-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JB3Ajh8QPsmjRWTvL5PnRosf6bk0naRtiEkh75VAYs5nKygFavJqzKe7okbqy1fc rDYkqWCwfAFF5p3CEUUtBg== 0000912057-02-009637.txt : 20020415 0000912057-02-009637.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-009637 CONFORMED SUBMISSION TYPE: SC 14D9/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20020312 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 14D9/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-44873 FILM NUMBER: 02573645 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DR STREET 2: STE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 6503490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 14D9/A BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DR STREET 2: STE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 6503490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 SC 14D9/A 1 a2073036zsc14d9a.txt 14D9/A As filed with the Securities and Exchange Commission on March 12, 2002 --------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------------------- SCHEDULE 14D-9 AMENDMENT No. 2 (Rule 14D-101) SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 RAYTEL MEDICAL CORPORATION (Name of Subject Company) RAYTEL MEDICAL CORPORATION (Name of Person Filing Statement) COMMON STOCK, $0.001 PAR VALUE (Title of Class of Securities) 755107109 (CUSIP Number of Class of Securities) ------------------------------------ Richard F. Bader Chairman of the Board of Directors and Chief Executive Officer Raytel Medical Corporation 2755 Campus Drive, Suite 200 San Mateo, CA 94403 (Name, Address and Telephone Number of Person Authorized to receive Notice and Communications on Behalf of the Person Filing Statement) ---------------------------------------- WITH COPIES TO: Dennis C. Sullivan, Esq. Paul A. Blumenstein, Esq. Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, CA 94301 (650) 833-2243 [ ] Check this box if the filing relates solely to preliminary communications made before the commencement of a tender offer. --------------------------------------------------------------------------- 1 This Amendment No. 2 amends and supplements the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") initially filed with the Securities and Exchange Commission on February 22, 2002 by Raytel Medical Corporation, a Delaware corporation ("Raytel"), as amended, relating to the tender offer by SHL TeleMedicine Acquisition Corp., a Delaware corporation and an indirect wholly-owned subsidiary of SHL TeleMedicine Ltd., an Israeli corporation ("SHL"), to purchase all of the issued and outstanding shares of Raytel's common stock par value $.001 per share (the "Shares"), at a purchase price of $10.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated February 22, 2002 and in the related Letter of Transmittal, copies of which were previously filed as Exhibits (a)(1) and (a)(3) to the Schedule 14D-9. ITEM 4. THE SOLICITATION OR RECOMMENDATION The following paragraphs under the heading "Item 4. The Solicitation or Recommendation - Background of the Offer; Contacts with SHL" are hereby amended and restated. The seventh paragraph on page 10 of the Schedule 14D-9 is hereby amended and restated to read as follows: On November 6, 2001, Rory Riggs of Balfour, LLC ("Balfour") contacted Houlihan Lokey to express Balfour's interest in the sale process. Balfour is our largest stockholder, currently owning approximately 11.7% of the outstanding shares of our common stock. On November 6, 2001, Houlihan Lokey sent a confidentiality agreement to Balfour for execution. That confidentiality agreement was not executed and returned. Balfour subsequently executed a confidentiality agreement on December 20, 2001, after it had joined with RT to submit a non-binding proposal on December 17, 2001. The third paragraph on page 12 of the Schedule 14D-9 is hereby amended and restated to read as follows: On December 17, 2001, Houlihan Lokey received a letter from RT in which RT proposed an offer of $7.50 to $9.50 which was joined in by Balfour. The letter stated that Balfour was acting in concert with RT for the sole purpose of assisting RT in evaluating, preparing, negotiating and financing the proposed transaction. The revised bid was conditioned on payment by Raytel of $225,000 of RT's out-of-pocket expenses in connection with conducting due diligence and negotiating a definitive agreement in addition to the $75,000 previously agreed to be paid by the special committee and authorizing that $50,000 of the expenses previously agreed to be paid to the financial advisor to RT instead be paid to the financial advisor to Balfour. The proposal acknowledged that Balfour had not agreed to be bound by a confidentiality 2 agreement and that, if the RT/Balfour proposal were accepted and we entered into an exclusivity agreement with the RT/Balfour group, Balfour would be prepared to negotiate an acceptable form of confidentiality agreement. On December 18, 2001, Messrs. Bader and Henry and RT filed Amendment No. 1 to their Schedule 13D, and were joined in such filing by Balfour and Rory Riggs, individually. Attached to the amendment was the December 17 letter addressed to Houlihan Lokey. The fifth paragraph on page 12 of the Schedule 14D-9 is hereby amended and restated to read as follows: By the close of business on December 17, 2001, the special committee had received three proposals to acquire all of our outstanding common stock: the joint proposal from RT and Balfour, the proposal from SHL and a joint proposal by a strategic buyer and financial buyer. In addition, the strategic buyer also made an alternate proposal to acquire only the business assets of our subsidiary, Raytel Cardiac Services, Inc. The joint proposal by the strategic buyer and financial buyer to acquire all of our outstanding stock was at a price per share below the SHL proposal (and below the price of $10.25 per share to be paid in the Offer) and was subject to due diligence conditions and regulatory approval. Each of the proposals contained a condition that the special committee negotiate exclusively with the bidder. At a meeting of the special committee held on December 18, 2001, Houlihan Lokey presented a comparative analysis of the proposals. At the conclusion of the meeting, the special committee instructed Houlihan Lokey to provide additional information to the bidders and to solicit final and best proposals from each bidder by December 21, 2001. The sixth paragraph on page 12 of the Schedule 14D-9 is hereby amended and restated to read as follows: On December 19, 2001, representatives of Houlihan Lokey spoke by telephone conference with CIBC World Markets to discuss SHL's December 17, 2001 proposal letter. Also on December 19, 2001, counsel for the special committee and counsel for Balfour conferred with respect to the special committee's requirement for a confidentiality agreement before information would be provided directly to Balfour. On December 20, 2001, Balfour executed a confidentiality agreement and delivered it to counsel for the special committee. On December 21, 2001, counsel for the special committee notified Houlihan Lokey of receipt of the confidentiality agreement. The seventh paragraph on page 12 of the Schedule 14D-9 is hereby amended and restated to read as follows: On December 20, 2001, Houlihan Lokey provided to each bidder other than RT/Balfour our updated budget for 2002. The management member of the RT/Balfour group had direct access to the budget material in his capacity as our chief executive officer. The updated budget material was also sent to Balfour by Federal Express on December 21, 2001, when Houlihan Lokey was 3 advised that Balfour had executed a confidentiality agreement, although Balfour advised the special committee in March 2002 that the materials were not received by it until December 27, 2001. The eighth paragraph on page 12 of the Schedule 14D-9 is hereby amended and restated to read as follows: On December 20, 2001, each bidder was requested by representatives of Houlihan Lokey to submit a revised non-binding proposal by December 21, 2001 that was responsive to certain questions and comments made by Houlihan Lokey in respect of the bidder's earlier proposal. The first full paragraph on page 13 of the Schedule 14D-9 is hereby amended and restated to read as follows: In a letter dated December 21, 2001, Balfour claimed that the special committee had breached its fiduciary duties by not permitting Balfour additional time to make its bid, thus not taking adequate steps to maximize stockholder value, and requested an extension of the bid deadline until after the Christmas holidays. In that letter, Balfour reconfirmed the RT/Balfour bid of December 17, 2001. The second full paragraph on page 13 of the Schedule 14D-9 is hereby amended and restated to read as follows: On December 21, 2001, a meeting of the special committee was held for the purpose of evaluating the updated bids. A second meeting was held on December 22, 2001 to continue the evaluation. Houlihan Lokey presented a comparative analysis of the bids and discussed the bids in detail with the special committee. At the conclusion of those discussions, the special committee determined that it should enter into exclusive discussions with SHL, a condition precedent to SHL's willingness to proceed. This determination was based on a consideration of SHL's proposed purchase price of $11.50 per share (or $11.00 if its due diligence investigation did not support certain assumptions), which represented a substantial premium over the next highest bid, as well as a consideration of the terms, conditions and contingencies of the bid, SHL's proposed timeline for due diligence and negotiation, and an assessment of the likelihood that the proposed transaction would be successfully completed. The special committee also evaluated Balfour's claim and its request for an extension of the bid deadline. The special committee also noted that the SHL bid would expire on December 27, 2001, two business days later, and that negotiation of an exclusivity agreement would be required in order to meet that deadline. The special committee concluded that it would not be in the best interests of our stockholders to delay the bidding process due to its concern that the SHL bid would be lost if the process was revised based upon the request of the RT/Balfour bidder. 4 ITEM 8. ADDITIONAL INFORMATION Item 8 of the Schedule 14D-9 is hereby amended and supplemented by adding the following text to the end thereof: BALFOUR LLC CLAIM As described above in "Item 4. - Background of the Offer; Contacts with SHL," the special committee and our board of directors have received several letters from Balfour LLC, a member of one of the bidding groups, and its counsel, in which Balfour contended that members of the special committee and the board of directors breached their fiduciary duties in connection with the process that was employed to seek and evaluate proposals for the acquisition of Raytel. As more fully discussed in "Item 4. - Reasons for the Recommendation of our Board of Directors," the special committee considered these claims and believes that it has followed a fair process designed to maximize stockholder value. Counsel for the special committee received an additional letter dated March 6, 2002 from counsel for Balfour, a copy of which is attached hereto as Exhibit (a)(5). Counsel for the special committee responded to the letter on March 8, 2002. A copy of the response is attached hereto as Exhibit (a)(6). In addition, this Amendment to the Schedule 14D-9 contains several revisions to the disclosure made under "Item 4. - Background of the Offer; Contacts with SHL" to provide additional information relating to some of the contacts between the representatives of the special committee and Balfour. ITEM 9. EXHIBITS Item 9 of the Schedule 14D-9 is hereby amended and supplemented by the addition of the following exhibits:
Exhibit Number Title - -------------- ----- (a)(5) Letter dated March 6, 2002 from counsel for Balfour. (a)(6) Letter dated March 8, 2002 from counsel for the special committee.
5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, compete and correct. RAYTEL MEDICAL CORPORATION Dated: March 12, 2002 By: /s/ Richard F. Bader ---------------------------------- Richard F. Bader Chairman of the Board of Directors and Chief Executive Officers 6 INDEX TO EXHIBITS
Exhibit Number Title - -------------- ----- (a)(5) Letter dated March 6, 2002 from counsel for Balfour. (a)(6) Letter dated March 8, 2002 from counsel for the special committee.
7 EX-99.(A)(5) 3 a2073036zex-99_a5.txt LETTER DD MARCH 6, 2002 FROM COUNSEL FOR BALFOUR Exhibit (a)(5) [Letterhead of Prior Cashman Sherman & Flynn LLP] March 6, 2002 Lawrence M. Braun, Esq. Sheppard Mullin Richter & Hampton LLP Attorney's to the Special Committee 333 South Hope Street Los Angeles, CA 90071 Dear Mr. Braun: This firm represents Balfour LLC ("Balfour") in connection with Balfour's efforts to acquire Raytel Medical Corporation ("Raytel"). We have reviewed the Form 14D-9 filed by Raytel in connection with the merger agreement executed by Raytel with SHL Telemedicine Ltd. ("SHL"). The Form 14D-9 makes false statements of fact, specifically with respect to its statements with respect to Balfour's actions, and is materially misleading. Given conversations and correspondence with your firm, the statements as to Balfour were clearly made knowingly. I am perplexed as to why the Form 14D-9 would so misrepresent Balfour's attempts to be part of the process if Raytel is in fact comfortable with its statements that the Special Committee ran a full and complete process to ensure fair value for Raytel's shareholders. In addition, I do not understand the motive of singling out Balfour to be the subject of misrepresentations and not similarly treating the other two bidders. The Form 14D-9 states, "On November 6, 2001, Houlihan Lokey sent a confidentiality agreement to Balfour for execution. We are not aware of any efforts by Balfour to return the confidentiality agreement or attempt to negotiate its terms." This statement is false. Balfour received the confidentiality agreement and negotiated the confidentiality agreement. In this regard lawyers of this firm negotiated the agreement with your firm (Attys. Dorf and Kaye). The agreement was executed by Balfour on December 20,2001. My letter telecopied to your colleague Gregory Miller, dated December 21, 2001, states, "Balfour has executed the standstill agreement as negotiated between this firm and counsel for the special committee." Your e-mail to me dated December 21, 2001 explicitly acknowledges that a confidentiality agreement was executed and delivered by Balfour to Raytel. Houlihan Lokey and the Board knew that Balfour's involvement was subject to the Board's waiver of the Rights Agreement dated as of August 14, 1998 and certain Delaware Statutes, which waiver would enable Balfour to work with management without triggering these provisions. Through management, in early November, Balfour requested the required permission from the Board of Raytel. The Board granted this waiver on December 5, 2001. Since the granting of this waiver, Balfour has worked actively and continuously to attempt to be part of an active bidding process. Page 1 The Form 14D-9 states, "In a telephone conversation on December 14, 2001, Rory Riggs, the principal of Balfour, advised Houlihan Lokey that Balfour was no longer interested in acquiring our company." This statement is false. The actions of the parties demonstrate that continuing efforts were being made at that time by Balfour with respect to the bid process. On Friday, December 14, 2001 attorneys of this firm participated in a joint conference call with Balfour and management to complete the offer letter submitted Monday, December 17, and the resulting 13D disclosure. During this week, subject to the specific waiver from the Board for Balfour to work with management, Balfour actively worked with management to finalize the terms of the initial management bid. In addition, on December 17 and December 19, 2001, attorneys of this firm negotiated with attorneys of your firm with respect to the standstill agreement. In addition my continuing correspondence and telephone calls with you made abundantly clear Balfour's desire to participate in a fair bidding process. The Form 14D-9 states, "On December 20, 2001, Houlihan Lokey provided to each bidder our updated budget for 2002." This statement is false. The management-Balfour bid letter instructed Houlihan Lokey to deal with Balfour. My letter telecopied to your colleague Gregory Miller, dated December 21, 2001, states, "Balfour has executed the standstill agreement. . .Nonetheless, Balfour has not received the information requested by Balfour, which you have delivered to other parties." My letter telecopied to you dated December 21, 2001, states that a request for updated bids had been received by Balfour, but that Balfour had not received information. Houlihan Lokey sent information to Balfour by Federal Express (voucher dated December 21, 2001, tracking number 814648168373), sending the package on December 21, 2001 (the Friday before the Christmas holiday) with no notification to Balfour. The package was actually received by Balfour on December 27, 2001, at 9:36 a.m. The Special Committee and Houlihan Lokey have delayed and obstructed the bidding process. Houlihan Lokey at one stage in December refused to give Balfour data, after acknowledging receipt of the confidentiality agreement. Balfour called Houlihan Lokey several times after receiving the information package on December 27, 2001, to review the bidding process and the information delivered. To this date, none of these calls has ever been returned. Despite the many communications with the special committee and its counsel indicating Balfour's desire to be part of the bidding process based on the new information received, Balfour was never allowed to participate, despite the fact the Board allowed SHL to lower its bid from $11.50 to $10.25, only $0.75 higher than Balfour's initial bid. Balfour was the equity behind the management group's bid. Balfour's unequivocal belief is that Houlihan Lokey conducted a process in which there was no chance of Balfour to bid fairly for Raytel. Quite the contrary, as the evidence clearly shows, there was an active attempt to ensure that the Balfour group was not allowed to enter the process. As is clear from the above, there are explicit misstatements of fact in the 14D-9 with respect to Balfour's involvement in the bidding process. These misstatements are materially misleading. In addition, these misstatements have damaged, and will continue to damage, Balfour's reputation. I ask that a retraction be made and a proper statement of the facts be filed. Page 2 I ask that you distribute this letter to the Board of Directors of Raytel and its counsel. I ask that any response be made by the close of business on March 8, 2002. All of Balfour's rights and remedies are hereby reserved. Very truly yours, /s/ Lawrence Remmel ------------------- Lawrence Remmel cc: Balfour LLC Page 3 EX-99.(A)(6) 4 a2073036zex-99_a6.txt LTR DD MAR 8, 2002 FROM COUNSEL FOR THE SP COMM. Exhibit (a)(6) [Letterhead of Sheppard, Mullin, Richter & Hampton LLP] Writer's Direct Line Our File Number (213) 617-4184 2X5-83904 lbraun@sheppardmullin.com March 8, 2002 Lawrence Remmel, Esquire Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Dear Mr. Remmel: In response to your letter of March 6, please be advised that we believe the statements contained in the Schedule 14D-9 are not false or misleading in any material respect. Taking the points in order: YOUR STATEMENT: "The Form 14D-9 states, On November 6, 2001, Houlihan Lokey sent a confidentiality agreement to Balfour for execution. We are not aware of any efforts by Balfour to return the confidentiality agreement or attempt to negotiate its terms. This statement is false. Balfour received the confidentiality agreement and negotiated the confidentiality agreement. In this regard lawyers of this firm negotiated the agreement with your firm (Attys. Dorf and Kaye). The agreement was executed by Balfour on December 20, 2001. My letter telecopied to your colleague Gregory Miller, dated December 21, 2001, states "Balfour has executed the standstill agreement as negotiated between this firm and counsel for the special committee." Your e-mail to me dated December 21, 2001 explicitly acknowledges that a confidentiality agreement was executed and delivered by Balfour to Raytel." RESPONSE: The reference to Balfour on November 6 relates to an inquiry by Rory Riggs of Balfour expressing interest in the process in his capacity as a shareholder of the Company. Riggs was advised that he would need to sign a confidentiality agreement to get more information about the process. At his request, a draft confidentiality agreement was sent. There was no response to Lawrence Remmel, Esquire March 8, 2002 Page 2 that draft and it was not executed. At that time, neither Houlihan Lokey nor the Special Committee knew that Balfour would announce on December 17, 2001, that it had joined in the proposal dated December 17, 2001 made to the Special Committee by RT acting in concert with Balfour. That proposal states: "Balfour LLC is acting in concert with RTA for the sole purpose of assisting RTA in evaluating, preparing, negotiating and financing the transaction proposed herein. As of the date hereof, Balfour has not agreed to be bound by a Confidentiality Agreement to which RTA is a party, and accordingly Balfour LLC has not been provided with "Evaluation Material" (as defined in such Confidentiality Agreement) regarding the Company. Upon the acceptance by the Company of this proposal and the entry by the Company into an exclusivity agreement with the Offer Group as provided herein, Balfour LLC would be prepared to negotiate an acceptable form of confidentiality agreement with the Company and thereafter to commence due diligence as contemplated above." Balfour itself was never a bidder individually and acknowledged in participating in the RT bid that it was only prepared to sign a Confidentiality Agreement if the RTA bid was accepted. Balfour was advised by counsel for the Special Committee subsequent to receipt of the December 17, 2001 proposal that if Balfour wanted to directly review confidential information being sent out by Houlihan Lokey it would need to sign a confidentiality agreement. Counsel for Balfour marked up a copy of the RT confidentiality agreement, and discussed the revisions with counsel for the Special Committee on December 19, 2001. Mr. Dorf, to whom you refer, is counsel for RT and not the Special Committee. Balfour signed the marked up form of agreement and it was sent to counsel for the Special Committee on December 20, 2001. YOUR STATEMENT: "Houlihan Lokey and the Board knew that Balfour's involvement was subject to the Board's waiver of the Rights Agreement dated as of August 14, 1998 and certain Delaware Statutes, which waiver would enable Balfour to work with management without triggering these provisions. Through management, in early November, Balfour requested the required permission from the Board of Raytel. The Board granted this waiver on December 5, 2001. Since the granting of Lawrence Remmel, Esquire March 8, 2002 Page 3 this waiver, Balfour has worked actively and continuously to attempt to be part of an active bidding process." RESPONSE: The request for waiver of the rights agreement was negotiated with counsel for RT on the basis that they could "enter into agreements, arrangements or understandings with existing shareholders of the Company to secure equity or debt participants in Acquiror [RT] for the sole purpose of assisting Acquiror in evaluating, preparing, negotiating and financing a transaction." You note that Balfour worked actively and consistently to attempt to be a part of the active bidding process. The Special Committee received no notice between December 5, 2001 and December 17, 2001 that Balfour sought to deal directly with the Special Committee or to execute a confidentiality agreement. Until December 17, 2001, the Special Committee did not know whether or on what basis Balfour would join in the RT proposal. YOUR STATEMENT: "The Form 14D-9 states, "In a telephone conversation on December 14, 2001, Rory Riggs, the principal of Balfour, advised Houlihan Lokey that Balfour was no longer interested in acquiring our company." This statement is false. The actions of the parties demonstrate that continuing efforts were being made at that time by Balfour with respect to the bid process. On Friday, December 14, 2001 attorneys of this firm participated in a joint conference call with Balfour and management to complete the offer letter submitted Monday, December 17, and the resulting 13D disclosure. During this week, subject to the specific waiver from the Board for Balfour to work with management, Balfour actively worked with management to finalize the terms of the initial management bid. In addition, on December 17 and December 19, 2001, attorneys of this firm negotiated with attorneys of your firm with respect to the standstill agreement. In addition my continuing correspondence and telephone calls with you made abundantly clear Balfour's desire to participate in a fair bidding process." RESPONSE: Houlihan Lokey stands by the statement that it was advised on December 14, 2001 by Rory Riggs that he was not participating in the bidding process. On December 17, the Special Committee received the RT proposal in which Balfour joined. The fact that Balfour worked with management to finalize a bid did not involve the Special Committee. Balfour elected to participate in the RT bid expressly acknowledging that it separately had not signed a Confidentiality Agreement and would negotiate such an agreement only if the RT/Balfour bid was Lawrence Remmel, Esquire March 8, 2002 Page 4 accepted. The Special Committee was not advised that Balfour intended to file a bid on its own. YOUR STATEMENT: "The Form 14D-9 states, "On December 20, 2001, Houlihan Lokey provided to each bidder our updated budget for 2002." This statement is false. The management-Balfour bid letter instructed Houlihan Lokey to deal with Balfour. My letter telecopied to your colleague Gregory Miller, dated December 21, 2001, states, "Balfour has executed the standstill agreement . . .. Nonetheless, Balfour has not received the information requested by Balfour, which you have delivered to other parties." My letter telecopied to you dated December 21, 2001, states that a request for updated bids had been received by Balfour, but that Balfour had not received information. Houlihan Lokey sent information to Balfour by Federal Express (voucher dated December 21, 2001, tracking number 814648168373), sending the package on December 21, 2001 (the Friday before the Christmas holiday) with no notification to Balfour. The package was actually received by Balfour on December 27, 2001, at 9:36 am." RESPONSE: Late on December 20, 2001, counsel for Balfour forwarded a fax of the signed confidentiality agreement to counsel for the Special Committee. On the next day, supplemental material was Federal Expressed to Balfour by Houlihan Lokey. All of the information in the supplement package was known to Mr. Bader and the RT Group. By Balfour's own statement, it had joined this group "for the sole purpose of assisting RTA in evaluating, preparing, negotiating and financing a transaction." RT was formed by the Chief Executive Officer of Raytel and a former director. The group of which Balfour was a part had full access to information about the Company. YOUR STATEMENT: "The Special Committee and Houlihan Lokey have delayed and obstructed the bidding process. Houlihan Lokey at one stage in December refused to give Balfour data, after acknowledging receipt of the confidentiality agreement. Balfour called Houlihan Lokey several times after receiving the information package on December 27, 2001, to review the bidding process and the information delivered. To this date, none of these calls has ever been returned." RESPONSE: Houlihan Lokey sent the package to Balfour the day it received notice that Balfour had signed a Confidentiality Agreement. The information forwarded was already in the possession of RT, the group Balfour joined. On December 27, Lawrence Remmel, Esquire March 8, 2002 Page 5 2001, the Special Committee was in the process of finalizing the exclusivity agreement with SHL which was signed on December 28, 2001. That agreement precluded further provision of information to other bidders during its term. YOUR STATEMENT: "Despite the many communications with the special committee and its counsel indicating Balfour's desire to be part of the bidding process based on the new information received, Balfour was never allowed to participate, despite the fact the Board allowed SHL to lower its bid from $11.50 to $10.25, only $0.75 higher than Balfour's initial bid." RESPONSE: The facts contradict your argument. On December 21, 2001, counsel for Balfour advised counsel for the Special Committee that "Balfour reaffirms its existing bid." The Special Committee believed that the bid referred to was the RT bid, with whom Balfour LLC was acting in concert, dated December 17, 2001. The range of that bid was $7.50 - $9.50. Balfour never made a bid on its own. YOUR STATEMENT: "Balfour was the equity behind the management group's bid. Balfour's unequivocal belief is that Houlihan Lokey conducted a process in which there was no chance of Balfour to bid fairly for Raytel. Quite the contrary, as the evidence clearly shows, there was an active attempt to ensure that the Balfour group was not allowed to enter the process." RESPONSE: The consent given to RT on December 6, 2001 with respect to entering into an agreement with existing shareholders was for the sole purpose of assisting RT to evaluate, prepare, negotiate and finance a transaction. The RT Group, of which Balfour elected to become a participant, was not only actively involved in the process but instigated the entire process by announcing their original proposal to arrange a management buyout of the Company. Your letter implies that Balfour sought separate rights to participate as a bidder even though Balfour in its own right never submitted a bid, expressed its intention not to submit a bid, and participated in management's bid. The bid in which Balfour participated and which Balfour reaffirmed on December 21, 2001, was not the high bid and was conditioned on (i) the Special Committee first agreeing to pay $300,000 of RT's expenses, (ii) exclusivity and (iii) a due diligence period until January 31, 2002. Only if the proposal was accepted would Balfour negotiate with respect to the execution of a confidentiality agreement. The bid Lawrence Remmel, Esquire March 8, 2002 Page 6 submitted on December 17, 2001, acknowledged that Balfour had not been provided the Evaluation Material. For these reasons, we do not believe that the disclosure in the 14D-9 is false or misleading in any material way. However, in order to respond to SEC comments, we propose to amend Item 4 of the Schedule 14D-9 on Monday, March 11, 2002. We will include in such amendment clarifications indicated by our responses above and will provide you with copies as filed. Very truly yours, /s/ Lawrence M. Braun --------------------- Lawrence M. Braun for SHEPPARD, MULLIN, RICHTER & HAMPTON LLP -----END PRIVACY-ENHANCED MESSAGE-----