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 March 31, 2002; or
[    ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from__________________to__________________

Commission File Number: 0-27186

RAYTEL MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-2787342
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7 Waterside Crossing, Windsor, Connecticut 06095
(Address of principal executive offices) (Zip code)

(860) 298-6100
(Registrant’s telephone number, including area code)

2755 Campus Drive, Suite 200, San Mateo, California 94403
(Former name, former address and former fiscal year, if changed since last report)

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 April 30, 2002
Common Stock ($.001 par value)		2,988,687

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
	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. Defaults Upon Senior Securities
	Item 5. Other Information and Regulation FD Disclosure
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT 10.77

RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2002 and September 30, 2001	3
	Condensed Consolidated Statements of Operations for the three months and the six months ended March 31, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risks	17
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 3.	Defaults Upon Senior Securities	19
Item 5.	Other Information and Regulation FD Disclosure	19
Item 6.	Exhibits and Reports on Form 8-K	19
SIGNATURE		21

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND SEPTEMBER 30, 2001
(000’s omitted)

ASSETS

				March 31,			September 30,
				2002			2001
				(Unaudited)
Current assets:
	Cash and cash equivalents			$	5,092		$	6,095
	Cash held for special purpose				121			400
			Total cash		5,213			6,495
	Receivables, net				32,821			31,404
	Prepaid expenses and other				1,922			2,485
			Total current assets		39,956			40,384
Property and equipment, less accumulated depreciation and amortization					12,893			14,187
Intangible assets, less accumulated amortization					18,143			18,590
Other assets					56			68
			Total assets	$	71,048		$	73,229
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt and capital lease obligations			$	2,876		$	15,151
	Accounts payable				5,355			4,757
	Accrued compensation and benefits				3,628			2,636
	Accrued liabilities				4,172			4,898
			Total current liabilities		16,031			27,442
Long-term debt and capital lease obligations, net of current portion					22,581			9,853
Minority interest in consolidated entities					1,075			1,003
			Total liabilities		39,687			38,298
Stockholders’ equity:
	Common stock				3			3
	Additional paid-in capital				62,678			62,672
		Retained earnings (accumulated deficit)			(27,698	)		(24,122	)
					34,983			38,553
	Less treasury stock, at cost				(3,622	)		(3,622	)
			Total stockholders’ equity		31,361			34,931
			Total liabilities and stockholders’ equity	$	71,048		$	73,229

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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(000’s omitted, except per share amounts)

				Three Months Ended						Six Months Ended
				March 31,						March 31,
				2002			2001			2002			2001
Revenues:
	Cardiac information services			$	8,625		$	9,668		$	17,924		$	19,219
	Diagnostic imaging services				6,945			6,494			13,797			12,492
	Heart facilities and other				2,031			1,984			3,941			3,683
			Total revenues		17,601			18,146			35,662			35,394
Costs and expenses:
	Provision for OIG investigation expenses				—			2,000			—			2,000
	Operating costs				8,625			8,329			17,034			16,106
	Selling, general and administrative expenses				7,566			7,549			14,784			14,704
	Depreciation and amortization				1,507			1,650			3,044			3,325
			Total costs and expenses		17,698			19,528			34,862			36,135
Operating income (loss)					(97	)		(1,382	)		800			(741	)
Interest expense					454			471			950			1,031
Other expense (income), net					(210	)		(263	)		(366	)		(481	)
Tender offer expenses					3,485			—			3,568			—
Minority interest					211			134			224			187
Loss from continuing operations before income tax benefit					(4,037	)		(1,724	)		(3,576	)		(1,478	)
Provision for income tax benefit					(180	)		(671	)		—			(576	)
Loss from continuing operations					(3,857	)		(1,053	)		(3,576	)		(902	)
Discontinued operations:
	Loss from discontinued operations, net of tax benefit				—			(51	)		—			(192	)
	Loss on disposal of discontinued operations				—			(19,353	)		—			(19,353	)
Net loss				$	(3,857	)	$	(20,457	)	$	(3,576	)	$	(20,447	)
Basic loss per share:
		Loss from continuing operations		$	(1.32	)	$	(.36	)	$	(1.22	)	$	(.31	)
		Loss from discontinued operations			—			(6.65	)		—			(6.70	)
			Total	$	(1.32	)	$	(7.01	)	$	(1.22	)	$	(7.01	)
Diluted loss per share:
		Loss from continuing operations		$	(1.32	)	$	(.36	)	$	(1.22	)	$	(.31	)
		Loss from discontinued operations			—			(6.65	)		—			(6.70	)
			Total	$	(1.32	)	$	(7.01	)	$	(1.22	)	$	(7.01	)
Weighted average shares outstanding:
		Basic			2,920			2,917			2,920			2,917
		Diluted			2,920			2,917			2,920			2,917

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RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
(000’s omitted)

					Six Months Ended
					March 31,
					2002			2001
Cash flows from operating activities:
	Net loss				$	(3,576	)	$	(20,447	)
		Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
			Depreciation and amortization			3,044			3,325
			Minority interest			224			187
			Net loss on disposal of discontinued operations			—			19,353
			Other, net			178			400
		Changes in operating accounts:
			Receivables, net			(1,417	)		(547	)
			Prepaid expenses and other			563			(294	)
			Accounts payable			598			(196	)
			Accrued liabilities and other			558			(1,803	)
				Net cash provided by (used in) operating activities		172			(22	)
Cash flows from investing activities:
	Capital expenditures					(1,399	)		(1,512	)
	Proceeds from disposal of discontinued operations					—			8,876
	Other, net					130			9
				Net cash provided by (used in) investing activities		(1,269	)		7,373
Cash flows from financing activities:
	Income distributions to limited partners					(655	)		(778	)
	Cash contributions from limited partners					588			—
	Proceeds from (pay-down of) line of credit					820			(7,441	)
	Principal repayments of debt					(370	)		(1,673	)
	Capitalized financing costs					(493	)		—
	Other, net					(75	)		30
				Net cash used in financing activities		(185	)		(9,862	)
Net decrease in cash and cash equivalents						(1,282	)		(2,511	)
Cash and cash equivalents at beginning of period						6,495			8,781
Cash and cash equivalents at end of period					$	5,213		$	6,270

5

Notes to Unaudited Condensed Consolidated Financial Statements for the Three Month and Six Month Periods Ended March 31, 2002 and 2001.

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 March 31, 2002 and for the three month and six month periods ended March 31, 2002 and 2001 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 and the six months ended March 31, 2002 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 the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2001 and Forms 8-K filed during the six months ended March 31, 2002.

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 March 31, 2002, $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 March 31, 2002, the Company had incurred legal fees and other expenses of approximately $4,410,900 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 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.

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     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 has provided the carrier with additional information, based on a random sample of the tests. No response has been received to date, and the claims remain pending. 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 (“HBCC”) 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 March 31, 2002, there was approximately $13,107,000 outstanding under the line of credit which was classified as long-term debt on the Company’s balance sheet. As of March 31, 2002, we were in default of certain financial covenants under our credit facility agreement, due principally to the significant expenses which we incurred in connection with the recently-completed tender offer. At our request, HBCC waived these defaults and agreed to modify the covenants prospectively, among other things to eliminate the tender offer expenses from the calculation of certain financial ratios. See “Part II, Item 3. — Defaults Upon Senior Securities.”

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 and the six months ended March 31, 2001 were $0 and $3,948,000, respectively. The losses from discontinued operations of $51,000 and $192,000 for the three months and the six months ended March 31, 2001, respectively, were attributable to HFHI and were net of a tax benefit of $33,000 and $123,000, respectively.

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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 Loss Per Share

     For the three months and the six months ended March 31, 2002 and 2001, basic and diluted loss per share are calculated as follows:

		Three months						Six months
		ended March 31,						ended March 31,
		2002			2001			2002			2001
		(000's omitted, except per share amounts)
Basic Loss per Share:
Loss from continuing operations		$	(1.32	)	$	(.36	)	$	(1.22	)	$	(.31	)
Loss from discontinued operations			—			(6.65	)		—			(6.70	)
	Total	$	(1.32	)	$	(7.01	)	$	(1.22	)	$	(7.01	)
Weighted average shares outstanding			2,920			2,917			2,920			2,917
Diluted Loss per Share:
Loss from continuing operations		$	(1.32	)	$	(.36	)	$	(1.22	)	$	(.31	)
Loss from discontinued operations			—			(6.65	)		—			(6.70	)
	Total	$	(1.32	)	$	(7.01	)	$	(1.22	)	$	(7.01	)
Weighted average shares outstanding			2,920			2,917			2,920			2,917
Shares to be issued			(a	)		(a	)		(a	)		(a	)
Dilutive effect of options			(a	)		(a	)		(a	)		(a	)
			2,920			2,917			2,920			2,917

(a) Due to the loss for the period shown, dilutives are not included in the calculation.

     Outstanding options and their exercise prices are as follows:

	March 31,
	2002		2001
Options outstanding		444,313		465,969
Range of exercise prices	$	1.95-$35.625	$	2.625-$35.625

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 7, 2002, the Company entered into 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, an indirect, wholly-owned subsidiary of SHL commenced a tender offer for all of Raytel’s outstanding shares at a price of $10.25 per share in cash. On April 2, 2002, SHL, through its subsidiary, accepted all shares tendered for payment and provided a subsequent offering period for stockholders to tender their shares. An aggregate of 2,408,006 shares of Raytel common stock, representing approximately 81% of the outstanding Raytel stock, was acquired by SHL in 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

8

right to receive the same per share cash price paid in the tender offer. A special meeting of Raytel stockholders is scheduled to be held on June 4, 2002 to vote upon the merger. The merger is expected to close promptly following the special meeting of stockholders. In connection with the transaction, Raytel recorded tender offer expenses, consisting primarily of legal fees, investment banking fees, bonus payments to certain employees related to the change in control and other related costs of $3,485,000 and $3,568,000 for the three and six months ended March 31, 2002.

9. 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 do not agree to the consolidated totals 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):

		Information			Imaging			Facilities		Total
For the three months ended March 31, 2002:
	Net revenue	$	8,625		$	6,945		$	2,031	$	17,601
	Total operating expenses		8,206			5,572			1,490		15,268
	Segment contribution		419			1,373			541		2,333
	Depreciation and amortization		863			428			165		1,456
	Interest expense		—			28			21		49
	Minority interest/other expense (income)		—			(108	)		97		(11	)
	Segment profit (loss)	$	(444	)	$	1,025		$	258	$	839
	Segment assets	$	41,869		$	15,281		$	10,254	$	67,404
	Capital expenditures	$	237		$	34		$	136	$	407

		Information			Imaging			Facilities		Total
For the three months ended March 31, 2001:
	Net revenue	$	9,668		$	6,494		$	1,984	$	18,146
	Total operating expenses		10,647			4,855			1,349		16,851
	Segment contribution		(979	)		1,639			635		1,295
	Depreciation and amortization		865			405			279		1,549
	Interest expense		—			67			31		98
	Minority interest/other expense (income)		(5	)		(40	)		41		(4	)
	Segment profit (loss)	$	(1,839	)(a)	$	1,207		$	284	$	(348	)
	Segment assets	$	42,362		$	14,989		$	12,213	$	69,564
	Capital expenditures	$	556		$	56		$	—	$	612

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(a) Includes a $2,000,000 provision for OIG investigation expenses.

		Information			Imaging			Facilities			Total
For the six months ended March 31, 2002:
	Net revenue	$	17,924		$	13,797		$	3,941		$	35,662
	Total operating expenses		16,306			10,930			2,885			30,121
	Segment contribution		1,618			2,867			1,056			5,541
	Depreciation and amortization		1,716			841			376			2,933
	Interest expense		—			60			46			106
	Minority interest/other expense (income)		—			(203	)		(17	)		(220	)
	Segment profit (loss)	$	(98	)	$	2,169		$	651		$	2,722
	Segment assets	$	41,869		$	15,281		$	10,254		$	67,404
	Capital expenditures	$	546		$	691		$	162		$	1,399

		Information			Imaging			Facilities		Total
For the six months ended March 31, 2001:
	Net revenue	$	19,219		$	12,492		$	3,683	$	35,394
	Total operating expenses		19,060			9,254			2,588		30,902
	Segment contribution		159			3,238			1,095		4,492
	Depreciation and amortization		1,714			833			576		3,123
	Interest expense		—			128			62		190
	Minority interest/other expense (income)		1			(39	)		21		(17	)
	Segment profit (loss)	$	(1,556	)(a)	$	2,316		$	436	$	1,196
	Segment assets	$	42,362		$	14,989		$	12,213	$	69,564
	Capital expenditures	$	1,299		$	101		$	80	$	1,480

(a) Includes a $2,000,000 provision for OIG investigation expenses.

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		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2002			2001			2002			2001
Segment profit (loss)		$	839		$	(348	)	$	2,722		$	1,196
Unallocated amounts:
	Corporate general and administrative expenses		923			1,027			1,697			1,908
	Corporate depreciation and amortization		51			101			111			202
	Corporate interest expense		405			373			844			841
	Corporate other expense (income), net		3,497			(125	)		3,646			(277	)
	Loss from continuing operations before income tax benefit	$	(4,037	)	$	(1,724	)	$	(3,576	)	$	(1,478	)

		March 31,
		2002		2001
Segment assets:
	Information	$	41,869	$	42,362
	Imaging		15,281		14,989
	Facilities		10,254		12,213
	Corporate assets		3,644		8,535
Total assets		$	71,048	$	78,099

10. Principal Payors

     Cash receipts received from Medicare during the three and six month periods ended March 31, 2002 were approximately $2,937,000 and $8,670,000, respectively. No other third party payor paid more than 10% of quarterly revenues during such periods.

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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 March 31, 2002, $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 March 31, 2002, we had incurred legal fees and other expenses of approximately $4,410,900 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.

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     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 has provided the carrier with additional information, based on a random sample of the tests. No response has been received to date, and the claims remain pending. 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 HFHI in the three months and the six months ended March 31, 2001 were $0 and $3,948,000, respectively. The losses from discontinued operations of $51,000 and $192,000 for the three months and the six months ended March 31, 2001, respectively, were attributable to HFHI and were net of a tax benefit of $33,000 and $123,000, respectively.

     On February 7, 2002, the Company entered into 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, an indirect, wholly-owned subsidiary of SHL commenced a tender offer for all of Raytel’s outstanding shares at a price of $10.25 per share in cash. On April 2, 2002, SHL, through its subsidiary, accepted all shares tendered for payment and provided a subsequent offering period for stockholders to tender their shares. An aggregate of 2,408,006 shares of Raytel common stock, representing approximately 81% of the outstanding Raytel stock, was acquired by SHL in 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. A special meeting of Raytel stockholders is scheduled to be held on June 4, 2002 to vote upon the merger. The merger is expected to close promptly following the special meeting of stockholders. In connection with the transaction, Raytel recorded tender offer expenses, consisting primarily of legal fees, investment banking fees, bonus payments to certain employees related to the change in control and other related costs of $3,485,000 and $3,568,000 for the three and six months ended March 31, 2002.

Results of Operations

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001.

     Revenues. For the three months ended March 31, 2002, total revenues were $17,601,000 compared to $18,146,000 for the three months ended March 31, 2001, representing a decrease of $545,000, or 3.0%.

     Cardiac information services revenues were $8,625,000 for the three months ended March 31, 2002, compared to $9,668,000 for the three months ended March 31, 2001, a decrease of $1,043,000, or 10.8%. The decrease in revenues for cardiac information services was due primarily to lower revenues from Pacing operations as a result of lower average selling prices due primarily to a reduction in Medicare reimbursement rates effective January 1, 2002 and also to lower test volumes and, to a lesser extent, lower revenues from CEDS due to lower average selling prices and Holter monitoring due to lower test volumes. Diagnostic imaging services revenues were $6,945,000 for the three months ended March 31, 2002, compared to $6,494,000 for the three months ended March 31, 2001, an increase of $451,000, or 6.9%, 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 $2,031,000 for the three months ended March

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31, 2002, compared to $1,984,000 for the three months ended March 31, 2001, an increase of $47,000, or 2.4%, due primarily to higher revenues at certain cardiovascular diagnostic facilities.

     Provision for OIG Investigation Expenses. The Company provided $2,000,000 for expected expenses associated with the OIG investigation for the period ended March 31, 2001.

     Operating Expenses. Operating costs and selling, general and administrative expenses increased by $313,000, or 1.9%, from $15,878,000 (excluding the provision for OIG investigation expenses) for the three months ended March 31, 2001 to $16,191,000 for the three months ended March 31, 2002, due primarily to higher expenses related to diagnostic imaging services, partially offset by decreases in costs and expenses related to cardiac information services. Operating costs and selling, general and administrative expenses (excluding the provision for OIG investigation expenses) as a percentage of total revenues increased by 4.5%, from 87.5% for the three months ended March 31, 2001 to 92.0% for the three months ended March 31, 2002.

     Depreciation and Amortization. Depreciation and amortization expense decreased by $143,000, or 8.7%, from $1,650,000 for the three months ended March 31, 2001 to $1,507,000 for the three months ended March 31, 2002 and decreased as a percentage of revenues from 9.1% for the three months ended March 31, 2001 to 8.6% for the three months ended March 31, 2002.

     Operating Loss. As a result of the foregoing factors, operating loss decreased by $1,285,000, or 93.0%, from $1,382,000 for the three months ended March 31, 2001 to $97,000 for the three months ended March 31, 2002.

     Interest Expense. Interest expense decreased by $17,000, or 3.6%, from $471,000 for the three months March 31, 2001 to $454,000 for the three months ended March 31, 2002.

     Other Expense (Income). Other income decreased by $53,000 from $263,000 for the three months ended March 31, 2001 to $210,000 for the three months ended March 31, 2002.

     Tender Offer Expenses. These expenses consist primarily of legal fees, investment banking fees, bonus payments to certain employees related to the change in control and other related costs.

     Minority Interest. Minority interest increased by $77,000 from $134,000 for the three months ended March 31, 2001 to $211,000 for the three months ended March 31, 2002 due primarily to increased income in certain cardiovascular diagnostic facilities.

     Income Tax Benefit. The provision for income tax benefit decreased by $491,000 from $671,000 for the three months ended March 31, 2001 to $180,000 for the three months ended March 31, 2002 as a result of reversing the provision for income taxes recorded as of December 31, 2001. Due to the uncertainty of realization, a tax benefit will not be provided for the pre-tax loss for the six months ended March 31, 2002.

     Loss From Continuing Operations. Loss from continuing operations increased by $2,804,000 from $1,053,000 for the three months ended March 31, 2001 to $3,857,000 for the three months ended March 31, 2002.

     Discontinued Operations. Loss from discontinued operations, net of tax was $51,000 for the three months ended March 31, 2001. The loss on disposal of the HFHI business was approximately $19,353,000. 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 from this transaction.

     Net Loss. As a result of the foregoing factors, net loss decreased by $16,600,000 from $20,457,000 for the three months ended March 31, 2001 to $3,857,000 for the three months ended March 31, 2002.

     Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001.

     Revenues. For the six months ended March 31, 2002, total revenues were $35,662,000 compared to $35,394,000 for the six months ended March 31, 2001, representing an increase of $268,000, or 0.8%.

     Cardiac information services revenues were $17,924,000 for the six months ended March 31, 2002 compared to $19,219,000 for the six months ended March 31, 2001, a decrease of $1,295,000, or 6.7%. The decrease in revenues for cardiac information services was due primarily to lower revenues from Pacing operations as a result of lower average selling prices due primarily to a reduction in Medicare reimbursement rates effective January 1, 2002 and also to lower

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test volumes and, to a lesser extent, lower revenues from CEDS due to lower average selling prices and Holter monitoring due to lower test volumes. Diagnostic imaging services revenues were $13,797,000 for the six months ended March 31, 2002, compared to $12,492,000 for the six months ended March 31, 2001, an increase of $1,305,000, or 10.4%, due primarily to increases in revenue at certain centers and the imaging network due to an increase in patient volumes. Heart facilities and other revenues were $3,941,000 for the six months ended March 31, 2002, compared to $3,683,000 for the six months ended March 31, 2001, an increase of $258,000, or 7.0%, due primarily to higher revenues at certain cardiovascular diagnostic facilities.

     Provision for OIG Investigation Expenses. The Company provided $2,000,000 for expected expenses associated with the OIG investigation for the period ended March 31, 2001.

     Operating Expenses. Operating costs and selling, general and administrative expenses increased by $1,008,000, or 3.2%, from $30,810,000 (excluding the provision for OIG investigation expenses) for the six months ended March 31, 2001 to $31,818,000 for the six months ended March 31, 2002, due primarily to higher expenses at diagnostic imaging services, partially offset by decreases in costs and expenses related to cardiac information services. Operating costs and selling, general and administrative expenses (excluding the provision for OIG investigation expenses) as a percentage of total revenues increased from 87.0% for the six months ended March 31, 2001 to 89.2% for the six months ended March 31, 2002, primarily as a result of higher costs.

     Depreciation and Amortization. Depreciation and amortization expense decreased by $281,000, from $3,325,000 for the six months ended March 31, 2001 to $3,044,000 for the six months ended March 31, 2002 and decreased as a percentage of revenues from 9.4% for the six months ended March 31, 2001 to 8.5% for the six months ended March 31, 2002.

     Operating Income (Loss). As a result of the foregoing factors, operating results improved from an operating loss of $741,000 for the six months ended March 31, 2001 to operating income of $800,000 for the six months ended March 31, 2002.

     Interest Expense. Interest expense decreased by $81,000, or 7.9%, from $1,031,000 for the six months ended March 31, 2001 to $950,000 for the six months ended March 31, 2002, due primarily to a decrease in the average amount of debt outstanding.

     Other Expense (Income). Other income decreased by $115,000, or 23.9%, from $481,000 for the six months ended March 31, 2001 to $366,000 for the six months ended March 31, 2002.

     Tender Offer Expenses. These expenses consist primarily of legal fees, investment banking fees, bonus payments to certain employees related to the change in control and other related costs.

     Minority Interest. Minority interest increased by $37,000, or 19.8%, from $187,000 for the six months ended March 31, 2001 to $224,000 for the six months ended March 31, 2002 due primarily to increased income in certain cardiovascular diagnostic facilities.

     Income Taxes (Benefit). The provision for income taxes increased by $576,000, or 100%, from an income tax benefit of $576,000 for the six months ended March 31, 2001 to an income tax provision of $0 for the six months ended March 31, 2002 as a result of not recording a tax benefit for the pre-tax loss due to the uncertainty of its realization.

     Loss From Continuing Operations. Loss from continuing operations increased by $2,674,000 from $902,000 for the six months ended March 31, 2001 to $3,576,000 for the six months ended March 31, 2002.

     Discontinued Operations. Loss from discontinued operations, net of tax, was $192,000 for the six months ended March 31, 2001. The loss on disposal of the HFHI business was approximately $19,353,000. 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 from this transaction.

     Net Loss. As a result of the forgoing factors, net loss decreased by $16,871,000 from $20,447,000 for the six months ended March 31, 2001 to $3,576,000 for the six months ended March 31, 2002.

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.

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     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 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 maintain existing regulatory approvals or obtain regulatory approvals that may be required to expand our 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.

Liquidity and Capital Resources

     At March 31, 2002, we had working capital of $23,925,000, compared to $12,942,000 at September 30, 2001, which reflected the $12,287,000 balance outstanding under our former line of credit as a current liability. At March 31, 2002, we had cash and cash equivalents of $5,092,000.

     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 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 are 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 $12,300,000 under the credit line that

16

matured on October 1, 2001. At March 31, 2002, there was approximately $13,107,000 outstanding under the new credit facility. The facility matures on November 30, 2003 and, therefore, indebtedness outstanding under the line as of March 31, 2002 was classified as a long-term liability on our balance sheet. As of March 31, 2002, we were in default of certain financial covenants under our credit facility agreement, due principally to the significant expenses which we incurred in connection with the recently-completed tender offer. At our request, HBCC waived these defaults and agreed to modify the covenants prospectively, among other things to eliminate the tender offer expenses from the calculation of certain financial ratios. See “Part II, Item 3. — Defaults Upon Senior Securities.”

     Our long-term capital requirements will depend on numerous factors, including the rate at which we develop new products and services and acquire 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 our investment portfolio. We are exposed to market risk from interest rate fluctuations because we use variable rate debt to finance working capital requirements. We do not believe that there is any material market risk exposure with respect to other financial instruments that would require disclosure under this Item.

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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 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 March 31, 2002, $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 March 31, 2002, we had incurred legal fees and other expenses of approximately $4,410,900 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 has provided the carrier with additional information, based on a random sample of the tests. No response to this information has been received to date. 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.

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     Raytel and members of its board of directors have been named as defendants in a purported class action lawsuit filed by an alleged stockholder of Raytel in the San Mateo County, California Superior Court on February 13, 2002 opposing the proposed merger transaction with SHL Telemedicine, Ltd (“SHL”). SHL is not named as a defendant in the complaint. The plaintiff generally alleges that the individual defendants breached their fiduciary duties of loyalty, good faith and independence in connection with the proposed merger transaction by engaging in self-dealing. Raytel believes that the complaint lacks merit and intends to vigorously defend the lawsuit.

     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. Defaults Upon Senior Securities

     As of March 31, 2002, the Company was in default of certain financial covenants under its $15,000,000 credit facility agreement, due principally to the significant expenses which it incurred in connection with the recently-completed tender offer. At the Company’s request, HBCC waived these defaults and agreed to modify the covenants prospectively, among other things to eliminate the tender offer expenses from the calculation of certain financial ratios. The amount outstanding under the credit line as of March 31, 2002 was $13,107,000.

Item 5. Other Information and Regulation FD Disclosure

     On February 7, 2002, the Company entered into 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, an indirect, wholly-owned subsidiary of SHL commenced a tender offer for all of Raytel’s outstanding shares at a price of $10.25 per share in cash. On April 2, 2002, SHL, through its subsidiary, accepted all shares tendered for payment and provided a subsequent offering period for stockholders to tender their shares. An aggregate of 2,408,006 shares of Raytel common stock, representing approximately 81% of the outstanding Raytel stock, was acquired by SHL in 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. A special meeting of Raytel stockholders is scheduled to be held on June 4, 2002 to vote upon the merger. The merger is expected to close promptly following the special meeting of stockholders.

     Pursuant to the Merger Agreement, SHL is entitled to designate such number of directors to be elected to the Board of Directors of Raytel (the “Board”), rounded up to the next whole number, as is equal to the product obtained by multiplying the total number of directors on the Board by the percentage that the number of shares so purchased and paid forbears to the total number of shares then outstanding. Four individuals designated by SHL have been elected directors of Raytel and now make up a majority of Raytel’s six member board.

     On April 8, 2002, Richard F. Bader resigned as Raytel’s Chairman of the Board, Chief Executive Officer and as a director. Mr. Bader did not indicate in his letter that he was resigning as a director because of a disagreement with Raytel on any matter relating to Raytel’s operations, policies or practices. Mr. Yariv Alroy has been appointed, as Mr. Bader’s successor, to be the Chairman of Raytel’s Board and Chief Executive Officer.

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

             The following exhibit is filed as a part of this Report:

Exhibit
Number	Title
10.77	Consent, Waiver and First Amendment to Loan and Security Agreement, dated as of April 1, 2002, by and among, Raytel, certain subsidiaries of Raytel and Healthcare Business Credit Corporation.

19

b. Report on From 8-K

Current Report on Form 8-K dated February 13, 2002 announcing that Raytel had entered into a definitive merger agreement with SHL Telemedicine Ltd.

Current Report on Form 8-K dated April 2, 2002 announcing that a change of control of Raytel had occurred as a result of SHL’s successful completion of its tender offer for all of Raytel’s outstanding common stock.

20

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: May 14, 2002	By:	/s/ John F. Lawler, Jr.
		John F. Lawler, Jr. Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

21 EX-10.77 3 f81493ex10-77.txt EXHIBIT 10.77 EXHIBIT 10.77 CONSENT AND WAIVER AND FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT This CONSENT AND WAIVER AND FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement") is dated as of April 1, 2002, by and among CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC., a Louisiana corporation, CARDIOVASCULAR VENTURES, INC., a Delaware corporation, HEART CENTER OF EAST NEW ORLEANS, L.P., a Louisiana limited partnership, MRI DIAGNOSTIC PARTNERS I, L.P. - - 1986, a Pennsylvania limited partnership, RAYTEL CARDIAC SERVICES, INC., a Delaware corporation, RAYTEL GRANADA HILLS, INC., a Delaware corporation, RAYTEL IMAGING HOLDINGS, INC., a Delaware corporation, RAYTEL IMAGING NETWORK, INC., a Delaware corporation, RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC., a Delaware corporation, SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED PARTNERSHIP, a California limited partnership, and RAYTEL MEDICAL CORPORATION, a Delaware corporation (collectively, "Borrowers"), and HEALTHCARE BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender"). Capitalized terms used and not otherwise defined in this Agreement shall have the meanings ascribed in the Loan Agreement (as hereinafter defined). BACKGROUND WHEREAS, Borrowers and Lender are party to a certain Loan and Security Agreement dated November 15, 2001 (as amended, restated, supplemented or modified from time to time, the "Loan Agreement"); and WHEREAS, Raytel Medical Corporation ("RMC"), SHL TeleMedicine Ltd. ("Parent"), and SHL TeleMedicine Acquisition Corp. ("Acquisition Co."), an indirect wholly-owned subsidiary of Parent, are parties to an Agreement and Plan of Merger dated as of February 7, 2002 between Parent, Acquisition Co. and RMC filed with the SEC as of February 19, 2002 (the "Merger Agreement"), pursuant to which Acquisition Co. has commenced a tender offer to purchase 100% of the issued and outstanding common stock (the "Stock Purchase") in RMC, pursuant to the terms of the Offer to Purchase for Cash all Outstanding Shares of Common Stock (Including the Associated Preferred Stock Purchase Rights) of Raytel Medical Corporation at $10.25 Net Per Share by Acquisition Co. filed with the United States Securities and Exchange Commission ("SEC") as of February 22, 2002; and WHEREAS, after the Stock Purchase, Acquisition Co. proposes to merge with and into RMC, with RMC being the surviving entity of such merger (the "Merger"; and together with the Stock Purchase, the "Acquisition"), pursuant to the Merger Agreement; and WHEREAS, RMC, as the surviving entity of the Merger, will continue to be liable as a Borrower under the Loan Agreement and otherwise bound by the Loan Documents in accordance with their respective terms; and WHEREAS, in connection with the Stock Purchase, SHL TeleMedicine North America, Inc. ("SHL North America") proposes to make loans to Acquisition Co. in the aggregate principal amount of Thirty Million Five Hundred Thousand and 00/100 Dollars ($30,500,000) (collectively, the "Acquisition Loan"), which will become Debt of RMC upon consummation of the Merger; and WHEREAS, in connection with the Acquisition and the Acquisition Loan, Borrowers have requested that Lender (i) consent to the Merger, the Stock Purchase and the Acquisition Loan, (ii) waive the Events of Default and Unmatured Events of Default which will occur as a result of the Merger, the Stock Purchase and the Acquisition Loan, and (iii) modify certain terms and conditions of the Loan Agreement; and WHEREAS, Lender is willing to (i) consent to the Merger, the Stock Purchase and the Acquisition Loan, (ii) waive the Events of Default and Unmatured Events of Default which will occur as a result of the Merger, the Stock Purchase and the Acquisition Loan, and (iii) modify certain terms and conditions of the Loan Agreement, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises herein contained, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Consent. Subject to the other terms hereof, Lender consents to the Merger, the Stock Purchase and the Acquisition Loan; provided, however, that such consent shall be revoked and rendered null and void ab initio if the conditions set forth in Paragraph 4 below are not satisfied as and within the time period specified therein. 2. Waiver. a. Borrowers acknowledge and confirm that upon consummation of the Acquisition and the Acquisition Loan, Unmatured Events of Default and Events of Default will occur, as more particularly described in Schedule 2 annexed hereto (the "Listed Defaults"). Borrowers acknowledge and confirm that absent the waiver set forth below in this Paragraph 2, upon the consummation of the Acquisition and the Acquisition Loan, Lender would have the free and unrestricted right, at any time and from time to time, to exercise any and all rights available to Lender under the Loan Agreement and the other Loan Documents. b. Subject to the terms hereof, Lender hereby waives each and every Listed Default; provided, however, that such waiver shall be revoked and rendered null and void ab initio if the conditions set forth in Paragraph 4 below are not satisfied as and within the time period specified therein. c. Borrowers acknowledge that Lender in entering into this Agreement is relying entirely on descriptions of the financial condition of Parent and the impact of the proposed transactions on Borrowers, and on documents relating to the structure and results of the proposed transactions, which have been provided by Borrowers and Parent (with respect to Parent, such descriptions are set forth in filings made with the SEC on March 5, 2002), and agree that the waiver and consent set forth herein shall, therefore, in all instances be construed narrowly. Lender expressly reserves all rights and remedies available to it as a result of any -2- Unmatured Events of Default or Events of Default which are not Listed Defaults, and Borrowers acknowledge and agree that if any Event of Default other than a Listed Default occurs, or if the conditions contained in Paragraph 4 below are not satisfied as required therein, Lender shall have available to it, and be able to exercise, all of the rights and remedies accorded to it under the Loan Agreement and other Loan Documents, to the same extent as Lender would be entitled if the consent and waiver set forth herein had never been part of this Agreement. 3. Amendments to Loan Agreement. From and after the date of consummation of the Stock Purchase (the "Effective Date"), all references to the Loan Agreement in the Loan Documents shall mean and refer to the Loan Agreement as modified as follows: a. The definition of "Agreement" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "AGREEMENT" means this Loan and Security Agreement, as same may be hereafter amended, revised, restated, supplemented or otherwise modified, including without limitation as amended by the First Amendment. b. The definition of "Continuing Director" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "CONTINUING DIRECTOR" means (a) prior to the Effective Time (as defined in the Merger Agreement), any member of the board of directors of RMC who was a director of RMC on the Closing Date or becomes a director as a nominee of Purchaser as defined in and in accordance with the Merger Agreement, and (b) after the Effective Time, any individual who becomes a member of the board of directors of RMC pursuant to the merger of SHL TeleMedicine Acquisition Corp. with and into RMC in accordance with the Merger Agreement, and any individual who becomes a member of the board of directors of RMC after the Effective Time, 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 such Effective Time 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. c. A new definition is hereby added to Section 1.1 of the Loan Agreement, such that it appears in proper alphabetical order, as follows: "FIRST AMENDMENT" means the Consent and Waiver and First Amendment to Loan and Security Agreement by and among Borrowers and Lender, dated as of April 1, 2002. d. The definition of "Loan Documents" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: -3- "LOAN DOCUMENTS" means this Agreement, the Revolving Credit Note, the Imaging Center Security Agreements, the Blocked Account Agreements, the agreements relating to the Lockboxes, the Subordination Agreement, all financing statements and all other agreements, instruments, documents and certificates delivered in connection herewith or therewith. e. A new definition is hereby added to Section 1.1 of the Loan Agreement, such that it appears in proper alphabetical order, as follows: "MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of February 7, 2002 between SHL TeleMedicine Ltd., SHL TeleMedicine Acquisition Corp. and RMC. f. A new definition is hereby added to Section 1.1 of the Loan Agreement, such that it appears in proper alphabetical order, as follows: "SUBORDINATION AGREEMENT" means the Subordination Agreement dated as of April 1, 2002 among RMC, Lender, SHL Acquisition Corp., and SHL TeleMedicine North America, Inc., as such is amended, revised, restated, supplemented or otherwise modified. g. Section 2.8 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 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 April 1, 2003, 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. h. Exhibits 5.4, 5.5, 5.11, 5.12 and 5.16 to the Loan Agreement are hereby updated as set forth on Schedule 2 annexed hereto. i. Section 5.13 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 5.13 Compliance with Laws: -4- (a) Except as set forth in the Plea Bargain Agreement, the Settlement Agreement or in EXHIBIT 5.13(a) annexed hereto, 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) Except as set forth in EXHIBIT 5.13(b) annexed hereto, 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. j. A new exhibit is hereby added to the Loan Agreement and designated as EXHIBIT 5.13(a) thereto, as set forth on Schedule 4 annexed hereto. k. A new exhibit is hereby added to the Loan Agreement and designated as EXHIBIT 5.13(b) thereto, as set forth on Schedule 4 annexed hereto. l. Section 7.8 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: 7.8 Distributions: RMC shall not declare or pay or make any forms of Distributions to its shareholders, their successors or assigns, except as permitted by Section 4 of the Subordination Agreement and after prior written notice to Lender or receipt of Lender's prior written consent to such payment, if such prior written notice or prior written consent is required by Section 4 of the Subordination Agreement. 4. Conditions to Consent and Waiver; Separate Covenant to Satisfy Conditions. As conditions of the consent set forth in Paragraph 1 above and the waiver set forth in Paragraph 2 above, Borrowers shall satisfy each of the following conditions on or before the date specified: a. On the date hereof, Borrowers shall duly execute and deliver this Agreement to Lender; b. On or before April 8, 2002, Borrowers shall cause to be delivered to Lender opinions of counsel to Borrowers that, after giving effect to the Acquisition, the Loan Agreement and the other Loan Documents will continue to be legal, valid and binding against Borrowers (including without limitation RMC), enforceable in accordance with their respective -6- terms, that this Agreement and the Subordination Agreement are legal, valid and binding against the Borrowers, enforceable in accordance with their respective terms, and such other opinions of counsel as Lender may reasonably request, in form and substance satisfactory to Lender; c. On or before April 8, 2002, all instruments, agreements and documents, together with all amendments and schedules and exhibits thereto, evidencing, securing or otherwise setting forth terms and conditions of the Acquisition and the Acquisition Loan (the "Acquisition Documents") shall have been delivered to Lender, and such Acquisition Documents (i) are true, correct and complete, and in full force and effect, (ii) are reasonably satisfactory to Lender in all material respects, and (iii) set forth terms which are substantially consistent with the terms described to Lender and set forth in any Acquisition Documents delivered to Lender by Borrowers prior to the date hereof; d. On or before the date of the Acquisition Loan, any documents or instruments relating to the Acquisition Loan shall be in form and substance satisfactory to Lender and no other obligations or liabilities (whether direct or indirect) shall be incurred by RMC or Acquisition Co. in connection with the Acquisition other than (i) the Acquisition Loan, (ii) reasonable investment banking fees and expenses and reasonable attorneys' fees and expenses of RMC and Acquisition Co., and (iii) liabilities of RMC for employee retention bonuses, severance payments and option payments and certain other obligations and liabilities of RMC and Acquisition Co., all as set forth on Schedule 3 annexed hereto; e. On or before the date of the Acquisition Loan, SHL North America, Acquisition Co., RMC and Lender shall duly execute and deliver a subordination agreement in form and substance satisfactory to Lender (the "Subordination Agreement"); f. On or before July 1, 2002, Borrowers shall provide such financial information as Lender may reasonably request regarding Borrowers, including without limitation budgets, business/operating plans and projections for the 2002 and 2003 fiscal years; and g. As of the date of this Agreement and as of each date through and including the date on which all of the foregoing conditions in this Section 4 are satisfied, all of the representations and warranties made by Borrowers in Paragraph 5 below shall be true, complete and accurate. Borrowers separately covenant to satisfy each of the foregoing conditions on or before the date specified for each condition, time being of the essence in all instances. 5. Borrowers' Representations and Warranties. Borrowers hereby represent and warrant to Lender as follows: a. All of the representations and warranties made by Borrowers in the Loan Agreement and the other Loan Documents remain true, complete and accurate as of the date hereof, except to the extent (i) such representations and warranties were expressly made as of a specified date, or (ii) Exhibits 5.4, 5.5, 5.11, 5.12 and 5.16 to the Loan Agreement are to be updated and new Exhibits 5.13(a) and 5.13(b) is to be added to the Loan Agreement on the Effective Date pursuant to Section 3g above. -6- b. No Event of Default and no Unmatured Event of Default exists, and no event has occurred which with notice or lapse of time or both would constitute an Unmatured Event of Default or an Event of Default under the Loan Agreement and other Loan Documents, other than the Listed Defaults identified on Schedule 2 hereto. c. The execution and performance by Borrowers of this Agreement and the Acquisition Documents have been duly authorized by all necessary corporate action, will not violate any provision of law applicable to Borrowers or any provision of their respective charters or by-laws, will not result in a breach of or constitute a default or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of Borrowers pursuant to any indenture or other agreement or instrument by which Borrowers or any of their respective properties may be bound or affected, other than the Listed Defaults identified on Schedule 2 hereto. d. This Agreement, the Loan Agreement and the other Loan Documents constitute, and with respect to the Loan Agreement and the other Loan Documents will constitute after giving effect to the Acquisition, the legal, valid and binding agreements of Borrowers, enforceable in accordance with their respective terms, except as enforceability may be affected by bankruptcy, insolvency, moratorium or other laws affecting creditors' rights generally. e. All Acquisition Documents have been delivered to Lender, and such Acquisition Documents are true, correct and complete, and in full force and effect. f. Upon consummation of the Merger RMC shall be the surviving entity and as such surviving entity shall continue to be liable as a Borrower under the Loan Agreement and otherwise bound by the Loan Documents in accordance with their respective terms, and no Borrower has, or will have after giving effect to the Acquisition, any claims, defenses or set-offs to its respective obligations under the Loan Agreement and other Loan Documents. 6. Payment of Expenses. Borrowers shall pay any and all fees due and payable in connection with this Agreement and all costs and expenses (including, without limitation, attorneys' fees) incurred by Lender in connection with this Agreement and the Subordination Agreement. 7. Event of Default. A breach of any covenant, representation or warranty set forth in this Agreement by Borrowers shall constitute an Event of Default under the Loan Agreement. 8. Effect of Agreement. Except as expressly amended and supplemented in Paragraph 3 above, the Loan Agreement and the other Loan Documents in effect as of the date hereof shall remain in full force and effect, unmodified, and are enforceable against Borrowers in accordance with their respective terms. 9. Further Modifications. This Agreement contains all of the modifications to the Loan Agreement, and no further or other modifications to the Loan Agreement shall be effective unless in writing executed by Lender and Borrowers. -7- 10. Binding Effect. This Agreement shall extend to and bind the parties hereto and their respective successors and assigns. 11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 12. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same document. This Agreement shall extend to and bind the parties hereto and their respective successors and assigns. -8- IN WITNESS WHEREOF, the undersigned parties have executed this Consent and Waiver Agreement and First Amendment to Loan and Security Agreement as of the day and year first above written. HEALTHCARE BUSINESS CREDIT CORPORATION By: /s/ Michael D. Gervals ---------------------------------------- Name: Michael D. Gervals Title: Vice President--Portfolio Management [SIGNATURES CONTINUED ON FOLLOWING PAGES] -9- CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP CARDIOVASCULAR VENTURES, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP HEART CENTER OF EAST NEW ORLEANS, L.P. By: Cardiovascular Ventures of East New Orleans, Inc., its General Partner By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP MRI DIAGNOSTIC PARTNERS I, L.P. - 1986 By: Raytel Imaging Holdings, Inc., its General Partner By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP RAYTEL CARDIAC SERVICES, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP [SIGNATURES CONTINUED ON FOLLOWING PAGE] -10- RAYTEL GRANADA HILLS, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP RAYTEL IMAGING HOLDINGS, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP RAYTEL IMAGING NETWORK, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP RAYTEL MEDICAL CORPORATION By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC. By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED PARTNERSHIP By: Raytel Imaging Holdings, Inc., its General Partner By: /s/ John F. Lawler ---------------------------------------- Name: John F. Lawler Title: CFO/VP -11- SCHEDULE 1 SUPPLEMENTAL DISCLOSURES FOR EXHIBITS 5.4, 5.5, 5.11, 5.12 AND 5.16 TO THE LOAN AGREEMENT -12- SCHEDULE 2 LISTED DEFAULTS 1) A breach of Section 7.1(b) of the Loan Agreement will occur upon consummation of the Merger as a result of SHL North America's merger with and into RMC; 2) A breach of Section 7.4(a) of the Loan Agreement will occur upon consummation of the Acquisition Loan and the Acquisition as a result of the Acquisition Loan constituting a loan from an Affiliate which is not engaged in a business substantially related to the business conducted by Borrowers and occurring not in the ordinary course of business; 3) A breach of Section 7.7 of the Loan Agreement will occur upon consummation of the Stock Purchase, as a result of actions meeting the criteria set forth in subparagraphs (a) and (b) in the definition of Change of Control; and 4) A breach of Section 7.10 of the Loan Agreement will occur upon consummation of the Acquisition Loan and the Acquisition, as a result of the Acquisition Loan constituting Debt in excess of $2,000,000.00 which is not expressly permitted under the Loan Agreement. -13- SCHEDULE 3 OTHER LIABILITIES INCURRED IN CONNECTION WITH THE ACQUISITION RMC and Acquisition Co. incurred the following additional obligations and liabilities in connection with the Acquisition: 1) Fees and expenses of the Depositary, Dealer Manager and Information Agent for the Tender Offer (as defined in the tender offer statement relating to the Stock Purchase); 2) Costs of preparing and mailing the tender offer documents and proxy statement to stockholders of RMC; 3) SEC filing fees; 4) The contingent liability to pay a Termination Fee and reimburse Parent for its expenses in certain circumstances (per Section 8.03 of the Merger Agreement); 5) Fees and expenses of counsel to the Lenders in connection with this Consent and Waiver and First Amendment to Loan and Security Agreement and the Subordination Agreement; 6) In December 2001, RMC's Board of Directors approved a bonus of $150,000, payable to Richard F. Bader, Chairman and Chief Executive Officer, conditioned upon the successful conclusion of the Acquisition, and a pool of $200,000 for bonuses to other employees instrumental in the successful conclusion of such Acquisition, such amount to be allocated by Mr. Bader; 7) In connection with the formation of a special committee of RMC's board of directors to consider and review the acquisition proposals RMC received, RMC's board of directors authorized the payment to each member of the special committee of a one-time fee of $35,000, as compensation for the time spent considering, and participating in negotiations and deliberations respecting, business combination proposals received by RMC. The RMC directors who comprise the special committee are Gene I. Miller and Allan Zinberg; 8) The obligation of RMC to take certain actions in support of the tender offer and the Merger (per Section 1.02 of the Merger Agreement); 9) The obligations to facilitate the election of directors designated by Parent under certain circumstances (per Section 1.03 of the Merger Agreement); 10) The obligation to take certain action with respect to RMC's stock options and Employee Stock Purchase Plan (per Section 3.04 of the Merger Agreement); SCHEDULE 3 - CONTINUED -14- 11) The obligation to conduct its operations in the ordinary course of business and to refrain from taking certain specified actions without Parent's prior written consent (per Section 6.01 of the Merger Agreement); 12) The obligation to cause a meeting of its stockholders, if required, for the purpose of approving the Merger (per Section 6.03 of the Merger Agreement); 13) The obligation to provide Parent access to information (per Section 6.04 of the Merger Agreement); 14) The obligation to refrain from soliciting competing acquisition proposals and engaging in related activities (per Section 6.04 of the Merger Agreement); 15) The obligation to use its commercially reasonable best efforts to cause the Merger and the other transactions contemplated by the Merger Agreement to be consummated (per Section 6.06 of the Merger Agreement); 16) As the "Surviving Corporation" in the Merger, to indemnify its current and former directors and officers. (Section 6.07 of the Merger Agreement); and 17) As the Surviving Corporation, to provide certain employee benefits following the Merger (per Section 6.08 of the Merger Agreement). -15- -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.77

                                                                   EXHIBIT 10.77


                     CONSENT AND WAIVER AND FIRST AMENDMENT
                         TO LOAN AND SECURITY AGREEMENT

        This CONSENT AND WAIVER AND FIRST AMENDMENT TO LOAN AND SECURITY
AGREEMENT (this "Agreement") is dated as of April 1, 2002, by and among
CARDIOVASCULAR VENTURES OF EAST NEW ORLEANS, INC., a Louisiana corporation,
CARDIOVASCULAR VENTURES, INC., a Delaware corporation, HEART CENTER OF EAST NEW
ORLEANS, L.P., a Louisiana limited partnership, MRI DIAGNOSTIC PARTNERS I, L.P.
- - 1986, a Pennsylvania limited partnership, RAYTEL CARDIAC SERVICES, INC., a
Delaware corporation, RAYTEL GRANADA HILLS, INC., a Delaware corporation, RAYTEL
IMAGING HOLDINGS, INC., a Delaware corporation, RAYTEL IMAGING NETWORK, INC., a
Delaware corporation, RAYTEL NUCLEAR IMAGING - WEST HOUSTON, INC., a Delaware
corporation, SAN LUIS OBISPO MEDICAL IMAGING CENTER, A CALIFORNIA LIMITED
PARTNERSHIP, a California limited partnership, and RAYTEL MEDICAL CORPORATION, a
Delaware corporation (collectively, "Borrowers"), and HEALTHCARE BUSINESS CREDIT
CORPORATION, a Delaware corporation ("Lender"). Capitalized terms used and not
otherwise defined in this Agreement shall have the meanings ascribed in the Loan
Agreement (as hereinafter defined).

                                   BACKGROUND

        WHEREAS, Borrowers and Lender are party to a certain Loan and Security
Agreement dated November 15, 2001 (as amended, restated, supplemented or
modified from time to time, the "Loan Agreement"); and

        WHEREAS, Raytel Medical Corporation ("RMC"), SHL TeleMedicine Ltd.
("Parent"), and SHL TeleMedicine Acquisition Corp. ("Acquisition Co."), an
indirect wholly-owned subsidiary of Parent, are parties to an Agreement and Plan
of Merger dated as of February 7, 2002 between Parent, Acquisition Co. and RMC
filed with the SEC as of February 19, 2002 (the "Merger Agreement"), pursuant to
which Acquisition Co. has commenced a tender offer to purchase 100% of the
issued and outstanding common stock (the "Stock Purchase") in RMC, pursuant to
the terms of the Offer to Purchase for Cash all Outstanding Shares of Common
Stock (Including the Associated Preferred Stock Purchase Rights) of Raytel
Medical Corporation at $10.25 Net Per Share by Acquisition Co. filed with the
United States Securities and Exchange Commission ("SEC") as of February 22,
2002; and

        WHEREAS, after the Stock Purchase, Acquisition Co. proposes to merge
with and into RMC, with RMC being the surviving entity of such merger (the
"Merger"; and together with the Stock Purchase, the "Acquisition"), pursuant to
the Merger Agreement; and

        WHEREAS, RMC, as the surviving entity of the Merger, will continue to be
liable as a Borrower under the Loan Agreement and otherwise bound by the Loan
Documents in accordance with their respective terms; and


        WHEREAS, in connection with the Stock Purchase, SHL TeleMedicine North
America, Inc. ("SHL North America") proposes to make loans to Acquisition Co. in
the aggregate principal amount of Thirty Million Five Hundred Thousand and
00/100 Dollars ($30,500,000) (collectively, the "Acquisition Loan"), which will
become Debt of RMC upon consummation of the Merger; and

        WHEREAS, in connection with the Acquisition and the Acquisition Loan,
Borrowers have requested that Lender (i) consent to the Merger, the Stock
Purchase and the Acquisition Loan, (ii) waive the Events of Default and
Unmatured Events of Default which will occur as a result of the Merger, the
Stock Purchase and the Acquisition Loan, and (iii) modify certain terms and
conditions of the Loan Agreement; and

        WHEREAS, Lender is willing to (i) consent to the Merger, the Stock
Purchase and the Acquisition Loan, (ii) waive the Events of Default and
Unmatured Events of Default which will occur as a result of the Merger, the
Stock Purchase and the Acquisition Loan, and (iii) modify certain terms and
conditions of the Loan Agreement, all on the terms and conditions hereinafter
set forth.

        NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, agree as follows:

        1. Consent. Subject to the other terms hereof, Lender consents to the
 Merger, the Stock Purchase and the Acquisition Loan; provided, however, that
 such consent shall be revoked and rendered null and void ab initio if the
 conditions set forth in Paragraph 4 below are not satisfied as and within the
 time period specified therein.

        2. Waiver.

               a. Borrowers acknowledge and confirm that upon consummation of
the Acquisition and the Acquisition Loan, Unmatured Events of Default and Events
of Default will occur, as more particularly described in Schedule 2 annexed
hereto (the "Listed Defaults"). Borrowers acknowledge and confirm that absent
the waiver set forth below in this Paragraph 2, upon the consummation of the
Acquisition and the Acquisition Loan, Lender would have the free and
unrestricted right, at any time and from time to time, to exercise any and all
rights available to Lender under the Loan Agreement and the other Loan
Documents.

               b. Subject to the terms hereof, Lender hereby waives each and
every Listed Default; provided, however, that such waiver shall be revoked and
rendered null and void ab initio if the conditions set forth in Paragraph 4
below are not satisfied as and within the time period specified therein.

               c. Borrowers acknowledge that Lender in entering into this
Agreement is relying entirely on descriptions of the financial condition of
Parent and the impact of the proposed transactions on Borrowers, and on
documents relating to the structure and results of the proposed transactions,
which have been provided by Borrowers and Parent (with respect to Parent, such
descriptions are set forth in filings made with the SEC on March 5, 2002), and
agree that the waiver and consent set forth herein shall, therefore, in all
instances be construed narrowly. Lender expressly reserves all rights and
remedies available to it as a result of any



                                      -2-

Unmatured Events of Default or Events of Default which are not Listed Defaults,
and Borrowers acknowledge and agree that if any Event of Default other than a
Listed Default occurs, or if the conditions contained in Paragraph 4 below are
not satisfied as required therein, Lender shall have available to it, and be
able to exercise, all of the rights and remedies accorded to it under the Loan
Agreement and other Loan Documents, to the same extent as Lender would be
entitled if the consent and waiver set forth herein had never been part of this
Agreement.

        3. Amendments to Loan Agreement. From and after the date of consummation
of the Stock Purchase (the "Effective Date"), all references to the Loan
Agreement in the Loan Documents shall mean and refer to the Loan Agreement as
modified as follows:

               a. The definition of "Agreement" set forth in Section 1.1 of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:

                      "AGREEMENT" means this Loan and Security Agreement, as
        same may be hereafter amended, revised, restated, supplemented or
        otherwise modified, including without limitation as amended by the First
        Amendment.

               b. The definition of "Continuing Director" set forth in Section
1.1 of the Loan Agreement is hereby deleted in its entirety and replaced with
the following:

                      "CONTINUING DIRECTOR" means (a) prior to the Effective
        Time (as defined in the Merger Agreement), any member of the board of
        directors of RMC who was a director of RMC on the Closing Date or
        becomes a director as a nominee of Purchaser as defined in and in
        accordance with the Merger Agreement, and (b) after the Effective Time,
        any individual who becomes a member of the board of directors of RMC
        pursuant to the merger of SHL TeleMedicine Acquisition Corp. with and
        into RMC in accordance with the Merger Agreement, and any individual who
        becomes a member of the board of directors of RMC after the Effective
        Time, 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 such Effective
        Time 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.

               c. A new definition is hereby added to Section 1.1 of the Loan
Agreement, such that it appears in proper alphabetical order, as follows:

                      "FIRST AMENDMENT" means the Consent and Waiver and First
        Amendment to Loan and Security Agreement by and among Borrowers and
        Lender, dated as of April 1, 2002.

               d. The definition of "Loan Documents" set forth in Section 1.1 of
the Loan Agreement is hereby deleted in its entirety and replaced with the
following:



                                      -3-

                      "LOAN DOCUMENTS" means this Agreement, the Revolving
        Credit Note, the Imaging Center Security Agreements, the Blocked Account
        Agreements, the agreements relating to the Lockboxes, the Subordination
        Agreement, all financing statements and all other agreements,
        instruments, documents and certificates delivered in connection herewith
        or therewith.

               e. A new definition is hereby added to Section 1.1 of the Loan
Agreement, such that it appears in proper alphabetical order, as follows:

                       "MERGER AGREEMENT" means the Agreement and Plan of Merger
        dated as of February 7, 2002 between SHL TeleMedicine Ltd., SHL
        TeleMedicine Acquisition Corp. and RMC.

               f. A new definition is hereby added to Section 1.1 of the Loan
Agreement, such that it appears in proper alphabetical order, as follows:

                      "SUBORDINATION AGREEMENT" means the Subordination
        Agreement dated as of April 1, 2002 among RMC, Lender, SHL Acquisition
        Corp., and SHL TeleMedicine North America, Inc., as such is amended,
        revised, restated, supplemented or otherwise modified.

               g. Section 2.8 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:

               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 April 1, 2003, 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.

               h. Exhibits 5.4, 5.5, 5.11, 5.12 and 5.16 to the Loan Agreement
are hereby updated as set forth on Schedule 2 annexed hereto.

               i. Section 5.13 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:

               5.13 Compliance with Laws:


                                      -4-

               (a) Except as set forth in the Plea Bargain Agreement, the
        Settlement Agreement or in EXHIBIT 5.13(a) annexed hereto, 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) Except as set forth in EXHIBIT 5.13(b) annexed hereto, 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.

               j. A new exhibit is hereby added to the Loan Agreement and
designated as EXHIBIT 5.13(a) thereto, as set forth on Schedule 4 annexed
hereto.

               k. A new exhibit is hereby added to the Loan Agreement and
designated as EXHIBIT 5.13(b) thereto, as set forth on Schedule 4 annexed
hereto.

               l. Section 7.8 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:

               7.8 Distributions: RMC shall not declare or pay or make any forms
        of Distributions to its shareholders, their successors or assigns,
        except as permitted by Section 4 of the Subordination Agreement and
        after prior written notice to Lender or receipt of Lender's prior
        written consent to such payment, if such prior written notice or prior
        written consent is required by Section 4 of the Subordination Agreement.

        4. Conditions to Consent and Waiver; Separate Covenant to Satisfy
Conditions. As conditions of the consent set forth in Paragraph 1 above and the
waiver set forth in Paragraph 2 above, Borrowers shall satisfy each of the
following conditions on or before the date specified:

               a. On the date hereof, Borrowers shall duly execute and deliver
this Agreement to Lender;

               b. On or before April 8, 2002, Borrowers shall cause to be
delivered to Lender opinions of counsel to Borrowers that, after giving effect
to the Acquisition, the Loan Agreement and the other Loan Documents will
continue to be legal, valid and binding against Borrowers (including without
limitation RMC), enforceable in accordance with their respective



                                      -6-



terms, that this Agreement and the Subordination Agreement are legal, valid and
binding against the Borrowers, enforceable in accordance with their respective
terms, and such other opinions of counsel as Lender may reasonably request, in
form and substance satisfactory to Lender;

               c. On or before April 8, 2002, all instruments, agreements and
documents, together with all amendments and schedules and exhibits thereto,
evidencing, securing or otherwise setting forth terms and conditions of the
Acquisition and the Acquisition Loan (the "Acquisition Documents") shall have
been delivered to Lender, and such Acquisition Documents (i) are true, correct
and complete, and in full force and effect, (ii) are reasonably satisfactory to
Lender in all material respects, and (iii) set forth terms which are
substantially consistent with the terms described to Lender and set forth in any
Acquisition Documents delivered to Lender by Borrowers prior to the date hereof;

               d. On or before the date of the Acquisition Loan, any documents
or instruments relating to the Acquisition Loan shall be in form and substance
satisfactory to Lender and no other obligations or liabilities (whether direct
or indirect) shall be incurred by RMC or Acquisition Co. in connection with the
Acquisition other than (i) the Acquisition Loan, (ii) reasonable investment
banking fees and expenses and reasonable attorneys' fees and expenses of RMC and
Acquisition Co., and (iii) liabilities of RMC for employee retention bonuses,
severance payments and option payments and certain other obligations and
liabilities of RMC and Acquisition Co., all as set forth on Schedule 3 annexed
hereto;

               e. On or before the date of the Acquisition Loan, SHL North
America, Acquisition Co., RMC and Lender shall duly execute and deliver a
subordination agreement in form and substance satisfactory to Lender (the
"Subordination Agreement");

               f. On or before July 1, 2002, Borrowers shall provide such
financial information as Lender may reasonably request regarding Borrowers,
including without limitation budgets, business/operating plans and projections
for the 2002 and 2003 fiscal years; and

               g. As of the date of this Agreement and as of each date through
and including the date on which all of the foregoing conditions in this Section
4 are satisfied, all of the representations and warranties made by Borrowers in
Paragraph 5 below shall be true, complete and accurate.

Borrowers separately covenant to satisfy each of the foregoing conditions on or
before the date specified for each condition, time being of the essence in all
instances.

        5. Borrowers' Representations and Warranties. Borrowers hereby represent
and warrant to Lender as follows:

               a. All of the representations and warranties made by Borrowers in
the Loan Agreement and the other Loan Documents remain true, complete and
accurate as of the date hereof, except to the extent (i) such representations
and warranties were expressly made as of a specified date, or (ii) Exhibits 5.4,
5.5, 5.11, 5.12 and 5.16 to the Loan Agreement are to be updated and new
Exhibits 5.13(a) and 5.13(b) is to be added to the Loan Agreement on the
Effective Date pursuant to Section 3g above.



                                      -6-

               b. No Event of Default and no Unmatured Event of Default exists,
and no event has occurred which with notice or lapse of time or both would
constitute an Unmatured Event of Default or an Event of Default under the Loan
Agreement and other Loan Documents, other than the Listed Defaults identified on
Schedule 2 hereto.

               c. The execution and performance by Borrowers of this Agreement
and the Acquisition Documents have been duly authorized by all necessary
corporate action, will not violate any provision of law applicable to Borrowers
or any provision of their respective charters or by-laws, will not result in a
breach of or constitute a default or require any consent under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of
Borrowers pursuant to any indenture or other agreement or instrument by which
Borrowers or any of their respective properties may be bound or affected, other
than the Listed Defaults identified on Schedule 2 hereto.

               d. This Agreement, the Loan Agreement and the other Loan
Documents constitute, and with respect to the Loan Agreement and the other Loan
Documents will constitute after giving effect to the Acquisition, the legal,
valid and binding agreements of Borrowers, enforceable in accordance with their
respective terms, except as enforceability may be affected by bankruptcy,
insolvency, moratorium or other laws affecting creditors' rights generally.

               e. All Acquisition Documents have been delivered to Lender, and
such Acquisition Documents are true, correct and complete, and in full force and
effect.

               f. Upon consummation of the Merger RMC shall be the surviving
entity and as such surviving entity shall continue to be liable as a Borrower
under the Loan Agreement and otherwise bound by the Loan Documents in accordance
with their respective terms, and no Borrower has, or will have after giving
effect to the Acquisition, any claims, defenses or set-offs to its respective
obligations under the Loan Agreement and other Loan Documents.

        6. Payment of Expenses. Borrowers shall pay any and all fees due and
payable in connection with this Agreement and all costs and expenses (including,
without limitation, attorneys' fees) incurred by Lender in connection with this
Agreement and the Subordination Agreement.

        7. Event of Default. A breach of any covenant, representation or
warranty set forth in this Agreement by Borrowers shall constitute an Event of
Default under the Loan Agreement.

        8. Effect of Agreement. Except as expressly amended and supplemented in
Paragraph 3 above, the Loan Agreement and the other Loan Documents in effect as
of the date hereof shall remain in full force and effect, unmodified, and are
enforceable against Borrowers in accordance with their respective terms.

        9. Further Modifications. This Agreement contains all of the
modifications to the Loan Agreement, and no further or other modifications to
the Loan Agreement shall be effective unless in writing executed by Lender and
Borrowers.



                                      -7-

        10. Binding Effect. This Agreement shall extend to and bind the parties
hereto and their respective successors and assigns.

        11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.

        12. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document. This Agreement shall extend to and bind the parties hereto and their
respective successors and assigns.




                                      -8-

        IN WITNESS WHEREOF, the undersigned parties have executed this Consent
and Waiver Agreement and First Amendment to Loan and Security Agreement as of
the day and year first above written.


                                    HEALTHCARE BUSINESS CREDIT
                                    CORPORATION


                                    By: /s/ Michael D. Gervals
                                        ----------------------------------------
                                        Name: Michael D. Gervals
                                        Title: Vice President--Portfolio
                                               Management



                    [SIGNATURES CONTINUED ON FOLLOWING PAGES]



                                      -9-

                                    CARDIOVASCULAR VENTURES OF EAST
                                    NEW ORLEANS, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    CARDIOVASCULAR VENTURES, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    HEART CENTER OF EAST NEW ORLEANS, L.P.

                                    By:  Cardiovascular Ventures of East New
                                            Orleans, Inc., its General Partner

                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    MRI DIAGNOSTIC PARTNERS I, L.P. - 1986

                                    By:  Raytel Imaging Holdings, Inc.,
                                           its General Partner


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    RAYTEL CARDIAC SERVICES, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP


                    [SIGNATURES CONTINUED ON FOLLOWING PAGE]



                                       -10-

                                    RAYTEL GRANADA HILLS, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP


                                    RAYTEL IMAGING HOLDINGS, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    RAYTEL IMAGING NETWORK, INC.


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    RAYTEL MEDICAL CORPORATION


                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    RAYTEL NUCLEAR IMAGING - WEST
                                            HOUSTON, INC.

                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP

                                    SAN LUIS OBISPO MEDICAL IMAGING
                                            CENTER, A CALIFORNIA LIMITED
                                            PARTNERSHIP

                                    By:  Raytel Imaging Holdings, Inc.,
                                           its General Partner

                                    By: /s/ John F. Lawler
                                        ----------------------------------------
                                        Name: John F. Lawler
                                        Title: CFO/VP



                                      -11-

                                   SCHEDULE 1

       SUPPLEMENTAL DISCLOSURES FOR EXHIBITS 5.4, 5.5, 5.11, 5.12 AND 5.16
                              TO THE LOAN AGREEMENT



                                      -12-

                                   SCHEDULE 2

                                 LISTED DEFAULTS

        1) A breach of Section 7.1(b) of the Loan Agreement will occur upon
consummation of the Merger as a result of SHL North America's merger with and
into RMC;

        2) A breach of Section 7.4(a) of the Loan Agreement will occur upon
consummation of the Acquisition Loan and the Acquisition as a result of the
Acquisition Loan constituting a loan from an Affiliate which is not engaged in a
business substantially related to the business conducted by Borrowers and
occurring not in the ordinary course of business;

        3) A breach of Section 7.7 of the Loan Agreement will occur upon
consummation of the Stock Purchase, as a result of actions meeting the criteria
set forth in subparagraphs (a) and (b) in the definition of Change of Control;
and

        4) A breach of Section 7.10 of the Loan Agreement will occur upon
consummation of the Acquisition Loan and the Acquisition, as a result of the
Acquisition Loan constituting Debt in excess of $2,000,000.00 which is not
expressly permitted under the Loan Agreement.




                                      -13-

                                   SCHEDULE 3

          OTHER LIABILITIES INCURRED IN CONNECTION WITH THE ACQUISITION

        RMC and Acquisition Co. incurred the following additional obligations
and liabilities in connection with the Acquisition:

        1) Fees and expenses of the Depositary, Dealer Manager and Information
Agent for the Tender Offer (as defined in the tender offer statement relating to
the Stock Purchase);

        2) Costs of preparing and mailing the tender offer documents and proxy
statement to stockholders of RMC;

        3) SEC filing fees;

        4) The contingent liability to pay a Termination Fee and reimburse
Parent for its expenses in certain circumstances (per Section 8.03 of the Merger
Agreement);

        5) Fees and expenses of counsel to the Lenders in connection with this
Consent and Waiver and First Amendment to Loan and Security Agreement and the
Subordination Agreement;

        6) In December 2001, RMC's Board of Directors approved a bonus of
$150,000, payable to Richard F. Bader, Chairman and Chief Executive Officer,
conditioned upon the successful conclusion of the Acquisition, and a pool of
$200,000 for bonuses to other employees instrumental in the successful
conclusion of such Acquisition, such amount to be allocated by Mr. Bader;

        7) In connection with the formation of a special committee of RMC's
board of directors to consider and review the acquisition proposals RMC
received, RMC's board of directors authorized the payment to each member of the
special committee of a one-time fee of $35,000, as compensation for the time
spent considering, and participating in negotiations and deliberations
respecting, business combination proposals received by RMC. The RMC directors
who comprise the special committee are Gene I. Miller and Allan Zinberg;

        8) The obligation of RMC to take certain actions in support of the
tender offer and the Merger (per Section 1.02 of the Merger Agreement);

        9) The obligations to facilitate the election of directors designated by
Parent under certain circumstances (per Section 1.03 of the Merger Agreement);

        10) The obligation to take certain action with respect to RMC's stock
options and Employee Stock Purchase Plan (per Section 3.04 of the Merger
Agreement);



                             SCHEDULE 3 - CONTINUED


                                      -14-


        11) The obligation to conduct its operations in the ordinary course of
business and to refrain from taking certain specified actions without Parent's
prior written consent (per Section 6.01 of the Merger Agreement);

        12) The obligation to cause a meeting of its stockholders, if required,
for the purpose of approving the Merger (per Section 6.03 of the Merger
Agreement);

        13) The obligation to provide Parent access to information (per Section
6.04 of the Merger Agreement);

        14) The obligation to refrain from soliciting competing acquisition
proposals and engaging in related activities (per Section 6.04 of the Merger
Agreement);

        15) The obligation to use its commercially reasonable best efforts to
cause the Merger and the other transactions contemplated by the Merger Agreement
to be consummated (per Section 6.06 of the Merger Agreement);

        16) As the "Surviving Corporation" in the Merger, to indemnify its
current and former directors and officers. (Section 6.07 of the Merger
Agreement); and

        17) As the Surviving Corporation, to provide certain employee benefits
following the Merger (per Section 6.08 of the Merger Agreement).



                                      -15-