10-Q

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, 2001; 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
(State or other jurisdiction of
incorporation or organization) 94-2787342
(I.R.S. Employer
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, 2002
Common Stock ($.001 par value)	2,919,822

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Notes to Unaudited Condensed Consolidated Financial Statements for the Three Month Periods Ended December 31, 2001 and 2000.
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risks
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 3. Default Upon Senior Securities
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
INDEX TO EXHIBITS
EXHIBIT 2.1
EXHIBIT 10.8
EXHIBIT 10.72
EXHIBIT 10.73
EXHIBIT 10.74
EXHIBIT 10.75

RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, 2001 and September 30, 2001	3
	Condensed Consolidated Statements of Operations for the three months ended December 31, 2001 and 2000	4
	Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2001 and 2000.	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risks	15
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 3.	Default Upon Senior Securities	16
Item 6.	Exhibits and Reports on Form 8-K	17
SIGNATURE		18

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND SEPTEMBER 30, 2001
(000’s omitted)

ASSETS

				December 31,			September 30,
				2001			2001
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	5,983		$	6,095
	Cash held for special purpose				127			400
			Total cash		6,110			6,495
	Receivables, net				31,545			31,404
	Prepaid expenses and other				1,776			2,485
			Total current assets		39,431			40,384
Property and equipment, less accumulated depreciation and amortization					13,611			14,187
Intangible assets, less accumulated amortization					18,583			18,590
Other assets					48			68
			Total assets	$	71,673		$	73,229
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt and capital lease obligations			$	2,858		$	15,151
	Accounts payable				5,611			4,757
	Accrued compensation and benefits				2,282			2,636
	Accrued liabilities				3,979			4,898
			Total current liabilities		14,730			27,442
Long-term debt and capital lease obligations, net of current portion					21,067			9,853
Minority interest in consolidated entities					658			1,003
			Total liabilities		36,455			38,298
Stockholders’ equity:
	Common stock				3			3
	Additional paid-in capital				62,678			62,672
		Retained earnings (accumulated deficit)			(23,841	)		(24,122	)
					38,840			38,553
	Less treasury stock, at cost				(3,622	)		(3,622	)
			Total stockholders’ equity		35,218			34,931
			Total liabilities and stockholders’ equity	$	71,673		$	73,229

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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
(000’s omitted, except per share amounts)

				Three Months Ended December 31,
				2001			2000
Revenues:
	Cardiac information services			$	9,299		$	9,551
	Diagnostic imaging services				6,852			5,998
	Heart facilities and other				1,910			1,699
			Total revenues		18,061			17,248
Costs and expenses:
	Operating costs				8,409			7,777
	Selling, general and administrative expenses				7,218			7,155
	Depreciation and amortization				1,537			1,675
			Total costs and expenses		17,164			16,607
Operating income					897			641
Interest expense					496			560
Other expense (income), net					(73	)		(218	)
Minority interest					13			53
Income from continuing operations before income taxes					461			246
Provision for income taxes					180			95
Income from continuing operations					281			151
Discontinued operations:
	Loss from discontinued operations, net of tax benefit				—			(141	)
Net income				$	281		$	10
Basic income (loss) per share:
		Income from continuing operations		$	.10		$	.05
		Loss from discontinued operations			—			(.05	)
			Total	$	.10		$	0
Diluted income (loss) per share:
		Income from continuing operations		$	.10		$	.05
		Loss from discontinued operations			—			(.05	)
			Total	$	.10		$	0
Weighted average shares outstanding:
		Basic			2,919			2,917
		Diluted			2,953			2,919

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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
(000’s omitted)

					December 31,
					2001			2000
Cash flows from operating activities:
	Net income				$	281		$	10
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			1,537			1,675
			Minority interest			13			53
			Other, net			103			433
		Changes in operating accounts:
			Receivables, net			(141	)		581
			Prepaid expenses and other			709			413
			Accounts payable			854			442
			Accrued liabilities and other			(999	)		(2,016	)
				Net cash provided by operating activities		2,357			1,591
Cash flows from investing activities:
	Capital expenditures					(992	)		(900	)
	Other, net					173			(18	)
				Net cash used in investing activities		(819	)		(918	)
Cash flows from financing activities:
	Income distributions to limited partners					(273	)		(608	)
	Proceeds from (pay-down of) line of credit					(918	)		(1,000	)
	Proceeds from (principal repayments of) debt					(160	)		(202	)
	Capitalized financing costs					(493	)		—
	Other, net					(79	)		—
				Net cash used in financing activities		(1,923	)		(1,810	)
Net decrease in cash and cash equivalents						(385	)		(1,137	)
Cash and cash equivalents at beginning of period						6,495			8,781
Cash and cash equivalents at end of period					$	6,110		$	7,644

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Notes to Unaudited Condensed Consolidated Financial Statements for the Three Month Periods Ended December 31, 2001 and 2000.

1. Presentation of Unaudited Interim Condensed Consolidated Financial Statements

     Information in the accompanying interim condensed consolidated financial statements and notes to the financial statements of Raytel Medical Corporation (“Raytel” or the “Company”) as of December 31, 2001 and for the three month periods ended December 31, 2001 and 2000 is unaudited. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the United States. In the opinion of management, all information considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2001 are not necessarily indicative of results that may be expected for the year ending September 30, 2002. 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, 2001 and Forms 8-K filed during the three months ended December 31, 2001.

2. Office of the Inspector General Investigation

     From June 2000 through June 2001, Raytel was the subject of a grand jury investigation conducted under the direction of the United States Attorney for the District of Connecticut and the Office of the Inspector General of the Department of Health and Human Services (the “OIG”). The investigation involved certain business practices of the transtelephonic cardiac pacemaker monitoring business conducted by Raytel Cardiac Services, Inc., a wholly-owned subsidiary of the Company (“RCS”), at its facilities in Windsor, Connecticut and New York, New York. The investigation did not involve Raytel’s other healthcare services, such as RCS’ cardiac event detection services or Raytel’s diagnostic imaging services or other cardiac-related businesses, nor did it involve RCS’ transtelephonic pacemaker monitoring operations conducted at its Haddonfield, New Jersey facility, which followed testing practices similar to those followed at the Connecticut and New York facilities.

     In June 2001, RCS reached an agreement with the federal government to resolve the issues that were the subject of the investigation. In accordance with that agreement, on June 25, 2001, RCS pled guilty in U.S. District Court in Hartford, Connecticut to a charge of obstructing a criminal investigation arising out of the initial investigation in June 2000. In addition, in October 2001, the Company and RCS entered into an agreement with the government to resolve related civil claims. Under the criminal and civil settlements, RCS agreed to pay a total of $11,500,000 to the government over a five year period, with interest of 7% per annum on the unpaid balance, to resolve the criminal and civil allegations relating to the practices of RCS’ Connecticut and New York transtelephonic monitoring operations which were the subject of the investigation. Raytel guaranteed RCS’ payment obligations under the settlement agreement. RCS also entered into a corporate integrity agreement under which it agreed that its ongoing operations would conform to specified guidelines. As of December 31, 2001, $1,500,000 had been paid to the government, and the next payment of $2,000,000 is due in June 2002. RCS’ guilty plea did not adversely affect its participation in the Medicare program or other federal healthcare programs.

     The Company incurred substantial legal fees and other expenses in connection with the investigation and established a reserve of $4,600,000 to cover the estimated amounts of these expenses. As of December 31, 2001, the Company had incurred legal fees and other expenses of approximately $4,358,000 related to the investigation, including legal fees incurred by certain RCS employees in connection with the investigation which were reimbursed by RCS in accordance with the requirements of Delaware Law and RCS’ By-Laws. The remaining balance of the reserve is included in “accrued liabilities” on the Company’s balance sheet. Additional expenses, if any, will adversely affect operating results in future periods.

     In addition to these direct expenses, the investigation, the related internal compliance review, and settlement negotiations with the government diverted the efforts and attention of a number of Raytel’s management and administrative personnel. The impact of this diversion reduced the efficiency of RCS’ 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 quarter ended September 30, 2000 and throughout the fiscal year ended September 30, 2001. Although the investigation has now been concluded, implementation of the corporate integrity agreement continues to require the time and attention of Raytel and RCS management and a number of

6

RCS’ administrative personnel. In addition, RCS’ guilty plea entered into under its agreement with the government constituted a default under Raytel’s bank credit facility. In November 2001, Raytel entered into a new revolving line of credit arrangement and repaid all outstanding indebtedness under its bank facility. However, RCS’ guilty plea could adversely affect Raytel’s ability to obtain debt or equity financing in the future.

     In connection with the civil settlement agreement, neither the Company nor RCS admitted liability for the government’s allegations, and the settlement agreement did not release the Company or RCS from any future claims arising out of their other business operations, including RCS’ transtelephonic pacemaker operations conducted at its New Jersey facility. In December 2001, RCS submitted claims which would result in reimbursements totaling approximately $1,500,000 for transtelephonic monitoring services performed at the New Jersey facility between June 2000 and January 2001 which had not complied in all respects with certain technical requirements of Medicare’s policy guidelines relating to the duration of testing sessions. These claims are currently pending with RCS’ Medicare carrier. By letter dated December 28, 2001, the Department of Health and Human Services advised RCS that it could not instruct the carrier to pay claims for services that did not comply with these guidelines. In January 2002, the carrier advised RCS that it would require additional information to adjudicate the claims. RCS is in the process of providing additional information to the carrier. RCS believes that its testing procedures were clinically adequate and intends to appeal any adverse decision of the carrier with respect to these claims. Since January 2001, tests performed at the New Jersey facility have complied with the policy guidelines in question.

3. Line of Credit

     On December 15, 2000, the Company’s line of credit agreement with two banks was amended to reduce 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 under which any civil financial settlement in excess of $1,000,000 or any criminal charges relating to the ongoing OIG investigation would constitute an event of default. On March 16, 2001, the line of credit was further reduced to $14,900,000 in connection with the sale of the Company’s HFHI subsidiary. Consistent with the terms of the December 2000 amendments to the line of credit agreement, the line of credit was further reduced by $2,500,000 on June 30, 2001 to $12,400,000. RCS’ guilty plea, entered into under its settlement with the federal government, constituted a default under the line of credit agreement. See Note 2. In October and November 2001, the interest rate under the line of credit was increased to 400 basis points over the bank’s prime rate.

     In November 2001, the Company entered into a new two-year revolving credit facility with Healthcare Business Credit Corporation under which it may borrow up to $15,000,000. Loans under the facility bear interest at prime plus 1% per annum and are secured by accounts receivable, inventories, capital equipment and other assets of Raytel and certain of its subsidiaries and affiliated entities. The Company’s access to the line of credit is subject to certain financial and other covenants and conditions. Raytel used the initial proceeds of the new facility to repay outstanding indebtedness of approximately $12,300,000 under the credit line that matured on October 1, 2001. At December 31, 2001, there was approximately $11,369,000 outstanding under the line of credit which was classified as long-term debt on the Company’s balance sheet.

4. Discontinued Operations

     In March 2001, effective January 1, 2001, the Company completed the sale of its wholly-owned subsidiary, Heart and Family Health Institute (“HFHI”), to a new company organized by physicians practicing at HFHI. The Company received a cash purchase price of $8,311,000, net of transaction expenses, for all the common stock of the subsidiary. The Company reported a $19,353,000 loss on the transaction related primarily to the write-off of unamortized intangible assets. Due to the uncertainty of the ultimate tax benefit to be realized as a result of the loss, the Company did not provide for any tax benefit that may result from this transaction. As a result, the Company reported the results of HFHI and the loss on disposal as a discontinued operation and the related operating results have been reported separately from continuing operations for all applicable periods presented.

     Revenues attributable to HFHI during the three months ended December 31, 2001 and 2000 were $0 and $3,948,000, respectively. The loss from discontinued operations of $141,000 for the three months ended December 31, 2000 was attributable to HFH1 and was net of a tax benefit of $90,000.

7

5. Reverse Stock Split

     On May 9, 2001, the Board of Directors effected a one-for-three reverse split of the Company’s common stock. The accompanying condensed consolidated financial statements reflect such reverse stock split for all periods presented.

6. Net Income Per Share

     For the three months ended December 31, 2001 and 2000, basic and diluted earnings per share are calculated as follows:

		Three months
		ended December 31,
		2001		2000
(000’s omitted, except per share amounts)
Basic Income (Loss) per Share:
Income from continuing operations		$	.10	$	.05
Loss from discontinued operations			—		(.05	)
	Total	$	.10	$	.00
Weighted average shares outstanding			2,919		2,917
Diluted Income (Loss) per Share:
Income from continuing operations		$	.10	$	.05
Loss from discontinued operations			—		(.05	)
	Total	$	.10	$	.00
Weighted average shares outstanding			2,919		2,917
Shares to be issued			—		2
Dilutive effect of options			34		—
			2,953		2,919

     Additional options to purchase shares of common stock were outstanding during the three months ended December 31, 2001 and 2000, 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. These additional outstanding options and their exercise prices are as follows:

	Three months
	ended December 31,
	2001		2000
Options outstanding		313,855		435,615
Range of exercise prices	$	6.375-$35.625	$	4.26-$35.625

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7. New Accounting Standards

     The Financial Accounting Standards Board issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets, in July 2001 (effective for fiscal 2003). Statement No. 141 will not have an effect on the Company’s results and the Company is currently assessing what effect, if any, Statement No. 142 will have on its results. In August 2001, (effective for fiscal 2003) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, was issued. The Company is currently assessing what effect, if any, Statement No. 144 will have on its results.

8. Merger Agreement

     On February 8, 2002, the Company announced that it had signed a definitive merger agreement pursuant to which SHL TeleMedicine Ltd. (SWX: SHLTN or “SHL”), a developer and marketer of telemedicine devices and provider of telemedicine services, will acquire Raytel. According to the terms of the agreement, by February 22, 2002, a subsidiary of SHL will begin a tender offer for all of Raytel’s outstanding shares at a price of $10.25 per share in cash. Following the completion of the tender offer, the SHL subsidiary will be merged into Raytel in a transaction in which any Raytel shares not tendered will be converted into the right to receive the same per share cash price paid in the tender offer. The transaction is not conditioned upon financing but is subject to the satisfaction or waiver of customary closing conditions.

9

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 management’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

     We generate our revenues from cardiac information services (which includes telephonic monitoring services for cardiac pacemaker patients (“Pacing”), cardiac event detection services (“CEDS”) and Holter monitoring), from diagnostic imaging services and from facilities providing diagnostic, therapeutic and patient management services primarily associated with cardiovascular disease.

     From June 2000 through June 2001, Raytel was the subject of a grand jury investigation conducted under the direction of the United States Attorney for the District of Connecticut and the Office of the Inspector General of the Department of Health and Human Services (the “OIG”). The investigation involved certain business practices of the transtelephonic cardiac pacemaker monitoring business conducted by Raytel Cardiac Services, Inc., our wholly-owned subsidiary (“RCS”), at its facilities in Windsor, Connecticut and New York, New York. The investigation did not involve our other healthcare services, such as RCS’ cardiac event detection services or Raytel’s diagnostic imaging services or other cardiac-related businesses, nor did it involve RCS’ transtelephonic pacemaker monitoring operations conducted at its Haddonfield, New Jersey facility, which followed testing practices similar to those followed at the Connecticut and New York facilities.

     In June 2001, RCS reached an agreement with the federal government to resolve the issues that were the subject of the investigation. In accordance with that agreement, on June 25, 2001, RCS pled guilty in U.S. District Court in Hartford, Connecticut to a charge of obstructing a criminal investigation arising out of the initial investigation in June 2000. In addition, in October 2001, Raytel and RCS entered into an agreement with the government to resolve related civil claims. Under the criminal and civil settlements, RCS agreed to pay a total of $11,500,000 to the government over a five year period, with interest of 7% per annum on the unpaid balance, to resolve the criminal and civil allegations relating to the practices of RCS’ Connecticut and New York transtelephonic monitoring operations which were the subject of the investigation. Raytel guaranteed RCS’ payment obligations under the settlement agreement. RCS also entered into a corporate integrity agreement under which it agreed that its ongoing operations would conform to specified guidelines. As of December 31, 2001, $1,500,000 had been paid to the government, and the next payment of $2,000,000 is due in June 2002. RCS’ guilty plea did not adversely affect its participation in the Medicare program or other federal healthcare programs.

     We incurred substantial legal fees and other expenses in connection with the investigation and established a reserve of $4,600,000 to cover the estimated amounts of these expenses. As of December 31, 2001, we had incurred legal fees and other expenses of approximately $4,358,000 related to the investigation, including legal fees incurred by certain RCS employees in connection with the investigation which were reimbursed by RCS in accordance with the requirements of Delaware Law and RCS’ By-Laws. The remaining balance of the reserve is included in “accrued liabilities” on our balance sheet. Additional expenses, if any, will adversely affect our operating results in future periods.

     In addition to these direct expenses, the investigation, the related internal compliance review, and settlement negotiations with the government diverted the efforts and attention of a number of our management and administrative personnel. The impact of this diversion reduced the efficiency of RCS’ 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 quarter ended September 30, 2000 and throughout the fiscal year ended September 30, 2001. Although the investigation has now been concluded, implementation of the corporate integrity agreement continues to require the time and attention of Raytel and RCS management and a number of RCS’ administrative personnel. In addition, RCS’ guilty plea entered into under its agreement with the government constituted a default under Raytel’s bank credit facility. In November 2001, Raytel entered into a new revolving line of credit arrangement and repaid all outstanding indebtedness under its bank facility. However, RCS’ guilty plea could adversely affect our ability to obtain debt or equity financing in the future.

10

     In connection with the civil settlement agreement, neither Raytel nor RCS admitted liability for the government’s allegations, and the settlement agreement did not release Raytel or RCS from any future claims arising out of their other business operations, including RCS’ transtelephonic pacemaker operations conducted at its New Jersey facility. In December 2001, RCS submitted claims which would result in reimbursements totaling approximately $1,500,000 for transtelephonic monitoring services performed at the New Jersey facility between June 2000 and January 2001 which had not complied in all respects with certain technical requirements of Medicare’s policy guidelines relating to the duration of testing sessions. These claims are currently pending with RCS’ Medicare carrier. By letter dated December 28, 2001, the Department of Health and Human Services advised RCS that it could not instruct the carrier to pay claims for services that did not comply with these guidelines. In January 2002, the carrier advised RCS that it would require additional information to adjudicate the claims. RCS is in the process of providing additional information to the carrier. RCS believes that its testing procedures were clinically adequate and intends to appeal any adverse decision of the carrier with respect to these claims. Since January 2001, tests performed at the New Jersey facility have complied with the policy guidelines in question.

     In March 2001, effective January 1, 2001, we completed the sale of our wholly-owned subsidiary, HFHI, to a new company organized by physicians practicing at HFHI, including David Wertheimer, M.D., who had served as President of the subsidiary as well as an officer of Raytel and a member of Raytel’s Board of Directors. We received a cash purchase price of $8,311,000, net of transaction expenses, for all of the common stock of the subsidiary. Approximately $1,234,000 of the proceeds were used to pre-pay leases for equipment used at the HFHI facility, $5,100,000 was used to reduce the indebtedness under our bank credit facility and the balance was used for working capital purposes. We reported the results of operations of HFHI and the loss on disposal as discontinued operations for all applicable periods presented. The loss on disposal of $19,353,000 represents a one-time non-cash charge, consisting primarily of the write-off of intangible assets. Due to the uncertainty of the ultimate tax benefit to be realized as a result of the loss, we have not provided for any tax benefit that may result from this transaction. Revenues attributable to HFH1 in the three months ended December 31, 2001 and 2000 were $0 and $3,948,000 respectively. The loss from discontinued operations of $141,000 for the three months ended December 31, 2000 was attributable to HFHI and was net of a tax benefit of $90,000.

     On February 8, 2002, we announced that we had signed a definitive merger agreement pursuant to which SHL TeleMedicine Ltd. (SWX: SHLTN or “SHL”), a developer and marketer of telemedicine devices and provider of telemedicine services, will acquire Raytel. According to the terms of the agreement, by February 22, 2002, a subsidiary of SHL will begin a tender offer for all of Raytel’s outstanding shares at a price of $10.25 per share in cash. Following the completion of the tender offer, the SHL subsidiary will be merged into Raytel in a transaction in which any Raytel shares not tendered will be converted into the right to receive the same per share cash price paid in the tender offer. The transaction is not conditioned upon financing but is subject to the satisfaction of or waiver of customary closing conditions.

Results of Operations

     Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000.

     Revenues. For the three months ended December 31, 2001, total revenues were $18,061,000 compared to $17,248,000 for the three months ended December 31, 2000, representing an increase of $813,000, or 4.7%.

     Cardiac information services revenues were $9,299,000 for the three months ended December 31, 2001, compared to $9,551,000 for the three months ended December 31, 2000, a decrease of $252,000, or 2.6%. The decrease in revenues for cardiac information services was due primarily to lower revenues from Pacing operations as a result of lower test volumes and lower average selling prices and, to a lesser extent, lower revenues from Holter monitoring due to lower test volumes. Diagnostic imaging services revenues were $6,852,000 for the three months ended December 31, 2001, compared to $5,998,000 for the three months ended December 31, 2000, an increase of $854,000, or 14.2%, due primarily to increases in revenue at certain centers and the imaging network resulting from increases in patient volumes. Heart facilities and other revenues were $1,910,000 for the three months ended December 31, 2001, compared to $1,699,000 for the three months ended December 31, 2000, an increase of $211,000, or 12.4%, due primarily to higher revenues at certain cardiovascular diagnostic facilities.

     Operating Expenses. Operating costs and selling, general and administrative expenses increased by $695,000, or 4.7%, from $14,932,000 for the three months ended December 31, 2000 to $15,627,000 for the three months ended December 31, 2001, due primarily to higher expenses related to diagnostic imaging services, partially offset

11

by decreases in costs and expenses related to cardiac information services. Operating costs and selling, general and administrative expenses as a percentage of total revenues decreased by .1%, from 86.6% for the three months ended December 31, 2000 to 86.5% for the three months ended December 31, 2001.

     Depreciation and Amortization. Depreciation and amortization expense decreased by $138,000, or 8.2%, from $1,675,000 for the three months ended December 31, 2000 to $1,537,000 for the three months ended December 31, 2001 and decreased as a percentage of revenues from 9.7% for the three months ended December 31, 2000 to 8.5% for the three months ended December 31, 2001 as a result of higher revenues and lower expense.

     Operating Income. As a result of the foregoing factors, operating income increased by $256,000, or 39.9%, from $641,000 for the three months ended December 31, 2000 to $897,000 for the three months ended December 31, 2001.

     Interest Expense. Interest expense decreased by $64,000, or 11.4%, from $560,000 for the three months ended December 31, 2000 to $496,000 for the three months ended December 31, 2001 due primarily to a decrease in the average amount of debt outstanding and, to a lesser extent, a decline in interest rates, partially offset by the amortization of deferred costs related to our new credit facility.

     Other Expense (Income). Other income decreased by $145,000 from $218,000 for the three months ended December 31, 2000 to $73,000 for the three months ended December 31, 2001.

     Minority Interest. Minority interest decreased by $40,000 from $53,000 for the three months ended December 31, 2000 to $13,000 for the three months ended December 31, 2001 due primarily to decreased income in certain cardiovascular diagnostic facilities.

     Income Taxes. The provision for income taxes increased by $85,000 from $95,000 for the three months ended December 31, 2000 to $180,000 for the three months ended December 31, 2001 as result of increased taxable income. There was no change in our effective tax rate between the two periods.

     Loss From Discontinued Operations. Loss from discontinued operations was $141,000, net of tax benefit, for the three months ended December 31, 2000.

     Net Income. As a result of the foregoing factors, net income increased by $271,000 from $10,000 for the three months ended December 31, 2000 to $281,000 for the three months ended December 31, 2001.

Segment Information

     Our reportable segments are strategic business units that offer different services. We have three reportable segments: Cardiac Information Services (“Information”); Diagnostic Imaging Services (“Imaging”); and Heart Facilities and Other (“Facilities”). The Information segment provides Pacing, CEDS and Holter monitoring services utilizing telephonic and Internet communication technology. The Imaging segment operates a network of diagnostic 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 our Annual Report on Form 10-K for the year ended September 30, 2001) except that we do not allocate all interest expense, taxes or corporate overhead to the individual segments. We evaluate performance based on profit or loss from operations before income taxes and unallocated amounts. The totals per the schedules below will not and should not agree to the consolidated totals. The difference is due to corporate overhead and other unallocated amounts which are reflected in the reconciliation to consolidated earnings before income taxes and discontinued operations (in thousands):

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		Information		Imaging			Facilities			Total
	For the three months ended December 31, 2001:
Net revenue		$	9,299	$	6,852		$	1,910		$	18,061
Total operating expenses			8,100		5,358			1,395			14,853
Segment contribution			1,199		1,494			515			3,208
Depreciation and amortization			853		413			211			1,477
Interest expense			—		32			25			57
Minority interest/other expense (income), net			—		(95	)		(114	)		(209	)
Segment profit		$	346	$	1,144		$	393		$	1,883
Segment assets		$	41,524	$	15,271		$	9,610		$	66,405
Capital expenditures		$	309	$	657		$	26		$	992

		Information		Imaging		Facilities			Total
	For the three months ended December 31, 2000:
Net revenue		$	9,551	$	5,998	$	1,699		$	17,248
Total operating expenses			8,413		4,399		1,239			14,051
Segment contribution			1,138		1,599		460			3,197
Depreciation and amortization			849		428		297			1,574
Interest expense			—		61		31			92
Minority interest/other expense (income), net			6		1		(20	)		(13	)
Segment profit		$	283	$	1,109	$	152		$	1,544
Segment assets		$	43,785	$	14,516	$	32,606		$	90,907
Capital expenditures		$	743	$	44	$	82		$	869

		Three Months Ended December 31,
		2001		2000
Segment profit		$	1,883	$	1,544
Unallocated amounts:
	Corporate general and administrative expenses		774		881
	Corporate depreciation and amortization		60		101
	Corporate interest expense		439		468
	Corporate other expense (income), net		149		(152	)
Income from continuing operations before income taxes		$	461	$	246

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Business Environment and Future Results

     Our 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 our 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 our 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 our Pacing operations during the last three fiscal years has been impacted by Medicare reimbursement changes. Reimbursement rate reductions applicable to our Pacing procedures became effective on January 1, 1999 and had a negative effect on Pacing revenue for calendar year 1999. There was a slight increase in Medicare reimbursement rates effective January 1, 2000 and again effective January 1, 2001; however, there was a decrease effective January 1, 2002. We 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 us, or that future reimbursement of any service that we offer 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 our 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 our business.

     An element of our strategy is to expand, in part, through acquisitions and investments in complementary healthcare businesses. The implementation of this strategy may place significant strain on our administrative, operational and financial resources and increase demands on our systems and controls. There can be no assurances that businesses which we may acquire, in the future will be integrated successfully and profitably into our 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 we will be able to obtain regulatory approvals that may be required to expand or services or that new laws or regulations will not be enacted or adopted that will have a material adverse effect on our business, financial condition or operating results.

     The healthcare businesses in which we are engaged are highly competitive. We expect competition to increase as a result of ongoing consolidations and cost-containment pressures, among other factors.

     The trading price of our common stock is subject to wide fluctuations in response to quarterly variations in our 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, 2001, we had working capital of $24,701,000, compared to $12,942,000 at September 30, 2001, which reflected the balance outstanding under our former line of credit as a current liability. At December 31, 2001, we had cash and cash equivalents of $6,110,000.

     We batch-bill 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 our

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second and third fiscal quarters, with the collection of these receivables occurring primarily during the subsequent fourth fiscal quarter.

     On December 15, 2000, our line of credit agreement with two banks was amended to reduce 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 our option, and the date for repayment was extended to October 1, 2001. A new non-financial covenant was added under which any civil financial settlement in excess of $1,000,000 or any criminal charges relating to the then-pending OIG investigation would constitute an event of default. On March 16, 2001, the line of credit was further reduced to $14,900,000 in connection with the sale of our HFHI subsidiary. Consistent with the terms of the December 2000 amendments to the line of credit agreement, the line of credit was further reduced by $2,500,000 on June 30, 2001 to $12,400,000. RCS’ guilty plea, entered into under its settlement with the federal government, constituted a default under the line of credit agreement. In October and November 2001, the interest rate under the line of credit was increased to 400 basis points over the bank’s prime rate.

     In November 2001, we entered into a new two-year revolving credit facility with Healthcare Business Credit Corporation under which we may borrow up to $15,000,000. Loans under the facility bear interest at prime plus 1% per annum and will be secured by accounts receivable, inventories, capital equipment and other assets of Raytel and certain of its subsidiaries and affiliated entities. We used the initial proceeds of the new facility to repay outstanding indebtedness of approximately $12,287,000 under the credit line that matured on October 1, 2001. At December 31, 2001, there was approximately $11,369,000 outstanding under the new credit facility. The facility matures on November 30, 2003 and, therefore, indebtedness outstanding under the line as of December 31, 2001 was classified as a long-term liability on our balance sheet.

     Our long-term capital requirements will depend on numerous factors, including the rate at which we develop new products and services and acquires other businesses, if any. Our ability to meet our working capital and capital expenditure needs for the next twelve months is dependent upon our ability to sustain profitability.

     We may require additional capital if, for example, we were to experience operating losses or if we were to pursue one or more business acquisitions. We cannot be certain that additional financing will be available when required, or at all. RCS’ guilty plea pursuant to the settlement agreement entered into with the federal government in 2001 could adversely affect our ability to obtain debt or equity financing in the future.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

     We do not hold any marketable equity securities, foreign currencies or derivative financing instruments in its investment portfolio. We are is exposed to market risk from interest rate fluctuations because it uses variable rate debt to finance working capital requirements. We are does not believe that there is any material market risk exposure with respect to other financial instruments that would require disclosure under this Item.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     From June 2000 through June 2001, Raytel was the subject of a grand jury investigation conducted under the direction of the United States Attorney for the District of Connecticut and the Office of the Inspector General of the Department of Health and Human Services (the “OIG”). The investigation involved certain business practices of the transtelephonic cardiac pacemaker monitoring business conducted by Raytel Cardiac Services, Inc., our wholly-owned subsidiary (“RCS”), at its facilities in Windsor, Connecticut and New York, New York. The investigation did not involve our other healthcare services, such as RCS’ cardiac event detection services or Raytel’s diagnostic imaging services or other cardiac-related businesses, nor did it involve RCS’ transtelephonic pacemaker monitoring operations conducted at its Haddonfield, New Jersey facility, which followed testing practices similar to those followed at the Connecticut and New York facilities.

     In June 2001, RCS reached an agreement with the federal government to resolve the issues that were the subject of the investigation. In accordance with that agreement, on June 25, 2001, RCS pled guilty in U.S. District Court in Hartford, Connecticut to a charge of obstructing a criminal investigation arising out of the initial

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investigation in June 2000. In addition, in October 2001, Raytel and RCS entered into an agreement with the government to resolve the related civil claims. Under the criminal and civil settlements, RCS agreed to pay a total of $11,500,000 to the government over a five year period, with interest of 7% per annum on the unpaid balance, to resolve the criminal and civil allegations relating to the practices of RCS’ Connecticut and New York transtelephonic monitoring operations which were the subject of the investigation. Raytel guaranteed RCS’ payment obligations under the settlement agreement. RCS also entered into a corporate integrity agreement under which it agreed that its ongoing operations would conform to specified guidelines. As of December 31, 2001, $1,500,000 had been paid to the government, and the next payment of $2,000,000 is due in June 2002. RCS’ guilty plea did not adversely affect its participation in the Medicare program or other federal healthcare programs.

     We incurred substantial legal fees and other expenses in connection with the investigation and established a reserve of $4,600,000 to cover the estimated amounts of these expenses. As of December 31, 2001, we had incurred legal fees and other expenses of approximately $4,358,000 related to the investigation, including legal fees incurred by certain RCS employees in connection with the investigation which were reimbursed by RCS in accordance with the requirements of Delaware Law and RCS’ By-Laws. The remaining balance of the reserve is included in “accrued liabilities” on our balance sheet. Additional expenses, if any, will adversely affect our operating results in future periods.

     In addition to these direct expenses, the investigation, the related internal compliance review, and settlement negotiations with the government diverted the efforts and attention of a number of our management and administrative personnel. The impact of this diversion reduced the efficiency of RCS’ 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 quarter ended September 30, 2000 and throughout the fiscal year ended September 30, 2001. Although the investigation has now been concluded, implementation of the corporate integrity agreement continues to require the time and attention of Raytel and RCS management and a number of RCS’ administrative personnel. In addition, RCS’ guilty plea entered into under its agreement with the government constituted a default under Raytel’s bank credit facility. In November 2001, Raytel entered into a new revolving line of credit arrangement and repaid all outstanding indebtedness under its bank facility. However, RCS’ guilty plea could adversely affect our ability to obtain debt or equity financing in the future.

     In connection with the civil settlement agreement, neither Raytel nor RCS admitted liability for the government’s allegations, and the settlement agreement did not release Raytel or RCS from any future claims arising out of their other business operations, including RCS’ transtelephonic pacemaker operations conducted at its New Jersey facility. In December 2001, RCS submitted claims which would result in reimbursements totaling approximately $1,500,000 for transtelephonic monitoring services performed at the New Jersey facility between June 2000 and January 2001 which had not complied in all respects with certain technical requirements of Medicare’s policy guidelines relating to the duration of testing sessions. These claims are currently pending with RCS’ Medicare carrier. By letter dated December 28, 2001, the Department of Health and Human Services advised RCS that it could not instruct the carrier to pay claims for services that did not comply with these guidelines. In January 2002, the carrier advised RCS that it would require additional information to adjudicate the claims. RCS is in the process of providing additional information to the carrier. RCS believes that its testing procedures were clinically adequate and intends to appeal any adverse decision of the carrier with respect to these claims. Since January 2001, tests performed at the New Jersey facility have complied with the policy guidelines in question.

     We are from time to time a party to various other claims and disputes associated with various aspects of our ongoing business operations. In management’s opinion, none of these other claims or disputes are expected, either individually or in the aggregate, to have a material adverse effect on our financial position or results of operations.

Item 3. Default Upon Senior Securities

     At October 1, 2001, we had an outstanding principal balance of approximately $12,300,000 under our bank line of credit which matured on that date. RCS’ guilty plea, entered into under its settlement with the federal government described in Part II, Item 1 of this report, constituted a default under the line of credit agreement. In November 2001, we entered into a new revolving line of credit arrangement and repaid all outstanding indebtedness under the original bank facility.

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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
	2.1	Agreement and Plan of Merger, dated as of February 7, 2002, among the Registrant, SHL TeleMedicine Ltd. and SHL TeleMedicine Acquisition Corp.
	10.8	Amended and Restated Employment Agreement, dated February 6, 2002, between the Registrant and Richard F. Bader.
	10.72	Loan and Security Agreement, dated November 15, 2001 (the “HBCC Loan Agreement”), among the Registrant, certain subsidiaries of the Registrant and Healthcare Business Credit Corporation (“HBCC”), including form of Revolving Credit Note.
	10.73	Form of Imaging Center Security Agreement, dated November 15, 2001, entered into among HBCC, the Imaging Center Affiliates (as defined in the HBCC Loan Agreement) and the Imaging Center PCs (as defined in the HBCC Loan Agreement)
	10.74	Key Management Retention Agreement, dated December 5, 2001, between the Registrant and John F. Lawler, Jr.
	10.75	Key Management Retention Agreement, dated February 6, 2002, between the Registrant and Swapan Sen.

b.	Reports on Form 8-K:
	On October 1, 2001, we filed a report on Form 8-K disclosing, under Item 5, a preliminary proposal to acquire Raytel submitted by a stockholder group that included Raytel’s Chief Executive Officer.
	On December 18, 2001, we filed a report on Form 8-K disclosing, under Item 5, a revised proposal to acquire Raytel submitted by an expanded stockholder group and also announcing that we had received additional confidential expressions of interest in such an acquisition.

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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 19, 2002	By:	/s/ John F. Lawler, Jr.
		John F. Lawler, Jr. Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

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INDEX TO EXHIBITS

Exhibit
Number		Title
	2.1	Agreement and Plan of Merger, dated as of February 7, 2002, among the Registrant, SHL TeleMedicine Ltd. and SHL TeleMedicine Acquisition Corp.
	10.8	Amended and Restated Employment Agreement, dated February 6, 2002, between the Registrant and Richard F. Bader.
	10.72	Loan and Security Agreement, dated November 15, 2001 (the “HBCC Loan Agreement”), among the Registrant, certain subsidiaries of the Registrant and Healthcare Business Credit Corporation (“HBCC”), including form of Revolving Credit Note.
	10.73	Form of Imaging Center Security Agreement, dated November 15, 2001, entered into among HBCC, the Imaging Center Affiliates (as defined in the HBCC Loan Agreement) and the Imaging Center PCs (as defined in the HBCC Loan Agreement)
	10.74	Key Management Retention Agreement, dated December 5, 2001, between the Registrant and John F. Lawler, Jr.
	10.75	Key Management Retention Agreement, dated February 6, 2002, between the Registrant and Swapan Sen.

19 EX-2.1 3 f79179ex2-1.txt EXHIBIT 2.1 Exhibit 2.1 AGREEMENT AND PLAN OF MERGER dated as of February 7, 2002 among RAYTEL MEDICAL CORPORATION, SHL TELEMEDICINE LTD. and SHL TELEMEDICINE ACQUISITION CORP. TABLE OF CONTENTS

Page ARTICLE 1 THE OFFER.................................................................2 Section 1.01 The Offer.........................................................2 Section 1.02 Company Action....................................................4 Section 1.03 Directors.........................................................5 ARTICLE 2 THE MERGER................................................................7 Section 2.01 The Merger........................................................7 Section 2.02 Effective Time....................................................7 Section 2.03 Closing...........................................................7 Section 2.04 Effects of the Merger.............................................7 Section 2.05 Certificate of Incorporation......................................7 Section 2.06 Bylaws............................................................8 Section 2.07 Directors and Officers............................................8 ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES....................................8 Section 3.01 Conversion of Company Common Stock................................8 Section 3.02 Dissenting Shares.................................................9 Section 3.03 Payment for Shares in the Merger..................................9 Section 3.04 Stock Options....................................................11 Section 3.05 Adjustments......................................................12 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................12 Section 4.01 Organization and Qualification; Subsidiaries.....................12 Section 4.02 Capitalization...................................................13 Section 4.03 Corporate Authorization..........................................14 Section 4.04 Governmental Authorization.......................................15 Section 4.05 Non-contravention................................................15 Section 4.06 SEC Reports; Financial Statements................................16 Section 4.07 Information Supplied.............................................17 Section 4.08 Absence of Certain Changes or Events.............................18

Section 4.09 Litigation.......................................................18 Section 4.10 Compliance with Laws.............................................18 Section 4.11 Taxes............................................................19 Section 4.12 Employee Benefit Plans...........................................21 Section 4.13 Environmental Matters............................................23 Section 4.14 Intellectual Property............................................24 Section 4.15 Title and Condition of Properties................................26 Section 4.16 Insurance........................................................27 Section 4.17 Material Contracts...............................................27 Section 4.18 Employment Matters...............................................29 Section 4.19 Finders' Fees....................................................30 Section 4.20 Opinion of Financial Advisor.....................................30 Section 4.21 Voting Requirements..............................................30 Section 4.22 Books and Records................................................30 Section 4.23 Certain Business Practices.......................................30 Section 4.24 Interests of Officers and Directors..............................31 Section 4.25 Provider/Supplier Status.........................................31 Section 4.26 Medicare Secondary Payor.........................................31 Section 4.27 Overpayments.....................................................32 Section 4.28 Settlement Agreements............................................32 Section 4.29 Rights Agreement.................................................32 Section 4.30 Full Disclosure..................................................32 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................33 Section 5.01 Organization, Standing and Corporate Power.......................33 Section 5.02 Corporate Authorization..........................................33 Section 5.03 Governmental Authorization.......................................33 Section 5.04 Non-contravention................................................33 Section 5.05 Information Supplied.............................................34 Section 5.06 Litigation.......................................................34 Section 5.07 Financing........................................................34 -ii- Section 5.08 Finders' Fees....................................................35 Section 5.09 Purchaser's Operation............................................35 Section 5.10 Full Disclosure..................................................35 ARTICLE 6 COVENANTS................................................................35 Section 6.01 Conduct of Business by the Company...............................35 Section 6.02 Other Actions....................................................39 Section 6.03 Stockholder Meeting; Proxy Material; Merger Without Stockholder Meeting..............................................39 Section 6.04 Access to Information............................................40 Section 6.05 No Solicitation; Other Offers....................................40 Section 6.06 Best Efforts; Notification.......................................43 Section 6.07 Indemnification and Insurance....................................45 Section 6.08 Continuation of Benefits.........................................46 Section 6.09 Public Announcements.............................................46 Section 6.10 Further Assurances...............................................47 ARTICLE 7 CONDITIONS TO THE MERGER.................................................47 Section 7.01 Conditions to Obligations of Each Party..........................47 ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER........................................48 Section 8.01 Termination......................................................48 Section 8.02 Effect of Termination............................................50 Section 8.03 Fees and Expenses................................................50 Section 8.04 Amendment........................................................52 Section 8.05 Extension; Waiver................................................52 Section 8.06 Procedure for Termination, Amendment, Extension or Waiver........52 ARTICLE 9 MISCELLANEOUS............................................................52 Section 9.01 Non-Survival of Representations and Warranties...................52 Section 9.02 Notices..........................................................52 Section 9.03 No Waivers.......................................................54 Section 9.04 Successors and Assigns...........................................54 Section 9.05 Governing Law....................................................55 Section 9.06 Enforcement......................................................55 -iii- Section 9.07 WAIVER OF JURY TRIAL.............................................55 Section 9.08 Counterparts; Effectiveness; Benefit.............................55 Section 9.09 Entire Agreement.................................................55 Section 9.10 Captions.........................................................56 Section 9.11 Severability.....................................................56 Section 9.12 Specific Performance.............................................56 Section 9.13 Interpretation...................................................56 Section 9.14 Company Disclosure Memorandum....................................57 Section 9.15 Parties in Interest..............................................57 Section 9.16 Obligation of Parent and the Company.............................57 Section 9.17 Certain Definitions..............................................57 -iv- INDEX OF DEFINED TERMS

Term Section - ---- ------- Acquisition Proposal...................................................................6.05(d) Affiliate..............................................................................9.17(a) Agreement.............................................................................Recitals Beneficially...........................................................................9.17(b) Business Day...........................................................................9.17(c) Certificates...........................................................................3.03(a) CIA.......................................................................................4.28 Closing...................................................................................2.03 Code...................................................................................4.11(b) Company...............................................................................Recitals Company Board.........................................................................Recitals Company Common Stock..................................................................Recitals Company Disclosure Memorandum........................................................Article 4 Company Intellectual Property .........................................................4.14(a) Company SEC Reports....................................................................4.06(a) Company Stockholder Meeting............................................................6.03(a) Confidentiality Agreement..............................................................6.04(c) Continuing Directors...................................................................1.03(a) Continuing Employee.......................................................................6.08 DGCL..................................................................................Recitals Dissenting Shares.........................................................................3.02 Dow Jones News Release.................................................................4.06(a) Effective Time............................................................................2.02 Employee Plan..........................................................................4.12(a) Environmental Laws........................................................................4.13 ERISA..................................................................................4.12(a) ERISA Affiliate........................................................................4.12(f) Exchange Act...........................................................................1.01(a) Expenses...............................................................................8.03(b) Filed Company SEC Reports..............................................................4.06(a) GAAP...................................................................................4.06(b) Governmental Entity.......................................................................4.04 Health Benefit Law........................................................................4.10 Houlihan Lokey.........................................................................1.02(a) Indemnified Parties....................................................................6.07(a) Information Statement.....................................................................4.07 Initial Expiration Date................................................................1.01(a) IRS....................................................................................4.11(a)

-i- Law....................................................................................9.17(d) License Agreements.....................................................................4.14(c) Liens.....................................................................................4.01 Material Adverse Effect................................................................9.17(f) Material Company Intellectual Property.................................................4.14(a) Material Contract......................................................................4.17(a) Merger................................................................................Recitals Merger Consideration................................................................3.01(a)(i) Minimum Condition......................................................................1.01(a) Offer.................................................................................Recitals Offer Completion Date..................................................................6.03(a) Offer Documents........................................................................1.01(c) Offer Price...........................................................................Recitals Option.................................................................................3.04(a) Option Consideration...................................................................3.04(a) Option Plan............................................................................3.04(a) Parent................................................................................Recitals Paying Agent...........................................................................3.03(a) Payment Fund...........................................................................3.03(a) Permits...................................................................................4.10 Person.................................................................................9.17(g) PPO.......................................................................................4.10 Proxy Statement...........................................................................4.04 Purchaser.............................................................................Recitals Rights Agreement..........................................................................4.29 Schedule 14D-9.........................................................................1.02(b) Schedule TO............................................................................1.01(c) SEC....................................................................................1.01(b) Securities Act.........................................................................4.06(a) Settlement Agreements.....................................................................4.28 Shares................................................................................Recitals Software...............................................................................4.14(a) Special Committee.....................................................................Recitals Stockholders' Agreement...............................................................Recitals Subsidiary.............................................................................9.17(h) Superior Proposal......................................................................6.05(d) Surviving Corporation.....................................................................2.01 Tax Return.............................................................................4.11(a) Taxes..................................................................................4.11(a) Taxing Authority.......................................................................4.11(a) Termination Fee........................................................................8.03(b) Trade Secrets..........................................................................4.14(a) Transactions...........................................................................1.02(a) Voting Debt............................................................................4.02(c) -ii- AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of February 7, 2002 among Raytel Medical Corporation, a Delaware corporation (the "Company"), SHL TeleMedicine Ltd., an Israeli corporation ("Parent"), and SHL TeleMedicine Acquisition Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Purchaser"). WHEREAS, the respective Boards of Directors of Parent, Purchaser and the Company have determined that it would be advisable and in the best interests of their respective stockholders for Parent to acquire the Company on the terms and conditions set forth herein; WHEREAS, to effectuate the acquisition, it is proposed that Purchaser commence a cash tender offer, as it may be amended from time to time as permitted under this Agreement (the "Offer"), to purchase all of the issued and outstanding shares of Common Stock, $.001 par value per share, of the Company (the "Company Common Stock"), together with the associated preferred share purchase rights issued pursuant to the Rights Agreement (as hereinafter defined) (each share of Company Common Stock, together with the associated preferred share purchase right, is hereinafter referred to as a "Share") at a purchase price, net to seller in cash, without interest, of $10.25 per Share (such price, or any such higher price per Share as may be paid in the Offer, is referred to herein as the "Offer Price"), upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, the Board of Directors of each of Parent, Purchaser and the Company have approved this Agreement and the merger following the Offer pursuant to which Purchaser shall merge with and into the Company (the "Merger") and the outstanding Shares not owned directly or indirectly by Parent or the Company or any of their respective Subsidiaries and other than Dissenting Shares (as hereinafter defined) shall be converted into the right to receive the Offer Price in cash, without interest, all in accordance with the General Corporation Law of the State of Delaware ("DGCL") and upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of the Company (the "Company Board"), upon the recommendation of a special committee of the Company Board comprised of independent directors (the "Special Committee"), has determined that the consideration to be paid for each Share is fair to all holders of such shares and has resolved to recommend that the holders of such Shares tender all of their Shares pursuant to the Offer and approve and adopt this Agreement and the Merger upon the terms and subject to the conditions set forth herein; and WHEREAS, contemporaneously with the execution and delivery of this Agreement, as a condition and an inducement to the willingness of Parent and Purchaser to enter into this Agreement, each director and executive officer of the Company has executed and delivered to Parent an agreement pursuant to which they have agreed to take certain actions with respect to the Offer and the Merger (the "Stockholders' Agreement"); NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows: ARTICLE 1 THE OFFER Section 1.01 The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Article 8 and none of the events set forth in Annex A hereto shall have occurred and be continuing, Parent shall cause Purchaser to, as promptly as practicable, and, in any event, within ten (10) Business Days of the date hereof, commence (within the meaning of Rule 14d-2(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) the Offer to purchase any and all outstanding Shares, at a price per Share equal to the Offer Price, net to the seller in cash, without interest, subject to reduction for any applicable withholding taxes and, if such payment is to be made other than to the registered holder, any applicable stock transfer or other similar taxes payable by such holder. The Offer will be made pursuant to an offer to purchase and related letter of transmittal containing the terms and conditions set forth in this Agreement and Annex A hereto. The initial expiration date of the Offer shall be the twentieth Business Day from and after the date the Offer is commenced as determined in accordance with Rule 14d-2(a) under the Exchange Act (the "Initial Expiration Date"). The obligation of Purchaser to accept for payment, purchase and pay for any Shares validly tendered pursuant to the Offer and not withdrawn shall be subject only to the satisfaction of (i) the condition that at least a majority of the shares of Company Common Stock outstanding on a fully-diluted basis assuming the exercise of all options, warrants, rights and convertible securities outstanding on the date the Offer expires (taking into account any shares of Company Common Stock owned by Parent or Purchaser or any affiliate of Parent or Purchaser on the date such Shares are purchased pursuant to the Offer) have been validly tendered and not withdrawn prior to the expiration of the Offer (the "Minimum Condition") and (ii) the other conditions set forth in Annex A hereto; provided, however, that Purchaser expressly reserves the right to waive any of the conditions to the Offer (other than the Minimum Condition) and to make any change in the terms or conditions of the Offer (other than the Minimum Condition) in its sole discretion, subject to Section 1.01(b). (b) Purchaser expressly reserves the right to modify the terms of the Offer; provided, however, that without the prior written consent of the Company, neither Parent nor Purchaser will (i) decrease the Offer Price, (ii) decrease the number of Shares sought in the Offer, (iii) change the form of consideration payable in the Offer, (iv) impose conditions to the Offer in addition to the Minimum Condition and the other conditions set forth in Annex A, (v) except as provided below or required by any rule, regulation, interpretation or position of the Securities and Exchange Commission ("SEC") applicable to the Offer, change the expiration date of the Offer, or (vi) otherwise amend or change any term or condition of the Offer in a manner adverse to the holders of Shares. Notwithstanding anything in this Agreement to the contrary, without the consent of the Company, Purchaser shall have the right to extend the Offer beyond the Initial Expiration Date in the following events: (i) from time to time, but in no event -2- later than the date that is ten (10) Business Days from the Initial Expiration Date (or extended expiration date of the Offer, if applicable), if, at the Initial Expiration Date (or extended expiration date of the Offer, if applicable), one or more of the conditions to the Offer shall not have been satisfied or waived, until such conditions are satisfied or waived; provided, however, that the expiration date of the Offer may not extend beyond the 60th day after commencement of the Offer; (ii) for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or any period required by applicable Law (as hereinafter defined); or (iii) if all of the conditions to the Offer are satisfied or waived but the number of Shares validly tendered and not withdrawn is less than ninety percent (90%) of the then outstanding number of Shares; provided, however, that the expiration date of the Offer may not extend beyond the 60th day after the commencement of the Offer. In the event the Minimum Condition is satisfied and the Purchaser purchases Shares pursuant to the Offer, the Purchaser may, in its sole discretion, provide a "subsequent offering period" in accordance with Rule 14d-11 under the Exchange Act. Upon the satisfaction or waiver of all the conditions to the Offer and subject to the terms and conditions of this Agreement, Purchaser will accept for payment, purchase and pay for, in accordance with the terms of the Offer, all Shares validly tendered and not withdrawn pursuant to the Offer as soon as reasonably practicable after the expiration of the Offer. (c) As soon as reasonably practicable on the date of commencement of the Offer, Parent and Purchaser shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (together with any amendments or supplements thereto, the "Schedule TO"), which shall contain or incorporate by reference the offer to purchase and forms of the related letter of transmittal and such other ancillary documents and instruments pursuant to which the Offer will be made (such Schedule TO and such documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"). Parent and Purchaser agree that the Offer Documents will comply as to form and content in all material respects with the applicable provisions of the federal securities Laws and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Purchaser with respect to information supplied by the Company in writing for inclusion in the Offer Documents. Parent, Purchaser and the Company each agree to correct promptly any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect and to supplement the information provided by it for use in the Schedule TO or the other Offer Documents to include any information that shall become necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Parent and Purchaser agree to take all steps necessary to cause the Offer Documents as so corrected or supplemented to be filed with the SEC and to be disseminated to holders of Shares of Company Common Stock, in each case as and to the extent required by applicable federal securities Laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to their being filed with the SEC. Parent and -3- Purchaser agree to provide to the Company and its counsel any comments or other communications which Parent, Purchaser or their counsel may receive from the staff of the SEC with respect to the Offer Documents promptly after receipt thereof, and Parent and Purchaser shall consult with and provide to the Company and its counsel a reasonable opportunity to review and comment on the response of Purchaser and Parent prior to responding to the SEC. (d) Parent shall provide or cause to be provided to Purchaser on a timely basis the funds necessary to accept for payment, and pay for, any Shares that Purchaser becomes obligated to accept for payment, and pay for, pursuant to the Offer. Section 1.02 Company Action. (a) The Company hereby approves of and consents to the Offer and represents and warrants that the Company Board, at a meeting duly called and held, has unanimously, upon the unanimous recommendation of the Special Committee, (i) determined that this Agreement and the transactions contemplated hereby, including, without limitation, the Offer, the Merger and the purchase of Shares contemplated by the Offer (collectively the "Transactions"), are advisable and fair to and in the best interests of the Company and the Company's stockholders, (ii) approved of and adopted this Agreement and the Transactions in accordance with the requirements of the DGCL so that the provisions of Section 203 of the DGCL are not applicable to the Transactions provided for, referred to or contemplated by, this Agreement, and (iii) resolved to recommend that the stockholders of the Company accept the Offer, tender their Shares pursuant to the Offer and approve and adopt this Agreement and the Merger. Notwithstanding the foregoing, such recommendation may be withdrawn, modified or amended as permitted by Section 6.05(c). The Company hereby consents to the inclusion in the Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy Statement (as hereinafter defined), if any, of such recommendation of the Company Board, subject, however to the Company's right to withdraw such recommendation as herein provided. The Company represents and warrants that the Company Board has received the written opinion of Houlihan Lokey Howard & Zukin Capital ("Houlihan Lokey"), stating that, as of the date of such opinion, the proposed consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view. The Company acknowledges that a Stockholders' Agreement is being executed and delivered contemporaneously herewith by each of its directors and executive officers. (b) As soon as reasonably practicable on the date of commencement of the Offer, and concurrently with or promptly following the filing by Parent and Purchaser of the Schedule TO, the Company shall file with the SEC and disseminate to holders of Shares, in each case as and to the extent required by applicable federal securities Laws, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the "Schedule 14D-9") that shall reflect the recommendation of the Board of Directors referred to in clause (iii) of Section 1.02(a) hereof. The Schedule 14D-9 will comply in all material respects with the provisions of applicable federal securities Laws and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in -4- light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Purchaser in writing for inclusion in the Schedule 14D-9. The Company, Parent and Purchaser each agree to correct promptly any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect and to supplement the information provided by it for use in the Schedule 14D-9 to include any information that shall become necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected or supplemented to be filed with the SEC and to be disseminated to holders of shares of Company Common Stock, in each case as and to the extent required by applicable federal and state securities Laws. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. The Company agrees to provide to Parent and its counsel any comments or other communications which the Company or its counsel may receive from the staff of the SEC with respect to the Schedule 14D-9 promptly after receipt thereof, and the Company shall consult with and provide to Parent and its counsel a reasonable opportunity to review and comment on the response of the Company prior to responding to the SEC. Parent, Purchaser and the Company each hereby agree to provide promptly such information necessary to prepare the exhibits and schedules to the Schedule 14D-9 and the Offer Documents which the respective party responsible therefor may reasonably request. (c) The Company will cause its transfer agent promptly to furnish Parent and Purchaser with a list of the Company's stockholders, mailing labels and any available listings or computer file containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories as of a recent date and to provide to Parent and Purchaser such additional information (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent or Purchaser or their agents may reasonably request in connection with the Offer. Subject to the requirements of applicable Law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Transactions, Parent and Purchaser and each of their affiliates, associates and agents will hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement is terminated, will deliver, and will cause their agents to deliver, to the Company all copies and any extracts or summaries from such information then in their possession or control. Section 1.03 Directors. (a) Promptly following the purchase of and payment for the number of Shares that satisfies the Minimum Condition, and from time to time thereafter, Purchaser shall be entitled to designate for election as directors of the Company such number of directors, rounded up to the next whole number, as is equal to the product of the total number of directors of the Company constituting the whole Company Board (giving effect to any increase in the number of directors in order to comply with this Section 1.03) and the percentage that the voting power of Shares beneficially owned by Parent and Purchaser (including Shares paid for pursuant to the Offer), upon such payment, bears to the total voting power of Shares then -5- outstanding, and the Company shall take all action necessary to cause Purchaser's designees to be elected or appointed to the Company Board, including, without limitation, increasing the number of directors and seeking and accepting resignations of incumbent directors. At such time, the Company will also, upon the request of Parent or Purchaser, cause individual directors designated by Purchaser to constitute the number of members, rounded up to the next whole number, on (i) each committee (or similar body) of the Company Board other than the Special Committee and (ii) the board of directors (or similar body) of each Subsidiary (as hereinafter defined) of the Company, and each committee (or similar body) thereof, that represents the same percentage as Purchaser's designees represent on the Company Board. Notwithstanding the foregoing, in the event that Purchaser's designees are appointed or elected to the Company Board, the Company Board shall at all times until the Effective Time (as hereinafter defined) have at least two directors who are directors on the date of this Agreement or otherwise not affiliates of Parent (the "Continuing Directors"); provided that in the event that the number of Continuing Directors shall be reduced below two for any reason whatsoever, the Company Board shall cause the person designated by the remaining Continuing Director to fill such vacancy and such person shall be deemed to be a Continuing Director for all purposes of this Agreement or, if no Continuing Directors then remain, the other directors of the Company then in office shall designate two persons to fill such vacancies who are not officers, directors, employees or affiliates of the Company or Parent or any of their respective Subsidiaries and such persons shall be deemed to be Continuing Directors for all purposes of this Agreement. Prior to the Effective Time, the Continuing Directors shall have the authority to retain such counsel and other advisors at the expense of the Company as are reasonably necessary to the exercise of their duties in connection with this Agreement, subject to approval by the Company of the terms of such retention, which approval shall not be unreasonably withheld or delayed. In addition, prior to the Effective Time, the Continuing Directors shall have the authority to institute any action, on behalf of the Company, to enforce performance of this Agreement. (b) The Company's obligations to appoint Purchaser's designees to the Company Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions and shall include in the Schedule 14D-9 (or an amendment thereto or an information statement pursuant to Rule 14f-1 if Purchaser has not theretofore designated directors) such information with respect to the Company and its officers and directors as Section 14(f) and Rule 14f-1 require in order to fulfill its obligations under this Section. Parent and Purchaser shall supply to the Company, and be solely responsible for, any information with respect to themselves and their nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. The provisions of this Section 1.03 are in addition to and shall not limit any rights which Purchaser, Parent or any of their affiliates may have as a holder or beneficial owner of Shares as a matter of law with respect to the election of directors or otherwise. (c) Following the election or appointment of Purchaser's designees pursuant to Section 1.03(a) and until the Effective Time, the approval of a majority of the Continuing Directors shall be required to authorize (and such authorization shall constitute the authorization of the Company Board and no other action on the part of the Company, including any action by -6- any other directors of the Company, shall be required to authorize) any termination of this Agreement by the Company, any amendment of this Agreement, any extension of time for performance of any obligation or action hereunder by Parent or Purchaser, any waiver of any condition to the Company's obligations hereunder or any of the Company's rights hereunder; provided, that if there shall be no Continuing Directors, such approval may only be effected by a majority vote of the entire Company Board. ARTICLE 2 THE MERGER Section 2.01 The Merger. At the Effective Time (as hereinafter defined) and upon the terms and subject to the conditions of this Agreement, Purchaser shall be merged with and into the Company in accordance with applicable Law, whereupon the separate existence of Purchaser shall cease, and the Company shall be the surviving corporation (the "Surviving Corporation"). Section 2.02 Effective Time. The Merger shall become effective at such time as a certificate of merger executed in accordance with the relevant provisions of the DGCL is duly filed with the Secretary of State of the State of Delaware in accordance with the DGCL or at such later time as may be specified in the certificate of merger (the "Effective Time"). Subject to the terms and conditions of this Agreement, Parent, Purchaser and the Company shall cause the Effective Time to occur as soon as practicable after the earlier of the Company Stockholder Meeting (as hereinafter defined) or the purchase by Purchaser pursuant to the Offer of ninety percent (90%) or more of the Shares. Section 2.03 Closing. Unless this Agreement shall have been terminated and the Transactions contemplated herein abandoned pursuant to Section 8.01 and subject to the satisfaction and waiver of the conditions set forth in Article 7, the closing of the Merger (the "Closing") shall take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second Business Day after satisfaction or waiver of the conditions set forth in Article 7 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, unless the parties agree to another time, date or place in writing. At the Closing, subject to satisfaction or waiver of all of the conditions to the Merger set forth in Article 7, the Purchaser and the Company shall cause the certificate of merger to be filed with the Secretary of State of the State of Delaware in accordance with the DGCL and make all other filings, if any, required by applicable Law in connection with the Merger. Section 2.04 Effects of the Merger. From and after the Effective Time, the Merger shall have the effects set forth in Section 259 of the DGCL. Section 2.05 Certificate of Incorporation. At the Effective Time, the certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended in the Merger to read in its entirety as set forth on Exhibit 2.05 hereto and as so -7- amended shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law. Section 2.06 Bylaws. The bylaws of the Purchaser at the Effective Time shall be the bylaws of the Surviving Corporation, until amended in accordance with applicable Law. Section 2.07 Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal, in accordance with applicable Law, the directors of Purchaser at the Effective Time shall be the directors of the Surviving Corporation and the officers of the Company at the Effective Time shall be the initial officers of the Surviving Corporation; provided that, upon the request of Parent or Purchaser, the Company shall cause any officers of the Company to be removed at the Effective Time. ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES Section 3.01 Conversion of Company Common Stock. (a) At the Effective Time, by virtue of the Merger and without any other action on the part of the holder thereof: (i) each Share outstanding immediately prior to the Effective Time (other than Shares to be canceled in accordance with Section 3.01(a)(iii) below and Dissenting Shares (as hereinafter defined)) shall be converted into the right to receive the Offer Price, net to the seller in cash, without interest (the "Merger Consideration"), upon the surrender of the certificate representing such Share; and (ii) each share of common stock of Purchaser outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and non-assessable share of common stock of the Surviving Corporation and such shares shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and (iii) each Share that is held by the Company in its treasury and all Shares that are owned, directly or indirectly, by Parent or the Company or any of their respective Subsidiaries shall automatically be canceled and retired and shall cease to exist and shall not be converted into the right to receive the Merger Consideration or any other consideration whatsoever. (b) At the Effective Time, holders of Shares shall cease to be, and shall have no voting or other rights as, stockholders of the Company, other than to receive the Merger Consideration and any dividend or other distribution with respect to Shares with a record date occurring prior to the Effective Time. From and after the Effective Time, there shall be no -8- transfers on the stock transfer records of the Company of any Shares that were outstanding immediately prior to the Effective Time. Section 3.02 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, Shares issued and outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has complied with the relevant provisions of Section 262 of the DGCL, if such Section 262 provides for appraisal rights for such Shares in the Merger ("Dissenting Shares"), shall not be converted into or be exchangeable for the right to receive the Merger Consideration as provided in Section 3.01(a)(i) and instead such holder of Dissenting Shares shall be entitled to receive payment of the fair value of such Dissenting Shares in accordance with the provisions of such Section 262 unless and until such holder fails to perfect or withdraws or otherwise loses his right to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or withdraws or loses his right to appraisal, such Dissenting Shares shall thereupon be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration to which such holder would have been entitled but for the prior status of such shares as Dissenting Shares, without interest or dividends thereon, upon the surrender in the manner provided in Section 3.03 of the certificate(s) which formerly represented Shares. The Company shall give Parent prompt written notice of any demands received by the Company for appraisal of Shares, attempted withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company relating to stockholders' rights of appraisal and, prior to the Effective Time, Parent shall have the right to direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. Section 3.03 Payment for Shares in the Merger. (a) Prior to the Effective Time, Parent shall appoint an agent (the "Paying Agent") located in the United States reasonably acceptable to the Company for the purpose of exchanging certificates representing Shares (the "Certificates") for the Merger Consideration. Parent shall make available or cause to be made available from time to time to the Paying Agent amounts sufficient to provide all funds necessary for the Paying Agent to make payments pursuant to Section 3.03(c) (such cash being hereinafter referred to as the "Payment Fund"). The Payment Fund shall not be used for any other purpose. The Payment Fund shall be invested by the Paying Agent as directed by Parent or the Surviving Corporation pending payment thereof by the Paying Agent to the holders of record of Shares. Earnings from such investment shall be the sole and exclusive property of Parent and the Surviving Corporation, and no part of such earnings shall accrue to the benefit of holders of record of Shares. (b) As soon as reasonably practicable after the Effective Time, Parent will cause the Paying Agent to send to each holder of record of Shares at the Effective Time (other than holders of Shares referred to in Section 3.01(a)(iii)) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates representing such Shares to the Paying Agent and will be in such -9- form and have such other provisions as Parent reasonably specifies) and instructions for use in effecting the surrender of Certificate(s) for payment of the Merger Consideration for the Shares represented thereby. (c) Each holder of record of Shares that have been converted into the right to receive the Merger Consideration will be entitled to receive, upon surrender to the Paying Agent of one or more Certificates, together with a properly completed letter of transmittal, the Merger Consideration, without interest thereon, in respect of each Share represented by such Certificates. Until so surrendered, each such Certificate shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration. No interest shall be paid or accrued on any amount payable upon surrender of any Certificate. (d) If any portion of the Merger Consideration is to be paid to a Person (as hereinafter defined) other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Paying Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Paying Agent that such tax has been paid or is not payable. (e) Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 3 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax Law. If the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which the Surviving Corporation or Parent, as the case may be, made such deduction and withholding. (f) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article 3. (g) At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Shares. If, after the Effective Time, Certificates evidencing ownership of the Shares outstanding immediately prior to the Effective Time are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 3. -10- (h) Any portion of the Payment Fund (and any interest or other income earned thereon) that remains unclaimed by the holders of Shares one year after the Effective Time shall be paid by the Paying Agent to the Surviving Corporation, upon demand, and any such holder who has not exchanged Shares for the Merger Consideration in accordance with this Section 3.03 prior to that time shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration in respect of such Shares, without any interest thereon. Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar Laws. (i) The Surviving Corporation shall pay all charges and expenses of the Paying Agent. Section 3.04 Stock Options. (a) As of the Effective Time, each outstanding stock option or warrant to purchase shares of Company Common Stock (an "Option" and, collectively, the "Options"), whether granted under the Company's 1983 Incentive Stock Option Plan, 1990 Stock Option Plan, 1995 Outside Directors Stock Option Plan or 2000 Stock Option Plan (collectively, the "Option Plans") or otherwise, whether or not then vested or exercisable, shall be converted into the right to receive from the Company an amount of cash equal to the product of (i) the number of shares of Company Common Stock subject to the Option and (ii) the excess, if any, of the Merger Consideration over the exercise price per share of Company Common Stock of such Option (the "Option Consideration"). Prior to the Offer Completion Date (as hereinafter defined), the Company shall take all steps necessary to give written notice to each holder of an Option that (i) all options held by such holder that were granted under the Company's 1995 Outside Directors Stock Option Plan and 2000 Stock Option Plan shall be canceled effective as of the Offer Completion Date and (ii)(A) all other Options held by such holder shall be canceled effective as of the Effective Time and (B) the Option Consideration, if any, for all such Options held by such holder shall be payable as described in Section 3.04(b). Neither the Parent nor the Surviving Corporation shall assume or substitute for Options pursuant to the Transactions contemplated hereby. The Company Board or any committee thereof responsible for the administration of the Option Plans shall take any and all action necessary to effectuate the matters described in this Section 3.04 on or before the Offer Completion Date. (b) With respect to Options that remain outstanding following the Offer Completion Date (it being understood that options granted under the Company's 1995 Outside Directors Stock Option Plan and 2000 Stock Option Plan terminate as of the Offer Completion Date), the Option Consideration shall be payable by the Company to each holder promptly following the Effective Time, only after (i) verification by the Company and Purchaser of the ownership and terms of the particular Option by reference to the Company's records, and (ii) delivery of a written instrument duly executed by the holder of the applicable Option, in a form provided by the Company and acceptable to Purchaser and setting forth (x) the aggregate number of Options owned by the Person and their respective issue dates and exercise prices, (y) a representation by the Person that he or she is the owner of all Options described pursuant to clause (x) and that none of those Options has expired or ceased to be exercisable (or would have -11- expired or ceased to be exercisable, assuming such Options had fully vested), and (z) a confirmation of, and consent to, the cancellation of all Options held by such Person effective as of the Effective Time. (c) Any amounts payable pursuant to this Section 3.04 shall be subject to any required withholding of taxes and shall be paid without interest. (d) Prior to the Effective Time, the Company shall take all action reasonably necessary to approve the disposition of the Options in accordance with this Section 3.04 so as to exempt such dispositions under Rule 16b-3 under the Exchange Act. (e) The Company shall terminate its 1996 Employee Stock Purchase Plan (the "ESPP") on or before the Offer Completion Date Date. Prior to the Offer Completion Date, all accumulated employee salary deductions shall be applied to the purchase of whole shares of Company Common Stock in accordance with the terms of the ESPP and any remaining employee salary deductions shall be returned to participants without interest. The Company shall immediately amend or take such other necessary action under, effective as of the date hereof, the ESPP to adjust the purchase date of the current offering period to a date before the Offer Completion Date and to suspend any new offering periods, any additional salary deductions in the current offering period and the restrictions on resale set forth in section 12.4 of the ESPP. The Company shall promptly notify Parent of the number of shares of Company Common Stock hereafter acquired under the ESPP. Section 3.05 Adjustments. Subject to Section 6.01(b), if, during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of the Company shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or stock dividend thereon with a record date during such period, the Merger Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the disclosure memorandum delivered by the Company to Parent concurrently with the execution of this Agreement (the "Company Disclosure Memorandum") (with specific reference to the section or subsection of this Agreement to which the information stated in such disclosure relates; provided, however, that a matter disclosed in reference to any particular section or subsection will be deemed to be disclosed for purposes of any other sections or subsections of this Agreement, even if there is no express cross-reference, if the matter is disclosed in such a way to make its relevance to such other sections or subsections readily apparent), the Company represents and warrants to Parent and Purchaser as follows: Section 4.01 Organization and Qualification; Subsidiaries. The Company and each of its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is incorporated or organized and has the -12- requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not reasonably be expected to have a Material Adverse Effect (as hereinafter defined) on the Company. Section 4.01 of the Company Disclosure Memorandum lists each Subsidiary of the Company. Unless the context otherwise requires, when used herein "Subsidiary" refers to each Subsidiary of the Company. The Company has made available to Parent complete and correct copies of its certificate of incorporation and bylaws and the certificates of incorporation and bylaws (or comparable documents for any other legal entity) of its Subsidiaries, in each case as amended to the date hereof. All of the outstanding shares of capital stock or other ownership interests of each such Subsidiary have been validly issued and are duly authorized, fully paid and nonassessable and are owned by the Company, by a wholly-owned Subsidiary of the Company or by the Company and one or more wholly-owned Subsidiaries, in each case, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"), and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests, except for restrictions imposed by applicable securities Laws. Other than ownership of the capital stock or other ownership interests of its Subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture or other entity. Neither the Company nor any of its Subsidiaries is subject to any obligation or requirement to make any loan, capital contribution, investment or similar expenditure to or in any Person, except for loans, capital contributions, investments or similar expenditures by the Company or any Company Subsidiary to any Company Subsidiary. Except as provided by applicable Law, there are no restrictions of any kind which prevent the payment of dividends by any Subsidiary. Section 4.02 Capitalization. (a) The authorized capital stock of the Company consists of 20,000,000 shares of common stock, $.001 par value per share, and 2,000,000 shares of preferred stock, $.001 par value per share, of which 300,000 shares have been designated Series A Preferred Stock. As of February 4, 2002 there were outstanding: 2,919,822 shares of Company Common Stock; no shares of preferred stock; and Options to purchase an aggregate of 454,724 shares of Company Common Stock. Since February 4, 2002, there have been no issuances of shares of the capital stock of the Company or any other securities of the Company other than issuances of Company Common Stock pursuant to Options outstanding on February 4, 2002, and no Options have been granted. All shares of Company Common Stock outstanding as of the date hereof have been duly authorized and validly issued and are fully paid and nonassessable. All shares of Company Common Stock issuable upon exercise of outstanding Options have been duly authorized and, when issued in accordance with the terms thereof, will be validly issued, fully paid and nonassessable. Section 4.02(a) of the Company Disclosure Memorandum lists each outstanding Option, the holder thereof, the number of shares issuable thereunder, the grant or issue date, exercise price and expiration date, and indicates whether the holder thereof was an employee of the Company or one of its Subsidiaries at the time of grant. -13- All of such Options have been granted to directors and employees of the Company and only in the ordinary course of business consistent with past practice. The Company has delivered to Parent complete and correct copies of all plans pursuant to which Options were granted and all forms of Options. Following the Effective Time no holder of Options will have any right to receive shares of common stock of the Surviving Corporation upon exercise of Options. (b) Except as set forth in Section 4.02(a) and except for the Rights Agreement and the ESPP, (i) there are no outstanding shares of capital stock or voting securities of the Company, (ii) there are no existing options, warrants, calls, pre-emptive rights, subscriptions or other rights, agreements, arrangements or commitments of any kind relating to the issued or unissued capital stock of the Company or any Company Subsidiary obligating the Company or any Company Subsidiary to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Voting Debt (as hereinafter defined) of, or other equity interest in, the Company or any Company Subsidiary or securities convertible into or exchangeable for such shares or equity interests, or obligating the Company or any Company Subsidiary to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment, and (iii) there are no outstanding rights, commitments, agreements or undertakings obligating the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any Shares or the capital stock of the Company or any Company Subsidiary or any affiliate of the Company or to provide funds to make any investment (in the form of a loan, capital contribution or otherwise) in any Company Subsidiary or any other entity. (c) There are no bonds, debentures, notes or other indebtedness having general voting rights (or convertible into securities having such rights) ("Voting Debt") of the Company or any Company Subsidiary. (d) There are no contracts, voting trusts or other agreements or understandings (other than the Stockholders' Agreement) to which the Company or any of its Subsidiaries is a party or by which it is bound with respect to the voting of any shares of capital stock of the Company or any of its Subsidiaries. Section 4.03 Corporate Authorization. (a) The Company has the requisite corporate power and authority to enter into this Agreement and, subject to approval, if necessary, of the Merger by the Company's stockholders in accordance with the DGCL, to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to approval, if necessary, of the Merger by the Company's stockholders in accordance with the DGCL and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or -14- other similar laws affecting or relating to the enforcement of creditors' rights generally and is subject to general principles of equity. (b) Assuming the accuracy of the representation and warranty set forth in the last sentence of Section 5.03, the action of the Company Board in approving this Agreement (and the transactions provided for herein) is sufficient to render inapplicable to this Agreement (and the transactions provided for herein) the provisions of Section 203 of the DGCL. No other state takeover statute is applicable to this Agreement, the Merger or the other transactions contemplated hereby. Section 4.04 Governmental Authorization. No consent, approval, notice to, permit, order or authorization of, or registration, declaration or filing with, any federal, state or local government or any court, administrative agency, government contractor (including Medicare carriers and intermediaries and the National Supplier Clearinghouse), commission or other governmental or regulatory authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except (a) for the filing with the SEC of (i) the Schedule 14D-9 and other filings required by Rule 14d-9(a) under the Exchange Act, (ii) a proxy statement relating to the approval by the Company's stockholders of this Agreement (as amended or supplemented from time to time, the "Proxy Statement"), if required, and (iii) such reports, information statements and other filings under the Exchange Act or applicable rules and regulations of Nasdaq as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (b) the filing of the certificate of merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (c) as may be required by any applicable state securities or "blue sky" Laws or state takeover Laws, (d) such filings, consents, approvals, orders, registrations and declarations as may be required under the Laws of any foreign country in which the Company or any of its Subsidiaries conducts any business or owns any assets, (e) such consents, approvals, notices to, orders, authorizations, registrations, declarations and filings required by any Health Benefit Law (as hereinafter defined), all of which are listed on Schedule 4.04 of the Company Disclosure Memorandum, and (f) such other consents, approvals, notices to, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Section 4.05 Non-contravention. The execution and delivery of this Agreement by the Company does not, and performance by the Company of its obligations under this Agreement and the consummation of the transactions contemplated hereby will not, contravene, conflict with, constitute or result in any violation, default or breach of or require the consent, waiver or notice under any term or provision of, cause or permit the termination, cancellation, reduction, acceleration or other change of any right or obligation or the loss of any benefit to which the Company or any of its Subsidiaries is entitled under any provision of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under (a) -15- the certificate of incorporation or by-laws of the Company, (b) the comparable charter or organizational documents of any Company Subsidiary, (c) assuming compliance with the matters referred to in Section 4.04, any provision of any applicable Law, regulation, judgment, injunction, order or decree, or (d) any agreement or other instrument binding upon the Company or any of its Subsidiaries or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets, or business of the Company and its Subsidiaries, except, in the case of clauses (c) and (d), for such matters as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Section 4.06 SEC Reports; Financial Statements. (a) The Company has filed with the SEC all reports, schedules, forms, statements and other documents required to be filed with the SEC under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act since October 1, 1999, including the financial statements, exhibits and schedules provided therein or incorporated by reference therein (the "Company SEC Reports"). No Subsidiary is required to file any form, report, registration statement, prospectus or other document with the SEC. As of their respective dates, the Company SEC Reports complied, and all similar documents filed prior to the Effective Time will comply, in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Reports, and none of the Company SEC Reports contained, nor will any similar document filed after the date of this Agreement contain, any untrue statement of a material fact or omitted, nor will any similar document filed after the date of this Agreement omit, to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any Company SEC Reports has been revised or superseded by a later-filed Filed Company SEC Report, as of the date hereof none of the Company SEC Reports contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company SEC Reports, together with any public announcements in a news release issued by the Dow Jones news service, PR Newswire or any equivalent service (collectively, a "Dow Jones News Release") made by the Company after the date hereof taken as a whole, as of the Effective Time will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances existing as of the Effective Time, not misleading. For purposes of this Agreement, a "Filed Company SEC Report" shall mean a Company SEC Report filed by the Company and publicly available prior to the date of this Agreement. (b) The consolidated financial statements of the Company included or incorporated by reference in the Company SEC Reports, in each case: complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as of their respective dates, were prepared in accordance with United States generally accepted accounting principles ("GAAP") (except, in the case of unaudited -16- statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes to such financial statements) and fairly present the consolidated financial position of the Company and its consolidated Subsidiaries as of the date thereof and the consolidated results of their operations and cash flows for the period then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments not material, individually or in the aggregate, in amount). The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP. (c) Except as set forth in the Company Disclosure Memorandum or disclosed in the financial statements included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2001 and except for liabilities and obligations incurred (i) under this Agreement or in connection with the Transactions, or (ii) since September 30, 2001 in the ordinary course of business (none of which is a liability for breach of contract, breach of warranty, tort, infringement claim or lawsuit), neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature (whether or not accrued, absolute, contingent, due, to become due, determined, determinable, asserted, unasserted or otherwise). (d) All accounts receivable of the Company and its Subsidiaries have arisen from bona fide transactions in the ordinary course of business consistent with past practices and in accordance with SEC regulations and GAAP applied on a consistent basis and are not subject to valid defenses, setoffs or counterclaims. The Company's reserve for contractual allowances and doubtful accounts is adequate and has been calculated in a manner consistent with past practices. Since September 30, 2001, neither the Company nor any of its Subsidiaries has modified or changed in any material respects its sales practices or methods including, without limitation, such practices or methods in accordance with which the Company and any of its Subsidiaries sell goods, fill orders or record sales. (e) All accounts payable of the Company and its Subsidiaries are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable. Since September 30, 2001, the Company and its Subsidiaries have not altered in any material respects their practices for the payment of such accounts payable, including the timing of such payment. Section 4.07 Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Offer Documents, the Schedule 14D-9, the information statement to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (as amended or supplemented from time to time, the "Information Statement") or the Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times such documents are filed with the SEC and first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the date it is first mailed to the Company's stockholders and at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state -17- any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied in writing by Parent or Purchaser specifically for inclusion or incorporation by reference therein. The Schedule 14D-9, the Information Statement and the Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. Section 4.08 Absence of Certain Changes or Events. Since September 30, 2001, except as set forth in the Company Disclosure Memorandum or in the Filed Company SEC Reports filed since such date, (i) the business of the Company and its Subsidiaries has been conducted only in the ordinary course and no Material Adverse Effect on the Company has occurred; (ii) there has not been any modification, amendment, suspension, debarment or termination of any licenses, accreditations, certifications, or Medicare or Medicaid participation or enrollment, any modifications, amendments, suspensions or terminations of any coverage or coding determinations of any items or services furnished by the Company, its Subsidiaries or any affiliate of any of them; and (iii) the Company has not taken any action that would have been prohibited under Section 6.01(b) hereof, if such section applied to the period between September 30, 2001 and the date hereof. Section 4.09 Litigation. Except to the extent specifically disclosed with respect to a particular matter in the Company Disclosure Memorandum or in the Filed Company SEC Reports, there is no suit, claim, investigation, action or proceeding pending or, to the knowledge of the Company, overtly threatened against or affecting the Company or any of its Subsidiaries that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on the Company (it being understood that this representation does not include any litigation of the nature described in paragraph (a) of Annex A), and, to the Company's knowledge, no facts exist which could reasonably be expected to give rise to any suit, claim, investigation, action or proceeding that, if asserted, could reasonably be expected to have such effect. There is no judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, a Material Adverse Effect on the Company. Section 4.10 Compliance with Laws. Except as disclosed in the Company Disclosure Memorandum or in the Filed Company SEC Reports, the Company and its Subsidiaries have been, and are, in compliance in all material respects with all Laws applicable to their respective businesses or operations, including all Medicare, Medicaid and CHAMPUS provisions and Health Benefit Laws, and each Material Contract (as hereinafter defined) complies in all material respects with all applicable Laws. Since January 1, 1998, neither the Company nor any of its Subsidiaries has received any written notice from any Governmental Entity regarding (i) any actual or possible material violation of, or material failure to comply with, any Law or (ii) any investigation, review or inquiry regarding any possible default or violation. Each of the Company and its Subsidiaries has in effect all approvals, authorizations, certificates, filings, -18- franchises, licenses, notices, permits and rights of or with all Governmental Entities, including all authorizations under Environmental Laws (as hereinafter defined), Health Benefit Laws and those applicable to a Medicare or Medicaid provider or supplier or a preferred provider organization ("PPO") ("Permits"), necessary for it to own, lease or operate its properties and assets and to carry on its business and operations as now conducted and as currently proposed to be conducted, except where the absence thereof has not had, and could not reasonably be expected to have, a Material Adverse Effect on the Company (provided that such exception shall not apply to Permits under Health Benefit Laws and those applicable to a Medicare or Medicaid provider or supplier or a PPO). There has occurred no material default under, or material violation of, any such Permit, or, to the Company's knowledge, the need for any new or additional Permits the failure of which to obtain, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Company. The Merger, in and of itself, will not cause the revocation or cancellation of any such Permit that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect on the Company. For purposes of this Agreement, the term "Health Benefit Law" means all Laws relating to the licensure, certification, qualification or authority to transact business relating to the provision of, payment for or administration of health benefits and insurance, including ERISA (as hereinafter defined), the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, the Health Insurance Portability and Accountability Act of 1996, and laws relating to the regulation of health maintenance organizations, workers compensation, managed care organizations, insurance, PPOs, point-of-service plans, certificates of need, third-party administrators, utilization review, coordination of benefits, reimbursement, Medicare and Medicaid coverage, participation in federal employee health benefit programs, healthcare fraud and abuse and patient referrals. Section 4.11 Taxes. (a) "Taxes" means any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, service use, license, value added, capital, net worth, payroll, profits, withholding, franchise, business, transfer and recording taxes, fees and charges, and any other taxes, assessments or similar charges imposed by the Internal Revenue Service (the "IRS") or any taxing authority (whether domestic or foreign, including any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)) (a "Taxing Authority"), whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Tax Return" means any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority or jurisdiction (foreign or domestic) with respect to Taxes, including information returns, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information. (b) The Company and each of its Subsidiaries and each affiliated group (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the -19- "Code")) of which the Company or any of its Subsidiaries is or has been a member has timely filed all material Tax Returns which it has been required to file, or requests for extensions to file such Tax Returns have been timely filed and granted and have not expired, and all such Tax Returns are complete and accurate in all material respects. The Company and each of its Subsidiaries has paid (or has had paid on its behalf) all material Taxes which have become due and payable by it and has made adequate provision in reserves established in its financial statements and accounts for all Taxes which have accrued but are not yet due and payable. (c) No audits or other administrative proceedings or court proceedings are pending or, to the knowledge of the Company, threatened with respect to Taxes or Tax Returns of the Company or its Subsidiaries. (d) No deficiencies for any Taxes have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries and neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of the assessment and collection of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. The federal income Tax Returns of the Company have been examined and settled with the IRS (or the applicable statutes of limitations for the assessment of federal income Taxes for such period has expired) for all fiscal years through September 30, 1997. (e) None of the Company and its Subsidiaries is a party to any Tax allocation, Tax indemnity, Tax sharing or similar arrangement or agreement (whether or not in writing) other than between or among themselves. (f) None of the Company and its Subsidiaries has been a member of an affiliated group filing a consolidated U.S. federal Tax Return (other than an affiliated group, the common parent of which is the Company). (g) No Liens for Taxes exist with respect to any assets or properties of the Company or any of its Subsidiaries, except for statutory Liens for Taxes not yet due. (h) Neither the Company nor any of its Subsidiaries has entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision or any similar provision of state, local or foreign Tax law. (i) The Company and its Subsidiaries have withheld and paid all material Taxes required to be withheld in connection with any amounts paid or owing to any employee, creditor, independent contractor or other third party. (j) No claim has been made by a Taxing Authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns to the effect that the Company or any of its Subsidiaries is or may be subject to Taxation by that jurisdiction. (k) Neither the Company nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section -20- 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger. Section 4.12 Employee Benefit Plans. (a) Section 4.12 of the Company Disclosure Memorandum lists each of the following plans, contracts, policies and arrangements which is or, within six years prior to the date of this Agreement, was maintained, sponsored, contributed to, or otherwise provided or made, by the Company or any of its Subsidiaries for the benefit of, or with, any current or former employee, director or other personnel (or any dependents or beneficiaries of such individuals): (i) any "employee benefit plan," (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), whether or not subject to the provisions of ERISA, (ii) any personnel policy and (iii) any employment, consulting, collective bargaining, stock option, stock bonus, stock purchase, phantom stock, incentive, bonus, deferred compensation, excess benefit, retirement, supplemental retirement, severance, vacation, holiday, dependent care, employee assistance, fringe benefit, cafeteria, medical, dental, vision, hospitalization, accident, disability, sick leave, death benefit, life, golden parachute, post-retirement or other compensatory plan, contract, policy or arrangement which is not an employee benefit plan as defined in Section 3(3) of ERISA (each such plan, contract, policy and arrangement described in (i), (ii) or (iii) above being herein referred to as an "Employee Plan"). (b) With respect to each Employee Plan, the Company has made available to Parent true and complete copies of (i) all written materials governing or describing the Employee Plan and/or any related funding arrangements (including, without limitation, any amendments, trust agreements, insurance company contracts or summary plan descriptions) or, if there are no such written materials, a summary description of the Employee Plan; and (ii), where applicable, (A) the last two annual reports (5500 series) filed with the IRS or the Department of Labor; (B) the most recent balance sheet and financial statement; (C) the most recent actuarial report, plan audit or valuation statement; and (D) the most recent determination letter issued by the IRS, as well as any other determination letter, private letter ruling, opinion letter or prohibited transaction exemption issued by the IRS or the Department of Labor within the last six years and any application therefor which is currently pending. (c) Each Employee Plan has been maintained and administered in accordance with its terms and in all material respects in compliance with the provisions of applicable Law, including, without limitation, applicable disclosure, reporting, funding and fiduciary requirements under ERISA and the Code. All contributions, insurance premiums, benefits and other payments required to be made to or under each Employee Plan with respect to all periods through the Effective Time shall have been made prior to the Closing (on a pro-rata basis where such payments are otherwise discretionary at year end) or accrued on the Company's financial statements in accordance with GAAP. With respect to each Employee Plan, (i) no application, proceeding or other matter is pending before the IRS, the Department of Labor or any other Governmental Entity, (ii) no action, suit, proceeding or claim (other than routine claims for -21- benefits) is pending or to the knowledge of the Company overtly threatened, and (iii) to the knowledge of the Company, no facts exist which could reasonably be expected to give rise to an action, suit, proceeding or claim which, if asserted, could reasonably be expected to result in a material liability or expense to the Company or any of its Subsidiaries or the assets of any plan. (d) With respect to each Employee Plan which is an "employee benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan" within the meaning of Section 4975(e) of the Code, there has occurred no transaction which is prohibited by Section 406 of ERISA or which constitutes a "prohibited transaction" under Section 4975(c) of the Code and with respect to which a prohibited transaction exemption has not been granted and is not currently in effect. (e) With respect to each funded Employee Plan which is an "employee pension plan" (within the meaning of Section 3(2) of ERISA), (i) the Employee Plan has, since its inception, been a qualified plan under Section 401(a) of the Code, and its related trust has, since its inception, been exempt from federal income taxation under Section 501(a) of the Code, (ii) a favorable IRS determination letter is currently in effect and, since the date of the last determination letter, the Employee Plan has not been amended or operated in a manner which would adversely affect its qualified status and no event has occurred which has caused or could reasonably be expected to cause the loss of such status, and (iii) there has been no termination or partial termination within the meaning of Section 411(d)(3) of the Code. Each Employee Plan intended to qualify under Section 401(a) of the Code has either obtained from the IRS a favorable determination, opinion, advisory or notification letter, as applicable, as to its qualified status pursuant to Revenue Procedures 99-23, 2000-25 and 2001-55, or has time remaining to apply pursuant to such Revenue Procedures for such a determination letter and to make any amendments necessary to obtain a favorable determination, or has established under a standardized prototype plan for which an IRS opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer. (f) Neither the Company nor any ERISA Affiliate has ever maintained or been obligated to contribute to an employee pension plan (including, without limitation, any "multiemployer plan" (within the meaning of Section 3(37) of ERISA) or any single employer pension plan which is subject to Section 4063 or 4064 of ERISA) which is or was covered by Title IV of ERISA. Neither the Company nor any ERISA Affiliate has incurred or could be reasonably expected to incur any direct or indirect liability under Title IV of ERISA. No "accumulated funding deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the Code) has been or could be reasonably expected to be incurred with respect to any Employee Plan, whether or not waived, and no excise or other taxes have been or could reasonably be expected to be incurred or are due and owing with respect to any Employee Plan because of any failure to comply with the minimum funding standards of ERISA or the Code. No security under Section 401(a)(29) of the Code has been or could be reasonably expected to be required. "ERISA Affiliate" means any Person (whether or not incorporated) which, by reason of its relationship with the Company, is required to be aggregated with the Company under -22- Sections 414(b), 414(c), 414(m), or 414(o) of the Code, or which, together with the Company, is a member of a controlled group within the meaning of Section 4001(a) of ERISA. (g) The Company and its ERISA Affiliates have complied in all material respects with the provisions of Section 4980B of the Code with respect to any Employee Plan which is a "group health plan" (within the meaning of Section 5001(b)(1) of the Code). Neither the Company nor any of its Subsidiaries maintain or contribute to and are not otherwise obligated under any plan, contract, policy or arrangement providing health or death benefits (whether or not insured) to current or former employees or other personnel beyond the termination of their employment or other services, except for ordinary administrative expenses and statutorily required benefits (for example, family medical leave). Each Employee Plan may be unilaterally terminated and/or amended by the Company at any time without material liability, damage or penalty to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has any formal plan or commitment, whether legally binding or not, to create any additional Employee Plan or materially modify or change any existing Employee Plan that would affect any current or former officer, director or employee of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries have any unfunded liabilities under any "pension plan" (within the meaning of Section 3(2) of ERISA) that is not intended to be qualified under Section 401(a) of the Code. (h) The consummation of the transactions contemplated by this Agreement will not (either alone or in conjunction with another event, such as a termination of employment or other services) entitle any employee or other person to receive severance or other compensation which would not otherwise be payable absent the consummation of the transactions contemplated by this Agreement or cause the acceleration of the time of payment or vesting of any award or entitlement under any Employee Plan. No amounts payable under any Employee Plan or otherwise will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code. Section 4.13 Environmental Matters. The Company and its Subsidiaries are in compliance in all material respects with applicable Environmental Laws, including, without limitation, holding all material permits and authorizations required pursuant to such laws for the ownership and operation of their business as currently conducted and compliance in all material respects with the terms thereof, and the Company has no knowledge of any facts or circumstances that would prevent, interfere with, or materially increase the cost of maintaining such compliance in the future. Neither the Company nor any of its Subsidiaries has (i) placed, held, located, released, transported or disposed of any Hazardous Substance (as hereinafter defined) on, under, from or at any of the Company's or any of its Subsidiaries' properties or any other properties, other than in a manner that would not require remediation pursuant to applicable Environmental Law, (ii) any knowledge of the presence of any Hazardous Substances that have been released into the environment on, under or at any of the Company's or any of its Subsidiaries' properties other than that which would not require remediation pursuant to applicable Environmental Law, or (iii) received any written notice (A) of any violation of any applicable Environmental Law that has not been resolved, (B) of the institution or pendency of -23- any suit, action, claim, proceeding or investigation by any Governmental Entity or any third party in connection with any such violation, (C) requiring the response to or remediation of a release of Hazardous Substances at or arising from any of the Company's or any of its Subsidiaries' properties or any other properties, (D) alleging non-compliance by the Company or any of its Subsidiaries with the terms of any permit required under any Environmental Law or (E) demanding payment for response to or remediation of a release of Hazardous Substances at or arising from any of the Company's or any of its Subsidiaries' properties or any other properties. There are no past or present facts or circumstances that could reasonably be expected to form the basis of any material Environmental Claim (as hereinafter defined) against the Company or any of its Subsidiaries or against any Person whose liability for any Environmental Claim the Company or any of its Subsidiaries has retained or assumed either contractually or by operation of law. All material permits and other governmental authorizations currently held or required to be held by the Company and its Subsidiaries pursuant to any Environmental Laws are identified in Section 4.13 of the Company Disclosure Memorandum. The Company has provided to Parent all assessments, reports, data, results of investigations or audits, and other material information that is in the possession of or reasonably available to the Company and its Subsidiaries regarding environmental matters pertaining to or the environmental condition of the business of the Company and its Subsidiaries, or the compliance (or noncompliance) by the Company or any of its Subsidiaries with any Environmental Laws. For purposes of this Agreement, the term "Environmental Law" means all federal, state, local and foreign Laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances as enacted and in effect on or prior to the date hereof; "Hazardous Substance" means any chemical, pollutant, contaminant, waste, petroleum or petroleum product and any material defined as toxic or hazardous or otherwise regulated under any applicable Environmental Law; and "Environmental Claim" means any claim, action, investigation or notice by any person or entity alleging potential liability for investigatory, cleanup or governmental response costs, or natural resources or property damages, or personal injuries, attorney's fees or penalties relating to (i) the presence, or release into the environment, of any Hazardous Substance at any location whether or not owned or operated by the Company or any of its Subsidiaries, now or in the past, or (ii) any violation, or alleged violation, of any Environmental Law. Section 4.14 Intellectual Property. (a) For purposes of this Section 4.14, "Company Intellectual Property" means all the (i) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans and general intangibles of like nature, together with all goodwill, registrations and applications related to the foregoing, (ii) patents (including any registrations, continuations, continuations in part, renewals and applications for any of the foregoing), (iii) copyrights (including any registrations and applications for any of the foregoing), (iv) Software (as hereinafter defined) and (v) technology, trade secrets and other confidential information, know-how, inventions, proprietary processes, formulae, algorithms, models and methodologies (collectively, "Trade Secrets") held for use or used in the conduct of the Company's and each of -24- its Subsidiaries' business as currently conducted or contemplated to be conducted. For purposes of this Section 4.14, "Software" means any and all (i) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, and (iii) all documentation, including user manuals and training materials, relating to any of the foregoing and the content and information contained on any website. The Software, Trade Secrets related to the Software and the other Company Intellectual Property that is material to the conduct of the business of the Company and its Subsidiaries (collectively, the "Material Company Intellectual Property") is subsisting, in full force and effect, has not been cancelled, expired or abandoned, and is valid and enforceable. (b) Section 4.14(b) of the Company Disclosure Memorandum sets forth a complete and accurate list of all of the following that are owned by the Company or any of its Subsidiaries: (i) patents and patent applications, (ii) trademark and service mark registrations (including Internet domain name registrations), trademark and service mark applications and material unregistered trademarks, tradenames and service marks, (iii) copyright registrations, copyright applications and material unregistered copyrights and (iv) Software (other than readily-available commercial software having an acquisition price of less than $15,000). (c) Section 4.14(c) of the Company Disclosure Memorandum sets forth a complete and accurate list of all agreements (whether oral or written, and whether between the Company, any of its Subsidiaries and third parties or intercorporate) to which the Company or any of its Subsidiaries is a party or otherwise bound, (i) granting or obtaining any right to use or practice any rights under any Company Intellectual Property (other than licenses for readily available commercial software programs having an acquisition price of less than $15,000), or (ii) restricting the Company's or any of its Subsidiaries' rights to use any Company Intellectual Property, including license agreements, development agreements, distribution agreements, settlement agreements, consent to use agreements, and covenants not to sue (collectively, the "License Agreements"). The License Agreements are valid and binding obligations of the Company, and, to the knowledge of the Company, all other parties thereto, enforceable in accordance with their terms, and there exists no event or condition which will result in a material violation or breach of, or constitute (with or without due notice of lapse of time or both) a material default by any party under, any such License Agreement. Neither the Company nor any of its Subsidiaries have licensed or sublicensed its rights in any Company Intellectual Property other than pursuant to the License Agreements. No royalties, honoraria or other fees are payable by the Company or any of its Subsidiaries to any third parties for the use of or right to use any Company Intellectual Property except pursuant to the License Agreements. (d) The Company or one of its Subsidiaries owns or possesses adequate, valid and enforceable licenses or other rights to use, free and clear of all Liens and any third-party rights, all Material Company Intellectual Property. (e) The Company's and its Subsidiaries' ownership, licenses or rights in the Material Company Intellectual Property will not be affected by the consummation of the Offer or -25- the Merger. The consummation of the Offer or the Merger will not result in the loss or impairment of the Company or any of its Subsidiaries' right to own, use or bring any action for the infringement of any of the Material Company Intellectual Property, nor will it require the consent of any Governmental Entity or third party in respect of any such Material Company Intellectual Property. (f) The conduct of the Company and any of its Subsidiaries' business as currently conducted or planned to be conducted does not conflict with or infringe on (either directly or indirectly such as through contributory infringement or inducement to infringe) any intellectual property rights owned or controlled by any third party. There is no pending or, to the knowledge of the Company, overtly threatened claim, suit, arbitration or other adversarial proceeding before any Governmental Entity in any jurisdiction involving the Company Intellectual Property or alleging that the activities or the conduct of the Company's or any Company Subsidiary's businesses infringe upon, violate or constitute the unauthorized use of the intellectual property rights of any third party or challenging the Company or any of its Subsidiaries' ownership, use, validity, enforceability or registrability of any Company Intellectual Property, except for claims, suits, arbitrations or proceedings that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect on the Company. There are no settlements, forbearances to sue, consents, judgments, or orders or similar obligations other than the License Agreements which (i) restrict the Company's or any of its Subsidiaries' right to use any Company Intellectual Property, (ii) restrict the Company's or any of its Subsidiaries' businesses in order to accommodate a third party's intellectual property rights or (iii) permit third parties to use any Company Intellectual Property owned or controlled by the Company or any of its Subsidiaries. (g) To the knowledge of the Company, no third party is using misappropriating, infringing, diluting or violating any of the Company Intellectual Property, and no such claims, suits, arbitrations or other adversarial proceedings have been brought or threatened against any third party by the Company or any of its Subsidiaries. Section 4.15 Title and Condition of Properties. The Company and each of its Subsidiaries has good and marketable fee title to, or a valid leasehold interest in, all its respective properties and assets, free and clear of all Liens, except for (i) Liens disclosed in the Company Disclosure Memorandum or in the Filed Company SEC Reports, (ii) Liens or imperfections of title which are not, individually or in the aggregate, material in character, amount or extent and which do not materially detract from the value or materially interfere with the present or presently contemplated use of the assets subject thereto or affected thereby and (iii) Liens for current Taxes not yet due and payable. All of the improvements on real property and fixtures, machinery, equipment and other tangible personal property and assets owned or used by the Company are in good condition and repair, except for ordinary wear and tear not caused by neglect, and are usable in the ordinary course of business, except for any matter otherwise covered by this sentence which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. Each of the Company and its Subsidiaries has complied in all respects with the terms of all leases to which it is a party and -26- under which it is in occupancy, and all such leases are in full force and effect, except for such noncompliance or failure to be in full force and effect that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.16 Insurance. Section 4.16 of the Company Disclosure Memorandum sets forth a list of insurance policies (including information on the premiums payable in connection therewith and the amount of coverage provided thereunder) maintained by the Company and its Subsidiaries, which policies have been issued by issuers that, to the Company's knowledge, are reputable and financially sound. The Company and its Subsidiaries have in place valid and currently effective insurance policies or binders of insurance or programs of self-insurance in such types and amounts as are, in the Company's judgment, reasonable in the context of the businesses and operations engaged in by the Company and its Subsidiaries. The Company has paid all premiums due under such policies and is not in default in any material respect with respect to its obligations under any such policies. Section 4.17 Material Contracts. (a) Section 4.17 of the Company Disclosure Memorandum sets forth a list of all Material Contracts (as hereinafter defined). The Company has heretofore made available to Parent true, correct and complete copies of all written, and true, correct and complete summaries of all oral, contracts, commitments and agreements (and all amendments, modifications and supplements thereto and all side letters to which the Company or any of its Subsidiaries is a party affecting the obligations of any party thereunder) to which the Company or any of its Subsidiaries is a party or by which any of its properties or assets are bound that are material to the business, properties or assets of the Company and its Subsidiaries taken as a whole, including, without limitation, to the extent any of the following are material to the business, properties or assets of the Company and its Subsidiaries taken as a whole, all: (i) employment, severance, product design or development, personal services, consulting, management, non-competition or indemnification contracts (including, without limitation, any contract to which the Company or any of its Subsidiaries is a party involving employees of the Company); (ii) licensing, merchandising or distribution agreements; (iii) contracts granting a right of first refusal or first negotiation; (iv) partnership or joint venture agreements; (v) agreements for the acquisition, sale or lease of material properties or assets of the Company (by merger, purchase or sale of assets or stock or otherwise) entered into since September 30, 2001 (other than agreements relating to the sale of inventory or the performance of services in the ordinary course); (vi) contracts or agreements with any Governmental Entity; (vii) loan or credit agreements, mortgages, indentures or other agreements or instruments evidencing, indebtedness for borrowed money by the Company or any of its Subsidiaries or any such agreement pursuant to which indebtedness for borrowed money may be incurred; (viii) guaranty or security agreements in which the Company or a Subsidiary is a guarantor, co-signor or possessor of a security interest related to any loan or credit agreement; (ix) agreements that purport to limit, curtail or restrict the ability of the Company or any of its Subsidiaries to compete in any geographic area or line of business; (x) contracts or agreements that would be required to be filed as an exhibit to a Form 10-K filed by the Company with the SEC on the date hereof; (xi) contracts, licenses, assignments or other agreements pursuant to which the Company or any of its Subsidiaries acquired or licensed, granted or otherwise disposed of rights in the Company -27- Intellectual Property; (xii) all contracts which have annual expenditures or payment obligations in excess of $25,000 or which have a value greater than $50,000 per year and are not terminable without penalty upon sixty (60) calendar days' notice, including information systems or data processing agreements, employment contracts, medical services agreements, management agreements, medical equipment service or maintenance contracts, medical equipment leases, or purchase contracts and new construction, improvements, repair or maintenance contracts; (xiii) all contracts with current or former directors or officers (or family members of such directors or officers) of the Company or any of its affiliates (other than employment contracts); (xiv) all agreements with healthcare providers (other than agreements (treating for this purpose all agreements with a healthcare provider and its affiliates as one agreement) pursuant to which the Company and its Subsidiaries (A) paid or received less than $25,000 in the aggregate during the year ended September 30, 2001, or (B) expect to pay or receive less than $25,000 in the aggregate during the year ended September 30, 2002); (xv) all contracts with physicians, physicians' immediate family members or physician entities (including all entities owned directly or indirectly by physicians or their family members), including physician guarantees or recruitment agreements, physician services, equipment or facilities agreements and physician space or equipment lease agreements; (xvi) marketing and advertising agreements; (xvii) all contracts to which the Company, any Subsidiary or any of their affiliates is a party for any professional non-physician services, such as laboratories, x-ray technicians and respiratory therapists; (xviii) all ground leases under which the Company, any Subsidiary or any of their affiliates is the tenant; (xix) all other ground or space leases that involve more than 1,000 square feet of net rentable area; (xx) all equipment leases; (xxi) all contracts (including participation agreements) with Governmental Entities, including CHAMPUS, Medicare and Medicaid, and managed care organizations (other than agreements (treating for this purpose all agreements with a healthcare provider and its affiliates as one agreement) pursuant to which the Company and its Subsidiaries (A) paid or received less than $25,000 in the aggregate during the year ended September 30, 2001, or (B) expect to pay or receive less than $25,000 in the aggregate during the year ended September 30, 2002); (xxii) contracts with any physician or physician entity, any of the benefits of which are contingent, or the terms of which are affected or altered, upon the occurrence of a transaction involving the Company or any Subsidiary of the nature contemplated by this Agreement or otherwise do not comply with the federal Stark Law (42 U.S.C. Section 1395nn); (xxiii) contracts with a potential referral source to the Company or any Subsidiary, including, but not limited to, service contracts for marketing and advertising, that do not comply with a safe harbor to the federal Anti-Kickback Statute (42 U.S.C. Sections 1320a-7b(b)); and (xxiv) written or oral contracts, commitments and agreements to enter into any of the foregoing (collectively, the "Material Contracts"). The Company has provided to Parent each form of agreement it uses with healthcare providers and managed care organizations. (b) Each of the Material Contracts constitutes a valid and legally binding obligation of the Company or one or more of its Subsidiaries, and to the knowledge of the Company, of the other party or parties thereto, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar Laws of general applicability relating to or affecting creditors' rights or by general equity principles), and is in full force and effect. There -28- is no material default under any Material Contract either by the Company or, to the Company's knowledge, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a material default thereunder by the Company or, to the Company's knowledge, any other party. The Company has not received any notice from any other party to any such Material Contract, and otherwise has no knowledge that such third party intends to terminate, or not renew, any such Material Contract. (c) No party to any such Material Contract has given notice to the Company of or made a claim against the Company with respect to any material breach or default thereunder. No party to any such Material Contract has provided notice orally or in writing, or, to the Company's knowledge, otherwise overtly threatened, that it has taken or intends to take the position that any provision within such Material Contract or the contract itself is in violation of any federal or state Law. Section 4.18 Employment Matters. (a) Neither the Company nor any of its Subsidiaries is a party to any labor or collective bargaining agreement, and no employees of the Company or any of its Subsidiaries are represented by any labor organization. Within the preceding three years, there have been no representation or certification proceedings, or petitions seeking a representation proceeding, pending or, to the knowledge of the Company, overtly threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority. Within the preceding three years, to the knowledge of the Company, there have been no organization activities involving the Company or any of its Subsidiaries in respect of any group of employees of the Company or any of its Subsidiaries. (b) The Company and its Subsidiaries have good labor relations, and there are no strikes, work stoppages, slowdowns, lockouts, material arbitrations, material grievances or other material labor disputes pending or, to the knowledge of the Company, overtly threatened against or involving the Company or any of its Subsidiaries. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of the Company, threatened in writing by or on behalf of any employee or group of employees of the Company or its Subsidiaries that, if individually or collectively resolved against the Company or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect on the Company. (c) There are no complaints, charges, or claims against the Company or its Subsidiaries pending or, to the knowledge of the Company, overtly threatened to be brought or filed with any Governmental Entity based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Company or its Subsidiaries that, if individually or collectively resolved against the Company or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect on the Company. (d) Each of the Company and its Subsidiaries is in material compliance with all Laws and orders relating to the employment of labor, including all such laws and orders relating to wages, hours, WARN, collective bargaining, discrimination, civil rights, safety and health, workers' compensation, and the collection and payment of withholding and/or social -29- security Taxes and any similar Tax, and are not engaged in any material unfair labor practice. Neither the Company nor any of its Subsidiaries has instituted any "freeze" of, or delayed or deferred the grant of, any cost-of-living or other salary adjustments for any of its employees. (e) There has been no "mass layoff" or "plant closing" as defined by WARN in respect of the Company or its Subsidiaries within the six months prior to the Closing. Section 4.19 Finders' Fees. No broker, investment banker, financial advisor or other Person, other than Houlihan Lokey, the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has delivered to Parent true and complete copies of all agreements under which any such fees or expenses are payable and all indemnification and other agreements related to the engagement of the Persons to whom such fees are payable. Section 4.20 Opinion of Financial Advisor. The Company has received the written opinion of Houlihan Lokey, dated February 7, 2002, to the effect that, as of the date of such opinion, the consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view and such opinion has not been withdrawn or modified by Houlihan Lokey. A copy of such opinion has been delivered to Parent and Purchaser. The Company has been authorized by Houlihan Lokey to permit the inclusion of such opinion in its entirety in the Offer Documents and the Schedule 14D-9 and the Proxy Statement, so long as such inclusion is in form and substance reasonably satisfactory to Houlihan Lokey and its independent counsel. Section 4.21 Voting Requirements. The affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock is the only vote of the holders of any class or series of the Company's capital stock necessary to adopt and approve this Agreement and the transactions contemplated by this Agreement unless the Merger may be consummated in accordance with Section 253 of the DGCL, in which case no such consent of the Company's stockholders is required. Section 4.22 Books and Records. The books of account, minute books, stock record books and other records of the Company and its Subsidiaries are complete and correct in all material respects and have been maintained in accordance with sound business practices and the requirements of Section 13(b)(2) of the Exchange Act, including an adequate system of internal controls. Section 4.23 Certain Business Practices. Neither the Company nor any of its Subsidiaries nor (to the knowledge of the Company) any director, officer, agent or employee of the Company or any of its Subsidiaries has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity or for the purpose of securing patient referrals or other business for the Company or a Subsidiary, (ii) made any -30- unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment. Section 4.24 Interests of Officers and Directors. Except as described in the Filed Company SEC Reports, none of the Company's or its Subsidiaries' officers or directors has any material direct or indirect interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of the Company or that of its Subsidiaries, or any supplier, distributor or customer of the Company or any of its Subsidiaries. Section 4.25 Provider/Supplier Status. (a) Each of the Company and its Subsidiaries that is a healthcare provider and that participates in the Medicare, Medicaid and CHAMPUS programs has a valid provider/supplier agreement with respect to each such program and is in substantial compliance with the conditions of participation of such programs. All claims and cost reports (if any) prepared and delivered by the Company or any Subsidiary during the last six years to Medicare, Medicaid or any other federal or state agencies funding the provision of healthcare services have been prepared in all material respects in accordance with the rules and regulations pertaining thereto and timely filed. (b) Neither the Company nor any of its Subsidiaries has received notice from any Governmental Entity that enforces the statutory or regulatory provisions in respect of either the Medicare or Medicaid programs of any pending or threatened investigations or surveys, and the Company has no reason to believe that any such investigations or surveys are pending, threatened or imminent. The Company and each Subsidiary has all contracts, including provider/supplier contracts, necessary to conduct its business within the jurisdiction where it is located and to receive federal or state payments with respect to its qualified patients. There is no claim pending or, to the knowledge of the Company, threatened involving any such provider/supplier contract or other contract. (c) Each of the Company and its Subsidiaries that is a provider or supplier of healthcare services holds (i) all necessary certifications and/or accreditations from an appropriate certifying or accrediting body, which are current and valid and (ii) valid and current license(s) issued by the states in which the Company or the Subsidiary is located and in which the Company or the Subsidiary conducts business, as necessary. The consummation of the Transactions will not cause the revocation or cancellation of any such certificates, accreditations or licenses. Section 4.26 Medicare Secondary Payor. All actions taken or failed to have been taken by the Company and its Subsidiaries in connection with its PPO have been taken or omitted in complete compliance with the Medicare secondary payor rules and all applicable federal Laws, as supplemented by the regulations of the Department of Health and Human Services ("Secondary Payor Rules"); and no healthcare plan administered by the Company or any Subsidiary has any liability of any nature (including, but not limited to, any liability under the -31- Code, the Social Security Act and the Age Discrimination in Employment Act) to the United States of America or to any other Person with respect to the Secondary Payor Rules. Section 4.27 Overpayments. There are no outstanding overpayments, reported or unreported, to the Company or any Subsidiary, or demands or notices thereof, by any third-party payors, including, but not limited to, Medicare, Medicaid, CHAMPUS and managed care plans. Section 4.28 Settlement Agreements. (a) Section 4.28 of the Company Disclosure Memorandum sets forth each settlement agreement including, but not limited to, any agreements by the Company to refund any amounts paid by a Governmental Entity, or for the Company to pay fines or penalties to any Governmental Entity, entered into by the Company or one or more of its Subsidiaries with a Governmental Entity and all other agreements related thereto (collectively, the "Settlement Agreements"). The Company has made available to Parent true and correct copies of each Settlement Agreement. No term or provision of this Agreement will violate or alter the terms of any Settlement Agreement or give any Governmental Entity the right to demand changes to the terms of any Settlement Agreement. Each Settlement Agreement is in full force and effect and neither the Company nor any of its Subsidiaries is in default under or in violation of, nor is there any valid basis for any claim or default under or violation of, such Settlement Agreement. (b) The Corporate Integrity Agreement, dated October 10, 2001, between Raytel Cardiac Services, Inc., a Subsidiary of the Company, and the United States Department of Health and Human Services (the "CIA"), a true and complete copy of which has been delivered to Parent, is in full force and effect and neither the Company nor any of its Subsidiaries is in default under or in violation of, nor is there any basis for any claim or default under or violation of, the CIA. Section 4.29 Rights Agreement. The Company has taken all action which may be necessary under the Rights Agreement, dated as of August 14, 1998, between the Company and BankBoston, N.A., as rights agent (the "Rights Agreement") to ensure that (a) a "Distribution Date" and a "Stock Acquisition Date" (in each case as defined in the Rights Agreement) will not occur, and none of Parent, Purchaser or any of their "Affiliates" or "Associates" will be deemed to be an "Acquiring Person" (in each case as defined in the Rights Agreement), by reason of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby; and (b) the Rights will expire immediately prior to the Effective Time. Section 4.30 Full Disclosure. The representations and warranties made by the Company in this Agreement, when taken as a whole, do not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. -32- ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser, jointly and severally, represent and warrant to the Company that: Section 5.01 Organization, Standing and Corporate Power. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Section 5.02 Corporate Authorization. Each of Parent and Purchaser has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement, in each case by Parent and/or Purchaser, as the case may be, have been duly authorized by all necessary corporate action on the part of Parent and Purchaser. This Agreement has been duly executed and delivered by Parent and Purchaser and constitutes a valid and binding obligation of each such party, enforceable against each such party in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to the enforcement of creditors' rights generally and is subject to general principles of equity. Section 5.03 Governmental Authorization. No consent, approval, notice to, permit, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent, Purchaser or any other Subsidiary of Parent in connection with the execution and delivery of this Agreement by Parent and Purchaser or the consummation by Parent and Purchaser of the transactions contemplated by this Agreement, except for (a) the filing with the SEC of (i) the Offer Documents and (ii) such reports and other filings under the Exchange Act or applicable rules and regulations of the Switzerland stock market as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (b) the filing of the certificate of merger with the Delaware Secretary of State, (c) the filing of appropriate documents with the relevant authorities of other states in which the Company is qualified to do business and (d) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. Neither Parent nor any of its "affiliates" or "associates" (as each such term is defined in Section 203 of the DGCL) was, prior to the execution of this Agreement, an "interested stockholder" (as such term is defined in Section 203 of the DGCL) of the Company or owns any Shares. Section 5.04 Non-contravention. The execution and delivery of this Agreement by Parent and Purchaser do not and performance by Parent and Purchaser of this Agreement and the consummation by Parent and Purchaser of the transactions contemplated hereby will not (a) -33- contravene, conflict with, or result in any violation or breach of any provision of the organizational documents of Parent or Purchaser, (b) assuming compliance with the matters referred to in Section 5.03, contravene, conflict with or result in any violation or breach of any provision of any Law, regulation, judgment, injunction, order or decree or (c) require any consent or other action by any Person under, constitute a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Parent or Purchaser is entitled under any provision of any agreement or other instrument binding upon Parent or Purchaser, except, in the case of clauses (b) and (c), for such matters as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent. Section 5.05 Information Supplied. None of the information supplied or to be supplied by Parent or Purchaser for inclusion or incorporation by reference in the Offer Documents, the Schedule 14D-9, the Information Statement or the Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times such documents are filed with the SEC or first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the date it is first mailed to the Company's stockholders and at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by Parent or Purchaser with respect to statements made or incorporated by reference therein based on information supplied in writing by the Company. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder. Section 5.06 Litigation. There is no suit, claim, investigation, action or proceeding pending or, to the knowledge of the Parent, overtly threatened in writing against or affecting the Parent, any Subsidiary of Parent or Purchaser that would prevent or substantially delay any of the transactions contemplated by this Agreement or otherwise prevent the Parent or Purchaser from performing its obligations hereunder (it being understood that this representation shall not include any litigation of the nature described in paragraph (a) of Annex A), and, to Parent's knowledge, no facts exist which could reasonably be expected to give rise to any suit, claim, investigation, action or proceeding that, if asserted, could reasonably be expected to have such effect. There is no judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or Purchaser or any of their Subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have any such effect. Section 5.07 Financing. Parent and Purchaser collectively have (and hereby agree that they shall continue to have through the Effective Time) all funds from their cash and cash equivalents or borrowings currently available under their existing credit facilities necessary to purchase all outstanding Shares (on a fully diluted basis) pursuant to the Offer and the Merger, to perform their obligations under this Agreement and to pay all fees and expenses related to the transactions contemplated by this Agreement payable by them. -34- Section 5.08 Finders' Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of the Parent or Purchaser who is entitled to any fee or commission from the Parent or Purchaser in connection with the transactions contemplated by this Agreement except for CIBC World Markets Corp., financial advisor to Parent, the fees and expenses of which shall be paid by Parent. Section 5.09 Purchaser's Operation. Purchaser was formed solely for the purpose of engaging in the Transactions and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby nor will it have done so prior to the consummation of the Offer. Section 5.10 Full Disclosure. The representations and warranties made by the Parent in this Agreement, when taken as a whole, do not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. ARTICLE 6 COVENANTS Section 6.01 Conduct of Business by the Company. (a) From the date hereof until the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, conduct its business in the ordinary course consistent with past practice and use its commercially reasonable best efforts to preserve intact its business organization, goodwill and relationships with third parties and to keep available the services of its officers and employees and maintain existing relations with customers, suppliers, officers, employees, creditors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired at the Effective Time. (b) Except with the prior written consent of Parent or as contemplated or permitted by this Agreement or as expressly set forth in the Company Disclosure Memorandum, from the date hereof until the Effective Time the Company shall not, and shall not permit any of its Subsidiaries to: (i) make, declare, set aside or pay any dividend or other distribution with respect to any shares of its capital stock, other than dividends and other distributions paid by any Subsidiary of the Company to the Company or any wholly-owned Subsidiary of the Company; (ii) adjust, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock; (iii) directly or indirectly repurchase, redeem or otherwise acquire any shares of capital stock or other securities of, or other ownership interests in, the Company or any of its Subsidiaries, other than as may be required under the terms -35- of any written Option or Option Plan existing on the date hereof and disclosed in Section 6.01(b)(iii) of the Company Disclosure Memorandum; (iv) issue, deliver or sell any shares of any class or series of its capital stock (including Company Common Stock), other than the issuance of Company Common Stock (and associated rights under the Rights Agreement) upon the exercise of Options outstanding on the date of this Agreement, or any securities convertible into or exercisable or exchangeable for shares of any class or series of its capital stock (including Company Common Stock, or any rights, warrants or options to acquire any shares of Company Common Stock); (v) adopt or implement any amendment to its certificate of incorporation or bylaws or other comparable organizational documents or amend the terms of its outstanding securities; (vi) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (B) any assets for a consideration exceeding $25,000 in any such case, except purchases of inventory in the ordinary course of business consistent with past practice and capital expenditures permitted by clause (viii) of this Section 6.01(b) and except that Parent agrees to not unreasonably withhold or delay consent, if requested, for the acquisition or agreement to acquire assets for a consideration exceeding $25,000 but less than $100,000; provided that Parent shall not be required to consent to any asset acquisition to the extent the total amount of assets acquired between the date hereof and the Closing Date (other than purchases of inventory in the ordinary course of business consistent with past practice and capital expenditures permitted by clause (viii) of this Section 6.01(b)) exceeds $250,000; (vii) transfer, sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, except sales of assets for consideration not exceeding $25,000 in any such case and $50,000 in the aggregate and except for sales of inventory in the ordinary course; (viii) except for the items currently contracted for by the Company and the items contemplated by the Company's capital expenditure budget made available to Parent and the items disclosed in Section 6.01(b)(viii) of the Company Disclosure Memorandum, make or agree to make any new capital expenditure or expenditures; (ix) incur any indebtedness for borrowed money (except for borrowings under its credit facility in effect on the date hereof for working capital purposes and except for intercompany indebtedness), assume, guarantee, endorse -36- or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, except for the endorsement of checks in the normal course of business and the extension of credit in the normal course of business, or make any loans, advances or capital contributions to, or investments in, any other Person, other than to any direct or indirect wholly-owned Subsidiary; (x) enter into or adopt any new, or amend or renew any existing, Employee Plan or any collective bargaining agreement, other than as required by Law; (xi) except to the extent required by the terms of written employment agreements as in effect on the date of this Agreement, increase the compensation payable to or to become payable to, or severance, pension or other fringe benefits or perquisites to its present or former directors, employees, officers or consultants, except for increases already committed to and set forth in Section 6.01(b)(xi) of the Company Disclosure Memorandum; (xii) enter into any contracts of employment (other than contracts terminable by the Company without liability immediately following the Closing) or any severance, retention or similar agreement; (xiii) pay, agree to pay or award any employee bonuses except in accordance with plans or agreements existing on the date hereof and listed in Section 6.01(b)(xiii) of the Company Disclosure Memorandum, or forgive any officer or employee loan; (xiv) adopt any change in its accounting policies, procedures or practices, other than as required by the SEC, changes in GAAP or applicable Law, or accelerate any income, postpone any expense or reverse any reserve, except on a basis consistent with past practice or as otherwise required by GAAP; (xv) (A) make any Tax election, (B) settle or compromise any material income Tax liability, (C) change any annual Tax accounting period or method of Tax accounting in any material respect, (D) file any amended Tax Return, (E) enter into any closing agreement relating to any material Tax, or (F) surrender any right to claim a material Tax refund or to any extension or waiver of the limitations period applicable to any material Tax claim or assessment; (xvi) pay, discharge, settle or satisfy any claims, litigation, arbitration, liabilities or other controversies (absolute, accrued, asserted or unasserted, contingent or otherwise), including the payment, discharge, settlement or satisfaction of any claims, litigation, arbitration, liabilities or controversies of any nature relating to the Transactions contemplated hereby, other than the payment, discharge or satisfaction, in the ordinary course of business or in accordance with -37- their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) included in the Filed Company SEC Reports or incurred in the ordinary course of business consistent with past practice provided that no such payment, discharge, settlement or satisfaction (A) is for an amount greater than the amount reserved for on the Company's books or (B) imposes non-monetary conditions that could reasonably be expected to adversely affect the conduct of the business of the Company and its Subsidiaries as currently conducted, or waive any material benefits of, or agree to modify in any material respect, any confidentiality, standstill or similar agreements to which the Company or any of its Subsidiaries is a party; (xvii) cancel or terminate any insurance policy naming the Company or any Subsidiary as a beneficiary or loss payable payee, except policies providing coverage for losses not in excess of $100,000, or materially reduce the amount of any insurance coverage provided by existing insurance policies; (xviii) revalue in any material respect any of its assets, including, without limitation, writing down the value of inventory or writing-off notes or accounts receivable other than in the ordinary and usual course of business consistent with past practice or as required by generally accepted accounting principles; (xix) (i) enter into any contract or agreement, other than in the ordinary and usual course of business consistent with past practice, or amend in any material respect any of the Material Contracts; (ii) enter into any contract, agreement, commitment or arrangement providing for, or amend any contract, agreement, commitment or arrangement to provide for, the taking of any action that would be prohibited hereunder or (iii) enter into any settlement or similar agreement with any Governmental Entity, or amend in any respect any Settlement Agreement or the CIA; (xx) enter into any agreement or arrangement that limits or otherwise restricts the Company or any of its Subsidiaries or any successor thereto or that could, after the Effective Time, limit or restrict the Surviving Corporation and its affiliates (including Parent) or any successor thereto, from engaging or competing in any line of business or in any geographic area; (xxi) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries (other than the Merger); (xxii) alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any Subsidiary; (xxiii) waive, amend or otherwise alter the Rights Agreement except as contemplated by this Agreement, or redeem the rights issued thereunder; or -38- (xxiv) enter into, or agree or commit to enter into, any agreement, contract, commitment or arrangement that if completed would be in contravention of any of the foregoing. Section 6.02 Other Actions. The Company, Parent and Purchaser shall not, and shall not permit any of their respective Subsidiaries to, take any action that would, or that could reasonably be expected to, result in any of their respective representations and warranties set forth in this Agreement that are qualified as to materiality becoming untrue or incorrect in any respect, any of such representations and warranties that are not so qualified becoming untrue or incorrect in any material respect or any of the conditions to the Offer set forth in Annex A or to the Merger set forth in Article 7 not being satisfied (subject to the Company's right to take action specifically permitted by Section 6.05). Section 6.03 Stockholder Meeting; Proxy Material; Merger Without Stockholder Meeting. (a) If required by applicable Law to consummate the Merger, the Company shall cause a meeting of its stockholders (the "Company Stockholder Meeting") to be duly called and held as soon as practicable following the date on which the Purchaser completes the purchase of the shares of Company Common Stock pursuant to the Offer (the "Offer Completion Date"), for the purpose of voting on the approval and adoption of this Agreement and the Merger. At the Company Stockholder Meeting, Parent shall cause all of the shares of Company Common Stock then actually or beneficially owned by Parent, Purchaser or any of their Subsidiaries to be voted in favor of the Merger. Notwithstanding the foregoing, if Purchaser or any other subsidiary of Parent shall acquire at least ninety percent (90%) of the outstanding shares of Company Common Stock, the parties shall, at the request of Parent, take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the Offer Completion Date without a Company Stockholder Meeting in accordance with Section 253 of the DGCL. (b) The Company will, if required and at Parent's request, as soon as practicable following the Offer Completion Date, prepare and file a preliminary Proxy Statement with the SEC and will use its reasonable best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement and all amendments and supplements thereto, prior to their being filed with the SEC. Parent will provide the Company with the information concerning Parent and Purchaser required to be included in the Proxy Statement. The Company will notify Parent promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the Company Stockholder Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement. The -39- Company will not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. Section 6.04 Access to Information. (a) From the date hereof until the Effective Time and subject to applicable Law the Company shall and shall cause its Subsidiaries to (i) give Parent and its authorized representatives, including its counsel, financial advisors, auditors and other authorized representatives access, upon reasonable notice at reasonable times, to the offices, properties, books and records of the Company and its Subsidiaries, (ii) furnish Parent, its officers, employees, counsel, financial advisors, auditors and other authorized representatives with such financial and operating data and other information as such Persons may reasonably request and (iii) instruct the employees, counsel, financial advisors, auditors and other authorized representatives of the Company and its Subsidiaries to cooperate with Parent in its investigation of the Company and its Subsidiaries; provided that no investigation pursuant to this Section 6.04(a) shall affect any representation or warranty given by the Company to Parent and Purchaser hereunder. (b) Between the date hereof and the Effective Time, the Company shall furnish to Parent and Purchaser (i) within five Business Days after the delivery thereof to management, such monthly financial statements and data as are regularly prepared for distribution to the Company management and (ii) at the earliest time they are available, such quarterly and annual financial statements as are prepared for the Company's SEC filings, which (in the case of clause (ii)), shall be in accordance with the books and records of the Company. (c) Except as required by Law (but subject to the limitations on such exception provided in the Confidentiality Agreement), Parent and Purchaser will hold, and will cause their respective officers, directors, employees, accountants, counsel, consultants, advisors, agents and affiliates to hold in confidence all documents and information concerning the Company or any of its Subsidiaries furnished to Parent or its affiliates in connection with the transactions contemplated by this Agreement in accordance with the terms of the letter agreement dated November 29, 2001 between the Company and Parent (the "Confidentiality Agreement"). Section 6.05 No Solicitation; Other Offers. (a) The Company shall not, and shall not permit any of its Subsidiaries to, and shall cause its officers, directors and employees, and any investment bankers, consultants, financial advisors, accountants, agents or other representatives retained by it or any of its Subsidiaries not to, solicit, initiate or encourage the submission of any Acquisition Proposal (as hereinafter defined) or engage in discussions or negotiations or furnish to any Person any information with respect to an Acquisition Proposal or knowingly facilitate any effort or attempt to make an Acquisition Proposal. Any violation of the foregoing restrictions by any of the Company's representatives, whether or not such representative is so authorized and whether or not such representative is purporting to act on behalf of the Company or otherwise, shall be deemed a breach of this Agreement by the Company. The Company shall, and shall cause its Subsidiaries and the officers, directors, employees or any investment bankers, attorneys, consultants, financial advisors, agents or other representatives of the Company and its -40- Subsidiaries to, cease immediately and cause to be terminated all activities, discussions and negotiations, if any, with any Persons conducted prior to the date hereof with respect to any Acquisition Proposal and, to the extent within its power, to recover or cause to be destroyed all information concerning the Company and its Subsidiaries in the possession of such Persons and their affiliates, representatives and advisors. Nothing contained in this Agreement shall prevent the Company Board from complying with Rule 14d-9 or Rule 14e-2 under the Exchange Act with respect to any Acquisition Proposal or making any disclosure to the Company's stockholders that, in the good faith judgment of the majority of the members of the Company Board, upon recommendation of the Special Committee after consultation with and advice from its outside legal counsel, is required by applicable Law. (b) Notwithstanding the first sentence of Sections 6.05(a), prior to the time of acceptance of Shares pursuant to the Offer and subject to the provisions of this Section 6.05(b) and Section 6.05(c), the Company may negotiate or otherwise engage in substantive discussions with, and furnish nonpublic information to, any Person in response to an unsolicited bona fide written Acquisition Proposal by such Person to acquire in any manner at least fifty percent of the Shares outstanding or fifty percent of the consolidated assets of the Company if (i) a majority of the Company Board determines in good faith, upon the recommendation of the Special Committee after the Special Committee has received the advice of Houlihan Lokey or another nationally recognized financial advisor, that such Acquisition Proposal would reasonably be expected to result in a Superior Proposal (as hereinafter defined) and, after consultation with and advice from outside legal counsel, that the failure to take such action would cause the Company Board to breach its fiduciary duties under applicable Law, and (ii) such Person executes a confidentiality agreement in a form no less favorable to the Company than the Confidentiality Agreement. Prior to providing any information to or entering into discussions or negotiations with any Person in connection with an Acquisition Proposal by such Person, the Company shall notify Parent of any Acquisition Proposal (including, without limitation, the material terms and conditions thereof and the identity of the Person making it) as promptly as practicable (but in no case later than 24 hours) after its receipt thereof, and shall provide Parent with a copy of any written Acquisition Proposal or amendments or supplements thereto, and shall thereafter inform Parent on a prompt basis of the status of any discussions or negotiations with such a third party, and any material changes to the terms and conditions of such Acquisition Proposal, and shall promptly give Parent a copy of any information delivered to such Person which has not previously been provided or made available to Parent. The Company shall not waive any standstill or confidentiality provisions contained in agreements to which the Company is a party or to which the Company is subject unless the Company Board determines in good faith, upon the recommendation of the Special Committee after consultation by the Special Committee with and advice from its outside legal counsel, that the failure to take such action would cause the Company Board to breach its fiduciary duties under applicable Law. (c) Except as permitted by the second sentence of this Section 6.05(c), neither the Company Board nor any committee thereof shall (i) withdraw or modify, or publicly propose to withdraw or modify, in a manner adverse to Parent, its recommendation to its stockholders referred to in Section 1.02 hereof, or take any action not explicitly permitted by this Agreement -41- that would be inconsistent with its approval of the Offer and the Merger, (ii) approve or recommend, or publicly propose to approve or recommend, any Acquisition Proposal or (iii) cause the Company to enter into any letter of intent, agreement in principle, acquisition agreement, commitment or similar agreement related to any Acquisition Proposal. Notwithstanding the foregoing, prior to the time of acceptance of the Shares for payment pursuant to the Offer, the Company Board shall be permitted (i) not to recommend to its stockholders acceptance of the Offer and/or approval and adoption of this Agreement and the Merger, (ii) to withdraw, or modify in a manner adverse to Parent, its recommendation to its stockholders referred to in Section 1.02 hereof, (iii) to approve or recommend any Superior Proposal or (iv) to terminate this Agreement in accordance with Section 8.01(c)(ii) hereof and in connection therewith enter into an agreement with respect to such Superior Proposal, but only if in each case (x) the Company has received an Acquisition Proposal which the Company Board determines in good faith, upon the recommendation of a nationally recognized financial advisor, constitutes a Superior Proposal, (y) the Company Board determines in good faith, upon the recommendation of the Special Committee after consultation by the Special Committee with and advice from its outside legal counsel, that the failure to take such action would cause the Company Board to breach its fiduciary duties under applicable Law and (z) after five Business Days have elapsed following the Company's delivery to Parent of written notice advising Parent that the Company Board has received a Superior Proposal specifying the material terms and conditions of such Superior Proposal and identifying the Person making the Superior Proposal; provided, however, that the Company shall not enter into an agreement with respect to a Superior Proposal unless the Company shall terminate this Agreement in accordance with Section 8.01(c)(ii). (d) For purposes of this Agreement: (i) "Acquisition Proposal" means any bona fide offer, inquiry or proposal for (i) a merger, reorganization, consolidation, share exchange, business combination, or other similar transaction involving the Company or any of its Subsidiaries, (ii) any proposal or tender offer or exchange offer to acquire, directly or indirectly, any securities of the Company or the filing of a registration statement under the Securities Act in connection therewith or (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of more than 50% of the assets of the Company and its Subsidiaries taken as a whole, other than the Offer and the Merger contemplated by this Agreement; and (ii) "Superior Proposal" means any bona fide written Acquisition Proposal, which was not solicited by the Company or any affiliate, representative or agent of the Company and which does not include any financing condition, with respect to which the Company Board determines in good faith (upon the recommendation of the Special Committee after the Special Committee has received the advice of Houlihan Lokey or another nationally recognized financial advisor and taking into account all the terms and conditions of the Acquisition Proposal, which terms and conditions shall include all legal, financial and -42- regulatory aspects of the proposal, the Person making such Acquisition Proposal, and the strategic benefits to be derived from the Offer and the Merger and the long-term prospects of the Company and its Subsidiaries) is more favorable to the Company's stockholders (in their capacities as stockholders) from a financial point of view than the Offer and Merger. Section 6.06 Best Efforts; Notification. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use their commercially reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer and the Merger and the other transactions contemplated by this Agreement, including (i) the obtaining of all necessary waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all steps as may be necessary to avoid an action or proceeding by any Governmental Entity, (ii) the obtaining of all material consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including, without limitation, seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, the Company and the Company Board shall, if any state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger, this Agreement or the other transactions contemplated by this Agreement, use their commercially reasonable best efforts to ensure that the Offer, the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated by this Agreement. (b) Subject to the terms and conditions of this Agreement, in furtherance and not in limitation of the covenants of the parties contained in Section 6.06(a), if any administrative or judicial action or proceeding, including any proceeding by a Governmental Entity or a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any applicable Law, each of the parties shall cooperate in all respects with each other and use its respective commercially reasonable best efforts in order to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. (c) Parent and Purchaser, on the one hand, and the Company, on the other hand, each hereby agrees promptly to provide such information necessary to the preparation of -43- the Schedule 14D-9 and the Offer Documents, respectively, which the respective party responsible therefor shall reasonably request. (d) Notwithstanding anything to the contrary in Section 6.06(a) or (b), (i) neither Parent nor any of its Subsidiaries shall be required to divest any of their respective businesses, product lines or assets, (ii) neither Parent nor any of its Subsidiaries shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect on Parent, (iii) neither the Company nor its Subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect on the Surviving Corporation or, prior to the Closing, the Company, (iv) no party shall be required to agree to the imposition of or to comply with, any condition, obligation or restriction on Parent or any of its Subsidiaries or on the Surviving Corporation or any of its Subsidiaries of the type referred to in subclause (vi) or (vii) of clause (a) of Annex A, and (v) neither Parent nor Purchaser shall be required to waive any of the conditions to the Offer set forth in Annex A and none of the Parent, Purchaser or the Company shall be required to waive any of the conditions to the Merger set forth in Article 7. (e) Each of the Company and Parent shall promptly notify the other of: (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect at or prior to the Effective Time; (ii) the failure by it to perform, or comply with, in any material respect, any of its obligations, covenants, or agreements contained in this Agreement, which failure, either individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on it; (iii) the Company obtaining knowledge of a material breach by Parent, or Parent obtaining knowledge of a material breach by the Company, of their respective representations, warranties or covenants hereunder of which the breaching party has not already given notice pursuant to clauses (i) or (ii) above; (iv) any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement, except to the extent such notice requirement is expressly disclosed in the Company Disclosure Memorandum; (v) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; (vi) any actions, suits, claims, investigations, orders, decrees, complaints or proceedings commenced or, to its knowledge, threatened against, -44- relating to or involving or otherwise affecting the Company, Parent or any of their respective Subsidiaries that relate to the consummation of the transactions contemplated by this Agreement; or (vii) the occurrence of any other event which would reasonably be likely to have a Material Adverse Effect on the Company or cause any condition set forth in Annex A hereto to be unsatisfied in any material respect at any time prior to consummation of the Offer; provided, however, that the delivery of any notice pursuant to this Section 6.06(e) shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 6.07 Indemnification and Insurance. (a) From and after the Effective Time, the Surviving Corporation will indemnify and hold harmless (including advancement of expenses) the current and former directors and officers of the Company and its wholly-owned Subsidiaries (the "Indemnified Parties") in respect of claims made within six years following the Effective Time for acts or omissions occurring on or prior to the Effective Time to the extent provided in the Company's certificate of incorporation, bylaws and indemnity agreements in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable Law. Parent and the Company agree that in the event any claim or claims are asserted or made within the six-year period contemplated by this Section, all rights to indemnification in respect of any such claim or claims shall continue until disposition of any and all such claims. The certificate of incorporation and bylaws of the Surviving Corporation shall not be amended, repealed or otherwise modified in any manner adverse to persons who, as of the date hereof, are Indemnified Parties, without the prior written consent of any such persons, for a period of six years from and after the Effective Time and shall contain indemnification and exculpation provisions which are no less favorable to the Indemnified Parties than those provisions contained in the Company's certificate of incorporation and bylaws as in effect immediately prior to the date of this Agreement. Any determination required to be made with respect to whether any Indemnified Party may be entitled to indemnification will, if requested by such Indemnified Party, be made by independent legal counsel selected by the Surviving Corporation and reasonably satisfactory to the Indemnified Party. (b) For six years after the Effective Time, Parent shall maintain, or cause the Surviving Corporation to maintain, with respect to matters occurring prior to the Effective Time, policies of directors and officers' liability insurance comparable to those currently maintained by the Company for the benefit of persons currently covered by the Company's directors' and officers' liability insurance policies (except to the extent any provisions in such insurance are no longer generally available in the market); provided that in no event shall the Surviving Corporation be required in order to maintain such directors' and officers' liability insurance policies to expend in any one year an amount in excess of 200% of the aggregate annual premiums currently paid by the Company for such insurance (which annual premium the Company represents is $109,000); provided further that, if the annual premium costs necessary to maintain such insurance coverage exceed such amount, the Surviving Corporation shall only -45- be obligated to obtain as much coverage as can be obtained for an annual premium equal to the foregoing amount and provided further that notwithstanding the foregoing, Parent may satisfy its obligations under this Section 6.07(b) by purchasing a "tail" policy under Company's existing directors' and officers' insurance policy that (i) has an effective term of six years from the Effective Time, (ii) covers the Indemnified Parties covered by the Company's directors' and officers' insurance policy in effect on the date hereof for actions and omissions occurring on or prior to the Effective Time and (iii) contains terms and conditions (including without limitation coverage amounts) that are at least as favorable in the aggregate as the terms and conditions of the Company's directors' and officers' insurance policy in effect on the date hereof. (c) This Section 6.07 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, Parent, the Surviving Corporation and the Indemnified Parties, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. In the event that Parent or the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors or assigns of Parent or the Surviving Corporation, as the case may be, shall succeed to the obligations set forth in this Section 6.07. Section 6.08 Continuation of Benefits. (a) For at least one year from and after the Effective Time, the Surviving Corporation will provide benefits (other than equity-based compensation), including health and welfare benefits, to employees of the Company and its Subsidiaries who continue their employment after the Effective Time (each, a "Continuing Employee") which are generally not less favorable in the aggregate to such continuing Employee than the benefits being provided to such Continuing Employee immediately prior to the Effective Time. The Surviving Corporation will recognize the service of each Continuing Employee through the Effective Time as if such service had been performed with the Surviving Corporation for purposes of eligibility and vesting under the Surviving Corporation's benefit plans. (b) Without limiting any other provision of this Agreement, the Surviving Corporation agrees to cause to be honored in accordance with their terms the severance obligations of the Company arising under the bonus arrangements identified in Section 4.08(g) of the Company Disclosure Memorandum and the agreements identified in Section 4.17 of the Company Disclosure Memorandum as a direct or indirect result of the transactions contemplated by this Agreement (either alone or in combination with any other event). The parties acknowledge and agree that the transactions contemplated by this Agreement constitute a "change in control" for all purposes under such agreements and bonus arrangements. Section 6.09 Public Announcements. Parent and the Company will consult with each other before issuing any press release or making any public statement (including any broadly issued statement or announcement to employees) with respect to this Agreement or the transactions contemplated hereby and, except as may be required by applicable Law or any listing agreement with any national securities exchange or Nasdaq or the SWX rules, will not -46- issue any such press release or make any such public statement without the prior consent of the other (which consent shall not be unreasonably withheld or delayed). The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement will be press release acceptable to Parent and the Company. Section 6.10 Further Assurances. At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver, in the name and on behalf of the Company or Purchaser, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Company or Purchaser, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets of the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger. ARTICLE 7 CONDITIONS TO THE MERGER Section 7.01 Conditions to Obligations of Each Party. The respective obligations of the Company, Parent and Purchaser to consummate the Merger are subject to the satisfaction or waiver of the following conditions at or prior to the Effective Time: (a) Purchaser shall have purchased all Shares validly tendered and not withdrawn pursuant to the Offer; provided that this condition shall be deemed to have been satisfied with respect to the obligation of Parent and Purchaser to effect the Merger if Purchaser fails to accept for payment or pay for Shares validly tendered and not withdrawn pursuant to the Offer in violation of the terms of the Offer or of this Agreement; (b) if required by applicable Law, this Agreement shall have been approved and adopted by the required vote of the stockholders of the Company in accordance with the DGCL; and (c) no statute, rule or regulation shall have been enacted, promulgated or deemed applicable to the Merger by any Governmental Entity which prevents the consummation of the Merger or makes the consummation of the Merger unlawful, and no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used reasonable best efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered. -47- ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER Section 8.01 Termination. This Agreement may be terminated, and the Merger contemplated hereby may be abandoned, at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of the Company: (a) by mutual written consent of Parent, Purchaser and the Company; (b) by either the Company or Parent: (i) if any court of competent jurisdiction or other Governmental Entity shall have issued an order (other than a temporary restraining order), decree or ruling or taken any other action (which order, decree, ruling or other action the parties hereto shall use their reasonable best efforts, subject to Section 6.06 hereof, to lift) restraining, enjoining, prohibiting or otherwise making illegal, the acceptance for payment of, or payment for Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; or (ii) if (x) the Offer shall have expired or been terminated or withdrawn by Parent and Purchaser without any Shares being purchased pursuant thereto or (y) Parent or Purchaser shall not have accepted for payment all Shares tendered pursuant to the Offer by May 8, 2002, provided that the right to terminate this Agreement under this Section 8.01(b)(ii) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of Parent or Purchaser to purchase the Shares pursuant to the Offer on or prior to such date; (c) by the Company: (i) if Parent and/or Purchaser fails to commence the Offer as provided in Section 1.01 hereof; provided that the Company may not terminate this Agreement pursuant to this Section 8.01(c)(i) if the Company is at such time in breach in any material respect of its obligations under this Agreement; (ii) in connection with entering into a definitive agreement with respect to a Superior Proposal, as permitted by the second sentence of Section 6.05(c), if (w) the Company provides written notice to Parent and Purchaser of the material terms and conditions of the Acquisition Proposal which the Company Board determines in good faith, upon the recommendation of the Special Committee after consultation by the Special Committee with and advice from Houlihan Lokey or another nationally recognized financial advisor and its outside legal counsel, constitutes a Superior Proposal, attaching the most current version of such Acquisition Proposal with respect thereto and identifying the Person -48- making such Acquisition Proposal, (x) after five Business Days immediately following delivery of such written notice, the Company Board reasonably determines, upon the recommendation of the Special Committee based upon the advice of Houlihan Lokey or another nationally recognized financial advisor, that any proposal made by Parent and Purchaser in writing with respect to the Offer, within such time period, supplementing the terms and conditions of the Offer, is not at least as favorable to the Company and the Company's stockholders as the terms and conditions of such Acquisition Proposal specified in (w) above, (y) the Company pays the Termination Fee and Expenses in accordance with Section 8.03(b) concurrently with entering into a definitive agreement with respect to a Superior Proposal and (z) each party to such Superior Proposal delivers a written acknowledgement to Parent that waives any right it may have to contest the validity or enforceability of any of the terms and conditions of this Agreement; or (iii) if Parent or Purchaser shall have made a material misrepresentation or have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement, which breach cannot be or has not been cured, in all material respects, within 30 days after the giving of written notice to Parent or Purchaser, as applicable; (d) by Parent: (i) if, due to an occurrence, not resulting from a breach by Parent or Purchaser of their obligations hereunder, which makes it impossible to satisfy any one or more of the conditions set forth in Annex A hereto, Parent or Purchaser shall have failed to commence the Offer on or prior to ten Business Days following the date of the initial public announcement of the Offer; (ii) if, prior to the purchase of Shares pursuant to the Offer, the Company shall have breached any representation, warranty, covenant or other agreement contained in this Agreement which (A) would give rise to the failure of a condition set forth in paragraph (d) or (e) of Annex A hereto and (B) cannot be or has not been cured, in all material respects, within 30 days after the giving of written notice to the Company; (iii) if, whether or not permitted to do so, (A) the Company Board shall have withdrawn or modified in a manner adverse to Parent or Purchaser (or shall have failed, at the request of Parent, to reaffirm) its approval or recommendation of the Offer, the Merger or the Agreement, or approved or recommended any Acquisition Proposal or (B) the Company shall have entered into any agreement with respect to any Acquisition Proposal (other than a confidentiality, standstill or non-solicitation agreement permitted by Section 6.05(b)), including a Superior Proposal entered into in accordance with the second sentence of Section 6.05(c) of this Agreement; or -49- (iv) an Acquisition Proposal that is publicly disclosed shall have been commenced, publicly proposed or communicated in a public manner to the Company which contains a proposal as to price (without regard to whether such proposal specifies a specific price or a range of potential prices) and the Company shall not have rejected in a manner that becomes publicly disclosed such proposal within the earlier of (A) ten Business Days after the Acquisition Proposal first becomes publicly disclosed or (B) three Business Days prior to the Expiration Date. Section 8.02 Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Purchaser or the Company, other than the provisions of Section 6.04(c), this Section 8.02, Section 8.03, and Article 9 and except to the extent that such termination results from fraud or from the willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement. Section 8.03 Fees and Expenses. (a) Except as otherwise provided herein, all fees and expenses incurred in connection with the Offer, the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. (b) If (x)(A) the Company or Parent terminates this Agreement pursuant to Section 8.01(b)(ii), (B) prior thereto there shall have been publicly announced another Acquisition Proposal, (C) the Company, within 12 months following such termination, announces its intention to enter into an agreement with respect to an Acquisition Proposal (provided that for purposes of this subclause (C) clause (ii) of the term "Acquisition Proposal" shall not include the sale of securities by the Company for cash to one or more Persons which, together with any Affiliates and any group (as such term is defined in Section 13(d)(3) of the Exchange Act) of which such Person is a member, will not, after such transaction (or series of related transactions) (1) beneficially own a majority of the outstanding shares of Company Common Stock or (2) have the right, by contract or otherwise, to elect a majority of the Company Board) and (D) the Company subsequently consummates the transaction(s) contemplated by such agreement, (y) the Company terminates this Agreement pursuant to Section 8.01(c)(ii), or (z) Parent terminates this Agreement pursuant to Section 8.01(d)(iii)(B), and at the time of such termination Parent and Purchaser are not in material breach of their respective obligations under this Agreement, then in any such case, the Company shall pay, or cause to be paid to Parent, at the time of consummation, in the case of clause (x), and at the time of termination, in the case of clause (y) or (z), a termination fee in the amount of $1,750,000 (the "Termination Fee") plus an amount equal to Parent's actual and reasonably documented out-of-pocket expenses incurred by Parent in connection with the Offer, the Merger, this Agreement and the consummation of the Transactions, including, without limitation, the fees and out-of-pocket expenses payable to all banks, investment banking firms and other financial institutions and persons and their respective agents and counsel incurred in connection with acting as Parent's -50- financial advisor with respect to, or arranging or committing to provide or providing any financing for, the Transactions up to an aggregate of $750,000 (the "Expenses"). In addition, if this Agreement is terminated by Parent pursuant to Section 8.01(d)(iv) or prior to consummation of the Offer by reason of the non-fulfillment of any of the conditions set forth in paragraph (d), (e) or (g) of Annex A and at the time of such termination, Parent and Purchaser are not in material breach of their respective obligations under this Agreement, then the Company shall pay to Parent, at the time of termination, the Expenses, and, if the Company shall thereafter, within 12 months after such termination, announce its intention to enter into an agreement with respect to an Acquisition Proposal (which in the case of a termination by reason of the non-fulfillment of any of the conditions set forth in paragraph (d) or (e) of Annex A is at a price per Share higher than the Offer Price and provided that for purposes of this sentence clause (ii) of the term "Acquisition Proposal" shall not include the sale of securities by the Company for cash to one or more Persons which, together with any Affiliates and any group (as such term is defined in Section 13(d)(3) of the Exchange Act) of which such Person is a member, will not, after such transaction (or series of related transactions) (1) beneficially own a majority of the outstanding shares of Company Common Stock or (2) have the right, by contract or otherwise, to elect a majority of the Company Board) and the Company subsequently consummates the transaction(s) contemplated by such agreement, then the Company shall pay the Termination Fee simultaneously with such consummation; provided, however, that with respect to the nonfulfillment of the condition set forth in paragraph (d) of Annex A, such payments shall not be required to be made if the Company can demonstrate that such condition would have been satisfied if the Expiration Date were the date hereof and any Expenses payable by reason of such breach shall be paid as follows: $375,000 on the date of termination and the remainder of the Expenses on the earlier of the first anniversary of the date of termination or the date the Termination Fee is required to be paid. Any payments required to be made pursuant to this Section 8.03(b) shall be made by wire transfer of same day funds to an account designated by Parent. It is specifically agreed that if Parent terminates this Agreement pursuant to Section 8.01(d)(ii), any amount payable to Parent pursuant to this Section 8.03(b) shall be deemed to represent liquidated damages and not a penalty and that the right to receive such amount shall be the exclusive remedy of Parent and Purchaser in connection with such termination. (c) The Company acknowledges that the agreements contained in Section 8.03(b) are an integral part of the Transactions contemplated by this Agreement, and that, without these agreements Parent would not have entered into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to Section 8.03(b), and, in order to obtain such payment, Parent commences a suit which results in a judgment against the Company for the fee set forth in Section 8.03(b), the Company shall pay to Parent its costs and expenses (including attorneys' fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate (as published in The Wall Street Journal) in effect from time to time during such period plus two percent. (d) This Section 8.03 shall survive any termination of this Agreement, however caused, and is intended to benefit the Company, Parent and Purchaser. -51- Section 8.04 Amendment. This Agreement may be amended by the parties hereto at any time before or after any required approval of the Merger by the stockholders of the Company; provided, however, that after any such approval, there shall be made no amendment that by Law requires further approval by such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.05 Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto on the part of the other parties or (c) subject to the proviso of Section 8.04, waive compliance with any of the agreements or conditions contained herein on the part of the other parties. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. Section 8.06 Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment of this Agreement pursuant to Section 8.04 or an extension or waiver pursuant to Section 8.05 shall, in order to be effective, require in the case of Parent, Purchaser or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors (in the case of action by the Company Board, upon the recommendation of the Special Committee or, after the Offer Completion Date, the Continuing Directors); provided, however, that in the event that Purchaser's designees are appointed or elected to the Company Board as provided in Section 1.03, after the acceptance for payment of Shares pursuant to the Offer and prior to the Effective Time, the affirmative vote of a majority of the Continuing Directors of the Company shall be required to amend or terminate this Agreement by the Company, exercise or waive any of the Company's rights or remedies under this Agreement, extend the time for performance of Parent's and Purchaser's respective obligations under this Agreement or take any action that would adversely affect the rights of the stockholders of the Company or the holders of Options with respect to the transactions contemplated hereby. ARTICLE 9 MISCELLANEOUS Section 9.01 Non-Survival of Representations and Warranties. The representations and warranties contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement. This Section 9.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. Section 9.02 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and shall be given, -52- if to Parent or Purchaser, to: SHL TeleMedicine Ltd. 90 Igal Alon St. Tel-Aviv 67891 Israel Telephone: (972) 3-561-2212 Telecopier: (972) 3-624-2414 Attention: Erez Alroy Yariv Alroy with a copy (which shall not constitute notice) to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Telephone: 212-318-3000 Telecopier: 212-318-3400 Attention: Andrew Freedman, Esq. if to the Company, to: Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, CA 94403 Telephone: (650) 349-0800 Telecopier: (650) 349-8850 Attention: Richard Bader with a copy (which shall not constitute notice) to: Gray Cary Ware & Freidenrich LLP 400 Hamilton Ave. Palo Alto, CA 94301-1825 Telephone: 650- 833-2000 Telecopier: 650-833-2001 Attention: Dennis C. Sullivan, Esquire with a copy (which shall not constitute notice) to the Special Committee: Allan Zinberg 19 Woodhaven Drive Simsbury, CT 06070 Telephone: 860-658-6179 Telecopier: 860-658-1221 -53- and Gene I. Miller 734 18th Street Santa Monica, CA 90402 Telephone: 310-458-1441 Telecopier: 310-394-0771 with a copy (which shall not constitute notice) to counsel for the Special Committee: Sheppard, Mullin, Richter & Hampton LLP 333 South Hope Street, 48th Floor Los Angeles, CA 90071 Telephone: 213-620-1780 Telecopier: 213-620-1398 Attention: John D. Hussey, Esquire or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto. All such notices, requests and other communications shall be deemed received when delivered personally to the recipient or when sent to the recipient by facsimile (receipt electronically confirmed), one Business Day after the date when sent to the recipient by reputable express courier service (charges prepaid) or three Business Days after the date when mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice as of the date of such rejection, refusal or inability to deliver. Section 9.03 No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law. Section 9.04 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto, except that Parent or Purchaser may transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to enter into the transactions contemplated by this Agreement, but no such transfer or assignment will relieve Parent or Purchaser of its obligations hereunder. -54- Section 9.05 Governing Law. This Agreement shall be governed by and construed in accordance with the Law of the State of Delaware, without regard to the conflicts of Law rules of such state. Section 9.06 Enforcement. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any court of the United States located in the State of Delaware or in a Delaware state court, and each of the parties hereby expressly submits to the exclusive jurisdiction and venue of any such court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party irrevocably consents to the service of process in any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof, by registered or certified mail, postage prepaid, to the address set forth or referred to in Section 9.02, such service to become effective 10 days after mailing. Section 9.07 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 9.08 Counterparts; Effectiveness; Benefit. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Except as expressly provided in Sections 6.07 and 6.08, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. Execution of this Agreement may be made by facsimile signature which, for all purposes, shall be deemed to be an original signature. Section 9.09 Entire Agreement. This Agreement, the Company Disclosure Memorandum, the Stockholders' Agreement and the Confidentiality Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior representations, warranties, agreements and understandings, both oral and written, between the parties with respect to such subject matter. No prior drafts of this Agreement or portions thereof shall be admissible into evidence in any action, suit or other proceeding involving this Agreement. -55- Section 9.10 Captions. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 9.11 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible. Section 9.12 Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court located in the State of Delaware, in addition to any other remedy to which they are entitled at Law or in equity. Section 9.13 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The table of contents to this Agreement is for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement. -56- Section 9.14 Company Disclosure Memorandum. The Company Disclosure Memorandum referred to in this Agreement is hereby incorporated in this Agreement and made a part of this Agreement for all purposes as if fully set forth in this Agreement. No disclosure in the Company Disclosure Memorandum shall be deemed to be an admission or representation as to the materiality of the item so disclosed. Section 9.15 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and, except as specifically set forth herein, nothing in this Agreement is intended to or shall confer upon any other Person, any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Without limiting the foregoing, except for the obligations under the Stockholders' Agreement and except for Parent's obligations as a direct or indirect stockholder of Purchaser, no direct or indirect holder of any equity interests or securities (whether such holder is a limited or general partner, member, stockholder or otherwise), nor any affiliate of any party hereto, nor any director, officer, employee, representative, agent or other controlling Person of each of the parties hereto and their respective affiliates shall have any liability or obligation arising under this Agreement or the Transactions contemplated hereby. Section 9.16 Obligation of Parent and the Company. Whenever this Agreement requires Purchaser or another Subsidiary of Parent to take any action, such requirement shall be deemed to include an undertaking on the part of Parent to cause Purchaser or such Subsidiary to take such action and a guarantee of the performance thereof. Whenever this Agreement requires a Subsidiary of the Company to take any action, such requirement shall be deemed to include an undertaking on the part of the Company to cause such Subsidiary to take such action and a guarantee of the performance thereof. Section 9.17 Certain Definitions. As used in this Agreement: (a) The term "affiliate," as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person; and for purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise. (b) A Person will be deemed to "beneficially" own securities if such Person would be the beneficial owner of such securities under Rule 13d-3 under the Exchange Act, including securities which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time). (c) The term "Business Day" means any day on which commercial banks are open for business in New York, New York other than a Saturday, a Sunday or -57- a day observed as a holiday in New York, New York under the Laws of the State of New York or the federal Laws of the United States. (d) The term "knowledge" of any Person that is not an individual means, with respect to any matter, the actual knowledge of any of such Person's executive officers after due inquiry of the Person's employees having primary responsibility for such matter; (e) The term "Law" means any foreign or domestic law, regulation, judgement, order, writ, injunction, decree, rule, ordinance, award, stipulation, statute, judicial or administrative doctrine, rule or regulation entered by a Governmental Entity or arbitrator. (f) "Material Adverse Effect" means, with respect to any Person, any change, result, effect, event, occurrence or state of facts (or any development that has had or is reasonably likely to have any change or effect) that, individually or in the aggregate with any such other change, result, effect, event, occurrence or state of facts, is or would reasonably be expected to be, materially adverse (whether or not (i) foreseeable or known as of the date of this Agreement, (ii) covered by insurance or (iii) constituting a breach of a representation, warranty or covenant set forth herein) to the business, condition (financial or otherwise), assets, liabilities or results of operations of such Person and its Subsidiaries, taken as a whole, or which is or would reasonably be expected to be materially adverse to the ability of such Person to perform on a timely basis any of its material obligations under this Agreement or to consummate the Transactions contemplated hereby; provided, however, none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) any change in the market price or trading volume of the capital stock of such Person after the date hereof, (ii) changes, events or occurrences in the United States or Switzerland securities markets which are not specific to such Person, (iii) any adverse changes, events, developments or effects arising from or relating to general business or economic conditions or the general conditions of the industry in which the Person participates which are not specific to such Person and its Subsidiaries and which do not affect such Person in a materially disproportionate manner, (iv) any adverse change, result, event, development or effect arising from or relating to any change in U.S. GAAP, (v) any adverse changes, events, developments or effects reasonably attributable to the execution or announcement of this Agreement and (vi) the effect on such Person of out-of-pocket fees or expenses (including legal, accounting and financial advisory fees and expenses) incurred in connection with the transactions contemplated by this Agreement. (g) The term "Person" includes individuals, corporations, partnerships, trusts, limited liability companies, associations, unincorporated organizations, joint ventures, other entities, groups (which term shall include a "group" as such term is defined in Section 13(d)(3) of the Exchange Act), labor unions or Governmental Entities. -58- (h) The term "Subsidiary" means as to any Person any corporation or other legal entity of which (i) such Person controls (either alone or through or together with any other Subsidiary) or owns, directly or indirectly, more than 50% of the capital stock or other ownership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or (ii) such Person or any other Subsidiary of such Person is a general partner (excluding any such partnership where such Person or Subsidiary does not have a majority of the voting interest in such partnership). -59- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. RAYTEL MEDICAL CORPORATION By: /s/ Richard F. Bader ________________________________ Name: Richard F. Bader Title: President and Chief Executive Officer SHL TELEMEDICINE LTD. By: /s/ Erez Alroy ________________________________ Name: Erez Alroy Title: Co-President SHL TELEMEDICINE ACQUISITION CORP. By: /s/ Erez Alroy ________________________________ Name: Erez Alroy Title: Co-President -60- ANNEX A CONDITIONS TO THE OFFER Capitalized terms used but not defined herein shall have the meanings given to such terms in the Agreement and Plan of Merger (the "Agreement") of which this Annex A is a part. Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) Purchaser's rights to extend and amend the Offer at any time in its sole discretion (subject to the provisions of the Agreement), Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange Act (relating to the obligation of Purchaser to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for any tendered Shares and (subject to any such rules or regulations and subject to the restrictions on extending the Offer set forth in the Agreement) may delay the acceptance for payment of or the payment for any tendered Shares and (except as provided in the Agreement) amend or terminate the Offer and not accept for payment any tendered shares if (i) there are not validly tendered (and not properly withdrawn) prior to the expiration date for the Offer that number of Shares which, when added to any such Shares, if any, beneficially owned by Parent or any of its affiliates, will at least satisfy the Minimum Condition or (ii) at any time on or after the date of the Agreement and before the expiration date of the Offer, any of the following events shall have occurred and be continuing: (a) there shall be threatened or pending any suit, action or proceeding by any Governmental Entity (i) seeking to prohibit or impose any material limitations on Parent's or Purchaser's ownership or operation (or that of any of their respective Subsidiaries or affiliates) of all or a material portion of their or the Company's (or any of its Subsidiary's) businesses or assets, (ii) seeking to compel Parent or Purchaser or their respective Subsidiaries and affiliates to dispose of or hold separate any material portion of the business or assets of the Company or Parent and their respective Subsidiaries, in each case taken as a whole, (iii) challenging the acquisition by Parent or Purchaser of any Shares pursuant to the Offer or the Merger, (iv) seeking to restrain or prohibit the making or consummation of the Offer or the Merger or the performance of any of the other Transactions, (v) seeking to obtain from the Company, Parent or Purchaser any damages that are material in relation to the Company and its Subsidiaries taken as a whole, (vi) seeking to impose material limitations on the ability of Purchaser, or rendering Purchaser unable, to accept for payment, pay for or purchase some or all of the Shares pursuant to the Offer and the Merger, (vii) seeking to impose material limitations on the ability of Purchaser or Parent effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, or (viii) which otherwise is reasonably likely to have a Material Adverse Effect on the Company or, as a result of the Transactions, a Material Adverse Effect on Parent; or A-1 (b) there shall be any statute, rule, regulation, injunction, order or decree enacted, enforced, promulgated, issued or deemed applicable to the Offer or the Merger by any Governmental Entity that results in any of the consequences referred to in paragraph (a) above; or (c) the Agreement shall have been terminated in accordance with its terms or any event shall have occurred which gives the Parent or Purchaser the right to terminate the Agreement or not consummate the Merger; or (d) any representation or warranty of the Company contained in the Agreement (disregarding all qualifications and exceptions contained therein relating to materiality or Material Adverse Effect or any similar standard or qualification) shall not be true and correct in all respects as of the date of consummation of the Offer, as if made at and as of such time (except to the extent that any such representation or warranty, by its terms, is expressly limited to a specific date, in which case such representation or warranty shall not be true and correct as of such date), such that the aggregate effect of all such breaches of representations or warranties to be true and correct would reasonably be expected to have a Material Adverse Effect on the Company, or the representation set forth in the last two sentences of Section 4.28(a) and in Section 4.28(b) shall not be true and correct in all material respects (it being agreed that any notice from a Governmental Entity that the Company or any Subsidiary is in default under or in violation of any Settlement Agreement or the CIA shall be deemed to be material); or (e) the Company shall have failed to perform or comply in any material respect with any of its obligations, covenants or agreements contained in the Agreement required to be performed or complied with at or prior to the date of determination; or (f) there shall have occurred and be continuing (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States or Switzerland for a period in excess of 24 hours (other than a shortening of trading hours or any coordinated trading halt triggered solely as a result of a specified increase or decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or Israel whether or not mandatory, (iii) any limitation (whether or not mandatory) by any Governmental Entity on, or other event that materially and adversely affects, the extension of credit by banks or other lending institutions, or (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or Israel or, to the extent existing at the time of execution of the Agreement, a material acceleration or worsening thereof; or (g) the Company Board or any committee thereof (i) shall have withdrawn or modified in a manner adverse to Parent or Purchaser (including by amendment of the Schedule 14D-9) its approval or recommendation of the Offer, the Merger or the Agreement or recommended or approved any Acquisition Proposal, (ii) upon request of A-2 the Purchaser, shall fail to reaffirm its approval recommendation of the Offer, the Merger Agreement, or the Merger, within three Business Days after Purchaser's request, (iii) shall have resolved to do any of the foregoing or (iv) shall have taken a neutral position or made no recommendation, in each case in a manner that is publicly disclosed, with respect to a publicly disclosed Acquisition Proposal (other than by Parent or Purchaser) within the earlier of (A) ten Business Days after the first public disclosure thereof or (B) three Business Days prior to the Expiration Date; or (h) there shall have occurred any change, condition, event or development after September 30, 2001 that could reasonably be expected to have a Material Adverse Effect on the Company and the existence or possibility of which was not expressly disclosed in the Company Disclosure Memorandum delivered on the date of the Agreement; or (i) Parent and the Company shall have agreed in writing that Purchaser shall terminate the Offer or postpone the acceptance for payment of or payment for Shares thereunder; or (j) all consents necessary to the consummation of the Offer or the Merger, including, without limitation, consents from parties to loans, contracts, leases or other agreements and consents from government agencies, whether federal, state or local, shall not have been obtained, other than consents which, if not obtained, would not reasonably be expected to have a Material Adverse Effect on the Company; which in the sole good faith judgment of Parent or Purchaser, in any such case, and regardless of the circumstances giving rise to such condition makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of a payment for shares. The foregoing conditions (x) are for the sole benefit of Parent and Purchaser and (y) may be asserted by Parent and Purchaser regardless of the circumstances giving rise to such condition, and, except for the Minimum Condition, and otherwise subject to the terms of the Agreement, may be waived by Parent and Purchaser, in whole or in part, at any time and from time to time, in the sole discretion of Parent and Purchaser. The failure of Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each right shall be deemed a continuing right which may be asserted at any time and from time to time. Should the Offer be terminated pursuant to the foregoing provisions, all tendered Shares not theretofore accepted for payment pursuant thereto shall forthwith be returned to the tendering stockholders. A-3 EX-10.8 4 f79179ex10-8.txt EXHIBIT 10.8 Exhibit 10.8 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement"), dated February 6, 2002, is made and entered into by and between RAYTEL MEDICAL CORPORATION, a Delaware corporation (the "Company"), and RICHARD F. BADER (the "Employee"). RECITALS: A. The Company and the Employee are parties to an Employee Agreement dated as of September 28, 1995 (the "Effective Date"), as heretofore amended (the "Original Employment Agreement"); B. The Company desires to continue the employment of the Employee as the Company's Chief Executive Officer, and the Employee desires to accept such continued employment. The employment of the Employee by the Company pursuant to this Agreement is hereinafter sometimes referred to as the "Employment"; and C. The Company and the Employee desire to restate and clarify the Original Employment Agreement and to set forth each and all of the terms and conditions of the Employment. NOW THEREFORE, in consideration of the premises and the agreements, representations and warranties contained in this Agreement, the Company and the Employee hereby agree as follows: 1. Duties, Term and Exclusive Employment. 1.1 Duties and Responsibilities. Within the limitations established by the Company's Bylaws, the Employee shall have each and all of the duties and responsibilities of the Company's Chief Executive Officer. As such, the Employee shall have responsibility and authority with respect to the operations and long-term strategy and direction of the Company, subject to the direction of the Company's Board of Directors. 1.2 Term of Employment. The Employment hereunder shall begin on the Effective Date and, unless earlier terminated as provided in Paragraph 3 hereof, the Employment shall continue until midnight on the second anniversary of the Effective Date. The Employment shall be extended automatically for additional one (1) year terms upon each anniversary of the Effective Date, beginning on September 28, 1996, unless either party gives written notice to the other at least thirty (30) days prior to the expiration of the initial term (or, if applicable, any extended term) of his or its election not to extend the Employment for the subsequent term. 1.3 No Other Employment or Business Activities. During the term of the Employment, the Employee shall diligently and conscientiously devote all of his working time 1 and attention to discharging his duties to the Company and shall not, without the express prior written consent of the Board of Directors of the Company, render to any other person, corporation, partnership, firm, company, joint venture or other entity any services of any kind for compensation or engage in any other activity that would in any manner whatsoever interfere with the performance of the Employee's duties on behalf of the Company. The foregoing notwithstanding, nothing herein shall prevent the Employee from engaging in charitable activities or activities of professional associations, from managing any personal investments on his own personal time, provided that such investments are not otherwise competitive with the Company, or engaging in the additional activities listed and described on Appendix A hereto. 1.4 Proprietary Information and Inventions Agreement. The Employee acknowledges his obligations under the Employee Agreement Regarding Proprietary Information and Inventions of even date herewith, attached hereto as Appendix B (the "Proprietary Information and Inventions Agreement"), and agrees to be bound by the provisions thereof. 1.5 Indemnity Agreement. The parties acknowledge their respective obligations under the Indemnity Agreement of even date herewith, attached hereto as Appendix C (the "Indemnity Agreement"), and agree to be bound by the provisions thereof. 2. Compensation. In full and complete consideration for the Employment and each and all of the services to be rendered to the Company, and any subsidiary or affiliate of the Company, by the Employee, the Employee shall receive compensation as follows, except as otherwise provided in Paragraph 3 hereof: 2.1 Base Salary. The Employee shall receive from the Company a base salary, at the initial rate of $282,516 per year, payable in periodic installments in accordance with the Company's payroll policy as in effect from time to time. The base salary will be reviewed at least annually during the continuation of the Employment and may be increased (but not decreased) by the Company in the sole discretion of its Board of Directors based upon such factors as the Board of Directors deems relevant, including the financial condition and operating results of the Company. From each of the Employee's salary payments the Company will withhold and pay to the proper governmental authorities any and all amounts required by law to be withheld for federal income tax, state income tax, federal social security tax, state disability insurance premiums, and any and all other amounts required by law to be withheld from the Employee's salary. The Company will also deduct from the Employee's salary payments those sums, if any, authorized by the Employee in writing and approved by the Company. The Company will make payments and contributions, such as unemployment insurance premiums, workers' compensation insurance premiums and the employer's portion of federal social security tax, which are required by law to be made by the Company for the Employee's benefit without any deduction from the Employee's salary payments. 2.2 Bonus Awards. The Employee will be eligible for consideration for incentive compensation ("Bonus Awards"), although no Bonus Awards are required to be paid hereunder. All Bonus Awards shall be determined by the Company's Board of Directors in its sole discretion for such fiscal periods as it shall determine and based upon such factors as it deems relevant. Each Bonus Award will be deemed to be earned at the end of the applicable fiscal period and will be paid to the Employee within ninety (90) days following the end of the 2 fiscal period for which such award is made; provided, however, that if, prior to the end of any such fiscal period, (i) the Employment is terminated as a result of the Employee's death or disability; (ii) the Company terminates the Employment other than For Cause pursuant to Paragraph 3.2 hereof; (iii) the Employment is terminated by the Company giving notice pursuant to Paragraph 1.2 hereof; or (iv) the Employee terminates the Employment for Good Reason pursuant to Paragraph 3.4 hereof, in each case, the Employee shall be entitled to receive a prorated Bonus Award determined by multiplying the amount of the Bonus Award, if any, that the Employee would have received had the Employee been employed for the full fiscal period by a fraction, the numerator of which is the number of full months of Employment completed during the fiscal period and the denominator of which is the number of months in the fiscal period. Any such prorated Bonus Award will be paid to the Employee within ninety (90) days following the end of the fiscal period for which such award is made. 2.3 Deferred Compensation Plan. The Employee shall be entitled to participate in the Company's Deferred Compensation Plan so long as it is available generally to senior executives of the Company, and in any successor plan which may be adopted and in effect from time to time during the Employment. 2.4 Stock Options. The Employee is presently the holder of stock options granted under the Company's Stock Option Plan, which options are subject to separate written Option Agreements. No such Option Agreement constitutes an agreement of employment, and no provision of any such Option Agreement shall operate to extend the term of the Employment hereunder. During the Employment, the Employee will be eligible for the grant of additional options at the sole discretion of the Company's Board of Directors based upon such factors as it deems relevant. 2.5 Vacation. The Employee shall be entitled to paid vacation in accordance with the Company's vacation policy for senior executives, as in effect from time to time. 2.6 Automobile Allowance. The Employee shall be entitled to the payment of a monthly allowance for automobile expenses throughout the term of the Employment, in the same amount and in accordance with the arrangements currently in effect, or to such alternate automobile allowance of comparable economic value as may be in effect from time to time. 2.7 Insurance and Other Benefits. The Employee shall be entitled to participate in any life, medical, dental and/or disability insurance plans, together with any supplemental insurance plans, as may be offered by the Company to its executive employees from time to time during the Employment. The Employee shall be eligible to participate in any other fringe benefits as may be provided by the Company to its executives, generally, during the Employment. 3. Termination of Employment. The Employment may be terminated prior to the end of the term specified in Paragraph 1.2 hereof upon the occurrence of any of the following: 3.1 Death and Disability. The Employment shall automatically terminate upon the death of the Employee. The Company shall have the right, but not the obligation, to terminate the Employment at any time following determination of the Employee's total disability 3 (as defined pursuant to the Company's long-term disability insurance plan covering the Employee if any such plan is then in effect, or otherwise as determined by the Company's Board of Directors). In the event of the Employee's total disability, the Employee's base salary pursuant to Paragraph 2.1 hereof, shall be continued for the lesser of: (i) the duration of the Employee's total disability, or (ii) the waiting period determined in the Company's long-term disability policy then in effect or (iii) one (1) year if no such policy is then in effect. In the event of the Employee's death or total disability, the Employee or his estate shall be entitled to receive (A) the Employee's base salary through the date of termination of the Employment (as extended, in the case of total disability), plus (B) any Bonus Award earned by the Employee as of the date of termination of the Employment pursuant to Paragraph 2.2 hereof but not yet paid, plus (C) any other benefits to which the Employee is entitled pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. In the event of a partial disability that prevents the Employee from effectively performing his duties and responsibilities hereunder, the parties will attempt, in good faith, to negotiate a basis upon which the Employee may continue as an employee of the Company in a reduced capacity and at appropriately reduced compensation. If no such arrangement is agreed upon, the Company may elect to treat the Employee's disability as a total disability for purposes of this Paragraph 3.1. 3.2 Termination of Employment by the Company "For Cause". The Company shall have the unrestricted right, but not the obligation, to terminate the Employment at any time "For Cause" in the event of the Employee's (i) wilful and repeated neglect of his duties hereunder (other than as a result of a physical disability not related to substance abuse), (ii) conviction of a crime involving moral turpitude, (iii) commission of any act of fraud or dishonesty against the Company, or (iv) breach of the Employee's obligations hereunder or under the Proprietary Information and Inventions Agreement which, if curable, is not cured within ten (10) days following notice thereof by the Company. The decision to terminate the Employment For Cause, to take other action or to take no action in response to such occurrence shall be in the sole and exclusive discretion of the Company. Upon any termination of the Employment by the Company For Cause, the Employee shall be entitled to receive (A) the Employee's base salary through the date of such termination, plus (B) any Bonus Award earned by the Employee as of the date of termination of the Employment pursuant to Paragraph 2.2 hereof but not yet paid, plus (C) any other benefits to which the Employee is entitled pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. 3.3 Other Termination of Employment by the Company. The Company may terminate the Employment hereunder at any time for any reason, upon notice to the Employee. However, if the Employment is terminated by the Company for any reason other than pursuant to Paragraphs 3.1 or 3.2 hereof (including a termination pursuant to notice given under Section 1.2 hereof), the Employee shall be entitled to receive his base salary through the date of termination of the Employment, plus an amount (the "Severance Payment") equal to his then current base salary for a period of twenty-four (24) months following the date of termination (the "Severance Period"). The Severance Payment shall be paid in periodic installments during the Severance Period, in accordance with the Company's payroll policy as in effect from time to time; provided, however, that if the Employment is terminated following a "Change of Control" (as defined below), the full amount of the Severance Payment shall be payable in a single lump sum immediately upon the Company's delivery of its notice of termination. The Severance Payment shall be in lieu of any other severance pay or other benefit to which the Employee might 4 otherwise be entitled. In addition, in the event of such a termination, the Company will, to the extent its plans permit, continue to provide to the Employee coverage under its life, medical, dental and/or disability plans, as in effect on the date of termination, during the Severance Period. In the event that the Company may not continue to provide the benefit of any such plans, the Severance Payment shall be increased by an amount equal to the Employee's cost of providing such discontinued coverage for himself and his dependents during the Severance Period, assuming, where applicable, the timely compliance by the Employee with any notification procedure required in order to obtain continuation coverage at group rates. The Employee shall also be entitled, upon any such termination, to receive (A) any Bonus Award earned by the Employee as of the date of termination of the Employment pursuant to Paragraph 2.2 hereof but not yet paid, plus (B) any other benefits to which the Employee is entitled pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. For purposes of this Agreement, a "Change of Control" of the Company shall occur upon: (i) a merger, consolidation or other reorganization involving the Company, or a tender offer, exchange offer or other transaction or series of transactions involving the acquisition of securities of the Company where, in any such case, the holders of voting securities of the Company immediately prior to such transaction or series of transactions own less than 50% of the voting securities of the surviving or successor entity, or its parent, immediately following such transaction or series of transactions; (ii) the sale of all or substantially all of the Company's assets; (iii) the sale of all or substantially all of the capital stock or assets of any subsidiary or subsidiaries of the Company which accounted for 40% or more of the Company's consolidated revenues for the preceding fiscal year; or (iv) any change by more than 50% in the composition of the Company's Board of Directors, accomplished by means of a proxy contest or otherwise, which is opposed by the incumbent Board of Directors of the Company or by the Employee. 3.4 Termination of Employment by the Employee For "Good Reason". The Employee shall have the right to terminate the Employment at any time, upon notice to the Company, for "Good Reason": (A) in the event that, other than pursuant to Paragraphs 3.1 or 3.2 hereof, the Company, without the Employee's prior written consent, (i) materially alters or reduces the Employee's duties, responsibilities and status with the Company from those which exist as of the Effective Date; (ii) assigns the Employee duties which are inconsistent with the Employee's position as Chief Executive Officer of the Company; (iii) materially breaches the terms of this Agreement in respect to the payment of compensation or benefits or in any other material respect and such breach is not cured within ten (10) days after notice thereof; (iv) requires the Employee, as a condition to the Employment, to be based more than one hundred (100) miles from the location where he is based as of the Effective Date; or (v) requires the Employee, as a condition to the Employment, to perform illegal or fraudulent acts or omissions; or (B) for any reason at any time within six (6) weeks following a Change of Control; provided, however, that, if requested by the Company or its successor, the Employee will agree to extend the Employment for a transition period of up to six (6) weeks following the effectiveness of the Change of Control, in which case the Employee's right to terminate the employment under this clause (B) shall begin at the end of such agreed-upon transition period and end six (6) weeks thereafter. If the Employee voluntarily terminates the Employment for Good Reason pursuant to this Paragraph 3.4, the Employee shall be entitled to receive the payments and other benefits specified in Paragraph 3.3 hereof with respect to a termination by the Company other than For Cause. If the Employment is terminated following a Change of 5 Control pursuant to clause (B) above, the full amount of the Severance Payment shall be payable in a single lump sum immediately upon the Employee's delivery of his notice of termination. 3.5 Termination of Employment by the Employee Without "Good Reason". Upon any voluntary termination of the Employment by the Employee, other than for Good Reason pursuant to Paragraph 3.4 hereof, the Employee shall be entitled to receive (i) the Employee's base salary through the date of such termination, plus (ii) any Bonus Award earned by the Employee as of the date of termination of the Employment pursuant to Paragraph 2.2 hereof but not yet paid, plus (iii) any other benefits to which the Employee is entitled pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. 4. Expenses. The Company will reimburse the Employee for those customary, ordinary and necessary business expenses incurred by him in the performance of his duties and activities on behalf of the Company. Such expenses will be reimbursed upon presentation by the Employee of appropriate documentation to substantiate such expenses pursuant to the policies and procedures of the Company governing reimbursement of business expenses to its executives. 5. Conflicts of Interest. The Employee covenants, warrants and represents to the Company that he has the full right and authority to enter into the Employment and this Agreement, that he has no agreement, duty, commitment or responsibility of any kind or nature whatsoever with or to any other person, corporation, partnership, firm, company, joint venture or other entity which would conflict in any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to the Employment and/or this Agreement, and that he is fully ready, willing and able to perform each and all of his duties, obligations and responsibilities to the Company pursuant to the Employment and/or this Agreement. As a condition of the Employment and of the Company's entering into this Agreement, the Company requires that the Employee not, and the Employee hereby specifically agrees, covenants, warrants and represents that during the Employment he will not, without the Company's express prior written consent, accept any employment, contractual or other relationship of any kind or nature whatsoever or engage in any association or dealing of any kind or nature whatsoever with any person, corporation, partnership, firm, company, joint venture, or other entity in competition with any actual or proposed business of the Company; provided that nothing herein shall prohibit Employee from owning up to five percent (5%) of the outstanding shares of any class of equity securities of a corporation engaged in any such prohibited activity whose securities are listed on a national securities exchange or quoted daily in the over-the-counter listings of The Wall Street Journal. 6. Duties of the Employee After Any Notice of Termination of the Employment. Following any notice of termination of the Employment, the Employee shall fully cooperate with the Company in all matters relating to the winding up of the Employee's work on behalf of the Company and the orderly transfer of all pending work and of the Employee's duties and responsibilities to such other person or persons as may be designated by the Company in its sole discretion. Upon any termination of the Employment, the Employee will immediately deliver to the Company any and all of the Company's property of any kind or nature whatsoever in the Employee's possession, custody or control, including, without limitation any and all Confidential Information as that term is defined in the Proprietary Information and Inventions Agreement. 6 7. No Predatory Solicitation. During the Employment and for two (2) years following any termination of the Employment, the Employee will not, without having received prior written permission of the Company's Board of Directors to do so, directly or indirectly, on his own behalf of in the service of others, interfere with or raid the officers, employees, consultants, agents and/or independent contractors of the Company or in any manner attempt to persuade any such person to discontinue any relationship with the Company. The Employee and the Company confirm that this Paragraph 7 is reasonable and necessary for the protection of the trade secrets and proprietary information of the Company. 8. Arbitration. Except as otherwise expressly provided in this Agreement, any and all controversies, disputes and/or claims in any manner arising out of or relating to this Agreement or the Employment shall be settled solely by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Such arbitration proceeding shall take place in the state and county of the Company's office where the Employee is based. Judgment on any decision rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party shall bear its own attorneys' fees and expenses and other costs in any arbitration proceeding. All administrative fees and the fee of the arbitrator shall be borne by the parties equally. Except as otherwise expressly provided in this Agreement, the arbitration provisions set forth above in this Paragraph 8 are intended by the Employee and by the Company to be absolutely exclusive for all purposes whatsoever and applicable to each and every controversy, dispute and/or claim in any manner arising out of or relating to this Agreement, and the Employment, the meaning, application and/or interpretation of this Agreement, any breach or claimed breach thereof and/or any voluntary or involuntary termination of this Agreement with or without cause, including, without limitation, any such controversy, dispute and/or claim which, if pursued through any state or federal court or administrative agency, would arise at law, in equity and/or pursuant to statutory, regulatory and/or common law rules, regardless of whether such dispute, controversy and/or claim would arise in and/or from contract, tort or any other legal and/or equitable theory or basis. Notwithstanding anything to the contrary contained in this Paragraph 8, the Company shall at all times have and retain the full, complete and unrestricted right to immediate and permanent injunctive and other relief as provided in Paragraph 9 below. 9. The Company's Right to Immediate Injunctive Relief. The Employee recognizes, acknowledges and agrees that any breach or any threatened breach of any Paragraph, term, provision or covenant of any of Paragraphs 1.4, 5, 6, 7 or 8 of this Agreement or of the Proprietary Information and Inventions Agreement would cause irreparable injury to the Company which could not be adequately compensable in monetary damages and that the remedy at law for any such breach will be entirely insufficient and inadequate to protect the Company's legitimate interests. Therefore, the Employee specifically recognizes, acknowledges and agrees that the Company shall at any and all times be and remain fully entitled to seek and obtain immediate temporary, preliminary and permanent injunctive relief for any such breach or threatened breach from any court of competent jurisdiction. The prevailing party in any action instituted pursuant to this Paragraph 8 shall be entitled to recover from the other party its reasonable attorneys' fees and other expenses incurred in such litigation. 10. Survival of Certain Provisions of this Agreement. Except as may otherwise be provided herein, each and all of the terms, provisions and covenants of each of Paragraphs 1.4, 6, 7 7, 8, 9, 10 and 11 of this Agreement shall, for any and all purposes whatsoever, survive any termination of the Employment, regardless of whether such termination is by the Employee, by the Company, by expiration or otherwise. 11. General. 11.1 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the Company, the Employee and each and all of their respective heirs, legal representatives, successors and assigns. The duties, responsibilities and obligations of the Employee under this Agreement shall be personal and not assignable or delegable by the Employee in any manner whatsoever to any person, corporation, partnership, firm, company, joint venture or other entity. The Employee may not assign, transfer, convey, mortgage, pledge or in any other manner encumber the compensation or other benefits to be received by him or any rights which he may have pursuant to the terms and provisions of this Agreement. 11.2 Waiver. No waiver of any breach of any warranty, representation, agreement, promise, covenant, paragraph, term or provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other warranty, representation, agreement, promise, covenant, paragraph, term and/or provision of this Agreement. No extension of the time for the performance of any obligation or other act required or permitted by this Agreement shall be deemed to be an extension of the time for the performance of any other obligation or any other act required or permitted by this Agreement. 11.3 Sole and Entire Agreement. This Agreement, and the other agreements referred to herein, including the Company's benefit plans, are the sole, complete and entire contract, agreement and understanding between the Company and the Employee concerning the Employment, the terms and conditions of the Employment, the duration of the Employment, the termination of the Employment and the compensation and benefits to be paid and provided by the Company to the Employee pursuant to the Employment. Except as otherwise provided herein, this Agreement supersedes any and all prior contracts, agreements, plans, agreements in principle, correspondence, letters of intent, understandings, and negotiations, whether oral or written, concerning the Employment, the terms and conditions of the Employment, the duration of the Employment, the termination of the Employment and the compensation and benefits to be paid by the Company to the Employee pursuant to the Employment. 11.4 Amendments. No amendment, modification, waiver, or consent relating to this Agreement will be effective unless and until it is embodied in a written document signed by the Company and by the Employee. 11.5 Originals. This Agreement may be executed by the Company and by the Employee in counterparts, each of which shall be deemed an original and which together shall constitute one instrument. 11.6 Headings. Each and all of the headings contained in this Agreement are for reference purposes only and shall not in any manner whatsoever affect the construction or 8 interpretation of this Agreement or be deemed a part of this Agreement for any purpose whatsoever. 11.7 Savings Provision. To the extent that any provision of this Agreement or any Paragraph, term, provision, sentence, phrase, clause or word of this Agreement shall be found to be illegal or unenforceable for any reason, such Paragraph, term, provision, sentence, phrase, clause or word shall be modified or deleted in such a manner as to make this Agreement, as so modified, legal and enforceable under applicable laws. The remainder of this Agreement shall continue in full force and effect. 11.8 Applicable Law. This Agreement and each and every provision of this Agreement shall be interpreted solely pursuant to the internal laws of the State of California without regard to any conflicts of law principles thereof. 11.9 Construction. The language of this Agreement and of each and every paragraph, term and provision of this Agreement shall, in all cases, for any and all purposes, and in any and all circumstances whatsoever be construed as a whole, according to its fair meaning, not strictly for or against the Employee or the Company, and with no regard whatsoever to the identity or status of any person or persons who drafted all or any portion of this Agreement. 11.10 Notices. Any notices to be given pursuant to this Agreement by either party to the other party may be effected by personal delivery or by registered or certified mail, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses stated below, but each party may change its or his address by written notice to the other in accordance with this Paragraph 10.10. Notices delivered personally shall be deemed received on the date of delivery. Notices delivered by mail shall be deemed received on the third business day after the mailing thereof. Mailed notices to the Employee shall be addressed as follows: Richard F. Bader 21120 Michaels Drive Saratoga, California Mailed notices to the Company shall be addressed as follows: Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, California 94403-2515 Attention: President IN WITNESS WHEREOF, the Company and the Employee have each duly executed this Agreement as of the date first set forth above. RAYTEL MEDICAL CORPORATION THE EMPLOYEE By:_____________________________ ___________________________________ Richard F. Bader Its:____________________________ 9 EX-10.72 5 f79179ex10-72.txt EXHIBIT 10.72 Exhibit 10.72 LOAN AND SECURITY AGREEMENT by and among CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC. CARDIOVASCULAR VENTURES, INC. HEART CENTER OF EAST NEW ORLEANS, L.P. MRI DIAGNOSTIC PARTNERS i, L.P. - 1986 RAYTEL CARDIAC SERVICES, INC. RAYTEL GRANADA HILLS, INC. RAYTEL IMAGING HOLDINGS, INC. RAYTEL IMAGING NETWORK, INC. RAYTEL MEDICAL CORPORATION RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC. SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED PARTNERSHIP (collectively "Borrowers") and HEALTHCARE BUSINESS CREDIT CORPORATION ("Lender") Dated: November 15, 2001 i EXHIBIT LIST Exhibit 1.1 -- Imaging Centers, Imaging Center Affiliates and Imaging Center PCs Exhibit 1.2 -- Concentration Account Exhibit 1.3 -- RCS Operating Account Exhibit 1.4 -- RMC Operating Account Exhibit 2.1(b) -- Form of Revolving Credit Note Exhibit 2.2(b) -- Form of Borrowing Base Certificate Exhibit 2.2(c) -- Loan Request Exhibit 4.1 -- Form of Opinion of Counsel Exhibit 4.2 -- Notice Letter Re: Commercial Obligors Exhibit 5.1 -- Borrowers' States of Qualifications Exhibit 5.2 -- Places of Business/Other Names Exhibit 5.3 -- Provider Identification Numbers Exhibit 5.4 -- Pending Litigation Exhibit 5.5 -- Medicare/Medicaid Overpayments Exhibit 5.6 -- Liens on Collateral other than Accounts Exhibit 5.9 -- Federal Tax Identification Numbers Exhibit 5.11 -- Subsidiaries and Affiliates Exhibit 5.12 -- Existing Guaranties, Investments and Borrowings, Leases and Employment Agreements Exhibit 5.16 -- Capital Stock and Partnership Interests of Borrowers; Wholly-Owned Borrowers; Controlled Borrowers Exhibit 5.23 -- Contracts Exhibit 6.8 -- Officer's Certificate Exhibit 6.17 -- Deposit Account Procedures Schedule 1 -- Advance Rates, Ineligible Obligors and Concentration Limits, Etc. ii LOAN AND SECURITY AGREEMENT This Loan and Security Agreement is dated as of the 15th day of November, 2001, by and among Cardiovascular Ventures of East New Orleans, Inc. ("CVENO"), a Louisiana corporation, Cardiovascular Ventures, Inc. ("CV"), a Delaware corporation, Heart Center of East New Orleans, L.P. ("HCNO"), a Louisiana limited partnership, MRI Diagnostic Partners I, L.P. - 1986 ("MRDP"), a Pennsylvania limited partnership, Raytel Cardiac Services, Inc. ("RCS"), a Delaware corporation, Raytel Granada Hills, Inc. ("RGH"), a Delaware corporation, Raytel Imaging Holdings, Inc. ("RIH"), a Delaware corporation, Raytel Imaging Network, Inc. ("RIN"), a Delaware corporation, Raytel Medical Corporation ("RMC"), a Delaware corporation, Raytel Nuclear Imaging - West Houston, Inc. ("RNIWH"), a Delaware corporation, and San Luis Obispo Medical Imaging Center, a California Limited Partnership ("MIC-SLO"), a California limited partnership (collectively, "BORROWERS") and Healthcare Business Credit Corporation, a Delaware corporation ("LENDER"). BACKGROUND A. Borrowers have requested that Lender make revolving loans to them of up to $15,000,000.00, which will be secured by a first priority perfected security interest in (1) the Accounts and other Collateral of Borrowers, and (2) the Accounts of certain Affiliates of Borrowers and other third parties with professional/management relationships to such Affiliates of the Borrowers. Lender is willing to make such loans to Borrowers pursuant to the terms and provisions hereinafter set forth. B. The parties desire to define the terms and conditions of their relationship to writing. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: SECTION 1. DEFINITIONS AND INTERPRETATION 1.1 Terms Defined: As used in this Agreement, the following terms have the following respective meanings: "ACCOUNT" means (a) the third party reimbursable portion of accounts receivable owing to a Borrower or to an Imaging Center Affiliate or Imaging Center PC arising out of the delivery by a Borrower or Imaging Center of medical, surgical, diagnostic or other professional or medical or dental services, including all rights to reimbursement under any agreements with an Obligor, (b) all accounts, general intangibles, rights, remedies, guarantees, and security interests 1 in respect of the foregoing, all rights of enforcement and collection, all books and records evidencing or related to the foregoing, all rights under this Agreement in respect of the foregoing, (c) all information and data compiled or derived by a Borrower, or Imaging Center Affiliate or an Imaging Center PC in respect of such accounts receivable (other than any such information and data subject to legal restrictions of patient confidentiality), and (d) all proceeds of any of the foregoing. "ADMINISTRATIVE OFFICE" means the Borrowers' office located at 7 Waterside Crossing, Windsor, Connecticut 06095. "ADVANCE(S)" means any monies advanced or credit extended to or for the benefit of a Borrower by Lender under the Credit Facility. "ADVANCE RATE" means the percentage specified in SCHEDULE 1 as the Advance Rate, as such percentage may be adjusted by Lender from time to time pursuant to Section 2.1(d) hereof. "AFFILIATE" means, as to any Person, any other Person or any group acting in concert in respect of such Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person. For the purpose of this definition, "control" of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Loan and Security Agreement, as the same may be hereafter amended, revised, restated, supplemented or otherwise modified. "AUTHORIZED OFFICER" means any officer of a Borrower which is a corporation, or any officer of any corporate general partner of a Borrower which is a partnership, authorized by specific resolution of the board of directors of such Borrower or of such corporate general partner, to request Loans as set forth in the incumbency certificate referred to in Section 4.1(d) of this Agreement. "BILLING DATE" means the last Business Day of the week in which the services were rendered in the case of out-patient services and the discharge date in the case of in-patient services. "BLOCKED ACCOUNT AGREEMENTS" has the meaning set forth in Section 2.7(a) hereof. "BORROWERS" has the meaning set forth in the introductory paragraph hereof. "BORROWING BASE" means, at any date, an amount equal to the lesser of (a) the Revolving Loan Commitment, or (b) the amount equal to (i) the product of (A) the Advance Rate then in effect, times (B) the Estimated Net Value of all Eligible Accounts as of such date minus (ii) after the occurrence and during the continuance of an Unmatured Event of Default or Event 2 of Default, the amount of the next scheduled payment of principal and interest under the Settlement Agreement. "BORROWING BASE DEFICIENCY" means, as of any date, the amount, if any, by which (i) the aggregate principal amount of the Loans outstanding as of such date exceeds (ii) the Borrowing Base as of such date. "BORROWING BASE EXCESS" means, as of any date, the amount, if any, by which (i) the Borrowing Base as of such date exceeds (ii) the aggregate principal amount of the Loans outstanding as of such date. "BORROWING BASE REPORT" has the meaning set forth in Section 2.2(b) hereof. "BUSINESS DAY" means any day other than a Saturday, Sunday or any day on which banking institutions in Philadelphia, Pennsylvania or New York, New York are permitted or required by law, executive order or governmental decree to remain closed or a day on which Lender is closed for business. "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Service, a medical benefits program supervised by the U.S. Department of Defense. "CHANGE OF CONTROL" means: (a) with respect to RMC (i) a transaction or series of related transactions pursuant to which any Person or group of related Persons acquires or would acquire (upon completion of such transaction or series of transactions) shares (or securities exercisable for or convertible into shares) representing more than fifty percent (50%) of the outstanding common stock of RMC, pursuant to a tender offer or exchange offer or otherwise, (ii) a merger, consolidation, share exchange or other business combination involving RMC, if, upon consummation of such transaction, the Persons who were stockholders of RMC immediately prior to such transaction continue to hold, following such transaction, less than fifty percent (50%) of the outstanding equity securities of the entity surviving such merger, consolidation or reorganization, or the parent of such entity, or (iii) any other transaction or series of related transactions pursuant to which any Person or related group of Persons acquires or would acquire (upon completion of such transaction or series of transactions) control of RMC's board of directors or by which nominees of any such Person or group of Persons are (or would be) elected or appointed to a majority of the seats on the board of directors of RMC; or (b) a majority of the members of the board of directors of RMC do not constitute Continuing Directors; or (c) RMC ceases to directly or indirectly own and control all of the issued and outstanding capital stock of any of the Wholly Owned Borrowers; or 3 (d) RMC or one of the Wholly Owned Borrowers ceases to be the sole general partner of any of the Controlled Borrowers or ceases to have the right or ability by voting power, contract or otherwise to control any Controlled Borrower. "CLOSING" has the meaning set forth in Section 4.5 hereof. "CLOSING DATE" has the meaning set forth in Section 4.5 hereof. "COLLATERAL" has the meaning set forth in Section 3.1 hereof. "COLLECTIONS" means with respect to any Account, all cash collections on such Account. "COLLECTION ACCOUNT" has the meaning set forth in Section 2.7(a) hereof. "COMMITMENT FEE" has the meaning set forth in Section 2.8 hereof. "CONCENTRATION ACCOUNT" means Borrowers' concentration account identified on EXHIBIT "1.2" hereto. "CONCENTRATION LIMITS" means the various financial tests, expressed as percentages of the then current ENV of all Eligible Accounts, described on SCHEDULE 1 as in effect from time to time. "CONTINUING DIRECTOR" means (a) any member of the board of directors of RMC who was a director of RMC on the Closing Date, and (b) any individual who becomes a member of the board of directors of RMC after the Closing Date if such individual was appointed or nominated for election to the board of directors of RMC by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the board of directors of RMC in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (as such terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as amended) of RMC and whose initial assumption of office resulted from such contest or the settlement thereof. "CONTRACT" means an agreement by which an Obligor is obligated to pay for services rendered to patients of a Borrower. "CONTROLLED BORROWERS" means collectively those Borrowers the sole general partnership interest of which is owned by RMC or one of the Wholly Owned Borrowers as shown on EXHIBIT "5.16" hereto. "CREDIT FACILITY" has the meaning set forth in Section 2.1(a) hereof. "CV" has the meaning set forth in the introductory paragraph hereof. "CVENO" has the meaning set forth in the introductory paragraph hereof. 4 "DEBT" means all indebtedness for borrowed money, trade debt, debts of others guaranteed by a Borrower or secured by its assets, obligations under capitalized leases and all other obligations which are or should be treated as indebtedness under generally accepted accounting principles. "DEBT SERVICE COVERAGE RATIO" means the ratio of (a) the sum of (i) net income, plus (ii) interest expense, plus (iii) depreciation and amortization expenses, plus (iv) income tax expense, minus (v) permitted Distributions, for the period of determination to (b) the sum of (i) interest expense for such period, plus (ii) the current portion of long-term debt, plus (iii) the current portion of the principal portion of lease payments under capitalized leases, plus (iv) income tax actually paid, all as determined for Borrowers in accordance with GAAP. "DEFAULT RATE" means 300 basis points above the interest rate otherwise applicable on all Loans. "DEFAULTED ACCOUNT" means an Account as to which (a) the initial ENV has not been received in full as Collections within 180 days of the Billing Date, or (b) Lender reasonably deems uncollectible because of the bankruptcy or insolvency of the Obligor or any other reason. "DISTRIBUTION" means (1) dividends or other distributions on capital stock of a Borrower; and (2) the redemption, repurchase or acquisition of such stock or equity interests or of warrants, rights or other options to purchase such stock. "ELIGIBLE ACCOUNT" means an Account of a Borrower or of an Imaging Center Affiliate and/or Imaging Center PC arising from services rendered at an Imaging Center: (a) which is a liability of an Obligor which is (i) a commercial insurance company acceptable to Lender, organized under the laws of any jurisdiction in the United States, having its principal office in the United States, other than those listed on SCHEDULE 1 as ineligible (and Lender reserves the right to amend from time to time the list of ineligible Obligors on SCHEDULE 1), (ii) a Blue Cross/Blue Shield Plan other than those listed on SCHEDULE 1 as ineligible, (iii) Medicare or Medicaid, (iv) CHAMPUS, (v) managed care companies or third party administrators other than those listed on Schedule 1 as ineligible, or (vi) any other type of institutional Obligor, not included in the categories of Obligors listed in the foregoing clauses (i) - (v), organized under the laws of any jurisdiction in the United States, having its principal office in the United States and otherwise acceptable to Lender, other than those listed on SCHEDULE 1, (b) the Obligor of which is not an Affiliate of a Borrower, (c) the Obligor of which has received a letter substantially in the form of EXHIBIT "4.2", (d) in an amount not less than $5 nor more than $50,000 per patient, denominated and payable in dollars in the United States, 5 (e) as to which the representations and warranties of Section 5.23 hereof are true, (f) having a Billing Date no more than thirty days prior to the Funding Date (except in the case of the first Funding Date, the Billing Date shall be no more than 150 days prior to the Funding Date), (g) which does not arise from the delivery of cosmetic surgery services and is not classified as "self-pay", (h) if unbilled (an "UNBILLED ACCOUNT"), which is (i) subject to a valid provider number obtained by Borrowers, if a provider number is required in connection therewith, (ii) properly recorded (as determined by Lender in its discretion) in the respective Borrower's billing system, and (iii) not outstanding more than 45 days past the date the corresponding services were provided; provided, however, that with Lender's prior consent, Unbilled Accounts covered by Medicare which would otherwise constitute Eligible Accounts relating to services provided in the first five months of any calendar year may still constitute Eligible Accounts provided they are billed by June 30 of such year; and provided, further, however, that after June 30th of each fiscal year and for the remainder of such fiscal year the Borrowers' Unbilled Accounts which would otherwise qualify as Eligible Accounts shall not be considered Eligible Accounts to the extent the amount of such Unbilled Accounts would exceed one-third of the aggregate Eligible Accounts, (i) if billed, which is not outstanding more than 180 days past the original invoice date, (j) to the extent such Account does not include late charges or finance charges, (k) which is not in dispute by either the recipient of such service or any third party payor, (l) which is not owing from an Obligor, if more than 50% of the aggregate Accounts owing from such Obligor have aged more than 180 days past the date the corresponding services were provided, and (m) which complies with such other criteria and requirements as may be specified from time to time by Lender in its discretion. "ESTIMATED NET VALUE" or "ENV" means on any date of calculation with respect to any Account an amount equal to the anticipated cash collections as calculated by Lender using the Value Track System (which system periodically adjusts such amount to reflect Lender's evaluation of the performance of similar Accounts and to reflect payments received with respect thereto), except that if Lender determines that all Obligor payments with respect to an Account have been made or if an Account has become a Defaulted Account, the ENV of such Account shall be zero. 6 "EVENT OF DEFAULT" has the meaning set forth in Section 8.1 hereof. "EXPENSES" has the meaning set forth in Section 9.5 hereof. "FUNDING DATE" has the meaning set forth in Section 2.2(a) hereof. "GAAP" means generally accepted accounting principles consistently applied. "GOVERNMENT ACCOUNTS" means Accounts on which any federal or state governmental unit is the Obligor. "HCNO" has the meaning set forth in the introductory paragraph hereof. "IMAGING CENTER" means each imaging center operated pursuant to an agreement between (i) an Imaging Center Affiliate and (ii) an Imaging Center PC in the locations listed in EXHIBIT "1.1." "IMAGING CENTER AFFILIATES" means, collectively, the entities listed in EXHIBIT "1.1," each of which is a Borrower and party to a professional services/management agreement with an Imaging Center PC. "IMAGING CENTER PCS" means, collectively, the physicians and medical practices listed in EXHIBIT "1.1," each of which has entered into a professional services/management agreement with an Imaging Center Affiliate. "IMAGING CENTER SECURITY AGREEMENTS" means the Security Agreements executed by each of (i) the Imaging Center Affiliates and (ii) the Imaging Center PCs in favor of Lender as of even date herewith, granting to Lender a first priority security interest in all Accounts of each of (a) the Imaging Center Affiliates and (b) the Imaging Center PCs as collateral security for the Obligations (as more particularly described therein), as such may be amended, revised, restated, supplemented or otherwise modified. "INITIAL TERM" has the meaning set forth in Section 2.1(c). "JCAHO" means the Joint Commission for Accreditation of Health Care Organizations, a nationally recognized organization providing accreditations to hospitals and other healthcare facilities, or any successor entity charged with performing its functions. "LENDER" has the meaning set forth in the introductory paragraph hereof. "LOAN(S)" has the meaning set forth in Section 2.1(a) hereof. "LOAN DOCUMENTS" means this Agreement, the Revolving Credit Note, the Imaging Center Security Agreements, the Blocked Account Agreements, the agreements relating 7 to the Lockboxes, all financing statements and all other agreements, instruments, documents and certificates delivered in connection herewith or therewith. "LOAN REQUEST" has the meaning set forth in Section 2.2(c) hereof. "LOCKBOX AGREEMENTS" means the lockbox agreements executed by the Borrowers with the Lockbox Banks in connection with the Lockboxes (including without limitation the RCS Lockbox Agreements with the Primary Lockbox Bank). "LOCKBOX BANKS" means the Primary Lockbox Bank and such other banks as are acceptable to Lender. "LOCKBOXES" means collectively those lockboxes (including without limitation the RCS Lockboxes) maintained at Lockbox Banks as described on EXHIBIT "6.17" hereto, to which Collections on certain Accounts are sent pursuant to the Lockbox Agreements and the terms hereof. "MATERIAL ADVERSE EFFECT" means, for the Borrowers in the aggregate, a material adverse effect on (a) the business, financial condition or Property of Borrowers, (b) the value of the Collateral, the Accounts or the Borrowing Base, (c) the ability of Borrowers to fulfill there Obligations hereunder, or (d) the enforceability of any of the Loan Documents by Lender. "MATURITY DATE" has the meaning set forth in Section 2.1(c). "MIC-SLO" has the meaning set forth in the introductory paragraph hereof. "MRB" has the meaning set forth in the introductory paragraph hereof. "MRDP" has the meaning set forth in the introductory paragraph hereof. "NON-USE FEE" has the meaning set forth in Section 2.3(b) hereof. "OBLIGATIONS" means all now existing or hereafter arising debts, obligations, covenants, and duties of payment or performance of every kind, matured or unmatured, direct or contingent, owing, arising, due, or payable to Lender by or from a Borrower arising out of this Agreement or any other Loan Document, including, without limitation, all obligations to repay principal of and interest on all the Loans, and to pay interest, fees, costs, charges, expenses, professional fees, and all sums chargeable to a Borrower under the Loan Documents, whether or not evidenced by any note or other instrument. "OBLIGOR" means the party primarily obligated to pay an Account. "OPERATING ACCOUNTS" means collectively the operating and other deposit accounts of Borrowers maintained at the Primary Lockbox Bank and other banks approved by Lender as required by Section 6.17 hereof, including without limitation the RCS Operating Account and the RMC Operating Account. 8 "PERSON" means any individual, corporation, partnership, limited liability company, association, trust, unincorporated organization, joint venture, court or government or political subdivision or agency thereof, or other entity. "PLEA BARGAIN AGREEMENT" means the letter agreement dated June 25, 2001, between the United State's Attorney for the District of Connecticut and RCS and its counsel. "PRIMARY FUNDING DATE" has the meaning set forth in Section 2.2(a) hereof. "PRIMARY LOCKBOX BANK" means Fleet National Bank, or such other bank as is acceptable to Lender. "PRIME RATE" means the highest per annum rate of interest referenced as the "Prime Rate" as reported in the Money Rates Section of The Wall Street Journal, on the date of determination. If The Wall Street Journal is not published on such date, or does not report such rate, such rate shall be as reported by such other publication or as determined by such other source as Lender may reasonably select. The Prime Rate does not necessarily reflect the lowest rate of interest charged by Lender to its customers at any given time. "PROPERTY" means an interest of a Borrower in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "RCS" has the meaning set forth in the introductory paragraph hereof. "RCS LOCKBOXES" means the five (5) lockboxes maintained at the Primary Lockbox Bank in the names of: Cardiac Datacorp, Inc.-CDI, P.O. Box 3870, Dorchester, MA 02125-3870; Cardiocare-C2P, P.O. Box 3640, Dorchester, MA 02125-3640; Cardiocare Arrhythmia-C2 CEDS, P.O. Box 3576, Dorchester, MA 02125-3576; Cardiac Data Services-CDS, P.O. Box 5670, Hartford, CT 06102-5670; and Cardiac Data Services-Holter/CEDS, P.O. Box 5746, Hartford, CT 06102-5746. "RCS LOCKBOX AGREEMENTS" means the lockbox agreements in effect on the date hereof with the Primary Lockbox Bank relating to the RCS Lockboxes. "RCS OPERATING ACCOUNT" means the operating account of RCS identified on EXHIBIT "1.3" hereto. "REVOLVING CREDIT NOTE" has the meaning set forth in Section 2.1(b). "REVOLVING LOAN COMMITMENT" means an amount equal to $15,000,000.00, as adjusted from time to time hereunder. "RGH" has the meaning set forth in the introductory paragraph hereof. "RIH" has the meaning set forth in the introductory paragraph hereof. 9 "RIN" has the meaning set forth in the introductory paragraph hereof. "RMC" has the meaning set forth in the introductory paragraph hereof. "RMC OPERATING ACCOUNT" means the operating account of RMC identified on EXHIBIT "1.4" hereto. "RNIWH" has the meaning set forth in the introductory paragraph hereof. "SECURITIES" has the meaning set forth in Section 6.14 hereof. "SEC COMMENT LETTER" means the letter dated October 29, 2001, conveying certain comments of the staff of the Securities and Exchange Commission on RMC's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, and RMC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. "SENIOR FUNDED DEBT RATIO" means, on the date of determination, the ratio of (a) the sum of (i) the amount outstanding hereunder, plus (ii) the amount of any other Debt not subordinated to the Obligations in writing which subordination has been approved in form and substance by Lender, plus (iii) the amount then outstanding under the Settlement Agreement, to (b) the sum of (i) net income, plus (ii) interest expense, plus (iii) depreciation and amortization expenses, plus (iv) income tax expense. "SETTLEMENT AGREEMENT" means collectively the Settlement Agreement dated on or about October 2001, by and between the United States of America, Salvatore Morello, RCS and RMC, the Promissory Note executed and delivered by RCS in connection therewith, the Guaranty Agreement executed and delivered by RMC in connection therewith, and the Corporate Integrity Agreement executed and delivered by RCS in connection therewith. "SUBORDINATED DEBT" means debt or other obligations of a Borrower that is subordinated to the Obligations of such Borrower to Lender on terms and conditions that are satisfactory to Lender in its sole discretion. "TERMINATION FEE" has the meaning set forth in Section 2.8 hereof. "UNBILLED ACCOUNT" has the meaning given to such term in the definition of "Eligible Account." "UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New Jersey. "UNMATURED EVENT OF DEFAULT" means an event which with the passage of time, giving of notice or both, would become an Event of Default. 10 "VALUE TRACK SYSTEM" means the proprietary business system used by Lender to value and record the status of Accounts. "VOTING STOCK" shall mean stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WHOLLY OWNED BORROWERS" means collectively those Borrowers which are wholly owned by RMC or another Borrower (or by a wholly owned subsidiary of RMC or another Borrower) as shown on EXHIBIT "5.16" hereto. 1.2 Accounting Principles: Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, this shall be done in accordance with GAAP, to the extent applicable, except as otherwise expressly provided in this Agreement. SECTION 2. THE LOANS 2.1 Credit Facility - Description: (a) Subject to the terms and conditions of this Agreement, Lender hereby establishes for the benefit of Borrowers a line of credit facility ("CREDIT FACILITY") which shall include Advances which may be extended by Lender to or for the benefit of Borrowers from time to time hereunder in the form of revolving credit loans ("LOANS"). The aggregate outstanding principal amount of all Loans, at any time, shall not exceed the Borrowing Base. Subject to such limitation, the outstanding balance of all Loans may fluctuate from time to time, to be reduced by repayments made by Borrowers, to be increased by future Advances which may be made by Lender. In no event shall the initial principal amount of any Loan be less than $25,000.00. If the aggregate outstanding amount of all Advances exceeds the Borrowing Base, Borrowers shall immediately repay such excess in full. Lender has the right at any time and from time to time, in its sole discretion (but without any obligation), after providing Borrowers with reasonable notice which may be written or oral (to be confirmed in writing within one (1) day thereafter, and receipt by Borrowers of a Borrowing Base Report reflecting reserves in a timely manner pursuant to the terms of Section 2.2(b) hereof shall be deemed reasonable written notice), to set aside reasonable reserves against the Borrowing Base, including without limitation with respect to amounts coming due from time to time under the Settlement Agreement, in such amounts as it may deem appropriate. The obligations of Borrowers under the Credit Facility and this Agreement shall at all times be absolute and unconditional. (b) At Closing, Borrowers shall execute and deliver their promissory note to Lender in the principal face amount of Fifteen Million Dollars ($15,000,000.00) (as may be amended, modified or replaced from time to time, the "REVOLVING CREDIT NOTE"). The Revolving Credit Note shall evidence Borrowers' absolute and unconditional, and joint and 11 several, obligation to repay Lender for all Loans made by Lender under the Credit Facility, with interest as herein and therein provided. Each and every Loan under the Credit Facility shall be deemed evidenced by the Revolving Credit Note, which is deemed incorporated herein by reference and made a part hereof. The Revolving Credit Note shall be substantially in the form set forth in EXHIBIT "2.1(b)" attached hereto and made a part hereof. (c) The term ("INITIAL TERM") of the Credit Facility shall expire on November 30, 2003. All Loans shall be repaid on or before the earlier of the last day of the Initial Term or upon termination of this Agreement ("MATURITY DATE"). After the Maturity Date no further Advances shall be available from Lender. (d) From time to time, in each case upon not less than three Business Days' notice to Borrowers, Lender may adjust the Advance Rate set forth on SCHEDULE 1 in order to reflect, in its reasonable judgment, the experience with Borrowers (including, by way of illustration, to adjust for any known or potential offsets by Medicare or Medicaid) or the Accounts. In addition, upon not less than three Business Days' notice to Borrowers, Lender may adjust the Advance Rate set forth on SCHEDULE 1 in order to comply with the requirements of any nationally recognized statistical rating organization or party guaranteeing, rating or insuring payment of any Securities. 2.2 Funding Procedures: (a) Subject to the terms and conditions of this Agreement, Lender will make Loans to Borrowers from time to time, on the fourth Business Day of each week (the "Primary Funding Date", whether or not Borrowers have requested a Loan to be made on such date) and on such other days of the week as Borrowers and Lender may agree (each such day whether or not a Primary Funding Date is referred to herein as the "FUNDING DATE"). (b) Not less than four Business Days prior to each Primary Funding Date, Borrowers will deliver to Lender the computer file data associated with the Accounts, which shall include without limitation, the information required by Lender to enable Lender to process and value the outstanding Accounts of Borrowers, as well as bill and collect such Accounts following an Event of Default. Upon completion of the processing of the data with respect to such Accounts, Lender will prepare and deliver to Borrowers a report regarding the Borrowing Base then in effect, which shall be substantially in the form of EXHIBIT "2.2(b)" (a "BORROWING BASE REPORT"). (c) No later than 11:00 a.m. (Eastern time) on the second Business Day prior to each Primary Funding Date, Borrowers will sign and return the Borrowing Base Report to Lender. Subject to the terms and conditions of this Agreement, if Borrowers shall be entitled to request that a Loan be made on such Primary Funding Date, or any Funding Date thereafter until the next Primary Funding Date based on such Borrowing Base Report by delivery by hand or fax to Lender, a written request for such Loan substantially in the form of EXHIBIT "2.2(c)" (a "LOAN REQUEST") no later than 11:00 a.m. (Eastern time) on the date such Loan is to be made, time being of the essence. 12 (d) Subject to the terms and conditions of this Agreement, on the Funding Date, Lender will advance to Borrowers a Loan in an amount equal to the lesser of (i) the amount of the Loan requested by Borrowers in the Loan Request, or (ii) the Borrowing Base Excess as of such date by depositing such amount into the RCS Operating Account, except as provided in Section 2.5(a). (e) Lender's determination of the Estimated Net Value of the Eligible Accounts and other amounts to be determined or calculated under this Agreement shall, in the absence of manifest error, be binding and conclusive. (f) Notwithstanding anything to the contrary contained in this Agreement, Lender shall have the right, but not the obligation, on each Primary Funding Date which is immediately prior to a payment due date under the Settlement Agreement to make an Advance under the Credit Facility, whether or not Borrowers shall have submitted a Loan Request therefor, in an amount up to the amount which is to become due under the Settlement Agreement on such following payment due date, whether or not such amount exceeds the Borrowing Base Excess on such date and whether or not such amount, when added to the aggregate outstanding amount of the Credit Facility, would exceed the Revolving Loan Commitment. To the extent such Advance is made in an amount which exceeds the Borrowing Base Excess or causes the aggregate outstanding principal amount of the Credit Facility to exceed the Revolving Loan Commitment, Borrowers shall immediately and without notice or demand, repay such excesses. Lender shall be entitled to make any such Advance described in this subsection (f) either to Borrowers or directly to the payee as required by the Settlement Agreement. Lender shall provide Borrowers notice of any Advance made pursuant to this subsection (f). 2.3 Interest and Non-Use Fee: (a) Each Loan shall bear interest on the principal amount thereof from the date made until such Loan is paid in full, at a rate per annum equal to the Prime Rate plus 1.00%. The interest rate on all of the Loans shall be adjusted weekly based on the Prime Rate as of each Primary Funding Date. (b) Borrowers shall pay a fee (the "NON-USE FEE") equal to one-quarter of one percent (0.25%) per annum on the average daily unused portion of the Revolving Loan Commitment. The Non-use Fee shall be payable monthly in arrears on the first Primary Funding Date of each month commencing December, 2001, and shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. (c) If any Event of Default shall occur and be continuing, the rate of interest applicable to each Loan then outstanding shall be the Default Rate. The Default Rate shall apply from the date of the Event of Default until the date such Event of Default is waived or is cured, and interest accruing at the Default Rate shall be payable on each Funding Date and also upon demand. 13 2.4 Additional Interest Provisions: (a) Calculation of Interest - Interest on the Loans shall be based on a year of three hundred sixty (360) days and charged for the actual number of days elapsed. (b) Continuation of Interest Charges - All contractual rates of interest chargeable on outstanding Loans, shall continue to accrue and be paid even after default, maturity, acceleration, judgment, bankruptcy, insolvency proceedings of any kind or the happening of any event or occurrence similar or dissimilar. (c) Applicable Interest Limitations - In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall in its sole discretion, apply and set off such excess interest received by Lender against other Obligations due or to become due and such rate shall automatically be reduced to the maximum rate permitted by such law. 2.5 Payments: (a) All accrued interest on the Loans shall be due and payable on each Primary Funding Date. Any Non-use Fee shall be due and payable as set forth in Section 2.3(b). Provided that there exists a sufficient Borrowing Base Excess to do so and subject to the terms and conditions of this Agreement unless Borrowers have otherwise paid amounts due hereunder by 11 a.m. (Eastern time) on a Primary Funding Date, Lender shall make a Loan on such Primary Funding Date, before making any Loan requested by Borrowers, in the amount then due hereunder, the proceeds of such Loan to be retained by Lender, applied against such amounts then due, and not deposited into the RCS Operating Account. (b) If at any time the aggregate principal amount of all Advances outstanding exceeds the Borrowing Base then in effect, Borrowers shall immediately make such principal prepayments of the Loans as is necessary to eliminate such excess. (c) The entire principal balance of all of the Loans, together with all unpaid accrued interest thereon and any accrued and unpaid Non-use Fees, shall be due and payable on the Maturity Date. (d) Subject to the terms of Section 2.3(b) above, Borrowers may prepay the principal of the Loans at any time (with payments in immediately available funds credited against outstanding principal on the Business Day following the day of receipt) provided, however, that in the case of a prepayment of the Loans in connection with a termination of the Credit Facility, Borrowers shall pay to Lender the Termination Fee as set forth in Section 2.8 hereof. 14 (e) All payments and prepayments (whether received directly from Borrowers or otherwise, as provided herein) shall be applied first to any unpaid interest, unpaid Non-use Fees and unpaid Termination Fee, and thereafter to the principal of the Loans and to other amounts due Lender, in the order provided in Section 2.7(f) hereof. Except as otherwise provided herein, all payments of principal, interest, fees, or other amounts payable by Borrowers hereunder shall be remitted to an account of Lender as specified by Lender in immediately available funds not later than 11:00 a.m. (prevailing Eastern Time) on the day due. Whenever any payment is stated as due on a day which is not a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day and interest shall continue to accrue during such extension. 2.6 Use of Proceeds: The extensions of credit under and proceeds of the Credit Facility shall be used to refinance existing debt owed to Fleet National Bank and Paribas BNP and for working capital and general corporate purposes. 2.7 Lockboxes and Collections: (a) Borrowers have established the RMC Operating Account and the RCS Operating Account with the Primary Lockbox Bank. Borrowers have also entered into the RCS Lockbox Agreements pursuant to which the Primary Lockbox Bank has agreed to deposit all Collections received in the name of RCS into the RCS Lockboxes and to periodically transfer such Collections from the RCS Lockboxes into the RCS Operating Account. Notwithstanding the foregoing, Lender has established the Concentration Account for deposit of all Collections received in the name of RCS into the RCS Lockboxes, and the Borrowers, Lender and the Primary Lockbox Bank have entered into certain blocked account agreements (collectively, the "BLOCKED ACCOUNT AGREEMENTS") dated as of even date herewith in connection with the RMC Operating Account and the Concentration Account. The Blocked Account Agreements provide that, only so long as there has not occurred any Event of Default, all Collections received in the name of RCS will be swept daily from the RCS Lockboxes into the Concentration Account and (upon Borrowers' instruction) the Primary Lockbox Bank will initiate daily transfers of all available funds from the Concentration Account to the RCS Operating Account. The Blocked Account Agreements further provide that, upon receipt of written notice from Lender that an Event of Default has occurred, the Primary Lockbox Bank shall sweep all amounts deposited in the RMC Operating Account and the Concentration Account on a daily basis to an account of Lender to be designated by Lender (the "COLLECTION ACCOUNT") and otherwise take such direction with respect thereto from Lender and only from Lender. (b) Borrowers will cause all Collections with respect to all of the Accounts to be sent either to the RCS Lockboxes or to a Borrower for deposit in the Operating Account of such Borrower in accordance with Section 6.17 hereof. In the event that after an Event of Default a Borrower receives any Collections that should have been sent to the RCS Lockboxes or the RMC Operating Account, such Borrower will, promptly upon receipt and in any event within one Business Day of receipt, forward such Collections directly to the Collection Account in the form received, and promptly notify Lender of such event. Until so forwarded, such Collections not generated from Government Accounts shall be held in trust for the benefit of Lender. 15 (c) After an Event of Default and notice by Lender under the Blocked Account Agreements, or any of them, no Borrower shall withdraw any amounts from the Concentration Account and/or RMC Operating Account and, whether or not an Event of Default has occurred, no Borrower shall change the procedures under the agreements governing the RMC Operating Account, the RCS Lockboxes or the Concentration Account, except in accordance with Section 6.17 hereof. (d) Borrowers will cooperate with Lender in the identification and reconciliation on a monthly basis of all amounts received in the Lockboxes. If more than five percent (5%) of the Collections since the most recent Primary Funding Date are not identified or reconciled to the satisfaction of Lender within twenty (20) Business Days of receipt, Lender shall not be obligated to make further Loans until such amount is identified or is reconciled to the satisfaction of Lender, as the case may be. In addition, if any such amount cannot be identified or reconciled to the satisfaction of Lender, Lender may utilize its own staff or, if it deems necessary, engage an outside auditor, in either case at Borrowers' joint and several expense (which in the case of Lender's own staff shall be in accordance with Lender's then prevailing customary charges, plus expenses), to make such examination and report as may be necessary to identify and reconcile such amount. (e) Borrowers will not send to or deposit in the Lockboxes any funds other than payments made with respect to Accounts. (f) Prior to the occurrence of an Event of Default, on the Business Day after receipt, Lender shall cause all payments received by Lender from Borrowers and Loan proceeds which are retained by Lender pursuant to the terms hereof and not otherwise applied in accordance with the terms of the Agreement, to be applied in the following order of priority: (i) If received on the Business Day immediately preceding a Primary Funding Date, to the unpaid accrued interest on the aggregate outstanding Loans as of such Primary Funding Date; (ii) If received on the Business Day immediately preceding a Primary Funding Date, to any unpaid accrued Non-use Fees as of such Primary Funding Date; (iii) toward any Borrowing Base Deficiency; (iv) toward any costs and expenses of Lender required to be paid or reimbursed by Borrowers under this Agreement or under any of the other Loan Documents; (v) toward prepayment of principal of which Borrowers have given notice to Lender in accordance with Section 2.5(d) hereof. Following the occurrence of an Event of Default, Lender may apply all Collections to Borrowers' Obligations in such order as Lender may in its sole discretion determine. 16 2.8 Fees: As of the Closing, Lender shall have fully earned, and Borrowers shall have paid to Lender, a commitment fee ("COMMITMENT FEE") equal to one percent (1%) of the Revolving Loan Commitment. In the event that the Credit Facility is terminated prior to the Maturity Date for any reason at any time, Borrowers shall further pay to Lender a termination fee (the "TERMINATION FEE") in an amount equal to the product of the Revolving Loan Commitment times one percent (1%); provided, however, that the Termination Fee shall be due only if prepayment occurs prior to the first anniversary of the Closing Date, and provided further that Borrowers shall not owe any Termination Fee if prepayment occurs at the direction of Lender in connection with Lender's termination of the Credit Facility, so long as no Event of Default shall have occurred and be continuing immediately prior to such termination. SECTION 3. COLLATERAL 3.1 Description: To secure the payment, promptly when due, and the punctual performance, of all of the Obligations, (a) each Borrower assigns to Lender, and grants to it a security interest in (i) all accounts and health care insurance receivables (including without limitation the Accounts) of such Borrower, whether now existing or hereafter arising or acquired, (ii) all contract rights, instruments, chattel paper, documents, payment intangibles, general intangibles, letters of credit and letter of credit rights, remedies, guarantees and collateral evidencing, securing or otherwise relating to such accounts, including without limitation all rights of enforcement and collection, now existing or hereafter acquired, (iii) all Lockboxes, all Operating Accounts, all Collection Accounts, all Concentration Accounts, all other accounts into which any of the Collections are deposited, all deposit accounts, all funds at any time received by any of them or deposited in any of them, and any checks or instruments from time to time representing or evidencing the same, (iv) all inventory now owned or hereafter acquired, (v) all equipment, machinery, furniture and fixtures now owned or hereafter acquired together with all parts, substitutions, improvements, accessions, accessories, attachments and additions thereto, now existing or hereafter acquired, (vi) all investment property now existing or hereafter acquired, including without limitation securities (whether certificated or uncertificated), security entitlements, securities accounts and equity interests (whether or not constituting investment property) of all kinds, including without limitation any and all shares of capital stock, membership interests in limited liability companies and partnership interests, (vii) all books and records of such Borrower evidencing or relating to such assets, (viii) all information and data compiled or derived by such Borrower with respect of such assets (other than any such information and data subject to legal restrictions of patient confidentiality), and (ix) all collections, receipts and other proceeds (cash and noncash) derived from any of the foregoing and (b) Borrowers shall cause each of the Imaging Center Affiliates and each Imaging Center PC to execute and deliver to Lender the Imaging Center Security Agreements. The collateral described in Section 3.1(a) and in the Imaging Center Security Agreements are referred to herein as, collectively, the "COLLATERAL". 3.2 Lien Documents: At Closing and thereafter as Lender deems necessary, Borrowers shall execute and deliver to Lender, or shall have executed and delivered (all in form and substance reasonably satisfactory to Lender) any other agreements, documents, instruments and writings, including, without limitation, financing statements, security agreements and assignment agreements, reasonably required by Lender to evidence, perfect or protect Lender's 17 liens and security interest in the Collateral, or as Lender may reasonably request from time to time. 3.3 Other Actions: In addition to the foregoing, Borrowers shall do anything further, and authorizes Lender to do anything further, that may be lawfully and reasonably required by Lender to perfect its security interests and to effectuate the intentions and objectives of this Agreement, including, but not limited to, the execution, delivery and filing of financing statements, continuation statements, amendments to financing statements, security agreements, contracts and any other documents required hereunder. At Lender's request, Borrowers shall also immediately deliver (with execution by Borrowers of all necessary documents or forms to reflect Lender's security interest therein) to Lender, all items for which Lender must or may receive possession to obtain a perfected security interest. 3.4 Searches: Borrowers shall, prior to or at Closing, and thereafter as Lender may request from time to time, at Borrowers' joint and several expense, obtain the following searches (the results of which are to be consistent with the warranties made by Borrowers in this Agreement) and deliver such search results to Lender: (a) UCC Searches - UCC searches with the Secretary of State and local filing office of each state where each Borrower is incorporated or otherwise formed, or maintains its respective chief executive office, a place of business, or assets and UCC searches with the Secretary of State of each state where each Imaging Center PC and/or Imaging Center Affiliate is incorporated or otherwise formed, or maintains its respective chief executive office, a place of business or assets; (b) Judgments, Etc. - Judgment, federal tax lien and corporate tax lien searches, with respect to each Borrower in all applicable filing offices of each state searched under subparagraph (a) above. Borrowers shall, prior to or at Closing and at its expense, obtain and deliver to Lender good standing certificates showing each Borrower to be in good standing in its state of incorporation and in each other state or foreign country in which it is doing business for which such Borrower's failure to be so qualified would have a reasonable likelihood of resulting in or causing a Material Adverse Effect. 3.5 Filing Security Agreement: A carbon, photographic or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement. 3.6 Power of Attorney: Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for Borrowers (without requiring any of them to act as such) with full power of substitution to do the following (such power to be deemed coupled with an interest): (1) after an Event of Default, endorse the name of a Borrower upon any and all checks, drafts, money orders and other instruments for the payment of monies that are payable to a Borrower and constitute collections on the Collateral; (2) execute in the name of a Borrower and/or file any financing statements, schedules, assignments, 18 instruments, documents and statements that a Borrower is obligated to give Lender hereunder or is necessary to perfect Lender's security interest or lien in the Collateral; (3) to verify validity, amount or any other matter relating to the Collateral by mail, telephone, telecopy or otherwise, provided that if an Event of Default has not occurred Lender shall give prior notice thereof describing the manner in which such verification shall be conducted; and (4) after an Event of Default do such other and further acts and deeds in the name of a Borrower that Lender may reasonably deem necessary or desirable to enforce any Collateral. SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES Closing under this Agreement and the making of each Advance are subject to the following conditions precedent (all documents to be in form and substance satisfactory to Lender and Lender's counsel): 4.1 Resolutions, Opinions, and Other Documents: Prior to the Closing, Borrowers shall have delivered, or caused to be delivered, to Lender the following: (a) this Agreement and the Revolving Credit Note, both properly executed; (b) each document and agreement required to be executed under any provision of this Agreement or any of the other Loan Documents, including without limitation the duly executed Imaging Center Security Agreements and each Contract delivered pursuant to Section 5.23(l) hereof; (c) certified copies of (i) resolutions of the board of directors of each Borrower which is a corporation and of the board of directors of each corporate general partner of each Borrower which is a partnership, authorizing the execution of this Agreement, the Revolving Credit Note and each document required to be delivered by any Section hereof and (ii) each Borrower's articles of incorporation and bylaws (or, as the case may be, certificate of formation and agreement of limited partnership, for a Borrower which is a limited partnership); (d) an incumbency certificate identifying all Authorized Officers of each Borrower, with specimen signatures; (e) a written opinion of Borrowers' independent counsel addressed to Lender in the form attached hereto as EXHIBIT "4.1"; (f) payment by Borrowers of all Expenses associated with the Credit Facility incurred to the Closing Date and the Commitment Fee; (g) the agreements relating to the Lockboxes, and Blocked Account Agreements, all as required pursuant to Section 2.7 hereof; (h) Uniform Commercial Code, judgment, federal and state tax lien searches against Borrowers and Imaging Center PCs, as required by Section 3.4 above, at Borrowers' joint and several expense, showing that the Collateral is not subject to any liens, claims or 19 encumbrances, together with Good Standing and Corporate Tax Lien Search Certificates showing no tax liens on any Borrower's Property and showing each Borrower to be in good standing in each jurisdiction where the failure to so qualify would have a reasonable likelihood of resulting in or causing a Material Adverse Effect; (i) an initial borrowing base certificate dated the Closing Date evidencing Borrowers' maximum borrowing availability under the Borrowing Base as of the Closing Date, which shall indicate that after giving effect to the initial Advance there shall be a Borrowing Base Excess of not less than One Million Five Hundred Thousand ($1,500,000.00) Dollars; (j) releases from any other Person having a security interest or other interest in the Collateral which relates to Accounts, together with all UCC-3 terminations or partial releases necessary to terminate or amend (as Lender may require) such Person's interest in the Collateral; (k) copies of each of the accreditations, licenses and certifications referred to in Section 5.3 hereof; (l) evidence of the validity of all Medicare/Medicaid and all state provider numbers for each Borrower; (m) a duly executed landlord waiver for the Administrative Office, and, to the extent Borrowers are able to obtain waivers after using their best efforts, for each other leased premises on which any Borrower operates, and a duly executed Mortgagee's waiver for each premises owned by any Borrower on which any Borrower operates, if such premises is subject to a mortgage, each in form and substance satisfactory to Lender; (n) copies of all leases for each leased premises on which any Borrower operates, which shall be satisfactory to Lender; (o) evidence that Borrowers maintain insurance coverage required hereunder, with all premiums prepaid and with Lender named as "loss payee" and/or "additional insured" as may be required by the terms hereof; (p) a true, correct and complete copy of the Settlement Agreement and all documents, certificates, filings, statements, agreements or other writings referred to therein including without limitation the corporate integrity agreement and sworn financial statement, certified as such by Borrowers; (q) a true, correct and complete copy of the Plea Bargain Agreement, and all documents, certificates, filings, statements, agreements or other writings referred to therein, together with evidence that such Plea Bargain Agreement has been accepted by the court, certified as such by Borrowers; (r) a certificate dated the Closing Date and signed by the chief financial officer of each Borrower which is a corporation, or the chief financial officer of each corporate 20 general partner of each Borrower which is a partnership, as the case may be, certifying that all of the conditions specified in this Section 4.1 have been fulfilled and that there has not occurred any material adverse change in the operations and conditions (financial or otherwise) of Borrowers in the aggregate since June 30, 2001; (s) evidence that all payments due to date under the Settlement Agreement and the Plea Bargain Agreement referred to in clause (q) have been paid in full; (t) true, correct and complete copies of all agreements and assignments between RIH or each of the Imaging Center Affiliate (as relevant) and the Imaging Center PC with respect to the operation of an Imaging Center, certified by the Borrowers as such; (u) true, correct and complete copies of all agreements and assignments between Borrowers or any of them and third parties through whose provider numbers Borrowers may provide services and bill Accounts and which represent the top twenty Obligors (as determined by aggregate amount of accounts receivable due as of the date hereof), certified as such by Borrowers; (v) such executed agreements, assignments and instruments as Lender may have reasonably required to grant or perfect its security interest in the Accounts referred to in clause (t) above, in form and substance satisfactory to Lender, between RIH, the Imaging Center Affiliates and/or Imaging Center PCs and Lender; and (w) such other financial or business information relating to the Borrowers and/or Collateral as Lender may have reasonably requested. 4.2 Additional Preconditions to Loans: Lender's obligation to make the initial Loan and each subsequent Loan shall be subject to the satisfaction of each of the following conditions: (a) After giving effect to such Loan (i) the aggregate principal amount of all Loans outstanding shall not exceed the Borrowing Base then in effect; (ii) the ENV of all Eligible Accounts shall not exceed any of the Concentration Limits; and (iii) the ENV of all Eligible Accounts which have not been billed shall not, in the aggregate, exceed one-third of the ENV of all Eligible Accounts (whether or not billed). (b) All representations and warranties of Borrowers shall be deemed reaffirmed as of the making of such Loan (except that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct only as of such specified date) and shall be true both before and after giving effect to such Loan, no Event of Default or Unmatured Event of Default shall have occurred and be continuing, Borrowers shall 21 be in compliance with this Agreement and the other Loan Documents, and Borrowers shall have certified such matters to Lender. (c) Borrowers shall have signed and delivered to Lender notices, in the form of EXHIBIT "4.2", to the Obligors. (d) All of the Eligible Accounts shall have been recorded in Lender's Value Track System. The Lockboxes, collection and depository arrangements required by Section 2.7 hereof shall be in effect, and the amounts received in the Lockboxes shall have been identified or reconciled to Lender's satisfaction, as required by Section 2.7(d) hereof. (e) Lender shall have completed any and all inspections and audits of the Property and Collateral of Borrowers and reference checks, with all results satisfactory to Lender. (f) Borrowers shall have taken such other actions, including the delivery of documents and opinions as Lender may reasonably request. 4.3 Absence of Certain Events: At the Closing Date and prior to each Loan, no Event of Default or Unmatured Event of Default hereunder shall have occurred and be continuing. 4.4 Compliance with this Agreement: Borrowers shall have performed and complied with all agreements, covenants and conditions contained herein including, without limitation, the provisions of Sections 6 and 7 hereof, which are required to be performed or complied with by Borrowers before or at the Closing Date and as of the date of each Advance. 4.5 Closing: Subject to the conditions of this Section 4, the Credit Facility shall be made available on the date ("CLOSING DATE") this Agreement is executed and all of the conditions contained in Section 4.1 hereof are completed ("CLOSING"). 4.6 Non-Waiver of Rights: By completing the Closing hereunder, or by making Advances hereunder, Lender does not thereby waive a breach of any warranty, representation or covenant made by Borrowers hereunder or under any agreement, document, or instrument delivered to Lender or otherwise referred to herein, and any claims and rights of Lender resulting from any breach or misrepresentation by Borrowers are specifically reserved by Lender. SECTION 5. REPRESENTATIONS AND WARRANTIES To induce Lender to complete the Closing and make the Loans under the Credit Facility to Borrowers, Borrowers warrant and represent to Lender that: 5.1 Organization or Formation; Validity: 22 (a) Each Borrower is a corporation duly organized and validly existing under the laws of its state of incorporation (or, in the case of a Borrower which is a partnership, is a partnership duly formed and validly existing under the laws of its state of formation) is duly qualified, is validly existing and in good standing and has lawful power and authority to engage in the business it conducts in each state and other jurisdiction where the nature and extent of its business requires qualification, except where the failure to so qualify would not have a material adverse effect on such Borrower's business, financial condition or Property or a Material Adverse Effect. A list of all states and other jurisdictions where each Borrower is qualified to do business is attached hereto as EXHIBIT "5.1" and made a part hereof. (b) The making and performance of this Agreement and related agreements, and each document required by any Section hereof will not violate any law, government rule or regulation, or the charter, minutes or bylaw provisions (or, for a Borrower which is a partnership, certificate of formation or agreement of partnership) of a Borrower or violate or result in a default (immediately or with the passage of time) under any material contract, agreement or instrument to which such Borrower is a party, or by which it is bound (it being deemed that any contract, agreement or instrument relating to Accounts is material). No Borrower is in violation of or has knowingly caused any Person to violate any term of any agreement or instrument to which it or such Person is a party or by which it may be bound or of its charter, minutes or bylaws (or, for a Borrower which is a partnership, certificate of formation or agreement of partnership) which violation would have a reasonable likelihood of resulting in or causing a material adverse effect on such Borrower's business, financial condition or Property or a Material Adverse Effect. (c) Each Borrower has all requisite corporate (or partnership, as the case may be) power and authority to enter into and perform this Agreement and to incur the obligations herein provided for, and has taken all proper and necessary corporate (or partnership, as the case may be) action to authorize the execution, delivery and performance of this Agreement, and the other Loan Documents. (d) This Agreement, the Revolving Credit Note and the other Loan Documents, when delivered, will be valid and binding upon each Borrower and enforceable in accordance with their respective terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium, or other laws affecting creditors' rights generally and by general principles of equity. 5.2 Names; Jurisdictions of Registration; Places of Business: Each Borrower's exact legal name, jurisdiction of registration (i.e., incorporation or formation), and chief executive office is located as listed in EXHIBIT "5.2" attached hereto and made a part hereof. Except as disclosed on EXHIBIT "5.2": (i) no such Borrower has changed any such location in the last five years, (ii) no such Borrower has changed its name in the last five years, (iii) during such period no such Borrower has used, nor does such Borrower now use, any fictitious or trade name, and (iv) such Borrower's books and records relating to Accounts are kept at the Administrative Office. 23 5.3 Operation of Facilities: Each Borrower owns (or leases, as the case may be) and operates facilities to provide health care services and (a) maintains Medicare and Medicaid provider status and is the holder of the provider identification numbers identified on EXHIBIT "5.3", all of which are current and valid and no Borrower has allowed, permitted, authorized or caused any other Person to use any such provider identification number, and (b) has obtained all material licenses, accreditations and approvals of governmental authorities and all other Persons necessary for each Borrower to own its assets, to carry on its business, to execute, deliver and perform the Loan Documents, and to receive payments from the Obligors and, if a Borrower has ever been certified by the JCAHO (or other nationally recognized organization providing accreditations if a Borrower is not the type of health care entity eligible for accreditation by the JCAHO), such Borrower either has obtained a current certification from the JCAHO or such other relevant organization or has not had any such certification withdrawn by JCAHO or such other relevant organizations. No Borrower has been notified by any such governmental authority or other person during the immediately preceding 24 month period that such party has rescinded or not renewed, or intends to rescind or not renew, any such license or approval. 5.4 Pending Litigation: There are no judgments or judicial or administrative orders, proceedings or investigations (civil or criminal) pending, or to the knowledge of a Borrower, threatened, against a Borrower or Imaging Center in any court or before any governmental authority or arbitration board or tribunal except as described on EXHIBIT "5.4". No Borrower or Imagine Center is in default with respect to any order of any court, governmental authority, regulatory agency or arbitration board or tribunal. Except as set forth in the Plea Bargain Agreement and the Settlement Agreement or as described on EXHIBIT "5.4", no Borrower or Imaging Center, or, to the best of their knowledge, executive officer of a Borrower, has been indicted or convicted in connection with or is engaging in any criminal conduct (other than, with respect to an executive officer, non-felony offenses), or is currently subject to any lawsuit or proceeding or under investigation in connection with any anti-racketeering or other conduct or activity. 5.5 Medicaid and Medicare Cost Reporting: No Borrower or Imaging Center currently prepares or submits, or is obligated to prepare or submit, any Medicaid or Medicare cost reports. Other than as described on EXHIBIT "5.5", no government audit of or other inquiry relating to any Borrower or Imaging Center has resulted in any determination that a Borrower or Imaging Center was overpaid for Medicaid and Medicare by 5.0% or more in any of the most recent three fiscal years covered by such audit. 5.6 Title to Collateral: Each Borrower has good and marketable title in fee simple (or its equivalent under applicable law) to all the Collateral it respectively purports to own, free from liens, claims and encumbrances, except those of Lender or liens on Collateral other than Accounts as indicated on EXHIBIT "5.6" attached hereto and made a part hereto. 5.7 Governmental Consent: Neither the nature of a Borrower or of its business or Property, nor any relationship between a Borrower and any other Person, nor any circumstance affecting a Borrower in connection with the issuance or delivery of the Revolving Credit Note, is such as to require a consent, approval or authorization of, or filing, registration or 24 qualification with, any governmental authority on the part of a Borrower in connection with the execution and delivery of this Agreement or the issuance or delivery of the Revolving Credit Note or other Loan Documents. 5.8 Taxes: All tax returns required to be filed by a Borrower in any jurisdiction have in fact been filed, and all taxes, assessments, fees and other governmental charges upon a Borrower, or upon any of its Property, income or franchises, which are shown to be due and payable on such returns, have been paid, except for those taxes being contested in good faith with due diligence by appropriate proceedings for which appropriate reserves have been maintained under GAAP. No Borrower is aware of any proposed additional tax assessment or tax to be assessed against or applicable to a Borrower that would have a reasonable likelihood of resulting in or causing a material adverse effect on such Borrower's business, financial condition or Property. 5.9 Financial Statements: RMC's annual consolidated audited balance sheet (which includes all Borrowers) as of September 30, 2000, accompanied by a report thereon from RMC's independent certified public accountants, and the quarterly consolidated unaudited balance sheet of RMC (which includes all Borrowers) as of June 30, 2001 and the related income statements and statements of cash flows as of such dates (complete copies of which have been delivered to Lender), have been prepared in accordance with GAAP and present fairly, accurately and completely the financial position of RMC and the other Borrowers as of such dates and the results of its operations for such periods, subject to any revisions or adjustment thereto as may be required in response to the SEC Comment Letter, provided that Borrowers agree that such revisions and adjustments, taken together, shall not have a Material Adverse Effect. The fiscal year for Borrowers currently ends on September 30. Each Borrower's federal tax identification number is identified on EXHIBIT "5.9." 5.10 Full Disclosure: Neither the financial statements referred to in Section 5.9, nor this Agreement or related agreements and documents or any written statement furnished by Borrowers to Lender in connection with the negotiation of the Credit Facility and contained in any financial statements or documents relating to Borrowers, contain any untrue statement of a material fact or omit any material fact necessary to make the statements contained therein or herein not misleading. 5.11 Subsidiaries: No Borrower has any Subsidiaries or Affiliates, except as listed on EXHIBIT "5.11" attached hereto and made a part hereof. 5.12 Guarantees, Contracts, etc.: (a) No Borrower owns or holds equity or long term debt investments in, has any outstanding advances to, or serves as guarantor, surety or accommodation maker for the obligations of, or has any outstanding borrowings from, any Person except as described in EXHIBIT "5.12", attached hereto and a made part hereof. 25 (b) No Borrower is a party to any contract or agreement, or subject to any charter or other corporate restriction, which materially and adversely affects its business, financial condition or Property. (c) Except as otherwise specifically provided in this Agreement, no Borrower has agreed or consented to cause or permit any of the Collateral whether now owned or hereafter acquired to be subject in the future (upon the happening of a contingency or otherwise) to a lien or encumbrance not permitted by this Agreement. 5.13 Compliance with Laws: (a) Except as set forth in the Plea Bargain Agreement or the Settlement Agreement, no Borrower is in violation of, has received written notice that it is in violation of, and no Borrower has knowingly caused any Person to violate, any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or of any other jurisdiction, or of any agency, or department thereof, (including without limitation, environmental laws and regulations), which violation would have a reasonable likelihood of resulting in or causing a material adverse effect on such Borrower's business, financial condition or Property or a Material Adverse Effect. (b) Each Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar agency and is in full compliance in all material respects with all applicable rules and regulations of such commissions, subject to any revisions or adjustment to RMC's historical financial statements as may be required in response to the SEC Comment Letter, provided that Borrowers agree that any such revisions and adjustments, taken together, shall not have a Material Adverse Effect. 5.14 Other Associations: No Borrower is engaged in or has an interest in any joint venture or partnership with any other Person except as described on EXHIBIT "5.11" attached hereto and made a part hereof. 5.15 Environmental Matters: No Borrower has any knowledge: (a) of the presence of any Hazardous Substances on any of the real property where such Borrower conducts operations or has its personal property, or (b) of any on-site spills, releases, discharges, disposal or storage of Hazardous Substances that have occurred or are presently occurring on any of such real property or where any Collateral is located, or (c) of any spills, releases, discharges or disposal of Hazardous Substances that have occurred, are presently occurring on any other real property as a result of the conduct, action or activities of such Borrower. As used herein, the term "Hazardous Substances" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance or similar 26 term, by any environmental statute, rule or regulation of any governmental entity presently in effect and applicable to such real property. 5.16 Equity Interests: (a) Part A of EXHIBIT "5.16" annexed hereto sets forth (i) the number of shares of RMC's common stock outstanding as of November 15, 2001, (ii) the number of shares of such RMC common stock beneficially owned as of such date by each director and executive officer of RMC and by each Person known by RMC to be the beneficial holder of five percent (5%) or more of such shares, (iii) the aggregate number of shares of RMC common stock issuable upon the exercise or conversion of options, warrants or other convertible securities outstanding as of such date, and (iv) the number of shares of RMC common stock issuable upon the exercise of outstanding options held by each director and executive officer of RMC as of such date. (b) Part B of EXHIBIT "5.16" lists all Persons who currently hold shares of capital stock or partnership interests in each Borrower other than RMC, excluding named reference to limited partners in a Borrower which is partnership to the extent such limited partners are natural persons. (c) Part C of EXHIBIT "5.16" identifies which Borrowers are Wholly Owned Borrowers and which are Controlled Borrowers. (d) All of the capital stock (or partnership interests) of each Borrower listed on EXHIBIT "5.16" has been duly and validly authorized and issued and (except with respect to general partnership interests) is fully paid and non-assessable and has been sold and delivered to the holders thereof in compliance with, or under valid exemption from, all Federal and state laws and the rules and regulations of all regulatory bodies thereof governing the sale and delivery of securities. Except for the rights and obligations set forth in EXHIBIT "5.16", there are no subscriptions, warrants, options, calls, commitments, rights or agreements by which any Borrower, or (to such Borrower's knowledge) any of the shareholders of such Borrower, is bound relating to the issuance, transfer, voting or redemption of shares of its capital stock or partnership interests, or any pre-emptive rights held by any Person with respect to the shares of capital stock or partnership interests of any such Borrower. Except as set forth in EXHIBIT "5.16", no Borrower has issued any securities convertible into or exchangeable for shares of its capital stock or partnership interests, or any options, warrants or other rights to acquire such shares or partnership interests, or securities convertible into or exchangeable for such shares or partnership interests. Each Borrower which is a partnership has received all capital contributions from its partners which have become due through the date this representation is or is deemed to be made. 27 5.17 Solvency: Each Borrower is solvent, able to pay its debts as they become due, and has capital sufficient to carry on its business and all business in which it is about to engage, and now owns Property having a value both at fair valuation and at present fair salable value greater than the amount required to pay its debts. No Borrower will be rendered insolvent by the execution and delivery of this Agreement or any of the other documents executed in connection with this Agreement or by the transactions contemplated hereunder or thereunder. 5.18 Lockboxes: The Lockboxes are the only lockbox accounts maintained by each Borrower, and each Obligor of an Eligible Account has been directed and is required to remit all payments with respect to such Account for deposit in the Lockboxes or the Operating Accounts in accordance with Section 6.17 hereof. The Primary Lockbox Bank has been directed to remit all collected funds received in the RCS Lockboxes to the Concentration Account. 5.19 Borrowing Base Reports: Each Borrowing Base Report contains an accurate summary of all Eligible Accounts of Borrowers contained in the Borrowing Base as of its date. 5.20 Security Interest: Borrowers have granted to Lender a valid, perfected first priority security interest in the Accounts and, except as disclosed on EXHIBIT "5.6", the other Collateral. 5.21 Accounts: (a) No Borrower has done, no Borrower shall do and no Borrower shall permit any Imaging Center PC to do anything to interfere with the collection of the Accounts nor shall any Borrower amend or waive or permit any Imaging Center PC to amend or waive the terms or conditions of any Account or any related Contract if the effect of such amendment or waiver either alone or when taken together with all other amendments or waivers, would have a reasonable likelihood of resulting in or causing a Material Adverse Effect. (b) Each Borrower has made and will continue to make all payments to Obligors necessary to prevent any Obligor from offsetting any earlier overpayment to such Borrower against any amounts such Obligor owes on an Account. 5.22 Pension Plans: Each pension or profit sharing plan, if any, to which a Borrower is a party has been and will be funded in accordance with the obligations of such Borrower set forth in such plan. 5.23 Representations and Warranties for each Subsequent Loan: As of each date that Borrowers shall request any Loan, Borrowers shall be deemed to make, with respect to each Eligible Account included in the Borrowing Base, each of the following representations and warranties: (a) Such Account satisfies each of the conditions of an Eligible Account. (b) All documents relating to such Account that have been delivered to Lender are true and correct in all material respects. With respect to each such Account that has 28 been billed, the respective Borrower has delivered to the Obligor all requested supporting claim documents and all information set forth in the bill and supporting claim documents is true, complete and correct in all material respects. (c) There is no lien or adverse claim in favor of any third party, nor any filing against a Borrower or Imaging Center PC, as debtor, covering or purporting to cover any interest in such Account, except as been released by the party holding such adverse claim. (d) Such Account is (i) payable in an amount not less than its Estimated Net Value by the Obligor identified by a Borrower as being obligated to do so, and is recognized as such by the Obligor, (ii) the legally enforceable obligation of such Obligor, and (iii) an account receivable or general intangible within the meaning of the UCC of the state in which such Borrower has its chief executive office, or is a right to payment under a policy of insurance or proceeds thereof, and is not evidenced by any instrument or chattel paper. There is no payor other than the Obligor identified by a Borrower as the payor primarily liable on such Account. Notwithstanding anything to the contrary set forth herein (including without limitation Section 8.1(f)), if a representation made in accordance with Section 5.23(d)(ii) is false or incomplete in any material respect and Borrowers did not have either constructive or actual knowledge of such falsity or incompleteness at the time such representation was made, then Lender's remedy in connection with such false or incomplete representation shall be limited to exclusion of the Account related to such representation from qualification as an Eligible Account effective as of the date of such representation. (e) No such Account (i) requires the approval of any third person for such Account to be assigned to Lender hereunder except as has been obtained as of the date hereof in writing in form and substance satisfactory to Lender, (ii) is subject to any legal action, proceeding or investigation (pending or threatened), dispute, set-off, counterclaim, defense, abatement, suspension, deferment, deductible, reduction or termination by the Obligor, or (iii) is past, or within 180 days of, the statutory limit for collection applicable to the Obligor. (f) No Borrower or Imaging Center PC has any guaranty of, letter of credit support for, or collateral security for, such Account, other than any such guaranty, letter of credit or collateral security as has been assigned to Lender. (g) The services constituting the basis of such Account (i) were ordered by a physician and (ii) at the time such services were rendered, were fully covered by the insurance policy or Contract obligating the applicable Obligor to make payment with respect to such Account, and (iii) the patient received such services in the ordinary course of such Borrower's business. Notwithstanding anything to the contrary set forth herein (including without limitation Section 8.1(f)), if a representation made in accordance with Section 5.23(g)(ii) is false or incomplete in any material respect and Borrowers did not have either constructive or actual knowledge of such falsity or incompleteness at the time such representation was made, then Lender's remedy in connection with such false or incomplete representation shall be limited to exclusion of the Account related to such representation from qualification as an Eligible Account effective as of the date of such representation. 29 (h) The fees and charges charged for the services constituting the basis for such Account were when rendered and are currently consistent with (i) the usual, customary and reasonable fees charged by other similar medical service providers in such Borrower's community or the community in which the patient resides, whichever is less, for the same or similar service or (ii) pursuant to negotiated fee contracts, or imposed fee schedules, with or by the applicable Obligors. Notwithstanding anything to the contrary set forth herein (including without limitation Section 8.1(f)), if a representation made in accordance with Section 5.23(h)(i) is false or incomplete in any material respect and Borrowers did not have either constructive or actual knowledge of such falsity or incompleteness at the time such representation was made, then Lender's remedy in connection with such false or incomplete representation shall be limited to exclusion of the Account related to such representation from qualification as an Eligible Account effective as of the date of such representation. (i) The Obligor with respect to such Account is located in the United States, and is (i) a party which in the ordinary course of its business or activities agrees to pay for healthcare services received by individuals, including, commercial insurance companies and non-profit insurance companies issuing health, or other types of insurance, employers or unions, self-insured healthcare organizations, preferred provider organizations, and health insured, prepaid maintenance organizations, (ii) a state, an agency or instrumentality of a state or a political subdivision of a state, or (iii) the United States or an agency or instrumentality of the United States. (j) The insurance policy or Contract obligating an Obligor to make payment (i) does not prohibit the transfer of such payment obligation from the patient to a Borrower, and (ii) is and was in full force and effect and applicable to the patient at the time the services constituting the basis for such Account were performed. (k) The representations and warranties made by Borrowers in the Loan Documents and all financial or other information delivered to Lender with respect to Borrowers and such Account do not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made therein not misleading. (l) Attached hereto as EXHIBIT "5.23" is a true and correct list of all Contracts in effect as of the date of this Agreement. Notice of each new Contract has been delivered to Lender in writing. A copy of each related Contract to which a Borrower is a party for each Account owed by one of the top twenty Obligors, ranked by aggregate Accounts owed, has been delivered to Lender, unless such Borrower shall have, prior to the related Funding Date, certified in an Officer's Certificate that such delivery is prohibited by the terms of the Contract or by law, and the circumstances of such prohibition. (m) If such Account has not been billed, the services giving rise to such Account have been properly recorded in such Borrower's accounting system. (n) Such Account was (or if unbilled, will be) in any event billed no later than 45 days after the Billing Date with respect to such Account, except in the case of an Account payable by Medicare, Medicaid, HMOs or PPOs which prohibit weekly billing, in which case the 30 billing date shall be (a) as required by the related Contract, or if none exists or is specified, no later than is the norm in respect of such providers or Obligors, as determined by Lender based on an analysis of Borrowers' payment records, or (b) if such Account is payable by Medicare, prior to June 30 of the year in which services were provided as set forth in paragraph (h) of the definition of Eligible Account. (o) Such Account has an Estimated Net Value which, when added to the Estimated Net Value of all other Accounts owing by the same Obligor and which constitute Eligible Accounts hereunder, does not exceed any applicable Concentration Limit. (p) Neither such Account nor the related Contract contravenes any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth-in-lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and no party to such related Contract is in violation of any such law, rule or regulation. Notwithstanding anything to the contrary set forth herein (including without limitation Section 8.1(f)), if the representation made in this Section 5.23(p) is false or incomplete in any material respect solely because a party, not constituting a Borrower or Affiliate of a Borrower, to such related Contract is in violation of any such law, rule or regulation and Borrowers did not have either constructive or actual knowledge of such falsity or incompleteness at the time such representation was made, then Lender's remedy in connection therewith shall be limited to exclusion of the Account which was the subject of such misrepresentation from qualification as an Eligible Account effective as of the date of such representation. (q) As of the applicable Funding Date, to the best of each Borrower's knowledge, no Obligor on such Account is bankrupt, insolvent, or is unable to make payment of its obligations when due, and no other fact exists which would cause a Borrower reasonably to expect that the amount billed to the related Obligor for such Account will not be paid in full when due. 5.24 Settlement Agreement: (a) All representations and warranties made by RMC, RCS or any other Borrower in or in connection with the Settlement Agreement, the Plea Bargain Agreement or any other document, agreement, certificate, statement (financial or otherwise) or other writing in connection with the Settlement Agreement was true and correct when made, and remain true and correct on the date hereof. (b) The Settlement Agreement, the Plea Bargain Agreement and the other documents executed and delivered in connection with either are in full force and effect without amendment or modification of any kind. Borrowers have delivered to Lender true, correct and complete copies of all such documents. 31 (c) Neither RMC, RCS nor any other Borrower is in default, or has breached any of its obligations under the Settlement Agreement, the Plea Bargain Agreement or any of the other documents executed in connection with either. Borrowers have implemented all programs and procedures required under the Corporate Integrity Agreement (as such term is used in the Settlement Agreement.) (d) To the best of Borrowers' knowledge there has been no default or breach of any of the obligations by any non-Borrower party under the Settlement Agreement, the Plea Bargain Agreement, or any other document executed in connection with either. (e) No Borrower submits cost reports to government agencies or contractors or to entities who themselves submit cost reports, and no Borrower owns, in whole or in part any entity which files such cost reports, and, without limiting any other representation or warranty contained herein, RMC and RCS are in full compliance with Section 14 of the Settlement Agreement. SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS Borrowers covenant that until all of Borrowers' Obligations to Lender are paid and satisfied in full and the Credit Facility has been terminated: 6.1 Payment of Taxes and Claims: Each Borrower shall pay or cause to be paid, before they become delinquent, all taxes, assessments and governmental charges or levies imposed upon it or upon such Borrower's Property, except for those being contested in good faith with due diligence by appropriate proceedings and for which appropriate reserves have been maintained under GAAP. 6.2 Maintenance of Insurance, Financial Records and Corporate Existence: (a) Property Insurance - Borrowers shall maintain or cause to be maintained insurance on the Collateral against fire, flood, casualty and such other hazards in such amounts, with such deductibles and with such insurers as are customarily used by companies operating in the same industry as Borrowers. If and when Lender requests such in writing, Borrowers shall furnish Lender with copies of original policies of insurance certified as true and correct and being in full force and effect as of the Closing Date or such other evidence of insurance as Lender may reasonably require. In the event Borrowers fail to procure or cause to be procured any such insurance or to timely pay or cause to be paid the premium(s) on any such insurance, Lender may do so for Borrowers, but Borrowers shall continue to be liable for the same. The policies of all such casualty insurance shall contain standard Lender's Loss Payable Clauses issued in favor of Lender under which all losses thereunder shall be paid to Lender as Lender's interest may appear. Such policies shall expressly provide that the requisite insurance cannot be altered or canceled without thirty (30) days prior written notice to Lender and shall insure Lender notwithstanding the act or neglect of a Borrower. Each Borrower hereby appoints Lender as such Borrower's attorney-in-fact, exercisable at Lender's option to endorse any check which may be payable to such Borrower in order to collect the proceeds of such insurance and any amount 32 or amounts collected by Lender pursuant to the provisions of this paragraph may be applied by Lender to Borrowers' Obligations. Each Borrower further covenants that all insurance premiums owing under its current casualty policy have been paid. Each Borrower also agrees to notify Lender, promptly, upon such Borrower's receipt of a notice of termination, cancellation, or non-renewal from its insurance company of any such policy. (b) Public and Products Liability Insurance - Borrowers shall maintain, and shall deliver to Lender upon Lender's request evidence of, public liability, products liability and business interruption insurance in such amounts as is customary for companies in the same or similar businesses located in the same or similar area. (c) Financial Records -- Each Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its respective business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. No Borrower shall change its respective fiscal year end date without the prior written consent of Lender. (d) Existence and Rights -- Each Borrower shall do (or cause to be done) all things necessary to preserve and keep in full force and effect its existence, good standing, rights and franchises. (e) Compliance with Laws -- Each Borrower shall be in compliance with any and all laws, ordinances, governmental rules and regulations, and court or administrative orders or decrees to which it is subject, whether federal, state or local (including without limitation environmental or environmental-related laws, statutes, ordinances, rules, regulations and notices), and shall obtain and maintain any and all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its Property or to the conduct of its businesses, the violation of which or failure to obtain would have a reasonable likelihood of resulting in or causing a Material Adverse Effect. 6.3 Business Conducted: Each Borrower shall continue in the business presently operated by it using its best efforts to maintain its customers and goodwill. No Borrower shall engage, directly or indirectly, in any material respect in any line of business substantially different from the businesses conducted by it immediately prior to the Closing Date, except after obtaining the prior consent of Lender, which consent shall not be unreasonably withheld. 6.4 Litigation: Borrowers shall give prompt notice to Lender of any litigation claiming in excess of $250,000.00 from a Borrower, or which may otherwise have a Material Adverse Effect. 6.5 Taxes: Borrowers shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues), if any, in connection with the Loans and/or the recording of any financing statements or other Loan Documents. The Obligations of Borrowers under this section shall survive the payment of Borrowers' Obligations under this Agreement and the termination of this Agreement. 33 6.6 Financial Covenants: Borrowers shall maintain and comply with the following financial covenants as reflected on and computed from RMC's consolidated financial statements: (a) Debt Service Coverage Ratio. As of the last day of each fiscal quarter, Borrowers shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.0 at all times, measured on an annualized cumulative basis starting with the quarter ending December 31, 2001, through the quarter ending June 30, 2002, and thereafter on a trailing four-quarter basis. (b) Senior Funded Debt Ratio. As of the last day of each fiscal quarter, Borrowers shall maintain a Senior Funded Debt Ratio of not greater than 2.75 to 1.0 at all times, measured, with respect to the denominator, on an annualized cumulative basis starting with the quarter ending December 31, 2001, through the quarter ending June 30, 2002, and thereafter on a trailing four-quarter basis. (c) Net Loss. RMC's consolidated net loss for the fiscal year ending September 30, 2001, as reported on its 10-K Report to be filed with the Federal Securities and Exchange Commission, shall not be greater than Thirty Three Million Dollars ($33,000,000.00). 6.7 Financial and Business Information: Borrowers shall deliver to Lender the following (all to be in form and substance satisfactory to Lender): (a) Financial Statements and Collateral Reports - such data, reports, statements and information, financial or otherwise, as Lender may reasonably request, including, without limitation: (i) within one hundred fifty (150) days after the end of each fiscal year of Borrowers, deliver to Lender, financial statements of RMC for such year including the balance sheet of RMC as at the end of such fiscal year and a statement of cash flows and income statement for such fiscal year, all for RMC and its consolidated subsidiaries (including all of the other Borrowers) on a consolidated and, except for the statement of cash flows, consolidating basis, setting forth in the consolidated statements in comparative form, the corresponding figures as at the end of and for the previous fiscal year, all in reasonable detail, including all related footnotes, and, as to consolidated statements, audited and certified by independent public accountants of recognized standing, selected by RMC and reasonably satisfactory to Lender, to have been prepared in accordance with GAAP, and such independent public accountants shall also provide an unqualified opinion that RMC's consolidated financial statements present fairly RMC's consolidated financial condition. Such independent accountants shall also provide a statement certifying that nothing has come to their attention to cause them to believe that calculations contained in the compliance certificate are inaccurate; (ii) within fifty (50) days after the end of each fiscal quarter, deliver to Lender RMC's internally prepared quarterly and year-to-date consolidated and consolidating (including all Borrowers) financial statements prepared in accordance with GAAP, including 34 balance sheet, income statement and consolidated, but not consolidating, statements of cash flows; (iii) within ten (10) Business Days of filing or mailing, copies of all reports, notices, and other information filed with the Federal Securities and Exchange Commission or mailed to RMC's shareholders; (iv) prior to the beginning of each fiscal year, an annual pro-forma budget of Borrowers for such upcoming fiscal year prepared in accordance with GAAP, with monthly financial projections in such detail as Lender may require and with calculations of projected financial covenant compliance detailing related assumptions; and (v) promptly upon request, deliver such other information concerning Borrowers as Lender may from time to time reasonably request, including Medicare reports and audits, annual reports, other securities law filings and reports to any security holders. (b) Notice of Event of Default - promptly upon becoming aware of the existence of any condition or event which constitutes a default or an Event of Default or Unmatured Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action Borrowers are taking (and propose to take) with respect thereto; (c) Notice of Claimed Default - promptly upon receipt by a Borrower, notice of default, oral or written, given to a Borrower by any creditor for borrowed money in excess of $250,000.00. 6.8 Officers' Certificates: Along with the set of financial statements delivered to Lender at the end of each fiscal quarter and fiscal year pursuant to Section 6.7(a) hereof, Borrowers shall deliver to Lender a certificate (in the form of EXHIBIT "6.8" attached hereto and made a part hereof) from the chief financial officer of each Borrower which is a corporation or the authorized officer of each corporate general partner of each Borrower which is a partnership (and as to certificates accompanying the annual statements of Borrowers, also certified by Borrowers' independent certified public accountant) setting forth: (a) Covenant Compliance - the information (including detailed calculations) required in order to establish whether Borrowers are in compliance with the requirements of Section 6.6 as of the end of the period covered by the financial statements then being furnished (and any exhibits appended thereto) under Section 6.7; and (b) Event of Default - that each signer in his capacity as an officer of a Borrower which is a corporation or corporate general partner of a Borrower which is a partnership has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of such Borrower from the beginning of the accounting period covered by RMC's financial statements being delivered therewith to the date of the certificate, and that such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or Unmatured 35 Event of Default or if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Borrowers have taken or propose to take with respect thereto. 6.9 Inspection: Borrowers will permit any of Lender's officers or other representatives to visit and inspect any Borrower's facility, or any other facility where any Collateral is kept, during regular business hours, to examine and audit all of such Borrower's books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss its affairs, finances and accounts with its officers, employees and independent certified public accountants and attorneys. Borrowers shall pay to Lender all reasonable fees based on standard rates for such inspections, currently at the rate of $800 per day, per person (plus out-of-pocket expenses); provided, however, that prior to the occurrence of an Event of Default or Unmatured Event of Default, Borrower shall only be obligated to pay fees and expenses associated with two (2) such inspections in any twelve (12) month period. 6.10 Tax Returns and Reports: At Lender's request from time to time, Borrowers shall promptly furnish Lender with copies of the annual federal and state income tax returns of Borrowers. 6.11 Material Adverse Developments: Each Borrower agrees that immediately upon becoming aware of any development or other information which would reasonably be expected to materially and adversely affect its business, financial condition or Property, or its ability to perform under this Agreement, it shall give to Lender telephonic or facsimile notice specifying the nature of such development or information and such anticipated effect. In addition, such oral communication shall be confirmed by written notice thereof to Lender on the next Business Day after such oral notice is given. 6.12 Places of Business: Borrowers shall give thirty (30) days prior written notice to Lender of any changes in the location of any of their respective chief executive offices or any other places of business, or the establishment of any new, or the discontinuance of any existing places of business. 6.13 Notice of Action or Change in Reimbursement Rates: Borrowers will promptly notify Lender in the event of any legal action, dispute, setoff, counterclaim, defense or reduction that is or may be asserted by an Obligor with respect to any Account. In addition, Borrowers shall notify Lender within five (5) Business Days in the event of any change in the Obligor reimbursement rates for any Borrower's services, including without limitation, a change in federal or state laws or rules affecting the payment for medical services, to the extent such change, either alone or together with other such changes, would have a reasonable likelihood of resulting in or causing a Material Adverse Effect. 6.14 Verification of Information: At the request of Lender, Borrowers will promptly provide and verify the accuracy of information concerning a Borrower and its Affiliates of the type provided to Lender in connection Lender's decision to enter into this Agreement and such other information concerning a Borrower and its Affiliates as Lender may reasonably request in connection with any offering documents with respect to the contemplated securitization of, and 36 sale of securities backed by, the Eligible Accounts (the "SECURITIES"), including, without limitation, all information necessary to provide full and complete disclosure of all material facts pertaining to an investment in the Securities in compliance with federal and state securities and blue sky laws, and such information may be published in such offering documents and relied upon by Lender and any party arranging the offering of such Securities by Lender or its assignee. Such information will be true and complete in all material respects and will not omit to state a material fact necessary to make the statements contained in such information, in light of the circumstances under which they were made, not misleading. 6.15 Value Track System: Borrowers shall permit Lender to interface its Value Track System to Borrowers' data files and will assist Lender in completing and maintaining such interface such that the interface can interpret, track and reconcile the Accounts detail file provided by Borrower. 6.16 Notices Regarding Settlement Agreement. Borrowers shall send to Lender within one (1) Business Day of receipt or mailing as the case may be, all notices, reports, statements, certificates or other writings received or sent by any Borrower under or in connection with the Settlement Agreement, the Plea Bargain Agreement or any document executed in connection with either. Borrowers shall immediately notify Lenders in the event of any default or breach under the Settlement Agreement, the Plea Bargain Agreement or any other document executed in connection with either, whether by a Borrower or any other party thereto, and whether or not a notice thereof has been delivered under any such document. 6.17 Deposit Accounts. Borrowers shall cause (a) all Accounts of RCS to be paid directly into the RCS Lockboxes and all Collections in the RCS Lockboxes to be swept into the Concentration Account, and (b) all other Accounts to be paid directly to Borrowers who shall cause all Collections from such Accounts to first be deposited into the Operating Accounts or Lockboxes of Borrowers and then to be transferred to the RMC Operating Account, withholding only such amounts therefrom as are reasonably necessary for the operation of Borrowers. Attached as EXHIBIT "6.17" is an accurate and complete description of the procedures which Borrowers currently employ with respect to the Collection of Accounts and the flow of proceeds thereof into Borrowers' Operating Accounts and Lockboxes. Borrowers shall not change any such procedures without Lender's prior written consent. 6.18 Imaging Center Accounts. Imaging Center Affiliates shall bill all Accounts generated at the Imaging Centers using, in the case of the Imaging Center located in Woodbury, New Jersey, RIH's provider number, and in the case of each of the other Imaging Centers, the provider number of the Imaging Center PC associated therewith. SECTION 7. BORROWERS' NEGATIVE COVENANTS: Borrowers covenant that until all of Borrowers' Obligations to Lender are paid and satisfied in full and the Credit Facility has been terminated, that: 37 7.1 Merger, Consolidation, Dissolution or Liquidation: (a) No Borrower shall sell, lease, license, transfer or otherwise dispose of its Property other than Property with a book value of under $250,000.00 sold in the ordinary course or ordinary operation of such Borrower's business, without Lender's prior written consent. (b) No Borrower shall merge or consolidate with, or acquire, any other Person or commence a dissolution or liquidation; provided however that Borrowers shall be entitled to acquire the assets or equity of another Person if: (i) such Person executes documents acceptable in form and substance to Lender whereby such Person shall become obligated hereunder, if Lender so requires, (i) the total obligation of Borrowers for the payment of consideration incurred by Borrowers in connection with all such transactions consummated in any one fiscal year (whether paid in such year or in subsequent years) in the aggregate shall not exceed $2,500,000.00, (ii) there is not existing at the time of such acquisition any Event of Default or Unmatured Event of Default, (iii) if such acquisition had occurred in the immediately preceding fiscal quarter, Borrowers would have been in full compliance with all of their obligations hereunder, including without limitation, under Section 6.6 hereof; and (iv) the acquisition does not result in a Change of Control. 7.2 Liens and Encumbrances: No Borrower shall: (i) execute a negative pledge agreement with any Person covering any of the Collateral, or (ii) cause or permit or agree or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the Collateral, whether now owned or hereafter acquired, to be subject to any lien, claim or encumbrance other than those of Lender, except with respect to Collateral other than Collateral described in Section 3.1(a), (b), (c), (g) or (h), as described in EXHIBIT "5.6" or purchase money security interests in equipment security debt otherwise permitted under Section 7.10 hereof. 7.3 Negative Pledge: No Borrower shall pledge, grant or permit any Lien to exist on the common stock of its Subsidiaries and Affiliates. 7.4 Transactions With Affiliates or Subsidiaries: (a) No Borrower shall enter into any transaction with any Subsidiary or other Affiliate which is not a Borrower including, without limitation, the purchase, sale, lease or exchange of Property, or the loaning or giving of funds to any Affiliate or any Subsidiary which is not a Borrower, unless (i) such Subsidiary or Affiliate is engaged in a business substantially related to the business conducted by Borrowers and the transaction is in the ordinary course of and pursuant to the reasonable requirements of such Borrower's business and upon terms 38 substantially the same and no less favorable to such Borrower as it would obtain in a comparable arm's-length transactions with any Person not an Affiliate or a Subsidiary, and (ii) so long as such transaction is not prohibited hereunder. (b) Subject in any event to the limitations of Section 7.4(a) above, no Borrower shall create or acquire any Subsidiary unless such Subsidiary engages in a business substantially related to the business of Borrowers as conducted immediately prior to the Closing Date and, if Lender requests, become a Borrower hereunder by a executing such documents as Lender may reasonably required, except after obtaining the prior consent of Lender. 7.5 Guarantees: Excepting the endorsement in the ordinary course of business of negotiable instruments for deposit or collection, no Borrower shall become or be liable, directly or indirectly, primary or secondary, matured or contingent, in any manner, whether as guarantor, surety, accommodation maker, or otherwise, for the existing or future indebtedness of any kind of any other Person, except for one or more other Borrowers. 7.6 Loans to Other Persons: No Borrower shall make or be permitted to have outstanding any loans, advances or extensions of credit to any Person, except for other Borrowers, without the prior written consent of Lender; provided however, that Borrowers shall be permitted to have loans, advances or extensions of credit to non-Borrower Affiliates of RMC not to exceed (a) an aggregate of $250,000.00 outstanding at any one time to any single Affiliate, or (b) an aggregate of $750,000.00 outstanding at any one time to all such Affiliates. 7.7 Change of Control: No Borrower shall cause or permit any Change in Control, except for a Change in Control of a Borrower other than RMC which is required by federal or state laws or regulations governing the conduct of such Borrower's healthcare activities and where no Accounts of such Borrower are included in the Borrowing Base at the time of such Change of Control or any time thereafter. 7.8 Distributions: RMC shall not declare or pay or make any forms of Distributions to its shareholders, their successors or assigns other than, prior to the occurrence of an Event of Default or Unmatured Event of Default, provided however that after giving effect to such Distributions no Event of Default or Unmatured Event of Default shall result. 7.9 Change in Business. No Borrower shall enter into any business which is not directly related to the business it now conducts, except after obtaining the prior consent of Lender. 7.10 Other Indebtedness. Except with respect to Debt incurred in connection with acquisitions permitted above, no Borrower shall directly or indirectly create, incur, assume, permit to exist or otherwise become liable with respect to any Debt either (a) in excess of $2,000,000.00 in the aggregate in any year; or (b) if the incurrence of such Debt causes, or would cause Borrowers to be in default under this Agreement, including without limitation, under Section 6.6 hereof. SECTION 8. DEFAULT 39 8.1 Events of Default: Each of the following events shall constitute an event of default ("EVENT OF DEFAULT") and Lender shall thereupon have the option to declare the Obligations immediately due and payable, all without demand, notice, presentment or protest or further action of any kind (it also being understood that the occurrence of any of the events or conditions set forth in subparagraphs (j), (k) or (l) shall automatically cause an acceleration of the Obligations): (a) Payments - if any Borrower fails to make any payment of principal of or interest on any Loan on the date when such payment is due and payable, and such failure continues for a period of two (2) Business Days after the earlier of any Borrower becoming aware of such failure or any Borrower receiving written notice of such failure; provided, however, that the two (2) Business Day grace period shall not be applicable if such payments are due and payable due to maturity, acceleration or demand by Lender, whether following an Event of Default, or otherwise; or (b) Other Charges - if any Borrower fails to pay any other charges, fees, Expenses or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement on the date when such payment is due and payable, whether upon maturity, acceleration, demand or otherwise and such failure continues for a period of two (2) Business Days after the earlier of any Borrower becoming aware of such failure or any Borrower receiving written notice of such failure; provided, however, that the two (2) Business Day grace period shall not be applicable if such payments are due and payable due to maturity, acceleration or demand by Lender, whether following an Event of Default, or otherwise; or (c) Particular Covenant Defaults - if any Borrower fails to perform, comply with or observe any covenant or undertaking contained in this Agreement not otherwise described in this Section 8.1, and such failure continues for a period of ten (10) Business Days after the earlier of any Borrower becoming aware of such failure or Borrower receiving written notice of such failure; or (d) Financial Information - if any statement, report, financial statement, or certificate made or delivered by any Borrower or any of its officers, employees or agents, to Lender is not true and correct, in all material respects, when made; or (e) Uninsured Loss - if there shall occur any uninsured damage to or loss, theft, or destruction in excess of $250,000.00 with respect to any portion of any Property; or (f) Warranties or Representations - if any warranty, representation or other statement by or on behalf of any Borrower contained in or pursuant to this Agreement, or in any document, agreement or instrument furnished in compliance with, relating to, or in reference to this Agreement, is false, erroneous, or misleading in any material respect when made; or (g) Agreements with Others - if any Borrower shall default (i) beyond any grace period under any agreement with any creditor for borrowed money in excess of $250,000.00 and (A) such default consists of the failure to pay any principal, premium or interest 40 with respect to such indebtedness or (B) such default consists of the failure to perform any covenant or agreement with respect to such indebtedness, if the effect of such default is to cause or permit such Borrower's obligations which are the subject thereof to become due prior to its maturity date or prior to its regularly scheduled date of payment, or (ii) under or with respect to the Settlement Agreement; (h) Other Agreements with Lender - if any Borrower breaches or violates the terms of, or if a default or an event of default, occurs under, any other existing or future agreement (related or unrelated) between or among such Borrower and Lender; or (i) Judgments - if any final judgment for the payment of money in excess of $250,000.00 is not fully and unconditionally covered by insurance or for which Borrowers have not established a cash or cash equivalent reserve in the amount of such judgment shall be rendered; or (j) Assignment for Benefit of Creditors, etc. - if any Borrower makes or proposes an assignment for the benefit of creditors generally, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter owned or conducted by any Borrower; or (k) Bankruptcy, Dissolution, etc. - upon the commencement of any action for the dissolution or liquidation of any Borrower, or the commencement of any proceeding to avoid any transaction entered into by any Borrower, or the commencement of any case or proceeding for reorganization or liquidation of any Borrower's debts under the Bankruptcy Code or any other state or federal law, now or hereafter enacted for the relief of debtors, whether instituted by or against such Borrower; provided, however, that such Borrower shall have forty-five (45) days to obtain the dismissal or discharge of involuntary proceedings filed against it, it being understood that during such forty-five (45) day period, Lender shall not be obligated to make Advances hereunder and Lender may seek adequate protection in any bankruptcy proceeding; or (l) Receiver - upon the appointment of a receiver, liquidator, custodian, trustee or similar official or fiduciary for any Borrower or for any of such Borrower's Property; or (m) Execution Process, Seizure, etc. - the issuance of any execution or distraint process against any Borrower, or any Property of any Borrower is seized by any governmental entity, federal, state or local; or (n) Termination of Business - if Borrowers cease any material portion of their aggregate business operations as presently conducted; or (o) Pension Benefits, etc. - if any Borrower fails to comply with ERISA, so that grounds exist to permit the appointment of a trustee under ERISA to administer any Borrower's employee plans or to allow the Pension Benefit Guaranty Corporation to institute proceedings to appoint a trustee to administer such plan(s), or to permit the entry of a Lien to secure any deficiency or claim; or 41 (p) Investigations - any indication or evidence received by Lender that reasonably leads it to believe any Borrower may have directly or indirectly been engaged in any type of activity which, would be reasonably likely to result in the forfeiture of any Property of such Borrower to any governmental entity, federal, state or local; or (q) Material Adverse Events - (i) Lender reasonably determines that an event which adversely affects the collectibility of a material portion of the Accounts has occurred; or (ii) a material adverse change occurs in the business or condition of Borrowers in the aggregate; or (r) Collection Instructions - any instruction or agreement regarding the Concentration Account, including without limitation payments of all Collections from the RCS Lockboxes to the Concentration Account, is amended or terminated without the written consent of Lender; or (s) Imaging Center Security Agreements -- there occurs an event of default as defined in any of the Imaging Center Security Agreements. 8.2 Cure: Nothing contained in this Agreement or the Loan Documents shall be deemed to compel Lender to accept a cure of any Event of Default hereunder, if such cure occurs after Lender's acceleration of the Obligations. 8.3 Rights and Remedies on Default: (a) In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents, or otherwise available at law or in equity, upon or at any time after the occurrence and during the continuance of an Event of Default or Unmatured Event of Default, Lender may, in its discretion, withhold or cease making Advances under the Credit Facility. (b) In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), Lender may, in its discretion, upon or at any time after the occurrence and during the continuance of an Event of Default, terminate the Credit Facility. (c) In addition to all other rights, options and remedies granted or available to Lender under this Agreement or the Loan Documents (each of which is also then exercisable by Lender), Lender may, upon or at any time after the occurrence of an Event of Default, exercise all rights under the UCC and any other applicable law or in equity, and under all Loan Documents permitted to be exercised after the occurrence of an Event of Default, including the following rights and remedies (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies): 42 (i) Subject to all applicable laws and regulations governing payment of Medicare and Medicaid receivables, the right to take possession of the Collateral, and notify all Obligors of Lender's security interest in the Collateral and require payment under the Accounts to be made directly to Lender and Lender may, in its own name or in the name of any Borrower, exercise all rights of a secured party with respect to the Collateral and collect, sue for and receive payment on all Accounts, and settle, compromise and adjust the same on any terms as may be satisfactory to Lender, in its sole and absolute discretion for any reason or without reason and Lender may do all of the foregoing with or without judicial process (including without limitation notifying the United States postal authorities to redirect mail addressed to any Borrower to an address designated by Lender); or (ii) Require Borrowers at Borrowers' expense, to assemble all or any part of the Collateral and make it available to Lender at any reasonable place designated by Lender which may include providing Lender or any entity designated by Lender with access (either remote or direct) to Borrowers' information system for purposes of monitoring, posting payments and rebilling Accounts to the extent deemed desirable by Lender in its sole discretion; or (iii) The right to reduce or modify the Revolving Loan Commitment, Borrowing Base or any portion thereof or the Advance Rates or to modify the terms and conditions upon which Lender, may be willing to consider making Advances under the Credit Facility or to take additional reserves in the Borrowing Base for any reason. (d) Each Borrower hereby agrees that a notice received by it at least ten (10) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any Collateral which threatens to speedily decline in value or which is sold on a recognized market may be sold immediately by Lender without prior notice to Borrowers. Borrowers covenant and agree not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral. 8.4 Nature of Remedies: All rights and remedies granted Lender hereunder and under the Loan Documents, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until all Obligations are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon or at any time after the occurrence of an Event of Default, may proceed against any and all Borrowers, at any time, under any agreement, with any available remedy and in any order. 8.5 Lender's Right to Reimbursement for Increased Costs or Reduced Returns: If any material change occurs in the marketplace for the delivery or financing of healthcare services which causes a material adverse change in the business of Lender or any of its Affiliates, or any event occurs which results in the early amortization or termination of commitments made to Lender for the financing of Accounts, and the effect of such change is to 43 increase the costs to Lender of obtaining funds or maintaining the Loans or to reduce the return to Lender on the Loans, then Borrowers shall reimburse Lender in an amount equal to such increased costs or reduced return. Such amount shall be due and payable within fifteen (15) Business Days of Borrowers' receipt of notice thereof from Lender (such notice to include Lender's basis for such adjustment and calculation of such amount, which basis for such adjustment and calculation will be conclusive and binding absent manifest error). If not paid when due, such amount shall be added to the Obligations and subject to all of the terms and conditions set forth herein (including without limitation charging of the Default Rate). SECTION 9. MISCELLANEOUS 9.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW JERSEY. THE PROVISIONS OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT. 9.2 Integrated Agreement: The Revolving Credit Note, the other Loan Documents, all related agreements, and this Agreement shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lender's rights and remedies. If, after applying the foregoing, an inconsistency still exists, the provisions of this Agreement shall constitute an amendment thereto and shall control. 9.3 Waiver and Indemnity: (a) No omission or delay by Lender in exercising any right or power under this Agreement or any related agreements and documents will impair such right or power or be construed to be a waiver of any default, or Event of Default or an acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise thereof or the exercise of any other right, and as to any Borrower no waiver will be valid unless in writing and signed by Lender and then only to the extent specified. (b) Each Borrower releases and shall indemnify, defend and hold harmless Lender, and its officers, employees and agents, of and from any claims, demands, liabilities, obligations, judgments, injuries, losses, damages and costs and expenses (including, without limitation, reasonable legal fees) resulting from (i) acts or conduct of any Borrower or under, pursuant or related to this Agreement and the other Loan Documents, (ii) any Borrower's breach, or alleged breach, or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents, and (iii) any Borrower's failure, or alleged failure, to comply with any or all laws, statutes, ordinances, governmental rules, regulations or standards, whether federal, state or local, or court or administrative orders or decrees, (including without limitation environmental laws, etc.) and all costs, expenses, fines, 44 penalties or other damages resulting therefrom, unless resulting from acts or conduct of Lender constituting willful misconduct or gross negligence. 9.4 Time: Whenever Borrowers shall be required to make any payment, or perform any act, on a day which is not a Business Day, such payment may be made, or such act may be performed, on the next succeeding Business Day. Time is of the essence in Borrowers' performance under all provisions of this Agreement and all related agreements and documents. 9.5 Expenses of Lender: (a) At Closing and from time to time thereafter, Borrowers will pay all expenses of Lender on demand (including, without limitation, search costs, audit fees, appraisal fees, environmental fees and the fees and expenses of legal counsel for Lender) relating to this Agreement, and all related agreements and documents, including, without limitation, expenses incurred in the analysis, negotiation, preparation, closing, administration and enforcement of this Agreement and the other Loan Documents, the enforcement, protection and defense of the rights of Lender in and to the Loans and Collateral or otherwise hereunder, and any reasonable expenses relating to extensions, amendments, waivers or consents pursuant to the provisions hereof, or any related agreements and documents or relating to agreements with other creditors, or termination of this Agreement (collectively, the "EXPENSES"). Any Expenses not paid upon demand by Lender shall bear interest at a per annum rate of 18%, or if less, the highest rate permitted under applicable law. (b) In addition, at any time following the date of this Agreement, if any Borrower effects any changes which results in a change in the format or sequence of such Borrower's data, Borrowers shall pay to Lender its reasonable charge for implementing such changes as are necessary to accommodate the changes in the format or sequence of the data such that the Value Track System is capable of importing such data, including an hourly fee of $100. Lender shall, prior to implementing such changes, provide Borrowers with a non-binding estimate of the charges in connection therewith. 9.6 Confidentiality: Except as provided in Section 9.19 hereof or to the extent required by law, Borrowers and Lender agree to maintain the confidentiality of this Agreement and not to disclose the contents hereof or provide a copy hereof to any third party, except (i) accountants, lawyers and financial advisers of the parties who are informed of and agree to be bound by this Section 9.6, and (ii) that copies hereof may be provided to any assignee of Lender, any investors or prospective investors who acquire or may acquire securities backed by Accounts and any parties which facilitate the issuance of such securities, including rating agencies, guarantors and insurers. Lender agrees to maintain the confidentiality of patient information obtained as a result of its interests in, or duties with respect to, the Accounts. 9.7 Brokerage: Except as otherwise provided herein, this transaction was brought about and entered into by Lender and Borrowers acting as principals and without any brokers, agents or finders being the effective procuring cause hereof. If any claim is made on Lender by any broker, finder or agent or other Person, Borrowers hereby indemnify, defend and 45 hold harmless Lender against such claim and further will defend, with counsel satisfactory to Lender, any action or actions to recover on such claim, at Borrowers' own cost and expense, including Lender's reasonable counsel fees. Borrowers further agree that until any such claim or demand is adjudicated in Lender's favor, the amount demanded shall be deemed an Obligation of Borrowers under this Agreement. 9.8 Notices: (a) Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed given if delivered in person or if sent by telecopy or by nationally recognized overnight courier, or via first class, Certified or Registered mail, postage prepaid, to the address set forth on the signature pages hereof, unless such address is changed by written notice hereunder. (b) Any notice sent by Lender or Borrowers by any of the above methods shall be deemed to be given when so received. (c) Lender shall be fully entitled to rely upon any facsimile transmission or other writing purported to be sent by any Authorized Officer (whether requesting an Advance or otherwise) as being genuine and authorized. 9.9 Headings: The headings of any paragraph or Section of this Agreement are for convenience only and shall not be used to interpret any provision of this Agreement. 9.10 Survival: All warranties, representations, and covenants made by Borrowers herein, or in any agreement referred to herein or on any certificate, document or other instrument delivered by it or on its behalf under this Agreement, shall be considered to have been relied upon by Lender, and shall survive the delivery to Lender of the Revolving Credit Note, regardless of any investigation made by Lender or on its behalf. All statements in any such certificate or other instrument prepared and/or delivered for the benefit of Lender shall constitute warranties and representations by Borrowers hereunder. Except as otherwise expressly provided herein, all covenants made by Borrowers hereunder or under any other agreement or instrument shall be deemed continuing until all Obligations are satisfied in full. 9.11 Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. No Borrower may transfer, assign or delegate any of its duties or obligations hereunder. 9.12 Duplicate Originals: Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in counterparts, all of which counterparts taken together shall constitute one completed fully executed document. 9.13 Modification: No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed by Borrowers and Lender. 46 9.14 Signatories: Each individual signatory hereto represents and warrants that he is duly authorized to execute this Agreement on behalf of his principal and that he executes the Agreement in such capacity and not as a party. 9.15 Third Parties: No rights are intended to be created hereunder, or under any related agreements or documents for the benefit of any third party donee, creditor or incidental beneficiary of Borrowers. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrowers' duty of performance, including, without limitation, Borrowers' duties under any account or contract with any other Person. 9.16 CONSENT TO JURISDICTION: EACH BORROWER AND LENDER HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF NEW JERSEY IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING. EACH BORROWER WAIVES ANY OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT AND ALL RIGHTS TO TRANSFER FOR ANY REASON. EACH BORROWER IRREVOCABLY AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN. 9.17 Discharge of Taxes, Borrowers' Obligations, Etc.: Lender, in its sole discretion, shall have the right at any time, and from time to time, with prior notice to Borrowers, if any Borrower fails to do so five (5) Business Days after requested in writing to do so by Lender, to: (a) pay for the performance of any of Borrowers' obligations hereunder, and (b) discharge taxes or liens, at any time levied or placed on any of Borrowers' Property in violation of this Agreement unless Borrowers are in good faith with due diligence by appropriate proceedings contesting such taxes or liens and maintaining proper reserves therefor in accordance with GAAP. Expenses and advances shall be deemed Advances hereunder and shall be deemed Advances hereunder and shall bear interest at the same rate applied to the Loans until reimbursed to Lender. Such payments and advances made by Lender shall not be construed as a waiver by Lender of an Event of Default under this Agreement. 9.18 Waiver of Jury Trial: EACH OF BORROWERS AND LENDER HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS, WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE. 9.19 Publication: Borrowers grant Lender the right to publish and/or advertise information to the effect that this transaction has closed, which information may include, without limit, (i) the names of Borrowers and Lender, (ii) the size of the transaction and (iii) those items of information commonly included within a "tombstone advertisement" of the type customarily published in financial or business periodicals. 47 9.20 Injunctive Relief: The parties acknowledge and agree that, in the event of a breach or threatened breach of any party's obligations hereunder, the party seeking to enforce such obligations may have no adequate remedy in money damages and, accordingly, shall be entitled to an injunction (including without limitation, a temporary restraining order, preliminary injunction, writ of attachment, or order compelling an audit) against such breach or threatened breach. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach or threatened breach of any provision of this Agreement. 48 IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day and year first above written. Address for Notices: BORROWER: 7 Waterside Crossing CARDIOVASCULAR VENTURES OF EAST Windsor, CT 06095 NEW ORLEANS, INC. By: /s/ John F. Lawler, Jr. __________________________________ Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader ______________________________ Address for Notices: BORROWER: 7 Waterside Crossing CARDIOVASCULAR VENTURES, INC. Windsor, CT 06095 By: /s/ John F. Lawler, Jr. __________________________________ Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader ______________________________ 49 Address for Notices: BORROWER: 5620 Read Boulevard HEART CENTER OF EAST NEW 5th Floor ORLEANS, L.P. New Orleans, LA 70127 By: Cardiovascular Ventures of East New Orleans, Inc., its General Partner By: /s/ John F. Lawler, Jr. __________________________________ Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader _____________________________ Address for Notices: BORROWER: 1651 Markley Street MRI DIAGNOSTIC PARTNERS I, L.P. - 1986 Norristown, PA 19401 By: Raytel Imaging Holdings, Inc., its General Partner By: /s/ John F. Lawler, Jr. __________________________________ Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader _____________________________ Address for Notices: BORROWER: 7 Waterside Crossing RAYTEL CARDIAC SERVICES, INC. Windsor, CT 06095 By: /s/ John F. Lawler, Jr. __________________________________ Name: John F. Lawler, Jr. Title: Secretary and Chief Financial Officer Attest: /s/ Richard F. Bader ______________________________ 50 Address for Notices: BORROWER: 10445 Balboa Blvd. RAYTEL GRANADA HILLS, INC. Granada Hills, CA 91344 By: /s/ John F. Lawler, Jr. ---------------------------------- Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader ------------------------------ Address for Notices: BORROWER: 7 Waterside Crossing RAYTEL IMAGING HOLDINGS, INC. Windsor, CT 06095 By: /s/ John F. Lawler, Jr. ---------------------------------- Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader ------------------------------ Address for Notices: BORROWER: 430 Park Ave. RAYTEL IMAGING NETWORK, INC. Suite 102 Collegeville, PA 19426 By: /s/ John F. Lawler, Jr. ---------------------------------- Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/ Richard F. Bader ------------------------------ Address for Notices: BORROWER: 2755 Campus Drive RAYTEL MEDICAL CORPORATION Suite 200 San Mateo, CA 94403 By: /s/ John F. Lawler, Jr. ---------------------------------- Name: John F. Lawler, Jr. Title: Vice-President and Chief Financial Officer Attest: /s/ Richard F. Bader ------------------------------ 51 Address for Notices: BORROWER: 1416 Campbell Road RAYTEL NUCLEAR IMAGING - WEST Suite 101 HOUSTON, INC. Houston, TX 77055 By: /s/ John F. Lawler, Jr. ------------------------------------- Name: John F. Lawler, Jr. Title: Chief Financial Officer and Secretary Attest: /s/ Richard F. Bader --------------------------------- Address for Notices: BORROWER: 21 Santa Rosa Street SAN LUIS OBISPO MEDICAL IMAGING Suite 250 CENTER, A CALIFORNIA LIMITED San Luis Obispo, CA 93405 PARTNERSHIP By: Raytel Imaging Holdings, Inc., its General Partner By: /s/ John F. Lawler, Jr. ----------------------------- Name: John F. Lawler, Jr. Title: Chief Financial Officer Attest: /s/Richard F. Bader ------------------------- 52 LENDER: Address for Notices: HEALTHCARE BUSINESS CREDIT 700 East Gate Drive CORPORATION Suite 100 Mount Laurel, NJ 08054 By: /s/ Stacy L. Allen Fax: 609-727-5170 ---------------------- Name: Stacy L. Allen Title: Vice-President 53 EXHIBIT 1.1 IMAGING CENTERS, IMAGING CENTER AFFILIATES AND IMAGING CENTER P.C.s

- ------------------------------------------------------------------------------------------------- IMAGING CENTER IMAGING CENTER AFFILIATE IMAGING CENTER P.C. - ------------------------------------------------------------------------------------------------- 1. Bronx: Raytel Imaging Holdings, Advanced Magnetic Resonance 1201 Morris Park Avenue, Inc., a Delaware corporation Imaging, P.C., a New York Bronx, New York; professional corporation 1180 Morris Park Avenue, Bronx, New York - ------------------------------------------------------------------------------------------------- 2. Queens: Raytel Imaging Holdings, Advanced Magnetic Resonance 68-60 Austin Street, Inc., a Delaware corporation Imaging, P.C., a New York Queens, New York professional corporation - ------------------------------------------------------------------------------------------------- 3. Collegeville: Raytel Imaging Holdings, Amar Gulati, P.C., a 430 Park Avenue, Inc., a Delaware Pennsylvania professional Collegeville, Pennsylvania corporation, doing business corporation 19426 as Raytel Medical Imaging - Collegeville - ------------------------------------------------------------------------------------------------- 4. Norristown: MRI Diagnostic Partners I, Amar Gulati, P.C., a 1651 Markley Street, L.P. - 1986, a Pennsylvania Pennsylvania professional Norristown, Pennsylvania limited partnership doing corporation 19401 business as Raytel Medical Imaging - Norristown - ------------------------------------------------------------------------------------------------- 5. San Luis Obispo: San Luis Obispo Medical Richard Berg, M.D., an 21 Santa Rosa Street, Imaging Center, L.P., a individual San Luis Obispo, California partnership doing business 94118 as Raytel Medical Imaging - San Luis Obispo - ------------------------------------------------------------------------------------------------- 6. Washington Township: Raytel Imaging Holdings, Rustico Polutan, an 900 Black Horse Pike, Rte. Inc., a Delaware individual 168, corporation, doing business Turnersville, New Jersey as Raytel Medical Imaging - Washington Township - -------------------------------------------------------------------------------------------------

1 EXHIBIT 2.1(b) REVOLVING CREDIT NOTE $15,000,000.00 November 15, 2001 FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"), hereby promise on a joint and several basis to pay to the order of HEALTHCARE BUSINESS CREDIT CORPORATION, a Delaware corporation (the "Lender"), the principal amount of Fifteen Million and 00/100 Dollars ($15,000,000.00), or so much thereof as shall have been advanced as Loans under the Loan Agreement referred to below and shall be outstanding, such payment to be made at such time or times and in the manner specified in the Loan Agreement; provided, however, that all Loans shall be repaid in full on or before the Maturity Date. This Note is issued under and secured by the Loan and Security Agreement dated as of even date herewith among the Borrowers and the Lender (as from time to time amended, restated, supplemented or otherwise modified, the "Loan Agreement"). Terms used herein and not defined herein are used with the respective meanings set forth in the Loan Agreement. This Note is further secured by the Imaging Center Security Agreements. Interest on the outstanding principal amount of each Revolving Credit Loan evidenced by this Note shall accrue at the rate or rates specified in, and be payable in accordance with the terms of, the Loan Agreement. The Loan Agreement provides for the acceleration of the payment of principal of and interest on such Loans upon the happening of certain Events of Default as defined in the Loan Agreement. The Borrowers waive presentment, demand for payment, notice of dishonor or acceleration, protest and notice of protest, and any and all other notices or demands in connection with this Note, except any notice expressly required by the Loan Agreement. This Note shall be governed by and construed in accordance with New Jersey law. IN WITNESS WHEREOF, Borrowers, intending to be legally bound hereby, have each duly executed this Note, as of the date and year first above written. Attest: CARDIOVASCULAR VENTURES, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: MRI DIAGNOSTIC PARTNERS I, L.P. - 1986 By: Raytel Imaging Holdings, Inc., its General Partner By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL CARDIAC SERVICES, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL GRANADA HILLS, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL IMAGING HOLDINGS, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL IMAGING NETWORK, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL MEDICAL CORPORATION By:________________________ By:________________________________ Name: Name: Title: Title: Attest: RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED PARTNERSHIP By: Raytel Imaging Holdings, Inc., its General Partner By:________________________ By:_______________________________ Name: Name: Title: Title: Attest: CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC. By:________________________ By:________________________________ Name: Name: Title: Title: Attest: HEART CENTER OF EAST NEW ORLEANS, L.P. By: Cardiovascular Ventures of East New Orleans, Inc., its General Partner By:________________________ By:________________________________ Name: Name: Title: Title: RAYTEL MEDICAL CORPORATION Report Date: Report Time: BORROWING BASE CERTIFICATE Page: of 1 EXHIBIT 2.2(b) BATCH # STANDARD SETTLEMENT DATE:

BILLED ------------------------------------------------------------------- Gross Gross Eligible Liquidation ENV of Cash Net ENV of AR Eligible Gross Rate Eligible Payment Eligible Gross AR Changes Gross Charges Posted Charges PAYOR DESCRIPTION (a) (b) (a)x(b)=(c) (d) (c)-(d)=(e) - ----------------------------------------------------------------------------------------------------------------- Commercial Healthcare Providers Institutional Payors Medicaid Medicare Other Work Cmp

UNBILLED ----------------------------------------------------------------- Gross Eligible Liquidation ENV of TOTAL Unbilled Gross Rate Eligible Gross Charges Charges PAYOR DESCRIPTION (f) (g) (f)x(g)=(h) (e)+(h) - ---------------------------------------------------------------------------------------- Commercial Healthcare Providers Institutional Payors Medicaid Medicare Other Work Cmp

Total Eligible Less:Unposted Cash Eligible Advance Rate % Borrowing Base

Interest Rate Breakdown - SINGLE RATE Minimum Balance $0.00 LOW BALANCE HIGH BALANCE INTEREST RATE ----------- ------------ ------------- Commitment Amount $15,000,000.00 ANALYSIS OF CASH COLLECTIONS Posted Cash Applied to Fees $ Posted Cash Applied to Interest $ Posted Cash Applied to Principal $ Total Cash Collections $ Loan Balance after Application of Posted Cash $ Certification: By signing below, I certify that ANALYSIS OF LOAN REQUEST as of the date hereof, the accounts receivable Borrowing Base $ information contained in this Borrowing Base Less: Loan Balance after Certificate is true and accurate. The accounts Application of Posted Cash $ receivable enumerated above is consistent with Borrowing Base Availability $ the books and records of Raytel Medical Borrowing Base Deficiency Corporation as of the date hereof and have been to be Repaid $ recorded in accordance with generally accepted Requested Advance $ accounting principles, consistently applied. $ Amount Withheld to Pay Fees $ Amount Withheld to Pay Interest $ Net Requested Advance $ Ending Loan Balance $ ANALYSIS OF LOAN ACTIVITY Previous Standard Settlement Ending Loan Balance $ Plus: Interim Fundings $ Less: Posted Cash Applied to Principal $ Plus: Requested Advance $ Ending Loan Balance $ Authorized Signor:(One Signature Required) BY: ________________________________________ John Lawler VP - CFO BY: ________________________________________ William Paradis VP - Accounting BY: ________________________________________ William Biebel VP - Administrative Services BY: ________________________________________ Lauren Murphy Sr. Controller MEMO: BY: Tim Willey Asst. Controller Healthcare Business Credit Corporation

EXHIBIT 2.2(C) FORM OF LOAN REQUEST Healthcare Business Credit Corporation 700 East Gate Drive, Suite 100 Mount Laurel, NJ 08054 Re: Revolving Loan and Security Agreement Ladies and Gentlemen: Pursuant to Section 2.2(c) of the Loan and Security Agreement dated as of November 30, 2001 (the "Loan Agreement") between Raytel Medical Corporation (the "Borrowers") and Healthcare Business Credit Corporation (the "Lenders"), the Borrowers hereby request the following Loan: (1) The date of the proposed Loan is [Date] (which day is a settlement date under the Loan Agreement); and (2) The aggregate amount of the proposed Loan is [$______] (which amount does not exceed the Borrowing Base Excess set forth on the attached Borrowing Base Certificate). (3) The net request advance will be disbursed to the borrowers as follows:

Bank Name Account Title Further Credit Title Transfer Type Amount ABA Number Account Number Further Credit Number Effective Date - --------------------- ------------------ ----------------------- ----------------- -------------- Reference: Raytel $ Medical - --------------------- ------------------ ----------------------- ----------------- --------------

The Borrowers hereby certify that on and as of the date hereof, and on and as of the settlement date of the proposed Loan, before and after giving effect to such Loan: (a) The representations and warranties of the Borrowers contained in the Loan Agreement and the other Loan Documents are and will be true and correct; (b) The Borrowers are and will be in compliance with all terms, covenants and conditions of the Loan Agreement; and (c) No Event of Default or event which, with notice or passage of time or both, would constitute an Event of Default exists or will result from the proposed Loan. 1 Capitalized terms used herein but not defined herein have the meanings assigned such terms in the Loan Agreement. Very truly yours, Raytel Medical Corporation By: ___________________________________ John Lawler VP - CFO By: ___________________________________ William Paradis VP - Accounting By: ___________________________________ William Biebel VP - Administrative Services By: ___________________________________ Lauren Murphy Sr. Controller By: ___________________________________ Tim Willey Asst. Controller 2 EXHIBIT 4.1 [LETTERHEAD OF BORROWERS' COUNSEL] September __, 2001 Healthcare Business Credit Corporation 700 East Gate Drive, Suite 100 Mount Laurel, NJ 08054 Ladies and Gentlemen: You have requested our opinion, as counsel to Raytel Medical Corporation, a Delaware corporation, Raytel Cardiac Services, Inc., a Delaware corporation, Raytel Medical Imaging, Inc., a Delaware corporation, Medical Imaging Partners L.P., a Delaware limited partnership, Raytel Imaging Holdings, Inc., a Delaware corporation, Raytel Cardiovascular Labs, Inc., a Delaware corporation, Cardiovascular Ventures, Inc., a Delaware corporation, Raytel Imaging Network, Inc., a Delaware corporation, and Raytel Granada Hills Inc., a Delaware corporation (collectively, the "Borrowers"), with respect to certain matters in connection with the execution and delivery by the Borrowers of the Loan and Security Agreement dated as of the date hereof (the "Loan Agreement") between the Borrowers and Healthcare Business Credit Corporation, as lender (the "Lender"). Unless otherwise defined herein, all capitalized terms shall have the meanings set forth in the Loan Agreement. We have examined the following documents: 1. the Loan Agreement (executed by Borrowers); 2. the Revolving Credit Note (executed by Borrowers); 3. the Account Service Agreements (executed by Borrowers); 4. the [organizational or formation documents] [PLEASE SPECIFY] of each Borrower certified by the Secretary of State of Delaware on _________, 2001; 5. the [By-laws or other operative agreements] [PLEASE SPECIFY] of each Borrower; 6. resolutions of the [board of directors/partners] [PLEASE SPECIFY] of each Borrower, authorizing the execution, delivery and performance of the Loan Agreement, certified by an [officer/partner] [PLEASE SPECIFY] of such Borrower; 7. a certificate of the Secretary of State of Delaware dated _________, 2001 concerning the good standing of each Borrower in such State; 8. a certificate of the Secretary of State(s) of [INSERT STATES WHERE QUALIFIED TO DO BUSINESS] concerning the qualification of each Borrower as a foreign [corporation/LP] and the good standing of such Borrower in such State(s); 9. the form of notice to insurers to be delivered by each Borrower with respect to the Accounts attached to the Loan Agreement as 4.2A and 4.2B; 10. copies of the UCC-1 financing statements describing the Collateral (the "Financing Statements") naming each Borrower and each party to a PC Service Agreement (as hereinafter defined) as debtor and Lender as secured party, to be filed with the Secretary of State of the States of [Delaware, California, Connecticut, New Jersey, New York and Pennsylvania][INSERT OTHER STATES, AS APPLICABLE] (the "Filing Offices"), copies of which are attached hereto as Annex 1; 11. the results of the searches (the "Searches") conducted by CSC Corporation in the Filing Offices dated _______, 2001, as to financing statements on Form UCC-1 on file with such offices and naming each Borrower and each entity which is party to a PC Service Agreement (as hereinafter defined) as a "debtor" as of such date, copies of which are attached hereto as Annex 2A; 12. a copy of UCC-3 financing statement(s) (the "Release(s)") executed by _____________, terminating financing statement No(s). ____________________ naming ________________ as secured party and each Borrower as debtor on file with the Secretary of State of _________________ (No. ___________________), a copy of which is attached hereto as Annex 2B; and 13. an [officer's/partners] [PLEASE SPECIFY] certificate executed by each Borrower in connection with the Loan Agreement, dated the date hereof and attached hereto as Annex 3; 14. a certain Settlement Agreement dated as of ______, 2001 between the United States Attorney's Office, District of Connecticut, the United States Department of Justice, on behalf of the Office of Inspector General of the Department of Health and Human Services, the Relator named therein, Raytel Cardiac Services, Inc. and Raytel Medical Corporation (the "Settlement Agreement"); 15. a certain Promissory Note dated as of ______, 2001 by Raytel Cardiac Services, Inc. made to the order of the United States of America, evidencing payment obligations under the Settlement Agreement (the "Settlement Note"); 16. a certain Guaranty Agreement dated as of _______, 2001 by Raytel Medical Corporation in favor of the United States of America, securing payment of the Settlement Note (the "Settlement Guaranty"); 17. a certain Corporate Integrity Agreement dated as of ______, 2001 between ___________ and Raytel Cardiac Services, Inc. (the "Corporate Integrity Agreement"); 18. a certain letter agreement dated as of June 25, 2001 between the United States District Attorney's Office, District of Connecticut, and Raytel Cardiac Services, Inc. (the "Plea Agreement"; and collectively with the Settlement Agreement, the Settlement Note, the Settlement Guaranty and the Corporate Integrity Agreement, the "Settlement Documents"); 19. [certain agreements relating to the use of diagnostic imaging centers and provision of related medical services entered into by wholly-owned affiliates of the Borrowers with professional corporations and individual physicians, as described on Annex 4 hereto (collectively, the "PC Service Agreements")]; and 20. such other documents, records and papers as we have deemed necessary and relevant as a basis for this opinion. Based upon the foregoing, it is our opinion that: 1. Medical Imaging Partners, L.P. is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business requires it to be so qualified. 2. Each of Raytel Medical Corporation, Raytel Cardiac Services, Inc., Raytel Medical Imaging, Inc., Raytel Imaging Holdings, Inc., Raytel Cardiovascular Labs, Inc., Cardiovascular Ventures, Inc., Raytel Imaging Network, Inc., and Raytel Granada Hills, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business requires it to be so qualified. 3. Each Borrower has the requisite power and authority to own and convey all of its properties and assets and to execute, deliver and perform the Loan Agreement and the other Loan Documents and the transactions contemplated thereby. 4. The Loan Agreement and the other Loan Documents have been duly authorized, executed and delivered by the Borrowers, and are the legal, valid and binding obligations of the Borrowers, enforceable in accordance with their terms, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability of specific performance. 5. No consent of, or other action by, and no notice to or filing with, any federal, state or local governmental agency, subdivision, body politic, court, tribunal, department or authority (a "Governmental Authority") (except for those notices, filings and consents required under the Loan Agreement which have been performed or provided by the Borrowers), is required for the due execution, delivery and performance by Borrowers of the Loan Agreement, the Loan Documents, or any other agreement, document or instrument to be delivered thereunder or for the perfection of or the exercise by the Lender or its assignees of any of their rights or remedies thereunder. 6. The execution, delivery and performance by Borrowers of the Loan Agreement and the other Loan Documents and the transactions contemplated thereby do not contravene or cause any Borrower to be in default under (a) its [Articles of Incorporation or By-laws/Certificate of Limited Partnership or Limited Partnership Agreement] [PLEASE SPECIFY FOR EACH ENTITY], (b) to the best of our knowledge, after inquiry, any contractual restriction with respect to any of its respective debts or contained in any indenture, loan and credit agreement, lease, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting any Borrower or their respective property arising from any debt or agreement or (c) to the best of our knowledge after inquiry, any law, rule, regulation, order, writ, judgment, award, injunction or decree binding on or affecting any Borrower or their respective properties. 7. To the best of our knowledge after inquiry, there is no pending or threatened action, suit or proceeding of a material nature against or affecting any Borrower, or any of their respective officers, or the property of any Borrower, in any court or tribunal, or before any arbitrator of any kind or before or by any Governmental Authority (a) asserting the invalidity of the Account Service Agreements, the Loan Agreement, the Loan Documents, or any document to be delivered by Borrowers thereunder, (b) seeking to prevent the pledge of any Collateral, the Loan or the consummation of any of the transactions contemplated thereby, (c) seeking any determination or ruling that might materially and adversely affect (i) the performance by any Borrower of its respective obligations under the Loan Agreement or any other Loan Document, or (ii) the validity or enforceability of the Loan Agreement or any other Loan Document, or (d) asserting a claim for payment of money (other than such judgments or orders in respect of which adequate insurance is maintained by such Borrower for the payment thereof). 8. To the best of our knowledge after inquiry, each Borrower has and maintains (a) all material permits, licenses, authorizations, registrations, approvals and consents of Governmental Authorities (collectively, "Governmental Consents"), (b) all certificates of need for the construction or expansion of or investment in health care facilities, and (c) all licenses, accreditations, Medicaid Certifications and Medicare Certifications necessary for (i) the activities and business of such Borrower as currently conducted, (ii) the ownership, use, operation and maintenance by it of its properties, facilities and assets, and (iii) the performance by such Borrower of the Loan Agreement and the Loan Documents. 9. Without limiting the generality of the foregoing paragraph: (a) based on our review of such documents provided to us by Borrowers and certifications made in respect thereto by Borrowers, each health facility license, the Medicaid Certification, the Medicare Certification, the Medicaid Provider Agreement, the Medicare Provider Agreement and the Blue Cross/Blue Shield Contracts of each Borrower are in full force and effect and have not been rescinded, revoked or assigned, and (b) to the best of our knowledge after inquiry, no Borrower is out of compliance with any of the conditions of participation of the Medicaid or the Medicare programs or our of compliance with the Blue Cross/Blue Shield Contracts, nor do we have any knowledge that any condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of (i) any Governmental Consent applicable to any Borrower or any other health care facility owned or operated by any Borrower or any subsidiary, (ii) such facility's participation in any Medicaid, Medicare, or other similar program, or (iii) any Blue-Cross/Blue Shield Contract, and we have no knowledge of any claim that any such Governmental Consent, participation or contract is not in full force and effect. 10. The transactions contemplated by the Loan Agreement will not cause any Borrower to be subjected to any obligation to pay any transfer tax to any Governmental Authority, including, without limitation, any transfer, sales, use value-added, documentary stamp tax or other similar tax. 11. Borrowers are sole owners of, and have rights to grant a security interest in, the Accounts billed under the PC Service Agreements. 12. The Loan Agreement creates a valid security interest in favor of Lender in the Collateral (including without limitation the Accounts billed under the PC Service Agreements), which security interest will be perfected and will constitute a first perfected security interest upon the filing of the Financing Statements attached as Annex 2 hereto. 13. If Medicare and Medicaid Accounts are pledged in the manner contemplated by the Loan Agreement, the pledge of such Medicare and Medicaid Accounts to the Borrowers does not violate the provisions of 42 U.S.C. Section 1396a(a) (32) and Section 1395g(c), as construed by HCFA, or applicable state law with respect to Medicaid. 14. The interest rate to be charged under the Loan Agreement (including without limitation any default rate thereunder) does not violate any applicable law relating to usury. 15. The choice of New Jersey law as governing the Loan Documents is enforceable under applicable law. 16. Each Borrower party to the Settlement Documents has the requisite power and authority to execute, deliver and perform the Settlement Documents and the transactions contemplated thereby. 17. The Settlement Documents have been duly authorized, executed and delivered by the Borrowers party to the Settlement Documents, and are the legal, valid and binding obligations of such Borrowers, enforceable in accordance with their terms, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability of specific performance. 18. No consent of, or other action by, and no notice to or filing with, any federal, state or local governmental agency, subdivision, body politic, court, tribunal, department or authority (a "Governmental Authority"), is required for the due execution, delivery and performance by the Borrowers party to the Settlement Documents of the Settlement Documents, or any other agreement, document or instrument to be delivered thereunder. 19. The execution, delivery and performance by the Borrowers party to the Settlement Documents of the Settlement Documents and the transactions contemplated thereby do not contravene or cause any of such Borrowers to be in default under (a) its Articles of Incorporation or By-laws, (b) to the best of our knowledge, after inquiry, any contractual restriction with respect to any of its respective debts or contained in any indenture, loan and credit agreement, lease, mortgage, security agreement, bond, note or other agreement or instrument binding on or affecting any of such Borrowers or their respective property arising from any debt or agreement or (c) to the best of our knowledge after inquiry, any law, rule, regulation, order, writ, judgment, award, injunction or decree binding on or affecting any of such Borrowers or their respective properties. 20. Sentencing has been ordered in accordance with the Plea Agreement. 21. Raytel Cardiac Services, Inc. has received letters dated ______, 2001 and ______, 2001 respectively from the Department of Health and Human Services, Office of the Inspector General (the "HHS-OIG"), stating that (a) Raytel Cardiac Services, Inc.'s execution of the Plea Agreement will not trigger a mandatory exclusion from participation in Federal healthcare programs under Section 1128(a) of the Social Security Act (the "Act"), 42 U.S.C. Section 1320a-7(a), and (b) HHS-OIG will not exercise its optional right of exclusion from participation in Federal healthcare programs under Section 1128(b) of the Act, 42 U.S.C. Section 1320(b)(2), and such letters remain in full force and effect, and not subject to any revocation, termination, modification or qualification. This opinion is rendered solely to the addressees hereof as of the date hereof, except that any rating agency, placement agent or underwriter, Municipal Bond Investor's Assurance Corporation or any other credit enhancer facilitating a contemplated securitization of the accounts, as well as any assignee of Lender prior to or in connection with such securitization, may rely on this opinion as if addressed to it as of the date hereof. Very truly yours, ANNEX 1 FINANCING STATEMENTS ANNEX 2A SEARCHES ANNEX 2B UCC-3 TERMINATION STATEMENTS ANNEX 3 OFFICERS' CERTIFICATES ANNEX 4 PC SERVICE AGREEMENTS EXHIBIT 4.2 FORM OF NOTICE TO COMMERCIAL OBLIGOR Date _________, 2001 Re: [RAYTEL ENTITY] ("Borrower") Ladies and Gentlemen: Borrower has established a lockbox (the "Lockbox") for collection of accounts receivable (the "Accounts") on which __________________ owes payment to Borrower. Accordingly, you are hereby instructed to remit all payments on Accounts of which you are the obligor to Borrower to the following address: Fleet Bank Lockbox Account # _________ P.O. Box ______ ____________________ Borrower has entered into an agreement with Healthcare Business Credit Corporation (the "Lender") under which the Accounts will be assigned to the Lender. The Lender may, in turn, from time to time, assign or pledge its interest in such Accounts as it deems appropriate. It is contemplated that the Accounts will continue to be serviced by the Borrower. Sending payment on such Accounts to the above Lockbox will discharge your obligation on such Accounts (to the extent of such payment), whether or not the Accounts have been assigned to the Lender or any assignee thereof. This direction may not be changed or revoked without the prior written consent of the Lender. Very truly yours, HEALTHCARE BUSINESS CREDIT CORPORATION By:______________________________ Name: Title: EX-10.73 6 f79179ex10-73.txt EXHIBIT 10.73 EXHIBIT 10.73 [FORM OF IMAGING CENTER SECURITY AGREEMENT] SECURITY AGREEMENT [CENTER NAME] This Security Agreement ("Security Agreement") is made as of the ____ day of November, 2001 by and between [P.C. NAME] ("PC") and [RAYTEL ENTITY NAME] ("Manager"; and, together with PC, "Pledgors"), in favor of HEALTHCARE BUSINESS CREDIT CORPORATION, a Delaware corporation with an address at 700 East Gate Drive, Suite 100, Mount Laurel, New Jersey 08054 ("Secured Party"). BACKGROUND A. Manager is operator of a diagnostic imaging center located at [LOCATION ADDRESS] (the "Imaging Center"). B. PC is a medical practice. C. PC and Manager are parties to a certain [TITLE OF AGREEMENT BETWEEN P.C. AND MANAGER] dated [DATE OF AGREEMENT BETWEEN P.C. AND MANAGER] (as amended, renewed or replaced from time to time, "Agreement"), a true and correct copy of which is attached hereto as Exhibit "A," providing for the operation of the Imaging Center. D. Pursuant to the terms of a Loan and Security Agreement dated as of the date hereof (as may be amended, restated, supplemented or modified from time to time, the "Loan Agreement"), Secured Party has extended to Manager, Raytel Medical Corporation ("RMC") and certain of their affiliates (Manager, RMC and such affiliates are hereinafter referred to as "Borrowers") a credit facility in the original maximum principal amount of $15,000,000.00 (the "Loan"). E. [INSERT APPLICABLE RELATIONSHIP, E.G., MANAGER IS A SUBSIDIARY OF RMC AND IT] is contemplated that a portion of the proceeds of the Loan will be indirectly available to finance the operations of the Imaging Center. Each Pledgor acknowledges that it will be materially benefited as a result thereof. F. Secured Party desires to obtain, and each of the Pledgors desires to grant to Secured Party, a first priority security interest in the Collateral (as defined below) to secure all of the Obligations (as defined below) of the Borrowers to Secured Party. NOW, THEREFORE, with the foregoing Background incorporated by reference and made part hereof, Pledgors and Secured Party, intending to be legally bound hereby, promise and agree as follows: 1. Each of the Pledgors hereby grants to Secured Party a continuing lien on and security interest in the following property of such Pledgor and in the following property which may be jointly owned by Pledgors, whether now or hereafter owned and wherever located (collectively, the "Collateral"): 1 (i) all accounts (including without limitation, the Accounts) whether now existing or hereafter arising or acquired, (ii) all contract rights, instruments, chattel paper, documents, general intangibles, rights, remedies, guarantees and collateral evidencing, securing or otherwise relating to such accounts, including without limitation, all rights of enforcement and collection, (iii) all lockboxes, all collection accounts and other accounts into which any of the proceeds and/or payments on the accounts are deposited, all funds received thereby or deposited therein, and any checks or instruments from time to time representing or evidencing the same, (iv) all books and records of Pledgors evidencing or relating to such accounts, (v) all information and data compiled or derived by Pledgors with respect of such accounts (other than any such information and data subject to legal restrictions of patient confidentiality) and (vi) all collections, receipts and other proceeds (cash and noncash) derived from any of the foregoing. For purposes hereof "Account" means (a) the third party reimbursable portion of accounts receivable owing to the Pledgors arising out of the delivery by the Pledgors of medical, surgical, diagnostic or other professional or medical or dental services, including all rights to reimbursement under any agreements with a third party obligor, (b) all other healthcare insurance receivables and accounts as defined in the Uniform Commercial Code as in effect in the State of New Jersey (the "UCC"), (c) all rights, remedies, guarantees, and security interests in respect of the foregoing, all rights of enforcement and collection, all books and records evidencing or related to the foregoing, and all rights under this Security Agreement in respect of the foregoing, (d) all information and data compiled or derived by the Pledgors in respect of such accounts receivable (other than any such information and data subject to legal restrictions of patient confidentiality), and (e) all proceeds of any of the foregoing. 2. The security interest hereby granted by Pledgors secures (collectively, the "Obligations") all now existing or hereafter arising debts, obligations, covenants, and duties of payment or performance of every kind, matured or unmatured, direct or contingent, owing, arising, due or payable to Secured Party by or from any Borrower arising out of the Loan Agreement or any other document executed and delivered in connection therewith (collectively, such documents and the Loan Agreement are referred to herein as the "Loan Documents"). 3. The Pledgors hereby agree that if the location of the Collateral changes from the location identified in Background paragraph A hereof, the Pledgors will immediately notify the Secured Party in writing of the additions or changes to the locations of the Collateral. 4. Each of the Pledgors covenants that it shall do, obtain, make, execute and deliver all such additional and further acts, things, deeds, assurances and instruments as Secured Party may require to vest in and assure to Secured Party its rights hereunder and in or to the Collateral, and the proceeds thereof. 5. Each Pledgor represents, warrants and covenants that it has not granted or suffered or will grant or suffer the imposition of a lien or security interest upon the Collateral, other than the lien granted herein in favor of Secured Party, and that it has not and will not use any portion thereof in any manner inconsistent with this Security Agreement. 6. At the request of the Secured Party, the Pledgors will join with the Secured Party in executing one or more financing, continuation or amendment statements pursuant to the UCC 2 in form satisfactory to the Secured Party. A carbon, photographic or other copy of this Security Agreement or of a UCC-1 financing statement may be filed as and in lieu or a UCC-1 financing statement. 7. The happening of any of the following events or conditions shall constitute an "Event of Default" hereunder: (a) Dissolution, termination of existence, insolvency, business suspension or failure, appointment of a receiver of any part of the property of a Pledgor, assignment for the benefit of creditors by a Pledgor, or the commencement of any proceedings under any federal bankruptcy or state insolvency laws (now or hereafter enacted for the relief of Pledgors) by or against a Pledgor, or (b) The failure of either Pledgor to comply with the terms of this Agreement; or (c) The occurrence of an Event of Default under the Loan Agreement. Upon the occurrence and during the continuance of an Event of Default, the Secured Party may declare all Obligations secured hereby immediately due and payable and shall have, in addition to any remedies provided herein, in any other Loan Document or by any applicable law, all the remedies of a secured party under the UCC, as permitted therein, and the Secured Party may (i) dispose of the Collateral on the Pledgors' premises, (ii) require the Pledgors to assemble the Collateral and make it available to the Secured Party at a place reasonably designated by the Secured Party and/or (iii) subject to applicable laws and regulations governing payment of Medicare/Medicaid receivables, take possession of the Collateral and notify all account debtors of Secured Party's security interest in the Collateral and require payment under the Collateral to be made directly to Secured Party and exercise all rights of a secured party with respect to the Collateral and collect, sue for and receive payment on all accounts, and settle, compromise and adjust the same on any term as may be satisfactory to Secured Party, in its respective sole and absolute discretion and such party may do all of the foregoing with or without judicial process (including, without limitation, notifying the United States Postal Authorities to redirect mail addressed to Pledgors to an address designated by Secured Party). Unless the Collateral is of a type customarily sold on a recognized market, the Secured Party will give the Pledgors reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the business address of the Pledgors shown in this Security Agreement at least fifteen (15) days before the time of the intended sale or disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall include the Secured Party's reasonable attorneys' fees and legal expenses, incurred or expended by the Secured Party to enforce any payment due it under this Security Agreement either as against the Pledgors or in the prosecution or defense of any action, or concerning any matter growing out of or connection with the subject matter of this Security Agreement and the Collateral pledged hereunder. 8. The Secured Party shall not be deemed to have waived any of the Secured Party's rights hereunder or under any other agreement, instrument or paper signed by the Pledgors unless 3 such waiver is in writing and signed by the Secured Party. No delay or omission on the part of the Secured Party in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any other occasion. 9. Each of the Pledgors does hereby make, constitute and appoint any officer or agent of the Secured Party as such Pledgor's true and lawful attorney-in-fact, with power to sign and file on such Pledgor's behalf any and all UCC financing statements, and, after an Event of Default, to endorse the name of such Pledgor or any of such Pledgor's officers or agents upon any notes, checks, drafts, money orders, or other instruments of payment or Collateral that may come into the possession of the Secured Party in full or part payment of any amounts owing to the Secured Party; granting to such Pledgor's said attorney full power to do any and all things necessary to be done in and about the premises as fully and effectually as such Pledgor might or could do, including the right to compromise, settle and release all claims and disputes with respect to the Collateral, and such Pledgor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the life of this Security Agreement and all transactions hereunder. 10. All provisions herein shall inure to, and become binding upon, the successors, representatives, receivers, trustees and assigns of the parties; provided, however, that neither Pledgor will delegate its duty of performance hereunder without the Secured Party's prior written consent. The term "Security Agreement", as used in this instrument, shall mean and include this Security Agreement, all amendments and supplements to any of the foregoing, and all assignments, instruments and documents submitted to the Secured Party in connection with any transaction between the Pledgors and the Secured Party. Each of the Pledgors hereby waives notice of default, and presentment, demand, protest, and notice of dishonor as to any instrument. Each of the Pledgors hereby releases Secured Party from all claims for loss or damage caused by any act or omission on the part of Secured Party, its officers, agents, and employees, except for willful misconduct. 11. This Security Agreement and all acts, transactions, agreements, certificates, assignments and transfers thereunder, and all rights of the parties hereto, shall be governed as to their validity, enforcement, construction and effect, and in all other respects, by New Jersey law. The provisions hereof are severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect. No modification hereof shall be binding or enforceable unless in writing and signed on behalf of the party against whom enforcement is sought. 12. Each of the Pledgors irrevocably consents to the exclusive jurisdiction of any state or Federal court located in the State of New Jersey in any and all actions and proceedings whether arising hereunder or under any other agreement or undertaking and irrevocably agrees to service of process by certified mail, return receipt requested to the address of Pledgors set forth herein. PLEDGORS AND SECURED PARTY AS AN INDEPENDENT COVENANT IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL DISPUTES BETWEEN PLEDGORS AND SECURED PARTY WHETHER HEREUNDER OR UNDER ANY OTHER AGREEMENTS, NOTES, PAPERS, INSTRUMENTS OR DOCUMENTS, WHETHER SIMILAR OR DISSIMILAR. 4 13. This Security Agreement may be executed in one or more counterparts which, when taken together, will constitute one and the same document. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have set their hands and seals on the day and year first above written. PLEDGORS: [P.C. NAME] P.C. [RAYTEL ENTITY NAME] By: By: ------------------------------- ----------------------------------- Name: Name: Title: Title: SECURED PARTY: HEALTHCARE BUSINESS CREDIT CORPORATION By: ----------------------------------- Name: Title: 5 EX-10.74 7 f79179ex10-74.txt EXHIBIT 10.74 Exhibit 10.74 KEY MANAGEMENT RETENTION AGREEMENT THIS KEY MANAGEMENT RETENTION AGREEMENT (the "Agreement"), dated as of December 5, 2001 (the "Effective Date"), is made and entered into by and between RAYTEL MEDICAL CORPORATION, a Delaware corporation (the "Company"), and JOHN F. LAWLER, JR. (the "Executive"). RECITALS: A. The Executive is currently employed, as an at-will employee, as the Company's Vice President and Chief Financial Officer; B. The Company is considering various potential strategic transactions that could result in a Change of Control (as hereinafter defined); and C. The parties desire to provide an incentive for the continued employment of the Executive in order to facilitate a potential Change of Control. NOW, THEREFORE, the parties agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall be defined as follows: 1.1 "Cause" shall exist in the event of the Executive's (i) willful and repeated neglect of his duties as an employee of the Company (other than as a result of a physical disability not related to substance abuse), (ii) conviction of a crime involving moral turpitude, (iii) commission of any act of fraud or dishonesty against the Company, or (iv) breach of the Executive's obligations under any employment agreement or Proprietary Information and Inventions Agreement between the Executive and the Company which, if curable, is not cured within ten (10) days following notice of such breach by the Company. 1.2 A "Change of Control" of the Company shall occur upon: (i) a merger, consolidation or other reorganization involving the Company, or a tender offer, exchange offer or other transaction or series of transactions involving the acquisition of securities of the Company where, in any such case, the holders of voting securities of the Company immediately prior to such transaction or series of transactions own less than 50% of the voting securities of the surviving or successor entity, or its parent, immediately following such transaction or series of transactions; (ii) the sale of all or substantially all of the Company's assets; or (iii) the sale of all or substantially all of the capital stock or assets of any subsidiary or subsidiaries of the Company which accounted for 40% or more of the Company's consolidated revenues for the preceding fiscal year. 1.3 "Good Reason" shall exist in the event that, other than under circumstances involving Cause or the Executive's total disability (as defined pursuant to the Company's long-term disability insurance plan covering the Executive if any such plan is then in effect, or otherwise as determined by the Company's Board of Directors), the Company, without the Executive's prior written consent; (i) materially alters or reduces the Executive's duties, responsibilities and status with the Company from those which exist as of the Effective Date of this Agreement; (ii) reduces the level of compensation or benefits that the Executive is earning as an employee of the Company; (iii) requires the Employee, as a condition to his continued employment, to be based more than 100 miles from the location where he is based as of the Effective Date; or (iv) requires the Employee, as a condition to his continued employment, to perform illegal or fraudulent acts or omissions. 1.4 A "Qualifying Employment Agreement" shall mean a written agreement for the continued employment by the Executive in a position with duties and responsibilities substantially comparable to his current position, with compensation and other benefits substantially comparable, in the aggregate, to his current compensation and benefits, and providing for a term of at least one year and severance benefits equal to at least one-half of his annual base salary in the event of his involuntary termination other than for Cause or his voluntary termination for Good Reason. 2. Retention and Severance Arrangement. 2.1 Retention Bonus. In the event the Company effects a Change of Control during the term of this Agreement, the Executive shall be entitled to receive a cash bonus (the "Retention Bonus") in an amount equal to one-half of his then-effective annual base salary, payable in a single lump sum promptly upon the fulfillment of the conditions set forth in Section 2.2. 2.2 Conditions to Receipt of Retention Bonus. (a) In order for the Executive to be eligible to receive the Retention Bonus, the following conditions must be met: (i) The Executive must be continuously employed by the Company on a full-time basis between the Effective Date of this Agreement and the effective date of the Change of Control; and (ii) Either of the following conditions must occur: (A) the Executive remains continuously employed by the Company, Raytel Cardiac Services, Inc., the acquiring entity or another subsidiary or affiliate of the acquiring entity during the six-month period following the effectiveness of the Change of Control (provided, however, that no Retention Bonus shall be payable if, during such six-month period, the Executive and one or more of such entities enter into a Qualifying Employment Agreement); or (B) prior to the end of such six-month period, the Executive's employment by one of such entities is terminated involuntarily by such entity other than for Cause or voluntarily by the Executive with Good Reason. 2.3 Reduction. The Retention Bonus payable to the Executive shall be reduced by an amount equal to any severance payments paid to the Executive under the terms of any Company policy regarding severance benefits or any employment agreement between the Executive and the Company, not including the value associated with any acceleration of vesting of options or stock as a result of a Change of Control. 2 2.4 Acceleration of Option Vesting. The option agreements between the Company and the Executive shall be amended to provide that the vesting provisions of all outstanding options to purchase the Company's Common Stock held by the Executive shall be accelerated so that such options will vest and become exercisable, in full, upon the Change of Control, to the extent any such option agreements do not currently provide for such acceleration of vesting. 2.5 Annual Bonus. The Retention Bonus is not intended to replace or reduce any bonus to which the Executive may be entitled under the Company's existing annual incentive bonus program, which shall continue to be administered in accordance with the Company's existing policies. 2.6 Not an Employment Agreement. The Executive is currently employed as an "at will" employee. This Key Management Retention Agreement is not an employment agreement, and nothing contained herein shall limit the rights of the Company or the Employee to terminate the Employee's employment at any time for any reason. 2.7 Term. The term of this Agreement shall be twelve (12) calendar months from the Effective Date of this Agreement. 3. General 3.1 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the Company, the Executive and each and all of their respective heirs, legal representatives, successors and assigns. The duties, responsibilities and obligations of the Executive under this Agreement shall be personal and not assignable or delegable by the Executive in any manner whatsoever to any person, corporation, partnerships, firm, company, joint venture or other entity. The Executive may not assign, transfer, convey, mortgage, pledge or in any other manner encumber the compensation or other benefits to be received by him or any rights which he may have pursuant to the terms and provisions of this Agreement. The Company covenants and agrees to require that any successor to the Company through a Change of Control shall agree to honor the obligations of the Company under this Agreement. 3.2 Waiver. No waiver of any breach of any warranty, representation, agreement, promise, covenant, paragraph, term or provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other warranty, representation, agreement, promise, covenant, paragraph, term or provision of this Agreement. No extension of the time for the performance of any obligation or other act required or permitted by this Agreement shall be deemed to be an extension of the time of the performance of any other obligation or any other act required or permitted by this Agreement. 3.3 Entire Agreement. This Agreement, and the other agreements referred to herein, including the Company's benefit plans, are the sole, complete and entire contract, agreement and understanding between the Company and the Executive concerning the subject matter hereof. Except as otherwise provided herein, this Agreement supersedes any and all prior 3 contracts, agreements, plans, agreements in principle, correspondence, letters of intent, understandings, and negotiations, whether oral or written, concerning the subject matter hereof. 3.4 Amendments. No amendment, modification, waiver, or consent relating to this Agreement will be effective unless and until it is embodied in a written document signed by the Company and by the Executive. 3.5 Counterparts. The Agreement may be executed by the Company and by the Executive in counterparts, each of which shall be deemed an original and which together shall constitute one instrument. 3.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not in any manner whatsoever affect the construction or interpretation of this Agreement or be deemed a part of this Agreement for any purpose whatsoever. 3.7 Severability. To the extent that any section, term, provision, sentence, phrase, clause or word of this Agreement shall be found to be illegal or unenforceable for any reason, such section, term, provision, sentence, phrase, clause or word shall be modified or deleted in such a manner as to make this Agreement, as so modified, legal and enforceable under applicable laws. The remainder of this Agreement shall continue in full force and effect. 3.8 Applicable Law. This Agreement and each and every provision of this Agreement shall be interpreted solely pursuant to the internal laws of the State of California without regard to any conflicts of law principles thereof. 3.9 Construction. The language of this Agreement shall for all purposes be construed as a whole, according to its fair meaning, not strictly for or against the Executive or the Company, without regard to the identity or status of any person or persons who drafted all or any portion of this Agreement. 3.10 Notices. Any notices to be given pursuant to this Agreement by either party to the other party may be effected by personal delivery or by registered or certified mail, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses stated below, but each party may change its or his address by written notice to the other in accordance with this Section 3.10. Notices delivered personally shall be deemed received on the date of delivery. Notices delivered by mail shall be deemed received on the third business day after the mailing thereof. Mailed notices to the Executive shall be addressed as follows: John F. Lawler, Jr. 27 Silver Lane Enfield, Connecticut 06082 Mailed notices to the Company shall be addressed as follows: 4 Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, California 94403-2515 Attention: Chief Executive Officer 3.11 Arbitration. Any and all controversies, disputes and/or claims in any manner arising out of or relating to this Agreement shall be settled solely be arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Such arbitration proceeding shall take place in the state and county of the Company's office where the Executive is based. Judgment on any decision rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party shall bear its own attorney's fees and expenses and other costs in any arbitration proceeding. All administrative fees and the fee of the arbitrator shall be borne by the parties equally. The arbitration provisions set forth in this Section 3.11 are intended by the Executive and by the Company to be absolutely exclusive for all purposes whatsoever, and applicable to each and every controversy, dispute or claim in any manner arising out of or relating to this Agreement, the meaning, application or interpretation of this Agreement, any breach or claimed breach thereof or any voluntary or involuntary termination of this Agreement with or without cause, including, without limitation, any such controversy, dispute or claim which, if pursued through any state or federal court or administrative agency, would arise at law, in equity or pursuant to statutory, regulatory or common law rules, regardless of whether such dispute, controversy or claim would arise in or from contract, tort or any other legal or equitable theory or basis. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first set forth above. RAYTEL MEDICAL CORPORATION By:_____________________________________ __________________________________ Richard F. Bader John F. Lawler, Jr. Chairman and Chief Executive Officer 5 EX-10.75 8 f79179ex10-75.txt EXHIBIT 10.75 Exhibit 10.75 KEY MANAGEMENT RETENTION AGREEMENT THIS KEY MANAGEMENT RETENTION AGREEMENT (the "Agreement"), dated as of February 6, 2002 (the "Effective Date"), is made and entered into by and between RAYTEL MEDICAL CORPORATION, a Delaware corporation (the "Company"), and SWAPAN SEN (the "Executive"). RECITALS: A. The Executive is currently employed as the Company's Senior Vice President, and President of the Company's subsidiary, Raytel Imaging Holdings, Inc. ("RIH"), pursuant to a written employment agreement dated as of March 1, 1998 (the "Employment Agreement"); B. The Company is considering various potential strategic transactions that could result in a Change of Control (as hereinafter defined); C. Pursuant to a resolution adopted on December 19, 2001, the Board of Directors approved a supplement to the Employment Agreement to provide additional incentive for the continued employment of the Executive in order to facilitate a potential Change of Control; and D. The parties now desire to enter into an agreement confirming such incentive arrangements. NOW, THEREFORE, the parties agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall be defined as follows: 1.1 "Cause" shall exist in the event of the Executive's (i) willful and repeated neglect of his duties as an employee of the Company (other than as a result of a physical disability not related to substance abuse), (ii) conviction of a crime involving moral turpitude, (iii) commission of any act of fraud or dishonesty against the Company, or (iv) breach of the Executive's obligations under the Employment Agreement or the Proprietary Information and Inventions Agreement between the Executive and the Company which, if curable, is not cured within ten (10) days following notice of such breach by the Company. 1.2 A "Change of Control" of the Company shall occur upon: (i) a merger, consolidation or other reorganization involving the Company, or a tender offer, exchange offer or other transaction or series of transactions involving the acquisition of securities of the Company where, in any such case, the holders of voting securities of the Company immediately prior to such transaction or series of transactions own less than 50% of the voting securities of the surviving or successor entity, or its parent, immediately following such transaction or series of transactions; (ii) the sale of all or substantially all of the Company's assets; or (iii) the sale of all or substantially all of the capital stock or assets of RIH. 1.3 "Good Reason" shall exist in the event that, other than under circumstances involving Cause or the Executive's total disability (as defined pursuant to the Company's long-term disability insurance plan covering the Executive if any such plan is then in effect, or otherwise as determined by the Company's Board of Directors), the Company, without the Executive's prior written consent; (i) materially alters or reduces the Executive's duties, responsibilities and status with the Company from those which exist as of the Effective Date of this Agreement; (ii) assigns the Executive duties which are inconsistent with the Employee's position as Senior Vice President of the Company and President of RIH; (iii) materially breaches the terms of the Employment Agreement in respect to the payment of compensation or benefits or in any other material respect and such breach is not cured within ten days after notice thereof; (iv) requires the Employee, as a condition to his continued employment, to be based more than 100 miles from the location where he is based as of the Effective Date; or (v) requires the Employee, as a condition to his continued employment, to perform illegal or fraudulent acts or omissions. 2. Retention and Severance Arrangement. 2.1 Retention Bonus. In the event the Company effects a Change of Control during the term of this Agreement, the Executive shall be entitled to receive a cash bonus (the "Retention Bonus") in the amount of $350,000, payable in a single lump sum promptly upon the fulfillment of the conditions set forth in Section 2.2. The Executive may elect to reduce the Retention Bonus by an amount that will reduce or eliminate any excise tax liability under Section 280G of the Internal Revenue Code of 1986, as amended. 2.2 Conditions to Receipt of Retention Bonus. (a) In order for the Executive to be eligible to receive the Retention Bonus, the following conditions must be met: (i) The Executive must be continuously employed by the Company on a full-time basis between the Effective Date of this Agreement and the effective date of the Change of Control; and (ii) Either of the following conditions must occur: (A) the Executive remains continuously employed by the Company, RIH, the acquiring entity or another subsidiary or affiliate of the acquiring entity during the 12-month period following the effectiveness of the Change of Control; or (B) prior to the end of such 12-month period, the Executive's employment by one of such entities is terminated involuntarily by such entity other than for Cause or voluntarily by the Executive with Good Reason. 2.3 Reduction. The Retention Bonus payable to the Executive shall not be reduced by any severance payments paid or payable to the Executive under the terms of the Employment Agreement. 2.4 Acceleration of Option Vesting. The option agreements between the Company and the Executive shall be amended to provide that the vesting provisions of all outstanding options to purchase the Company's Common Stock held by the Executive shall be accelerated so that such options will vest and become exercisable, in full, upon the Change of Control, to the extent any such option agreements do not currently provide for such acceleration of vesting. 2 2.5 Annual Bonus. The Retention Bonus is not intended to replace or reduce any bonus to which the Executive may be entitled under the Company's existing annual incentive bonus program, which shall continue to be administered in accordance with the Company's existing policies. 2.6 Term. The term of this Agreement shall be twelve (12) calendar months from the Effective Date of this Agreement. 3. General 3.1 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of and be binding upon the Company, the Executive and each and all of their respective heirs, legal representatives, successors and assigns. The duties, responsibilities and obligations of the Executive under this Agreement shall be personal and not assignable or delegable by the Executive in any manner whatsoever to any person, corporation, partnerships, firm, company, joint venture or other entity. The Executive may not assign, transfer, convey, mortgage, pledge or in any other manner encumber the compensation or other benefits to be received by him or any rights which he may have pursuant to the terms and provisions of this Agreement. The Company covenants and agrees to require that any successor to the Company through a Change of Control shall agree to honor the obligations of the Company under this Agreement. 3.2 Waiver. No waiver of any breach of any warranty, representation, agreement, promise, covenant, paragraph, term or provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other warranty, representation, agreement, promise, covenant, paragraph, term or provision of this Agreement. No extension of the time for the performance of any obligation or other act required or permitted by this Agreement shall be deemed to be an extension of the time of the performance of any other obligation or any other act required or permitted by this Agreement. 3.3 Entire Agreement. This Agreement, and the other agreements referred to herein, including the Employment Agreement and the Company's benefit plans, are the sole, complete and entire contract, agreement and understanding between the Company and the Executive concerning the subject matter hereof. Except as provided in the Employment Agreement or such benefit plans or as otherwise provided herein, this Agreement supersedes any and all prior contracts, agreements, plans, agreements in principle, correspondence, letters of intent, understandings, and negotiations, whether oral or written, concerning the subject matter hereof. 3.4 Amendments. No amendment, modification, waiver, or consent relating to this Agreement will be effective unless and until it is embodied in a written document signed by the Company and by the Executive. 3.5 Counterparts. The Agreement may be executed by the Company and by the Executive in counterparts, each of which shall be deemed an original and which together shall constitute one instrument. 3 3.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not in any manner whatsoever affect the construction or interpretation of this Agreement or be deemed a part of this Agreement for any purpose whatsoever. 3.7 Severability. To the extent that any section, term, provision, sentence, phrase, clause or word of this Agreement shall be found to be illegal or unenforceable for any reason, such section, term, provision, sentence, phrase, clause or word shall be modified or deleted in such a manner as to make this Agreement, as so modified, legal and enforceable under applicable laws. The remainder of this Agreement shall continue in full force and effect. 3.8 Applicable Law. This Agreement and each and every provision of this Agreement shall be interpreted solely pursuant to the internal laws of the State of California without regard to any conflicts of law principles thereof. 3.9 Construction. The language of this Agreement shall for all purposes be construed as a whole, according to its fair meaning, not strictly for or against the Executive or the Company, without regard to the identity or status of any person or persons who drafted all or any portion of this Agreement. 3.10 Notices. Any notices to be given pursuant to this Agreement by either party to the other party may be effected by personal delivery or by registered or certified mail, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses stated below, but each party may change its or his address by written notice to the other in accordance with this Section 3.10. Notices delivered personally shall be deemed received on the date of delivery. Notices delivered by mail shall be deemed received on the third business day after the mailing thereof. Mailed notices to the Executive shall be addressed as follows: Swapan Sen 63 Bunning Drive Voorkees, N.J. 08043 Mailed notices to the Company shall be addressed as follows: Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, California 94403-2515 Attention: Chief Executive Officer 3.11 Arbitration. Any and all controversies, disputes and/or claims in any manner arising out of or relating to this Agreement shall be settled solely be arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Such arbitration proceeding shall take place in the state and county of the Company's office where the Executive is based. Judgment on any decision rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each party shall bear its own attorney's fees and expenses and other costs in any arbitration proceeding. All administrative fees and the fee of the 4 arbitrator shall be borne by the parties equally. The arbitration provisions set forth in this Section 3.11 are intended by the Executive and by the Company to be absolutely exclusive for all purposes whatsoever, and applicable to each and every controversy, dispute or claim in any manner arising out of or relating to this Agreement, the meaning, application or interpretation of this Agreement, any breach or claimed breach thereof or any voluntary or involuntary termination of this Agreement with or without cause, including, without limitation, any such controversy, dispute or claim which, if pursued through any state or federal court or administrative agency, would arise at law, in equity or pursuant to statutory, regulatory or common law rules, regardless of whether such dispute, controversy or claim would arise in or from contract, tort or any other legal or equitable theory or basis. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first set forth above. RAYTEL MEDICAL CORPORATION By:____________________________________ ___________________________________ Richard F. Bader Swapan Sen Chairman and Chief Executive Officer 5 -----END PRIVACY-ENHANCED MESSAGE-----

EX-2.1

                                                                     Exhibit 2.1





                          AGREEMENT AND PLAN OF MERGER

                                   dated as of

                                February 7, 2002

                                      among

                           RAYTEL MEDICAL CORPORATION,

                              SHL TELEMEDICINE LTD.

                                       and

                       SHL TELEMEDICINE ACQUISITION CORP.




                               TABLE OF CONTENTS



                                                                                          Page
                                                                                      
ARTICLE 1         THE OFFER.................................................................2

        Section 1.01      The Offer.........................................................2

        Section 1.02      Company Action....................................................4

        Section 1.03      Directors.........................................................5

ARTICLE 2         THE MERGER................................................................7

        Section 2.01      The Merger........................................................7

        Section 2.02      Effective Time....................................................7

        Section 2.03      Closing...........................................................7

        Section 2.04      Effects of the Merger.............................................7

        Section 2.05      Certificate of Incorporation......................................7

        Section 2.06      Bylaws............................................................8

        Section 2.07      Directors and Officers............................................8

ARTICLE 3         EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
                  CORPORATIONS; EXCHANGE OF CERTIFICATES....................................8

        Section 3.01      Conversion of Company Common Stock................................8

        Section 3.02      Dissenting Shares.................................................9

        Section 3.03      Payment for Shares in the Merger..................................9

        Section 3.04      Stock Options....................................................11

        Section 3.05      Adjustments......................................................12

ARTICLE 4         REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................12

        Section 4.01      Organization and Qualification; Subsidiaries.....................12

        Section 4.02      Capitalization...................................................13

        Section 4.03      Corporate Authorization..........................................14

        Section 4.04      Governmental Authorization.......................................15

        Section 4.05      Non-contravention................................................15

        Section 4.06      SEC Reports; Financial Statements................................16

        Section 4.07      Information Supplied.............................................17

        Section 4.08      Absence of Certain Changes or Events.............................18



                                                                                      
        Section 4.09      Litigation.......................................................18

        Section 4.10      Compliance with Laws.............................................18

        Section 4.11      Taxes............................................................19

        Section 4.12      Employee Benefit Plans...........................................21

        Section 4.13      Environmental Matters............................................23

        Section 4.14      Intellectual Property............................................24

        Section 4.15      Title and Condition of Properties................................26

        Section 4.16      Insurance........................................................27

        Section 4.17      Material Contracts...............................................27

        Section 4.18      Employment Matters...............................................29

        Section 4.19      Finders' Fees....................................................30

        Section 4.20      Opinion of Financial Advisor.....................................30

        Section 4.21      Voting Requirements..............................................30

        Section 4.22      Books and Records................................................30

        Section 4.23      Certain Business Practices.......................................30

        Section 4.24      Interests of Officers and Directors..............................31

        Section 4.25      Provider/Supplier Status.........................................31

        Section 4.26      Medicare Secondary Payor.........................................31

        Section 4.27      Overpayments.....................................................32

        Section 4.28      Settlement Agreements............................................32

        Section 4.29      Rights Agreement.................................................32

        Section 4.30      Full Disclosure..................................................32

ARTICLE 5         REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...................33

        Section 5.01      Organization, Standing and Corporate Power.......................33

        Section 5.02      Corporate Authorization..........................................33

        Section 5.03      Governmental Authorization.......................................33

        Section 5.04      Non-contravention................................................33

        Section 5.05      Information Supplied.............................................34

        Section 5.06      Litigation.......................................................34

        Section 5.07      Financing........................................................34




                                      -ii-



                                                                                      
        Section 5.08      Finders' Fees....................................................35

        Section 5.09      Purchaser's Operation............................................35

        Section 5.10      Full Disclosure..................................................35

ARTICLE 6         COVENANTS................................................................35

        Section 6.01      Conduct of Business by the Company...............................35

        Section 6.02      Other Actions....................................................39

        Section 6.03      Stockholder Meeting; Proxy Material; Merger Without
                          Stockholder Meeting..............................................39

        Section 6.04      Access to Information............................................40

        Section 6.05      No Solicitation; Other Offers....................................40

        Section 6.06      Best Efforts; Notification.......................................43

        Section 6.07      Indemnification and Insurance....................................45

        Section 6.08      Continuation of Benefits.........................................46

        Section 6.09      Public Announcements.............................................46

        Section 6.10      Further Assurances...............................................47

ARTICLE 7         CONDITIONS TO THE MERGER.................................................47

        Section 7.01      Conditions to Obligations of Each Party..........................47

ARTICLE 8         TERMINATION, AMENDMENT AND WAIVER........................................48

        Section 8.01      Termination......................................................48

        Section 8.02      Effect of Termination............................................50

        Section 8.03      Fees and Expenses................................................50

        Section 8.04      Amendment........................................................52

        Section 8.05      Extension; Waiver................................................52

        Section 8.06      Procedure for Termination, Amendment, Extension or Waiver........52

ARTICLE 9         MISCELLANEOUS............................................................52

        Section 9.01      Non-Survival of Representations and Warranties...................52

        Section 9.02      Notices..........................................................52

        Section 9.03      No Waivers.......................................................54

        Section 9.04      Successors and Assigns...........................................54

        Section 9.05      Governing Law....................................................55

        Section 9.06      Enforcement......................................................55




                                     -iii-



                                                                                      
        Section 9.07      WAIVER OF JURY TRIAL.............................................55

        Section 9.08      Counterparts; Effectiveness; Benefit.............................55

        Section 9.09      Entire Agreement.................................................55

        Section 9.10      Captions.........................................................56

        Section 9.11      Severability.....................................................56

        Section 9.12      Specific Performance.............................................56

        Section 9.13      Interpretation...................................................56

        Section 9.14      Company Disclosure Memorandum....................................57

        Section 9.15      Parties in Interest..............................................57

        Section 9.16      Obligation of Parent and the Company.............................57

        Section 9.17      Certain Definitions..............................................57






                                      -iv-



                             INDEX OF DEFINED TERMS



Term                                                                                    Section
- ----                                                                                    -------
                                                                                  
Acquisition Proposal...................................................................6.05(d)
Affiliate..............................................................................9.17(a)
Agreement.............................................................................Recitals
Beneficially...........................................................................9.17(b)
Business Day...........................................................................9.17(c)
Certificates...........................................................................3.03(a)
CIA.......................................................................................4.28
Closing...................................................................................2.03
Code...................................................................................4.11(b)
Company...............................................................................Recitals
Company Board.........................................................................Recitals
Company Common Stock..................................................................Recitals
Company Disclosure Memorandum........................................................Article 4
Company Intellectual Property .........................................................4.14(a)
Company SEC Reports....................................................................4.06(a)
Company Stockholder Meeting............................................................6.03(a)
Confidentiality Agreement..............................................................6.04(c)
Continuing Directors...................................................................1.03(a)
Continuing Employee.......................................................................6.08
DGCL..................................................................................Recitals
Dissenting Shares.........................................................................3.02
Dow Jones News Release.................................................................4.06(a)
Effective Time............................................................................2.02
Employee Plan..........................................................................4.12(a)
Environmental Laws........................................................................4.13
ERISA..................................................................................4.12(a)
ERISA Affiliate........................................................................4.12(f)
Exchange Act...........................................................................1.01(a)
Expenses...............................................................................8.03(b)
Filed Company SEC Reports..............................................................4.06(a)
GAAP...................................................................................4.06(b)
Governmental Entity.......................................................................4.04
Health Benefit Law........................................................................4.10
Houlihan Lokey.........................................................................1.02(a)
Indemnified Parties....................................................................6.07(a)
Information Statement.....................................................................4.07
Initial Expiration Date................................................................1.01(a)
IRS....................................................................................4.11(a)



                                      -i-



                                                                                  
Law....................................................................................9.17(d)
License Agreements.....................................................................4.14(c)
Liens.....................................................................................4.01
Material Adverse Effect................................................................9.17(f)
Material Company Intellectual Property.................................................4.14(a)
Material Contract......................................................................4.17(a)
Merger................................................................................Recitals
Merger Consideration................................................................3.01(a)(i)
Minimum Condition......................................................................1.01(a)
Offer.................................................................................Recitals
Offer Completion Date..................................................................6.03(a)
Offer Documents........................................................................1.01(c)
Offer Price...........................................................................Recitals
Option.................................................................................3.04(a)
Option Consideration...................................................................3.04(a)
Option Plan............................................................................3.04(a)
Parent................................................................................Recitals
Paying Agent...........................................................................3.03(a)
Payment Fund...........................................................................3.03(a)
Permits...................................................................................4.10
Person.................................................................................9.17(g)
PPO.......................................................................................4.10
Proxy Statement...........................................................................4.04
Purchaser.............................................................................Recitals
Rights Agreement..........................................................................4.29
Schedule 14D-9.........................................................................1.02(b)
Schedule TO............................................................................1.01(c)
SEC....................................................................................1.01(b)
Securities Act.........................................................................4.06(a)
Settlement Agreements.....................................................................4.28
Shares................................................................................Recitals
Software...............................................................................4.14(a)
Special Committee.....................................................................Recitals
Stockholders' Agreement...............................................................Recitals
Subsidiary.............................................................................9.17(h)
Superior Proposal......................................................................6.05(d)
Surviving Corporation.....................................................................2.01
Tax Return.............................................................................4.11(a)
Taxes..................................................................................4.11(a)
Taxing Authority.......................................................................4.11(a)
Termination Fee........................................................................8.03(b)
Trade Secrets..........................................................................4.14(a)
Transactions...........................................................................1.02(a)
Voting Debt............................................................................4.02(c)




                                      -ii-



                          AGREEMENT AND PLAN OF MERGER

               AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
February 7, 2002 among Raytel Medical Corporation, a Delaware corporation (the
"Company"), SHL TeleMedicine Ltd., an Israeli corporation ("Parent"), and SHL
TeleMedicine Acquisition Corp., a Delaware corporation and an indirect
wholly-owned subsidiary of Parent ("Purchaser").

               WHEREAS, the respective Boards of Directors of Parent, Purchaser
and the Company have determined that it would be advisable and in the best
interests of their respective stockholders for Parent to acquire the Company on
the terms and conditions set forth herein;

               WHEREAS, to effectuate the acquisition, it is proposed that
Purchaser commence a cash tender offer, as it may be amended from time to time
as permitted under this Agreement (the "Offer"), to purchase all of the issued
and outstanding shares of Common Stock, $.001 par value per share, of the
Company (the "Company Common Stock"), together with the associated preferred
share purchase rights issued pursuant to the Rights Agreement (as hereinafter
defined) (each share of Company Common Stock, together with the associated
preferred share purchase right, is hereinafter referred to as a "Share") at a
purchase price, net to seller in cash, without interest, of $10.25 per Share
(such price, or any such higher price per Share as may be paid in the Offer, is
referred to herein as the "Offer Price"), upon the terms and subject to the
conditions set forth in this Agreement;

               WHEREAS, in furtherance of such acquisition, the Board of
Directors of each of Parent, Purchaser and the Company have approved this
Agreement and the merger following the Offer pursuant to which Purchaser shall
merge with and into the Company (the "Merger") and the outstanding Shares not
owned directly or indirectly by Parent or the Company or any of their respective
Subsidiaries and other than Dissenting Shares (as hereinafter defined) shall be
converted into the right to receive the Offer Price in cash, without interest,
all in accordance with the General Corporation Law of the State of Delaware
("DGCL") and upon the terms and subject to the conditions set forth herein;

               WHEREAS, the Board of Directors of the Company (the "Company
Board"), upon the recommendation of a special committee of the Company Board
comprised of independent directors (the "Special Committee"), has determined
that the consideration to be paid for each Share is fair to all holders of such
shares and has resolved to recommend that the holders of such Shares tender all
of their Shares pursuant to the Offer and approve and adopt this Agreement and
the Merger upon the terms and subject to the conditions set forth herein; and

               WHEREAS, contemporaneously with the execution and delivery of
this Agreement, as a condition and an inducement to the willingness of Parent
and Purchaser to enter into this Agreement, each director and executive officer
of the Company has executed and delivered to Parent an agreement pursuant to
which they have agreed to take certain actions with respect to the Offer and the
Merger (the "Stockholders' Agreement");




               NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements contained in
this Agreement, the parties hereto agree as follows:

                                    ARTICLE 1
                                    THE OFFER

        Section 1.01 The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Article 8 and none of the events set forth in
Annex A hereto shall have occurred and be continuing, Parent shall cause
Purchaser to, as promptly as practicable, and, in any event, within ten (10)
Business Days of the date hereof, commence (within the meaning of Rule 14d-2(a)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) the
Offer to purchase any and all outstanding Shares, at a price per Share equal to
the Offer Price, net to the seller in cash, without interest, subject to
reduction for any applicable withholding taxes and, if such payment is to be
made other than to the registered holder, any applicable stock transfer or other
similar taxes payable by such holder. The Offer will be made pursuant to an
offer to purchase and related letter of transmittal containing the terms and
conditions set forth in this Agreement and Annex A hereto. The initial
expiration date of the Offer shall be the twentieth Business Day from and after
the date the Offer is commenced as determined in accordance with Rule 14d-2(a)
under the Exchange Act (the "Initial Expiration Date"). The obligation of
Purchaser to accept for payment, purchase and pay for any Shares validly
tendered pursuant to the Offer and not withdrawn shall be subject only to the
satisfaction of (i) the condition that at least a majority of the shares of
Company Common Stock outstanding on a fully-diluted basis assuming the exercise
of all options, warrants, rights and convertible securities outstanding on the
date the Offer expires (taking into account any shares of Company Common Stock
owned by Parent or Purchaser or any affiliate of Parent or Purchaser on the date
such Shares are purchased pursuant to the Offer) have been validly tendered and
not withdrawn prior to the expiration of the Offer (the "Minimum Condition") and
(ii) the other conditions set forth in Annex A hereto; provided, however, that
Purchaser expressly reserves the right to waive any of the conditions to the
Offer (other than the Minimum Condition) and to make any change in the terms or
conditions of the Offer (other than the Minimum Condition) in its sole
discretion, subject to Section 1.01(b).

               (b) Purchaser expressly reserves the right to modify the terms of
the Offer; provided, however, that without the prior written consent of the
Company, neither Parent nor Purchaser will (i) decrease the Offer Price, (ii)
decrease the number of Shares sought in the Offer, (iii) change the form of
consideration payable in the Offer, (iv) impose conditions to the Offer in
addition to the Minimum Condition and the other conditions set forth in Annex A,
(v) except as provided below or required by any rule, regulation, interpretation
or position of the Securities and Exchange Commission ("SEC") applicable to the
Offer, change the expiration date of the Offer, or (vi) otherwise amend or
change any term or condition of the Offer in a manner adverse to the holders of
Shares. Notwithstanding anything in this Agreement to the contrary, without the
consent of the Company, Purchaser shall have the right to extend the Offer
beyond the Initial Expiration Date in the following events: (i) from time to
time, but in no event


                                      -2-


later than the date that is ten (10) Business Days from the Initial Expiration
Date (or extended expiration date of the Offer, if applicable), if, at the
Initial Expiration Date (or extended expiration date of the Offer, if
applicable), one or more of the conditions to the Offer shall not have been
satisfied or waived, until such conditions are satisfied or waived; provided,
however, that the expiration date of the Offer may not extend beyond the 60th
day after commencement of the Offer; (ii) for any period required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
applicable to the Offer or any period required by applicable Law (as hereinafter
defined); or (iii) if all of the conditions to the Offer are satisfied or waived
but the number of Shares validly tendered and not withdrawn is less than ninety
percent (90%) of the then outstanding number of Shares; provided, however, that
the expiration date of the Offer may not extend beyond the 60th day after the
commencement of the Offer. In the event the Minimum Condition is satisfied and
the Purchaser purchases Shares pursuant to the Offer, the Purchaser may, in its
sole discretion, provide a "subsequent offering period" in accordance with Rule
14d-11 under the Exchange Act. Upon the satisfaction or waiver of all the
conditions to the Offer and subject to the terms and conditions of this
Agreement, Purchaser will accept for payment, purchase and pay for, in
accordance with the terms of the Offer, all Shares validly tendered and not
withdrawn pursuant to the Offer as soon as reasonably practicable after the
expiration of the Offer.

               (c) As soon as reasonably practicable on the date of commencement
of the Offer, Parent and Purchaser shall file with the SEC a Tender Offer
Statement on Schedule TO with respect to the Offer (together with any amendments
or supplements thereto, the "Schedule TO"), which shall contain or incorporate
by reference the offer to purchase and forms of the related letter of
transmittal and such other ancillary documents and instruments pursuant to which
the Offer will be made (such Schedule TO and such documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"). Parent and Purchaser agree that the
Offer Documents will comply as to form and content in all material respects with
the applicable provisions of the federal securities Laws and, on the date filed
with the SEC and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Parent
or Purchaser with respect to information supplied by the Company in writing for
inclusion in the Offer Documents. Parent, Purchaser and the Company each agree
to correct promptly any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect and to supplement the information provided by
it for use in the Schedule TO or the other Offer Documents to include any
information that shall become necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. Parent
and Purchaser agree to take all steps necessary to cause the Offer Documents as
so corrected or supplemented to be filed with the SEC and to be disseminated to
holders of Shares of Company Common Stock, in each case as and to the extent
required by applicable federal securities Laws. The Company and its counsel
shall be given a reasonable opportunity to review and comment on the Offer
Documents prior to their being filed with the SEC. Parent and


                                      -3-


Purchaser agree to provide to the Company and its counsel any comments or other
communications which Parent, Purchaser or their counsel may receive from the
staff of the SEC with respect to the Offer Documents promptly after receipt
thereof, and Parent and Purchaser shall consult with and provide to the Company
and its counsel a reasonable opportunity to review and comment on the response
of Purchaser and Parent prior to responding to the SEC.

               (d) Parent shall provide or cause to be provided to Purchaser on
a timely basis the funds necessary to accept for payment, and pay for, any
Shares that Purchaser becomes obligated to accept for payment, and pay for,
pursuant to the Offer.

        Section 1.02 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that the Company Board, at a
meeting duly called and held, has unanimously, upon the unanimous recommendation
of the Special Committee, (i) determined that this Agreement and the
transactions contemplated hereby, including, without limitation, the Offer, the
Merger and the purchase of Shares contemplated by the Offer (collectively the
"Transactions"), are advisable and fair to and in the best interests of the
Company and the Company's stockholders, (ii) approved of and adopted this
Agreement and the Transactions in accordance with the requirements of the DGCL
so that the provisions of Section 203 of the DGCL are not applicable to the
Transactions provided for, referred to or contemplated by, this Agreement, and
(iii) resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares pursuant to the Offer and approve and adopt this
Agreement and the Merger. Notwithstanding the foregoing, such recommendation may
be withdrawn, modified or amended as permitted by Section 6.05(c). The Company
hereby consents to the inclusion in the Offer Documents, the Schedule 14D-9 (as
hereinafter defined) and the Proxy Statement (as hereinafter defined), if any,
of such recommendation of the Company Board, subject, however to the Company's
right to withdraw such recommendation as herein provided. The Company represents
and warrants that the Company Board has received the written opinion of Houlihan
Lokey Howard & Zukin Capital ("Houlihan Lokey"), stating that, as of the date of
such opinion, the proposed consideration to be received by the holders of Shares
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view. The Company acknowledges that a Stockholders' Agreement is being
executed and delivered contemporaneously herewith by each of its directors and
executive officers.

               (b) As soon as reasonably practicable on the date of commencement
of the Offer, and concurrently with or promptly following the filing by Parent
and Purchaser of the Schedule TO, the Company shall file with the SEC and
disseminate to holders of Shares, in each case as and to the extent required by
applicable federal securities Laws, a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with any amendments or supplements thereto, the
"Schedule 14D-9") that shall reflect the recommendation of the Board of
Directors referred to in clause (iii) of Section 1.02(a) hereof. The Schedule
14D-9 will comply in all material respects with the provisions of applicable
federal securities Laws and, on the date filed with the SEC and on the date
first published, sent or given to the Company's stockholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in


                                      -4-


light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Parent or Purchaser in writing for inclusion in the Schedule 14D-9.
The Company, Parent and Purchaser each agree to correct promptly any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
information shall have become false or misleading in any material respect and to
supplement the information provided by it for use in the Schedule 14D-9 to
include any information that shall become necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected or supplemented to be filed with the SEC and to
be disseminated to holders of shares of Company Common Stock, in each case as
and to the extent required by applicable federal and state securities Laws.
Parent and its counsel shall be given a reasonable opportunity to review and
comment on the Schedule 14D-9 prior to its being filed with the SEC. The Company
agrees to provide to Parent and its counsel any comments or other communications
which the Company or its counsel may receive from the staff of the SEC with
respect to the Schedule 14D-9 promptly after receipt thereof, and the Company
shall consult with and provide to Parent and its counsel a reasonable
opportunity to review and comment on the response of the Company prior to
responding to the SEC. Parent, Purchaser and the Company each hereby agree to
provide promptly such information necessary to prepare the exhibits and
schedules to the Schedule 14D-9 and the Offer Documents which the respective
party responsible therefor may reasonably request.

               (c) The Company will cause its transfer agent promptly to furnish
Parent and Purchaser with a list of the Company's stockholders, mailing labels
and any available listings or computer file containing the names and addresses
of all record holders of Shares and lists of securities positions of Shares held
in stock depositories as of a recent date and to provide to Parent and Purchaser
such additional information (including, without limitation, updated lists of
stockholders, mailing labels and lists of securities positions) and such other
assistance as Parent or Purchaser or their agents may reasonably request in
connection with the Offer. Subject to the requirements of applicable Law, and
except for such steps as are necessary to disseminate the Offer Documents and
any other documents necessary to consummate the Transactions, Parent and
Purchaser and each of their affiliates, associates and agents will hold in
confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger and,
if this Agreement is terminated, will deliver, and will cause their agents to
deliver, to the Company all copies and any extracts or summaries from such
information then in their possession or control.

        Section 1.03 Directors. (a) Promptly following the purchase of and
payment for the number of Shares that satisfies the Minimum Condition, and from
time to time thereafter, Purchaser shall be entitled to designate for election
as directors of the Company such number of directors, rounded up to the next
whole number, as is equal to the product of the total number of directors of the
Company constituting the whole Company Board (giving effect to any increase in
the number of directors in order to comply with this Section 1.03) and the
percentage that the voting power of Shares beneficially owned by Parent and
Purchaser (including Shares paid for pursuant to the Offer), upon such payment,
bears to the total voting power of Shares then


                                      -5-


outstanding, and the Company shall take all action necessary to cause
Purchaser's designees to be elected or appointed to the Company Board,
including, without limitation, increasing the number of directors and seeking
and accepting resignations of incumbent directors. At such time, the Company
will also, upon the request of Parent or Purchaser, cause individual directors
designated by Purchaser to constitute the number of members, rounded up to the
next whole number, on (i) each committee (or similar body) of the Company Board
other than the Special Committee and (ii) the board of directors (or similar
body) of each Subsidiary (as hereinafter defined) of the Company, and each
committee (or similar body) thereof, that represents the same percentage as
Purchaser's designees represent on the Company Board. Notwithstanding the
foregoing, in the event that Purchaser's designees are appointed or elected to
the Company Board, the Company Board shall at all times until the Effective Time
(as hereinafter defined) have at least two directors who are directors on the
date of this Agreement or otherwise not affiliates of Parent (the "Continuing
Directors"); provided that in the event that the number of Continuing Directors
shall be reduced below two for any reason whatsoever, the Company Board shall
cause the person designated by the remaining Continuing Director to fill such
vacancy and such person shall be deemed to be a Continuing Director for all
purposes of this Agreement or, if no Continuing Directors then remain, the other
directors of the Company then in office shall designate two persons to fill such
vacancies who are not officers, directors, employees or affiliates of the
Company or Parent or any of their respective Subsidiaries and such persons shall
be deemed to be Continuing Directors for all purposes of this Agreement. Prior
to the Effective Time, the Continuing Directors shall have the authority to
retain such counsel and other advisors at the expense of the Company as are
reasonably necessary to the exercise of their duties in connection with this
Agreement, subject to approval by the Company of the terms of such retention,
which approval shall not be unreasonably withheld or delayed. In addition, prior
to the Effective Time, the Continuing Directors shall have the authority to
institute any action, on behalf of the Company, to enforce performance of this
Agreement.

               (b) The Company's obligations to appoint Purchaser's designees to
the Company Board shall be subject to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder. The Company shall promptly take all actions and
shall include in the Schedule 14D-9 (or an amendment thereto or an information
statement pursuant to Rule 14f-1 if Purchaser has not theretofore designated
directors) such information with respect to the Company and its officers and
directors as Section 14(f) and Rule 14f-1 require in order to fulfill its
obligations under this Section. Parent and Purchaser shall supply to the
Company, and be solely responsible for, any information with respect to
themselves and their nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1. The provisions of this Section 1.03 are in
addition to and shall not limit any rights which Purchaser, Parent or any of
their affiliates may have as a holder or beneficial owner of Shares as a matter
of law with respect to the election of directors or otherwise.

               (c) Following the election or appointment of Purchaser's
designees pursuant to Section 1.03(a) and until the Effective Time, the approval
of a majority of the Continuing Directors shall be required to authorize (and
such authorization shall constitute the authorization of the Company Board and
no other action on the part of the Company, including any action by


                                      -6-


any other directors of the Company, shall be required to authorize) any
termination of this Agreement by the Company, any amendment of this Agreement,
any extension of time for performance of any obligation or action hereunder by
Parent or Purchaser, any waiver of any condition to the Company's obligations
hereunder or any of the Company's rights hereunder; provided, that if there
shall be no Continuing Directors, such approval may only be effected by a
majority vote of the entire Company Board.

                                    ARTICLE 2
                                   THE MERGER

        Section 2.01 The Merger. At the Effective Time (as hereinafter defined)
and upon the terms and subject to the conditions of this Agreement, Purchaser
shall be merged with and into the Company in accordance with applicable Law,
whereupon the separate existence of Purchaser shall cease, and the Company shall
be the surviving corporation (the "Surviving Corporation").

        Section 2.02 Effective Time. The Merger shall become effective at such
time as a certificate of merger executed in accordance with the relevant
provisions of the DGCL is duly filed with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time as may be specified
in the certificate of merger (the "Effective Time"). Subject to the terms and
conditions of this Agreement, Parent, Purchaser and the Company shall cause the
Effective Time to occur as soon as practicable after the earlier of the Company
Stockholder Meeting (as hereinafter defined) or the purchase by Purchaser
pursuant to the Offer of ninety percent (90%) or more of the Shares.

        Section 2.03 Closing. Unless this Agreement shall have been terminated
and the Transactions contemplated herein abandoned pursuant to Section 8.01 and
subject to the satisfaction and waiver of the conditions set forth in Article 7,
the closing of the Merger (the "Closing") shall take place at 10:00 a.m. on a
date to be specified by the parties, which shall be no later than the second
Business Day after satisfaction or waiver of the conditions set forth in Article
7 (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York
10103, unless the parties agree to another time, date or place in writing. At
the Closing, subject to satisfaction or waiver of all of the conditions to the
Merger set forth in Article 7, the Purchaser and the Company shall cause the
certificate of merger to be filed with the Secretary of State of the State of
Delaware in accordance with the DGCL and make all other filings, if any,
required by applicable Law in connection with the Merger.

        Section 2.04 Effects of the Merger. From and after the Effective Time,
the Merger shall have the effects set forth in Section 259 of the DGCL.

        Section 2.05 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended in the Merger to read in its entirety as
set forth on Exhibit 2.05 hereto and as so


                                      -7-


amended shall be the certificate of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable Law.

        Section 2.06 Bylaws. The bylaws of the Purchaser at the Effective Time
shall be the bylaws of the Surviving Corporation, until amended in accordance
with applicable Law.

        Section 2.07 Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified, or until their
earlier death, resignation or removal, in accordance with applicable Law, the
directors of Purchaser at the Effective Time shall be the directors of the
Surviving Corporation and the officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation; provided that, upon
the request of Parent or Purchaser, the Company shall cause any officers of the
Company to be removed at the Effective Time.

                                    ARTICLE 3
                       EFFECT OF THE MERGER ON THE CAPITAL
                     STOCK OF THE CONSTITUENT CORPORATIONS;
                            EXCHANGE OF CERTIFICATES

        Section 3.01 Conversion of Company Common Stock. (a) At the Effective
Time, by virtue of the Merger and without any other action on the part of the
holder thereof:

                        (i) each Share outstanding immediately prior to the
                Effective Time (other than Shares to be canceled in accordance
                with Section 3.01(a)(iii) below and Dissenting Shares (as
                hereinafter defined)) shall be converted into the right to
                receive the Offer Price, net to the seller in cash, without
                interest (the "Merger Consideration"), upon the surrender of the
                certificate representing such Share; and

                        (ii) each share of common stock of Purchaser outstanding
                immediately prior to the Effective Time shall be converted into
                and become one fully paid and non-assessable share of common
                stock of the Surviving Corporation and such shares shall
                constitute the only outstanding shares of capital stock of the
                Surviving Corporation; and

                        (iii) each Share that is held by the Company in its
                treasury and all Shares that are owned, directly or indirectly,
                by Parent or the Company or any of their respective Subsidiaries
                shall automatically be canceled and retired and shall cease to
                exist and shall not be converted into the right to receive the
                Merger Consideration or any other consideration whatsoever.

               (b) At the Effective Time, holders of Shares shall cease to be,
and shall have no voting or other rights as, stockholders of the Company, other
than to receive the Merger Consideration and any dividend or other distribution
with respect to Shares with a record date occurring prior to the Effective Time.
From and after the Effective Time, there shall be no


                                      -8-


transfers on the stock transfer records of the Company of any Shares that were
outstanding immediately prior to the Effective Time.

        Section 3.02 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares issued and outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has complied with the relevant
provisions of Section 262 of the DGCL, if such Section 262 provides for
appraisal rights for such Shares in the Merger ("Dissenting Shares"), shall not
be converted into or be exchangeable for the right to receive the Merger
Consideration as provided in Section 3.01(a)(i) and instead such holder of
Dissenting Shares shall be entitled to receive payment of the fair value of such
Dissenting Shares in accordance with the provisions of such Section 262 unless
and until such holder fails to perfect or withdraws or otherwise loses his right
to appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or withdraws or loses his right to appraisal, such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the Merger Consideration to which
such holder would have been entitled but for the prior status of such shares as
Dissenting Shares, without interest or dividends thereon, upon the surrender in
the manner provided in Section 3.03 of the certificate(s) which formerly
represented Shares. The Company shall give Parent prompt written notice of any
demands received by the Company for appraisal of Shares, attempted withdrawals
of such demands and any other instruments served pursuant to the DGCL and
received by the Company relating to stockholders' rights of appraisal and, prior
to the Effective Time, Parent shall have the right to direct all negotiations
and proceedings with respect to such demands. Prior to the Effective Time, the
Company shall not, except with the prior written consent of Parent, make any
payment with respect to, or settle or offer to settle, any such demands.

        Section 3.03 Payment for Shares in the Merger. (a) Prior to the
Effective Time, Parent shall appoint an agent (the "Paying Agent") located in
the United States reasonably acceptable to the Company for the purpose of
exchanging certificates representing Shares (the "Certificates") for the Merger
Consideration. Parent shall make available or cause to be made available from
time to time to the Paying Agent amounts sufficient to provide all funds
necessary for the Paying Agent to make payments pursuant to Section 3.03(c)
(such cash being hereinafter referred to as the "Payment Fund"). The Payment
Fund shall not be used for any other purpose. The Payment Fund shall be invested
by the Paying Agent as directed by Parent or the Surviving Corporation pending
payment thereof by the Paying Agent to the holders of record of Shares. Earnings
from such investment shall be the sole and exclusive property of Parent and the
Surviving Corporation, and no part of such earnings shall accrue to the benefit
of holders of record of Shares.

               (b) As soon as reasonably practicable after the Effective Time,
Parent will cause the Paying Agent to send to each holder of record of Shares at
the Effective Time (other than holders of Shares referred to in Section
3.01(a)(iii)) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title shall pass, only upon proper delivery of
the Certificates representing such Shares to the Paying Agent and will be in
such


                                      -9-


form and have such other provisions as Parent reasonably specifies) and
instructions for use in effecting the surrender of Certificate(s) for payment of
the Merger Consideration for the Shares represented thereby.

               (c) Each holder of record of Shares that have been converted into
the right to receive the Merger Consideration will be entitled to receive, upon
surrender to the Paying Agent of one or more Certificates, together with a
properly completed letter of transmittal, the Merger Consideration, without
interest thereon, in respect of each Share represented by such Certificates.
Until so surrendered, each such Certificate shall represent after the Effective
Time for all purposes only the right to receive such Merger Consideration. No
interest shall be paid or accrued on any amount payable upon surrender of any
Certificate.

               (d) If any portion of the Merger Consideration is to be paid to a
Person (as hereinafter defined) other than the Person in whose name the
surrendered Certificate is registered, it shall be a condition to such payment
that the Certificate so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the Person requesting such payment shall
pay to the Paying Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Paying Agent that such tax has been paid or
is not payable.

               (e) Each of the Surviving Corporation and Parent shall be
entitled to deduct and withhold from the consideration otherwise payable to any
Person pursuant to this Article 3 such amounts as it is required to deduct and
withhold with respect to the making of such payment under any provision of
federal, state, local or foreign tax Law. If the Surviving Corporation or
Parent, as the case may be, so withholds amounts, such amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
Shares in respect of which the Surviving Corporation or Parent, as the case may
be, made such deduction and withholding.

               (f) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond, in such reasonable amount as
the Surviving Corporation may direct, as indemnity against any claim that may be
made against it with respect to such Certificate, the Paying Agent will pay, in
exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration to be paid in respect of the Shares represented by such
Certificate, as contemplated by this Article 3.

               (g) At the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of Shares. If, after the Effective Time, Certificates evidencing ownership of
the Shares outstanding immediately prior to the Effective Time are presented to
the Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Article 3.


                                      -10-


               (h) Any portion of the Payment Fund (and any interest or other
income earned thereon) that remains unclaimed by the holders of Shares one year
after the Effective Time shall be paid by the Paying Agent to the Surviving
Corporation, upon demand, and any such holder who has not exchanged Shares for
the Merger Consideration in accordance with this Section 3.03 prior to that time
shall thereafter look only to the Surviving Corporation for payment of the
Merger Consideration in respect of such Shares, without any interest thereon.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property, escheat or similar Laws.

               (i) The Surviving Corporation shall pay all charges and expenses
of the Paying Agent.

        Section 3.04 Stock Options. (a) As of the Effective Time, each
outstanding stock option or warrant to purchase shares of Company Common Stock
(an "Option" and, collectively, the "Options"), whether granted under the
Company's 1983 Incentive Stock Option Plan, 1990 Stock Option Plan, 1995 Outside
Directors Stock Option Plan or 2000 Stock Option Plan (collectively, the "Option
Plans") or otherwise, whether or not then vested or exercisable, shall be
converted into the right to receive from the Company an amount of cash equal to
the product of (i) the number of shares of Company Common Stock subject to the
Option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per share of Company Common Stock of such Option (the "Option
Consideration"). Prior to the Offer Completion Date (as hereinafter defined),
the Company shall take all steps necessary to give written notice to each holder
of an Option that (i) all options held by such holder that were granted under
the Company's 1995 Outside Directors Stock Option Plan and 2000 Stock Option
Plan shall be canceled effective as of the Offer Completion Date and (ii)(A) all
other Options held by such holder shall be canceled effective as of the
Effective Time and (B) the Option Consideration, if any, for all such Options
held by such holder shall be payable as described in Section 3.04(b). Neither
the Parent nor the Surviving Corporation shall assume or substitute for Options
pursuant to the Transactions contemplated hereby. The Company Board or any
committee thereof responsible for the administration of the Option Plans shall
take any and all action necessary to effectuate the matters described in this
Section 3.04 on or before the Offer Completion Date.

               (b) With respect to Options that remain outstanding following the
Offer Completion Date (it being understood that options granted under the
Company's 1995 Outside Directors Stock Option Plan and 2000 Stock Option Plan
terminate as of the Offer Completion Date), the Option Consideration shall be
payable by the Company to each holder promptly following the Effective Time,
only after (i) verification by the Company and Purchaser of the ownership and
terms of the particular Option by reference to the Company's records, and (ii)
delivery of a written instrument duly executed by the holder of the applicable
Option, in a form provided by the Company and acceptable to Purchaser and
setting forth (x) the aggregate number of Options owned by the Person and their
respective issue dates and exercise prices, (y) a representation by the Person
that he or she is the owner of all Options described pursuant to clause (x) and
that none of those Options has expired or ceased to be exercisable (or would
have


                                      -11-

expired or ceased to be exercisable, assuming such Options had fully vested),
and (z) a confirmation of, and consent to, the cancellation of all Options held
by such Person effective as of the Effective Time.

               (c) Any amounts payable pursuant to this Section 3.04 shall be
subject to any required withholding of taxes and shall be paid without interest.

               (d) Prior to the Effective Time, the Company shall take all
action reasonably necessary to approve the disposition of the Options in
accordance with this Section 3.04 so as to exempt such dispositions under Rule
16b-3 under the Exchange Act.

               (e) The Company shall terminate its 1996 Employee Stock Purchase
Plan (the "ESPP") on or before the Offer Completion Date Date. Prior to the
Offer Completion Date, all accumulated employee salary deductions shall be
applied to the purchase of whole shares of Company Common Stock in accordance
with the terms of the ESPP and any remaining employee salary deductions shall be
returned to participants without interest. The Company shall immediately amend
or take such other necessary action under, effective as of the date hereof, the
ESPP to adjust the purchase date of the current offering period to a date before
the Offer Completion Date and to suspend any new offering periods, any
additional salary deductions in the current offering period and the restrictions
on resale set forth in section 12.4 of the ESPP. The Company shall promptly
notify Parent of the number of shares of Company Common Stock hereafter acquired
under the ESPP.

        Section 3.05 Adjustments. Subject to Section 6.01(b), if, during the
period between the date of this Agreement and the Effective Time, any change in
the outstanding shares of capital stock of the Company shall occur by reason of
any reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or stock dividend thereon with a record date during such
period, the Merger Consideration and any other amounts payable pursuant to this
Agreement shall be appropriately adjusted.

                                    ARTICLE 4
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        Except as set forth in the disclosure memorandum delivered by the
Company to Parent concurrently with the execution of this Agreement (the
"Company Disclosure Memorandum") (with specific reference to the section or
subsection of this Agreement to which the information stated in such disclosure
relates; provided, however, that a matter disclosed in reference to any
particular section or subsection will be deemed to be disclosed for purposes of
any other sections or subsections of this Agreement, even if there is no express
cross-reference, if the matter is disclosed in such a way to make its relevance
to such other sections or subsections readily apparent), the Company represents
and warrants to Parent and Purchaser as follows:

        Section 4.01 Organization and Qualification; Subsidiaries. The Company
and each of its Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is incorporated or organized and has the


                                      -12-


requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Company and each of its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not reasonably be expected
to have a Material Adverse Effect (as hereinafter defined) on the Company.
Section 4.01 of the Company Disclosure Memorandum lists each Subsidiary of the
Company. Unless the context otherwise requires, when used herein "Subsidiary"
refers to each Subsidiary of the Company. The Company has made available to
Parent complete and correct copies of its certificate of incorporation and
bylaws and the certificates of incorporation and bylaws (or comparable documents
for any other legal entity) of its Subsidiaries, in each case as amended to the
date hereof. All of the outstanding shares of capital stock or other ownership
interests of each such Subsidiary have been validly issued and are duly
authorized, fully paid and nonassessable and are owned by the Company, by a
wholly-owned Subsidiary of the Company or by the Company and one or more
wholly-owned Subsidiaries, in each case, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"), and free of any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests, except for restrictions imposed by applicable securities Laws. Other
than ownership of the capital stock or other ownership interests of its
Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other ownership interest in any corporation, partnership, joint venture
or other entity. Neither the Company nor any of its Subsidiaries is subject to
any obligation or requirement to make any loan, capital contribution, investment
or similar expenditure to or in any Person, except for loans, capital
contributions, investments or similar expenditures by the Company or any Company
Subsidiary to any Company Subsidiary. Except as provided by applicable Law,
there are no restrictions of any kind which prevent the payment of dividends by
any Subsidiary.

        Section 4.02 Capitalization. (a) The authorized capital stock of the
Company consists of 20,000,000 shares of common stock, $.001 par value per
share, and 2,000,000 shares of preferred stock, $.001 par value per share, of
which 300,000 shares have been designated Series A Preferred Stock. As of
February 4, 2002 there were outstanding: 2,919,822 shares of Company Common
Stock; no shares of preferred stock; and Options to purchase an aggregate of
454,724 shares of Company Common Stock. Since February 4, 2002, there have been
no issuances of shares of the capital stock of the Company or any other
securities of the Company other than issuances of Company Common Stock pursuant
to Options outstanding on February 4, 2002, and no Options have been granted.
All shares of Company Common Stock outstanding as of the date hereof have been
duly authorized and validly issued and are fully paid and nonassessable. All
shares of Company Common Stock issuable upon exercise of outstanding Options
have been duly authorized and, when issued in accordance with the terms thereof,
will be validly issued, fully paid and nonassessable. Section 4.02(a) of the
Company Disclosure Memorandum lists each outstanding Option, the holder thereof,
the number of shares issuable thereunder, the grant or issue date, exercise
price and expiration date, and indicates whether the holder thereof was an
employee of the Company or one of its Subsidiaries at the time of grant.


                                      -13-

All of such Options have been granted to directors and employees of the Company
and only in the ordinary course of business consistent with past practice. The
Company has delivered to Parent complete and correct copies of all plans
pursuant to which Options were granted and all forms of Options. Following the
Effective Time no holder of Options will have any right to receive shares of
common stock of the Surviving Corporation upon exercise of Options.

               (b) Except as set forth in Section 4.02(a) and except for the
Rights Agreement and the ESPP, (i) there are no outstanding shares of capital
stock or voting securities of the Company, (ii) there are no existing options,
warrants, calls, pre-emptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any kind relating to the issued or unissued
capital stock of the Company or any Company Subsidiary obligating the Company or
any Company Subsidiary to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt (as hereinafter
defined) of, or other equity interest in, the Company or any Company Subsidiary
or securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company or any Company Subsidiary to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment, and (iii) there are no outstanding rights,
commitments, agreements or undertakings obligating the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any Shares or the capital
stock of the Company or any Company Subsidiary or any affiliate of the Company
or to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Company Subsidiary or any other entity.

               (c) There are no bonds, debentures, notes or other indebtedness
having general voting rights (or convertible into securities having such rights)
("Voting Debt") of the Company or any Company Subsidiary.

               (d) There are no contracts, voting trusts or other agreements or
understandings (other than the Stockholders' Agreement) to which the Company or
any of its Subsidiaries is a party or by which it is bound with respect to the
voting of any shares of capital stock of the Company or any of its Subsidiaries.

        Section 4.03 Corporate Authorization. (a) The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval, if necessary, of the Merger by the Company's stockholders in
accordance with the DGCL, to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject to approval, if necessary, of the Merger by the
Company's stockholders in accordance with the DGCL and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or


                                      -14-


other similar laws affecting or relating to the enforcement of creditors' rights
generally and is subject to general principles of equity.

               (b) Assuming the accuracy of the representation and warranty set
forth in the last sentence of Section 5.03, the action of the Company Board in
approving this Agreement (and the transactions provided for herein) is
sufficient to render inapplicable to this Agreement (and the transactions
provided for herein) the provisions of Section 203 of the DGCL. No other state
takeover statute is applicable to this Agreement, the Merger or the other
transactions contemplated hereby.

        Section 4.04 Governmental Authorization. No consent, approval, notice
to, permit, order or authorization of, or registration, declaration or filing
with, any federal, state or local government or any court, administrative
agency, government contractor (including Medicare carriers and intermediaries
and the National Supplier Clearinghouse), commission or other governmental or
regulatory authority or agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
(a) for the filing with the SEC of (i) the Schedule 14D-9 and other filings
required by Rule 14d-9(a) under the Exchange Act, (ii) a proxy statement
relating to the approval by the Company's stockholders of this Agreement (as
amended or supplemented from time to time, the "Proxy Statement"), if required,
and (iii) such reports, information statements and other filings under the
Exchange Act or applicable rules and regulations of Nasdaq as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (b) the filing of the certificate of merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do business, (c) as may be
required by any applicable state securities or "blue sky" Laws or state takeover
Laws, (d) such filings, consents, approvals, orders, registrations and
declarations as may be required under the Laws of any foreign country in which
the Company or any of its Subsidiaries conducts any business or owns any assets,
(e) such consents, approvals, notices to, orders, authorizations, registrations,
declarations and filings required by any Health Benefit Law (as hereinafter
defined), all of which are listed on Schedule 4.04 of the Company Disclosure
Memorandum, and (f) such other consents, approvals, notices to, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company.

        Section 4.05 Non-contravention. The execution and delivery of this
Agreement by the Company does not, and performance by the Company of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby will not, contravene, conflict with, constitute or result in
any violation, default or breach of or require the consent, waiver or notice
under any term or provision of, cause or permit the termination, cancellation,
reduction, acceleration or other change of any right or obligation or the loss
of any benefit to which the Company or any of its Subsidiaries is entitled under
any provision of, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under (a)


                                      -15-


the certificate of incorporation or by-laws of the Company, (b) the comparable
charter or organizational documents of any Company Subsidiary, (c) assuming
compliance with the matters referred to in Section 4.04, any provision of any
applicable Law, regulation, judgment, injunction, order or decree, or (d) any
agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets, or
business of the Company and its Subsidiaries, except, in the case of clauses (c)
and (d), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.

        Section 4.06 SEC Reports; Financial Statements. (a) The Company has
filed with the SEC all reports, schedules, forms, statements and other documents
required to be filed with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act since October 1, 1999, including the
financial statements, exhibits and schedules provided therein or incorporated by
reference therein (the "Company SEC Reports"). No Subsidiary is required to file
any form, report, registration statement, prospectus or other document with the
SEC. As of their respective dates, the Company SEC Reports complied, and all
similar documents filed prior to the Effective Time will comply, in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Reports, and none of the Company SEC Reports
contained, nor will any similar document filed after the date of this Agreement
contain, any untrue statement of a material fact or omitted, nor will any
similar document filed after the date of this Agreement omit, to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent that information contained in any Company
SEC Reports has been revised or superseded by a later-filed Filed Company SEC
Report, as of the date hereof none of the Company SEC Reports contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company SEC Reports, together with any public announcements in a news release
issued by the Dow Jones news service, PR Newswire or any equivalent service
(collectively, a "Dow Jones News Release") made by the Company after the date
hereof taken as a whole, as of the Effective Time will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances existing as of the Effective Time, not misleading. For purposes of
this Agreement, a "Filed Company SEC Report" shall mean a Company SEC Report
filed by the Company and publicly available prior to the date of this Agreement.

               (b) The consolidated financial statements of the Company included
or incorporated by reference in the Company SEC Reports, in each case: complied
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as of their
respective dates, were prepared in accordance with United States generally
accepted accounting principles ("GAAP") (except, in the case of unaudited


                                      -16-


statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes to such
financial statements) and fairly present the consolidated financial position of
the Company and its consolidated Subsidiaries as of the date thereof and the
consolidated results of their operations and cash flows for the period then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments not material, individually or in the aggregate, in amount). The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.

               (c) Except as set forth in the Company Disclosure Memorandum or
disclosed in the financial statements included in the Company's annual report on
Form 10-K for the fiscal year ended September 30, 2001 and except for
liabilities and obligations incurred (i) under this Agreement or in connection
with the Transactions, or (ii) since September 30, 2001 in the ordinary course
of business (none of which is a liability for breach of contract, breach of
warranty, tort, infringement claim or lawsuit), neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether or
not accrued, absolute, contingent, due, to become due, determined, determinable,
asserted, unasserted or otherwise).

               (d) All accounts receivable of the Company and its Subsidiaries
have arisen from bona fide transactions in the ordinary course of business
consistent with past practices and in accordance with SEC regulations and GAAP
applied on a consistent basis and are not subject to valid defenses, setoffs or
counterclaims. The Company's reserve for contractual allowances and doubtful
accounts is adequate and has been calculated in a manner consistent with past
practices. Since September 30, 2001, neither the Company nor any of its
Subsidiaries has modified or changed in any material respects its sales
practices or methods including, without limitation, such practices or methods in
accordance with which the Company and any of its Subsidiaries sell goods, fill
orders or record sales.

               (e) All accounts payable of the Company and its Subsidiaries are
the result of bona fide transactions in the ordinary course of business and have
been paid or are not yet due and payable. Since September 30, 2001, the Company
and its Subsidiaries have not altered in any material respects their practices
for the payment of such accounts payable, including the timing of such payment.

        Section 4.07 Information Supplied. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in the
Offer Documents, the Schedule 14D-9, the information statement to be filed by
the Company in connection with the Offer pursuant to Rule 14f-1 promulgated
under the Exchange Act (as amended or supplemented from time to time, the
"Information Statement") or the Proxy Statement will, in the case of the Offer
Documents, the Schedule 14D-9 and the Information Statement, at the respective
times such documents are filed with the SEC and first published, sent or given
to the Company's stockholders, or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the date it is first mailed to the
Company's stockholders and at the time of the Company Stockholder Meeting,
contain any untrue statement of a material fact or omit to state


                                      -17-


any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, except that no representation is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied in writing by Parent or Purchaser specifically for
inclusion or incorporation by reference therein. The Schedule 14D-9, the
Information Statement and the Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder.

        Section 4.08 Absence of Certain Changes or Events. Since September 30,
2001, except as set forth in the Company Disclosure Memorandum or in the Filed
Company SEC Reports filed since such date, (i) the business of the Company and
its Subsidiaries has been conducted only in the ordinary course and no Material
Adverse Effect on the Company has occurred; (ii) there has not been any
modification, amendment, suspension, debarment or termination of any licenses,
accreditations, certifications, or Medicare or Medicaid participation or
enrollment, any modifications, amendments, suspensions or terminations of any
coverage or coding determinations of any items or services furnished by the
Company, its Subsidiaries or any affiliate of any of them; and (iii) the Company
has not taken any action that would have been prohibited under Section 6.01(b)
hereof, if such section applied to the period between September 30, 2001 and the
date hereof.

        Section 4.09 Litigation. Except to the extent specifically disclosed
with respect to a particular matter in the Company Disclosure Memorandum or in
the Filed Company SEC Reports, there is no suit, claim, investigation, action or
proceeding pending or, to the knowledge of the Company, overtly threatened
against or affecting the Company or any of its Subsidiaries that, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on the Company (it being understood that this representation does not
include any litigation of the nature described in paragraph (a) of Annex A),
and, to the Company's knowledge, no facts exist which could reasonably be
expected to give rise to any suit, claim, investigation, action or proceeding
that, if asserted, could reasonably be expected to have such effect. There is no
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future would have, a
Material Adverse Effect on the Company.

        Section 4.10 Compliance with Laws. Except as disclosed in the Company
Disclosure Memorandum or in the Filed Company SEC Reports, the Company and its
Subsidiaries have been, and are, in compliance in all material respects with all
Laws applicable to their respective businesses or operations, including all
Medicare, Medicaid and CHAMPUS provisions and Health Benefit Laws, and each
Material Contract (as hereinafter defined) complies in all material respects
with all applicable Laws. Since January 1, 1998, neither the Company nor any of
its Subsidiaries has received any written notice from any Governmental Entity
regarding (i) any actual or possible material violation of, or material failure
to comply with, any Law or (ii) any investigation, review or inquiry regarding
any possible default or violation. Each of the Company and its Subsidiaries has
in effect all approvals, authorizations, certificates, filings,


                                      -18-


franchises, licenses, notices, permits and rights of or with all Governmental
Entities, including all authorizations under Environmental Laws (as hereinafter
defined), Health Benefit Laws and those applicable to a Medicare or Medicaid
provider or supplier or a preferred provider organization ("PPO") ("Permits"),
necessary for it to own, lease or operate its properties and assets and to carry
on its business and operations as now conducted and as currently proposed to be
conducted, except where the absence thereof has not had, and could not
reasonably be expected to have, a Material Adverse Effect on the Company
(provided that such exception shall not apply to Permits under Health Benefit
Laws and those applicable to a Medicare or Medicaid provider or supplier or a
PPO). There has occurred no material default under, or material violation of,
any such Permit, or, to the Company's knowledge, the need for any new or
additional Permits the failure of which to obtain, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company. The Merger, in and of itself, will not cause the revocation or
cancellation of any such Permit that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect on the Company. For
purposes of this Agreement, the term "Health Benefit Law" means all Laws
relating to the licensure, certification, qualification or authority to transact
business relating to the provision of, payment for or administration of health
benefits and insurance, including ERISA (as hereinafter defined), the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, the Health
Insurance Portability and Accountability Act of 1996, and laws relating to the
regulation of health maintenance organizations, workers compensation, managed
care organizations, insurance, PPOs, point-of-service plans, certificates of
need, third-party administrators, utilization review, coordination of benefits,
reimbursement, Medicare and Medicaid coverage, participation in federal employee
health benefit programs, healthcare fraud and abuse and patient referrals.

        Section 4.11 Taxes. (a) "Taxes" means any and all taxes, charges, fees,
levies or other assessments, including income, gross receipts, excise, real or
personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, goods and services, service use, license, value
added, capital, net worth, payroll, profits, withholding, franchise, business,
transfer and recording taxes, fees and charges, and any other taxes, assessments
or similar charges imposed by the Internal Revenue Service (the "IRS") or any
taxing authority (whether domestic or foreign, including any state, county,
local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)) (a "Taxing Authority"), whether computed
on a separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest, fines, penalties or additional amounts attributable
to, or imposed upon, or with respect to, any such taxes, charges, fees, levies
or other assessments. "Tax Return" means any report, return, document,
declaration or other information or filing required to be supplied to any Taxing
Authority or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information.

               (b) The Company and each of its Subsidiaries and each affiliated
group (within the meaning of Section 1504 of the Internal Revenue Code of 1986,
as amended (the


                                      -19-


"Code")) of which the Company or any of its Subsidiaries is or has been a member
has timely filed all material Tax Returns which it has been required to file, or
requests for extensions to file such Tax Returns have been timely filed and
granted and have not expired, and all such Tax Returns are complete and accurate
in all material respects. The Company and each of its Subsidiaries has paid (or
has had paid on its behalf) all material Taxes which have become due and payable
by it and has made adequate provision in reserves established in its financial
statements and accounts for all Taxes which have accrued but are not yet due and
payable.

               (c) No audits or other administrative proceedings or court
proceedings are pending or, to the knowledge of the Company, threatened with
respect to Taxes or Tax Returns of the Company or its Subsidiaries.

               (d) No deficiencies for any Taxes have been proposed, asserted or
assessed in writing against the Company or any of its Subsidiaries and neither
the Company nor any of its Subsidiaries has waived any statute of limitations in
respect of the assessment and collection of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency. The federal income Tax
Returns of the Company have been examined and settled with the IRS (or the
applicable statutes of limitations for the assessment of federal income Taxes
for such period has expired) for all fiscal years through September 30, 1997.

               (e) None of the Company and its Subsidiaries is a party to any
Tax allocation, Tax indemnity, Tax sharing or similar arrangement or agreement
(whether or not in writing) other than between or among themselves.

               (f) None of the Company and its Subsidiaries has been a member of
an affiliated group filing a consolidated U.S. federal Tax Return (other than an
affiliated group, the common parent of which is the Company).

               (g) No Liens for Taxes exist with respect to any assets or
properties of the Company or any of its Subsidiaries, except for statutory Liens
for Taxes not yet due.

               (h) Neither the Company nor any of its Subsidiaries has entered
into a closing agreement pursuant to Section 7121 of the Code or any predecessor
provision or any similar provision of state, local or foreign Tax law.

               (i) The Company and its Subsidiaries have withheld and paid all
material Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party.

               (j) No claim has been made by a Taxing Authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns to the effect that the Company or any of its Subsidiaries is or may be
subject to Taxation by that jurisdiction.

               (k) Neither the Company nor any of its Subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation"
(within the meaning of Section


                                      -20-


355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two years prior to the date
of this Agreement or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.

        Section 4.12 Employee Benefit Plans. (a) Section 4.12 of the Company
Disclosure Memorandum lists each of the following plans, contracts, policies and
arrangements which is or, within six years prior to the date of this Agreement,
was maintained, sponsored, contributed to, or otherwise provided or made, by the
Company or any of its Subsidiaries for the benefit of, or with, any current or
former employee, director or other personnel (or any dependents or beneficiaries
of such individuals): (i) any "employee benefit plan," (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), whether or not subject to the provisions of ERISA, (ii) any
personnel policy and (iii) any employment, consulting, collective bargaining,
stock option, stock bonus, stock purchase, phantom stock, incentive, bonus,
deferred compensation, excess benefit, retirement, supplemental retirement,
severance, vacation, holiday, dependent care, employee assistance, fringe
benefit, cafeteria, medical, dental, vision, hospitalization, accident,
disability, sick leave, death benefit, life, golden parachute, post-retirement
or other compensatory plan, contract, policy or arrangement which is not an
employee benefit plan as defined in Section 3(3) of ERISA (each such plan,
contract, policy and arrangement described in (i), (ii) or (iii) above being
herein referred to as an "Employee Plan").

               (b) With respect to each Employee Plan, the Company has made
available to Parent true and complete copies of (i) all written materials
governing or describing the Employee Plan and/or any related funding
arrangements (including, without limitation, any amendments, trust agreements,
insurance company contracts or summary plan descriptions) or, if there are no
such written materials, a summary description of the Employee Plan; and (ii),
where applicable, (A) the last two annual reports (5500 series) filed with the
IRS or the Department of Labor; (B) the most recent balance sheet and financial
statement; (C) the most recent actuarial report, plan audit or valuation
statement; and (D) the most recent determination letter issued by the IRS, as
well as any other determination letter, private letter ruling, opinion letter or
prohibited transaction exemption issued by the IRS or the Department of Labor
within the last six years and any application therefor which is currently
pending.

               (c) Each Employee Plan has been maintained and administered in
accordance with its terms and in all material respects in compliance with the
provisions of applicable Law, including, without limitation, applicable
disclosure, reporting, funding and fiduciary requirements under ERISA and the
Code. All contributions, insurance premiums, benefits and other payments
required to be made to or under each Employee Plan with respect to all periods
through the Effective Time shall have been made prior to the Closing (on a
pro-rata basis where such payments are otherwise discretionary at year end) or
accrued on the Company's financial statements in accordance with GAAP. With
respect to each Employee Plan, (i) no application, proceeding or other matter is
pending before the IRS, the Department of Labor or any other Governmental
Entity, (ii) no action, suit, proceeding or claim (other than routine claims for


                                      -21-


benefits) is pending or to the knowledge of the Company overtly threatened, and
(iii) to the knowledge of the Company, no facts exist which could reasonably be
expected to give rise to an action, suit, proceeding or claim which, if
asserted, could reasonably be expected to result in a material liability or
expense to the Company or any of its Subsidiaries or the assets of any plan.

               (d) With respect to each Employee Plan which is an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or which is a "plan"
within the meaning of Section 4975(e) of the Code, there has occurred no
transaction which is prohibited by Section 406 of ERISA or which constitutes a
"prohibited transaction" under Section 4975(c) of the Code and with respect to
which a prohibited transaction exemption has not been granted and is not
currently in effect.

               (e) With respect to each funded Employee Plan which is an
"employee pension plan" (within the meaning of Section 3(2) of ERISA), (i) the
Employee Plan has, since its inception, been a qualified plan under Section
401(a) of the Code, and its related trust has, since its inception, been exempt
from federal income taxation under Section 501(a) of the Code, (ii) a favorable
IRS determination letter is currently in effect and, since the date of the last
determination letter, the Employee Plan has not been amended or operated in a
manner which would adversely affect its qualified status and no event has
occurred which has caused or could reasonably be expected to cause the loss of
such status, and (iii) there has been no termination or partial termination
within the meaning of Section 411(d)(3) of the Code. Each Employee Plan intended
to qualify under Section 401(a) of the Code has either obtained from the IRS a
favorable determination, opinion, advisory or notification letter, as
applicable, as to its qualified status pursuant to Revenue Procedures 99-23,
2000-25 and 2001-55, or has time remaining to apply pursuant to such Revenue
Procedures for such a determination letter and to make any amendments necessary
to obtain a favorable determination, or has established under a standardized
prototype plan for which an IRS opinion letter has been obtained by the plan
sponsor and is valid as to the adopting employer.

               (f) Neither the Company nor any ERISA Affiliate has ever
maintained or been obligated to contribute to an employee pension plan
(including, without limitation, any "multiemployer plan" (within the meaning of
Section 3(37) of ERISA) or any single employer pension plan which is subject to
Section 4063 or 4064 of ERISA) which is or was covered by Title IV of ERISA.
Neither the Company nor any ERISA Affiliate has incurred or could be reasonably
expected to incur any direct or indirect liability under Title IV of ERISA. No
"accumulated funding deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Code) has been or could be reasonably expected to be incurred
with respect to any Employee Plan, whether or not waived, and no excise or other
taxes have been or could reasonably be expected to be incurred or are due and
owing with respect to any Employee Plan because of any failure to comply with
the minimum funding standards of ERISA or the Code. No security under Section
401(a)(29) of the Code has been or could be reasonably expected to be required.
"ERISA Affiliate" means any Person (whether or not incorporated) which, by
reason of its relationship with the Company, is required to be aggregated with
the Company under


                                      -22-


Sections 414(b), 414(c), 414(m), or 414(o) of the Code, or which, together with
the Company, is a member of a controlled group within the meaning of Section
4001(a) of ERISA.

               (g) The Company and its ERISA Affiliates have complied in all
material respects with the provisions of Section 4980B of the Code with respect
to any Employee Plan which is a "group health plan" (within the meaning of
Section 5001(b)(1) of the Code). Neither the Company nor any of its Subsidiaries
maintain or contribute to and are not otherwise obligated under any plan,
contract, policy or arrangement providing health or death benefits (whether or
not insured) to current or former employees or other personnel beyond the
termination of their employment or other services, except for ordinary
administrative expenses and statutorily required benefits (for example, family
medical leave). Each Employee Plan may be unilaterally terminated and/or amended
by the Company at any time without material liability, damage or penalty to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has any formal plan or commitment, whether legally binding or not,
to create any additional Employee Plan or materially modify or change any
existing Employee Plan that would affect any current or former officer, director
or employee of the Company or any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries have any unfunded liabilities under any "pension plan"
(within the meaning of Section 3(2) of ERISA) that is not intended to be
qualified under Section 401(a) of the Code.

               (h) The consummation of the transactions contemplated by this
Agreement will not (either alone or in conjunction with another event, such as a
termination of employment or other services) entitle any employee or other
person to receive severance or other compensation which would not otherwise be
payable absent the consummation of the transactions contemplated by this
Agreement or cause the acceleration of the time of payment or vesting of any
award or entitlement under any Employee Plan. No amounts payable under any
Employee Plan or otherwise will fail to be deductible for federal income tax
purposes by virtue of Section 280G of the Code.

        Section 4.13 Environmental Matters. The Company and its Subsidiaries are
in compliance in all material respects with applicable Environmental Laws,
including, without limitation, holding all material permits and authorizations
required pursuant to such laws for the ownership and operation of their business
as currently conducted and compliance in all material respects with the terms
thereof, and the Company has no knowledge of any facts or circumstances that
would prevent, interfere with, or materially increase the cost of maintaining
such compliance in the future. Neither the Company nor any of its Subsidiaries
has (i) placed, held, located, released, transported or disposed of any
Hazardous Substance (as hereinafter defined) on, under, from or at any of the
Company's or any of its Subsidiaries' properties or any other properties, other
than in a manner that would not require remediation pursuant to applicable
Environmental Law, (ii) any knowledge of the presence of any Hazardous
Substances that have been released into the environment on, under or at any of
the Company's or any of its Subsidiaries' properties other than that which would
not require remediation pursuant to applicable Environmental Law, or (iii)
received any written notice (A) of any violation of any applicable Environmental
Law that has not been resolved, (B) of the institution or pendency of


                                      -23-


any suit, action, claim, proceeding or investigation by any Governmental Entity
or any third party in connection with any such violation, (C) requiring the
response to or remediation of a release of Hazardous Substances at or arising
from any of the Company's or any of its Subsidiaries' properties or any other
properties, (D) alleging non-compliance by the Company or any of its
Subsidiaries with the terms of any permit required under any Environmental Law
or (E) demanding payment for response to or remediation of a release of
Hazardous Substances at or arising from any of the Company's or any of its
Subsidiaries' properties or any other properties. There are no past or present
facts or circumstances that could reasonably be expected to form the basis of
any material Environmental Claim (as hereinafter defined) against the Company or
any of its Subsidiaries or against any Person whose liability for any
Environmental Claim the Company or any of its Subsidiaries has retained or
assumed either contractually or by operation of law. All material permits and
other governmental authorizations currently held or required to be held by the
Company and its Subsidiaries pursuant to any Environmental Laws are identified
in Section 4.13 of the Company Disclosure Memorandum. The Company has provided
to Parent all assessments, reports, data, results of investigations or audits,
and other material information that is in the possession of or reasonably
available to the Company and its Subsidiaries regarding environmental matters
pertaining to or the environmental condition of the business of the Company and
its Subsidiaries, or the compliance (or noncompliance) by the Company or any of
its Subsidiaries with any Environmental Laws. For purposes of this Agreement,
the term "Environmental Law" means all federal, state, local and foreign Laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Substances, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances as enacted and in effect on or prior to the
date hereof; "Hazardous Substance" means any chemical, pollutant, contaminant,
waste, petroleum or petroleum product and any material defined as toxic or
hazardous or otherwise regulated under any applicable Environmental Law; and
"Environmental Claim" means any claim, action, investigation or notice by any
person or entity alleging potential liability for investigatory, cleanup or
governmental response costs, or natural resources or property damages, or
personal injuries, attorney's fees or penalties relating to (i) the presence, or
release into the environment, of any Hazardous Substance at any location whether
or not owned or operated by the Company or any of its Subsidiaries, now or in
the past, or (ii) any violation, or alleged violation, of any Environmental Law.

        Section 4.14 Intellectual Property. (a) For purposes of this Section
4.14, "Company Intellectual Property" means all the (i) trademarks, service
marks, trade names, Internet domain names, designs, logos, slogans and general
intangibles of like nature, together with all goodwill, registrations and
applications related to the foregoing, (ii) patents (including any
registrations, continuations, continuations in part, renewals and applications
for any of the foregoing), (iii) copyrights (including any registrations and
applications for any of the foregoing), (iv) Software (as hereinafter defined)
and (v) technology, trade secrets and other confidential information, know-how,
inventions, proprietary processes, formulae, algorithms, models and
methodologies (collectively, "Trade Secrets") held for use or used in the
conduct of the Company's and each of


                                      -24-


its Subsidiaries' business as currently conducted or contemplated to be
conducted. For purposes of this Section 4.14, "Software" means any and all (i)
computer programs, including any and all software implementation of algorithms,
models and methodologies, whether in source code or object code, (ii) databases
and compilations, including any and all data and collections of data, and (iii)
all documentation, including user manuals and training materials, relating to
any of the foregoing and the content and information contained on any website.
The Software, Trade Secrets related to the Software and the other Company
Intellectual Property that is material to the conduct of the business of the
Company and its Subsidiaries (collectively, the "Material Company Intellectual
Property") is subsisting, in full force and effect, has not been cancelled,
expired or abandoned, and is valid and enforceable.

               (b) Section 4.14(b) of the Company Disclosure Memorandum sets
forth a complete and accurate list of all of the following that are owned by the
Company or any of its Subsidiaries: (i) patents and patent applications, (ii)
trademark and service mark registrations (including Internet domain name
registrations), trademark and service mark applications and material
unregistered trademarks, tradenames and service marks, (iii) copyright
registrations, copyright applications and material unregistered copyrights and
(iv) Software (other than readily-available commercial software having an
acquisition price of less than $15,000).

               (c) Section 4.14(c) of the Company Disclosure Memorandum sets
forth a complete and accurate list of all agreements (whether oral or written,
and whether between the Company, any of its Subsidiaries and third parties or
intercorporate) to which the Company or any of its Subsidiaries is a party or
otherwise bound, (i) granting or obtaining any right to use or practice any
rights under any Company Intellectual Property (other than licenses for readily
available commercial software programs having an acquisition price of less than
$15,000), or (ii) restricting the Company's or any of its Subsidiaries' rights
to use any Company Intellectual Property, including license agreements,
development agreements, distribution agreements, settlement agreements, consent
to use agreements, and covenants not to sue (collectively, the "License
Agreements"). The License Agreements are valid and binding obligations of the
Company, and, to the knowledge of the Company, all other parties thereto,
enforceable in accordance with their terms, and there exists no event or
condition which will result in a material violation or breach of, or constitute
(with or without due notice of lapse of time or both) a material default by any
party under, any such License Agreement. Neither the Company nor any of its
Subsidiaries have licensed or sublicensed its rights in any Company Intellectual
Property other than pursuant to the License Agreements. No royalties, honoraria
or other fees are payable by the Company or any of its Subsidiaries to any third
parties for the use of or right to use any Company Intellectual Property except
pursuant to the License Agreements.

               (d) The Company or one of its Subsidiaries owns or possesses
adequate, valid and enforceable licenses or other rights to use, free and clear
of all Liens and any third-party rights, all Material Company Intellectual
Property.

               (e) The Company's and its Subsidiaries' ownership, licenses or
rights in the Material Company Intellectual Property will not be affected by the
consummation of the Offer or


                                      -25-


the Merger. The consummation of the Offer or the Merger will not result in the
loss or impairment of the Company or any of its Subsidiaries' right to own, use
or bring any action for the infringement of any of the Material Company
Intellectual Property, nor will it require the consent of any Governmental
Entity or third party in respect of any such Material Company Intellectual
Property.

               (f) The conduct of the Company and any of its Subsidiaries'
business as currently conducted or planned to be conducted does not conflict
with or infringe on (either directly or indirectly such as through contributory
infringement or inducement to infringe) any intellectual property rights owned
or controlled by any third party. There is no pending or, to the knowledge of
the Company, overtly threatened claim, suit, arbitration or other adversarial
proceeding before any Governmental Entity in any jurisdiction involving the
Company Intellectual Property or alleging that the activities or the conduct of
the Company's or any Company Subsidiary's businesses infringe upon, violate or
constitute the unauthorized use of the intellectual property rights of any third
party or challenging the Company or any of its Subsidiaries' ownership, use,
validity, enforceability or registrability of any Company Intellectual Property,
except for claims, suits, arbitrations or proceedings that individually or in
the aggregate would not reasonably be expected to have a Material Adverse Effect
on the Company. There are no settlements, forbearances to sue, consents,
judgments, or orders or similar obligations other than the License Agreements
which (i) restrict the Company's or any of its Subsidiaries' right to use any
Company Intellectual Property, (ii) restrict the Company's or any of its
Subsidiaries' businesses in order to accommodate a third party's intellectual
property rights or (iii) permit third parties to use any Company Intellectual
Property owned or controlled by the Company or any of its Subsidiaries.

               (g) To the knowledge of the Company, no third party is using
misappropriating, infringing, diluting or violating any of the Company
Intellectual Property, and no such claims, suits, arbitrations or other
adversarial proceedings have been brought or threatened against any third party
by the Company or any of its Subsidiaries.

        Section 4.15 Title and Condition of Properties. The Company and each of
its Subsidiaries has good and marketable fee title to, or a valid leasehold
interest in, all its respective properties and assets, free and clear of all
Liens, except for (i) Liens disclosed in the Company Disclosure Memorandum or in
the Filed Company SEC Reports, (ii) Liens or imperfections of title which are
not, individually or in the aggregate, material in character, amount or extent
and which do not materially detract from the value or materially interfere with
the present or presently contemplated use of the assets subject thereto or
affected thereby and (iii) Liens for current Taxes not yet due and payable. All
of the improvements on real property and fixtures, machinery, equipment and
other tangible personal property and assets owned or used by the Company are in
good condition and repair, except for ordinary wear and tear not caused by
neglect, and are usable in the ordinary course of business, except for any
matter otherwise covered by this sentence which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company. Each of the Company and its Subsidiaries has complied in all respects
with the terms of all leases to which it is a party and


                                      -26-


under which it is in occupancy, and all such leases are in full force and
effect, except for such noncompliance or failure to be in full force and effect
that individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect on the Company.

        Section 4.16 Insurance. Section 4.16 of the Company Disclosure
Memorandum sets forth a list of insurance policies (including information on the
premiums payable in connection therewith and the amount of coverage provided
thereunder) maintained by the Company and its Subsidiaries, which policies have
been issued by issuers that, to the Company's knowledge, are reputable and
financially sound. The Company and its Subsidiaries have in place valid and
currently effective insurance policies or binders of insurance or programs of
self-insurance in such types and amounts as are, in the Company's judgment,
reasonable in the context of the businesses and operations engaged in by the
Company and its Subsidiaries. The Company has paid all premiums due under such
policies and is not in default in any material respect with respect to its
obligations under any such policies.

        Section 4.17 Material Contracts. (a) Section 4.17 of the Company
Disclosure Memorandum sets forth a list of all Material Contracts (as
hereinafter defined). The Company has heretofore made available to Parent true,
correct and complete copies of all written, and true, correct and complete
summaries of all oral, contracts, commitments and agreements (and all
amendments, modifications and supplements thereto and all side letters to which
the Company or any of its Subsidiaries is a party affecting the obligations of
any party thereunder) to which the Company or any of its Subsidiaries is a party
or by which any of its properties or assets are bound that are material to the
business, properties or assets of the Company and its Subsidiaries taken as a
whole, including, without limitation, to the extent any of the following are
material to the business, properties or assets of the Company and its
Subsidiaries taken as a whole, all: (i) employment, severance, product design or
development, personal services, consulting, management, non-competition or
indemnification contracts (including, without limitation, any contract to which
the Company or any of its Subsidiaries is a party involving employees of the
Company); (ii) licensing, merchandising or distribution agreements; (iii)
contracts granting a right of first refusal or first negotiation; (iv)
partnership or joint venture agreements; (v) agreements for the acquisition,
sale or lease of material properties or assets of the Company (by merger,
purchase or sale of assets or stock or otherwise) entered into since September
30, 2001 (other than agreements relating to the sale of inventory or the
performance of services in the ordinary course); (vi) contracts or agreements
with any Governmental Entity; (vii) loan or credit agreements, mortgages,
indentures or other agreements or instruments evidencing, indebtedness for
borrowed money by the Company or any of its Subsidiaries or any such agreement
pursuant to which indebtedness for borrowed money may be incurred; (viii)
guaranty or security agreements in which the Company or a Subsidiary is a
guarantor, co-signor or possessor of a security interest related to any loan or
credit agreement; (ix) agreements that purport to limit, curtail or restrict the
ability of the Company or any of its Subsidiaries to compete in any geographic
area or line of business; (x) contracts or agreements that would be required to
be filed as an exhibit to a Form 10-K filed by the Company with the SEC on the
date hereof; (xi) contracts, licenses, assignments or other agreements pursuant
to which the Company or any of its Subsidiaries acquired or licensed, granted or
otherwise disposed of rights in the Company


                                      -27-


Intellectual Property; (xii) all contracts which have annual expenditures or
payment obligations in excess of $25,000 or which have a value greater than
$50,000 per year and are not terminable without penalty upon sixty (60) calendar
days' notice, including information systems or data processing agreements,
employment contracts, medical services agreements, management agreements,
medical equipment service or maintenance contracts, medical equipment leases, or
purchase contracts and new construction, improvements, repair or maintenance
contracts; (xiii) all contracts with current or former directors or officers (or
family members of such directors or officers) of the Company or any of its
affiliates (other than employment contracts); (xiv) all agreements with
healthcare providers (other than agreements (treating for this purpose all
agreements with a healthcare provider and its affiliates as one agreement)
pursuant to which the Company and its Subsidiaries (A) paid or received less
than $25,000 in the aggregate during the year ended September 30, 2001, or (B)
expect to pay or receive less than $25,000 in the aggregate during the year
ended September 30, 2002); (xv) all contracts with physicians, physicians'
immediate family members or physician entities (including all entities owned
directly or indirectly by physicians or their family members), including
physician guarantees or recruitment agreements, physician services, equipment or
facilities agreements and physician space or equipment lease agreements; (xvi)
marketing and advertising agreements; (xvii) all contracts to which the Company,
any Subsidiary or any of their affiliates is a party for any professional
non-physician services, such as laboratories, x-ray technicians and respiratory
therapists; (xviii) all ground leases under which the Company, any Subsidiary or
any of their affiliates is the tenant; (xix) all other ground or space leases
that involve more than 1,000 square feet of net rentable area; (xx) all
equipment leases; (xxi) all contracts (including participation agreements) with
Governmental Entities, including CHAMPUS, Medicare and Medicaid, and managed
care organizations (other than agreements (treating for this purpose all
agreements with a healthcare provider and its affiliates as one agreement)
pursuant to which the Company and its Subsidiaries (A) paid or received less
than $25,000 in the aggregate during the year ended September 30, 2001, or (B)
expect to pay or receive less than $25,000 in the aggregate during the year
ended September 30, 2002); (xxii) contracts with any physician or physician
entity, any of the benefits of which are contingent, or the terms of which are
affected or altered, upon the occurrence of a transaction involving the Company
or any Subsidiary of the nature contemplated by this Agreement or otherwise do
not comply with the federal Stark Law (42 U.S.C. Section 1395nn); (xxiii)
contracts with a potential referral source to the Company or any Subsidiary,
including, but not limited to, service contracts for marketing and advertising,
that do not comply with a safe harbor to the federal Anti-Kickback Statute (42
U.S.C. Sections 1320a-7b(b)); and (xxiv) written or oral contracts, commitments
and agreements to enter into any of the foregoing (collectively, the "Material
Contracts"). The Company has provided to Parent each form of agreement it uses
with healthcare providers and managed care organizations.

               (b) Each of the Material Contracts constitutes a valid and
legally binding obligation of the Company or one or more of its Subsidiaries,
and to the knowledge of the Company, of the other party or parties thereto,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and similar Laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect. There


                                      -28-


is no material default under any Material Contract either by the Company or, to
the Company's knowledge, by any other party thereto, and no event has occurred
that with the lapse of time or the giving of notice or both would constitute a
material default thereunder by the Company or, to the Company's knowledge, any
other party. The Company has not received any notice from any other party to any
such Material Contract, and otherwise has no knowledge that such third party
intends to terminate, or not renew, any such Material Contract.

               (c) No party to any such Material Contract has given notice to
the Company of or made a claim against the Company with respect to any material
breach or default thereunder. No party to any such Material Contract has
provided notice orally or in writing, or, to the Company's knowledge, otherwise
overtly threatened, that it has taken or intends to take the position that any
provision within such Material Contract or the contract itself is in violation
of any federal or state Law.

        Section 4.18 Employment Matters. (a) Neither the Company nor any of its
Subsidiaries is a party to any labor or collective bargaining agreement, and no
employees of the Company or any of its Subsidiaries are represented by any labor
organization. Within the preceding three years, there have been no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of the Company, overtly
threatened to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. Within the preceding three years,
to the knowledge of the Company, there have been no organization activities
involving the Company or any of its Subsidiaries in respect of any group of
employees of the Company or any of its Subsidiaries.

               (b) The Company and its Subsidiaries have good labor relations,
and there are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations, material grievances or other material labor disputes pending or,
to the knowledge of the Company, overtly threatened against or involving the
Company or any of its Subsidiaries. There are no unfair labor practice charges,
grievances or complaints pending or, to the knowledge of the Company, threatened
in writing by or on behalf of any employee or group of employees of the Company
or its Subsidiaries that, if individually or collectively resolved against the
Company or its Subsidiaries, would reasonably be expected to have a Material
Adverse Effect on the Company.

               (c) There are no complaints, charges, or claims against the
Company or its Subsidiaries pending or, to the knowledge of the Company, overtly
threatened to be brought or filed with any Governmental Entity based on, arising
out of, in connection with, or otherwise relating to the employment or
termination of employment of any individual by the Company or its Subsidiaries
that, if individually or collectively resolved against the Company or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect on
the Company.

               (d) Each of the Company and its Subsidiaries is in material
compliance with all Laws and orders relating to the employment of labor,
including all such laws and orders relating to wages, hours, WARN, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation, and the collection and payment of withholding and/or social


                                      -29-


security Taxes and any similar Tax, and are not engaged in any material unfair
labor practice. Neither the Company nor any of its Subsidiaries has instituted
any "freeze" of, or delayed or deferred the grant of, any cost-of-living or
other salary adjustments for any of its employees.

               (e) There has been no "mass layoff" or "plant closing" as defined
by WARN in respect of the Company or its Subsidiaries within the six months
prior to the Closing.

        Section 4.19 Finders' Fees. No broker, investment banker, financial
advisor or other Person, other than Houlihan Lokey, the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has delivered to Parent true and complete
copies of all agreements under which any such fees or expenses are payable and
all indemnification and other agreements related to the engagement of the
Persons to whom such fees are payable.

        Section 4.20 Opinion of Financial Advisor. The Company has received the
written opinion of Houlihan Lokey, dated February 7, 2002, to the effect that,
as of the date of such opinion, the consideration to be received by the holders
of Shares pursuant to the Offer and the Merger is fair to such holders from a
financial point of view and such opinion has not been withdrawn or modified by
Houlihan Lokey. A copy of such opinion has been delivered to Parent and
Purchaser. The Company has been authorized by Houlihan Lokey to permit the
inclusion of such opinion in its entirety in the Offer Documents and the
Schedule 14D-9 and the Proxy Statement, so long as such inclusion is in form and
substance reasonably satisfactory to Houlihan Lokey and its independent counsel.

        Section 4.21 Voting Requirements. The affirmative vote of the holders of
a majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary to
adopt and approve this Agreement and the transactions contemplated by this
Agreement unless the Merger may be consummated in accordance with Section 253 of
the DGCL, in which case no such consent of the Company's stockholders is
required.

        Section 4.22 Books and Records. The books of account, minute books,
stock record books and other records of the Company and its Subsidiaries are
complete and correct in all material respects and have been maintained in
accordance with sound business practices and the requirements of Section
13(b)(2) of the Exchange Act, including an adequate system of internal controls.

        Section 4.23 Certain Business Practices. Neither the Company nor any of
its Subsidiaries nor (to the knowledge of the Company) any director, officer,
agent or employee of the Company or any of its Subsidiaries has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity or for the purpose of securing patient
referrals or other business for the Company or a Subsidiary, (ii) made any


                                      -30-


unlawful payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns or violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.

        Section 4.24 Interests of Officers and Directors. Except as described in
the Filed Company SEC Reports, none of the Company's or its Subsidiaries'
officers or directors has any material direct or indirect interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
business of the Company or that of its Subsidiaries, or any supplier,
distributor or customer of the Company or any of its Subsidiaries.

        Section 4.25 Provider/Supplier Status. (a) Each of the Company and its
Subsidiaries that is a healthcare provider and that participates in the
Medicare, Medicaid and CHAMPUS programs has a valid provider/supplier agreement
with respect to each such program and is in substantial compliance with the
conditions of participation of such programs. All claims and cost reports (if
any) prepared and delivered by the Company or any Subsidiary during the last six
years to Medicare, Medicaid or any other federal or state agencies funding the
provision of healthcare services have been prepared in all material respects in
accordance with the rules and regulations pertaining thereto and timely filed.

               (b) Neither the Company nor any of its Subsidiaries has received
notice from any Governmental Entity that enforces the statutory or regulatory
provisions in respect of either the Medicare or Medicaid programs of any pending
or threatened investigations or surveys, and the Company has no reason to
believe that any such investigations or surveys are pending, threatened or
imminent. The Company and each Subsidiary has all contracts, including
provider/supplier contracts, necessary to conduct its business within the
jurisdiction where it is located and to receive federal or state payments with
respect to its qualified patients. There is no claim pending or, to the
knowledge of the Company, threatened involving any such provider/supplier
contract or other contract.

               (c) Each of the Company and its Subsidiaries that is a provider
or supplier of healthcare services holds (i) all necessary certifications and/or
accreditations from an appropriate certifying or accrediting body, which are
current and valid and (ii) valid and current license(s) issued by the states in
which the Company or the Subsidiary is located and in which the Company or the
Subsidiary conducts business, as necessary. The consummation of the Transactions
will not cause the revocation or cancellation of any such certificates,
accreditations or licenses.

        Section 4.26 Medicare Secondary Payor. All actions taken or failed to
have been taken by the Company and its Subsidiaries in connection with its PPO
have been taken or omitted in complete compliance with the Medicare secondary
payor rules and all applicable federal Laws, as supplemented by the regulations
of the Department of Health and Human Services ("Secondary Payor Rules"); and no
healthcare plan administered by the Company or any Subsidiary has any liability
of any nature (including, but not limited to, any liability under the


                                      -31-


Code, the Social Security Act and the Age Discrimination in Employment Act) to
the United States of America or to any other Person with respect to the
Secondary Payor Rules.

        Section 4.27 Overpayments. There are no outstanding overpayments,
reported or unreported, to the Company or any Subsidiary, or demands or notices
thereof, by any third-party payors, including, but not limited to, Medicare,
Medicaid, CHAMPUS and managed care plans.

        Section 4.28 Settlement Agreements. (a) Section 4.28 of the Company
Disclosure Memorandum sets forth each settlement agreement including, but not
limited to, any agreements by the Company to refund any amounts paid by a
Governmental Entity, or for the Company to pay fines or penalties to any
Governmental Entity, entered into by the Company or one or more of its
Subsidiaries with a Governmental Entity and all other agreements related thereto
(collectively, the "Settlement Agreements"). The Company has made available to
Parent true and correct copies of each Settlement Agreement. No term or
provision of this Agreement will violate or alter the terms of any Settlement
Agreement or give any Governmental Entity the right to demand changes to the
terms of any Settlement Agreement. Each Settlement Agreement is in full force
and effect and neither the Company nor any of its Subsidiaries is in default
under or in violation of, nor is there any valid basis for any claim or default
under or violation of, such Settlement Agreement.

               (b) The Corporate Integrity Agreement, dated October 10, 2001,
between Raytel Cardiac Services, Inc., a Subsidiary of the Company, and the
United States Department of Health and Human Services (the "CIA"), a true and
complete copy of which has been delivered to Parent, is in full force and effect
and neither the Company nor any of its Subsidiaries is in default under or in
violation of, nor is there any basis for any claim or default under or violation
of, the CIA.

        Section 4.29 Rights Agreement. The Company has taken all action which
may be necessary under the Rights Agreement, dated as of August 14, 1998,
between the Company and BankBoston, N.A., as rights agent (the "Rights
Agreement") to ensure that (a) a "Distribution Date" and a "Stock Acquisition
Date" (in each case as defined in the Rights Agreement) will not occur, and none
of Parent, Purchaser or any of their "Affiliates" or "Associates" will be deemed
to be an "Acquiring Person" (in each case as defined in the Rights Agreement),
by reason of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby; and (b) the Rights will expire immediately
prior to the Effective Time.

        Section 4.30 Full Disclosure. The representations and warranties made by
the Company in this Agreement, when taken as a whole, do not contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein, in light of the circumstances under
which they were made, not misleading.


                                      -32-


                                    ARTICLE 5
             REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER

               Parent and Purchaser, jointly and severally, represent and
warrant to the Company that:

        Section 5.01 Organization, Standing and Corporate Power. Each of Parent
and Purchaser is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted.

        Section 5.02 Corporate Authorization. Each of Parent and Purchaser has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated by this Agreement, in each case by Parent and/or
Purchaser, as the case may be, have been duly authorized by all necessary
corporate action on the part of Parent and Purchaser. This Agreement has been
duly executed and delivered by Parent and Purchaser and constitutes a valid and
binding obligation of each such party, enforceable against each such party in
accordance with its terms, except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar Laws affecting or relating
to the enforcement of creditors' rights generally and is subject to general
principles of equity.

        Section 5.03 Governmental Authorization. No consent, approval, notice
to, permit, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent,
Purchaser or any other Subsidiary of Parent in connection with the execution and
delivery of this Agreement by Parent and Purchaser or the consummation by Parent
and Purchaser of the transactions contemplated by this Agreement, except for (a)
the filing with the SEC of (i) the Offer Documents and (ii) such reports and
other filings under the Exchange Act or applicable rules and regulations of the
Switzerland stock market as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (b) the filing of the
certificate of merger with the Delaware Secretary of State, (c) the filing of
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business and (d) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent. Neither
Parent nor any of its "affiliates" or "associates" (as each such term is defined
in Section 203 of the DGCL) was, prior to the execution of this Agreement, an
"interested stockholder" (as such term is defined in Section 203 of the DGCL) of
the Company or owns any Shares.

        Section 5.04 Non-contravention. The execution and delivery of this
Agreement by Parent and Purchaser do not and performance by Parent and Purchaser
of this Agreement and the consummation by Parent and Purchaser of the
transactions contemplated hereby will not (a)


                                      -33-


contravene, conflict with, or result in any violation or breach of any provision
of the organizational documents of Parent or Purchaser, (b) assuming compliance
with the matters referred to in Section 5.03, contravene, conflict with or
result in any violation or breach of any provision of any Law, regulation,
judgment, injunction, order or decree or (c) require any consent or other action
by any Person under, constitute a default under, or cause or permit the
termination, cancellation, acceleration or other change of any right or
obligation or the loss of any benefit to which Parent or Purchaser is entitled
under any provision of any agreement or other instrument binding upon Parent or
Purchaser, except, in the case of clauses (b) and (c), for such matters as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent.

        Section 5.05 Information Supplied. None of the information supplied or
to be supplied by Parent or Purchaser for inclusion or incorporation by
reference in the Offer Documents, the Schedule 14D-9, the Information Statement
or the Proxy Statement will, in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times such documents are
filed with the SEC or first published, sent or given to the Company's
stockholders, or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the date it is first mailed to the Company's stockholders
and at the time of the Company Stockholder Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by Parent or Purchaser with respect to statements made or
incorporated by reference therein based on information supplied in writing by
the Company. The Offer Documents will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder.

        Section 5.06 Litigation. There is no suit, claim, investigation, action
or proceeding pending or, to the knowledge of the Parent, overtly threatened in
writing against or affecting the Parent, any Subsidiary of Parent or Purchaser
that would prevent or substantially delay any of the transactions contemplated
by this Agreement or otherwise prevent the Parent or Purchaser from performing
its obligations hereunder (it being understood that this representation shall
not include any litigation of the nature described in paragraph (a) of Annex A),
and, to Parent's knowledge, no facts exist which could reasonably be expected to
give rise to any suit, claim, investigation, action or proceeding that, if
asserted, could reasonably be expected to have such effect. There is no
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or Purchaser or any of their Subsidiaries
having, or which, insofar as reasonably can be foreseen, in the future would
have any such effect.

        Section 5.07 Financing. Parent and Purchaser collectively have (and
hereby agree that they shall continue to have through the Effective Time) all
funds from their cash and cash equivalents or borrowings currently available
under their existing credit facilities necessary to purchase all outstanding
Shares (on a fully diluted basis) pursuant to the Offer and the Merger, to
perform their obligations under this Agreement and to pay all fees and expenses
related to the transactions contemplated by this Agreement payable by them.


                                      -34-


        Section 5.08 Finders' Fees. There is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of the Parent or Purchaser who is entitled to any fee or commission
from the Parent or Purchaser in connection with the transactions contemplated by
this Agreement except for CIBC World Markets Corp., financial advisor to Parent,
the fees and expenses of which shall be paid by Parent.

        Section 5.09 Purchaser's Operation. Purchaser was formed solely for the
purpose of engaging in the Transactions and has not engaged in any business
activities or conducted any operations other than in connection with the
transactions contemplated hereby nor will it have done so prior to the
consummation of the Offer.

        Section 5.10 Full Disclosure. The representations and warranties made by
the Parent in this Agreement, when taken as a whole, do not contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made herein, in light of the circumstances under
which they were made, not misleading.

                                    ARTICLE 6
                                    COVENANTS

        Section 6.01 Conduct of Business by the Company. (a) From the date
hereof until the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to, conduct its business in the ordinary course consistent with
past practice and use its commercially reasonable best efforts to preserve
intact its business organization, goodwill and relationships with third parties
and to keep available the services of its officers and employees and maintain
existing relations with customers, suppliers, officers, employees, creditors and
others having business dealings with them to the end that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time.

               (b) Except with the prior written consent of Parent or as
contemplated or permitted by this Agreement or as expressly set forth in the
Company Disclosure Memorandum, from the date hereof until the Effective Time the
Company shall not, and shall not permit any of its Subsidiaries to:

                        (i) make, declare, set aside or pay any dividend or
                other distribution with respect to any shares of its capital
                stock, other than dividends and other distributions paid by any
                Subsidiary of the Company to the Company or any wholly-owned
                Subsidiary of the Company;

                        (ii) adjust, split, combine or reclassify any of its
                capital stock or issue or authorize the issuance of any other
                securities in respect of, in lieu of or in substitution for
                shares of its capital stock;

                        (iii) directly or indirectly repurchase, redeem or
                otherwise acquire any shares of capital stock or other
                securities of, or other ownership interests in, the Company or
                any of its Subsidiaries, other than as may be required under the
                terms


                                      -35-


                of any written Option or Option Plan existing on the date hereof
                and disclosed in Section 6.01(b)(iii) of the Company Disclosure
                Memorandum;

                        (iv) issue, deliver or sell any shares of any class or
                series of its capital stock (including Company Common Stock),
                other than the issuance of Company Common Stock (and associated
                rights under the Rights Agreement) upon the exercise of Options
                outstanding on the date of this Agreement, or any securities
                convertible into or exercisable or exchangeable for shares of
                any class or series of its capital stock (including Company
                Common Stock, or any rights, warrants or options to acquire any
                shares of Company Common Stock);

                        (v) adopt or implement any amendment to its certificate
                of incorporation or bylaws or other comparable organizational
                documents or amend the terms of its outstanding securities;

                        (vi) acquire or agree to acquire (A) by merging or
                consolidating with, or by purchasing a substantial portion of
                the assets of, or by any other manner, any business or any
                corporation, partnership, joint venture, association or other
                business organization or division thereof or (B) any assets for
                a consideration exceeding $25,000 in any such case, except
                purchases of inventory in the ordinary course of business
                consistent with past practice and capital expenditures permitted
                by clause (viii) of this Section 6.01(b) and except that Parent
                agrees to not unreasonably withhold or delay consent, if
                requested, for the acquisition or agreement to acquire assets
                for a consideration exceeding $25,000 but less than $100,000;
                provided that Parent shall not be required to consent to any
                asset acquisition to the extent the total amount of assets
                acquired between the date hereof and the Closing Date (other
                than purchases of inventory in the ordinary course of business
                consistent with past practice and capital expenditures permitted
                by clause (viii) of this Section 6.01(b)) exceeds $250,000;

                        (vii) transfer, sell, lease, license, mortgage or
                otherwise encumber or subject to any Lien or otherwise dispose
                of any of its properties or assets, except sales of assets for
                consideration not exceeding $25,000 in any such case and $50,000
                in the aggregate and except for sales of inventory in the
                ordinary course;

                        (viii) except for the items currently contracted for by
                the Company and the items contemplated by the Company's capital
                expenditure budget made available to Parent and the items
                disclosed in Section 6.01(b)(viii) of the Company Disclosure
                Memorandum, make or agree to make any new capital expenditure or
                expenditures;

                        (ix) incur any indebtedness for borrowed money (except
                for borrowings under its credit facility in effect on the date
                hereof for working capital purposes and except for intercompany
                indebtedness), assume, guarantee, endorse


                                      -36-


                or otherwise become liable or responsible (whether directly,
                contingently or otherwise) for the obligations of any other
                Person, except for the endorsement of checks in the normal
                course of business and the extension of credit in the normal
                course of business, or make any loans, advances or capital
                contributions to, or investments in, any other Person, other
                than to any direct or indirect wholly-owned Subsidiary;

                        (x) enter into or adopt any new, or amend or renew any
                existing, Employee Plan or any collective bargaining agreement,
                other than as required by Law;

                        (xi) except to the extent required by the terms of
                written employment agreements as in effect on the date of this
                Agreement, increase the compensation payable to or to become
                payable to, or severance, pension or other fringe benefits or
                perquisites to its present or former directors, employees,
                officers or consultants, except for increases already committed
                to and set forth in Section 6.01(b)(xi) of the Company
                Disclosure Memorandum;

                        (xii) enter into any contracts of employment (other than
                contracts terminable by the Company without liability
                immediately following the Closing) or any severance, retention
                or similar agreement;

                        (xiii) pay, agree to pay or award any employee bonuses
                except in accordance with plans or agreements existing on the
                date hereof and listed in Section 6.01(b)(xiii) of the Company
                Disclosure Memorandum, or forgive any officer or employee loan;

                        (xiv) adopt any change in its accounting policies,
                procedures or practices, other than as required by the SEC,
                changes in GAAP or applicable Law, or accelerate any income,
                postpone any expense or reverse any reserve, except on a basis
                consistent with past practice or as otherwise required by GAAP;

                        (xv) (A) make any Tax election, (B) settle or compromise
                any material income Tax liability, (C) change any annual Tax
                accounting period or method of Tax accounting in any material
                respect, (D) file any amended Tax Return, (E) enter into any
                closing agreement relating to any material Tax, or (F) surrender
                any right to claim a material Tax refund or to any extension or
                waiver of the limitations period applicable to any material Tax
                claim or assessment;

                        (xvi) pay, discharge, settle or satisfy any claims,
                litigation, arbitration, liabilities or other controversies
                (absolute, accrued, asserted or unasserted, contingent or
                otherwise), including the payment, discharge, settlement or
                satisfaction of any claims, litigation, arbitration, liabilities
                or controversies of any nature relating to the Transactions
                contemplated hereby, other than the payment, discharge or
                satisfaction, in the ordinary course of business or in
                accordance with


                                      -37-


                their terms, of liabilities reflected or reserved against in, or
                contemplated by, the most recent consolidated financial
                statements (or the notes thereto) included in the Filed Company
                SEC Reports or incurred in the ordinary course of business
                consistent with past practice provided that no such payment,
                discharge, settlement or satisfaction (A) is for an amount
                greater than the amount reserved for on the Company's books or
                (B) imposes non-monetary conditions that could reasonably be
                expected to adversely affect the conduct of the business of the
                Company and its Subsidiaries as currently conducted, or waive
                any material benefits of, or agree to modify in any material
                respect, any confidentiality, standstill or similar agreements
                to which the Company or any of its Subsidiaries is a party;

                        (xvii) cancel or terminate any insurance policy naming
                the Company or any Subsidiary as a beneficiary or loss payable
                payee, except policies providing coverage for losses not in
                excess of $100,000, or materially reduce the amount of any
                insurance coverage provided by existing insurance policies;

                        (xviii) revalue in any material respect any of its
                assets, including, without limitation, writing down the value of
                inventory or writing-off notes or accounts receivable other than
                in the ordinary and usual course of business consistent with
                past practice or as required by generally accepted accounting
                principles;

                        (xix) (i) enter into any contract or agreement, other
                than in the ordinary and usual course of business consistent
                with past practice, or amend in any material respect any of the
                Material Contracts; (ii) enter into any contract, agreement,
                commitment or arrangement providing for, or amend any contract,
                agreement, commitment or arrangement to provide for, the taking
                of any action that would be prohibited hereunder or (iii) enter
                into any settlement or similar agreement with any Governmental
                Entity, or amend in any respect any Settlement Agreement or the
                CIA;

                        (xx) enter into any agreement or arrangement that limits
                or otherwise restricts the Company or any of its Subsidiaries or
                any successor thereto or that could, after the Effective Time,
                limit or restrict the Surviving Corporation and its affiliates
                (including Parent) or any successor thereto, from engaging or
                competing in any line of business or in any geographic area;

                        (xxi) adopt a plan of complete or partial liquidation,
                dissolution, merger, consolidation, restructuring,
                recapitalization or other reorganization of the Company or any
                of its Subsidiaries (other than the Merger);

                        (xxii) alter through merger, liquidation,
                reorganization, restructuring or in any other fashion the
                corporate structure or ownership of any Subsidiary;

                        (xxiii) waive, amend or otherwise alter the Rights
                Agreement except as contemplated by this Agreement, or redeem
                the rights issued thereunder; or


                                      -38-


                        (xxiv) enter into, or agree or commit to enter into, any
                agreement, contract, commitment or arrangement that if completed
                would be in contravention of any of the foregoing.

        Section 6.02 Other Actions. The Company, Parent and Purchaser shall not,
and shall not permit any of their respective Subsidiaries to, take any action
that would, or that could reasonably be expected to, result in any of their
respective representations and warranties set forth in this Agreement that are
qualified as to materiality becoming untrue or incorrect in any respect, any of
such representations and warranties that are not so qualified becoming untrue or
incorrect in any material respect or any of the conditions to the Offer set
forth in Annex A or to the Merger set forth in Article 7 not being satisfied
(subject to the Company's right to take action specifically permitted by Section
6.05).

        Section 6.03 Stockholder Meeting; Proxy Material; Merger Without
Stockholder Meeting. (a) If required by applicable Law to consummate the Merger,
the Company shall cause a meeting of its stockholders (the "Company Stockholder
Meeting") to be duly called and held as soon as practicable following the date
on which the Purchaser completes the purchase of the shares of Company Common
Stock pursuant to the Offer (the "Offer Completion Date"), for the purpose of
voting on the approval and adoption of this Agreement and the Merger. At the
Company Stockholder Meeting, Parent shall cause all of the shares of Company
Common Stock then actually or beneficially owned by Parent, Purchaser or any of
their Subsidiaries to be voted in favor of the Merger. Notwithstanding the
foregoing, if Purchaser or any other subsidiary of Parent shall acquire at least
ninety percent (90%) of the outstanding shares of Company Common Stock, the
parties shall, at the request of Parent, take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after the
Offer Completion Date without a Company Stockholder Meeting in accordance with
Section 253 of the DGCL.

               (b) The Company will, if required and at Parent's request, as
soon as practicable following the Offer Completion Date, prepare and file a
preliminary Proxy Statement with the SEC and will use its reasonable best
efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after responding to all such comments to the satisfaction of the
staff. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement and all amendments and supplements thereto, prior to their
being filed with the SEC. Parent will provide the Company with the information
concerning Parent and Purchaser required to be included in the Proxy Statement.
The Company will notify Parent promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will supply
Parent with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger. If at any time prior to the
Company Stockholder Meeting there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the Company will promptly
prepare and mail to its stockholders such an amendment or supplement. The


                                      -39-


Company will not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects.

        Section 6.04 Access to Information. (a) From the date hereof until the
Effective Time and subject to applicable Law the Company shall and shall cause
its Subsidiaries to (i) give Parent and its authorized representatives,
including its counsel, financial advisors, auditors and other authorized
representatives access, upon reasonable notice at reasonable times, to the
offices, properties, books and records of the Company and its Subsidiaries, (ii)
furnish Parent, its officers, employees, counsel, financial advisors, auditors
and other authorized representatives with such financial and operating data and
other information as such Persons may reasonably request and (iii) instruct the
employees, counsel, financial advisors, auditors and other authorized
representatives of the Company and its Subsidiaries to cooperate with Parent in
its investigation of the Company and its Subsidiaries; provided that no
investigation pursuant to this Section 6.04(a) shall affect any representation
or warranty given by the Company to Parent and Purchaser hereunder.

               (b) Between the date hereof and the Effective Time, the Company
shall furnish to Parent and Purchaser (i) within five Business Days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to the Company management and (ii) at
the earliest time they are available, such quarterly and annual financial
statements as are prepared for the Company's SEC filings, which (in the case of
clause (ii)), shall be in accordance with the books and records of the Company.

               (c) Except as required by Law (but subject to the limitations on
such exception provided in the Confidentiality Agreement), Parent and Purchaser
will hold, and will cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors, agents and affiliates to hold in
confidence all documents and information concerning the Company or any of its
Subsidiaries furnished to Parent or its affiliates in connection with the
transactions contemplated by this Agreement in accordance with the terms of the
letter agreement dated November 29, 2001 between the Company and Parent (the
"Confidentiality Agreement").

        Section 6.05 No Solicitation; Other Offers. (a) The Company shall not,
and shall not permit any of its Subsidiaries to, and shall cause its officers,
directors and employees, and any investment bankers, consultants, financial
advisors, accountants, agents or other representatives retained by it or any of
its Subsidiaries not to, solicit, initiate or encourage the submission of any
Acquisition Proposal (as hereinafter defined) or engage in discussions or
negotiations or furnish to any Person any information with respect to an
Acquisition Proposal or knowingly facilitate any effort or attempt to make an
Acquisition Proposal. Any violation of the foregoing restrictions by any of the
Company's representatives, whether or not such representative is so authorized
and whether or not such representative is purporting to act on behalf of the
Company or otherwise, shall be deemed a breach of this Agreement by the Company.
The Company shall, and shall cause its Subsidiaries and the officers, directors,
employees or any investment bankers, attorneys, consultants, financial advisors,
agents or other representatives of the Company and its


                                      -40-


Subsidiaries to, cease immediately and cause to be terminated all activities,
discussions and negotiations, if any, with any Persons conducted prior to the
date hereof with respect to any Acquisition Proposal and, to the extent within
its power, to recover or cause to be destroyed all information concerning the
Company and its Subsidiaries in the possession of such Persons and their
affiliates, representatives and advisors. Nothing contained in this Agreement
shall prevent the Company Board from complying with Rule 14d-9 or Rule 14e-2
under the Exchange Act with respect to any Acquisition Proposal or making any
disclosure to the Company's stockholders that, in the good faith judgment of the
majority of the members of the Company Board, upon recommendation of the Special
Committee after consultation with and advice from its outside legal counsel, is
required by applicable Law.

               (b) Notwithstanding the first sentence of Sections 6.05(a), prior
to the time of acceptance of Shares pursuant to the Offer and subject to the
provisions of this Section 6.05(b) and Section 6.05(c), the Company may
negotiate or otherwise engage in substantive discussions with, and furnish
nonpublic information to, any Person in response to an unsolicited bona fide
written Acquisition Proposal by such Person to acquire in any manner at least
fifty percent of the Shares outstanding or fifty percent of the consolidated
assets of the Company if (i) a majority of the Company Board determines in good
faith, upon the recommendation of the Special Committee after the Special
Committee has received the advice of Houlihan Lokey or another nationally
recognized financial advisor, that such Acquisition Proposal would reasonably be
expected to result in a Superior Proposal (as hereinafter defined) and, after
consultation with and advice from outside legal counsel, that the failure to
take such action would cause the Company Board to breach its fiduciary duties
under applicable Law, and (ii) such Person executes a confidentiality agreement
in a form no less favorable to the Company than the Confidentiality Agreement.
Prior to providing any information to or entering into discussions or
negotiations with any Person in connection with an Acquisition Proposal by such
Person, the Company shall notify Parent of any Acquisition Proposal (including,
without limitation, the material terms and conditions thereof and the identity
of the Person making it) as promptly as practicable (but in no case later than
24 hours) after its receipt thereof, and shall provide Parent with a copy of any
written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Parent on a prompt basis of the status of any discussions or
negotiations with such a third party, and any material changes to the terms and
conditions of such Acquisition Proposal, and shall promptly give Parent a copy
of any information delivered to such Person which has not previously been
provided or made available to Parent. The Company shall not waive any standstill
or confidentiality provisions contained in agreements to which the Company is a
party or to which the Company is subject unless the Company Board determines in
good faith, upon the recommendation of the Special Committee after consultation
by the Special Committee with and advice from its outside legal counsel, that
the failure to take such action would cause the Company Board to breach its
fiduciary duties under applicable Law.

               (c) Except as permitted by the second sentence of this Section
6.05(c), neither the Company Board nor any committee thereof shall (i) withdraw
or modify, or publicly propose to withdraw or modify, in a manner adverse to
Parent, its recommendation to its stockholders referred to in Section 1.02
hereof, or take any action not explicitly permitted by this Agreement


                                      -41-


that would be inconsistent with its approval of the Offer and the Merger, (ii)
approve or recommend, or publicly propose to approve or recommend, any
Acquisition Proposal or (iii) cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement, commitment or similar
agreement related to any Acquisition Proposal. Notwithstanding the foregoing,
prior to the time of acceptance of the Shares for payment pursuant to the Offer,
the Company Board shall be permitted (i) not to recommend to its stockholders
acceptance of the Offer and/or approval and adoption of this Agreement and the
Merger, (ii) to withdraw, or modify in a manner adverse to Parent, its
recommendation to its stockholders referred to in Section 1.02 hereof, (iii) to
approve or recommend any Superior Proposal or (iv) to terminate this Agreement
in accordance with Section 8.01(c)(ii) hereof and in connection therewith enter
into an agreement with respect to such Superior Proposal, but only if in each
case (x) the Company has received an Acquisition Proposal which the Company
Board determines in good faith, upon the recommendation of a nationally
recognized financial advisor, constitutes a Superior Proposal, (y) the Company
Board determines in good faith, upon the recommendation of the Special Committee
after consultation by the Special Committee with and advice from its outside
legal counsel, that the failure to take such action would cause the Company
Board to breach its fiduciary duties under applicable Law and (z) after five
Business Days have elapsed following the Company's delivery to Parent of written
notice advising Parent that the Company Board has received a Superior Proposal
specifying the material terms and conditions of such Superior Proposal and
identifying the Person making the Superior Proposal; provided, however, that the
Company shall not enter into an agreement with respect to a Superior Proposal
unless the Company shall terminate this Agreement in accordance with Section
8.01(c)(ii).

               (d) For purposes of this Agreement:

                        (i) "Acquisition Proposal" means any bona fide offer,
                inquiry or proposal for (i) a merger, reorganization,
                consolidation, share exchange, business combination, or other
                similar transaction involving the Company or any of its
                Subsidiaries, (ii) any proposal or tender offer or exchange
                offer to acquire, directly or indirectly, any securities of the
                Company or the filing of a registration statement under the
                Securities Act in connection therewith or (iii) any sale, lease,
                exchange, mortgage, pledge, transfer or other disposition of
                more than 50% of the assets of the Company and its Subsidiaries
                taken as a whole, other than the Offer and the Merger
                contemplated by this Agreement; and

                        (ii) "Superior Proposal" means any bona fide written
                Acquisition Proposal, which was not solicited by the Company or
                any affiliate, representative or agent of the Company and which
                does not include any financing condition, with respect to which
                the Company Board determines in good faith (upon the
                recommendation of the Special Committee after the Special
                Committee has received the advice of Houlihan Lokey or another
                nationally recognized financial advisor and taking into account
                all the terms and conditions of the Acquisition Proposal, which
                terms and conditions shall include all legal, financial and


                                      -42-


                regulatory aspects of the proposal, the Person making such
                Acquisition Proposal, and the strategic benefits to be derived
                from the Offer and the Merger and the long-term prospects of the
                Company and its Subsidiaries) is more favorable to the Company's
                stockholders (in their capacities as stockholders) from a
                financial point of view than the Offer and Merger.

        Section 6.06 Best Efforts; Notification. (a) Upon the terms and subject
to the conditions set forth in this Agreement, each of the parties agrees to use
their commercially reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Offer and
the Merger and the other transactions contemplated by this Agreement, including
(i) the obtaining of all necessary waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
steps as may be necessary to avoid an action or proceeding by any Governmental
Entity, (ii) the obtaining of all material consents, approvals or waivers from
third parties, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including, without
limitation, seeking to have any stay or temporary restraining order entered by
any court or other Governmental Entity vacated or reversed and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, the Company
and the Company Board shall, if any state takeover statute or similar statute or
regulation is or becomes applicable to the Offer, the Merger, this Agreement or
the other transactions contemplated by this Agreement, use their commercially
reasonable best efforts to ensure that the Offer, the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer, the Merger and
the other transactions contemplated by this Agreement.

               (b) Subject to the terms and conditions of this Agreement, in
furtherance and not in limitation of the covenants of the parties contained in
Section 6.06(a), if any administrative or judicial action or proceeding,
including any proceeding by a Governmental Entity or a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any applicable Law, each of the
parties shall cooperate in all respects with each other and use its respective
commercially reasonable best efforts in order to contest and resist any such
action or proceeding and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.

               (c) Parent and Purchaser, on the one hand, and the Company, on
the other hand, each hereby agrees promptly to provide such information
necessary to the preparation of


                                      -43-


the Schedule 14D-9 and the Offer Documents, respectively, which the respective
party responsible therefor shall reasonably request.

               (d) Notwithstanding anything to the contrary in Section 6.06(a)
or (b), (i) neither Parent nor any of its Subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, (ii) neither
Parent nor any of its Subsidiaries shall be required to take or agree to take
any other action or agree to any limitation that could reasonably be expected to
have a Material Adverse Effect on Parent, (iii) neither the Company nor its
Subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Material Adverse
Effect on the Surviving Corporation or, prior to the Closing, the Company, (iv)
no party shall be required to agree to the imposition of or to comply with, any
condition, obligation or restriction on Parent or any of its Subsidiaries or on
the Surviving Corporation or any of its Subsidiaries of the type referred to in
subclause (vi) or (vii) of clause (a) of Annex A, and (v) neither Parent nor
Purchaser shall be required to waive any of the conditions to the Offer set
forth in Annex A and none of the Parent, Purchaser or the Company shall be
required to waive any of the conditions to the Merger set forth in Article 7.

               (e) Each of the Company and Parent shall promptly notify the
other of:

                        (i) any representation or warranty made by it contained
                in this Agreement that is qualified as to materiality becoming
                untrue or inaccurate in any respect or any such representation
                or warranty that is not so qualified becoming untrue or
                inaccurate in any material respect at or prior to the Effective
                Time;

                        (ii) the failure by it to perform, or comply with, in
                any material respect, any of its obligations, covenants, or
                agreements contained in this Agreement, which failure, either
                individually or in the aggregate, has had or would reasonably be
                expected to have a Material Adverse Effect on it;

                        (iii) the Company obtaining knowledge of a material
                breach by Parent, or Parent obtaining knowledge of a material
                breach by the Company, of their respective representations,
                warranties or covenants hereunder of which the breaching party
                has not already given notice pursuant to clauses (i) or (ii)
                above;

                        (iv) any notice or other communication from any third
                party alleging that the consent of such third party is or may be
                required in connection with the transactions contemplated by
                this Agreement, except to the extent such notice requirement is
                expressly disclosed in the Company Disclosure Memorandum;

                        (v) any notice or other communication from any
                Governmental Entity in connection with the transactions
                contemplated by this Agreement;

                        (vi) any actions, suits, claims, investigations, orders,
                decrees, complaints or proceedings commenced or, to its
                knowledge, threatened against,


                                      -44-


                relating to or involving or otherwise affecting the Company,
                Parent or any of their respective Subsidiaries that relate to
                the consummation of the transactions contemplated by this
                Agreement; or

                        (vii) the occurrence of any other event which would
                reasonably be likely to have a Material Adverse Effect on the
                Company or cause any condition set forth in Annex A hereto to be
                unsatisfied in any material respect at any time prior to
                consummation of the Offer;

provided, however, that the delivery of any notice pursuant to this Section
6.06(e) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.

        Section 6.07 Indemnification and Insurance. (a) From and after the
Effective Time, the Surviving Corporation will indemnify and hold harmless
(including advancement of expenses) the current and former directors and
officers of the Company and its wholly-owned Subsidiaries (the "Indemnified
Parties") in respect of claims made within six years following the Effective
Time for acts or omissions occurring on or prior to the Effective Time to the
extent provided in the Company's certificate of incorporation, bylaws and
indemnity agreements in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable Law. Parent and the Company agree that in the event any claim
or claims are asserted or made within the six-year period contemplated by this
Section, all rights to indemnification in respect of any such claim or claims
shall continue until disposition of any and all such claims. The certificate of
incorporation and bylaws of the Surviving Corporation shall not be amended,
repealed or otherwise modified in any manner adverse to persons who, as of the
date hereof, are Indemnified Parties, without the prior written consent of any
such persons, for a period of six years from and after the Effective Time and
shall contain indemnification and exculpation provisions which are no less
favorable to the Indemnified Parties than those provisions contained in the
Company's certificate of incorporation and bylaws as in effect immediately prior
to the date of this Agreement. Any determination required to be made with
respect to whether any Indemnified Party may be entitled to indemnification
will, if requested by such Indemnified Party, be made by independent legal
counsel selected by the Surviving Corporation and reasonably satisfactory to the
Indemnified Party.

               (b) For six years after the Effective Time, Parent shall
maintain, or cause the Surviving Corporation to maintain, with respect to
matters occurring prior to the Effective Time, policies of directors and
officers' liability insurance comparable to those currently maintained by the
Company for the benefit of persons currently covered by the Company's directors'
and officers' liability insurance policies (except to the extent any provisions
in such insurance are no longer generally available in the market); provided
that in no event shall the Surviving Corporation be required in order to
maintain such directors' and officers' liability insurance policies to expend in
any one year an amount in excess of 200% of the aggregate annual premiums
currently paid by the Company for such insurance (which annual premium the
Company represents is $109,000); provided further that, if the annual premium
costs necessary to maintain such insurance coverage exceed such amount, the
Surviving Corporation shall only


                                      -45-


be obligated to obtain as much coverage as can be obtained for an annual premium
equal to the foregoing amount and provided further that notwithstanding the
foregoing, Parent may satisfy its obligations under this Section 6.07(b) by
purchasing a "tail" policy under Company's existing directors' and officers'
insurance policy that (i) has an effective term of six years from the Effective
Time, (ii) covers the Indemnified Parties covered by the Company's directors'
and officers' insurance policy in effect on the date hereof for actions and
omissions occurring on or prior to the Effective Time and (iii) contains terms
and conditions (including without limitation coverage amounts) that are at least
as favorable in the aggregate as the terms and conditions of the Company's
directors' and officers' insurance policy in effect on the date hereof.

               (c) This Section 6.07 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Parent, the
Surviving Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Parent and the Surviving Corporation. In the event
that Parent or the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors or assigns of Parent or the Surviving Corporation, as the
case may be, shall succeed to the obligations set forth in this Section 6.07.

        Section 6.08 Continuation of Benefits. (a) For at least one year from
and after the Effective Time, the Surviving Corporation will provide benefits
(other than equity-based compensation), including health and welfare benefits,
to employees of the Company and its Subsidiaries who continue their employment
after the Effective Time (each, a "Continuing Employee") which are generally not
less favorable in the aggregate to such continuing Employee than the benefits
being provided to such Continuing Employee immediately prior to the Effective
Time. The Surviving Corporation will recognize the service of each Continuing
Employee through the Effective Time as if such service had been performed with
the Surviving Corporation for purposes of eligibility and vesting under the
Surviving Corporation's benefit plans.

               (b) Without limiting any other provision of this Agreement, the
Surviving Corporation agrees to cause to be honored in accordance with their
terms the severance obligations of the Company arising under the bonus
arrangements identified in Section 4.08(g) of the Company Disclosure Memorandum
and the agreements identified in Section 4.17 of the Company Disclosure
Memorandum as a direct or indirect result of the transactions contemplated by
this Agreement (either alone or in combination with any other event). The
parties acknowledge and agree that the transactions contemplated by this
Agreement constitute a "change in control" for all purposes under such
agreements and bonus arrangements.

        Section 6.09 Public Announcements. Parent and the Company will consult
with each other before issuing any press release or making any public statement
(including any broadly issued statement or announcement to employees) with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable Law or any listing agreement with any national
securities exchange or Nasdaq or the SWX rules, will not


                                      -46-


issue any such press release or make any such public statement without the prior
consent of the other (which consent shall not be unreasonably withheld or
delayed). The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement will be press release
acceptable to Parent and the Company.

        Section 6.10 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Purchaser, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Purchaser, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.

                                    ARTICLE 7
                            CONDITIONS TO THE MERGER

        Section 7.01 Conditions to Obligations of Each Party. The respective
obligations of the Company, Parent and Purchaser to consummate the Merger are
subject to the satisfaction or waiver of the following conditions at or prior to
the Effective Time:

                (a) Purchaser shall have purchased all Shares validly tendered
        and not withdrawn pursuant to the Offer; provided that this condition
        shall be deemed to have been satisfied with respect to the obligation of
        Parent and Purchaser to effect the Merger if Purchaser fails to accept
        for payment or pay for Shares validly tendered and not withdrawn
        pursuant to the Offer in violation of the terms of the Offer or of this
        Agreement;

                (b) if required by applicable Law, this Agreement shall have
        been approved and adopted by the required vote of the stockholders of
        the Company in accordance with the DGCL; and

                (c) no statute, rule or regulation shall have been enacted,
        promulgated or deemed applicable to the Merger by any Governmental
        Entity which prevents the consummation of the Merger or makes the
        consummation of the Merger unlawful, and no temporary restraining order,
        preliminary or permanent injunction or other order issued by any court
        of competent jurisdiction preventing the consummation of the Merger
        shall be in effect; provided, however, that each of the parties shall
        have used reasonable best efforts to prevent the entry of any such
        injunction or other order and to appeal as promptly as possible any
        injunction or other order that may be entered.


                                      -47-


                                    ARTICLE 8
                        TERMINATION, AMENDMENT AND WAIVER

        Section 8.01 Termination. This Agreement may be terminated, and the
Merger contemplated hereby may be abandoned, at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:

               (a) by mutual written consent of Parent, Purchaser and the
Company;

               (b) by either the Company or Parent:

                        (i) if any court of competent jurisdiction or other
                Governmental Entity shall have issued an order (other than a
                temporary restraining order), decree or ruling or taken any
                other action (which order, decree, ruling or other action the
                parties hereto shall use their reasonable best efforts, subject
                to Section 6.06 hereof, to lift) restraining, enjoining,
                prohibiting or otherwise making illegal, the acceptance for
                payment of, or payment for Shares pursuant to the Offer or the
                Merger and such order, decree, ruling or other action shall have
                become final and nonappealable; or

                        (ii) if (x) the Offer shall have expired or been
                terminated or withdrawn by Parent and Purchaser without any
                Shares being purchased pursuant thereto or (y) Parent or
                Purchaser shall not have accepted for payment all Shares
                tendered pursuant to the Offer by May 8, 2002, provided that the
                right to terminate this Agreement under this Section 8.01(b)(ii)
                shall not be available to any party whose failure to fulfill any
                obligation under this Agreement has been the cause of, or
                resulted in, the failure of Parent or Purchaser to purchase the
                Shares pursuant to the Offer on or prior to such date;

               (c) by the Company:

                        (i) if Parent and/or Purchaser fails to commence the
                Offer as provided in Section 1.01 hereof; provided that the
                Company may not terminate this Agreement pursuant to this
                Section 8.01(c)(i) if the Company is at such time in breach in
                any material respect of its obligations under this Agreement;

                        (ii) in connection with entering into a definitive
                agreement with respect to a Superior Proposal, as permitted by
                the second sentence of Section 6.05(c), if (w) the Company
                provides written notice to Parent and Purchaser of the material
                terms and conditions of the Acquisition Proposal which the
                Company Board determines in good faith, upon the recommendation
                of the Special Committee after consultation by the Special
                Committee with and advice from Houlihan Lokey or another
                nationally recognized financial advisor and its outside legal
                counsel, constitutes a Superior Proposal, attaching the most
                current version of such Acquisition Proposal with respect
                thereto and identifying the Person


                                      -48-


                making such Acquisition Proposal, (x) after five Business Days
                immediately following delivery of such written notice, the
                Company Board reasonably determines, upon the recommendation of
                the Special Committee based upon the advice of Houlihan Lokey or
                another nationally recognized financial advisor, that any
                proposal made by Parent and Purchaser in writing with respect to
                the Offer, within such time period, supplementing the terms and
                conditions of the Offer, is not at least as favorable to the
                Company and the Company's stockholders as the terms and
                conditions of such Acquisition Proposal specified in (w) above,
                (y) the Company pays the Termination Fee and Expenses in
                accordance with Section 8.03(b) concurrently with entering into
                a definitive agreement with respect to a Superior Proposal and
                (z) each party to such Superior Proposal delivers a written
                acknowledgement to Parent that waives any right it may have to
                contest the validity or enforceability of any of the terms and
                conditions of this Agreement; or

                        (iii) if Parent or Purchaser shall have made a material
                misrepresentation or have breached in any material respect any
                of their respective representations, warranties, covenants or
                other agreements contained in this Agreement, which breach
                cannot be or has not been cured, in all material respects,
                within 30 days after the giving of written notice to Parent or
                Purchaser, as applicable;

               (d) by Parent:

                        (i) if, due to an occurrence, not resulting from a
                breach by Parent or Purchaser of their obligations hereunder,
                which makes it impossible to satisfy any one or more of the
                conditions set forth in Annex A hereto, Parent or Purchaser
                shall have failed to commence the Offer on or prior to ten
                Business Days following the date of the initial public
                announcement of the Offer;

                        (ii) if, prior to the purchase of Shares pursuant to the
                Offer, the Company shall have breached any representation,
                warranty, covenant or other agreement contained in this
                Agreement which (A) would give rise to the failure of a
                condition set forth in paragraph (d) or (e) of Annex A hereto
                and (B) cannot be or has not been cured, in all material
                respects, within 30 days after the giving of written notice to
                the Company;

                        (iii) if, whether or not permitted to do so, (A) the
                Company Board shall have withdrawn or modified in a manner
                adverse to Parent or Purchaser (or shall have failed, at the
                request of Parent, to reaffirm) its approval or recommendation
                of the Offer, the Merger or the Agreement, or approved or
                recommended any Acquisition Proposal or (B) the Company shall
                have entered into any agreement with respect to any Acquisition
                Proposal (other than a confidentiality, standstill or
                non-solicitation agreement permitted by Section 6.05(b)),
                including a Superior Proposal entered into in accordance with
                the second sentence of Section 6.05(c) of this Agreement; or


                                      -49-


                        (iv) an Acquisition Proposal that is publicly disclosed
                shall have been commenced, publicly proposed or communicated in
                a public manner to the Company which contains a proposal as to
                price (without regard to whether such proposal specifies a
                specific price or a range of potential prices) and the Company
                shall not have rejected in a manner that becomes publicly
                disclosed such proposal within the earlier of (A) ten Business
                Days after the Acquisition Proposal first becomes publicly
                disclosed or (B) three Business Days prior to the Expiration
                Date.

        Section 8.02 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Purchaser or the Company, other than the
provisions of Section 6.04(c), this Section 8.02, Section 8.03, and Article 9
and except to the extent that such termination results from fraud or from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.

        Section 8.03 Fees and Expenses. (a) Except as otherwise provided herein,
all fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such fees or expenses, whether or not the Offer or the
Merger is consummated.

               (b) If (x)(A) the Company or Parent terminates this Agreement
pursuant to Section 8.01(b)(ii), (B) prior thereto there shall have been
publicly announced another Acquisition Proposal, (C) the Company, within 12
months following such termination, announces its intention to enter into an
agreement with respect to an Acquisition Proposal (provided that for purposes of
this subclause (C) clause (ii) of the term "Acquisition Proposal" shall not
include the sale of securities by the Company for cash to one or more Persons
which, together with any Affiliates and any group (as such term is defined in
Section 13(d)(3) of the Exchange Act) of which such Person is a member, will
not, after such transaction (or series of related transactions) (1) beneficially
own a majority of the outstanding shares of Company Common Stock or (2) have the
right, by contract or otherwise, to elect a majority of the Company Board) and
(D) the Company subsequently consummates the transaction(s) contemplated by such
agreement, (y) the Company terminates this Agreement pursuant to Section
8.01(c)(ii), or (z) Parent terminates this Agreement pursuant to Section
8.01(d)(iii)(B), and at the time of such termination Parent and Purchaser are
not in material breach of their respective obligations under this Agreement,
then in any such case, the Company shall pay, or cause to be paid to Parent, at
the time of consummation, in the case of clause (x), and at the time of
termination, in the case of clause (y) or (z), a termination fee in the amount
of $1,750,000 (the "Termination Fee") plus an amount equal to Parent's actual
and reasonably documented out-of-pocket expenses incurred by Parent in
connection with the Offer, the Merger, this Agreement and the consummation of
the Transactions, including, without limitation, the fees and out-of-pocket
expenses payable to all banks, investment banking firms and other financial
institutions and persons and their respective agents and counsel incurred in
connection with acting as Parent's


                                      -50-


financial advisor with respect to, or arranging or committing to provide or
providing any financing for, the Transactions up to an aggregate of $750,000
(the "Expenses"). In addition, if this Agreement is terminated by Parent
pursuant to Section 8.01(d)(iv) or prior to consummation of the Offer by reason
of the non-fulfillment of any of the conditions set forth in paragraph (d), (e)
or (g) of Annex A and at the time of such termination, Parent and Purchaser are
not in material breach of their respective obligations under this Agreement,
then the Company shall pay to Parent, at the time of termination, the Expenses,
and, if the Company shall thereafter, within 12 months after such termination,
announce its intention to enter into an agreement with respect to an Acquisition
Proposal (which in the case of a termination by reason of the non-fulfillment of
any of the conditions set forth in paragraph (d) or (e) of Annex A is at a price
per Share higher than the Offer Price and provided that for purposes of this
sentence clause (ii) of the term "Acquisition Proposal" shall not include the
sale of securities by the Company for cash to one or more Persons which,
together with any Affiliates and any group (as such term is defined in Section
13(d)(3) of the Exchange Act) of which such Person is a member, will not, after
such transaction (or series of related transactions) (1) beneficially own a
majority of the outstanding shares of Company Common Stock or (2) have the
right, by contract or otherwise, to elect a majority of the Company Board) and
the Company subsequently consummates the transaction(s) contemplated by such
agreement, then the Company shall pay the Termination Fee simultaneously with
such consummation; provided, however, that with respect to the nonfulfillment of
the condition set forth in paragraph (d) of Annex A, such payments shall not be
required to be made if the Company can demonstrate that such condition would
have been satisfied if the Expiration Date were the date hereof and any Expenses
payable by reason of such breach shall be paid as follows: $375,000 on the date
of termination and the remainder of the Expenses on the earlier of the first
anniversary of the date of termination or the date the Termination Fee is
required to be paid. Any payments required to be made pursuant to this Section
8.03(b) shall be made by wire transfer of same day funds to an account
designated by Parent. It is specifically agreed that if Parent terminates this
Agreement pursuant to Section 8.01(d)(ii), any amount payable to Parent pursuant
to this Section 8.03(b) shall be deemed to represent liquidated damages and not
a penalty and that the right to receive such amount shall be the exclusive
remedy of Parent and Purchaser in connection with such termination.

               (c) The Company acknowledges that the agreements contained in
Section 8.03(b) are an integral part of the Transactions contemplated by this
Agreement, and that, without these agreements Parent would not have entered into
this Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to Section 8.03(b), and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for the fee set
forth in Section 8.03(b), the Company shall pay to Parent its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
from the date of termination of this Agreement on the amounts owed at the prime
rate (as published in The Wall Street Journal) in effect from time to time
during such period plus two percent.

               (d) This Section 8.03 shall survive any termination of this
Agreement, however caused, and is intended to benefit the Company, Parent and
Purchaser.


                                      -51-


        Section 8.04 Amendment. This Agreement may be amended by the parties
hereto at any time before or after any required approval of the Merger by the
stockholders of the Company; provided, however, that after any such approval,
there shall be made no amendment that by Law requires further approval by such
stockholders without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.

        Section 8.05 Extension; Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto on the part of the other parties or (c) subject to the proviso
of Section 8.04, waive compliance with any of the agreements or conditions
contained herein on the part of the other parties. Any agreement on the part of
a party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.

        Section 8.06 Procedure for Termination, Amendment, Extension or Waiver.
A termination of this Agreement pursuant to Section 8.01, an amendment of this
Agreement pursuant to Section 8.04 or an extension or waiver pursuant to Section
8.05 shall, in order to be effective, require in the case of Parent, Purchaser
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors (in the case of action by the Company Board, upon the
recommendation of the Special Committee or, after the Offer Completion Date, the
Continuing Directors); provided, however, that in the event that Purchaser's
designees are appointed or elected to the Company Board as provided in Section
1.03, after the acceptance for payment of Shares pursuant to the Offer and prior
to the Effective Time, the affirmative vote of a majority of the Continuing
Directors of the Company shall be required to amend or terminate this Agreement
by the Company, exercise or waive any of the Company's rights or remedies under
this Agreement, extend the time for performance of Parent's and Purchaser's
respective obligations under this Agreement or take any action that would
adversely affect the rights of the stockholders of the Company or the holders of
Options with respect to the transactions contemplated hereby.

                                    ARTICLE 9
                                  MISCELLANEOUS

        Section 9.01 Non-Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement. This Section 9.01 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.

        Section 9.02 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,


                                      -52-


               if to Parent or Purchaser, to:

                      SHL TeleMedicine Ltd.
                      90 Igal Alon St.
                      Tel-Aviv 67891
                      Israel
                      Telephone: (972) 3-561-2212
                      Telecopier: (972) 3-624-2414
                      Attention: Erez Alroy
                                 Yariv Alroy

               with a copy (which shall not constitute notice) to:

                      Fulbright & Jaworski L.L.P.
                      666 Fifth Avenue
                      New York, New York  10103
                      Telephone:  212-318-3000
                      Telecopier:  212-318-3400
                      Attention:  Andrew Freedman, Esq.


               if to the Company, to:

                      Raytel Medical Corporation
                      2755 Campus Drive, Suite 200
                      San Mateo, CA  94403
                      Telephone: (650) 349-0800
                      Telecopier: (650) 349-8850
                      Attention: Richard Bader

               with a copy (which shall not constitute notice) to:

                      Gray Cary Ware & Freidenrich LLP
                      400 Hamilton Ave.
                      Palo Alto, CA   94301-1825
                      Telephone: 650- 833-2000
                      Telecopier:  650-833-2001
                      Attention: Dennis C. Sullivan, Esquire


               with a copy (which shall not constitute notice) to the Special
               Committee:

                      Allan Zinberg
                      19 Woodhaven Drive
                      Simsbury, CT   06070
                      Telephone: 860-658-6179
                      Telecopier: 860-658-1221



                                      -53-


                      and


                      Gene I. Miller
                      734 18th Street
                      Santa Monica, CA 90402
                      Telephone: 310-458-1441
                      Telecopier: 310-394-0771


               with a copy (which shall not constitute notice) to counsel for
               the Special Committee:


                      Sheppard, Mullin, Richter & Hampton LLP
                      333 South Hope Street, 48th Floor
                      Los Angeles, CA   90071
                      Telephone: 213-620-1780
                      Telecopier: 213-620-1398
                      Attention: John D. Hussey, Esquire


or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received when delivered
personally to the recipient or when sent to the recipient by facsimile (receipt
electronically confirmed), one Business Day after the date when sent to the
recipient by reputable express courier service (charges prepaid) or three
Business Days after the date when mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given shall be deemed to be receipt of the notice as of
the date of such rejection, refusal or inability to deliver.

        Section 9.03 No Waivers. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by Law.

        Section 9.04 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Parent or Purchaser
may transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, the right to enter into the transactions contemplated by this
Agreement, but no such transfer or assignment will relieve Parent or Purchaser
of its obligations hereunder.


                                      -54-


        Section 9.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the Law of the State of Delaware, without regard to
the conflicts of Law rules of such state.

        Section 9.06 Enforcement. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought in
any court of the United States located in the State of Delaware or in a Delaware
state court, and each of the parties hereby expressly submits to the exclusive
jurisdiction and venue of any such court (and of the appropriate appellate
courts therefrom) in any such suit, action or proceeding and irrevocably waives,
to the fullest extent permitted by Law, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
in any such court or that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party irrevocably consents to the service of process in any of
the aforementioned courts in any such suit, action or proceeding by the mailing
of copies thereof, by registered or certified mail, postage prepaid, to the
address set forth or referred to in Section 9.02, such service to become
effective 10 days after mailing.

        Section 9.07 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

        Section 9.08 Counterparts; Effectiveness; Benefit. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Except as expressly provided in Sections 6.07 and 6.08, no provision of this
Agreement is intended to confer any rights, benefits, remedies, obligations or
liabilities hereunder upon any Person other than the parties hereto and their
respective successors and assigns. Execution of this Agreement may be made by
facsimile signature which, for all purposes, shall be deemed to be an original
signature.

        Section 9.09 Entire Agreement. This Agreement, the Company Disclosure
Memorandum, the Stockholders' Agreement and the Confidentiality Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all prior representations, warranties,
agreements and understandings, both oral and written, between the parties with
respect to such subject matter. No prior drafts of this Agreement or portions
thereof shall be admissible into evidence in any action, suit or other
proceeding involving this Agreement.


                                      -55-


        Section 9.10 Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.

        Section 9.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.

        Section 9.12 Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof in
any court located in the State of Delaware, in addition to any other remedy to
which they are entitled at Law or in equity.

        Section 9.13 Interpretation. When a reference is made in this Agreement
to an Article or Section, such reference shall be to an Article or Section of
this Agreement unless otherwise indicated. The table of contents to this
Agreement is for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
thereto unless otherwise defined therein. The definitions contained in this
Agreement are applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of such
term. Any agreement, instrument or statute defined or referred to herein or in
any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. Each of
the parties has participated in the drafting and negotiation of this Agreement.
If an ambiguity or question of intent or interpretation arises, this Agreement
must be construed as if it is drafted by all the parties and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of
authorship of any of the provisions of this Agreement.


                                      -56-


        Section 9.14 Company Disclosure Memorandum. The Company Disclosure
Memorandum referred to in this Agreement is hereby incorporated in this
Agreement and made a part of this Agreement for all purposes as if fully set
forth in this Agreement. No disclosure in the Company Disclosure Memorandum
shall be deemed to be an admission or representation as to the materiality of
the item so disclosed.

        Section 9.15 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except as
specifically set forth herein, nothing in this Agreement is intended to or shall
confer upon any other Person, any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement. Without limiting the foregoing,
except for the obligations under the Stockholders' Agreement and except for
Parent's obligations as a direct or indirect stockholder of Purchaser, no direct
or indirect holder of any equity interests or securities (whether such holder is
a limited or general partner, member, stockholder or otherwise), nor any
affiliate of any party hereto, nor any director, officer, employee,
representative, agent or other controlling Person of each of the parties hereto
and their respective affiliates shall have any liability or obligation arising
under this Agreement or the Transactions contemplated hereby.

        Section 9.16 Obligation of Parent and the Company. Whenever this
Agreement requires Purchaser or another Subsidiary of Parent to take any action,
such requirement shall be deemed to include an undertaking on the part of Parent
to cause Purchaser or such Subsidiary to take such action and a guarantee of the
performance thereof. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and a guarantee of the performance thereof.

        Section 9.17 Certain Definitions. As used in this Agreement:

                      (a) The term "affiliate," as applied to any Person, means
        any other Person directly or indirectly controlling, controlled by, or
        under common control with, that Person; and for purposes of this
        definition, "control" (including, with correlative meanings, the terms
        "controlling," "controlled by," and "under common control with"), as
        applied to any Person, means the possession, directly or indirectly, of
        the power to direct or cause the direction of the management and
        policies of that Person, whether through the ownership of voting
        securities, by contract or otherwise.

                      (b) A Person will be deemed to "beneficially" own
        securities if such Person would be the beneficial owner of such
        securities under Rule 13d-3 under the Exchange Act, including securities
        which such Person has the right to acquire (whether such right is
        exercisable immediately or only after the passage of time).

                      (c) The term "Business Day" means any day on which
        commercial banks are open for business in New York, New York other than
        a Saturday, a Sunday or


                                      -57-


        a day observed as a holiday in New York, New York under the Laws of the
        State of New York or the federal Laws of the United States.

                      (d) The term "knowledge" of any Person that is not an
        individual means, with respect to any matter, the actual knowledge of
        any of such Person's executive officers after due inquiry of the
        Person's employees having primary responsibility for such matter;

                      (e) The term "Law" means any foreign or domestic law,
        regulation, judgement, order, writ, injunction, decree, rule, ordinance,
        award, stipulation, statute, judicial or administrative doctrine, rule
        or regulation entered by a Governmental Entity or arbitrator.

                      (f) "Material Adverse Effect" means, with respect to any
        Person, any change, result, effect, event, occurrence or state of facts
        (or any development that has had or is reasonably likely to have any
        change or effect) that, individually or in the aggregate with any such
        other change, result, effect, event, occurrence or state of facts, is or
        would reasonably be expected to be, materially adverse (whether or not
        (i) foreseeable or known as of the date of this Agreement, (ii) covered
        by insurance or (iii) constituting a breach of a representation,
        warranty or covenant set forth herein) to the business, condition
        (financial or otherwise), assets, liabilities or results of operations
        of such Person and its Subsidiaries, taken as a whole, or which is or
        would reasonably be expected to be materially adverse to the ability of
        such Person to perform on a timely basis any of its material obligations
        under this Agreement or to consummate the Transactions contemplated
        hereby; provided, however, none of the following shall be deemed in
        themselves, either alone or in combination, to constitute, and none of
        the following shall be taken into account in determining whether there
        has been, a Material Adverse Effect: (i) any change in the market price
        or trading volume of the capital stock of such Person after the date
        hereof, (ii) changes, events or occurrences in the United States or
        Switzerland securities markets which are not specific to such Person,
        (iii) any adverse changes, events, developments or effects arising from
        or relating to general business or economic conditions or the general
        conditions of the industry in which the Person participates which are
        not specific to such Person and its Subsidiaries and which do not affect
        such Person in a materially disproportionate manner, (iv) any adverse
        change, result, event, development or effect arising from or relating to
        any change in U.S. GAAP, (v) any adverse changes, events, developments
        or effects reasonably attributable to the execution or announcement of
        this Agreement and (vi) the effect on such Person of out-of-pocket fees
        or expenses (including legal, accounting and financial advisory fees and
        expenses) incurred in connection with the transactions contemplated by
        this Agreement.

                      (g) The term "Person" includes individuals, corporations,
        partnerships, trusts, limited liability companies, associations,
        unincorporated organizations, joint ventures, other entities, groups
        (which term shall include a "group" as such term is defined in Section
        13(d)(3) of the Exchange Act), labor unions or Governmental Entities.


                                      -58-


                      (h) The term "Subsidiary" means as to any Person any
        corporation or other legal entity of which (i) such Person controls
        (either alone or through or together with any other Subsidiary) or owns,
        directly or indirectly, more than 50% of the capital stock or other
        ownership interests the holders of which are generally entitled to vote
        for the election of the board of directors or other governing body of
        such corporation or other legal entity or (ii) such Person or any other
        Subsidiary of such Person is a general partner (excluding any such
        partnership where such Person or Subsidiary does not have a majority of
        the voting interest in such partnership).





                                      -59-


               IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.

                                        RAYTEL MEDICAL CORPORATION



                                        By:     /s/ Richard F. Bader
                                                ________________________________
                                                Name: Richard F. Bader
                                                Title: President and Chief
                                                       Executive Officer


                                        SHL TELEMEDICINE LTD.



                                        By:     /s/ Erez Alroy
                                                ________________________________
                                                Name: Erez Alroy
                                                Title: Co-President


                                        SHL TELEMEDICINE ACQUISITION CORP.



                                        By:     /s/ Erez Alroy
                                                ________________________________
                                                Name: Erez Alroy
                                                Title: Co-President



                                      -60-


                                                                         ANNEX A

                             CONDITIONS TO THE OFFER

               Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Agreement and Plan of Merger (the
"Agreement") of which this Annex A is a part. Notwithstanding any other
provision of the Offer, and in addition to (and not in limitation of)
Purchaser's rights to extend and amend the Offer at any time in its sole
discretion (subject to the provisions of the Agreement), Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange
Act (relating to the obligation of Purchaser to pay for or return tendered
Shares promptly after termination or withdrawal of the Offer), pay for any
tendered Shares and (subject to any such rules or regulations and subject to the
restrictions on extending the Offer set forth in the Agreement) may delay the
acceptance for payment of or the payment for any tendered Shares and (except as
provided in the Agreement) amend or terminate the Offer and not accept for
payment any tendered shares if (i) there are not validly tendered (and not
properly withdrawn) prior to the expiration date for the Offer that number of
Shares which, when added to any such Shares, if any, beneficially owned by
Parent or any of its affiliates, will at least satisfy the Minimum Condition or
(ii) at any time on or after the date of the Agreement and before the expiration
date of the Offer, any of the following events shall have occurred and be
continuing:

               (a) there shall be threatened or pending any suit, action or
        proceeding by any Governmental Entity (i) seeking to prohibit or impose
        any material limitations on Parent's or Purchaser's ownership or
        operation (or that of any of their respective Subsidiaries or
        affiliates) of all or a material portion of their or the Company's (or
        any of its Subsidiary's) businesses or assets, (ii) seeking to compel
        Parent or Purchaser or their respective Subsidiaries and affiliates to
        dispose of or hold separate any material portion of the business or
        assets of the Company or Parent and their respective Subsidiaries, in
        each case taken as a whole, (iii) challenging the acquisition by Parent
        or Purchaser of any Shares pursuant to the Offer or the Merger, (iv)
        seeking to restrain or prohibit the making or consummation of the Offer
        or the Merger or the performance of any of the other Transactions, (v)
        seeking to obtain from the Company, Parent or Purchaser any damages that
        are material in relation to the Company and its Subsidiaries taken as a
        whole, (vi) seeking to impose material limitations on the ability of
        Purchaser, or rendering Purchaser unable, to accept for payment, pay for
        or purchase some or all of the Shares pursuant to the Offer and the
        Merger, (vii) seeking to impose material limitations on the ability of
        Purchaser or Parent effectively to exercise full rights of ownership of
        the Shares, including, without limitation, the right to vote the Shares
        purchased by it on all matters properly presented to the Company's
        stockholders, or (viii) which otherwise is reasonably likely to have a
        Material Adverse Effect on the Company or, as a result of the
        Transactions, a Material Adverse Effect on Parent; or


                                      A-1



               (b) there shall be any statute, rule, regulation, injunction,
        order or decree enacted, enforced, promulgated, issued or deemed
        applicable to the Offer or the Merger by any Governmental Entity that
        results in any of the consequences referred to in paragraph (a) above;
        or

               (c) the Agreement shall have been terminated in accordance with
        its terms or any event shall have occurred which gives the Parent or
        Purchaser the right to terminate the Agreement or not consummate the
        Merger; or

               (d) any representation or warranty of the Company contained in
        the Agreement (disregarding all qualifications and exceptions contained
        therein relating to materiality or Material Adverse Effect or any
        similar standard or qualification) shall not be true and correct in all
        respects as of the date of consummation of the Offer, as if made at and
        as of such time (except to the extent that any such representation or
        warranty, by its terms, is expressly limited to a specific date, in
        which case such representation or warranty shall not be true and correct
        as of such date), such that the aggregate effect of all such breaches of
        representations or warranties to be true and correct would reasonably be
        expected to have a Material Adverse Effect on the Company, or the
        representation set forth in the last two sentences of Section 4.28(a)
        and in Section 4.28(b) shall not be true and correct in all material
        respects (it being agreed that any notice from a Governmental Entity
        that the Company or any Subsidiary is in default under or in violation
        of any Settlement Agreement or the CIA shall be deemed to be material);
        or

               (e) the Company shall have failed to perform or comply in any
        material respect with any of its obligations, covenants or agreements
        contained in the Agreement required to be performed or complied with at
        or prior to the date of determination; or

               (f) there shall have occurred and be continuing (i) any general
        suspension of trading in, or limitation on prices for, securities on any
        national securities exchange or in the over-the-counter market in the
        United States or Switzerland for a period in excess of 24 hours (other
        than a shortening of trading hours or any coordinated trading halt
        triggered solely as a result of a specified increase or decrease in a
        market index), (ii) a declaration of a banking moratorium or any
        suspension of payments in respect of banks in the United States or
        Israel whether or not mandatory, (iii) any limitation (whether or not
        mandatory) by any Governmental Entity on, or other event that materially
        and adversely affects, the extension of credit by banks or other lending
        institutions, or (iv) a commencement of a war or armed hostilities or
        other national or international calamity directly or indirectly
        involving the United States or Israel or, to the extent existing at the
        time of execution of the Agreement, a material acceleration or worsening
        thereof; or

               (g) the Company Board or any committee thereof (i) shall have
        withdrawn or modified in a manner adverse to Parent or Purchaser
        (including by amendment of the Schedule 14D-9) its approval or
        recommendation of the Offer, the Merger or the Agreement or recommended
        or approved any Acquisition Proposal, (ii) upon request of


                                      A-2



        the Purchaser, shall fail to reaffirm its approval recommendation of the
        Offer, the Merger Agreement, or the Merger, within three Business Days
        after Purchaser's request, (iii) shall have resolved to do any of the
        foregoing or (iv) shall have taken a neutral position or made no
        recommendation, in each case in a manner that is publicly disclosed,
        with respect to a publicly disclosed Acquisition Proposal (other than by
        Parent or Purchaser) within the earlier of (A) ten Business Days after
        the first public disclosure thereof or (B) three Business Days prior to
        the Expiration Date; or

               (h) there shall have occurred any change, condition, event or
        development after September 30, 2001 that could reasonably be expected
        to have a Material Adverse Effect on the Company and the existence or
        possibility of which was not expressly disclosed in the Company
        Disclosure Memorandum delivered on the date of the Agreement; or

               (i) Parent and the Company shall have agreed in writing that
        Purchaser shall terminate the Offer or postpone the acceptance for
        payment of or payment for Shares thereunder; or

               (j) all consents necessary to the consummation of the Offer or
        the Merger, including, without limitation, consents from parties to
        loans, contracts, leases or other agreements and consents from
        government agencies, whether federal, state or local, shall not have
        been obtained, other than consents which, if not obtained, would not
        reasonably be expected to have a Material Adverse Effect on the Company;

which in the sole good faith judgment of Parent or Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment of
a payment for shares.

               The foregoing conditions (x) are for the sole benefit of Parent
and Purchaser and (y) may be asserted by Parent and Purchaser regardless of the
circumstances giving rise to such condition, and, except for the Minimum
Condition, and otherwise subject to the terms of the Agreement, may be waived by
Parent and Purchaser, in whole or in part, at any time and from time to time, in
the sole discretion of Parent and Purchaser. The failure of Parent or Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
and circumstances shall not be deemed a waiver with respect to any other facts
and circumstances, and each right shall be deemed a continuing right which may
be asserted at any time and from time to time. Should the Offer be terminated
pursuant to the foregoing provisions, all tendered Shares not theretofore
accepted for payment pursuant thereto shall forthwith be returned to the
tendering stockholders.


                                      A-3

EX-10.8

                                                                    Exhibit 10.8

                              AMENDED AND RESTATED

                              EMPLOYMENT AGREEMENT

        THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement"), dated
February 6, 2002, is made and entered into by and between RAYTEL MEDICAL
CORPORATION, a Delaware corporation (the "Company"), and RICHARD F. BADER (the
"Employee").

                                    RECITALS:

        A. The Company and the Employee are parties to an Employee Agreement
dated as of September 28, 1995 (the "Effective Date"), as heretofore amended
(the "Original Employment Agreement");

        B. The Company desires to continue the employment of the Employee as the
Company's Chief Executive Officer, and the Employee desires to accept such
continued employment. The employment of the Employee by the Company pursuant to
this Agreement is hereinafter sometimes referred to as the "Employment"; and

        C. The Company and the Employee desire to restate and clarify the
Original Employment Agreement and to set forth each and all of the terms and
conditions of the Employment.

        NOW THEREFORE, in consideration of the premises and the agreements,
representations and warranties contained in this Agreement, the Company and the
Employee hereby agree as follows:

        1. Duties, Term and Exclusive Employment.

               1.1 Duties and Responsibilities. Within the limitations
established by the Company's Bylaws, the Employee shall have each and all of the
duties and responsibilities of the Company's Chief Executive Officer. As such,
the Employee shall have responsibility and authority with respect to the
operations and long-term strategy and direction of the Company, subject to the
direction of the Company's Board of Directors.

               1.2 Term of Employment. The Employment hereunder shall begin on
the Effective Date and, unless earlier terminated as provided in Paragraph 3
hereof, the Employment shall continue until midnight on the second anniversary
of the Effective Date. The Employment shall be extended automatically for
additional one (1) year terms upon each anniversary of the Effective Date,
beginning on September 28, 1996, unless either party gives written notice to the
other at least thirty (30) days prior to the expiration of the initial term (or,
if applicable, any extended term) of his or its election not to extend the
Employment for the subsequent term.

               1.3 No Other Employment or Business Activities. During the term
of the Employment, the Employee shall diligently and conscientiously devote all
of his working time


                                       1


and attention to discharging his duties to the Company and shall not, without
the express prior written consent of the Board of Directors of the Company,
render to any other person, corporation, partnership, firm, company, joint
venture or other entity any services of any kind for compensation or engage in
any other activity that would in any manner whatsoever interfere with the
performance of the Employee's duties on behalf of the Company. The foregoing
notwithstanding, nothing herein shall prevent the Employee from engaging in
charitable activities or activities of professional associations, from managing
any personal investments on his own personal time, provided that such
investments are not otherwise competitive with the Company, or engaging in the
additional activities listed and described on Appendix A hereto.

               1.4 Proprietary Information and Inventions Agreement. The
Employee acknowledges his obligations under the Employee Agreement Regarding
Proprietary Information and Inventions of even date herewith, attached hereto as
Appendix B (the "Proprietary Information and Inventions Agreement"), and agrees
to be bound by the provisions thereof.

               1.5 Indemnity Agreement. The parties acknowledge their respective
obligations under the Indemnity Agreement of even date herewith, attached hereto
as Appendix C (the "Indemnity Agreement"), and agree to be bound by the
provisions thereof.

        2. Compensation. In full and complete consideration for the Employment
and each and all of the services to be rendered to the Company, and any
subsidiary or affiliate of the Company, by the Employee, the Employee shall
receive compensation as follows, except as otherwise provided in Paragraph 3
hereof:

               2.1 Base Salary. The Employee shall receive from the Company a
base salary, at the initial rate of $282,516 per year, payable in periodic
installments in accordance with the Company's payroll policy as in effect from
time to time. The base salary will be reviewed at least annually during the
continuation of the Employment and may be increased (but not decreased) by the
Company in the sole discretion of its Board of Directors based upon such factors
as the Board of Directors deems relevant, including the financial condition and
operating results of the Company. From each of the Employee's salary payments
the Company will withhold and pay to the proper governmental authorities any and
all amounts required by law to be withheld for federal income tax, state income
tax, federal social security tax, state disability insurance premiums, and any
and all other amounts required by law to be withheld from the Employee's salary.
The Company will also deduct from the Employee's salary payments those sums, if
any, authorized by the Employee in writing and approved by the Company. The
Company will make payments and contributions, such as unemployment insurance
premiums, workers' compensation insurance premiums and the employer's portion of
federal social security tax, which are required by law to be made by the Company
for the Employee's benefit without any deduction from the Employee's salary
payments.

               2.2 Bonus Awards. The Employee will be eligible for consideration
for incentive compensation ("Bonus Awards"), although no Bonus Awards are
required to be paid hereunder. All Bonus Awards shall be determined by the
Company's Board of Directors in its sole discretion for such fiscal periods as
it shall determine and based upon such factors as it deems relevant. Each Bonus
Award will be deemed to be earned at the end of the applicable fiscal period and
will be paid to the Employee within ninety (90) days following the end of the


                                       2


fiscal period for which such award is made; provided, however, that if, prior to
the end of any such fiscal period, (i) the Employment is terminated as a result
of the Employee's death or disability; (ii) the Company terminates the
Employment other than For Cause pursuant to Paragraph 3.2 hereof; (iii) the
Employment is terminated by the Company giving notice pursuant to Paragraph 1.2
hereof; or (iv) the Employee terminates the Employment for Good Reason pursuant
to Paragraph 3.4 hereof, in each case, the Employee shall be entitled to receive
a prorated Bonus Award determined by multiplying the amount of the Bonus Award,
if any, that the Employee would have received had the Employee been employed for
the full fiscal period by a fraction, the numerator of which is the number of
full months of Employment completed during the fiscal period and the denominator
of which is the number of months in the fiscal period. Any such prorated Bonus
Award will be paid to the Employee within ninety (90) days following the end of
the fiscal period for which such award is made.

               2.3 Deferred Compensation Plan. The Employee shall be entitled to
participate in the Company's Deferred Compensation Plan so long as it is
available generally to senior executives of the Company, and in any successor
plan which may be adopted and in effect from time to time during the Employment.

               2.4 Stock Options. The Employee is presently the holder of stock
options granted under the Company's Stock Option Plan, which options are subject
to separate written Option Agreements. No such Option Agreement constitutes an
agreement of employment, and no provision of any such Option Agreement shall
operate to extend the term of the Employment hereunder. During the Employment,
the Employee will be eligible for the grant of additional options at the sole
discretion of the Company's Board of Directors based upon such factors as it
deems relevant.

               2.5 Vacation. The Employee shall be entitled to paid vacation in
accordance with the Company's vacation policy for senior executives, as in
effect from time to time.

               2.6 Automobile Allowance. The Employee shall be entitled to the
payment of a monthly allowance for automobile expenses throughout the term of
the Employment, in the same amount and in accordance with the arrangements
currently in effect, or to such alternate automobile allowance of comparable
economic value as may be in effect from time to time.

               2.7 Insurance and Other Benefits. The Employee shall be entitled
to participate in any life, medical, dental and/or disability insurance plans,
together with any supplemental insurance plans, as may be offered by the Company
to its executive employees from time to time during the Employment. The Employee
shall be eligible to participate in any other fringe benefits as may be provided
by the Company to its executives, generally, during the Employment.

        3. Termination of Employment. The Employment may be terminated prior to
the end of the term specified in Paragraph 1.2 hereof upon the occurrence of any
of the following:

               3.1 Death and Disability. The Employment shall automatically
terminate upon the death of the Employee. The Company shall have the right, but
not the obligation, to terminate the Employment at any time following
determination of the Employee's total disability


                                       3


(as defined pursuant to the Company's long-term disability insurance plan
covering the Employee if any such plan is then in effect, or otherwise as
determined by the Company's Board of Directors). In the event of the Employee's
total disability, the Employee's base salary pursuant to Paragraph 2.1 hereof,
shall be continued for the lesser of: (i) the duration of the Employee's total
disability, or (ii) the waiting period determined in the Company's long-term
disability policy then in effect or (iii) one (1) year if no such policy is then
in effect. In the event of the Employee's death or total disability, the
Employee or his estate shall be entitled to receive (A) the Employee's base
salary through the date of termination of the Employment (as extended, in the
case of total disability), plus (B) any Bonus Award earned by the Employee as of
the date of termination of the Employment pursuant to Paragraph 2.2 hereof but
not yet paid, plus (C) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. In the event
of a partial disability that prevents the Employee from effectively performing
his duties and responsibilities hereunder, the parties will attempt, in good
faith, to negotiate a basis upon which the Employee may continue as an employee
of the Company in a reduced capacity and at appropriately reduced compensation.
If no such arrangement is agreed upon, the Company may elect to treat the
Employee's disability as a total disability for purposes of this Paragraph 3.1.

               3.2 Termination of Employment by the Company "For Cause". The
Company shall have the unrestricted right, but not the obligation, to terminate
the Employment at any time "For Cause" in the event of the Employee's (i) wilful
and repeated neglect of his duties hereunder (other than as a result of a
physical disability not related to substance abuse), (ii) conviction of a crime
involving moral turpitude, (iii) commission of any act of fraud or dishonesty
against the Company, or (iv) breach of the Employee's obligations hereunder or
under the Proprietary Information and Inventions Agreement which, if curable, is
not cured within ten (10) days following notice thereof by the Company. The
decision to terminate the Employment For Cause, to take other action or to take
no action in response to such occurrence shall be in the sole and exclusive
discretion of the Company. Upon any termination of the Employment by the Company
For Cause, the Employee shall be entitled to receive (A) the Employee's base
salary through the date of such termination, plus (B) any Bonus Award earned by
the Employee as of the date of termination of the Employment pursuant to
Paragraph 2.2 hereof but not yet paid, plus (C) any other benefits to which the
Employee is entitled pursuant to the plans described in Paragraphs 2.3 and 2.7
hereof.

               3.3 Other Termination of Employment by the Company. The Company
may terminate the Employment hereunder at any time for any reason, upon notice
to the Employee. However, if the Employment is terminated by the Company for any
reason other than pursuant to Paragraphs 3.1 or 3.2 hereof (including a
termination pursuant to notice given under Section 1.2 hereof), the Employee
shall be entitled to receive his base salary through the date of termination of
the Employment, plus an amount (the "Severance Payment") equal to his then
current base salary for a period of twenty-four (24) months following the date
of termination (the "Severance Period"). The Severance Payment shall be paid in
periodic installments during the Severance Period, in accordance with the
Company's payroll policy as in effect from time to time; provided, however, that
if the Employment is terminated following a "Change of Control" (as defined
below), the full amount of the Severance Payment shall be payable in a single
lump sum immediately upon the Company's delivery of its notice of termination.
The Severance Payment shall be in lieu of any other severance pay or other
benefit to which the Employee might


                                       4


otherwise be entitled. In addition, in the event of such a termination, the
Company will, to the extent its plans permit, continue to provide to the
Employee coverage under its life, medical, dental and/or disability plans, as in
effect on the date of termination, during the Severance Period. In the event
that the Company may not continue to provide the benefit of any such plans, the
Severance Payment shall be increased by an amount equal to the Employee's cost
of providing such discontinued coverage for himself and his dependents during
the Severance Period, assuming, where applicable, the timely compliance by the
Employee with any notification procedure required in order to obtain
continuation coverage at group rates. The Employee shall also be entitled, upon
any such termination, to receive (A) any Bonus Award earned by the Employee as
of the date of termination of the Employment pursuant to Paragraph 2.2 hereof
but not yet paid, plus (B) any other benefits to which the Employee is entitled
pursuant to the plans described in Paragraphs 2.3 and 2.7 hereof. For purposes
of this Agreement, a "Change of Control" of the Company shall occur upon: (i) a
merger, consolidation or other reorganization involving the Company, or a tender
offer, exchange offer or other transaction or series of transactions involving
the acquisition of securities of the Company where, in any such case, the
holders of voting securities of the Company immediately prior to such
transaction or series of transactions own less than 50% of the voting securities
of the surviving or successor entity, or its parent, immediately following such
transaction or series of transactions; (ii) the sale of all or substantially all
of the Company's assets; (iii) the sale of all or substantially all of the
capital stock or assets of any subsidiary or subsidiaries of the Company which
accounted for 40% or more of the Company's consolidated revenues for the
preceding fiscal year; or (iv) any change by more than 50% in the composition of
the Company's Board of Directors, accomplished by means of a proxy contest or
otherwise, which is opposed by the incumbent Board of Directors of the Company
or by the Employee.

               3.4 Termination of Employment by the Employee For "Good Reason".
The Employee shall have the right to terminate the Employment at any time, upon
notice to the Company, for "Good Reason": (A) in the event that, other than
pursuant to Paragraphs 3.1 or 3.2 hereof, the Company, without the Employee's
prior written consent, (i) materially alters or reduces the Employee's duties,
responsibilities and status with the Company from those which exist as of the
Effective Date; (ii) assigns the Employee duties which are inconsistent with the
Employee's position as Chief Executive Officer of the Company; (iii) materially
breaches the terms of this Agreement in respect to the payment of compensation
or benefits or in any other material respect and such breach is not cured within
ten (10) days after notice thereof; (iv) requires the Employee, as a condition
to the Employment, to be based more than one hundred (100) miles from the
location where he is based as of the Effective Date; or (v) requires the
Employee, as a condition to the Employment, to perform illegal or fraudulent
acts or omissions; or (B) for any reason at any time within six (6) weeks
following a Change of Control; provided, however, that, if requested by the
Company or its successor, the Employee will agree to extend the Employment for a
transition period of up to six (6) weeks following the effectiveness of the
Change of Control, in which case the Employee's right to terminate the
employment under this clause (B) shall begin at the end of such agreed-upon
transition period and end six (6) weeks thereafter. If the Employee voluntarily
terminates the Employment for Good Reason pursuant to this Paragraph 3.4, the
Employee shall be entitled to receive the payments and other benefits specified
in Paragraph 3.3 hereof with respect to a termination by the Company other than
For Cause. If the Employment is terminated following a Change of


                                       5


Control pursuant to clause (B) above, the full amount of the Severance Payment
shall be payable in a single lump sum immediately upon the Employee's delivery
of his notice of termination.

               3.5 Termination of Employment by the Employee Without "Good
Reason". Upon any voluntary termination of the Employment by the Employee, other
than for Good Reason pursuant to Paragraph 3.4 hereof, the Employee shall be
entitled to receive (i) the Employee's base salary through the date of such
termination, plus (ii) any Bonus Award earned by the Employee as of the date of
termination of the Employment pursuant to Paragraph 2.2 hereof but not yet paid,
plus (iii) any other benefits to which the Employee is entitled pursuant to the
plans described in Paragraphs 2.3 and 2.7 hereof.

        4. Expenses. The Company will reimburse the Employee for those
customary, ordinary and necessary business expenses incurred by him in the
performance of his duties and activities on behalf of the Company. Such expenses
will be reimbursed upon presentation by the Employee of appropriate
documentation to substantiate such expenses pursuant to the policies and
procedures of the Company governing reimbursement of business expenses to its
executives.

        5. Conflicts of Interest. The Employee covenants, warrants and
represents to the Company that he has the full right and authority to enter into
the Employment and this Agreement, that he has no agreement, duty, commitment or
responsibility of any kind or nature whatsoever with or to any other person,
corporation, partnership, firm, company, joint venture or other entity which
would conflict in any manner whatsoever with any of his duties, obligations or
responsibilities to the Company pursuant to the Employment and/or this
Agreement, and that he is fully ready, willing and able to perform each and all
of his duties, obligations and responsibilities to the Company pursuant to the
Employment and/or this Agreement. As a condition of the Employment and of the
Company's entering into this Agreement, the Company requires that the Employee
not, and the Employee hereby specifically agrees, covenants, warrants and
represents that during the Employment he will not, without the Company's express
prior written consent, accept any employment, contractual or other relationship
of any kind or nature whatsoever or engage in any association or dealing of any
kind or nature whatsoever with any person, corporation, partnership, firm,
company, joint venture, or other entity in competition with any actual or
proposed business of the Company; provided that nothing herein shall prohibit
Employee from owning up to five percent (5%) of the outstanding shares of any
class of equity securities of a corporation engaged in any such prohibited
activity whose securities are listed on a national securities exchange or quoted
daily in the over-the-counter listings of The Wall Street Journal.

        6. Duties of the Employee After Any Notice of Termination of the
Employment. Following any notice of termination of the Employment, the Employee
shall fully cooperate with the Company in all matters relating to the winding up
of the Employee's work on behalf of the Company and the orderly transfer of all
pending work and of the Employee's duties and responsibilities to such other
person or persons as may be designated by the Company in its sole discretion.
Upon any termination of the Employment, the Employee will immediately deliver to
the Company any and all of the Company's property of any kind or nature
whatsoever in the Employee's possession, custody or control, including, without
limitation any and all Confidential Information as that term is defined in the
Proprietary Information and Inventions Agreement.


                                       6


        7. No Predatory Solicitation. During the Employment and for two (2)
years following any termination of the Employment, the Employee will not,
without having received prior written permission of the Company's Board of
Directors to do so, directly or indirectly, on his own behalf of in the service
of others, interfere with or raid the officers, employees, consultants, agents
and/or independent contractors of the Company or in any manner attempt to
persuade any such person to discontinue any relationship with the Company. The
Employee and the Company confirm that this Paragraph 7 is reasonable and
necessary for the protection of the trade secrets and proprietary information of
the Company.

        8. Arbitration. Except as otherwise expressly provided in this
Agreement, any and all controversies, disputes and/or claims in any manner
arising out of or relating to this Agreement or the Employment shall be settled
solely by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Such arbitration proceeding shall take place
in the state and county of the Company's office where the Employee is based.
Judgment on any decision rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Each party shall bear its own attorneys' fees and
expenses and other costs in any arbitration proceeding. All administrative fees
and the fee of the arbitrator shall be borne by the parties equally. Except as
otherwise expressly provided in this Agreement, the arbitration provisions set
forth above in this Paragraph 8 are intended by the Employee and by the Company
to be absolutely exclusive for all purposes whatsoever and applicable to each
and every controversy, dispute and/or claim in any manner arising out of or
relating to this Agreement, and the Employment, the meaning, application and/or
interpretation of this Agreement, any breach or claimed breach thereof and/or
any voluntary or involuntary termination of this Agreement with or without
cause, including, without limitation, any such controversy, dispute and/or claim
which, if pursued through any state or federal court or administrative agency,
would arise at law, in equity and/or pursuant to statutory, regulatory and/or
common law rules, regardless of whether such dispute, controversy and/or claim
would arise in and/or from contract, tort or any other legal and/or equitable
theory or basis. Notwithstanding anything to the contrary contained in this
Paragraph 8, the Company shall at all times have and retain the full, complete
and unrestricted right to immediate and permanent injunctive and other relief as
provided in Paragraph 9 below.

        9. The Company's Right to Immediate Injunctive Relief. The Employee
recognizes, acknowledges and agrees that any breach or any threatened breach of
any Paragraph, term, provision or covenant of any of Paragraphs 1.4, 5, 6, 7 or
8 of this Agreement or of the Proprietary Information and Inventions Agreement
would cause irreparable injury to the Company which could not be adequately
compensable in monetary damages and that the remedy at law for any such breach
will be entirely insufficient and inadequate to protect the Company's legitimate
interests. Therefore, the Employee specifically recognizes, acknowledges and
agrees that the Company shall at any and all times be and remain fully entitled
to seek and obtain immediate temporary, preliminary and permanent injunctive
relief for any such breach or threatened breach from any court of competent
jurisdiction. The prevailing party in any action instituted pursuant to this
Paragraph 8 shall be entitled to recover from the other party its reasonable
attorneys' fees and other expenses incurred in such litigation.

        10. Survival of Certain Provisions of this Agreement. Except as may
otherwise be provided herein, each and all of the terms, provisions and
covenants of each of Paragraphs 1.4, 6,


                                       7


7, 8, 9, 10 and 11 of this Agreement shall, for any and all purposes whatsoever,
survive any termination of the Employment, regardless of whether such
termination is by the Employee, by the Company, by expiration or otherwise.

        11. General.

               11.1 Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the Company, the Employee and
each and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Employee under this
Agreement shall be personal and not assignable or delegable by the Employee in
any manner whatsoever to any person, corporation, partnership, firm, company,
joint venture or other entity. The Employee may not assign, transfer, convey,
mortgage, pledge or in any other manner encumber the compensation or other
benefits to be received by him or any rights which he may have pursuant to the
terms and provisions of this Agreement.

               11.2 Waiver. No waiver of any breach of any warranty,
representation, agreement, promise, covenant, paragraph, term or provision of
this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other warranty, representation, agreement, promise,
covenant, paragraph, term and/or provision of this Agreement. No extension of
the time for the performance of any obligation or other act required or
permitted by this Agreement shall be deemed to be an extension of the time for
the performance of any other obligation or any other act required or permitted
by this Agreement.

               11.3 Sole and Entire Agreement. This Agreement, and the other
agreements referred to herein, including the Company's benefit plans, are the
sole, complete and entire contract, agreement and understanding between the
Company and the Employee concerning the Employment, the terms and conditions of
the Employment, the duration of the Employment, the termination of the
Employment and the compensation and benefits to be paid and provided by the
Company to the Employee pursuant to the Employment. Except as otherwise provided
herein, this Agreement supersedes any and all prior contracts, agreements,
plans, agreements in principle, correspondence, letters of intent,
understandings, and negotiations, whether oral or written, concerning the
Employment, the terms and conditions of the Employment, the duration of the
Employment, the termination of the Employment and the compensation and benefits
to be paid by the Company to the Employee pursuant to the Employment.

               11.4 Amendments. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Employee.

               11.5 Originals. This Agreement may be executed by the Company and
by the Employee in counterparts, each of which shall be deemed an original and
which together shall constitute one instrument.

               11.6 Headings. Each and all of the headings contained in this
Agreement are for reference purposes only and shall not in any manner whatsoever
affect the construction or


                                       8


interpretation of this Agreement or be deemed a part of this Agreement for any
purpose whatsoever.

               11.7 Savings Provision. To the extent that any provision of this
Agreement or any Paragraph, term, provision, sentence, phrase, clause or word of
this Agreement shall be found to be illegal or unenforceable for any reason,
such Paragraph, term, provision, sentence, phrase, clause or word shall be
modified or deleted in such a manner as to make this Agreement, as so modified,
legal and enforceable under applicable laws. The remainder of this Agreement
shall continue in full force and effect.

               11.8 Applicable Law. This Agreement and each and every provision
of this Agreement shall be interpreted solely pursuant to the internal laws of
the State of California without regard to any conflicts of law principles
thereof.

               11.9 Construction. The language of this Agreement and of each and
every paragraph, term and provision of this Agreement shall, in all cases, for
any and all purposes, and in any and all circumstances whatsoever be construed
as a whole, according to its fair meaning, not strictly for or against the
Employee or the Company, and with no regard whatsoever to the identity or status
of any person or persons who drafted all or any portion of this Agreement.

               11.10 Notices. Any notices to be given pursuant to this Agreement
by either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this Paragraph 10.10. Notices delivered personally shall be
deemed received on the date of delivery. Notices delivered by mail shall be
deemed received on the third business day after the mailing thereof.

        Mailed notices to the Employee shall be addressed as follows:

               Richard F. Bader
               21120 Michaels Drive
               Saratoga, California

        Mailed notices to the Company shall be addressed as follows:

               Raytel Medical Corporation
               2755 Campus Drive, Suite 200
               San Mateo, California  94403-2515
               Attention:  President

        IN WITNESS WHEREOF, the Company and the Employee have each duly executed
this Agreement as of the date first set forth above.

RAYTEL MEDICAL CORPORATION                THE EMPLOYEE


By:_____________________________          ___________________________________


                                          Richard F. Bader

Its:____________________________

                                       9

EX-10.72

                                                                   Exhibit 10.72


                           LOAN AND SECURITY AGREEMENT

                                  by and among

                CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC.
                          CARDIOVASCULAR VENTURES, INC.
                     HEART CENTER OF EAST NEW ORLEANS, L.P.
                     MRI DIAGNOSTIC PARTNERS i, L.P. - 1986
                          RAYTEL CARDIAC SERVICES, INC.
                           RAYTEL GRANADA HILLS, INC.
                          RAYTEL IMAGING HOLDINGS, INC.
                          RAYTEL IMAGING NETWORK, INC.
                           RAYTEL MEDICAL CORPORATION
                   RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC.
    SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED PARTNERSHIP
                           (collectively "Borrowers")

                                       and

                HEALTHCARE BUSINESS CREDIT CORPORATION ("Lender")

                            Dated: November 15, 2001


                                       i



                                  EXHIBIT LIST

                       
Exhibit 1.1           --     Imaging Centers, Imaging Center Affiliates and
                             Imaging Center PCs
Exhibit 1.2           --     Concentration Account
Exhibit 1.3           --     RCS Operating Account
Exhibit 1.4           --     RMC Operating Account
Exhibit  2.1(b)       --     Form of Revolving Credit Note
Exhibit  2.2(b)       --     Form of Borrowing Base Certificate
Exhibit  2.2(c)       --     Loan Request
Exhibit  4.1          --     Form of Opinion of Counsel
Exhibit  4.2          --     Notice Letter Re: Commercial Obligors
Exhibit  5.1          --     Borrowers' States of Qualifications
Exhibit  5.2          --     Places of Business/Other Names
Exhibit  5.3          --     Provider Identification Numbers
Exhibit  5.4          --     Pending Litigation
Exhibit  5.5          --     Medicare/Medicaid Overpayments
Exhibit  5.6          --     Liens on Collateral other than Accounts
Exhibit  5.9          --     Federal Tax Identification Numbers
Exhibit  5.11         --     Subsidiaries and Affiliates
Exhibit  5.12         --     Existing Guaranties, Investments and
                             Borrowings, Leases and Employment Agreements
Exhibit  5.16         --     Capital Stock and Partnership Interests of
                             Borrowers; Wholly-Owned Borrowers; Controlled
                             Borrowers
Exhibit  5.23         --     Contracts
Exhibit  6.8          --     Officer's Certificate
Exhibit  6.17         --     Deposit Account Procedures

Schedule 1            --     Advance Rates, Ineligible Obligors and
                             Concentration Limits, Etc.




                                       ii



                           LOAN AND SECURITY AGREEMENT

        This Loan and Security Agreement is dated as of the 15th day of
November, 2001, by and among Cardiovascular Ventures of East New Orleans, Inc.
("CVENO"), a Louisiana corporation, Cardiovascular Ventures, Inc. ("CV"), a
Delaware corporation, Heart Center of East New Orleans, L.P. ("HCNO"), a
Louisiana limited partnership, MRI Diagnostic Partners I, L.P. - 1986 ("MRDP"),
a Pennsylvania limited partnership, Raytel Cardiac Services, Inc. ("RCS"), a
Delaware corporation, Raytel Granada Hills, Inc. ("RGH"), a Delaware
corporation, Raytel Imaging Holdings, Inc. ("RIH"), a Delaware corporation,
Raytel Imaging Network, Inc. ("RIN"), a Delaware corporation, Raytel Medical
Corporation ("RMC"), a Delaware corporation, Raytel Nuclear Imaging - West
Houston, Inc. ("RNIWH"), a Delaware corporation, and San Luis Obispo Medical
Imaging Center, a California Limited Partnership ("MIC-SLO"), a California
limited partnership (collectively, "BORROWERS") and Healthcare Business Credit
Corporation, a Delaware corporation ("LENDER").

                                   BACKGROUND

        A. Borrowers have requested that Lender make revolving loans to them of
up to $15,000,000.00, which will be secured by a first priority perfected
security interest in (1) the Accounts and other Collateral of Borrowers, and (2)
the Accounts of certain Affiliates of Borrowers and other third parties with
professional/management relationships to such Affiliates of the Borrowers.
Lender is willing to make such loans to Borrowers pursuant to the terms and
provisions hereinafter set forth.

        B. The parties desire to define the terms and conditions of their
relationship to writing.

        NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

SECTION 1. DEFINITIONS AND INTERPRETATION

        1.1 Terms Defined: As used in this Agreement, the following terms have
the following respective meanings:

        "ACCOUNT" means (a) the third party reimbursable portion of accounts
receivable owing to a Borrower or to an Imaging Center Affiliate or Imaging
Center PC arising out of the delivery by a Borrower or Imaging Center of
medical, surgical, diagnostic or other professional or medical or dental
services, including all rights to reimbursement under any agreements with an
Obligor, (b) all accounts, general intangibles, rights, remedies, guarantees,
and security interests


                                       1


in respect of the foregoing, all rights of enforcement and collection, all books
and records evidencing or related to the foregoing, all rights under this
Agreement in respect of the foregoing, (c) all information and data compiled or
derived by a Borrower, or Imaging Center Affiliate or an Imaging Center PC in
respect of such accounts receivable (other than any such information and data
subject to legal restrictions of patient confidentiality), and (d) all proceeds
of any of the foregoing.

               "ADMINISTRATIVE OFFICE" means the Borrowers' office located at 7
Waterside Crossing, Windsor, Connecticut 06095.

               "ADVANCE(S)" means any monies advanced or credit extended to or
for the benefit of a Borrower by Lender under the Credit Facility.

               "ADVANCE RATE" means the percentage specified in SCHEDULE 1 as
the Advance Rate, as such percentage may be adjusted by Lender from time to time
pursuant to Section 2.1(d) hereof.

               "AFFILIATE" means, as to any Person, any other Person or any
group acting in concert in respect of such Person that, directly or indirectly,
controls, is controlled by, or is under common control with such Person. For the
purpose of this definition, "control" of a Person means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.

               "AGREEMENT" means this Loan and Security Agreement, as the same
may be hereafter amended, revised, restated, supplemented or otherwise modified.

               "AUTHORIZED OFFICER" means any officer of a Borrower which is a
corporation, or any officer of any corporate general partner of a Borrower which
is a partnership, authorized by specific resolution of the board of directors of
such Borrower or of such corporate general partner, to request Loans as set
forth in the incumbency certificate referred to in Section 4.1(d) of this
Agreement.

               "BILLING DATE" means the last Business Day of the week in which
the services were rendered in the case of out-patient services and the discharge
date in the case of in-patient services.

               "BLOCKED ACCOUNT AGREEMENTS" has the meaning set forth in Section
2.7(a) hereof.

               "BORROWERS" has the meaning set forth in the introductory
paragraph hereof.

               "BORROWING BASE" means, at any date, an amount equal to the
lesser of (a) the Revolving Loan Commitment, or (b) the amount equal to (i) the
product of (A) the Advance Rate then in effect, times (B) the Estimated Net
Value of all Eligible Accounts as of such date minus (ii) after the occurrence
and during the continuance of an Unmatured Event of Default or Event


                                       2


of Default, the amount of the next scheduled payment of principal and interest
under the Settlement Agreement.

               "BORROWING BASE DEFICIENCY" means, as of any date, the amount, if
any, by which (i) the aggregate principal amount of the Loans outstanding as of
such date exceeds (ii) the Borrowing Base as of such date.

               "BORROWING BASE EXCESS" means, as of any date, the amount, if
any, by which (i) the Borrowing Base as of such date exceeds (ii) the aggregate
principal amount of the Loans outstanding as of such date.

               "BORROWING BASE REPORT" has the meaning set forth in Section
2.2(b) hereof.

               "BUSINESS DAY" means any day other than a Saturday, Sunday or any
day on which banking institutions in Philadelphia, Pennsylvania or New York, New
York are permitted or required by law, executive order or governmental decree to
remain closed or a day on which Lender is closed for business.

               "CHAMPUS" means the Civilian Health and Medical Program of the
Uniformed Service, a medical benefits program supervised by the U.S. Department
of Defense.

               "CHANGE OF CONTROL" means:

               (a) with respect to RMC (i) a transaction or series of related
transactions pursuant to which any Person or group of related Persons acquires
or would acquire (upon completion of such transaction or series of transactions)
shares (or securities exercisable for or convertible into shares) representing
more than fifty percent (50%) of the outstanding common stock of RMC, pursuant
to a tender offer or exchange offer or otherwise, (ii) a merger, consolidation,
share exchange or other business combination involving RMC, if, upon
consummation of such transaction, the Persons who were stockholders of RMC
immediately prior to such transaction continue to hold, following such
transaction, less than fifty percent (50%) of the outstanding equity securities
of the entity surviving such merger, consolidation or reorganization, or the
parent of such entity, or (iii) any other transaction or series of related
transactions pursuant to which any Person or related group of Persons acquires
or would acquire (upon completion of such transaction or series of transactions)
control of RMC's board of directors or by which nominees of any such Person or
group of Persons are (or would be) elected or appointed to a majority of the
seats on the board of directors of RMC; or

               (b) a majority of the members of the board of directors of RMC do
not constitute Continuing Directors; or

               (c) RMC ceases to directly or indirectly own and control all of
the issued and outstanding capital stock of any of the Wholly Owned Borrowers;
or


                                       3


               (d) RMC or one of the Wholly Owned Borrowers ceases to be the
sole general partner of any of the Controlled Borrowers or ceases to have the
right or ability by voting power, contract or otherwise to control any
Controlled Borrower.

               "CLOSING" has the meaning set forth in Section 4.5 hereof.

               "CLOSING DATE" has the meaning set forth in Section 4.5 hereof.

               "COLLATERAL" has the meaning set forth in Section 3.1 hereof.

               "COLLECTIONS" means with respect to any Account, all cash
collections on such Account.

               "COLLECTION ACCOUNT" has the meaning set forth in Section 2.7(a)
hereof.

               "COMMITMENT FEE" has the meaning set forth in Section 2.8 hereof.

               "CONCENTRATION ACCOUNT" means Borrowers' concentration account
identified on EXHIBIT "1.2" hereto.

               "CONCENTRATION LIMITS" means the various financial tests,
expressed as percentages of the then current ENV of all Eligible Accounts,
described on SCHEDULE 1 as in effect from time to time.

               "CONTINUING DIRECTOR" means (a) any member of the board of
directors of RMC who was a director of RMC on the Closing Date, and (b) any
individual who becomes a member of the board of directors of RMC after the
Closing Date if such individual was appointed or nominated for election to the
board of directors of RMC by a majority of the Continuing Directors, but
excluding any such individual originally proposed for election in opposition to
the board of directors of RMC in office at the Closing Date in an actual or
threatened election contest relating to the election of the directors (as such
terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as
amended) of RMC and whose initial assumption of office resulted from such
contest or the settlement thereof.

               "CONTRACT" means an agreement by which an Obligor is obligated to
pay for services rendered to patients of a Borrower.

               "CONTROLLED BORROWERS" means collectively those Borrowers the
sole general partnership interest of which is owned by RMC or one of the Wholly
Owned Borrowers as shown on EXHIBIT "5.16" hereto.

               "CREDIT FACILITY" has the meaning set forth in Section 2.1(a)
hereof.

               "CV" has the meaning set forth in the introductory paragraph
hereof.

               "CVENO" has the meaning set forth in the introductory paragraph
hereof.


                                       4


               "DEBT" means all indebtedness for borrowed money, trade debt,
debts of others guaranteed by a Borrower or secured by its assets, obligations
under capitalized leases and all other obligations which are or should be
treated as indebtedness under generally accepted accounting principles.

               "DEBT SERVICE COVERAGE RATIO" means the ratio of (a) the sum of
(i) net income, plus (ii) interest expense, plus (iii) depreciation and
amortization expenses, plus (iv) income tax expense, minus (v) permitted
Distributions, for the period of determination to (b) the sum of (i) interest
expense for such period, plus (ii) the current portion of long-term debt, plus
(iii) the current portion of the principal portion of lease payments under
capitalized leases, plus (iv) income tax actually paid, all as determined for
Borrowers in accordance with GAAP.

               "DEFAULT RATE" means 300 basis points above the interest rate
otherwise applicable on all Loans.

               "DEFAULTED ACCOUNT" means an Account as to which (a) the initial
ENV has not been received in full as Collections within 180 days of the Billing
Date, or (b) Lender reasonably deems uncollectible because of the bankruptcy or
insolvency of the Obligor or any other reason.

               "DISTRIBUTION" means (1) dividends or other distributions on
capital stock of a Borrower; and (2) the redemption, repurchase or acquisition
of such stock or equity interests or of warrants, rights or other options to
purchase such stock.

               "ELIGIBLE ACCOUNT" means an Account of a Borrower or of an
Imaging Center Affiliate and/or Imaging Center PC arising from services rendered
at an Imaging Center:

               (a) which is a liability of an Obligor which is (i) a commercial
insurance company acceptable to Lender, organized under the laws of any
jurisdiction in the United States, having its principal office in the United
States, other than those listed on SCHEDULE 1 as ineligible (and Lender reserves
the right to amend from time to time the list of ineligible Obligors on SCHEDULE
1), (ii) a Blue Cross/Blue Shield Plan other than those listed on SCHEDULE 1 as
ineligible, (iii) Medicare or Medicaid, (iv) CHAMPUS, (v) managed care companies
or third party administrators other than those listed on Schedule 1 as
ineligible, or (vi) any other type of institutional Obligor, not included in the
categories of Obligors listed in the foregoing clauses (i) - (v), organized
under the laws of any jurisdiction in the United States, having its principal
office in the United States and otherwise acceptable to Lender, other than those
listed on SCHEDULE 1,

               (b) the Obligor of which is not an Affiliate of a Borrower,

               (c) the Obligor of which has received a letter substantially in
the form of EXHIBIT "4.2",

               (d) in an amount not less than $5 nor more than $50,000 per
patient, denominated and payable in dollars in the United States,


                                       5


               (e) as to which the representations and warranties of Section
5.23 hereof are true,

               (f) having a Billing Date no more than thirty days prior to the
Funding Date (except in the case of the first Funding Date, the Billing Date
shall be no more than 150 days prior to the Funding Date),

               (g) which does not arise from the delivery of cosmetic surgery
services and is not classified as "self-pay",

               (h) if unbilled (an "UNBILLED ACCOUNT"), which is (i) subject to
a valid provider number obtained by Borrowers, if a provider number is required
in connection therewith, (ii) properly recorded (as determined by Lender in its
discretion) in the respective Borrower's billing system, and (iii) not
outstanding more than 45 days past the date the corresponding services were
provided; provided, however, that with Lender's prior consent, Unbilled Accounts
covered by Medicare which would otherwise constitute Eligible Accounts relating
to services provided in the first five months of any calendar year may still
constitute Eligible Accounts provided they are billed by June 30 of such year;
and provided, further, however, that after June 30th of each fiscal year and for
the remainder of such fiscal year the Borrowers' Unbilled Accounts which would
otherwise qualify as Eligible Accounts shall not be considered Eligible Accounts
to the extent the amount of such Unbilled Accounts would exceed one-third of the
aggregate Eligible Accounts,

               (i) if billed, which is not outstanding more than 180 days past
the original invoice date,

               (j) to the extent such Account does not include late charges or
finance charges,

               (k) which is not in dispute by either the recipient of such
service or any third party payor,

               (l) which is not owing from an Obligor, if more than 50% of the
aggregate Accounts owing from such Obligor have aged more than 180 days past the
date the corresponding services were provided, and

               (m) which complies with such other criteria and requirements as
may be specified from time to time by Lender in its discretion.

               "ESTIMATED NET VALUE" or "ENV" means on any date of calculation
with respect to any Account an amount equal to the anticipated cash collections
as calculated by Lender using the Value Track System (which system periodically
adjusts such amount to reflect Lender's evaluation of the performance of similar
Accounts and to reflect payments received with respect thereto), except that if
Lender determines that all Obligor payments with respect to an Account have been
made or if an Account has become a Defaulted Account, the ENV of such Account
shall be zero.


                                       6


               "EVENT OF DEFAULT" has the meaning set forth in Section 8.1
hereof.

               "EXPENSES" has the meaning set forth in Section 9.5 hereof.

               "FUNDING DATE" has the meaning set forth in Section 2.2(a)
hereof.

               "GAAP" means generally accepted accounting principles
consistently applied.

               "GOVERNMENT ACCOUNTS" means Accounts on which any federal or
state governmental unit is the Obligor.

               "HCNO" has the meaning set forth in the introductory paragraph
hereof.

               "IMAGING CENTER" means each imaging center operated pursuant to
an agreement between (i) an Imaging Center Affiliate and (ii) an Imaging Center
PC in the locations listed in EXHIBIT "1.1."

               "IMAGING CENTER AFFILIATES" means, collectively, the entities
listed in EXHIBIT "1.1," each of which is a Borrower and party to a professional
services/management agreement with an Imaging Center PC.

               "IMAGING CENTER PCS" means, collectively, the physicians and
medical practices listed in EXHIBIT "1.1," each of which has entered into a
professional services/management agreement with an Imaging Center Affiliate.

               "IMAGING CENTER SECURITY AGREEMENTS" means the Security
Agreements executed by each of (i) the Imaging Center Affiliates and (ii) the
Imaging Center PCs in favor of Lender as of even date herewith, granting to
Lender a first priority security interest in all Accounts of each of (a) the
Imaging Center Affiliates and (b) the Imaging Center PCs as collateral security
for the Obligations (as more particularly described therein), as such may be
amended, revised, restated, supplemented or otherwise modified.

               "INITIAL TERM" has the meaning set forth in Section 2.1(c).

               "JCAHO" means the Joint Commission for Accreditation of Health
Care Organizations, a nationally recognized organization providing
accreditations to hospitals and other healthcare facilities, or any successor
entity charged with performing its functions.

               "LENDER" has the meaning set forth in the introductory paragraph
hereof.

               "LOAN(S)" has the meaning set forth in Section 2.1(a) hereof.

               "LOAN DOCUMENTS" means this Agreement, the Revolving Credit Note,
the Imaging Center Security Agreements, the Blocked Account Agreements, the
agreements relating


                                       7


to the Lockboxes, all financing statements and all other agreements,
instruments, documents and certificates delivered in connection herewith or
therewith.

               "LOAN REQUEST" has the meaning set forth in Section 2.2(c)
hereof.

               "LOCKBOX AGREEMENTS" means the lockbox agreements executed by the
Borrowers with the Lockbox Banks in connection with the Lockboxes (including
without limitation the RCS Lockbox Agreements with the Primary Lockbox Bank).

               "LOCKBOX BANKS" means the Primary Lockbox Bank and such other
banks as are acceptable to Lender.

               "LOCKBOXES" means collectively those lockboxes (including without
limitation the RCS Lockboxes) maintained at Lockbox Banks as described on
EXHIBIT "6.17" hereto, to which Collections on certain Accounts are sent
pursuant to the Lockbox Agreements and the terms hereof.

               "MATERIAL ADVERSE EFFECT" means, for the Borrowers in the
aggregate, a material adverse effect on (a) the business, financial condition or
Property of Borrowers, (b) the value of the Collateral, the Accounts or the
Borrowing Base, (c) the ability of Borrowers to fulfill there Obligations
hereunder, or (d) the enforceability of any of the Loan Documents by Lender.

               "MATURITY DATE" has the meaning set forth in Section 2.1(c).

               "MIC-SLO" has the meaning set forth in the introductory paragraph
hereof.

               "MRB" has the meaning set forth in the introductory paragraph
hereof.

               "MRDP" has the meaning set forth in the introductory paragraph
hereof.

               "NON-USE FEE" has the meaning set forth in Section 2.3(b) hereof.

               "OBLIGATIONS" means all now existing or hereafter arising debts,
obligations, covenants, and duties of payment or performance of every kind,
matured or unmatured, direct or contingent, owing, arising, due, or payable to
Lender by or from a Borrower arising out of this Agreement or any other Loan
Document, including, without limitation, all obligations to repay principal of
and interest on all the Loans, and to pay interest, fees, costs, charges,
expenses, professional fees, and all sums chargeable to a Borrower under the
Loan Documents, whether or not evidenced by any note or other instrument.

               "OBLIGOR" means the party primarily obligated to pay an Account.

               "OPERATING ACCOUNTS" means collectively the operating and other
deposit accounts of Borrowers maintained at the Primary Lockbox Bank and other
banks approved by Lender as required by Section 6.17 hereof, including without
limitation the RCS Operating Account and the RMC Operating Account.


                                       8


               "PERSON" means any individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, joint
venture, court or government or political subdivision or agency thereof, or
other entity.

               "PLEA BARGAIN AGREEMENT" means the letter agreement dated June
25, 2001, between the United State's Attorney for the District of Connecticut
and RCS and its counsel.

               "PRIMARY FUNDING DATE" has the meaning set forth in Section
2.2(a) hereof.

               "PRIMARY LOCKBOX BANK" means Fleet National Bank, or such other
bank as is acceptable to Lender.

               "PRIME RATE" means the highest per annum rate of interest
referenced as the "Prime Rate" as reported in the Money Rates Section of The
Wall Street Journal, on the date of determination. If The Wall Street Journal is
not published on such date, or does not report such rate, such rate shall be as
reported by such other publication or as determined by such other source as
Lender may reasonably select. The Prime Rate does not necessarily reflect the
lowest rate of interest charged by Lender to its customers at any given time.

               "PROPERTY" means an interest of a Borrower in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.

               "RCS" has the meaning set forth in the introductory paragraph
hereof.

               "RCS LOCKBOXES" means the five (5) lockboxes maintained at the
Primary Lockbox Bank in the names of: Cardiac Datacorp, Inc.-CDI, P.O. Box 3870,
Dorchester, MA 02125-3870; Cardiocare-C2P, P.O. Box 3640, Dorchester, MA
02125-3640; Cardiocare Arrhythmia-C2 CEDS, P.O. Box 3576, Dorchester, MA
02125-3576; Cardiac Data Services-CDS, P.O. Box 5670, Hartford, CT 06102-5670;
and Cardiac Data Services-Holter/CEDS, P.O. Box 5746, Hartford, CT 06102-5746.

               "RCS LOCKBOX AGREEMENTS" means the lockbox agreements in effect
on the date hereof with the Primary Lockbox Bank relating to the RCS Lockboxes.

               "RCS OPERATING ACCOUNT" means the operating account of RCS
identified on EXHIBIT "1.3" hereto.

               "REVOLVING CREDIT NOTE" has the meaning set forth in Section
2.1(b).

               "REVOLVING LOAN COMMITMENT" means an amount equal to
$15,000,000.00, as adjusted from time to time hereunder.

               "RGH" has the meaning set forth in the introductory paragraph
hereof.

               "RIH" has the meaning set forth in the introductory paragraph
hereof.


                                       9


               "RIN" has the meaning set forth in the introductory paragraph
hereof.

               "RMC" has the meaning set forth in the introductory paragraph
hereof.

               "RMC OPERATING ACCOUNT" means the operating account of RMC
identified on EXHIBIT "1.4" hereto.

               "RNIWH" has the meaning set forth in the introductory paragraph
hereof.

               "SECURITIES" has the meaning set forth in Section 6.14 hereof.

               "SEC COMMENT LETTER" means the letter dated October 29, 2001,
conveying certain comments of the staff of the Securities and Exchange
Commission on RMC's Annual Report on Form 10-K for the fiscal year ended
September 30, 2000, and RMC's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.

               "SENIOR FUNDED DEBT RATIO" means, on the date of determination,
the ratio of (a) the sum of (i) the amount outstanding hereunder, plus (ii) the
amount of any other Debt not subordinated to the Obligations in writing which
subordination has been approved in form and substance by Lender, plus (iii) the
amount then outstanding under the Settlement Agreement, to (b) the sum of (i)
net income, plus (ii) interest expense, plus (iii) depreciation and amortization
expenses, plus (iv) income tax expense.

               "SETTLEMENT AGREEMENT" means collectively the Settlement
Agreement dated on or about October 2001, by and between the United States of
America, Salvatore Morello, RCS and RMC, the Promissory Note executed and
delivered by RCS in connection therewith, the Guaranty Agreement executed and
delivered by RMC in connection therewith, and the Corporate Integrity Agreement
executed and delivered by RCS in connection therewith.

               "SUBORDINATED DEBT" means debt or other obligations of a Borrower
that is subordinated to the Obligations of such Borrower to Lender on terms and
conditions that are satisfactory to Lender in its sole discretion.

               "TERMINATION FEE" has the meaning set forth in Section 2.8
hereof.

               "UNBILLED ACCOUNT" has the meaning given to such term in the
definition of "Eligible Account."

               "UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform Commercial
Code as in effect from time to time in the State of New Jersey.

               "UNMATURED EVENT OF DEFAULT" means an event which with the
passage of time, giving of notice or both, would become an Event of Default.


                                       10


               "VALUE TRACK SYSTEM" means the proprietary business system used
by Lender to value and record the status of Accounts.

               "VOTING STOCK" shall mean stock of the class or classes pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency).

               "WHOLLY OWNED BORROWERS" means collectively those Borrowers which
are wholly owned by RMC or another Borrower (or by a wholly owned subsidiary of
RMC or another Borrower) as shown on EXHIBIT "5.16" hereto.

        1.2 Accounting Principles: Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.

SECTION 2. THE LOANS

        2.1 Credit Facility - Description:

               (a) Subject to the terms and conditions of this Agreement, Lender
hereby establishes for the benefit of Borrowers a line of credit facility
("CREDIT FACILITY") which shall include Advances which may be extended by Lender
to or for the benefit of Borrowers from time to time hereunder in the form of
revolving credit loans ("LOANS"). The aggregate outstanding principal amount of
all Loans, at any time, shall not exceed the Borrowing Base. Subject to such
limitation, the outstanding balance of all Loans may fluctuate from time to
time, to be reduced by repayments made by Borrowers, to be increased by future
Advances which may be made by Lender. In no event shall the initial principal
amount of any Loan be less than $25,000.00. If the aggregate outstanding amount
of all Advances exceeds the Borrowing Base, Borrowers shall immediately repay
such excess in full. Lender has the right at any time and from time to time, in
its sole discretion (but without any obligation), after providing Borrowers with
reasonable notice which may be written or oral (to be confirmed in writing
within one (1) day thereafter, and receipt by Borrowers of a Borrowing Base
Report reflecting reserves in a timely manner pursuant to the terms of Section
2.2(b) hereof shall be deemed reasonable written notice), to set aside
reasonable reserves against the Borrowing Base, including without limitation
with respect to amounts coming due from time to time under the Settlement
Agreement, in such amounts as it may deem appropriate. The obligations of
Borrowers under the Credit Facility and this Agreement shall at all times be
absolute and unconditional.

               (b) At Closing, Borrowers shall execute and deliver their
promissory note to Lender in the principal face amount of Fifteen Million
Dollars ($15,000,000.00) (as may be amended, modified or replaced from time to
time, the "REVOLVING CREDIT NOTE"). The Revolving Credit Note shall evidence
Borrowers' absolute and unconditional, and joint and


                                       11


several, obligation to repay Lender for all Loans made by Lender under the
Credit Facility, with interest as herein and therein provided. Each and every
Loan under the Credit Facility shall be deemed evidenced by the Revolving Credit
Note, which is deemed incorporated herein by reference and made a part hereof.
The Revolving Credit Note shall be substantially in the form set forth in
EXHIBIT "2.1(b)" attached hereto and made a part hereof.

               (c) The term ("INITIAL TERM") of the Credit Facility shall expire
on November 30, 2003. All Loans shall be repaid on or before the earlier of the
last day of the Initial Term or upon termination of this Agreement ("MATURITY
DATE"). After the Maturity Date no further Advances shall be available from
Lender.

               (d) From time to time, in each case upon not less than three
Business Days' notice to Borrowers, Lender may adjust the Advance Rate set forth
on SCHEDULE 1 in order to reflect, in its reasonable judgment, the experience
with Borrowers (including, by way of illustration, to adjust for any known or
potential offsets by Medicare or Medicaid) or the Accounts. In addition, upon
not less than three Business Days' notice to Borrowers, Lender may adjust the
Advance Rate set forth on SCHEDULE 1 in order to comply with the requirements of
any nationally recognized statistical rating organization or party guaranteeing,
rating or insuring payment of any Securities.

        2.2 Funding Procedures:

               (a) Subject to the terms and conditions of this Agreement, Lender
will make Loans to Borrowers from time to time, on the fourth Business Day of
each week (the "Primary Funding Date", whether or not Borrowers have requested a
Loan to be made on such date) and on such other days of the week as Borrowers
and Lender may agree (each such day whether or not a Primary Funding Date is
referred to herein as the "FUNDING DATE").

               (b) Not less than four Business Days prior to each Primary
Funding Date, Borrowers will deliver to Lender the computer file data associated
with the Accounts, which shall include without limitation, the information
required by Lender to enable Lender to process and value the outstanding
Accounts of Borrowers, as well as bill and collect such Accounts following an
Event of Default. Upon completion of the processing of the data with respect to
such Accounts, Lender will prepare and deliver to Borrowers a report regarding
the Borrowing Base then in effect, which shall be substantially in the form of
EXHIBIT "2.2(b)" (a "BORROWING BASE REPORT").

               (c) No later than 11:00 a.m. (Eastern time) on the second
Business Day prior to each Primary Funding Date, Borrowers will sign and return
the Borrowing Base Report to Lender. Subject to the terms and conditions of this
Agreement, if Borrowers shall be entitled to request that a Loan be made on such
Primary Funding Date, or any Funding Date thereafter until the next Primary
Funding Date based on such Borrowing Base Report by delivery by hand or fax to
Lender, a written request for such Loan substantially in the form of EXHIBIT
"2.2(c)" (a "LOAN REQUEST") no later than 11:00 a.m. (Eastern time) on the date
such Loan is to be made, time being of the essence.


                                       12


               (d) Subject to the terms and conditions of this Agreement, on the
Funding Date, Lender will advance to Borrowers a Loan in an amount equal to the
lesser of (i) the amount of the Loan requested by Borrowers in the Loan Request,
or (ii) the Borrowing Base Excess as of such date by depositing such amount into
the RCS Operating Account, except as provided in Section 2.5(a).

               (e) Lender's determination of the Estimated Net Value of the
Eligible Accounts and other amounts to be determined or calculated under this
Agreement shall, in the absence of manifest error, be binding and conclusive.

               (f) Notwithstanding anything to the contrary contained in this
Agreement, Lender shall have the right, but not the obligation, on each Primary
Funding Date which is immediately prior to a payment due date under the
Settlement Agreement to make an Advance under the Credit Facility, whether or
not Borrowers shall have submitted a Loan Request therefor, in an amount up to
the amount which is to become due under the Settlement Agreement on such
following payment due date, whether or not such amount exceeds the Borrowing
Base Excess on such date and whether or not such amount, when added to the
aggregate outstanding amount of the Credit Facility, would exceed the Revolving
Loan Commitment. To the extent such Advance is made in an amount which exceeds
the Borrowing Base Excess or causes the aggregate outstanding principal amount
of the Credit Facility to exceed the Revolving Loan Commitment, Borrowers shall
immediately and without notice or demand, repay such excesses. Lender shall be
entitled to make any such Advance described in this subsection (f) either to
Borrowers or directly to the payee as required by the Settlement Agreement.
Lender shall provide Borrowers notice of any Advance made pursuant to this
subsection (f).

        2.3 Interest and Non-Use Fee:

               (a) Each Loan shall bear interest on the principal amount thereof
from the date made until such Loan is paid in full, at a rate per annum equal to
the Prime Rate plus 1.00%. The interest rate on all of the Loans shall be
adjusted weekly based on the Prime Rate as of each Primary Funding Date.

               (b) Borrowers shall pay a fee (the "NON-USE FEE") equal to
one-quarter of one percent (0.25%) per annum on the average daily unused portion
of the Revolving Loan Commitment. The Non-use Fee shall be payable monthly in
arrears on the first Primary Funding Date of each month commencing December,
2001, and shall be calculated on the basis of the actual number of days elapsed
over a year of 360 days.

               (c) If any Event of Default shall occur and be continuing, the
rate of interest applicable to each Loan then outstanding shall be the Default
Rate. The Default Rate shall apply from the date of the Event of Default until
the date such Event of Default is waived or is cured, and interest accruing at
the Default Rate shall be payable on each Funding Date and also upon demand.


                                       13


        2.4 Additional Interest Provisions:

               (a) Calculation of Interest - Interest on the Loans shall be
based on a year of three hundred sixty (360) days and charged for the actual
number of days elapsed.

               (b) Continuation of Interest Charges - All contractual rates of
interest chargeable on outstanding Loans, shall continue to accrue and be paid
even after default, maturity, acceleration, judgment, bankruptcy, insolvency
proceedings of any kind or the happening of any event or occurrence similar or
dissimilar.

               (c) Applicable Interest Limitations - In no contingency or event
whatsoever shall the aggregate of all amounts deemed interest hereunder and
charged or collected pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such court
determines Lender has charged or received interest hereunder in excess of the
highest applicable rate, Lender shall in its sole discretion, apply and set off
such excess interest received by Lender against other Obligations due or to
become due and such rate shall automatically be reduced to the maximum rate
permitted by such law.

        2.5 Payments:

               (a) All accrued interest on the Loans shall be due and payable on
each Primary Funding Date. Any Non-use Fee shall be due and payable as set forth
in Section 2.3(b). Provided that there exists a sufficient Borrowing Base Excess
to do so and subject to the terms and conditions of this Agreement unless
Borrowers have otherwise paid amounts due hereunder by 11 a.m. (Eastern time) on
a Primary Funding Date, Lender shall make a Loan on such Primary Funding Date,
before making any Loan requested by Borrowers, in the amount then due hereunder,
the proceeds of such Loan to be retained by Lender, applied against such amounts
then due, and not deposited into the RCS Operating Account.

               (b) If at any time the aggregate principal amount of all Advances
outstanding exceeds the Borrowing Base then in effect, Borrowers shall
immediately make such principal prepayments of the Loans as is necessary to
eliminate such excess.

               (c) The entire principal balance of all of the Loans, together
with all unpaid accrued interest thereon and any accrued and unpaid Non-use
Fees, shall be due and payable on the Maturity Date.

               (d) Subject to the terms of Section 2.3(b) above, Borrowers may
prepay the principal of the Loans at any time (with payments in immediately
available funds credited against outstanding principal on the Business Day
following the day of receipt) provided, however, that in the case of a
prepayment of the Loans in connection with a termination of the Credit Facility,
Borrowers shall pay to Lender the Termination Fee as set forth in Section 2.8
hereof.


                                       14


               (e) All payments and prepayments (whether received directly from
Borrowers or otherwise, as provided herein) shall be applied first to any unpaid
interest, unpaid Non-use Fees and unpaid Termination Fee, and thereafter to the
principal of the Loans and to other amounts due Lender, in the order provided in
Section 2.7(f) hereof. Except as otherwise provided herein, all payments of
principal, interest, fees, or other amounts payable by Borrowers hereunder shall
be remitted to an account of Lender as specified by Lender in immediately
available funds not later than 11:00 a.m. (prevailing Eastern Time) on the day
due. Whenever any payment is stated as due on a day which is not a Business Day,
the maturity of such payment shall be extended to the next succeeding Business
Day and interest shall continue to accrue during such extension.

        2.6 Use of Proceeds: The extensions of credit under and proceeds of the
Credit Facility shall be used to refinance existing debt owed to Fleet National
Bank and Paribas BNP and for working capital and general corporate purposes.

        2.7 Lockboxes and Collections:

               (a) Borrowers have established the RMC Operating Account and the
RCS Operating Account with the Primary Lockbox Bank. Borrowers have also entered
into the RCS Lockbox Agreements pursuant to which the Primary Lockbox Bank has
agreed to deposit all Collections received in the name of RCS into the RCS
Lockboxes and to periodically transfer such Collections from the RCS Lockboxes
into the RCS Operating Account. Notwithstanding the foregoing, Lender has
established the Concentration Account for deposit of all Collections received in
the name of RCS into the RCS Lockboxes, and the Borrowers, Lender and the
Primary Lockbox Bank have entered into certain blocked account agreements
(collectively, the "BLOCKED ACCOUNT AGREEMENTS") dated as of even date herewith
in connection with the RMC Operating Account and the Concentration Account. The
Blocked Account Agreements provide that, only so long as there has not occurred
any Event of Default, all Collections received in the name of RCS will be swept
daily from the RCS Lockboxes into the Concentration Account and (upon Borrowers'
instruction) the Primary Lockbox Bank will initiate daily transfers of all
available funds from the Concentration Account to the RCS Operating Account. The
Blocked Account Agreements further provide that, upon receipt of written notice
from Lender that an Event of Default has occurred, the Primary Lockbox Bank
shall sweep all amounts deposited in the RMC Operating Account and the
Concentration Account on a daily basis to an account of Lender to be designated
by Lender (the "COLLECTION ACCOUNT") and otherwise take such direction with
respect thereto from Lender and only from Lender.

               (b) Borrowers will cause all Collections with respect to all of
the Accounts to be sent either to the RCS Lockboxes or to a Borrower for deposit
in the Operating Account of such Borrower in accordance with Section 6.17
hereof. In the event that after an Event of Default a Borrower receives any
Collections that should have been sent to the RCS Lockboxes or the RMC Operating
Account, such Borrower will, promptly upon receipt and in any event within one
Business Day of receipt, forward such Collections directly to the Collection
Account in the form received, and promptly notify Lender of such event. Until so
forwarded, such Collections not generated from Government Accounts shall be held
in trust for the benefit of Lender.


                                       15


               (c) After an Event of Default and notice by Lender under the
Blocked Account Agreements, or any of them, no Borrower shall withdraw any
amounts from the Concentration Account and/or RMC Operating Account and, whether
or not an Event of Default has occurred, no Borrower shall change the procedures
under the agreements governing the RMC Operating Account, the RCS Lockboxes or
the Concentration Account, except in accordance with Section 6.17 hereof.

               (d) Borrowers will cooperate with Lender in the identification
and reconciliation on a monthly basis of all amounts received in the Lockboxes.
If more than five percent (5%) of the Collections since the most recent Primary
Funding Date are not identified or reconciled to the satisfaction of Lender
within twenty (20) Business Days of receipt, Lender shall not be obligated to
make further Loans until such amount is identified or is reconciled to the
satisfaction of Lender, as the case may be. In addition, if any such amount
cannot be identified or reconciled to the satisfaction of Lender, Lender may
utilize its own staff or, if it deems necessary, engage an outside auditor, in
either case at Borrowers' joint and several expense (which in the case of
Lender's own staff shall be in accordance with Lender's then prevailing
customary charges, plus expenses), to make such examination and report as may be
necessary to identify and reconcile such amount.

               (e) Borrowers will not send to or deposit in the Lockboxes any
funds other than payments made with respect to Accounts.

               (f) Prior to the occurrence of an Event of Default, on the
Business Day after receipt, Lender shall cause all payments received by Lender
from Borrowers and Loan proceeds which are retained by Lender pursuant to the
terms hereof and not otherwise applied in accordance with the terms of the
Agreement, to be applied in the following order of priority:

                      (i) If received on the Business Day immediately preceding
a Primary Funding Date, to the unpaid accrued interest on the aggregate
outstanding Loans as of such Primary Funding Date;

                      (ii) If received on the Business Day immediately preceding
a Primary Funding Date, to any unpaid accrued Non-use Fees as of such Primary
Funding Date;

                      (iii) toward any Borrowing Base Deficiency;

                      (iv) toward any costs and expenses of Lender required to
be paid or reimbursed by Borrowers under this Agreement or under any of the
other Loan Documents;

                      (v) toward prepayment of principal of which Borrowers have
given notice to Lender in accordance with Section 2.5(d) hereof.

Following the occurrence of an Event of Default, Lender may apply all
Collections to Borrowers' Obligations in such order as Lender may in its sole
discretion determine.


                                       16


        2.8 Fees: As of the Closing, Lender shall have fully earned, and
Borrowers shall have paid to Lender, a commitment fee ("COMMITMENT FEE") equal
to one percent (1%) of the Revolving Loan Commitment. In the event that the
Credit Facility is terminated prior to the Maturity Date for any reason at any
time, Borrowers shall further pay to Lender a termination fee (the "TERMINATION
FEE") in an amount equal to the product of the Revolving Loan Commitment times
one percent (1%); provided, however, that the Termination Fee shall be due only
if prepayment occurs prior to the first anniversary of the Closing Date, and
provided further that Borrowers shall not owe any Termination Fee if prepayment
occurs at the direction of Lender in connection with Lender's termination of the
Credit Facility, so long as no Event of Default shall have occurred and be
continuing immediately prior to such termination.

SECTION 3. COLLATERAL

        3.1 Description: To secure the payment, promptly when due, and the
punctual performance, of all of the Obligations, (a) each Borrower assigns to
Lender, and grants to it a security interest in (i) all accounts and health care
insurance receivables (including without limitation the Accounts) of such
Borrower, whether now existing or hereafter arising or acquired, (ii) all
contract rights, instruments, chattel paper, documents, payment intangibles,
general intangibles, letters of credit and letter of credit rights, remedies,
guarantees and collateral evidencing, securing or otherwise relating to such
accounts, including without limitation all rights of enforcement and collection,
now existing or hereafter acquired, (iii) all Lockboxes, all Operating Accounts,
all Collection Accounts, all Concentration Accounts, all other accounts into
which any of the Collections are deposited, all deposit accounts, all funds at
any time received by any of them or deposited in any of them, and any checks or
instruments from time to time representing or evidencing the same, (iv) all
inventory now owned or hereafter acquired, (v) all equipment, machinery,
furniture and fixtures now owned or hereafter acquired together with all parts,
substitutions, improvements, accessions, accessories, attachments and additions
thereto, now existing or hereafter acquired, (vi) all investment property now
existing or hereafter acquired, including without limitation securities (whether
certificated or uncertificated), security entitlements, securities accounts and
equity interests (whether or not constituting investment property) of all kinds,
including without limitation any and all shares of capital stock, membership
interests in limited liability companies and partnership interests, (vii) all
books and records of such Borrower evidencing or relating to such assets, (viii)
all information and data compiled or derived by such Borrower with respect of
such assets (other than any such information and data subject to legal
restrictions of patient confidentiality), and (ix) all collections, receipts and
other proceeds (cash and noncash) derived from any of the foregoing and (b)
Borrowers shall cause each of the Imaging Center Affiliates and each Imaging
Center PC to execute and deliver to Lender the Imaging Center Security
Agreements. The collateral described in Section 3.1(a) and in the Imaging Center
Security Agreements are referred to herein as, collectively, the "COLLATERAL".

        3.2 Lien Documents: At Closing and thereafter as Lender deems necessary,
Borrowers shall execute and deliver to Lender, or shall have executed and
delivered (all in form and substance reasonably satisfactory to Lender) any
other agreements, documents, instruments and writings, including, without
limitation, financing statements, security agreements and assignment agreements,
reasonably required by Lender to evidence, perfect or protect Lender's


                                       17


liens and security interest in the Collateral, or as Lender may reasonably
request from time to time.

        3.3 Other Actions: In addition to the foregoing, Borrowers shall do
anything further, and authorizes Lender to do anything further, that may be
lawfully and reasonably required by Lender to perfect its security interests and
to effectuate the intentions and objectives of this Agreement, including, but
not limited to, the execution, delivery and filing of financing statements,
continuation statements, amendments to financing statements, security
agreements, contracts and any other documents required hereunder. At Lender's
request, Borrowers shall also immediately deliver (with execution by Borrowers
of all necessary documents or forms to reflect Lender's security interest
therein) to Lender, all items for which Lender must or may receive possession to
obtain a perfected security interest.

        3.4 Searches: Borrowers shall, prior to or at Closing, and thereafter as
Lender may request from time to time, at Borrowers' joint and several expense,
obtain the following searches (the results of which are to be consistent with
the warranties made by Borrowers in this Agreement) and deliver such search
results to Lender:

               (a) UCC Searches - UCC searches with the Secretary of State and
local filing office of each state where each Borrower is incorporated or
otherwise formed, or maintains its respective chief executive office, a place of
business, or assets and UCC searches with the Secretary of State of each state
where each Imaging Center PC and/or Imaging Center Affiliate is incorporated or
otherwise formed, or maintains its respective chief executive office, a place of
business or assets;

               (b) Judgments, Etc. - Judgment, federal tax lien and corporate
tax lien searches, with respect to each Borrower in all applicable filing
offices of each state searched under subparagraph (a) above.

               Borrowers shall, prior to or at Closing and at its expense,
obtain and deliver to Lender good standing certificates showing each Borrower to
be in good standing in its state of incorporation and in each other state or
foreign country in which it is doing business for which such Borrower's failure
to be so qualified would have a reasonable likelihood of resulting in or causing
a Material Adverse Effect.

        3.5 Filing Security Agreement: A carbon, photographic or other
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.

        3.6 Power of Attorney: Each of the officers of Lender is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrowers (without requiring any of them to act as such) with full power of
substitution to do the following (such power to be deemed coupled with an
interest): (1) after an Event of Default, endorse the name of a Borrower upon
any and all checks, drafts, money orders and other instruments for the payment
of monies that are payable to a Borrower and constitute collections on the
Collateral; (2) execute in the name of a Borrower and/or file any financing
statements, schedules, assignments,


                                       18


instruments, documents and statements that a Borrower is obligated to give
Lender hereunder or is necessary to perfect Lender's security interest or lien
in the Collateral; (3) to verify validity, amount or any other matter relating
to the Collateral by mail, telephone, telecopy or otherwise, provided that if an
Event of Default has not occurred Lender shall give prior notice thereof
describing the manner in which such verification shall be conducted; and (4)
after an Event of Default do such other and further acts and deeds in the name
of a Borrower that Lender may reasonably deem necessary or desirable to enforce
any Collateral.

SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

        Closing under this Agreement and the making of each Advance are subject
to the following conditions precedent (all documents to be in form and substance
satisfactory to Lender and Lender's counsel):

        4.1 Resolutions, Opinions, and Other Documents: Prior to the Closing,
Borrowers shall have delivered, or caused to be delivered, to Lender the
following:

               (a) this Agreement and the Revolving Credit Note, both properly
executed;

               (b) each document and agreement required to be executed under any
provision of this Agreement or any of the other Loan Documents, including
without limitation the duly executed Imaging Center Security Agreements and each
Contract delivered pursuant to Section 5.23(l) hereof;

               (c) certified copies of (i) resolutions of the board of directors
of each Borrower which is a corporation and of the board of directors of each
corporate general partner of each Borrower which is a partnership, authorizing
the execution of this Agreement, the Revolving Credit Note and each document
required to be delivered by any Section hereof and (ii) each Borrower's articles
of incorporation and bylaws (or, as the case may be, certificate of formation
and agreement of limited partnership, for a Borrower which is a limited
partnership);

               (d) an incumbency certificate identifying all Authorized Officers
of each Borrower, with specimen signatures;

               (e) a written opinion of Borrowers' independent counsel addressed
to Lender in the form attached hereto as EXHIBIT "4.1";

               (f) payment by Borrowers of all Expenses associated with the
Credit Facility incurred to the Closing Date and the Commitment Fee;

               (g) the agreements relating to the Lockboxes, and Blocked Account
Agreements, all as required pursuant to Section 2.7 hereof;

               (h) Uniform Commercial Code, judgment, federal and state tax lien
searches against Borrowers and Imaging Center PCs, as required by Section 3.4
above, at Borrowers' joint and several expense, showing that the Collateral is
not subject to any liens, claims or


                                       19


encumbrances, together with Good Standing and Corporate Tax Lien Search
Certificates showing no tax liens on any Borrower's Property and showing each
Borrower to be in good standing in each jurisdiction where the failure to so
qualify would have a reasonable likelihood of resulting in or causing a Material
Adverse Effect;

               (i) an initial borrowing base certificate dated the Closing Date
evidencing Borrowers' maximum borrowing availability under the Borrowing Base as
of the Closing Date, which shall indicate that after giving effect to the
initial Advance there shall be a Borrowing Base Excess of not less than One
Million Five Hundred Thousand ($1,500,000.00) Dollars;

               (j) releases from any other Person having a security interest or
other interest in the Collateral which relates to Accounts, together with all
UCC-3 terminations or partial releases necessary to terminate or amend (as
Lender may require) such Person's interest in the Collateral;

               (k) copies of each of the accreditations, licenses and
certifications referred to in Section 5.3 hereof;

               (l) evidence of the validity of all Medicare/Medicaid and all
state provider numbers for each Borrower;

               (m) a duly executed landlord waiver for the Administrative
Office, and, to the extent Borrowers are able to obtain waivers after using
their best efforts, for each other leased premises on which any Borrower
operates, and a duly executed Mortgagee's waiver for each premises owned by any
Borrower on which any Borrower operates, if such premises is subject to a
mortgage, each in form and substance satisfactory to Lender;

               (n) copies of all leases for each leased premises on which any
Borrower operates, which shall be satisfactory to Lender;

               (o) evidence that Borrowers maintain insurance coverage required
hereunder, with all premiums prepaid and with Lender named as "loss payee"
and/or "additional insured" as may be required by the terms hereof;

               (p) a true, correct and complete copy of the Settlement Agreement
and all documents, certificates, filings, statements, agreements or other
writings referred to therein including without limitation the corporate
integrity agreement and sworn financial statement, certified as such by
Borrowers;

               (q) a true, correct and complete copy of the Plea Bargain
Agreement, and all documents, certificates, filings, statements, agreements or
other writings referred to therein, together with evidence that such Plea
Bargain Agreement has been accepted by the court, certified as such by
Borrowers;

               (r) a certificate dated the Closing Date and signed by the chief
financial officer of each Borrower which is a corporation, or the chief
financial officer of each corporate


                                       20


general partner of each Borrower which is a partnership, as the case may be,
certifying that all of the conditions specified in this Section 4.1 have been
fulfilled and that there has not occurred any material adverse change in the
operations and conditions (financial or otherwise) of Borrowers in the aggregate
since June 30, 2001;

               (s) evidence that all payments due to date under the Settlement
Agreement and the Plea Bargain Agreement referred to in clause (q) have been
paid in full;

               (t) true, correct and complete copies of all agreements and
assignments between RIH or each of the Imaging Center Affiliate (as relevant)
and the Imaging Center PC with respect to the operation of an Imaging Center,
certified by the Borrowers as such;

               (u) true, correct and complete copies of all agreements and
assignments between Borrowers or any of them and third parties through whose
provider numbers Borrowers may provide services and bill Accounts and which
represent the top twenty Obligors (as determined by aggregate amount of accounts
receivable due as of the date hereof), certified as such by Borrowers;

               (v) such executed agreements, assignments and instruments as
Lender may have reasonably required to grant or perfect its security interest in
the Accounts referred to in clause (t) above, in form and substance satisfactory
to Lender, between RIH, the Imaging Center Affiliates and/or Imaging Center PCs
and Lender; and

               (w) such other financial or business information relating to the
Borrowers and/or Collateral as Lender may have reasonably requested.

        4.2 Additional Preconditions to Loans: Lender's obligation to make the
initial Loan and each subsequent Loan shall be subject to the satisfaction of
each of the following conditions:

               (a) After giving effect to such Loan

                      (i) the aggregate principal amount of all Loans
outstanding shall not exceed the Borrowing Base then in effect;

                      (ii) the ENV of all Eligible Accounts shall not exceed any
of the Concentration Limits; and

                      (iii) the ENV of all Eligible Accounts which have not been
billed shall not, in the aggregate, exceed one-third of the ENV of all Eligible
Accounts (whether or not billed).

               (b) All representations and warranties of Borrowers shall be
deemed reaffirmed as of the making of such Loan (except that any representation
or warranty which by its terms is made as of a specified date shall be required
to be true and correct only as of such specified date) and shall be true both
before and after giving effect to such Loan, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing, Borrowers shall


                                       21


be in compliance with this Agreement and the other Loan Documents, and Borrowers
shall have certified such matters to Lender.

               (c) Borrowers shall have signed and delivered to Lender notices,
in the form of EXHIBIT "4.2", to the Obligors.

               (d) All of the Eligible Accounts shall have been recorded in
Lender's Value Track System. The Lockboxes, collection and depository
arrangements required by Section 2.7 hereof shall be in effect, and the amounts
received in the Lockboxes shall have been identified or reconciled to Lender's
satisfaction, as required by Section 2.7(d) hereof.

               (e) Lender shall have completed any and all inspections and
audits of the Property and Collateral of Borrowers and reference checks, with
all results satisfactory to Lender.

               (f) Borrowers shall have taken such other actions, including the
delivery of documents and opinions as Lender may reasonably request.

        4.3 Absence of Certain Events: At the Closing Date and prior to each
Loan, no Event of Default or Unmatured Event of Default hereunder shall have
occurred and be continuing.

        4.4 Compliance with this Agreement: Borrowers shall have performed and
complied with all agreements, covenants and conditions contained herein
including, without limitation, the provisions of Sections 6 and 7 hereof, which
are required to be performed or complied with by Borrowers before or at the
Closing Date and as of the date of each Advance.

        4.5 Closing: Subject to the conditions of this Section 4, the Credit
Facility shall be made available on the date ("CLOSING DATE") this Agreement is
executed and all of the conditions contained in Section 4.1 hereof are completed
("CLOSING").

        4.6 Non-Waiver of Rights: By completing the Closing hereunder, or by
making Advances hereunder, Lender does not thereby waive a breach of any
warranty, representation or covenant made by Borrowers hereunder or under any
agreement, document, or instrument delivered to Lender or otherwise referred to
herein, and any claims and rights of Lender resulting from any breach or
misrepresentation by Borrowers are specifically reserved by Lender.

SECTION 5. REPRESENTATIONS AND WARRANTIES

        To induce Lender to complete the Closing and make the Loans under the
Credit Facility to Borrowers, Borrowers warrant and represent to Lender that:

        5.1 Organization or Formation; Validity:


                                       22


               (a) Each Borrower is a corporation duly organized and validly
existing under the laws of its state of incorporation (or, in the case of a
Borrower which is a partnership, is a partnership duly formed and validly
existing under the laws of its state of formation) is duly qualified, is validly
existing and in good standing and has lawful power and authority to engage in
the business it conducts in each state and other jurisdiction where the nature
and extent of its business requires qualification, except where the failure to
so qualify would not have a material adverse effect on such Borrower's business,
financial condition or Property or a Material Adverse Effect. A list of all
states and other jurisdictions where each Borrower is qualified to do business
is attached hereto as EXHIBIT "5.1" and made a part hereof.

               (b) The making and performance of this Agreement and related
agreements, and each document required by any Section hereof will not violate
any law, government rule or regulation, or the charter, minutes or bylaw
provisions (or, for a Borrower which is a partnership, certificate of formation
or agreement of partnership) of a Borrower or violate or result in a default
(immediately or with the passage of time) under any material contract, agreement
or instrument to which such Borrower is a party, or by which it is bound (it
being deemed that any contract, agreement or instrument relating to Accounts is
material). No Borrower is in violation of or has knowingly caused any Person to
violate any term of any agreement or instrument to which it or such Person is a
party or by which it may be bound or of its charter, minutes or bylaws (or, for
a Borrower which is a partnership, certificate of formation or agreement of
partnership) which violation would have a reasonable likelihood of resulting in
or causing a material adverse effect on such Borrower's business, financial
condition or Property or a Material Adverse Effect.

               (c) Each Borrower has all requisite corporate (or partnership, as
the case may be) power and authority to enter into and perform this Agreement
and to incur the obligations herein provided for, and has taken all proper and
necessary corporate (or partnership, as the case may be) action to authorize the
execution, delivery and performance of this Agreement, and the other Loan
Documents.

               (d) This Agreement, the Revolving Credit Note and the other Loan
Documents, when delivered, will be valid and binding upon each Borrower and
enforceable in accordance with their respective terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium, or other laws affecting creditors' rights generally
and by general principles of equity.

        5.2 Names; Jurisdictions of Registration; Places of Business: Each
Borrower's exact legal name, jurisdiction of registration (i.e., incorporation
or formation), and chief executive office is located as listed in EXHIBIT "5.2"
attached hereto and made a part hereof. Except as disclosed on EXHIBIT "5.2":
(i) no such Borrower has changed any such location in the last five years, (ii)
no such Borrower has changed its name in the last five years, (iii) during such
period no such Borrower has used, nor does such Borrower now use, any fictitious
or trade name, and (iv) such Borrower's books and records relating to Accounts
are kept at the Administrative Office.


                                       23


        5.3 Operation of Facilities: Each Borrower owns (or leases, as the case
may be) and operates facilities to provide health care services and (a)
maintains Medicare and Medicaid provider status and is the holder of the
provider identification numbers identified on EXHIBIT "5.3", all of which are
current and valid and no Borrower has allowed, permitted, authorized or caused
any other Person to use any such provider identification number, and (b) has
obtained all material licenses, accreditations and approvals of governmental
authorities and all other Persons necessary for each Borrower to own its assets,
to carry on its business, to execute, deliver and perform the Loan Documents,
and to receive payments from the Obligors and, if a Borrower has ever been
certified by the JCAHO (or other nationally recognized organization providing
accreditations if a Borrower is not the type of health care entity eligible for
accreditation by the JCAHO), such Borrower either has obtained a current
certification from the JCAHO or such other relevant organization or has not had
any such certification withdrawn by JCAHO or such other relevant organizations.
No Borrower has been notified by any such governmental authority or other person
during the immediately preceding 24 month period that such party has rescinded
or not renewed, or intends to rescind or not renew, any such license or
approval.

        5.4 Pending Litigation: There are no judgments or judicial or
administrative orders, proceedings or investigations (civil or criminal)
pending, or to the knowledge of a Borrower, threatened, against a Borrower or
Imaging Center in any court or before any governmental authority or arbitration
board or tribunal except as described on EXHIBIT "5.4". No Borrower or Imagine
Center is in default with respect to any order of any court, governmental
authority, regulatory agency or arbitration board or tribunal. Except as set
forth in the Plea Bargain Agreement and the Settlement Agreement or as described
on EXHIBIT "5.4", no Borrower or Imaging Center, or, to the best of their
knowledge, executive officer of a Borrower, has been indicted or convicted in
connection with or is engaging in any criminal conduct (other than, with respect
to an executive officer, non-felony offenses), or is currently subject to any
lawsuit or proceeding or under investigation in connection with any
anti-racketeering or other conduct or activity.

        5.5 Medicaid and Medicare Cost Reporting: No Borrower or Imaging Center
currently prepares or submits, or is obligated to prepare or submit, any
Medicaid or Medicare cost reports. Other than as described on EXHIBIT "5.5", no
government audit of or other inquiry relating to any Borrower or Imaging Center
has resulted in any determination that a Borrower or Imaging Center was overpaid
for Medicaid and Medicare by 5.0% or more in any of the most recent three fiscal
years covered by such audit.

        5.6 Title to Collateral: Each Borrower has good and marketable title in
fee simple (or its equivalent under applicable law) to all the Collateral it
respectively purports to own, free from liens, claims and encumbrances, except
those of Lender or liens on Collateral other than Accounts as indicated on
EXHIBIT "5.6" attached hereto and made a part hereto.

        5.7 Governmental Consent: Neither the nature of a Borrower or of its
business or Property, nor any relationship between a Borrower and any other
Person, nor any circumstance affecting a Borrower in connection with the
issuance or delivery of the Revolving Credit Note, is such as to require a
consent, approval or authorization of, or filing, registration or


                                       24


qualification with, any governmental authority on the part of a Borrower in
connection with the execution and delivery of this Agreement or the issuance or
delivery of the Revolving Credit Note or other Loan Documents.

        5.8 Taxes: All tax returns required to be filed by a Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon a Borrower, or upon any of its Property, income or
franchises, which are shown to be due and payable on such returns, have been
paid, except for those taxes being contested in good faith with due diligence by
appropriate proceedings for which appropriate reserves have been maintained
under GAAP. No Borrower is aware of any proposed additional tax assessment or
tax to be assessed against or applicable to a Borrower that would have a
reasonable likelihood of resulting in or causing a material adverse effect on
such Borrower's business, financial condition or Property.

        5.9 Financial Statements: RMC's annual consolidated audited balance
sheet (which includes all Borrowers) as of September 30, 2000, accompanied by a
report thereon from RMC's independent certified public accountants, and the
quarterly consolidated unaudited balance sheet of RMC (which includes all
Borrowers) as of June 30, 2001 and the related income statements and statements
of cash flows as of such dates (complete copies of which have been delivered to
Lender), have been prepared in accordance with GAAP and present fairly,
accurately and completely the financial position of RMC and the other Borrowers
as of such dates and the results of its operations for such periods, subject to
any revisions or adjustment thereto as may be required in response to the SEC
Comment Letter, provided that Borrowers agree that such revisions and
adjustments, taken together, shall not have a Material Adverse Effect. The
fiscal year for Borrowers currently ends on September 30. Each Borrower's
federal tax identification number is identified on EXHIBIT "5.9."

        5.10 Full Disclosure: Neither the financial statements referred to in
Section 5.9, nor this Agreement or related agreements and documents or any
written statement furnished by Borrowers to Lender in connection with the
negotiation of the Credit Facility and contained in any financial statements or
documents relating to Borrowers, contain any untrue statement of a material fact
or omit any material fact necessary to make the statements contained therein or
herein not misleading.

        5.11 Subsidiaries: No Borrower has any Subsidiaries or Affiliates,
except as listed on EXHIBIT "5.11" attached hereto and made a part hereof.

        5.12 Guarantees, Contracts, etc.:

               (a) No Borrower owns or holds equity or long term debt
investments in, has any outstanding advances to, or serves as guarantor, surety
or accommodation maker for the obligations of, or has any outstanding borrowings
from, any Person except as described in EXHIBIT "5.12", attached hereto and a
made part hereof.


                                       25


               (b) No Borrower is a party to any contract or agreement, or
subject to any charter or other corporate restriction, which materially and
adversely affects its business, financial condition or Property.

               (c) Except as otherwise specifically provided in this Agreement,
no Borrower has agreed or consented to cause or permit any of the Collateral
whether now owned or hereafter acquired to be subject in the future (upon the
happening of a contingency or otherwise) to a lien or encumbrance not permitted
by this Agreement.

        5.13 Compliance with Laws:

               (a) Except as set forth in the Plea Bargain Agreement or the
Settlement Agreement, no Borrower is in violation of, has received written
notice that it is in violation of, and no Borrower has knowingly caused any
Person to violate, any applicable statute, regulation or ordinance of the United
States of America, or of any state, city, town, municipality, county or of any
other jurisdiction, or of any agency, or department thereof, (including without
limitation, environmental laws and regulations), which violation would have a
reasonable likelihood of resulting in or causing a material adverse effect on
such Borrower's business, financial condition or Property or a Material Adverse
Effect.

               (b) Each Borrower is current with all reports and documents
required to be filed with any state or federal securities commission or similar
agency and is in full compliance in all material respects with all applicable
rules and regulations of such commissions, subject to any revisions or
adjustment to RMC's historical financial statements as may be required in
response to the SEC Comment Letter, provided that Borrowers agree that any such
revisions and adjustments, taken together, shall not have a Material Adverse
Effect.

        5.14 Other Associations: No Borrower is engaged in or has an interest in
any joint venture or partnership with any other Person except as described on
EXHIBIT "5.11" attached hereto and made a part hereof.

        5.15 Environmental Matters: No Borrower has any knowledge:

               (a) of the presence of any Hazardous Substances on any of the
real property where such Borrower conducts operations or has its personal
property, or

               (b) of any on-site spills, releases, discharges, disposal or
storage of Hazardous Substances that have occurred or are presently occurring on
any of such real property or where any Collateral is located, or

               (c) of any spills, releases, discharges or disposal of Hazardous
Substances that have occurred, are presently occurring on any other real
property as a result of the conduct, action or activities of such Borrower.

As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar


                                       26


term, by any environmental statute, rule or regulation of any governmental
entity presently in effect and applicable to such real property.

        5.16 Equity Interests:

               (a) Part A of EXHIBIT "5.16" annexed hereto sets forth (i) the
number of shares of RMC's common stock outstanding as of November 15, 2001, (ii)
the number of shares of such RMC common stock beneficially owned as of such date
by each director and executive officer of RMC and by each Person known by RMC to
be the beneficial holder of five percent (5%) or more of such shares, (iii) the
aggregate number of shares of RMC common stock issuable upon the exercise or
conversion of options, warrants or other convertible securities outstanding as
of such date, and (iv) the number of shares of RMC common stock issuable upon
the exercise of outstanding options held by each director and executive officer
of RMC as of such date.

               (b) Part B of EXHIBIT "5.16" lists all Persons who currently hold
shares of capital stock or partnership interests in each Borrower other than
RMC, excluding named reference to limited partners in a Borrower which is
partnership to the extent such limited partners are natural persons.

               (c) Part C of EXHIBIT "5.16" identifies which Borrowers are
Wholly Owned Borrowers and which are Controlled Borrowers.

               (d) All of the capital stock (or partnership interests) of each
Borrower listed on EXHIBIT "5.16" has been duly and validly authorized and
issued and (except with respect to general partnership interests) is fully paid
and non-assessable and has been sold and delivered to the holders thereof in
compliance with, or under valid exemption from, all Federal and state laws and
the rules and regulations of all regulatory bodies thereof governing the sale
and delivery of securities. Except for the rights and obligations set forth in
EXHIBIT "5.16", there are no subscriptions, warrants, options, calls,
commitments, rights or agreements by which any Borrower, or (to such Borrower's
knowledge) any of the shareholders of such Borrower, is bound relating to the
issuance, transfer, voting or redemption of shares of its capital stock or
partnership interests, or any pre-emptive rights held by any Person with respect
to the shares of capital stock or partnership interests of any such Borrower.
Except as set forth in EXHIBIT "5.16", no Borrower has issued any securities
convertible into or exchangeable for shares of its capital stock or partnership
interests, or any options, warrants or other rights to acquire such shares or
partnership interests, or securities convertible into or exchangeable for such
shares or partnership interests. Each Borrower which is a partnership has
received all capital contributions from its partners which have become due
through the date this representation is or is deemed to be made.


                                       27


        5.17 Solvency: Each Borrower is solvent, able to pay its debts as they
become due, and has capital sufficient to carry on its business and all business
in which it is about to engage, and now owns Property having a value both at
fair valuation and at present fair salable value greater than the amount
required to pay its debts. No Borrower will be rendered insolvent by the
execution and delivery of this Agreement or any of the other documents executed
in connection with this Agreement or by the transactions contemplated hereunder
or thereunder.

        5.18 Lockboxes: The Lockboxes are the only lockbox accounts maintained
by each Borrower, and each Obligor of an Eligible Account has been directed and
is required to remit all payments with respect to such Account for deposit in
the Lockboxes or the Operating Accounts in accordance with Section 6.17 hereof.
The Primary Lockbox Bank has been directed to remit all collected funds received
in the RCS Lockboxes to the Concentration Account.

        5.19 Borrowing Base Reports: Each Borrowing Base Report contains an
accurate summary of all Eligible Accounts of Borrowers contained in the
Borrowing Base as of its date.

        5.20 Security Interest: Borrowers have granted to Lender a valid,
perfected first priority security interest in the Accounts and, except as
disclosed on EXHIBIT "5.6", the other Collateral.

        5.21 Accounts:

               (a) No Borrower has done, no Borrower shall do and no Borrower
shall permit any Imaging Center PC to do anything to interfere with the
collection of the Accounts nor shall any Borrower amend or waive or permit any
Imaging Center PC to amend or waive the terms or conditions of any Account or
any related Contract if the effect of such amendment or waiver either alone or
when taken together with all other amendments or waivers, would have a
reasonable likelihood of resulting in or causing a Material Adverse Effect.

               (b) Each Borrower has made and will continue to make all payments
to Obligors necessary to prevent any Obligor from offsetting any earlier
overpayment to such Borrower against any amounts such Obligor owes on an
Account.

        5.22 Pension Plans: Each pension or profit sharing plan, if any, to
which a Borrower is a party has been and will be funded in accordance with the
obligations of such Borrower set forth in such plan.

        5.23 Representations and Warranties for each Subsequent Loan: As of each
date that Borrowers shall request any Loan, Borrowers shall be deemed to make,
with respect to each Eligible Account included in the Borrowing Base, each of
the following representations and warranties:

               (a) Such Account satisfies each of the conditions of an Eligible
Account.

               (b) All documents relating to such Account that have been
delivered to Lender are true and correct in all material respects. With respect
to each such Account that has


                                       28


been billed, the respective Borrower has delivered to the Obligor all requested
supporting claim documents and all information set forth in the bill and
supporting claim documents is true, complete and correct in all material
respects.

               (c) There is no lien or adverse claim in favor of any third
party, nor any filing against a Borrower or Imaging Center PC, as debtor,
covering or purporting to cover any interest in such Account, except as been
released by the party holding such adverse claim.

               (d) Such Account is (i) payable in an amount not less than its
Estimated Net Value by the Obligor identified by a Borrower as being obligated
to do so, and is recognized as such by the Obligor, (ii) the legally enforceable
obligation of such Obligor, and (iii) an account receivable or general
intangible within the meaning of the UCC of the state in which such Borrower has
its chief executive office, or is a right to payment under a policy of insurance
or proceeds thereof, and is not evidenced by any instrument or chattel paper.
There is no payor other than the Obligor identified by a Borrower as the payor
primarily liable on such Account. Notwithstanding anything to the contrary set
forth herein (including without limitation Section 8.1(f)), if a representation
made in accordance with Section 5.23(d)(ii) is false or incomplete in any
material respect and Borrowers did not have either constructive or actual
knowledge of such falsity or incompleteness at the time such representation was
made, then Lender's remedy in connection with such false or incomplete
representation shall be limited to exclusion of the Account related to such
representation from qualification as an Eligible Account effective as of the
date of such representation.

               (e) No such Account (i) requires the approval of any third person
for such Account to be assigned to Lender hereunder except as has been obtained
as of the date hereof in writing in form and substance satisfactory to Lender,
(ii) is subject to any legal action, proceeding or investigation (pending or
threatened), dispute, set-off, counterclaim, defense, abatement, suspension,
deferment, deductible, reduction or termination by the Obligor, or (iii) is
past, or within 180 days of, the statutory limit for collection applicable to
the Obligor.

               (f) No Borrower or Imaging Center PC has any guaranty of, letter
of credit support for, or collateral security for, such Account, other than any
such guaranty, letter of credit or collateral security as has been assigned to
Lender.

               (g) The services constituting the basis of such Account (i) were
ordered by a physician and (ii) at the time such services were rendered, were
fully covered by the insurance policy or Contract obligating the applicable
Obligor to make payment with respect to such Account, and (iii) the patient
received such services in the ordinary course of such Borrower's business.
Notwithstanding anything to the contrary set forth herein (including without
limitation Section 8.1(f)), if a representation made in accordance with Section
5.23(g)(ii) is false or incomplete in any material respect and Borrowers did not
have either constructive or actual knowledge of such falsity or incompleteness
at the time such representation was made, then Lender's remedy in connection
with such false or incomplete representation shall be limited to exclusion of
the Account related to such representation from qualification as an Eligible
Account effective as of the date of such representation.


                                       29


               (h) The fees and charges charged for the services constituting
the basis for such Account were when rendered and are currently consistent with
(i) the usual, customary and reasonable fees charged by other similar medical
service providers in such Borrower's community or the community in which the
patient resides, whichever is less, for the same or similar service or (ii)
pursuant to negotiated fee contracts, or imposed fee schedules, with or by the
applicable Obligors. Notwithstanding anything to the contrary set forth herein
(including without limitation Section 8.1(f)), if a representation made in
accordance with Section 5.23(h)(i) is false or incomplete in any material
respect and Borrowers did not have either constructive or actual knowledge of
such falsity or incompleteness at the time such representation was made, then
Lender's remedy in connection with such false or incomplete representation shall
be limited to exclusion of the Account related to such representation from
qualification as an Eligible Account effective as of the date of such
representation.

               (i) The Obligor with respect to such Account is located in the
United States, and is (i) a party which in the ordinary course of its business
or activities agrees to pay for healthcare services received by individuals,
including, commercial insurance companies and non-profit insurance companies
issuing health, or other types of insurance, employers or unions, self-insured
healthcare organizations, preferred provider organizations, and health insured,
prepaid maintenance organizations, (ii) a state, an agency or instrumentality of
a state or a political subdivision of a state, or (iii) the United States or an
agency or instrumentality of the United States.

               (j) The insurance policy or Contract obligating an Obligor to
make payment (i) does not prohibit the transfer of such payment obligation from
the patient to a Borrower, and (ii) is and was in full force and effect and
applicable to the patient at the time the services constituting the basis for
such Account were performed.

               (k) The representations and warranties made by Borrowers in the
Loan Documents and all financial or other information delivered to Lender with
respect to Borrowers and such Account do not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
made therein not misleading.

               (l) Attached hereto as EXHIBIT "5.23" is a true and correct list
of all Contracts in effect as of the date of this Agreement. Notice of each new
Contract has been delivered to Lender in writing. A copy of each related
Contract to which a Borrower is a party for each Account owed by one of the top
twenty Obligors, ranked by aggregate Accounts owed, has been delivered to
Lender, unless such Borrower shall have, prior to the related Funding Date,
certified in an Officer's Certificate that such delivery is prohibited by the
terms of the Contract or by law, and the circumstances of such prohibition.

               (m) If such Account has not been billed, the services giving rise
to such Account have been properly recorded in such Borrower's accounting
system.

               (n) Such Account was (or if unbilled, will be) in any event
billed no later than 45 days after the Billing Date with respect to such
Account, except in the case of an Account payable by Medicare, Medicaid, HMOs or
PPOs which prohibit weekly billing, in which case the


                                       30


billing date shall be (a) as required by the related Contract, or if none exists
or is specified, no later than is the norm in respect of such providers or
Obligors, as determined by Lender based on an analysis of Borrowers' payment
records, or (b) if such Account is payable by Medicare, prior to June 30 of the
year in which services were provided as set forth in paragraph (h) of the
definition of Eligible Account.

               (o) Such Account has an Estimated Net Value which, when added to
the Estimated Net Value of all other Accounts owing by the same Obligor and
which constitute Eligible Accounts hereunder, does not exceed any applicable
Concentration Limit.

               (p) Neither such Account nor the related Contract contravenes any
laws, rules or regulations applicable thereto (including, without limitation,
laws, rules and regulations relating to usury, consumer protection,
truth-in-lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and no party to such
related Contract is in violation of any such law, rule or regulation.
Notwithstanding anything to the contrary set forth herein (including without
limitation Section 8.1(f)), if the representation made in this Section 5.23(p)
is false or incomplete in any material respect solely because a party, not
constituting a Borrower or Affiliate of a Borrower, to such related Contract is
in violation of any such law, rule or regulation and Borrowers did not have
either constructive or actual knowledge of such falsity or incompleteness at the
time such representation was made, then Lender's remedy in connection therewith
shall be limited to exclusion of the Account which was the subject of such
misrepresentation from qualification as an Eligible Account effective as of the
date of such representation.

               (q) As of the applicable Funding Date, to the best of each
Borrower's knowledge, no Obligor on such Account is bankrupt, insolvent, or is
unable to make payment of its obligations when due, and no other fact exists
which would cause a Borrower reasonably to expect that the amount billed to the
related Obligor for such Account will not be paid in full when due.

        5.24 Settlement Agreement:

               (a) All representations and warranties made by RMC, RCS or any
other Borrower in or in connection with the Settlement Agreement, the Plea
Bargain Agreement or any other document, agreement, certificate, statement
(financial or otherwise) or other writing in connection with the Settlement
Agreement was true and correct when made, and remain true and correct on the
date hereof.

               (b) The Settlement Agreement, the Plea Bargain Agreement and the
other documents executed and delivered in connection with either are in full
force and effect without amendment or modification of any kind. Borrowers have
delivered to Lender true, correct and complete copies of all such documents.


                                       31


               (c) Neither RMC, RCS nor any other Borrower is in default, or has
breached any of its obligations under the Settlement Agreement, the Plea Bargain
Agreement or any of the other documents executed in connection with either.
Borrowers have implemented all programs and procedures required under the
Corporate Integrity Agreement (as such term is used in the Settlement
Agreement.)

               (d) To the best of Borrowers' knowledge there has been no default
or breach of any of the obligations by any non-Borrower party under the
Settlement Agreement, the Plea Bargain Agreement, or any other document executed
in connection with either.

               (e) No Borrower submits cost reports to government agencies or
contractors or to entities who themselves submit cost reports, and no Borrower
owns, in whole or in part any entity which files such cost reports, and, without
limiting any other representation or warranty contained herein, RMC and RCS are
in full compliance with Section 14 of the Settlement Agreement.

SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS

        Borrowers covenant that until all of Borrowers' Obligations to Lender
are paid and satisfied in full and the Credit Facility has been terminated:

        6.1 Payment of Taxes and Claims: Each Borrower shall pay or cause to be
paid, before they become delinquent, all taxes, assessments and governmental
charges or levies imposed upon it or upon such Borrower's Property, except for
those being contested in good faith with due diligence by appropriate
proceedings and for which appropriate reserves have been maintained under GAAP.

        6.2 Maintenance of Insurance, Financial Records and Corporate Existence:

               (a) Property Insurance - Borrowers shall maintain or cause to be
maintained insurance on the Collateral against fire, flood, casualty and such
other hazards in such amounts, with such deductibles and with such insurers as
are customarily used by companies operating in the same industry as Borrowers.
If and when Lender requests such in writing, Borrowers shall furnish Lender with
copies of original policies of insurance certified as true and correct and being
in full force and effect as of the Closing Date or such other evidence of
insurance as Lender may reasonably require. In the event Borrowers fail to
procure or cause to be procured any such insurance or to timely pay or cause to
be paid the premium(s) on any such insurance, Lender may do so for Borrowers,
but Borrowers shall continue to be liable for the same. The policies of all such
casualty insurance shall contain standard Lender's Loss Payable Clauses issued
in favor of Lender under which all losses thereunder shall be paid to Lender as
Lender's interest may appear. Such policies shall expressly provide that the
requisite insurance cannot be altered or canceled without thirty (30) days prior
written notice to Lender and shall insure Lender notwithstanding the act or
neglect of a Borrower. Each Borrower hereby appoints Lender as such Borrower's
attorney-in-fact, exercisable at Lender's option to endorse any check which may
be payable to such Borrower in order to collect the proceeds of such insurance
and any amount


                                       32


or amounts collected by Lender pursuant to the provisions of this paragraph may
be applied by Lender to Borrowers' Obligations. Each Borrower further covenants
that all insurance premiums owing under its current casualty policy have been
paid. Each Borrower also agrees to notify Lender, promptly, upon such Borrower's
receipt of a notice of termination, cancellation, or non-renewal from its
insurance company of any such policy.

               (b) Public and Products Liability Insurance - Borrowers shall
maintain, and shall deliver to Lender upon Lender's request evidence of, public
liability, products liability and business interruption insurance in such
amounts as is customary for companies in the same or similar businesses located
in the same or similar area.

               (c) Financial Records -- Each Borrower shall keep current and
accurate books of records and accounts in which full and correct entries will be
made of all of its respective business transactions, and will reflect in its
financial statements adequate accruals and appropriations to reserves, all in
accordance with GAAP. No Borrower shall change its respective fiscal year end
date without the prior written consent of Lender.

               (d) Existence and Rights -- Each Borrower shall do (or cause to
be done) all things necessary to preserve and keep in full force and effect its
existence, good standing, rights and franchises.

               (e) Compliance with Laws -- Each Borrower shall be in compliance
with any and all laws, ordinances, governmental rules and regulations, and court
or administrative orders or decrees to which it is subject, whether federal,
state or local (including without limitation environmental or
environmental-related laws, statutes, ordinances, rules, regulations and
notices), and shall obtain and maintain any and all licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its Property or to the conduct of its businesses, the violation of which or
failure to obtain would have a reasonable likelihood of resulting in or causing
a Material Adverse Effect.

        6.3 Business Conducted: Each Borrower shall continue in the business
presently operated by it using its best efforts to maintain its customers and
goodwill. No Borrower shall engage, directly or indirectly, in any material
respect in any line of business substantially different from the businesses
conducted by it immediately prior to the Closing Date, except after obtaining
the prior consent of Lender, which consent shall not be unreasonably withheld.

        6.4 Litigation: Borrowers shall give prompt notice to Lender of any
litigation claiming in excess of $250,000.00 from a Borrower, or which may
otherwise have a Material Adverse Effect.

        6.5 Taxes: Borrowers shall pay all taxes (other than taxes based upon or
measured by Lender's income or revenues), if any, in connection with the Loans
and/or the recording of any financing statements or other Loan Documents. The
Obligations of Borrowers under this section shall survive the payment of
Borrowers' Obligations under this Agreement and the termination of this
Agreement.


                                       33


        6.6 Financial Covenants: Borrowers shall maintain and comply with the
following financial covenants as reflected on and computed from RMC's
consolidated financial statements:

               (a) Debt Service Coverage Ratio. As of the last day of each
fiscal quarter, Borrowers shall maintain a Debt Service Coverage Ratio of not
less than 1.25 to 1.0 at all times, measured on an annualized cumulative basis
starting with the quarter ending December 31, 2001, through the quarter ending
June 30, 2002, and thereafter on a trailing four-quarter basis.

               (b) Senior Funded Debt Ratio. As of the last day of each fiscal
quarter, Borrowers shall maintain a Senior Funded Debt Ratio of not greater than
2.75 to 1.0 at all times, measured, with respect to the denominator, on an
annualized cumulative basis starting with the quarter ending December 31, 2001,
through the quarter ending June 30, 2002, and thereafter on a trailing
four-quarter basis.

               (c) Net Loss. RMC's consolidated net loss for the fiscal year
ending September 30, 2001, as reported on its 10-K Report to be filed with the
Federal Securities and Exchange Commission, shall not be greater than Thirty
Three Million Dollars ($33,000,000.00).

        6.7 Financial and Business Information: Borrowers shall deliver to
Lender the following (all to be in form and substance satisfactory to Lender):

               (a) Financial Statements and Collateral Reports - such data,
reports, statements and information, financial or otherwise, as Lender may
reasonably request, including, without limitation:

                      (i) within one hundred fifty (150) days after the end of
each fiscal year of Borrowers, deliver to Lender, financial statements of RMC
for such year including the balance sheet of RMC as at the end of such fiscal
year and a statement of cash flows and income statement for such fiscal year,
all for RMC and its consolidated subsidiaries (including all of the other
Borrowers) on a consolidated and, except for the statement of cash flows,
consolidating basis, setting forth in the consolidated statements in comparative
form, the corresponding figures as at the end of and for the previous fiscal
year, all in reasonable detail, including all related footnotes, and, as to
consolidated statements, audited and certified by independent public accountants
of recognized standing, selected by RMC and reasonably satisfactory to Lender,
to have been prepared in accordance with GAAP, and such independent public
accountants shall also provide an unqualified opinion that RMC's consolidated
financial statements present fairly RMC's consolidated financial condition. Such
independent accountants shall also provide a statement certifying that nothing
has come to their attention to cause them to believe that calculations contained
in the compliance certificate are inaccurate;

                      (ii) within fifty (50) days after the end of each fiscal
quarter, deliver to Lender RMC's internally prepared quarterly and year-to-date
consolidated and consolidating (including all Borrowers) financial statements
prepared in accordance with GAAP, including


                                       34


balance sheet, income statement and consolidated, but not consolidating,
statements of cash flows;

                      (iii) within ten (10) Business Days of filing or mailing,
copies of all reports, notices, and other information filed with the Federal
Securities and Exchange Commission or mailed to RMC's shareholders;

                      (iv) prior to the beginning of each fiscal year, an annual
pro-forma budget of Borrowers for such upcoming fiscal year prepared in
accordance with GAAP, with monthly financial projections in such detail as
Lender may require and with calculations of projected financial covenant
compliance detailing related assumptions; and

                      (v) promptly upon request, deliver such other information
concerning Borrowers as Lender may from time to time reasonably request,
including Medicare reports and audits, annual reports, other securities law
filings and reports to any security holders.

               (b) Notice of Event of Default - promptly upon becoming aware of
the existence of any condition or event which constitutes a default or an Event
of Default or Unmatured Event of Default under this Agreement, a written notice
specifying the nature and period of existence thereof and what action Borrowers
are taking (and propose to take) with respect thereto;

               (c) Notice of Claimed Default - promptly upon receipt by a
Borrower, notice of default, oral or written, given to a Borrower by any
creditor for borrowed money in excess of $250,000.00.

        6.8 Officers' Certificates: Along with the set of financial statements
delivered to Lender at the end of each fiscal quarter and fiscal year pursuant
to Section 6.7(a) hereof, Borrowers shall deliver to Lender a certificate (in
the form of EXHIBIT "6.8" attached hereto and made a part hereof) from the chief
financial officer of each Borrower which is a corporation or the authorized
officer of each corporate general partner of each Borrower which is a
partnership (and as to certificates accompanying the annual statements of
Borrowers, also certified by Borrowers' independent certified public accountant)
setting forth:

               (a) Covenant Compliance - the information (including detailed
calculations) required in order to establish whether Borrowers are in compliance
with the requirements of Section 6.6 as of the end of the period covered by the
financial statements then being furnished (and any exhibits appended thereto)
under Section 6.7; and

               (b) Event of Default - that each signer in his capacity as an
officer of a Borrower which is a corporation or corporate general partner of a
Borrower which is a partnership has reviewed the relevant terms of this
Agreement, and has made (or caused to be made under his supervision) a review of
the transactions and conditions of such Borrower from the beginning of the
accounting period covered by RMC's financial statements being delivered
therewith to the date of the certificate, and that such review has not disclosed
the existence during such period of any condition or event which constitutes an
Event of Default or Unmatured


                                       35


Event of Default or if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action Borrowers have taken
or propose to take with respect thereto.

        6.9 Inspection: Borrowers will permit any of Lender's officers or other
representatives to visit and inspect any Borrower's facility, or any other
facility where any Collateral is kept, during regular business hours, to examine
and audit all of such Borrower's books of account, records, reports and other
papers, to make copies and extracts therefrom and to discuss its affairs,
finances and accounts with its officers, employees and independent certified
public accountants and attorneys. Borrowers shall pay to Lender all reasonable
fees based on standard rates for such inspections, currently at the rate of $800
per day, per person (plus out-of-pocket expenses); provided, however, that prior
to the occurrence of an Event of Default or Unmatured Event of Default, Borrower
shall only be obligated to pay fees and expenses associated with two (2) such
inspections in any twelve (12) month period.

        6.10 Tax Returns and Reports: At Lender's request from time to time,
Borrowers shall promptly furnish Lender with copies of the annual federal and
state income tax returns of Borrowers.

        6.11 Material Adverse Developments: Each Borrower agrees that
immediately upon becoming aware of any development or other information which
would reasonably be expected to materially and adversely affect its business,
financial condition or Property, or its ability to perform under this Agreement,
it shall give to Lender telephonic or facsimile notice specifying the nature of
such development or information and such anticipated effect. In addition, such
oral communication shall be confirmed by written notice thereof to Lender on the
next Business Day after such oral notice is given.

        6.12 Places of Business: Borrowers shall give thirty (30) days prior
written notice to Lender of any changes in the location of any of their
respective chief executive offices or any other places of business, or the
establishment of any new, or the discontinuance of any existing places of
business.

        6.13 Notice of Action or Change in Reimbursement Rates: Borrowers will
promptly notify Lender in the event of any legal action, dispute, setoff,
counterclaim, defense or reduction that is or may be asserted by an Obligor with
respect to any Account. In addition, Borrowers shall notify Lender within five
(5) Business Days in the event of any change in the Obligor reimbursement rates
for any Borrower's services, including without limitation, a change in federal
or state laws or rules affecting the payment for medical services, to the extent
such change, either alone or together with other such changes, would have a
reasonable likelihood of resulting in or causing a Material Adverse Effect.

        6.14 Verification of Information: At the request of Lender, Borrowers
will promptly provide and verify the accuracy of information concerning a
Borrower and its Affiliates of the type provided to Lender in connection
Lender's decision to enter into this Agreement and such other information
concerning a Borrower and its Affiliates as Lender may reasonably request in
connection with any offering documents with respect to the contemplated
securitization of, and


                                       36


sale of securities backed by, the Eligible Accounts (the "SECURITIES"),
including, without limitation, all information necessary to provide full and
complete disclosure of all material facts pertaining to an investment in the
Securities in compliance with federal and state securities and blue sky laws,
and such information may be published in such offering documents and relied upon
by Lender and any party arranging the offering of such Securities by Lender or
its assignee. Such information will be true and complete in all material
respects and will not omit to state a material fact necessary to make the
statements contained in such information, in light of the circumstances under
which they were made, not misleading.

        6.15 Value Track System: Borrowers shall permit Lender to interface its
Value Track System to Borrowers' data files and will assist Lender in completing
and maintaining such interface such that the interface can interpret, track and
reconcile the Accounts detail file provided by Borrower.

        6.16 Notices Regarding Settlement Agreement. Borrowers shall send to
Lender within one (1) Business Day of receipt or mailing as the case may be, all
notices, reports, statements, certificates or other writings received or sent by
any Borrower under or in connection with the Settlement Agreement, the Plea
Bargain Agreement or any document executed in connection with either. Borrowers
shall immediately notify Lenders in the event of any default or breach under the
Settlement Agreement, the Plea Bargain Agreement or any other document executed
in connection with either, whether by a Borrower or any other party thereto, and
whether or not a notice thereof has been delivered under any such document.

        6.17 Deposit Accounts. Borrowers shall cause (a) all Accounts of RCS to
be paid directly into the RCS Lockboxes and all Collections in the RCS Lockboxes
to be swept into the Concentration Account, and (b) all other Accounts to be
paid directly to Borrowers who shall cause all Collections from such Accounts to
first be deposited into the Operating Accounts or Lockboxes of Borrowers and
then to be transferred to the RMC Operating Account, withholding only such
amounts therefrom as are reasonably necessary for the operation of Borrowers.
Attached as EXHIBIT "6.17" is an accurate and complete description of the
procedures which Borrowers currently employ with respect to the Collection of
Accounts and the flow of proceeds thereof into Borrowers' Operating Accounts and
Lockboxes. Borrowers shall not change any such procedures without Lender's prior
written consent.

        6.18 Imaging Center Accounts. Imaging Center Affiliates shall bill all
Accounts generated at the Imaging Centers using, in the case of the Imaging
Center located in Woodbury, New Jersey, RIH's provider number, and in the case
of each of the other Imaging Centers, the provider number of the Imaging Center
PC associated therewith.

SECTION 7. BORROWERS' NEGATIVE COVENANTS:

        Borrowers covenant that until all of Borrowers' Obligations to Lender
are paid and satisfied in full and the Credit Facility has been terminated,
that:


                                       37


        7.1 Merger, Consolidation, Dissolution or Liquidation:

               (a) No Borrower shall sell, lease, license, transfer or otherwise
dispose of its Property other than Property with a book value of under
$250,000.00 sold in the ordinary course or ordinary operation of such Borrower's
business, without Lender's prior written consent.

               (b) No Borrower shall merge or consolidate with, or acquire, any
other Person or commence a dissolution or liquidation; provided however that
Borrowers shall be entitled to acquire the assets or equity of another Person
if:

                      (i) such Person executes documents acceptable in form and
substance to Lender whereby such Person shall become obligated hereunder, if
Lender so requires,

                      (i) the total obligation of Borrowers for the payment of
consideration incurred by Borrowers in connection with all such transactions
consummated in any one fiscal year (whether paid in such year or in subsequent
years) in the aggregate shall not exceed $2,500,000.00,

                      (ii) there is not existing at the time of such acquisition
any Event of Default or Unmatured Event of Default,

                      (iii) if such acquisition had occurred in the immediately
preceding fiscal quarter, Borrowers would have been in full compliance with all
of their obligations hereunder, including without limitation, under Section 6.6
hereof; and

                      (iv) the acquisition does not result in a Change of
Control.

        7.2 Liens and Encumbrances: No Borrower shall: (i) execute a negative
pledge agreement with any Person covering any of the Collateral, or (ii) cause
or permit or agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) the Collateral, whether now owned or
hereafter acquired, to be subject to any lien, claim or encumbrance other than
those of Lender, except with respect to Collateral other than Collateral
described in Section 3.1(a), (b), (c), (g) or (h), as described in EXHIBIT "5.6"
or purchase money security interests in equipment security debt otherwise
permitted under Section 7.10 hereof.

        7.3 Negative Pledge: No Borrower shall pledge, grant or permit any Lien
to exist on the common stock of its Subsidiaries and Affiliates.

        7.4 Transactions With Affiliates or Subsidiaries:

               (a) No Borrower shall enter into any transaction with any
Subsidiary or other Affiliate which is not a Borrower including, without
limitation, the purchase, sale, lease or exchange of Property, or the loaning or
giving of funds to any Affiliate or any Subsidiary which is not a Borrower,
unless (i) such Subsidiary or Affiliate is engaged in a business substantially
related to the business conducted by Borrowers and the transaction is in the
ordinary course of and pursuant to the reasonable requirements of such
Borrower's business and upon terms


                                       38


substantially the same and no less favorable to such Borrower as it would obtain
in a comparable arm's-length transactions with any Person not an Affiliate or a
Subsidiary, and (ii) so long as such transaction is not prohibited hereunder.

               (b) Subject in any event to the limitations of Section 7.4(a)
above, no Borrower shall create or acquire any Subsidiary unless such Subsidiary
engages in a business substantially related to the business of Borrowers as
conducted immediately prior to the Closing Date and, if Lender requests, become
a Borrower hereunder by a executing such documents as Lender may reasonably
required, except after obtaining the prior consent of Lender.

        7.5 Guarantees: Excepting the endorsement in the ordinary course of
business of negotiable instruments for deposit or collection, no Borrower shall
become or be liable, directly or indirectly, primary or secondary, matured or
contingent, in any manner, whether as guarantor, surety, accommodation maker, or
otherwise, for the existing or future indebtedness of any kind of any other
Person, except for one or more other Borrowers.

        7.6 Loans to Other Persons: No Borrower shall make or be permitted to
have outstanding any loans, advances or extensions of credit to any Person,
except for other Borrowers, without the prior written consent of Lender;
provided however, that Borrowers shall be permitted to have loans, advances or
extensions of credit to non-Borrower Affiliates of RMC not to exceed (a) an
aggregate of $250,000.00 outstanding at any one time to any single Affiliate, or
(b) an aggregate of $750,000.00 outstanding at any one time to all such
Affiliates.

        7.7 Change of Control: No Borrower shall cause or permit any Change in
Control, except for a Change in Control of a Borrower other than RMC which is
required by federal or state laws or regulations governing the conduct of such
Borrower's healthcare activities and where no Accounts of such Borrower are
included in the Borrowing Base at the time of such Change of Control or any time
thereafter.

        7.8 Distributions: RMC shall not declare or pay or make any forms of
Distributions to its shareholders, their successors or assigns other than, prior
to the occurrence of an Event of Default or Unmatured Event of Default, provided
however that after giving effect to such Distributions no Event of Default or
Unmatured Event of Default shall result.

        7.9 Change in Business. No Borrower shall enter into any business which
is not directly related to the business it now conducts, except after obtaining
the prior consent of Lender.

        7.10 Other Indebtedness. Except with respect to Debt incurred in
connection with acquisitions permitted above, no Borrower shall directly or
indirectly create, incur, assume, permit to exist or otherwise become liable
with respect to any Debt either (a) in excess of $2,000,000.00 in the aggregate
in any year; or (b) if the incurrence of such Debt causes, or would cause
Borrowers to be in default under this Agreement, including without limitation,
under Section 6.6 hereof.

SECTION 8. DEFAULT


                                       39


        8.1 Events of Default: Each of the following events shall constitute an
event of default ("EVENT OF DEFAULT") and Lender shall thereupon have the option
to declare the Obligations immediately due and payable, all without demand,
notice, presentment or protest or further action of any kind (it also being
understood that the occurrence of any of the events or conditions set forth in
subparagraphs (j), (k) or (l) shall automatically cause an acceleration of the
Obligations):

               (a) Payments - if any Borrower fails to make any payment of
principal of or interest on any Loan on the date when such payment is due and
payable, and such failure continues for a period of two (2) Business Days after
the earlier of any Borrower becoming aware of such failure or any Borrower
receiving written notice of such failure; provided, however, that the two (2)
Business Day grace period shall not be applicable if such payments are due and
payable due to maturity, acceleration or demand by Lender, whether following an
Event of Default, or otherwise; or

               (b) Other Charges - if any Borrower fails to pay any other
charges, fees, Expenses or other monetary obligations owing to Lender arising
out of or incurred in connection with this Agreement on the date when such
payment is due and payable, whether upon maturity, acceleration, demand or
otherwise and such failure continues for a period of two (2) Business Days after
the earlier of any Borrower becoming aware of such failure or any Borrower
receiving written notice of such failure; provided, however, that the two (2)
Business Day grace period shall not be applicable if such payments are due and
payable due to maturity, acceleration or demand by Lender, whether following an
Event of Default, or otherwise; or

               (c) Particular Covenant Defaults - if any Borrower fails to
perform, comply with or observe any covenant or undertaking contained in this
Agreement not otherwise described in this Section 8.1, and such failure
continues for a period of ten (10) Business Days after the earlier of any
Borrower becoming aware of such failure or Borrower receiving written notice of
such failure; or

               (d) Financial Information - if any statement, report, financial
statement, or certificate made or delivered by any Borrower or any of its
officers, employees or agents, to Lender is not true and correct, in all
material respects, when made; or

               (e) Uninsured Loss - if there shall occur any uninsured damage to
or loss, theft, or destruction in excess of $250,000.00 with respect to any
portion of any Property; or

               (f) Warranties or Representations - if any warranty,
representation or other statement by or on behalf of any Borrower contained in
or pursuant to this Agreement, or in any document, agreement or instrument
furnished in compliance with, relating to, or in reference to this Agreement, is
false, erroneous, or misleading in any material respect when made; or

               (g) Agreements with Others - if any Borrower shall default (i)
beyond any grace period under any agreement with any creditor for borrowed money
in excess of $250,000.00 and (A) such default consists of the failure to pay any
principal, premium or interest


                                       40


with respect to such indebtedness or (B) such default consists of the failure to
perform any covenant or agreement with respect to such indebtedness, if the
effect of such default is to cause or permit such Borrower's obligations which
are the subject thereof to become due prior to its maturity date or prior to its
regularly scheduled date of payment, or (ii) under or with respect to the
Settlement Agreement;

               (h) Other Agreements with Lender - if any Borrower breaches or
violates the terms of, or if a default or an event of default, occurs under, any
other existing or future agreement (related or unrelated) between or among such
Borrower and Lender; or

               (i) Judgments - if any final judgment for the payment of money in
excess of $250,000.00 is not fully and unconditionally covered by insurance or
for which Borrowers have not established a cash or cash equivalent reserve in
the amount of such judgment shall be rendered; or

               (j) Assignment for Benefit of Creditors, etc. - if any Borrower
makes or proposes an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by any
Borrower; or

               (k) Bankruptcy, Dissolution, etc. - upon the commencement of any
action for the dissolution or liquidation of any Borrower, or the commencement
of any proceeding to avoid any transaction entered into by any Borrower, or the
commencement of any case or proceeding for reorganization or liquidation of any
Borrower's debts under the Bankruptcy Code or any other state or federal law,
now or hereafter enacted for the relief of debtors, whether instituted by or
against such Borrower; provided, however, that such Borrower shall have
forty-five (45) days to obtain the dismissal or discharge of involuntary
proceedings filed against it, it being understood that during such forty-five
(45) day period, Lender shall not be obligated to make Advances hereunder and
Lender may seek adequate protection in any bankruptcy proceeding; or

               (l) Receiver - upon the appointment of a receiver, liquidator,
custodian, trustee or similar official or fiduciary for any Borrower or for any
of such Borrower's Property; or

               (m) Execution Process, Seizure, etc. - the issuance of any
execution or distraint process against any Borrower, or any Property of any
Borrower is seized by any governmental entity, federal, state or local; or

               (n) Termination of Business - if Borrowers cease any material
portion of their aggregate business operations as presently conducted; or

               (o) Pension Benefits, etc. - if any Borrower fails to comply with
ERISA, so that grounds exist to permit the appointment of a trustee under ERISA
to administer any Borrower's employee plans or to allow the Pension Benefit
Guaranty Corporation to institute proceedings to appoint a trustee to administer
such plan(s), or to permit the entry of a Lien to secure any deficiency or
claim; or


                                       41


               (p) Investigations - any indication or evidence received by
Lender that reasonably leads it to believe any Borrower may have directly or
indirectly been engaged in any type of activity which, would be reasonably
likely to result in the forfeiture of any Property of such Borrower to any
governmental entity, federal, state or local; or

               (q) Material Adverse Events -

                      (i) Lender reasonably determines that an event which
adversely affects the collectibility of a material portion of the Accounts has
occurred; or

                      (ii) a material adverse change occurs in the business or
condition of Borrowers in the aggregate; or

               (r) Collection Instructions - any instruction or agreement
regarding the Concentration Account, including without limitation payments of
all Collections from the RCS Lockboxes to the Concentration Account, is amended
or terminated without the written consent of Lender; or

               (s) Imaging Center Security Agreements -- there occurs an event
of default as defined in any of the Imaging Center Security Agreements.

        8.2 Cure: Nothing contained in this Agreement or the Loan Documents
shall be deemed to compel Lender to accept a cure of any Event of Default
hereunder, if such cure occurs after Lender's acceleration of the Obligations.

        8.3 Rights and Remedies on Default:

               (a) In addition to all other rights, options and remedies granted
or available to Lender under this Agreement or the Loan Documents, or otherwise
available at law or in equity, upon or at any time after the occurrence and
during the continuance of an Event of Default or Unmatured Event of Default,
Lender may, in its discretion, withhold or cease making Advances under the
Credit Facility.

               (b) In addition to all other rights, options and remedies granted
or available to Lender under this Agreement or the Loan Documents (each of which
is also then exercisable by Lender), Lender may, in its discretion, upon or at
any time after the occurrence and during the continuance of an Event of Default,
terminate the Credit Facility.

               (c) In addition to all other rights, options and remedies granted
or available to Lender under this Agreement or the Loan Documents (each of which
is also then exercisable by Lender), Lender may, upon or at any time after the
occurrence of an Event of Default, exercise all rights under the UCC and any
other applicable law or in equity, and under all Loan Documents permitted to be
exercised after the occurrence of an Event of Default, including the following
rights and remedies (which list is given by way of example and is not intended
to be an exhaustive list of all such rights and remedies):


                                       42


                      (i) Subject to all applicable laws and regulations
governing payment of Medicare and Medicaid receivables, the right to take
possession of the Collateral, and notify all Obligors of Lender's security
interest in the Collateral and require payment under the Accounts to be made
directly to Lender and Lender may, in its own name or in the name of any
Borrower, exercise all rights of a secured party with respect to the Collateral
and collect, sue for and receive payment on all Accounts, and settle, compromise
and adjust the same on any terms as may be satisfactory to Lender, in its sole
and absolute discretion for any reason or without reason and Lender may do all
of the foregoing with or without judicial process (including without limitation
notifying the United States postal authorities to redirect mail addressed to any
Borrower to an address designated by Lender); or

                      (ii) Require Borrowers at Borrowers' expense, to assemble
all or any part of the Collateral and make it available to Lender at any
reasonable place designated by Lender which may include providing Lender or any
entity designated by Lender with access (either remote or direct) to Borrowers'
information system for purposes of monitoring, posting payments and rebilling
Accounts to the extent deemed desirable by Lender in its sole discretion; or

                      (iii) The right to reduce or modify the Revolving Loan
Commitment, Borrowing Base or any portion thereof or the Advance Rates or to
modify the terms and conditions upon which Lender, may be willing to consider
making Advances under the Credit Facility or to take additional reserves in the
Borrowing Base for any reason.

               (d) Each Borrower hereby agrees that a notice received by it at
least ten (10) days before the time of any intended public sale or of the time
after which any private sale or other disposition of the Collateral is to be
made, shall be deemed to be reasonable notice of such sale or other disposition.
If permitted by applicable law, any Collateral which threatens to speedily
decline in value or which is sold on a recognized market may be sold immediately
by Lender without prior notice to Borrowers. Borrowers covenant and agree not to
interfere with or impose any obstacle to Lender's exercise of its rights and
remedies with respect to the Collateral.

        8.4 Nature of Remedies: All rights and remedies granted Lender hereunder
and under the Loan Documents, or otherwise available at law or in equity, shall
be deemed concurrent and cumulative, and not alternative remedies, and Lender
may proceed with any number of remedies at the same time until all Obligations
are satisfied in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and Lender, upon or at
any time after the occurrence of an Event of Default, may proceed against any
and all Borrowers, at any time, under any agreement, with any available remedy
and in any order.

        8.5 Lender's Right to Reimbursement for Increased Costs or Reduced
Returns: If any material change occurs in the marketplace for the delivery or
financing of healthcare services which causes a material adverse change in the
business of Lender or any of its Affiliates, or any event occurs which results
in the early amortization or termination of commitments made to Lender for the
financing of Accounts, and the effect of such change is to


                                       43


increase the costs to Lender of obtaining funds or maintaining the Loans or to
reduce the return to Lender on the Loans, then Borrowers shall reimburse Lender
in an amount equal to such increased costs or reduced return. Such amount shall
be due and payable within fifteen (15) Business Days of Borrowers' receipt of
notice thereof from Lender (such notice to include Lender's basis for such
adjustment and calculation of such amount, which basis for such adjustment and
calculation will be conclusive and binding absent manifest error). If not paid
when due, such amount shall be added to the Obligations and subject to all of
the terms and conditions set forth herein (including without limitation charging
of the Default Rate).

SECTION 9. MISCELLANEOUS

        9.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF NEW JERSEY. THE PROVISIONS OF THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO
BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION
SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL
FORCE AND EFFECT.

        9.2 Integrated Agreement: The Revolving Credit Note, the other Loan
Documents, all related agreements, and this Agreement shall be construed as
integrated and complementary of each other, and as augmenting and not
restricting Lender's rights and remedies. If, after applying the foregoing, an
inconsistency still exists, the provisions of this Agreement shall constitute an
amendment thereto and shall control.

        9.3 Waiver and Indemnity:

               (a) No omission or delay by Lender in exercising any right or
power under this Agreement or any related agreements and documents will impair
such right or power or be construed to be a waiver of any default, or Event of
Default or an acquiescence therein, and any single or partial exercise of any
such right or power will not preclude other or further exercise thereof or the
exercise of any other right, and as to any Borrower no waiver will be valid
unless in writing and signed by Lender and then only to the extent specified.

               (b) Each Borrower releases and shall indemnify, defend and hold
harmless Lender, and its officers, employees and agents, of and from any claims,
demands, liabilities, obligations, judgments, injuries, losses, damages and
costs and expenses (including, without limitation, reasonable legal fees)
resulting from (i) acts or conduct of any Borrower or under, pursuant or related
to this Agreement and the other Loan Documents, (ii) any Borrower's breach, or
alleged breach, or violation of any representation, warranty, covenant or
undertaking contained in this Agreement or the other Loan Documents, and (iii)
any Borrower's failure, or alleged failure, to comply with any or all laws,
statutes, ordinances, governmental rules, regulations or standards, whether
federal, state or local, or court or administrative orders or decrees,
(including without limitation environmental laws, etc.) and all costs, expenses,
fines,


                                       44


penalties or other damages resulting therefrom, unless resulting from acts or
conduct of Lender constituting willful misconduct or gross negligence.

        9.4 Time: Whenever Borrowers shall be required to make any payment, or
perform any act, on a day which is not a Business Day, such payment may be made,
or such act may be performed, on the next succeeding Business Day. Time is of
the essence in Borrowers' performance under all provisions of this Agreement and
all related agreements and documents.

        9.5 Expenses of Lender:

               (a) At Closing and from time to time thereafter, Borrowers will
pay all expenses of Lender on demand (including, without limitation, search
costs, audit fees, appraisal fees, environmental fees and the fees and expenses
of legal counsel for Lender) relating to this Agreement, and all related
agreements and documents, including, without limitation, expenses incurred in
the analysis, negotiation, preparation, closing, administration and enforcement
of this Agreement and the other Loan Documents, the enforcement, protection and
defense of the rights of Lender in and to the Loans and Collateral or otherwise
hereunder, and any reasonable expenses relating to extensions, amendments,
waivers or consents pursuant to the provisions hereof, or any related agreements
and documents or relating to agreements with other creditors, or termination of
this Agreement (collectively, the "EXPENSES"). Any Expenses not paid upon demand
by Lender shall bear interest at a per annum rate of 18%, or if less, the
highest rate permitted under applicable law.

               (b) In addition, at any time following the date of this
Agreement, if any Borrower effects any changes which results in a change in the
format or sequence of such Borrower's data, Borrowers shall pay to Lender its
reasonable charge for implementing such changes as are necessary to accommodate
the changes in the format or sequence of the data such that the Value Track
System is capable of importing such data, including an hourly fee of $100.
Lender shall, prior to implementing such changes, provide Borrowers with a
non-binding estimate of the charges in connection therewith.

        9.6 Confidentiality: Except as provided in Section 9.19 hereof or to the
extent required by law, Borrowers and Lender agree to maintain the
confidentiality of this Agreement and not to disclose the contents hereof or
provide a copy hereof to any third party, except (i) accountants, lawyers and
financial advisers of the parties who are informed of and agree to be bound by
this Section 9.6, and (ii) that copies hereof may be provided to any assignee of
Lender, any investors or prospective investors who acquire or may acquire
securities backed by Accounts and any parties which facilitate the issuance of
such securities, including rating agencies, guarantors and insurers. Lender
agrees to maintain the confidentiality of patient information obtained as a
result of its interests in, or duties with respect to, the Accounts.

        9.7 Brokerage: Except as otherwise provided herein, this transaction was
brought about and entered into by Lender and Borrowers acting as principals and
without any brokers, agents or finders being the effective procuring cause
hereof. If any claim is made on Lender by any broker, finder or agent or other
Person, Borrowers hereby indemnify, defend and


                                       45


hold harmless Lender against such claim and further will defend, with counsel
satisfactory to Lender, any action or actions to recover on such claim, at
Borrowers' own cost and expense, including Lender's reasonable counsel fees.
Borrowers further agree that until any such claim or demand is adjudicated in
Lender's favor, the amount demanded shall be deemed an Obligation of Borrowers
under this Agreement.

        9.8 Notices:

               (a) Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given if delivered in person
or if sent by telecopy or by nationally recognized overnight courier, or via
first class, Certified or Registered mail, postage prepaid, to the address set
forth on the signature pages hereof, unless such address is changed by written
notice hereunder.

               (b) Any notice sent by Lender or Borrowers by any of the above
methods shall be deemed to be given when so received.

               (c) Lender shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.

        9.9 Headings: The headings of any paragraph or Section of this Agreement
are for convenience only and shall not be used to interpret any provision of
this Agreement.

        9.10 Survival: All warranties, representations, and covenants made by
Borrowers herein, or in any agreement referred to herein or on any certificate,
document or other instrument delivered by it or on its behalf under this
Agreement, shall be considered to have been relied upon by Lender, and shall
survive the delivery to Lender of the Revolving Credit Note, regardless of any
investigation made by Lender or on its behalf. All statements in any such
certificate or other instrument prepared and/or delivered for the benefit of
Lender shall constitute warranties and representations by Borrowers hereunder.
Except as otherwise expressly provided herein, all covenants made by Borrowers
hereunder or under any other agreement or instrument shall be deemed continuing
until all Obligations are satisfied in full.

        9.11 Successors and Assigns: This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties. No
Borrower may transfer, assign or delegate any of its duties or obligations
hereunder.

        9.12 Duplicate Originals: Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.

        9.13 Modification: No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed by Borrowers
and Lender.


                                       46


        9.14 Signatories: Each individual signatory hereto represents and
warrants that he is duly authorized to execute this Agreement on behalf of his
principal and that he executes the Agreement in such capacity and not as a
party.

        9.15 Third Parties: No rights are intended to be created hereunder, or
under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary of Borrowers. Nothing contained in
this Agreement shall be construed as a delegation to Lender of Borrowers' duty
of performance, including, without limitation, Borrowers' duties under any
account or contract with any other Person.

        9.16 CONSENT TO JURISDICTION: EACH BORROWER AND LENDER HEREBY
IRREVOCABLY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
THE STATE OF NEW JERSEY IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING
HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING. EACH BORROWER WAIVES ANY
OBJECTION TO IMPROPER VENUE AND FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH
COURT AND ALL RIGHTS TO TRANSFER FOR ANY REASON. EACH BORROWER IRREVOCABLY
AGREES TO SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE
ADDRESS OF THE APPROPRIATE PARTY SET FORTH HEREIN.

        9.17 Discharge of Taxes, Borrowers' Obligations, Etc.: Lender, in its
sole discretion, shall have the right at any time, and from time to time, with
prior notice to Borrowers, if any Borrower fails to do so five (5) Business Days
after requested in writing to do so by Lender, to: (a) pay for the performance
of any of Borrowers' obligations hereunder, and (b) discharge taxes or liens, at
any time levied or placed on any of Borrowers' Property in violation of this
Agreement unless Borrowers are in good faith with due diligence by appropriate
proceedings contesting such taxes or liens and maintaining proper reserves
therefor in accordance with GAAP. Expenses and advances shall be deemed Advances
hereunder and shall be deemed Advances hereunder and shall bear interest at the
same rate applied to the Loans until reimbursed to Lender. Such payments and
advances made by Lender shall not be construed as a waiver by Lender of an Event
of Default under this Agreement.

        9.18 Waiver of Jury Trial: EACH OF BORROWERS AND LENDER HEREBY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION
COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO OR UNDER THE LOAN DOCUMENTS, WHETHER SOUNDING IN TORT, CONTRACT
OR OTHERWISE.

        9.19 Publication: Borrowers grant Lender the right to publish and/or
advertise information to the effect that this transaction has closed, which
information may include, without limit, (i) the names of Borrowers and Lender,
(ii) the size of the transaction and (iii) those items of information commonly
included within a "tombstone advertisement" of the type customarily published in
financial or business periodicals.


                                       47


        9.20 Injunctive Relief: The parties acknowledge and agree that, in the
event of a breach or threatened breach of any party's obligations hereunder, the
party seeking to enforce such obligations may have no adequate remedy in money
damages and, accordingly, shall be entitled to an injunction (including without
limitation, a temporary restraining order, preliminary injunction, writ of
attachment, or order compelling an audit) against such breach or threatened
breach. However, no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver or prohibition against any other
legal or equitable remedies in the event of a breach or threatened breach of any
provision of this Agreement.





                                       48


        IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
the day and year first above written.


Address for Notices:                BORROWER:
7 Waterside Crossing                CARDIOVASCULAR VENTURES OF EAST
Windsor, CT  06095                      NEW ORLEANS, INC.


                                    By: /s/ John F. Lawler, Jr.
                                       __________________________________
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ______________________________



Address for Notices:                BORROWER:
7 Waterside Crossing                CARDIOVASCULAR VENTURES, INC.
Windsor, CT  06095

                                    By: /s/ John F. Lawler, Jr.
                                       __________________________________
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ______________________________




                                       49


Address for Notices:                BORROWER:
5620 Read Boulevard                 HEART CENTER OF EAST NEW
5th Floor                               ORLEANS, L.P.
New Orleans, LA  70127
                                    By:  Cardiovascular Ventures of East New
                                           Orleans, Inc., its General Partner

                                           By: /s/ John F. Lawler, Jr.
                                              __________________________________
                                              Name: John F. Lawler, Jr.
                                              Title: Chief Financial Officer

                                            Attest: /s/ Richard F. Bader
                                                   _____________________________


Address for Notices:                BORROWER:
1651 Markley Street                 MRI DIAGNOSTIC PARTNERS I, L.P. - 1986
Norristown, PA  19401
                                    By:  Raytel Imaging Holdings, Inc.,
                                           its General Partner


                                           By: /s/ John F. Lawler, Jr.
                                              __________________________________
                                              Name: John F. Lawler, Jr.
                                              Title: Chief Financial Officer

                                            Attest: /s/ Richard F. Bader
                                                   _____________________________




Address for Notices:                BORROWER:
7 Waterside Crossing                RAYTEL CARDIAC SERVICES, INC.
Windsor, CT  06095

                                    By: /s/ John F. Lawler, Jr.
                                       __________________________________
                                       Name: John F. Lawler, Jr.
                                       Title: Secretary and Chief Financial
                                              Officer

                                    Attest: /s/ Richard F. Bader
                                           ______________________________




                                       50


Address for Notices:                BORROWER:
10445 Balboa Blvd.                  RAYTEL GRANADA HILLS, INC.
Granada Hills, CA  91344

                                    By: /s/ John F. Lawler, Jr.
                                       ----------------------------------
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ------------------------------

Address for Notices:                BORROWER:
7 Waterside Crossing                RAYTEL IMAGING HOLDINGS, INC.
Windsor, CT  06095

                                    By: /s/ John F. Lawler, Jr.
                                       ----------------------------------
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ------------------------------

Address for Notices:                BORROWER:
430 Park Ave.                       RAYTEL IMAGING NETWORK, INC.
Suite 102
Collegeville, PA  19426

                                    By: /s/ John F. Lawler, Jr.
                                       ----------------------------------
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ------------------------------

Address for Notices:                BORROWER:
2755 Campus Drive                   RAYTEL MEDICAL CORPORATION
Suite 200
San Mateo, CA  94403
                                    By: /s/ John F. Lawler, Jr.
                                       ----------------------------------
                                       Name:  John F. Lawler, Jr.
                                       Title: Vice-President and Chief
                                              Financial Officer

                                    Attest: /s/ Richard F. Bader
                                           ------------------------------



                                       51





Address for Notices:                BORROWER:
1416 Campbell Road                  RAYTEL NUCLEAR IMAGING - WEST
Suite 101                               HOUSTON, INC.
Houston, TX  77055

                                    By: /s/ John F. Lawler, Jr.
                                        -------------------------------------
                                       Name:  John F. Lawler, Jr.
                                       Title: Chief Financial Officer and
                                              Secretary

                                    Attest: /s/ Richard F. Bader
                                            ---------------------------------

Address for Notices:                BORROWER:
21 Santa Rosa Street                SAN LUIS OBISPO MEDICAL IMAGING
Suite 250                               CENTER, A CALIFORNIA LIMITED
San Luis Obispo, CA  93405              PARTNERSHIP

                                    By:  Raytel Imaging Holdings, Inc.,
                                            its General Partner


                                            By: /s/ John F. Lawler, Jr.
                                                -----------------------------
                                               Name:  John F. Lawler, Jr.
                                               Title: Chief Financial Officer

                                            Attest: /s/Richard F. Bader
                                                    -------------------------



                                       52


                                    LENDER:

Address for Notices:                HEALTHCARE BUSINESS CREDIT
700 East Gate Drive                 CORPORATION
Suite 100
Mount Laurel, NJ 08054              By: /s/ Stacy L. Allen
Fax: 609-727-5170                       ----------------------
                                       Name:  Stacy L. Allen
                                       Title: Vice-President






                                       53




                                   EXHIBIT 1.1
       IMAGING CENTERS, IMAGING CENTER AFFILIATES AND IMAGING CENTER P.C.s



- -------------------------------------------------------------------------------------------------
        IMAGING CENTER                IMAGING CENTER AFFILIATE      IMAGING CENTER P.C.
- -------------------------------------------------------------------------------------------------
                                                              
1.      Bronx:                        Raytel Imaging Holdings,      Advanced Magnetic Resonance
        1201 Morris Park Avenue,      Inc., a Delaware corporation  Imaging, P.C., a New York
        Bronx, New York;                                            professional corporation
        1180 Morris Park Avenue,
        Bronx, New York
- -------------------------------------------------------------------------------------------------
2.      Queens:                       Raytel Imaging Holdings,      Advanced Magnetic Resonance
        68-60 Austin Street,          Inc., a Delaware corporation  Imaging, P.C., a New York
        Queens, New York                                            professional corporation
- -------------------------------------------------------------------------------------------------
3.      Collegeville:                 Raytel Imaging Holdings,      Amar Gulati, P.C., a
        430 Park Avenue,              Inc., a Delaware              Pennsylvania professional
        Collegeville, Pennsylvania    corporation, doing business   corporation
        19426                         as Raytel Medical Imaging -
                                      Collegeville
- -------------------------------------------------------------------------------------------------
4.      Norristown:                   MRI Diagnostic Partners I,    Amar Gulati, P.C., a
        1651 Markley Street,          L.P. - 1986, a Pennsylvania   Pennsylvania professional
        Norristown, Pennsylvania      limited partnership doing     corporation
        19401                         business as Raytel Medical
                                      Imaging - Norristown
- -------------------------------------------------------------------------------------------------
5.      San Luis Obispo:              San Luis Obispo Medical       Richard Berg, M.D., an
        21 Santa Rosa Street,         Imaging Center, L.P., a       individual
        San Luis Obispo, California   partnership doing business
        94118                         as Raytel Medical Imaging -
                                      San Luis Obispo
- -------------------------------------------------------------------------------------------------
6.      Washington Township:          Raytel Imaging Holdings,      Rustico Polutan, an
        900 Black Horse Pike, Rte.    Inc., a Delaware              individual
        168,                          corporation, doing business
        Turnersville, New Jersey      as Raytel Medical Imaging -
                                      Washington Township
- -------------------------------------------------------------------------------------------------



                                       1



                                 EXHIBIT 2.1(b)

                              REVOLVING CREDIT NOTE

                                                                  $15,000,000.00
                                                               November 15, 2001

        FOR VALUE RECEIVED, the undersigned (collectively, the "Borrowers"),
hereby promise on a joint and several basis to pay to the order of HEALTHCARE
BUSINESS CREDIT CORPORATION, a Delaware corporation (the "Lender"), the
principal amount of Fifteen Million and 00/100 Dollars ($15,000,000.00), or so
much thereof as shall have been advanced as Loans under the Loan Agreement
referred to below and shall be outstanding, such payment to be made at such time
or times and in the manner specified in the Loan Agreement; provided, however,
that all Loans shall be repaid in full on or before the Maturity Date.

        This Note is issued under and secured by the Loan and Security Agreement
dated as of even date herewith among the Borrowers and the Lender (as from time
to time amended, restated, supplemented or otherwise modified, the "Loan
Agreement"). Terms used herein and not defined herein are used with the
respective meanings set forth in the Loan Agreement. This Note is further
secured by the Imaging Center Security Agreements.

        Interest on the outstanding principal amount of each Revolving Credit
Loan evidenced by this Note shall accrue at the rate or rates specified in, and
be payable in accordance with the terms of, the Loan Agreement.

        The Loan Agreement provides for the acceleration of the payment of
principal of and interest on such Loans upon the happening of certain Events of
Default as defined in the Loan Agreement.

        The Borrowers waive presentment, demand for payment, notice of dishonor
or acceleration, protest and notice of protest, and any and all other notices or
demands in connection with this Note, except any notice expressly required by
the Loan Agreement.

        This Note shall be governed by and construed in accordance with New
Jersey law.





        IN WITNESS WHEREOF, Borrowers, intending to be legally bound hereby,
have each duly executed this Note, as of the date and year first above written.

Attest:                             CARDIOVASCULAR VENTURES, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             MRI DIAGNOSTIC PARTNERS I, L.P. - 1986

                                    By:  Raytel Imaging Holdings, Inc.,
                                           its General Partner


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             RAYTEL CARDIAC SERVICES, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             RAYTEL GRANADA HILLS, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             RAYTEL IMAGING HOLDINGS, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:





Attest:                             RAYTEL IMAGING NETWORK, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             RAYTEL MEDICAL CORPORATION


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             RAYTEL NUCLEAR IMAGING - WEST
                                          HOUSTON, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:

Attest:                             SAN LUIS OBISPO MEDICAL IMAGING
                                         CENTER, A CALIFORNIA LIMITED
                                         PARTNERSHIP

                                    By:  Raytel Imaging Holdings, Inc.,
                                             its General Partner


By:________________________                  By:_______________________________
   Name:                                        Name:
   Title:                                       Title:

Attest:                             CARDIOVASCULAR VENTURES OF EAST
                                         NEW ORLEANS, INC.


By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:





Attest:                             HEART CENTER OF EAST NEW
                                         ORLEANS, L.P.

                                    By:  Cardiovascular Ventures of East New
                                            Orleans, Inc., its General Partner

By:________________________         By:________________________________
   Name:                               Name:
   Title:                              Title:






                         RAYTEL MEDICAL CORPORATION                Report  Date:
                                                                    Report Time:
                         BORROWING BASE CERTIFICATE                 Page:   of 1

EXHIBIT 2.2(b)
                       BATCH # STANDARD SETTLEMENT DATE:



                                                              BILLED
                                              -------------------------------------------------------------------
                          Gross      Gross       Eligible     Liquidation     ENV of     Cash     Net ENV of
                           AR      Eligible       Gross          Rate        Eligible   Payment  Eligible Gross
                                      AR         Changes                  Gross Charges  Posted     Charges
PAYOR DESCRIPTION                                  (a)            (b)      (a)x(b)=(c)    (d)    (c)-(d)=(e)
- -----------------------------------------------------------------------------------------------------------------
                                                                            
Commercial
Healthcare Providers
Institutional Payors
Medicaid
Medicare
Other
Work Cmp





                                               UNBILLED
                       -----------------------------------------------------------------
                        Gross      Eligible       Liquidation      ENV of        TOTAL
                       Unbilled     Gross            Rate       Eligible Gross
                                    Charges                       Charges
PAYOR DESCRIPTION                     (f)             (g)        (f)x(g)=(h)     (e)+(h)
- ----------------------------------------------------------------------------------------
                                                                    
Commercial
Healthcare Providers
Institutional Payors
Medicaid
Medicare
Other
Work Cmp



                                                              Total Eligible
                                                              Less:Unposted Cash
                                                              Eligible

                                                              Advance Rate     %
                                                              Borrowing Base





     Interest Rate Breakdown - SINGLE RATE
                                                        Minimum Balance            $0.00
   LOW BALANCE      HIGH BALANCE      INTEREST RATE
   -----------      ------------      -------------     Commitment Amount $15,000,000.00      ANALYSIS OF CASH COLLECTIONS
                                                                                  
                                                                                                Posted Cash Applied to Fees       $
                                                                                                Posted Cash Applied to Interest   $
                                                                                                Posted Cash Applied to Principal  $
                                                                                                Total Cash Collections $
                                                                                                Loan Balance after Application
                                                                                                    of Posted Cash                $

Certification: By signing below, I certify that                                               ANALYSIS OF LOAN REQUEST
as of the date hereof, the accounts receivable                                                  Borrowing Base                    $
information contained in this Borrowing Base                                                    Less: Loan Balance after
Certificate is true and accurate. The accounts                                                      Application of Posted Cash    $
receivable enumerated above is consistent with                                                  Borrowing Base Availability       $
the books and records of Raytel Medical                                                         Borrowing Base Deficiency
Corporation as of the date hereof and have been                                                     to be Repaid                  $
recorded in accordance with generally accepted                                                  Requested Advance                 $
accounting principles, consistently applied.                                                                                      $
                                                                                                Amount Withheld to Pay Fees       $
                                                                                                Amount Withheld to Pay Interest   $
                                                                                                Net Requested Advance             $
                                                                                                Ending Loan Balance               $

                                                                                              ANALYSIS OF LOAN ACTIVITY


                                                                                                Previous Standard Settlement
                                                                                                    Ending Loan Balance           $
                                                                                                    Plus: Interim Fundings        $
                                                                                                Less: Posted Cash Applied
                                                                                                    to Principal                  $
                                                                                                Plus: Requested Advance           $
                                                                                                Ending Loan Balance               $

Authorized Signor:(One Signature Required)


BY: ________________________________________
John Lawler
VP - CFO

BY: ________________________________________
William Paradis
VP - Accounting

BY: ________________________________________
William Biebel
VP - Administrative Services

BY: ________________________________________
Lauren Murphy
Sr. Controller                                                        MEMO:

BY:
Tim Willey
Asst. Controller                          Healthcare Business Credit Corporation






                                 EXHIBIT 2.2(C)

                              FORM OF LOAN REQUEST

Healthcare Business Credit Corporation
700 East Gate Drive, Suite 100
Mount Laurel, NJ 08054

Re:  Revolving Loan and Security Agreement

Ladies and Gentlemen:

Pursuant to Section 2.2(c) of the Loan and Security Agreement dated as of
November 30, 2001 (the "Loan Agreement") between Raytel Medical Corporation (the
"Borrowers") and Healthcare Business Credit Corporation (the "Lenders"), the
Borrowers hereby request the following Loan:

(1) The date of the proposed Loan is [Date] (which day is a settlement date
under the Loan Agreement); and

(2) The aggregate amount of the proposed Loan is [$______] (which amount does
not exceed the Borrowing Base Excess set forth on the attached Borrowing Base
Certificate).

(3) The net request advance will be disbursed to the borrowers as follows:



Bank Name             Account Title      Further Credit Title    Transfer Type     Amount
ABA Number            Account Number     Further Credit Number   Effective Date
- --------------------- ------------------ ----------------------- ----------------- --------------
                                                                       
                                         Reference: Raytel                         $
                                         Medical
- --------------------- ------------------ ----------------------- ----------------- --------------


The Borrowers hereby certify that on and as of the date hereof, and on and as of
the settlement date of the proposed Loan, before and after giving effect to such
Loan:

(a) The representations and warranties of the Borrowers contained in the Loan
Agreement and the other Loan Documents are and will be true and correct;

(b) The Borrowers are and will be in compliance with all terms, covenants and
conditions of the Loan Agreement; and

(c) No Event of Default or event which, with notice or passage of time or both,
would constitute an Event of Default exists or will result from the proposed
Loan.


                                       1



Capitalized terms used herein but not defined herein have the meanings assigned
such terms in the Loan Agreement.

Very truly yours,

Raytel Medical Corporation

By: ___________________________________
John Lawler
VP - CFO

By: ___________________________________
William Paradis
VP - Accounting

By: ___________________________________
William Biebel
VP - Administrative Services

By: ___________________________________
Lauren Murphy
Sr. Controller

By: ___________________________________
Tim Willey
Asst. Controller



                                       2



                                   EXHIBIT 4.1

                       [LETTERHEAD OF BORROWERS' COUNSEL]

                               September __, 2001

Healthcare Business Credit Corporation
700 East Gate Drive, Suite 100
Mount Laurel, NJ  08054

Ladies and Gentlemen:

        You have requested our opinion, as counsel to Raytel Medical
Corporation, a Delaware corporation, Raytel Cardiac Services, Inc., a Delaware
corporation, Raytel Medical Imaging, Inc., a Delaware corporation, Medical
Imaging Partners L.P., a Delaware limited partnership, Raytel Imaging Holdings,
Inc., a Delaware corporation, Raytel Cardiovascular Labs, Inc., a Delaware
corporation, Cardiovascular Ventures, Inc., a Delaware corporation, Raytel
Imaging Network, Inc., a Delaware corporation, and Raytel Granada Hills Inc., a
Delaware corporation (collectively, the "Borrowers"), with respect to certain
matters in connection with the execution and delivery by the Borrowers of the
Loan and Security Agreement dated as of the date hereof (the "Loan Agreement")
between the Borrowers and Healthcare Business Credit Corporation, as lender (the
"Lender").

        Unless otherwise defined herein, all capitalized terms shall have the
meanings set forth in the Loan Agreement.

        We have examined the following documents:

        1. the Loan Agreement (executed by Borrowers);

        2. the Revolving Credit Note (executed by Borrowers);

        3. the Account Service Agreements (executed by Borrowers);

        4. the [organizational or formation documents] [PLEASE SPECIFY] of each
Borrower certified by the Secretary of State of Delaware on _________, 2001;

        5. the [By-laws or other operative agreements] [PLEASE SPECIFY] of each
Borrower;

        6. resolutions of the [board of directors/partners] [PLEASE SPECIFY] of
each Borrower, authorizing the execution, delivery and performance of the Loan
Agreement, certified by an [officer/partner] [PLEASE SPECIFY] of such Borrower;





        7. a certificate of the Secretary of State of Delaware dated _________,
2001 concerning the good standing of each Borrower in such State;

        8. a certificate of the Secretary of State(s) of [INSERT STATES WHERE
QUALIFIED TO DO BUSINESS] concerning the qualification of each Borrower as a
foreign [corporation/LP] and the good standing of such Borrower in such
State(s);

        9. the form of notice to insurers to be delivered by each Borrower with
respect to the Accounts attached to the Loan Agreement as 4.2A and 4.2B;

        10. copies of the UCC-1 financing statements describing the Collateral
(the "Financing Statements") naming each Borrower and each party to a PC Service
Agreement (as hereinafter defined) as debtor and Lender as secured party, to be
filed with the Secretary of State of the States of [Delaware, California,
Connecticut, New Jersey, New York and Pennsylvania][INSERT OTHER STATES, AS
APPLICABLE] (the "Filing Offices"), copies of which are attached hereto as Annex
1;

        11. the results of the searches (the "Searches") conducted by CSC
Corporation in the Filing Offices dated _______, 2001, as to financing
statements on Form UCC-1 on file with such offices and naming each Borrower and
each entity which is party to a PC Service Agreement (as hereinafter defined) as
a "debtor" as of such date, copies of which are attached hereto as Annex 2A;

        12. a copy of UCC-3 financing statement(s) (the "Release(s)") executed
by _____________, terminating financing statement No(s). ____________________
naming ________________ as secured party and each Borrower as debtor on file
with the Secretary of State of _________________ (No. ___________________), a
copy of which is attached hereto as Annex 2B; and

        13. an [officer's/partners] [PLEASE SPECIFY] certificate executed by
each Borrower in connection with the Loan Agreement, dated the date hereof and
attached hereto as Annex 3;

        14. a certain Settlement Agreement dated as of ______, 2001 between the
United States Attorney's Office, District of Connecticut, the United States
Department of Justice, on behalf of the Office of Inspector General of the
Department of Health and Human Services, the Relator named therein, Raytel
Cardiac Services, Inc. and Raytel Medical Corporation (the "Settlement
Agreement");

        15. a certain Promissory Note dated as of ______, 2001 by Raytel Cardiac
Services, Inc. made to the order of the United States of America, evidencing
payment obligations under the Settlement Agreement (the "Settlement Note");

        16. a certain Guaranty Agreement dated as of _______, 2001 by Raytel
Medical Corporation in favor of the United States of America, securing payment
of the Settlement Note (the "Settlement Guaranty");





        17. a certain Corporate Integrity Agreement dated as of ______, 2001
between ___________ and Raytel Cardiac Services, Inc. (the "Corporate Integrity
Agreement");

        18. a certain letter agreement dated as of June 25, 2001 between the
United States District Attorney's Office, District of Connecticut, and Raytel
Cardiac Services, Inc. (the "Plea Agreement"; and collectively with the
Settlement Agreement, the Settlement Note, the Settlement Guaranty and the
Corporate Integrity Agreement, the "Settlement Documents");

        19. [certain agreements relating to the use of diagnostic imaging
centers and provision of related medical services entered into by wholly-owned
affiliates of the Borrowers with professional corporations and individual
physicians, as described on Annex 4 hereto (collectively, the "PC Service
Agreements")]; and

        20. such other documents, records and papers as we have deemed necessary
and relevant as a basis for this opinion.

        Based upon the foregoing, it is our opinion that:

        1. Medical Imaging Partners, L.P. is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business requires it to be so qualified.

        2. Each of Raytel Medical Corporation, Raytel Cardiac Services, Inc.,
Raytel Medical Imaging, Inc., Raytel Imaging Holdings, Inc., Raytel
Cardiovascular Labs, Inc., Cardiovascular Ventures, Inc., Raytel Imaging
Network, Inc., and Raytel Granada Hills, Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business requires it to be so qualified.

        3. Each Borrower has the requisite power and authority to own and convey
all of its properties and assets and to execute, deliver and perform the Loan
Agreement and the other Loan Documents and the transactions contemplated
thereby.

        4. The Loan Agreement and the other Loan Documents have been duly
authorized, executed and delivered by the Borrowers, and are the legal, valid
and binding obligations of the Borrowers, enforceable in accordance with their
terms, subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the application of the rules of
equity, including those respecting the availability of specific performance.

        5. No consent of, or other action by, and no notice to or filing with,
any federal, state or local governmental agency, subdivision, body politic,
court, tribunal, department or authority (a "Governmental Authority") (except
for those notices, filings and consents required under the Loan Agreement which
have been performed or provided by the Borrowers), is required for the due
execution, delivery and performance by




Borrowers of the Loan Agreement, the Loan Documents, or any other agreement,
document or instrument to be delivered thereunder or for the perfection of or
the exercise by the Lender or its assignees of any of their rights or remedies
thereunder.

        6. The execution, delivery and performance by Borrowers of the Loan
Agreement and the other Loan Documents and the transactions contemplated thereby
do not contravene or cause any Borrower to be in default under (a) its [Articles
of Incorporation or By-laws/Certificate of Limited Partnership or Limited
Partnership Agreement] [PLEASE SPECIFY FOR EACH ENTITY], (b) to the best of our
knowledge, after inquiry, any contractual restriction with respect to any of its
respective debts or contained in any indenture, loan and credit agreement,
lease, mortgage, security agreement, bond, note or other agreement or instrument
binding on or affecting any Borrower or their respective property arising from
any debt or agreement or (c) to the best of our knowledge after inquiry, any
law, rule, regulation, order, writ, judgment, award, injunction or decree
binding on or affecting any Borrower or their respective properties.

        7. To the best of our knowledge after inquiry, there is no pending or
threatened action, suit or proceeding of a material nature against or affecting
any Borrower, or any of their respective officers, or the property of any
Borrower, in any court or tribunal, or before any arbitrator of any kind or
before or by any Governmental Authority (a) asserting the invalidity of the
Account Service Agreements, the Loan Agreement, the Loan Documents, or any
document to be delivered by Borrowers thereunder, (b) seeking to prevent the
pledge of any Collateral, the Loan or the consummation of any of the
transactions contemplated thereby, (c) seeking any determination or ruling that
might materially and adversely affect (i) the performance by any Borrower of its
respective obligations under the Loan Agreement or any other Loan Document, or
(ii) the validity or enforceability of the Loan Agreement or any other Loan
Document, or (d) asserting a claim for payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained by such
Borrower for the payment thereof).

        8. To the best of our knowledge after inquiry, each Borrower has and
maintains (a) all material permits, licenses, authorizations, registrations,
approvals and consents of Governmental Authorities (collectively, "Governmental
Consents"), (b) all certificates of need for the construction or expansion of or
investment in health care facilities, and (c) all licenses, accreditations,
Medicaid Certifications and Medicare Certifications necessary for (i) the
activities and business of such Borrower as currently conducted, (ii) the
ownership, use, operation and maintenance by it of its properties, facilities
and assets, and (iii) the performance by such Borrower of the Loan Agreement and
the Loan Documents.

        9. Without limiting the generality of the foregoing paragraph: (a) based
on our review of such documents provided to us by Borrowers and certifications
made in respect thereto by Borrowers, each health facility license, the Medicaid
Certification, the Medicare Certification, the Medicaid Provider Agreement, the
Medicare Provider




Agreement and the Blue Cross/Blue Shield Contracts of each Borrower are in full
force and effect and have not been rescinded, revoked or assigned, and (b) to
the best of our knowledge after inquiry, no Borrower is out of compliance with
any of the conditions of participation of the Medicaid or the Medicare programs
or our of compliance with the Blue Cross/Blue Shield Contracts, nor do we have
any knowledge that any condition exists or event has occurred which, in itself
or with the giving of notice or lapse of time or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of (i) any
Governmental Consent applicable to any Borrower or any other health care
facility owned or operated by any Borrower or any subsidiary, (ii) such
facility's participation in any Medicaid, Medicare, or other similar program, or
(iii) any Blue-Cross/Blue Shield Contract, and we have no knowledge of any claim
that any such Governmental Consent, participation or contract is not in full
force and effect.

        10. The transactions contemplated by the Loan Agreement will not cause
any Borrower to be subjected to any obligation to pay any transfer tax to any
Governmental Authority, including, without limitation, any transfer, sales, use
value-added, documentary stamp tax or other similar tax.

        11. Borrowers are sole owners of, and have rights to grant a security
interest in, the Accounts billed under the PC Service Agreements.

        12. The Loan Agreement creates a valid security interest in favor of
Lender in the Collateral (including without limitation the Accounts billed under
the PC Service Agreements), which security interest will be perfected and will
constitute a first perfected security interest upon the filing of the Financing
Statements attached as Annex 2 hereto.

        13. If Medicare and Medicaid Accounts are pledged in the manner
contemplated by the Loan Agreement, the pledge of such Medicare and Medicaid
Accounts to the Borrowers does not violate the provisions of 42 U.S.C. Section
1396a(a) (32) and Section 1395g(c), as construed by HCFA, or applicable state
law with respect to Medicaid.

        14. The interest rate to be charged under the Loan Agreement (including
without limitation any default rate thereunder) does not violate any applicable
law relating to usury.

        15. The choice of New Jersey law as governing the Loan Documents is
enforceable under applicable law.

        16. Each Borrower party to the Settlement Documents has the requisite
power and authority to execute, deliver and perform the Settlement Documents and
the transactions contemplated thereby.

        17. The Settlement Documents have been duly authorized, executed and
delivered by the Borrowers party to the Settlement Documents, and are the legal,
valid and binding obligations of such Borrowers, enforceable in accordance with
their terms, subject to bankruptcy laws and other similar laws of general
application affecting rights




of creditors and subject to the application of the rules of equity, including
those respecting the availability of specific performance.

        18. No consent of, or other action by, and no notice to or filing with,
any federal, state or local governmental agency, subdivision, body politic,
court, tribunal, department or authority (a "Governmental Authority"), is
required for the due execution, delivery and performance by the Borrowers party
to the Settlement Documents of the Settlement Documents, or any other agreement,
document or instrument to be delivered thereunder.

        19. The execution, delivery and performance by the Borrowers party to
the Settlement Documents of the Settlement Documents and the transactions
contemplated thereby do not contravene or cause any of such Borrowers to be in
default under (a) its Articles of Incorporation or By-laws, (b) to the best of
our knowledge, after inquiry, any contractual restriction with respect to any of
its respective debts or contained in any indenture, loan and credit agreement,
lease, mortgage, security agreement, bond, note or other agreement or instrument
binding on or affecting any of such Borrowers or their respective property
arising from any debt or agreement or (c) to the best of our knowledge after
inquiry, any law, rule, regulation, order, writ, judgment, award, injunction or
decree binding on or affecting any of such Borrowers or their respective
properties.

        20. Sentencing has been ordered in accordance with the Plea Agreement.

        21. Raytel Cardiac Services, Inc. has received letters dated ______,
2001 and ______, 2001 respectively from the Department of Health and Human
Services, Office of the Inspector General (the "HHS-OIG"), stating that (a)
Raytel Cardiac Services, Inc.'s execution of the Plea Agreement will not trigger
a mandatory exclusion from participation in Federal healthcare programs under
Section 1128(a) of the Social Security Act (the "Act"), 42 U.S.C. Section
1320a-7(a), and (b) HHS-OIG will not exercise its optional right of exclusion
from participation in Federal healthcare programs under Section 1128(b) of the
Act, 42 U.S.C. Section 1320(b)(2), and such letters remain in full force and
effect, and not subject to any revocation, termination, modification or
qualification.

        This opinion is rendered solely to the addressees hereof as of the date
hereof, except that any rating agency, placement agent or underwriter, Municipal
Bond Investor's Assurance Corporation or any other credit enhancer facilitating
a contemplated securitization of the accounts, as well as any assignee of Lender
prior to or in connection with such securitization, may rely on this opinion as
if addressed to it as of the date hereof.


                                               Very truly yours,




                                     ANNEX 1

                              FINANCING STATEMENTS





                                    ANNEX 2A

                                    SEARCHES





                                    ANNEX 2B

                          UCC-3 TERMINATION STATEMENTS





                                     ANNEX 3

                             OFFICERS' CERTIFICATES





                                     ANNEX 4

                              PC SERVICE AGREEMENTS





                                   EXHIBIT 4.2

                      FORM OF NOTICE TO COMMERCIAL OBLIGOR

                                                            Date _________, 2001

Re:     [RAYTEL ENTITY]
        ("Borrower")

Ladies and Gentlemen:

        Borrower has established a lockbox (the "Lockbox") for collection of
accounts receivable (the "Accounts") on which __________________ owes payment to
Borrower. Accordingly, you are hereby instructed to remit all payments on
Accounts of which you are the obligor to Borrower to the following address:

                                   Fleet Bank
                           Lockbox Account # _________
                                 P.O. Box ______
                              ____________________

        Borrower has entered into an agreement with Healthcare Business Credit
Corporation (the "Lender") under which the Accounts will be assigned to the
Lender. The Lender may, in turn, from time to time, assign or pledge its
interest in such Accounts as it deems appropriate.

        It is contemplated that the Accounts will continue to be serviced by the
Borrower.

        Sending payment on such Accounts to the above Lockbox will discharge
your obligation on such Accounts (to the extent of such payment), whether or not
the Accounts have been assigned to the Lender or any assignee thereof.

        This direction may not be changed or revoked without the prior written
consent of the Lender.

                                            Very truly yours,

                                            HEALTHCARE BUSINESS CREDIT
                                            CORPORATION


                                            By:______________________________
                                               Name:
                                               Title:

EX-10.73

                                                                   EXHIBIT 10.73


                   [FORM OF IMAGING CENTER SECURITY AGREEMENT]

                               SECURITY AGREEMENT
                                  [CENTER NAME]


      This Security Agreement ("Security Agreement") is made as of the ____ day
of November, 2001 by and between [P.C. NAME] ("PC") and [RAYTEL ENTITY NAME]
("Manager"; and, together with PC, "Pledgors"), in favor of HEALTHCARE BUSINESS
CREDIT CORPORATION, a Delaware corporation with an address at 700 East Gate
Drive, Suite 100, Mount Laurel, New Jersey 08054 ("Secured Party").

                                   BACKGROUND

      A. Manager is operator of a diagnostic imaging center located at [LOCATION
ADDRESS] (the "Imaging Center").

      B. PC is a medical practice.

      C. PC and Manager are parties to a certain [TITLE OF AGREEMENT BETWEEN
P.C. AND MANAGER] dated [DATE OF AGREEMENT BETWEEN P.C. AND MANAGER] (as
amended, renewed or replaced from time to time, "Agreement"), a true and correct
copy of which is attached hereto as Exhibit "A," providing for the operation of
the Imaging Center.

      D. Pursuant to the terms of a Loan and Security Agreement dated as of the
date hereof (as may be amended, restated, supplemented or modified from time to
time, the "Loan Agreement"), Secured Party has extended to Manager, Raytel
Medical Corporation ("RMC") and certain of their affiliates (Manager, RMC and
such affiliates are hereinafter referred to as "Borrowers") a credit facility in
the original maximum principal amount of $15,000,000.00 (the "Loan").

      E. [INSERT APPLICABLE RELATIONSHIP, E.G., MANAGER IS A SUBSIDIARY OF RMC
AND IT] is contemplated that a portion of the proceeds of the Loan will be
indirectly available to finance the operations of the Imaging Center. Each
Pledgor acknowledges that it will be materially benefited as a result thereof.

      F. Secured Party desires to obtain, and each of the Pledgors desires to
grant to Secured Party, a first priority security interest in the Collateral (as
defined below) to secure all of the Obligations (as defined below) of the
Borrowers to Secured Party.

NOW, THEREFORE, with the foregoing Background incorporated by reference and made
part hereof, Pledgors and Secured Party, intending to be legally bound hereby,
promise and agree as follows:

      1. Each of the Pledgors hereby grants to Secured Party a continuing lien
on and security interest in the following property of such Pledgor and in the
following property which may be jointly owned by Pledgors, whether now or
hereafter owned and wherever located (collectively, the "Collateral"):


                                       1

            (i) all accounts (including without limitation, the Accounts)
whether now existing or hereafter arising or acquired, (ii) all contract rights,
instruments, chattel paper, documents, general intangibles, rights, remedies,
guarantees and collateral evidencing, securing or otherwise relating to such
accounts, including without limitation, all rights of enforcement and
collection, (iii) all lockboxes, all collection accounts and other accounts into
which any of the proceeds and/or payments on the accounts are deposited, all
funds received thereby or deposited therein, and any checks or instruments from
time to time representing or evidencing the same, (iv) all books and records of
Pledgors evidencing or relating to such accounts, (v) all information and data
compiled or derived by Pledgors with respect of such accounts (other than any
such information and data subject to legal restrictions of patient
confidentiality) and (vi) all collections, receipts and other proceeds (cash and
noncash) derived from any of the foregoing.

      For purposes hereof "Account" means (a) the third party reimbursable
portion of accounts receivable owing to the Pledgors arising out of the delivery
by the Pledgors of medical, surgical, diagnostic or other professional or
medical or dental services, including all rights to reimbursement under any
agreements with a third party obligor, (b) all other healthcare insurance
receivables and accounts as defined in the Uniform Commercial Code as in effect
in the State of New Jersey (the "UCC"), (c) all rights, remedies, guarantees,
and security interests in respect of the foregoing, all rights of enforcement
and collection, all books and records evidencing or related to the foregoing,
and all rights under this Security Agreement in respect of the foregoing, (d)
all information and data compiled or derived by the Pledgors in respect of such
accounts receivable (other than any such information and data subject to legal
restrictions of patient confidentiality), and (e) all proceeds of any of the
foregoing.

      2. The security interest hereby granted by Pledgors secures (collectively,
the "Obligations") all now existing or hereafter arising debts, obligations,
covenants, and duties of payment or performance of every kind, matured or
unmatured, direct or contingent, owing, arising, due or payable to Secured Party
by or from any Borrower arising out of the Loan Agreement or any other document
executed and delivered in connection therewith (collectively, such documents and
the Loan Agreement are referred to herein as the "Loan Documents").

      3. The Pledgors hereby agree that if the location of the Collateral
changes from the location identified in Background paragraph A hereof, the
Pledgors will immediately notify the Secured Party in writing of the additions
or changes to the locations of the Collateral.

      4. Each of the Pledgors covenants that it shall do, obtain, make, execute
and deliver all such additional and further acts, things, deeds, assurances and
instruments as Secured Party may require to vest in and assure to Secured Party
its rights hereunder and in or to the Collateral, and the proceeds thereof.

      5. Each Pledgor represents, warrants and covenants that it has not granted
or suffered or will grant or suffer the imposition of a lien or security
interest upon the Collateral, other than the lien granted herein in favor of
Secured Party, and that it has not and will not use any portion thereof in any
manner inconsistent with this Security Agreement.

      6. At the request of the Secured Party, the Pledgors will join with the
Secured Party in executing one or more financing, continuation or amendment
statements pursuant to the UCC


                                       2

in form satisfactory to the Secured Party. A carbon, photographic or other copy
of this Security Agreement or of a UCC-1 financing statement may be filed as and
in lieu or a UCC-1 financing statement.

      7. The happening of any of the following events or conditions shall
constitute an "Event of Default" hereunder:

            (a) Dissolution, termination of existence, insolvency, business
suspension or failure, appointment of a receiver of any part of the property of
a Pledgor, assignment for the benefit of creditors by a Pledgor, or the
commencement of any proceedings under any federal bankruptcy or state insolvency
laws (now or hereafter enacted for the relief of Pledgors) by or against a
Pledgor, or

            (b) The failure of either Pledgor to comply with the terms of this
Agreement; or

            (c) The occurrence of an Event of Default under the Loan Agreement.

      Upon the occurrence and during the continuance of an Event of Default, the
Secured Party may declare all Obligations secured hereby immediately due and
payable and shall have, in addition to any remedies provided herein, in any
other Loan Document or by any applicable law, all the remedies of a secured
party under the UCC, as permitted therein, and the Secured Party may (i) dispose
of the Collateral on the Pledgors' premises, (ii) require the Pledgors to
assemble the Collateral and make it available to the Secured Party at a place
reasonably designated by the Secured Party and/or (iii) subject to applicable
laws and regulations governing payment of Medicare/Medicaid receivables, take
possession of the Collateral and notify all account debtors of Secured Party's
security interest in the Collateral and require payment under the Collateral to
be made directly to Secured Party and exercise all rights of a secured party
with respect to the Collateral and collect, sue for and receive payment on all
accounts, and settle, compromise and adjust the same on any term as may be
satisfactory to Secured Party, in its respective sole and absolute discretion
and such party may do all of the foregoing with or without judicial process
(including, without limitation, notifying the United States Postal Authorities
to redirect mail addressed to Pledgors to an address designated by Secured
Party). Unless the Collateral is of a type customarily sold on a recognized
market, the Secured Party will give the Pledgors reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made. The requirements of
reasonable notice shall be met if such notice is mailed, postage prepaid, to the
business address of the Pledgors shown in this Security Agreement at least
fifteen (15) days before the time of the intended sale or disposition. Expenses
of retaking, holding, preparing for sale, selling or the like shall include the
Secured Party's reasonable attorneys' fees and legal expenses, incurred or
expended by the Secured Party to enforce any payment due it under this Security
Agreement either as against the Pledgors or in the prosecution or defense of any
action, or concerning any matter growing out of or connection with the subject
matter of this Security Agreement and the Collateral pledged hereunder.

      8. The Secured Party shall not be deemed to have waived any of the Secured
Party's rights hereunder or under any other agreement, instrument or paper
signed by the Pledgors unless


                                       3

such waiver is in writing and signed by the Secured Party. No delay or omission
on the part of the Secured Party in exercising any right shall operate as a
waiver of such right or any other right. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any other occasion.

      9. Each of the Pledgors does hereby make, constitute and appoint any
officer or agent of the Secured Party as such Pledgor's true and lawful
attorney-in-fact, with power to sign and file on such Pledgor's behalf any and
all UCC financing statements, and, after an Event of Default, to endorse the
name of such Pledgor or any of such Pledgor's officers or agents upon any notes,
checks, drafts, money orders, or other instruments of payment or Collateral that
may come into the possession of the Secured Party in full or part payment of any
amounts owing to the Secured Party; granting to such Pledgor's said attorney
full power to do any and all things necessary to be done in and about the
premises as fully and effectually as such Pledgor might or could do, including
the right to compromise, settle and release all claims and disputes with respect
to the Collateral, and such Pledgor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney shall
be irrevocable for the life of this Security Agreement and all transactions
hereunder.

      10. All provisions herein shall inure to, and become binding upon, the
successors, representatives, receivers, trustees and assigns of the parties;
provided, however, that neither Pledgor will delegate its duty of performance
hereunder without the Secured Party's prior written consent. The term "Security
Agreement", as used in this instrument, shall mean and include this Security
Agreement, all amendments and supplements to any of the foregoing, and all
assignments, instruments and documents submitted to the Secured Party in
connection with any transaction between the Pledgors and the Secured Party. Each
of the Pledgors hereby waives notice of default, and presentment, demand,
protest, and notice of dishonor as to any instrument. Each of the Pledgors
hereby releases Secured Party from all claims for loss or damage caused by any
act or omission on the part of Secured Party, its officers, agents, and
employees, except for willful misconduct.

      11. This Security Agreement and all acts, transactions, agreements,
certificates, assignments and transfers thereunder, and all rights of the
parties hereto, shall be governed as to their validity, enforcement,
construction and effect, and in all other respects, by New Jersey law. The
provisions hereof are severable, and the invalidity or unenforceability of any
provision shall not affect or impair the remaining provisions which shall
continue in full force and effect. No modification hereof shall be binding or
enforceable unless in writing and signed on behalf of the party against whom
enforcement is sought.

      12. Each of the Pledgors irrevocably consents to the exclusive
jurisdiction of any state or Federal court located in the State of New Jersey in
any and all actions and proceedings whether arising hereunder or under any other
agreement or undertaking and irrevocably agrees to service of process by
certified mail, return receipt requested to the address of Pledgors set forth
herein. PLEDGORS AND SECURED PARTY AS AN INDEPENDENT COVENANT IRREVOCABLY WAIVE
JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL DISPUTES BETWEEN PLEDGORS AND
SECURED PARTY WHETHER HEREUNDER OR UNDER ANY OTHER AGREEMENTS, NOTES, PAPERS,
INSTRUMENTS OR DOCUMENTS, WHETHER SIMILAR OR DISSIMILAR.


                                       4

      13. This Security Agreement may be executed in one or more counterparts
which, when taken together, will constitute one and the same document.

      IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have set their hands and seals on the day and year first above written.


                                         PLEDGORS:

[P.C. NAME] P.C.                         [RAYTEL ENTITY NAME]


By:                                      By:
    -------------------------------          -----------------------------------
    Name:                                    Name:
    Title:                                   Title:



                                         SECURED PARTY:

                                         HEALTHCARE BUSINESS CREDIT
                                         CORPORATION


                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:


                                       5

EX-10.74

                                                                   Exhibit 10.74

                       KEY MANAGEMENT RETENTION AGREEMENT

        THIS KEY MANAGEMENT RETENTION AGREEMENT (the "Agreement"), dated as of
December 5, 2001 (the "Effective Date"), is made and entered into by and between
RAYTEL MEDICAL CORPORATION, a Delaware corporation (the "Company"), and JOHN F.
LAWLER, JR. (the "Executive").

                                    RECITALS:

        A. The Executive is currently employed, as an at-will employee, as the
Company's Vice President and Chief Financial Officer;

        B. The Company is considering various potential strategic transactions
that could result in a Change of Control (as hereinafter defined); and

        C. The parties desire to provide an incentive for the continued
employment of the Executive in order to facilitate a potential Change of
Control.

        NOW, THEREFORE, the parties agree as follows:

        1. Definitions. For purposes of this Agreement, the following terms
shall be defined as follows:

               1.1 "Cause" shall exist in the event of the Executive's (i)
willful and repeated neglect of his duties as an employee of the Company (other
than as a result of a physical disability not related to substance abuse), (ii)
conviction of a crime involving moral turpitude, (iii) commission of any act of
fraud or dishonesty against the Company, or (iv) breach of the Executive's
obligations under any employment agreement or Proprietary Information and
Inventions Agreement between the Executive and the Company which, if curable, is
not cured within ten (10) days following notice of such breach by the Company.

               1.2 A "Change of Control" of the Company shall occur upon: (i) a
merger, consolidation or other reorganization involving the Company, or a tender
offer, exchange offer or other transaction or series of transactions involving
the acquisition of securities of the Company where, in any such case, the
holders of voting securities of the Company immediately prior to such
transaction or series of transactions own less than 50% of the voting securities
of the surviving or successor entity, or its parent, immediately following such
transaction or series of transactions; (ii) the sale of all or substantially all
of the Company's assets; or (iii) the sale of all or substantially all of the
capital stock or assets of any subsidiary or subsidiaries of the Company which
accounted for 40% or more of the Company's consolidated revenues for the
preceding fiscal year.

               1.3 "Good Reason" shall exist in the event that, other than under
circumstances involving Cause or the Executive's total disability (as defined
pursuant to the Company's long-term disability insurance plan covering the
Executive if any such plan is then in effect, or otherwise as determined by the
Company's Board of Directors), the Company, without the Executive's prior
written consent; (i) materially alters or reduces the Executive's duties,
responsibilities and status with the Company from those which exist as of the
Effective Date of




this Agreement; (ii) reduces the level of compensation or benefits that the
Executive is earning as an employee of the Company; (iii) requires the Employee,
as a condition to his continued employment, to be based more than 100 miles from
the location where he is based as of the Effective Date; or (iv) requires the
Employee, as a condition to his continued employment, to perform illegal or
fraudulent acts or omissions.

               1.4 A "Qualifying Employment Agreement" shall mean a written
agreement for the continued employment by the Executive in a position with
duties and responsibilities substantially comparable to his current position,
with compensation and other benefits substantially comparable, in the aggregate,
to his current compensation and benefits, and providing for a term of at least
one year and severance benefits equal to at least one-half of his annual base
salary in the event of his involuntary termination other than for Cause or his
voluntary termination for Good Reason.

        2. Retention and Severance Arrangement.

               2.1 Retention Bonus. In the event the Company effects a Change of
Control during the term of this Agreement, the Executive shall be entitled to
receive a cash bonus (the "Retention Bonus") in an amount equal to one-half of
his then-effective annual base salary, payable in a single lump sum promptly
upon the fulfillment of the conditions set forth in Section 2.2.

               2.2 Conditions to Receipt of Retention Bonus.

                      (a) In order for the Executive to be eligible to receive
the Retention Bonus, the following conditions must be met:

                             (i) The Executive must be continuously employed by
the Company on a full-time basis between the Effective Date of this Agreement
and the effective date of the Change of Control; and

                             (ii) Either of the following conditions must occur:
(A) the Executive remains continuously employed by the Company, Raytel Cardiac
Services, Inc., the acquiring entity or another subsidiary or affiliate of the
acquiring entity during the six-month period following the effectiveness of the
Change of Control (provided, however, that no Retention Bonus shall be payable
if, during such six-month period, the Executive and one or more of such entities
enter into a Qualifying Employment Agreement); or (B) prior to the end of such
six-month period, the Executive's employment by one of such entities is
terminated involuntarily by such entity other than for Cause or voluntarily by
the Executive with Good Reason.

               2.3 Reduction. The Retention Bonus payable to the Executive shall
be reduced by an amount equal to any severance payments paid to the Executive
under the terms of any Company policy regarding severance benefits or any
employment agreement between the Executive and the Company, not including the
value associated with any acceleration of vesting of options or stock as a
result of a Change of Control.


                                       2



               2.4 Acceleration of Option Vesting. The option agreements between
the Company and the Executive shall be amended to provide that the vesting
provisions of all outstanding options to purchase the Company's Common Stock
held by the Executive shall be accelerated so that such options will vest and
become exercisable, in full, upon the Change of Control, to the extent any such
option agreements do not currently provide for such acceleration of vesting.

               2.5 Annual Bonus. The Retention Bonus is not intended to replace
or reduce any bonus to which the Executive may be entitled under the Company's
existing annual incentive bonus program, which shall continue to be administered
in accordance with the Company's existing policies.

               2.6 Not an Employment Agreement. The Executive is currently
employed as an "at will" employee. This Key Management Retention Agreement is
not an employment agreement, and nothing contained herein shall limit the rights
of the Company or the Employee to terminate the Employee's employment at any
time for any reason.

               2.7 Term. The term of this Agreement shall be twelve (12)
calendar months from the Effective Date of this Agreement.

        3. General

               3.1 Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the Company, the Executive and
each and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Executive under
this Agreement shall be personal and not assignable or delegable by the
Executive in any manner whatsoever to any person, corporation, partnerships,
firm, company, joint venture or other entity. The Executive may not assign,
transfer, convey, mortgage, pledge or in any other manner encumber the
compensation or other benefits to be received by him or any rights which he may
have pursuant to the terms and provisions of this Agreement. The Company
covenants and agrees to require that any successor to the Company through a
Change of Control shall agree to honor the obligations of the Company under this
Agreement.

               3.2 Waiver. No waiver of any breach of any warranty,
representation, agreement, promise, covenant, paragraph, term or provision of
this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other warranty, representation, agreement, promise,
covenant, paragraph, term or provision of this Agreement. No extension of the
time for the performance of any obligation or other act required or permitted by
this Agreement shall be deemed to be an extension of the time of the performance
of any other obligation or any other act required or permitted by this
Agreement.

               3.3 Entire Agreement. This Agreement, and the other agreements
referred to herein, including the Company's benefit plans, are the sole,
complete and entire contract, agreement and understanding between the Company
and the Executive concerning the subject matter hereof. Except as otherwise
provided herein, this Agreement supersedes any and all prior


                                       3



contracts, agreements, plans, agreements in principle, correspondence, letters
of intent, understandings, and negotiations, whether oral or written, concerning
the subject matter hereof.

               3.4 Amendments. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Executive.

               3.5 Counterparts. The Agreement may be executed by the Company
and by the Executive in counterparts, each of which shall be deemed an original
and which together shall constitute one instrument.

               3.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any manner whatsoever affect the
construction or interpretation of this Agreement or be deemed a part of this
Agreement for any purpose whatsoever.

               3.7 Severability. To the extent that any section, term,
provision, sentence, phrase, clause or word of this Agreement shall be found to
be illegal or unenforceable for any reason, such section, term, provision,
sentence, phrase, clause or word shall be modified or deleted in such a manner
as to make this Agreement, as so modified, legal and enforceable under
applicable laws. The remainder of this Agreement shall continue in full force
and effect.

               3.8 Applicable Law. This Agreement and each and every provision
of this Agreement shall be interpreted solely pursuant to the internal laws of
the State of California without regard to any conflicts of law principles
thereof.

               3.9 Construction. The language of this Agreement shall for all
purposes be construed as a whole, according to its fair meaning, not strictly
for or against the Executive or the Company, without regard to the identity or
status of any person or persons who drafted all or any portion of this
Agreement.

               3.10 Notices. Any notices to be given pursuant to this Agreement
by either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this Section 3.10. Notices delivered personally shall be deemed
received on the date of delivery. Notices delivered by mail shall be deemed
received on the third business day after the mailing thereof.

        Mailed notices to the Executive shall be addressed as follows:

               John F. Lawler, Jr.
               27 Silver Lane
               Enfield, Connecticut 06082

        Mailed notices to the Company shall be addressed as follows:


                                       4



               Raytel Medical Corporation
               2755 Campus Drive, Suite 200
               San Mateo, California 94403-2515
               Attention:  Chief Executive Officer

               3.11 Arbitration. Any and all controversies, disputes and/or
claims in any manner arising out of or relating to this Agreement shall be
settled solely be arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Such arbitration proceeding shall
take place in the state and county of the Company's office where the Executive
is based. Judgment on any decision rendered by the arbitrator may be entered in
any court having jurisdiction thereof. Each party shall bear its own attorney's
fees and expenses and other costs in any arbitration proceeding. All
administrative fees and the fee of the arbitrator shall be borne by the parties
equally. The arbitration provisions set forth in this Section 3.11 are intended
by the Executive and by the Company to be absolutely exclusive for all purposes
whatsoever, and applicable to each and every controversy, dispute or claim in
any manner arising out of or relating to this Agreement, the meaning,
application or interpretation of this Agreement, any breach or claimed breach
thereof or any voluntary or involuntary termination of this Agreement with or
without cause, including, without limitation, any such controversy, dispute or
claim which, if pursued through any state or federal court or administrative
agency, would arise at law, in equity or pursuant to statutory, regulatory or
common law rules, regardless of whether such dispute, controversy or claim would
arise in or from contract, tort or any other legal or equitable theory or basis.

        IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first set forth above.

RAYTEL MEDICAL CORPORATION


By:_____________________________________      __________________________________
   Richard F. Bader                           John F. Lawler, Jr.
   Chairman and Chief Executive Officer



                                       5

EX-10.75

                                                                   Exhibit 10.75

                       KEY MANAGEMENT RETENTION AGREEMENT

        THIS KEY MANAGEMENT RETENTION AGREEMENT (the "Agreement"), dated as of
February 6, 2002 (the "Effective Date"), is made and entered into by and between
RAYTEL MEDICAL CORPORATION, a Delaware corporation (the "Company"), and SWAPAN
SEN (the "Executive").

                                    RECITALS:

        A. The Executive is currently employed as the Company's Senior Vice
President, and President of the Company's subsidiary, Raytel Imaging Holdings,
Inc. ("RIH"), pursuant to a written employment agreement dated as of March 1,
1998 (the "Employment Agreement");

        B. The Company is considering various potential strategic transactions
that could result in a Change of Control (as hereinafter defined);

        C. Pursuant to a resolution adopted on December 19, 2001, the Board of
Directors approved a supplement to the Employment Agreement to provide
additional incentive for the continued employment of the Executive in order to
facilitate a potential Change of Control; and

        D. The parties now desire to enter into an agreement confirming such
incentive arrangements.

        NOW, THEREFORE, the parties agree as follows:

        1. Definitions. For purposes of this Agreement, the following terms
shall be defined as follows:

               1.1 "Cause" shall exist in the event of the Executive's (i)
willful and repeated neglect of his duties as an employee of the Company (other
than as a result of a physical disability not related to substance abuse), (ii)
conviction of a crime involving moral turpitude, (iii) commission of any act of
fraud or dishonesty against the Company, or (iv) breach of the Executive's
obligations under the Employment Agreement or the Proprietary Information and
Inventions Agreement between the Executive and the Company which, if curable, is
not cured within ten (10) days following notice of such breach by the Company.

               1.2 A "Change of Control" of the Company shall occur upon: (i) a
merger, consolidation or other reorganization involving the Company, or a tender
offer, exchange offer or other transaction or series of transactions involving
the acquisition of securities of the Company where, in any such case, the
holders of voting securities of the Company immediately prior to such
transaction or series of transactions own less than 50% of the voting securities
of the surviving or successor entity, or its parent, immediately following such
transaction or series of transactions; (ii) the sale of all or substantially all
of the Company's assets; or (iii) the sale of all or substantially all of the
capital stock or assets of RIH.

               1.3 "Good Reason" shall exist in the event that, other than under
circumstances involving Cause or the Executive's total disability (as defined
pursuant to the Company's long-term disability insurance plan covering the
Executive if any such plan is then in




effect, or otherwise as determined by the Company's Board of Directors), the
Company, without the Executive's prior written consent; (i) materially alters or
reduces the Executive's duties, responsibilities and status with the Company
from those which exist as of the Effective Date of this Agreement; (ii) assigns
the Executive duties which are inconsistent with the Employee's position as
Senior Vice President of the Company and President of RIH; (iii) materially
breaches the terms of the Employment Agreement in respect to the payment of
compensation or benefits or in any other material respect and such breach is not
cured within ten days after notice thereof; (iv) requires the Employee, as a
condition to his continued employment, to be based more than 100 miles from the
location where he is based as of the Effective Date; or (v) requires the
Employee, as a condition to his continued employment, to perform illegal or
fraudulent acts or omissions.

        2. Retention and Severance Arrangement.

               2.1 Retention Bonus. In the event the Company effects a Change of
Control during the term of this Agreement, the Executive shall be entitled to
receive a cash bonus (the "Retention Bonus") in the amount of $350,000, payable
in a single lump sum promptly upon the fulfillment of the conditions set forth
in Section 2.2. The Executive may elect to reduce the Retention Bonus by an
amount that will reduce or eliminate any excise tax liability under Section 280G
of the Internal Revenue Code of 1986, as amended.

               2.2 Conditions to Receipt of Retention Bonus.

                      (a) In order for the Executive to be eligible to receive
the Retention Bonus, the following conditions must be met:

                             (i) The Executive must be continuously employed by
the Company on a full-time basis between the Effective Date of this Agreement
and the effective date of the Change of Control; and

                             (ii) Either of the following conditions must occur:
(A) the Executive remains continuously employed by the Company, RIH, the
acquiring entity or another subsidiary or affiliate of the acquiring entity
during the 12-month period following the effectiveness of the Change of Control;
or (B) prior to the end of such 12-month period, the Executive's employment by
one of such entities is terminated involuntarily by such entity other than for
Cause or voluntarily by the Executive with Good Reason.

               2.3 Reduction. The Retention Bonus payable to the Executive shall
not be reduced by any severance payments paid or payable to the Executive under
the terms of the Employment Agreement.

               2.4 Acceleration of Option Vesting. The option agreements between
the Company and the Executive shall be amended to provide that the vesting
provisions of all outstanding options to purchase the Company's Common Stock
held by the Executive shall be accelerated so that such options will vest and
become exercisable, in full, upon the Change of Control, to the extent any such
option agreements do not currently provide for such acceleration of vesting.


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               2.5 Annual Bonus. The Retention Bonus is not intended to replace
or reduce any bonus to which the Executive may be entitled under the Company's
existing annual incentive bonus program, which shall continue to be administered
in accordance with the Company's existing policies.

               2.6 Term. The term of this Agreement shall be twelve (12)
calendar months from the Effective Date of this Agreement.

        3. General

               3.1 Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon the Company, the Executive and
each and all of their respective heirs, legal representatives, successors and
assigns. The duties, responsibilities and obligations of the Executive under
this Agreement shall be personal and not assignable or delegable by the
Executive in any manner whatsoever to any person, corporation, partnerships,
firm, company, joint venture or other entity. The Executive may not assign,
transfer, convey, mortgage, pledge or in any other manner encumber the
compensation or other benefits to be received by him or any rights which he may
have pursuant to the terms and provisions of this Agreement. The Company
covenants and agrees to require that any successor to the Company through a
Change of Control shall agree to honor the obligations of the Company under this
Agreement.

               3.2 Waiver. No waiver of any breach of any warranty,
representation, agreement, promise, covenant, paragraph, term or provision of
this Agreement shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other warranty, representation, agreement, promise,
covenant, paragraph, term or provision of this Agreement. No extension of the
time for the performance of any obligation or other act required or permitted by
this Agreement shall be deemed to be an extension of the time of the performance
of any other obligation or any other act required or permitted by this
Agreement.

               3.3 Entire Agreement. This Agreement, and the other agreements
referred to herein, including the Employment Agreement and the Company's benefit
plans, are the sole, complete and entire contract, agreement and understanding
between the Company and the Executive concerning the subject matter hereof.
Except as provided in the Employment Agreement or such benefit plans or as
otherwise provided herein, this Agreement supersedes any and all prior
contracts, agreements, plans, agreements in principle, correspondence, letters
of intent, understandings, and negotiations, whether oral or written, concerning
the subject matter hereof.

               3.4 Amendments. No amendment, modification, waiver, or consent
relating to this Agreement will be effective unless and until it is embodied in
a written document signed by the Company and by the Executive.

               3.5 Counterparts. The Agreement may be executed by the Company
and by the Executive in counterparts, each of which shall be deemed an original
and which together shall constitute one instrument.


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               3.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any manner whatsoever affect the
construction or interpretation of this Agreement or be deemed a part of this
Agreement for any purpose whatsoever.

               3.7 Severability. To the extent that any section, term,
provision, sentence, phrase, clause or word of this Agreement shall be found to
be illegal or unenforceable for any reason, such section, term, provision,
sentence, phrase, clause or word shall be modified or deleted in such a manner
as to make this Agreement, as so modified, legal and enforceable under
applicable laws. The remainder of this Agreement shall continue in full force
and effect.

               3.8 Applicable Law. This Agreement and each and every provision
of this Agreement shall be interpreted solely pursuant to the internal laws of
the State of California without regard to any conflicts of law principles
thereof.

               3.9 Construction. The language of this Agreement shall for all
purposes be construed as a whole, according to its fair meaning, not strictly
for or against the Executive or the Company, without regard to the identity or
status of any person or persons who drafted all or any portion of this
Agreement.

               3.10 Notices. Any notices to be given pursuant to this Agreement
by either party to the other party may be effected by personal delivery or by
registered or certified mail, postage prepaid with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses stated below,
but each party may change its or his address by written notice to the other in
accordance with this Section 3.10. Notices delivered personally shall be deemed
received on the date of delivery. Notices delivered by mail shall be deemed
received on the third business day after the mailing thereof.

        Mailed notices to the Executive shall be addressed as follows:

               Swapan Sen
               63 Bunning Drive
               Voorkees, N.J. 08043

        Mailed notices to the Company shall be addressed as follows:

               Raytel Medical Corporation
               2755 Campus Drive, Suite 200
               San Mateo, California 94403-2515
               Attention:  Chief Executive Officer

               3.11 Arbitration. Any and all controversies, disputes and/or
claims in any manner arising out of or relating to this Agreement shall be
settled solely be arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Such arbitration proceeding shall
take place in the state and county of the Company's office where the Executive
is based. Judgment on any decision rendered by the arbitrator may be entered in
any court having jurisdiction thereof. Each party shall bear its own attorney's
fees and expenses and other costs in any arbitration proceeding. All
administrative fees and the fee of the


                                       4



arbitrator shall be borne by the parties equally. The arbitration provisions set
forth in this Section 3.11 are intended by the Executive and by the Company to
be absolutely exclusive for all purposes whatsoever, and applicable to each and
every controversy, dispute or claim in any manner arising out of or relating to
this Agreement, the meaning, application or interpretation of this Agreement,
any breach or claimed breach thereof or any voluntary or involuntary termination
of this Agreement with or without cause, including, without limitation, any such
controversy, dispute or claim which, if pursued through any state or federal
court or administrative agency, would arise at law, in equity or pursuant to
statutory, regulatory or common law rules, regardless of whether such dispute,
controversy or claim would arise in or from contract, tort or any other legal or
equitable theory or basis.

        IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first set forth above.


RAYTEL MEDICAL CORPORATION


By:____________________________________     ___________________________________
   Richard F. Bader                         Swapan Sen
   Chairman and Chief Executive Officer




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