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 18 19 EXHIBIT INDEX
Exhibit Number Title ------- ----- 10.59 Stock Purchase Agreement dated as of May 31, 2000 between and among RTPS Acquisition Company, LLC, Raytel Medical Corporation, Raytel Texas Physician Services, Inc. The above listed agreement contains a list identifying all omitted exhibits and attachments. The Company agrees to furnish supplementally a copy of any omitted exhibits or attachment to the Securities and Exchange Commission upon request. 10.60 Master Termination Agreement entered into as of May 31, 2000 and effective as of November 10, 1999 between and among Southeast Texas Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A., Southeast Texas Cardiology Associates II, LLP, Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., and Michael L. Smith, M.D., Raytel Southeast Management, L.P., Raytel Texas Physician Services, Inc., Raytel Management Holdings, Inc. and Raytel Medical Corporation. 27.1 Financial data schedule
EX-10.59 2 ex10-59.txt EXHIBIT 10.59 1 EXHIBIT 10.59 ================================================================================ STOCK PURCHASE AGREEMENT among RTPS Acquisition Company, L.L.C., a Texas Limited Liability Company ("Purchaser"), RAYTEL MEDICAL CORPORATION, a Delaware corporation ("Raytel"), and RAYTEL TEXAS PHYSICIAN SERVICES, INC. ("RTPS") a Delaware corporation and a wholly-owned subsidiary of Raytel Management Holdings, Inc., ("RMH") a Delaware corporation and a wholly-owned subsidiary of Raytel Medical Corporation ("RMC") Dated as of May 31, 2000 ================================================================================ 2 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of the 31st day of May, 2000, by and among RTPS Acquisition Company, L.L.C., a Texas Limited Liability Company ("Purchaser"), Raytel Texas Physician Services, Inc. ("RTPS"), a Delaware corporation and a wholly-owned subsidiary of Raytel Management Holdings, Inc., ("RMH") a Delaware corporation and a wholly-owned subsidiary of Raytel Medical Corporation, a Delaware corporation ("Raytel") (collectively referred to herein as "Seller"). RECITALS A. RTPS, directly and through its affiliate, Raytel Southeast Management, L.P. (referred to herein as "RSMLP" or the "MSO"), is engaged in the management and operation of a physician practice management business based in Beaumont, Texas (the "Raytel Management Business"); B. Immediately prior to the transaction contemplated by this Agreement, Raytel Southeast Management, L.P. will be merged into RTPS by the assignment of the limited partnership interest held by RMH to RTPS, the corporate general partner of RSMLP and the Certificate of Cancellation of Domestic Foreign Limited Partnership shall be filed with the Texas Secretary of State; and C. Raytel desires to sell to Purchaser, and Purchaser desires to purchase from Raytel all of the outstanding shares of capital stock of RTPS for the purchase price and upon the terms and conditions hereinafter set forth. AS PROVIDED HEREIN, THIS AGREEMENT AND THE REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH HEREIN ARE CONTINGENT UPON RAYTEL OBTAINING A WRITTEN CONSENT FROM BANKBOSTON/FLEET BANK AND PARIBAS (THE "LENDERS") PURSUANT TO THE AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF AUGUST 14, 1996 (THE "CREDIT AGREEMENT") BETWEEN BANKBOSTON/FLEET BANK AS AGENT FOR BANKBOSTON/FLEET BANK AND PARIBAS AND RAYTEL. THIS AGREEMENT AND THE MASTER TERMINATION AND INDEMNIFICATION AGREEMENT ARE BEING SIGNED AND THE SIGNATURE PAGES ARE BING EXCHANGED FOR THE CONVENIENCE OF THE PARTIES. HOWEVER, IF THE LENDERS DO NOT PROVIDE RAYTEL WITH THE WRITTEN CONSENT AS SET FORTH IN SECTION 7.3(e) HEREIN BELOW, BY JUNE 15, 2000, THEN THIS AGREEMENT AND THE MASTER TERMINATION AGREEMENT SHALL BECOME NULL AND VOID WITHOUT PREJUDICE TO ANY RIGHTS THE PARTIES MAY HAVE UNDER ANY OF THE TRANSACTION DOCUMENTS DESCRIBED IN SECTIONS 1.29 AND 8.4(b). -1- 3 NOW, THEREFORE, in consideration of the mutual representations, warranties and agreements set forth herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth or referenced below: 1.1 "Affiliate" shall have the meaning specified in Section 3.3. 1.2 "Balance Sheet" shall mean the unaudited pro forma consolidated balance sheet of RTPS and the Affiliate as of April 30, 2000 included in the Financial Information. 1.3 "Balance Sheet Date" shall mean April 30, 2000. 1.4 "Best Efforts" shall mean commercially reasonable good faith efforts but shall in no event require the commencement of litigation against any third party or the payment of any fees or any other consideration to any third party. 1.5 "Claim Notice" shall have the meaning specified in Section 9.7(a). 1.6 "Closing" shall mean the closing of the transactions contemplated by this Agreement. 1.7 "Closing Date" shall mean May 31, 2000 or such other date as the parties shall mutually agree upon in writing. 1.8 "Code" shall mean the Internal Revenue Code of 1996, as amended. 1.9 "Disagreement" shall have the meaning specified in Section 10.1. 1.10 "Encumbrances" shall mean any lien, security interest, mortgage, pledge, hypothecation, easement or conditional sale or other title retention agreement. 1.11 "Environmental Laws" shall mean any federal, state or local law, ordinance, regulation, order or permit pertaining to the environment, natural resources or public health or safety, as presently in effect. 1.12 "ERISA" shall mean the Employment Retirement Income Security Act of 1974, as amended. -2- 4 1.13 "Financial Information" shall mean (i) the unaudited pro forma consolidated balance sheet of RTPS and the Affiliate as of April 30, 2000 and the related unaudited pro forma consolidated statements of operations of RTPS and the Affiliate for the fiscal year then ended; (ii) the unaudited pro forma consolidated balance sheet of RTPS and the Affiliate as of April 30, 2000 and the related unaudited pro forma consolidated statements of operations of RTPS and the Affiliate for the six-month period then ended, in each case as adjusted to reallocate certain costs and expenses of Raytel attributable to the Raytel Management Business to RTPS; and (iii) the unaudited pro forma consolidated balance sheet of RTPS and the Affiliate as of May 31, 2000 (the Closing Balance Sheet as defined in Section 6.8, herein) and the related unaudited pro forma consolidated statements of operations of RTPS and the Affiliate for the seven-month period then ended, in each case as adjusted to reallocate certain costs and expenses of Raytel attributable to the Raytel Management Business to RTPS 1.14 "GAAP" shall mean generally accepted accounting principles, applied consistently with prior periods. 1.15 "Governmental Authority" shall mean any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private). 1.16 "Hazardous Materials" shall mean hazardous wastes as presently defined by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 609 et. sec., as amended, and regulations promulgated thereunder and hazardous substances as presently defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et. sec., as amended ("CERCLA" or "Superfund") and regulations promulgated thereunder. 1.17 "Indemnity Claim" shall have the meaning specified in Section 9.7(a). 1.18 "Material Adverse Effect" shall mean a material adverse effect on the business, operations, assets or financial condition of RTPS and the Affiliate, taken as a whole, or a material adverse effect on the ability of Purchaser to conduct the Raytel Management Business, in substantially the manner it is presently conducted, following the Closing. 1.19 "Material RTPS Contracts" shall have the meaning specified in Section 3.12(a). 1.20 "NLRB" shall mean the National Labor Relation Board. 1.21 "Permitted Encumbrance" shall mean (i) Encumbrances imposed by any Governmental Authority for Taxes not yet due and payable or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of RTPS or the Affiliate in accordance with GAAP; (ii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Encumbrances arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto -3- 5 are maintained on the books of RTPS or the Affiliate in accordance with GAAP; (iii) easements, rights-of-way, restrictions and other similar encumbrances on real property incurred in the ordinary course of business and encroachments (whether or not in the ordinary course of business) which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business thereon; and (iv) all the exceptions to title reflected in the RTPS Disclosure Schedule. 1.22 "Physicians" shall mean 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). 1.23 "Presiding Arbitrator" shall have the meaning specified in Section 10.2. 1.24 "Purchase Price" shall have the meaning specified in Section 2.2. 1.25 "Purchaser" shall have the meaning specified in the first paragraph of this Agreement. 1.26 "Purchaser Group" shall have the meaning specified in Section 9.2. 1.27 "Raytel" shall have the meaning specified in the first paragraph of this Agreement. 1.28 "Raytel Group" shall have the meaning specified in Section 9.4. 1.29 "Raytel Common Stock" shall mean the following: Raytel Common Stock to be issued to each Physician in the amounts set forth opposite such Physician's name pursuant to Master Transaction Agreement dated and effective as of August 21, 1996, as amended October 18, 1997 and December __, 1999 ("Master Transaction Agreement"), 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"): -4- 6
Number of Shares of Raytel Common Stock --------------------------------------------------------------------------- First Second Third Fourth Fifth Physician Anniversary Anniversary Anniversary Anniversary Anniversary --------- ----------- ----------- ----------- ----------- ----------- Rodolfo P. Sotolongo, M.D 7,324 3,662 3,662 10,986 10,986 Wayne S. Margolis, M.D 7,324 3,662 3,662 10,986 10,986 Michael L. Smith, M.D 7,324 3,662 3,662 10,986 10,986 Miguel Castellanos, M.D 2,442 1,221 1,221 3,662 3,662 ------ ------ ------ ------ ------ Totals 24,414 12,207 12,207 36,620 36,620 ====== ====== ====== ====== ======
1.30 "Raytel Management Business" shall have the meaning specified in Recital B. 1.31 "Raytel Promissory Notes" shall mean the following: The original principal amount set forth opposite such Physician's name pursuant to the Master Transaction Agreement:
PRINCIPAL AMOUNT PHYSICIAN OF NOTE --------- ------------- Rodolfo P. Sotolongo, M.D. $ 686,631.00 Wayne S. Margolis, M.D. $ 686,631.00 Michael L. Smith, M.D. $ 686,631.00 Miguel Castellanos, M.D. $ 228,876.00 ------------- $2,288,769.00 =============
1.32 "RTPS" shall have the meaning specified in the first paragraph of this Agreement. 1.33 "RTPS Equipment Leases" shall have the meaning specified in Section 3.10(b). 1.34 "RTPS Real Property Leases" shall have the meaning specified in Section 3.11. 1.35 "RTPS Retained Assets" shall mean all of the cash and cash equivalents of RTPS and the Affiliate on hand immediately prior to the Closing, and the General Partnership Interest in Raytel Nuclear Imaging-Orange, a Texas limited partnership. -5- 7 1.36 "RTPS Disclosure Schedule" shall have the meaning specified in the first paragraph of Article III. 1.37 "Shares" shall have the meaning specified in Section 2.1. 1.38 "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, real or personal property, and estimated taxes, water, rent and sewer service charges, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts thereon, imposed by any taxing authority (federal, state, local or foreign) and shall include any transferee liability in respect of Taxes. 1.39 "Tax Return" shall mean all returns, declarations, reports, estimates, information returns and statements required to be filed in respect of any Taxes. ARTICLE II SALE OF THE SHARES 2.1 Sale of the Shares. On the terms and subject to the conditions set forth in this Agreement, at the Closing as specified in Article VIII, herein, Raytel hereby agrees to sell, assign and transfer to Purchaser, and Purchaser hereby agrees to purchase from RMH, on the Closing Date, 1,000 shares of Common Stock, $ 0.001 par value per share, of RTPS, constituting all of the issued and outstanding shares of capital stock of RTPS (the "Shares"). 2.2 Purchase Price. In consideration of the sale of the Shares, Purchaser and Raytel agree to cancel the Raytel Promissory Notes and to cancel the issuance of the Raytel Common Stock, together with a combined value of Three Million Five Hundred Nine Thousand, Four Hundred Forty Nine and 00/100 Dollars ($3,509,449.00) (the "Purchase Price"). 2.3 Transfer, Sales and Other Taxes. Purchaser shall pay all transfer, sales and other like taxes imposed under the laws of the State of Texas on or collectable by Purchaser or Raytel by reason of the sale or transfer of the Shares to Purchaser hereunder. Raytel shall pay all transfer taxes sales and other like taxes imposed under the laws of any other state on or collectable by Purchaser or Raytel by reason of the sale or transfer of the Shares to Purchaser hereunder. -6- 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF RAYTEL AND RTPS Subject to and except for the information which is set forth in a list of exceptions identified by the specific section of this Article to which such information pertains and contained in a schedule delivered to Purchaser prior to the execution of this Agreement (the "RTPS Disclosure Schedule"), attached hereto as Exhibit A, Raytel and RTPS jointly and severally represent to Purchaser that: 3.1 Organization and Good Standing. Each of Raytel, RMH, and RTPS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and RTPS is qualified to do business in the State of Texas. 3.2 Capitalization. The authorized capital stock of RTPS consists of 1,000 shares of Common Stock, $ 0.001 par value per share, all of which are issued and outstanding as of the date hereof. All of the outstanding shares of Common Stock of RTPS have been validly issued and are fully paid and non-assessable and are owned, of record and beneficially, by RMH, free and clear of any Encumbrances or restrictions (other than restrictions on transfer under applicable federal and state securities laws). No shares of capital stock are held by RTPS as treasury stock. There is no existing option, warrant or other agreement of any kind to which RTPS or Raytel or RMH is a party requiring, and there are no convertible securities of RTPS outstanding which upon conversion would require, (i) the issuance by RTPS of any additional shares of capital stock of RTPS or other securities convertible into shares of capital stock or any equity security of RTPS of any kind or (ii) the sale or transfer of any of the Shares by Raytel or RMH, other than as contemplated by this Agreement. 3.3 Affiliate. RTPS does not own any equity interest, directly or indirectly, in any corporation, partnership, joint venture or other entity except the limited partnership identified in the RTPS Disclosure Schedule (collectively, the "Affiliate"). 3.4 Authority. Raytel, RTPS and the Affiliate have all necessary power and authority to own or lease their respective properties and to carry on their respective businesses as now being conducted, and possess all licenses, permits and authorizations necessary to the conduct of such businesses where the failure to possess any such license, permit or authorization would be reasonably likely to have a Material Adverse Effect; provided, however, that no representation is made with respect to the licensing or qualification of medical professionals or professional corporations performing services under contracts or arrangements with RTPS or a Affiliate at any of the premises. Raytel, RTPS and the Affiliate are 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 by such entity requires such qualification and where the failure to be so qualified would be reasonably likely to have a Material Adverse Effect. -7- 9 3.5 Financial Information. (a) Seller has delivered to Purchaser true and correct copies of all of the Financial Information with the exception of the RTPS Closing Balance Sheet to be delivered pursuant to Section 6.8. The Financial Information has been, and will be, prepared in accordance with GAAP and present, and will present, fairly the consolidated financial position of RTPS as of their respective dates and the results of operations, equity transactions and cash flows of RTPS for the periods indicated. The RTPS Closing Balance Sheet will be prepared using the same accounting policies and procedures as used in previous preparing the Financial Information in prior years. (b) Raytel has had substantial control over RTPS and its business affairs since its inception and is familiar with all aspects of RTPS's accounts payable accounting and procedures. To the knowledge of Raytel (as that term is defined in Section 13.12) RTPS does not have any liabilities, either accrued or contingent, and whether due or to become due, other than (i) liabilities reflected or provided for in detail on the Balance Sheet, (ii) liabilities specifically described in this Agreement, (iii) normal or recurring liabilities incurred since April 30, 2000 in the ordinary course of business consistent with past practices, and (iv) liabilities not required by GAAP to be reflected on a balance sheet. It may be possible due to the organizational structure of RTPS and Southeast Texas Cardiology Associates II, P.A., and its successors or assigns, ("SETCA") that neither Raytel nor RTPS have received invoices from third-party vendors that have been received by SETCA or its employees or agents. These invoices would not be reflected in the Balance Sheet and the failure of RTPS to include such invoices in the Balance Sheet or in the RTPS Disclosure Schedule shall not constitute a breach of this representation and warranty by Raytel or RTPS. 3.6 Authorization. Raytel and RTPS have full power and authority to execute and deliver this Agreement and to carry out the transactions contemplated hereby. Raytel and RTPS have taken all corporate action required by law, their Certificates of Incorporation and Bylaws or otherwise to authorize the execution and delivery of this Agreement and the consummation by them of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Raytel and RTPS and constitutes the legal, valid and binding obligations of Raytel and RTPS, enforceable in accordance with its 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. 3.7 Absence of Certain Changes and Events. Since the Balance Sheet Date: (a) To the knowledge of RTPS, there has not been any change in the business, operations, assets or financial condition of RTPS or any of the Affiliate which has had or, as far as Raytel or RTPS can reasonably foresee, is reasonably likely to have a Material Adverse Effect. -8- 10 (b) Except as contemplated by this Agreement, neither RTPS nor the Affiliate has, other than in the ordinary course of business, (i) entered into any material contract, license, franchise or commitment, waived any material rights or made any amendment or termination of any material contract, license, franchise or agreement; (ii) altered or revised, in any material respect, its accounting principles, procedures, methods or practices relating to the Raytel Management Business; (iii) transferred, disposed or, or otherwise removed from any of its premises any material assets; or (iv) incurred, discharged or satisfied any material liability or Encumbrance relating to the Raytel Management Business. 3.8 Title to Properties; Absence of Encumbrances. RTPS and the Affiliate have good and marketable title to all of their respective properties and assets shown as owned on the Balance Sheet (except for assets disposed of in the ordinary course of business since the Balance Sheet Date), free and clear of any and all Encumbrances except for permitted encumbrances, as set forth in the Raytel Disclosure Schedule (the "Permitted Encumbrances"). 3.9 Equipment and other Tangible Assets. (a) The RTPS Disclosure Schedule includes complete and accurate lists describing and specifying the location of all of the equipment and other tangible personal property owned or used in the RTPS Business and having an original cost in excess of $100,000. All of such equipment and tangible personal property is in operating condition and free from significant defects, ordinary wear and tear excepted. (b) The RTPS Disclosure Schedule includes a complete and accurate list of each lease under which RTPS is the lessor, sublessor, lessee or sublessee of any personal property (including any master lease in cases where RTPS is sublessee or sublessor) (the "RTPS Equipment Leases"), describing such lease and the type and location of the property which is the subject thereof. 3.10 Real Property. Neither RTPS nor the Affiliate own any real property in fee simple. The RTPS Disclosure Schedule includes a complete and accurate list of each lease under which RTPS or a Affiliate is the lessor, sublessor, lessee or sublessee of any real property (including any master lease in cases where RTPS or a Affiliate is sublessee or sublessor) (the "RTPS Real Property Leases"), describing such lease and the location of the property which is the subject thereof. -9- 11 3.11 Contracts, Commitments and Relationships. (a) The RTPS Disclosure Schedule includes a complete and accurate list, including a brief description, of: (i) all loans, mortgages, deeds of trust, promissory notes, conditional sales agreements or security agreements, (ii) all material agreements between RTPS or any of the Affiliate and any consultants, employees or service providers, (iii) all material agreements or arrangements involving the relationship between RTPS or any wholly-owned Affiliate and any majority-owned Affiliate or the other shareholders, co-venturers or partners of such Affiliate, other than RTPS Equipment Leases and RTPS Real Property Leases, (iv) all sales agency, sales representation, licensing or distributorship agreements, and (v) any other written agreement, contract, guaranty, indemnity, power of attorney, license, indebtedness, liability or other obligation, including agreements with suppliers and purchase orders involving a commitment in excess of $50,000, to which RTPS or any Affiliate is a party or by which RTPS or any Affiliate or any of their respective properties or assets are bound (collectively, the "Material RTPS Contracts"). Except for the RTPS Equipment Leases, the RTPS Real Property Leases and the Material RTPS Contracts, neither RTPS nor the Affiliate is a party to or otherwise bound by the terms of any contract, agreement, obligation or proposal (whether written or oral) in any material way affecting the RTPS Business. (b) Neither RTPS nor the Affiliate, nor, to the best knowledge of Raytel or RTPS, any other party is in default under any RTPS Equipment Lease, RTPS Real Property Lease or Material RTPS Contract, and there are no existing disputes or claims of default relating thereto, or any facts or conditions known to Raytel or RTPS which, if continued, will result in a default or a claim of default thereunder, except for such disputes, defaults or claims which would not be reasonably likely to have a Material Adverse Effect. 3.12 Compliance with Law. RTPS and the Affiliate possess all regulatory consents, authorizations, approvals, licenses and permits required by Governmental Authorities in connection with the conduct of the Raytel Management Business as presently conducted, where the failure to possess any such consent, authorization, approval, license or permit would be reasonably likely to have a Material Adverse Effect; provided, however, that no representation is made with respect to the licensing or qualification of medical professionals or professional corporations performing services under contracts or arrangements with RTPS or a Affiliate at any of the premises. Neither Raytel, RTPS nor the Affiliate has received any: (i) notification of any asserted failure by RTPS or any Affiliate to comply with any laws, regulations or other requirements of Governmental Authorities, the failure to comply with which would be reasonably likely to have a Material Adverse Effect; or (ii) complaint, inquiry or request for information (whether written or oral) from any Governmental Authority relating thereto. 3.13 Environmental Matters. To the best knowledge of Raytel and RTPS (i) the operation of RTPS and the Affiliate are in compliance with applicable Environmental Laws, except for such noncompliance which is not reasonably likely to have a Material Adverse Effect, (ii) neither RTPS nor the Affiliate is subject to any judicial or administrative proceeding alleging -10- 12 the violation of any Environmental Law, which proceeding is reasonably likely to result in a Material Adverse Effect, and (iii) neither RTPS nor the Affiliate has received any written notice from any Governmental Authority that it is a potentially responsible party at any Superfund site. 3.14 Litigation and Claims. The RTPS Disclosure Schedule contains a description of all claims, actions, suits, investigations or proceedings pending or, to the best knowledge of Raytel or RTPS, threatened against or affecting RTPS, any of the Affiliate, or any of their respective properties or business, at law or in equity, or before or by any Governmental Authority which is reasonably likely to have a Material Adverse Effect. There is no action, suit, proceeding or, to the best knowledge of Raytel or RTPS, formal governmental inquiry or investigation pending against Raytel or RTPS which seeks to restrain or prohibit or otherwise challenges the consummation, legality or validity of the transactions contemplated hereby. 3.15 Consents. Except as set forth in Section 6.4 and the Raytel Disclosure Schedule, no consent, approval or authorization of any Government Authority or other third person is required on the part of Raytel or RTPS in connection with the execution and delivery of this Agreement or the consummation of any of the transactions contemplated herein. 3.16 Labor Difficulties. There is no unfair labor practice complaint pending before the NLRB or overtly threatened against or affecting RTPS or any subsidiary which would be reasonably likely to have a Material Adverse Effect. Neither RTPS nor the Affiliate is a party to any collective bargaining agreement, and, to the best knowledge of Raytel and RTPS, no petition for election has been filed with the NLRB or any Region of the NLRB, and no organizing campaign or other effort is under way by any labor organization to organize any non-union represented employees of the Raytel Management Business. 3.17 Fringe Benefit Plans. Except as described in the RTPS Disclosure Schedule, neither RTPS nor the Affiliate has any bonus, deferred compensation, pension, profit-sharing, retirement, health, equity purchase, stock option or any other fringe benefit plan, arrangement or practice, whether formal or informal. 3.18 Accounts Receivable. The RTPS Disclosure Schedule contains a complete and correct list of all accounts receivable of RTPS and the Affiliate as of the date set forth thereon. All of such accounts receivable, and such additional accounts receivable accrued between the date thereof and the Closing Date arose, or will arise, in the ordinary and usual course of the Raytel Management Business, and have been recorded, or will be recorded, net of an allowance for uncollectibles determined in a manner consistent with past practice. To the best knowledge of Raytel and RTPS, none of such accounts receivable are subject to setoffs or counterclaims. Notwithstanding any other provision of this Agreement, neither Raytel nor RTPS makes any representation or warranty, other than as contained in this Section 3.19 concerning the collectability of such accounts receivable or the sufficiency of such reserve at the Balance Sheet Date, the Closing Date or any other date. -11- 13 3.19 Taxes. RTPS and the Affiliate has filed, or caused to be filed, all Tax Returns and information returns required to be filed by it, and has paid all Taxes due or claimed to be due from it. The RTPS Balance Sheet includes adequate provision for all such Taxes. 3.20 Insurance. The RTPS Disclosure Schedule includes a complete and accurate list of all policies of fire, liability, business interruption, workers' compensation and other forms of insurance covering the Raytel Management Business and setting forth the coverage and policy limits of each such policy. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to the Closing Date have been paid, or will be paid in a timely manner, and no notice of cancellation or termination has been received with respect to any such policy. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents to Raytel and RTPS that: 4.1 Organization and Good Standing. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas. 4.2 Authorization. Purchaser has full power and authority to execute and deliver this Agreement and to carry out the transactions contemplated hereby. Purchaser has taken all corporate action required by law, its Articles of Organization and Regulations or otherwise to authorize the execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and constitutes the valid and binding obligation of Purchaser, enforceable in accordance with its 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. 4.3 Litigation. There is no action, suit, proceeding or, to the best knowledge of Purchaser, formal governmental inquiry or investigation pending against Purchaser which seeks to restrain or prohibit or otherwise challenges the consummation, legality or validity of the transactions contemplated hereby. 4.4 Consents. Except as set forth in Section 6.4, no consent, approval or authorization of any Governmental Authority or other third party is required on the part of Purchaser in connection with the execution and delivery of this Agreement or the consummation of any of the transactions contemplated hereby. -12- 14 4.5 Investment Representations. (a) Purchaser possesses such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment hereunder. Purchaser is acquiring the Shares for its own account, for investment purposes only and not with a view to the distribution thereof. (b) Purchaser acknowledges that it has conducted its own investigation of the business and affairs of RTPS and the Affiliate, that the Shares have not been registered under the Securities Act of 1933, as amended, or any state securities or "Blue Sky" laws; and that it has received all the information that it requested from Raytel and RTPS concerning RTPS and the Affiliate. 4.6 Financing. Purchaser has, or has access to, and pending the Closing will have, sufficient funds and financing to pay the Purchase Price in full on the Closing Date. 4.7 Financial and Operational Issues Concerning RTPS. Purchaser has had considerable control over the financial and operational activities of the RTPS since November 10, 1999 as the result of a mutual understanding between the parties. The financial and operational activities of RTPS which Purchaser has controlled since November 10, 1999 include the ordering of supplies and services from third-party vendors in the name of RTPS and the hiring of additional personnel to be employed by RTPS, and possibly other commitments that have not been communicated or made known to Raytel or RTPS. As set forth in Section 6.9, Purchaser hereby represents and warrants to RTPS and Raytel that Purchaser shall assume all responsibility for any and all invoices, purchase orders, loans, leases, written or oral commitments, or other similar types of arrangements for goods or services or financing for capital equipment or improvements (the "Commitment") which have been entered into by Purchaser or Purchaser's representatives (whether such representatives were or are employees of RTPS or Affiliate at the time the Commitment was made) through and including the Closing. Any such Commitment made by Purchaser or Purchaser's representative following the Closing shall remain the obligation of Purchaser and Purchaser shall indemnify Raytel as provided in Section 94., herein below. 4.8 Title to the Promissory Notes and Raytel Stock. Purchaser represents that it has good and marketable title to the Promissory Notes and the Raytel Stock, free and clear of any and all encumbrances. ARTICLE V CONDUCT OF BUSINESS PRIOR TO CLOSING 5.1 Conduct of Raytel Management Business. During the period from the date of this Agreement to the Closing Date, Raytel and RTPS shall use their respective best efforts, and shall cause the Affiliate to use their best efforts, to maintain and preserve intact: (i) the business organization, rights and privileges pertinent to the Raytel Management Business; and (ii) the -13- 15 relationships of RTPS and the Affiliate with their respective partners, co-venturers, managers, licensors, suppliers, customers and others with whom they deal, all in accordance with their ordinary and usual course of business. 5.2 Transfer of RTPS Retained Assets. Prior to the Closing, RTPS shall take all necessary action to transfer to Raytel, or another entity designated by Raytel, the RTPS Retained Assets. 5.3 Restrictions on Activities. Prior to the Closing Date, neither RTPS nor the Affiliate shall, without the prior written consent of Purchaser (which consent shall not be unreasonably withheld) or except as specifically contemplated by this Agreement: (a) amend its Certificate of Incorporation, Bylaws, Agreement of Limited Partnership or Joint Venture Agreement; (b) authorize for issuance, issue, deliver or sell any additional capital stock, partnership or joint venture interests or securities convertible into such interests, or issue or grant any rights, warrants, options or other commitments for the issuance of such interests; (c) split, combine or reclassify any capital stock, joint venture interests or partnership interests or declare, set aside or pay any distribution (whether in cash or property) to its shareholders or partners in respect of their capital interest (other than distributions by a Affiliate in the ordinary course of business consistent with prior practice); (d) dispose of or acquire any material properties or assets except in the ordinary course of business consistent with prior practice, nor make any single capital expenditure, lease or commitment in excess of $50,000 additions to property, plant, equipment or intangible capital assets or make aggregate capital expenditures, leases or commitments for such purposes in excess of $50,000. (e) engage in any activities or transactions that are outside the ordinary course of the Raytel Management Business in substantially the manner as heretofore conducted; (f) incur any indebtedness for borrowed money; (g) waive or terminate any material right; (h) mortgage, pledge or subject to lien or to any other Encumbrance (other than Permitted Encumbrances) any of its assets, tangible or intangible; (i) discharge or satisfy any Encumbrance or pay any obligation or liability, except current liabilities set forth on the Balance Sheet and current liabilities incurred since the Balance Sheet Date in the ordinary course of business; -14- 16 (j) move or relocate any of its material operations from their present locations; or (k) agree, whether in writing or otherwise, to do any of the foregoing. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Access and Information. (a) Raytel and RTPS have previously afforded (and will continue to afford) to Purchaser and to its accountants, counsel and other representatives full access during normal business hours and upon reasonable notice throughout the period prior to the Closing Date to all of the properties, books, contracts and records of RTPS and the Affiliate and has furnished (and will furnish) to Purchaser all information concerning the business, properties and personnel of RTPS and the Affiliate as Purchaser has requested (or may reasonably request). (b) Neither Raytel nor RTPS shall be obligated to disclose to Purchaser any information which is subject to an obligation of confidentiality which would be breached by such disclosure; provided, however, that no refusal to make disclosure under this Section shall relieve the non-disclosing party of any obligation arising under any other representations or warranties contained herein or obligations hereunder. (c) In the event that between the date hereof and the Closing Date, any Governmental Authority shall commence any examination, review, investigation, action, suit or proceeding against any party hereto with respect to the transactions contemplated hereby, the party as to which such examination, review, investigation, action, suit or proceeding is commenced shall give prompt notice thereof to the other parties, shall keep the other parties informed as to the status thereof, shall promptly provide the other parties with copies of all documents related thereto and shall permit the other parties to observe and be present at each meeting, conference or other proceeding and have access to and be consulted in connection with any document filed or provided to such governmental authority in connection with such examination, review, investigation, action, suit or proceeding. 6.2 Certain Defaults. Raytel and RTPS will give prompt notice to Purchaser of (i) any notice of default received by them subsequent to the date of this Agreement and prior to the Closing Date under any of the Material RTPS Contracts, the RTPS Equipment Leases, the RTPS Real Property Leases, or any other material instrument or material agreement to which Raytel, RTPS or any of the Affiliate is a party or by which any of them is bound, which default would, if not remedied, be reasonably likely have a Material Adverse Effect, or (ii) any suit, action or proceeding instituted or, to the knowledge of Raytel or RTPS, threatened against or -15- 17 affecting Raytel, RTPS or any of the Affiliate subsequent to the date of this Agreement and prior to the Closing Date which, if adversely determined, would be reasonably likely to have a Material Adverse Effect. 6.3 Communication. Between the date hereof and the Closing Date, neither Raytel nor RTPS, on the one hand, nor Purchaser, on the other hand, will furnish any written communication to their shareholders, or to the public generally, if the subject matter thereof relates to the transactions contemplated by this Agreement without the prior approval of the other as to the content thereof, which approval shall not be unreasonably withheld; provided that the foregoing shall not be deemed to prohibit any disclosure which, in the opinion of counsel to the disclosing party, is required by any applicable law or by any competent governmental authority. 6.4 Consents and Approvals. Raytel and RTPS shall use their respective best efforts to obtain any and all consents from other parties to contracts, leases and other instruments necessary or appropriate to allow the consummation of the transactions contemplated by this Agreement and the continuance of the Raytel Management Business by the Purchaser following the Closing. 6.5 Certain Information. Between the date of this Agreement and the Closing Date, RTPS shall furnish to Purchaser copies of monthly financial information which it customarily prepares for the internal use of Raytel management. 6.6 Employee Matters. (a) As of the Closing, Purchaser and/or Southeast Texas Cardiology Associates, L.L.P. (SETCA") shall offer continued employment to each of the current employees of RTPS and the Affiliate in such employee's present position, or in a comparable position with the Raytel Management Business. Every employee of RTPS and the Affiliate is deemed to be an employee "at-will" except for the Physicians described in Section 1.22, and the other physicians employed by Southeast Texas Cardiology Associates, or its successors and assigns. Each such employee (a "New Purchaser Employee") shall have salary or other compensation arrangements substantially equivalent to those in effect immediately prior to the Closing. For a one-year period following the Closing, Purchaser and/or SETCA shall maintain in effect for each New Purchaser Employee a severance policy no less favorable than Raytel's severance policy as currently in effect. (b) Effective as of the close of business on the Closing Date, the New Purchaser Employees shall cease to accrue benefits under Raytel's pension and profit-sharing plans. Benefits of such plans, accrued as of such time, shall be payable to such new Purchaser Employees in accordance with the terms of the applicable plan. There shall be no transfer of any assets of any such plan to Purchaser except to the extent a New Purchaser Employee may be permitted, under such plan and applicable laws and regulations, to transfer his or her vested account balance to a plan of Purchaser. -16- 18 (c) Effective as of the close of business on the Closing Date, the New Purchaser Employees shall cease to be covered on an ongoing basis by Raytel's plans and policies which provide medical and dental coverage, life and accident insurance, disability coverage and vacation and severance pay. The New Purchaser Employees will be eligible to participate in all fringe benefit plans and policies currently offered by Purchaser to its employees, subject to the terms and conditions of such plans and policies, copies of which have been provided by Purchaser to Raytel. (d) From and after the Closing, Purchaser shall give each New Purchase Employee full credit for all vacation time and sick leave accrued by such employee as of the Closing. (e) Effective as of the Closing, Purchaser shall, for all purposes, credit New Purchaser Employees for their past service with Raytel and/or any of its subsidiaries. 6.7 Raytel's Names and Trademarks. (a) Effective upon the Closing Date, the corporate name of RTPS and Affiliate shall be changed to remove the word "Raytel" therefrom. (b) Purchaser shall not, and from and after the Closing shall ensure that the employees and representatives of Purchaser, RTPS and the Affiliate do not, represent itself or themselves as Raytel or as employees or representatives of Raytel. The foregoing prohibitions shall apply, without limitation, to the use of any stationary or identifying signs. Notwithstanding the foregoing, for a period not to exceed 90 days following the Closing Date, Purchaser shall not be required to remove the name "Raytel," or any logo thereof, from existing supplies of printed materials as of the Closing Date provided that such materials shall be conspicuously stamped or marked with words to the effect that RTPS, or the Affiliate, as the case may be, is no longer an affiliate of Raytel. 6.8 Closing Balance Sheet. Within forty-five (45) days of the Closing Date, Raytel will prepare a balance sheet for the period beginning May 1, 2000 and ending May 31, 2000 (the "Closing Balance Sheet") prepared in accordance with GAAP on the same basis as the other Financial Information has been prepared and, as practicable following the Closing Date, shall deliver to Purchaser a copy of the Closing Balance Sheet. 6.9 Purchaser's Covenant Concerning Commitments made on behalf of RTPS. Purchaser hereby covenants that Purchaser assumes all responsibility for any and all invoices, purchase orders, loans, leases, written or oral commitments, or other similar types of arrangements for goods or services or financing for capital equipment or improvements (the "Commitment") which have been entered into by Purchaser or Purchaser's representatives (whether such representatives were or are employees of RTPS or Affiliate at the time the Commitment was made) through and including the Closing for Commitments made without the Knowledge of Raytel (as that term is defined in Section 13.12(d)). Any such Commitment made by Purchaser or Purchaser's representative following the Closing shall remain the obligation of -17- 19 Purchaser. Purchaser shall indemnify Raytel as provided in Section 9.4., herein below, for any Commitment made without the knowledge and consent of RTPS or Raytel prior to the Closing. 6.10 Mutual Covenant Concerning Transfer of Nuclear Imaging Facility. The parties hereby mutually covenant to complete the transfer of specified assets of Raytel Nuclear Imaging-Orange, L.P., to Purchaser not later than June 5, 2000. The assets consist of the medical imaging equipment and related equipment, office furniture and office equipment, medical supplies and consumables, premises fixtures, and nuclear license, but not including the cash or accounts receivable of the business. Purchaser has agreed to assume the liability associated with the equipment lease for the medical imaging equipment (the camera) and related equipment, the office lease, and the liabilities for accrued vacation and sick leave associated with the three employees of the nuclear imaging facility. Attached hereto is the form of the Asset Purchase and Conveyance Agreement ("Conveyance Agreement") which will be the basis for the transfer of the specified assets and the specified liabilities. Purchaser agrees to provide Raytel with an aged accounts receivable listing and to then assist Raytel in the collection of the accounts receivable following the closing. 6.11 Termination of Obligations Arising under Management Services Agreement. The parties hereby agree that the Financial Information and the Closing Balance Sheet set forth the accrued amounts payable to the Physicians pursuant to the terms of the Management Services Agreement, as amended (as defined in Section 8.4(b), herein below), and the amount as of April 30, 1999, as set forth in the attached Balance Sheet is Five Hundred Fifty Thousand Seven Hundred Seventy-three and 06/100 Dollars ($550,773.06), which includes amounts payable to the Physicians for such items as physician compensation, Shareholders' Top-up, Medical Director's Top-up, and Medical Director Fees. This Agreement and the Termination Agreement terminate any obligation of Raytel to make the payments to the Physicians for the payments described herein in this Section 6.11 have been accrued but not paid as of the Closing. 6.12 Preparation of Tax Returns. Purchaser agrees that it shall prepare and file any and all tax returns for RTPS from and after the Closing for all open periods for which tax returns are required to be filed, with the exception of the tax returns due for the period ended September 30, 1999 for which Raytel shall prepare and file all tax returns and shall pay any tax for the period ended September 30, 1999. 6.13 Assistance with Collection of Amounts Owed by Baptist Hospital. Purchaser, and Rodolfo P. Sotolongo, M.D., in particular, agrees to use reasonable efforts to assist Raytel in its efforts to collect amounts owed to Raytel by The Baptist Hospital of Southeast Texas pursuant to a management agreement. -18- 20 ARTICLE VII CONDITIONS PRECEDENT 7.1 Conditions to Each Party's Obligation to Effect the Transactions. The respective obligations of each party to effect the transactions contemplated hereby shall be, at the election of such party, subject to the satisfaction at or prior to the Closing of the following conditions: (a) No order shall have been entered, and not vacated, by a court or Governmental Authority of competent jurisdiction, in any action or proceeding which enjoins, restrains or prohibits consummation of the transactions contemplated hereby. (b) There shall be no litigation pending or threatened by any Governmental Authority in which (i) an injunction is or may be sought against the transactions contemplated hereby, or (ii) relief is or may be sought against any party hereto as a result of this Agreement and in which, in the good faith judgment of the Board of Directors of either Raytel or Purchaser (relying on the advice of their respective legal counsel), such Governmental Authority has the probability of prevailing and where such relief would have a material adverse effect upon such party. 7.2 Conditions to Obligations of Raytel and RTPS. The obligations of Raytel and RTPS to effect the transactions contemplated hereby are, at the option of Raytel, subject to the satisfaction at or prior to the Closing of the following additional conditions: (a) All of the representations and warranties made by Purchaser in this Agreement shall be true in all material respects as of the Closing Date with the same force and effect as if such representations and warranties had been made as of the Closing Date, except for changes contemplated by this Agreement, and Purchaser shall have delivered to Raytel a certificate to such effect dated the Closing Date and signed by its president or any vice president. (b) All of the terms, covenants and conditions of this Agreement to be complied with and performed by Purchaser at or before the Closing Date shall have been duly complied with and performed, and Purchaser shall have delivered to Raytel a certificate to such effect dated the Closing Date and signed by its president or any vice president. (c) All authorizations, consents and approvals of all Governmental Authorities required to be obtained in order to permit consummation of the transactions contemplated by this Agreement shall have been obtained and delivered to Raytel. 7.3 Conditions to Obligations of Purchaser. The obligations of Purchaser to effect the transactions contemplated hereby are, at the option of Purchaser, subject to the satisfaction at or prior to the Closing of the following additional conditions: -19- 21 (a) All of the representations and warranties made by Raytel and RTPS in this Agreement shall be true in all material respects as of the Closing Date with the same force and effect as if such representations and warranties had been made as of the Closing Date, except for changes contemplated by this Agreement, and Raytel and RTPS shall have delivered to Purchaser a certificate to such effect dated the Closing Date and signed by their respective president or any vice president. (b) All of the terms, covenants and conditions of this Agreement to be complied with and performed by Raytel and RTPS at or before the Closing Date shall have been duly complied with and performed, and Raytel and RTPS shall have delivered to Purchaser a certificate to such effect dated the Closing Date and signed by their respective president or any vice president. (c) All authorizations, consents and approvals of all Governmental Authorities required to be obtained in order to permit consummation of the transactions contemplated by this Agreement shall have been obtained and delivered to Purchaser. (d) There shall have been no material adverse change in the financial condition, results of operations, or business of RTPS and the Affiliate, taken together, from the Balance Sheet Date through the Closing Date other than changes disclosed in the RTPS Disclosure Schedule. (e) Raytel shall have received the written consent and agreement of BankBoston/Fleet Bank as agent for BankBoston/Fleet Bank and Paribas pursuant to the Amended and Restated Credit Agreement dated as of August 14, 1996 (the "Credit Agreement") to a waiver of all applicable loan covenants regarding the transactions contemplated by this Agreement, the Conveyance Agreement (set forth in Section 6.10); and the Master Termination Agreement and Indemnity Agreement dated May 31, 2000, which consents and agreements have been requested, and which Raytel believes it will receive. THIS CONDITION HAS NOT BEEN WAIVED BY RAYTEL. AS STATED IN THE RECITALS TO THIS AGREEMENT, IF THE LENDERS DO NOT PROVIDE RAYTEL WITH THE WRITTEN CONSENT AS SET FORTH IN THIS SECTION 7.3(e) BY JUNE 15, 2000, THEN THIS AGREEMENT AND THE MASTER TERMINATION AGREEMENT SHALL BECOME NULL AND VOID WITHOUT PREJUDICE TO ANY RIGHTS THE PARTIES MAY HAVE UNDER ANY OF THE TRANSACTION DOCUMENTS DESCRIBED IN SECTIONS 1.29 AND 8.4(b). -20- 22 ARTICLE VIII THE CLOSING 8.1 The Closing. The Closing shall take place simultaneously at the offices of Raytel Medical Corporation located at 2755 Campus Drive, Suite 200, San Mateo, California 94403 and at the offices of Orgain, Bell and Tucker, 470 Orleans Street, Beaumont, Texas 77701 on the Closing Date. Counter-part original signature pages shall be executed and exchanged by facsimile and by overnight express delivery service. 8.2 Proceedings at the Closing. All proceedings to be taken and all documents to be executed and delivered by Raytel and RTPS in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Purchaser and its counsel. All proceedings to be taken and all documents and instruments to be executed and delivered by Purchaser in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Raytel and its counsel. All proceedings to be taken and all documents and instruments to be executed and delivered by all parties at the Closing shall be deemed to have been taken and executed simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered. 8.3 Deliveries by Raytel and RTPS. At the Closing, Raytel and RTPS shall deliver, or shall cause to be delivered, to Purchaser the following: (a) Certificates representing the Shares, which certificates shall be duly endorsed in blank or, in lieu thereof, shall have affixed thereto stock powers duly executed in blank, and in proper form for transfer; (b) Incumbency certificates setting forth the names of officers of Raytel and RTPS who are authorized to execute this Agreement and the other documents executed by Raytel and RTPS pursuant hereto, together with their respective signatures, signed by duly authorized officers of Raytel and RTPS; (c) Resignation of officers and directors of RTPS; and (d) Corporate minute books and other books and records of RTPS. 8.4 Deliveries by Purchaser. At the Closing, Purchaser shall deliver to Raytel the following: (a) The original Raytel Promissory Notes; (b) A copy of the Master Termination and Indemnification Agreement dated as of May 31, 2000, which among other things, cancels the issuance of the Raytel Common Stock, mutually releases the parties from all causes of action arising out of or pursuant to the Master Transaction Agreement, the Management Services Agreement -21- 23 dated as of August 21, 1996 and as amended October 18, 1997 (the "Management Services Agreement"), and signed by a duly authorized officer of Purchaser and by each of the Physicians, as referred to in Section 1.22; and (c) An incumbency certificate setting forth the names of officers of Purchaser who are authorized to execute this Agreement and the other documents executed by Purchaser pursuant hereto, together with their respective signatures, signed by a duly authorized officer of Purchaser. ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION 9.1 Survival. The representations, warranties and covenants of the parties contained in this Agreement or in any certificate or instrument delivered pursuant hereto shall survive the Closing hereunder. Subsequent to the Closing, the provisions of this Article IX shall be the sole remedy for the breach of any representations or warranties contained in this Agreement. 9.2 Indemnification by Raytel. Subject to the provisions and limitations herein contained, Raytel hereby agrees to indemnify, defend and hold harmless Purchaser, its officers directors, managers, owners, employees and attorneys, all parents, subsidiaries and affiliates of Purchaser, and the respective officers, directors, employees and attorneys of such entities (all such persons and entities being collectively referred to as the "Purchaser Group") from and against any and all losses, damages, costs and expenses (including reasonable legal fees and expenses) which any member of the Purchaser Group may at any time sustain or incur which are occasioned by, caused by or arise out of: (i) any inaccuracy in or breach of any of the representations, warranties or covenants made by Raytel or RTPS in this Agreement, or any closing document, schedule or other instrument executed in connection herewith; or (ii) any breach by Raytel or RTPS of its obligations under this Article IX. 9.3 Limitation of Raytel's Liability. The liability of Raytel under Section 9.2 shall be limited as follows: (a) The maximum amount payable by Raytel in respect of all claims for indemnification under Section 9.2 will not exceed the Purchase Price set forth in Section 2.2, herein above. (b) No claim shall be made for indemnification under Section 9.2 until the aggregate amount of all such claims exceeds Five Thousand Dollars ($5,000). (c) No member of the Purchaser Group shall be entitled to recover under Section 9.2 with respect to: -22- 24 (i) the breach of any representation or warranty unless such claim has been asserted by written notice, specifying the details of such breach, delivered to Raytel on or prior to the expiration of one year after the Closing Date; (ii) the breach of any representation or warranty, or any covenant to be performed prior to the Closing, if before the Closing an executive officer of Purchaser had actual knowledge of the fact or facts which cause such breach; or (iii) any claim, to the extent the claim has been satisfied by proceeds of insurance (Purchaser hereby agreeing to use its best efforts to collect the maximum amount of insurance proceeds to which it is entitled). (d) The amount of any recovery to which a member of the Purchaser Group may be entitled pursuant to Section 9.2 shall be net of (i.e., after deducting) any federal, state and/or local income tax benefits or insurance proceeds inuring to such person as a result of the set of facts which entitle such person to recover from Raytel pursuant to Section 9.2. (e) Raytel will not be liable under the indemnification provisions of Section 9.2 to the extent that any loss, claim, liability or expense results from an indemnified party's bad faith or negligence. 9.4 Indemnification by Purchaser. Subject to the provisions and limitations herein contained, Purchaser hereby agrees to indemnify, defend and hold harmless Raytel, its officers, directors, employees and attorneys, all parents, subsidiaries and affiliates of Raytel, and the respective officers, directors, employees and attorneys of such entities (all such persons and entities being collectively referred to as the "Raytel Group") from and against any and all losses, damages, costs and expenses (including reasonable attorneys' fees and expenses) which any member of the Raytel Group may at any time sustain or incur which are occasioned by, caused by or arise out of: (i) any inaccuracy in or breach of any of the representations, warranties or covenants made by Purchaser in this Agreement; (ii) the operation of the Raytel Management Business after the Closing; or (iii) any breach by Purchaser of its obligations under this Article IX. 9.5 Limitation of Purchaser's Liability. (a) The maximum amount payable by Purchaser in respect of all claims for indemnification under Section 9.4 will not exceed the Purchase Price set forth in Section 2.2, herein above. (b) No claim shall be made for indemnification under Section 9.4 until the aggregate amount of all such claims exceeds Five Thousand Dollars ($5,000). (c) No member of the Raytel Group shall be entitled to recover under Section 9.4 with respect to: -23- 25 (i) the breach of any representation or warranty unless such claim has been asserted by written notice, specifying the details of such breach, delivered to Purchaser on or prior to the expiration of one year after the Closing Date; (ii) the breach of any representation or warranty, or of any covenant to be performed prior to the Closing, if before the Closing an executive officer of Raytel had actual knowledge of the fact or facts which caused such breach; or (iii) any claim, to the extent the claim has been satisfied by proceeds of insurance (Raytel hereby agreeing to use its best efforts to collect the maximum amount of insurance proceeds to which it is entitled). (d) The amount of any recovery to which a member of the Raytel Group may be entitled pursuant to Section 9.4 shall be net of (i.e., after deducting) any federal, state and/or local income tax benefits or insurance proceeds inuring to such person as a result of the set of facts which entitle such person to recover from Purchaser pursuant to Section 9.4. (e) Purchaser will not be liable under the indemnification provisions of Section 9.4 to the extent that any loss, claim, liability or expense results from an indemnified party's bad faith or gross negligence. 9.6 Defense. In the event that a claim for indemnification hereunder is based upon a claim by a third party asserted against the indemnified party, the indemnifying party or parties shall be entitled to control the defense thereof and to settle any such action on such terms as it or they shall see fit so long as the party entitled to indemnification shall be released from any liability by reason of such settlement; provided, however, that the party entitled to indemnification shall have the right to approve counsel retained with respect to such defense (which consent shall not unreasonably be withheld) and the right to participate in the defense of such action at its own expense. The party or parties required to provide indemnification hereunder shall receive full cooperation and access to all relevant and non-privileged records of the party or parties entitled to indemnification. 9.7 Procedure and Dispute Resolution. (a) If an indemnified party shall have a claim of indemnification pursuant to this Article IX (an "Indemnity Claim"), it will promptly give written notice thereof (the "Claim Notice") to the indemnifying party or parties, including therein a brief description of the facts upon which such claim is based and the amount thereof, to the extent that it can be ascertained. (b) In the event that the indemnifying party or parties dispute the validity or amount of any Indemnity Claim, prior to taking any other action, the matter shall be referred to responsible executives of the affected parties for consideration and resolution. -24- 26 If the parties have not otherwise resolved the dispute, they shall meet in person within 30 days after the delivery of the Claim Notice and exercise their best efforts to settle the matter amicably. (c) If any such dispute is not settled within 30 days from the delivery of the Claim Notice, such dispute shall, at the demand of either party, be referred to and decided by litigation in accordance with the provisions of Section __. ARTICLE X TERMINATION AND ABANDONMENT 10.1 Termination by Raytel. This Agreement may be terminated at any time prior to the Closing by action of the Board of Directors of Raytel upon written notice to Purchaser, specifying the basis for such termination, if: (i) Purchaser shall have breached in any material respect any of its covenants or agreements contained in this Agreement or if any representation or warranty of Purchaser contained in this Agreement shall have been materially inaccurate; or (ii) the Closing shall not have occurred on or before July 31, 2000. 10.2 Termination by Purchaser. This Agreement may be terminated at any time prior to the Closing by action of the Board of Directors of Purchaser upon written notice to Raytel, specifying the basis for such termination, if: (i) Raytel or RTPS shall have breached in any material respect any of their respective covenants or agreements contained in this Agreement, or if any representation or warranty of Raytel or RTPS contained in this Agreement shall have been materially inaccurate; or (ii) the Closing shall not have occurred on or before July 31, 2000. 10.3 Mutual Consent. This Agreement may be terminated at any time prior to the Closing by mutual consent of Raytel and Purchaser. 10.4 Effect of Termination. Upon any permitted termination of this Agreement pursuant to the provisions of this Article XI, the parties shall be relieved of all further obligations under this Agreement, except as set forth in Section 10.5 and except for the provisions of Article XII regarding the payment of expenses and the obligations of the parties under the Confidentiality Agreements. 10.5 Default; Remedies and Liquidated Damages. (a) If the sale of the Shares is not consummated in accordance with this Agreement because of Raytel's breach hereof, Purchaser's sole remedy shall be to terminate Purchaser's obligations under this Agreement pursuant to Section 11.2, and recover damages equal to Purchaser's actual, reasonable, out-of-pocket costs and expenses incurred in connection with the transactions contemplated by this Agreement. Purchaser shall have no other remedies, whether at law or in equity, for any default hereunder; provided that Purchaser will be entitled to the benefit of any obligations, covenants and indemnities hereunder and under the Confidentiality Agreement which -25- 27 expressly survive the termination this Agreement. Purchaser may only avail itself of the remedies in this Section 10.5(a) if, at the time of Raytel's default, Purchaser is not in default hereunder. (b) If the purchase of the Shares is not consummated in accordance with this Agreement because of Purchaser's breach hereof, Raytel's sole remedy shall be to terminate Raytel's obligations under this Agreement pursuant to Section 10.1. Raytel shall have no other remedies, whether at law or in equity, for any default hereunder; provided that Raytel will be entitled to the benefit of any obligations, covenants and indemnities hereunder and under the Confidentiality Agreement which expressly survive the termination of this Agreement. Raytel may only avail itself of the remedies in this Section 11.5(b) if at the time of Purchaser's default, Raytel is not in default hereunder. THE PARTIES EXPRESSLY AGREE AND ACKNOWLEDGE THAT RAYTEL'S ACTUAL DAMAGES IN THE EVENT OF A DEFAULT BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN AND THAT THE LIQUIDATED DAMAGES AMOUNT SPECIFIED HEREIN REPRESENTS THE PARTIES' REASONABLE ESTIMATE OF SUCH DAMAGES. THE PAYMENT OF THE LIQUIDATED DAMAGES AMOUNT IS NOT INTENDED AS A FORFEITURE OR A PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO RAYTEL PURSUANT TO CALIFORNIA CIVIL CODE SECTION 1671, 1676 AND 1677. ARTICLE XI PAYMENT OF EXPENSES 11.1 Expenses. The parties shall each pay their own legal, accounting and financial advisory fees and other out-of-pocket expenses incurred incident to the preparation and carrying out of this Agreement and the transactions herein contemplated, whether or not the sale of the Shares hereunder is consummated. 11.2 Brokers. Raytel and RTPS, on the one hand, and Purchaser, on the other hand, represent that they have dealt with no broker or finder in connection with any of the transactions contemplated by this Agreement. Each party represents that, insofar as it knows, no other broker, finder or other person is entitled to any commission or fee in connection with any such transaction. Each party agrees to indemnify and hold the other parties harmless against any loss, liability, damage, cost or expense incurred by reason of any commission or finder's fee alleged to be payable because of any act, omission or statement of the indemnifying party. -26- 28 ARTICLE XII GENERAL PROVISIONS 12.1 Notices. No notice or other communication shall be deemed given unless sent in the manner, and to the persons, specified in this Section 12.1. All notices and other communications hereunder will be in writing and will be deemed given (a) upon receipt if delivered personally (unless subject to clause (b)) or if mailed by registered or certified mail, (b) on the day after dispatch if sent by overnight courier or (c) upon dispatch if transmitted by telex, telecopy or other means of facsimile transmission (and confirmed by a copy delivered in accordance with clause (a) or (b)), addressed to the parties at the following addresses: To Raytel Raytel Medical Corporation 2755 Campus Drive San Mateo, California 94403 Attn.: Richard F. Bader, Chief Executive Officer To Purchaser: RTPS Acquisition Company, L.L.C. C/o Orgain, Bell & Tucker, L.L.P. Attention: Lance Fox, Esq. 470 Orleans Street Beaumont, Texas 77701 With a copy to: Sandra E. D. McGraw, Esq. The Health Care Group Meetinghouse Business Center 140 West Germantown Pike, Suite 200 Plymouth Meeting, PA 19462 Lance Fox, Esq. Orgain, Bell & Tucker, L.L.P. 470 Orleans Street Beaumont, Texas 77701 or to such other addresses or other persons as may be designated in writing by a party, by notice given as aforesaid. 12.2 Interpretation. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested -27- 29 by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof," and terms of similar import, unless the context otherwise requires, shall be deemed to refer to May 31, 2000. 12.3 Assignment. Neither this Agreement nor the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 12.4 Headings. The headings of the several sections of this Agreement are inserted for the convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 12.5 Counterparts. This Agreement may be executed in one or more counterparts, and when so executed each counterpart shall be deemed to be an original, and said counterparts together shall constitute one and the same instrument. 12.6 Binding Nature. This Agreement shall be binding upon and inure to the benefit of the parties hereto. 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. 12.7 Waiver. Raytel and RTPS, on the one hand, and Purchaser, on the other hand, may, by written notice to the other: (i) waive any of the conditions to its obligations hereunder or extend the time for the performance of any of the obligations or actions of the other; (ii) waive any inaccuracies in the representations of the other contained in this Agreement or in any documents delivered pursuant to this Agreement; (iii) waive compliance with any of the covenants of the other contained in this Agreement; or (iv) 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 representation, 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 provisions. 12.8 Entire Agreement. This Agreement, the Schedules and Exhibits hereto and the Master Termination and Indemnification Agreement of even date herewith, the Asset Purchase and Conveyance Agreement of even date herewith and the related closing documents constitute the entire agreement between the parties pertaining to the subject matter contained herein and supersede all prior and contemporaneous negotiations, agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by the party sought to be bound. -28- 30 12.9 Good Faith. Each of the parties hereto agrees that it shall act in good faith in an attempt to cause all the conditions precedent to its respective obligations to be satisfied and the Merger to be consummated. 12.10 Severability. Should any provision of this Agreement be determined to be invalid, it shall be severed from this Agreement and the remaining provisions of the Agreement shall remain in full force and effect. 12.11 Construction and Interpretation of Agreement. (a) This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof shall not be construed for or against any party. The table of contents and headings herein are for reference purposes only and shall not in any manner affect the meaning or interpretation of this Agreement. (b) When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof," and terms of similar import, unless the context otherwise requires, shall be deemed to refer to May 31, 2000. (c) As used in this Agreement, any reference to any state of facts, event, change or effect being "material" with respect to any entity means a state of facts, event, change or effect, as the case may be, that is material to the current or expected condition (financial or otherwise), properties, assets, liabilities, business, operations or prospects of such entity. (d) As used in this Agreement, the term "Knowledge of Raytel" or the "Knowledge of the Seller" means the actual knowledge of any of the directors or executive officers of Raytel after inquiry of those Raytel management employees (which shall include center managers and their superiors) who, because of their position, could reasonably be expected to have information relating to the subject matter of the particular representation. (e) Whenever the term "enforceable in accordance with its terms" or like expression is used, it is understood that excepted therefrom are any limitations on enforceability under applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditor's rights. -29- 31 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. RTPS Acquisition Company, L.L.C. By: /s/ R. P. Sotolongo, M.D. --------------------------------- R. P. Sotolongo, M.D., Manager RAYTEL MEDICAL CORPORATION By: /s/ Richard F. Bader --------------------------------- Richard F. Bader Chief Executive Officer RAYTEL MANAGEMENT HOLDINGS, INC. By: /s/ Richard F. Bader --------------------------------- Richard F. Bader Chief Executive Office -30- EX-10.60 3 ex10-60.txt EXHIBIT 10.60 1 EXHIBIT 10.60 MASTER TERMINATION AND INDEMNIFICATION AGREEMENT This MASTER TERMINATION AND INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered this 31st day of May, 2000, but effective as of NOVEMBER 10, 1999 (the "Effective Date"), between and among SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, P.A., a Texas professional association ("SETCA"), SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, P.A., a Texas professional association ("SETCA II, P.A."), SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, L.L.P., a Texas Limited Liability Partnership ("SETCA II, L.L.P."), RODOLFO SOTOLONGO, M. D. ("SOTOLONGO"), WAYNE MARGOLIS, M. D. ("MARGOLIS"), MICHAEL SMITH, M.D. ("SMITH"), MIGUEL CASTELLANOS, M.D. ("CASTELLANOS"), RAYTEL SOUTHEAST MANAGEMENT, L.P., a Texas limited partnership ("RSM"), its corporate general partner, RAYTEL TEXAS PHYSICIAN SERVICES, INC., a Delaware corporation ("RTPS"), RAYTEL MANAGEMENT HOLDING, INC. ("RMH") Limited Partner of RSM, and RAYTEL MEDICAL CORPORATION, a Delaware corporation ("RMC"), all collectively referred to as the "Parties," and SOTOLONGO, MARGOLIS, SMITH and CASTELLANO are sometimes referred to as the "Shareholders." RECITALS A. WHEREAS, the Parties have entered into certain agreements for the sale and acquisition of and subsequent management and operation of a cardiology medical practice principally located at 755 South 11th Street, Beaumont, Texas, and 2693 North Street, Beaumont, Texas, with additional locations in Orange and Port Arthur Texas (the "Practice"), and B. WHEREAS, the Parties have entered into certain agreements to manage the cardiology Practice; and C. WHEREAS, the Parties have agreed to alter their arrangements in such a way that they alter the management and control over the Practice and certain business relationships among the parties hereto; and. D. WHEREAS, the Parties have agreed to (i) terminate those agreements and arrangements on the terms and conditions set forth herein and (ii) to transition all ownership, management and control over all aspects of the Practice of SETCA, SETCA II, PA and SETCA II, L.L.P. referred to in A. above and collectively herein referred to as the ("Practice"), and (iii) 2 pursuant to and in connection therewith, simultaneously with the execution of this Agreement certain parties to this Agreement are also entering into a Stock Purchase Agreement dated May 31, 2000 (the "Stock Purchase Agreement"), between RMC, RMH, RTPS and RTPS ACQUISITION COMPANY, L.L.C., a Texas limited liability company (referred to as "Purchaser") pursuant to which Purchaser acquires and purchases all of the stock of RTPS, and (iv) further in connection therewith Purchaser is acquiring and assuming from RTPS a certain equipment lease and office lease relating to a nuclear imaging facility in Orange, Texas. NOW, THEREFORE, in consideration of the promises, mutual covenants, representations, warranties and conditions contained herein, the abandonment of and waiver of their rights of the amounts and/or other assets that the Parties would otherwise be entitled to receive, as described 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 CANCELLATION OF MASTER TRANSACTION AGREEMENT AND RELATED AGREEMENTS 1.1. Termination of Master Transaction Agreement and Related Agreements. (a) The parties agree that effective as of the Effective Date, the Master Transaction Agreement dated August 21, 1996, as amended by the First Amendment to the Master Transaction Agreement dated October 1, 1997 and the Second Amendment to the Master Transaction Agreement dated December 3, 1999, together with all rights and obligations arising thereunder, and except as otherwise set forth herein, are terminated. (b) Effective as of the Effective Date, the Agreement and Covenant Not to Compete ("Noncompetition Agreement") among SETCA, the Shareholders, RMC, RTPS, and RSM dated September 18, 1996, and as thereafter amended together with all of the rights and obligations created by it, are terminated and are of no force or effect. (c) The Succession Agreement dated May, 1998 among SOTOLONGO, MARGOLIS, SMITH, and CASTELLANOS and SETCA II, P.A. and all rights, duties and obligations thereunder are terminated effective as of the Effective Date, including without limitation, the terms and provisions of the spousal guarantee contained therein. (d) The Parties expressly agree that the terms of the noncompetition clause set forth at Section 11 of the Succession Agreement are, effective as of the Effective Date, void and of no force or effect. 2 3 (e) Effective as of the Effective Date, each of the Employment Agreements, between SOTOLONGO, MARGOLIS, SMITH, and CASTELLANOS, individually, and SETCA II, P.A., each dated September 18, 1996, are terminated. (f) The parties expressly agree that effective as of the Effective Date, the Covenant Not to Compete, contained in each of the above referenced Employment Agreements at Section 9, are void and of no force or effect. (g) The Parties expressly agree that the terms of the noncompetition clause and all rights, duties and obligations thereunder contained at Article IV of the Partnership Purchase Agreement and Assignment dated September 18, 1996 among RSM, SOTOLONGO, MARGOLIS, SMITH, and CASTELLANOS, are, effective as of the Effective Date, void and of no force or effect. (h) The Parties expressly agree that the terms of the noncompetition clause and all rights, duties and obligations thereunder contained at Article VIII of the Agreement for the Purchase and Sale of Assets dated September 18, 1996 among SETCA, SOTOLONGO, MARGOLIS, SMITH, RSM, RTPS and RMC, are, effective as of the Effective Date, void and of no force or effect. 1.2. Cancellation of Promissory Notes. SOTOLONGO, MARGOLIS, SMITH and CASTELLANOS (herein collectively referred to as the "Physicians") have contributed to the Purchaser the Promissory Notes as described in Section 2.03(a) of the Master Transaction Agreement and pursuant to the Stock Purchase Agreement the Purchaser has transferred the obligations secured by such Promissory Notes to Raytel and such Promissory Notes are cancelled in the transaction. The original principal amount of each Promissory Note is as follows:
PHYSICIAN PRINCIPAL AMOUNT OF NOTE --------- ------------------------ SOTOLONGO $686,631.00 MARGOLIS $686,631.00 SMITH $686,631.00 CASTELLANOS $228,876.00
Raytel agrees that SOTOLONGO, MARGOLIS, SMITH and CASTELLANOS are entitled to retain any and all interest amounts already paid on the Promissory Notes. Raytel and RSM further agree that they shall have no right to assignment of the Promissory Notes or to setoff against any amounts owed or otherwise paid to SOTOLONGO, MARGOLIS, SMITH and/or CASTELLANOS except as otherwise set forth herein. 1.2. Right to Retain Cash Consideration. The Parties agree that SOTOLONGO, MARGOLIS, SMITH and CASTELLANOS shall have the right to retain and shall not be obligated to repay any portion of the cash consideration paid to them by RMC pursuant to Section 2.03 (b) of the Master Transaction Agreement. The amounts of such cash consideration are as follows: 3 4
PHYSICIAN CASH AMOUNT --------- ----------- SOTOLONGO $1,144,384.00 MARGOLIS $1,144,384.00 SMITH $1,144,384.00 CASTELLANOS $ 381,462.00
1.3 Cancellation of Obligation to Deliver Common Stock. SOTOLONGO, MARGOLIS, SMITH, and CASTELLANOS have contributed to the Purchaser their right to receive the shares of RMC Common Stock pursuant to Section 2.03(c) of the Master Transaction Agreement, and pursuant to the terms of the Stock Purchase Agreement the Purchaser has cancelled Raytel's obligation to deliver and issue such stock. Any stock already transferred shall be returned by SOTOLONGO, MARGOLIS, SMITH, and CASTELLANOS. 1.4 Related Agreements. (a) The parties acknowledge that it is presently RMC's intent to terminate and to divest its present contractual arrangements to provide certain cardiology management and imaging related services to the Baptist Hospital of Southeast Texas through certain subsidiaries of RMC including but not limited to Raytel Texas Hospital Management, Inc. ("RTHM"). The parties further agree that effective as of the Effective Date SETCA II, P.A. or any of the Physicians or the Practice may, in their discretion, offer and negotiate for the provision of the same or similar services to the Baptist Hospital of Southeast Texas (and its successor) and any such offer and negotiations, whether made now or prior to this date, shall not be and shall not give rise to a cause of action against SETCA II, P.A., any Practice, any Physician or any Shareholder on any grounds, including but not limited to a claim for tortious interference with contract rights or for breach of fiduciary duties or otherwise. (b) RMC agrees to liquidate RTHM and cancel all contractual obligations therein, upon proof that Baptist Hospital will permit such termination without penalty to RTHM. ARTICLE II TERMINATION OF MANAGEMENT SERVICES AGREEMENT 2.1 Management Services Agreement. The Management Services Agreement dated September 18, 1996 between RTPS and RMS and SETCA II, P.A., as amended by the First Amendment to the Management Services Agreement dated October 1, 1997 and as assigned to RSM is hereby terminated effective as of the Effective Date. 2.2. Management Authority. Pursuant to the termination of the Management Services Agreement, all obligations and authority of CMP and RSM to provide management services to SETCA II, P.A. are terminated as of the Effective Date. 2.3 Termination of Billing and Collection Services. 4 5 (a) As of the Effective Date, RSM shall cease providing the billing and collection related services as outlined in Section 4.8 of the Management Services Agreement. (b) As of the Effective Date, the exclusive special power of attorney granted to RSM by SETCA II, P.A. in connection with such billing and collection services is terminated. (c) The Parties agree that they shall cooperate in finalizing the transfer of the billing and collection functions of the Practice in an efficient and timely manner to SETCA II, L.L.P. or to such other entity as the Shareholders shall designate. 2.4 Revocation of Power of Attorney. The Parties agree that the exclusive power of attorney and appointment as agent and attorney-in-fact granted by SETCA II, P.A. to RSM pursuant to Section 4.9 (a) of the Management Services Agreement is hereby revoked as of the Effective Date. 2.5. Control Over Medical Group Account. Effective as of the Effective Date, SETCA II, L.L.P. shall have sole and exclusive control and discretion in and to all Medical Group Account(s) of the Practice as referenced in Sections 4.8 and 4.9 of the Management Services Agreement and any other bank accounts associated with the Management Services Agreement. Any "sweep" account or sweep of that account is terminated as of the Effective Date. 2.6. Termination of Obligation to Maintain Practice. Pursuant to the termination of the Management Services Agreement, effective as of the Effective Date, SETCA II, P.A.'s obligation to maintain a full-time cardiology practice in the Practice Territory as set forth in Section 5.1 of the Management Services Agreement is terminated. 2.7. Noncompetition. The Parties expressly agree that the terms of the noncompetition clause set forth at Section 5.8 of the Management Services Agreement plus all other agreements are, effective as of the Effective Date, void and of no force or effect. 2.8. Termination of Obligation to Pay Fees. SETCA II, P.A.'s obligation to pay and RMS authority to hold the RMS monthly management and performance fees, if any, pursuant to Sections 6.1, 6.2, and 6.3 of the Management Services Agreement is terminated as of the Effective Date and such fees shall no longer be due or payable thereafter. Any unpaid and accrued fees and any other amounts that may be due and owing by SETCA II, P.A. or any other party is hereby terminated and released. 2.10 Books and Records. SETCA II, L.L.P. shall retain all patient records and files (including billing information and computer data) related to the Practice. ARTICLE III Intentionally deleted. 5 6 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1. Representations and Warranties of Each Party. Without waiving or modifying any representation or warranty made by a Party in the Stock Purchase Agreement, each Party to this Agreement hereby represents and warrants to each other Party hereto, on the date hereof and as of the Effective Date, as follows: (a) Standing. Each Party (except those Parties who are individuals) is a duly organized legal entity, validly existing and in good standing under the laws of the state in which incorporated and/or organized. (b) Corporate Authority. Each party has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. The Board of Directors, Board of Managers, shareholders, and/or partners of each Party have taken all action required by law, by such Party's Articles of Association and/or organization, and Bylaws, or otherwise, to authorize the execution and delivery of this Agreement and such other transaction documents as may be required hereunder and the consummation of the transactions contemplated hereby. (c) Effect of This Agreement. Neither the execution and delivery of this Agreement nor the consummation of the transactions set forth herein nor compliance by any Party 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 of any Party hereto except for the requirement of consent or waiver to such transactions by the other party to the agreement or instrument. (d) Compliance with Applicable Laws. No party has 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). (e) Litigation and Investigations. Except as disclosed in writing, each Party represents and warrants that there are no lawsuits, proceedings, claims or governmental investigations pending, or known to be threatened or contemplated, against such Party, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely, could have a material adverse effect on the Assets or the Practice or the ability of SETCA II, L.L.P. to carry on the Practice following the Effective Date. (f) Tax Returns. Each party 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 6 7 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. (g) Disclosure. No representation or warranty by any Party in this Agreement contains or will contain any untrue statement of a material fact, or omits to state a material fact necessary to make the statements not misleading in light of the circumstances under which they were made. ARTICLE V CLOSING 5.1. Closing. The consummation of the transactions contemplated hereunder (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement and the Stock Purchase Agreement (the "Closing Date"), but effective as of the Effective Date. The Closing shall take place simultaneously at the offices of Orgain, Bell & Tucker, LLP, 470 Orleans, Beaumont, Texas, and at the offices of Raytel, or at such other places as the parties may mutually agree. The parties may close this Agreement at their respective principal offices or at the offices of their attorneys and the parties may exchange signature pages to this Agreement or to any document executed in connection herewith by fax machine, and a faxed copy of a signature page shall have the same force and effect as an original. ARTICLE VI SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION AND MUTUAL RELEASE 6.1. 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 6.3 hereto. 6.2. Indemnity. Without waiving, limiting or modifying any indemnity agreement contained in the Stock Purchase Agreement, the parties agree to the following: (a) By RMC, RTPS, and RSM. Subject to the limitations set forth in paragraph 6.3 hereto, RMC, RTPS, and RSM jointly and severally, indemnify, defend, protect and hold SETCA, SETCA II, P.A., SETCA II, L.L.P., and each of the Shareholders harmless from, and against, any and all claims, demands, suits, actions, causes of action, losses, damages 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, 7 8 managed care organization or other health care claims paying or claims processing intermediary), including reasonable attorney's fees and litigation expenses, arising from or on account of: (1) any breach by RMC, RTPS, and/or RSM of this Agreement or the Stock Purchase Agreement; (2) any inaccuracy to, misrepresentation in or breach of any of the warranties, representations, covenants or agreements made by RMC, RTPS, and/or RSM herein; and (3) RMC's, RTPS's, and/or RSM 's management of the Practice and use and occupation of any premises in which the Practice is located prior to the Closing Date, including, without limitation, any and all amounts payable to local, state or federal tax authorities, claims made by creditors of RMC, RTPS, and/or RSM and liability claims made with respect to the management of the Practice by RMC prior to the Effective Date, except for liabilities expressly assumed herein by SETCA II, L.L.P.. Notwithstanding the foregoing, the requirement set forth in Section 6.2(a) that RMC, RTPS, and RSM jointly and severally, indemnify, defend, protect and hold SETCA, SETCA II, P.A., SETCA II, L.L.P., and each of the Shareholders harmless from, and against, any and all claims, demands, suits, actions, causes of action, losses, damages 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 shall not apply in the event the claim was submitted by RMC, RTPS or RSM based upon incorrect or erroneous information suplied by SETCA, SETCA II, P.A., SETCA II, L.L.P., or any of the Shareholders. (b) By SETCA, SETCA II, P.A, SETCA II, L.L.P., and Each Shareholder. Subject to the limitations set forth in Section 6.3 hereto, SETCA, SETCA, II, P.A., SETCA II, L.L.P., and/or each Shareholder indemnify, defend, protect, and hold RMC, RTPS, and/or RSM harmless from and against any and all claims, demands and liabilities, including reasonable attorneys' fees, arising from or on account of: (1) SETCA's, SETCA, II, P.A.'s, SETCA II, L.L.P.'s, and/or each Shareholder's operation of the Practice 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 SETCA, SETCA, II, P.A., SETCA II, L.L.P., and/or each Shareholder and liability claims made with respect to the conduct of the Practice by SETCA, SETCA, II, P.A., SETCA II, L.L.P., and/or each Shareholder following the Effective Date; (2) any breach by SETCA, SETCA, II, P.A., SETCA II, L.L.P., and/or each Shareholder of this Agreement or the Stock Purchase Agreement; and 8 9 (3) any inaccuracy to, misrepresentation in, or breach of any of the warranties, representations, covenants or agreements made by SETCA, SETCA, II, P.A., SETCA II, L.L.P., and/or each Shareholder herein. 6.3. Limits to Indemnity. Notwithstanding the provisions of this Article VI, or any other provisions set forth in this Agreement or in any document delivered hereunder. (a) Any claim for indemnification made pursuant to paragraph 6.2 above must be made in writing to the Party against which/whom indemnification is sought during the twelve (12) month period following the Effective 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 (3) years following the Effective Date. (b) A Party shall be entitled to indemnification (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 Party's or Parties' aggregate liability for all such Environmental or Medicare Claims shall be unlimited. 6.4 Mutual Release. For and in consideration of this Agreement and the covenants and releases made herein, the sufficiency of which consideration is hereby acknowledged and confessed, RTPS, RMH and Raytel Medical Corporation (herein collectively referred to as the "Raytel Related Parties"), individually and collectively, have ACQUITTED, RELEASED AND FOREVER DISCHARGED, and by these presents do for themselves and for and on behalf of their respective parent and affiliated companies, successors, assigns, hereby ACQUIT, RELEASE AND FOREVER DISCHARGE SETCA, SETCA II, P.A., SETCA II, L.L.P, Sotolongo, Margolis, Smith, Castellanos, the spouses of the Shareholders, and all other physicians who are associated with SETCA (herein referred to colletively as the "SETCA Related Parties") of and from any and all claims, demands, debts, liens, causes of action, damages or liabilities, at law or in equity, either in contract or in tort, as well as any other character or kind of action, known and unknown, now held or owned by the Raytel Related Parties or any of them, in whole or in part, which any or all of Raytel Related Parties may now have or may hereafter claim to hold or possess, on account of, growing out of, related to or concerning, whether directly or indirectly, proximately or remotely, the Master Transaction Agreement, the Management Services Agreement, the Noncompetition Agreement, the Succession Agreement, the Partnership Purchase Agreement, the Agreement for the Purchase and Sale of Assets and all related agreements entered into between any of the Raytel Related Parties and the SETCA Related Parties (herein referred to collectively as the "Transaction Agreements"), or otherwise arising from the dealings between the parties in connection with the Transaction Agreements; 9 10 PROVIDED, HOWEVER, this release and discharge shall not release any of the terms and provisions of this Agreement, the Stock Purchase Agreement and the Asset Purchase and Conveyance Agreement and any other closing documents executed in connection therewith. Likewise, for and in consideration of this Agreement and the covenants and releases made herein, the sufficiency of which consideration is hereby acknowledged and confessed, the SETCA Related Parties, individually and collectively, have ACQUITTED, RELEASED AND FOREVER DISCHARGED, and by these presents do for themselves and for and on behalf of their respective parent and affiliated companies, successors, assigns, hereby ACQUIT, RELEASE AND FOREVER DISCHARGE the Raytel Related Parties of and from any and all claims, demands, debts, liens, causes of action, damages or liabilities, at law or in equity, either in contract or in tort, as well as any other character or kind of action, known and unknown, now held or owned by the SETCA Related Parties or any of them, in whole or in part, which any or all of SETCA Related Parties may now have or may hereafter claim to hold or possess, on account of, growing out of, related to or concerning, whether directly or indirectly, proximately or remotely, the Transaction Agreements and all related agreements entered into between any of the Raytel Related Parties and the SETCA Related Parties or otherwise arising from the dealings between the parties in connection with the Transaction Agreements; PROVIDED, HOWEVER, this release and discharge shall not release any of the terms and provisions of this Agreement, the Stock Purchase Agreement and the Asset Purchase and Conveyance Agreement and any other closing documents executed in connection therewith. It is understood and agreed that this is a FULL AND COMPLETE MUTUAL AND GENERAL RELEASE, and includes all claims of any kind or character, including by way of illustration, but not by way of limitation, actual damages sustained by any of Raytel Related Parties or any of the SETCA Related Parties, damages for breach of any of the Transaction Agreements or for breach of any oral or written contract, damages and claims for fraud and conversion, damages recoverable under the Texas Deceptive Trade Practices Act, damages for mental anguish, damages for fraud or fraudulent inducement, damages for misrepresentation, damages recoverable under any federal or state securities law statute, exemplary damages, property damages, damages for lost profits, consequential damages, attorney's fees, and any other type of damages, including any claim for damages to accrue in the future from any cause, whether known or anticipated at this time or otherwise, and regardless of whether specified within the categories enumerated above. It is the intention of the parties in executing this Agreement and the releases made herein that the same shall be as general as possible, and that the same shall cover every conceivable contingency which might arise in the future, or which may have arisen in the past, whether known or unknown at this time, BUT EXCLUDING any claims that may arise under or pursuant to this Agreement. 6.5 No Disparaging Remarks. All parties to this Agreement further agree that no party shall make any type of oral or written statement, comment, allegation or other communication of any type that disparages or that may tend to disparage the reputation of any other party to this Agreement. 10 11 ARTICLE VII GENERAL PROVISIONS 7.1. Miscellaneous. (a) Recitals. The Recitals set forth at the beginning of this Agreement are incorporated into and make a part of the body of this Agreement; (b) Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by all Parties; (c) Waiver. Each Party, may, by written notice to the other Parties: (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(s); (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. (e) 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. (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). 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 11 12 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 SETCA, SETCA II, P.A., SETCA II, L.L.P. and/or the SOUTHEAST TEXAS CARDIOLOGY Shareholders: ASSOCIATES II, L.L.P. 2693 North Street Beaumont, TX 77701 Attn: Rodolfo Sotolongo, M. D., Managing Partner With Copy to: ORGAIN, BELL & TUCKER, L.L.P. 470 Orleans Street Beaumont, TX 77701 Attn: John Creighton, Esq. Lance J. Fox, Esq. and If to RMC, RTPS, and RSM: RAYTEL MEDICAL CORPORATION, INC. 2755 Campus Drive, Suite 200 San Mateo, California 94403 Attn: Richard F. Bader Chairman and Chief Executive Officer (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 Agreement, the Stock Purchase Agreement, the Asset Purchase and Conveyance Agreement and the closing documents executed in connection herewith 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. 12 13 (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) Exhibits. All exhibits attached to this Agreement are incorporated herein by reference. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of NOVEMBER 10, 1999. SETCA, P.A.: RSM: SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES, RAYTEL SOUTHEAST MANAGEMENT, L.P., P.A., a Texas professional corporation a Texas limited partnership By: /s/ Rodolfo Sotolongo, M.D. 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") Its: Chairman and Chief Executive Officer SETCA II, P.A. RMC: SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, RAYTEL MEDICAL CORPORATION, P.A., a Texas professional corporation a Delaware corporation By: /s/ Rodolfo Sotolongo, M.D. By: /s/ Richard F. Bader --------------------------------------- ---------------------------------- Rodolfo Sotolongo, M. D. Richard F. Bader Its: President and Chief Executive Officer Its: Chairman and Chief Executive Officer SETCA II, L.L.P SOUTHEAST TEXAS CARDIOLOGY ASSOCIATES II, L.L.P., a Texas limited liability partnership By: /s/ Rodolfo Sotolongo, M.D. --------------------------------------- Rodolfo Sotolongo, M. D. Its: President and Chief Executive Officer 14 PARTNERS: RODOLFO P. SOTOLONGO, M.D., P.A. By: /s/ Rodolfo Sotolonog, M.D. ----------------------------------------- Rodolfo P. Sotolongo, M.D., President /s/ Rodolfo Sotolonog, M.D. - -------------------------------------------- RODOLFO P. SOTOLONGO, M.D., individually WAYNE S. MARGOLIS, M.D., P.A. By: /s/ Wayne S. Margolis, M.D. ----------------------------------------- Wayne S. Margolis, M.D., President /s/ Wayne S. Margolis, M.D. - -------------------------------------------- WAYNE S. MARGOLIS, M.D., individually MICHAEL SMITH, M.D., P.A. By: /s/ Michael Smith, M.D. ----------------------------------------- Michael Smith, M.D., President /s/ Michael Smith, M.D. - -------------------------------------------- MICHAEL SMITH, M.D., individually MIGUEL CASTELLANOS, M.D., P.A. By: /s/ Miguel Castellanos, M.D. ----------------------------------------- Miguel Castellanos, M.D., President /s/ Miguel Castellanos, M.D. - -------------------------------------------- MIGUEL CASTELLANOS, M.D., individually EX-27.1 4 ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 6,785 0 29,572 0 0 39,431 48,009 28,179 101,689 11,667 0 0 0 9 67,646 101,689 0 68,785 0 65,806 (53) 0 1,471 1,561 609 952 (4,960) 0 0 (4,008) (0.46) (0.46) (RECEIVABLES) Represents net receivables. (LOSS-PROVISION) Included in (TOTAL COSTS) (OTHER-EXPENSES) Represents other income.
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