-----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, K/EFzHeTbMeC33IvslxAIyiEPzTe8X6PNJf7O7Eu9jUntCz5cTAMo9HPTX21tY47 Lo9NKOxsX01kMoHziiEEFw== 0000891618-01-000196.txt : 20010223 0000891618-01-000196.hdr.sgml : 20010223 ACCESSION NUMBER: 0000891618-01-000196 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27186 FILM NUMBER: 1546056 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 f69636e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED DECEMBER 31,2000 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 December 31, 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 JANUARY 31, 2001 ----- ----------------------------------------- COMMON STOCK 8,751,550 ($.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 December 31, 2000 and September 30, 2000.......................... 3 Condensed Consolidated Statements of Operations for the three months ended December 31, 2000 and 1999............. 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 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........ 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. 14 Item 3. Defaults Upon Senior Securities.................................... 15 Item 6. Exhibits and Reports on Form 8-K................................... 15 SIGNATURE.................................................................... 16
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND SEPTEMBER 30, 2000 (000'S OMITTED) ASSETS
DECEMBER 31, SEPTEMBER 30, 2000 2000 ------------ ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 6,765 $ 7,201 Cash held in escrow 879 1,580 Receivables, net 36,259 36,840 Prepaid expenses and other 2,184 2,597 --------- --------- Total current assets 46,087 48,218 Property and equipment, less accumulated depreciation and amortization 19,115 19,651 Intangible assets, less accumulated amortization 41,016 41,672 Other 59 56 --------- --------- Total assets $ 106,277 $ 109,597 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 20,348 $ 1,067 Accounts payable 5,700 5,258 Accrued compensation and benefits 2,415 3,177 Accrued liabilities 5,075 6,329 --------- --------- Total current liabilities 33,538 15,831 Long-term debt and capital lease obligations, net of current portion 3,648 24,130 Minority interest in consolidated entities 1,218 1,774 --------- --------- Total liabilities 38,404 41,735 --------- --------- Stockholders' equity: Common stock 9 9 Additional paid-in capital 62,665 62,664 Common stock to be issued 69 69 Retained earnings 8,752 8,742 --------- --------- 71,495 71,484 Less treasury stock, at cost (3,622) (3,622) --------- --------- Total stockholders' equity 67,873 67,862 --------- --------- Total liabilities and stockholders' equity $ 106,277 $ 109,597 ========= =========
3 4 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED) (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED DECEMBER 31, 2000 1999 -------- -------- Revenues: Cardiac information services $ 9,551 $ 10,441 Diagnostic imaging services 5,998 5,332 Heart facilities and other 5,647 6,858 -------- -------- Total revenues 21,196 22,631 -------- -------- Costs and expenses: Operating costs 10,453 9,899 Selling, general and administrative 8,180 8,884 Depreciation and amortization 2,117 2,054 -------- -------- Total costs and expenses 20,750 20,837 -------- -------- Operating income 446 1,794 Interest expense 564 476 Other expense (income), net (186) (253) Minority interest 53 144 -------- -------- Income from continuing operations before income taxes 15 1,427 Provision for income taxes 5 556 -------- -------- Income from continuing operations 10 871 Discontinued operations: Income from discontinued operations, net of tax -- 29 -------- -------- Net income $ 10 $ 900 ======== ======== Basic income per share: Income from continuing operations $ -- $ .10 Income from discontinued operations -- -- -------- -------- Total $ -- $ .10 ======== ======== Diluted income per share: Income from continuing operations $ -- $ .10 Income from discontinued operations -- -- -------- -------- Total $ -- $ .10 ======== ======== Weighted average shares outstanding: Basic 8,750 8,745 ======== ======== Diluted 8,758 8,939 ======== ========
4 5 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED) (000'S OMITTED)
DECEMBER 31, --------------------- 2000 1999 ------- ------- Cash flows from operating activities: Net income $ 10 $ 900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,117 2,188 Minority interest 53 144 Other, net (9) (20) Changes in operating accounts: Receivables, net 581 (547) Prepaid expenses and other 413 90 Accounts payable 442 756 Accrued liabilities and other (2,016) 42 ------- ------- Net cash provided by operating activities 1,591 3,553 ------- ------- Cash flows from investing activities: Capital expenditures (900) (962) Other, net (18) 100 ------- ------- Net cash used in investing activities (918) (862) ------- ------- Cash flows from financing activities: Income distributions to noncontrolling investors (608) (937) Paydown of line of credit (1,000) (1,802) Principal repayments of debt, net of proceeds (202) (417) Other, net -- 5 ------- ------- Net cash used in financing activities (1,810) (3,151) ------- ------- Net decrease in cash and cash equivalents (1,137) (460) Cash and cash equivalents at beginning of period 8,781 6,110 ------- ------- Cash and cash equivalents at end of period $ 7,644 $ 5,650 ======= =======
5 6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 2000 AND 1999. 1. PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Information in the accompanying interim condensed consolidated financials statements and notes to the financial statements of Raytel Medical Corporation ("Raytel" or the "Company") as of December 31, 2000 and for the three-month periods ended December 31, 2000 and 1999 is unaudited. The accompanying unaudited condensed financials 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 ended December 31, 2000 are not necessarily indicative of results that may be expected for the year ending September 30, 2001. 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, 2000. 2. OFFICE OF THE INSPECTOR GENERAL INVESTIGATION Raytel is currently the subject of a grand jury investigation of unspecified allegations concerning certain business practices of its trans-telephonic cardiac pacemaker monitoring business. In connection with the investigation, Raytel has reviewed its compliance with Medicare billing and record-keeping requirements on a patient-by-patient basis. Pending such confirmation, Raytel held Medicare reimbursement checks received since June 23, 2000 in payment of invoices for pacemaker monitoring services and established an escrow account for funds inadvertently deposited with respect to such services received since the date of the investigation. In addition, Raytel suspended billing for such services. Most of the checks have been deposited, most of the cash has been released from escrow, and new billings for services performed has commenced as most of the affected patients' records have been reviewed and found to be in compliance with applicable Medicare requirements. The total amount of such uncashed checks and escrowed funds was approximately $879,000 as of December 31, 2000. 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, 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 a reserve of $2,000,000 to cover the estimated amounts of these expenses. As of December 31, 2000, the Company had received legal bills and other charges of approximately $1,850,000 related to the investigation. Additional expenses, if any, will adversely affect operating results in future periods, regardless of the eventual outcome of the investigation. At this time, the Company cannot determine the additional financial impact, if any, of this investigation. Moreover, the investigation, and the related internal compliance review, 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 as well as the quarters ended September 30, 2000 and December 31, 2000. Raytel expects that, while the impact of the investigation on the Company's operations in future periods will be less significant as the investigation proceeds, it will continue to adversely affect operating results in future periods. 3. LINE OF CREDIT The Company had 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 was to expire in August 2001 at which time any outstanding balance would be due and payable. At September 30, 2000, the Company was in default of one of its financial covenants in connection with its line of credit for which a waiver was obtained. 6 7 On December 15, 2000, the line of credit agreement was amended to lower the line of credit to $20,000,000 and to revise certain financial and other covenants and terms. The interest rate was changed to be based on LIBOR plus 275 basis points, or the bank's prime rate plus 50 basis points, at the option of the Company and the due date was extended to October 1, 2001. A new non-financial covenant was added which states that any civil financial settlement in excess of $1,000,000 and/or criminal charges relating to the ongoing OIG investigation will be an event of default. The Company is currently in default of one of its new 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." 4. INCOME PER SHARE For the three months ended December 31, 2000 and 1999, basic and diluted earnings per share are calculated as follows:
FOR THE THREE MONTHS ENDED DECEMBER 31, --------------------- 2000 1999 ------ --------- (in thousands, except per share amounts) BASIC EARNINGS PER SHARE: Income from continuing operations $ -- $ .10 Income from discontinued operations -- -- ------ --------- Total $ -- $ .10 ====== ========= Weighted average shares outstanding 8,750 8,745 ====== ========= DILUTED EARNINGS PER SHARE: Income from continuing operations $ -- $ .10 Income from discontinued operations -- -- ------ --------- Total $ -- $ .10 ====== ========= Weighted average shares outstanding 8,750 8,745 Shares to be issued 7 144 Options 1 50 ------ --------- 8,758 8,939 ====== =========
Certain options and warrants to purchase shares of common stock were outstanding during the three months ended December 31, 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 ENDED DECEMBER 31, --------------------------------- 2000 1999 ------------- ------------- Options and warrants outstanding 1,306,846 995,443 Range of exercise prices $1.42-$11.875 $3.625-$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 monitoring; diagnostic imaging services; and heart facilities. Following its initial public offering in December 1995, the Company entered into a series of transactions which expanded its heart center and physician practice management businesses. As a result, revenue has also been 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. The management of SETCA and CCMG comprised the Company's Practice Management Division. 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. For HFHI, the Company recognizes 100% of all medical revenue as the physicians are employees of the Company. On August 15, 1997, the Company acquired all of the outstanding capital stock of CVI, of New Orleans, Louisiana. CVI manages, owns, and operates cardiovascular diagnostic facilities in Texas, Louisiana and Florida and owns and manages a physician clinic in Florida. Total original consideration for the transaction consisted of cash and transaction costs of approximately $16,980,000 and 500,000 shares of Raytel Common Stock. During fiscal 1998, there were additional transaction costs of approximately $280,000 and an additional 46,668 shares of the Company's Common Stock has been or will be issued. 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 provided 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 recognized revenue based on the modified agreement which called 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. This agreement ended during fiscal 2000. 8 9 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. 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 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. In order to settle a dispute and avoid protracted litigation, initiated by SETCA, effective May 31, 2000, the Company's Board of Directors approved management's plan to sell SETCA. As a result of the discontinuance of the management of CCMG and the sale of SETCA, the Company discontinued 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. in exchange for promissory notes in the aggregate amount of approximately $2,300,000 and the physicians' agreement to cancel existing rights to receive 122,068 shares of Raytel's Common Stock. Accordingly, the Company reported the results of operations of the Practice Management Division and the loss on disposal as discontinued operations. The loss on disposal of $4,965,000, recorded at June 30, 2000, was net of an estimated tax benefit of approximately $3,367,000. Raytel is currently the subject of a grand jury investigation of unspecified allegations concerning certain business practices of its trans-telephonic cardiac pacemaker monitoring business. In connection with the investigation, Raytel has reviewed its compliance with Medicare billing and record-keeping requirements on a patient-by-patient basis. Pending such confirmation, Raytel held Medicare reimbursement checks received since June 23, 2000 in payment of invoices for pacemaker monitoring services and established an escrow account for funds inadvertently deposited with respect to such services received since the date of the investigation. In addition, Raytel suspended billing for such services. Most of the checks have been deposited, most of the cash has been released from escrow, and new billings for services performed has commenced as most of the affected patients' records have been reviewed and found to be in compliance with applicable Medicare requirements. The total amount of such uncashed checks and escrowed funds was approximately $879,000 as of December 31, 2000. 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, 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 a reserve of $2,000,000 to cover the estimated amounts of these expenses. As of December 31, 2000, the Company had received legal bills and other charges of approximately $1,850,000 related to the investigation. Additional expenses, if any, will adversely affect operating results in future periods, regardless of the eventual outcome of the investigation. At this time, the Company cannot determine the additional financial impact, if any, of this investigation. Moreover, the investigation, and the related internal compliance review, 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 as well as the quarters ended September 30, 2000 and December 31, 2000. Raytel expects that, while the impact of the investigation on the Company's operations in future periods will be less significant as the investigation proceeds, it will continue to adversely affect operating results in future periods. 9 10 RESULTS OF OPERATIONS Revenues. For the three months ended December 31, 2000, total revenues were $21,196,000 compared to $22,631,000 for the three months ended December 31, 1999, representing a decrease of $1,435,000, or 6.3%. Cardiac information services revenues were $9,551,000 for the three months ended December 31, 2000, compared to $10,441,000 for the three months ended December 31, 1999, a decrease of $890,000, or 8.5%. The decrease in revenues for cardiac information services was due primarily to lower revenues from Pacing as a result of lower test volumes. Diagnostic imaging services revenue was $5,998,000 for the three months ended December 31, 2000 compared to $5,332,000 for the three months ended December 31, 1999, an increase of $666,000, 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 $5,647,000 for the three months ended December 31, 2000, compared to $6,858,000 for the three months ended December 31, 1999, a decrease of $1,211,000, or 17.7%, due primarily to lower revenue at HFHI and certain cardiovascular diagnostic facilities. Operating Expenses. Operating costs and selling, general and administrative expenses decreased by $150,000, or .8%, from $18,783,000 for the three months ended December 31, 1999 to $18,633,000 for the three months ended December 31, 2000, due primarily to decreases in costs and expenses at cardiac information services, partially offset by increases in costs and expenses in diagnostic imaging services. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased by 4.9%, from 83.0% for the three months ended December 31, 1999 to 87.9% for the three months ended December 31, 2000 primarily due to lower revenue. Depreciation and Amortization. Depreciation and amortization expense increased by $63,000, from $2,054,000 for the three months ended December 31, 1999 to $2,117,000 for the three months ended December 31, 2000 and increased as a percentage of revenues from 9.1% for the three months ended December 31, 1999 to 10.0% for the three months ended December 31, 2000 primarily as a result of lower revenues. Operating Income. As a result of the foregoing factors, operating income decreased by $1,348,000 from $1,794,000 for the three months ended December 31, 1999 to $446,000 for the three months ended December 31, 2000. Interest Expense. Interest expense increased by $88,000, or 18.5%, from $476,000 for the three months ended December 31, 1999 to $564,000 for the three months ended December 31, 2000 due primarily to an increase in the average amount of debt outstanding. Other Expense (Income). Other income decreased by $67,000 from $253,000 for the three months ended December 31, 1999 to $186,000 for the three months ended December 31, 2000 due primarily to a series of insignificant items. Minority Interest. Minority interest decreased by $91,000, or 63.2%, from $144,000 for the three months ended December 31, 1999 to $53,000 for the three months ended December 31, 2000 due primarily to decreased income in certain cardiovascular diagnostic facilities. Income Taxes. The provision for income taxes decreased by $551,000 from $556,000 for the three months ended December 31, 1999 to $5,000 for the three months ended December 31, 2000 as a result of decreased taxable income. Income From Continuing Operations. Income from continuing operations decreased by $861,000 from $871,000 for the three months ended December 31, 1999 to $10,000 for the three months ended December 31, 2000. Discontinued Operations. Income from discontinued operations, net of tax was $29,000 for the three months ended December 31, 1999. 10 11 Net Income. As a result of the foregoing factors, net income decreased by $890,000 from $900,000 for the three months ended December 31, 1999 to $10,000 for the three months ended December 31, 2000. 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 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000) 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 from continuing operations before income taxes (in thousands):
INFORMATION IMAGING FACILITIES TOTAL ----------- ------- ---------- ----- For the three months ended December 31, 2000: Net revenue $ 9,551 $ 5,998 $ 5,647 $ 21,196 Total operating expenses 8,413 4,399 4,940 17,752 -------- -------- -------- -------- Segment contribution 1,138 1,599 707 3,444 Depreciation and amortization 849 428 739 2,016 Interest expense -- 61 35 96 Minority interest/other expense (income) 6 1 12 19 -------- -------- -------- -------- Segment profit/(loss) $ 283 $ 1,109 $ (79) $ 1,313 ======== ======== ======== ======== Segment assets $ 43,785 $ 14,516 $ 39,465 $ 97,766 ======== ======== ======== ======== Capital expenditures $ 743 $ 44 $ 113 $ 900 ======== ======== ======== ========
INFORMATION IMAGING FACILITIES TOTAL ----------- ------- ---------- ----- For the three months ended December 31, 1999: Net revenue $ 10,441 $ 5,332 $ 6,858 $ 22,631 Total operating expenses 8,716 3,912 5,149 17,777 -------- -------- -------- -------- Segment contribution 1,725 1,420 1,709 4,854 Depreciation and amortization 736 418 818 1,972 Interest expense -- 72 60 132 Minority interest/other expense (income) (12) (26) (48) (86) -------- -------- -------- -------- Segment profit $ 1,001 $ 956 $ 879 $ 2,836 ======== ======== ======== ======== Segment assets $ 38,368 $ 14,701 $ 44,811 $ 97,880 ======== ======== ======== ======== Capital expenditures $ 655 $ 265 $ 39 $ 959 ======== ======== ======== ========
11 12
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2000 1999 ------- ------- Segment profit $ 1,313 $ 2,836 Unallocated amounts: Corporate general and administrative 881 1,006 Corporate depreciation and amortization 101 82 Corporate interest expense 468 344 Corporate other expense (income) (152) (23) ------- ------- Income from continuing operations before income taxes $ 15 $ 1,427 ======= =======
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. 12 13 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. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000 the Company had working capital of $31,807,000 (excluding the outstanding amount under the Company's line of credit), compared to $32,387,000 at September 30, 2000. At December 31, 2000, the Company had cash and temporary cash investments of $7,644,000. At December 31, 2000, $19,258,000 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, with the collection of these receivables occurring primarily during the subsequent fourth fiscal quarter. The Company had 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 was to expire in August 2001 at which time any outstanding balance would be due and payable. At September 30, 2000, the Company was in default of one of its financial covenants in connection with its line of credit, for which a waiver was obtained. On December 15, 2000, the line of credit agreement was amended to lower the line of credit to $20,000,000 and to revise certain financial and other covenants and terms. The interest rate was changed to be based on LIBOR plus 275 basis points, or the bank's prime rate plus 50 basis points, at the option of the Company, and the date for repayment was extended to October 1, 2001. A new non-financial covenant was added which states any civil financial settlement in excess of $1,000,000 and/or criminal charges relating to the ongoing OIG investigation will be an event of default. The Company is currently in default of one of its new 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 2001. 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. 13 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Raytel Cardiac Services, Inc., or "RCS," a wholly-owned subsidiary of 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 Human Services (the "OIG"). On June 23, 2000, the OIG and other federal agents executed a search warrant for information concerning unspecified allegations of impropriety in RCS' business practices related to Medicare-covered services. Subsequently, subpoenas have been served on RCS for the production of additional documents, and several RCS employees and contractors have been subpoenaed to provide testimony before the grand jury. Neither Raytel nor RCS has been informed of any specific charges or allegations against RCS or its employees. However, based on the actions of the U.S. Attorney and the OIG to date, Raytel believes that the investigation is focused on certain business practices of RCS' cardiac pacemaker monitoring business. RCS 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 RCS' cardiac event detection services, or Raytel's diagnostic imaging services 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 held Medicare reimbursement checks received subsequent to June 23, 2000 in payment of invoices for pacemaker monitoring services and established an escrow account for funds inadvertently deposited with respect to such services. In addition, Raytel suspended billing for such services. The checks are being 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. The total amount of such uncashed checks and escrowed funds was approximately $879,000 as of December 31, 2000. Raytel has internal procedures in place designed to assure compliance by Raytel and its subsidiaries 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. RCS has incurred, and expects to continue to incur, substantial legal fees and other expenses in connection with the investigation and has accrued a reserve of $2,000,000 to cover the estimated amount of these expenses. Additional expenses, 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 RCS' 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. Should the outcome of the investigation ultimately result in RCS being charged with and convicted of violations of federal criminal statutes, RCS 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. In addition, such criminal charges would constitute a default under Raytel's bank credit agreement. It is also possible that federal authorities could assert civil claims against RCS under the Federal False Claim Act, which allows the government to recover treble damages plus penalties of $5,000 to $10,000 per claim. We cannot currently determine the likelihood of any such claims or the eventual outcome. A significant fine, the revocation of RCS' Medicare participation or civil liability under the False Claims Act would significantly harm Raytel's business. 14 15 Raytel and its subsidiaries are parties to other litigation and claims arising out of its ongoing business operations. Raytel believes that none of these matters, either individually or in the aggregate, are likely to have a material adverse effect on its business, financial condition or operating results ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company is currently in default of one of its financial covenants in connection with its $20,000,000 revolving line of credit with two banks. This covenant requires the Company to maintain a certain financial ratio. 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. The amount outstanding under the credit line as of December 31, 2000 was $19,258,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS: The following exhibit is filed as a part of this Report:
Exhibit Number Title ------- ----- 10.67 Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated December 15, 2000 among the Registrant, Fleet National Bank, formerly known as BankBoston, N.A., successor by merger to Bank of Boston Connecticut, and BNP Paribas, formerly known as Paribas, and Fleet National Bank, as agent.
b. REPORTS ON FORM 8-K: The Company filed no other reports on Form 8-K during the quarter ended December 31, 2000. 15 16 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: February 14, 2001 By: /s/ John F. Lawler, Jr. --------------------------------- John F. Lawler, Jr. Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 16 17 EXHIBIT INDEX
Exhibit Number Title ------- ----- 10.67 Fifth Amendment and Waiver to Amended and Restated Credit Agreement, dated December 15, 2000 among the Registrant, Fleet National Bank, formerly known as BankBoston, N.A., successor by merger to Bank of Boston Connecticut, and BNP Paribas, formerly known as Paribas, and Fleet National Bank, as agent.
17 EX-10.67 2 f69636ex10-67.txt EXHIBIT 10.67 1 EXHIBIT 10.67 FIFTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT This FIFTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT") dated as of December 15, 2000, is by and among Raytel Medical Corporation (the "BORROWER"), Fleet National Bank, formerly known as BankBoston, N.A., successor by merger to Bank of Boston Connecticut, and BNP Paribas, formerly known as Paribas (collectively, the "BANKS") and Fleet National Bank as agent for the Banks (in such capacity, the "AGENT"). W I T N E S S E T H: WHEREAS, the Borrower, the Banks and the Agent entered into a certain Amended and Restated Credit Agreement dated as of August 14, 1996, as amended by (i) the First Amendment to Amended and Restated Credit Agreement dated as of June 4, 1997, (ii) the Second Amendment to Amended and Restated Credit Agreement dated as of September 26, 1997, (iii) the Third Amendment to Amended and Restated Credit Agreement dated as of July 24, 1998, and (iv) the Fourth Amendment to Amended and Restated Credit Agreement dated as of July 30, 1999 (as amended from time to time, the "CREDIT AGREEMENT"); and WHEREAS, the Borrower has requested that the Credit Agreement be amended in certain respects; and WHEREAS, the Agent and the Banks have agreed to amend the Credit Agreement on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein without definition that are defined in the Credit Agreement shall have the same meanings herein as therein. SECTION 2. REPRESENTATIONS AND WARRANTIES. Except as set forth on Schedule 2 attached hereto and made a part hereof, the Borrower hereby repeats on and as of the date hereof the representations and warranties made by it in the Credit Agreement, provided that all references therein to the Credit Agreement shall refer to the Credit Agreement as amended hereby. SECTION 3. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement 2 or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Amendment. SECTION 4. WAIVERS. Subject to the satisfaction of the conditions set forth below, the Banks and the Agent waive those Events of Default set forth on Schedule A attached hereto and made a part hereof. The waivers set forth above in this Section 4 shall be effective only for those Events of Default set forth on Schedule A attached hereto and only for the periods set forth therein and such waivers shall not entitle the Borrower to any future waiver in similar or other circumstances. Without limiting the foregoing, upon the occurrence of an Event of Default after the date set forth above, or if an Event of Default has occurred and is continuing on the date hereof that is not set on Schedule A, the Agent shall, upon the request of the Majority Banks, so long as such Event of Default is continuing, accelerate the payment in full of the Borrower's indebtedness to the Banks and the Agent under the Credit Agreement and the other Loan Documents, and each Bank and the Agent, with the consent of the Majority Banks, may proceed to enforce any or all of such Bank's and the Agent's, as applicable, rights under or in respect of the Credit Agreement, the Notes and the other Loan Documents and applicable law. SECTION 5. AMENDMENTS TO CREDIT AGREEMENT. SECTION 5.1. GENERAL AMENDMENT TO CREDIT AGREEMENT. All references to the phrase "Revolving Credit Loan" in the Credit Agreement are hereby deleted, and the phrase "Loan" is hereby substituted therefor. SECTION 5.2. AMENDMENT TO SECTION 2.2. Section 2.2 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 2.2. REVOLVING CREDIT COMMITMENT FEE. The Borrower agrees to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a Revolving Credit Commitment Fee calculated at the rate of one-half of one percent (0.5%) per annum on the average daily amount during each calendar quarter or portion thereof from the Effective Date to the Revolving Credit Termination Date by which the Total Commitment exceeds the outstanding aggregate amount of Loans during such calendar quarter. The Revolving Credit Commitment Fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter, commencing on the first date following the Effective Date, with a final payment on the Revolving Credit Termination Date or any earlier date on which the Commitments shall terminate." SECTION 5.3. AMENDMENT TO SECTIONS 2.3, 5.3, 5.4, 8.1, 13.1(b) AND 19.5. Sections 2.3, 5.3, 5.4, 8.1, 13.1(b) and 19.5 of the Credit Agreement are hereby amended by deleting all references to the phrase "commitment fee" in each such Section, and substituting therefor the phrase "Revolving Credit Commitment Fee." -2- 3 SECTION 5.4. AMENDMENT TO SECTION 2.3. Section 2.3 of the Credit Agreement is hereby amended in its entirety to read as follows: SECTION 2.3 REDUCTION OF COMMITMENTS. (a) Voluntary Reduction of Commitments. The Borrower shall have the right at any time and from time to time upon five (5) Business Days' prior written notice to the Agent to reduce by $300,000 or any greater integral multiple of $100,000 or terminate entirely the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice, or as the case may be, terminated. Promptly after receiving any notice of the Borrower delivered pursuant to this Section 2.3(a), the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Borrower shall pay to the Agent for the respective accounts of the Banks the full amount of any Revolving Credit Commitment Fee then accrued under Section 2.2 hereof on the amount of the reduction. No reduction or termination of the Commitments may be reinstated. (b) Mandatory Reduction of Total Commitments. On June 30, 2001, the Total Commitment shall be automatically reduced by an amount equal to the Commitment Reduction Amount. Upon the occurrence of the reduction of the Total Commitment as contemplated by this Section 2.3(b), the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount of such reduction of the Total Commitment. If on the date of such reduction in the Total Commitments the sum of the aggregate principal amount of the Loans outstanding exceeds the Total Commitment then in effect, then the Borrower shall immediately pay the amount of such excess to the Agent for the respective accounts of the Banks for application of the Loans. SECTION 5.5. AMENDMENT TO SECTION 2.5. Section 2.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 2.5 INTEREST ON LOANS. Except as otherwise provided in Section 5.11, (a) Each Revolving Credit Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of each Interest Period with respect thereto at a rate per annum equal to the Base Rate Applicable Margin. (b) Each Revolving Credit LIBOR Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof -3- 4 and ending on the last day of each Interest Period with respect thereto at a rate per annum equal to the Applicable LIBOR Rate Margin. (c) The Borrower promises to pay interest on each Loan in arrears on each Interest Payment Date with respect thereto." SECTION 5.6. AMENDMENT TO SECTION 2.6. Section 2.6 of the Credit Agreement is hereby amended by adding the following words to the end of the last sentence: ", and shall be accompanied by evidence of the satisfaction of the conditions in Section 12A with respect thereto." SECTION 5.7. AMENDMENT TO SECTION 3.2. Section 3.2 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 3.2 MANDATORY REPAYMENTS OF LOANS. (a) If at any time and for any reason the outstanding aggregate amount of the Loans exceeds the Total Commitment, then the Borrower shall immediately pay the amount of such excess to the Agent for the respective accounts of the Banks in accordance with their respective Commitment Percentages for application to such excess. (b) The Borrower shall pay to the Agent, on behalf of the Banks (i) eighty-five percent (85%) of the Net Cash Proceeds from the Port St. Lucie Asset Sale and (ii) one hundred percent (100%) of the Net Cash Proceeds from any other Asset Sale; provided that with respect to any Asset Sale by any Joint Venture, the percentage of net Cash Sale Proceeds paid to the Agent shall be the same percentage as the Borrower's or such Subsidiary's percentage of ownership in such Joint Venture. Each payment required by this Section 3.2(b) shall be due and payable contemporaneously with Borrower's receipt of all or any portion of any Net Cash Proceeds from any such Asset Sale. Such Net Cash Proceeds shall be applied to reduce, pro rata, the Loans outstanding, and the Total Commitment will be automatically and permanently reduced by the amount of such Net Cash Proceeds, such reduction to be applied pro rata to the Commitments of the Banks." SECTION 5.8. AMENDMENT TO SECTION 5.3(a). Section 5.3(a) of the Credit Agreement is hereby amended by deleting the first sentence of that paragraph and substituting the following in its place: "All payments of principal, interest, Revolving Credit Commitment Fees, facility fees and any other amounts due hereunder or under any of the other Loan Documents shall be made by the Borrower to the Agent, for the respective accounts of the Banks and the Agent, at the -4- 5 Agent's Head Office or at such other place as the Agent may from time to time specify in writing, in each case in lawful currency of the United States of America in immediately available funds and not later than 1:00 p.m. (Hartford, Connecticut time) on the date when due or, in the case of optional prepayments of any Loan, on the date of such proposed repayment." SECTION 5.9. AMENDMENTS TO SECTION 7.2(b) AND SECTION 7.17. Each of Sections 7.2(b) and 7.17 of the Credit Agreement are hereby amended by adding the phrase "limited liability company," after the phrase "partnership," in each such section. SECTION 5.10. AMENDMENT TO SECTION 7.5. Section 7.5 of the Credit Agreement is hereby amended by deleting the date "September 30, 1995" in the first sentence thereof, and substituting therefor the date "September 30, 2000." SECTION 5.11. AMENDMENT TO SECTION 8.4(c). Section 8.4(c) of the Credit Agreement is hereby amended by deleting the phrase "Exhibit E" and substituting therefor the phrase "Exhibit C." SECTION 5.12. AMENDMENT TO SECTION 8.13. Section 8.13 is hereby amended in its entirety to read as follows: "SECTION 8.13 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans (i) to finance the Acquisitions permitted by the Majority Banks and (ii) for working capital and general corporate purposes; provided, that the Borrower will not, and will not permit any of its Subsidiaries to, (A) use the proceeds of any of the Loans to finance or pay for any Indebtedness or obligations arising in connection with the operations or business of any of the Joint Venture, including, without limitation, any Indebtedness incurred by the Borrower or any of its Subsidiaries on behalf of any Joint Ventures in its capacity as a general partner or joint ventures of such Joint Venture or otherwise or any Indebtedness incurred under any management or operating contract between the Borrower or any of its Subsidiaries and any of the Joint Ventures, or (B) use the proceeds of any of the Loans to pay any Indebtedness incurred as the result of any forfeiture of assets of, or the payment of a fine (or settlement in connection with any governmental investigation) by, the Borrower or any Subsidiary pursuant to (x) an indictment or conviction of the Borrower or any Subsidiary for a federal or state crime or any settlement in connection with any of the foregoing, or (y) the subjection of such Borrower or Subsidiary to any judicial or administrative proceeding, and, provided, further, that nothing set forth in this Section 8.13 shall be deemed to restrict the ability of the Borrower and its Subsidiaries to pay Indebtedness permitted by the terms of Section 9.1(h) hereof." -5- 6 SECTION 5.13. AMENDMENT TO SECTION 8. Section 8 is hereby amended by adding a new Section 8.15 to the end of such Section, to read as follows: "SECTION 8.15 REPLACEMENT OF PROMISSORY NOTE. Upon receipt of an affidavit of an officer of any Bank as to the loss, theft, destruction or mutilation of a Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note or other security document, Borrower will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor." SECTION 5.14. AMENDMENT TO SECTION 9.3. Section 9.3 to the Credit Agreement is hereby amended by inserting therein a new Section 9.3(g) to read as follows: "(g) Investments consisting of Acquisitions permitted by Section 9.5(a);" and renumbering the remaining subsections of this Section accordingly. SECTION 5.15. AMENDMENT TO SECTION 9.4. Section 9.4 of the Credit Agreement is hereby amended in its entirety to read as follows: "The Borrower will not make any Distributions to its public shareholders." SECTION 5.16. AMENDMENT TO SECTION 9.5. Section 9.5 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 9.5 MERGER, CONSOLIDATION, ACQUISITION AND DISPOSITION OF ASSETS. (a) The Borrower will not, and will not permit any of its Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any acquisition of assets or stock except (i) the Acquisitions, provided, that no Acquisition may be made or committed to by the Borrower or any of its Subsidiaries without the prior written consent of the Majority Banks, (ii) the merger or consolidation of one or more of the wholly-owned Subsidiaries of the Borrower with and into the Borrower, (iii) the merger or consolidation of two or more wholly-owned Subsidiaries of the Borrower, or (iv) acquisitions by the Borrower consisting of Investments permitted by Sections 9.3(e), (f), (g) and (h) hereof. (b) The Borrower will not, and will not permit any of its Subsidiaries to, become a party to or agree to or effect any disposition of assets, other than (i) the disposition of assets in the ordinary course of business, consistent with past practices in an aggregate amount not -6- 7 to exceed $500,000 during any fiscal year and (ii) the Port St. Lucie Asset Sale made in compliance with the provisions of Section 3.2(b) hereof and so long as such Asset Sale occurs on or before January 31, 2001." SECTION 5.17. AMENDMENT TO SECTION 9. SECTION 9 of the Credit Agreement is hereby amended by adding a new Section 9.12 to the end of such Section to read as follows: "SECTION 9.12 CREATION OF SUBSIDIARIES. Neither the Borrower nor any of its Subsidiaries shall create any Subsidiary (other than Subsidiaries existing on the Effective Date and disclosed in Section 7.2 hereto) unless (a) one hundred percent (100%) of the capital stock or other equity interests of such Subsidiary are owned by the Borrower or a Subsidiary of the Borrower, (b) prior to the formation of such Subsidiary, the Borrower shall notify the Agent and the Banks thereof, and (c) contemporaneously with the formation of such Subsidiary, the Borrower shall (i) take all steps as may be necessary or advisable in the opinion of the Agent to pledge to the Agent, for the benefit of the Banks and the Agent, on a perfected, first-priority basis one hundred percent (100%) of the capital stock or other equity interest of such Subsidiary owned by the Borrower pursuant to a pledge agreement in form and substance satisfactory to the Agent, which such pledge agreement shall be a Security Document hereunder, (ii) cause such Subsidiary to guaranty all of the Obligations hereunder pursuant to a guaranty in form and substance satisfactory to the Agent, which such guaranty shall be a Security Document hereunder, (iii) cause such Subsidiary to take all steps as may be necessary or advisable in the opinion of the Agent to grant to the Agent, for the benefit of the Banks and the Agent, a first priority, perfected security interest in substantially all of its assets as collateral security for such guaranty, pursuant to security documents, mortgages, pledges and other documents in form and substance satisfactory to the Agent, each of which documents shall be Security Documents hereunder, and (iv) deliver to the Agent and the Banks appropriate corporate backup documentation and one or more legal opinions, in each case, in form and substance satisfactory to the Agent, as to each such pledge, guaranty and grant of security interest, where applicable." SECTION 5.18. AMENDMENT TO SECTION 10.1. Section 10.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 10.1 EARNINGS BEFORE INTEREST AND TAXES TO TOTAL INTEREST EXPENSE. The Borrower will not permit the ratio of Earnings Before Interest and Taxes of the Borrower and its Subsidiaries to Consolidated Total Interest Expense of the Borrower and its Subsidiaries to be less than 2.0:1.0 for (a) the fiscal quarter of the Borrower ending December 31, 2000, (b) the period of two consecutive fiscal quarters of the Borrower ending March 31, 2001, (c) the period of three consecutive fiscal quarters of the Borrower ending June -7- 8 30, 2001 and (d) any period consisting of four consecutive fiscal quarters of the Borrower ending on or after September 30, 2001. SECTION 5.19. AMENDMENT TO SECTION 10.2. Section 10.2 to the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 10.2 FIXED CHARGE RATIO. The Borrower will not permit the Fixed Charge Coverage Ratio for any period consisting of four (4) consecutive fiscal quarters of the Borrower ending after the Fifth Amendment and Waiver Effective Date to be less than 1.50:1.0." SECTION 5.20. AMENDMENT TO SECTION 10.4. Section 10.4 to the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 10.4 EARNINGS BEFORE INTEREST AND TAXES, DEPRECIATION AND AMORTIZATION. The Borrower will not permit Earnings Before Interest and Taxes, Depreciation and Amortization of the Borrower and its Subsidiaries to be less than (i) $2,500,000, for the fiscal quarter of the Borrower ending on December 31, 2000, (ii) $2,750,000, for the fiscal quarter of the Borrower ending on March 31, 2001, and (iii) $3,000,000 for any fiscal quarter of the Borrower ending on or after June 30, 2001." SECTION 5.21. AMENDMENTS TO SECTION 10. Section 10 of the Credit Agreement is hereby amended by adding new Section 10.5 and 10.6 to the end of such Section to read as follows: "SECTION 10.5 CAPITAL EXPENDITURES. The Borrower will not make, or permit any Subsidiary of the Borrower to make, Capital Expenditures in any fiscal year that exceed, the aggregate, $5,000,000 for such year. SECTION 10.6 QUICK RATIO. The Borrower will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.15 to 1.0 at any time." SECTION 5.22. AMENDMENT TO SECTION 12. Section 12 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 12 INTENTIONALLY OMITTED. SECTION 5.23. AMENDMENT TO SECTION 13.1(c). Section 13.1(c) of the Credit Agreement is hereby amended by adding "8.4," immediately following "Sections 8.1," in such Section. SECTION 5.24. AMENDMENT TO SECTION 13.1(e). Section 13.1(e) of the Credit Agreement is hereby amended by deleting the language "of its covenants contained in Section 8.4 hereof or fail to perform any" from the second line of such Section. -8- 9 SECTION 5.25. AMENDMENT TO SECTION 13.1(o). Section 13.1(o) of the Credit Agreement is hereby amended in its entirety to read as follows: "the Borrower or any of its Subsidiaries (i) shall be indicted or convicted for a federal or state crime, including, without limitation, any indictment or conviction in connection with the Office of Inspector General investigation of the Borrower, (ii) shall be subject to any judicial or administrative proceeding, a punishment for which could include the forfeiture of any assets of the Borrower or such Subsidiary having a fair market value in excess of $1,000,000 or the payment of a fine in excess of $1,000,000 or (iii) shall enter into any settlement arrangements in respect of any of the foregoing requiring a payment by the Borrower or any of its Subsidiaries of an amount in excess of $1,000,000;" SECTION 5.26. AMENDMENT TO SECTION 13. Section 13 to the Credit Agreement is hereby amended by inserting a new Section 13(q) to read as follows: "(q) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by the Borrower or any of its Subsidiaries, if such loss, suspension, revocation or failure to renew would have a material adverse effect on the business or financial condition of the Borrower or such Subsidiary; or" and renumbering the remaining subsections of this Section accordingly. SECTION 5.27. AMENDMENT TO SECTION 13.4(b). Section 13.4(b) of the Credit Agreement is hereby amended by deleting the reference to "Section 5.2" in the fourth line of such Section and substituting in its place a reference to "Section 5.1". SECTION 5.28. AMENDMENT TO SECTION 14. Section 14 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 14. SETOFF. The Borrower hereby grants to the Agent and each of the Banks, a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Agent and Banks, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Agent and Banks or any entity under the control of FleetBoston Financial Corporation and its successors and assigns or in transit to any of them. During the continuance of an Event of Default, without demand or notice (any such notice being expressly waived by the Borrower), the Agent and any Bank may setoff the same or any part thereof and apply the same to any liability or obligation of the Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE THE AGENT OR ANY BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER -9- 10 COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. Each of the Banks agrees with each other Bank that (a) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank, and (b) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes held by all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest." SECTION 5.29. AMENDMENT TO SECTION 15.8. Section 15.8 of the Credit Agreement is hereby amended by deleting the phrase "Bank of Boston Connecticut" and substituting in its place the phrase "Fleet National Bank". SECTION 5.30. AMENDMENT TO SECTION 19.1. Section 19.1 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein, each Bank may assign to one or more Persons (other than Borrower or any of its Subsidiaries) all or a portion of its interests, rights and obligations under this Credit Agreement and the other Loan Documents (including all or a portion of its Commitment Percentage and Commitment and the same portion of the Loans at the time owing to it, and the Notes held by it); provided that (a) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (b) such Bank shall have provided Borrower with written notice of such assignment and (c) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit D hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with -10- 11 any Notes subject to such assignment upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment be released from its obligations under this Credit Agreement; provided that if Borrower notifies such Bank and the Agent within forty-eight (48) hours after receipt of the notice provided under subsection (b) hereof that Borrower has found an alternative assignee, then such Bank shall assign such interest to such Person (other than the Borrower or any Subsidiary of the Borrower) at such time as such Bank has received a payment from such Person in an amount equal to the aggregate principal amount of the Loans owing to such Bank, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Bank under this Credit Agreement and the parties shall have otherwise complied with the provisions of Section 19." SECTION 5.31. AMENDMENT TO SECTION 16. Section 16 of the Credit Agreement is hereby amended by inserting in the first sentence thereof the phrase "on demand" immediately after the phrase "The Borrower agrees to pay". SECTION 5.32. AMENDMENT TO SECTION 20(b). Section 20(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) if to the Agent or Fleet National Bank, at 777 Main Street, Hartford, Connecticut 06115, Attention: Jeffrey P. Kinney, Senior Vice President, or at such other address for notice as the Agent or Fleet National Bank shall last have furnished in writing to the Person giving the notice; and" SECTION 5.33. AMENDMENT TO SECTION 24. Section 24 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 24. ENTIRE AGREEMENT, ETC. This Credit Agreement, the Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby and thereby and are intended by the parties to be the final, complete and exclusive statement of the transactions evidenced hereby and thereby. All prior or contemporaneous promises, agreements and understandings, whether oral or written, are deemed to be superceded by such documents, and no party is relying on any promise, agreement or understanding not set forth in such documents. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in Section 26." -11- 12 SECTION 5.34. AMENDMENT TO SECTION 25. Section 25 of the Credit Agreement is hereby amended in its entirety to read as follows: "SECTION 25. WAIVER OF JURY TRIAL, ETC. THE BORROWER, THE AGENT AND THE BANKS MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE AGENT OR ANY BANK RELATING TO THE ADMINISTRATION OF THE FINANCING FACILITY PROVIDED HEREBY OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT OR ANY BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT AND BANKS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE AGENT AND BANKS TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS AND TO PROVIDE THE FINANCING FACILITY PROVIDED HEREBY." SECTION 5.35. AMENDMENT TO SECTION 29. Section 29 to the Credit Agreement is hereby amended by adding the following sentence after the last sentence of such Section. "THE BORROWER FURTHER WAIVES ITS RIGHTS TO REQUEST THAT THE AGENT OR ANY BANK POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT THE BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY THE AGENT OR ANY BANK." SECTION 5.36. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby amended by adding a new Section 30, to read as follows: "SECTION 30. USURY RESTRICTIONS. All agreements between the Borrower, the Agent and the Banks are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Banks or the Agent for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum -12- 13 permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then the Loan Documents shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrower, the Agent and the Banks in the execution, delivery and acceptance of the Loan Documents to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever any Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Borrower, the Agent and the Banks." SECTION 5.37. AMENDMENTS TO SCHEDULE 1. Schedule 1 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting in its place a copy of Schedule 1 attached hereto. SECTION 5.38. AMENDMENTS TO SCHEDULE 2. (a) NEW DEFINITIONS. The following shall be added as new definitions in the appropriate alphabetical order to Schedule 2 of the Credit Agreement: "Accounts Receivable. All rights of the Borrower to payment for goods sold, leased or otherwise marketed in the ordinary course of business and all rights of the Borrower to payment for services rendered in the ordinary course of business and all sums of money or other proceeds due thereon pursuant to transactions with account debtors, except for that portion of the sum of money or other proceeds due thereon that relate to sales, use or property taxes in conjunction with such transactions, recorded on books of account in accordance with generally accepted accounting principles." "Asset Sale. Any sale, lease, transfer, abandonment or other disposition, or series of such dispositions (including, without limitation, by merger or consolidation and whether by operation of law or otherwise), made on or after the Fifth Amendment and Waiver Effective Date by the Borrower or any of its Subsidiaries of any property or assets of the Borrower or any of its Subsidiaries." -13- 14 "Commitment Reduction Amount. An amount equal to (i) $2,500,000 provided that the Port St. Lucie Asset Sale occurs in accordance with the provision of this Credit Agreement or (ii) $5,000,000 in all other circumstances. "Consolidated Current Assets. An amount equal to the sum of (i) unrestricted cash on hand of the Borrower and its Subsidiaries on such date of determination, plus (ii) all Accounts Receivable on such date of determination, all in accordance with generally accepted accounting principles." "Consolidated Current Liabilities. All liabilities and other Indebtedness of the Borrower and its Subsidiaries on a consolidated basis maturing on demand or within one (1) year from the date as of which Consolidated Current Liabilities are to be determined, and such other liabilities as may properly be classified as current liabilities in accordance with generally accepted accounting principles, excluding all Loans outstanding." "Earnings Before Interest and Taxes, Depreciation and Amortization. For any period, an amount equal to the consolidated earnings (or loss) from the operations of any Person for any period, after all expenses and other proper charges but before payment or provision for (i) any income taxes or interest expense for such period, and (ii) depreciation and amortization for such period, all determined in accordance with generally accepted accounting principles and consistent with past practices." "Fifth Amendment and Waiver Effective Date. December 15, 2000." "Loan Request. See Section 2.6 of the Credit Agreement." "Loans. Revolving credit loans made or to be made by the Banks to the Borrower pursuant to Section 2 of the Credit Agreement." "Net Cash Proceeds. With respect to any Asset Sale, the cash proceeds received from such Asset Sale, net of (a) all reasonable and customary direct costs of such sale, (b) taxes paid or payable as a result thereof by the Borrower or any of its Subsidiaries, and (c) the lesser of (i) the amount of Indebtedness which is secured by a lien on the asset that is the subject of the Asset Sale which lien has a priority senior to that of the lien held by the Agent on behalf of the Banks, and (ii) the amount of such secured Indebtedness referred to in clause (c)(i) of this definition which is in fact paid from such cash proceeds." "Port St. Lucie Asset Sale. The Asset Sale by the Borrower or one of its Subsidiaries of the assets of the Heart and Family Health Institute of Port -14- 15 St. Lucie business located in Port St. Lucie, Florida, the Net Cash Proceeds of which are not less than $5,750,000." "Revolving Credit Commitment Fee. See Section 2.2 hereof." (b) AMENDED DEFINITIONS. (i) The definition of "Agent" appearing in Schedule 2 of the Credit Agreement is hereby amended by deleting the phrase "Bank of Boston Connecticut" and substituting in its place the phrase "Fleet National Bank". (ii) The definition of "Agent's Head Office" appearing in Schedule 2 of the Credit Agreement is hereby amended by deleting the phrase "100 Pearl Street, Hartford, Connecticut 06103" and substituting in its place the phrase "777 Main Street, Hartford, Connecticut 06115". (iii) The definition of "Applicable Base Rate Margin" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Applicable Base Rate Margin. 0.50%." (iv) The definition of "Applicable LIBOR Rate Margin" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Applicable LIBOR Rate Margin. 2.75%." (v) The definition of "Balance Sheet Date" appearing in Schedule 2 of the Credit Agreement is hereby amended by deleting the date "March 31, 1996" and substituting in its place the date "September 30, 2000". (vi) The definition of "Banks" appearing in Schedule 2 of the Credit Agreement is hereby amended by deleting the phrase "Bank of Boston Connecticut" and substituting in its place the phrase "Fleet National Bank". (vii) The definition of "Base Rate" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Base Rate. The term "Base Rate" means the variable per annum rate of interest so designated from time to time by Fleet National Bank as its prime rate. The Base Rate is a reference rate and -15- 16 does not necessarily represent the lowest or best rate being charged to any customer." (viii) The definition of "Business Day" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Business Day. Any day other than a Saturday or Sunday or a day which shall be in the State of Connecticut a legal holiday or a day on which banking institutions are required or authorized to close." (ix) The definition of "Code" appearing in Schedule 2 of the Credit Agreement is hereby amended by adding the phrase ", as amended" to the end of the definition. (x) The definition of "Consolidated Financial Obligations" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Consolidated Financial Obligations With respect to any fiscal period, an amount equal to the sum of all principal, interest and other payments on Indebtedness of the Borrower or any of its Subsidiaries that become due and payable or that are to become due and payable during such fiscal period pursuant to any agreement or instrument to which the Borrower or any of its Subsidiaries or any other Person is a party relating to the borrowing of money or the obtaining of credit or in respect of Capitalized Leases. Demand obligations shall be deemed to be due and payable during any fiscal period during which such obligations are Outstanding." (xi) The definition of "Consolidated Operating Cash Flow" appearing in Schedule 2 of the Credit Agreement is hereby deleted in its entirety. (xii) The definition of "Conversion Request" appearing in Schedule 2 of the Credit Agreement is hereby amended by deleting the phrase "Sections 2.7 or 4.5" and substituting in its place the phrase "Section 2.7". (xiii) The definition of "Debt Service Coverage Ratio" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety and placed in the proper alphabetical order to read as follows: "Fixed Charge Coverage Ratio. With respect to any fiscal period, the ratio of (a) the result of (i) Earnings Before Interest and Taxes, Depreciation and Amortization of the Borrower and its Subsidiaries for such period, minus (ii) Capital Expenditures made by the Borrower and its Subsidiaries during such period minus (iii) cash -16- 17 taxes paid by the Borrower and its Subsidiaries during such fiscal period to (b) Consolidated Financial Obligations for such period; provided, that for the purpose of calculating the Fixed Charge Coverage Ratio for (x) the four (4) fiscal quarters ended on December 31, 2000, the amounts referred to in clauses (a) and (b) of this definition shall be the product of each such amount for the fiscal quarter ended December 31, 2000, multiplied by four (4), (y) the four (4) fiscal quarter ended March 31, 2001, the amounts referred to in clauses (a) and (b) of this definition shall be the product of each such amount for the two (2) consecutive fiscal quarters ended on March 31, 2001, multiplied by two (2), and (z) for the four (4) fiscal quarters ended June 30, 2001, the amount referred to in clauses (a) and (b) of this definition shall be the product of each such amount for the three (3) fiscal quarters ended on March 31, 2001, multiplied by one and one-third (1 1/3)." (xiv) The definition of "Guarantees" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Guarantees. The Guarantees, each dated as of February 26, 1993 or to be dated on or after the Fifth Amendment and Waiver Effective Date and otherwise each in form and substance satisfactory to the Agent, made by the Subsidiaries in favor of the Agent and Banks pursuant to which the Subsidiaries guarantee to the Agent and Banks the payment and performance of the Obligations." (xv) The definition of "Indebtedness" appearing in Schedule 2 of the Credit Agreement is hereby amended by inserting the phrase "all Consolidated Total Funded Debt, (c)" immediately following the phrase "(a) all debt and similar monetary obligations, whether direct or indirect;" and by deleting the phrase "(c)" and substituting in its place the phrase "(d)". (xvi) The definition of "Interest Period" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Interest Period. With respect to each Loan, (a) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the Borrower in a Loan Request (i) for any Revolving Credit Base Rate Loan, the last day of the fiscal quarter; and (ii) for any Revolving Credit LIBOR Rate Loan, 1 month; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Loan and ending on the last day of one of the periods set forth above, as selected by the Borrower in a Conversion Request; -17- 18 provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period with respect to a Revolving Credit LIBOR Rate Loan would otherwise end on a day that is not a LIBOR Business Day, that Interest Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding LIBOR Business Day; (B) if any Interest Period with respect to a Revolving Credit Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (C) if the Borrower shall fail to give notice as provided in Section 2.7, the Borrower shall be deemed to have requested a conversion of the affected Revolving Credit LIBOR Rate Loan to a Revolving Credit Base Rate Loan on the last day of the then current Interest Period with respect thereto; (D) any Interest Period relating to any Revolving Credit LIBOR Rate Loan that begins on the last LIBOR Business Day of a calendar month (or on a day or which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last LIBOR Business Day of a calendar month; and (E) any Interest Period relating to any Revolving Credit LIBOR Rate Loan that would otherwise extend beyond the Revolving Credit Termination Date, shall end on the Revolving Credit Termination Date." (xvii) The definition of "LIBOR Business Day" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "LIBOR Business Day. Any day other than Saturday or Sunday on which commercial banks are open for international business (including dealings in Dollar deposits in the London interbank market) in London or such other LIBOR interbank market as may be selected by the Agent in its sole discretion acting in good faith." -18- 19 (xviii) The definition of "LIBOR Rate" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "LIBOR Rate. For any Interest Period with respect to a Revolving Credit LIBOR Rate Loan, the rate of interest equal to the rate per annum as determined by the Agent on the basis of the offered rates for deposits in Dollars, for a period of time comparable to such Revolving Credit LIBOR Loan which appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) LIBOR Business Days preceding the first day of such Interest Period; provided, however, if the rate described above does not appear on the Telerate System on any applicable interest determination date, the LIBOR Rate shall be the rate (rounded upward, if necessary, to the nearest one hundred-thousandth of a percentage point), determined on the basis of the offered rates for deposits in Dollars for a period of time comparable to such Interest Period which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) LIBOR Business Days preceding the first day of such Interest Period as selected by the Agent. The principal London office of each of the four major London banks will be requested to provide a quotation of its Dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in Dollars to leading European banks for a period of time comparable to such Interest Period offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two (2) LIBOR Business Days preceding the first day of such Revolving Credit LIBOR Rate Loan. In the event that Bank is unable to obtain any such quotation as provided above, it will be deemed that LIBOR Rate pursuant to a Revolving Credit LIBOR Rate Loan cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of any Bank, then for any period during which such Reserve Percentage shall apply, the LIBOR Rate shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. "Reserve Percentage" shall mean the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed on member banks of the Federal Reserve System against "Euro-currency Liabilities" as defined in Regulation D." (xix) The definition of "Loan Documents" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: -19- 20 "Loan Documents. This Credit Agreement, the Notes, the Security Documents, the Subordination Agreements and any documents, agreements and/or instruments executed and/or delivered in connection therewith, in each case as amended, modified or supplemented from time to time." (xx) The definition of "Note Record" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Note Record. The Record with respect to a Note." (xxi) The definition of "Person" appearing in Schedule 2 of the Credit Agreement is hereby amended by inserting the phrase "limited liability company" immediately following the phrase "corporation, partnership". (xxii) The definition of "RCL" appearing in Schedule 2 of the Credit Agreement is hereby deleted in its entirety. (xxiii) The definition of "Revolving Credit Loan Request" appearing in Schedule 2 of the Credit Agreement is hereby deleted in its entirety. (xxiv) The definition of "Revolving Credit Loans" appearing in Schedule 2 of the Credit Agreement is hereby deleted in its entirety. (xxv) The definition of "Revolving Credit Termination Date" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Revolving Credit Termination Date. October 1, 2001." (xxvi) The definition of "Security Documents" appearing in Schedule 2 of the Credit Agreement is hereby amended in its entirety to read as follows: "Security Documents. The Guarantees, the Borrower Guaranty, the Borrower Stock Pledge Agreement, the RII Stock Pledge Agreement, the pledge agreements executed pursuant to Section 9.12, the Security Agreements, the Mortgages, the Consents to Collateral Assignment and the Partnership Pledge Agreements." (xxvii) The definition of "Type" is hereby amended by inserting the phrase "Revolving Credit" immediately following the phrase "Base Rate Loan". -20- 21 SECTION 6. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the prior satisfaction, on or before the date hereof, of the following conditions precedent: (a) The Borrower shall have repaid Loans in the aggregate outstanding principal amount of not less than $2,000,000 such that the outstanding principal amount of the Loans after such repayment is equal to or less than $17,258,090.21. (b) Representations and Warranties. The representations and warranties contained in paragraph 7 of the Credit Agreement shall have been correct at and as of the date made. Such representations and warranties shall also be correct at and as of the date thereof, except to the extent that such representations and warranties expressly related to a specific date or were based on facts which have changes in the ordinary course of business, which changes, either singly or in the aggregate, are not materially adverse. (c) No Event of Default. Except for the Events of Default which are expressly waived by the terms of this Amendment, there shall exist no Event of Default or condition which, with either or both the giving of notice of the lapse of time, would result in an Event of Default upon the execution and delivery of this Amendment. (d) Corporate Action. The Banks and the Agent shall have received evidence reasonably satisfactory to the Bank and the Agent that all requisite corporate action necessary for the valid execution, delivery and performance by the Borrower and Guarantors of this Amendment and all other instruments and documents delivered by the Borrower and Guarantors in connection herewith. (e) Delivery of Amendment. The parties hereto shall have executed and delivered this Amendment in form and substance satisfactory to the Banks and the Agent. SECTION 7. ADDITIONAL COVENANTS. Without any prejudice or impairment whatsoever to any of the Banks' and/or Agent's rights and remedies contained in the Credit Agreement and the covenants contained therein, the Notes or in any of the other Loan Documents, the Borrower additionally covenants and agrees with the Bank and Agent as follows: (a) On or before January 5, 2001, the Borrower shall pay to the Agent, for the account of the Banks, a non-refundable amendment and waiver fee of $70,000. (b) The Borrower shall comply and continue to comply with all of the terms, covenants and provisions contained in the Credit Agreement, the Notes and the other Loan Documents, except as such terms, covenants and -21- 22 provisions are expressly modified by this Agreement upon the terms set forth herein. The Borrower expressly acknowledges and agrees that any failure by the Borrower to comply with the terms and conditions of this Section 7 or any other provisions contained in this Agreement shall constitute an Event of Default under the Credit Agreement. SECTION 8. NO WAIVERS BY BANKS AND/OR AGENT. Except as otherwise expressly provided for herein, nothing in this Agreement shall extend to or affect in any way any of the Borrower's obligations or the Agent's or any Bank's rights and remedies arising under the Credit Agreement, the Notes or the other Loan Documents, and neither the Agent nor any Bank shall be deemed to have waived any or all of the Agent's and/or such Bank's rights or remedies with respect to any Event of Default (other than an Event of Default arising under the Credit Agreement as described in Section 4 hereof, and then only to the extent set forth in Section 4 hereof) or event or condition which, with notice or the lapse of time, or both would become an Event of Default and which upon the Borrower's execution and delivery of this Agreement might otherwise exist or which might hereafter occur. SECTION 9. FIFTH AMENDMENT AND WAIVER EFFECTIVE DATE. This Amendment shall become effective among the parties hereto as of the Fifth Amendment and Waiver Effective Date. Until the Fifth Amendment and Waiver Effective Date, the terms of the Credit Agreement prior to its amendment hereby shall remain in full force and effect. SECTION 10. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. [THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] -22- 23 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers, as of the day and year first above written. RAYTEL MEDICAL CORPORATION By: --------------------------------- Its: ----------------------------- BNP PARIBAS (Formerly known as Paribas) By: By: -------------------------------- --------------------------------- Its: Its: ------------------------------- -------------------------------- FLEET NATIONAL BANK, individually and as Agent By: -------------------------------- Jeffrey P. Kinney Its Senior Vice President 24 Each of the undersigned Guarantors acknowledges and accepts the foregoing and ratifies and confirms in all respects such Guarantor's obligations under the Guarantees: RAYTEL CARDIAC SERVICES, INC. By: -------------------------------- Its: ---------------------------- RAYTEL MEDICAL IMAGING, INC. By: -------------------------------- Its: ---------------------------- MEDICAL IMAGING PARTNERS L.P. By: RAYTEL MEDICAL IMAGING, INC., Its General Partner By: ---------------------------- Its: ------------------------ CARDIOVASCULAR VENTURES, INC. By: -------------------------------- Its: ---------------------------- RAYTEL IMAGING HOLDINGS, INC. By: -------------------------------- Its: ---------------------------- 25 RAYTEL CARDIOVASCULAR LABS, INC. By: -------------------------------- Its: ---------------------------- RAYTEL GRANADA HILLS INC. By: -------------------------------- Its: ---------------------------- 26 SCHEDULE A Events of Default These Events of Default that arise as a result of the failure of the Borrower to comply with the following section of the Credit Agreement: SECTION 10.4 for the fiscal quarters of the Borrower ending June 30, 2000 and September 30, 2000, respectively. 27 SCHEDULE 1
COMMITMENT COMMITMENT BANK AMOUNT PERCENTAGES - ---- ---------- ----------- Fleet National Bank $12,000,000 60% BNP Paribas $ 8,000,000 40%
Schedule 1 28 SCHEDULE 2 Amendment to Representations and Warranties The Borrower 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. Schedule 1 -----END PRIVACY-ENHANCED MESSAGE-----